TABLE OF CONTENTS




|                                                                                                     |  |  |  |  |  |  |  | 
|---------------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|CONSOLIDATED BALANCE SHEET  OCTOBER 31, 2001                                                       
|CONSOLIDATED STATEMENT OF INCOME (LOSS) NINE AND THREE MONTHS ENDED OCTOBER 31, 2001 AND 2000       
|CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME NINE AND THREE MONTHS ENDED OCTOBER 31, 2001 AND 2000
|CONSOLIDATED STATEMENT OF CASH FLOWS NINE MONTHS ENDED OCTOBER 31, 2001 AND 2000                    
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                          
|MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION                                            
|SIGNATURES                                                                                          



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##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 10-QSB

|     |  |                                                                                         
|---- |  | ----------------------------------------------------------------------------------------
|(X)  |  | Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 
|     |  |                                                                                         
|     |  | For the quarterly period ended October 31, 2001                                         
|     |  |                                                                                         
|or  
|     |  |                                                                                         
|(  ) |  | Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1939
|     |  | 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
incorporation or organization) |  | (I.R.S. Employer
Identification Number)

|                                                      
|------------------------------------------------------
|554 North State Road, Briarcliff Manor, New York 10510
|                                                      
|(Address of principal executive offices)              

|                                                |  |               
|----------------------------------------------- |  | --------------
|Issuers telephone number, including area code: |  | (914) 923-5000

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.

Yes X No

Indicate the number of Shares outstanding of each of the Issuers classes of
common stock, as of the latest practicable date.

|                                        |  |                                
|--------------------------------------- |  | -------------------------------
|Class                                   |  | Outstanding at October 31, 2001
|                                        |  |                                
|Common Stock, par value $.001
per share |  | 14,241,600                     





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##### Table of Contents



INDEX

|                                   |                                                                          |                                                                                                 |  |           
|---------------------------------- | ------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------- |  | ----------
|Part I.      Financial Information
|                                   |                                                                          |                                                                                                 |  |           
|                                   | Item 1.      Consolidated financial statements:                          |                                                                                                 | 
|                                   |                                                                          |                                                                                                 |  |           
|                                   |                                                                          | Balance sheet as of October 31, 2001                                                            |  | F-2       
|                                   |                                                                          |                                                                                                 |  |           
|                                   |                                                                          | Statement of income (loss) for the nine and
three months ended October 31, 2001 and 2000        |  | F-3       
|                                   |                                                                          |                                                                                                 |  |           
|                                   |                                                                          | Statement of comprehensive income for the nine and
three months ended October 31, 2001 and 2000 |  | F-4       
|                                   |                                                                          |                                                                                                 |  |           
|                                   |                                                                          | Statement of cash flows for the nine months ended
October 31, 2001 and 2000                     |  | F-5       
|                                   |                                                                          |                                                                                                 |  |           
|                                   |                                                                          | Notes to consolidated financial statements                                                      |  | F-6  F-14
|                                   |                                                                          |                                                                                                 |  |           
|                                   | Item 2.      Managements discussion and analysis of
financial condition |                                                                                                 | 
|                                   |                                                                          |                                                                                                 |  |           
|Part II.      Other information   
|                                   |                                                                          |                                                                                                 |  |           
|                                   | Signatures                                                               |                                                                                                 | 





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##### Table of Contents



SETO HOLDINGS, INC. AND SUBSIDIARIES




CONSOLIDATED BALANCE SHEET  OCTOBER 31, 2001

ASSETS

|                                       |                                                                                       |                                            |                           |            |         |           |  | 
|-------------------------------------- | ------------------------------------------------------------------------------------- | ------------------------------------------ | ------------------------- | ---------- | ------- | --------- |  | 
|Current
assets:                        |                                                                                       |                                            |                           |           
|                                       | Cash                                                                                  |                                            | $                         | 600,244    |        
|                                       | Accounts receivable, less allowance
for doubtful accounts of $10,350                  |                                            |                           | 981,879    |        
|                                       | Note receivable                                                                       |                                            |                           | 293,015    |        
|                                       | Inventory                                                                             |                                            |                           | 921,670    |        
|                                       | Prepaid expenses and other assets                                                     |                                            |                           | 151,924    |        
|                                       | Deferred tax asset, current portion                                                   |                                            |                           | 114,209    |        
|                                       |                                                                                       |                                            |                           |           
|                                       |                                                                                       |                                            | Total current assets      |            |         | 3,062,941 | 
|                                       |                                                                                       |                                            |                           |           
|Property
and equipment                 |                                                                                       |                                            | 752,484                   |           
|                                       |                                                                                       |                                            |                           |           
|Other
assets:                          |                                                                                       |                                            |                           |           
|                                       |                                                                                       | Goodwill, net of amortization              |                           |            | 830,345 |          
|                                       |                                                                                       | Security deposits                          |                           |            | 6,000   |          
|                                       |                                                                                       | Deferred tax asset, net of current portion |                           |            | 220,917 |          
|                                       |                                                                                       |                                            |                           |           
|                                       |                                                                                       |                                            | 1,057,262                 |           
|                                       |                                                                                       |                                            |                           |           
|                                       |                                                                                       | $                                          | 4,872,687                 |           
|                                       |                                                                                       |                                            |                           |           
|                                       |                                                                                       | LIABILITIES
AND SHAREHOLDERS EQUITY       |                           |            |         |          
|Current
liabilities:                   |                                                                                       |                                            |                           |           
|                                       | Current portion of long-term debt                                                     |                                            | $                         | 74,570     |        
|                                       | Notes payable                                                                         |                                            |                           | 1,017,963  |        
|                                       | Accounts payable                                                                      |                                            |                           | 663,279    |        
|                                       | Accrued expenses                                                                      |                                            |                           | 443,910    |        
|                                       |                                                                                       |                                            |                           |           
|                                       |                                                                                       |                                            | Total current liabilities |            |         | 2,199,722 | 
|                                       |                                                                                       |                                            |                           |           
|Long-term
debt, net of current portion |                                                                                       |                                            | 54,489                    |           
|                                       |                                                                                       |                                            |                           |           
|Deferred
lease liability               |                                                                                       |                                            | 21,000                    |           
|                                       |                                                                                       |                                            |                           |           
|Commitments
and contingencies:         |                                                                                       |                                            |                           |           
|Shareholders
equity:                  |                                                                                       |                                            |                           |           
|                                       | Common stock par value $.001; 100,000,000
shares authorized; 14,271,000 shares issued |                                            |                           | 14,271     |        
|                                       | Additional paid in capital                                                            |                                            |                           | 4,364,035  |        
|                                       | Currency translation adjustment                                                       |                                            |                           | (150,576   | )      
|                                       | Retained earnings (deficit)                                                           |                                            |                           | (1,621,228 | )      
|                                       |                                                                                       |                                            |                           |           
|                                       |                                                                                       |                                            | 2,606,502                 |           
|                                       | Less common shares held in treasury, 29,400
shares at cost                            |                                            |                           | (9,026     | )      
|                                       |                                                                                       |                                            |                           |           
|                                       |                                                                                       |                                            | 2,597,476                 |           
|                                       |                                                                                       |                                            |                           |           
|                                       |                                                                                       | $                                          | 4,872,687                 |           
|                                       |                                                                                       |                                            |                           |           

See notes to consolidated financial statements.

F-2



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SETO HOLDINGS, INC. AND SUBSIDIARIES




CONSOLIDATED STATEMENT OF INCOME (LOSS)
NINE AND THREE MONTHS ENDED OCTOBER 31, 2001 AND 2000

|                                             |                                               |         |           |                   |       |                    |           |          |      |          |           |         |       |      |           |         |      | 
|-------------------------------------------- | --------------------------------------------- | ------- | --------- | ----------------- | ----- | ------------------ | --------- | -------- | ---- | -------- | --------- | ------- | ----- | ---- | --------- | ------- | ---- | 
|                                             |                                               |         |           | Nine Months Ended |       | Three Months Ended
|                                             |                                               |         |           | October 31,       |       | October 31,       
|                                             |                                               |         |           |                   |       |                   
|                                             |                                               |         |           |                   |       |                    |           | 2000     |      |          |           |         |       | 2000
|                                             |                                               |         |           | 2001              |       | Restated           |           | 2001     |      | Restated
|                                             |                                               |         |           |                   |       |                    |           |          |      |         
|Net sales                                    |                                               | $       | 4,241,536 |                   |       | $                  | 3,751,136 |          |      | $        | 1,600,174 |         |       | $    | 1,496,091 |        
|Cost of sales                                |                                               |         | 2,377,409 |                   |       |                    | 2,090,639 |          |      |          | 945,286   |         |       |      | 918,655   |        
|                                             |                                               |         |           |                   |       |                    |           |          |      |          |           |         |       |      |           |        
|Gross profit                                 |                                               |         | 1,864,127 |                   |       |                    | 1,660,497 |          |      |          | 654,888   |         |       |      | 577,436   |        
|Selling, general and
administrative expenses |                                               |         | 1,348,547 |                   |       |                    | 1,432,723 |          |      |          | 486,495   |         |       |      | 617,336   |        
|                                             |                                               |         |           |                   |       |                    |           |          |      |          |           |         |       |      |           |        
|Income from operations                       |                                               |         | 515,580   |                   |       |                    | 227,774   |          |      |          | 168,393   |         |       |      | (39,900   | )      
|                                             |                                               |         |           |                   |       |                    |           |          |      |          |           |         |       |      |           |        
|Other income (expenses):                     |                                               |         |           |                   |       |                    |           |          |      |          |           |         |       |      |           |        
|                                             | Interest income                               |         |           | 11,262            |       |                    |           |          |      |          |           | 3,432   |       |      |           |         |     
|                                             | Interest expense                              |         |           | (64,576           | )     |                    |           | (103,511 | )    |          |           | (19,809 | )     |      |           | (46,124 | )   
|                                             | Foreign currency
exchange                     |         |           | (824              | )     |                    |           | 1,115    |      |          |           | (636    | )     |      |           | 836     |     
|                                             |                                               |         |           |                   |       |                    |           |          |      |          |           |         |       |      |           |        
|                                             |                                               |         | (54,138   | )                 |       |                    | (102,396  | )        |      |          | (17,013   | )       |       |      | (45,288   | )      
|                                             |                                               |         |           |                   |       |                    |           |          |      |          |           |         |       |      |           |        
|Income before income
taxes (benefit)         |                                               |         | 461,442   |                   |       |                    | 125,378   |          |      |          | 151,380   |         |       |      | (85,188   | )      
|Income tax (benefit)                         |                                               |         | 4,003     |                   |       |                    | (7,500    | )        |      |          | 724       |         |       |      | (10,139   | )      
|                                             |                                               |         |           |                   |       |                    |           |          |      |          |           |         |       |      |           |        
|Income (loss) from
continuing operations     |                                               |         | 457,439   |                   |       |                    | 132,878   |          |      |          | 150,656   |         |       |      | (75,049   | )      
|                                             |                                               |         |           |                   |       |                    |           |          |      |          |           |         |       |      |           |        
|Discontinued operations:                     |                                               |         |           |                   |       |                    |           |          |      |          |           |         |       |      |           |        
|                                             | Income (loss) from
operations of
subsidiaries |         |           | 10,195            |       |                    |           | 192,790  |      |          |           | (16,907 | )     |      |           | 105,439 |     
|                                             | Loss on disposal of
subsidiaries              |         |           | (12,309           | )     |                    |           |          |      |          |           | (12,309 | )     |      |           |         |     
|                                             |                                               |         |           |                   |       |                    |           |          |      |          |           |         |       |      |           |        
|                                             |                                               |         | (2,114    | )                 |       |                    | 192,790   |          |      |          | (29,216   | )       |       |      | 105,439   |        
|                                             |                                               |         |           |                   |       |                    |           |          |      |          |           |         |       |      |           |        
|Net income                                   |                                               | $       | 455,325   |                   |       | $                  | 325,668   |          |      | $        | 121,440   |         |       | $    | 30,390    |        
|                                             |                                               |         |           |                   |       |                    |           |          |      |          |           |         |       |      |           |        
|Earnings per share information:              |                                               |         |           |                   |       |                    |           |          |      |          |           |         |       |      |           |        
|                                             | Income from continuing operations             |         |           |                   |       |                    |           |          |      |          |           |         |       |      |           |         |     
|                                             |                                               | Basic   |           | $                 | 0.03  |                    |           | $        | 0.01 |          |           | $       | 0.01  |      |           | $       | 0.00 | 
|                                             |                                               |         |           |                   |       |                    |           |          |      |          |           |         |       |      |           |        
|                                             |                                               | Diluted |           | $                 | 0.02  |                    |           | $        | 0.01 |          |           | $       | 0.01  |      |           | $       | 0.00 | 
|                                             |                                               |         |           |                   |       |                    |           |          |      |          |           |         |       |      |           |        
|                                             | Discontinued operations:                      |         |           |                   |       |                    |           |          |      |          |           |         |       |      |           |         |     
|                                             |                                               | Basic   |           | $                 | (0.00 | )                  |           | $        | 0.01 |          |           | $       | (0.00 | )    |           | $       | 0.01 | 
|                                             |                                               |         |           |                   |       |                    |           |          |      |          |           |         |       |      |           |        
|                                             |                                               | Diluted |           | $                 | (0.00 | )                  |           | $        | 0.01 |          |           | $       | (0.00 | )    |           | $       | 0.01 | 
|                                             |                                               |         |           |                   |       |                    |           |          |      |          |           |         |       |      |           |        

See notes to consolidated financial statements.

F-3



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SETO HOLDINGS, INC. AND SUBSIDIARIES




CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
NINE AND THREE MONTHS ENDED OCTOBER 31, 2001 AND 2000

|                                        |                                         |   |                  |         |                    |   |         |         |          |   |         |         |      |   |        |         |  
|--------------------------------------- | --------------------------------------- | - | ---------------- | ------- | ------------------ | - | ------- | ------- | -------- | - | ------- | ------- | ---- | - | ------ | ------- | -
|                                        |                                         |   | Six Months Ended |         | Three Months Ended
|                                        |                                         |   | October 31,      |         | October 31,       
|                                        |                                         |   |                  |         |                   
|                                        |                                         |   |                  |         |                    |   | 2000    |         |          |   |         |         | 2000
|                                        |                                         |   | 2001             |         | Restated           |   | 2001    |         | Restated
|                                        |                                         |   |                  |         |                    |   |         |         |         
|Net income                              |                                         | $ | 455,325          |         |                    | $ | 325,668 |         |          | $ | 121,440 |         |      | $ | 30,390 |        
|Other comprehensive income,
net of tax: |                                         |   |                  |         |                    |   |         |         |          |   |         |         |      |   |        |        
|                                        | Foreign currency
translation adjustment |   |                  | (68,543 | )                  |   |         | (20,144 | )        |   |         | (68,543 | )    |   |        | (24,384 | )
|                                        |                                         |   |                  |         |                    |   |         |         |          |   |         |         |      |   |        |        
|Comprehensive income                    |                                         | $ | 386,782          |         |                    | $ | 305,524 |         |          | $ | 52,897  |         |      | $ | 6,006  |        
|                                        |                                         |   |                  |         |                    |   |         |         |          |   |         |         |      |   |        |        

See notes to consolidated financial statements.

F-4



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SETO HOLDINGS, INC. AND SUBSIDIARIES




CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED OCTOBER 31, 2001 AND 2000

|                                        |                                                                                |                                                    |                                                        |          |         |          |         |           |        |           |   | 
|--------------------------------------- | ------------------------------------------------------------------------------ | -------------------------------------------------- | ------------------------------------------------------ | -------- | ------- | -------- | ------- | --------- | ------ | --------- | - | 
|                                        |                                                                                |                                                    |                                                        |          |         |          |         |           |        | 2000     
|                                        |                                                                                |                                                    |                                                        |          |         | 2001     |         | Restated 
|                                        |                                                                                |                                                    |                                                        |          |         |          |         |          
|Operating
activities:                   |                                                                                |                                                    |                                                        |          |         |          |         |          
|                                        | Income from continuing operations                                              |                                                    | $                                                      | 457,439  |         |          | $       | 132,878   |       
|                                        | Adjustments to reconcile net income to cash
provided by continuing operations: |                                                    |                                                        |          |         |          |         |           |       
|                                        |                                                                                | Depreciation and amortization                      |                                                        |          | 83,888  |          |         |           | 49,718 |          
|                                        |                                                                                | Compensatory stock surrendered                     |                                                        |          | (25,200 | )        |         |           |        |          
|                                        |                                                                                | Changes in other operating assets and
liabilities: |                                                        |          |         |          |         |           |        |          
|                                        |                                                                                |                                                    | Accounts receivable                                    |          |         | (584,855 | )       |           |        | (51,097   | )
|                                        |                                                                                |                                                    | Inventories                                            |          |         | (122,361 | )       |           |        | (134,056  | )
|                                        |                                                                                |                                                    | Prepaid expenses and other current assets              |          |         | (29,817  | )       |           |        | (326,698  | )
|                                        |                                                                                |                                                    | Deferred tax assets                                    |          |         |          |         |           |        | (7,500    | )
|                                        |                                                                                |                                                    | Other assets                                           |          |         | 947      |         |           |        | 7,383     |  
|                                        |                                                                                |                                                    | Accounts payable, and accrued expenses                 |          |         | 408,505  |         |           |        | (398,106  | )
|                                        |                                                                                |                                                    | Deferred lease liability                               |          |         | 4,500    |         |           |        | 4,500     |  
|                                        |                                                                                |                                                    |                                                        |          |         |          |         |          
|                                        |                                                                                |                                                    | Net cash provided by (used in)
continuing operations   |          |         | 193,046  |         |           |        | (722,978  | )
|                                        |                                                                                |                                                    | Net cash provided by (used in)
discontinued operations |          |         | 103,680  |         |           |        | (159,452  | )
|                                        |                                                                                |                                                    |                                                        |          |         |          |         |          
|                                        |                                                                                |                                                    | Net cash provided by (used in)
operating activities    |          |         | 296,726  |         |           |        | (882,430  | )
|                                        |                                                                                |                                                    |                                                        |          |         |          |         |          
|Investing
activities:                   |                                                                                |                                                    |                                                        |          |         |          |         |          
|                                        | Purchase of property and equipment                                             |                                                    |                                                        | (209 280 | )       |          |         | (123,474  | )     
|                                        |                                                                                |                                                    |                                                        |          |         |          |         |          
|                                        |                                                                                |                                                    | Net cash used in investing activities                  |          |         | (209,280 | )       |           |        | (123,474  | )
|                                        |                                                                                |                                                    |                                                        |          |         |          |         |          
|Financing
activities:                   |                                                                                |                                                    |                                                        |          |         |          |         |          
|                                        | Proceeds from issuance of common stock                                         |                                                    |                                                        |          |         |          |         | 758,927   |       
|                                        | Proceeds from financing                                                        |                                                    |                                                        | 83,847   |         |          |         | 1,047,325 |       
|                                        | Payment of debt                                                                |                                                    |                                                        | (170,278 | )       |          |         | (514,039  | )     
|                                        |                                                                                |                                                    |                                                        |          |         |          |         |          
|                                        |                                                                                |                                                    | Net cash (used in) provided by
financing activities    |          |         | (86,431  | )       |           |        | 1,292,213 |  
|                                        |                                                                                |                                                    |                                                        |          |         |          |         |          
|Effect of exchange rate changes on cash |                                                                                |                                                    |                                                        |          |         |          | (20,144 | )        
|                                        |                                                                                |                                                    |                                                        |          |         |          |         |          
|Net increase in cash                    |                                                                                |                                                    | 1,015                                                  |          |         |          | 266,165 |          
|Cash, beginning of period               |                                                                                |                                                    | 599,229                                                |          |         |          | 349,547 |          
|                                        |                                                                                |                                                    |                                                        |          |         |          |         |          
|Cash, end of period                     |                                                                                | $                                                  | 600,244                                                |          |         | $        | 615,712 |          
|                                        |                                                                                |                                                    |                                                        |          |         |          |         |          

See notes to consolidated financial statements.

F-5



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SETO HOLDINGS, INC. AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. |  | The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included. The
results of operations for the nine months ended are not necessarily
indicative of the results to be expected for the full year. For
further information, refer to the consolidated financial statements
and footnotes thereto included in the Companys annual report for the
year ended January 31, 2001 included in its Annual Report filed on
Form 10-KSB.
|  
|2. |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|3. |  | ACCOUNTS RECEIVABLE:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |  | Following is a summary of receivables at October 31:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

|                                      |  |   |         |  
|------------------------------------- |  | - | ------- | -
|Trade accounts                        |  | $ | 982,229 |  
|Due from employees                    |  |   | 10,000  |  
|                                      |  |   |         |  
|                                      |  |   | 992,229 |  
|Less: Allowance for doubtful accounts |  |   | (10,350 | )
|                                      |  |   |         |  
|                                      |  | $ | 981,879 |  
|                                      |  |   |         |  

| |  |                                                                                                                           
| |  | --------------------------------------------------------------------------------------------------------------------------
| |  | At October 31, 2001 accounts receivable in the amount of $981,879 was
pledged as collateral in connection with bank loans.

F-6



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SETO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|   |  |                                            
|-- |  | -------------------------------------------
|4. |  | INVENTORY:                                 
|   |  | Inventories at October 31, 2001 consist of:

|                |  |   |         | 
|--------------- |  | - | ------- | 
|Finished goods  |  | $ | 619,998 | 
|Work in process |  |   | 75,300  | 
|Raw Materials   |  |   | 202,440 | 
|Supplies        |  |   | 23,932  | 
|                |  |   |         | 
|                |  | $ | 921,670 | 
|                |  |   |         | 

|   |  |                                                                                                                
|-- |  | ---------------------------------------------------------------------------------------------------------------
|   |  | At October 31, 2001 inventory in the amount of $921,670 was pledged as
collateral in connection with bank loans
|   |  |                                                                                                                
|5. |  | PROPERTY AND EQUIPMENT:                                                                                        
|   |  | The following is a summary of property and equipment, at cost, less
accumulated depreciation:                  

|                              |       |   |           |         | 
|----------------------------- | ----- | - | --------- | ------- | 
|Leasehold improvements        |       | $ | 150,961   |        
|Manufacturing equipment       |       |   | 795,073   |        
|Office equipment              |       |   | 128,486   |        
|                              |       |   |           |        
|                              |       |   | 1,074,520 |        
|Less accumulated depreciation |       |   | (322,036  | )      
|                              |       |   |           |        
|                              | Total |   | $         | 752,484 | 
|                              |       |   |           |        

|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  | Depreciation expense charged to operations was $69,875 and $43,252 in 2001
and 2000 respectively.                                                                                                                                                                                                                                                                                                                                                  
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |  | Machinery and equipment with a cost of $1,074,520 is pledged as collateral
for bank loans.                                                                                                                                                                                                                                                                                                                                                         
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|6. |  | GOODWILL:                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |  | In January 1990, the Company acquired East Coast Sales Company for
$309,000. The purchase price exceeded the fair value of the assets by
$134,281, which was assigned to goodwill and is being amortized on the
straight-line basis over forty years. As of October 31, 2001, accumulated
amortization of goodwill amounted to $45,471.                                                                                                            
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |  | 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 forty years. As of October 31, 2001, accumulated
amortization of goodwill amounted to $31,094.                                                                                                
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|7. |  | NOTES PAYABLE AND LONG-TERM DEBT:                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |  | The Company had an outstanding line of credit with a financial institution
in the amount of $1,200,000. The line of credit carries interest at an
annual rate of 2.9% plus the 30 day dealer commercial paper rate with an
expiration date of October 31, 2002. As of October 31, 2001, the Company
had utilized $1,017,963 of the line of credit. The personal guarantee of
the Companys president and the assets of the Company secure the loan.

F-7



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##### Table of Contents



SETO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|   |  |                                                                    
|-- |  | -------------------------------------------------------------------
|7. |  | NOTES PAYABLE AND LONG-TERM DEBT (Continued):                      
|   |  |                                                                    
|   |  | Long-term debt of the domestic companies consists of the following:

|                     |    |   |  |  |  |      |    |      |  |            |         |   |  |  |      | 
|-------------------- | -- | - |  |  |  | ---- | -- | ---- |  | ---------- | ------- | - |  |  | ---- | 
|                     |    |   |  |  |  |      |    |      |  | Balance    |         |   |  | 
|                     |    |   |  |  |  |      |    |      |  | October 31 |         |   |  | 
|                     |    |   |  |  |  | Rate |    | 2001 |  | Maturity  
|                     |    |   |  |  |  |      |    |      |  |           
|Equipment loan       | (a | ) |  |  |  |      | 15 | %    |  | $          | 40,940  |   |  |  | 2004 | 
|Shareholder          | (b | ) |  |  |  |      | 15 | %    |  |            | 68,226  |   |  |  | 2003 | 
|Shareholder          | (b | ) |  |  |  |      | 10 | %    |  |            | 10,720  |   |  |  | 2002 | 
|                     |    |   |  |  |  |      |    |      |  |            |         |   |  |  |      | 
|                     |    |   |  |  |  |      |    |      |  |            | 119,886 |   |  |  |      | 
|Less current portion |    |   |  |  |  |      |    |      |  |            | (74,570 | ) |  |  |      | 
|                     |    |   |  |  |  |      |    |      |  |            |         |   |  |  |      | 
|                     |    |   |  |  |  |      |    |      |  | $          | 45,316  |   |  |  |      | 
|                     |    |   |  |  |  |      |    |      |  |            |         |   |  |  |      | 

|                                              |  |                                                                                                 
|--------------------------------------------- |  | ------------------------------------------------------------------------------------------------
|(a)                                           |  | The note is payable in monthly installments of $1,607, including
interest                       
|                                             
|(b)                                           |  | The notes are payable to shareholders in monthly amounts aggregating
$12,417, including interest
|                                             
|The maturities of these loans are as follows:

|                 |  |   |         | 
|---------------- |  | - | ------- | 
|October 31, 2002 |  | $ | 74,570  | 
|October 31, 2003 |  |   | 34,617  | 
|October 31, 2004 |  |   | 10,699  | 
|                 |  |   |         | 
|                 |  | $ | 119,886 | 

| |  |                                                                                       
| |  | --------------------------------------------------------------------------------------
| |  | Notes payable and long-term debt of the foreign subsidiaries consist of the
following:

|     |                      |   |       |        |  
|---- | -------------------- | - | ----- | ------ | -
|DTI: |                      |   |       |       
|     | Capitalized lease    |   | $     | 19,041 |  
|     | Less current portion |   |       | (9,868 | )
|     |                      |   |       |       
|     |                      | $ | 9,173 |       
|     |                      |   |       |       

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

|                 |  |   |         | 
|---------------- |  | - | ------- | 
|October 31, 2002 |  | $ | 63,000  | 
|October 31, 2003 |  |   | 66,000  | 
|October 31, 2004 |  |   | 66,000  | 
|October 31, 2005 |  |   | 66,000  | 
|October 31, 2006 |  |   | 66,000  | 
|Thereafter       |  |   | 459,000 | 
|                 |  |   |         | 
|                 |  | $ | 786,000 | 
|                 |  |   |         | 

| |  |                                                                                                                                                                                                              
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Rent expense charged to operations was $58,477 and $41,211 in 2001 and
2000, respectively.                                                                                                                   
| |  |                                                                                                                                                                                                              
| |  | The Company also leases three vehicles under operating leases with terms
expiring through 2003. Total lease expense was $25,803 and $25,803 for the
nine months ended October 31, 2001 and 2000 respectively.

F-8



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##### Table of Contents



SETO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|   |  |                                                                                                              
|-- |  | -------------------------------------------------------------------------------------------------------------
|9. |  | INCOME TAXES:                                                                                                
|   |  | The components of income (loss) from continuing operations before provision
for income taxes were as follows:

|                                   |          |                        |                                |         |      |         |      |         |   |         | 
|---------------------------------- | -------- | ---------------------- | ------------------------------ | ------- | ---- | ------- | ---- | ------- | - | ------- | 
|                                   |          |                        |                                |         | 2001 |         | 2000
|                                   |          |                        |                                |         |      |         |     
|Income from continuing operations: |          |                        |                                |         |      |         |      |        
|                                   | Domestic |                        | $                              | 176,675 |      |         | $    | 23,330  |  
|                                   | Foreign  |                        |                                | 284,767 |      |         |      | 102,048 |  
|                                   |          |                        |                                |         |      |         |      |        
|                                   |          | Income from continuing |                                |         |      |         |      |         |   |        
|                                   |          |                        | operations before income taxes |         | $    | 461,442 |      |         | $ | 125,378 | 
|                                   |          |                        |                                |         |      |         |      |        

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

|          |         |                           |   |       |       |      |  |         |         |   | 
|--------- | ------- | ------------------------- | - | ----- | ----- | ---- |  | ------- | ------- | - | 
|          |         |                           |   | 2001  |       | 2000
|          |         |                           |   |       |       |     
|Current:  |         |                           |   |       |       |      |  |        
|          | Federal |                           |   |       |       |      |  |         |        
|          | State   |                           | $ | 4,003 |       |      |  |         |        
|          | Foreign |                           |   |       |       |      |  |         |        
|          |         |                           |   |       |       |      |  |        
|          |         | Total current             |   |       | 4,003 |      |  |         |         |  
|          |         |                           |   |       |       |      |  |        
|Deferred: |         |                           |   |       |       |      |  |        
|          | Federal |                           |   |       |       |      |  | ($7,500 | )      
|          | State   |                           |   |       |       |      |  |         |        
|          | Foreign |                           |   |       |       |      |  |         |        
|          |         |                           |   |       |       |      |  |        
|          |         | Total deferred            |   |       |       |      |  |         | (7,500  | )
|          |         |                           |   |       |       |      |  |        
|          |         | Total provision (benefit) |   | $     | 4,003 |      |  |         | ($7,500 | )
|          |         |                           |   |       |       |      |  |        

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

|                                                   |                                      |                                 |                                       |                                    |         |         |         |          |         |         |         |  
|-------------------------------------------------- | ------------------------------------ | ------------------------------- | ------------------------------------- | ---------------------------------- | ------- | ------- | ------- | -------- | ------- | ------- | ------- | -
|                                                   |                                      |                                 |                                       |                                    |         | 2001    |         | 2000    
|                                                   |                                      |                                 |                                       |                                    |         |         |         |         
|                                                   | Provision for income taxes:          |                                 |                                       |                                    |         |         |         |          |        
|                                                   |                                      |                                 | Federal tax at 34%                    |                                    | $       | 155,529 |         |          | $       | 45,179  |        
|                                                   |                                      |                                 | State tax, net of federal benefit     |                                    |         | 2,642   |         |          |         | 1,386   |        
|                                                   |                                      |                                 | Foreign tax effect, net               |                                    |         | (96,821 | )       |          |         | (34,696 | )      
|                                                   |                                      |                                 | Effect of operating loss carryforward |                                    |         | (56,628 | )       |          |         | (19,369 | )      
|                                                   |                                      |                                 | Discontinued operations               |                                    |         | (719    | )       |          |         |         |        
|                                                   |                                      |                                 |                                       |                                    |         |         |         |         
|                                                   |                                      |                                 |                                       | Provision (benefit) for income tax |         |         | 4,003   |          |         |         | (7,500  | )
|                                                   |                                      |                                 |                                       |                                    |         |         |         |         
|                                                   |                                      |                                 |                                       | Effective income tax rate          |         |         | 1       | %        |         |         | -6      | %
|                                                   |                                      |                                 |                                       |                                    |         |         |         |         
|Deferred tax assets (liabilities)
were as follows: |                                      |                                 |                                       |                                    |         |         |         |         
|Deferred tax asset:                                |                                      |                                 |                                       |                                    |         |         |         |         
|                                                   |                                      | Loss carry forward              |                                       |                                    | 696,171 |         |         | $        | 525,285 |        
|                                                   |                                      | Allowance for doubtful accounts |                                       |                                    | 3,519   |         |         |          | 3,378   |        
|                                                   |                                      |                                 |                                       |                                    |         |         |         |         
|                                                   |                                      |                                 |                                       | Total deferred                     |         |         | 699,690 |          |         |         | 528,663 |  
|                                                   | Deferred tax liabilities:            |                                 |                                       |                                    |         |         |         |          |        
|                                                   |                                      |                                 | Difference in depreciation            |                                    |         | (3,400  | )       |          |         | (1,062  | )      
|                                                   |                                      |                                 |                                       |                                    |         |         |         |         
|                                                   | Net value before valuation allowance |                                 |                                       | 696,290                            |         |         |         | 527,601  |        
|                                                   | Valuation allowance                  |                                 |                                       | (361,164                           | )       |         |         | (184,975 | )      
|                                                   |                                      |                                 |                                       |                                    |         |         |         |         
|                                                   | Net deferred tax asset               |                                 | $                                     | 335,126                            |         |         | $       | 342,626  |        
|                                                   |                                      |                                 |                                       |                                    |         |         |         |         

| |  | 
| |  | 

| |                                                                                                                                                                       | 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| | The Company has a net operating loss carryforward of approximately
$2,224,236 to apply against federal and state tax liabilities in the future
through the year 2009.

F-9



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##### Table of Contents



SETO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|    |  |                                                                                                                                                                                                                                                                                                                                                                                                
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|9.  |  | INCOME TAXES (Continued):                                                                                                                                                                                                                                                                                                                                                                      
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                
|    |  | The Company does not provide for U.S. Income Taxes or foreign withholding
taxes on the undistributed earnings of foreign subsidiaries, as such
cumulative earnings are intended to be permanently reinvested in those
operations. It is not practicable to estimate the amount of unrecognized
deferred tax liabilities for these undistributed foreign earnings.                              
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                
|    |  | The foreign subsidiaries do not have any tax credits under Section 108 if
the Income Tax Act, 1967 (Malaysia) to frank the payment of dividend out of
its entire retained profit. For this reason the foreign subsidiaries are
liable to a charge equivalent to 28% of the deemed tax deductible from
gross dividends payable under section 108(5) of the Income Tax Act, 1967.                
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                
|10. |  | COMMON STOCK:                                                                                                                                                                                                                                                                                                                                                                                  
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                
|    |  | During the nine months ended October 31, 2001, the Company took back 90,000
shares of its common stock from a public relations consultant. The Company
had previously expensed $25,200 in consulting fees regarding these shares
in their 2001 year-end financial statements. This amount reduced the
Companys public relations expense for the nine months ended October 31,
2001 by $25,200.
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                
|11. |  | EARNINGS PER SHARE:                                                                                                                                                                                                                                                                                                                                                                            
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                
|    |  | In February 1997, the FASB issued SFAS No 128, Earnings Per Share, which
requires presentation of basic and diluted earnings per share. As required,
the Company adopted the provisions of SFAS No. 128. Outstanding stock
options issued by the Company represent the only dilutive effect reflected
in dilutive weighted average shares.                                                   
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                
|    |  | The following reconciles the number of common shares outstanding at October
31, of 2001 and 2000 to the weighted average number of common shares
outstanding for the purposes of calculating basic and dilutive earnings per
share:                                                                                                                                                            

|                                                           |                                                              |  |                   |           |                   |  |            |           |      |  |            |           |  |  |            |  | 
|---------------------------------------------------------- | ------------------------------------------------------------ |  | ----------------- | --------- | ----------------- |  | ---------- | --------- | ---- |  | ---------- | --------- |  |  | ---------- |  | 
|                                                           |                                                              |  | Nine Months       |           | Three months     
|                                                           |                                                              |  | ended October 31, |           | ended October 31,
|                                                           |                                                              |  |                   |           |                  
|                                                           |                                                              |  | 2001              |           | 2000              |  | 2001       |           | 2000
|                                                           |                                                              |  |                   |           |                   |  |            |           |     
|Common shares outstanding
at October 31                    |                                                              |  | 14,271,000        |           |                   |  | 19,631,600 |           |      |  | 14,271,000 |           |  |  | 19,631,000 | 
|Effect of using weighted
average common shares
outstanding |                                                              |  | 157,311           |           |                   |  | (326,495   | )         |      |  |            |           |  |  |            | 
|                                                           |                                                              |  |                   |           |                   |  |            |           |      |  |            |           |  |  |            | 
|Basic number of common
shares outstanding                  |                                                              |  | 14,428,311        |           |                   |  | 19,305,105 |           |      |  | 14,271,000 |           |  |  | 19,631,600 | 
|Effect of using diluted securities:                        |                                                              |  |                   |           |                   |  |            |           |      |  |            |           |  |  |            | 
|                                                           | Weighted average common
equivalent shares from
stock options |  |                   | 5,525,000 |                   |  |            | 6,092,428 |      |  |            | 5,525,000 |  |  |            |  | 
|                                                           |                                                              |  |                   |           |                   |  |            |           |      |  |            |           |  |  |            | 
|Diluted number of common
shares outstanding                |                                                              |  | 19,953,311        |           |                   |  | 25,397,533 |           |      |  | 19,796,000 |           |  |  | 19,631,600 | 
|                                                           |                                                              |  |                   |           |                   |  |            |           |      |  |            |           |  |  |            | 

| |  |                                                                                                                                                                                                          
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | For the three months ended October 31, 2000 the effect of the Companys
common stock options are excluded from the dilutive earnings per share
calculation since inclusion of such would be antidilutive.
| |  |                                                                                                                                                                                                          
| |  | At October 31, 2001 there were approximately 5,525,000 million shares of
common stock potentially issuable with respect to stock options, which
could dilute basic earnings per share in the future.     

F-10



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##### Table of Contents



SETO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|12. |  | 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 employee, officers, directors and consultants. The Non-statutory
Stock Option Committee of the Board of Directors of the Company administers
the Plan. The Committee has full authority and discretion to determine the
eligible participants to be granted the options, the date of issuance,
exercise price and expiration date. The total number of shares set aside
for the Plan is 6,500,000.
|    |  | Under the Plan, the option exercise price is equal to the fair market value
of the Companys common stock at the date of the grant. Options currently
expire no later than ten years from the grant date. Proceeds received by
the Company from exercises of stock options are credited to common stock
and additional paid-in capital. Additional information with respect to the
Plans stock option activity is as follows:                                                                                                                                                                                                        

|                                        |           |  |           |          |         |   |          |      |  |  |  | 
|--------------------------------------- | --------- |  | --------- | -------- | ------- | - | -------- | ---- |  |  |  | 
|                                        |           |  |           |          |         |   | Weighted
|                                        |           |  |           |          |         |   | Average 
|                                        |           |  | Number of |          | Exercis
|                                        |           |  | Shares    |          | Price  
|                                        |           |  |           |          |        
|Outstanding at January 31, 2001         |           |  | 5,750,000 |          |         | $ | 0.29     |     
|                                        | Cancelled |  |           | (225,000 | )       |   |          | 0.84 | 
|                                        |           |  |           |          |         |   |          |     
|Outstanding at October 31, 2001         |           |  | 5,525,000 |          |         | $ | 0.24     |     
|                                        |           |  |           |          |         |   |          |     
|Options exercisable at October 31, 2000 |           |  | 6,150,000 |          |         | $ | 0.26     |     
|                                        |           |  |           |          |         |   |          |     
|Options exercisable at October 31, 2001 |           |  | 5,525,000 |          |         | $ | 0.24     |     
|                                        |           |  |           |          |         |   |          |     

Stock Options Outstanding

|                   |  |             |           |             |  |          |      |  |  |   |      | 
|------------------ |  | ----------- | --------- | ----------- |  | -------- | ---- |  |  | - | ---- | 
|                   |  |             |           |             |  | Weighted |      |  |  |  
|                   |  |             |           |             |  | Average  |      |  |  |  
|                   |  | Number      |           | Remaining   |  | Weighted
|                   |  | of          |           | Contractual |  | Average 
|                   |  | shares      |           | Life in     |  | Exercis 
|Ranges of Exercise |  | Outstanding |           | Years       |  | Price   
|                   |  |             |           |             |  |         
|$0.10 - $0.25      |  |             | 4,000,000 |             |  |          | 4.50 |  |  | $ | 0.14 | 
|$0.26 - $0.50      |  |             | 1,500,000 |             |  |          | 2.80 |  |  |   | 0.50 | 
|$0.51 - $1.50      |  |             | 25,000    |             |  |          | 0.58 |  |  |   | 1.50 | 
|                   |  |             |           |             |  |          |      |  |  |   |      | 
|                   |  |             | 5,525,000 |             |  |          | 3.37 |  |  | $ | 0.24 | 
|                   |  |             |           |             |  |          |      |  |  |   |      | 

Stock Options Exercisable

|                   |  |             |           |             |  |          |      |  |  |   |      | 
|------------------ |  | ----------- | --------- | ----------- |  | -------- | ---- |  |  | - | ---- | 
|                   |  |             |           |             |  | Weighted |      |  |  |  
|                   |  |             |           |             |  | Average  |      |  |  |  
|                   |  | Number      |           | Remaining   |  | Weighted
|                   |  | of          |           | Contractual |  | Average 
|                   |  | shares      |           | Life in     |  | Exercis 
|Ranges of Exercise |  | Outstanding |           | Years       |  | Price   
|                   |  |             |           |             |  |         
|$0.10 - $0.25      |  |             | 4,000,000 |             |  |          | 4.50 |  |  | $ | 0.14 | 
|$0.26 - $0.50      |  |             | 1,600,000 |             |  |          | 2.80 |  |  |   | 0.50 | 
|$0.51 - $1.50      |  |             | 25,000    |             |  |          | 0.58 |  |  |   | 1.50 | 
|                   |  |             |           |             |  |          |      |  |  |   |      | 
|                   |  |             | 5,625,000 |             |  |          | 3.32 |  |  | $ | 0.24 | 
|                   |  |             |           |             |  |          |      |  |  |   |      | 

F-11



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##### Table of Contents



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

SETO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|12. |  | COMMON STOCK OPTIONS (Continued):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |  | The Company has elected to follow APB-25 (Accounting for Stock Issued to
Employees) in accounting for its employee stock options. Accordingly, no
compensation expense is recognized in the Companys financial statements
because the exercise price of the Companys employee stock options equals
the market price of the Companys common stock on the date of grant. The
Company has determined that the pro forma net income impact under Financial
Accounting Standards Board Statement No. 123 (Accounting for Stock-Based
Compensation) does not produce a material difference. The Company has noted
that the volatility of the stock makes valuation by any other method
inconsequential.
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|13. |  | DISPOSITION OF SUBSIDIARY:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |  | In January 2001, the Company disposed of its subsidiary Fimas SDN, BHD and
reacquired the 5,000,000 shares of its common stock previously issued in
the acquisition. The net sales of Fimas SDN, BHD for the nine months ended
October 31, 2000 amounted to $18,414,032. This amount is not included in
net sales in the accompanying consolidated statement of income.                                                                                                                                                                                                                                                                                                                             
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |  | 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 $293,015
including accrued interest.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |  | Net sales of Fuji Fabrication for 2001 and 2000 were $163,256 and $609,192
respectively. These amounts are not included in net sales in the
accompanying consolidated statement of income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

|                                             |  |                   |         |                    |  |      |          |      |  |   |          |   |  |   |          |  
|-------------------------------------------- |  | ----------------- | ------- | ------------------ |  | ---- | -------- | ---- |  | - | -------- | - |  | - | -------- | -
|                                             |  | Nine Months Ended |         | Three Months Ended
|                                             |  | October 31,       |         | October 31,       
|                                             |  |                   |         |                   
|                                             |  | 2001              |         | 2000               |  | 2001 |          | 2000
|                                             |  |                   |         |                    |  |      |          |     
|Net sales                                    |  | $                 | 163,256 |                    |  | $    | 609,192  |      |  |   |          |   |  | $ | 166,006  |  
|Cost of sales                                |  |                   | 199,689 |                    |  |      | 560,916  |      |  | $ | 17,257   |   |  |   | 197,398  |  
|                                             |  |                   |         |                    |  |      |          |      |  |   |          |   |  |   |          |  
|Gross profit                                 |  |                   | (36,433 | )                  |  |      | 48,276   |      |  |   | (17,257  | ) |  |   | (31,392  | )
|                                             |  |                   |         |                    |  |      |          |      |  |   |          |   |  |   |          |  
|Selling, general and
administrative expenses |  |                   | 12,399  |                    |  |      | 77,228   |      |  |   | 2,845    |   |  |   | 19,434   |  
|Interest expense                             |  |                   |         |                    |  |      | 6,911    |      |  |   |          |   |  |   | 1,484    |  
|Other income                                 |  |                   | (59,027 | )                  |  |      | (2,250   | )    |  |   | (3,195   | ) |  |   | (1,064   | )
|                                             |  |                   |         |                    |  |      |          |      |  |   |          |   |  |   |          |  
|                                             |  |                   | (46,628 | )                  |  |      | 81,889   |      |  |   | (350     | ) |  |   | 19,854   |  
|                                             |  |                   |         |                    |  |      |          |      |  |   |          |   |  |   |          |  
|Net income (loss)                            |  | $                 | 10,195  |                    |  |      | ($33,613 | )    |  |   | ($16,907 | ) |  |   | ($51,246 | )
|                                             |  |                   |         |                    |  |      |          |      |  |   |          |   |  |   |          |  

| |  |                                                                                                                                                                                                                                                                                                                                                                     
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Company recorded approximately $89,000 for the year ended January 31,
2001 in a provision for severance pay, lease obligations and other related
costs, included in the loss from discontinued operations relating to Fimas
SDN, BHD in the accompanying statement of income (loss). As of October 31,
2001 the Company has paid $55,000 towards these expenses.

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SETO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|    |  |                                                                                                                                                                                                                                                                                                                                                                                                             
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|14. |  | 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
including 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:                                                                                                                                                                                                                                                                                                                  

|                          |                                         |   |           |           |      |   |           |           |  
|------------------------- | --------------------------------------- | - | --------- | --------- | ---- | - | --------- | --------- | -
|                          |                                         |   | 2001      |           | 2000
|                          |                                         |   |           |           |     
|Sales to customers:       |                                         |   |           |           |      |   |           |          
|                          | Industry A  Ceramics                   |   | $         | 1,519,572 |      |   | $         | 1,052,972 |  
|                          | Industry B  Diamond tools              |   |           | 561,748   |      |   |           | 608,919   |  
|                          | Industry C  Industrial batteries       |   |           | 1,738,902 |      |   |           | 2,048,244 |  
|                          | Industry D  Telecommunication products |   |           | 421,314   |      |   |           | 41,001    |  
|                          |                                         |   |           |           |      |   |           |          
|                          |                                         | $ | 4,241,536 |           |      | $ | 3,751,136 |          
|                          |                                         |   |           |           |      |   |           |          
|Operating profit or loss: |                                         |   |           |           |      |   |           |          
|                          | Industry A  Ceramics                   |   | $         | 518,593   |      |   | $         | 223,227   |  
|                          | Industry B  Diamond tools              |   |           | (250,292  | )    |   |           | (232,364  | )
|                          | Industry C  Industrial batteries       |   |           | 158,297   |      |   |           | 254,662   |  
|                          | Industry D  Telecommunication products |   |           | 88,982    |      |   |           | (17,751   | )
|                          |                                         |   |           |           |      |   |           |          
|                          |                                         | $ | 515,580   |           |      | $ | 227,774   |          
|                          |                                         |   |           |           |      |   |           |          
|Identifiable assets:      |                                         |   |           |           |      |   |           |          
|                          | Industry A  Ceramics                   |   | $         | 777,131   |      |   | $         | 801,987   |  
|                          | Industry B  Diamond tools              |   |           | 1,772,798 |      |   |           | 2,482,497 |  
|                          | Industry C  Industrial batteries       |   |           | 924,214   |      |   |           | 982,154   |  
|                          | Industry D  Telecommunication products |   |           | 229,417   |      |   |           | 199,147   |  
|                          | Corporate                               |   |           | 1,169,127 |      |   |           | 5,334,537 |  
|                          |                                         |   |           |           |      |   |           |          
|                          |                                         | $ | 4,872,687 |           |      | $ | 9,800,322 |          
|                          |                                         |   |           |           |      |   |           |          

|                                                                                                                                                               |  | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
|Two customers each accounted for more than 10% of total sales and together
accounted for approximately 45% of total sales for the year ended October
31, 2001.
|                                                                                                                                                              
|
|Foreign and domestic operations and export sales:                                                                                                             

|                    |               |   |           |           |      |   |           |           | 
|------------------- | ------------- | - | --------- | --------- | ---- | - | --------- | --------- | 
|                    |               |   | 2001      |           | 2000
|                    |               |   |           |           |     
|Sales to customers: |               |   |           |           |      |   |           |          
|                    | United States |   | $         | 1,097,625 |      |   | $         | 1,012,807 | 
|                    | Far East      |   |           | 2,709,509 |      |   |           | 2,325,704 | 
|                    | Canada        |   |           | 434,402   |      |   |           | 412,625   | 
|                    |               |   |           |           |      |   |           |          
|                    |               | $ | 4,241,536 |           |      | $ | 3,751,136 |          
|                    |               |   |           |           |      |   |           |          

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SETO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|    |  |                                                              
|--- |  | -------------------------------------------------------------
|14. |  | PRINCIPAL PRODUCTS AND SEGMENTATION OF SALES (continued):    
|    |  | Foreign and domestic operations and export sales (continued):

|                     |               |   |           |           |      |   |           |           | 
|-------------------- | ------------- | - | --------- | --------- | ---- | - | --------- | --------- | 
|                     |               |   | 2001      |           | 2000
|                     |               |   |           |           |     
|Operating profit:    |               |   |           |           |      |   |           |          
|                     | United States |   | $         | 123,739   |      |   | $         | 54,666    | 
|                     | Far East      |   |           | 342,861   |      |   |           | 151,470   | 
|                     | Canada        |   |           | 48,980    |      |   |           | 21,639    | 
|                     |               |   |           |           |      |   |           |          
|                     |               | $ | 515,580   |           |      | $ | 227,775   |          
|                     |               |   |           |           |      |   |           |          
|Identifiable assets: |               |   |           |           |      |   |           |          
|                     | United States |   | $         | 2,153,728 |      |   | $         | 4,263,140 | 
|                     | Far East      |   |           | 2,504,561 |      |   |           | 4,958,963 | 
|                     | Canada        |   |           | 214,398   |      |   |           | 578,219   | 
|                     |               |   |           |           |      |   |           |          
|                     |               | $ | 4,872,687 |           |      | $ | 9,800,322 |          
|                     |               |   |           |           |      |   |           |          

|    |  |                                    
|--- |  | -----------------------------------
|15. |  | SUPPLEMENTAL CASH FLOW INFORMATION:

|                                                                      |                                                               |   |        |         |      |   |         |         | 
|--------------------------------------------------------------------- | ------------------------------------------------------------- | - | ------ | ------- | ---- | - | ------- | ------- | 
|                                                                      |                                                               |   | 2001   |         | 2000
|                                                                      |                                                               |   |        |         |     
|Interest paid during the year                                         |                                                               | $ | 64,576 |         |      | $ | 103,511 |        
|                                                                      |                                                               |   |        |         |      |   |         |        
|Income taxes paid during the year                                     |                                                               |   |        |         |      |   |         |        
|                                                                      |                                                               |   |        |         |      |   |         |        
|Supplemental schedule of non-cash
investing and financing activities: |                                                               |   |        |         |      |   |         |        
|                                                                      | (Surrender) issuance of common
shares for consulting contract |   | $      | (25,200 | )    |   | $       | 220,600 | 
|                                                                      |                                                               |   |        |         |      |   |         |        
|                                                                      | Purchase of property and equipment
on installment financing   |   |        |         |      |   | $       | 70,611  | 
|                                                                      |                                                               |   |        |         |      |   |         |        

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MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

OVERVIEW AND GENERAL DEVELOPMENTS

1. General

Management believes that the Companys operating results for the nine and
three months ended October 31, 2001, was very satisfactory. Net income for the
nine months of fiscal year 2001 was 10.7% of sales. Net sales for the third
quarter 2001 was the highest quarter for the fiscal year: 29.2% greater than the
second quarter (from $1,238,522 to $1,600,174) and 14.1% greater then the first
quarter (from $1,402,840 to $1,600,174). For the three quarters of this year,
the Companys gross profit percentage has averaged approximately 44%, and
selling, general and administrative expense are very much under control while
only averaging 30%. Each quarter has been profitable with net income ranging
from 7.1% of sales in the first quarter to 18.9% of sales in the second quarter
(the third quarter was at 7.6% of sales). The strategic corporate restructuring
effected at the beginning of this fiscal year which consisted of the
disassociation of Fimas Sdn Bhd (Fimas) at the end of fiscal 2001, the
disposal of Fuji Fabrication Sdn Bhd (Fuji); during the current years third
quarter and the Companys emphasis on its major product lines (technical
ceramics, rechargeable batteries and associated products, diamond coated cutting
tools and contract manufacturing services) are the contributing factors.

Management anticipates reporting net sales of $6 million and net income of
$600,000 for fiscal year ending January 2002. The latter would be the Companys
highest annual net income figure in its history. Supporting this projection is
the current backlog of $1.6 million, which will be delivered over the next four
months, and the success of the Companys contract manufacturing services line
(approximately sales of $600,000 projected for the year), which is a new line as
of this fiscal year.

Discontinued Operations items listed in the Consolidated Statement of
Income for the third quarter were a result of Fujis loss from operations of
$16,907 and the Companys loss on disposal of Fuji of $12,309 for the third
quarter. Coincident with the Fuji termination is the sale of its equipment,
supplies and material to a private, independent company for $290,547. Shipment
from its location in Malaysia to its destination in Panama is in process as of
this writing and should arrive at its destination in December. The

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principal sum is due and payable in full on September 20, 2002 with interest
payments due quarterly through October 2002.

2. Financial Condition

Management believes its financial condition is healthy and will remain so
for the remainder of this 2002 fiscal year and well into next year. As of
October 31, 2001, whereas its liquid cash position decreased 21.4% from the
previous quarter to $600,244, the combination of cash and accounts receivable
increased by 11.1% to $1,582,123. In addition, total current assets and total
assets both increased from quarter to quarter by 21.8% and 6.6% respectively in
spite of the $29,216 loss from discontinued operations. Also, total
shareholders equity increased by 3.7% to $2,606,502 during the third quarter.

THIRD QUARTER 2001 COMPARED TO 2000

Disregarding discontinued operations, in the fiscal quarter ended October
31, 2001, net sales increased 10.2% to $1,600,174 from $1,451,751 and net income
increased by a factor of three (3) to $121,440 from $30,390 compared to the
previous years fiscal quarter ended October 31, 2000. Management stated that
the remainder of the product lines following the two divesting actions (Fimas
and Fuji) leaves the company with diverse but stabilized lines and improved
operating ratios emanating from its several subsidiaries. In the quarter ending
October 31, 2001, the gross profit margin was 40.9%, with subsidiaries margins
ranging from 21.8% to 63.2%; and income from operations as a percentage of sales
at 10.5% with subsidiaries ranging from 5.4% to 31.9%. The differing lines
inherent characteristics dictate the spread so that Management is very
comfortable with the current quarters results.

Gross Profit increased by 11% to $654,888 from $591,772 and income from
operations increased to $168,393 from a loss of $39,900 when comparing the
quarter ended October 31, 2001 to the quarter ended October 31, 2000.

The biggest contributors to the Companys improved financial results are
the revenue and net income from SETO Technology Sdn Bhd (SETO Tech), the
Malaysian subsidiary engaged in contract manufacturing services and the
technical ceramic line of East Coast Sales (ECS). For the quarter ending
October 31, 2001, SETO Tech had net sales of $421,314 and ECS sales were
$1,519,572 representing 9.9% and 35.8% respectively of total net sales for the
quarter. SETO Tech customers are U.S. companies primarily in the medical and
automotive industries; ECS sales emanate mostly from the aerospace/jet engine
and security/protection business areas.

Management is confident that net sales and net profit will continue its
growth pattern in the next fiscal quarter.

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NINE MONTHS ENDED OCTOBER 31, 2001 COMPARED TO NINE MONTHS ENDED OCTOBER 31, 2000

For the nine months ended October 31, 2001 compared to the nine months
ended October 31, 2000, net sales increased by 10.3% to $4,241,536 over sales of
$3,751,136 for the previous years comparable period. Net income for the nine
months ended October 31, 2001 was $455,375, a 39.8% increase over net income of
$325,668 for the previous quarters comparable period. Contributing to the
latter increase was a decrease in the selling, general and administrative
expense ratio of 16.8% as a function of sales. The Companys relative low ratio
of SG&A to net sales during the quarter just ended of 31.8% is believed by
Management to be a favorable cost factor that will continue at least at that
level.

LIQUIDITY AND CAPITAL RESOURCES

At October 31, 2001, the Company had current assets of $3,062,941
inclusive of $600,244 of unrestricted cash, and current liabilities of
$2,199,722 yielding a current ratio of 1.39:1, a 7.0% increase over the
ratio of July 31, 2001. The current ratio is in the upper range of its
historical experience so that Management believes that this measure of a
companys ability to meet current obligations reflects positively on the
Companys financial condition.

The $290,547 promissory note receivable is a result of Fujis asset
sale as described in the Overview and General Developments Section. It
should generate substantial net cash over a period of 12 months hence
totaling $290,547 plus accrued interest. Although a distinct benefit,
Management does not feel that this cash inflow is essential to meeting its
needs and that its operations standard cash flow plus its borrowing
capability will suffice for the remainder of this fiscal year and well into
the next.

There are no plans for large scale, high-priced equipment purchases as
of now. The Company does have a need for dicing saws, both for replacement
purposes as well as growth needs. These pieces of equipment are utilized in
the very profitable cutting portion of the industrial ceramics product
line. One saw costing $56,000, needed for added capacity, was obtained last
quarter and paid for with cash.

The Companys line of credit of $1 million is with a friendly and
cooperative financial institution, which increased the Companys credit
line to $1.2 million. An open balance of approximately $200,000 remains.
Although no assurances can be given, the Company is satisfactorily
servicing the loan and expects no problems in continuing to do so.

On the other hand, although no such prospects are presently known,
funds for any strategic acquisitions, which the Company has decided to
restrict to the U.S. will have to emanate from new financing sources.
Although positive discussions for such transactions have recently taken
place and additional sources may have to be explored, there is no assurance
that such funds will become available and if so, that it will be sufficient
and on acceptable terms to satisfy requirements.

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Effects of Foreign Currency Fluctuations

The Companys foreign operations are subject to risks related to
fluctuations in foreign currency exchange rates. During the third quarter of
fiscal year 2002, the foreign currency exchange loss was $636; and during the
first nine months of fiscal year 2002 the foreign currency exchange loss was
$824, and, thus, neither materially impacted operational results.

Management believes that for the remainder of fiscal year 2002, two factors
will continue to keep its foreign currency exchange losses or gains, if any,
extremely low: Malaysian and Chinese exchange rates are fixed relative to the
U.S. Dollar and, outside of these prime Company operating areas, the Company
deals in U.S. Dollars almost exclusively. As a by-product, a number of
economists believe that such predictable policies such as pegging exchange rates
yields a key element of financial stability.

While future fluctuations in currency rates could impact results of
operations or financial conditions, as now constituted, foreign operations are
expected to continue to provide strong revenue and earnings growth.

Disclosures About Market Risk

The Company is exposed to market risks from changes in interest rates and
foreign currency exchange rates. To manage exposure to these fluctuations, the
Company may occasionally enter into various hedging transactions. The Company
does not use derivatives for trading purposes, or to generate income or to
engage in speculative activity, and the Company never uses leveraged
derivatives. The Company does not use derivatives to hedge the value of its net
investments in these foreign operations.

The Companys exposure to foreign exchange rates fluctuations results from
wholly-owned subsidiary operations in Malaysia and Hong Kong as well as business
from foreign clientele located elsewhere and from the Companys share of the
earnings of these operations, which are denominated in other currencies.

Also, the Company faces the possibility of adverse market conditions from
technological changes, shifting product emphasis among competitors and the entry
of new competitors into the market.

Impact of Inflation

Although, it is difficult to predict the impact of inflation on costs and
revenues of the Company in connection with the Companys products, the Company
does not anticipate that inflation will materially impact its cost of operation
or the profitability of its products during fiscal year 2002.

Forward Looking Statements

This Managements Discussion and Analysis or Plan of Operation contains
statements which are not historical facts and are forward-looking statements
which reflect managements expectations, estimates

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and assumptions. Such statements are based on information available at the time
this Form 10-QSB was prepared and involve risks and uncertainties that could
cause future results, performance and achievements of the Company to differ
significantly from projected results. Factors that could cause actual future
results to differ materially include, among others, the risks of doing business
in Malaysia, Hong Kong, Southeast Asia in general, and other parts of the globe
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, ceramic, electronic, telecommunication manufacturing industries,
and manufacturing industries in general; availability of raw materials; intense
competition and technological obsolescence. The Company assumes no obligation to
update such forward-looking statements, if any, at any time.

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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: December 13, 2001                       

In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.

| |  |                                          
| |  | -----------------------------------------
| |  | /s/ Eugene J. PianEugene J. Pian
Director
|
| |  | Date: December 13, 2001                  
|
| |  | /s/ Craig A. PianCraig A. Pian
Director  
|
| |  | Date: December 13, 2001                  
|
| |  | /s/ Francine PianFrancine Pian
Director  
|
| |  | Date: December 13, 2001