S A ADVISORY January 1998

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SEMICON TOOLS, INC.
(OTC-BB-SETO)

We just introduced SETO to our readers via our E-mail service on July 9, 1997 at an attractive price of $.07/share. It was then released in our July-August 1997 Newsletter. When we introduced this issue, we assumed that SETO was a mini-micro growth stock opportunity that would generate a few million in sales and earn a few cents during 1997. At that time the management expressed the fact that SETO was also acquisition oriented. (Note: at this time SETO had a book value of around $.10, no real debt, fully filing with the SEC and only had 10 million shares outstanding and trading close to its 52-week low. We liked the story).

Before December 1, 1997, SETO sold small precision disposable diamond tools used to manufacture electronic components and devices, which it either manufactures or purchases from exclusive suppliers. Through ECS Company, Inc., a wholly owned subsidiary, the company also serves as a distributor and fabricator of industrial ceramic products and is also a distributor of “clean room” materials and supplies primarily used by the electronics and defense industry. Announced on December 1997, SETO confirmed that it had just completed a major acquisition that increases the size of the company by ten times.

The acquired company, namely, Teik Tatt Holdings Co. (located in Malaysia) is a leading Malaysian manufacturer of plastic products such as rope, yarn, twine, high quality rubber bands and it also recycles plastics and nonferrous metals from electronic components and circuit boards obtained from obsolete computers.

The newly acquired company TTH had consolidated revenues of $14 million for the year ended December 96 with net income of $1.8 million audited! (US Dollars and after taxes).

For the nine months ending September 30, 1997, it had revenues of $14.7 and net income of $1.5 million (unaudited). SETO purchased all of the issued and outstanding capital stock of TTH for an aggregate of 10 million shares of its common stock constituting approximately 50% of the company after the acquisition.

On a proforma basis, taking into account the recent acquisition of Teik Tatt Holdings, for nine months ended October 31, 1997, Semicon Tools Inc. had sales of $16,209.922, a 99% increase over the $8,143,050 in sales for the comparable period October 31, 1996, and net income of $1,742,122, an 80% increase over the nine months ended October 31, 1997, as compared to $965,495 for the comparable nine months ended October 31, 1996. On a proforma basis, the shares outstanding on October 31, 1997 are 19,867,500, with an earnings of $.087 per share for nine month. Projected estimate for year ending January 31, 1998, is $2,190,000, with earnings of $.11 per share. THIS IS WHAT WE REALLY HAVE!

There are 20 million shares outstanding with only 6 million free trading. For the year ending December 31, 1997, combined revenues will be at least $20 million (US dollars) and net income after taxes will be $2.2 million (US dollars). This equals .11/share in earnings! (Note: These values come from management directly and can also be seen in partial from news release dated December 10, 1997.

The shareholders’ equity as of September 30, 1997 for the combined companies equals $8.3 million (US dollars) or .41 . . . that is, the stated book value is .41.

According to management, 1998 revenues will reach in excess of $40 million and net income will equal $3.8 million after taxes (the Malaysian sub has tax credits from the government and SETO has $1 million in NOL). The income/share equals .19.

Does all this sound like pie-in-the-sky? Call the company and ask for Mr. Pian at 1-914-273-1400. he will tell you the same thing!! SETO is also fully reporting (10Q and 10K filings are current).

First realize that the meltdown in Malaysia actually benefits SETO, since their products are exported out of the country for US dollars. The currency devaluation in local terms actually reduces costs for this contract manufacturer. You may ask how will SETO grow from $20 million to $40 million during fiscal 1998.

The primary growth according to management will come from the recycling business. During 1997 recycling accounted for $6 million. For 1998 this segment is anticipated to reach $20 million. (Some European contracts are pending that have not been figured into this scenario). The $20 million in growth is in the form of signed contracts and firm commitments.

FUNDAMENTAL ANALYSIS
We base our analysis on a share price of .42. If we look to calculate a reasonable PE valuation for SETO, we will take into account the anticipated growth rate of next year, that is, growth by 100%, and assign a PE of 20 and also a very conservative value of 10 due to SETO’s obscurity.

First, we must assume that SETO will probably have earnings of .11/share ending January 31, 1998 (Note: SETO has already earned .087 for the nine months ending October 31, 1997). If we assign a PE of 20 and 10, respectively, we formulate a share price of $2.20 and $1.10, respectively. If we examine calendar year 1998 or fiscal year 1999, SETO, according to management, will double its sale and earn .19/share. If again we allow SETO to sport an aggressive PE of 20 and a conservative valuation of 10, then our share valuation explodes to $3.80 and $1.90, respectively. A far cry from the current valuation of $.42.

At present the stated book value is around $.41 (based upon a proforma calculation). By the end of January, 1998, it will increase to around .43 and based on fiscal 99, SETO’s book should increase to around $.60. Being conservative, we will assume that SETO could easily trade at 3x book and be very reasonably priced. This will allow us to assign a share valuation of $1.29 and $1.80, respectively. Again, this demonstrates how undervalued shares of SETO presently are.

Finally, if we assign a PSR (price to sales) of 1 to SETO, then our share valuation would appreciate dramatically from current levels. If SETO were to trade at a PSR of 1 based upon year-end sales of $21 million ending January 1998, then our share price would be $1.00. If we look further out toward fiscal 99, then our share price would equal $2.00. (In our opinion, a PSR value of 1 is extremely conservative). Even using a conservative value, SETO’s shares still deserve a much higher valuation than it currently sports, that is, .42.

In our opinion, if SETO can attain all that is estimated during the next 12 months, SETO, in our opinion has the potential to trade in the $3 to $5 range. As its visibility and consistency becomes apparent tot he street and its growth in revenue and earnings becomes a reality, SETO in our opinion has the potential to become a 10-banger from current levels. At present, SETO qualifies for NASDAQ listing except for the value of its shares. We believe that the four dollar level can be attained either by a 2 for 1 split once the stock hits $2.00 or via straight growth in sales and earnings.

Management has expressed to us that they have no real interest in reversing the stock, but if they did, it would only be a 2 for 1 in order to qualify mor quickly for NASDAQ. At present there are only 6.5 million shares free-trading. The remaining 13.5 are controlled by SETO management and the newly acquired company. Teik Tatt decided to be acquired by SETO since its plans for an IPO in Hong Kong was put on hold due to the recent unnerving market conditions. Management of Teik Tatt believes that their company is worth $4.00/share and anticipates that SETO, the public company, will take them there. Teik Tatt has been in business since 1966. The company has been manufacturing in Penang and Kehad, Malaysia and also in Vietnam. Please keep in mind that the estimates that are reviewed in this document have been secured from management. Again, management is very optimistic that growth in sales and earnings during the next 12 months can be reached.

If you have any questions concerning what we have discussed, feel free to contact management at 914-273-1400 (Mr. Pian, President). If you are on-line and would like to review SEC filings, SETO is current and has all 10Q’s and 10K on file and also the latest 8K should be there, which in detail explains the recent acquisition. In summation, based upon current, as well as future fundamentals, this opportunity is a SCREAMING BUY at the .42 level. Even though we first recommended this opportunity at .07, it is now a totally different company. In addition, the deal appears clean and is fully reporting, which aids in the credibility of this mini-micro.

 Proforma Select Financial Data (Year ended Jan)

                                

               9 mo A       Jan 98 E       Jan 99 E



Sales          $16.2mil      $21mil         $40mil

Net income     $1.7 million  $2.2 million   $3.8 million

Income/share   .087          .11            .19

Shares         20 million    20 million     20 million

outstanding

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