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    July 31, 1998

                                                        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




                                 SEMICON  TOOLS, INC.
           (Exact name of small business issuer as specified in its charter)




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


             554 North State Road, Briarcliff Manor, New York 10510

                      (Address of principal executive offices)


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 July 31, 1998

Common Stock, par value $.001
 per share                                               20,353,500




<PAGE>





























                                      INDEX


Part I.   Financial Information


   Item 1.  Condensed consolidated financial statements:

         Balance sheet as of July 31, 1998                              F-2

         Statement of income for the six and three months
       ended July 31, 1998 and 1997                                     F-3

         Statement of comprehensive income for the six and
           three months ended July 31, 1998 and 1997                    F-4

         Statement of cash flows for the six months ended
           July 31, 1998 and 1997                                       F-5

         Notes to condensed consolidated financial statements        F-6 - F-15


   Item 2.  Management's discussion and analysis of
                 financial condition



Part II.  Other information


   Signatures







<PAGE>



                                 SEMICON TOOLS, INC. AND SUBSIDIARIES

                         CONDENSED CONSOLIDATED BALANCE SHEET - JULY 31, 1998
                                        (UNAUDITED)




                                                      ASSETS

Current assets:
  Cash                                                           $   424,870
  Cash, fixed deposits with bank                                     921,053
  Accounts receivable, less allowance
   for doubtful accounts of $7,350                                14,531,641
  Inventory                                                        4,021,672
  Prepaid expenses and other assets                                  665,698
  Deferred tax asset, current portion                                 67,780
                                                                  -----------

    Total current assets                                          20,632,714

Property and equipment, net of depreciation                       13,559,571
                                                                 -----------

Other assets:
   Security deposits                                                  11,564
   Goodwill, net of amortization                                     119,041
   Deferred tax asset, net of current portion                        135,561
                                                                 -----------

                                                                     266,166
                                                                 -----------

                                                                 $34,458,451
                                                                 ===========



                                       LIABILITIES AND SHAREHOLDERS' EQUITY


Current liabilities:
  Current portion of long-term debt                             $ 1,548,734
  Notes payable, bank                                             5,612,591
  Notes payable, other                                           10,508,357
  Accounts payable                                                2,006,682
  Accrued expense and payroll taxes payable                       2,118,729
  Income taxes payable                                              193,286
                                                                -----------

    Total current liabilities                                    21,988,379

Long-term debt, net of current portion                            3,584,223
                                                                -----------

Commitments and contingencies

Shareholders' equity:
  Common stock par value $.001; 100,000,000
   shares authorized; 20,353,500 shares issued and
   outstanding                                                       20,354
  Additional paid in capital                                      9,334,713
  Currency translation adjustment                              (    551,072)
  Retained earnings                                                  81,854
                                                                 -----------

                                                                  8,885,849
                                                                 -----------

                                                                $34,458,451
                                                                ===========





     See notes to condensed consolidated financial statements.
                                                                            F-2


<PAGE>



                       SEMICON TOOLS, INC. AND SUBSIDIARIES

                   CONDENSED CONSOLIDATED STATEMENT OF INCOME

                SIX AND THREE MONTHS ENDED JULY 31, 1998 AND 1997
                                   (UNAUDITED)










<TABLE>
<CAPTION>
<S>                                        <C>           <C>                     <C>          <C>        



                                                           Six Months                          Three Months
                                                             ended                                 ended
                                                            July 31,                              July 31,
                                                 1998                1997              1998                1997
                                                 ----                ----              ----                ----


Net sales                                    $20,106,575         $  934,780        $10,841,515        $   512,177

Cost of sales                                 15,804,434            313,080          8,520,700            187,844
                                             -----------         ----------        -----------        -----------

Gross profit                                   4,302,141            621,700          2,320,815            324,333

Selling, general and
 administrative expenses                       1,325,975            531,216            904,769            289,496
                                             -----------         ----------        -----------        -----------

Income from operations                         2,976,166             90,484          1,416,046             34,837

Other charge, interest
 expense                                       1,752,652             19,117            947,116              9,292
                                             -----------         ----------        -----------        -----------

Income before income taxes                     1,223,514             71,367            468,930             25,545

Deferred income tax
 expense (benefit)                                10,909             26,564      (      9,262)             14,069
                                             -----------         ----------       -----------         -----------

Net income                                   $ 1,212,605         $   44,803        $   478,192        $    11,476
                                             ===========         ==========        ===========        ===========

Income per common share                      $      .050         $     .003        $      .020        $      .001
                                             ===========         ==========        ===========        ===========

Weighted average number
 of common shares
 outstanding                                  22,720,753         13,167,500         22,782,000         13,867,500
                                             ===========         ==========        ===========        ===========



</TABLE>













     See notes to condensed consolidated financial statements.
                                                                            F-3


<PAGE>



                          SEMICON TOOLS, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

                     SIX AND THREE MONTHS ENDED JULY 31, 1998 AND 1997
                                   (UNAUDITED)
















<TABLE>
<CAPTION>
<S>                                          <C>          <C>       <C>            <C>       <C>   


                                                           Six Months                          Three Months
                                                             ended                                 ended
                                                            July 31,                              July 31,
                                                 1998                1997              1998                1997
                                                 ----                ----              ----                ----



Net income                                    $1,212,605            $44,803          $478,192            $11,476

Other comprehensive income, net of tax:
   Foreign currency
    translation adjustment                        34,428                            ( 437,941)
                                              ----------            -------          --------           --------

Comprehensive income                          $1,247,033            $44,803          $ 40,251            $11,476
                                              ==========            =======           ========           =======



</TABLE>
























     See notes to condensed consolidated financial statements.
                                                                            F-4


<PAGE>



                         SEMICON TOOLS, INC. AND SUBSIDIARIES

                  CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

                     SIX MONTHS ENDED JULY 31, 1998 AND 1997
                                   (UNAUDITED)



<TABLE>
<CAPTION>
<S>                                                                                <C>                  <C>     

                                                                                        1998              1997
                                                                                        ----              ----

Operating activities:
  Net income                                                                        $1,212,605           $ 44,803
  Adjustments to reconcile net income to
   cash provided from operating activities:
     Depreciation and amortization                                                     454,519             21,131
     Changes in other operating assets and
      liabilities:
        Accounts receivable                                                       ( 5,323,116)         (  94,065)
        Inventories                                                                  2,770,351         (  15,748)
        Other assets                                                                    11,002         (     800)
        Prepaid expenses and other current assets                                 (   117,671)             25,234
        Accounts payable, accrued expenses and
         payroll taxes payable                                                         909,632             76,780
                                                                                    ----------           --------

        Net cash provided by (used in) operating
         activities                                                               (    82,678)             57,335
                                                                                   ----------            --------

Investing activities:
  Purchase of property and equipment                                              ( 1,645,531)         (  33,258)
                                                                                   ----------           --------

        Net cash used in investing activities                                     ( 1,645,531)         (  33,258)
                                                                                   ----------           --------

Financing activities:
  Proceeds from financing                                                            3,583,000
  Proceeds from issuance of common stock                                                85,000                500
  Decrease in notes payable, shareholders'                                        (    66,553)         (  38,204)
  Payment of debt                                                                 ( 1,854,214)         (  23,420)
                                                                                   ----------           --------

        Net cash provided by (used in) financing
           activities                                                                1,747,233         (  61,124)
                                                                                    ----------          --------

Effect of exchange rate changes on cash and
 cash equivalents                                                                       34,428

Net increase (decrease) in cash                                                         53,452         (  37,047)

Cash, beginning of period                                                            1,292,471            116,334
                                                                                    ----------           --------

Cash, end of period                                                                 $1,345,923           $ 79,287
                                                                                    ==========           ========

Supplemental disclosure:
  Cash paid during the period for:
    Interest                                                                        $1,752,652           $  9,292
                                                                                    ==========           ========
    Income taxes                                                                    $        0           $      0
                                                                                    ==========           ========

Supplementary schedule of non-cash investing and financing activities:
   Issuance of common stock for purchase of
    subsidiary                                                                      $  100,000           $      0
                                                                                    ==========           ========
   Issuance of common stock for consulting fees
    and services                                                                    $   18,110           $      0
                                                                                    ==========           ========


</TABLE>


     See notes to condensed consolidated financial statements. 
                                                                            F-5


<PAGE>



                               SEMICON TOOLS, INC. AND SUBSIDIARIES

                       NOTES TO CONDENSED 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 three months ended is 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, 1998 included in its Annual Report filed on Form 10-
         KSB.


2. Organization of the Company:

        Semicon Tools, Inc. (the "Company"), a Nevada corporation,  is primarily
         in the business of selling small precision disposable diamond and other
         base material tools used to cut and separate electronic  components and
         devices.  In addition,  it has four subsidiaries with their own product
         lines.

        One  of  the  Company's  wholly-owned  subsidiaries,  East  Coast  Sales
         Company,  Inc. ("ECS") is a Connecticut  corporation  which distributes
         and fabricates  technical  ceramic products and distributes  clean room
         supplies  and tools.  This  Company,  which was acquired on January 26,
         1990, was accounted for in a manner similar to the pooling of interests
         method of accounting. The total cost of the acquisition,  $309,000, was
         paid for by the issuance of a $300,000  note,  bearing  interest at 10%
         per annum,  and the issuance of 9,000,000  shares  (60,000  shares,  as
         restated - see Note 7) of the  Company's  $.001 par value  common stock
         (see also Note 5).

        The Company's  wholly-owned  subsidiary,  DTI  Technology,  SDN BHD is a
         Malaysian corporation which manufactures a product line similar to that
         of Semicon Tools,  Inc. Semicon Tools,  Inc. acquired the assets of DTI
         Technology,   SDN  BHD  on  June  22,  1996.  The  total  cost  of  the
         acquisition,  $125,048,  was paid for by the issuance of 300,000 shares
         of the  Company's  $.001 par value common stock with a negotiated  fair
         value of $.42 per share.

        The Company's wholly-owned subsidiary, Teik Tatt Holding Co., SDN BHD, a
         Malaysian  corporation,  manufactures  rubber bands,  plastic ropes and
         recycles  plastic  and metal from wire  cable,  electronic  devices and
         circuit broads.  In November 1997, the Company issued 10,000,000 shares
         of  unregistered  common shares in exchange for 100% of the outstanding
         shares of Teik Tatt Holding Co., SDN BHD, the value of the shares being
         the  net  book  value  of  the  acquired   Company  of   $6,560,040  or
         approximately  $.66 per share.  The  acquisition was accounted for as a
         purchase.







                                                                           F-6


<PAGE>



                              SEMICON TOOLS, INC. AND SUBSIDIARIES

                      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS






2.      Organization of the Company (continued):

        The Company's other wholly-owned subsidiary, Fuji Fabrication,  SDN BHD,
         a  Malaysian  corporation,   manufactures  cellular  phone  replacement
         batteries.  On June 30, 1998,  the Company issued 100,000 shares of its
         unregistered  common  shares in  exchange  for 100% of the  outstanding
         shares of Fuji  Fabrication,  SDN BHD,  the value of the  shares  being
         $1.00 per share. The acquisition was accounted for as a purchase.


3. Summary of significant accounting policies:

        Principles of consolidation:
         The  consolidated  financial  statements  of Semicon  Tools,  Inc.  and
           subsidiaries  include all the accounts of Semicon Tools,  Inc.,  East
           Coast Sales Company,  DTI  Technology,  SDN BHD and Teik Tatt Holding
           Co., SDN BHD and Fuji Fabrication,  SDN BHD, after elimination of all
           significant intercompany  transactions and its subsidiaries accounts.
           The financial  statements give retroactive  effect to the acquisition
           of DTI  Technology,  SDN  BHD  which  has  been  accounted  for as an
           acquisition as if in a pooling of interest  method at historical cost
           of the assets acquired.


4. Property and equipment:

        Major classifications of property and equipment are as follows:


        Land                                                   $   355,184
        Buildings and improvements                               2,364,234
        Manufacturing equipment                                 13,520,911
        Office equipment                                           570,346
        Automotive equipment                                       177,862
                                                                -----------
                                                                16,988,537
        Less accumulated depreciation                            3,428,966
                                                                 ---------

                                                               $13,559,571
                                                               ===========


5.      Goodwill:

        On January 26, 1990, the Company  acquired East Coast Sales Company (its
         wholly-owned  subsidiary)  for a cost of $309,000.  The purchase  price
         exceeded  the fair value of the  assets by  $134,281  which  amount was
         assigned to goodwill,  and is being amortized on a straight-line  basis
         over forty  years.  Accumulated  amortization  of  goodwill  aggregated
         $37,078 as of July 31, 1998.

      OnJune 30, 1998,  the Company  acquired  Fuji  Fabrication,  SDN BHD for a
        cost of $100,000.  The purchase  price exceeded fair value of the assets
        by $20,999,  which amount was assigned to goodwill and will be amortized
        over a forty year period beginning August 1, 1998.






                                                                          F-7


<PAGE>



                                 SEMICON TOOLS, INC. AND SUBSIDIARIES

                          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS











6. Commitments and contingencies:

        In November  1995 the Company  moved its  operations  and was  obligated
         under a lease agreement for office and manufacturing  facilities.  This
         lease expired on May 31, 1998. Rent expense  amounted to $9,641 for the
         six months  ended July 31, 1998 and  $19,282  for the six months  ended
         July 31, 1997.

        Rental  expense for the period ended April 30, 1998 and 1997 amounted to
         $9,641.

        In April  1998,  the  Company  moved  its  New  York  operations  and is
         currently  obligated under a lease agreement with a related party 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.  The Company also paid two months
         rent at $3,000  per  month to an  outside  party for the same  premises
         before the property  was  purchased  by the related  party.  This lease
         requires the following future minimum rental payments:


                           July 31, 1999                           $ 60,000
                           July 31, 2000                             60,000
                           July 31, 2001                             60,000
                           July 31, 2002                             60,000
                           July 31, 2003                             60,000
                           Thereafter                               675,000
                                                                   --------

                                                                   $975,000
                                                                   ========



        Rent expense amounted to $30,000 for the six months ended July 31, 1998.

        The Company also leases three vehicles under operating leases with terms
         expiring  through 1998. Total lease expense was $17,717 and $17,776 for
         the period ended July 31, 1998 and 1997, respectively.

        The  Company  has  entered  into  written  sales   agreements  with  two
         employees.  The agreements are on a year to year basis and call for the
         payment of  commissions,  varying  from 1 to 4 percent,  on the sale of
         selected products.










                                                                            F-8


<PAGE>



                                SEMICON TOOLS, INC. AND SUBSIDIARIES

                        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS











7. Common stock:

        During the six months ended July 31, 1998,  the Company  issued  350,000
         shares of its common  shares  with net  proceeds  of  $85,000  upon the
         exercise of certain common stock purchase options.

        The Company  issued  100,000 shares of its common shares to acquire Fuji
         Fabrication,  SDN  BHD.  It  also  issued  36,000  shares  for  certain
         consulting and professional services rendered.



8. Long-term debt:


<TABLE>
<CAPTION>
<S>                                      <C>           <C>               <C>            <C>             <C>   
                                                                            Long-term       Current
                                                              Rate           Portion        Portion      Maturity



        Note payable, Bank of New York   (a)              Prime + 1%       $   17,601    $    8,333        2001

        Note payable, shareholder        (b)                  15%             100,000                      2000

        Note payable, shareholder        (c)                  10%              75,797        47,898        2002

        Notes payable, bank (foreign)    (d)             1.75% to 2%
                                  above bankers
                                  base lender's
                                                            rates           1,658,373       126,806  undetermined
        Notes  payable, capital leases,
         bank, (foreign)                 (e)               Approx 8%        1,732,452     1,365,697        1999
                                                                           ----------    ----------

                                                                           $3,584,223    $1,548,734
                                                                           ==========    ==========

</TABLE>



        (a)    Note   payable,   Bank  of  New  York,   is  payable  in  monthly
               installments of $686, excluding interest. Machinery and equipment
               with a cost of $33,000 is pledged as collateral on this note.

        (b)    Note payable,  shareholder,  became due when the note to Citibank
               was paid in full in 1997. The  shareholder  has waived his demand
               right and the Company is currently  negotiating terms for payment
               of the note.











                                                                           F-9


<PAGE>



                                   SEMICON TOOLS, INC. AND SUBSIDIARIES

                         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS








8.      Long-term debt (continued):


        (c)      On April 23, 1997,  the Company  renegotiated  an existing loan
                 with  a  certain  shareholder  resulting  in a  new  obligation
                 payable in monthly installments of $4,053 including interest at
                 10%.

        (d)      The term loans are secured by a mortgage on the leasehold  land
                 and  factory  building  of Teik  Tatt  Holding  Co.,  SDN  BHD,
                 machinery of one of its  subsidiaries and its property owned by
                 a third party.

        (e)      Certain fixed assets are pledged as collateral  for the capital
                 leases to the banks by both foreign subsidiaries.


        The maturities of these loans are as follows:


                           July 31, 1999                         $1,548,734
                           July 31, 2000                          1,311,602
                           July 31, 2001                          1,174,764
                           July 31, 2002                          1,097,857
                                                                  ----------

                                                                 $5,132,957
                                                                 ==========


9. Notes payable, banks:

        Bank overdrafts and  borrowings  for the foreign  subsidiary,  Teik Tatt
         Holding Co., in the amount of  $5,612,591  are secured in the amount of
         $5,479,578  by  leasehold  land and factory  building  of the  Company,
         freehold land and buildings of one of its  subsidiaries  and a property
         owned by a third party and the guarantee of all the directors. Interest
         is payable at 1% to 2% above the banks' base lending rates.

        The Company also has an outstanding  line of credit with the Bank of New
         York for $300,000 at July 31, 1998. The loan is secured by the personal
         guarantee of one of the Company's major  shareholders and the assets of
         Semicon Tools, Inc. At July 31, 1998, the Company had utilized $250,000
         of this line.


10. Income taxes:

        Effective February 1, 1993, the Company adopted Statement of Financial
         Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
         109"), the cumulative effect of which was not material to the
         consolidated financial statements and is therefore not presented
         separately.  Under the asset and liability method of SFAS No. 109,
         deferred tax assets and liabilities are recognized for the future tax







                                                                           F-10


<PAGE>



                               SEMICON TOOLS, INC. AND SUBSIDIARIES

                         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS






10.  Income taxes (continued):

         consequences  attributable  to the  differences  between the  financial
         statement carrying amounts of existing assets and liabilities and their
         respective tax bases and operating  loss and tax credit  carryforwards.
         Deferred  tax assets and  liabilities  are measured  using  enacted tax
         rates  expected  to apply to taxable  income in the year in which those
         temporary  differences  are expected to be recovered or settled.  Under
         SFAS No. 109,  the effect on deferred tax assets and  liabilities  of a
         change in tax rates is recognized in income in the period that includes
         the enactment  date;  this effect was immaterial for the periods ending
         July 31, 1998 and 1997.  The  deferred  tax asset less the deferred tax
         liabilities has been reduced by a valuation  allowance equal to the net
         tax benefit in excess of the  estimated  taxable  profits over the next
         three years.

        Provision for income taxes (benefit):
                                                      1998               1997
                                                      ----               ----

                    Current                        $     0            $     0
                    Deferred                        10,909             26,564
                                                    -------           -------

                      Total expense                $10,909            $26,564
                                                   =======            =======


        Areconciliation  of the  income tax  expense  provision  at the  federal
         statutory rate to the income tax provision at the effective tax rate is
         as follows:

                                                           1998          1997
                                                           ----          ----

         Computed tax at the expected statutory rate     $469,303      $24,874
         Surtax exemption                               (  12,424)
         State income taxes                                 2,651        1,690
         Foreign income                                 ( 448,621)
                                                         ---------     --------

         Income tax expense                              $ 10,909      $26,564
                                                         ========      =======


      The  components  of  deferred  tax assets and  liabilities  consist of the
     following:
                                                                  July 31,
                                                                    1998
                                                                    ----

            Deferred tax asset:

              Net operating loss carryforward                    $480,000

                 Total deferred tax asset                         480,000

                 Valuation allowance                              276,659
                                                                  -------

                                                                 $203,341
                                                                 ========






                                                                        F-11


<PAGE>



                               SEMICON TOOLS, INC. AND SUBSIDIARIES

                      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS








10.  Income taxes (continued):

        The foreign  subsidiary,  Teik Tatt Holding Co., SDN BHD, is required to
         maintain a  statutory  reserve of 5% of the profit  after  taxation  in
         accordance  with the Foreign  Investment  Law until such reserve equals
         10% of the  legal  capital.  The  reserve  is  non-distributable  under
         Malaysian law.

        The Company has made  adjustments  to eliminate the tax  provisions  for
         foreign  earnings  since said  earnings are  undistributed  and will be
         permanently  invested.  The cumulative amounts of foreign undistributed
         earnings are $1,509,942 at July 31, 1998.


11. Employment agreements:

        On May 1, 1996, the Company entered into employment  agreements with its
         President and Vice President.  The term of the agreements covers a five
         year period  expiring April 30, 2003.  Compensation is set at a base of
         $100,000   and  $75,000   for  the   President   and  Vice   President,
         respectively,  with  each  getting  a bonus  of 5% of the  increase  in
         Semicon  Tools/East  Coast Sales  consolidated  net income over the net
         income from the previous  years  exclusive of Teik Tatt Holding Co. Sdn
         Bhd.  Each  employee  also  received  1,000,000  stock options at $.25,
         1,000,000  stock options at $.10 and 500,000 stock options at $.50. The
         options  were not  part of the 1997  Non-statutory  Stock  Option  Plan
         effectuated  March 25, 1997. As of July 31, 1998, none of these options
         had been exercised.

        On July 15, 1998, the Company entered into an employment  agreement with
         the acting secretary of the Company. The term of the agreement covers a
         five year period expiring July 15, 2003.  Compensation is set at a base
         of $55,000  with a bonus of 2% of any  increase  in Semicon  Tools/East
         Coast  Sales  consolidated  net  income  over the net  income  from the
         previous  years  exclusive  of Teik Tatt  Holding  Co,  SDN,  BHD.  The
         employee also received  500,000 stock options  exercisable  at $.50 per
         share,  none of which have been  exercised as of July 31,  1998.  These
         options  were not  part of the 1997  non-statutory  stock  option  Plan
         effectuated March 25, 1997.


12. Consulting agreements:

        On January  1,  1998,  the  Company  granted a  consultant  an option to
         purchase  100,000  shares of common stock of Semicon  Tools,  Inc. at a
         price of $.05 per share for a period  of three  years  from the date of
         signing.  This option was issued for services the  consultant  provided
         which were related to the Teik Tatt acquisition.  The shares underlying
         these options were issued pursuant to the Company's 1997  Non-Statutory
         Stock Option Plan. The option was exercised February 6, 1998.








                                                                         F-12


<PAGE>



                             SEMICON TOOLS, INC. AND SUBSIDIARIES

                     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS






12.     Consulting agreements (continued):

        On February 9, 1998, the Company entered into a consulting agreement for
         the period  February 9, 1998 to December 31, 1998. The consultant  will
         assist Semicon Tools, Inc. in strategic  planning,  corporate planning,
         merger and acquisition and divestitive advice. In consideration for the
         consulting  services,  Semicon  granted an option to the  consultant to
         purchase  600,000  shares of common stock of Semicon  Tools,  Inc. at a
         price of $.50 per  share  for a period  of two  years  commencing  four
         months from the date of signing.

        The  consultant  is also  entitled  to a  finders  fee in the  event the
         consultant first introduces a potential  acquisition to the Company and
         such acquisition is ultimately  consummated.  The agreement calls for a
         payout based on the amounts expended for such acquisition. On March 12,
         1998,  the Company and the  consultant  extended  the  agreement  dated
         February 9, 1998 for a period of twelve months.

        Also on  February  9,  1998,  the  Company  entered  into  a  consulting
         agreement  for the period  February 9, 1998 to December 31,  1998.  The
         consultant  will assist the Company in  strategic  planning,  corporate
         planning,   merger  and   acquisition  and   divestiture   advice.   In
         consideration  for the  consulting  agreement  The  Company  granted an
         option to purchase  100,000  shares of common  stock at a price of $.50
         per share for a period of two years  commencing  four  months  from the
         date of the  signing of this  agreement.  The shares  underlying  these
         options  will be  registered  under  the  Securities  Act of 1933.  The
         consultant  is  also  entitled  to a  finders  fee  in  the  event  the
         consultant first introduces a potential  acquisition to the Company and
         such acquisition is ultimately  consummated.  The agreement calls for a
         payout based on the amounts expended for such acquisition.

        On July 1, 1998, the Company entered into a consulting agreement for the
         period  July 1,  1998 to June 30,  1999.  The  consultant  will  assist
         Semicon Tools, Inc. in strategic planning,  corporate planning, mergers
         and  acquisitions  and divestiture  advise.  In  consideration  for the
         consulting   agreement  the  Company  granted  an  option  to  purchase
         1,000,000  shares of its common  stock at a price of $.50 per share for
         one year from the date of signing this agreement.

        Also on July 1, 1998,  the  Company  entered  into an  agreement  with a
         consultant for investor  relations counsel for a three month period. In
         consideration  for these  services,  the consultant will be paid $6,500
         and  granted an option to  purchase  50,000  common  shares at $.87 per
         share, with the option expiring July 1, 2000.

        On February 18,  1998,  the Company  entered  into an  agreement  with a
         consultant to provide the Company with a public relations program.  The
         term of the  agreement is from  February 19, 1998 to August 18, 1998, a
         six month  period.  The  agreement  can be cancelled  anytime after the
         first 90 days and calls for a monthly  fee of $2,500 plus out of pocket
         costs not to exceed $2,000.







                                                                          F-13


<PAGE>



                                    SEMICON TOOLS, INC. AND SUBSIDIARIES

                           NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





13. Computation of earnings per share:

<TABLE>
<CAPTION>
<S>                                                                              <C>                  <C>    

                                                                                   Six months          Six months
                                                                                      ended               ended
                                                                                     July 31,            July 31,
                                                                                       1998               1997
                                                                                       ----               ----

              Weighted average number of
               common shares outstanding                                           20,075,753           9,167,500

              Assumed conversion of
               stock options                                                        2,645,000           4,000,000
                                                                                   ----------          ----------

              Weighted average number of
               common shares outstanding                                           22,720,753          13,167,500
                                                                                   ==========          ==========
</TABLE>




14. Common stock options outstanding:

         Summary of options outstanding are as follows:

<TABLE>
<CAPTION>
<S>                                               <C>              <C>               <C>              <C>    

                                                                                      Exercise         Expiration
                                                     Date               Amount          Price              Date

        Eugene Pian                                05/01/96         $1,000,000            $.25           05/01/01
        Eugene Pian                                02/13/97          1,000,000             .10           05/01/01
        Eugene Pian                                07/15/98            500,000             .50           07/15/03
        Craig Pian                                 05/01/96          1,000,000             .25           05/01/01
        Craig Pian                                 02/13/97          1,000,000             .10           05/01/01
        Craig Pian                                 07/15/98            500,000             .50           07/15/03
        Francine Pian                              07/15/98            500,000             .50           07/15/03

        Employees                                  11/05/97             50,000             .05           11/05/99
        Consultant                                 07/01/98          1,000,000             .50           07/01/99
        Consultant                                 07/01/98             50,000             .87           07/01/00

</TABLE>


        On March 25, 1997, the Company  effectuated a Non-statutory Stock Option
         Plan for the purpose of advancing  the interests of the Company and its
         stockholders  by helping the Company  obtain and retain the services of
         key management employees, officers, directors and consultants. The Plan
         will be administered by the Non-statutory Stock Option Committee of the
         Board of Directors of the Company. The committee has full authority and
         discretion  to determine  the eligible  participants  to be granted the
         options, the date of issuance,  exercise price and expiration date. The
         total  number of shares  set  aside  for the Plan is  6,500,000.  As of
         January 31, 1998,  900,000  options had been issued under the Plan,  of
         which 350,000 had been exercised by July 31, 1998.







                                                                          F-14


<PAGE>



                                 SEMICON TOOLS, INC. AND SUBSIDIARIES

                         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS








14. Common stock options outstanding (continued):

        The Company  has elected to  continue  use of the methods of  accounting
         described by APB-25 "Accounting for Stock Issued to Employees" which is
         based on the intrinsic value of equity  instruments and has not adopted
         the principles of SFAS-123  "Accounting  for Stock Based  Compensation"
         effective for fiscal year beginning  after December 15, 1995,  which is
         based  on  fair  value.  There  is no  significant  difference  between
         compensation  cost  recognized  by APB-25 and the fair value  method of
         SFAS-123.  The Company has not recognized  compensation on the granting
         of options or  warrants to  employees  and  consultants  since the fair
         value of warrants  or options is the same as or less than the  exercise
         price.



15. Acquisition of subsidiary, Fuji Fabrication, SDN BHD:

        On June 30, 1998, the Company  purchased 100% of the outstanding  common
         shares of Fuji  Fabrication,  SDN BHD in a transaction  to be accounted
         for as a purchase.  The  Company  issued  100,000  shares of its common
         stock valued at $.50 per share.

        The assets  acquired and  liabilities  assumed as of June 30, 1998,  the
         date of the acquisition, are as follows:


                      Current assets                                $ 72,511

                      Non-current assets                              23,795
                                                                      ------
                                                                      96,306

                      Current liabilities                             17,305
                                                                      ------

                      Net assets acquired                             79,001

                      Purchase price                                 100,000
                                                                     -------

                      Excess of purchase price over
                       net assets acquired                          $ 20,999
                                                                    ========


















                                                                         F-15


<PAGE>










ITEM 2.  Management's Discussion and Analysis or Plan of Operation

General

On November 26, 1997, the Company acquired all of the capital stock of Teik Tatt
Holding Co. (1979) Sdn. Bhd.  ("Teik Tatt"),  a Malaysian  corporation.  For the
quarter  ended  July 31,  1998,  Teik Tatt and its  subsidiaries  (collectively,
"TTH")  generated  approximately  83% of the  Company's net sales and 52% of the
Company's net income.  The percentage  contributions  to the Company's net sales
and net income by product line for the three  months  ended July 31,  1998,  the
second complete quarter incorporating the results of TTH, are as follows:

                                                   For the Three Months Ended
                                                          July 31, 1998

                                                       Percentage of
    Product Line                                 Net Sales          Net Income

      Metal scrap recycling                         45%                 31%
      Plastic rope                                  32                  14
      Industrial ceramic products                    8                  35
      Rubber bands                                   6                   7
      Plastic recycling                              3                  13
      Diamond cutting tools                          3                 ( 1)
      Clean room materials and supplies and
        miscellaneous products                       2                   1
      Batteries                                      *                   *

      * Less than 1%

In recent  months,  the economic  conditions  in Malaysia have worsened and that
country has been  officially  declared to be in recession.  Malaysian banks also
have  suffered and they have been  reducing the credit  facilities  available to
their customers. Consequently, as discussed below, in the quarter ended July 31,
1998,  despite a 17% increase in net sales,  the Company's net income  decreased
35% to $.02  from  $.03 per  share in the  quarter  ended  April  31,  1998.  In
addition,  TTH's  credit  facilities  have not  been  renewed  whenever  TTH has
satisfied its outstanding  bank debt, and therefore TTH's borrowing  ability has
been  substantially  reduced.  As a  result  of the  Malaysian  recession,  high
Malaysian  interest  rates and TTH's  diminished  credit lines,  TTH incurred an
operating loss for the month of August and, if such conditions were to continue,
the Company could incur a sizable loss for the quarter  ending October 30, 1998.
As a result of the  foregoing,  the Company is  reevaluating  with TTH's  former
owner the Company's  decision to acquire TTH. The Company  currently  intends to
negotiate with such former TTH owner for his repurchase of TTH, but no assurance
can be given that any such negotiations will be successful.

Second Quarter 1998 Results of Operations

During the three months ended July 31, 1998,  the Company's net sales  increased
to $10,841,515  from $512,177,  and the Company had net income of $478,192 ($.02
per  share),  compared  to  $11,476  ($.001  per  share),  in the  prior  year's
comparable  period.  The Company's net sales in the second quarter  increased by
$1,576,455,  or 17%, over the first quarter as a result of TTH's increased metal
scrap recycling, but net income decreased by $256,221 or 35%, from $.03 to $.02.
The  quarterly  decline in net income was  attributable  to  increased  investor
relations costs and TTH's interest expense on Malaysian debt.







<PAGE>








For the three months ended July 31, 1998 gross profit was $2,320,815 or 21.4% of
net sales,  as  compared  to  $324,333  or 63% of net sales in the prior  year's
second  quarter and $1,981,326 or 21% of net sales in the first quarter of 1998.
Although in the quarter ended July 31, 1998 gross profit increased due to higher
sales,  gross  profit as a  percentage  of net sales  remain flat due to the low
profit margins in TTH's operations,  especially in its metal scrap recycling and
plastic rope businesses. For the six months ended July 31, 1998 gross profit was
$4,302,141 or 21.4% of net sales.


Liquidity and Capital Resources

At July 31,  1998 the  Company  had  current  assets of  $20,632,714,  including
$1,345,923  of  cash  (of  which  $921,053  is a  fixed  deposit),  and  current
liabilities  of  $21,988,379.  Accordingly,  the Company  had a working  capital
deficit of $1,355,665.  In addition,  at July 31, 1998 the Company had long-term
debt, net of current portion,  of $3,584,223,  and for the six months ended July
31, 1998 interest expense totaled  $1,752,652  principally  attributable to TTH.
The Company's  liquidity has been  adversely  effected by the debt burden of TTH
and the continuing  economic crisis in Southeast Asia in general and Malaysia in
particular.  Although  no  assurances  can be given,  the Company  expects  that
internally  generated  funds and existing  credit  facilities  will  continue to
enable it to meet its  obligations as they come due and finance its  operations.
However, primarily in order to reduce its debt and the related interest expense,
which  would  improve  profitability,  and  secondarily  to  purchase  recycling
equipment which the Company believes would improve its product mix by generating
additional  sales with higher margins,  the Company has been seeking  additional
equity  capital.  The Company's  efforts to date have not been successful and it
has received no funding commitments, and no assurance can be given that any such
financing will be obtained on reasonable terms, if at all.  Consequently,  TTH's
growth has been adversely  effected and TTH's  interest  expense has reduced the
Company's profitability. Accordingly, the Company currently intends to negotiate
with the former owner of TTH for his  repurchase of TTH, but no assurance can be
given that any such negotiations will be successful.

Under  Malaysian  law,  TTH is required to maintain a statutory  reserve of five
percent (5%) of profit after taxation in accordance with the Foreign  Investment
Law until such reserve equals ten percent (10%) of legal capital.
Such reserve is non-distributable.

Effects of Foreign Currency Fluctuations

The  Company's  foreign  operations  are  subject  to certain  risks  related to
fluctuation in foreign  currency  exchange rates.  Due to a  strengthening  U.S.
dollar and a weaker  Malaysian  ringgit,  in the year ended January 31, 1998 the
Company  recognized  $37,719 in foreign currency exchange losses,  which did not
have a material  adverse  effect on net income.  While  future  fluctuations  in
currency  exchange  rates  could  impact  results  of  operations  or  financial
position, the Company does not expect they will be material.

Disclosure about Market Risk

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



<PAGE>







The  Company's  exposure to foreign  exchange  rate  fluctuations  results  from
investment in foreign ventures in Malaysia,  and from the Company's share of the
earnings of these operations, which are denominated in the Malaysian ringgit.

Year 2000 Costs

The Company currently operates numerous date-sensitive computer applications and
network systems throughout its business. As the century change approaches, it is
essential  for the Company to ensure that these systems  properly  recognize the
year 2000 and continue to process  operational  and financial  information.  The
Company recently upgraded its computer systems and does not expect complications
related to year 2000 issues to arise.

Impact of inflation

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

Forward-Looking Statements

THIS  "MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OR PLAN OF  OPERATION",  CONTAINS
STATEMENTS  WHICH ARE NOT HISTORICAL  FACTS AND ARE  FORWARD-LOOKING  STATEMENTS
WHICH  REFLECT  MANAGEMENT'S  EXPECTATIONS,   ESTIMATES  AND  ASSUMPTIONS.  SUCH
STATEMENTS ARE BASED ON  INFORMATION  AVAILABLE AT THE TIME THIS FORM 10-QSB WAS
PREPARED AND INVOLVE RISKS AND  UNCERTAINTIES  THAT COULD CAUSE FUTURE  RESULTS,
PERFORMANCE  OR  ACHIEVEMENTS  OF  THE  COMPANY  TO  DIFFER  SIGNIFICANTLY  FROM
PROJECTED  RESULTS.  FACTORS  THAT COULD CAUSE ACTUAL  FUTURE  RESULTS TO DIFFER
MATERIALLY  INCLUDE,  AMONG OTHERS,  THE RISKS OF DOING BUSINESS IN MALAYSIA AND
SOUTHEAST  ASIA,   INCLUDING;   WITHOUT   LIMITATION,   ECONOMIC  AND  POLITICAL
CONDITIONS,  FOREIGN CURRENCY TRANSLATION RISKS, TARIFFS AND OTHER FOREIGN TRADE
POLICIES  AND  DEPENDENCE  ON  INEXPENSIVE  LABOR  IN  SUCH  COUNTRIES,  PARTIAL
DEPENDENCE ON THE  SEMICONDUCTOR  MANUFACTURING  INDUSTRY,  AVAILABILITY  OF RAW
MATERIALS, INTENSE COMPETITION AND TECHNOLOGICAL OBSOLESCENCE.