SETO News:
(COMTEX) Management's Discussions: 10KSB, SETO HOLDINGS INC
Management's Discussions: 10KSB, SETO HOLDINGS INC
(Edgar Online via COMTEX)
Company Name: SETO HOLDINGS INC
(SYMBOL:SETO)
Management's Discussion and Analysis or Plan of Operation. General
In fiscal year 1998 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
TTH back to its former owner.
During the fiscal year ended January 31, 1999,
excluding the
results of discontinued operations the Company experienced the
highest annual
net sales in its history and its second highest income from
continuing
operations. These results are attributable principally to continued
growth in
fabricated industrial ceramics (sales of $1,461,621 compared to
$1,225,249) and
diamond cutting tools (sales of $617,140 compared to $554,695) and the
launch of
the Company's cellular telephone battery product line in July 1998
(sales of
$428,850).
The Company's financial condition remains healthy.
At
January 31, 1999, the Company had total assets of $2,295,863.
Mainly because of short term borrowings needed to fund the purchase
of raw materials and additional property and equipment, which
increased by 11.6%, to match anticipated sales growth, current
liabilities increased by 6% to $791,654. Notes payable to bank
increased by 21.8%, reflecting the Company's drawing down on its
line of credit principally to support the working capital needs
associated with the cost of raw materials needed to manufacture
cellular telephone batteries.
The Company conducts substantially all 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-1997 involving
financial
uncertainties have had a calming and stabilizing effect. In any event,
although
no assurance can be given, the Company believes that regional
circumstances will
have no material adverse effect on its operations or financial
condition during
the fiscal year beginning February 1, 1999.
In fiscal 1999, Management believes certain product
lines will
contribute to an anticipated 50% increase in revenues:
1. Cellular telephone batteries:
a. The Company will have the benefit of a full
year of sales;
b. An e-commerce site will be opened in the
Spring of 1999 for retail sales;
c. The Company's Malaysian subsidiary has
recently received exemptions from a
Malaysian 30% import duty tax and a 20%
sales tax on battery cells and a waiver of
its 1999 corporate income tax waiver; and
d. Sales of cellular telephones in the United
States are expected to grow from 66.5
million to 110 million in 2002. (Worldwide,
162.9 million were sold in 1998.)
2. Hard Disk Drive parts
a. The Company has received purchase orders for
these new products from two disk drive
manufacturers; and
b. The parts are consumable.
Fiscal 1998 Compared to Fiscal 1997
Including discontinued operations, in the fiscal
year ended
January 31, 1999 the Company had a net loss of $(226,962),
compared to net
income of $629,586 in the prior year. However, excluding
discontinued
operations, the Company's net sales increased 37%, from $1,
931,606 to
$2,646,650, and income from continuing operations declined $18,465,
or 7.4%,
from $251,006 to $232,541. The decrease in income from continuing
operations
principally resulted from (1) a $260,498 increase in general and
administrative
expenses from non-recurring costs related to increases in public
relations
expenses and the Company's relocation from Armonk, New York
to its new
headquarters and manufacturing/warehouse facilities in Briarcliff
Manor, New
York, and (2) a near-doubling in cost of sales (an increase of
$481,145,
or 87%) attributable mainly to the high material cost of
manufacturing cellular telephone batteries. The significant increase in
cost of sales was attributable principally to the Company's launch of
its cellular telephone batteries in July 1998, and these products will
continue to cause a decrease in the Company's gross margins. However,
with anticipated volume growth, the Company's unit cost of these
products should decline.
Fiscal 1997 Compared with Fiscal 1996
For the year ended January 31, 1998, the Company's
net sales
increased to $7,808,380, a 487% increase over the $1,602,830 in fiscal
1996, and
net income was $629,586 or $.05 per share, a 250% increase over the
$213,652 or
$.02 per share in fiscal 1996. The acquisition of TTH contributed $5,
876,774 to
net sales and $378,580 to net income during the fourth quarter of
fiscal 1997.
In fiscal 1997 gross profit was $2,586,816, or 33% of gross
revenues, as
compared to $1,105,570, or 69% of gross revenues in fiscal 1996. In
fiscal 1997,
gross profit increased due to higher sales, and gross profit as a
percentage of
gross revenues decreased principally due to low profit margins
on TTH's
operations, especially its recycling business.
In fiscal 1997, net sales of the Company's
diamond cutting
tools increased approximately 4% to $554,695 but generated a loss of
$279,395,
approximately 43% higher than the loss in fiscal 1996. Net sales of
industrial
ceramics and clean room supplies increased by 26.5% to $1,226,136,
and related
net income increased by $31.6% to $409,901. Net sales of TTH
for the
approximately two-month period after its acquisition by the
Company were
$5,876,774 and related net income was $378,580.
Liquidity and Capital Resources
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