<PAGE>

                                    FORM 20-F

[ ]  REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
     EXCHANGE ACT OF 1934

                                                        OR

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

For the fiscal year ended                  DECEMBER 31, 1999
                         -----------------------------------------------------

                                                        OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

For the transition period from ______________________ to______________________

Commission file number               000-22113
                      --------------------------------------------------------

                           EURO TECH HOLDINGS COMPANY LIMITED
------------------------------------------------------------------------------
             (Exact name of Registrant as specified in its charter)

                       EURO TECH HOLDINGS COMPANY LIMITED
------------------------------------------------------------------------------
                 (Translation of Registrant's name into English)

                                 BRITISH VIRGIN ISLANDS
------------------------------------------------------------------------------
                 (Jurisdiction of incorporation or organization)

          18/F GEE CHANG HONG CENTRE, 65 WONG CHUK HONG ROAD, HONG KONG
------------------------------------------------------------------------------
                    (Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

<TABLE>
<CAPTION>

                                                   Name of each exchange
            Title of each class                     on which registered

<S>                                        <C>
NOT APPLICABLE
-----------------------------------        -----------------------------------

NOT APPLICABLE
-----------------------------------        -----------------------------------
</TABLE>

Securities registered or to be registered pursuant to Section 12(g) of the Act.

                          COMMON STOCK, $.01 PAR VALUE
------------------------------------------------------------------------------
                                (Title of Class)

                    REDEEMABLE COMMON STOCK PURCHASE WARRANTS
------------------------------------------------------------------------------
                                (Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.

------------------------------------------------------------------------------
                                (Title of Class)


<PAGE>

         Indicate the number of outstanding shares of each of the issuer's
classes of capital or common stock as of the close of the period covered by the
annual report.

<TABLE>
<CAPTION>

<S>                                    <C>
                                       2,481,840 SHARES OF COMMON STOCK
                                       --------------------------------

                                       2,016,000 WARRANTS
                                       --------------------------------
</TABLE>



         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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.

<TABLE>
<CAPTION>

<S>                                      <C>
         Yes          X                  No
                 ---------------            ---------------
</TABLE>

         Indicate by check mark which financial statement item the registrant
has elected to follow.

<TABLE>
<CAPTION>

<S>                                 <C>
         Item 17       X            Item 18
                 ---------------            ---------------
</TABLE>


(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST
FIVE YEARS)

         Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.

<TABLE>
<CAPTION>

<S>                                      <C>
             Yes                         No
                 ---------------            ---------------
</TABLE>


EXPLANATORY NOTE: Except as otherwise noted herein, all calculations of the
Company's securities and, where relevant, exercise and "target" prices, give
effect to the Registrant's 20% stock dividend in September 1999 and the
anti-dilution effects of that dividend.


<PAGE>

                                    GLOSSARY

         The following glossary of terms may be helpful in understanding the
terminology used in this Annual Report.

Ambient                             Air: Atmospheric air (outdoor as opposed to
                                    indoor air).

Colorimeter:                        An analytical instrument that measures
                                    substance concentration by color intensity
                                    when the substance reacts to a chemical
                                    reagent.

Flow Injection Analyzer:            An analytical instrument with a special
                                    sampling system that uses a continuous
                                    stream of reagent(s) into which fluid
                                    samples are injected.

pH Controller:                      A process instrument that measures and
                                    controls the acidity or alkalinity of a
                                    fluid.

Reagent:                            A chemical substance used to cause a
                                    chemical reaction and detect another
                                    substance.

Mass Spectrometer:                  An analytical instrument that separates and
                                    identifies chemical constituents according
                                    to their mass-to-charge ratios and is used
                                    to identify organic compounds.

Multi-Channel Digital Recorder:     A device that measures and records more than
                                    one input of a digitized signal (signal in
                                    the form of pulses).

Multi-Channel and Analogue
Recorder:                           A device that measures and records more than
                                    one input of a signal in multi-voltage or
                                    milliampere (e.g. temperature in degrees
                                    Centigrade or degrees Fahrenheit).

Atomic Spectrometer:                An analytical instrument used to measure the
                                    presence of an element in a substance by
                                    testing a sample which is aspirated into a
                                    flame and atomized. The amount of light
                                    absorbed or emitted is measured. The amount
                                    of energy absorbed or emitted is
                                    proportional to the concentration of the
                                    element in the sample.

Process Analyzer:                   An analyzer that continuously samples,
                                    monitors and measures fluids or gases.

Process Turbidimeter:               An analytical instrument that continually
                                    measures the clarity of water based on light
                                    scattering or deflection.

Total Organic Carbon Analyzer:      An analytical instrument that measures
                                    organic contamination in water.


<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

<S>                                                                                           <C>
PART I.........................................................................................2

   ITEM 1. DESCRIPTION OF BUSINESS.............................................................2
   ITEM 2. DESCRIPTION OF PROPERTY............................................................20
   ITEM 3. LEGAL PROCEEDINGS..................................................................21
   ITEM 4. CONTROL OF REGISTRANT..............................................................21
   ITEM 5. NATURE OF TRADING MARKET...........................................................22
   ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITYHOLDERS..................23
   ITEM 7. TAXATION...........................................................................23
   ITEM 8. SELECTED FINANCIAL DATA............................................................24
   ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
           OF OPERATIONS......................................................................26
   ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........................33
   ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT..............................................33
   ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS............................................35
   ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES....................36
   ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS....................................38

PART II.......................................................................................39

   ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED........................................39

PART III......................................................................................39

   ITEM 15. DEFAULTS UPON SENIOR SECURITIES...................................................39
   ITEM 16. CHANGES IN SECURITIES, CHANGES IN SECURITY FOR REGISTERED SECURITIES AND
            USE OF PROCEEDS...................................................................40

PART IV.......................................................................................41

   ITEM 17. FINANCIAL STATEMENTS..............................................................41
   ITEM 18. FINANCIAL STATEMENTS..............................................................41
   ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS.................................................42
</TABLE>


<PAGE>

         FORWARD LOOKING STATEMENTS. This annual report contains forward looking
statements. Additional written or oral forward looking statements may be made by
the Company from time to time in filings with the Commission or otherwise. Such
forward looking statements are within the meaning of that term in Section 21E of
the Exchange Act of 1934. Such statements may include, but not be limited to,
projections of revenues, income, or loss, capital expenditures, plans for future
operations, financing needs or plans, and plans relating to products or services
of the Company, as well as assumptions relating to the foregoing. The words
"believe," "expect," "anticipate," "estimate," "project," and similar
expressions identify forward looking statements, which speak only as of the date
the statement was made. Forward looking statements are inherently subject to
risks and uncertainties, some of which cannot be predicted or quantified. Future
events and actual results could differ materially from those set forth in,
contemplated by, or underlying the forward looking statements. Statements in
this Annual Report, including those contained in the sections entitled Item 1.
"Business - Risks" and Item 9. "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and in the notes to the Company's
Financial Statements, describe factors, among others, that could contribute to
or cause such differences.


                                     PART I


ITEM 1. DESCRIPTION OF BUSINESS

INTRODUCTION

         Euro Tech Holdings Company Limited (the "Company") was organized under
the laws of the British Virgin Islands on September 30, 1996 for the purposes of
raising capital and for acquiring all the outstanding capital stock of Euro Tech
(Far East) Ltd., a Hong Kong corporation ("Far East"). The Company successfully
completed a public offering (the "Public Offering") of approximately 741,840
Ordinary Shares, $.01 par value, and 828,000 Redeemable Ordinary Share Purchase
Warrants (the "Common Stock"), from which the Company received net proceeds of
approximately $1,817,000, in or about March 1997. Each Warrant entitles the
holder to purchase one Ordinary Share at a price of $4.5833 per share. At
December 31, 1999, no Warrants had been exercised. Pursuant to and concurrently
with the Public Offering, the Company acquired all the issued and outstanding
capital stock of Far East, and thereafter Far East became a wholly-owned
subsidiary and the primary operational tool of the Company. Far East was
established in 1971 and has been in continuous operation since that time. See
Item 9. "Management's Discussion and Analysis of Financial Condition and Results
of Operations." Far East engages in its core business of distributing various
equipment, instruments and supplies used in connection with the treatment,
analysis and testing of water and waste water. Where appropriate, references to
the business of the Company refer to the business of Far East.

         The Company is primarily a distributor of a wide range of advanced
water treatment equipment (including chlorination equipment), laboratory
instruments, analyzers, test kits and related supplies. The Company acts as an
exclusive and non-exclusive distributor for well-known manufacturers of such
equipment, primarily to commercial customers and governmental agencies or
instrumentalities in Hong Kong and the People's Republic of China (the "PRC").
The Company


                                       2
<PAGE>

distributes products to more than 400 regular customers, including
the Hong Kong Environmental Protection Department, the Beijing Hydrology
station, China Light & Power Co., Ltd., Hong Kong Electric Co., Ltd., and the
Kowloon-Canton Railway Corporation China's National Environmental Protection
Agency, a joint venture between the China Great Wall Industry 1/E Corp. and
Austria's Aqua Engineering to construct one of Beijing's water treatment plants,
and to sub-distributors located in Hong Kong, the PRC and Macao. These products
are manufactured by a substantial number of major American, European and
Japanese corporations, including Wallace & Tiernan Pacific Pty. Ltd.
("Wallace"), Hach Company, Inc. ("Hach"), Hioki E.E. Corp. ("Hioki") and
Finnigan Corporation ("Finnigan") (now a wholly-owned subsidiary of ThermoQuest
Corporation ("ThermoQuest"), which are the Company's largest suppliers, with
purchases from them accounting for approximately 7%, 17%, 7% and 9%,
respectively, of the Company's sales during its fiscal year ended December 31,
1998 ("Fiscal 1998") and 8%, 20%, 11% and 5%, respectively, of the Company's
sales during its fiscal year ended December 31, 1999 ("Fiscal 1999").

         The Company distributes products through its Hong Kong headquarters,
its regional sales offices located in Beijing, Shanghai, Guangzhou, Chongqing,
Xian and Shenyang, and through non-exclusive arrangements with independent
sub-distributors located in Hong Kong, the PRC and Macao.

         The Company believes that the continuing growth of industrial activity
in particular, and overall business activity in general, in the PRC over the
last five years has produced a strong and increasing demand for its products in
the PRC. The Company further believes that in the near future the need and
demand for the products it distributes will grow as a result of increased
regulations governing the environment and industrial pollution output, projected
growing demands of the PRC's population for clean water and a healthier and
safer environment, and the potential for the contamination or depletion of
existing clean fresh water sources.

         The Company used portions of the net proceeds of the Public Offering to
(a) establish an operation for the assembly of the type of products now
distributed by the Company, including certain water-related testing, monitoring
and treatment equipment (approximately $200,000), (b) to expand its marketing
efforts by, among other things, opening additional regional sales offices in the
PRC (approximately $200,000), (c) purchase equipment (approximately $135,000),
(d) establish Chinah2o.com Limited (approximately $300,000), (e) repurchase
securities from the underwriter of the Company's Public Offering (approximately
$105,000) and (f) pay expenses incurred in seeking acquisition candidates and
hiring an agent in the United States (approximately $170,000). The Company
believes that by assembling the products it distributes, it may realize
increased gross profit margins and greater revenues and net income than if it
remained only a distributor of such products. Similarly, the Company believes
that by expanding its regional sales efforts in the PRC, it may realize higher
revenues and net income.

         The Company has engaged a business consultant to assist with
identifying manufacturing plants and engineering companies which would make
suitable acquisition targets. The Company contemplates, but as to which no
assurance can be made, that such entities, if acquired, would assist in the
assembly of its products and offer customer turnkey projects and solutions.


                                       3
<PAGE>

         During Fiscal 1998 and Fiscal 1999, the Company had sales of
approximately $12,757,000 and $13,107,000, respectively, and net income of
approximately $255,000 and $339,000, respectively.

BACKGROUND

         The Company presently wholly-owns Euro Tech (Far East) Limited ("Far
East") which, in turn, wholly owns the following corporations:

- Euro Tech Trading (Shanghai) Limited - a People's Republic of China
  corporation

- Euro Tech (China) Limited - a Hong Kong corporation

- Chinah2o.com Limited - a Hong Kong corporation

- Shanghai Euro Tech Limited - a People's Republic of China corporation

         The Company's wholly-owned subsidiary and primary operational arm is
Far East, which it acquired in March 1997. Far East has engaged in the
distribution of various industrial control equipment, which continues to be the
core business of the Company, since its inception in 1971.

         Far East was established in 1971, under the name of Eurotherm (Far
East) Ltd., as a subsidiary of a United Kingdom publicly traded company
(Eurotherm Ltd.) to market and distribute Eurotherm Ltd.'s industrial control
equipment in Hong Kong and Southeast Asia. Far East expanded its activities into
PRC in 1973. In the early 1980's, Far East began the distribution of high-tech
equipment manufactured in the United States, Europe and Japan into PRC, in
addition to its distribution activities on behalf of its parent. In 1988, the
activities of the parent and Far East were separated into Eurotherm
International ("Eurotherm") and Far East. By 1994, all of the capital stock of
Far East had been purchased by its management and Far East changed its name from
Eurotherm (Far East) Ltd. to its current name. See Item 13. "Interest of
Management in Certain Transactions."

         Euro Tech Trading (Shanghai) Limited ("Trading")'s core business is
similar to that of Far East. Euro Tech (China) Limited ("Limited") is inactive.
The Company's Pudong Shanghai Assembly operations are being conducted through
Shanghai Euro Tech Limited ("Shanghai Euro Tech").

PRODUCTS, SERVICES AND CUSTOMERS

         Laboratory instruments, analyzers and test kits are used to analyze the
chemical content and ascertain the level of impurities or other contaminants in
water. The Company distributes analytical re-agents and chemicals to support
testing systems of laboratory and portable instruments, process analyzers and
portable test kits and assist in the analysis process. The Company offers a wide
variety of test kits to test water quality. The Company believes that these
portable test kits are easy to use and preadapted for rugged field use. These
test kits are used to monitor drinking water distribution systems.

Laboratory and portable instruments generally consist of analytical instruments
including but not limited to the following: spectrophotometers, colorimeters,
turbidimeters, ion-selective electrodes,


                                       4
<PAGE>

chemical oxygen demand apparati, digestion apparati, and precision re-agent
dispensing devices which are used to test and monitor impurities and
contaminants in water systems. See "Glossary."

         The Company also distributes continuous-reading process analyzers,
process turbidimeters, pH controllers and analyzer accessories. These products
are generally used to monitor and control drinking water quality to ensure that
water treatment procedures comply with regulatory standards. See "Glossary."

         SCIENTIFIC INSTRUMENTS. The Company distributes analytical instruments,
environmental monitoring instruments and general purpose laboratory instruments.
Analytical instruments include, but are not limited to, mass spectrometers, flow
injector analyzers and atomic spectrometers. Environmental monitoring
instruments include both air and water quality monitoring instruments. Air
quality monitoring instruments are generally divided into those which monitor
ambient (i.e., atmospheric) air, and those which monitor pollution sources.
Additionally, the Company offers general purpose laboratory instruments
including a variety of water quality monitoring and analysis equipment, such as
continuous reading process analyzers, process turbidimeters, pH controllers, and
test kits for monitoring chemical content in water (i.e., chlorine, fluorides,
etc.). See "Glossary."

         Customers for the analytical instruments include government agencies,
academic and research institutions and major laboratories. The Company also
distributes products to beverage producers and restaurants, including water
quality test kits to more than twelve bottling plants of a well known United
States softdrink producer, which are located in the PRC; total organic carbon
analyzers to the People's Liberation Army (the PRC armed forces), water quality
monitoring instruments to well known United States fast food franchisor's
restaurants located in Hong Kong and the PRC, and to well known United States
and European beer producers bottling plants located in Wuhan, PRC. Each such
soda producer, restaurant and beer bottler accounts for less than one percent of
the Company's sales and the People's Liberation Army accounts for approximately
one percent of the Company's sales.

         Customers for air and water quality monitoring instruments also include
government agencies such as the Hong Kong Environmental Protection Department,
which uses a Company distributed water quality monitoring system to monitor the
water quality of Hong Kong's Victoria Harbor, more than ten water treatment
plants located in the PRC (including sites at Beijing, Tianjin, Guangzhou and
Wuhan), and the Beijing Environmental Monitoring Centre. The Company is also one
of two distributors supplying continuous water monitoring systems to Beijing's
Hydrology Station.

         The Company derived approximately 48.3% and 49.8% of its sales from the
sale of Scientific Instruments during Fiscal 1998 and Fiscal 1999, respectively.

         PROCESS CONTROL AND ENGINEERING PRODUCTS. The Company provides process
control systems specifically designed for the industrial needs of clients
including sensors, temperature gauges, pressure gauges, flow meters, valves,
temperature and pressure transmitters and control devices, temperature and
pressure calibrators, moisture, power, energy and harmonic analyzers.
Chlorination disinfection systems are also distributed by Far East in
conjunction with water



                                       5
<PAGE>

treatment, sewage discharge and swimming pool water treatment. Customers for the
foregoing distributed products include government water supply agencies, water
treatment facilities, power and electric companies, petrochemical plants and
instrument manufacturers. For example, the Company distributes Chlorination
disinfection systems to Hong Kong's new Chek Lap Kok airport and its environs.

         The Company derived approximately 29% and 25.5% of its sales from the
sale of Process Control and Engineering Products during Fiscal 1998 and Fiscal
1999, respectively.

         OTHER PRODUCTS. The Company distributes general testing and
telecommunications testing equipment to industries, utilities, educational
institutions and telecommunications companies. The Company also distributes
multi-channel digital and analogue recorders and similar products. Customers for
telecommunications products include government departments and telephone
companies and utilities.

         The Company derived approximately 12.1% and 12.8% of its sales from the
sale of these Other Products during Fiscal 1998 and Fiscal 1999, respectively.

         SPECIAL PROJECTS AND TECHNICAL SUPPORT. In conjunction with the
distribution of computer hardware and software, the Company provides computer
programming hardware and software to government agencies, industrial plants and
beverage producers.

         The Company's technical support staff provides customers with
maintenance, installation assistance, and calibration services, and assists
sales personnel in giving technical advice to and performing product
demonstrations for customers.

         The Company derived approximately 10.6% and 11.9% of its sales from
Special Projects and Technical Support Operations during Fiscal 1998 and Fiscal
1999, respectively.

         CUSTOMERS. At the end of Fiscal 1999, the Company had more than 400
regular customers, including sub-distributors, located in Hong Kong, the PRC and
Macao. During Fiscal 1999, one customer, Hong Kong Water Supplies Department,
accounted for approximately 6.4% of the Company's sales, no other customer
accounted for more than 5% of the Company's sales, and the Company does not
believe that any single customer or sub-distributor is material to its
operations.

         OTHER DISTRIBUTION LINES. The Company has previously established
subsidiaries to distribute products not directly related to its core business of
distributing water and waste-water-related products, but it has consolidated its
operations to focus more on this core business, spinning off its subsidiaries
which are incompatible with its core business.

         One such former subsidiary had been established to distribute
telecommunication products. Manufacturers of telecommunication products
generally distributed their products directly to end users without using
distributors, and technical expertise with telecommunication products was also
found to be necessary for entering this market. Hence, this subsidiary never
progressed past a start-up stage.


                                       6
<PAGE>

         Another former subsidiary, an industrial computer distributor, lost its
principal source manufacturer when the manufacturer sold its industrial computer
production line to another supplier, while another major manufacturer of
industrial computers established its own distribution operation in Hong Kong and
the PRC.

         The Company has also from time to time been involved with other
businesses not related to its core business, including investing in real estate.
The Company currently owns real property in Hong Kong which it intends to sell.
Although the Company is presently discontinuing or disposing of operations not
related to its core business, in the future, the Company may establish
subsidiaries or divisions to distribute products that are unrelated to its
current core product lines, and it may make future investments in real estate.
See Item 2. "Description of Property."

SOURCES OF SUPPLY

         The Company has exclusivity agreements covering specific geographic
areas with many of its suppliers for certain products. Such agreements do not
encompass all products distributed by the Company and all market areas served by
the Company. The Company's agreement with Finnigan for most products does not
include the PRC and similarly, the Company's agreement with Wallace is limited
to Hong Kong. The Company has written confirmation from Hach that the Company is
Hach's sole representative in the PRC, Hong Kong and Macao authorized to supply,
install and commission Hach's products and accessories. The Company also has
exclusive distribution agreements with Royce Instrument Corporation for certain
of that manufacturer's products in Hong Kong and the PRC.

         The Company distributes products manufactured by a number of vendors,
including Wallace, Hach, Hioki and Finnigan, which are the Company's primary
suppliers, with purchases from them accounting for approximately 7%, 17%, 7% and
9%, respectively, of the Company's sales during Fiscal 1998 and 8%, 20%, 11% and
5%, respectively of the Company's sales during Fiscal 1999. The Company has
exclusivity agreements for specified geographic areas with many of its suppliers
for certain products, including Wallace and Finnigan. Those agreements do not
encompass all products distributed by the Company or all of the market areas
serviced by the Company. The Company's agreement with Finnigan for most products
does not include the PRC, while the Company's agreement with Wallace is limited
to Hong Kong. In addition, some of these agreements are memorialized not as
formal contracts but rather through other acknowledgements or correspondence
which may contain a vague, if any, description of the terms and conditions of
such agreement or arrangement, and therefore may be unenforceable. The Company
has written confirmation from Hach that the Company is Hach's sole
representative in the PRC, Hong Kong and Macao authorized to supply, install and
commission Hach's products and accessories. The Company has only a letter from
Hioki appointing the Company as Hioki's sales representative in the PRC, Hong
Kong and Macao. The Company's agreement with Wallace is terminable by either
party on thirty days notice prior to its annual renewal date. The Company's
agreement with Finnigan is terminable on ninety days notice by either party. The
Company's agreement with Hach expires in February 2002, unless renewed. Although
alternative sources of supply exist, there can be no assurance that the
termination of the Company's relationship with any of the above or other vendors
would not have a short-term adverse effect on operations.


                                       7
<PAGE>

EXPANSION

         Other than the potential acquisitions of manufacturing plants and
engineering companies for proposed product - assembly operation, the Company has
no other plans for expansion. In addition, although the Company has disposed of
certain subsidiaries in transactions with affiliates and disposed of certain
realty held for investment purposes, in an effort to streamline its structure
and concentrate on its core business, in the future the Company may establish
subsidiaries or divisions to distribute products that are unrelated to its
current core product lines, and it may make future investments in real estate.

REGULATORY ENVIRONMENT

         Concerns about and awareness of pollution problems and environmental
issues have grown at all levels of PRC government as the PRC has experienced
economic growth. Environmental protection laws and strict regulations have been
enacted and are buttressed by increased budget allocations for environmental
regulation, monitoring and enforcement. The PRC's primary environmental
protection agency is the State Environmental Protection Agency (SEPA), under
which there are Environment Protection Bureaus in each city and county.
According to the Company, under bureau management, there are two environment
monitoring systems: one system consists of over 2,200 monitoring stations to
collect and analyze the environmental data of each city and county; another
system consists of over 2,500 stations to monitor specific industrial districts
or factories which have been identified as major pollution sources due to their
non-compliance with environmental regulations. According to the Company, SEPA
has recently identified 100,000 enterprises as new major pollution sources and
the number of monitoring stations for industrial firms is anticipated to
increase to 400,000 in the next five years, according to government estimates.
The Company has supplied water and air quality monitoring and analytic
instruments to these monitoring stations for several years. Despite this
anticipated growth in monitoring stations, there can be no assurance that the
agencies will continue to use the Company's products for these purposes, that
other market competitors will not enter the market with superior products,
distribution systems or more competitive prices.
See "-- Competition."

COMPETITION

         The Company faces competition from other distributors of substantially
similar products as well as the manufacturers of such products, and in both
foreign and Chinese markets. The Company faces its principal competition from
manufacturers and other distributors of its core products located in Hong Kong
and the PRC. Moreover, the Company has begun to implement plans to assemble
products of the kind that it presently distributes. Should an assembly operation
be developed to the stage where products are presented to the market, the
Company may be in direct competition with certain of its vendors. There can be
no assurance that the existence of this direct competition will not impair the
Company's ability or such competitor's willingness to continue providing other
products for continued distribution by the Company, and that such a development
would not materially adversely affect the Company's core business.

         In 1994, the PRC tightened its credit nationwide and, as a result, the
Company believes that purchasers of the products distributed by the Company
sought reduced prices. The products


                                       8
<PAGE>

distributed by the Company were foreign-manufactured and higher-priced than
products manufactured in the PRC. As a result, the Company reduced its sales
prices to remain competitive, with a corresponding negative impact upon profit
margins. During Fiscal 1997, Fiscal 1998 and Fiscal 1999, the Company's profit
margins were approximately 24.9%, 24.3% and 24.5%, respectively. The Company
believes that it competes with the PRC manufacturers on the basis of quality and
technology. The Company believes it offers foreign-manufactured products which
are of higher quality and use more advanced technology than products
manufactured in the PRC. The Company believes that it competes with foreign
manufacturers and other distributors of their products on the basis of the
Company's more extensive distribution network and an established reputation.

RECENT DEVELOPMENTS

         Proposed B2B website. In or about March 2000, the Company established
CHINAH2O.COM.LTD., a Hong Kong corporation.

         THROUGH CHINAH2O.COM LTD., the Company plans to launch a bilingual
Business-to-Business ("B2B") internet platform in the summer of 2000. The
website is under construction and is located at (HTTP://WWW.CHINAH2O.COM). The
B2B website is to be directed at environmental businesses in China. The purpose
of the B2B website is to connect manufacturers, distributors and suppliers of
environmental protection equipment and related consultants and engineering firms
in the West with potential clients in China (i.e., water, wastewater treatment
plants, environmental protection bureaus, environmental monitoring stations, and
related industries). It is planned that the website will provide environmental
news, directories of western suppliers, potential clients in China,
advertisement space and business opportunities. Alternatively, CHINAH2O.COM may
just match suppliers and clients or offer valued added services if required. It
is envisaged that the business and other activities generated by CHINAH2O.COM,
LTD. will have a synergistic effect with those of the Company.

         There can be no assurance that the Company will in fact launch this
website, or if launched it will ever prove of commercial value to the Company or
that the Company will not sustain losses from its establishment and operations.

         AGREEMENT WITH SHANGHAI INSTITUTE OPTICAL INSTRUMENTS ("SHANGHAI
INSTITUTE"). In May 2000, the Company signed an agreement with the Shanghai
Institute to jointly develop an Infrared Photometric Oil Analyzer by infrared
absorption method. This analyzer is to be used to detect concentrations of
petroleum, animal and vegetable oils in surface water, underground water,
municipal and industrial wastewater. Our joint goal with the Shanghai Institute
will be to sell any such analyzer that may be developed to environmental water
monitoring stations, water purification and waste treatment facilities,
underground water and harbor water monitoring stations located in China. Our
chemical engineer is to work together with the Shanghai Institute's engineers to
do the necessary development work including hardware and software components
with a plan of building prototypes by the end of 2000.

         Our perceived advantage of the analyzer to be developed is that the
sample under test is measured by three different wavelengths simultaneously thus
giving more accurate readings against one fixed wavelength used by most of our
potential competitors' product. Competition



                                       9
<PAGE>

will be from local manufacturers in China, Japan and the United States.

         There can be no assurance that any such analyzer will:

         -    be developed;

         -    become a commercially viable product;

              and

         -    not result in losses to the Company.

         PUDONG SHANGHAI ASSEMBLY PLANT. See "Product Assembly Operations."

PRODUCT ASSEMBLY OPERATIONS

         The Company, through Shanghai Euro Tech, plans to assemble certain
products which the Company currently distributes, including certain
water-related testing, monitoring and treatment equipment. The Company has
obtained a one-year lease expiring in January 2001 to a manufacturing plant and
has commenced assembly operations for water and waste water test instruments
after receiving PRC government approvals in December 1999. It is contemplated
that the Company will import components, assemble the finished products and then
distribute the products through its distribution network. The Company believes
that by establishing product assembly operations in the PRC and expanding the
number of its regional sales offices in the PRC, it will not only increase
revenues by expanding its customer base and increasing distribution
capabilities, but also net income since the Company believes it will enjoy
higher overall profit margins by assembling certain products which it now
distributes rather than by only purchasing the finished product from vendors. It
is planned that the Company's obligations pursuant to the Agreement with the
Shanghai Institute will be met through the Pudong Shanghai Assembly Plant.

SALES AND MARKETING

         The Company distributes products through its principal office located
in Hong Kong and its regional PRC offices located in Beijing, Shanghai,
Guangzhou, Chongqing, Xian and Shenyang. The Company has a marketing and sales
force of 37 people who are paid a salary plus commission based on sales. The
Company's offices also coordinate the sales efforts of approximately twelve
other companies located in the PRC which act as sub-distributors. These
sub-distributors are paid a commission on sales they generated, and are engaged
on a non-exclusive basis to distribute the products of other distributors. Each
of the twelve sub-distributors accounted for less than two percent of the
Company's sales during Fiscal 1998 and Fiscal 1999.

EMPLOYEES

         The Company has approximately 72 full-time employees, including a
marketing and sales staff of 37, an administrative staff of 22 and a technical
support staff of 13.


                                       10
<PAGE>

         The Company's management consists of its officers and directors.

         The Company is not subject to any collective bargaining agreement and
believes that its relationship with its employees are good.

                                      RISKS

CERTAIN RISKS RELATING TO DOING BUSINESS IN HONG KONG AND PRC.

PRC SOVEREIGNTY OVER
HONG KONG STILL DEVELOPING -     The Company's executive and principal offices
                                 are located in Hong Kong, a Special
                                 Administrative Region of China (an "SAR"; Hong
                                 Kong is sometimes herein referred to as the
                                 "Hong Kong SAR").

                           -     As provided in the Sino-British Joint
                                 Declaration on the Question of Hong Kong (the
                                 "Joint Declaration") and the Basic Law of the
                                 Hong Kong SAR of China (the "Basic Law"), the
                                 Hong Kong SAR is provided a high degree of
                                 autonomy except in foreign and defense affairs.
                                 Based on the current political conditions and
                                 the Company's understanding of the Basic Law,
                                 the Company does not believe that the transfer
                                 of sovereignty over Hong Kong has had an
                                 adverse impact on its financial and operating
                                 environment.

                           -     The Company's results of operations and
                                 financial condition may be influenced by the
                                 political situation in Hong Kong and by the
                                 general state of the Hong Kong economy. See "--
                                 Economic Instability; Currency Exchange Rate."

                           -     There can be no assurance that these past or
                                 any prospective future changes in political or
                                 other conditions will not result in a material
                                 adverse affect upon the Company or Far East.

ECONOMIC INSTABILITY;
CURRENCY EXCHANGE RATE     -     Most economies in the Far East are suffering
                                 from large debts, declining company earnings
                                 and economic growth, and significant currency
                                 devaluation. The region has also suffered from
                                 the effects of the resulting capital flight
                                 from financial institutions.

                           -     On June 22, 1998, the Hong Kong Chief Executive
                                 announced an immediate freeze on new government
                                 land sales through April 22, 1999 in an attempt
                                 to stabilize property prices which have on
                                 average fallen approximately 43% from their
                                 1997 peak, and ease tightening credit.


                                       11
<PAGE>

                                 Financial institutions could face additional
                                 pressure from possible defaults on loans made
                                 for property. Issuer stock valuations also
                                 dropped sharply from a 1997 high on the main
                                 Hong Kong stock index (the Hang Seng). On
                                 August 7, 1997, the Hang Seng Index was
                                 16,673.27. On June 15, 2000, that index stood
                                 at 16,080.34. There can be no assurance that
                                 these problems will not abate or worsen or that
                                 recovery will occur in the near future, if at
                                 all, in which event the Company may likely be
                                 materially adversely affected.

ECONOMY MAY BE
UNSTABLE                   -     Unlike many other countries economies, the PRC
                                 government's economic philosophy is based upon
                                 a "planned" economy model as opposed to a "free
                                 enterprise" or "capitalist" model with moderate
                                 government regulation which is the typical
                                 model in most developed, Western nations. For
                                 more than forty years, the PRC economy has
                                 been, and presently continues to be, a
                                 socialist economy operating under government
                                 controls promulgated under various one-, five-
                                 and ten-year plans (collectively, "State
                                 Plans") adopted by central Chinese government
                                 authorities and implemented, to a large extent,
                                 by provincial and local authorities which may
                                 set production and development targets.

                           -     Since approximately the early 1980s the Chinese
                                 government has implemented certain policies
                                 that emphasize decentralization of
                                 decision-making power and responsibility with
                                 respect to matters such as allocation of funds
                                 and the regionalization of economic
                                 development, reduce the role of government
                                 planning and permit some utilization of market
                                 forces in the development of its economy. Such
                                 economic reform measures or other policies, if
                                 continued, may be inconsistent, ineffectual, or
                                 discontinued at any time with or without
                                 notice, and the Company may not be able to
                                 benefit from any or all such reforms or
                                 policies.

                           -     The success of the Company's activities in the
                                 PRC depends on the Company's continued ability
                                 to overcome circumstances specifically
                                 affecting the industrial sector, including the
                                 relatively poor infrastructure, road
                                 transportation and communications network and
                                 an uncertain legal and regulatory environment.


                                       12
<PAGE>

ECONOMIC REFORMS MAY
NOT CONTINUE OR IMPACT
POSITIVELY ON THE
COMPANY; CHANGING
BUSINESS ENVIRONMENT       -     During much of the past twenty years, the PRC
                                 has been reforming its economic and political
                                 systems in the direction of a more "free
                                 market" economy. Many of the reforms are
                                 unprecedented for the PRC and can be expected
                                 to be refined and readjusted. This refinement
                                 and readjustment process may not always have a
                                 positive effect on the Company.

                           -     The Company's results at times may also be
                                  adversely affected by:

                                 -     changes in political, economic and social
                                       conditions in the PRC

                                 -     by changes in government policies such as
                                       changes in laws and regulations (or their
                                       interpretation)

                                 -     the introduction of additional measures
                                       to control inflation

                                 -     changes in the rate or method of taxation

                                 -     imposition of additional restrictions on
                                       currency conversion remittances abroad

                                 -     reduction in tariff protection and other
                                       import restrictions

                                 -     a return to the more centrally-planned
                                       economy that existed prior.

UNEVEN ECONOMIC
GROWTH                     -     The PRC's economy has experienced significant
                                 growth in recent years, but that growth has
                                 been uneven among various geographic regions
                                 and economic sectors. Economic reforms and
                                 growth in the PRC have been more successful in
                                 certain provinces than in others, and the
                                 continuation or increase of such disparities
                                 could adversely affect political or social
                                 stability.

PRC INFLATION              -     The PRC has recently experienced substantial
                                 rates of inflation, although inflation has
                                 declined in the most recent years. The PRC
                                 government's measures to restrain inflation
                                 have had a significant adverse impact on the
                                 Company in the past and more measures in this
                                 regard or other actions by the PRC government
                                 could materially and adversely affect the
                                 Company, its business and results of
                                 operations. See --"Adverse Impact upon Company
                                 of PRC's Credit Restrictions."


                                       13
<PAGE>

REGIONAL ECONOMIC
PROBLEMS                   -     Most economies in the Far East are suffering
                                 from large debts, declining company earnings
                                 and economic growth, and significant currency
                                 devaluation. The region has also suffered from
                                 the effects of the resulting capital flight on
                                 financial institutions. These problems may
                                 materially adversely affect political and
                                 economic conditions in Hong Kong and the PRC.
                                 There can be no assurance that such problems
                                 will abate or become worse, or continue for a
                                 protracted period, or that recovery will occur
                                 in the near future, if at all, in which event
                                 the Company may likely be materially adversely
                                 affected.

UNCERTAIN LEGAL SYSTEM
AND APPLICATION OF LAWS    -     The legislative trend in the PRC over the past
                                 decade has been to enhance the protection
                                 afforded to foreign investment and allow for
                                 more active control by foreign parties of
                                 foreign invested enterprises. There can be no
                                 assurance that this will continue. In addition,
                                 as the PRC economy, business and commercial
                                 framework and legal system all continue to
                                 develop, that development may adversely affect
                                 the Company's activities in the PRC or the
                                 ability of the Company to enter into
                                 Sino-foreign agreements.

PRC LEGAL SYSTEM
BUSINESS LAWS DEVELOPING   -     The PRC does not yet possess a comprehensive
                                 body of business law or a consolidated body of
                                 laws governing foreign investment enterprises.
                                 As a result, the enforcement, interpretation
                                 and implementation of existing laws,
                                 regulations or agreements may be sporadic,
                                 inconsistent and subject to considerable
                                 discretion. The PRC's judiciary has not had
                                 sufficient opportunity to gain experience in
                                 enforcing laws that exist, leading to a higher
                                 than usual degree of uncertainty as to the
                                 outcome of any litigation. As the legal system
                                 develops, entities such as the Company may be
                                 adversely affected by new laws, changes to
                                 existing laws (or interpretations thereof) and
                                 preemption of provincial or local laws by
                                 national laws. Even when adequate law exists in
                                 the PRC, it may not be possible to obtain
                                 speedy and equitable enforcement of the law.

GOVERNMENT CURRENCY
CONTROLS                   -     The PRC government imposes control over its
                                 foreign currency reserves in part through
                                 direct regulation of the conversion of Renminbi
                                 into foreign exchange and through restrictions
                                 on foreign imports. The conversion


                                       14
<PAGE>

                                 of Rmb into Hong Kong and United States Dollars
                                 must be based on rates set by the People's Bank
                                 of China ("PBOC"), which rates are set daily
                                 based on the previous day's Chinese interbank
                                 foreign exchange market rate with reference to
                                 current exchange rates on the world financial
                                 markets.

                           -     The official Rmb to U.S. dollar exchange rate
                                 declined from Rmb3.73 to US$1.00 at the
                                 beginning of 1989 to Rmb5.81 to US$1.00 at the
                                 end of 1993. In 1993, there was significant
                                 volatility in the swap rate of Rmb to U.S.
                                 dollars, and there was a significant
                                 devaluation in the exchange rate on January 1,
                                 1994, to Rmb 8.70 to U.S.$1.00, in connection
                                 with the abolition of the official exchange
                                 rate and implementation of the new managed
                                 floating rate foreign exchange system.

                           -     Although the Rmb to U.S. dollar exchange rate
                                 has generally been stable since January 1, 1994
                                 and the PRC government has stated its intention
                                 to intervene in the future to support the value
                                 of the Rmb, there can be no assurance that
                                 exchange rates will not again become volatile
                                 or that the Rmb will not devalue further
                                 against the U.S. dollar or Hong Kong dollar.
                                 Exchange rate fluctuations may adversely affect
                                 the Company because of foreign currency
                                 denominated liabilities, and may materially
                                 adversely affect the value, translated into
                                 U.S. dollars, of the Company's net fixed assets
                                 situated and to be situated in the PRC,
                                 earnings and dividends.

TURBULENT RELATIONS
WITH THE UNITED STATES     -     The United States and the PRC have been
                                 involved in controversies over (a) the
                                 protection in the PRC of intellectual property
                                 rights that threatened a trade war between the
                                 countries, (b) the terms of the PRC's entrance
                                 into the World Trade Organization ("WTO"), (c)
                                 the NATO bombing on May 7, 1999 of the PRC's
                                 Embassy in Belgade, and (d) the protection of
                                 human rights in the PRC.

RECENT DEVELOPMENTS REGARDING
CHINA'S ENTRY INTO THE
WORLD TRADE ORGANIZATION   -     China seeks to enter the World Trade
                                 Organization or WTO at the earliest possible
                                 date. Since 1986, China has taken a series of
                                 measures to modify its foreign exchange and
                                 trade regulations to conform with international
                                 practices. On January 1, 1994, the Chinese
                                 government abolished the dual foreign exchange
                                 rate system which had the effect of subsidizing
                                 imports as a result of the difference between
                                 the



                                       15
<PAGE>

                                 official exchange rate and market exchange
                                 rate. China's government has indicated its
                                 commitment to reduce its import and export
                                 licensing requirements and making its
                                 international trade regulations more consistent
                                 and transparent. On December 31, 1995, China
                                 lifted non-tariff controls such as import
                                 quotas and licenses on 176 import items.
                                 China's government has also lowered tariff
                                 levels for various goods a number of times in
                                 1992, 1993, more recently in April 1996,
                                 October 1997 and January 1999. In April 1996
                                 China's government reduced the general level of
                                 import tariffs from 36% , 23% for 4,994 import
                                 items. In October 1997, China's government
                                 reduced the general level of import tariffs
                                 from 23% to 17% for more than 4,800 import
                                 items. Effective January 1, 1999, China's
                                 government has further reduced the general
                                 level of import tariffs by 8% to 78% more than
                                 1,000 import items. China's government has
                                 indicated its commitment to protecting
                                 intellectual property rights and, in recent
                                 years has adopted regulations protecting
                                 ownership of copyrights, computer software and
                                 trademarks, and has entered into international
                                 agreements committing itself to further
                                 protection of such rights and enforcement of
                                 such regulations. Demands made by several
                                 countries, some of which are not trade related,
                                 have impeded China's entry into the WTO.

                                 On November 15, 1999, U.S. and Chinese trade
                                 negotiators reached an agreement regarding
                                 China's entry into the WTO. The U.S. agreed to
                                 support China's application for membership in
                                 the WTO as well as grant it permanent trading
                                 rights, rather than renew those rights
                                 annually. In exchange for these items, China
                                 has agreed to reduce tariffs by more than 5% as
                                 well as eliminate many trade barriers for U.S.
                                 companies in various industries. These
                                 industries include telecommunications,
                                 internet, distribution, services,
                                 entertainment, banking/financial services,
                                 automobile manufacturing, farm products, and
                                 textiles. The U.S. Congress, however, must
                                 still approve the granting of permanent trading
                                 status to China.

CERTAIN RISKS RELATION TO COMPANY'S BUSINESS.

DISPOSED OF SUBSIDIARIES   -     The Company disposed of several unsuccessful
                                 subsidiaries which had sustained losses in
                                 businesses outside the Company's core business.

                           -     The Company has from time to time invested in
                                 real estate in



                                       16
<PAGE>

                                 Hong Kong. Although the Company
                                 has derived past profits from some of its
                                 investments in Hong Kong real estate, there can
                                 be no assurance that the Company will ever
                                 derive a profit from any future investments in
                                 Hong Kong realty. As a result of the recent
                                 transfer of sovereignty over Hong Kong from the
                                 United Kingdom to China, any investment in Hong
                                 Kong realty will be subject to the risks
                                 arising from that transfer, including but not
                                 limited to the possible appropriation of realty
                                 by the Chinese government. In addition, in
                                 Mid-1998 the Government of Hong Kong froze
                                 public land sales and dispositions of property
                                 through April 1999 in order to stabilize Hong
                                 Kong property values which had substantially
                                 declined from their peak in 1997. See "Item 9.
                                 "Management's Discussion and Analysis of
                                 Financial Condition and Results of Operations."

DEPENDENCE
UPON MANAGEMENT            -     The Company is dependent upon the services of
                                 its executive officers, in particular Mr. T.C.
                                 Leung, the Chairman of the Company's Board of
                                 Directors and its Chief Executive Officer. The
                                 business of the Company could be adversely
                                 effected by the loss of services of, or a
                                 material reduction in the amount of time
                                 devoted to the Company by its executive
                                 officers. Although the Company is the
                                 beneficiary of a "Key Person" life insurance
                                 policy in the amount of $1,000,000 on the life
                                 of Mr. Leung, there can be no assurance that
                                 such coverage will be sufficient to compensate
                                 the Company for the loss of the services of Mr.
                                 Leung. See Item 10. "Directors and Officers of
                                 Registrant."

ADVERSE IMPACT UPON
COMPANY OF PRC'S
CREDIT RESTRICTIONS        -     The Company faces competition from other
                                 distributors of substantially similar products
                                 and manufacturers themselves, both foreign and
                                 Chinese. The Company faces its principal
                                 competition from foreign manufacturers and
                                 other distributors of their products situated
                                 in Hong Kong and the PRC. In 1994, the PRC
                                 tightened its credit nationwide and, as a
                                 result, the Company believes that purchasers of
                                 the products distributed by the Company sought
                                 reduced prices. The products distributed by the
                                 Company were foreign manufactured and higher
                                 priced than Chinese manufactured products. The
                                 Company reduced its sales prices and its profit
                                 margins to remain competitive.


                                       17
<PAGE>

COMPETITION WITH VENDORS   -     As the Company plans to assemble products of
                                 the kind that it presently distributes, the
                                 Company may directly compete with certain of
                                 its vendors. Any such direct competition may
                                 adversely affect its relationship with its
                                 vendors. See Item 1. "Description of Business."

DEPENDENCE ON VENDORS;
LACK OF LONG
TERM AGREEMENTS            -     The Company distributes supplies manufactured
                                 by a number of vendors, including Wallace,
                                 Hach, Hioki and ThermoQuest, which are the
                                 Company's largest suppliers. The Company has
                                 only a letter from Hioki appointing the Company
                                 as Hioki's sales representative in the PRC,
                                 Hong Kong and Macao, its agreements with each
                                 of Wallace and ThermoQuest are terminable on
                                 thirty days notice by either party prior to the
                                 renewal date and the agreement with Hach
                                 expires in February 2002, unless renewed.
                                 Although alternative sources of supply exist,
                                 there can be no assurance that the termination
                                 of the Company's relationship with any of the
                                 above or other vendors would not have a
                                 short-term adverse effect on the Company's
                                 operations due to the Company's dependence on
                                 these vendors.

CONTROL BY T.C. LEUNG POTEN-
TIAL CONFLICT OF INTERESTS -     T.C. Leung, the Company's Chairman of the Board
                                 and Chief Executive Officer, as a practical
                                 matter, is able to nominate and cause the
                                 election of all the members of the Company's
                                 Board of Directors, control the appointment of
                                 its officers and the day-to-day affairs and
                                 management of the Company. As a consequence,
                                 Mr. Leung can have the Company managed in a
                                 manner that would be in his own interests and
                                 not in the interests of the other shareholders
                                 of the Company. See Item 4. "Controls of
                                 Registrant" and Item 10. "Directors and
                                 Officers of Registrant."

CERTAIN LEGAL CONSEQUEN-
CES OF INCORPORATION
IN THE BRITISH VIRGIN
ISLANDS; RIGHTS OF SHARE-
HOLDERS NOT AS EXTENSIVE
AS IN U.S. CORPORATIONS    -     Principles of British Virgin Islands ("BVI")
                                 corporate law relating to such matters as the
                                 validity of the Company procedures, the
                                 fiduciary duties of management and the rights
                                 of the Company's shareholders may differ from
                                 those that would apply if the Company were
                                 incorporated in a jurisdiction within the
                                 United States.


                                       18
<PAGE>

                           -     The rights of shareholders under British Virgin
                                 Islands law are not as extensive as the rights
                                 of shareholders under legislation or judicial
                                 precedent in many United States jurisdictions.
                                 Under United States law, majority and
                                 controlling shareholders generally have certain
                                 "fiduciary" responsibilities to the minority
                                 shareholders. United States Shareholder action
                                 must be taken in good faith and action by
                                 controlling shareholders which are obviously
                                 unreasonable may be declared null and void.

                           -     The BVI law protecting the interests of the
                                 minority shareholders is not as protective in
                                 all circumstances as the law protecting
                                 minority shareholders in United States
                                 jurisdictions. The shareholders of the Company
                                 may have more difficulty in protecting their
                                 interests in the face of actions by the
                                 Company's Board of Directors, and may have more
                                 limited rights, than they might have as
                                 shareholders of a company incorporated in many
                                 United States jurisdictions.

ANTI-TAKEOVER PROVISIONS
PROPOSED                   -     At its next annual meeting of shareholders, the
                                 Company among other things, has proposed to
                                 increase its authorized number of Ordinary
                                 Shares from 20,000,000 to 25,000,000 and
                                 authorize 5,000,000 shares of "blank checks
                                 preferred stock". The authorization of "blank
                                 check preferred stock" is intended to
                                 strengthen the Company's ability to resist an
                                 unsolicited takeover bid and may be deemed to
                                 have an anti-takeover effect. The Board of
                                 Directors will have the right to fix the
                                 rights, terms and preferences at the time of
                                 issue of "blank check preferred stock" without
                                 further action by our shareholders.

UNCERTAINTY OF
ENFORCING UNITED STATES
JUDGMENTS                  -     There is some uncertainty whether BVI courts
                                 would enforce judgments of the courts of the
                                 United States and of other foreign
                                 jurisdictions, or enforce actions brought in
                                 the BVI which are based upon the securities
                                 laws of the United States. A final monetary
                                 judgment obtained in the United States will be
                                 treated as a cause of action in itself by the
                                 BVI courts so that no retrial of the issues
                                 would be necessary, provided that material
                                 preconditions are met and the proceedings
                                 pursuant to which judgment was obtained were
                                 not contrary to the rules of natural justice.


                                       19
<PAGE>

                           -     All but one of the Company's directors reside
                                 outside of the United States, service of
                                 process upon the Company and such persons may
                                 be difficult to effect in the United States
                                 upon all such directors and officers.

                           -     All of the Company's assets are and will be
                                 located outside of the United States, in Hong
                                 Kong and the PRC, and any judgment obtained in
                                 the United States may not be enforced in those
                                 jurisdictions. Hong Kong courts will not
                                 directly enforce against the Company or such
                                 persons judgments obtained in the United
                                 States. There is also substantial doubt as to
                                 the enforceability in the PRC of actions to
                                 enforce judgments of the United States' courts
                                 arising out of or based on the ownership of the
                                 securities offered hereby, including judgments
                                 arising out of or based on the civil liability
                                 provisions of United States federal or state
                                 securities laws or otherwise. See "-- Certain
                                 Legal Consequences of Incorporation in the
                                 British Virgin Islands; Rights of Shareholders
                                 not as Extensive as in U.S. Corporations" and
                                 "-- Uncertainty of Enforcing U.S. Judgments."


ITEM 2. DESCRIPTION OF PROPERTY

         The Company maintains an executive office at 18/F Gee Chang Hong
Centre, 65 Wong Chuk Hang Road, Hong Kong. The Company occupies approximately
12,800 square feet of office and warehouse storage space under a lease expiring
in May 2001 for monthly rental payments of approximately $10,300. The warehouse
storage space is used to hold products for distribution to its customers via
common carriers.

         In August 1995, the Company purchased approximately 1,200 square foot
of space in a building in Hong Kong. The Company financed the purchase and as of
December 31, 1999, had an outstanding mortgage of approximately $263,000 in
principal, bearing interest at Hong Kong's prime rate plus 1.75%, which mortgage
repayable in eighty-four monthly installments through approximately November
2002. This property is now used as Chinah2o.com Ltd.'s office.

         The Company also maintains regional sales offices within the PRC in the
cities of Beijing, Shanghai, Guangzhou, Chongqing, Xian and Shenyang. The
Beijing and Shanghai sales offices are owned by the Company. The Beijing sales
office is situated on property purchased in November 1994. The Shanghai sales
office is situated on property purchased in August 1995. The Guangzhou sales
office is rented pursuant to a lease expiring in May 2001 for approximately $520
per month. The Chongqing sales office is rented pursuant to a lease expiring in
January 2001 for approximately $310 per month. The Xian sales office is rented
pursuant to a lease expiring in March 2002 for approximately $210 per month. The
Shenyang office is rented pursuant to a lease expiring in December 2000 for
approximately $260 per month. Euro Tech Shanghai's office in Shanghai is rented
pursuant to a lease expiring in April 2001 for approximately $260 per month.


                                       20
<PAGE>

         Euro Tech Shanghai's office in Shanghai is rented pursuant to a lease
expiring in January 2001 for approximately $890 per month.

         The Company's registered office in the British Virgin Islands is
located at TrustNet Chambers, P.O. Box 3444, Road Town, Tortola, British Virgin
Islands and its telephone number is (809) 494-5296.


ITEM 3. LEGAL PROCEEDINGS

         The Company is not a party to any material legal proceedings.


ITEM 4. CONTROL OF REGISTRANT

         The following table sets forth, as of June 1, 2000, certain information
concerning beneficial ownership of the Company's Ordinary Shares with respect to
(i) each person known to the Company to own 10% or more of the outstanding
Ordinary Shares, and (ii) all officers and directors of the Company as a group:

<TABLE>
<CAPTION>

                                                 AMOUNT AND         APPROXIMATE
                                                 NATURE OF          PERCENTAGE
                                                 BENEFICIAL         OF ORDINARY
                                                 OWNERSHIP          SHARES OWNED

<S>                                              <C>                   <C>
T.C. Leung(1)(2)............................     2,553,169             67.2%
Pearl Venture Ltd.(1)(2)....................     1,129,515             45.6%
All Executive Officers
and Directors of the
Company as a group
(7 persons)3................................     2,877,845             71.8%
</TABLE>
----------------------
(1) The address for Mr. Leung is c/o Euro Tech (Far East) Ltd., 18/F Gee Chang
    Hong Centre, 65 Wong Chuk Hang Road, Hong Kong. The address for Pearl
    Venture Ltd. ("Pearl") is Columbus Centre Building, Wichhams Cay, Road Town,
    Tortola, British Virgin Islands.
(2) Includes shares of the Company's Common Stock owned of record by Pearl,
    which is a trust established for the benefit of Mr. Leung. Also includes
    those Company Ordinary Shares owned of Record by Regent Earning Ltd., of
    which Pearl is the majority shareholder. See Item 13. "Interest of
    Management in Certain Transactions."
(3) Gives effect to the exercise of Management Options owned of record by the
    Company's executive officers and directors. See Item 13. "Interest of
    Management in Certain Transactions."

                                       21
<PAGE>

ITEM 5. NATURE OF TRADING MARKET

         The Company has two classes of securities presently registered:
Ordinary Shares and Warrants. These securities are presently traded on the
NASDAQ SmallCap Market under the trading symbols "CLWT" and "CLWTW,"
respectively, and have so traded since the Company's Public Offering in March
1997.

         The Company declared a 20% stock dividend on its Ordinary Shares with a
record date of September 3, 1999. The dividend resulted in each record holder of
the Company's Ordinary Shares on that date receiving one Ordinary Share for five
Ordinary Shares held at the opening of business on the day after September 3,
1999. The anti-dilution provisions of the Warrants resulted in the holders of
Warrants being entitled to purchase six Ordinary Shares for each five Warrants
held with proportional adjustments being made in the exercise and redemption
target prices of the Warrants. The following quotations have not been adjusted
for the stock dividend.

         The high and low bid price quotations for the Ordinary Shares in the
periods indicated are as follows:

<TABLE>
<CAPTION>

                                                                     HIGH               LOW
                                                                     ----               ---
                                                                      $                  $

<S>                                                                  <C>              <C>
Quarter Ended March 31, 1998.......................................  7.00               4.125
Quarter Ended June 30, 1998........................................  6.75             5.328125
Quarter Ended September 30, 1998...................................  6.50               4.25
Quarter Ended December 31, 1998....................................  4.50               2.50
Quarter Ended March 31, 1999.......................................  3.625              2.125
Quarter Ended June 30, 1999........................................  2.3125             0.625
Quarter Ended September 30, 1999...................................  2.00               0.875
Quarter Ended December 31, 1999....................................  1.875             0.71875
Quarter Ended March 31, 2000.......................................  15.25             1.03125
Period Commending April 1, 2000 through June 20, 2000..............  4.9375            1.53125
</TABLE>

         The Ordinary Shares was held by approximately 34 holders of record as
of June 21, 2000. Based upon information received from broker-dealers, clearing
firms and others, the Company believes that it has approximately at least 400
beneficial shareholders of its Ordinary Shares.

         The high and low bid price quotations for the Warrants in the periods
indicated are as follows:

<TABLE>
<CAPTION>

                                                                     HIGH              LOW
                                                                     ----              ---
                                                                      $                 $

<S>                                                                  <C>               <C>
Quarter Ended March 31, 1998.......................................  2.50              1.375
Quarter Ended June 30, 1998........................................  1.75              1.125
Quarter Ended September 30, 1998...................................  1.5625            0.50
Quarter Ended December 31, 1998....................................  4.50              0.50


                                       22
<PAGE>

Quarter Ended March 31, 1999.......................................  0.8125            0.125
Quarter Ended June 30, 1999........................................  0.375             0.15625
Quarter Ended September 30, 1999...................................  0.28125           0.125
Quarter Ended December 31, 1999....................................  0.75              0.0625
Quarter Ended March 31, 2000.......................................  3.75              0.125
Period Commending April 1, 2000 through June 20, 2000..............  1.03125           0.375
</TABLE>

         The Warrants were held by approximately 15 holders of record as of June
21, 2000.


ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITYHOLDERS

         There are no exchange control restrictions on payment of dividends on
the Company's Ordinary Shares or on the conduct of the Company's operations
either in Hong Kong, where the Company's principal executive offices are
located, or the British Virgin Islands, where the Company is incorporated. There
are no British Virgin Islands laws which impose foreign exchange controls on the
Company or that affect the payment of dividends, interest, or other payments to
non-resident holders of the Company's securities. British Virgin Islands laws
and the Company's Memorandum and Articles of Association impose no limitations
on the right of non-resident or foreign owners to hold the Company's securities
or vote the Company's Ordinary Shares. Under BVI law, dividends may only be
declared and paid by an International Business Company (which the Company is
classified as under BVI law) out of surplus, such that after payment of
dividends such company must be able to satisfy its liabilities as they become
due in the ordinary course of business and the realizable value of the assets of
such company must not be less than the sum of its liabilities (other than
deferred taxes and capital). There are no other BVI restrictions regarding
dividends. However, the PRC has established a unified exchange rate system and
system of exchange controls to which the Company is subject. See "Risks."

ITEM 7. TAXATION

         The Company is exempt from taxation in the British Virgin Islands.

         The Company's subsidiaries organized in Hong Kong, Far East, Limited
and Chinah20, pay the Hong Kong profits tax at a rate of 16% on their income for
financial reporting purposes, after adjustments for income and expense items
which are not assessable or deductible for profits tax purposes. Hong Kong
levies no capital gains or dividends tax.

         Another Company subsidiary, Euro Tech Trading (Shanghai) Limited
("Trading"), is fully exempt from the PRC state unified income tax pursuant to
the tax laws applicable to foreign investment enterprises in the PRC. This
unified income tax is levied at a rate of 33%. Trading was fully exempt from the
unified income tax for the period from July 1, 1997 to December 31, 1998, and
enjoys a 50% reduction in the regular levied unified income tax for the current
year, ending on December 31, 2000. See - Note 2e, page 8 of the Financial
Statements.


                                       23
<PAGE>

ITEM 8. SELECTED FINANCIAL DATA

                         SELECTED FINANCIAL INFORMATION
                     (Amounts expressed in thousands, except
              share and per share data and unless otherwise stated)

         The selected income statement data for years ended December 31, 1997,
1998 and 1999, and the selected balance sheet data as of December 31, 1998 and
1999 set forth below are derived from audited financial statements of the
Company and should be read in conjunction with, and are qualified in their
entirety by reference to such financial statements, including the notes thereto
and Item 9. "Management's Discussion and Analysis of Financial Condition and
Results of Operation." The selected income data for the years ended December 31,
1995 and 1996 and the selected balance sheet data as of December 31, 1996 and
1997 set forth below are derived from audited financial statements of the
Company which are not included herein. The selected balance sheet data as of
December 31, 1995 set forth below are derived from audited financial statements
of Euro Tech (Far East) Limited which are not included therein.

<TABLE>
<CAPTION>

                                                            AS OF DECEMBER 31,
                                        1995         1996          1997          1998         1999
                                        ----         ----          ----          ----         ----
                                       US$(1)         US$           US$           US$          US$

<S>                                     <C>          <C>           <C>           <C>          <C>
BALANCE SHEET DATA:
 Cash and cash equivalents                 97        1,400         2,539         3,045        3,691
 Working capital(2)                       631        1,307         3,292         3,493        3,632
 Total assets                           7,717        8,278         8,084         8,559        9,637
 Short-term debt(3)                       831        1,201            75            68           85
 Long-term bank loans                     905          586           329           260          178
 Shareholders' equity                   2,289        2,734         4,972         5,194        5,533
</TABLE>


                                       24
<PAGE>

<TABLE>
<CAPTION>

                                                                   FOR THE YEAR ENDED DECEMBER 31,
                                      -------------------------------------------------------------------
                                        1995          1996           1997            1998           1999
                                        ----          ----           ----            ----           ----
                                         US$           US$            US$             US$            US$

<S>                                    <C>           <C>            <C>             <C>         <C>
INCOME STATEMENT
 DATA:
Net sales .........                    13,667        13,758         12,510          12,757         13,107
Cost of goods                         (10,633)      (10,633)        (9,399)         (9,662)         9,896
                                      --------    ----------     ----------      ----------        -------
 sold .......
Gross profit ......                     3,034         3,125          3,111           3,095          3,211
Selling and
 Administrative
 Expenses .........                    (2,773)       (2,703)        (2,812)         (2,924)        (2,946)
                                      --------    ----------     ----------      ----------       --------
Operating income...                       261           422            299             171            265
Interest (expenses)
 Income, net.......                      (113)          (98)            18              86             85
Other income, net..                       153           242            183              69             67
                                      --------    ----------     ----------      ----------       --------
Income before
 Taxes ............                       301           566            500             326            417
Income taxes.......                        (9)          (97)           (62)            (71)           (78)
                                      --------    ----------     ----------      ----------       --------
Net income from
 Continuing
 Operations........                       292           469             438            255            339
Discontinued
 Operations Income
 (loss) of subsidiary
 companies sold in
 1996..............                      (213)            --             --             --             --
                                      --------      --------       --------        --------       --------
Net income ........                        79           469             438             255           339
                                      ========      ========       ========        ========       ========

Income from continuing
operations per
common
 Share ............                      0.20          0.32            0.23            0.12          0.15
Loss from
 Discontinued opera-
 tions per Ordinary
 Share ............                     (0.15)           --              --              --            --
Net income per
 Ordinary Share .....                    0.05          0.32            0.23            0.12          0.15
Weighted average
 Number of
 Ordinary Share
 Outstanding ......                 1,450,000     1,450,000       1,888,000       2,068,200     2,204,200
</TABLE>


                                       25
<PAGE>

ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

POLITICAL AND ECONOMIC CONDITIONS IN HONG KONG AND THE PEOPLE'S REPUBLIC OF
CHINA

         The Company's operations are located almost entirely within, and
revenues are almost entirely generated from Hong Kong and the PRC. In Fiscal
1999 approximately 68% and 30% of the Company's sales were made to customers
located in the PRC and Hong Kong, respectively. During Fiscal 1998 approximately
67% and 31% of the Company's sales were made to customers located in the PRC and
Hong Kong, respectively. Sales to customers situated in Macao and elsewhere in
both years were nominal. This makes the Company particularly susceptible to
changes in the political and economic climate of either Hong Kong or the PRC.

         HONG KONG. Hong Kong has been one of the prime centers for commercial
activity and economic development recently in Southeast Asia. On July 1, 1997,
sovereignty over Hong Kong was transferred from the United Kingdom to the PRC.
As provided in the Sino-British Joint Declaration and the Basic Law, the Hong
Kong SAR is provided a high degree of autonomy except in foreign and defense
affairs. The Basic Law provides that the Hong Kong SAR is to have its own
legislature, legal and judicial system and full economic autonomy for 50 years
after the transfer of sovereignty. Based on the current political conditions and
the Company's understanding of the Basic Law, the Company does not believe that
the transfer of sovereignty over Hong Kong has had or will have an adverse
impact on its financial and operating environment. Although the Chinese
government has pledged to maintain the economic and political autonomy of Hong
Kong over its internal affairs, there is no assurance that such pledge will
continue to be honored if there are changes in the Chinese political or economic
climate. See Item 1. "Description of Business -- Risks." Stock valuations have
also dropped sharply from a 1997 high, on the main Hong Kong stock index (the
Hang Seng). On August 7, 1997, the Hong Seng Index was 16,673.27. On June 14,
2000, that index stood at 16,080.34. There can be no assurance that these
problems will not abate or worsen or that recovery will occur in the near
future, if at all, in which event the Company may likely be materially adversely
affected.

         PRC. The PRC has been a socialist state since 1949. For more than forty
years, the PRC's economy has been, and presently continues to be, a socialist
economy operating under government controls promulgated under various one-,
five- and ten-year plans (collectively, "State Plans") adopted by central
Chinese government authorities and implemented, to a large extent, by provincial
and local authorities which may set production and development targets. However,
since approximately the early 1980s, the PRC's national government has
undertaken certain reforms to permit greater provincial and local economic
autonomy and private economic activities. Any change in political or economic
conditions may substantially adversely affect these reform initiatives and, in
turn, the Company. See Item 1. "Description of Business -- Risks."

OVERVIEW

         In March 1997, the Company completed its Public Offering and thereby
received net proceeds of approximately $1,817,000. Upon the completion of the
Public Offering, the Company acquired all of the issued and outstanding ordinary
shares of Far East in consideration for its



                                       26
<PAGE>

issuance of 1,233,120 and 446,880 Ordinary Shares to Regent Earning Limited, a
company incorporated in Hong Kong, and Pearl Venture Limited, a company
incorporated in the British Virgin Islands, respectively. Regent Earning Limited
and Pearl Venture Limited previously had in the aggregate held 100% of the
outstanding shares of Far East. This transaction has been accounted for as a
reorganization of companies under common control in a manner similar to a
pooling of interests. See Item 13. "Interest of Management in Certain
Transactions."

         Prior to its incorporation, the businesses of the Company were engaged
in by Far East, which in 1997 was acquired by, and is now a wholly-owned
subsidiary of the Company. Far East was established in 1971, under the name of
Eurotherm (Far East) Ltd., as a subsidiary of a United Kingdom publicly traded
company, Eurotherm Ltd., to market and distribute its parent company's
industrial control equipment in Hong Kong and Southeast Asia, and expanded its
activities into the PRC in 1973. In the early 1980's, Far East began
distributing high-tech equipment manufactured in the United States, Europe and
Japan within the PRC, in addition to its distribution of its parent's products.
In 1988, the activities of the parent and Far East were separated into Eurotherm
International and Far East. In or around 1994, all the capital stock of Far East
was purchased by its management, principally T.C. Leung, the Company's Chairman
of the Board of Directors and Chief Executive Officer. Far East thereafter
changed its name from Eurotherm (Far East) Ltd. to its current name. See Item
4."Control of Registrant" and Item 13. "Interest of Management in Certain
Transactions."

         The following discussion and analysis should be read in conjunction
with the Audited Consolidated Financial Statements and notes thereto appearing
elsewhere in this Annual Report. All financial data referred to in the following
discussion has been prepared in accordance with United States GAAP.

RESULTS FROM OPERATIONS

         During the fiscal years ended December 31, 1994 ("Fiscal 1994") and
December 31, 1995 ("Fiscal 1995"), Far East's sales revenues remained
substantially unchanged following a period of gradual increases in sales.
Management of the Company believes that Far East's lack of sales growth during
Fiscal 1994 and Fiscal 1995 resulted from the PRC'S economic austerity measures
undertaken to halt inflation in the PRC, which was approximately 27% in 1994 in
comparison to 1993. These economic austerity measures included the tightening of
credit, when coupled with a devaluation of the RMB in 1993 and the imposition of
a value tax imposed by the PRC on imports into the PRC, caused products
manufactured in the PRC to become more competitive with the United States,
European and Japanese manufactured products distributed by Far East even though
the products distributed by Far East were of better quality. Cost became an
overriding issue with many of PRC's customers and, in response, Far East reduced
its sales prices and, therefore, its profit margins to remain competitive with
PRC manufacturers. During Fiscal 1996, Far East also began streamlining its
operations and focusing its efforts on its current product lines by disposing of
three of its subsidiaries, Euro Electron (Far East) Ltd. ("Euro Electron"),
Action Instruments (China) Ltd. ("Action") and Armtison Ltd. ("Armtison").

         Euro Electron had been established to distribute telecommunication
products. However, Far East believes that manufacturers of these products
generally distributed their products directly to



                                       27
<PAGE>

end users, instead of using intermediary distributors such as Far East. Far East
also believes that technical expertise in this product line, which it lacked,
was a necessity for successfully entering this market. Far East attributes the
inability of Euro Electron to ever develop its core business to the foregoing
factors. Action had been established to distribute industrial computers. During
Fiscal 1994, Action lost its principal vendor when such vendor sold its
industrial computer production line to another supplier. Additionally, another
major manufacturer of industrial computers established its own Hong Kong and PRC
distribution operation. Armtison was principally a holding company for Euro
Electron and Action.

         The following table presents selected statement of operations data
expressed as a percentage of net sales for the Company's Fiscal 1995, Fiscal
1996, Fiscal 1997, Fiscal 1998 and Fiscal 1999.

<TABLE>
<CAPTION>

----------------------------------------  ------------  -----------  -----------   ----------  ----------
                                                              YEAR ENDED DECEMBER 31,
                                                        --------------------------------
                                             1995         1996         1997           1998         1999
                                             ----         ----         ----           ----         ----
----------------------------------------  ------------  -----------  -----------   ----------  ----------
<S>                                         <C>          <C>          <C>           <C>         <C>
Net Sales                                   100.0%       100.0%       100.0%        100.0%      100.0%
Cost of goods sold                           77.8%        77.3%        75.1%         75.7%       75.5%
Gross Profit                                 22.2%        22.7%        24.9%         24.3%       24.5%
Selling and administrative expenses          20.3%        19.6%        22.5%         22.9%       22.5%
Operating income                              2.2%         4.1%         4.0%          2.6%        3.2%
Income tax provision                           .1%          .7%          .5%           .6%         .6%
Net income                                     .6%         3.4%         3.5%          2.0%        2.6%
                                            ======       ======       ======        ======       =====
----------------------------------------  ------------  -----------  -----------  ----------  ----------
</TABLE>

RESULTS OF OPERATIONS

FISCAL YEAR ENDED DECEMBER 31, 1999 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1998.

         SALES; GROSS PROFIT AND COST OF GOODS SOLD. Sales increased by
approximately $350,000 or 2.7% to approximately $13,107,000 in Fiscal 1999 from
approximately $12,757,000 in Fiscal 1998. The Company's business was slightly
improved because Asia, including China, was starting to climb out of its
economic downturn.

         Gross profits increased by approximately $116,000 or 3.7% to
approximately $3,211,000 for Fiscal 1999 as compared to approximately $3,095,000
for Fiscal 1998. This increase was attributable to the increase in gross profit
margins from 24.3% in Fiscal 1998 to 24.5% in Fiscal 1999. During Fiscal 1999,
the Company's cost of goods sold was approximately $9,896,000, or 75.5% of
sales, in comparison to approximately $9,662,000 or 75.7% of sales for Fiscal
1998. Cost of goods sold expressed as a percentage of sales decreased by 0.2% in
Fiscal 1999 as compared with Fiscal 1998. The gross profit margin increased and
the percentage decrease in cost of goods sold were attributed to the fact that
the Company had more engineering assignments during the year.

         SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses were approximately $2,946,000 in Fiscal 1999, an increase of
approximately $22,000 or 0.8% from



                                       28
<PAGE>

approximately $2,924,000 in Fiscal 1998. The increase was primarily due to the
general increase in expenses related to the increase in sales.

         INTEREST INCOME. Net interest income decreased by approximately $1,000
or 1.2% to approximately $85,000 in Fiscal 1999 from approximately $86,000 for
Fiscal 1998. Interest income decreased by approximately $19,000 or 14.3% to
approximately $114,000 in Fiscal 1999 from approximately $133,000 in Fiscal
1998. The decrease was primarily due to the general decrease in the interest
rate from bank deposits during the year. Interest expense decreased by
approximately $18,000 or 38.3% to approximately $29,000 in Fiscal 1999 from
approximately $47,000 for Fiscal 1998. The decrease was a result of the
Company's reduced utilization of credit facilities under its banking
arrangements.

         OTHER INCOME. Other income decreased by approximately $2,000 or 2.9% to
approximately $67,000 in Fiscal 1999 from approximately $69,000 in Fiscal 1998.
The decrease in other income was principally due to less rental income received.

         PROVISION FOR PROFIT TAX. Provisions for taxes increased by $7,000 to
approximately $78,000 in Fiscal 1999 from approximately $71,000 in Fiscal 1998.
The increase was due primarily to an increase in operating profit.

         INCOME FROM CONTINUING OPERATIONS. Income from continuing operations
increased by approximately $84,000 or 32.9% to approximately $339,000 in Fiscal
1999 from approximately $255,000 in Fiscal 1998. The increase in net income was
primarily due to the increase in sales, and the increase in the gross margin
percentage as a result of the increasing engineering assignments received.

FISCAL YEAR ENDED DECEMBER 31, 1998 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1997

         SALES; GROSS PROFIT AND COST OF GOODS SOLD. Sales increased by
approximately $247,000 or 2% to approximately $12,757,000 in Fiscal 1998 from
approximately $12,510,000 in Fiscal 1997. The Company's business was adversely
affected by the deterioration of the economy in Hong Kong and China coupled with
the Asian currency crisis. However, the contribution from the three new PRC
sales offices opened in 1997 reduced the impact and attributed to the increase
in sales.

         Gross profits decreased by approximately $16,000 or 0.5% to
approximately $3,095,000 for Fiscal 1998 as compared to approximately $3,111,000
for Fiscal 1997. This decrease was attributable to the decrease in gross profit
margins from 24.9% in Fiscal 1997 to 24.3% in Fiscal 1998. During Fiscal 1998,
the Company's cost of goods sold was $9,662,000, or 75.7% of sales, in
comparison to $9,399,000 or 75.1% of sales for Fiscal 1997. Cost of goods sold
expressed as a percentage of sales increased by 0.6% in Fiscal 1998 as compared
with Fiscal 1997. The gross profit margin decreased and the percentage increase
in cost of goods sold were attributed to the fact that the Company reduced sale
prices to compete under the poor economic situation in the region.

         SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses were approximately $2,924,000 in Fiscal 1998, an increase of
approximately $112,000 or 4.0% from approximately $2,812,000 in Fiscal 1997. The
increase was primarily due to additional expenses


                                       29
<PAGE>

incurred in connection with the Company's listing on the NASDAQ SmallCap Market,
such as but not limited to legal fees for the SEC filing and repurchase of
underwriter's warrants, maintenance fees, and management fees.

         INTEREST INCOME. Net interest income increased by approximately $68,000
or 378% to approximately $86,000 in Fiscal 1998 from approximately $18,000 for
Fiscal 1997. Interest income increased by approximately $21,000 or 20.6% to
approximately $133,000 in Fiscal 1998 from approximately $102,000 in Fiscal
1997. The increase was primarily due to the increase in bank deposits from funds
generated from operations and proceeds from the issuance of common stock and
warrants. Interest expense decreased by approximately $37,000 or 44% to
approximately $47,000 in Fiscal 1998 from approximately $84,000 for Fiscal 1997.
The decrease was a result of the Company's reduced utilization of credit
facilities under its banking arrangements.

         OTHER INCOME. Other income decreased by approximately $114,000 or 62.3%
to approximately $69,000 in Fiscal 1998 from approximately $183,000 in Fiscal
1997. The decrease in other income was principally due to loss of approximately
$37,000 from a repurchase of underwriter's warrants and less exchange gains.

         PROVISION FOR PROFIT TAX. Provisions for taxes increased by $9,000 to
approximately $71,000 in Fiscal 1998 from approximately $62,000 in Fiscal 1997.
The increase was due primarily to provisions for taxes in 1997 being lower
resulting from the write-back of prior years' over-provisions for taxes.

         INCOME FROM CONTINUING OPERATIONS. Income from continuing operations
decreased by approximately $183,000 or 41.8% to approximately $255,000 in Fiscal
1998 from approximately $438,000 in Fiscal 1997. The decrease in net income was
primarily due to the decrease in the gross margin percentage as a result of the
poor economic situation in the market, increase in selling and administrative
expenses due to additional listing expenses and the loss and legal expenses
incurred on repurchase of underwriter's warrants.

FISCAL YEAR ENDED DECEMBER 31, 1997 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1996

         SALES; GROSS PROFIT AND COST OF GOODS SOLD. Sales decreased by
approximately $1,248,000 or 9% to approximately $12,510,000 in Fiscal 1997 from
approximately $13,758,000 in Fiscal 1996. The decrease is primarily due to (i)
streamlining of product line offerings to concentrate on the Company's core
business of the water and waste water treatment business, and the
discontinuation of certain product lines not related to the Company's core
business, some medical lines, and (ii) the economic slowdown in Asia in the
second half of the year.

         Gross profit decreased by approximately $14,000 or 0.4% to
approximately $3,111,000 for Fiscal 1997 as compared to approximately $3,125,000
for Fiscal 1996. This decrease was attributable to the increase in gross profit
margins from 22.7% in Fiscal 1996 to 24.9% in Fiscal 1997. During Fiscal 1997,
the Company's cost of goods sold was $9,399,000, or 75.1% of sales, in
comparison to $10,633,000 or 77.3% of sales for Fiscal 1996. Cost of goods sold
expressed as a percentage of sales decreased by 2.2% in Fiscal 1997 as compared
with Fiscal 1996. The gross profit margin increase and the percentage decrease
in cost of goods sold are attributed to the



                                       30
<PAGE>

discontinuation or disposition of the lower margin businesses such as the
medical products line.

         SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses were approximately $2,812,000 in Fiscal 1997, an increase of
approximately $109,000 or 4.0% from approximately $2,703,000 in Fiscal 1996. The
increase is primarily due to additional expenses incurred in connection with the
Company's preparations for its Public Offering, including its application for
listing on the NASDAQ SmallCap Market, such as but not limited to legal fees,
maintenance fees, consultant fees and management fees, and operating expenses
for the three new PRC sales offices opened during the year.

         INTEREST INCOME/EXPENSE. Net interest changed from net interest expense
of approximately $98,000 in Fiscal 1996 to net interest income of approximately
$18,000 in Fiscal 1997. Interest income increased by approximately $35,000 or
52.2% to approximately $102,000 in Fiscal 1997 from approximately $67,000 for
Fiscal 1996. The increase is primarily due to the increase in bank deposits from
funds generated from operations and proceeds from the issuance of common stock
and warrants. Interest expense decreased by approximately $81,000 or 49.1% to
approximately $84,000 in Fiscal 1997 from approximately $165,000 for Fiscal
1996. The decrease was a result of the Company's reduced utilization of credit
facilities under its banking arrangements.

         OTHER INCOME. Other income decreased by approximately $59,000 or 24.4%
to approximately $183,000 in Fiscal 1997 from approximately $242,000 in Fiscal
1996. The decrease in other income is principally due to a non-recurring profit
of approximately $118,000 from sales of investment property in Fiscal 1996.

         PROVISION FOR PROFIT TAX. Provisions for taxes decreased by $35,000 to
approximately $62,000 in Fiscal 1997 from approximately $97,000 in Fiscal 1996.
The decrease was due primarily to the decrease in operating income and
over-provision in 1996.

         INCOME FROM CONTINUING OPERATIONS. Income from continuing operations
increased by approximately $87,000 or 24.8% to approximately $438,000 in Fiscal
1997 from approximately $351,000 (total income of approximately $469,000 less
non-recurring profit of approximately $118,000 from sales of property) in Fiscal
1996. The increase in net income was primarily due to the improvement in the
gross margin percentage and the reduction in interest expenses.

LIQUIDITY AND CAPITAL RESOURCES

         The Company has primarily used its cash to fund accounts receivable,
inventories, and capital expenditures including purchases of property, office
furniture and equipment, computers and calibration equipment. The Company has
historically met its cash requirements from cash flows from operations,
short-term borrowings under bank lines of credit, and long-term mortgage bank
loans. The Company expects, but as to which no assurance may be made, that its
present cash reserves, cash from operations and existing available bank credit
facilities would be sufficient to fund its capital expenditures. Working capital
at the end of Fiscal 1998 and Fiscal 1999 was approximately $3,493,000 and
$3,632,000, respectively.

         The Company generated net cash of $793,000, $696,000 and $928,000,
respectively,


                                       31
<PAGE>

from operating activities in Fiscal 1997, Fiscal 1998, and Fiscal 1999,
respectively, on net income of $438,000, $255,000 and $339,000 in Fiscal 1997,
Fiscal 1998, and Fiscal 1999, respectively. At the end of Fiscal 1997, Fiscal
1998, and Fiscal 1999 the Company's accounts receivable were approximately
$2,585,000, $2,726,000 and $2,826,000, respectively.

         The Company used $71,000, $44,000 and $217,000 for investing activities
in Fiscal 1997, Fiscal 1998, and Fiscal 1999 respectively. Cash used in
investing activities in Fiscal 1999 and Fiscal 1998 was mainly used to purchase
property, facilities and equipment.

         The Company generated $422,000 in Fiscal 1997 from financing
activities, and used $151,000 and $65,000 in Fiscal 1998 and Fiscal 1999,
respectively. The Company had various banking facilities for overdraft, import
and export credits and foreign exchange contracts from which the Company can
access up to approximately $4,903,000, and of which approximately $3,780,000
remained unused as at December 31, 1999. Approximately $3,037,000 of the
aforementioned available credit facilities were obtained on the conditions that,
among other things, the Company mortgage its properties as security for the
credit facilities, not to create a charge or lien on its other assets in favor
of other parties without such bank's consent, and the Company maintaining a
certain level of net worth. The Company also has a bank loan from the Hong Kong
and Shanghai Banking Corporation to finance the purchase of its properties with
outstanding indebtedness at December 31, 1999 of approximately $263,000, which
loan bears interest at Hong Kong's prime rate plus 1.75% and is repayable in
monthly installments through November 2002.

         Cash increased from approximately $3,045,000 at the end of Fiscal 1998
to approximately $3,691,000 at the end of Fiscal 1999. The principal reasons for
the increase in cash were (i) cash generated from operations; (ii) increase in
trade deposits received from customers; and (iii) increase in bills payable and
amounts due to related companies as a result of increase in such purchases
around the year end. The Company plans to use cash on hand for, among other
purposes, to acquire a manufacturing plant and/or engineering company in Hong
Kong and/or the PRC.

         The Company's net accounts receivable increased from $2,726,000 at
December 31, 1998 to $2,826,000 at December 31, 1999. The increase was
attributed to the Company's approximate 2.7% increase in sales in 1999 and the
Company increasing the credit lines of certain of its good customers.

         Inventory increased from approximately $486,000 at the end of Fiscal
1998 to approximately $569,000 at the end of Fiscal 1999. The Company seeks to
maintain a low level of inventory consisting mostly of low-tech products to fill
its regular customers' orders, and parts and accessories for warranty purposes,
with the Company policy to order products upon customer demand. The higher
inventory level at the end of Fiscal 1999 was principally due to an increase in
inventory levels of low-tech products to meet an increasing demand for items
from our customers.

         The Company's outstanding short-term bank borrowings consisted of
import and export bank loans. Short-term borrowings were $0 at the end of Fiscal
1998 and Fiscal 1999. As of


                                       32
<PAGE>

December 31, 1999, the Company had various banking facilities from which total
available credit was approximately $4,903,000, of which approximately $3,780,000
remained unused as at such date. The Company's long-term bank loans are secured
by certain of the Company's realty, and bear interest at 10.25% per annum. As at
December 31, 1999, the Company had outstanding long-term bank loans in the
amount of approximately $263,000.

         The Company's capital expenditures were approximately $217,000 in 1999,
an increase from expenditures of approximately $49,000 in 1998. Capital
expenditures in 1999 were incurred primarily in connection with the purchase of
property, office equipment and furniture and computers. A source of funds for
these capital expenditures included net proceeds from the Public Offering. The
Company is presently seeking targets for acquisition, such as facilities for
assembly operations or engineering companies. If such acquisitions are indeed
made, the Company may expect to incur significantly larger capital expenditures,
for which the Company presently intends, but as to which no assurance can be
made, to use existing cash reserves, cash from operations and available bank
credit facilities to fund such capital expenditures.

INFLATION

         The annual rate of inflation in the PRC has declined significantly in
recent years. In 1996, 1997, 1998 and 1999, the rate of inflation was
approximately 8.3%, 2.8%, -0.8% and -1.4%, respectively, in comparison to the
preceding years, respectively. The Company believes this declining inflation
rate has had a positive effect on its results from operations. The Company
believes, although no assurance can be given as to the correctness of the
Company's belief, that credit restrictions will be gradually lifted, and that as
a result Far East will be able to increase prices in the market for its products
and thus realize increased profit margins.

ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

         Not applicable.

ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT

Information concerning the Directors and Executive Officers of the Company are
as follows:

<TABLE>
<CAPTION>

         NAME                    AGE         POSITION

<S>                              <C>         <C>
         T.C. Leung              56          Chairman of the Board of Directors and Chief
                                             Executive Officer

         Jerry Wong              41          Director and Chief Financial Officer

         Nancy Wong              51          Director

         C.P. Kwan               41          Director


                                       33
<PAGE>

         Alex Sham               36          Director

         Adam L. Goldberg        41          Director

         Y.K. Liang              70          Director
</TABLE>

         Set forth below is a brief background of the executive officers and
directors based upon the information supplied by them:

         T.C. LEUNG has been Chief Executive Officer and Chairman of the Board
of Directors of both the Company and Far East since their inception. Before
establishing Far East, Mr. Leung was an engineer for English Electric in
England, from 1965 to 1968, and Lockheed Aircraft in Hong Kong, from 1968 to
1970. Mr. Leung also served as managing director of Eurotherm (Far East) Ltd.
between 1971 and 1992. Since 1988, Mr. Leung has also served as managing
director of Eurotherm Hong Kong. Mr. Leung received a Masters degree in Business
Administration from the University of East Asia, Macao in 1986 and is a
Chartered Engineer, a title bestowed upon a member of the Council of Engineering
Institutions in the United Kingdom.

         JERRY WONG has served as Director and Chief Financial Officer of Far
East since 1994 and has been with Far East since 1987. Mr. Wong has been the
Chief Financial Officer and a Director of the Company since its inception. From
1985 until 1987, Mr. Wong worked for MUA Agencies Ltd., a subsidiary of a Hong
Kong publicly listed company engaged in the insurance business, as deputy
manager of its secretarial, legal and accounting department. From 1981 until
1985, Mr. Wong served as a senior accountant in Price Waterhouse-Hong Kong. He
is a Fellow of the Association of Chartered Certified Accountants in the United
Kingdom and a Certified Public Accountant in Hong Kong.

         NANCY WONG has been a Director of the Company since its inception and a
Director of Far East, and its Personnel Manager, since 1994. Ms. Wong has been
with Far East since 1971. Ms. Wong is also Far East's Chief Representative in
China. During the last several years, Ms. Wong has played a pivotal role in Far
East's business expansion in China. Ms. Wong received a Bachelor of Science
degree in Business Administration from the University of East Asia, Macao in
1989.

         C.P. KWAN joined Far East in 1984 and has served as a Director and
Manager of its Process Equipment Department since 1991. Mr. Kwan has been a
Director of the Company since its inception. Before joining Far East, he was
employed by Haven Automation (H.K.) Ltd., a company involved in the water
treatment and process control business between 1981 and 1984.

         ALEX SHAM has been a Director of the Company since its inception. Mr.
Sham joined Far East in 1988 and has been its Sales Manager since 1993 and
became a Director of Far East in 1996. Mr. Sham received a Bachelor of Science
in Applied Chemistry from Hong Kong Baptist University in 1990. Prior to joining
Far East, Mr. Sham was employed by the Environmental Protection Department of
the Hong Kong Government from 1986 until 1988.


                                       34
<PAGE>

         ADAM L. GOLDBERG has been a director of the Company since February 16,
1998. Mr. Goldberg is an attorney who has maintained his own practice in New
York City since 1993. From 1989 until 1993, Mr. Goldberg was employed as a staff
attorney with the New York City Department of Housing Preservation and
Development. Mr. Goldberg is the designee of May Davis Group, Inc., the
underwriter of the Company's initial public offering.

         Y.K. LIANG has been a director of the Company since February 16, 1998.
Mr. Liang is a director of Wong Liang Consultants Ltd. ("Consultants") and a
member of the certified public accounting firm of Y.K. Liang & Co. ("LCO"). Mr.
Liang has been associated with both Consultants and LCO for more than the past
five years. Consultants is a general business consulting firm.

         Directors of the Company serve until the next annual meeting of
shareholders of the Company and until their successors are elected and duly
qualified. Officers of the Company are elected annually by the Board of
Directors and serve at the discretion of the Board of Directors.

         The Company believes that none of its directors, officers or beneficial
owners of ten percent or more of its Common Stock are required to file any
reports pursuant to Section 16(a) of the Securities Exchange Act of 1934, as
amended (the "1934 Act").

         The Company had one meeting of its Board of Directors during Fiscal
1999. Messrs. Leung, Goldberg and Liang are the members of the Company's Audit
Committee. The Audit Committee did not meet during Fiscal 1999.

         The Company has not had any directors resign or decline to stand for
re-election at any time during or since December 31, 1998.

         There are no material legal proceedings involving any director, officer
or affiliate of the Company, owner of record or beneficially of more than five
percent of the Company's Common Stock or any associate of any of the foregoing.

ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS

         The following table sets forth certain summary information with respect
to the compensation paid by Far East for services rendered in all capacities to
Far East during Fiscal 1999 and Fiscal 1998 by Far East's Chairman of the Board
and Chief Executive Officer.

<TABLE>
<CAPTION>

                                             SUMMARY COMPENSATION TABLE

         NAME AND PRINCIPAL POSITION                     YEAR          SALARY ($)       BONUS ($)
         ---------------------------                     ----          ----------       ---------
<S>                                                      <C>           <C>              <C>
         T.C. Leung, Chairman of the Board of            1999          100,000          33,000
         Directors and Chief Executive Officer           1998          100,000          30,000
</TABLE>


                                       35
<PAGE>

COMPENSATION OF DIRECTORS

         Directors of the Company do not receive compensation for their services
as directors; however, the Board of Directors may authorize the payment of
compensation to directors for their attendance at regular and annual meetings of
the Board and for attendance at meetings of committees of the Board as is
customary for similar companies. Directors will be reimbursed for their
reasonable out-of-pocket expenses incurred in connection with their duties to
the Company.

PENSION PLAN

         The Company has a defined contribution pension plan for all of its
employees. Under this plan, all employees are entitled to a pension benefit
equal to 50% to 100% of their individual fund account balances at their dates of
resignation or retirement which depends on their years of service. The Company
is required to make specific contributions at approximately 10% of the basic
salaries of the employees to an independent fund management company. The Company
has no future obligations for the pension payment or any post-retirement
benefits beyond the annual contributions made. The independent fund management
company is responsible for the ultimate pension liabilities to those resigned or
retired employees. During the years ended December 31, 1997, 1998 and 1999, the
Company made total pension contributions of approximately $115,000, $127,000 and
$124,000, respectively.

EMPLOYMENT AGREEMENT - T.C. LEUNG

         T.C. Leung's services to the Company and Far East are provided pursuant
to a personal services agreement between the Company, Far East and Shereman
Enterprises Ltd., a management company terminating on March 14, 2002 pursuant to
which Mr. Leung will continue to serve as the Chairman of the Board of Directors
and Chief Executive Officer of Far East and the Company. The agreement requires
that Mr. Leung devote substantially all of his business time to the affairs of
the Company and Far East. The agreement provides for the payment of $100,000 and
six percent of the Company's consolidated pre-tax income to the management
company in exchange for Mr. Leung's services during the first year of the
agreement's term with compensation past the first year to be renegotiated
annually. The agreement contains a confidentiality provision and a covenant not
to compete with the Company or Far East for a period of one year following
termination of the agreement under certain circumstances.

ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES

STOCK OPTION PLAN

         After next annual meeting of shareholders the Company has proposed for
shareholder approval the adoption of its 2000 Officers' and Directors' Stock
Option and Incentive Plan and its 2000 Employees Stock Option and Incentive
Plan. If so authorized, 292,000 and 146,000 Ordinary Shares will be authorized
for issuance, respectively, under the plans.


                                       36
<PAGE>

MANAGEMENT OPTION PLAN

         The Company has authorized the issuance of 1,680,000 Options to
purchase up to an aggregate of 1,680,000 Ordinary Shares (the "Management
Options") to its officers, directors and employees in such numbers and to such
persons as the Company's Chairman of the Board and Chief Executive Officer may
direct. The Management Options became exercisable on March 14, 1998 for a term
of ten years.

         The exercise price and the number of Ordinary Shares purchasable upon
exercise of any Management Options are subject to adjustment upon the occurrence
of certain events, including stock dividends, reclassification, reorganizations,
consolidations, mergers, and certain issuances and redemptions of Ordinary
Shares and securities convertible into or exchangeable for Ordinary Shares
excluding certain issuances of shares of the Company's Ordinary Shares. No
adjustments in the exercise price will be required to be made with respect to
the Management Options until cumulative adjustments amount to $.05.

         In the event of any capital reorganization, certain reclassifications
of the Ordinary Shares, any consolidation or merger involving the Company (other
than (i) a consolidation or merger which does not result in any reclassification
or change in the outstanding Ordinary Shares, or (ii) sale of the properties and
assets of the Company, as, or substantially as, an entirety to any other
corporation), Management Options will thereupon become exercisable only for the
number of shares of stock or other securities, assets, or cash to which a holder
of the number of Ordinary Shares of the Company purchasable (at the time of such
reorganization, reclassification, consolidation, merger, or sale) upon exercise
of such Management Options would have been entitled upon such reorganization,
reclassification, consolidation, merger, or sale.

         The table below shows, as to each of the executive officers and
directors of the Company and as to all executive officers and directors of the
Company as a group, the following information with respect to Management
Options: (i) the aggregate amounts of Ordinary Shares subject to Management
Options; and (ii) the per share exercise price for the Management Options
granted to these individuals. No other options to these individuals were issued
and outstanding as of June 1, 2000.

<TABLE>
<CAPTION>

         NAME OF EXECUTIVE                            SHARES SUBJECT           PER SHARE
         OFFICERS AND DIRECTORS                         TO OPTIONS           EXERCISE PRICE

<S>                                                        <C>                  <C>
         T.C. Leung                                        900,000              $4.5833
                                                           420,000              $3.33

         Alex Sham                                          45,950              $4.5833
                                                            24,000              $3.33

         Jerry Wong                                         39,950              $4.5833
                                                            18,000              $3.33

         Nancy Wong                                         34,000              $4.5833
                                                             9,000              $3.33


                                       37
<PAGE>

         C.P. Kwan                                          27,000              $4.5833
                                                             9,000              $3.33

         All Executive Officers and                      1,526,900              $3.33-$4.583(1)
         Directors as a group (7 persons)
</TABLE>

         Other officers and/or employees of the Company have been or will be
granted management options to purchase an aggregate of 153,100 Management
Options, all of which will be exercisable at $4.5833 per share.

         As of June 1, 2000, no Management Options have been exercised. At
December 31, 1999, none of the options were "in the money," although by their
terms they are exercisable.

ITEM 13.  INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS.

         Mr. Leung may be deemed to be a "promoter" of the Company as such term
is defined by the rules promulgated by the Commission under the Securities Act.
As so defined, a promoter is any person who (i) acting alone or in conjunction
with others, took the initiative in founding and organizing an issuer's business
or enterprise, or (ii) in connection with founding and organizing the business
or enterprise of an issuer, receives in consideration for services and/or
property, ten percent or more or either of any class of the issuer's securities
or the proceeds therefrom. Mr. Leung was the proponent of the Public Offering to
raise capital for the Company and Far East and of establishing a company in the
British Virgin Islands for that purpose. Mr. Leung is the beneficial owner of
approximately 67.2% of the Company's shares of Common Stock after giving effect
to the exercise of the 1,320,000 Management Options owned by him.

         The Company intends that all transactions between the Company and its
executive officers and directors be on terms no less favorable than could be
obtained from independent third parties and be approved by a majority of the
Company's directors who are not interested in such transactions.

         All outstanding balances with related parties are unsecured,
non-interest bearing and are repayable in 2000. The related companies with which
the Company has engaged in transactions are Euro Electron, Eurotherm, Action and
Armtison. During Fiscal 1999 the Company made sales to Eurotherm of
approximately $33,000. During Fiscal 1999 the Company made purchases from
Action, Armtison and Eurotherm of approximately $7,000, $38,000 and $850,000,
respectively. Additionally, during Fiscal 1999, the Company paid approximately
$46,000 to Armtison for office space rentals, and approximately $23,000 in
management fees to Eurotherm to assist in the management of some of the
Company's PRC offices. The payments to Armtison and Eurotherm were based on
actual office space usage and the time cost of personnel used, respectively.

-----------------
(1) Price Range

                                       38
<PAGE>

         No loans or advances have been or will be made in the future to the
Company's officers, directors or shareholders of at least five percent (5%) of
the issued and outstanding shares of any class of equity securities ("5%-plus
Shareholders"), or their respective affiliates unless such loans are for bona
fide business purposes.

         In connection with the Public Offering, the Company sold to May Davis,
for the sum of $10.00, Warrants to purchase up to 72,000 shares of the Company's
Common Stock at $6.875 and other securities which were repurchased by the
Company in 1998 (the "May Davis Warrants") which are exercisable until March 14,
2002. For the life of the May Davis Warrants, the holders thereof are given the
opportunity to profit from a rise in the market price of the Warrants and/or
Common Stock of the Company with a resulting dilution in the interest of other
securityholders. The Company may find it more difficult to raise additional
equity capital if it should be needed for the business of the Company while the
May Davis Warrants are outstanding, and at any time when the holder of the May
Davis Warrants might be expected to exercise them, the Company would probably be
able to obtain additional equity capital on terms more favorable than those
provided in the May Davis Warrants. The Company has agreed to certain
"piggy-back" registration rights for the holders of the May Davis Warrants and
securities issuable upon exercise thereof.

         In 1998, the Company repurchased a portion of the securities issued to
May Davis. The Company purchased the right to obtain certain warrants and any
and all rights, and powers granted pursuant to said warrants and the May Davis
Warrants in consideration of the sum of $75,150.

         May Davis had indicated its desire to exercise the demand registration
rights. The Company reviewed the situation and determined that to file a new
registration statement or post-effective amendment to its registration
statement, the cost to the Company would far exceed $75,000.


                                     PART II

ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED.

         Not Applicable.


                                    PART III


ITEM 15. DEFAULTS UPON SENIOR SECURITIES.

         Not Applicable.


                                       39
<PAGE>

ITEM 16. CHANGES IN SECURITIES, CHANGES IN SECURITY FOR REGISTERED SECURITIES
AND USE OF PROCEEDS

         As to Use of Proceeds, See Item 9. "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

         The Company issued a 20% stock dividend to holders of its Ordinary
Shares on September 3, 1999. Ordinary shareholders on the record date received
one share for each five Ordinary Shares held. The issuance of the dividend
shares caused certain adjustments to be made to the exercise prices, numbers of
shares and, where redemption is applicable, the market price required to be
maintained to "trigger" the Company's right to redeem the warrants ("Target
Price"). Various changes to the indicated securities of the Company are
described below:

<TABLE>
<CAPTION>

                SECURITIES                                    PRE-DIVIDEND        POST-DIVIDEND
<S>                                                              <C>               <C>
        1.      Redeemable Ordinary Share
                Purchase Warrants ("Warrants")
                A.  Maximum Number of Shares
                      Exercisable For                            1,620,000            1,944,000
                B.   Per share Exercise Price                        $5.50              $4.5833
                C.  Target Price                                     $8.50              $7.0833

        2.      Underwriter's* Warrant
                A.   Maximum Number of
                       Shares Exercisable For                       60,000               72,000
                B.   Per Share Exercise Price                        $8.25               $6,875

        3.      Option Issued to Consultant
                A.   Maximum Number of
                       Shares Exercisable For                      100,000              120,000
                B.   Per Share Exercise Price                        $5.50              $4.5833
                C.   Target Price                                   $10.00              $8.3333

        4.      Options Issued to Members of
                Registrant's Management*
                A.   Maximum Number of
                       Shares Exercisable For                      400,000              480,000
                B.   Per Share Exercise Price                        $4.00              $3.3333

        5.      Options Issued to Management
                And Employees of Registrant*
                A.   Maximum Number of Shares
                       Exercisable For                             929,000            1,114,800
                B.   Per Share Exercise Price                        $5.50              $4.5833
                C.   Not Yet Granted                                71,000               85,200
</TABLE>

*  Target Price is Not Applicable.


                                       40
<PAGE>

                                     PART IV

ITEM 17. FINANCIAL STATEMENTS.

         See attached pages 1 through 15 annexed hereto for the following
consolidated financial statements of the Company.

<TABLE>
<CAPTION>

         Euro Tech Holdings Company Limited and Subsidiaries                          PAGE(S)

<S>                                                                                      <C>
         Report of Independent Public Accountants ..................................     1

         Consolidated Statements of Income and Comprehensive Income
         for the Years Ended December 31, 1997, 1998 and 1999 ......................     2

         Consolidated Balance Sheets as of December 31, 1998 and 1999.......... ....     3

         Consolidated Statements of Cash Flows for the Years
         Ended December 31, 1997, 1998 and 1999 ....................................     4-5

         Consolidated Statements of Changes in Shareholders' Equity
         for the Years Ended December 31, 1997, 1998 and 1999 ......................     6

         Notes to Consolidated Financial Statements ................................     7-15
</TABLE>



ITEM 18. FINANCIAL STATEMENTS.

         Not Applicable.


                                       41
<PAGE>

ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS

         (a)      List of Financial Statements.

         Reference is made to Item 17 for all financial statements filed as part
of this Annual Report.

         (b)      List of Exhibits (filed herewith).

<TABLE>
<CAPTION>

                  Exhibit
                  NO.               DESCRIPTION

<S>                              <C>
                  10.23          Agreement with Shanghai Institute.

                  10.24          Agreement with Hach Company, Inc.

                  23.2           Consent of Arthur Anderson & Co., Hong Kong
</TABLE>


                                       42
<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this annual report to be signed on its
behalf by the undersigned, thereunto duly authorized.

<TABLE>
<CAPTION>

<S>                                  <C>
                                     EURO TECH HOLDINGS COMPANY LIMITED
                                     ----------------------------------
                                               (Registrant)


                                     /s/T.C. LEUNG
                                     --------------------------------------------------
                                     Chief Executive Officer and Chairman of the Board
</TABLE>

Dated: June 28, 2000


<PAGE>











               EURO TECH HOLDINGS COMPANY LIMITED AND SUBSIDIARIES
               ===================================================



                       AUDITED CONSOLIDATED BALANCE SHEETS

                        AS OF DECEMBER 31, 1998 AND 1999

                                       AND

                       CONSOLIDATED STATEMENTS OF INCOME,

                 CASH FLOWS AND CHANGES IN SHAREHOLDERS' EQUITY

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

                         TOGETHER WITH AUDITORS' REPORT



<PAGE>















                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



TO THE SHAREHOLDERS AND DIRECTORS OF EURO TECH HOLDINGS COMPANY LIMITED


We have audited the accompanying consolidated balance sheets of Euro Tech
Holdings Company Limited (the "Company"), incorporated in the British Virgin
Islands, and subsidiaries (the "Group") as of December 31, 1998 and 1999, and
the related consolidated statements of income, cash flows and changes in
shareholders' equity for the years ended December 31, 1997, 1998 and 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Group as of December 31, 1998 and 1999, and the results of its operations and
cash flows for the years ended December 31, 1997, 1998 and 1999 in conformity
with generally accepted accounting principles in the United States of America.




/s/ Arthur Andersen & Co.
Hong Kong,
March 28, 2000.




                                      -1-
<PAGE>




                       EURO TECH HOLDINGS COMPANY LIMITED


           CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

           (Amounts in thousands except for share and per share data)



<TABLE>
<CAPTION>
                                            Notes          1 9 9 7            1 9 9 8            1 9 9 9
                                           ---------  ------------------ ------------------  -----------------
                                                             US$                US$                US$
<S>                                           <C>               <C>                <C>                 <C>
Net sales                                     12                12,510             12,757              13,107
Cost of goods sold                                              (9,399)            (9,662)             (9,896)
                                                      ------------------ ------------------  -----------------

Gross profit                                                     3,111              3,095               3,211
Selling and administrative expenses           12                (2,812)            (2,924)             (2,946)
                                                      ------------------ ------------------  -----------------

Operating income                                                   299                171                 265
Interest income, net                          12                    18                 86                  85
Other income, net                           3 & 12                 183                 69                  67
                                                      ------------------ ------------------  -----------------

Income before income taxes                                         500                326                 417
Income taxes                                  4                    (62)               (71)                (78)
                                                      ------------------ ------------------  -----------------

Net income                                                         438                255                 339
                                                      ================== ==================  =================

Foreign currency translation adjustment                             (5)                 5                   -
                                                      ------------------ ------------------  -----------------

Comprehensive income                                               433                260                 339
                                                      ================== ==================  =================

Net income per common share                                       0.23               0.12                0.15
                                                      ================== ==================  =================

Weighted average number of common
    shares outstanding                                       1,888,000          2,068,200           2,204,200
                                                      ================== ==================  =================
</TABLE>







              The accompanying notes are an integral part of these
                             financial statements.




                                      -2-
<PAGE>




                       EURO TECH HOLDINGS COMPANY LIMITED


                           CONSOLIDATED BALANCE SHEETS

                        AS OF DECEMBER 31, 1998 AND 1999

                  (Amounts in thousands except for share data)



<TABLE>
<CAPTION>
                                                           Note           1 9 9 8               1 9 9 9
                                                         ---------   -------------------   -------------------
                                                                            US$                   US$
<S>                                                                              <C>                   <C>
ASSETS

Current assets:
   Cash and cash equivalents                                                     3,045                 3,691
   Accounts receivable, net                                 5                    2,726                 2,826
   Bills receivable                                                                131                   169
   Prepayments and other current assets                                            210                   303
   Inventories, net                                         6                      486                   569
                                                                     -------------------   -------------------

         Total current assets                                                    6,598                 7,558

Property, plant and equipment, net                          7                    1,961                 2,079
                                                                     -------------------   -------------------

         Total assets                                                            8,559                 9,637
                                                                     ===================   ===================

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
   Long-term bank loans, current portion                    8                       68                    85
   Accounts payable                                                              2,637                 2,564
   Bills payable                                                                    45                   434
   Due to related companies                                 12                      35                   235
   Accrued expenses                                                                287                   570
   Taxation payable                                                                 33                    38
                                                                     -------------------   -------------------

         Total current liabilities                                               3,105                 3,926
                                                                     -------------------   -------------------

Long-term bank loans                                        8                      260                   178
                                                                     -------------------   -------------------

Shareholders' equity:
   Common stock, par value US$0.01 each, 20,000,000
     (1998 - 20,000,000) shares authorized;
     2,481,840 (1998 - 2,068,000) shares issued and
     outstanding                                                                    21                    25
   Additional paid-in capital                                                    2,054                 2,050
   Warrants                                                 9                      172                   172
   Retained earnings                                                             2,947                 3,286
                                                                     -------------------   -------------------

         Total shareholders' equity                                              5,194                 5,533
                                                                     -------------------   -------------------

         Total liabilities and shareholders' equity                              8,559                 9,637
                                                                     ===================   ===================
</TABLE>

              The accompanying notes are an integral part of these
                             financial statements.



                                      -3-
<PAGE>




                       EURO TECH HOLDINGS COMPANY LIMITED


                      CONSOLIDATED STATEMENTS OF CASH FLOWS

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

                             (Amounts in thousands)



<TABLE>
<CAPTION>
                                                           1 9 9 7            1 9 9 8            1 9 9 9
                                                       -----------------  -----------------  -----------------
                                                             US$                US$                US$
<S>                                                                <C>                <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                         438                255                339
Adjustments to reconcile net income to net cash
    provided by operating activities:
    Amortization of organization costs                               8                  -                  -
    Depreciation of property, plant and equipment                   70                 96                 99
    Gain on disposals of property, plant and
       equipment                                                    (3)                (4)                 -
    Expenses on repurchase of warrants                               -                 37                  -
(Increase) decrease in assets:
    Accounts receivable                                            384               (141)              (100)
    Bills receivable                                               249                (58)               (38)
    Due from related companies                                     328                 16                  -
    Prepayments and other current assets                           481                 78                (93)
    Inventories                                                   (113)                88                (83)
Increase (decrease) in liabilities:
    Accounts payable                                              (719)               720                (73)
    Bills payable                                                  173               (134)               389
    Due to related companies                                        42               (108)               200
    Due to a director                                               (6)                 -                  -
    Accrued expenses                                              (472)              (153)               283
    Taxation payable                                               (67)                 4                  5
                                                       -----------------  -----------------  -----------------

    Net cash provided by operating activities                      793                696                928
                                                       -----------------  -----------------  -----------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment                         (74)               (49)              (217)
Proceeds from disposals of property, plant and
    equipment                                                        3                  5                  -
                                                       -----------------  -----------------  -----------------

    Net cash used in investing activities                          (71)               (44)              (217)
                                                       -----------------  -----------------  -----------------
</TABLE>



                                                                     (Continued)


                                      -4-
<PAGE>





                       EURO TECH HOLDINGS COMPANY LIMITED


                 CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont'd)

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

                             (Amounts in thousands)


<TABLE>
<CAPTION>
                                                           1 9 9 7            1 9 9 8            1 9 9 9
                                                       -----------------  -----------------  -----------------
                                                             US$                US$                US$
<S>                                                             <C>                   <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of short-term bank borrowings                         (1,098)               (16)                 -
Repayment of long-term bank loans                                 (285)               (60)               (65)
Issuance of common stock                                         1,727                  -                  -
Repurchase of common stock                                          (1)                 -                  -
Issuance of warrants                                                90                  -                  -
Repurchase of warrants                                             (11)               (75)                 -
                                                       -----------------  -----------------  -----------------

    Net cash provided by (used in) financing
       activities                                                  422               (151)               (65)
                                                       -----------------  -----------------  -----------------

Net increase in cash and cash equivalents                        1,144                501                646
Cash and cash equivalents, beginning of year                     1,400              2,539              3,045
Effect of exchange rate change on cash and cash
    equivalents                                                     (5)                 5                  -
                                                       -----------------  -----------------  -----------------

Cash and cash equivalents, end of year                           2,539              3,045              3,691
                                                       =================  =================  =================

Supplementary information
    Interest received                                              102                133                114
    Interest paid                                                   84                 47                 29
    Income taxes paid                                              129                 57                 82
    Income taxes refund                                              -                  -                  8
</TABLE>






              The accompanying notes are an integral part of these
                             financial statements.





                                      -5-
<PAGE>




                       EURO TECH HOLDINGS COMPANY LIMITED


           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

                             (Amounts in thousands)



<TABLE>
<CAPTION>
                                                                         Accumulated
                                                                        comprehensive
                                                                            income -
                                              Additional                  cumulative
                                               paid-in                   translation
                               Common stock    capital       Warrants     adjustment   Retained earnings  Total
                               ------------- ------------- ------------- ------------- ----------------- -------------
                                   US$           US$           US$            US$             US$             US$
<S>                                     <C>        <C>            <C>            <C>             <C>           <C>
Balance as of January 1, 1997            2           385            93             -             2,254         2,734

Net income                               -             -             -             -               438           438
Issuance of common stock                 6         1,721             -             -                 -         1,727
Repurchase of common
   stock                                (1)            -             -             -                 -            (1)
Share swap                              14           (14)            -             -                 -             -
Issuance of warrants                     -             -            90             -                 -            90
Repurchase of warrants                   -             -           (11)            -                 -           (11)
Foreign exchange
   translation
   adjustments                           -             -             -            (5)                -            (5)
                               ------------- ------------- ------------- ------------- ----------------- -------------

Balance as of December 31, 1997         21         2,092           172            (5)           2,692          4,972

Net income                               -             -             -             -              255            255
Repurchase of warrants                   -           (38)            -             -                -            (38)
Foreign exchange
   translation
   adjustments                           -             -             -             5                -              5
                               ------------- ------------- ------------- ------------- ----------------- -------------

Balance as of December 31, 1998         21         2,054           172             -            2,947          5,194

Stock dividend                           4            (4)            -             -                -              -
Net income                               -             -             -             -              339            339
                               ------------- ------------- ------------- ------------- ----------------- -------------

Balance as of December 31, 1999         25         2,050           172             -            3,286          5,533
                               ============= ============= ============= ============= ================= =============
</TABLE>












              The accompanying notes are an integral part of these
                             financial statements.




                                      -6-
<PAGE>




                       EURO TECH HOLDINGS COMPANY LIMITED


                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                  (Amounts expressed in United States Dollars)



1.       ORGANIZATION AND PRINCIPAL ACTIVITIES

Euro Tech Holdings Company Limited (the "Company") was incorporated in the
British Virgin Islands on September 30, 1996.

Euro Tech (Far East) Limited ("Far East") is the principal operating subsidiary
of the Company. It is principally engaged in the marketing and trading of water
and waste water related process control, analytical and testing instruments,
disinfection equipment, supplies and related automation systems in Hong Kong and
in the People's Republic of China (the "PRC").

Details of the Company's subsidiaries are summarized as follows:

<TABLE>
<CAPTION>
                                           Percentage of
                                              equity              Place of
Name                                         ownership          incorporation         Principal activities
--------------------------------------   ------------------  ------------------  -----------------------------
<S>                                            <C>               <C>             <C>
Euro Tech (Far East) Limited                   100%              Hong Kong       Marketing and trading of
                                                                                    water and waste water
                                                                                    related process control,
                                                                                    analytical and testing
                                                                                    instruments,
                                                                                    disinfection equipment,
                                                                                    supplies and related
                                                                                    automation systems

Euro Tech (China) Limited                      100%              Hong Kong       Inactive

Euro Tech Trading (Shanghai) Limited           100%               The PRC        Marketing and trading of
                                                                                    water and waste water
                                                                                    related process control,
                                                                                    analytical and testing
                                                                                    instruments,
                                                                                    disinfection equipment,
                                                                                    supplies and related
                                                                                    automation systems

Shanghai Euro Tech Limited                     100%               The PRC        Manufacturing of analytical
                                                                                    and testing equipment
</TABLE>





                                      -7-
<PAGE>





2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a.       BASIS OF CONSOLIDATION

         The consolidated financial statements include the financial statements
         of the Company and its subsidiaries (the "Group"). All material
         intra-group balances and transactions have been eliminated on
         consolidation.

b.       SUBSIDIARIES

         A subsidiary is a company in which the Company holds, directly or
         indirectly, more than 50% of its voting shares.

c.       SALES

         Sales represent the invoiced value of goods supplied to customers.
         Sales are recognized upon delivery of goods and passage of title to
         customers.

d.       TAXATION

         The Company is exempted from taxation in the British Virgin Islands.

         Far East and Euro Tech (China) Limited provide for Hong Kong profits
         tax at a rate of 16% on the basis of their income for financial
         reporting purposes, adjusting for income and expense items which are
         not assessable or deductible for profits tax purposes.

         Pursuant to the relevant income tax laws applicable to foreign
         investment enterprises in the PRC, Euro Tech Trading (Shanghai) Limited
         is fully exempt from the PRC State unified income tax, which is levied
         at a rate of 33%, for the period from July 1, 1997 to December 31,
         1998, followed by a 50% reduction of the income tax for the next two
         years ending on December 31, 2000.

         Deferred income taxes are provided using the liability method. Under
         the liability method, deferred income taxes are recognized for
         temporary differences between the tax and financial statements bases
         of assets and liabilities. The tax consequences of those differences
         expected to occur in subsequent years are classified as an asset or
         a liability.





                                      -8-
<PAGE>



2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)

e.       CASH AND CASH EQUIVALENTS

         Cash and cash equivalents include cash on hand and demand deposits
         with banks.

f.       INVENTORIES

         Inventories are stated at the lower of cost, on the first-in, first-out
         method, or net realizable value. Costs include purchase and related
         costs incurred in bringing each product to its present location and
         condition. Net realizable value is calculated based on the estimated
         normal selling price, less further costs expected to be incurred to
         disposal. Provision is made for obsolete, slow moving or defective
         items, where appropriate.

g.       PROPERTY, PLANT AND EQUIPMENT

         Property, plant and equipment are stated at cost less accumulated
         depreciation. Depreciation of property, plant and equipment is computed
         using the straight-line method over the assets' estimated useful lives.
         The estimated useful lives are as follows:

<TABLE>
<S>                                                         <C>
            Land                                            Terms of the leases
            Buildings                                             15 - 51 years
            Leasehold improvements                          Terms of the leases
            Furniture, fixtures and office equipment                3 - 5 years
            Motor vehicles                                              4 years
            Testing equipment                                           3 years
</TABLE>

h.       OPERATING LEASES

         Leases where substantially all the risks and rewards of ownership of
         the leased assets remain with the lessors are accounted for as
         operating leases. Rental payments under operating leases are charged to
         expenses on the straight-line basis over the period of the relevant
         leases.

i.       FOREIGN CURRENCY TRANSLATION

         The Company maintains its books and records in United States dollars.
         Its subsidiaries maintain their books and records either in Hong Kong
         dollars or Chinese Renminbi ("functional currency") respectively.
         Foreign currency transactions during the year are translated into the
         functional currency at the applicable rates of exchange at the dates of
         the transactions. Monetary assets and liabilities denominated in
         foreign currencies are translated into the functional currency using
         the exchange rates prevailing at the balance sheet date. Gain or losses
         from foreign currency transactions are recognized in the statements of
         income during the period in which they occur. Translation adjustments
         on subsidiaries' equity are included as cumulative translation
         adjustment.

j.       EARNINGS PER COMMON SHARE

         Earnings per common share ("EPS") is computed on the basis of the
         average number of shares of common stock outstanding. No dilutive EPS
         is calculated as the exercise prices of the redeemable common share
         purchase warrants and stock options were higher than the average market
         price of the common stock.




                                      -9-
<PAGE>

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)

k.       USE OF ESTIMATES

         The preparation of financial statements in conformity with accounting
         principles generally accepted in the United States of America requires
         management to make estimates and assumptions that affect certain
         reported amounts and disclosures. Accordingly, actual results could
         differ from those estimates.

l.       FINANCIAL INSTRUMENTS

         The carrying value of financial instruments, which consist of cash
         and cash equivalents, accounts receivable and accounts payable,
         approximates fair value due to the short-term nature of these
         instruments. The carrying value of long-term borrowings approximate
         fair value based upon rates available to the Company for borrowings
         with similar terms and maturities.

3.       OTHER INCOME, NET

<TABLE>
<CAPTION>
                                                    1 9 9 7               1 9 9 8               1 9 9 9
                                               -------------------   -------------------   -------------------
                                                      '000                  '000                  '000
<S>                                                          <C>                   <C>                    <C>
Gain on disposals of property, plant and
    equipment                                                  3                     4                     -
Exchange gain, net                                           110                    17                    24
Service fee income                                             -                     -                    (1)
Rental income                                                 70                    85                    44
Loss on repurchase of warrants                                 -                   (37)                    -
                                               -------------------   -------------------   -------------------

                                                             183                    69                    67
                                               ===================   ===================   ===================
</TABLE>



4.       INCOME TAXES

The reconciliations of the Hong Kong statutory income tax rate to the effective
income tax rate as stated in the consolidated statements of income are as
follows:

<TABLE>
<CAPTION>
                                                    1 9 9 7               1 9 9 8               1 9 9 9
                                               -------------------   -------------------   -------------------
<S>                                                       <C>                   <C>                   <C>
Statutory tax rate                                        16.5%                 16.0%                 16.0%
Permanent differences                                         -                  3.5%                  2.7%
Write-back of over-provision in prior year
                                                          (4.8%)                   -                     -
Others                                                     0.7%                  2.3%                    -
                                               -------------------   -------------------   -------------------

Effective tax rate                                        12.4%                 21.8%                 18.7%
                                               ===================   ===================   ===================
</TABLE>

The Group had no significant unprovided deferred tax or valuation
allowance as of December 31, 1997, 1998 and 1999.

There were no significant unprovided deferred taxes on valuation
allowances as of December 31, 1998 and 1999.

                                      -10-
<PAGE>





5.       ACCOUNTS RECEIVABLE

<TABLE>
<CAPTION>
                                                  1 9 9 8                1 9 9 9
                                             -------------------    ------------------
                                                    '000                  '000
<S>                                                       <C>                   <C>
Trade and other receivables                               2,783                 2,863
Less: Allowance for doubtful debts                          (57)                  (37)
                                             -------------------    ------------------

                                                          2,726                 2,826
                                             ===================    ==================
</TABLE>



6.       INVENTORIES

<TABLE>
<CAPTION>
                                                  1 9 9 8                1 9 9 9
                                             -------------------    ------------------
                                                    '000                  '000
<S>                                                        <C>                   <C>
Trading equipment and accessories                          569                   682
Less: Provision for inventory obsolescence                 (83)                 (113)
                                             -------------------    ------------------

                                                           486                   569
                                             ===================    ==================
</TABLE>



7.       PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
                                                  1 9 9 8                1 9 9 9
                                             -------------------    ------------------
                                                    '000                  '000
<S>                                                       <C>                   <C>
Land and buildings                                        2,067                 2,271
Leasehold improvements                                       43                    43
Furniture, fixtures and office equipment                     83                    96
Motor vehicles                                              113                   113
Testing equipment                                            46                    46
                                             -------------------    ------------------

                                                          2,352                 2,569

Less: Accumulated depreciation                            (391)                 (490)
                                             -------------------    ------------------

                                                          1,961                 2,079
                                             ===================    ==================
</TABLE>

As of December 31, 1998 and 1999, land and buildings with net book values of
$1,120,000 and $1,093,000, respectively, were pledged to secure certain banking
facilities of Far East (see Note 8).





                                      -11-
<PAGE>



8.       LONG-TERM BANK LOANS

Long-term bank loans are secured by certain of the Group's land and buildings,
and bear interest at prime lending rate plus 1.75% per annum. Future maturities
of long-term bank loans are as follows:

<TABLE>
<CAPTION>
                                            1 9 9 8                1 9 9 9
                                       -------------------    ------------------
                                              '000                  '000
<S>                                                  <C>                    <C>
Within one year                                       68                     85
During the second year                                76                     88
During the third year                                 85                     90
During the fourth year                                96                      -
During the fifth year                                  3                      -
                                       -------------------    ------------------

                                                     328                    263
                                       ===================    ==================
</TABLE>

As of December 31, 1999, the Group had various banking facilities available from
financial institutions amounting to approximately $4,903,000 (1998 - $5,021,000)
of which $3,780,000 (1998 - $4,247,000) remained unused.



9.       WARRANTS

As of December 31, 1999, a total of 2,016,000 shares of warrants had been
issued, which comprised 828,000 public warrants, 1,116,000 private warrants and
72,000 underwriting warrants issued under the Company's warrants plan. Each
public and private warrant entitles the holder thereof to acquire one share of
the Company's common stock at the exercise price of $4.58 during the period from
March 14, 1998 to March 14, 2003. Each underwriting warrant entitles the holder
thereof to acquire one share of the Company's common stock at the exercise price
$6.88 during the period from March 14, 1998 to March 14, 2002. If the closing
bid price of the Company's common stock is above US$7.0833 for twenty
consecutive days, the Company has the right to redeem the warrants at the price
of US$0.10 each. As of December 31, 1999, no warrant had been exercised.





                                      -12-
<PAGE>





10.      STOCK OPTIONS

A total of 1,400,000 shares of common stock have been reserved for issuance
under the Company's management options plan ("Management Options"). The
Management Options provide for the grant of options to its officers,
directors and employees in such numbers and to such persons as the Company's
Chairman of the Board of Directors and Chief Executive Officer may direct. In
1997, the Company granted its officers, directors and employees Management
Options, which allow them to purchase up to 1,329,000 shares of common stock.
No Management Options were granted during the years ended December 31, 1998
and 1999. Such Management Options became exercisable on March 14, 1998 and
have a term of up to ten years. The exercise price of the Management Options
is $4.00 per share for 400,000 of such options and $4.58 per share for the
remaining 929,000. Subsequent to the distribution of stock dividend during the
year ended December 31, 1999, the number and the price of Management Options
granted have been adjusted. The exercise price of the adjusted Management
Options is $3.33 per share for 480,000 of such options and $4.58 per share
for the remaining 1,114,800. The exercise price of those Management Options,
which have not been granted, is $4.58 per share. As of December 31, 1999, no
options had been exercised. Weighted-average exercise price of Management
Options outstanding and exercisable as of December 31, 1999 was approximately
$4.20 per share.

The Company continues to account for stock-based compensation using the
intrinsic value method prescribed by Accounting Principles Board ("APB") Opinion
No. 25, under which no compensation cost for stock options is recognized for
stock option granted at or above fair market value. Had compensation expense for
the Company's Management Options been determined based upon fair values at the
grant dates in accordance with SFAS No. 123, the Company's pro forma net
income for the year ended December 31, 1997 would be approximately $37,000.
The Company's pro forma basic and diluted net loss per common share would be
approximately $0.02 for the year ended December 31, 1997.

Weighted average fair values of Management Options granted during the year
ended December 31, 1997 is estimated on the date of grant using the
Black-Scholes option-pricing model. Fair values of Management Options are
estimated on the date of grant using the following assumptions:

<TABLE>
<CAPTION>
                                                                 1 9 9 7
                                                           ------------------
<S>                                                               <C>
Risk-free interest rate                                           5.52%
Expected dividend yield                                            0%
Expected option life                                            10 years
Expected stock price volatility                                    20%
</TABLE>



                                      -13-
<PAGE>

11. PENSION PLAN

The Group has a defined contribution pension plan for all its employees except
for a few employees who work in the PRC. Under this plan, all employees are
entitled to a pension benefit equals to their own contributions plus 50% to 100%
of individual fund account balances contributed by the Group, depending on their
years of service with the Group. The Group is required to make specific
contributions at approximately 10% of the basic salaries of the employees to an
independent fund management company. The Group has no future obligations for the
pension payment or any post-retirement benefits beyond the annual contributions
made. The independent fund management company is responsible for the ultimate
pension liabilities to those resigned or retired employees. During the years
ended December 31, 1997, 1998 and 1999, the Group made total pension
contributions of approximately $115,000, $127,000 and $124,000, respectively.



12. RELATED PARTY TRANSACTIONS

The transactions with related parties are summarized as follows:

<TABLE>
<CAPTION>
                                                    1 9 9 7               1 9 9 8               1 9 9 9
                                               -------------------   -------------------   -------------------
                                                      '000                  '000                  '000
<S>                                                          <C>                   <C>                   <C>
Sales to related companies                                   226                    52                    33

Purchases from related companies                             640                   571                   895

Interest income received from a related
    company                                                    -                    11                    10

Rental income received from a related
    company                                                   54                    59                    36

Rental expenses paid to a related company                     30                    46                    46

Management fee paid to a related company                      26                    25                    23

</TABLE>


All outstanding balances with related parties are unsecured, non-interest
bearing and are repayable in 2000.






                                      -14-
<PAGE>





13. OPERATING LEASE COMMITMENTS

The Group has various operating lease agreements for office and industrial
premises, which extend through May 2000. Rental expenses for the years ended
December 31, 1997, 1998 and 1999 were approximately $209,000, $223,000 and
$205,800, respectively. Future minimum rental payments as of December 31, 1998
and 1999, under agreements classified as operating leases with non-cancellable
terms, are as follows:

<TABLE>
<CAPTION>
                                           1 9 9 8               1 9 9 9
                                      ------------------    -------------------
                                            '000                   '000
<S>                                                 <C>                    <C>
2000                                                166                    56
2001                                                 65                    15
                                      ------------------    -------------------

Total minimum lease payments                        231                    71
                                      ==================    ===================
</TABLE>



14. SUBSEQUENT EVENT

Subsequent to December 31, 1999, the Group established a wholly owned subsidiary
in Hong Kong which will be engaged in the internet business.



















                                      -15-