<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, 2000
                         -------------------------------------------------------

                                       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.


                                                    Name of each exchange
            Title of each class                      on which registered

NOT APPLICABLE
-------------------------------------         ----------------------------------

NOT APPLICABLE
-------------------------------------         ----------------------------------

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.

                                                2,481,838 ORDINARY SHARES
                                                --------------------------------
                                                2,016,000 WARRANTS
                                                --------------------------------


      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.

                  Yes       X                   No
                      --------------               ---------------


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

                  Item 17                       Item 18      X
                          --------------               --------------


(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.

                  Yes                           No
                      ---------------              ---------------





<PAGE>

                                TABLE OF CONTENTS

INTRODUCTION.................................................................1

GLOSSARY.....................................................................2

PART I.......................................................................3

  ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS..............3
  ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE............................3
  ITEM 3. KEY INFORMATION....................................................3
    ITEM 3A.SELECTED FINANCIAL DATA..........................................3
    ITEM 3B.CAPITALIZATION AND INDEBTEDNESS..................................4
    ITEM 3C.REASONS FOR THE OFFER AND USE OF PROCEEDS........................4
    ITEM 3D.RISK FACTORS.....................................................5
  ITEM 4. INFORMATION ON THE COMPANY........................................13
    ITEM 4A.HISTORY AND DEVELOPMENT OF THE COMPANY..........................13
    ITEM 4B.BUSINESS OVERVIEW...............................................14
    ITEM 4C.ORGANIZATIONAL STRUCTURE........................................22
    ITEM 4D.PROPERTY, PLANT AND EQUIPMENT...................................22
  ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS......................23
    ITEM 5A.OPERATING RESULTS...............................................23
    ITEM 5B.LIQUIDITY AND CAPITAL RESOURCES.................................28
    ITEM 5C.RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES..................30
    ITEM 5D.TREND INFORMATION...............................................30
  ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES........................31
    ITEM 6A.DIRECTORS AND SENIOR MANAGEMENT.................................31
    ITEM 6B.COMPENSATION....................................................33
    ITEM 6C.BOARD PRACTICES.................................................39
    ITEM 6D.EMPLOYEES.......................................................39
    ITEM 6E.SHARE OWNERSHIP.................................................39
  ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.................39
    ITEM 7A.MAJOR SHAREHOLDERS..............................................39
    ITEM 7B.RELATED PARTY TRANSACTIONS......................................40
  ITEM 8. FINANCIAL INFORMATION.............................................41
    ITEM 8A.CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION.........41
    ITEM 8B.SIGNIFICANT CHANGES.............................................42
  ITEM 9. THE OFFERING AND LISTING..........................................42
    ITEM 9A.LISTING DETAILS AND 9.C PRINCIPAL TRADING MARKET................42
    ITEM 9B.PLAN OF DISTRIBUTION............................................44
    ITEM 9D.SELLING SHAREHOLDERS............................................44
    ITEM 9E.DILUTION........................................................44
    ITEM 9F.EXPENSES OF THE ISSUE...........................................44
  ITEM 10.ADDITIONAL INFORMATION............................................44
    ITEM 10A. SHARE CAPITAL.................................................44
    ITEM 10B. MEMORANDUM AND ARTICLES OF ASSOCIATION........................47


                                        i
<PAGE>

    ITEM 10C. MATERIAL AGREEMENTS...........................................50
    ITEM 10D. EXCHANGE CONTROLS.............................................51
    ITEM 10E. TAXATION......................................................51
    ITEM 10F. DIVIDENDS AND PAYING AGENTS...................................51
    ITEM 10G. STATEMENT BY EXPERTS..........................................51
    ITEM 10H. DOCUMENTS ON DISPLAY..........................................52
    ITEM 10I. SUBSIDIARY INFORMATION........................................52
  ITEM 11.  QUANTITATIVE AND QUALIFICATION DISCLOSURES ABOUT MARKET RISK....52
  ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECUIRITIES...........52

PART II.....................................................................53

  ITEM 13. DEFAULTS, DIVIDENDS, ARREARAGES AND DELINQUENCIES................53
  ITEM 14. MATERIAL MODIFICATION TO THE RIGHTS OF SECURITY HOLDERS AND
  USE OF PROCEEDS...........................................................53
  ITEM 15.[RESERVED]........................................................53
  ITEM 16.[RESERVED]........................................................53

PART III....................................................................54

  ITEM 17.FINANCIAL STATEMENTS..............................................54
  ITEM 18.FINANCIAL STATEMENTS..............................................54
  ITEM 19.EXHIBITS..........................................................55

SIGNATURES..................................................................56




                                       ii
<PAGE>

                                  INTRODUCTION

      In this Form 20-F, reference to "us", "we", the "Company" and "EuroTech"
are to EuroTech Holding Company Limited and its subsidiaries unless otherwise
expressly stated or the context otherwise requires

      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 Securities and Exchange
Commission (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 Part I, Item 3D. "Risk
Factors" and Item 5. "Operation and Financial Review and Prospects" and the
notes to the Company's Financial Statements, describe factors, among others,
that could contribute to or cause such differences.



                                       1
<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.



                                       2
<PAGE>

                                     PART I

ITEM 1.   IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

      Not applicable.


ITEM 2.   OFFER STATISTICS AND EXPECTED TIMETABLE

      Not applicable.


ITEM 3.   KEY INFORMATION

ITEM 3A.  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, 1998, 1999
and 2000, and the selected balance sheet data as of December 31, 1999 and 2000
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 5.
"Operating and Financial Review and Prospects." The selected income data for the
years ended December 31, 1996 and 1997 and the selected balance sheet data as of
December 31, 1996, 1997 and 1998 set forth below are derived from audited
financial statements of the Company which are not included herein.

<TABLE>
<CAPTION>

                                                                        AS OF DECEMBER 31,

                                           --------------------------------------------------------------------
                                                 1996            1997          1998        1999          2000
                                                 ----            ----          ----        ----          ----
                                                 US$(1)          US$           US$         US$           US$
<S>                                               <C>            <C>          <C>          <C>           <C>
BALANCE SHEET DATA:
 Cash and cash equivalents                        1,400          2,539        3,045        3,691         3,963
 Working capital(2)                               1,307          3,292        3,493        3,632         3,686
 Total assets                                     8,278          8,084        8,559        9,637        10,092
 Short-term debt(3)                               1,201             75           68           85            94
 Long-term bank loans                               586            329          260          178            92
 Shareholders' equity                             2,734          4,972        5,194        5,533         5,878
</TABLE>

----------
(1)   Translation solely for convenience of the readers at the exchange rate of
      HK$7.74-US$1.
(2)   Current assets minus current liabilities.
(3)   Short-term debt includes short-term borrowings and current portion of
      long-term bank loans.


                                       3
<PAGE>

<TABLE>
<CAPTION>

                                                   FOR THE YEAR ENDED DECEMBER 31,
                           --------------------------------------------------------------------------
                                1996            1997            1998            1999           2000
                                ----            ----            ----            ----           ----
                                 US$            US$             US$             US$            US$
<S>                            <C>             <C>             <C>             <C>             <C>
INCOME STATEMENT DATA:

Net sales ............         13,758          12,510          12,757          13,107          15,010
Cost of goods sold ...        (10,633)         (9,399)         (9,662)         (9,896)        (11,467)
                           ----------      ----------      ----------      ----------      ----------

Gross profit .........          3,125           3,111           3,095           3,211           3,543

Selling and
Administrative
Expenses .............         (2,703)         (2,812)         (2,924)         (2,946)         (3,301)
                           ----------      ----------      ----------      ----------      ----------

Operating income .....            422             299             171             265             242
Interest (expenses)
Income, net ..........            (98)             18              86              85             113
Other income, net ....            242             183              69              67              97
                           ----------      ----------      ----------      ----------      ----------

Income before taxes ..            566             500             326             417             452
Income taxes .........            (97)            (62)            (71)            (78)            (94)
                           ----------      ----------      ----------      ----------      ----------

Net income ...........            469             438             255             339             358
                           ==========      ==========      ==========      ==========      ==========

Net income per
Ordinary Share .......           0.32            0.23            0.12            0.15            0.15
Weighted average
Number of
Ordinary Shares
Outstanding ..........      1,450,000       1,888,000       2,068,200       2,204,200       2,481,838
</TABLE>



ITEM 3B.  CAPITALIZATION AND INDEBTEDNESS

      Not applicable.

ITEM 3C.  REASONS FOR THE OFFER AND USE OF PROCEEDS

      Not applicable.


                                       4
<PAGE>

ITEM 3D.  RISK FACTORS

      You should carefully consider all of the information set forth in this
annual report and the following risk factors. The risks below are not the only
ones we face. Additional risks not currently known by us or that we deem
immaterial may also impair our business operations. Our business, financial
condition or results of operations could be materially adversely affected by any
of these risks. This annual report also contains forward looking statements that
involve risks and uncertainties. Our results could materially differ from those
anticipated in these forward looking statements as a result of certain factors,
including the risks we face as described below and elsewhere. See "Forward
Looking Statements."

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

PRC SOVEREIGNTY OVER
HONG KONG STILL DEVELOPING  o       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").

                            o       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.

                            o       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."

                            o       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.

ECONOMIC INSTABILITY;
CURRENCY EXCHANGE RATE      o       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.


                                       5
<PAGE>

                            o       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. 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, 2001, that index
                                    stood at 13,102.50. There can be no
                                    assurance that these problems will not
                                    continue to abate or worsen or that recovery
                                    will continue in the near future in which
                                    event the Company may likely be materially
                                    adversely affected.

ECONOMY MAY
BE UNSTABLE                 o       Unlike many other countries economies, the
                                    People's Republic of China (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.

                            o       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.

                            o       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,


                                       6
<PAGE>

                                    including the relatively poor
                                    infrastructure, road transportation and
                                    communications network and an uncertain
                                    legal and regulatory environment.

ECONOMIC REFORMS MAY
NOT CONTINUE OR IMPACT
POSITIVELY ON THE
COMPANY; CHANGING
BUSINESS ENVIRONMENT        o       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.

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

                                    o     changes in political, economic and
                                          social conditions in the PRC;
                                    o     by changes in government policies
                                          such as changes in laws and
                                          regulations (or their interpretation);
                                    o     the introduction of additional
                                          measures to control inflation;
                                    o     changes in the rate or method of
                                          taxation;
                                    o     imposition of additional restrictions
                                          on currency conversion remittances
                                          abroad;
                                    o     reduction in tariff protection and
                                          other import restrictions;
                                    o     a return to the more centrally-planned
                                          economy that existed prior.

UNEVEN ECONOMIC
GROWTH                      o       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               o       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


                                       7
<PAGE>

                                    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."

REGIONAL ECONOMIC
PROBLEMS                    o       Most economies in the Far East have suffered
                                    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     o       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    o       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.


                                       8
<PAGE>

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

                            o       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.

                            o       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      o       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, (d) the April 2001 mid-air
                                    collision of United States and PRC military
                                    aircraft and (e) the protection of human
                                    rights in the PRC.


                                       9
<PAGE>

RECENT DEVELOPMENTS REGARDING
CHINA'S ENTRY INTO THE
WORLD TRADE ORGANIZATION    o       During 2000, the China concluded bilateral
                                    negotiations of the major terms for its
                                    entry into the WTO with a number of
                                    countries including the United States and
                                    the European Union but it is still
                                    negotiating its entry into the WTO. This
                                    issue may arise again in the United States
                                    Congress in July 2001, as Congress granted
                                    China permanent normal trade states on the
                                    condition that it join the WTO by early June
                                    2001.

CERTAIN RISKS RELATION TO COMPANY'S BUSINESS.

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

                            o       The Company has from time to time invested
                                    in real estate in 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 5. "Operating and Financial
                                    Review and Prospects."

DEPENDENCE
UPON MANAGEMENT             o       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
                                    6. "Directors, Senior Management and
                                    Employees."


                                       10
<PAGE>

ADVERSE IMPACT UPON
COMPANY OF PRC'S
CREDIT RESTRICTIONS         o       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.

COMPETITION WITH VENDORS    o       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 4. "Information on the
                                    Company."

DEPENDENCE ON VENDORS;
LACK OF LONG
TERM AGREEMENTS             o       The Company distributes supplies
                                    manufactured by a number of vendors,
                                    including Wallace & Tiernan Pacific Pty.
                                    Ltd. ("Wallace"), Hach Company, Inc.
                                    ("Hach"), Hioki E.E. Corp. ("Hioki") and
                                    ThermoQuest Corporation ("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  o       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


                                       11
<PAGE>

                                    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 7. "Major Shareholders and
                                    Related Party Transactions" and Item 6.
                                    "Directors, Senior Management and
                                    Employees."

CERTAIN LEGAL CONSEQUEN-
CES OF INCORPORATION
IN THE BRITISH VIRGIN
ISLANDS; RIGHTS OF SHARE-
HOLDERS NOT AS EXTENSIVE
AS IN U.S. CORPORATIONS     o       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.

                            o       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
                                    actions by controlling shareholders in a
                                    United States jurisdiction compensation
                                    which are obviously unreasonable may be
                                    declared null and void.

                            o       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    o       The Company has 5,000,000 shares of "blank
                                    check preferred stock" authorized. The
                                    "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 has the right to fix the
                                    rights, terms and preferences at the time of
                                    issue of


                                       12
<PAGE>

                                    "blank check preferred stock" without
                                    further action by our shareholders.

UNCERTAINTY OF
ENFORCING UNITED
STATES JUDGMENTS            o       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.

                            o       All of the Company's directors and executive
                                    officers 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.

                            o       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 4.   INFORMATION ON THE COMPANY

ITEM 4A.  HISTORY AND DEVELOPMENT OF THE COMPANY

      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 ("Public
Offering") of approximately 741,840 Ordinary Shares, $.01 par value,


                                       13
<PAGE>

and 828,000 Redeemable Ordinary Share Purchase Warrants (the "Common Stock"),
from which the Company received net proceeds of approximately $1,817,000, in
March 1997. Each Warrant entitles the holder to purchase one Ordinary Share at a
price of $4.5833 per share. At December 31, 2000, 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 5. "Operating and Financial Review and
Prospects." 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.

      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 7. "Major Shareholders
and Related Party Transactions."

      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 a subsidiary to develop and operate a B2B website (approximately
$331,000), (e) repurchase securities from the underwriter of the Company's
Public Offering (approximately $105,000), (f) pay expenses incurred in seeking
acquisition candidates and hiring an agent in the United States (approximately
$170,000), (g) development costs of an Infrared Photometric Oil Analzer
(approximately $40,000), and (h) repurchase its own Ordinary Shares in the open
market (approximately $16,000).

ITEM 4B.  BUSINESS OVERVIEW

      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 PRC. The Company 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


                                       14
<PAGE>


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
subdistributors 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, Hach, Hioki and ThermoQuest, which are the
Company's largest suppliers, with purchases from them accounting for
approximately 8%, 20%, 11% and 5%, respectively, of the Company's sales during
its fiscal year ended December 31, 1999 ("Fiscal 1999") and 7%, 23%, 12% and 7%,
respectively, of the Company's sales during its fiscal year ended December 31,
2000 ("Fiscal 2000").

      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 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 is continually 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.

      In March of 2001, the Company entered into a non-binding letter of intent
to acquire a 30% equity interest in Pact Asia Pacific Ltd. and Yixing Pact
Environmental Technology Company, Ltd. ("Pact") for approximately U.S. $290,000,
subject to final negotiations. Pact is a privately owned engineering firm
situated in Shanghai that is believed by the Company to specialize in the
design, manufacture and operation of water and waste water treatment plants in
several industries situated in China. The Company believes that Pact's business
is complementary to the Company's as the Company continues to focus on sales and
marketing of products of others. Also, the Company anticipates that if it is
able to secure an equity stake in Pact, its ability to become a supplier to Pact
will be enhanced. The acquisition of an equity stake in Pact is subject to the
negotiation of a definitive agreement, due diligence investigation of Pact, its
finances, operations and certain legal requirements, was to be originally
accomplished by April 23, 2001 has been extended to the end of August, 2001.
There can be no assurance that the Company will successfully complete such
acquisition, it will perform as anticipated, will not result in significant
unexpected liabilities or will


                                       15
<PAGE>

ever contribute significant revenues or profits to the Company or that the
Company will not lose its entire investment.

      During Fiscal 1999 and Fiscal 2000, the Company had sales of approximately
$13,107,000 and $15,010,000, respectively, and net income of approximately
$339,000 and $358,000, respectively.

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, 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


                                       16
<PAGE>

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 49.8% and 55.2% of its sales from the
sale of Scientific Instruments during Fiscal 1999 and Fiscal 2000, 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 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 25.5% and 21.0% of its sales from the
sale of Process Control and Engineering Products during Fiscal 1999 and Fiscal
2000, 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 12.8% and 13.4% of its sales from the
sale of these Other Products during Fiscal 1999 and Fiscal 2000, 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.


                                       17
<PAGE>

      The Company derived approximately 11.9% and 10.4% of its sales from
Special Projects and Technical Support Operations during Fiscal 1999 and Fiscal
2000, respectively.

      CUSTOMERS. At the end of Fiscal 2000, the Company had more than 400
regular customers, including sub-distributors, located in Hong Kong, the PRC and
Macao. During Fiscal 2000, no single 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.

      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 4D. "Property, Plants and Equipment."

PROTOTYPE INFRARED PHOTOMETRIC OIL ANALYZER

      In May 2000, the Company signed an agreement with the Shanghai Institute
Optics Instrument to jointly develop as Infrared Photometric Oil Analyzer by
infrared absorption method. Potential prototypes of the analyzer have been
completed. Potential customers, who are evaluating the analyzer, have advised
that the prototypes have been received. This analyzer is intended to detect
concentrations of petroleum, animal and vegetable oils in surface water,
underground water, municipal and industrial wastewater. Potential customers are
environmental water monitoring stations, water purification and waste treatment
facilities, underground water and harbor water monitoring stations located in
China. The prototypes were completed and we are now assembling the initial 20
analyzers for customers and our representative's offices.

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

      There can be no assurance that any such analyzer will: be fully developed
past the prototype stage; become a commercially viable product; and not result
in losses to the Company.

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


                                       18
<PAGE>


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 8%, 20%, 11%
and 5%, respectively, of the Company's sales during Fiscal 1999 and 7%, 23%, 12%
and 7%, respectively of the Company's sales during Fiscal 2000. 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.

EXPANSION

      Other than the potential acquisitions of manufacturing plants and
engineering companies for proposed product - assembly operation, development of
the Infra and Photometic Oil Analyzer and the recently opened "pilot" shop in
Shanghai the Company plans to open another shop in Beijing approximately at the
end of 2001. (See "--Sales and Marketing.") 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


                                       19
<PAGE>

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. 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 (see "-- Product Assembly
Operations.") 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 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 1998, Fiscal
1999 and Fiscal 2000, the Company's profit margins were approximately 24.3%,
24.5% and 23.6%, 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.

B2B WEBSITE

      B2B website. In or about March 2000, the Company established
CHINAH2O.COM.LTD., a Hong Kong corporation. Through CHINAH2O.COM LTD., the
Company launched a bilingual Business-to-Business ("B2B") internet platform in
August 2000. The website is located at (http://www.chinah2o.com). The B2B
website is directed at environmental businesses in China.


                                       20
<PAGE>

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). The website provides environmental
news, directories of western suppliers, potential clients in China,
advertisement space and business opportunities. The business and other
activities generated by CHINAH2O.COM, LTD. have had a synergistic effect with
those of the Company indirectly by feeding market information, sales leads and
tender information to the Company.

PRODUCT ASSEMBLY OPERATIONS

      The Company, through its PRC Corporation, Shanghai Euro Tech Limited,
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 2002 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 fifteen 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 fifteen sub-distributors accounted for less than two percent of the
Company's sales during Fiscal 1999 and Fiscal 2000.

      On April 20, 2001, the Company opened a "pilot" shop in Shanghai to sell
inventoried water and other electronics testing equipment to potential
customers. The Company's "pilot" shop is located at 185 Beijing Road (East) in
Shanghai. If the Shanghai "pilot" shop proves commercially feasible, the Company
intends to open a second shop in Beijing in the last quarter of 2001 and intends
to explore having independent third parties, not otherwise affiliated with the
Company, establish similar shops in other cities in China. In view of China's
impending WTO accession, the "pilot" shop and possible shops to be opened by
independent third parties represent a new marketing tool to be used by the
Company. There can be no assurance that the "pilot" shop will prove to be
commercially viable, that the Company will not sustain losses in connection with


                                       21
<PAGE>

the founding costs of opening and running the "pilot" shop, hiring personnel and
similar expenses. There can be no assurance that similar shops will be
established by independent third parties, that any such third party shop will
become commercially viable, or result in any significant revenues or profits to
the company.

ITEM 4C. ORGANIZATIONAL STRUCTURE

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

      o     Euro Tech Trading (Shanghai) Limited - a People's Republic of China
            corporation
      o     Euro Tech (China) Limited - a Hong Kong corporation
      o     Chinah2o.com Limited - a Hong Kong corporation
      o     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.

ITEM 4D.  PROPERTY, PLANT AND EQUIPMENT

      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
2002 for monthly rental payments of approximately $9,160. 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, 2000, had an outstanding mortgage of approximately $186,000 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 June 2002 for approximately
$750 per month. The Chongqing sales office is rented pursuant to a lease
expiring in May 2003 for approximately $630 per month. The Xian sales office is
rented pursuant to a lease expiring in March 2002 for approximately $200 per
month. The Shenyang office is rented pursuant to a lease expiring in December
2002 for approximately $380 per month. Euro Tech Shanghai's office in Shanghai
is rented pursuant to a lease expiring in April 2002 for approximately $250 per
month.

      Euro Tech Shanghai's office in Shanghai is rented pursuant to a lease
expiring in January 2002 for approximately $830 per month.


                                       22
<PAGE>

      Euro Tech's Shanghai "pilot" shop is rented pursuant to a lease expiring
in February 2003 for approximately $2,008 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 5.   OPERATING AND FINANCIAL REVIEW AND PROSPECTS

ITEM 5A.  OPERATING RESULTS

BACKGROUND - 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 the Company's
fiscal year ended December 31, 2000 ("Fiscal 2000") approximately 68% and 29% of
the Company's sales were made to customers located in the PRC and Hong Kong,
respectively. During the Company's fiscal year ended December 31, 1999 ("Fiscal
1999") approximately 68% and 30% 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 3D. "Key Information - Risk Factors."

      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


                                       23
<PAGE>

change in political or economic conditions may substantially adversely affect
these reform initiatives and, in turn, the Company. See Item 3D. "Key
Information - Risk Factors."

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 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 ("Regent") and Pearl Venture Limited
("Pearl") 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.
Subsequent to 1997, Regent and Pearl disbursed their Ordinary Shares in the
Company to certain of their beneficial owners.

      The following operating and financial review 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 two fiscal years ended December 31, 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 those two years resulted from the PRC'S economic austerity
measures undertaken to halt inflation in the PRC, which was approximately 27% in
1994. 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 the fiscal year ended December 31, 1996 ("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.

      One such subsidiary had been established to distribute telecommunication
products. However, the Company believes that manufacturers of these products
generally distributed their products directly to end users, instead of using
intermediary distributors such as Far East. The Company also believes that
technical expertise in this product line, which it lacked, was a necessity for
successfully entering this market. The Company attributes the inability of this
subsidiary to ever develop its core business to the foregoing factors. A second
subsidiary had been established to distribute industrial computers but lost its
principal vendor when that vendor sold its industrial computer production line
to another supplier. Additionally, another major manufacturer of


                                       24
<PAGE>

industrial computers established its own Hong Kong and PRC distribution
operation. A third subsidiary was principally a holding company for the other
two subsidiaries.

      The following table presents selected statement of operations data
expressed as a percentage of net sales for the Company's Fiscal 1996, Fiscal
1997, Fiscal 1998, Fiscal 1999 and Fiscal 2000.

<TABLE>
<CAPTION>

                                                        YEAR ENDED DECEMBER 31,
                                        ---------------------------------------------------
                                          1996       1997       1998       1999        2000
                                          ----       ----       ----       ----        ----
<S>                                       <C>        <C>        <C>        <C>        <C>
Net Sales                                 100.0%     100.0%     100.0%     100.0%     100.0%
Cost of goods sold                         77.3%      75.1%      75.7%      75.5%      76.4%
Gross Profit                               22.7%      24.9%      24.3%      24.5%      23.6%
Selling and administrative expenses        19.6%      22.5%      22.9%      22.5%      22.0%
Operating income                            4.1%       4.0%       2.6%       3.2%       3.0%
Income tax provision                         .7%        .5%        .6%        .6%        .6%
Net income                                  3.4%       3.5%       2.0%       2.6%       2.4%
                                        =======    =======    =======    =======    =======
</TABLE>

RESULTS OF OPERATIONS

FISCAL YEAR ENDED DECEMBER 31, 2000 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1999

      SALES; GROSS PROFIT AND COST OF GOODS SOLD. Sales increased by
approximately $1,903,000 or 14.5% to approximately $15,010,000 in Fiscal 2000
from approximately $13,107,000 in the Company's year ended December 31, 1999
("Fiscal 1999"). The increase was primarily due to improvement of the economy in
the PRC.

      Gross profits increased by approximately $332,000 or 10.3% to
approximately $3,543,000 for Fiscal 2000 as compared to approximately $3,211,000
for Fiscal 1999. This increase was attributable to the increase sales in Fiscal
2000. During Fiscal 2000, the Company's cost of goods sold was approximately
$11,467,000, or 76.4% of sales, in comparison to approximately $9,896,000 or
75.5% of sales for Fiscal 1999. Cost of goods sold expressed as a percentage of
sales increased by 0.9% in Fiscal 2000 as compared with Fiscal 1999. The gross
profit margin decreased and the percentage increase in cost of goods sold were
attributed to the fact that the Company had less engineering assignments during
Fiscal 2000.

      SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
were approximately $3,301,000 in Fiscal 2000, an increase of approximately
$355,000 or 12.1% from approximately $2,946,000 in Fiscal 1999. The increase was
primarily due to (i) the general increase in expenses related to the increase in
sales, and (ii) additional expenses for the two new subsidiary companies, i.e.
Shanghai Euro Tech Limited and Chinah2o.com Limited.

      INTEREST INCOME. Net interest income increased by approximately $28,000 or
32.9% to approximately $113,000 in Fiscal 2000 from approximately $85,000 for
Fiscal 1999. Interest income increased by approximately $24,000 or 21.1% to
approximately $138,000 in Fiscal 2000 from approximately $114,000 in Fiscal
1999. The increase was primarily due to the general


                                       25
<PAGE>

increase in the interest rate from bank deposits and increase in bank deposits
during the year. Interest expense decreased by approximately $4,000 or 13.8% to
approximately $25,000 in Fiscal 2000 from approximately $29,000 for Fiscal 1999.
The decrease was a result of the Company's reduced utilization of credit
facilities under its banking arrangements.

      OTHER INCOME. Other income increased by approximately $30,000 or 44.8% to
approximately $97,000 in Fiscal 2000 from approximately $67,000 in Fiscal 1999.
The increase in other income was principally due to increase in exchange gains.

      PROVISION FOR PROFIT TAX. Provisions for taxes increased by $16,000 to
approximately $94,000 in Fiscal 2000 from approximately $78,000 in Fiscal 1999.
The increase was due primarily to an increase in operating profit. The increase
in effective tax rate was due to the net operating loss of some subsidiaries for
which no benefit was realized.

      INCOME FROM CONTINUING OPERATIONS. Income from continuing operations
increased by approximately $19,000 or 5.6% to approximately $358,000 in Fiscal
2000 from approximately $339,000 in Fiscal 1999. The increase in net income was
primarily due to the increase in sales and the increase in the gross margin.
However, the increase in net income was substantially offset by the operating
loss of some newly set up subsidiaries.

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 the Company's year ended December 31, 1998 ("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 Fiscal 1999.

      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 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


                                       26
<PAGE>

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 the year ended December 31, 1997 ("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 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.


                                       27
<PAGE>

      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.

ITEM 5B.  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 1999 and Fiscal 2000 was approximately $3,632,000 and
$3,686,000, respectively.

      The Company generated net cash of $696,000, $928,000 and $675,000, from
operating activities in Fiscal 1998, Fiscal 1999 and Fiscal 2000, respectively,
on net income of $255,000, $339,000 and $358,000 in Fiscal 1998, Fiscal 1999 and
Fiscal 2000, respectively. At the end of Fiscal 1998, Fiscal 1999 and Fiscal
2000, the Company's accounts receivable were approximately $2,726,000,
$2,826,000 and $2,497,000, respectively.

      The Company used approximately $44,000, $217,000 and $313,000 for
investing activities in Fiscal 1998, Fiscal 1999 and Fiscal 2000, respectively.
Cash used in investing


                                       28
<PAGE>

activities in Fiscal 1999 and Fiscal 2000 was mainly used to purchase property,
facilities and equipment.

      The Company used $151,000, $65,000 and $93,000 in Fiscal 1998, Fiscal 1999
and Fiscal 2000 for financing activities, 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 $4,496,000, and
of which approximately $3,033,000 remained unused as at December 31, 2000. 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, 2000 of approximately $186,000, 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 $3,691,000 at the end of Fiscal 1999 to
approximately $3,963,000 at the end of Fiscal 2000. The principal reasons for
the increase in cash were (i) cash generated from operations; (ii) decrease in
accounts receivable; and (iii) increase in bills payable as a result of increase
in 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 decreased from approximately
$2,826,000 at December 31, 1999 to approximately $2,497,000 at December 31,
2000. The decrease was attributed to the Company's faster collection of debts.

      The Company's inventory increased from approximately $569,000 at the end
of Fiscal 1999 to approximately $945,000 at the end of Fiscal 2000. The higher
inventory level at the end of Fiscal 2000 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 both Fiscal
1999 and Fiscal 2000. As of December 31, 2000, the Company had various banking
facilities from which total available credit was approximately $4,496,000, of
which approximately $3,033,000 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 11.25% per annum. At December 31, 2000, the Company had outstanding
long-term bank loans in the amount of approximately $186,000.

      The Company's capital expenditures were approximately $313,000 in Fiscal
2000, an increase from expenditures of approximately $217,000 in Fiscal 1999.
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 continues to seek targets for acquisition, such as
facilities for assembly operations or engineering companies. If such
acquisitions are indeed


                                       29
<PAGE>

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 1998, 1999 and 2000, the rate of inflation was approximately
-0.8%, -1.4% and 0.4%, 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.

SHARE REPURCHASE PROGRAM

      In December 2000, the Company approved a program to repurchase up to
125,000 shares of its issued and outstanding stock by December 31, 2001. Under
this program, the Company has the ability to purchase the stock in the open
market or through negotiated or block transactions from time to time based on
market and business conditions until the end of 2001. As of June 8, 2001, 99,846
of the Company's Ordinary Shares have been purchased by the Company under this
program.

ITEM 5C.  RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES

      During Fiscal 1998 and Fiscal 1999, as is true for historical prior
periods, the Company (due to the nature of its business), did not expend any
material funds on company sponsored research and development activities.
However, during Fiscal 2000, the Company expended approximately $40,000 on the
development of an Infrared Photometric Oil Analyzer pursuant to its agreement
with the Shanghai Institute Optics Instrument. See Item 4B. "Business Overview."
It is anticipated that an additional $50,000 in research and development costs
will be expended on this project, similar projects and potential research and
development projects for the development of on line water testing equipment
during Fiscal 2001.

ITEM 5D.  TREND INFORMATION

      The Company believes that the expenses incurred in opening "pilot" shops
and product research and development may result in increases in revenue but such
increases are unlikely to allow for a recovery of the expenses for approximately
the next two years.


                                       30
<PAGE>

ITEM 6.   DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

ITEM 6A.  DIRECTORS AND SENIOR MANAGEMENT

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

<TABLE>
<CAPTION>

      NAME              AGE               POSITION
      ----              ---               --------

<S>                     <C>               <C>
      T.C. Leung        57                Chairman of the Board of Directors
                                          and Chief Executive Officer

      Jerry Wong        42                Director and Chief Financial Officer

      Nancy Wong        52                Director

      C.P. Kwan         42                Director

      Alex Sham         37                Director

      Y.K. Liang        71                Director

      Ho Choi Chiu      69                Director
</TABLE>

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

      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.


                                       31
<PAGE>

      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.

      Y.K. LIANG has been a director of the Company since February 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.

      HO CHOI CHIU has been a director of the Company since October 2000. Mr.
Chiu is a certified public accountant, is a senior partner in the accounting
firm of C.C. Ho & Company, a firm that he has been associated with for more than
the past five years.

      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.

      None of the Company's 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 five meetings of its Board of Directors during Fiscal
2000.

      The Company has not had any directors resign or decline to stand for
re-election at any time during or since December 31, 1998. However, at the
Company's 2000 annual meeting, the Company's shareholders did not re-elect one
director, Adam L. Goldberg.

      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.


                                       32
<PAGE>

ITEM 6B.  COMPENSATION

      The following table sets forth certain summary information with respect to
the compensation paid by the Company and Far East for services rendered in all
capacities to the Company and Far East during Fiscal 2000 and Fiscal 1999 to the
Chairman of the Board and Chief Executive Officer.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>

      NAME AND PRINCIPAL POSITION                     YEAR        SALARY ($)  BONUS ($)
      ---------------------------                     ----        ----------  ---------

<S>                                                   <C>         <C>          <C>
      T.C. Leung, Chairman of the Board of            2000        100,000      44,000
          Directors and Chief Executive Officer       1999        100,000      33,000
</TABLE>

      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, 1999 and 2000, the
Company made total pension contributions of approximately $124,000 and $97,000,
respectively, to this Plan.

      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 (the
"Employment Agreement"). The Employment Agreement terminates on March 14, 2002.
Pursuant to this Employment Agreement Mr. Leung serves as the Chairman of the
Board of Directors and Chief Executive Officer of Far East and the Company. The
Employment Agreement requires that Mr. Leung devote substantially all of his
business time to the affairs of the Company and Far East. The Employment
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 Employment 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. Mr. Leung's employment agreement requires
the Company to provide his


                                       33
<PAGE>

beneficiaries and him, respectively, with twelve months salary in the event of
his death or disability and also contains provisions for payment of salary and
benefits following a change of control (as defined) of the Company, the failure
to reappoint him to his position, a salary reduction or the Company's failure to
perform its obligation under the employment agreement. In general, under such
circumstances, Mr. Leung would be entitled to a cash payment equivalent to his
salary for the remaining term of his Agreement, and continued life, health and
disability benefits for a period of one year.

      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. 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.

      Each of the following persons also received options under the Company's
2000 Officers and Directors Plan.

<TABLE>
<CAPTION>

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

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


                                       34
<PAGE>

<TABLE>
<S>                                  <C>                         <C>
      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

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


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

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

      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 May 31, 2001, no Management Options have been exercised. At May 31,
2001, none of the options were "in the money," although by their terms they are
exercisable.

      COMPANY OPTION PLANS. The 2000 Officers and Directors Plan provides for
the grant of options to acquire Ordinary Shares to the Company's executive
officers and directors and persons holding the same positions with the Company's
subsidiaries. The 2000 Employees Plan provides for the grant of options to
acquire Ordinary Shares to key employees of the Company and its subsidiaries.
The 2000 Officers and Directors Plan and 2000 Employees Plan are collectively
referred to as the "2000 Plans".

      146,000 and 292,000 shares are authorized for issuance under the 2000
Employees Plan and 2000 Officers and Directors Plan, respectively.

      The Board of Directors or a committee (the "Committee") appointed by the
Board of Directors administers the 2000 Plans. The Board of Directors or the
Committee has the authority to interpret the Plans, prescribe, amend and rescind
rules and regulations relating to it, determine the terms and provisions of
options granted under the Plans (which need not be identical), and make other
determinations as it deems necessary and advisable for the administration of the
Plans. The Board of Directors or the Committee also has the authority to
delegate decisions with respect to Options granted to key employees under the
2000 Employees Plan who are not elected officers or directors of the Company or
its subsidiaries and to delegate decisions with respect to


                                       35
<PAGE>

key employees to the Chief Executive Officer.

      Any decision by the Committee or the Chief Executive Officer to grant an
award under the 2000 Plans are subject to ratification by the Board of Directors
of the Company. The Board is also to ratify any decision that affects the terms
or conditions of options awarded to elected officers or directors of the Company
or its subsidiaries.

      In the event that the Ordinary Shares of the Company are subdivided or
consolidated as a result of a reorganization, stock split, payment of a stock
dividend, reverse stock split or other change in the Company's capitalization,
the Committee or the Board of Directors has the authority to make appropriate
adjustments in the Ordinary Shares available for issuance under the 2000 Plans,
the number of shares subject to options that may have been or may be awarded to
any participant in any 12 month period, the price, number of Ordinary Shares or
kind of securities subject to outstanding options, or the terms of such options
in order to prevent dilution or enlargement of rights under the options. In
addition, the Board may also change the kind of securities available for grant
under the 2000 Plans to reflect any such corporate changes.

      The Committee or the Chief Executive Officer has the discretion to
determine which employees constitute key employees to whom options will be
awarded under the 2000 Employees Plan.

      The Committee or Chief Executive Officer, as the case may be, determines
the number of Ordinary Shares subject to options to be granted.

      The purchase price per share of the Ordinary Shares to be paid upon the
exercise of the option must be at least 100% of the fair market value of an
Ordinary Shares on the date on which the option was granted.

      Under the 2000 Plans, if the Ordinary Shares are principally traded on a
national securities exchange or the Nasdaq Stock Market's National Market or
Small Cap Market at the time of grant, the Company is required to use, as fair
market value, the average of the closing prices of the Ordinary Shares for the
ten consecutive trading days immediately before the date of grant. If the
Ordinary Shares are traded on a national securities exchange or the Nasdaq Stock
Market's National Market or Small Cap Market, but no closing prices are reported
for such ten-day period, or if the Ordinary Shares are principally traded in the
over-the-counter market, the Company is required to use, as fair market value,
the average of the mean between the bid and asked prices reported for the
Company's Ordinary Shares at the close of trading during such ten-day period
before the date of grant. If the Ordinary Shares are traded neither on a
national securities exchange, the Nasdaq Stock Market's National Market, Small
Cap Market nor in the over-the-counter market or if bid and asked prices are
otherwise not available, the fair market value of the Ordinary Shares on the
date of grant will be determined in good faith by the Committee or the Board of
Directors, as the case may be.

      The Board of Directors or the Committee, as the case may be, or, to the
extent that such authority has been delegated to the Chief Executive Officer,
the Chief Executive Officer determines, at the time of grant, when each option
granted under the Plans will become


                                       36
<PAGE>

exercisable. Notwithstanding the foregoing, all options held by a key employee
of the Company or its subsidiaries become immediately exercisable, whether or
not exercisable at the time, upon the death or disability.

      No option is to be exercisable more than ten years from the date the
option is granted.

      PAYMENT OF EXERCISE PRICE FOR OPTIONS. Under the 2000 Plans, payment for
shares purchased upon exercise of an option may be made by any of the following
methods, subject to certain requirements: (1) in cash, paid by either the
optionholder or a broker to whom the optionee has tendered the option; (2) in
Ordinary Shares valued at the fair market value of such shares on the date of
exercise, provided that such shares were held by the optionholder for not less
than six months prior to the date of exercise of the option; (3) by any other
medium of payment that the Board, Committee or the Chief Executive Officer, as
applicable, has authorized at the time of grant (other than the withholding of
shares issuable upon the exercise of options); or (4) by any combination of the
preceding methods.

      TRANSFER OF OPTIONS. Under the 2000 Plans, an option may not be sold,
assigned or otherwise transferred except to:

      --    the spouse or lineal descendant of a plan participant;

      --    the trustee of a trust for the primary benefit of a plan
            participant's spouse or lineal descendant;

      --    a partnership of which a plan participant and lineal descendants are
            the only partners; or

      --    a charitable organization.

      These assignments are only permitted if the assigning optionee does not
receive any compensation in connection with the assignment and the assignment is
expressly approved by the Board or Committee, as the case may be.

      The Company indemnifies the members of any Committee and its delegates and
the Chief Executive Officer against (1) reasonable expenses incurred in
connection with the defense of any action, suit or proceeding to which they may
be a party by reason of any action taken or failure to act in connection with
the 2000 Plans, and (2) all amounts paid by them in settlement of or
satisfaction of a judgment entered in any such action, suit or proceeding,
except in cases where such a person is adjudged liable for gross negligence or
gross misconduct in the performance of his or her duties.

      The Board may terminate, suspend, or amend the 2000 Plans at any time
without the authorization of shareholders to the extent allowed by law or the
rules of any market on which the Company's shares are then listed or quoted.

      During Fiscal 2000, the Company granted options to certain of its officers
and directors


                                       37
<PAGE>

pursuant to its 2000 Officers and Directors Plan. 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 aggregate
amounts of Ordinary Shares subject to such options.

<TABLE>
<CAPTION>

                                            SHARES SUBJECT
                                            TO 2000 OFFICERS
NAMES OF EXECUTIVE                          AND DIRECTORS
OFFICERS AND DIRECTORS                      PLAN OPTIONS
----------------------                      ------------

<S>                                         <C>
T.C. Leung                                  110,000

Alex Sham                                    12,000

Jerry Wong                                   10,000

Nancy Wong                                    8,000

C.P. Kwan                                     6,000

All executive officers and
Directors as a group                        146,000
</TABLE>

      All the foregoing options are exercisable at $1.58 per share the fair
market value on the date of the grants and are exercisable commencing on
February 18, 2001 for a ten year term.

      Pursuant to its 2000 Employees Plan, the Company has also granted options
to 37 of its non-officer/director employees to purchase an aggregate of 126,000
of its Ordinary Shares exercisable at a price of $1.58 per share commencing on
February 28, 2001 for a ten year term.

      At December 31, 2000, no options had been exercised. 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 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, 2000
would be approximately $102,000. The Company's pro forma basic and diluted net
income per common share would be approximately $0.04 for the year ended December
31, 2000.

      Weighted average fair value of 2000 Stock Options granted during the year
ended December 31, 2000 of $1.43 is estimated on the date of grant using the
Black-Scholes option-pricing model. Fair values of 2000 Stock Options are
estimated on the date of grant using the following assumptions:


                                       38
<PAGE>

<TABLE>
<CAPTION>

                                                   2000
                                                   ----
<S>                                                <C>
Risk-free interest rate                            6.1%
Expected dividend yield                              0%
Expected option life                             7 years
Expected stock price volatility                    127%
</TABLE>

ITEM 6C.  BOARD PRACTICES

      The term of each of the Company's seven directors expires at the election
and qualification of their successors at the next annual meeting of the
Company's shareholders, anticipated to be held in August of this year. Six of
the Company's seven directors were elected at the Company's last annual meeting
of shareholders in August 2000. Only Mr. Ho Choi Chiu was not elected at that
last annual meeting of shareholders, having been appointed unanimously by the
other members of the Board of Directors to fill a vacancy on the Board.

      Mr. Leung, the Company's Chief Executive Officer and the Chairman of its
Board of Directors has an employment agreement with the Company, that provides
him with benefits upon the termination of his employment in certain events. See
Item 6B. "Compensation."

ITEM 6D.  EMPLOYEES

      The Company has approximately 79 full-time employees, including a
marketing and sales staff of 37, an administrative staff of 24 and a technical
support staff of 18.

      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.

ITEM 6E.  SHARE OWNERSHIP

      With respect to the share ownership of the directors and senior management
of the Company, reference is made to Item 7. "Major Shareholders and Related
Party Transactions."


ITEM 7.   MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

ITEM 7A.  MAJOR SHAREHOLDERS

      The following table sets forth, as of June 8, 2001, certain information
concerning beneficial ownership of the Company's Ordinary Shares, giving effect
to the Company's repurchase of 99,846 of its Ordinary Shares, with respect to
(i) each person known to the Company to own 5% or more of the outstanding
Ordinary Shares, (ii) each director and executive officer of the Company, and
(iii) all officers and directors of the Company as a group:

<PAGE>

<TABLE>
<CAPTION>

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

<S>                                         <C>                       <C>
T.C. Leung(1)(2).........................   2,702,359                 70.9%

Pearl Venture Ltd.(1)(2).................   1,129,515                 47.4%

Alex Sham(3).............................      98,750                 4.0%

Jerry Wong(3)............................      76,350                 3.1%

Nancy Wong(3)............................      67,800                 2.84%

C.P. Kwan(3).............................     117,776                 4.9%

Y.K. Liang(3)............................           0                 ____

Ho Choi Chiu(3)..........................           0                 ____

Yeung Kai Tai(4).........................     151,202                 6.4%

Wu Siu Ping(5)...........................     135,324                 5.9%

All Executive Officers
And Directors of the
Company as a group
(7 persons)(3)...........................   3,063,035                75.5%
</TABLE>

ITEM 7B.  RELATED PARTY TRANSACTIONS.

      The Company has previously transferred its equity interests in three
former subsidiaries: Armiston Limited, wholly-owned ("Armiston"); Action
Instruments (China) Ltd., 51% owned

----------
(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 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, of which Pearl is
      the majority shareholder.
(3)   Gives effect to the exercise of Management Options and 2000 Officers and
      Directors Plan Options owned of record by such persons. See Item 6B.
      "Compensation."
(4)   The address for Yeung Kai Tai is 37-37A Jordan Road, 4th Floor, Doubleset
      Commercial Centre, Kowloon, Hong Kong.
(5)   The address for Wu Siu Ping is 12 May Road, Block 1, 17/F Flat 1B,
      Clovelly Court, Hong Kong.


                                       40
<PAGE>

("Action"); and Euro Electron (Far East) Ltd., 80% owned ("Euro Electron") to
Regent and Pearl at book value (Hong Kong Dollars $10,000) invested in the
subsidiaries.

      All outstanding balances with related parties are unsecured, non-interest
bearing and are repayable in 2001. The related companies with which the Company
has engaged in transactions are Euro Electron, Eurotherm, Action and Armtison.
During Fiscal 2000, the Company made sales to Eurotherm of approximately
$26,000. During Fiscal 2000, the Company made purchases from Action, Armtison
and Eurotherm of approximately $8,000, $72,000 and $845,000, respectively.
Additionally, during Fiscal 2000, the Company paid approximately $46,000 to
Armtison for office space rentals, and approximately $29,000 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.

ITEM 8.   FINANCIAL INFORMATION

ITEM 8A.  CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

      Item 8A.1   See Item 18.

      Item 8A.2   See Item 18.

      Item 8A.3   See Report of Independent Accountant page F-1.

      Item 8A.4   We have complied with this requirement.

      Item 8A.5   Not applicable.

      Item 8A.6   Not applicable.

      Item 8A.7   Legal Proceedings.

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

      Item 8A.8   Dividend Policy.

            The Company has not paid cash dividends to date. The payment of cash
dividends, if any, in the future is within the discretion of the Board of
Directors. The payment of cash dividends, if any, in the future will depend upon
the Company's earnings, capital requirements and financial conditions and other
relevant factors. The Company's Board of Directors does not presently intend to
declare any cash dividends in the foreseeable future, but instead intends to
retain all earnings, if any, for use in the Company and Far East's business
operations.

      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


                                       41
<PAGE>

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.

ITEM 8B.  SIGNIFICANT CHANGES.

      There has not been any significant change since the date of the annual
financial statements included in this Report.

ITEM 9.   THE OFFERING AND LISTING.

ITEM 9A.  LISTING DETAILS AND 9.C PRINCIPAL 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 following quotations have not been adjusted for the 20% issued in
September 1999.

                                 ORDINARY SHARES

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

<TABLE>
<CAPTION>

YEARS END DECEMBER 31,                                HIGH        LOW
----------------------                                ------------------------
                                                          $          $
<S>                                                   <C>          <C>
      1997 (from March)                                 9.125       4.00
      1998                                              6.75        2.5
      1999                                              3.625       0.25
      2000                                             15.00        0.031250

                                                      HIGH        LOW
                                                      ------------------------
                                                          $          $
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                         15.00         1.03125
Quarter Ended June 30, 2000                           4.6875       1.00
Quarter Ended September 30, 2000                      2.375        0.25
Quarter Ended December 31, 2000                       1.375        0.25
Quarter Ended March 31, 2000                          2.00         0.78125
From April 1, 2001
to June 8, 2001                                       2.45         1.6875
</TABLE>


                                       42
<PAGE>

<TABLE>
<CAPTION>
THE FOLLOWING MONTHS                                  HIGH        LOW
--------------------                                  ------------------------
                                                         $          $
<S>                                                   <C>          <C>
December 2000                                         1.3125       0.25
January 2001                                          1.5625       0.78125
February 2001                                         1.875        1.125
March 2001                                            2.00         1.0625
April 2001                                            2.45         1.6875
May 2001                                              2.35         1.73
</TABLE>

      The Ordinary Shares was held by approximately 38 holders of record as of
June 21, 2001. 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.

                                    WARRANTS

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

<TABLE>
<CAPTION>

YEARS END DECEMBER 31,                                HIGH        LOW
----------------------                                ------------------------
<S>                                                   <C>          <C>
                                                         $          $
      1997 (from March)                               3.0625      0.50
      1998                                            2.00        0.25
      1999                                            0.812       0.0625
      2000                                            3.71875     0.031250

                                                      HIGH        LOW
                                                      ------------------------
                                                         $          $
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
Quarter Ended June 30, 2000                           1.00        0.03125
Quarter Ended September 31, 2000                      0.59375     0.15625
Quarter Ended December 31, 2000                       0.3125      0.03125
Quarter Ended March 31, 2000                          0.1875      0.03125
From April 1, 2001
to June 8, 2001                                       0.23        0.09375

THE FOLLOWING MONTHS                                  HIGH        LOW
--------------------                                  ------------------------
                                                         $          $
December 2000                                         0.1875      0.03125
January 2001                                          0.15625     0.03125
February 2001                                         0.15625     0.125
March 2001                                            0.1875      0.9375
April 2001                                            0.20        0.09375
May 2001                                              0.20        0.13
</TABLE>


                                       43
<PAGE>

      The Warrants were held by approximately 16 holders of record as of June
21, 2001.

      For information concerning the possible effect on the rights of the
Company's Ordinary Shareholders of issuances of authorized Preferred Stock and
for a description of the terms and conditions of the Company's Warrants, see
Item 10. Additional Information.

ITEM 9B.  PLAN OF DISTRIBUTION

            NOT APPLICABLE

ITEM 9D.  SELLING SHAREHOLDERS

            Not Applicable.

ITEM 9E.  DILUTION

            Not Applicable.

ITEM 9F.  EXPENSES OF THE ISSUE

            Not Applicable.


ITEM 10.  ADDITIONAL INFORMATION

ITEM 10A. SHARE CAPITAL

      AUTHORIZED CAPITAL. The authorized capital of the Company is $250,000
comprised of 20,000,000 Ordinary Shares and 5,000,000 shares of Preferred Stock.
As of December 31, 2000 there were 2,481,838 Ordinary Shares and no shares of
Preferred Stock, issued and outstanding. All of the Company's shares of capital
stock have a par value of $.01 per share.

      Holders of the Company's Ordinary Shares are entitled to one vote for each
whole share on all matters to be voted upon by shareholders, including the
election of directors. Holders of Ordinary Shares do not have cumulative voting
rights in the election of directors. All shares of Ordinary Shares are equal to
each other with respect to liquidation and dividend rights. Holders of Ordinary
Shares are entitled to receive dividends if and when declared by the Company's
Board of Directors out of funds legally available under British Virgin Islands
law. In the event of the liquidation of the Company, all assets available for
distribution to the holders of Ordinary Shares are distributable among them
according to their respective share holdings. Holders of Ordinary Shares have no
preemptive rights to purchase any additional, unissued shares of Ordinary
Shares. All of the outstanding shares of Ordinary Shares of the Company are duly
authorized, validly issued, fully paid and non-assessable.

      Pursuant to the Company's Memorandum and Articles of Association and
pursuant to the laws of the British Virgin Islands, the Company's Memorandum and
Articles of Association may


                                       44
<PAGE>

be amended by a resolution of the Board of Directors without shareholder
approval. This includes amendments to increase or reduce the authorized capital
stock of the Company or to increase or reduce the par value of its shares. The
ability of the Company to amend its Memorandum and Articles of Association
without shareholder approval could have the effect of delaying, deterring or
preventing a change in control of the Company without any further action by the
shareholders including but not limited to, a tender offer to purchase the Common
Stock at a premium over then current market prices.

      Under United States law, majority and controlling shareholders generally
have certain "fiduciary" responsibilities to the minority shareholders.
Shareholder action must be taken in good faith and actions by controlling
shareholders which are obviously unreasonable may be declared null and void. The
British Virgin Islands 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. While British Virgin Islands law
does not permit a shareholder of a British Virgin Islands company to sue its
directors derivatively, I.E., in the name of and for the benefit of the Company,
and to sue the Company and its directors for his benefit and the benefit of
others similarly situated, the circumstances in which any such action may be
brought that may be available in respect of any such action may result in the
rights of shareholders of a British Virgin Island company being more limited
than those rights of shareholders in a United States company.

      The Board of Directors of the Company, without further shareholder action,
may issue shares of Preferred Stock in any number of series and may establish as
to each such series the designation and number of shares to be issued and the
relative rights and preferences of the shares of each series, including
provisions regarding voting powers, redemption, dividend rights, rights upon
liquidation and conversion rights. The issuance of shares of Preferred Stock by
the Board of Directors could adversely affect the rights of holders of Ordinary
Shares by, among other matters, establishing preferential dividends, liquidation
rights and voting power. The Company has not issued any shares of Preferred
Stock and has no present intention to issue shares of Preferred Stock. The
issuance thereof could discourage or defeat efforts to acquire control of the
Company through acquisition of Ordinary Shares.

      WARRANTS. The Company has Warrants to purchase an aggregate of 2,016,000
Ordinary Shares including warrants issued (i) in its initial public offering
(the "Public Warrants"), (ii) to private investors prior to its initial public
offering (the "Private Warrants"), and (iii) to the underwriters of its initial
public offering (the "Underwriter Warrants"). Each Warrant is issued pursuant to
a Warrant Agreement between the Company and American Stock Transfer & Trust
Company, as warrant agent. The following description is subject to the detailed
provisions of and are qualified in their entity by reference to a Warrant
Agreement, which was included as an exhibit to the Registration Statement for
the Company's initial public offering.

      Exercise. Each holder of a Warrant may exercise such Warrant, in whole or
in part, by surrendering the certificate evidencing such Warrant, with the form
of election to purchase attached to such certificate properly completed and
executed, together with payment of the exercise price and any required transfer
taxes, to the Company. No Warrants may be exercised unless at the time of
exercise there is a current prospectus covering the Ordinary Shares of


                                       45
<PAGE>

Common Stock issuable upon the exercise of such Warrants under an effective
registration statement.

      The exercise price and any required transfer taxes are payable in cash or
by certified or official bank check payable to the Company. If fewer than all of
the Warrants evidenced by a warrant certificate are exercised, a new certificate
will be issued for the remaining number of Warrants. Certificates evidencing the
Warrants may be exchanged for new certificates of different denominations by
presenting the Warrant certificate at the offices of the Company.

      The exercise price and any required transfer taxes are payable in cash or
by certified or official bank check payable to the Company. If fewer than all of
the Warrants evidenced by a warrant certificate are exercised, a new certificate
will be issued for the remaining number of Warrants. Certificates evidencing the
Warrants may be exchanged for new certificates of different denominations by
presenting the Warrant certificate at the offices of the Company.

      Adjustments. The exercise price and the number of Ordinary Shares
purchasable upon exercise of any Warrants are subject to adjustment upon the
occurrence of certain events, including stock dividends, stock splits, reverse
stock splits, reclassification, reorganizations, consolidations, mergers, and
certain issuances and redemptions of Ordinary Shares and securities convertible
into or exchangeable for Ordinary Shares (below the lesser of the then exercise
price of the Warrants or the fair market value of the Company's Ordinary Shares)
excluding issuances of shares of the Company's Ordinary Shares prior to its
initial public offering, the acquisition of Far East, any issuances of the
Company's securities in connection with its initial public offering, Company
stock option plans or the Management Options. No adjustments in the exercise
price will be required to be made with respect to the Warrants 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) the
acquisition of Far East or any other business), or sale of the properties and
assets of the Company, as, or substantially as, an entirety to any other
corporation, Warrants 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 Warrants would have been entitled upon such reorganization,
reclassification, consolidation, merger, or sale.

      Other Rights. In the event of an adjustment in the number of Ordinary
Shares issuable upon exercise of the Warrants, the Company will not be required
to issue fractional Ordinary Shares upon exercise of the Warrants. In lieu of
fractional Ordinary Shares, there will be paid to the holders of the Warrants,
at the time of such exercise, an amount in cash equal to the same fraction of
the current market price of an Ordinary Share.

      Warrantholders do not have voting or any other rights of shareholders of
the Company and are not entitled to dividends, if any.


                                       46
<PAGE>

      Redemption of Warrants. During any time the Warrants are exercisable, if
the average closing bid price of the Ordinary Shares for twenty (20) consecutive
trading days shall exceed certain prices, the Company may redeem the Warrants by
paying holders $.10 per Warrant, provided that notice of such redemption is
mailed not later than ten (10) days after the end of such period and prescribes
a redemption date at least thirty (30) days thereafter. Warrantholders will be
entitled to exercise Warrants at any time up to the business day next preceding
the redemption date. Additionally, the Warrants may not be redeemed unless at
the time of redemption there is a current prospectus covering the Ordinary
Shares issuable upon exercise of such Warrants under an effective registration
statement.

      Underwriter Warrants. In connection with its initial public offering, the
Company sold to its underwriter, May Davis Group, Inc., warrants to purchase
Ordinary Shares.

      September 1999 Stock Dividend. The Company issued a twenty (20%) percent
stock dividend to holders of its Ordinary Shares in September 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 (the "Target Price").

      Current expiration dates, exercise prices and target prices are set forth
below.

<TABLE>
<CAPTION>

      SECURITIES                          EXPIRATION DATE(S)      POST-DIVIDEND
      ----------                          ------------------      -------------
<S>                                       <C>                     <C>
1.    Public and Private Warrants         March 14, 2003
      A.    Maximum Number of
            Shares Exercisable For                                 1,944,000
      B.    Per Share Exercise Price                              $4.5833
      C.    Target Price                                          $7.0833

2.    Underwriter's Warrant               March 14, 2002
      A.    Maximum Number of
            Shares Exercisable For                                72,000
      B.    Per Share Exercise Price                              $6.875
      C.    Target Price                                          Not Applicable
</TABLE>

ITEM 10B. MEMORANDUM AND ARTICLES OF ASSOCIATION

      Set forth below is a summary of the material provisions of our Memorandum
and Articles of Association (the "Articles) and the British Virgin Islands
("BVI") Companies Act relating to the shares. This description does not purport
to be complete and is qualified in its entirety by reference to BVI statutory
law and to the Articles.

      SHARE REGISTER AND VOTING RESTRICTIONS. The Company maintains a share
register at its registered office in the BVI. The Company's registered number is
200960. The objects of the Company are to engage in any act or activity that is
not prohibited under any law of the BVI. See


                                       47
<PAGE>

Regulation 4(1) of the Articles. Under the Articles, the Company is not required
to treat the holder of a registered share in the Company as a shareholder until
that person's name has been entered in the share register. The holders of
Ordinary Shares have one vote for each Ordinary Share held of record. The
holders of Preferred Shares have such voting powers, full or limited, or no
voting powers and such restrictions as may be stated and expressed in the
resolution providing for the issuance of the Preferred Shares.

      SHAREHOLDERS MEETING. The directors of the Company may convene meeting on
the shareholders of the Company at such times and in such manner and places
within or outside the BVI as the directors consider necessary or desirable. Upon
the written request of the shareholders holding ten (10%) percent or more of the
outstanding voting shares in the Company the directors must convene a meeting of
shareholders. The directors must give not less than seven days notice of
meetings of shareholders to those persons whose names on the date of the notice
is given appear as shareholders in the share register of the Company and are
entitled to vote at the meeting. The directors may fix the date notice is given
of a meeting of shareholders as the record date for determining those shares
that are entitled to vote at the meeting.

      The inadvertent failure of the directors to give notice of a meeting to a
shareholder, or the fact that a shareholder has not received notice, does not
invalidate the meeting. A shareholder may be represented at a meeting of
shareholders by a proxy who may speak and vote on behalf of the shareholder.

      A shareholder may participate at a meeting of shareholders by telephone or
other electronic means, as long as all shareholders participating in the meeting
are able to hear each other.

      A meeting of shareholders is duly constituted if, at the commencement of
the meeting, there are present in person or by proxy not less than fifty (50%)
percent of the votes of the shares or class series of shares entitled to vote on
resolutions of shareholders to be considered at the meeting.

      If a quorum is not present, the meeting, if convened upon the requisition
of shareholders, shall be dissolved; in any other case it shall stand adjourned
to the next business day at the same time and place or to such other time and
place as the directors may determine, and if at the adjourned meeting there are
present in person or by proxy not less than one third of the votes of the shares
or each class or series of shares entitled to vote on the resolutions to be
considered by the meeting, those present shall constitute a quorum but otherwise
the meeting shall be dissolved.

      At every meeting of shareholders, the chairman of the board of directors
shall preside as chairman of the meeting.

      The chairman may, with the consent of the meeting, adjourn any meeting
from time to time, and from place to place, but no business shall be transacted
at any adjourned meeting other than the business left unfinished at the meeting
from which the adjournment took place.

      At any meeting of the shareholders the chairman shall be responsible for
deciding in such


                                       48
<PAGE>

manner as he shall consider appropriate whether any resolution has been carried
or not ant the result of his decision shall be announced to the meeting and
recorded in the minutes thereof.

      An action that may be taken by the shareholders at a meeting may also be
taken by a resolution of shareholders consented to in writing or by written
electronic communication, without the need for any notice, but if not a
unanimous writing, a copy of such resolution shall be sent to all non-consenting
shareholders.

      NET PROFITS AND DIVIDENDS. 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.

      PRE-EMPTIVE RIGHTS. The holders of Ordinary Shares and Preferred Shares
are not entitled to any pre-emptive or similar rights.

      BORROWING POWER. The directors may exercise all the powers of the Company
to borrow money and to mortgage or charge its undertakings and property or any
part thereof, to issue debentures, debenture stock and other securities whenever
money is borrowed or as security for any debt, liability or obligation of the
Company or of any third party.

      CONFLICT OF INTERESTS. No agreement or transaction between the Company and
one or more of its directors or any person in which any director has a financial
interest or to whom any director is related, including as a director of that
other person, is void and voidable for this reason only, or by reason only that
the director is present at the meeting of directors, or at the meeting of the
committee of directors that approves the agreement or transaction, or that the
vote or consent of the director is counted for that purpose, if the material
facts of the interest of each director in the agreement or transaction and his
interest in or relationship to any other party to the agreement or transaction
are disclosed in good faith, or are known by the other directors. A director who
has an interest in any particular business to be considered at a meeting of
directors or shareholders may be counted for purposes of determining whether the
meeting is duly constituted.

      REPURCHASE OF SHARES. The Company may purchase, redeem or otherwise
acquire and hold its own shares, but only out of surplus or in exchange for
newly issued shares of equal value. Subject to provisions to the contrary in:

      (a)   the designations, powers, preferences, rights, qualifications,
            limitations and restrictions with which the shares were issued; or

      (b)   the subscription agreement for the issue of the shares,

the Company may not purchase, redeem or otherwise acquire its own shares without
the consent of shareholders whose shares are to be purchased, redeemed or
otherwise acquired.


                                       49
<PAGE>

      Generally, no purchase, redemption or other acquisition of shares shall be
made unless the directors determine that immediately after purchase, redemption
or other acquisition the Company will be able to satisfy its liabilities as they
become due in the ordinary course of its business and the realizable value of
the assets of the Company will not be less than the sum of its total
liabilities, other than deferred taxes, as shown in the books of account, and
its capital and, in the absence of fraud, the decision of the directors as to
the realizable value of the assets of the Company is conclusive, unless a
question of law is involved.

      NOTICES. Any notice, information or written statement to be given by the
Company to shareholders may be served, in the case of shareholders holding
registered shares in any way by which it can reasonably be expected to reach
each shareholder or by mail addressed to each shareholder at the address shown
in the share register and in the case of shareholders holdings shares issued to
bearer, in the manner provided in the Memorandum of Association.

      PURPOSE, DURATION, LIQUIDATION, MERGER. The Company is empowered under BVI
law and its Memorandum of Association to engage in any act or activity that is
not prohibited under any law in the BVI. The Company shall continue until
wound-up and dissolved by a resolution of shareholders, or under the terms of
any insolvency or liquidation laws in force in the BVI. Under BVI law the
Company may merge with another company, including a parent company or
subsidiary, incorporated in the BVI, or in a jurisdiction outside of the BVI
where the laws of that jurisdiction permit the merger. A merger must be
authorized by the directors of the Company and approved by the shareholders.

      DISCLOSURE OF PRINCIPAL SHAREHOLDERS. Under the laws of the BVI the
identity of the shareholders of the Company is confidential and is not disclosed
in any public document.

      BOARD OF DIRECTORS. The business and affairs of the Company are managed by
the directors who may exercise all such powers of the Company as are not by BVI
law or by the Company's Articles required to be exercised by the shareholders of
the Company.

ITEM 10C. MATERIAL AGREEMENTS

      Pursuant to the Company's distribution agreement with Hach, the Company is
Hach's sole representative in the PRC, Hong Kong and Macao and is authorized to
supply, install and commission Hach's products and accessories. The Company's
agreement with Hach expires in February 2002, unless renewed.

      T.C. Leung's services to the Company and Far East are provided pursuant to
the Employment Agreement between the Company, Far East and Shereman Enterprises
Ltd., a management company. The Employment Agreement, dated March 14, 1997,
terminates on March 14, 2002. Pursuant to the Employment Agreement Mr. Leung
serves as the Chairman of the Board of Directors and Chief Executive Officer of
Far East and the Company. The Employment Agreement requires that Mr. Leung
devote substantially all of his business time to the affairs of the Company and
Far East. The Employment 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 Employment


                                       50
<PAGE>

Agreement's term with compensation past the first year to be renegotiated
annually. The Employment 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 Employment Agreement under certain circumstances.

      There are no other material contracts other than those entered into in the
ordinary course of business.

ITEM 10D. EXCHANGE CONTROLS

      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. The PRC has established a unified
exchange rate system and system of exchange controls to which the Company is
subject.

ITEM 10E. 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.

      In accordance with the relevant income tax laws and regulations applicable
to foreign investment enterprises in the PRC, Euro Tech Trading (Shanghai)
Limited and Shanghai Euro Tech Limited, subsidiaries of the Company, are exempt
from PRC enterprise income tax of 33% for five years starting from their first
profit-making year, after offsetting losses brought forward from the previous
five years, if any, followed by a 50% reduction for the next five years
thereafter.

      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 reverse in subsequent years
are classified as an asset or a liability.

ITEM 10F. DIVIDENDS AND PAYING AGENTS

            Not applicable.

ITEM 10G. STATEMENT BY EXPERTS


                                       51
<PAGE>

            Not applicable.

ITEM 10H. DOCUMENTS ON DISPLAY

      The documents that are exhibits to or incorporated by reference in this
annual report can be read at the U.S. Securities and Exchange Commission's
public reference facilities at Room 1024, 450 Fifth Street, N.W., Washington, DC
20549 or on the Commission's website: www.sec.gov.

ITEM 10I. SUBSIDIARY INFORMATION

            Not applicable.


ITEM 11.  QUANTITATIVE AND QUALIFICATION DISCLOSURES ABOUT MARKET RISK

            Not applicable.


ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECUIRITIES

            Not applicable.



                                       52
<PAGE>

                                     PART II

ITEM 13.  DEFAULTS, DIVIDENDS, ARREARAGES AND DELINQUENCIES.

            None.


ITEM 14.  MATERIAL MODIFICATION TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
          PROCEEDS

      For a Discussion of the Use of Proceeds from the Company's Public
Offering, See Item 4A. History and Development of the Company.

ITEM 15.  [RESERVED]



ITEM 16.  [RESERVED]



                                       53
<PAGE>

                                    PART III


ITEM 17.  FINANCIAL STATEMENTS

            Not applicable.


ITEM 18.  FINANCIAL STATEMENTS

      The following financial statements are filed as part of this annual report
on Form 20-F

Index to consolidated financial statements

Report of Independent certified public accountants                         1

Consolidated income statements                                             2

Consolidated balance sheets                                                3

Consolidated cash flow statements                                         4-5

Consolidated statement of changes in equity                                6

Notes to the consolidated financial statements                            7-15






                                       54
<PAGE>

ITEM 19.  EXHIBITS

Lists of Exhibits

EXHIBIT NO.   DESCRIPTION
-----------   -----------

1.1           Amended and Restated Memorandum and Articles of Association (1)

1.2           Amendments to Exhibit 3.1 adopted by shareholders on August 15,
              2000(3)

4.1           Employment Agreement among Registrant, EuroTech (Far East)
              Limited, Ltd. etc (for the services of T.C. Leung) (1)

4.2           Management Stock Option Plan (1)

4.3           Agreement with Shanghai Institute of Optics Instruments (2)

4.4           Agreement with Hach Company, Inc. (2)

4.5           2000 Officers and Directors Stock Option and Incentive Plan (3)

4.6           2000 Employees' Stock Option and Incentive Plan (3)

8.1           List of Subsidiaries (3)

----------

(1)   Previously filed as an Exhibit to Registration Statement, SEC File No.
      333-16277 and is incorporated by reference herein.

(2)   Previously filed as an Exhibit to Registrant's Report on Form 20-F for its
      year ended December 31, 1999.

(3)   Filed herewith.




                                       55
<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.

                                   EURO TECH HOLDINGS COMPANY LIMITED
                                   ----------------------------------
                                               (Registrant)



                                    /s/ T.C. LEUNG
                                    ------------------------------------------
                                    T.C. Leung,
                                    Chief Executive Officer and Chairman of the
                                    Board

Dated: June 28, 2001





                                       56
<PAGE>














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



                       AUDITED CONSOLIDATED BALANCE SHEETS
                       -----------------------------------

                        AS OF DECEMBER 31, 1999 AND 2000
                        --------------------------------

                                       AND
                                       ---

                       CONSOLIDATED STATEMENTS OF INCOME,
                       ----------------------------------

                 CASH FLOWS AND CHANGES IN SHAREHOLDERS' EQUITY
                 ----------------------------------------------

              FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
              ----------------------------------------------------

                         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, 1999 and 2000, and
the related consolidated statements of income and comprehensive income, cash
flows and changes in shareholders' equity for the years ended December 31, 1998,
1999 and 2000. 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, 1999 and 2000, and the results of its operations and
cash flows for the years ended December 31, 1998, 1999 and 2000 in conformity
with generally accepted accounting principles in the United States of America.

/s/ Arthur Andersen & Co

CERTIFIED PUBLIC ACCOUNTANTS

Hong Kong,
April 3, 2001.


                                      F-1
<PAGE>



                       EURO TECH HOLDINGS COMPANY LIMITED


           CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

              FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000

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

<TABLE>
<CAPTION>

                                            Notes            1998              1999                2000
                                           ---------  ------------------ ------------------  -----------------
                                                               US$                US$                US$

<S>                                           <C>               <C>                <C>                 <C>
Net sales                                     12                12,757             13,107              15,010
Cost of goods sold                                              (9,662)            (9,896)            (11,467)
                                                      ------------------ ------------------  -----------------

Gross profit                                                     3,095              3,211               3,543
Selling and administrative expenses           12                (2,924)            (2,946)             (3,301)
                                                      ------------------ ------------------  -----------------

Operating income                                                   171                265                 242
Interest income, net                          12                    86                 85                 113
Other income, net                           3 & 12                  69                 67                  97
                                                      ------------------ ------------------  -----------------

Income before income taxes                                         326                417                 452
Income taxes                                  4                    (71)               (78)                (94)
                                                      ------------------ ------------------  -----------------

Net income                                                         255                339                 358
                                                      ================== ==================  =================

Foreign currency translation adjustment                              5                  -                   3
                                                      ------------------ ------------------  -----------------

Comprehensive income                                               260                339                 361
                                                      ================== ==================  =================

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

Weighted average number of common
    shares outstanding                                       2,068,200          2,204,200           2,481,838
                                                      ================== ==================  =================
</TABLE>

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


                                      F-2
<PAGE>

                       EURO TECH HOLDINGS COMPANY LIMITED

                           CONSOLIDATED BALANCE SHEETS

                        AS OF DECEMBER 31, 1999 AND 2000

                  (Amounts in thousands except for share data)

<TABLE>
<CAPTION>

                                                          Notes             1999                   2000
                                                         ---------   -------------------   -------------------
                                                                               US$                   US$
<S>                                                         <C>                  <C>                   <C>
ASSETS

Current assets:
   Cash and cash equivalents                                                     3,691                 3,963
   Accounts receivable, net                                 5                    2,826                 2,497
   Bills receivable                                                                169                   194
   Prepayments and other current assets                                            303                   209
   Inventories                                                                     569                   945
                                                                     -------------------   -------------------

         Total current assets                                                    7,558                 7,808

Property, plant and equipment, net                          6                    2,079                 2,284
                                                                     -------------------   -------------------

         Total assets                                                            9,637                10,092
                                                                     ===================   ===================

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
   Long-term bank loan, current portion                     7                       85                    94
   Accounts payable                                                              2,564                 1,987
   Bills payable                                                                   434                   857
   Due to related companies                                 12                     235                   255
   Accrued expenses                                                                570                   881
   Taxation payable                                                                 38                    48
                                                                     -------------------   -------------------

         Total current liabilities                                               3,926                 4,122
                                                                     -------------------   -------------------

Long-term bank loan                                         7                      178                    92
                                                                     -------------------   -------------------

Shareholders' equity:
   Common stock, par value US$0.01 each, 25,000,000
     (1999 - 20,000,000) shares authorized;
     2,481,838 (1999 - 2,481,838) shares issued and
     outstanding                                                                    25                    25
   Additional paid-in capital                                                    2,050                 2,050
   Warrants                                                 9                      172                   172
   Cumulative translation adjustments                                                -                     3
   Retained earnings                                                             3,286                 3,644
   Treasury stock, at cost                                  8                     -                      (16)
                                                                     -------------------   -------------------

         Total shareholders' equity                                              5,533                 5,878
                                                                     -------------------   -------------------

         Total liabilities and shareholders' equity                              9,637                10,092
                                                                     ===================   ===================
</TABLE>

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


                                      F-3
<PAGE>

                       EURO TECH HOLDINGS COMPANY LIMITED

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

              FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000

                             (Amounts in thousands)

<TABLE>
<CAPTION>

                                                           1998           1999           2000
                                                           ----           ----           ----
                                                            US$            US$            US$
<S>                                                       <C>            <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                  255            339            358
Adjustments to reconcile net income to net cash
    provided by operating activities:
    Depreciation of property, plant and equipment            96             99            109
    Gain on disposal of property, plant and
       equipment                                             (4)            --             (1)
    Expenses on repurchase of warrants                       37             --             --
(Increase) decrease in assets:
    Accounts receivable                                    (141)          (100)           329
    Bills receivable                                        (58)           (38)           (25)
    Due from related companies                               16             --             --
    Prepayments and other current assets                     78            (93)            94
    Inventories                                              88            (83)          (376)
Increase (decrease) in liabilities:
    Accounts payable                                        720            (73)          (577)
    Bills payable                                          (134)           389            423
    Due to related companies                               (108)           200             20
    Accrued expenses                                       (153)           283            311
    Taxation payable                                          4              5             10
                                                           ----           ----           ----

    Net cash provided by operating activities               696            928            675
                                                           ----           ----           ----

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment                   (49)          (217)          (313)
Proceeds from disposal of property, plant and
    equipment                                                 5             --             --
                                                           ----           ----           ----

    Net cash used in investing activities                   (44)          (217)          (313)
                                                           ----           ----           ----
                                                                                       (Continued)
</TABLE>


                                      F-4
<PAGE>

                       EURO TECH HOLDINGS COMPANY LIMITED


                 CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont'd)

              FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000

                             (Amounts in thousands)

<TABLE>
<CAPTION>

                                                          1998             1999             2000
                                                         ------           ------           ------
                                                           US$              US$              US$
<S>                                                      <C>             <C>              <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of short-term bank borrowings                     (16)              --               --
Repayment of long-term bank loan                            (60)             (65)             (77)
Purchase of treasury stock                                   --               --              (16)
Repurchase of warrants                                      (75)              --               --
                                                         ------           ------           ------

    Net cash used in financing activities                  (151)             (65)             (93)
                                                         ------           ------           ------

Net increase in cash and cash equivalents                   501              646              269
Cash and cash equivalents, beginning of year              2,539            3,045            3,691
Effect of exchange rate change on cash and cash
    equivalents                                               5               --                3
                                                         ------           ------           ------

Cash and cash equivalents, end of year                    3,045            3,691            3,963
                                                         ======           ======           ======

Supplementary information
    Interest received                                       133              114              138
    Interest paid                                            47               29               25
    Income taxes paid                                        57               82               84
    Income taxes refund                                      --                8               --
</TABLE>




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



                                      F-5
<PAGE>

                       EURO TECH HOLDINGS COMPANY LIMITED


           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

              FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000

                             (Amounts in thousands)

<TABLE>
<CAPTION>

                                                                     Accumulated
                                                                     comprehensi
                                                                      income -
                                             Additional               cumulative
                                    Common     paid-in                translation  Treasury    Retained
                                     stock     capital     Warrants   adjustments    stock     earnings   Total
                                    ------     -------     --------   -----------  --------    --------  -------
                                      US$        US$         US$          US$         US$         US$      US$

<S>                                     <C>     <C>           <C>         <C>      <C>        <C>        <C>
Balance as of January 1, 1998           21      2,092         172         (5)         --       2,692      4,972

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

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

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

Balance as of December 31, 1999         25      2,050         172         --          --       3,286      5,533

Net income                              --         --          --         --          --         358        358
Purchase of treasury stock              --         --          --         --         (16)         --        (16)
Foreign exchange translation
   adjustment                           --         --          --          3          --          --          3
                                    ------     ------      ------     ------      ------      ------     ------

Balance as of December 31, 2000         25      2,050         172          3         (16)      3,644      5,878
                                    ======     ======      ======     ======      ======      ======     ======
</TABLE>



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


                                      F-6
<PAGE>

                       EURO TECH HOLDINGS COMPANY LIMITED

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

      (Amounts expressed in United States Dollars unless otherwise stated)


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         Place of
Name                                      equity 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

ChinaH2O.com Limited                           100%              Hong Kong       Internet content provider
                                                                                    and provision of
                                                                                    marketing services for
                                                                                    environmental industry
</TABLE>


                                      F-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 exempt from taxation in the British Virgin Islands.

      Far East, Euro Tech (China) Limited and ChinaH2O.com 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.

      In accordance with the relevant income tax laws and regulations applicable
      to foreign investment enterprises in the PRC, Euro Tech Trading (Shanghai)
      Limited and Shanghai Euro Tech Limited, subsidiaries of the Company, are
      exempt from PRC enterprise income tax of 33% for five years starting from
      their first profit-making year, after offsetting losses brought forward
      from the previous five years, if any, followed by a 50% reduction for the
      next five years thereafter.

      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 reverse
      in subsequent years are classified as an asset or a liability.

e.    CASH AND CASH EQUIVALENTS

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


                                      F-8
<PAGE>

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:

            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

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 respective 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 respective 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.


                                      F-9
<PAGE>

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

3.    OTHER INCOME, NET
-----------------------

<TABLE>
<CAPTION>

                                     1998           1999           2000
                                 -------------  -------------  -------------
                                     `000           `000           `000
<S>                                      <C>             <C>            <C>
Gain on disposal of property,
   plant and equipment                      4              -              1
Exchange gain, net                         17             24             56
Service fee income                          -             (1)             6
Rental income                              85             44             34
Loss on repurchase of warrants            (37)             -              -
                                 -------------  -------------  -------------

                                           69             67             97
                                 =============  =============  =============
</TABLE>


4.    INCOME TAXES
------------------

The reconciliation 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>

                                         1998          1999        2000
                                      -----------   ----------  ----------
<S>                                        <C>           <C>         <C>
Statutory tax rate                         16.0%         16.0%       16.0%
Permanent differences                       3.5%          2.7%        -
Valuation allowances                        -             -           5.5%
Others                                      2.3%          -          (0.7%)
                                      -----------   ----------  -----------

Effective tax rate                         21.8%         18.7%       20.8%
                                      ===========   ==========  ==========
</TABLE>


                                      F-10
<PAGE>

The components of deferred tax assets are as follows:

<TABLE>
<CAPTION>

                                                   1999            2000
                                               -------------   -------------
                                                  $'000           $'000

<S>                                                   <C>               <C>
Deferred tax assets arising from tax losses               -              25

Less: Valuation allowances                                -             (25)
                                               -------------   -------------

Net deferred tax assets                                   -               -
                                               =============   =============
</TABLE>


5.    ACCOUNTS RECEIVABLE
-------------------------

<TABLE>
<CAPTION>

                                                   1999            2000
                                               -------------   -------------
                                                   `000            `000

<S>                                                   <C>             <C>
Trade receivables                                     2,863           2,543
Less: Allowance for doubtful debts                      (37)            (46)
                                               -------------   -------------

                                                      2,826           2,497
                                               =============   =============
</TABLE>


6.    PROPERTY, PLANT AND EQUIPMENT
-----------------------------------

<TABLE>
<CAPTION>

                                                   1999            2000
                                               -------------   -------------
                                                   `000            `000

<S>                                                   <C>             <C>
Land and buildings                                    2,271           2,271
Leasehold improvements                                   43              46
Furniture, fixtures and office equipment                 96             389
Motor vehicles                                          113             126
Testing equipment                                        46              51
                                               -------------   -------------

                                                      2,569           2,883

Less: Accumulated depreciation                         (490)           (599)
                                               -------------   -------------

                                                      2,079           2,284
                                               =============   =============
</TABLE>

As of December 31, 1999 and 2000, land and buildings with net book values of
$1,093,000 and $1,066,000, respectively, were pledged to secure certain banking
facilities of Far East (see Note 7).


                                      F-11
<PAGE>

7.    LONG-TERM BANK LOAN
-------------------------

Long-term bank loan is 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 loan are as follows:

<TABLE>
<CAPTION>

                                                   1999            2000
                                               -------------   -------------
                                                   `000            `000

<S>                                                      <C>             <C>
Within one year                                          85              94
During the second year                                   88              92
During the third year                                    90               -
                                               -------------   -------------

                                                        263             186
                                               =============   =============
</TABLE>

As of December 31, 2000, the Group had various banking facilities available from
financial institutions amounting to approximately $4,496,000 (1999 -
$4,903,000), of which approximately $3,033,000 (1999 - $3,780,000) remained
unused.

8.    TREASURY STOCK
--------------------

The Company authorized a stock buyback program in December 2000 whereunder up to
125,000 shares, not to exceed $281,250 in value, of the Company's common stock
could be purchased in the open market from time to time as market and business
conditions warrant. During the year ended December 31, 2000, the Company
repurchased a total of 13,350 shares of common stock for a consideration of
approximately $16,000. There was no reissuance of treasury stock during the
year.

9.    WARRANTS
--------------

A total of 2,016,000 warrants had been issued in 1997, 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 stocks is above $7.0833 for twenty consecutive days, the
Company has the right to redeem the warrants at the price of $0.10 each. For the
year ended December 31, 1998, 1999 and 2000, no warrant had been issued or
exercised.


                                      F-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 $5.50 per share for the remaining 929,000.
Subsequent to the distribution of stock dividend during the year ended December
31, 1999, the number of Management Options granted has been adjusted to
1,594,800. 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. During the year ended December 31, 2000, 13,200 options with the
exercise price of $4.58 were cancelled as the Optionee has not exercised the
Management Options before the employment relationship is terminated or his legal
representative has not exercised the Management Option within three months after
such relationship is terminated. During the same year, the Company has further
granted 88,900 Management Options with the exercise price of $4.58 per share to
its officers, directors and employees, which allow them to purchase up to 88,900
shares of common stock. Such Management Options became exercisable on February
21, 2001 for a term of ten years beginning from the grant date. The exercise
price of those Management Options which have not been granted, is $4.58 per
share. For the year ended December 31, 2000, no options had been exercised.

A total of 438,000 shares of common stock have been reserved for issuance under
the Company's 2000 Stock Option Plan (the "2000 Stock Options"). The 2000 Stock
Options provides for the grant of options to 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. In 2000, the Company granted such options to
its officers, directors and employees which allow them to purchase up to 272,000
shares of common stock. The exercise price of all options granted is $1.58 per
share. The 2000 Stock Options will not be exercisable until February 18, 2001
and have a term of ten years. The exercise price of those Stock Options which
have not been granted, is $1.58 per share. During the December 31, 2000, no
options had been exercised. Weighted average exercise price of Management
Options and 2000 Stock Options outstanding and exercisable as of December 31,
2000 was $3.85 per share (1998 and 1999 - $4.2 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 (including options
granted in 2000) is recognized for stock option granted at or above fair market
value. Had compensation expense for the Company's options been determined based
upon fair values at the grant dates in accordance with SFAS No.


                                      F-13
<PAGE>

123, the Company's pro forma net income for the year ended December 31, 2000
would be approximately $102,000. The Company's pro forma basic and diluted net
income per common share would be approximately $0.04 for the year ended December
31, 2000.

Weighted average fair value of Management Options and 2000 Stock Options granted
during the year ended December 31, 2000 of $1.43 is estimated on the date of
grant using the Black-Scholes option-pricing model. Fair values of Management
Options and 2000 Stock Options are estimated on the date of grant using the
following assumptions:

<TABLE>
<CAPTION>

                                                                    2000
                                                               -------------

<S>                                                                    <C>
Risk-free interest rate                                                6.1%
Expected dividend yield                                                  0%
Expected option life                                                7 years
Expected stock price volatility                                        127%
</TABLE>



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 pension benefits equal 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.

With the introduction of the Mandatory Provident Scheme, a defined contribution
scheme managed by an independent trustee, by the Hong Kong Government on
December 1 2000, each of the Hong Kong subsidiaries and their employees make
monthly contributions to the scheme ("MPF") at 5% of the employee's cash income
as defined under the Mandatory Provident Fund legislation. Contributions of both
the Hong Kong subsidiaries and their employees are subject to a maximum of
HK$1,000 per month and thereafter contributions are voluntary and are not
subject to any limitation. The Hong Kong subsidiaries and their employees made
their first contributions in December 2000.

During the years ended December 31, 1998, 1999 and 2000, the Group's total
contributions including the amounts contributed to both the defined contribution
pension plan and MPF were approximately $127,000, $124,000 and $97,000,
respectively.


                                      F-14
<PAGE>

12.   RELATED PARTY TRANSACTIONS
--------------------------------

The transactions with related parties are summarized as follows:

<TABLE>
<CAPTION>

                                     1998           1999           2000
                                 -------------  -------------  -------------
                                     `000           `000           `000

<S>                                        <C>            <C>            <C>
Sales to related companies                 52             33             26

Purchases from related companies          571            895            925

Interest income received from
   a related company                       11             10             10

Rental income received from a
   related company                         59             36             34

Rental expenses paid to a
   related company                         46             46             46

Management fee paid to a
   related company                         25             23             29
</TABLE>

All outstanding balances with related parties are unsecured, non-interest
bearing and are repayable in 2001.


13.   OPERATING LEASE COMMITMENTS
---------------------------------

The Group has various operating lease agreements for office and industrial
premises, which extend through May 2001. Rental expenses for the years ended
December 31, 1998, 1999 and 2000 were approximately $223,000, $205,800 and
$191,483, respectively. Future minimum rental payments as of December 31, 1999
and 2000, under agreements classified as operating leases with non-cancellable
terms, are as follows:

<TABLE>
<CAPTION>

                                                    1999            2000
                                               -------------   -------------
                                                   `000            `000

<S>                                                     <C>             <C>
2000                                                     56               -
2001                                                     15              57
                                               -------------   -------------

Total minimum lease payments                             71              57
                                               =============   =============
</TABLE>


                                      F-15