(COMTEX) Management's Discussions: 10QSB, SETO HOLDINGS INC
Management's Discussions: 10QSB, SETO HOLDINGS INC
(Edgar Online via COMTEX)
Company Name: SETO HOLDINGS INC
(SYMBOL:SETO)
<b<centerManagement's Discussion and Analysis or Plan of Operation.
</center</b<p<BR<BGENERAL </B<BR <P In fiscal year 1998, ending January
31, 1999, the Company altered its business plans and objectives and
reorganized its product lines for faster growth into two major
groupings: Technical Products to Industry and Consumer Products. This
decision followed the Company's June 1998 acquisition of Fuji
Fabrication SDN. BHD. ("Fuji") and its cellular telephone battery line
and its September, 1998 sale of Teik Tatt Holding Co. (1979) SDN. BHD.
("TTH") to its former owner. <P During the quarter ended April 30,
1999, excluding the results of discontinued operations, the Company
experienced the highest quarterly net sales of its history,
attributable principally to continued growth in fabricated industrial
ceramics at $375,389 and the growth of the Company's cellular telephone
battery product line, which was launched in July 1998 (sales of $398,
589). <P The Company's financial condition remains healthy. At April
30, 1999, the Company had total assets of $2,513,000 and current assets
of $1,544,876, increases over January 31, 1999 of 9.5% and 13.8%
respectively. Stockholders' equity rose 7.1% over January 31, 1999, to
$1,367,485. <P As sales increase, an increase in debt is expected to
pay for the expenditures for larger volumes of material and some labor
to manufacture product. In addition, current liabilities increased by
10.1% to $871,690 and long term debt, net of current portions,
increased by 20.2% over January 31, 1999. <P The company conducts a
substantial portion of its manufacturing and assembly operations in
Malaysia. Accordingly, economic and political conditions there, and in
Southeast Asia as a whole, will remain of importance to the Company.
Management believes that steps taken by the Malaysian Government since
the outset of the area's downturn in mid-1977 involving financial
uncertainties have had a calming and stabilizing effect. In any event,
although no assurance can ge given, the Company believes that regional
circumstances will have no material adverse effect on its operations or
financial condition during the fiscal year which began February 1,
1999. <P <P <BR<BFIRST QUARTER 1999 COMPARED TO 1998 </B<BR <P
Excluding discontinued operations, the Company's net sales increased
55% from $500,825 to $900,787, and income from continuing operations
declined $132,482, or 92%, from $144,346 to $11,864. The decrease in
income from continuing
operations principally resulted from increased selling,
general and administrative expenses due to a $25,000 non-cash charge
related to exercising of stock options; additional expenses for public
relations; initial marketing expenses for the cellular phone product
line inclusive of a new internet e-commerce site (although it is too
soon to report, it is believed the latter expenses will realize
significant sales results); and the Company's relocation from Armonk,
New York to its new headquarters and manufacturing/warehouse facilities
in Briarcliff Manor, New York. <P The Company's combined gross profit
margin is now at the level of 45% to 50%. This is a result of the new
mix of products and is typified by East Coast Sales Co.'s gross profit
of 62.4% and Fuji Fabrication's 21.9%. With sales volume increasing, it
is expected that the latter number will improve. Nevertheless, the
products themselves and their make/buy breakdown will limit the degree
of improvement. This is to be expected and is normal. <P With a backlog
of orders on hand amounting to $1.25 million to be shipped within the
next 4 to 6 months and the elimination of a number of one time and
anomalous factors mentioned above which did occur in the first quarter
just ended, Management believes that sales will continue to increase
for the remainder of the year and that the Company should report an
annual profit of approximately $400,000 or 4 cents per share.
Supporting this projection are reports from major industry sources
relative to semi-conductor chips and cellular phones, both together
impacting essentially all of the Company's product lines, that sales
will rise significantly in 1999. <P <P <P <P <P <P <P <P <P
<BR<BLIQUIDITY AND CAPITAL RESOURCES </B<BR <P At April 30, 1999, the
Company had current assets of $1,544,876 and current liabilities of
$871,690 yielding a positive working capital position of $673,186 and a
current ratio of 1.77:1, both improvements over comparable figures at
January 31, 1999 of $526,575 and 1.6:1, respectively. These standard
measures of a company's ability to meet its current obligations reflect
positively on the Company's liquidity and internal resources for the
current level of business and will contribute to satisfying its
suppliers of goods and services concerned about credit-worthiness. <P
As for growth capital, to a large extent it should be satisfied by the
recent consolidation of the outstanding line of credit and standby
letters of credit in the amount of $1,000,000 from the Company's bank.
However because of the anticipated increase in sales, especially in its
cellular phone battery product line, the Company has been seeking
additional lines of credit from Malaysian financial sources. Also, the
Memorandum of Understanding with a Hong Kong manufacturer of cellular
phone accessories (e.g. hands free kit, traveling charger, auto cord
charger etc.) to form a marketing joint venture aimed at the U.S.
market place, besides the finalization of certain legal and
organizational details, requires working capital of approximately $200,
000 to $250,000. Although the Company is talking to a firm for loans in
the amount of $500,000 to $1,000,000 on what it considers favorable
terms, no definite funding source for these purposes has yet been
identified and no assurance can be given that such financing will be
obtained on commercially reasonable terms, or at all. <P As at the end
of the quarter, there were no plans or material commitments for capital
expenditures for assets of any significant value. <P <P <BR<BEFFECTS OF
FOREIGN CURRENCY FLUCTUATIONS </B<BR <P The Company's foreign
operations are subject to risks related to fluctuation in foreign
currency exchange rates. During this quarter a nominal $1,298 loss in
foreign currency exchanges were incurred in effect not impacting
operational results. <P While future fluctuations in currency exchange
rates could impact results of operations or financial conditions,
foreign operations are expected to continue to provide strong financial
results and earnings growth. <P A number of economists, including some
high in United States Government's financial circles, believe that
predictable policies (e.g., pegging exchange rates, which Malaysia did
in 1998, and is sticking to that policy) yields a key element of
financial stability. That is a course which Malaysia has chosen to
follow. At the moment, the perception is that the financial crises
which began in mid-1997 in Southeast Asia has eased and probably has
ended e.g., in the first quarter of 1999, container traffic from the
West Coast to East Asia ran 10% ahead of projections. This appears to
bode well for Malaysia. <P <P <BR<BDISCLOSURES ABOUT MARKET RISK </B<BR
<P 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. <P The
Company's exposure to foreign exchange rate fluctuations results from
wholly-owned subsidiary operations in Malaysia, and from the Company's
share of the earnings of these operations, which are denominated in the
Malaysian ringgit. <P <P <P <P <P <P <P <P <BR<BYEAR 2000 COSTS </B<BR
<P 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 is year 2000 compliant. <P <P
<BR<BIMPACT OF INFLATION </B<BR <P 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. <P <P <P <BR<BFORWARD-LOOKING STATEMENTS
</B<BR <P This "Management's Discussion and analysis or Plan of
Operation", contains statements which are not historical facts and are
forward-looking statements and expressions such as "expect", "believe",
"anticipate", "many" or similar variations of such terms which reflect
management's confidence, 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,
partial dependence on the semiconductor industry, availability of raw
materials, intense competition, ecological obsolescence, continued
relationship with major customers and the risks of doing business in
Malaysia and Southeast Asia, including, without limitations, economic
and political conditions, foreign currency translation risks, tariffs
and other foreign trade policies and dependence on inexpensive labor in
such countries. SETO assumes no obligation for updating any such
forward-looking statement, if any at any time. <P <P <P <P <P <P <P <P
(c) 1995-1999 Cybernet Data Systems, Inc. All Rights Reserved.
Received by Edgar Online: Jun. 15, 1999
CIK Code: 0000794998
SEC Accession Number: 0000794998-99-000008
-0-
*** end of story ***
|
