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

FORM 10-QSB

|           |  |                                                                                                                                     
|---------- |  | ------------------------------------------------------------------------------------------------------------------------------------
|(Mark One)
|X          |  | Quarterly report
pursuant to Section 13 or 15(d) of the Securities Exchange act
of 1934
For the quarterly period ended July 31, 2002
|          
|           |  | OR                                                                                                                                  
|          
|           |  | Transition
report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from  to         
|          

Commission file number 33-5820-LA

|                                                                 
|-----------------------------------------------------------------
|SETO
HOLDINGS, INC.                                              
|(Formerly Semicon Tools, Inc.)                                   
|(Exact name of small business issuer as specified in its charter)

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

|                                                                                   
|-----------------------------------------------------------------------------------
|                                                                                   
|554 North State Road, Briarcliff Manor, New York, 10510                            
|(Address of principal executive offices)                                           
|                                                                                   
|(914)-923-5000                                                                     
|(Registrants telephone number, including area code)                               
|                                                                                   
|N/A                                                                                
|(Former name, former address, and former fiscal year, if changed since last report)

Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes  X 
No

Shares outstanding of Registrants common stock:

|                             |  |                             
|---------------------------- |  | ----------------------------
|Class                        |  | Outstanding at July 31, 2002
|Common stock $.001 par Value |  | 14,484,700                  





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|                                                                                               |                                                                  |  |  |  |  |  |  | 
|---------------------------------------------------------------------------------------------- | ---------------------------------------------------------------- |  |  |  |  |  |  | 
|                                                                                               | CONSOLIDATED CONDENSED BALANCE SHEET  JULY 31, 2002            
|                                                                                               | CONSOLIDATED CONDENSED STATEMENTS OF INCOME                     
|                                                                                               | CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS                  
|                                                                                               | NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
|Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations
|SIGNATURES                                                                                    
|CERTIFICATION                                                                                 



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INDEX

|           |  |                                                                                                      |  |            
|---------- |  | ---------------------------------------------------------------------------------------------------- |  | -----------
|Part I     |  | Financial Information                                                                                |  |            
|           |  |                                                                                                      |  |            
|Item 1.    |  | Consolidated Condensed Financial Statements:                                                         |  |            
|           |  |                                                                                                      |  |            
|           |  | Consolidated Condensed Balance Sheet as of July 31, 2002                                             |  | F-2        
|           |  |                                                                                                      |  |            
|           |  | Consolidated Condensed Statement of Income for the six and three months
ended July 31, 2002 and 2001 |  | F-3        
|           |  |                                                                                                      |  |            
|           |  | Consolidated Condensed Statement of Cash Flows for the six months ended
July 31, 2000 and 2001       |  | F-4        
|           |  |                                                                                                      |  |            
|           |  | Notes to Financial Statements                                                                        |  | F-5 - F-9  
|           |  |                                                                                                      |  |            
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition                                          |  | F-10 - F-14
|           |  |                                                                                                      |  |            
|Part II    |  | Other Information                                                                                    |  |            
|           |  |                                                                                                      |  |            
|Signatures |  |                                                                                                      |  |            





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SETO HOLDINGS, INC. AND SUBSIDIARIES




CONSOLIDATED CONDENSED BALANCE SHEET  JULY 31, 2002(UNAUDITED)

ASSETS

|                                                                                             |  |   |           |   | 
|-------------------------------------------------------------------------------------------- |  | - | --------- | - | 
|CURRENT ASSETS                                                                               |  |   |           |  
|Cash                                                                                         |  | $ | 322,510   |  
|Accounts receivable, less allowance
for doubtful accounts of $20,000                         |  |   | 1,218,462 |  
|Note receivable                                                                              |  |   | 290,547   |  
|Inventory                                                                                    |  |   | 1,002,240 |  
|Prepaid expenses and other current assets                                                    |  |   | 23,932    |  
|Deferred tax asset, current portion                                                          |  |   | 170,000   |  
|                                                                                             |  |   |           |  
|TOTAL CURRENT ASSETS                                                                         |  |   | 3,027,691 |  
|                                                                                             |  |   |           |  
|PROPERTY, PLANT AND EQUIPMENT, NET OF DEPRECIATION                                           |  |   | 736,965   |  
|                                                                                             |  |   |           |  
|OTHER ASSETS                                                                                 |  |   |           |  
|Goodwill, net of amortization                                                                |  |   | 752,996   |  
|Security deposits and other assets                                                           |  |   | 90,974    |  
|Deferred tax asset, net of current portion                                                   |  |   | 330,000   |  
|                                                                                             |  |   |           |  
|                                                                                             |  |   | 1,173,970 |  
|                                                                                             |  |   |           |  
|TOTAL ASSETS                                                                                 |  | $ | 4,938,626 |  
|                                                                                             |  |   |           |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                        
|CURRENT LIABILITIES                                                                          |  |   |           |  
|Current portion of long-term debt                                                            |  | $ | 27,392    |  
|Notes payable                                                                                |  |   | 980,944   |  
|Accounts payable                                                                             |  |   | 77,418    |  
|Accrued expenses                                                                             |  |   | 88,081    |  
|                                                                                             |  |   |           |  
|TOTAL CURRENT LIABILITIES                                                                    |  |   | 1,173,835 |  
|                                                                                             |  |   |           |  
|OTHER LIABILITIES                                                                            |  |   |           |  
|Deferred lease liability                                                                     |  |   | 25,500    |  
|Long-term debt, net of current portion                                                       |  |   | 31,150    |  
|Net liabilities of discontinued operations, less assets to be disposed of                    |  |   | 90,400    |  
|                                                                                             |  |   |           |  
|TOTAL OTHER LIABILITIES                                                                      |  |   | 147,050   |  
|                                                                                             |  |   |           |  
|SHAREHOLDERS EQUITY                                                                         |  |   |           |  
|Common
stock par value $.001; 100,000,000
       shares authorized; 14,783,400 shares issued |  |   | 14,783    |  
|Additional paid in capital                                                                   |  |   | 4,515,786 |  
|Currency translation adjustment                                                              |  |   | (150,522  | )
|Retained earnings (deficit)                                                                  |  |   | (700,039  | )
|                                                                                             |  |   |           |  
|                                                                                             |  |   | 3,680,008 |  
|Less common shares held in treasury, 298,700 shares at cost                                  |  |   | (62,267   | )
|                                                                                             |  |   |           |  
|TOTAL SHAREHOLDERS EQUITY                                                                   |  |   | 3,617,741 |  
|                                                                                             |  |   |           |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                   |  | $ | 4,938,626 |  
|                                                                                             |  |   |           |  

See Notes to Consolidated Condensed Financial Statements.

F-2





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SETO HOLDINGS, INC. AND SUBSIDIARIES




CONSOLIDATED CONDENSED STATEMENTS OF INCOME

SIX AND THREE MONTHS ENDED JULY 31,
2002 AND 2001(UNAUDITED)

|                                                              |         |   |                  |      |                    |   |            |      |          |   |            |      |      |   |            |      | 
|------------------------------------------------------------- | ------- | - | ---------------- | ---- | ------------------ | - | ---------- | ---- | -------- | - | ---------- | ---- | ---- | - | ---------- | ---- | 
|                                                              |         |   | Six Months Ended |      | Three Months Ended
|                                                              |         |   | July 31          |      | July 31           
|                                                              |         |   |                  |      |                   
|                                                              |         |   |                  |      |                    |   | 2001       |      |          |   |            |      | 2001
|                                                              |         |   | 2002             |      | Restated           |   | 2002       |      | Restated
|                                                              |         |   |                  |      |                    |   |            |      |         
|Net revenues                                                  |         | $ | 3,828,761        |      |                    | $ | 2,641,362  |      |          | $ | 1,992,922  |      |      | $ | 1,238,522  |     
|                                                              |         |   |                  |      |                    |   |            |      |          |   |            |      |      |   |            |     
|Costs and expenses:                                           |         |   |                  |      |                    |   |            |      |          |   |            |      |      |   |            |     
|Cost of sales                                                 |         |   | 1,838,558        |      |                    |   | 1,432,123  |      |          |   | 930,742    |      |      |   | 644,751    |     
|Selling, general and administrative expenses                  |         |   | 1,091,211        |      |                    |   | 850,769    |      |          |   | 545,267    |      |      |   | 387,955    |     
|Amortization of acquisition-related intangibles and costs     |         |   | 20,700           |      |                    |   | 11,283     |      |          |   | 10,520     |      |      |   | 5,641      |     
|                                                              |         |   |                  |      |                    |   |            |      |          |   |            |      |      |   |            |     
|Operating costs and expenses                                  |         |   | 2,950,469        |      |                    |   | 2,294,175  |      |          |   | 1,486,529  |      |      |   | 1,038,347  |     
|                                                              |         |   |                  |      |                    |   |            |      |          |   |            |      |      |   |            |     
|Operating income                                              |         |   | 878,292          |      |                    |   | 347,187    |      |          |   | 506,393    |      |      |   | 200,175    |     
|                                                              |         |   |                  |      |                    |   |            |      |          |   |            |      |      |   |            |     
|Interest and other, net                                       |         |   | (66,785          | )    |                    |   | (37,125    | )    |          |   | (2,841     | )    |      |   | (12,063    | )   
|                                                              |         |   |                  |      |                    |   |            |      |          |   |            |      |      |   |            |     
|Income before income taxes (benefit)                          |         |   | 811,507          |      |                    |   | 310,062    |      |          |   | 503,552    |      |      |   | 188,112    |     
|Income taxes (benefit)                                        |         |   | (61,324          | )    |                    |   | 3,279      |      |          |   | 5,757      |      |      |   | 1,979      |     
|                                                              |         |   |                  |      |                    |   |            |      |          |   |            |      |      |   |            |     
|Income from continuing operations                             |         |   | 872,831          |      |                    |   | 306,783    |      |          |   | 497,795    |      |      |   | 186,133    |     
|                                                              |         |   |                  |      |                    |   |            |      |          |   |            |      |      |   |            |     
|Discontinued operations:                                      |         |   |                  |      |                    |   |            |      |          |   |            |      |      |   |            |     
|Income (Loss) from operations of subsidiaries                 |         |   | (4,555           | )    |                    |   | 27,102     |      |          |   | (1,336     | )    |      |   | 48,482     |     
|Loss on disposal of subsidiaries                              |         |   | (37,975          | )    |                    |   |            |      |          |   | (31,369    | )    |      |   |            |     
|                                                              |         |   |                  |      |                    |   |            |      |          |   |            |      |      |   |            |     
|                                                              |         |   | (42,530          | )    |                    |   | 27,102     |      |          |   | (32,705    | )    |      |   | 48,482     |     
|                                                              |         |   |                  |      |                    |   |            |      |          |   |            |      |      |   |            |     
|Net income                                                    |         | $ | 830,301          |      |                    | $ | 333,885    |      |          | $ | 465,090    |      |      | $ | 234,615    |     
|                                                              |         |   |                  |      |                    |   |            |      |          |   |            |      |      |   |            |     
|Earning per share information:                                |         |   |                  |      |                    |   |            |      |          |   |            |      |      |   |            |     
|Income from continuing operations                             |         |   |                  |      |                    |   |            |      |          |   |            |      |      |   |            |     
|                                                              | Basic   |   | $                | 0.06 |                    |   | $          | 0.02 |          |   | $          | 0.03 |      |   | $          | 0.01 | 
|                                                              |         |   |                  |      |                    |   |            |      |          |   |            |      |      |   |            |     
|                                                              | Diluted |   | $                | 0.07 |                    |   | $          | 0.02 |          |   | $          | 0.04 |      |   | $          | 0.01 | 
|                                                              |         |   |                  |      |                    |   |            |      |          |   |            |      |      |   |            |     
|Discontinued operations:                                      |         |   |                  |      |                    |   |            |      |          |   |            |      |      |   |            |     
|                                                              | Basic   |   | $                | 0.00 |                    |   | $          | 0.00 |          |   | $          | 0.00 |      |   | $          | 0.00 | 
|                                                              |         |   |                  |      |                    |   |            |      |          |   |            |      |      |   |            |     
|                                                              | Diluted |   | $                | 0.00 |                    |   | $          | 0.00 |          |   | $          | 0.00 |      |   | $          | 0.00 | 
|                                                              |         |   |                  |      |                    |   |            |      |          |   |            |      |      |   |            |     
|Weighted average common shares outstanding                    |         |   | 14,783,400       |      |                    |   | 14,315,254 |      |          |   | 14,783,400 |      |      |   | 14,271,000 |     
|                                                              |         |   |                  |      |                    |   |            |      |          |   |            |      |      |   |            |     
|Weighted average common shares outstanding, assuming dilution |         |   | 13,158,400       |      |                    |   | 15,163,681 |      |          |   | 13,521,495 |      |      |   | 13,851,556 |     
|                                                              |         |   |                  |      |                    |   |            |      |          |   |            |      |      |   |            |     

See Notes to Consolidated Condensed Financial Statements.

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SETO HOLDINGS, INC. AND SUBSIDIARIES




CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS

SIX MONTHS ENDED JULY 31, 2002 AND 2001(UNAUDITED)

|                                                                              |                                    |                                     |                                            |          |         |          |          |          |         |          |  
|----------------------------------------------------------------------------- | ---------------------------------- | ----------------------------------- | ------------------------------------------ | -------- | ------- | -------- | -------- | -------- | ------- | -------- | -
|                                                                              |                                    |                                     |                                            |          |         |          |          |          | 2001   
|                                                                              |                                    |                                     |                                            |          | 2002    |          | Restated
|                                                                              |                                    |                                     |                                            |          |         |          |         
|OPERATING ACTIVITIES                                                          |                                    |                                     |                                            |          |         |          |          |         
|                                                                              | Income from continuing operations  |                                     | $                                          | 872,831  |         |          | $        | 306,783  |        
|ADJUSTMENTS TO RECONCILE NET INCOME TO CASH
PROVIDED BY CONTINUING OPERATIONS |                                    |                                     |                                            |          |         |          |          |         
|                                                                              |                                    | Depreciation and amortization       |                                            |          | 88,000  |          |          |          | 55,151  |         
|                                                                              |                                    | Provision for deferred income taxes |                                            |          | (70,000 | )        |          |          |         |         
|                                                                              |                                    | Compensatory stock surrendered      |                                            |          |         |          |          |          | (25,200 | )       
|CHANGES IN OTHER OPERATING ASSETS AND LIABILITIES                             |                                    |                                     |                                            |          |         |          |          |         
|                                                                              |                                    |                                     | Accounts and notes receivable              |          |         | (279,819 | )        |          |         | 28,560   |  
|                                                                              |                                    |                                     | Inventories                                |          |         | (142,428 | )        |          |         | (74,630  | )
|                                                                              |                                    |                                     | Prepaid expenses and other current assets  |          |         | 66,293   |          |          |         | 32,546   |  
|                                                                              |                                    |                                     | Other assets                               |          |         | (39,737  | )        |          |         | (46,982  | )
|                                                                              |                                    |                                     | Accounts payable, and accrued expenses     |          |         | (400,904 | )        |          |         | 80,985   |  
|                                                                              |                                    |                                     | Deferred lease liability                   |          |         | 3,000    |          |          |         | 3,000    |  
|                                                                              |                                    |                                     |                                            |          |         |          |          |         
|                                                                              |                                    |                                     | NET CASH PROVIDED BY CONTINUING OPERATIONS |          |         | 97,236   |          |          |         | 360,213  |  
|                                                                              |                                    |                                     | NET CASH USED IN DISCONTINUED OPERATIONS   |          |         | (37,975  | )        |          |         | (26,678  | )
|                                                                              |                                    |                                     |                                            |          |         |          |          |         
|                                                                              |                                    |                                     | NET CASH PROVIDED BY OPERATING ACTIVITIES  |          |         | 59,261   |          |          |         | 333,535  |  
|                                                                              |                                    |                                     |                                            |          |         |          |          |         
|INVESTING ACTIVITIES                                                          |                                    |                                     |                                            |          |         |          |          |         
|                                                                              | Purchase of property and equipment |                                     |                                            | (93,253  | )       |          |          | (108,405 | )      
|                                                                              |                                    |                                     |                                            |          |         |          |          |         
|                                                                              |                                    |                                     | NET CASH USED IN INVESTING ACTIVITIES      |          |         | (93,253  | )        |          |         | (108,405 | )
|                                                                              |                                    |                                     |                                            |          |         |          |          |         
|FINANCING ACTIVITIES                                                          |                                    |                                     |                                            |          |         |          |          |         
|                                                                              | Proceeds from financing            |                                     |                                            | 393,292  |         |          |          | 18,847   |        
|                                                                              | Payment of debt                    |                                     |                                            | (529,621 | )       |          |          | (80,022  | )      
|                                                                              | Purchase of treasury stock         |                                     |                                            | (50,241  | )       |          |          |          |        
|                                                                              |                                    |                                     |                                            |          |         |          |          |         
|                                                                              |                                    |                                     | NET CASH USED IN FINANCING ACTIVITIES      |          |         | (186,570 | )        |          |         | (61,175  | )
|                                                                              |                                    |                                     |                                            |          |         |          |          |         
|NET INCREASE (DECREASE) IN CASH                                               |                                    |                                     | (220,562                                   | )        |         |          | 163,955  |         
|CASH, BEGINNING OF PERIOD                                                     |                                    |                                     | 543,072                                    |          |         |          | 599,229  |         
|                                                                              |                                    |                                     |                                            |          |         |          |          |         
|CASH, END OF PERIOD                                                           |                                    | $                                   | 322,510                                    |          |         | $        | 763,184  |         
|                                                                              |                                    |                                     |                                            |          |         |          |          |         
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                            |                                    |                                     |                                            |          |         |          |          |         
|                                                                              | CASH PAID DURING THE YEAR FOR:     |                                     |                                            |          |         |          |          |          |        
|                                                                              |                                    | Interest                            |                                            | $        | 77,197  |          |          | $        | 28,903  |         
|                                                                              |                                    |                                     |                                            |          |         |          |          |         
|                                                                              |                                    | Income taxes                        |                                            | $        | 1,519   |          |          | $        |        |         
|                                                                              |                                    |                                     |                                            |          |         |          |          |         

See Notes to Consolidated Condensed Financial Statements.

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SETO HOLDINGS, INC. AND SUBSIDIARIES




NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

1. PREPARATION OF INTERIM FINANCIAL STATEMENTS

The consolidated financial statements have been prepared by SETO
Holdings, Inc. (the Company) in conformity with accounting
principles generally accepted in the United States and are consistent
in all material respects with those applied in the Companys Annual
Report on Form 10-KSB for the year ended January 31, 2002. In the
opinion of management, the Companys interim financial statements
include all adjustments (consisting of normal recurring accruals and
adjustments necessary for adoption of new accounting standards)
necessary to present fairly the results of the interim periods shown.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
Securities and Exchange Commission rules. Management believes that
the disclosures made are adequate to make the information presented
not misleading. The results for the interim periods are not
necessarily indicative of results for the full year. The unaudited
financial statements contained herein should be read in conjunction
with the consolidated financial statements and notes thereto included
in the Companys January 31, 2002 Annual Report on Form 10-KSB.
Certain amounts presented for the six and three months ended July 31,
2001 have been reclassified to conform to the current presentation.

The consolidated financial statements include the accounts of the
Company and its subsidiaries, which are wholly owned. All significant
intercompany transactions are eliminated in the consolidation process.

2. ACCOUNTING CHANGE

On February 1, 2002, the Company adopted Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets(Statement 144). Statement 144 supercedes
Financial Accounting Standards No. 121, Accounting for the Impairment
of Long-Lived Assets to be disposed of, and the accounting and
reporting provisions of APB Opinion No. 30, Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events
and Transactions, for the disposal of a segment of business.
Statement 144 also amends ARB No. 51, Consolidated Financial
Statements, to eliminate the exception to consolidation for a
subsidiary for which control is likely to be temporary. Adoption of
Statement 144 had no impact of the financial position of the Company
or its results of operations.

In April 2002, the Financial Accounting Standards Board issued
Statement of Financial Standard No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections(Statement 145). Statement 145 rescinds FASB Statement
No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an
amendment of that Statement, and FASB Statement No. 64,
Extinquishments of Debt Made to Satisfy Sinking-Fund Requirements.
Statement 145 also rescinds FASB Statement No. 44, Accounting for
Leases, to eliminate an inconsistency between the required accounting
for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. Statement 145 also amends
other existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under
changed conditions. Early adoption of Statement 145 is encouraged and
may be as of the beginning of the fiscal year or as of the beginning
of the interim period in which the statement issued. The Company has
elected to early adopt this statement effective February 1, 2002.
At this time Management does not believe adoption of this statement materially
impacted the Companys financial position or results of operations.

In July 2002, the Financial Accounting Standards Board issued
Statement of Financial Standard No. 146, Accounting for Costs
Associated with Exit or Disposal Activities.SFAS No. 146 establishes
standards of accounting and reporting for costs associated with exit
or disposal activities and nullifies EITF Issue 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including certain costs incurred in a
Restructuring).SFAS No. 146 covers costs associated with an exit
activitythat does not involve a company that has been newly acquired
in a business combination,

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SETO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

which is addressed in EITF Issue 95-3,
Recognition of Liabilities in Connection With a Purchase Business
Combination.Statement 146 also does not apply to disposal
activities qualifying as a discontinued operation, which is covered by
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets.SFAS No. 146 is effective for exit or disposal activities
initiated after December 31, 2002. Management has not determined the
effect that the adoption of SFAS No. 146, effective January 1, 2003
will have on its earnings or financial position, as management does
not currently foresee a restructuring at this time.

3. NATURE OF OPERATIONS, RISKS AND UNCERTAINTIES

The Company currently has a minuscule share of the dicing blade and
ceramics market. There can be no assurance that the Company will be
able to increase its market share or that the market demand will
increase. Furthermore, the Company faces the possibility of adverse
market conditions from technological changes, shifting product
emphasis among competitors and the entry of new competitors in the
market.

4. INVENTORY

Inventory at July 31, 2002 consist of:

|                |  |   |           | 
|--------------- |  | - | --------- | 
|Finished goods  |  | $ | 789,868   | 
|Work in Process |  |   | 66,212    | 
|Raw Materials   |  |   | 140,365   | 
|Supplies        |  |   | 5,795     | 
|                |  |   |           | 
|                |  | $ | 1,002,240 | 
|                |  |   |           | 

5. INTANGIBLE ASSETS AND GOODWILL

On January 1, 2002, the Company fully adopted Statement of Financial
Accounting Standard No. 142, Goodwill and Other Intangible Assets
(Statement 142). Statement 142 addresses financial accounting and
reporting for acquired goodwill and other intangible assets and
supercedes APB Opinion No. 17, Intangible Assets. Statement 142
establishes new accounting for goodwill and other intangible assets
recorded in business combinations. Under the new rules, goodwill and
intangible assets arising from acquisitions after June 30, 2001, are
no longer amortized but are subject to annual impairment tests in
accordance with the statement. Other intangible assets will continue
to be amortized over their useful lives.

In January 1990, the Company acquired East Coast Sales Company for
$309,000. The purchase price exceeded the fair value of the assets by
$134,281, which was assigned to goodwill and is being amortized on the
straight-line basis over forty years. As of July 31, 2002,
accumulated amortization of goodwill amounted to $50,786.

In November 1999, the Company acquired Hong Kong Batteries Industries,
Ltd. for $727,000. The purchase price exceeded the fair value of the
assets by $747,300, which was assigned to goodwill and is being
amortized on the straight-line basis over twenty years. As of July
31, 2002, accumulated amortization of goodwill amounted to $77,799.

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SETO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

6. NOTES PAYABLE AND LONG-TERM DEBT

The Company had an outstanding line-of-credit with a financial
institution in the amount $1,700,000. The line-of-credit carries an
annual rate of 2.9% plus the 30-day commercial paper rate with an
expiration date of October 31, 2002. As of July 31, 2002, the Company
had utilized $980,944 of the line-of-credit. The personal guarantee
of the Companys president and the assets of the Company secure the
line-of-credit.

7. INTEREST AND OTHER, NET

Interest and Other, net included:

|                               |  |                  |         |                    |  |      |         |      |  |   |         |   |  |   |         |  
|------------------------------ |  | ---------------- | ------- | ------------------ |  | ---- | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                               |  | Six Months Ended |         | Three Months Ended
|                               |  | July 31          |         | July 31           
|                               |  |                  |         |                   
|                               |  | 2002             |         | 2001               |  | 2002 |         | 2001
|                               |  |                  |         |                    |  |      |         |     
|Interest income                |  | $                | 15,148  |                    |  | $    | 7,830   |      |  | $ | 9,023   |   |  | $ | 3,991   |  
|Interest expense               |  |                  | (80,862 | )                  |  |      | (44,767 | )    |  |   | (11,255 | ) |  |   | (15,864 | )
|Foreign currency exchange loss |  |                  | (1,071  | )                  |  |      | (188    | )    |  |   | (609    | ) |  |   | (190    | )
|                               |  |                  |         |                    |  |      |         |      |  |   |         |   |  |   |         |  
|Total                          |  | $                | (66,785 | )                  |  | $    | (37,125 | )    |  | $ | (2,841  | ) |  | $ | (12,063 | )
|                               |  |                  |         |                    |  |      |         |      |  |   |         |   |  |   |         |  

8. COMMITMENTS AND CONTINGENCIES

The Company is obligated under a lease agreement with an entity owned
by an officer of the Company, which expires on April 30, 2013. Annual
rent expense is as follows; $60,000 for each of the first five years,
$66,000 for the second five years and $72,000 for each of the final
five years. The Company is also obligated for insurance and the
increase in real estate taxes over the base year as stipulated in the
lease. This lease requires the following future minimum rental
payments:

|              |  |   |         | 
|------------- |  | - | ------- | 
|July 31, 2003 |  |   | 66,000  | 
|July 31, 2004 |  |   | 66,000  | 
|July 31, 2005 |  |   | 66,000  | 
|July 31, 2006 |  |   | 66,000  | 
|July 31, 2007 |  |   | 67,500  | 
|Thereafter    |  |   | 414,000 | 
|              |  |   |         | 
|              |  | $ | 745,500 | 
|              |  |   |         | 

Rent expense charged to operations was $47,116 and $34,561 in 2002 and
2001, respectively.

6. EARNINGS PER SHARE

The following reconciles the number of common shares outstanding at
July 31 of 2002 and 2001 to the weighted average number of
common shares outstanding for the purposes of calculating basic and dilutive
earnings per share:

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SETO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

|                                            |                                                              |                  |            |                    |         |  |            |         |      |  |            |            |   |  |            |          |  
|------------------------------------------- | ------------------------------------------------------------ | ---------------- | ---------- | ------------------ | ------- |  | ---------- | ------- | ---- |  | ---------- | ---------- | - |  | ---------- | -------- | -
|Earnings per share (continued)              |                                                              |                  |            |                    |         |  |            |         |      |  |            |            |   |  |            |         
|                                            |                                                              | Six Months Ended |            | Three Months Ended
|                                            |                                                              |                  | July 31    |                    | July 31
|                                            |                                                              |                  |            |                    |        
|                                            |                                                              |                  | 2002       |                    | 2001    |  | 2002       |         | 2001
|                                            |                                                              |                  |            |                    |         |  |            |         |     
|Weighted average common shares outstanding  |                                                              |                  | 14,783,400 |                    |         |  | 14,315,254 |         |      |  | 14,783,400 |            |   |  | 14,271,000 |         
|Effect of using diluted securities:         |                                                              |                  |            |                    |         |  |            |         |      |  |            |            |   |  |            |         
|                                            | Weighted average common equivalent shares
from stock options |                  |            | (1,625,000         | )       |  |            | 848,427 |      |  |            | (1,261,905 | ) |  |            | (419,444 | )
|                                            |                                                              |                  |            |                    |         |  |            |         |      |  |            |            |   |  |            |         
|Diluted number of common shares outstanding |                                                              |                  | 13,158,400 |                    |         |  | 15,163,681 |         |      |  | 13,521,495 |            |   |  | 13,851,556 |         
|                                            |                                                              |                  |            |                    |         |  |            |         |      |  |            |            |   |  |            |         

At July 31, 2002 there were approximately 6,000,000 million shares of
common stock potentially issuable with respect to stock options, which
could dilute basic earnings per share in the future.

7. DISPOSITION OF SUBSIDIARY

On February 1, 2001, the Company adopted a formal plan to sell Fuji
Fabrication, SDN, BHD. The assets of Fuji Fabrication to be sold
consist primarily of inventory and equipment.

The sale of Fuji Fabrication on October 1, 2001 resulted in a selling
price of $290,547, which includes a note receivable with a balance of
$291,607including accrued interest

Net sales of Fuji Fabrication for 2002 and 2001 were $0 and $163,256,
respectively. These amounts are not included in net sales in the
accompanying consolidated statement of income.

|                                             |  |                  |        |                    |  |      |         |      |  |   |        |   |  |   |         |  
|-------------------------------------------- |  | ---------------- | ------ | ------------------ |  | ---- | ------- | ---- |  | - | ------ | - |  | - | ------- | -
|                                             |  | Six Months Ended |        | Three Months Ended
|                                             |  | July 31          |        | July 31           
|                                             |  |                  |        |                   
|                                             |  | 2002             |        | 2001               |  | 2002 |         | 2001
|                                             |  |                  |        |                    |  |      |         |     
|Net sales                                    |  |                  |        |                    |  | $    | 163,256 |      |  |   |        |   |  | $ | 105,619 |  
|Cost of sales                                |  |                  |        |                    |  |      | 182,432 |      |  |   |        |   |  | $ | 108,076 |  
|                                             |  |                  |        |                    |  |      |         |      |  |   |        |   |  |   |         |  
|Gross loss                                   |  |                  |        |                    |  |      | (19,176 | )    |  |   |        |   |  |   | (2,457  | )
|                                             |  |                  |        |                    |  |      |         |      |  |   |        |   |  |   |         |  
|Selling, general and administrative expenses |  | $                | 4,555  |                    |  |      | 9,554   |      |  | $ | 1,336  |   |  |   | 23,435  |  
|                                             |  |                  |        |                    |  |      |         |      |  |   |        |   |  |   |         |  
|Other income (expense)                       |  |                  |        |                    |  |      | 55,832  |      |  |   |        |   |  |   | (5,992  | )
|                                             |  |                  |        |                    |  |      |         |      |  |   |        |   |  |   |         |  
|Net income (loss)                            |  | $                | (4,555 | )                  |  | $    | 27,102  |      |  | $ | (1,336 | ) |  | $ | (31,884 | )
|                                             |  |                  |        |                    |  |      |         |      |  |   |        |   |  |   |         |  

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SETO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

8. PRINCIPAL PRODUCTS AND SEGMENTATION OF SALES

The Companys principal products are industrial ceramics, diamond
cutting tools, cellular phone batteries and industrial batteries. The
tools include dicing blades which are components of precision
electronic saws, scribes, which are used to cut silicon wafers,
porcelain and ceramic molds and dressers which are used for the
shading and forming of grinding wheels in the machine tool industry

Financial information relating to the principal industry segments and
classes of products:

|                          |                                              |   |                  |           |                    |   |           |           |      |   |           |           |   |   |           |         |  
|------------------------- | -------------------------------------------- | - | ---------------- | --------- | ------------------ | - | --------- | --------- | ---- | - | --------- | --------- | - | - | --------- | ------- | -
|                          |                                              |   | Six Months Ended |           | Three Months Ended
|                          |                                              |   | July 31          |           | July 31           
|                          |                                              |   |                  |           |                   
|                          |                                              |   | 2002             |           | 2001               |   | 2002      |           | 2001
|                          |                                              |   |                  |           |                    |   |           |           |     
|Sales to customers:       |                                              |   |                  |           |                    |   |           |           |      |   |           |           |   |   |           |        
|                          | Industry A  Ceramics                        |   | $                | 2,575,127 |                    |   | $         | 809,262   |      |   |           | 1,569,788 |   |   |           | 378,625 |  
|                          | Industry B  Diamond tools                   |   |                  | 433,365   |                    |   |           | 419,303   |      |   |           | 170,481   |   |   |           | 201,961 |  
|                          | Industry C  Industrial batteries            |   |                  | 446,678   |                    |   |           | 1,166,950 |      |   |           | 64,404    |   |   |           | 428,509 |  
|                          | Industry
D  Contract manufacturing services |   |                  | 373,591   |                    |   |           | 245,847   |      |   |           | 188,249   |   |   |           | 229,427 |  
|                          |                                              |   |                  |           |                    |   |           |           |      |   |           |           |   |   |           |         |  
|                          |                                              | $ | 3,828,761        |           |                    | $ | 2,641,362 |           |      | $ | 1,992,922 |           |   | $ | 1,238,522 |        
|                          |                                              |   |                  |           |                    |   |           |           |      |   |           |           |   |   |           |        
|Operating income or loss: |                                              |   |                  |           |                    |   |           |           |      |   |           |           |   |   |           |        
|                          | Industry A  Ceramics                        |   | $                | 977,661   |                    |   | $         | 282,277   |      |   |           | 607,689   |   |   |           | 133,335 |  
|                          | Industry B  Diamond tools                   |   |                  | (126,715  | )                  |   |           | (133,600  | )    |   |           | (81,165   | ) |   |           | (51,237 | )
|                          | Industry C  Industrial batteries            |   |                  | (39,549   | )                  |   |           | 127,460   |      |   |           | (47,805   | ) |   |           | 54,658  |  
|                          | Industry D  Contract manufacturing services |   |                  | 66,895    |                    |   |           | 71,050    |      |   |           | 27,674    |   |   |           | 63,419  |  
|                          |                                              |   |                  |           |                    |   |           |           |      |   |           |           |   |   |           |         |  
|                          |                                              | $ | 878,292          |           |                    | $ | 347,187   |           |      | $ | 506,393   |           |   | $ | 200,175   |        
|                          |                                              |   |                  |           |                    |   |           |           |      |   |           |           |   |   |           |        

Two customers each accounted for more than 10% of total sales and
together accounted for approximately 62% of total sales for the six
months ended July 31, 2002.

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Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations  Second
Quarter of Fiscal 2003 Compared to Second Quarter of Fiscal 2002 (Restated)

Our Q2 2003 net revenues of $1,992,922 were up $754,400, or 61% compared to
Q2 2002. The increase in net revenues came from SETOs Ceramic division,
East Coast Sales Company, primarily due to a significant increase in sales of
our custom ceramic products for the detection and protection industry.

Cost of sales for Q2 2003 increased $285,991, or 44% compared to Q2 2002,
primarily due to lower revenues and higher costs in our Hong Kong Batteries
operating segment, which was offset by the increase in sales and
profitability from our ceramics segment.

Our gross margin percentage increased to 53% for Q2 2003 from 48% in Q2 2002,
primarily due to the increase in net revenues came from SETOs Ceramic
division, East Coast Sales Company, primarily due to the significant increase
in sales of our custom ceramic products for the detection and protection
industry.

Ceramics Net revenues for the Ceramic
segment increased by $1,191,163 or
315% in Q2 2003 compared to Q2 2002. This increase in net revenues was
primarily due to significantly higher sales of our custom ceramic products
that are used in detection and protection systems. Net operating profit
increased by $474,354, or 356% for Q2 2003 compared to Q2 2002, primarily due
to the increase in the higher-margin custom ceramic business.

Diamond Tools Net revenues for the Diamond Tool segment decreased by
$31,480 or 16% in Q2 2003 compared to Q2 2002, primarily due to the
current downturn in the semiconductor industry. Net operating
loss increased by $29,928 or 58% for Q2 2003 compared to Q2 2002, primarily
due to decreased sales volume and increased raw material costs.

Industrial Batteries Net revenues for the Industrial Batteries segment
decreased $364,105 or 85% for Q2 2003 compared to Q2 2002, primarily due to increased competition from China. Net operating
profit decreased by $102,463 or 187% for Q2 2003 compared to Q2 2002,
primarily due to a decrease in sales and increased competition.

Contract Manufacturing Net revenues for the Contract Manufacturing Segment
decreased $41,178 or 18% for Q2 2003 compared to Q2 2002, primarily due to
lower sales volume. Net operating profits decreased $35,745 or 56% for Q2
2003 compared to Q2 2002, primarily due to lower sales volume and an increase
in salaries, wages and other overhead expenses.

Selling, General and Administrative Expenses, and Other General and
administrative expenses increased $157,312 or 41% in Q2 2003 compared to Q2
2002, primarily due higher payroll costs, commissions, rent and professional
fees. Selling, general and administrative expenses were 27% of net revenues
in Q2 2003 and 31% of net revenues in Q2 2002.

Amortization of acquisition-related intangibles and costs increased to $4,879
in Q2 2003. Amortization of goodwill and acquisition-related intangibles and
costs was $5,641 in Q2 2002. The increase primarily resulted from the
implementation of Statement of Financial Accounting Standards (SFAS) No. 142,
as of the beginning of fiscal 2003. Under SFAS 142, acquisition-related
goodwill is no longer amortized after June 2001.

Results of Operations  First
Half of Fiscal 2003 Compared to First Half of Fiscal 2002 (Restated)

Our net revenues for the first half of 2003 (fiscal year ending January 31,
2003) increased 45% compared to first half of 2002 and we experienced our
best financial results for a six month period ending July 31 as comparably structured. The increase
in net revenues primarily came from SETOs Ceramic division, East Coast Sales
Company, primarily due to a significant increase in sales of our custom
ceramic products for the detection and protection industry and jet
engine manufacturing.

Cost of sales for the first half 2003 increased 28% compared to first half of
2002 while our gross margin percentage was essentially flat compared to the
first half of 2002, primarily due to the increase in the higher-margin custom
ceramic business. See Outlook for a discussion of our gross margin
expectations.

The first half of 2002 has been restated using the Treasury Stock method to
calculate earnings per share, which is required by Statement of Financial
Accounting Standards (SFAS) No. 128. Under SFAS No. 128, the exercise

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Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations

of options and warrants shall be assumed at the beginning of the period, or time
of issuance if later and common shares shall be assumed issued. The proceeds
from exercise shall be assumed to be used to purchase common stock at the
average market price during the period. The difference between the number of
shares assumed issued and the number of shares purchased shall be included in
the denominator of the diluted earnings per share computation. The diluted
number of common shares outstanding at July 31, 2001 was originally 19,840,254
shares and has been restated at 15,163,681 shares. The difference in diluted
shares outstanding had no effect on the earnings per share amount at July 31,
2001.

The following table details our results of operations:

|                                             |  |                  |           |                    |  |      |           |      |  |   |           |  |  |   |           | 
|-------------------------------------------- |  | ---------------- | --------- | ------------------ |  | ---- | --------- | ---- |  | - | --------- |  |  | - | --------- | 
|                                             |  | Six Months Ended |           | Three Months Ended
|                                             |  | July 31          |           | July 31           
|                                             |  |                  |           |                   
|                                             |  | 2002             |           | 2001               |  | 2002 |           | 2001
|                                             |  |                  |           |                    |  |      |           |     
|Net revenues                                 |  | $                | 3,828,761 |                    |  | $    | 2,641,362 |      |  | $ | 1,992,922 |  |  | $ | 1,238,522 | 
|Cost of sales                                |  | $                | 1,838,558 |                    |  | $    | 1,432,123 |      |  | $ | 930,742   |  |  | $ | 644,751   | 
|Depreciation                                 |  | $                | 67,300    |                    |  | $    | 43,868    |      |  | $ | 34,322    |  |  | $ | 23,532    | 
|Selling, general and administrative expenses |  | $                | 1,091,211 |                    |  | $    | 850,769   |      |  | $ | 545,267   |  |  | $ | 387,955   | 
|Acquisition-related goodwill                 |  | $                | 20,700    |                    |  | $    | 11,283    |      |  | $ | 10,520    |  |  | $ | 5,641     | 

Ceramics Net revenues for the Ceramic segment increased by $1,765,865 or
218% in first half of 2003 compared to first half of 2002. This increase in
net revenues was primarily due to significantly higher sales of our custom
ceramic products that are used in detection and protection systems
and by manufacturers of jet engines. Net
operating profit increased by $695,384, or 246% for the first half of 2003
compared to the first half of 2002, primarily due to the increase in the
higher-margin custom ceramic business.

Diamond Tools Net revenues for the Diamond Tool segment increased by
$14,062 or 3% in the first half of 2003 compared to the first half of 2002,
primarily due to slightly higher margins and cost cutting measures initiated
in 2002. Net operating loss decreased by $6,885 or 5% for first half of 2003
compared to first half of 2002, primarily due to a reduction in payroll.

Industrial Batteries Net revenues for the Industrial Batteries segment
decreased $720,272 or 62% for the first half of 2003 compared to the first
half of 2002, primarily due to lower gross margins and increased competition
from China. Net operating profit decreased by $167,009 or 134% for the first
half of 2003 compared to first half of 2002, primarily due a decrease in
sales and increased competition.

Contract Manufacturing Net revenues for the Contract Manufacturing Segment
increased $127,744 or 52% for the first half of 2003 compared to the first
half 2002, primarily due to significantly higher sales and market acceptance
of our products. Net operating profits decreased $4,155 or 6% for the first
half of 2003 compared to the first half of 2002, primarily due to an increase
in salaries and wages.

Selling, General and Administrative Expenses, Other and Taxes. General and
administrative expenses increased $240,442 or 28% in the first half of 2003
compared to the first half of 2002, primarily due higher payroll costs,
commissions, rent and professional fees. Selling, general and administrative
expenses were 29% of net revenues in the first half of 2003 and 32% of net
revenues in the first half of 2002.

Amortization of acquisition-related intangibles and costs increased to $9,417
in the first half of 2003, primarily due to us reevaluating
acquisition-related goodwill. Amortization of goodwill and
acquisition-related intangibles and costs were $11,283 in the first half of
2002. The increase primarily resulted from the implementation of

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Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations

Statement of Financial Accounting Standards (SFAS) No. 142, as of the beginning of
fiscal 2003. Under SFAS 142, acquisition-related goodwill is no longer
amortized after June 2001.

Our effective income tax rate was 43% for the first half of 2003 compared to
1% for the first half of 2002. The lower tax rate in the first half of 2003
is due to our higher net income from our United States subsidiaries and is
offset by our net operating loss carryforward. The adjusted rate for the
first half of 2003 reflects the current expected income for fiscal 2003.

Financial Condition

Liquidity and Capital Resources

Our financial condition remains strong. At July 31, 2002, cash totaled
$322,510, down $220,562 from January 31, 2002, primarily due to the reduction
in current liabilities. Total short-term and long-term debt of $1,320,885
and $2,071,088 was 37% and 83% of shareholders equity as of the end of the
second quarter of 2003 and 2002, respectively. This reduction in cash and
current liabilities and the increase in our debt-to-equity ratio were
primarily due to the operating profit from our ceramics segment.

For the six months ended July 31, 2002, cash provided by operating activities
was $ 59,261. Inventory levels increased from January 31, 2002, as we had to
increase our ceramics inventory due to increased demand. Accounts receivable
also increased, primarily due the increase in sales volume that occurred
during the first six months. Our six largest customers accounted for
approximately 65% of net revenues for the first six months of 2003. At July
31, 2002, these six customers accounted for approximately 68% of net accounts
receivable. Our deferred tax asset increased $70,000 during the first
quarter 2002, due to our estimated profitability in the United States for
fiscal 2003. The main non-operating source of cash during the quarter was
$393,292 that we drew down on our line of credit.

We fund our working capital requirements on a short-term basis primarily
through a line-of-credit with a major financial institution with maturity on
October 31, 2002. Maximum borrowing capacity under the line-of-credit is
$1,700,000. At July 31, 2002 we utilized $980,944 of the credit total line
and had $719,056 available for use.

Major uses of cash during the quarter included capital spending of $93,253
for plant and equipment, and $529,621 was used to pay down our short and
long-term debt. In addition, during the first six months of 2003 we
purchased 249,300 shares of our stock for $50,241, which was placed in our
treasury.

Our current ratio for Q2 2003 was 2.58 compared to 1.29 for Q2 2002,
primarily due to increases in accounts receivable (due to higher sales
volume), inventory and the current portion deferred tax assets.

We believe that we have the financial resources needed to meet our business
requirements for the next twelve months, including capital expenditures,
working capital requirements and potential future acquisitions or strategic
investments.

Financial market risks

We are exposed to market risks from changes in interest rates and foreign
currency exchange rates. To manage exposures to these fluctuations, we may
occasionally enter into various hedging transactions. We do not use
derivatives for trading purposes, or do we generate income or engage in
speculative activity and we have never used leveraged derivatives to hedge
the value of its net investments in our foreign subsidiaries.

Currency During the six months ended July 31, 2002, our loss from foreign
currency exchange transactions totaled $1,071 compared to a loss of $188 at
July 31, 2001; neither materially impacted our operational results. We feel
that we can manage our foreign currency translation gains and losses due to
the fact that both Malaysias and Chinas currency rates are fixed relative
to the U.S. dollar. While future fluctuations in currency rates could have a
negative impact on our future operations, the current conditions are expected
to continue to provide strong revenue and earnings growth.

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Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations

Inflation We have not had a significant impact from general inflation over
the past five years due to our cash flow and the global economy. Although it
is difficult to predict the impact of inflation, we do not anticipate that
inflation will materially impact our margins, operating costs and our results
of operations for fiscal 2003.

Strategy

This strategy section and the following outlook section contain a number of
forward-looking statements, all of which are based on current expectations.
Actual results may differ materially. These statements do not reflect the
potential of any mergers, acquisitions or business combinations that had not
closed as of September 13, 2002.

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

East Coast Sales Company East Coast Sales Company operating segment
specializes in the distribution and value added fabrication of technical
ceramic products for the airline security industry and jet engine
manufactures, 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.

SETO Holdings and DTI Technology SETO Holdings and DTI Technology operating
segments strategy is to produce quality resin blades for the microchip
industry. We plan to do this with new equipment purchases and with our
highly trained foreign workforce.

Hong Kong Batteries Industries Hong Kong Batteries Industries strategy is
to gain market share in the highly competitive rechargeable battery market.
Our strategy is to gain acceptance from the major consumer product companies
by providing quality products for less cost.

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.

Outlook

The following outlook section contains a number of forward-looking
statements, all of which are based on current expectations. Actual results
may differ materially. These statements do not reflect the potential impact
of any mergers, acquisitions, divestitures or other business combinations
that had not closed as of the end of the third quarter of fiscal 2003.

The methods, estimates and judgments we use in applying our accounting
policies have a significant impact on the results we report in our financial
statements. Some of our 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: valuation of inventory, which impacts cost of sales and
gross margin; our deferred tax asset, which impacts income tax expense
(benefit); and the assessment of recoverability of goodwill and other
intangible assets, which impacts write-offs of goodwill and intangibles.
Below, we discuss these policies further, as well as the estimates and
judgments that are as difficult or subjective, such as our policies for
revenue recognition.

Uncertainty in global economic conditions continues to make it difficult to
predict product demand, but we expect that the current trends will continue
through fiscal 2003. For the third quarter of fiscal 2003, we expect revenue
to be between $1,500,000 and $1,900,000, compared to second quarter revenue
of $1,992,922 and first quarter revenue of $1,835,839. Our financial results
are substantially dependent on sales of ceramic products and diamond tools,
all of which are difficult to forecast. Revenue is also subject to the
impact of economic conditions in various geographic regions.

We can expect gross margins percentage in the third quarter of 2003 to be
approximately 50%, plus or minus a couple of points, compared to 53% in the
second quarter. For the full year of fiscal 2003, our gross margin
percentage is expected to be 50%, plus or minus a few points. Our
expectation for fiscal 2003 reflects our early

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Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations

progress this year in improving profitability, and is consistent with our view that the current
trends will continue through 2003. Our gross margin varies, depending on
sales volume and product pricing.

Our policy for valuation of inventory, including the determination of
obsolete inventory, requires us to estimate the future demand of our products
within specific time horizons, generally four months or less. The estimates
of future demand that we use in the valuation of inventory are the basis for
our published revenue forecast. If our demand forecast for specific products
is greater than actual demand and we do not reduce manufacturing output
accordingly, we could be required to record additional inventory reserves,
which would have a negative impact on our gross margin.

We currently expect capital spending will be approximately $125,000 in fiscal
2003. If demand for our products does not continue to grow, revenues and
gross margins could be adversely affected. Depreciation is expected to be
$40,000 for the third quarter and $140,000 for fiscal 2003.

We have completed the adoption of the SFAS Nos. 141 and 142 on accounting for
business combinations and goodwill as of the beginning of fiscal 2003.
Accordingly, we will no longer amortize goodwill from future acquisitions,
but will continue to amortize acquisition-related intangibles and costs.
Consequently, we expect amortization of acquisition-related intangibles and
costs to be approximately $9,340 in the third quarter and $37,365 for fiscal
2003.

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 for Hong Kong Batteries SDN BHD and East Coast Sales
Company, the reporting units that have substantially all of our recorded
goodwill, and found no impairment. According to our accounting policy under
the new rules, we will perform a similar review annually, or earlier if
indicators of potential impairment exist. Our impairment review is based on a
discounted cash flow approach that uses our estimates of revenues and costs
for these groups as well as appropriate discount rates. If our revenue and
cost forecasts are not achieved, we may incur charges for impairment of
goodwill.

Our future results of operations and the other forward-looking statements
contained in this outlook discussion involve a number of risks and
uncertaintiesin particular the statements regarding our goals, plans to
cultivate new business, future economic conditions and the tax rate. 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 detection and protection systems field
and diamond tool industries in various geographic regions; factors associated
with doing business outside the United States, including currency controls
and fluctuations, and tariff, import and other related restrictions and
regulations; possible disruption in commercial activities related to
terrorist activity or armed conflict in the United States and other
locations, such as changes in logistics and security arrangements, and
reduced end-user purchases relative to expectations; civil or military unrest
or political instability in a locale; changes in customer order patterns;
competitive factors such as manufacturing technologies and pricing pressures;
excess or obsolete inventory and variations in inventory valuation; the
ability to sustain and grow ceramic, diamond tools and custom manufacturing,
and successfully integrate and operate any acquired business; and litigations
involving intellectual property, stockholder and other issues.

We believe that we have the product offerings, facilities, personnel, and
competitive 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.

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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. PianEugene J. Pian, President
|
| |  |                                                 
|
| |  | Date:  September 13, 2002                       




CERTIFICATION

Each of the undersigned hereby certifies, in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, in his or her capacity as an officer of SETO Holdings, Inc. (SETO), that
to his or her knowledge, the Quarterly Report of SETO on Form 10-QSB for the period ended July 31, 2002,
fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the
information contained in such report fairly presents, in all material respects, the financial condition and results
of operations of SETO.

| |  |                                                
| |  | -----------------------------------------------
| |  | By: /s/  Eugene J. PianEugene J. Pian, Director
|
| |  |                                                
|
| |  | By: /s/  Craig A. PianCraig A. Pian, Director  
|
| |  |                                                
|
| |  | By: /s/  Francine PianFrancine Pian, Director  
|
| |  |                                                
|
| |  | Date:  September 13, 2002