Corporate Description

The company's core business is comprised of technical products to industry, inclusive of diamond tools, wafer fabrication supplies and technical ceramics; and products for multimedia, Internet, computer, telecommunication and consumer electronic industries.

SETO Holdings, Inc.'s technical product group has an impressive client base. The division sells their products to numerous Fortune 1000 companies in various industries, such as semiconductor, electronics, medical, industrial, energy, aerospace defense and security and others throughout the world.

The company has three operating subs:

SEMICON TOOLS, INC. (STI)

A wholly owned subsidiary of SETO, one of STI's original product lines is the hub and hubless (hubless patent No. 4219004) diamond nickel and resin bonded dicing blade. These cutting tools have diamond particles captured in a metal nickel or resin matrix, each with a small cutting edge made to very close tolerances. The diamond blades are used as the dicing/cutting saw blade of precision electronic dicing saws that are needed in the electronic and semiconductor industries to cut and separate integrated circuits and discrete devices from wafers. The diamond blade is used primarily on all types of what are commonly termed "Hard Materials," such as Silicon, GaAs (Gallium Arsenide), Sapphire, Alumina, Quartz and Circuit Boards. The diamonds dicing blades are manufactured in a variety of exposures, densities and micron sizes to best match the materials being cut.

Complementing the dicing blade line, Semicon Tools, Inc. manufactures other supplementary products, including diamond scribing tools for cutting speciality coated glasses such as mirrors and Thermodes and Synthrodes (trade marks), which are natural and synthetic diamond tipped bonding tools used in the tape automated "TAB" bonding process. To offer the wafer fab manufacturers the most expansive selection of products, STI also manufactures companion accessories to the dicing blade line which includes: mounting blocks (ceramic, lava and graphite), tape (mounting wafer), waxes (mounting), flanges/spacers, high quality abrasive dressing plates, film frames and cassettes (aluminum and plastic) and film frames (stainless steel).

DTI Technology SDN BND, "DTI" (Malaysia) is the manufacturing arm of STI and the primary supplier of the diamond tools sold to the semiconductor, machine tool and jewelry industries. DTI also has fabrication ability of ceramic and graphite for wear resistance applications and handling tools for the hard disk drive industry. This division accounts for 30% of total sales.

EAST COAST SALES, INC. (ECS)

A wholly owned subsidiary of SETO, ECS currently specializes in the distribution and value added fabrication of technical ceramic products. ECS's primary product line is high purity, high temperature technical ceramics for many varied applications in different industries, such as aerospace, jet engines and defense. In addition to the standard labware and insulators available, ECS also fabricates high purity ceramics to customer specification. Other ceramic products distributed by ECS, including machineable ceramics, thermocouple tubing, rods, insulators and other types of laboratory supplies. To further enhance the product line of the company, East Coast Sales, Inc. also distributes disposable Clean Room Supplies. These cleaning supplies are designed specifically for use in class 10 to class 10,000 clean rooms, laboratories, and production areas within the semiconductor and electronic industries.

SETO TECHNOLOGY SDN BHD.

This division has been recently reorganized into a sales marketing service company with an experienced contract and assembly manufacturing team using outside sources without manufacturing responsibility and working capital. The staff of this division has extensive experience in all aspects and products of assembly and contract manufacturing from circuit board assembly to full turnkey products.

This division accounts for 10% of sales.

Upon review of revenue growth (fiscal year ending January 31), from 2000A to 2004E, the resulting rates of growth, that is 34%, A61%, E29% and E37%, are quite impressive when one considers the tumultuous events that have plagued the market, economy and overall sentiment. When one considers the financial meltdown during the Fall of 98, the Dotcom implosion of 00, the tech and teleco collapse, the recession of 01, the horrid events of 9-11 and the endless accounting scandals that have raised serious questions about the legitimacy of corporate America.. It is very gratifying that many microcaps public companies, such as SETO continue to grow and prosper and in reality remain the backbone of corporate America's underlying strength.

Based upon management's actual and estimated earnings for fiscal 03 ending January 31, that is, .12/sh from continuing operations, and then applying a conservative PE valuation of 15x, the resulting share price equals $1.80 - a far cry from the current share price of $.27. This results in a 566% appreciation over the current market valuation of SETO. If we look further out to fiscal 04 ending January 31 and rely on management's earnings estimates of .15/sh and use the same PE value of 15x, then a resulting share price of $2.25 is calculated and a 733% appreciation is possible above the current market valuation of SETO, that is, $.27!

Based upon management's revenue estimate for fiscal 03, that is, $8 million, a resulting PSR of .49 is calculated. This, of course, indicates a very distressed share price. If SETO were to trade at a PSR of 3, which would yield a fully valued scenario, then SETO would trade around $1.65 - again a far cry from current levels and a potential of 511% appreciation from the current share price of $.27.

Any way you slice, dice or chop, SETO shares at current levels offers aggressive investors a superb entry point into a rapidly growing micro-cap with huge actual and estimated earnings potential during at least the next 18 months.

We envision almost nil downside at current levels and 400% - 700% stock appreciation potential over the same time duration!

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ECONOMIC OVERVIEW

The Institute for Supply Management Production Managers Index has been edging higher during the past few quarters (Note: The June number was the highest since February 2000, just before the tech bubble burst. The July number released showed some slippage, but remains above 50, which indicates growth).

The group's production index stood at 61.4 - its highest level since June 99. This index, of course, indicates the macro-economic picture of manufacturing and to certain degree employment growth. Even at the micro level, at which our candidate resides, in our opinion, bodes well for fortifying the company's revenues and earnings growth during the next eighteen months.

It is quite obvious that the semiconductor equipment industry has been mired in the worst downturn in its history. According to the Semiconductor Industry Association (SIA), there is light at the end of the tunnel! The SIA predicts sales growth of 6% in 2002 and 23% in 2003. Even at the micro level SETO will also see a rise in their semiconductor business. According to management, sales relating to this division will grow from 30% to 35% during the next 6 to 12 months.

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QUESTION AND ANSWER

Questions by William Velmer, Editor of S. A. Adivsory and www.saadvisory (19 years ) of Mr. Eugene Pian, President of SETO HOLDINGS, Inc.

W. Velmer: We talked about fiscal 03 ending January 31 that revenue and earnings will be $8 million and .12 net income/share (continuing operations). Is this number pie-in-the-sky or are you being conservative?

Mr. Pian: At present we are relatively confident about our numbers through Q3 of 03 and may actually beat our Q4 number. We are introducing a series of Search and Rescue products geared towards police, fire and forensics. We are very excited about the growth potential that these products will deliver during the next 12 months.

W. Velmer: Does your current business plan call for growth via acquisition or during the next 18 months are revenues and earnings only going to be derived from internal growth?

Mr. Pian: We are very serious about growth via acquisition and management is actively pursuing candidates that can compliment or enhance our current product mix. With respect to the second part of your question, all the numbers that we have supplied you with only pertain to internal growth.

W. Velmer: During the next 18 months you have stated that earnings/share will equal $.27. Does management have any intension of declaring a cash dividend?

Mr. Pian: We have considered it and it remains on our plate. At present, because of our near term capital expenditures and needed working capital, a dividend is not near term, but looking out into fiscal 2004, it is a strong possibility.

W. Velmer: Any products that you are developing or have plans to introduce that could be called the "Killer Application?"

Mr. Pian: Yes! During the late third quarter we intend to introduce a series of safety and rescue products that will aid police, fire, mining, traffic control, EMS and disaster. One of our "new" products that is suitable for search and rescue, police, fire and forensics is a high-impact safety helmet which was specifically designed for usage when it is imperative that personnel have a full and clear view of their entire operating area. The helmet uses LED lights and its own "in house" rechargeable 12 volt battery, which allows for virtually thousands of hours of clean, clear visible light under the most demanding situations. We are also introducing an array of hand-held emergency lighting equipment that can be used by police, security, military, road crews, highway departments and coast guard vessels. These devices also use LED technology and can easily provide up to 100K hours of illumination. The lighting distance illuminates up to one mile away. These units are very compact and ruggedized for severe and dangerous situations. Both products will be patented. Needless to say, we are extremely excited about the potential impact that these products will have for our near term growth!

W. Velmer: Why does SETO continue to show growth and profits when other microcaps, midcaps and large caps fail? What is your secret?

Mr. Pian: Many of our long-term relationships span 25 years. Customers remain loyal due to our commitment to quality, customer service and honesty. We are competitive, but again, quality and service gives us the edge. We have hands-on development with technical support and can act quickly with respect to product refinement.

W. Velmer: Concerning your contract manufacturing division, what products can this division manufacture? Will this division be the real growth engine for SETO's future?

Mr. Pian: This division is anticipated to grow by 50% during the next two years. Currently we are manufacturing medical products. It is a line of CPR training products. We have the capability of manufacturing any electronic product that is needed. We are also producing a back-up sensor for the auto industry. At the end of 02 revenue from this division was $400K. By the end of fiscal 04 (January 31, 03) revenue will surpass $2 million.

W. Velmer: The current mix in sales is 30% semiconductors, 60% ceramic and 10% contract manufacturing. How will that number look in 18 months?

Mr. Pian: The semi group around 35%, contract manufacturing should approach 18% and the balance will be generated from our ceramic division.

W. Velmer: Mr. Pian, it has been a pleasure speaking with you and looking forward to benefitting from SETO's growth during the next 18 months and so will your 1800 shareholders.

(Interview date - Aug 13, 02)

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OVERVIEW

1. The fundamentals of SETO are extremely sound and very compelling for the balance of fiscal 03 and fiscal 04. Estimated PE based upon current share price of $.27 and estimated earnings of $.12 and $.15, respectively, result in a shocking low valuation of 2.25x and 1.8x. This is not investing. It is called stealing. As mentioned, SETO could and should trade at many times its current level.

2. Growth rate during fiscal 03 end January 31 and fiscal 04 according to management will explode 40% and 20%, respectively. If we value SETO based upon growth with a heavily discounted PE (15x), then our PEG value is 66% below historical valuation - BULLISH.

3. Our PSR calculations for fiscal 03 and 04, based upon current price and estimated revenue of $8 million and $10 million, respectively, yield extremely low and attractive values, that is $.49 and $.39. Again, little risk and great upside potential. - BULLISH.

4. In a relatively down economical climate, SETO has managed to grow rapidly and anticipates recording revenue and profits during the next 7 quarters. In addition, "new" products to be released during late third quarter that compliment the heightened awareness of terrorism and emergency preparedness. SETO is hitting on all cylinders - BULLISH.

6. Recent figures released by the ISM indicate a macro-economic picture of manufacturing. The stats haven't been this high since 99. This is very positive for all manufacturing companies.

7. According to the SIA (August 2, 02), the Semiconductor Industry Association in June released its mid-year market forecast providing an overview of an industry recovery that is currently under way. Sales in 02 are still expected to result in approximately 3% growth from 02 and expects growth rate to accelerate to 23.2% in 03 and 21% in 04. Obviously, SETO is a micro-player in this huge industry, but it continues to fortify the company's growth during the next 18 months! - BULLISH.

8. According to the Wall Street Journal, President Bush's FY03 defense budget requests an additional $48 billion military spending on top of $379 billion already budgeted - seen as a start of an era of steady and sizeable increases in defense deployment and upgrade. Again, even though SETO is a tiny player, the filter down technique benefits the whole food chain. BULLISH.

9. July 1, 2002, according to "Satellite News," a panel warns that US is falling behind in aerospace. The Commission on the Future of the US Aerospace Industry is calling on the U S Government to take "immediate steps" to bolster critical aerospace design and manufacturing capabilities and expertise. Again, SETO is a player in the industry and additional aerospace is BULLISH for America and BULLISH for SETO.

FINAL NOTE: We intend to monitor SETO within microcap portfolio for percentage gain performance. We believe that aggressive accounts secure a position in SETO for short and long-term appreciation. This stock is not going to sit around and $.27 based upon actual and estimated earnings. We rate SETO (SETO - OTC-BB) with our strongest buy recommendation.

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Disclosure

S. A. Advisory, and advisory firm, acts as a consultant to SETO as of August 1, 2002. We have been paid $10K, cash fee, to produce this anecdotal research report and to distribute it via media channels in order for investors to be made aware of its business plan, as well as future revenue and earnings estimates. We may buy, sell, or hold shares in this issue at any time. This fee is a one time cost to the company. We are not obligated to the company in any way once this report is released. We currently own 30K shares of SETO which were purchased in the open market.

Before investing, consult the company for questions that you may have concerning SETO.