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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                            ------------------------

                                   FORM 10-K
(MARK ONE)
[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: 001-15713

                            ASIAINFO HOLDINGS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                               <C>
                   DELAWARE                                         752506390
           (STATE OF INCORPORATION)                              (I.R.S. EMPLOYER
                                                               IDENTIFICATION NO.)
</TABLE>

                     4TH FLOOR, ZHONGDIAN INFORMATION TOWER
                 6 ZHONGGUANCUN SOUTH STREET, HAIDIAN DISTRICT
                             BEIJING 100086, CHINA
          (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE +8610 6250 1658

        SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE

          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                         COMMON STOCK, $0.01 PAR VALUE
                                (TITLE OF CLASS)

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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  [ ]

Based on the closing sale price of the common stock on the Nasdaq National
Market System on March 11, 2001, the aggregate market value of the voting stock
held by non-affiliates of the Registrant was $188,740,800.

The number of shares outstanding of the Registrant's common stock, $0.01 par
value, was 41,045,277 at March 11, 2001.

                      DOCUMENTS INCORPORATED BY REFERENCE

Certain information is incorporated by reference to the Proxy Statement for the
Registrant's 2001 Annual Meeting of Stockholders to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A not later than 120 days after
the end of the fiscal year covered by this Form 10-K.
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                            ASIAINFO HOLDINGS, INC.
                                   FORM 10-K
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

                               TABLE OF CONTENTS

<TABLE>
<S>         <C>                                                            <C>
                                       PART I
Item 1.     Business....................................................     3
Item 2.     Properties..................................................    21
Item 3.     Legal Proceedings...........................................    21
Item 4.     Submission of Matters to a Vote of Security Holders.........    21

                                      PART II
Item 5.     Market for Registrant's Common Equity and Related               22
            Stockholder Matters.........................................
Item 6.     Selected Financial Data.....................................    23
Item 7.     Management's Discussion and Analysis of Financial Condition     24
            and Results of Operation....................................
Item 7A.    Quantitative and Qualitative Disclosures About Market           40
            Risk........................................................
Item 8.     Financial Statements and Supplementary Data.................    40
Item 9.     Changes in and Disagreements with Accountants on Accounting     40
            and Financial Disclosure....................................

                                      PART III
Item 10.    Directors and Executive Officers of the Registrant..........    41
Item 11.    Executive Compensation......................................    41
Item 12.    Security Ownership of Certain Beneficial Owners and             41
            Management..................................................
Item 13.    Certain Relationships and Related Transactions..............    41

                                      PART IV
Item 14.    Exhibits, Financial Statement Schedules, and Reports of Form    42
            8-K.........................................................
Signatures  ............................................................    43
</TABLE>

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Except for historical information, the statements contained in this Annual
Report on Form 10-K are forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. The Private Securities Litigation Reform Act of 1995 (the "Reform Act")
contains certain safe harbors regarding forward-looking statements. Certain of
the forward-looking statements include management's expectations, intentions and
beliefs with respect to our growth, our operating results, the nature of the
industry in which we are engaged, our business strategies and plans for future
operations, our needs for capital expenditures, capital resources and liquidity,
and similar expressions concerning matters that are not historical facts. Such
forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ materially from those expressed in the
statements. All forward-looking statements included in this document are based
on information available to us on the date hereof, and we assume no obligation
to update any such forward-looking statements. These cautionary statements are
being made pursuant to the provisions of the Reform Act with the intention of
obtaining the benefits of the safe harbor provisions of the Reform Act. Among
the factors that could cause actual results to differ materially are the factors
discussed below under the heading "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operation -- Factors Affecting Our
Operating Results and Our Common Stock."

In this report, "AsiaInfo," the "Company," "we," "us," and "our" refer to
AsiaInfo Holdings, Inc. and its subsidiaries.

                                     PART I

ITEM 1.  BUSINESS

OVERVIEW

We are a leading China-based company providing world class software products and
network solutions. Our software products and network solutions enable our
customers to build, maintain, operate and continuously improve their Internet
and communications infrastructure.

Our key customers are leading telecommunications service providers and Internet
service providers in China. Our major customers include China Telecommunications
Corporation (China Telecom) and China Mobile Communications Corporation (China
Mobile), each of which controls approximately thirty provincial subsidiaries
operating local telecommunications networks throughout China. Our other major
customers include China United Telecommunications Corporation (China Unicom) and
China Netcom Corporation (China Netcom).

We provide network solutions for large Internet and telecommunications projects.
We deliver Internet infrastructure solutions such as backbone and access
networks, operations support solutions using our proprietary and third party
software, service applications such as Internet protocol telephony, commonly
known as IP telephony, virtual private networks, and network performance and
security solutions. We designed and built ChinaNET, China's first commercial and
largest national Internet "backbone", meaning the physical network of cables and
computers that carries Internet traffic. We are in the process of designing and
building UniNET, China's second national commercial Internet backbone, for China
Unicom, CNCNET, China's third national commercial Internet backbone, for China
Netcom, and CMCCNET, China Mobile's commercial Internet backbone. We have also
built numerous provincial Internet backbones, including GuangdongNET, the first
and largest provincial commercial Internet backbone in China.

We develop and sell carrier-class, meaning high performance, highly fault
tolerant, software products tailored for the specific needs of the China market.
These products include real time, highly scalable Internet customer management
and billing software and carrier-scale messaging software for telecommunications
and Internet service providers, Internet content providers and wireless
telephony service providers. Our software can support millions of users and is
designed with open architecture to facilitate customization. We have
historically sold our software products as part of our network solutions
projects, but are increasingly marketing these products separately from our
network solutions projects.

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RECENT DEVELOPMENTS

NEW OPERATIONAL STRUCTURE.  In January 2001, we announced the reorganization of
our operational structure into two strategic business units (SBUs): Software
Products and Network Solutions. The purpose of this reorganization is to
optimize the allocation of resources between these two growing business lines.
It also underscores how significant our software business has become in a
relatively short period of time, and the growing opportunities to sell our
software products separately from our network solutions projects. We anticipate
that the new structure will allow us to further leverage our existing
competencies while developing new areas of growth.

ESTABLISHMENT OF NETWORK SECURITY COMPANY -- MARSEC.  In August of 2000, we
committed $2 million to fund the start-up of MarSec Holdings, Inc. ("MarSec"), a
network security company. We hold a 75% ownership stake in MarSec, while the
remaining 25% of the company is owned by MarSec's founders and employees. We
anticipate that this new venture will enable us to expand our high-end network
solutions to provide security services to leading telecommunications carriers
and Internet service providers in China. MarSec has entered into contracts to
provide Sichuan Telecom and Xizang Telecom, each a provincial subsidiary of
China Telecom, with network security services. Valued at approximately $175,000
in the aggregate, these two contracts highlight MarSec's initial success since
its inception.

GUANGDONG WANGYING JOINT VENTURE.  Guangdong Wangying Information Technology
Ltd. (Guangdong Wangying) is a joint venture company providing systems
integration services and software products to Guangdong Telecom and other
customers in Guangdong province. We have contributed $145,000 for 40% of the
equity value of Guangdong Wangying and exercise sufficient control over the
joint venture to consolidate its financial results with ours. The other two
joint venture partners are Guangdong Wangxing Communication Technology Ltd,
which owns 30% of the company, and Guangdong Data Communication Network Ltd,
which owns 30%.

MERGER OF ASIAINFO TECHNOLOGIES AND ASIAINFO ZHEJIANG.  In January 2001, we
merged one of our wholly-owned subsidiaries, Zhejiang AsiaInfo Telecommunication
Technology Co. Ltd. (AsiaInfo Zhejiang), with our principal operating
subsidiary, AsiaInfo Technologies (China) Inc. (AsiaInfo Technologies). AsiaInfo
Zhejiang, which we originally acquired in April 1999, was one of the first
entrants into the market for wireless customer management and billing software
in China. The purpose of the merger is to achieve further economies of scale in
the operations of the two subsidiaries.

APPLICATION INFRASTRUCTURE PROVIDER MODEL.  In 2000, we invested $1.5 million to
develop an Application Infrastructure Provider (AIP) division, which will offer
application infrastructure services to Internet content providers, application
service providers and software vendors. Our AIP division rolled out its first
product offering, the i-jumper service, in November 2000.

INDUSTRY BACKGROUND

The telecommunications industry and the Internet in China have experienced rapid
growth over the past several years. In February 1999, the State Council of China
approved a plan to separate the telecommunications operations conducted by China
Telecom and its related entities along four business lines: fixed line
communications, wireless communications, satellite communications services and
paging. As a result of the restructuring, China Telecom currently operates only
fixed line networks and provides only fixed line telephony and data
communications services. China Mobile was established to operate the wireless
telephony business. The satellite communications business has been spun off into
a new state owned company, China Satellite Communications Corporation, and the
paging business has become part of China Unicom.

Today, all major sectors of the communications industry, including fixed line
services, wireless telephony services and Internet services, contain multiple
service providers. We expect service providers to invest in technology and
infrastructure and offer varying, customer-tailored services plans and focus on
customer

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care and support to remain competitive as new players continue to enter the
market. The following is a list of the major service providers in different
industry sub-sectors:

<TABLE>
<CAPTION>
INDUSTRY SUB-SECTOR                                    MAJOR SERVICE PROVIDERS
-------------------                                    -----------------------
<S>                                   <C>
Fixed-line telephony................  China Telecom and China Unicom
Wireless telephony..................  China Mobile and China Unicom
IP telephony........................  China Telecom, China Unicom, Jitong Communications, China
                                      Netcom and China Mobile
Data communications and Internet....  China Telecom, China Unicom, Jitong Communications, China
                                      Netcom and China Mobile
</TABLE>

Sources: Internet Data Corporation (IDC) and AsiaInfo.

The Internet market in China has been growing rapidly due to increased access to
telecommunications services and declining personal computer prices. Internet
Data Corporation (IDC) estimates that Internet users in China will reach 15.6
million by the end of 2001 and 25.1 million in 2002, representing a compound
annual growth rate of 77.3% from 1999. The strong Internet growth in China is
expected to continue due to several factors. Relatively low personal computer
penetration rates in China, estimated at 2.3% for the year 2000, offer
significant growth potential for the Internet market. Declining personal
computer prices and the increased availability of lower cost Internet access
alternatives, such as WebTV, should further broaden Internet access. We expect
online usage charges to fall in China, which will increase Internet penetration
and usage.

                            INTERNET USERS IN CHINA

[Chart with the following data: 1999: 4.5 million, 2000: 9.0 million, 2001: 15.6
million, 2002: 25.1 million, 2003: 36.8 million, 2004: 51.2 million]

Source: IDC, June 2000.

While the above data from IDC suggest that Internet usage in China will grow at
a rapid pace, other sources of information suggest even stronger growth. China
Internet Network Information Center (CNNIC), a Chinese government sponsored
information agency, estimates that there were 8.9 million Internet users in
China in 1999 and 22.5 million in 2000. Furthermore, CNNIC estimates that there
were 3.5 million computers with Internet access in China in 1999, and 8.9
million in 2000.

The strong growth in the Internet market has led to heavy investments in data
services infrastructure. We expect that an increasingly large component of total
investment in the telecommunications industry will be Internet related.
Furthermore, we believe that future investments in data services infrastructure
will focus on broadband networks to accommodate multimedia and other potential
high-bandwidth applications,

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such as increasing commercial use of the Internet, the development of corporate
intranets, and the use of cable television networks to provide
telecommunications and Internet services. In addition, the wider application of
the Internet for commercial and consumer purposes has led to the global
emergence of convergent communications, which combine voice, data, video and
Internet services. Currently, the main convergent communications applications
include IP telephony and wireless data and Internet services. China Telecom,
China Unicom, Jitong Communications and China Netcom have all completed their
trial IP telephony programs and have begun to offer commercial services. China
Mobile began trial wireless data and Internet services in March 2000.

Since 1986, China has been engaged in negotiations with its major trading
partners in order to gain entry into the World Trade Organization, or WTO. China
entered into an agreement with the United States in November 1999, and a similar
agreement with the European Union in May 2000, regarding the terms of China's
eventual entry into the WTO. Pursuant to these bilateral agreements, China has
agreed, among other things, to allow up to approximately 50% foreign equity
participation in commercial enterprises in the telecommunications industry
within two years of accession to the WTO. China has also agreed that foreign
participation in Internet services will be allowed to increase at the same rate
as other key telecommunication services. China's eventual entry into the WTO
will depend on an affirmative vote of a majority of WTO members, which is
expected to be granted some time in 2001. If China's effort in gaining entry
into the WTO is successful, it is likely to introduce competition from foreign
Internet and telecommunications services providers. We believe that increased
competition will force service providers to accelerate their investments in
infrastructure and customer care in order to differentiate themselves and remain
competitive.

MARKET OPPORTUNITIES

We believe the important trends in the Internet and the telecommunications
industry in China, as described above, present major opportunities for us in the
following areas:

HIGH VALUE INTERNET-RELATED PROFESSIONAL SERVICES IN AN INCREASINGLY COMPLEX
NETWORK ENVIRONMENT.  The deployment of Internet infrastructure in a complex,
multi-vendor environment requires significant expertise that usually is not
internally available to Chinese Internet and telecommunications services
providers. As a result, they increasingly rely on experienced information
technology, or IT, services companies to provide total solutions to their
Internet infrastructure requirements. We believe that as the Internet market
develops, our customers will increasingly require high value IT services such as
network design, network planning and project management, and new high-end
solutions such as virtual private networks, operation support systems and
wireless solutions.

REAL TIME, SCALABLE CUSTOMER MANAGEMENT AND BILLING SOFTWARE THAT MEETS SPECIFIC
REQUIREMENTS OF CHINESE SERVICE PROVIDERS.  Increased competition has required
telecommunications and Internet service providers continually to introduce new
services and programs in order to meet the varying needs of their customers and
differentiate their services. Moreover, they have had to focus on customer
management and support in order to study customer behavior and enhance customer
satisfaction. Providers of Internet services further require the capability to
scale services to millions of users in order to facilitate the rapid growth of
their subscriber base. Finally, Internet service providers and
telecommunications carriers must be able to monitor customer activity and bill
customer usage on a real time basis. These mission-critical needs of Internet
service providers and telecommunications carriers cannot be met by traditional
customer management and billing solutions that are inflexible, capable only of
period processing and difficult to scale. We believe service providers in China
will increasingly require a real-time and scalable customer management and,
billing solution that is easily adaptable to a vast number of new products and
services, and addresses the specific requirements of the China market.

BROADBAND NETWORK AND CONVERGENT COMMUNICATIONS SOLUTIONS AND SOFTWARE.  Rapid
growth of Internet and multimedia applications has created increasing demand
from service providers for advanced, high-bandwidth voice, data and video
network capacity. As a result, service providers are expected to

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accelerate significantly their investment in broadband solutions for their
backbone and access networks. Carriers with strong narrow-band strength are now
aggressively updating to broad-band networks with new telecommunication and
Internet service providers. This trend is providing us with opportunities to
showcase our network consulting services, billing software and application
software. In addition, the emergence of convergent communications has created an
increasing demand for convergent software and solutions. Service providers of
convergent communications services, such as IP telephony and wireless data
services, require customer management and billing software that is capable of
accounting and billing customers' voice, data and Internet usage using common
architecture. In addition, they need software products that enable them to
provide convergent communications applications such as unified messaging
products integrating email, voicemail, fax and messaging functions.

EMERGING WIRELESS DATA MARKET.  With interest in the wireless data market
growing, China Mobile is now building its Internet and wireless data network to
accommodate convergent network businesses, including General Packet Radio
Service, or GPRS. We are currently designing and building China Mobile's
Internet backbone, CMCCNET, and will provide the billing and email software.
Like China Telecom, China Mobile has numerous provincial subsidiaries, which
operate local telecommunications networks. We anticipate that the development of
CMCCNET will lead these provincial subsidiaries to build out their local
networks in order to connect more users to CMCCNET. When provincial subsidiaries
of China Telecom built out their local networks, we were the logical choice to
provide them with network solutions and Internet-related software, since we had
designed and built China Telecom's Internet backbone, ChinaNET. We expect to be
similarly well situated to provide provincial entities of China Mobile with
software and services in connection with their Internet build outs. In addition
to the build out of China Mobile's provincial Internet and GPRS networks, China
Unicom has indicated that it intends to develop a wireless network capability
based on the Code Division Multiple Access, or CDMA, standard.

SOFTWARE AND SOLUTIONS FOR THE CABLE INTERNET MARKET.  Although the cable market
in China is currently fragmented and decentralized, the Chinese government has
expressed its intention to establish a national cable network company that will
consolidate cable networks across China. In the meantime, cable television
operators in China have begun to offer Internet services by leveraging their
existing cable networks. We have already signed a contract with Sichuan
Broadcasting and Television Network Ltd. to provide them with our Internet
billing software, and anticipate further growth in software sales to this
market. In addition, we anticipate that the consolidation of the cable networks
in China will provide opportunities for us in the network solutions area.

OUR STRATEGY

Our strategy is to be the leading China-based company providing world class
software products and network solutions, and to continue to enable our customers
to build, maintain, operate and continuously improve their Internet and
communications infrastructure. The key aspects of this strategy include the
following:

CONTINUE GROWING OUR SOFTWARE BUSINESS IN ORDER TO MAXIMIZE OPPORTUNITIES IN THE
INTERNET SOFTWARE MARKET. We continue to execute on our strategy of growing our
relatively high-margin software business. During the fourth quarter of 2000, our
software business comprised 38% of our revenues net of hardware costs, as our
software products continued to be favored by both existing and new customers. As
further evidence of the emphasis we are placing on our growing software
business, we recently completed the reorganization of our network solutions and
software divisions into separate, strategic business units, or SBUs, allowing
each unit to focus on its core competencies and identify new customer needs,
while maintaining the synergies between these businesses. We anticipate that the
growth of our software business will lead to opportunities to sell these
products in various markets outside of China.

MAINTAIN OUR LEADING POSITION IN PROVIDING INTERNET INFRASTRUCTURE SOLUTIONS IN
CHINA.  We are a leading provider of network solutions to the largest Internet
and telecommunications companies in China. Based on forecasted growth as
reported by IDC, as well as communications with our customers and government
agencies, we expect investment in China's telecommunications industry to
continue to grow rapidly,

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particularly in data services infrastructure and related areas. We expect most
of this investment to be made through our customers, which are the largest
Internet and telecommunications service providers in China. We believe that our
close relationships with our customers, our unique understanding of the China
market, our technical capabilities and our proven track record will allow us to
capitalize on these growth opportunities.

FOCUS ON HIGH VALUE INFORMATION TECHNOLOGY PROFESSIONAL SERVICES.  Currently, we
offer our information technology professional services in the context of total
solutions, which include systems integration and customization of our
proprietary and third party software. We minimize our exposure to hardware risks
by placing orders from hardware vendors only against back-to-back orders from
customers and having the equipment delivered by the vendor directly to the
customers' premises. As the IT market matures in China, we are focusing on
providing our customers with high value IT professional services, such as
network planning, design and optimization, while gradually outsourcing lower end
services, such as hardware installation, and encouraging customers to purchase
hardware directly from equipment vendors. For example, in designing and building
UniNet on behalf of China Unicom, we have performed system design, system
architecture, project management and technology training, while outsourcing
hardware delivery and installation.

LEVERAGE OUR HIGH QUALITY CUSTOMER BASE TO GENERATE RECURRING REVENUES.  We have
a high quality group of network solutions customers and, through our customers'
end users, one of the largest installed software customer bases (as measured by
the number of licensed end users) for leading telecommunications service
providers and Internet content and service providers in China. Our customers
include China Telecom, China Mobile, China Unicom and China Netcom, which
together have accounted for a majority of the investment in Internet
infrastructure in China. Our high quality customer base enables us to foster
close relationships with our customers and develop an in-depth understanding of
their specific needs. Furthermore, our customers may face significant costs and
technological risks by switching from our services and products to others. We
intend to generate recurring revenues from our existing customer base through
upgrades of their networks and implementation of new services and products,
including outsourced applications.

ATTRACT AND RETAIN HIGHLY QUALIFIED PERSONNEL.  We intend to continue our
aggressive recruiting strategy to attract and retain the best and most qualified
personnel in the IT industry. In view of the specific needs of the China market,
we target our recruitment effort on Chinese who have information technology and
professional competence and extensive exposure to western education and
management practices. We believe that we have been able to attract and retain
qualified personnel by offering them the following key benefits:

      --   attractive compensation packages, including stock options;

      --   a challenging and rewarding work environment in which our employees
           have opportunities to enhance their technical knowledge; and

      --   the opportunity to work for a company with an attractive image in
           China, which has been greatly enhanced by our listing on the Nasdaq
           National Market in March, 2000.

Our current senior management consists of Chinese, all of whom were either
educated at western universities or worked for leading international IT
companies. We continue to recruit senior officers from the Silicon Valley to
spearhead our software product development.

OUR COMPETITIVE STRENGTHS

We believe that we are well positioned to continue meeting our customers'
Internet infrastructure and software applications needs in China. The key
factors that contribute to our strong competitive position are:

INTERNET TECHNOLOGY LEADERSHIP IN CHINA.  Our engineering personnel have
state-of-the-art expertise in Internet-based information technologies in China.
This expertise enables us to design and implement

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Internet technology that employs high quality design and validated hardware and
software components, and to deliver solutions with high performance-to-cost
ratios for our customers.

COMBINED INTERNATIONAL AND CHINA EXPERTISE.  Our senior management is a Chinese
team, a majority of whom have been educated in the United States or have worked
with leading multinational companies in or outside of China. They have an
in-depth understanding of the China market, combined with a knowledge of best
management practices gained from some of the world's leading information
technology companies. We have well defined performance evaluation and reward
systems and a strong emphasis on sound, accountable corporate governance. We
believe that the unique strengths of our management team make us one of the best
managed China-based IT companies and make us well positioned to anticipate and
capitalize on market opportunities for our business in China.

REAL TIME, SCALABLE AND ADAPTABLE PROPRIETARY SOFTWARE.  Our proprietary
software allows service providers to monitor user activity and analyze service
usage data in real time. The real time feature enables service providers to
increase billing accuracy, accelerate the time-to-market for new services and
improve the effectiveness of marketing and targeting efforts. In July 2000, we
conducted a benchmark test on Sun Microsystem's platforms using Oracle's
databases with our customer management and billing software, AIOBS 5.6. This
benchmark test, conducted at Sun's Asia Pacific Benchmark Center in Tokyo,
demonstrated the superb scalability of this software. This scalability allows
Internet service providers to develop their Internet infrastructures
incrementally as their level of business grows, without the need for
architecture re-engineering or large-scale system replacements. We are modifying
our software products such that they are designed with fully documented, open
architecture that allows our customers, as well as third party systems
integrators and software developers, to integrate our software with existing
applications and services with minimal effort and programming overhead.

ESTABLISHED CUSTOMER RELATIONSHIPS.  We have close relationships with all
leading telecommunications and Internet service providers in China and have
provided our services and products to most of them. Our in-depth understanding
of their requirements allows us successfully to deliver customized solutions and
maximize the opportunities created by increased investments in
telecommunications and Internet infrastructure in China. Moreover, we have a
strong research and development team based in China which allows us to respond
quickly and inexpensively to the needs of our customers in China.

STRATEGIC BUSINESS UNITS PROVIDING A TOTAL SOLUTIONS APPROACH.  We recently
reorganized our operational structure into two strategic business units:
Software Products and Network Solutions. We expect this reorganization to allow
us to optimize the allocation of resources between these two business lines and
further leverage our existing competencies while developing new areas of growth.
The reorganization also underscores the growing significance of our software
business and the increasing opportunities to sell our software products
separately from our network solutions projects. At the same time, however, we
continue to provide our services in the context of total solutions, including
systems integration and software customization, to customers who prefer this
approach. This total solutions approach is favored by many Chinese customers and
allows us to build and maintain close, long term relationships with those
customers.

PRODUCTS AND SERVICES

  OVERVIEW

We offer network solutions to the leading Internet and telecommunications
service providers in China to meet their network infrastructure requirements. In
addition, we develop proprietary software products to support the operations of
Internet service providers and other telecommunication service providers.

We offer total network solutions to our customers by leveraging our core
strengths in information technology services and maintaining close relationships
with multiple hardware and third party software vendors. Substantially all of
our network solutions business is accounted for by the various entities of China
Telecom and China Mobile, as well as China Unicom, China Netcom and Jitong
Communications.

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Our longstanding relationships with these customers and our understanding of
their specific requirements make us well positioned to respond to their requests
for proposals.

Our software products were historically marketed as a part of our network
solutions projects. However, the rapid growth of the Internet in China has led
to a sharp increase in demand for sophisticated Internet applications and
scalable software to support our customers' operations. As a result, we are
increasingly selling our software licenses separately from our network solutions
projects. We currently offer four main software products to our customers:

 --   AsiaInfo Online Billing System (AIOBS) -- a customer management and
      billing product for Internet service providers and IP Telephony service
      providers;

 --   AsiaInfo Billing and Customer Care System (AIBCCS) -- a customer
      management and billing product for providers of wireless telephony
      services;

 --   AsiaInfo Mail Center (AIMC) -- a carrier-scale messaging product; and

 --   AISerBase -- a high-end network management product.

We believe that our growing software business is a logical extension of our
network solutions business. Our network solutions projects give us an intricate
understanding of our customers' Internet infrastructure requirements and allow
us to understand the software requirements that are needed to support those
infrastructures.

  NETWORK SOLUTIONS

Our highly-skilled network systems engineers and project managers are engaged in
providing total network solutions to our customers in China to meet their
Internet infrastructure requirements. Each project is staffed with a dedicated
team of project management professionals who work closely with our network
systems engineers. The engineers design and build each project, while the
project management professionals oversee budgetary matters, coordinate the work
force, ensure adequacy of resources and monitor progress and quality to ensure
the timely completion of each project. We expect that our existing capabilities
will enable us to rapidly design and implement broadband network infrastructure,
e-commerce solutions and high-end solutions such as virtual private networks,
operation support systems and wireless solutions, as demand for these services
increases in China.

Through a combination of one or more of the activities listed below, we offer
our customers turn-key network solutions:

INTERNET INFRASTRUCTURE SOLUTIONS.  This core area of our current business
includes network access and backbone infrastructure design and implementation
for telecommunications service providers and Internet service providers. Our
Internet infrastructure solutions support a wide array of broadband network
technologies. We have designed and built the first commercial and the largest
national Internet backbone, and the largest provincial commercial Internet
backbone, and are in the process of building the next three largest national
commercial Internet backbones in China.

OPERATIONS SUPPORT SOLUTIONS.  Operations support solutions allow our customers
to manage their network infrastructure utilizing our proprietary and third-party
software tools and applications. We design and implement network management
centers for our clients and install proprietary and third party software
products and customized software applications that allow our clients to perform
activities such as customer management and billing, services offerings and
promotions, provisioning and monitoring network utilization and customer service
levels.

SERVICE APPLICATIONS.  We design and provide applications for Internet access,
IP telephony and virtual private networks that allow our clients to provide
commercial services to their customers. We also provide high volume messaging
services and web-based as well as other Internet applications.

NETWORK PERFORMANCE AND SECURITY SOLUTIONS.  We conduct network performance
audits and tuning services to improve overall network performance. This involves
recommending more efficient bandwidth allocation,
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reducing network latency and response time for applications, and developing
software tools for security improvements.

All our network solutions projects involve one or more of the following
activities:

NETWORK PLANNING.  We provide our customers with strategic and tactical reviews
of their current network operations and future network requirements. We do much
of this work before the customer awards the contract in order to assist them in
developing an appropriate request for proposal and to improve our chances in
winning the contract. The planning includes defining client business
requirements, developing appropriate information architectures and selecting
preferred technology.

NETWORK DESIGN.  We detail the network specifications and implementation tactics
necessary to achieve our customers' objectives. We also consider how the new
technology will integrate with the customer's existing hardware and software and
how it will be managed on an ongoing basis. Examples of services include
defining functional requirements for the network and its components, development
of multi-vendor integration plans and design of customer-specific network and
services applications.

NETWORK IMPLEMENTATION.  We install the recommended systems to meet our
customers' network requirements. Key activities include project management,
hardware and software procurement, configuration and field installation and
testing, building network management centers and development of customized
network and services management applications. We believe that our expertise in
integrating new systems without disrupting ongoing business operations of our
customers adds significant value and reduces risks.

NETWORK OPTIMIZATION.  We maximize the efficiency of communications networks by
improving network utilization. Examples of our services include network traffic
analysis and identification of bottlenecks, recommendations for efficient
allocation of bandwidth, fault detection and isolation, performance testing and
tuning, and security auditing and improvement.

MAINTENANCE AND SUPPORT SERVICES.  We provide maintenance and technical support
in connection with all of our network infrastructure and systems integration
projects, content and network access provider platforms, and our proprietary
software products. These services currently include assistance with the
implementation of new information technology functions and/or features,
configuration and programming services for new business processes, warranty
repairs, and assistance in the case of technology upgrading. We believe that our
policy of on-going maintenance and technical support will help foster long-term
relationships with our customers and create significant business opportunities.

TRAINING.  We provide technical training for our customers and strategic
partners to increase their awareness and knowledge of Internet technologies in
the Chinese information technology market and to support the operations of our
customers' integrated network systems. Our training courses address issues
relating to daily operations of network systems. Specific topics include daily
network management tasks, advanced network troubleshooting, introductory network
framework reviews, and advanced planning and design.

  SOFTWARE PRODUCTS

We develop, market and support customer management and billing software that
meets the complex, mission-critical provisioning, accounting, reporting and
marketing needs of Internet and telecommunications service providers. In
addition, we sell carrier-scale messaging products to telecommunications and
Internet service providers, as well as Internet content providers in China.
Recently, we introduced a service-oriented network management product, which
manages all aspects of a network environment.

ASIAINFO ONLINE BILLING SYSTEM (AIOBS).  The latest version of our Internet
customer management and billing software, AIOBS 6.0, was released in November
2000. AIOBS 6.0 is a real time, scalable solution that enables Internet service
providers to address the critical business needs of customer management,
services support, and accurate and timely billing. First launched in 1996, the
third generation software

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product today offers tremendous improvements in architecture, functionality and
capacity. AIOBS 6.0 enables Internet service providers to:

 --   manage, authenticate and register users, create user accounts, check
      account status and activate services;

 --   monitor and analyze user activity, "map" individual user consumer behavior
      and perform audit trials on user accounts;

 --   price and rate a broad array of services, discount services and promotions
      using multiple bases and resources, such as time of usage, bytes
      transferred, size of server storage and number of page views; and

 --   perform billing operations based on flexible billing cycles and manage
      user accounts receivable.

AIOBS 6.0 also allows service representatives and customers to access selected
user data to create, search and modify user accounts, change certain personal
information and perform other customer self-care functions using a browser-based
interface.

In addition, AIOBS 6.0 provides many features tailored to the China market,
including:

 --   caller ID usage-based and restricted line services which allow telephone
      customers to log on to the Internet without first registering with the
      Internet service providers, with usage-based fees charged to their regular
      monthly telephone bills, and to log on only from certain, specified phone
      numbers;

 --   a roaming service which allows registered customers from different
      Internet service providers to log on to the Internet from each other's
      territories, an important feature since most Chinese Internet service
      providers operate and recruit users locally; and

 --   a restricted credit (pre-paid card) service which allows customers to use
      the Internet with monthly monetary or usage-based limits, with real time
      cut-off the instant the credit limit is reached.

Our IP telephony customer management and billing software, introduced in June
1999, is an integrated part of the AIOBS multi-service customer management and
billing platform, catering to the specific needs of IP telephony service
providers. Its key features include multi-vendor gateway support, real-time
billing and service provisioning, flexible tariff plans and the ability to
bundle with other enhanced Internet services. IP telephony service trial
projects conducted by China Telecom, China Unicom and Jitong Communications
during 2000 were very successful. We expect the IP telephony market in China to
develop rapidly and capture an increasingly large portion of long-distance voice
traffic. We believe the fast growing IP telephony market in China offers us
growth opportunities because our software can provide IP telephony operators
with features not present in traditional, batch-oriented customer management and
billing software currently used by IP telephony service providers in China. In
addition, our product enables IP telephony operators to deliver new value-added
services faster and more efficiently.

We created new modules in AIOBS 6.0 to serve the billing requirements of
emerging telecommunications and Internet service providers in China, including
an Internet data center billing module, a cable Internet billing module and a
wireless Internet billing module. The convergence feature of AIOBS 6.0 enables
service providers to offer one-stop-shopping services and permits flexibility
for our customers' various billing schemes.

ASIAINFO MAIL CENTER (AIMC).  Our flagship online messaging software, AIMC, is
carrier scale messaging software designed to support electronic mail systems
from small Internet service providers to large-scale mail hosting providers with
millions of mailboxes and thousands of domains. Its flexible design allows
service providers to offer web-based free e-mail, basic e-mail service and
premium business secure e-mail to end-users. The ability to scale both
horizontally and vertically allows rapid expansion when more capacity is needed.
The system is built to accommodate clustering technology and is highly fault
tolerant. In addition to major telecommunications and Internet service
providers, top Internet content providers such as chinadotcom and 21cn.com are
also among the key customers for AIMC.

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We have released two versions of our messaging software in 2000: AIMC 2.7 and
AIMC 2.9. New enhancements to AIMC 2.9 include secure email access and
transmission, personal digital assistant (PDA) email, and a built-in anti-virus
module. As email has become more common to Chinese businesses, dependable
security and anti-virus functions are critical. Furthermore, the fast growing
PDA market has introduced a new group of email users, for whom the PDA module of
AIMC was developed.

ASIAINFO BILLING AND CUSTOMER CARE SYSTEM (AIBCCS).  Our wireless and
long-distance telephony customer management and billing software, AIBCCS, offers
real time, scalable solutions for customer management and billing operations of
wireless and long-distance telephony service providers, including:

 --   customer management, together with customer service, hierarchies and rapid
      report management;

 --   call center support, including usage processing;

 --   fraud detection and management;

 --   billing and revenue management features, including accounts receivable and
      collection; and

 --   inter-carrier settlement.

With AIBCCS, we pioneered fraud management software market in China, which has
seen increasing customer demand. We believe AIBCCS is also the only customer
management and billing software used by Chinese operators that supports wireless
services based on the Code Division Multiple Access, or CDMA, standard in
addition to GSM, the prevailing wireless standard in China. As China Unicom has
expressed its intention to roll out a nation-wide wireless network using CDMA
technology, we are well positioned to provide customer management and billing
solution for this growing market.

AISERBASE.  We recently announced the release of our new service-oriented
network management software product: AISerBase. Driven by an increasing demand
for sophisticated network management software, AISerBase offers high-end network
management features. Aiming to provide multiple services, network operators have
shifted network management emphasis from simple hardware management to service-
oriented value-added functions. AISerBase manages all aspects of a network
environment, including hardware, applications, services and customers at four
different layers: equipment, application, service and business.

Several unique characteristics of AISerBase differentiate it from other network
management software products. For large-scale networks, AISerBase groups and
manages systems by service category such as leased line services, dial-up
services and Web services. This structure enables operators to streamline
management processes and prioritize management tasks in an organized fashion.
More importantly, the service-oriented management structure offers flexibility
to operators to provide multiple services in a convergent environment.
Furthermore, while traditional network management software products only deal
with static network elements such as hardware, AISerBase also manages dynamic
factors such as usage patterns.

Benefiting from AISerBase, network operators, particularly telecommunications
carriers and Internet data centers, will be able to improve their service
offerings and quality in a number of ways. First, being highly automated,
AISerBase can significantly increase cost efficiency of network management
activities. The multi-vendor support feature also minimizes management expenses.
Second, by monitoring and assessing network traffic in real time, AISerBase
collects and analyzes statistical data on system by service category, which can
be used to manage service level agreements (SLAs) and make sound investment
decisions for network expansion. Third, AISerBase facilities many
customer-oriented value-added services such as customer self-evaluation on
service usage.

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RECENT NETWORK SOLUTIONS AND SOFTWARE CONTRACTS

In 2000 and early 2001, we have continued to execute on our strategy of becoming
the leading China-based company providing software products and network
solutions by winning a number of key contracts. Those contracts include the
following:

 --   In February 2001, we announced a contract to provide Hebei Telecom, a
      provincial subsidiary of China Telecom, with software products and
      services to further enhance the capacity of its Internet infrastructure.
      The contract is valued at $5.4 million in total. The expected revenues
      from this contract, net of hardware costs, account for over 74% of the
      entire contract value. In addition to our carrier-scale messaging software
      (AIMC) and customer management and billing software (AIOBS), we will also
      provide Hebei Telecom with our newest software product, AISerBase.

 --   In February 2001, we announced a contract to provide Shanghai Online with
      a full array of high-end network services, including network security
      services, software professional services and system integration services.
      The contract is valued at $1.4 million in total, 100% of which is for
      services. A subsidiary of China Telecom, Shanghai Online is one of the
      premier Internet service providers in Shanghai, the most developed
      metropolitan area in China with a population of approximately 13 million.
      MarSec has been chosen to provide network security services, including
      security assessment, security system design and implementation, trouble
      shooting and security support services.

 --   In January 2001, we announced a contract with Shandong Telecom, a
      provincial subsidiary of China Telecom, to provide software products and
      services to further enhance the capacity of its Internet infrastructure.
      The contract is valued at 4.7 million, more than 75% of which is for
      software and services. This is the third expansion project to be conducted
      by Shandong Telecom during the last twelve months, reflecting China
      Telecom's drive to expand user capacity at the provincial and local
      levels.

 --   In December 2000, we announced a contract to provide Jiangsu Telecom, a
      provincial subsidiary of China Telecom, with Internet messaging products
      and services for its Phase III Internet infrastructure expansion project.
      The contract is valued at $5.2 million in total, with software and
      services accounting for 30% of the contract value. Under a similar
      contract, we will provide Xizang (Tibet) Telecom with billing and
      messaging software and services for its Phase I Internet infrastructure
      project.

 --   In December 2000, we announced a contract to provide Jilin Mobile, a
      provincial subsidiary of China Mobile, with messaging products and
      services for its local Internet infrastructure project. The contract
      marked our continued success in the China wireless Internet market. Under
      the terms of the contract, our leading messaging software was selected,
      along with several compatible network management software tools. The
      initial phase of the contract is valued at approximately $800,000 in
      total, covering software and services only.

 --   In November 2000, we announced a contract with China International
      Electronic Commerce Center (CIECC), a commercial subsidiary of Ministry of
      Foreign Trade & Economic Cooperation (MOFTEC), to provide integration
      services and billing software to its national backbone project -- China
      International Electronic Trade Network (CIETNet). The first phase of the
      project is valued at approximately $840,000 over 50% of which is
      attributable to software license fees.

 --   In November 2000, we announced a contract to provide Liaoning Telecom, a
      provincial subsidiary of China Telecom, with messaging products and
      services for its Phase IV Internet infrastructure expansion project. The
      contract is valued at $1.6 million in total, of which more than 74% is for
      software and services.

 --   In October 2000, we announced a contract to provide Sichuan Broadcasting
      and Television Network Ltd., a provincial cable Internet operator, with
      our billing and messaging software products. This contract marked our
      breakthrough entrance into China's cable Internet market.

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 --   In October 2000, we announced a partnership with JiTong Communications, an
      emerging telecommunications services provider, by winning a contract to
      provide system integration services for its IP infrastructure Phase II
      expansion project.

 --   In October 2000, we announced a $14.9 million contract with Beijing
      Telecom, a provincial subsidiary of China Telecom, to further enhance the
      capacity of its provincial Internet infrastructure. Net revenues after
      hardware costs from this contract are expected to account for 47% of the
      total contract value.

 --   In September 2000, we announced that we will provide China Netcom with
      Internet data center billing functionality through our AIOBS software
      platform. The software will allow China Netcom to support thousands of
      Internet data center users at a number of locations, as well as the
      flexibility to implement a differentiating pricing scheme, a service
      feature that has become critical in order for Internet data centers to
      remain competitive.

 --   In September 2000, we announced a $16 million contract to build, CMCCNET,
      a national Internet backbone for China Mobile, which will connect the
      country's 31 provincial capitals. Under the agreement, we will manage
      overall network integration and our flagship software products -- AIMC and
      AIOBS -- will be customized for the network. Sales of software and
      services under the contract are expected to account for more than 30% of
      the total contract value.

 --   In September 2000, we announced a $1.6 million contract with Tianjin
      Telecom to supply advanced billing and messaging software, while helping
      to build the third phase of its Internet backbone in Tianjin, the fourth
      largest city in China. The project is expected to improve significantly
      the service quality of this provincial network. As key components of the
      expanded infrastructure, the customer chose AIOBS and AIMC.

 --   In May 2000, we announced that China Netcom had selected AIOBS in the
      second phase expansion of China Netcom's IP telephony project. This
      project will reach 100 major cities in China, covering an estimated 8
      million pre-paid card users. AIOBS will support all of the Internet
      services provided by China Netcom, including IP telephony, fax, 800 number
      service, virtual private networks and voice-mail boxes.

 --   In April 2000, we announced a contract to build a 311-city national IP
      telephony network in China for China Unicom. The new network is expected
      to be the largest IP telephony network in the world. Once completed, it
      will be able to carry 8 billion minutes of long distance calls per year,
      providing dial-up services to consumers and businesses through wire-line
      as well as wireless connections.

 --   In March 2000, we announced a contract with China Netcom to design and
      build China's third national Internet backbone, CNCNET. CNCNET will be the
      first nationwide IP over DWDM (Dense Wavelength Division) broadband
      Internet backbone in China and is expected to support a wide range of
      Internet-based voice, image, fax and data communications services and
      value added services. In addition to the construction of the backbone, we
      will support the network's customer management and billing needs with
      AIOBS.

 --   In 2000, we won various contracts for provision of our messaging software,
      AIMC, to Internet content providers. 8848.net, China's largest e-commerce
      portal, People's Daily Online, one of China's biggest news web sites and
      Xin Hua News Agency, China's largest news and information gathering and
      distribution center have all signed on for installation of the software.

STRATEGIC ALLIANCES

In 2000, we entered into a number of strategic alliances with key players in the
information technology industry. Those alliances included the following:

 --   In September 2000, we announced the signing of a memorandum of
      understanding with Ericsson to collaborate in simplifying customer billing
      for mobile Internet users in China. As part of the alliance, we will
      integrate our customer management and billing software, AIOBS, with
      Ericsson's General
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      Packet Radio Services (GPRS) and Wireless Application Protocol (WAP)
      gateways. The GPRS system will enable service operators to offer Internet
      based applications to mobile networks at a faster rate than current voice
      application networks.

 --   In June 2000, we announced a strategic alliance with Redback Networks, a
      leading provider of advanced broadband networking solutions, to speed and
      simplify the rollout of broadband services throughout China. As part of
      the alliance, Redback will integrate its Subscriber Management System
      (SMS) with our customer management and billing software, AIOBS. Together,
      these products will offer telecommunications carriers, Internet service
      providers and cable operators in China the most comprehensive solution to
      acquire and manage thousands of broadband subscribers, and speed up
      broadband providers' ability to roll out and test new services for
      consumers.

 --   In June 2000, we announced the successful integration of our IP telephony
      billing software with the network access gateway of Huawei Technologies.
      The bundling of these two products provides an end-to-end solution for IP
      telephony service providers and offers value-added IP telephony services,
      such as virtual private networks and 800 number services.

PRICING

We currently price our software products based on the number of user licenses
which our customers purchase from us. In addition to these license fees, our
customers purchase technology support services for which they pay a service fee
comprised of a fixed percentage of the total contract amount. We price our
customers for software customization on a time plus materials basis. The pricing
of our messaging software, AIMC, is based on the total number of mail boxes
purchased by our customers. However, the unit price for each mail box differs
among free web-based e-mail service, basic ISP-provided Internet
e-mail and business secure e-mail offerings.

Prices for our network solutions projects are calculated internally on an
estimated time and material basis, but are quoted to customers as a fixed fee.
Contracts for these projects are generally subject to competitive bidding
processes.

TECHNOLOGY

INTERNET AND IP TELEPHONY CUSTOMER MANAGEMENT AND BILLING SOFTWARE.  Our
Internet and IP telephony customer management and billing software is designed
to allow maximum flexibility, scalability and performance. It has
state-of-the-art, four-tier client/server architecture. This multi-tier
architecture, coupled with the other technologies, gives our software the
following advantages:

 --   FLEXIBILITY.  Because we use a data dictionary-based data model to collect
      data from databases and other resources, data definitions, such as new
      entries of demographic information, can be customized without any code
      modification.

 --   MINIMUM INTERRUPTION OF EXISTING SERVICES.  The system is built on dynamic
      component modules which can be modified separately when a new product is
      introduced and updated without system downtime.

 --   EASE OF CUSTOMIZATION.  Our software offers fully documented Application
      Programming Interfaces (APIs) that support standard scripts. As a result,
      our customers can build client applications without compilation and can
      customize and write new user interface applications with minimum training.

WIRELESS AND LONG-DISTANCE TELEPHONY CUSTOMER MANAGEMENT AND BILLING
SOFTWARE.  Our wireless and long distance telephony customer management and
billing software also utilizes state-of-the-art multi-tier architecture to
achieve flexibility, scalability and real-time performance. We are designing new
architecture to support convergent customer care and billing solutions for
combined Internet, IP telephony and traditional voice services. The technologies
we employ have given our wireless and long-distance telephony software
advantages such as well-designed applications for high performance under high
capacity subscribers and have enabled the software to ensure transaction
integrity.

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MESSAGING SOFTWARE.  Our carrier scale messaging software supports service
providers with a large number of subscribers and large volumes of messages. We
use the following technologies to achieve scalability and optimize performance:

 --   advanced software technology that allows AIMC to scale both horizontally,
      by adding more servers, and vertically, by using higher speed or multiple
      central processing units, to handle subscriber growth without compromising
      system performance and hardware investment;

 --   switching technology that distributes workloads in a manageable and
      flexible fashion and allows customers to easily add, remove or reconfigure
      running systems without downtime in a live production environment; and

 --   storage area network (SAN) technology that offers speedy, reliable and
      secure access to the data storage subsystem with ultra-high capacity
      databases.

RESEARCH AND DEVELOPMENT

We are committed to researching, designing and developing information technology
solutions and software products that will meet the future needs of our
customers. In the information technology solutions areas, we focus our research
and development efforts on operation support solutions and broadband network
access and applications solutions. We are currently developing a number of
upgrades of our existing software products to enhance scalability and
performance and provide added features and functions. In addition, we are
designing a wide array of new software products to address our customers'
growing need for convergent communications, such as unified messaging products
and convergent network management solutions.

We closely monitor world-wide technological developments in our service and
product areas. In addition, we work closely with the research and development
teams of major international technology companies. Cooperation with global
technology leaders improves our access to the most sophisticated technologies,
which enables us to provide the latest and best solutions and products to our
customers.

The chief focus of our network solutions research is on new network technology
development and the evaluation of solutions based on multi-vendor products. The
focus of the software research is on architecture study, software development
platforms, commonly used libraries and other software management tools. We plan
to expand our research and development efforts further by adding more personnel
and financial resources and by setting up research and development departments
in selected regional offices.

CUSTOMERS

Our customers currently consist primarily of Chinese telecommunication service
providers and Internet service providers, including China Telecom, China Unicom,
China Mobile, China Netcom and various other Chinese Internet service providers.
In 2000, we have continued to diversify our customer base. For the full year
2000, China Telecom accounted for 36% of our revenues net of hardware costs,
compared with 80% in 1999, while China Unicom accounted for 29%, China Netcom
accounted for 13%, China Mobile accounted for 7%, and other customers accounted
for 15%. Our customer base is changing and diversifying quickly as the overall
China telecommunications market grows due to deregulation and significant
investment from several new players. This diversification not only reduces our
dependence on a small group of large customers, but also causes us to expect
strong and consistent growth in revenues net of hardware costs on a year over
year basis.

CHINA TELECOM.  China Telecom has been our largest customer to date. As a result
of the restructuring of the telecommunications industry that began in February
1999, China Telecom operates only fixed line networks and provides fixed line
telephone and data communications services. China Telecom and its various
provincial subsidiaries accounted for almost all of our revenues in 1997 and
1998.

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CHINA UNICOM.  China Unicom was established in 1994 and is the second-largest
national public telecommunications network in China. China Unicom also provides
a wide array of services, including long distance telephone services, local
telephone services, mobile communications services, data communications
services, communications value-added services and other communications services.

CHINA MOBILE.  China Mobile was established in July 1999 to operate the mobile
telecommunications networks nationwide that had previously been operated by
China Telecom. China Mobile is the largest wireless telephony service provider
in China and, like China Telecom, has various provincial subsidiaries throughout
China, which are responsible for local networks.

CHINA NETCOM.  China Netcom, the latest state-sponsored entrant into the Chinese
telecommunications market, was formed in 1999 to build and operate a high-speed
telecommunications network initially linking fifteen large Chinese cities. The
new network, one of the world's fastest fiber-optic backbones, is to be
constructed based entirely on IP technology. It will also take advantage of
existing cable television networks, which will be linked to the system via
fiber-optic and fixed-wireless technology.

SALES AND MARKETING

  SALES

We market and sell our services and products primarily through our direct sales
force. Our direct sales professionals provide business consulting, promote
pre-sale activity and manage our relations with customers. We employ direct
sales personnel in regional offices in Beijing, Shanghai, Wuhan, Chengdu and
Guangzhou. The direct sales force is organized into individual account teams. We
use a team selling approach, whereby sales personnel work together with network
systems engineers and technical managers in analyzing potential projects and
marketing our expertise to potential clients. We have recently established our
Corporate Sales Division, which focus on sales initiatives to key accounts such
as China Telecom, China Mobile, China Netcom and China Unicom.

We identify and target market segments and select target sales opportunities on
a national level, and we also conduct sales opportunity studies to ensure that
adequate regional sales resources are available. Sales quotas are assigned to
all sales personnel according to annual sales plans. We classify market segments
and target opportunities on national and regional levels. This classification
helps us determine our primary sales targets and prepare monthly and quarterly
sales forecasts. We approve target projects, develop detailed sales promotion
strategies and prepare reports on order forecast, technical evaluation, sales
budgeting expense, schedules and competition analysis. After the report has been
approved, a sales team is appointed consisting of sales personnel, system design
engineers and a senior system architect.

Recently, we began a new initiative to penetrate the international market for
software products. As part of our new "sales channel strategy" we have set up
sales and presales teams to develop markets for our software products outside of
China.

  MARKETING

Our marketing strategy focuses on building long-term relationships with our
customers, educating them about technological developments and generating their
interest in our services and products. Historically, our marketing and sales
efforts were combined. As our businesses expanded and the marketplace became
increasingly sophisticated, we established a dedicated marketing department in
1998. Currently, we have independent marketing departments for each of our two
strategic business units. These departments continuously analyze the needs of
our customers, our competitive environment, the market potential of our products
and services, and the effectiveness of our pricing and distribution channel
strategies.

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In addition to our marketing departments, we have a market communications, or
marcom department, which engages in a number of activities aimed at increasing
awareness of our products and services. These activities include:

 --   managing and maintaining our web site;

 --   publishing bi-weekly research reports and monthly customer newsletters;

 --   providing free business consulting services;

 --   conducting seminars and conferences;

 --   conducting ongoing public relations programs; and

 --   creating and placing advertisements.

In addition, we actively participate in technology-related conferences and
demonstrate our products at trade shows targeted at our existing and potential
customers.

COMPETITION

The Internet-related information technology services market in China is new and
rapidly changing. Our competitors in the market mainly include domestic systems
integrators such as Ztec, Autian and Holy Bridge. Although we are a leading
player in this market, there are many large multinational companies with
substantial, existing information technology operations in other markets in
China, which have significantly greater financial, technological, marketing and
human resources. Should they decide to enter the Internet-related information
technology services market in China, the competition will intensify.

In the customer management and billing software market, we compete with both
international and local software providers. In the online billing segment we
compete primarily with Portal Software, MIND and Ztec and in the wireless
billing segment we compete with more than ten local competitors. The messaging
software segment is a highly competitive market. Currently, we primarily compete
with Open Wave (formerly known as Software.com) and Netease. We believe that we
have competitive advantages in all of our product and service segments due to
our Internet technology leadership, combined international and China expertise,
established customer relationships and our high performance, scalable, flexible
software.

In view of the gradual deregulation of the Chinese telecommunications industry
and China's pending entry into the WTO, we anticipate continued growth and
competition in the telecommunications infrastructure industry and the entrance
of new competitors into the customer management and billing software market.

GOVERNMENT REGULATION

The Chinese government has generally encouraged the development of the
information technology industry, and the products and services we offer are not
currently subject to extensive government regulations.

The Internet and the telecommunications industry in which our customers operate,
however, has been subject to government regulation and control. Currently, all
large telecommunications and Internet service providers in China are state owned
or state controlled and their business decisions and strategies are affected by
the government's budgeting and spending plans. In addition, they are required to
comply with regulations and rules promulgated by China's Ministry of Information
Industry from time to time.

China recently published the Regulations of the People's Republic of China on
Telecommunications (the "Telecommunications Regulations") and the Notification
of Telecommunication Charge Structural Adjustment. The Telecommunication
Regulations are the first comprehensive set of regulations governing the conduct
of the telecommunications business in China. The principles expressed by the
Telecommunications Regulations reflect positively on China's commitment to
accede to the WTO. In particular, the Telecommunications Regulations have set
out in clear terms the framework for operational licensing, interconnection, the
setting of telecommunications charges and standards of telecommunications
services.

                                        19
<PAGE>   20

With improved transparency and a pro-competitive regulatory environment, we
anticipate that investor confidence in China's telecommunications sector is
likely to grow. However, the Telecommunication Regulations do not address the
issue of foreign investment. Foreign investors are currently not permitted
independently to operate telecommunications networks or provide
telecommunications services, or manage an entity that operates a
telecommunications business in China. Draft regulations governing foreign
investment in China's telecommunications business were submitted by the Ministry
of Information Industry to China's State Council in August 2000. These
regulations have not yet been approved. However, pursuant to the terms of the
Sino-U.S. and Sino-E.U. bilateral agreements on China's accession to the WTO,
China will allow foreign investment in the telecommunications sector on a
gradual basis after WTO accession.

The Notification of Telecommunication Charge Structural Adjustment reduced
telecommunication service and Internet service fees such as Internet access fees
and leased line renting fees, permitting IP telephony operators, paging business
operators, web hosting service providers and certain other value added service
providers to set their prices based on their own cost structure and competitive
strategy. We believe this notification will have a positive impact on our
business because, with the decline in telecommunication and Internet services
fees, China's Internet population and tele-density are likely to grow, which in
turn will likely generate more demand for our products and services. In
addition, with declining leased line tariffs, more and more enterprises should
be able to afford to use the Internet as a business tool.

Notwithstanding the recent developments in China's telecom regulations, many
laws and regulations applicable to the Internet in China are still evolving and
unsettled. There are certain approval and registration procedures in place for
Internet users who wish to have access to Internet-related services. Foreign
companies are currently prohibited from engaging in Internet service provision,
Internet content provision and other value-added Internet related services in
China. Due to the increasing popularity and use of the Internet and other online
services, it is possible that more extensive and restrictive regulations may be
adopted with respect to the Internet and other related services. In September
2000, China's State Council approved the Administrative Measures on Internet
Information Services. The Administrative Measures on Internet Information
Services confirm China's continuing sensitivity to control and censor
information on the Internet. It remains to be seen how rigorously these new
regulations, especially the penalties provisions, will be enforced. In view of
China's pending entry into the WTO, we expect a majority of these restrictions
will be phased out and eventually eliminated. However, until then, a restrictive
regulatory environment for our customers could adversely affect our business.
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation -- Factors Affecting Our Operating Results and Our Common
Stock -- Laws and regulations applicable to the Internet in China remain
unsettled and could have a material adverse affect on the Internet's growth and
thereby have a material adverse affect on our business."

INTELLECTUAL PROPERTY

Our success and ability to compete depends substantially upon our intellectual
property rights, which we protect through a combination of copyright, trade
secret law and trademark law. We have filed five trademark applications with the
United States Trademark Office, two of which have been granted and three are
still pending. Our trademark application covering AsiaInfo's logo and design has
been granted by the Trademark Bureau of the State Administration of Industry and
Commerce in China. In addition, we have filed three trademark applications with
the Hong Kong Trade Marks Registry for AsiaInfo's logo, which are pending. We
have also completed the registration of the copyrights for 17 versions of our
software products with the State Copyright Bureau in China, including the AIOBS
series and the AIMC series. However, although we may apply for such protection
in the future, we have not applied for copyright protection in other
jurisdictions (including the United States). We do not own any patents and have
not filed any patent applications, as we do not believe that the benefits of
patent protection outweigh the costs of filing and updating patents for our
software products.

We enter into confidentiality agreements with our employees and consultants, and
control access to and distribution of our documentation and other licensed
information. Despite these precautions, it may be
                                        20
<PAGE>   21

possible for a third party to copy or otherwise obtain and use our licensed
services or technology without authorization, or to develop similar technology
independently. Since the Chinese legal system in general, and the intellectual
property regime in particular, is relatively weak, it is often difficult to
enforce intellectual property rights in China. In addition, there are other
countries where effective copyright, trademark and trade secret protection may
be unavailable or limited, and the global nature of the Internet makes it
virtually impossible to control the ultimate destination of our products.
Policing unauthorized use of our licensed technology is difficult and there can
be no assurance that the steps taken by us will prevent misappropriation or
infringement of our proprietary technology. In addition, litigation may be
necessary in the future to enforce our intellectual property rights, to protect
our trade secrets or to determine the validity and scope of the proprietary
rights of others, which could result in substantial costs and diversion of our
resources and could have a material adverse effect on our business, results of
operations and financial condition.

EMPLOYEES

As of December 31, 2000 we had over 650 employees. Our employees are represented
by a labor union and, thus far, our operations have not been significantly
disrupted by labor disputes.

We devote significant resources to recruiting professionals with both network
solutions and relevant industry experience. Most of our senior management and
technical employees are western educated Chinese professionals with substantial
expertise in information technologies systems integration and application
software development. We believe that our success in attracting and retaining
highly skilled technical employees and sales and marketing personnel is largely
a product of our commitment to providing a motivating and interactive work
environment that features continuous and extensive professional development
opportunities, as well as frequent and open communications at all levels of the
organization. As an incentive, we have created an employee stock option plan
that includes vesting provisions designed to encourage long term employment.

ITEM 2.  PROPERTIES

Our principal sales, marketing and development facilities and administrative
offices currently occupy approximately 7,300 square meters in a new building
located in the Beijing Zhongguancun Science Park. The lease has a term of five
years, which expires in February 2005, subject to termination in 2003 if an
agreement on the adjustment of rent cannot be reached at that time. In addition,
we have regional field support offices in various cities in China, namely
Shanghai, Guangzhou, Chengdu, Hangzhou and Wuhan, as well as a regional office
in Santa Clara, California.

ITEM 3.  LEGAL PROCEEDINGS

We are not involved in any material legal proceedings.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Information concerning submission of matters to a vote of security holders is
incorporated by reference to the section entitled "Item 5. Other Information"
contained in our Amended Quarterly Report on Form 10-Q/A, filed with the
Securities and Exchange Commission on January 9, 2001.

                                        21
<PAGE>   22

                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock has been quoted on the Nasdaq National Market under the symbol
"ASIA" since our initial public offering on March 2, 2000. Prior to that time,
there was no public market for our common stock. The following table shows the
high and low sale prices per share of our common stock as reported on the Nasdaq
National Market for the periods indicated:

<TABLE>
<CAPTION>
                                                                CLOSING PRICES
                                                              ------------------
                                                               HIGH        LOW
                                                              ------      ------
                                                              (IN U.S. DOLLARS)
<S>                                                           <C>         <C>
2000 (FROM MARCH 3)
  First quarter.............................................  99.56       60.50
  Second quarter............................................  59.44       30.50
  Third quarter.............................................  48.00       17.06
  Fourth quarter............................................  19.50        7.38
</TABLE>

As of March 1, 2001, there were approximately 183 record holders of our common
stock.

We have never declared or paid any dividends on our capital stock. We do not
intend to pay dividends on our shares of common stock. We intend to retain all
future earnings, if any, for use in our business. Future cash dividends, if any,
will be at the discretion of our board of directors and will depend upon our
future operations and earnings, capital requirements and surplus, general
financial condition, contractual restrictions and other factors as the board of
directors may deem relevant. Any dividends we declare will be paid in U.S.
dollars.

As a holding company, our primary source of cash for the payment of dividends
are distributions, if any, from our subsidiaries. Our principal operating
subsidiaries were established in China and are able to make distributions of
profits to us only if they satisfy certain conditions under Chinese law,
including the satisfaction of tax liabilities, recovery of losses from previous
years and mandatory contributions to statutory reserves. In addition, loan
agreements and contractual arrangements we enter into in the future may also
restrict our ability to pay dividends.

On March 2, 2000, our Registration Statement on Form S-1 covering the offering
of 5,000,000 shares of our common stock (No. 333-93199) was declared effective.
The underwriters in the offering exercised an over-allotment option to purchase
an additional 750,000 shares of our common stock. The total price to the public
for the shares offered and sold was $138,000,000. The net proceeds of the
offering (after deducting expenses) was approximately $126,608,884. From the
effective date of the Registration Statement through December 31, 2000, the net
proceeds have been used for the following purposes:

<TABLE>
<S>                                                           <C>
Purchase and installation of machinery and equipment........  $  5,316,681
Temporary investments, including cash and cash
  equivalents...............................................   110,400,000
Investments in subsidiaries -- MarSec and Guangdong
  Wangying..................................................     1,144,949
Research and development and sales and marketing expenses...     9,747,254
                                                              ------------
                                                              $126,608,884
                                                              ============
</TABLE>

The net proceeds will be used for general corporate purposes, including working
capital, and expenses such as research and development and sales and marketing.
A portion of the net proceeds may also be used to acquire or invest in
complementary businesses or products. None of the net proceeds of the offering
have been paid directly or indirectly to our directors, officers or their
associates, to persons owning ten percent or more of our common stock, or to our
affiliates.

                                        22
<PAGE>   23

ITEM 6.  SELECTED FINANCIAL DATA

The following table sets forth our selected consolidated financial data. You
should read this information together with our consolidated financial statements
and the notes to those statements included in this report, and "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" beginning on page 24 of this report. The selected consolidated
balance sheet data and statements of operations data in the table below have
been derived from our audited consolidated financial statements. Historical
results are not necessarily indicative of the results to be expected in the
future.

<TABLE>
<CAPTION>
                                                       YEARS ENDED DECEMBER 31,
                                  -------------------------------------------------------------------
                                     2000          1999          1998          1997          1996
                                  -----------   -----------   -----------   -----------   -----------
                                                 (AMOUNTS IN THOUSANDS OF U.S. DOLLARS
                                                   EXCEPT SHARE AND PER SHARE DATA)
<S>                               <C>           <C>           <C>           <C>           <C>
CONSOLIDATED STATEMENTS OF
  OPERATIONS DATA:
Revenues:
  Network solutions.............  $   159,505   $    53,786   $    41,964   $    36,509   $    14,781
  Software license..............       16,558         6,494         2,258           775           762
                                  -----------   -----------   -----------   -----------   -----------
          Total revenues........      176,063        60,280        44,222        37,284        15,543
                                  -----------   -----------   -----------   -----------   -----------
Cost of revenues:
  Network solutions.............      144,655        41,959        32,188        29,551         9,098
  Software license..............           43             4             1             5             -
                                  -----------   -----------   -----------   -----------   -----------
          Total cost of
            revenues............      144,698        41,963        32,189        29,556         9,098
                                  -----------   -----------   -----------   -----------   -----------
Gross profit....................       31,365        18,317        12,033         7,728         6,445
                                  -----------   -----------   -----------   -----------   -----------
Operating expenses:
  Sales and marketing...........       19,734         8,768         2,408           835           668
  General and administrative....       12,892         8,167         6,463         6,167         3,008
  Research and development......        5,974         2,838         1,436           394           321
  Amortization of deferred stock
     compensation...............        2,210         3,508         1,045         1,045           262
                                  -----------   -----------   -----------   -----------   -----------
          Total operating
            expenses............       40,810        23,281        11,352         8,441         4,259
                                  -----------   -----------   -----------   -----------   -----------
Operating (loss) income.........       (9,445)       (4,964)          681          (713)        2,186
Other income (expense), net.....        6,865           352           477            31            35
Income tax expense (benefit)....          218           383          (256)          267            69
Minority interests in loss
  (income) of consolidated
  subsidiaries..................           32            84           122           567          (482)
Equity in loss of affiliate.....            -           (35)            -             -             -
                                  -----------   -----------   -----------   -----------   -----------
Net (loss) income...............  $    (2,766)  $    (4,946)  $     1,536   $      (382)  $     1,670
                                  ===========   ===========   ===========   ===========   ===========
Net (loss) income per share:
  Basic.........................  $     (0.07)  $     (0.34)  $      0.11   $     (0.03)  $      0.12
                                  ===========   ===========   ===========   ===========   ===========
  Diluted(1)....................  $     (0.07)  $     (0.34)  $      0.05   $     (0.03)  $      0.10
                                  ===========   ===========   ===========   ===========   ===========
Shares used in computation:
  Basic.........................   37,239,649    14,630,145    13,616,412    13,530,000    13,530,000
                                  ===========   ===========   ===========   ===========   ===========
  Diluted(1)....................   37,239,649    14,630,145    31,765,534    13,530,000    15,999,133
                                  ===========   ===========   ===========   ===========   ===========
</TABLE>

                                        23
<PAGE>   24

<TABLE>
<CAPTION>
                                                            YEARS ENDED DECEMBER 31,
                                              ----------------------------------------------------
                                                2000       1999       1998       1997       1996
                                              --------   --------   --------   --------   --------
                                                     (AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
<S>                                           <C>        <C>        <C>        <C>        <C>
ADDITIONAL DATA:
Total revenues net of hardware costs........  $ 44,578   $ 25,221   $ 19,286   $ 11,684   $  6,877
</TABLE>

<TABLE>
<CAPTION>
                                                               AS OF DECEMBER 31,
                                              ----------------------------------------------------
                                                2000       1999       1998       1997       1996
                                              --------   --------   --------   --------   --------
                                                     (AMOUNT IN THOUSANDS OF U.S. DOLLARS)
<S>                                           <C>        <C>        <C>        <C>        <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents...................  $ 48,834   $ 25,404   $  9,749   $ 24,066   $  2,221
Total current assets(2).....................   254,190     64,772     42,805     36,131      8,325
Total assets................................   264,003     71,427     45,359     37,085      9,227
Total liabilities (excluding minority
  interests)................................    95,206     31,639     26,048     20,008      6,429
Total stockholders' equity..................   168,609     39,788     19,247     16,179      1,333
</TABLE>

---------------

(1) In 1997, 1999 and 2000 the diluted net loss per share computation excludes
    shares of common stock issuable under stock option plans, upon the exercise
    of warrants and upon the automatic conversion of our convertible preferred
    stock which, if included, would have an antidilutive effect on the net loss
    reported in these periods. See note 8 of Notes to Consolidated Financial
    Statements for a detailed explanation of the determination of the shares
    used in computing basic and diluted net income (loss) per share.

(2) Total current assets includes short-term investments, which, at December 31,
    2000, totaled $110.4 million and consisted principally of certificates of
    deposit issued by major financial institutions, having maturities of between
    six and twelve months, together with $90.8 million deposited in money market
    funds. In January of 2001 we invested $50.5 million of these assets into a
    portfolio of short-term debt instruments having maturities of between three
    and twenty-four months.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATION

OVERVIEW

We are a leading China-based company providing world class software products and
network solutions. Our software products and network solutions enable our
customers to build, maintain, operate and continuously improve their Internet
and communications infrastructure.

We commenced our operations in Texas in 1993 and moved our operations from Texas
to China in 1995. We began generating significant network solutions revenues in
1996 and significant software license revenues in 1998. While we source hardware
for our customers through our U.S. parent company, AsiaInfo Holdings, Inc., we
conduct the bulk of our business through our wholly-owned operating subsidiary,
AsiaInfo Technologies (China) Inc., which is a Chinese company.

Sales to China Telecom and its provincial subsidiaries accounted for
approximately 98%, 84% and 34% of our revenues in 1998, 1999 and 2000,
respectively. Our customer base is continuing to diversify and, at December 31,
2000, approximately 55% of our backlog net of hardware costs was attributable to
China Telecom, while 10% was attributable to China Unicom, 10% was attributable
to China Netcom and 16% was attributable to China Mobile.

We expect our business to continue to evolve as the Internet and
telecommunications markets in China change and expand. Recently, sales of
software products have been an increasingly significant contributor to our
business, accounting for 37% of revenues net of hardware costs in 2000. We
expect this trend to continue and intend to establish arrangements with foreign
companies to distribute our software products outside of China.

We believe that there are opportunities for us to expand into new business
areas. By the end of the first quarter of 2001, we expect to have invested a
total of $2 million in our majority-owned network security business, MarSec,
which focuses on high-end security services for our customers. MarSec generated
sales

                                        24
<PAGE>   25

orders of approximately $175,000 in the fourth quarter of 2000, and we
anticipate that it will generate sales orders of approximately $3 million in
2001. Other new areas include our Application Infrastructure Provider (AIP)
business, in which we invested $1.5 million in 2000. In view of these recent and
potential future changes to our business, our historical financial data may not
be a meaningful basis upon which to evaluate us and our prospects.

REVENUES

Our total revenues have grown from $44.2 million in 1998 to $60.3 million in
1999 and $176.1 in 2000. We generate our revenues from our two principal
business lines: network solutions and software products. Although we account for
our network solutions revenues on a gross basis, inclusive of hardware
acquisition costs that are passed through to our customers, we manage our
business internally based on revenues net of hardware costs, which is consistent
with our strategy to focus increasingly on providing our customers with high
value IT professional services while gradually outsourcing lower end services
such as hardware acquisition and installation. This strategy may result in lower
growth rates for total revenues as against prior periods, but will not adversely
impact revenues net of hardware costs. The following table shows our revenue
breakdown by business line on this basis:

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                        ------------------------------------
BUSINESS LINE                                           2000    1999    1998    1997    1996
-------------                                           ----    ----    ----    ----    ----
<S>                                                     <C>     <C>     <C>     <C>     <C>
Network solutions net of hardware costs...............   63%     74%     88%     93%     89%
Software license......................................   37%     26%     12%      7%     11%
  Total revenues net of hardware costs................  100%    100%    100%    100%    100%
                                                        ===     ===     ===     ===     ===
</TABLE>

As demonstrated by the foregoing table, software products have accounted for an
increasing portion of our total revenues net of hardware costs over the past
several years, increasing from 12% in 1998 to 26% in 1999 and 37% in 2000. We
expect that software products will account for a growing portion of our future
net revenues.

BACKLOG.  Most of our revenues are derived from customers' orders under separate
binding contracts for hardware, network solutions and software products. These
contracts constitute our backlog at any given time. Revenues for hardware,
network solutions and software products are recognized during the course of the
relevant project, as described in more detail below. At December 31, 2000, our
backlog net of hardware costs was $36 million, approximately 62% of which
related to network solutions and 38% of which related to software orders.

NETWORK SOLUTIONS REVENUES.  Network solutions revenues consist of hardware
sales for equipment procured by us on behalf of our customers from hardware
vendors, as well as services for planning, design, systems integration, training
and customization of our proprietary and third party software. We procure for
and sell hardware to our customers as part of our total solutions strategy. We
minimize our exposure to hardware risks by sourcing equipment from hardware
vendors against back-to-back orders and letters of credit from our customers. We
believe that as the Internet-related market in China develops, our customers
will increasingly purchase hardware directly from hardware vendors and pay us
separately for the full value of our professional services.

We generally charge a fixed price for our network solutions projects and
recognize revenue based on the percentage of completion of the project. Labor
hours are used to determine the stage of completion except for revenues
associated with the procurement of hardware on behalf of the customer. Such
hardware-related revenues are recognized upon delivery. Since a large part of
the cost of a network solutions project often relates to hardware, the timing of
hardware delivery can cause our quarterly revenues to fluctuate significantly.
However, this does not significantly affect our gross margin as hardware
revenues generally approximate the related costs. Our quarterly results are also
subject to fluctuations because a significant part of our network solutions
revenues are derived from a limited number of large contracts.

                                        25
<PAGE>   26

There are three key milestones in the life of a network solutions project. The
first milestone occurs when the hardware is delivered, which is usually between
three and four months after signing the contract. The second milestone in a
network solutions project is at primary acceptance, which usually occurs around
five months after hardware delivery. The third milestone is project acceptance,
which occurs when the customer agrees that we have satisfactorily completed all
our work for the project.

SOFTWARE LICENSE REVENUES.  Software license revenues consist of fees received
from customers for licenses to use our software products in perpetuity, up to a
specified maximum number of users. The customer must purchase additional user
licenses from us when the number of users exceeds the specified maximum.
Beginning with the year 2000, our software license revenues also include the
benefit of value added tax rebates on software license sales, which are part of
the Chinese government's policy of encouraging China's software industry.
Substantially all our software license revenues are derived from our customer
management and billing, and messaging software products. We recognize
substantially all software license revenues in conjunction with the revenues of
the related solutions project over the installation and customization period
based on the percentage of completion of the project as measured by labor hours.

The foregoing revenue recognition policies result in our recognizing certain
revenues even though we are not due to receive the corresponding cash payment
under the contract. In the case of hardware sales, the customer typically holds
back around 10% of the hardware contract amount at the time of delivery. In the
case of services, while there may be some down payment, most of the revenues
becomes billable at the time of primary acceptance. The unpaid amounts for
hardware and services become payable at the time of final project acceptance,
when payment of all unpaid contract amounts is due. When we recognize revenues
for which payments are not yet due, we book unbilled accounts receivable until
the corresponding amounts become payable.

COST OF REVENUES

NETWORK SOLUTIONS COSTS.  Network solutions costs consist primarily of third
party hardware costs, compensation and travel expenses for the professionals
involved in designing and implementing projects, and hardware warranty costs. We
recognize hardware costs in full upon delivery of the hardware to our customers.
In order to minimize our working capital requirements, we generally obtain from
our hardware vendors payment terms that are timed to permit us to receive
payment from our customers for the hardware before our payments to hardware
vendors are due. However, in certain recent large projects, we obtained less
favorable payment terms from our customers, thereby increasing our working
capital requirements. We recognize compensation and travel costs for project
professionals as incurred. We accrue hardware warranty costs when hardware
revenue is recognized upon final acceptance. We obtain manufacturers' warranties
for hardware we sell, which cover a portion of the warranties that we give to
our customers. We currently accrue 1% of hardware sales to cover potential
warranty expenses. This estimate of warranty cost is based on our current
experience with contracts for which the warranty period has expired. See
"Factors Affecting Our Operating Results and Our Common Stock -- We extend
warranties to our network solutions customers that expose us to potential
liabilities."

SOFTWARE LICENSE COSTS.  Software license costs consist primarily of packaging
and written manual expenses. Software license costs are negligible, since most
of the costs associated with creating and enhancing software are classified as
research and development expenses as incurred.

OPERATING EXPENSES

Operating expenses are comprised of sales and marketing expenses, research and
development expenses, general and administrative expenses, and amortization
expenses for goodwill and deferred stock compensation.

Operating expenses consist for the most part of compensation expenses, which
have risen as we have expanded and hired new personnel. In 1998, we undertook a
comprehensive review of human resource policies, including salaries paid by
leading multinational IT companies operating in China. This review resulted in a
special increase in salaries for most of our employees to bring their
compensation to market
                                        26
<PAGE>   27

levels. Although we review salaries on an annual basis in order to ensure that
we remain competitive with the market, we do not foresee the need to make
material increases in the near term. However, we may be required to do so from
time to time in the future.

Research and development expenses relate almost entirely to the development of
new software and the enhancement and upgrading of existing software. We expense
these costs as they are incurred. As we expand our software business, we expect
these expenses to continue to increase.

We provide most of our officers and employees, and some of our directors, with
stock options. In the past, we granted a number of options with exercise prices
below the fair market value of the related shares at the time of grant, most of
which were issued prior to 1997. We do not, however, intend to issue options
below fair market value in the future. Therefore, our deferred compensation
expenses have been significantly higher historically than we expect them to be
in future years. The difference between the exercise price and the fair market
value of the related shares is amortized over the vesting period of the options
and reflected on our income statement as amortization of deferred stock
compensation. See note 13 to our consolidated financial statements included in
this report.

We make bad debt provisions for accounts receivable balances based on
management's assessment of the recoverability of revenues on a
project-by-project basis. Because of the generally high credit-worthiness of the
leading Chinese telecommunications service providers, who are our major
customers, we do not believe that we are exposed to significant bad debt risk.
Generally, a majority of our accounts receivable are paid within 90 days of
billing.

TAXES

Except for hardware procurement and resale, we conduct substantially all of our
business through our Chinese operating subsidiaries. Our Chinese subsidiaries
are generally subject to a 30% state corporate income tax and a 3% local income
tax. AsiaInfo Technologies, our principal operating subsidiary, is classified as
a "high technology" company and, as such, is entitled to preferential treatment
under Chinese tax law. AsiaInfo Technologies operated free of Chinese state
corporate income tax for three years, beginning with its first year of
operation, and was entitled to a 50% tax reduction for the subsequent three
years. The tax holiday for AsiaInfo Technologies expired on December 31, 1997
and the 50% tax reduction expired on December 31, 2000. However, AsiaInfo
Technologies recently received a continuation of its preferential tax treatment
from the local government for an additional three years, which will reduce its
effective income tax rate to not less than 10%. In 2001, we anticipate that the
effective corporate income tax rate applicable to AsiaInfo Technologies will be
10%. Changes in Chinese tax laws may adversely affect our future operations.

We are also subject to U.S. income taxes on our procurement activities in the
U.S. At December 31, 2000, we had tax loss carry forwards for U.S. income tax
purposes of approximately $700,000, which will expire between 2018 and 2020.

Sales of hardware in China are subject to a 17% value added tax. Most of our
hardware sales are made through our U.S. parent company and thus are not subject
to the value added tax. We effectively pass these taxes through to our customers
and do not include them in revenues reported in our financial statements. In
respect of revenue on software license, if the net amount of value added tax
payable exceeds 3% of software sales, the excess portion of value added tax can
be refunded immediately. The Company therefore enjoys an effective net value
added tax burden of 3% on software license revenues. This policy is effective
until 2010.

FOREIGN EXCHANGE

Substantially all of our revenues and expenses relating to hardware sales are
denominated in U.S. dollars, and substantially all of our revenues and expenses
relating to the service component of our network solutions business and software
business are denominated in Renminbi. Although, in general, our exposure to
foreign exchange risks should be limited, the value of our shares will be
affected by the foreign

                                        27
<PAGE>   28

exchange rate between the U.S. dollars and Renminbi because the value of our
business is effectively denominated in Renminbi, while our shares are traded in
U.S. dollars. Furthermore, a decline in the value of Renminbi could reduce the
U.S. dollar equivalent of the value of the earnings from, and our investment in,
our subsidiaries in China.

CONSOLIDATED RESULTS OF OPERATIONS

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

REVENUES.  Total revenues increased 192% to $176 million in 2000, from $60.3
million in 1999. Network solutions revenues accounted for $106 million of this
increase due in large part to the UniNET project, which we commenced in 2000 on
behalf of China Unicom. The UniNET project contributed $52 million in hardware
costs, which was 40% of our total hardware costs for the year. Revenues net of
hardware costs increased approximately 77%, from $25 million in 1999 to $45
million in 2000. Software license revenues were $16.6 million in 2000,
representing 37% of revenues net of hardware costs and a 155% increase over
software license revenues of $6.5 million in 1999. The growth in software
license revenues reflected the overall growth of the Internet-related software
market in China and our increased share of that market, which we believe is
attributable to our investments in software-related research and development and
sales and marketing. In addition, $1.3 million of the increase in software
license revenues was attributable to the value added tax rebates discussed above
under the heading "Taxes."

COST OF REVENUES.  Our cost of revenues increased 245% to $144.7 million in
2000, from $42.0 million in 1999, primarily due to the high hardware costs
incurred in connection with the UniNET project, as discussed above. Total
hardware costs increased 275% to $131 million in 2000, as compared to $35
million in 1999. Our cost of revenues net of hardware costs increased 91% to
$13.2 million, as compared to $6.9 million in 1999, primarily due to an increase
in our high-end network solutions engineering personnel.

GROSS PROFITS.  Our gross profit increased 71%, from $18.3 million in 1999 to
$31.4 million in 2000. As a partial result of high hardware costs related to the
UniNET project, gross profit as a percentage of total revenues decreased to 18%
in 2000, as compared to 30% in 1999. However, gross profit as a percentage of
revenues net of hardware costs remained relatively constant for 2000 at 70%, as
compared to 73% in 1999.

OPERATING EXPENSES.  Operating expenses increased 75% to $40.8 million in 2000,
from $23.3 million in 1999.

Sales and marketing expenses increased 125% to $19.7 million in 2000 from $8.8
million in 1999, primarily as a result of our aggressive marketing of our
software products, which included the creation of a department devoted
exclusively to software marketing. Despite the steep increase in 2000, we expect
sales and marketing expenses to increase by only 15-20% year over year in 2001.

Research and development expenses increased 110% to $6 million in 2000 from $2.8
million in 1999, primarily due to increased expenditure on research and
development in the area of convergent billing software and the aggressive
upgrading of our AIOBS and AIMC software products. Our strategy for 2000 was to
accelerate spending in sales and marketing and research and development in order
to scale our business quickly and take advantage of the rapid acceleration of
the build out of China's Internet infrastructure. We expect to continue to
benefit from this investment in 2001. While we expect our research and
development expenses for 2001 to increase by 50-60% in absolute dollar terms, we
expect these expenses to remain constant as a percentage of net revenues, at
approximately 13%.

General and administrative expenses increased 58% to $12.9 million in 2000 from
$8.2 million in 1999. Included in this amount was $963,672 in amortization of
goodwill resulting from the acquisition of AI Zhejiang. The overall increase in
general and administrative expenses was partially attributable to increased
legal compliance and investor relations expenses related to our becoming a
public company in March of 2000. In 2001, we expect general and administrative
expenses to remain relatively constant in dollar terms.

                                        28
<PAGE>   29

Amortization of deferred stock compensation decreased from $3.5 million in 1999
to $2.2 million in 2000 because deferred stock compensation arising from awards
in 1996 had been completely amortized and no new deferred stock compensation has
arisen since October of 1999.

OTHER INCOME AND EXPENSES.  Other income and expenses, consisting primarily of
net interest income and expense, increased from income of $352,000 in 1999 to
income of $6.9 million in 2000, primarily due to interest income on the proceeds
of our initial public offering in March of 2000.

MINORITY INTEREST.  In 2000, minority interest of $31,897 represented the
portion of our loss before minority interests attributable to the other
shareholders of MarSec and Guangdong Wangying.

NET (LOSS) INCOME.  Net loss decreased to $2.8 million in 2000, from $4.9
million in 1999, because we began generating net income in the second quarter of
2000. For the second, third and fourth quarters of 2000, we had net income of
approximately $434,000, $415,000 and $1.0 million, respectively. We expect to
continue to generate net income in 2001.

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

REVENUES.  Total revenues increased 36.3% to $60.3 million in 1999 from $44.2
million in 1998. Network solutions accounted for $11.8 million of this increase,
primarily due to a greater number of projects in progress. Software revenues
accounted for the balance of the increase in total revenues. The growth in
software revenues reflected greater demand for our products and faster
development and installation of our products. AsiaInfo Zhejiang, which we
acquired in April 1999, contributed revenues of $3.2 million, a large part of
which were software license revenues.

COST OF REVENUES.  Our cost of revenues increased 30.4% to $42 million in 1999
from $32.2 million in 1998, primarily due to the overall expansion of our
business and increased salary costs for our systems integration and design
engineering personnel. We periodically review our warranty cost estimates based
on historical data and in 1999 costs of revenues were reduced by $1.2 million as
a result of a revision to warranty cost estimates in line with our historical
experience, primarily contracts whose warranty period had expired in 1999. Gross
profit as a percentage of revenues increased from 27% in 1998 to 30% in 1999,
primarily due to these revisions to warranty cost estimates.

OPERATING EXPENSES.  Operating expenses increased 105% to $23.3 million in 1999
from $11.4 million in 1998, primarily due to the overall expansion of our
business, costs associated with the acquisition of AsiaInfo Zhejiang and higher
operating expenses resulting from the comprehensive review of human resource
policies discussed above. Of this amount, AsiaInfo Zhejiang contributed
operating expenses of $1.4 million. Operating expenses as a percentage of
revenues increased from 26% to 39%, primarily due to increased investment in
sales and marketing and research and development personnel to drive the future
growth of our business.

Sales and marketing expenses increased 264% to $8.8 million in 1999 from $2.4
million in 1998, primarily as a result of the implementation of new marketing
activities, the hiring of additional personnel, higher compensation levels and
the effect of the acquisition of AsiaInfo Zhejiang.

Research and development expenses increased 98% to $2.8 million in 1999 from
$1.4 million in 1998, primarily due to increased salary costs associated with
the expansion of our software business, and the effect of the acquisition of
AsiaInfo Zhejiang, which amounted to $542,000.

General and administrative expenses increased 26% to $8.2 million in 1999 from
$6.5 million in 1998, primarily due to an increase in the amortization of
goodwill resulting from the acquisition of AsiaInfo Zhejiang and an increase in
provisions for bad debts. The amortization of goodwill resulting from the
acquisition of AsiaInfo Zhejiang was $691,000 in 1999. We experienced collection
problems under a contract with the Heilongjiang Provincial Telecommunications
Authority and a provision of approximately $514,000 was made in 1999 to reduce
the receivable to our estimate of the recoverable amount.

Amortization of deferred stock compensation increased from $1.0 million in 1998
to $3.5 million in 1999 as a result of the recognition of expense in 1999 for
options accounted for as variable awards.
                                        29
<PAGE>   30

OTHER INCOME AND EXPENSES.  Other income and expenses, consisting primarily of
net interest income and expense, decreased from income of $478,000 in 1998 to
income of $352,000 in 1999, primarily due to lower interest rates on cash
deposits and higher levels of bank debt.

OTHER.  Income taxes increased from a tax benefit of approximately $256,000 in
1998 to a tax expense of approximately $383,000 in 1999, primarily due to an
increase in taxable income generated by our Chinese subsidiaries.

MINORITY INTEREST.  In 1999, minority interest represented our minority interest
in Beijing AsiaInfo Data Communication Technology Co., Ltd. (AsiaInfo Data)
through August 1999, at which time AsiaInfo Data ceased to be a consolidated
subsidiary. Our remaining interest in AsiaInfo Data was sold in December, 1999.
AsiaInfo Data was consolidated as a majority owned subsidiary for the entire
year of 1998.

SELECTED UNAUDITED QUARTERLY COMBINED RESULTS OF OPERATIONS

The following table sets forth unaudited quarterly statements of operations data
for the four quarters ended December 31, 1999 and 2000. We believe this
unaudited information has been prepared substantially on the same basis as the
annual audited combined financial statements appearing elsewhere in this report.
We believe this data includes all necessary adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation. You should read
the quarterly data together with the consolidated financial statements and the
notes to those statements appearing elsewhere in this report. The consolidated
results of operations for any quarter are not necessarily indicative of the
operating results for any future period. We expect that our quarterly revenues
may fluctuate significantly.
<TABLE>
<CAPTION>
                                                             THREE MONTHS ENDED
                             ----------------------------------------------------------------------------------
                             DECEMBER 31,   SEPTEMBER 30,   JUNE 30,   MARCH 31,   DECEMBER 31,   SEPTEMBER 30,
                                 2000           2000          2000       2000          1999           1999
                             ------------   -------------   --------   ---------   ------------   -------------
<S>                          <C>            <C>             <C>        <C>         <C>            <C>
CONSOLIDATED STATEMENTS OF
  OPERATIONS DATA:
Revenues:
  Network solutions........    $ 38,598       $ 53,159      $ 46,649   $ 21,099      $10,113        $ 21,852
                               --------       --------      --------   --------      -------        --------
  Software license.........       5,414          4,909         4,442      1,793        1,852           1,669
                               --------       --------      --------   --------      -------        --------
Total revenues.............      44,012         58,068        51,091     22,892       11,965          23,521
Cost of revenues...........     (33,104)       (48,278)      (43,100)   (20,216)      (8,428)        (16,221)
                               --------       --------      --------   --------      -------        --------
Gross profit...............      10,908          9,790         7,991      2,676        3,537           7,300
                               --------       --------      --------   --------      -------        --------
Operating expenses:
  Sales and marketing......      (6,443)        (5,702)       (4,138)    (3,451)      (3,900)         (2,347)
  General and
    administrative.........      (3,618)        (3,500)       (3,403)    (2,371)      (1,780)         (2,794)
  Research and
    development............      (1,541)        (1,743)       (1,594)    (1,096)        (845)           (895)
  Deferred stock
    compensation expense...        (459)          (467)         (585)      (699)        (698)         (1,848)
                               --------       --------      --------   --------      -------        --------
Total operating expenses...     (12,061)       (11,412)       (9,720)    (7,617)      (7,223)         (7,884)
                               --------       --------      --------   --------      -------        --------
Operating income (loss)....      (1,153)        (1,622)       (1,729)    (4,941)      (3,686)           (584)
Net interest income
  (expense)................       2,278          1,998         2,346        264          162              22
Other income, net..........         171             14          (288)        82         (181)            149
                               --------       --------      --------   --------      -------        --------

<CAPTION>
                              THREE MONTHS ENDED
                             --------------------
                             JUNE 30,   MARCH 31,
                               1999       1999
                             --------   ---------
<S>                          <C>        <C>
CONSOLIDATED STATEMENTS OF
  OPERATIONS DATA:
Revenues:
  Network solutions........  $ 17,921    $ 3,900
                             --------    -------
  Software license.........     1,625      1,348
                             --------    -------
Total revenues.............    19,546      5,248
Cost of revenues...........   (13,869)    (3,445)
                             --------    -------
Gross profit...............     5,677      1,803
                             --------    -------
Operating expenses:
  Sales and marketing......    (1,426)    (1,095)
  General and
    administrative.........    (1,842)    (1,751)
  Research and
    development............      (679)      (419)
  Deferred stock
    compensation expense...      (373)      (589)
                             --------    -------
Total operating expenses...    (4,320)    (3,854)
                             --------    -------
Operating income (loss)....     1,357     (2,051)
Net interest income
  (expense)................       (21)        47
Other income, net..........        (9)       183
                             --------    -------
</TABLE>

                                        30
<PAGE>   31
<TABLE>
<CAPTION>
                                                             THREE MONTHS ENDED
                             ----------------------------------------------------------------------------------
                             DECEMBER 31,   SEPTEMBER 30,   JUNE 30,   MARCH 31,   DECEMBER 31,   SEPTEMBER 30,
                                 2000           2000          2000       2000          1999           1999
                             ------------   -------------   --------   ---------   ------------   -------------
<S>                          <C>            <C>             <C>        <C>         <C>            <C>
Income (loss) before tax...       1,296            390           329     (4,595)      (3,705)           (413)
Income tax expense
  (benefit)................         286             (6)         (105)        43           86             121
                               --------       --------      --------   --------      -------        --------
Income (loss) before
  minority interest........       1,010            396           434     (4,638)      (3,791)           (534)
Minority interest..........          13             19             -          -            -              21
Equity in loss of
  affiliate................           -              -             -          -          (26)             (9)
                               --------       --------      --------   --------      -------        --------
Net income (loss)..........    $  1,023       $    415      $    434   $ (4,638)     $(3,817)       $   (522)
                               ========       ========      ========   ========      =======        ========
ADDITIONAL DATA:
Total revenues net of
  hardware costs...........    $ 14,072       $ 13,299      $ 11,736   $  5,471      $ 6,472        $  8,012

<CAPTION>
                              THREE MONTHS ENDED
                             --------------------
                             JUNE 30,   MARCH 31,
                               1999       1999
                             --------   ---------
<S>                          <C>        <C>
Income (loss) before tax...     1,327     (1,821)
Income tax expense
  (benefit)................       106         70
                             --------    -------
Income (loss) before
  minority interest........     1,221     (1,891)
Minority interest..........        31         32
Equity in loss of
  affiliate................         -          -
                             --------    -------
Net income (loss)..........  $  1,252    $(1,859)
                             ========    =======
ADDITIONAL DATA:
Total revenues net of
  hardware costs...........  $  7,663    $ 3,074
</TABLE>

Although actual results from year to year can vary considerably, particularly as
our company grows. We believe that our business is subject to a certain degree
of seasonality. In particular, orders tend to be slow in the first quarter
because of two major Chinese holidays during this period, including the Chinese
Lunar New Year. In addition, the Chinese government conducts its internal
budgetary review and allocation process during this period, which has the effect
of delaying project commitments by our customers.

In the fourth quarter of 2000, we benefited from a change in regulations issued
in that quarter by the Department of Finance of Beijing, which reduced the
contributions, effective the beginning of 2000, we were required to make to the
government for PRC employee benefits. As a result, during the fourth quarter, we
reversed $0.9 million of costs accrued in the first three quarters of 2000 which
had previously been expensed ($257,000 in the first quarter, $300,000 in the
second quarter and $345,000 in the third quarter of 2000).

Our revenues and operating results can vary significantly from quarter to
quarter due to a number of factors. In particular, our business is characterized
by limited numbers of large projects. As discussed above, the majority of
revenues for a project are recognized at the point of hardware delivery. Thus,
in any given quarter, we may recognize exceptionally large or exceptionally
small amounts of revenue, depending on the timing of hardware delivery and size
of the project.

LIQUIDITY AND CAPITAL RESOURCES

In March 2000, we completed an initial public offering of our common stock, from
which we derived net proceeds of approximately $127 million. Total contributed
shareholder equity at December 31, 2000 was $175.8 million.

Our capital requirements are primarily working capital requirements related to
hardware sales and costs associated with the expansion of our business, such as
research and development and sales and marketing expenses. We recognize hardware
costs in full upon delivery of the hardware to our customers. In order to
minimize our working capital requirements, we generally obtain from our hardware
vendors payment terms that are timed to permit us to receive payment from our
customers for the hardware before our payments to hardware vendors are due.
However, in certain recent large projects, we obtained less favorable payment
terms from our customers, thereby increasing our working capital requirements.
We have historically financed our working capital and other financing
requirements through careful management of our network solutions billing cycle,
private placements of equity securities, our initial public offering in March of
2000 and, to a limited extent, bank loans.

Our accounts receivable at December 31, 2000 were $55.6 million, consisting of
$22.4 million in billed receivables and $33.2 million in unbilled receivables.
Our unbilled receivables are based on revenue we have booked through the
percentage completion method, but for which we have not yet billed the customer.
Our billed receivables are based on revenue we have booked and billed. The
process of billing receivables in China is somewhat different than in the United
States, as customers typically do not make

                                        31
<PAGE>   32

full payment until complete satisfaction of the project. Despite these longer
receivable cycles, since our inception we have made bad debt provisions for
approximately 1% of our accounts receivable.

As of December 31, 2000, we had total short-term credit facilities totaling
$25.3 million expiring in March and May 2001, for working capital purposes, of
which unused short-term credit facilities were $12.4 million at that date. At
December 31, 2000, borrowings under these facilities totaled $12.9 million.
Approximately $24.8 million of the total short-term credit facilities was
secured by bank deposits of $18.6 million.

Additional borrowings of approximately $7.7 million were secured by bank
deposits of $8.1 million. All the borrowings were in Renminbi, the currency of
China. The loans carry interest ranging from approximately 5.58% to 6.43% per
annum and are repayable within one year. Bank deposits pledged as security for
these bank loans and short-term credit facilities totaled $26.7 million and
$12.2 million as of December 31, 2000 and 1999, respectively, and are presented
as restricted cash in our consolidated balance sheets.

We anticipate that the net proceeds of our initial public offering in March
2000, together with available funds and cash flows generated from operations and
the proceeds of our private placements, will be sufficient to meet our
anticipated needs for working capital, capital expenditures and business
expansion through 2001. We may need to raise additional funds in the future,
however, in order to fund acquisitions, develop new or enhanced services or
products, respond to competitive pressures to compete successfully for larger
projects involving higher levels of hardware purchases, or if our business
otherwise grows more rapidly than we currently predict. We plan to raise
additional funds, if necessary, through new issuances of shares of our equity
securities in one or more public offerings or private placements, or through
credit facilities extended by lending institutions.

In the event that we decide to pay dividends to our shareholders, our ability to
pay dividends will depend in part on our ability to receive dividends from our
operating subsidiaries in China. Foreign exchange and other regulations in China
may restrict our ability to distribute retained earnings from our operating
subsidiaries in China or convert those payments from Renminbi into foreign
currencies.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Boards issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". This statement
requires companies to record all derivatives on the balance sheet as assets or
liabilities measured at fair value. Gains and losses resulting from changes in
fair market values of those derivative instruments would be accounted for
depending on the use of the instrument and whether it qualifies for hedge
accounting. SFAS No. 133 will be effective for our fiscal year ending December
31, 2001. Adoption of SFAS No. 133 will not have a material effect on our
financial condition, results of operations or cash flows.

FACTORS AFFECTING OUR OPERATING RESULTS AND OUR COMMON STOCK

In addition to the other information in this report, the following factors
should be considered in evaluating our business and our future prospects:

THE GROWTH OF OUR BUSINESS IS DEPENDENT ON GOVERNMENT BUDGETARY POLICY,
PARTICULARLY THE ALLOCATION OF FUNDS TO SUSTAIN THE GROWTH OF THE
TELECOMMUNICATIONS INDUSTRY AND THE INTERNET IN CHINA.

Virtually all of our large customers are directly or indirectly owned or
controlled by the government of China. Accordingly, their business strategies,
capital expenditure budgets and spending plans are largely decided in accordance
with government policies, which, in turn, are determined on a centralized basis
at the highest level by the State Planning Commission of the PRC. As a result,
the growth of our business is heavily dependent on government policies for
telecommunications and Internet infrastructure. Despite the high priority
currently accorded by the government to the development of telecommunications
industry and Internet infrastructure, and a high level of funding allocated by
the government to these sectors, insufficient government allocation of funds to
sustain the growth of the telecommunications and Internet

                                        32
<PAGE>   33

industries in the future could reduce the demand for our products and services
and have a material adverse effect on our ability to grow our business.

Furthermore, if demand for Internet and telecommunications service from Chinese
enterprises and households is not as strong as projected, our customers'
investment in Internet and telecommunications infrastructure is likely to
decrease. Although China's Internet population has increased dramatically in
recent years and is expected to grow at a 77.3% compound annual growth rate from
1999 to 2002, the average annual household income level in China is low relative
to other industrialized nations. This may dampen the overall commercial impact
of the Internet's growth in China relative to other countries.

LAWS AND REGULATIONS APPLICABLE TO THE INTERNET IN CHINA REMAIN UNSETTLED AND
COULD HAVE A MATERIAL ADVERSE EFFECT ON THE INTERNET'S GROWTH AND THEREBY HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS.

Growth of the Internet in China could be materially adversely affected by
governmental regulation of the industry. Due to the increasing popularity and
use of the Internet and other online services, new regulations have been and may
continue to be adopted with respect to the Internet or other online services.
The Ministry of Information Industry has recently promulgated the Administrative
Measures on Internet Information Services and related implementing regulations.
Among other things, the "Administrative Measures on Internet Information
Services":

 --   require Internet content providers to obtain approval from the Ministry of
      Information Industry before they can list securities overseas or obtain
      foreign investment;

 --   require Internet content providers to obtain licenses from various
      ministries, depending on the nature of the content they provide; and

 --   require Internet content providers to police their content in order to
      prevent restricted material from appearing on their websites.

Because we are engaged in Internet infrastructure development and
Internet-related software development and licensing, we do not expect these new
regulations to have a direct impact on us. However, we cannot guarantee that the
adoption of these regulations or other regulations will not slow the growth of
the Internet or other online services in China. In particular, the prohibitions
against a broad but vague range of information on the Internet (such as
information that is damaging to national security, national interest, and social
order), the relevant monitoring, record-keeping, reporting and other
administrative burdens imposed on Internet access and content providers, and the
severe penalties for violations of these regulations could have a chilling
effect on Internet content providers and Internet users and could lead to
increased compliance costs for Internet content providers. Any slow-down in the
growth of the Internet in China could in turn lead to reduced Internet traffic,
and a decrease in the demand for our network solutions and Internet-related
software products.

OUR CUSTOMER BASE IS CONCENTRATED AND THE LOSS OF ONE OR MORE OF OUR CUSTOMERS
COULD CAUSE OUR BUSINESS TO SUFFER SIGNIFICANTLY.

We have derived and believe that we will continue to derive a significant
portion of our revenues from a limited number of large customers, such as China
Telecom, China Unicom, China Mobile and China Netcom. China Telecom accounted
for almost all of our revenues in 1997 and 1998. In 1999, China Telecom,
together with China Unicom, accounted for almost all of our revenues. At
December 31, 2000, China Telecom and China Unicom accounted for approximately
65% of our backlog net of hardware costs. In the future, we expect to derive an
increasing portion of our revenues from China Unicom, China Mobile and China
Netcom. The loss, cancellation or deferral of any large contract by any of our
large customers would have a material adverse effect on our revenues, and
consequently our profits.

                                        33
<PAGE>   34

THE LONG AND VARIABLE SALES CYCLES FOR OUR PRODUCTS AND SERVICES CAN CAUSE OUR
REVENUES AND OPERATING RESULTS TO VARY SIGNIFICANTLY FROM PERIOD TO PERIOD AND
MAY ADVERSELY AFFECT THE TRADING PRICE OF OUR COMMON STOCK.

Our revenues and operating results will vary significantly from quarter to
quarter due to a number of factors, many of which are outside of our control and
any of which may cause our stock price to fluctuate. A customer's decision to
purchase our services and products involves a significant commitment of its
resources and an extended evaluation. As a result, our sales cycle tends to be
lengthy. We spend considerable time and expense educating and providing
information to prospective customers about features and applications of our
services and products. Because our major customers operate large and complex
networks, they usually expand their networks in large increments on a sporadic
basis. The combination of these factors can cause our revenues and results of
operations to vary significantly and unexpectedly. Other factors that may affect
us include the following:

 --   fluctuation in demand for our products and services as a result of
      budgetary cycles of our large customers, particularly state-owned
      enterprises;

 --   the reduction, delay, interruption or termination of one or more
      infrastructure projects; and

 --   our ability to introduce, develop and deliver new software products that
      meet customer requirements in a timely manner.

A large part of the contract amount of a network solutions project usually
relates to hardware procurement. Since we recognize most of the revenues
relating to hardware plus a portion of contract services revenues at the time of
hardware delivery, the timing of hardware delivery can cause our quarterly
revenues to fluctuate significantly.

Due to the foregoing factors, we believe that quarter-to-quarter comparisons of
our operating results are not a good indication of our future performance and
should not be relied upon. It is likely that our operating results in some
periods may be below the expectations of public market analysts and investors.
In this event, the price of our common stock will probably decline, perhaps
significantly more in percentage terms than the decline in operating results.

OUR WORKING CAPITAL REQUIREMENTS MAY INCREASE SIGNIFICANTLY.

We typically purchase hardware for our customers as part of our turn-key total
solutions services. We generally require our customers to pay 90% of the invoice
value of the hardware upon delivery. We typically place orders for hardware
against back-to-back orders from customers and seek favorable payment terms from
hardware vendors. This policy has historically minimized our working capital
requirements. However, for certain large and strategically important projects,
we have agreed to payment of less than 90% of the invoice value of the hardware
upon delivery in order to maintain competitiveness. Wider adoption of less
favorable payment terms or delays in hardware deliveries would require us to
increase our working capital needs.

Our working capital requirements may also increase significantly in order to
fund more rapid expansion and acquisitions, to develop new or enhanced services
or products, to respond to competitive pressure to compete successfully for
larger projects involving higher levels of hardware purchases or otherwise if
our business grows more rapidly than we currently predict. An increase in our
working capital needs may require that we raise additional funding sooner than
we presently expect.

WE HAVE SUSTAINED LOSSES IN PRIOR YEARS AND MAY INCUR SLOWER EARNINGS GROWTH,
EARNINGS DECLINES OR NET LOSSES IN THE FUTURE.

Although we made a net profit in 1996 and 1998, we have sustained losses in
1997, 1999, 2000 and prior years. There are no assurances that we can regain or
sustain profitability or avoid net losses in the future. We continue to expect
that certain of our operating expenses will increase as our business grows. The
level of these expenses will be largely based on anticipated organizational
growth and revenue trends and a high

                                        34
<PAGE>   35

percentage will be fixed. As a result, any delays in expanding sales volume and
generating revenue could result in substantial operating losses. Any such
developments could cause the market price of our common stock to decline.

MANAGEMENT'S ABILITY TO IMPLEMENT ADEQUATE CONTROL SYSTEMS WILL BE CRITICAL TO
THE SUCCESSFUL MANAGEMENT OF OUR FUTURE GROWTH.

In recent years, we have been expanding our operations rapidly, both in size and
scope. Our growth places a significant strain on our management systems and
resources. Our ability to market our products successfully and implement our
business plan in a rapidly evolving market requires an effective planning and
management process. We will need to continue to improve our financial,
managerial and operational controls and reporting systems, and to expand, train
and manage our work force. We may not be able to implement adequate control
systems in an efficient and timely manner.

WE FACE A COMPETITIVE LABOR MARKET IN CHINA FOR SKILLED PERSONNEL AND THEREFORE
ARE HIGHLY DEPENDENT ON THE SKILLS AND SERVICES OF OUR EXISTING KEY SKILLED
PERSONNEL AND OUR ABILITY TO HIRE ADDITIONAL SKILLED EMPLOYEES.

Competition for highly skilled software design, engineering and sales and
marketing personnel is intense in China. Failure to attract, assimilate or
retain qualified personnel to fulfill our current or future needs could impair
our growth. Competition for skilled personnel comes primarily from a wide range
of foreign companies active in China, many of which have substantially greater
resources than we have. Limitations on our ability to hire and train a
sufficient number of personnel at all levels would limit our ability to
undertake projects in the future and could cause us to lose market share.

SINCE OUR BUSINESS HAS BEEN EVOLVING, OUR HISTORICAL FINANCIAL INFORMATION MAY
NOT BE AN APPROPRIATE BASIS ON WHICH TO EVALUATE US OR OUR PROSPECTS.

We moved our operations from Texas to China in 1995 and began generating
significant network solutions revenue in 1996 and significant software license
revenues in 1998. We expect our business to continue to evolve as the Internet
and telecommunications markets in China change and expand. In particular, we are
currently investing substantial personnel and financial resources in expanding
our software business, which we expect to account for a significantly greater
portion of our operating expenses and revenues than in the past. As a result,
our historical financial data may not provide a meaningful basis upon which
investors may evaluate us and our prospects. You should consider the risks and
difficulties encountered by companies like ours in a new and rapidly evolving
market. Our ability to sell products and our level of success depend, among
other things, on the level of demand for Internet-related, professional IT
services and software products in China.

WE EXTEND WARRANTIES TO OUR NETWORK SOLUTIONS CUSTOMERS THAT EXPOSE US TO
POTENTIAL LIABILITIES.

We customarily provide our customers with one to three year warranties, under
which we agree to maintain the installed systems at no additional cost to our
customers. The maintenance services cover both hardware and our proprietary and
third party software products. Although we seek to arrange back-to-back
warranties with hardware and software vendors, we have the primary
responsibility to maintain the installed hardware and software. Our contracts do
not have disclaimers or limitations on liability for special, consequential and
incidental damages, nor do we cap the amounts recoverable for damages. In
addition, we do not currently maintain any insurance policy with respect to our
exposure to warranty claims. Although to date we have not incurred any liability
for special, consequential or incidental damages, failure of our installed
projects to operate properly could give rise to substantial claims against us
that in turn could materially and adversely affect us.

                                        35
<PAGE>   36

WE SELL OUR LARGE SYSTEMS INTEGRATION PROJECTS ON A FIXED PRICE, FIXED-TIME
BASIS WHICH EXPOSES US TO RISKS ASSOCIATED WITH COST OVERRUNS AND DELAYS.

We sell substantially all of our systems integration projects on a fixed-price,
fixed-time basis. Failure to complete a fixed-price, fixed-time project within
budget and the required time frame would expose us to cost overruns and
penalties that could have a material adverse effect on our business, operating
results and financial condition. In contracts with our customers, we typically
agree to pay late completion fines up to 5% of the total contract value. In
large scale Internet infrastructure projects, there are many factors beyond our
control which could cause delays or cost overruns. In this event, we would be
exposed to cost overruns and liable for late completion fines. A part of our
network solutions business is installing Internet network hardware. If we are
unable to obtain access to such equipment in a timely manner or on acceptable
commercial terms, our business, particularly our relationships with our
customers, may be materially and adversely affected.

WE MAY BECOME LESS COMPETITIVE IF WE ARE UNABLE TO DEVELOP OR ACQUIRE NEW
PRODUCTS OR ENHANCEMENTS TO OUR SOFTWARE PRODUCTS THAT ARE MARKETABLE ON A
TIMELY AND COST-EFFECTIVE BASIS.

We continually develop new services and proprietary software products.
Unexpected technical, operational, distribution or other problems could delay or
prevent the introduction of one or more of these products or services or any
products or services that we may plan to introduce in the future. Moreover, we
cannot be sure that any of these products and services will achieve widespread
market acceptance or generate incremental revenues.

OUR PROPRIETARY RIGHTS MAY BE INADEQUATELY PROTECTED AND THERE IS A RISK OF POOR
LAW ENFORCEMENT.

Our success and ability to compete depend substantially upon our intellectual
property rights, which we protect through a combination of copyright, trade
secret law and trademark law. We have filed trademark applications with the
United States Trademark Office, the Trademark Bureau of the State Administration
of Industry and Commerce in China and the Trade Marks Registry in Hong Kong. We
have also been granted copyrights by the State Copyright Bureau in China with
respect to Internet-related software products, although we have not applied for
copyright protection elsewhere (including the United States). Despite these
precautions, the legal regime protecting intellectual property rights in China
is weak. Because the Chinese legal system in general, and the intellectual
property regime in particular, are relatively weak, it is often difficult to
enforce intellectual property rights in China. In addition, there are other
countries where effective copyright, trademark and trade secret protection may
be unavailable or limited, and the global nature of the Internet makes it
virtually impossible to control the ultimate destination of our products.

We do not own any patents and have not filed any patent applications, as we do
not believe that the benefits of patent protection outweigh the costs of filing
and updating patents for our software products. We enter into confidentiality
agreements with our employees and consultants, and control access to, and
distribution of, our documentation and other licensed information. Despite these
precautions, it may be possible for a third party to copy or otherwise obtain
and use our licensed services or technology without authorization, or to develop
similar technology independently. Policing unauthorized use of our licensed
technology is difficult and there can be no assurance that the steps taken by us
will prevent misappropriation or infringement of our proprietary technology. In
addition, litigation may be necessary in the future in order to enforce our
intellectual property rights, to protect our trade secrets or to determine the
validity and scope of the proprietary rights of others, which could result in
substantial costs and diversion of our resources.

WE ARE EXPOSED TO CERTAIN BUSINESS AND LITIGATION RISKS WITH RESPECT TO
TECHNOLOGY RIGHTS HELD BY THIRD PARTIES.

We currently license technology from third parties and intend to do so
increasingly in the future. As we introduce services that require new
technology, we will probably need to license additional third party

                                        36
<PAGE>   37

technology. We cannot assure you that these technology licenses will be
available to us on commercially reasonable terms, if at all. Our inability to
obtain any of these licenses could delay or compromise our ability to introduce
new services. In addition, we may or may allegedly breach the technology rights
of others and incur legal expenses and damages, which, in the aggregate, could
be substantial.

INVESTORS MAY NOT BE ABLE TO ENFORCE JUDGMENTS BY UNITED STATES COURTS AGAINST
US.

We are incorporated in the State of Delaware. However, a majority of our
directors, executive officers and shareholders live outside the United States,
principally in Beijing, China and Hong Kong. Also, all or most of our assets are
located outside the United States. As a result, you may not be able to:

 --   effect service of process upon us or these persons within the United
      States, or

 --   enforce against us or these persons judgments obtained in United States
      courts, including judgments relating to the federal securities laws of the
      United States.

WE DO NOT INTEND TO PAY AND MAY BE RESTRICTED FROM PAYING DIVIDENDS ON OUR
COMMON STOCK.

We have never declared or paid any dividends on our capital stock and we do not
intend to declare any dividends. We currently intend to retain future earnings
to fund growth. Furthermore, if we decide to pay dividends, foreign exchange and
other regulations in China may restrict our ability to distribute retained
earnings from China or convert these payments from Renminbi into foreign
currencies. In addition, loan agreements and contractual arrangements we enter
into in the future may also restrict our ability to pay dividends.

THE FACT THAT OUR BUSINESS IS CONDUCTED IN BOTH U.S. DOLLARS AND RENMINBI MAY
SUBJECT US TO CURRENCY EXCHANGE RATE RISK DUE TO FLUCTUATIONS IN THE EXCHANGE
RATE BETWEEN THESE TWO CURRENCIES.

Substantially all of our revenues, expenses and liabilities are denominated in
either U.S. dollars or Renminbi. As a result, we are subject to the effects of
exchange rate fluctuations between these currencies. Most contracts we enter
into with our customers provide for price adjustments reflecting foreign
exchange fluctuations; however, we cannot guarantee that future contracts will
contain such provisions. As a result of the unitary exchange rate system
introduced in China on January 1, 1994, the official bank exchange rate for
conversion of Renminbi to U.S. dollars experienced a devaluation of
approximately 50%. We report our financial results in U.S. dollars, therefore,
any future devaluation of the Renminbi against the U.S. dollar may have an
adverse effect upon our reported net income.

Substantially all our revenues and expenses relating to hardware sales are
denominated in U.S. dollars, and substantially all our revenues and expenses
relating to the service component of our network solutions business and software
business are denominated in Renminbi. Although, in general, our exposure to
foreign exchange risks should be limited, the value in our shares may be
affected by the foreign exchange rate between the U.S. dollar and the Renminbi
because the value of our business is effectively denominated in Renminbi, while
our shares are traded in U.S. dollars. Furthermore, a decline in the value of
the Renminbi could reduce the U.S. dollar value of earnings from, and our
investment in, our subsidiaries in China.

THE MARKETS IN WHICH WE SELL OUR SERVICES AND PRODUCTS ARE HIGHLY COMPETITIVE
AND WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY.

The network solutions market for Internet infrastructure in China is new and
rapidly changing. Our competitors in the market mainly include domestic systems
integrators such as Ztec and Autian. Although we are a leading player in this
market, there are many large multinational companies with substantial, existing
information technology operations in other markets in China, that have
significantly greater financial, technological, marketing and human resources.
Should they decide to enter the network solutions market for Internet
infrastructure, this could hurt our profitability and erode our market share.

                                        37
<PAGE>   38

In the customer management and billing software market, we compete with both
international and local software providers. In the online billing segment, we
compete primarily with Portal Software, MIND and Ztec, and in the wireless
billing segment, we compete with more than ten local competitors. The messaging
software sector is highly competitive. Our principal competitors in this sector
are Open Wave (formerly known as Software.com) and Netease. Currently, due in
part to a stringent approval system for providers of wireless billing software
in China and competitive pricing offered by domestic companies, some
multinational information technology companies have been deterred from entering
this market. In view of the gradual deregulation of the Chinese
telecommunications industry and China's pending entry into the WTO, we
anticipate the entrance of new competitors into the customer management and
billing software market.

Our competitors, some of whom have greater financial, technical and human
resources than us, may be able to respond more quickly to new and emerging
technologies and changes in customer requirements or devote greater resources to
the development, promotion and sale of new products or services. It is possible
that competition in the form of new competitors or alliances, joint ventures or
consolidation among existing competitors may decrease our market share.
Increased competition could result in lower personnel utilization rates, billing
rate reductions, fewer customer engagements, reduced gross margins and loss of
market share, any one of which could materially and adversely affect our profits
and overall financial condition.

POLITICAL AND ECONOMIC POLICIES OF THE CHINESE GOVERNMENT COULD AFFECT OUR
INDUSTRY IN GENERAL AND OUR COMPETITIVE POSITION IN PARTICULAR.

Since the establishment of the PRC in 1949, the Communist Party has been the
governing political party in China. The highest bodies of leadership are the
Politburo of the Communist Party, the Central Committee and the National
People's Congress. The State Council, which is the highest institution of
government administration, reports to the National People's Congress and has
under its supervision various commissions, agencies and ministries, including
The Ministry of Information Industry, the telecommunications regulatory body of
the Chinese government. Since the late 1970s, the Chinese government has been
reforming the Chinese economic system. Although we believe that economic reform
and the macroeconomic measures adopted by the Chinese government have had and
will continue to have a positive effect on the economic development in China,
there can be no assurance that the economic reform strategy will not from time
to time be modified or revised. Such modifications or revisions, if any, could
have a material adverse effect on the overall economic growth of China and
investment in the Internet and the telecommunications industry in China. Such
developments could reduce, perhaps significantly, the demand for our products
and services. There is no guarantee that the Chinese government will not impose
other economic or regulatory controls that would have a material adverse effect
on our business. Furthermore, changes in political, economic and social
conditions in China, adjustments in policies of the Chinese government or
changes in laws and regulations could adversely affect our industry in general
and our competitive position in particular.

THE FAILURE OF CHINA TO GAIN ENTRY INTO THE WTO COULD NEGATIVELY IMPACT THE
CHINESE ECONOMY AND OUR GROWTH.

Failure by China to join the World Trade Organization, as expected, could slow
down China's economic growth and could result in lower than forecasted spending
in the telecommunications sector in China, which in turn could adversely affect
the demand for our products and services from our large customers.

UNCERTAINTIES WITH RESPECT TO THE CHINESE LEGAL SYSTEM COULD ADVERSELY AFFECT
US.

Our principal operating subsidiary, AsiaInfo Technologies, is a wholly foreign
owned enterprise for Chinese legal purposes, which means that it is incorporated
in China and wholly-owned by foreign investors. AsiaInfo Technologies, along
with our indirect majority-owned subsidiary, MarSec Systems Inc., are subject to
laws and regulations applicable to foreign investment in China in general and
laws applicable to wholly foreign owned enterprises in particular. The
legislation and regulations over the past 20 years have
                                        38
<PAGE>   39

significantly enhanced the protections afforded to various forms of foreign
investment in China. However, since the Chinese legal system is still evolving,
the interpretations of many laws, regulations and rules are not always uniform
and enforcement of these laws, regulations and rules involve uncertainties,
which may limit remedies available to us.

HIGH TECHNOLOGY AND EMERGING MARKET SHARES HAVE HISTORICALLY EXPERIENCED EXTREME
VOLATILITY AND MAY SUBJECT YOU TO LOSSES.

The trading price of our shares may be subject to significant market volatility
due to:

 --   investor perceptions of us and investments relating to China and Asia;

 --   developments in the Internet and telecommunications industries;

 --   variations in our operating results from period to period due to project
      timing; and

 --   announcements of new products or services by us or by our competitors.

In addition, the high technology sector of the stock market frequently
experiences extreme price and volume fluctuations, which have particularly
affected the market prices of many Internet and computer software companies and
which have often been unrelated to the operating performance of these companies.

FUTURE SALES OF SHARES BY OUR COMPANY OR EXISTING SHAREHOLDERS COULD CAUSE THE
MARKET PRICE OF OUR COMMON STOCK TO FALL.

If our stockholders sell substantial amounts of our common stock in the public
market, including shares issued upon the exercise of outstanding options, the
market price of our common stock could fall. Such sales also might make it more
difficult for us to sell equity or equity-related securities in the future at a
time and price that we deem appropriate.

A SMALL NUMBER OF SHAREHOLDERS CONTROLS US.

Our six largest shareholders, Warburg-Pincus Ventures, ChinaVest Group, and
Intel Pacific, Inc., and their affiliates, as well as Edward Tian, one of our
directors, James Ding, our President and Chief Executive Officer, and Louis Lau,
our Chairman, in the aggregate, control over 70% of our voting stock. As a
result, these shareholders are able to control all matters requiring shareholder
approval, including election of directors and approval of significant corporate
transactions, such as a sale of our assets and the terms of future equity
financings. The combined voting power of our large shareholders could have the
effect of delaying or preventing a change in control.

WE ARE SUBJECT TO ANTI-TAKEOVER PROVISIONS THAT COULD PREVENT A CHANGE OF
CONTROL OF ASIAINFO AND PREVENT OUR SHAREHOLDERS FROM REALIZING A PREMIUM ON
THEIR COMMON STOCK.

Our board of directors has the authority to issue up to 10,000,000 shares of our
preferred stock. Without any further vote or action on the part of our
stockholders, the board of directors has the authority to determine the price,
rights, preferences, privileges and restrictions of the preferred stock. This
preferred stock, if it is ever issued, may have preference over and harm the
rights of the holders of common stock. Although the issuance of this preferred
stock will provide us with flexibility in connection with possible acquisitions
and other corporate purposes, this issuance may make it more difficult for a
third party to acquire a majority of our outstanding voting stock.

We currently have authorized the size of our board of directors to be not less
than three nor more than nine directors. The terms of the office of the
seven-member board of directors have been divided into three classes: Class I,
whose term will expire at the annual meeting of the stockholders to be held in
2003; Class II, whose term will expire at the annual meeting of stockholders to
be held in 2001; and Class III, whose term will expire at the annual meeting of
stockholders to be held in 2002. This classification of the board of directors
may have the effect of delaying or preventing changes in control or management.

                                        39
<PAGE>   40

We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. In general, the statute prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date when the person became
an interested stockholder unless, subject to exceptions, the business
combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the stockholder.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to interest-rate risk primarily associated with our underlying
liabilities. To date, we have not entered into any types of derivatives to hedge
against interest-rate changes, nor do we speculate in foreign currency. However,
we do maintain a significant portion of our cash deposits in U.S. dollars to
avoid currency risk related to Renminbi. A portion of these U.S. dollar deposits
are used to collateralize Renminbi-denominated loans from Chinese banks.

Because substantially all of our revenues and expenses relating to hardware
sales are denominated in U.S. dollars, and substantially all of our revenues and
expenses relating to the service component of our network solutions business and
software business are denominated in Renminbi, we do not have significant
exposure to either the U.S. dollar or Renminbi. Thus, we do not believe that it
is necessary to enter into derivatives contracts to hedge our exposures to
either currency.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The independent auditor's report, consolidated financial statements and notes to
consolidated financial statements begin on Page F-1.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

                                        40
<PAGE>   41

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information concerning our directors and executive officers is incorporated by
reference to the sections entitled "Proposal No. 1: Election of
Directors -- Nominees for Class II Directors" and "Management -- Executive
Officers" contained in our definitive proxy statement with respect to our 2001
Annual Meeting of stockholders to be filed with the Securities and Exchange
Commission not later than 120 days after the end of the fiscal year covered by
this Form 10-K (the "Proxy Statement"). Information concerning compliance with
Section 16(a) of the Securities Exchange Act of 1934 is incorporated by
reference to the section entitled "Section 16(a) Beneficial Ownership Reporting
Compliance" contained in our Proxy Statement.

ITEM 11.  EXECUTIVE COMPENSATION

Information concerning executive compensation is incorporated by reference to
the sections entitled "Proposal No. 1: Election of Directors -- Director
Compensation," "Executive Compensation -- Summary Compensation Table,"
"Executive Compensation -- Option Grants in Last Fiscal Year," "Executive
Compensation -- Aggregated Option Exercises in Last Fiscal Year and Fiscal
Year-End Option Values," "Executive Compensation -- Employment Agreements,"
"Executive Compensation -- Pension Plans," "Executive
Compensation -- Compensation Committee Report," and "Stock Price Performance"
contained in our Proxy Statement.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information concerning the security ownership of certain beneficial owners and
management is incorporated by reference to the sections entitled "Information
Concerning Solicitation and Voting" and "Security Ownership of Certain
Beneficial Owners and Management" contained in our Proxy Statement.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information concerning certain relationships and related transactions is
incorporated by reference to the section entitled "Certain Relationships and
Related Transactions" contained in our Proxy Statement.

                                        41
<PAGE>   42

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS OF FORM 8-K

(a) 1.  Financial Statements

     The financial statements as set forth under Item 8 of this report on Form
     10-K are incorporated herein by reference.

     2.  Financial Statement Schedule

     The information required is either not applicable or is included in the
     notes to the consolidated financial statements.

(b) Reports on Form 8-K

     None

(c) Exhibit Listing

<TABLE>
<CAPTION>
    EXHIBIT
    NUMBER    DESCRIPTION OF EXHIBITS
    -------   -----------------------
    <S>       <C>
    3.1       Certificate of Incorporation of AsiaInfo Holdings, Inc.,
              dated June 8, 1998/*/
    3.2       Certificate of Amendment to Certificate of Incorporation of
              AsiaInfo Holdings, Inc., dated August 27, 1999/*/
    3.3       Certificate of Amendment to Certificate of Incorporation of
              AsiaInfo Holdings, Inc., dated November 15, 2000.
    3.4       Certificate of Correction to Certificate of Amendment to
              Certificate of Incorporation of AsiaInfo Holdings, Inc.,
              dated January 18, 2001.
    3.5       By-Laws of AsiaInfo Holdings, Inc., dated December 19, 2000
    4.1       Specimen Share Certificate representing AsiaInfo Holdings,
              Inc. shares of common stock/*/
    10.1      2000 Stock Option Plan, approved and adopted as of October
              18, 2000/**/
    10.2      Certificate of Merger of HTC Investments, Inc., a Delaware
              corporation, with and into AsiaInfo Holdings, Inc., a
              Delaware corporation, dated October 13, 1999/*/
    10.3      Shareholders' Agreement of MarSec Holdings Inc., dated as of
              September 15, 2000, by and among AsiaInfo Holdings, Inc. and
              the Founders (as defined therein) of MarSec Holdings, Inc.
              /**/
    10.4      Warrant to purchase Series A Preferred Shares of MarSec
              Holdings, Inc., issued to AsiaInfo Holdings, Inc. as of
              September 15, 2000/**/
    10.5      Lease of AsiaInfo's headquarters at 6 Zhongguancun South
              Street, Beijing, dated August 31, 1999/*/
    10.6      Agreement for the Merger of AsiaInfo Technologies (China)
              Inc. and Zhejiang AsiaInfo Telecommunications Technology Co.
              Ltd.
    10.7      Agreement for the Establishment of a Limited Liability
              Company (Guangdong Wangying Communications Technology
              Company Limited) and Capital Contribution.
    11.1      Statement regarding computation of per share earnings
              (included in note 8 to consolidated financial statements)
    21.1      Subsidiaries of AsiaInfo Holdings, Inc.
    23.1      Consent of Deloitte Touche Tohmatsu
    24.1      Power of Attorney (included on signature page to this
              report)
</TABLE>

/*/  Incorporated by reference to the same numbered exhibit previously filed
with our Registration Statement on Form S-1 (No. 333-93199).

/**/ Incorporated by reference to our Quarterly Report on Form 10-Q/A for the
quarter ended September 30, 2000.

                                        42
<PAGE>   43

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, AsiaInfo Holdings, Inc. has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 16, 2001.

                                          ASIAINFO HOLDINGS, INC.

                                          /s/ James Ding
                                          --------------------------------------
                                          James Ding
                                          President and Chief Executive Officer

                               POWER OF ATTORNEY

KNOW BY ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James Ding his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
Amendments hereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue thereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this Report has been signed by the following persons in the capacities and on
the dates indicated.

<TABLE>
<CAPTION>
             SIGNATURE                               TITLE                         DATE
             ---------                               -----                         ----
<S>                                   <C>                                     <C>
           /s/ Louis Lau              Board Member and Chairman of the        March 16, 2001
------------------------------------  Board
             Louis Lau

           /s/ James Ding             Board Member, President and Chief       March 16, 2001
------------------------------------  Executive Officer (principal
             James Ding               executive officer)

            /s/ Ying Han              Executive Vice President and Chief      March 16, 2001
------------------------------------  Financial Officer (principal
              Ying Han                financial officer and principal
                                      accounting officer)

          /s/ Michael Zhao            Board Member, Senior Vice President     March 16, 2001
------------------------------------  and General Manager for Network
            Michael Zhao              Solutions

          /s/ Alan Bickell            Board Member                            March 16, 2001
------------------------------------
            Alan Bickell

          /s/ Patrick Keen            Board Member                            March 16, 2001
------------------------------------
            Patrick Keen
</TABLE>

                                        43
<PAGE>   44

<TABLE>
<CAPTION>
             SIGNATURE                               TITLE                         DATE
             ---------                               -----                         ----
<S>                                   <C>                                     <C>
           /s/ Chang Sun              Board Member                            March 16, 2001
------------------------------------
             Chang Sun

          /s/ Edward Tian             Board Member                            March 16, 2001
------------------------------------
            Edward Tian
</TABLE>

                                        44
<PAGE>   45

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S>                                                           <C>
Independent auditors' report................................          F-2

Consolidated balance sheets as of December 31, 2000 and
  1999......................................................          F-3
Consolidated statements of operations for the years ended
  December 31, 2000, 1999 and 1998..........................          F-4
Consolidated statements of stockholders' equity and
  comprehensive income (loss) for the years ended December
  31, 2000, 1999 and 1998...................................          F-5
Consolidated statements of cash flows for the years ended
  December 31, 2000, 1999 and 1998..........................    F-6 - F-7
Notes to consolidated financial statements..................   F-8 - F-21
</TABLE>

                                       F-1
<PAGE>   46

                          INDEPENDENT AUDITORS' REPORT

To the Stockholders and Board of Directors of AsiaInfo Holdings, Inc.:

We have audited the accompanying consolidated balance sheets of AsiaInfo
Holdings, Inc. and its subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of operations, stockholders' equity and
comprehensive income (loss), and cash flows for each of the three years in the
period ended December 31, 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 auditing standards generally accepted
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 financial position of the Company and its
subsidiaries at December 31, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2000 in conformity with accounting principles generally accepted in the
United States of America.

                                          /s/ Deloitte Touche Tohmatsu

Hong Kong
January 19, 2001

                                       F-2
<PAGE>   47

                            ASIAINFO HOLDINGS, INC.

                          CONSOLIDATED BALANCE SHEETS
                                (IN US DOLLARS)

<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                                              ---------------------------
                                                                  2000           1999
                                                              ------------    -----------
<S>                                                           <C>             <C>
                           ASSETS
Current Assets:
  Cash and cash equivalents.................................  $ 48,833,956    $25,403,884
  Restricted cash...........................................    26,733,179     12,189,794
  Short-term investments....................................   110,400,000         -
  Accounts receivable, trade (net of allowance for doubtful
     accounts of $545,013 and $640,269 at December 31, 2000
     and 1999, respectively)................................    55,597,496     21,928,036
  Inventories -- hardware and parts.........................     8,876,010      2,908,426
  Other receivables.........................................     3,078,851      1,346,884
  Deferred income taxes.....................................        78,203         25,117
  Deferred offering costs...................................       -              401,607
  Prepaid expenses and other current assets.................       592,201        568,825
                                                              ------------    -----------
          Total current assets..............................   254,189,896     64,772,573
Property and equipment -- net...............................     6,339,751      2,183,545
Goodwill, at cost less accumulated amortization.............     3,245,310      4,302,633
Deferred income taxes.......................................       228,107        168,228
                                                              ------------    -----------
          Total Assets......................................  $264,003,064    $71,426,979
                                                              ============    ===========
            LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Short-term bank loans.....................................  $ 20,644,834    $ 9,698,882
  Accounts payable..........................................    42,037,151     11,867,188
  Deferred revenue..........................................    12,501,524        495,470
  Other payables............................................     1,590,850        360,968
  Accrued employee benefits.................................    10,019,624      4,810,650
  Accrued expenses..........................................     6,194,844      1,930,145
  Income taxes payable......................................       307,373        180,475
  Other taxes payable.......................................     1,909,450      2,295,030
                                                              ------------    -----------
          Total current liabilities.........................    95,205,650     31,638,808
                                                              ------------    -----------
Minority interest...........................................       188,044         -
                                                              ------------    -----------
Commitments and contingencies (Note 9)
Stockholders' Equity:
  Convertible preferred stock:
  Series A: 3,000,000 shares authorized, $0.01 par value,
     shares issued and outstanding: 2000: none; 1999:
     2,160,864..............................................       -               21,609
  Series B: 5,000,000 shares authorized, $0.01 par value,
     shares issued and outstanding: 2000: none; 1999:
     2,630,425..............................................       -               26,304
  Common stock, 100,000,000 shares authorized, $0.01 par
     value, shares issued and outstanding: 2000: 40,822,940
     1999: 25,532,144.......................................       408,229        255,321
  Additional paid-in capital................................   175,370,544     46,118,424
  Deferred stock compensation...............................    (1,655,821)    (3,865,373)
  Accumulated deficit.......................................    (5,530,601)    (2,764,854)
  Accumulated other comprehensive income (loss).............        17,019         (3,260)
                                                              ------------    -----------
          Total stockholders' equity........................   168,609,370     39,788,171
                                                              ------------    -----------
          Total Liabilities and Stockholders' Equity........  $264,003,064    $71,426,979
                                                              ============    ===========
</TABLE>

                 See notes to consolidated financial statements

                                       F-3
<PAGE>   48

                            ASIAINFO HOLDINGS, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                (IN US DOLLARS)

<TABLE>
<CAPTION>
                                                              YEARS ENDED DECEMBER 31,
                                                     ------------------------------------------
                                                         2000           1999           1998
                                                     ------------    -----------    -----------
<S>                                                  <C>             <C>            <C>
Revenues:
  Network solutions................................  $159,505,379    $53,785,805    $41,964,244
  Software license.................................    16,557,721      6,494,008      2,258,148
                                                     ------------    -----------    -----------
  Total revenues...................................   176,063,100     60,279,813     44,222,392
                                                     ------------    -----------    -----------
Cost of revenues:
  Network solutions................................   144,654,521     41,958,770     32,188,695
  Software license.................................        43,791          3,814            819
                                                     ------------    -----------    -----------
  Total cost of revenues...........................   144,698,312     41,962,584     32,189,514
                                                     ------------    -----------    -----------
Gross profit.......................................    31,364,788     18,317,229     12,032,878
                                                     ------------    -----------    -----------
Operating expenses:
  Sales and marketing (excluding stock-based
     compensation: 2000: $653,098; 1999:
     $1,194,115; 1998: $559,333)...................    19,733,496      8,768,155      2,408,031
  General and administrative (excluding stock-based
     compensation: 2000: $1,180,520; 1999:
     $1,331,031; 1998: $300,000)...................    12,892,447      8,166,900      6,463,454
  Research and development (excluding stock-based
     compensation: 2000: $375,934; 1999: $982,532;
     1998: $186,000)...............................     5,974,080      2,838,188      1,435,487
  Amortization of deferred stock compensation......     2,209,552      3,507,678      1,045,333
                                                     ------------    -----------    -----------
  Total operating expenses.........................    40,809,575     23,280,921     11,352,305
                                                     ------------    -----------    -----------
  (Loss) income from operations....................    (9,444,787)    (4,963,692)       680,573
                                                     ------------    -----------    -----------
Other income (expense):
  Interest income..................................     7,919,150        827,157        758,533
  Interest expense.................................    (1,032,373)      (617,867)      (394,398)
  Other (expense) income, net......................       (21,638)       142,504        113,532
                                                     ------------    -----------    -----------
          Total other income, net..................     6,865,139        351,794        477,667
                                                     ------------    -----------    -----------
(Loss) income before income taxes and minority
  interests........................................    (2,579,648)    (4,611,898)     1,158,240
Income tax expense (benefit).......................       217,996        383,226       (255,504)
                                                     ------------    -----------    -----------
(Loss) income before minority interests............    (2,797,644)    (4,995,124)     1,413,744
Minority interests in loss of consolidated
  subsidiaries.....................................        31,897         84,131        122,066
Equity in loss of affiliate........................       -              (34,689)        -
                                                     ------------    -----------    -----------
Net (loss) income..................................  $ (2,765,747)   $(4,945,682)   $ 1,535,810
                                                     ============    ===========    ===========
Net (loss) income per share:
  Basic............................................  $      (0.07)   $     (0.34)   $      0.11
                                                     ============    ===========    ===========
  Diluted..........................................  $      (0.07)   $     (0.34)   $      0.05
                                                     ============    ===========    ===========
Shares used in computation:
  Basic............................................    37,239,649     14,630,145     13,616,412
                                                     ============    ===========    ===========
  Diluted..........................................    37,239,649     14,630,145     31,765,534
                                                     ============    ===========    ===========
</TABLE>

                 See notes to consolidated financial statements

                                       F-4
<PAGE>   49

                            ASIAINFO HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
                                (IN US DOLLARS)
<TABLE>
<CAPTION>
                                          CONVERTIBLE                                                                RETAINED
                                        PREFERRED STOCK          COMMON STOCK         ADDITIONAL      DEFERRED       EARNINGS
                                     ---------------------   ---------------------     PAID-IN         STOCK       (ACCUMULATED
                                       SHARES      AMOUNT      SHARES      AMOUNT      CAPITAL      COMPENSATION     DEFICIT)
                                     ----------   --------   ----------   --------   ------------   ------------   ------------
<S>                                  <C>          <C>        <C>          <C>        <C>            <C>            <C>
BALANCE AT JANUARY 1, 1998.........   2,160,864   $ 21,609   13,831,760   $138,318   $ 17,159,881   $(1,828,667)   $   645,018
Comprehensive income:
  Net income.......................           -          -            -          -              -             -      1,535,810
  Other comprehensive loss, net of
    tax:
  Foreign currency translation
    adjustments....................           -          -            -          -              -             -              -
  Comprehensive income.............
Issuance of stock on conversion of
  convertible loan.................           -          -      153,242      1,532        508,468             -              -
Stock option exercises.............           -          -      175,000      1,750           (875)            -              -
Amortization of deferred stock
  compensation.....................           -          -            -          -              -     1,045,333              -
                                     ----------   --------   ----------   --------   ------------   -----------    -----------
BALANCE AT DECEMBER 31, 1998.......   2,160,864     21,609   14,160,002    141,600     17,667,474      (783,334)     2,180,828
Comprehensive loss:
  Net loss.........................           -          -            -          -              -             -     (4,945,682)
  Other comprehensive income, net
    of tax:
  Foreign currency translation
    adjustments....................           -          -            -          -              -             -              -
  Comprehensive loss...............
Issuance of common stock...........           -          -      437,500      4,375      1,876,875             -              -
Proceeds received on issuance of
  convertible preferred stock......   2,630,425     26,304            -          -     19,973,696             -              -
Issue cost.........................           -          -            -          -       (150,000)            -              -
Stock option exercises.............           -          -    1,485,416     14,854        207,808             -              -
Warrants exercised.................           -          -    9,449,226     94,492        (47,146)            -              -
Deferred stock compensation........           -          -            -          -      6,589,717    (6,589,717)             -
Amortization of deferred stock
  compensation.....................                      -            -          -              -     3,507,678              -
                                     ----------   --------   ----------   --------   ------------   -----------    -----------
BALANCE AT DECEMBER 31, 1999.......   4,791,289     47,913   25,532,144    255,321     46,118,424    (3,865,373)    (2,764,854)
Comprehensive loss:
  Net loss.........................           -   $      -            -   $      -   $          -   $         -    $(2,765,747)
  Other comprehensive income, net
    of tax:
  Foreign currency translation
    adjustments....................           -          -            -          -              -             -              -
  Comprehensive loss...............
Issuance of common stock in public
  offering.........................           -          -    5,750,000     57,500    137,942,500             -              -
Issue cost.........................           -          -            -          -    (11,391,116)            -              -
Issuance of common stock on
  conversion of preferred stock....  (4,791,289)   (47,913)   6,952,153     69,522        (21,609)            -              -
Stock option exercises and other...           -          -    2,548,643     25,486      2,722,345             -              -
Warrants exercised.................           -          -       40,000        400              -             -              -
Amortization of deferred stock
  compensation.....................           -          -            -          -              -     2,209,552              -
                                     ----------   --------   ----------   --------   ------------   -----------    -----------
BALANCE AT DECEMBER 31, 2000.......           -   $      -   40,822,940   $408,229   $175,370,544   $(1,655,821)   $(5,530,601)
                                     ==========   ========   ==========   ========   ============   ===========    ===========

<CAPTION>
                                      ACCUMULATED
                                         OTHER           TOTAL
                                     COMPREHENSIVE   STOCKHOLDERS'   COMPREHENSIVE
                                     INCOME (LOSS)      EQUITY       INCOME (LOSS)
                                     -------------   -------------   -------------
<S>                                  <C>             <C>             <C>
BALANCE AT JANUARY 1, 1998.........    $ 42,854      $ 16,179,013
Comprehensive income:
  Net income.......................           -         1,535,810     $ 1,535,810
  Other comprehensive loss, net of
    tax:
  Foreign currency translation
    adjustments....................     (24,350)          (24,350)        (24,350)
                                                                      -----------
  Comprehensive income.............                                   $ 1,511,460
                                                                      ===========
Issuance of stock on conversion of
  convertible loan.................           -           510,000
Stock option exercises.............           -               875
Amortization of deferred stock
  compensation.....................           -         1,045,333
                                       --------      ------------
BALANCE AT DECEMBER 31, 1998.......      18,504        19,246,681
Comprehensive loss:
  Net loss.........................           -        (4,945,682)    $(4,945,682)
  Other comprehensive income, net
    of tax:
  Foreign currency translation
    adjustments....................     (21,764)          (21,764)        (21,764)
                                                                      -----------
  Comprehensive loss...............                                   $(4,967,446)
                                                                      ===========
Issuance of common stock...........           -         1,881,250
Proceeds received on issuance of
  convertible preferred stock......           -        20,000,000
Issue cost.........................           -          (150,000)
Stock option exercises.............           -           222,662
Warrants exercised.................           -            47,346
Deferred stock compensation........           -                 -
Amortization of deferred stock
  compensation.....................           -         3,507,678
                                       --------      ------------
BALANCE AT DECEMBER 31, 1999.......      (3,260)       39,788,171
Comprehensive loss:
  Net loss.........................    $      -      $ (2,765,747)    $(2,765,747)
  Other comprehensive income, net
    of tax:
  Foreign currency translation
    adjustments....................      20,279            20,279          20,279
                                                                      -----------
  Comprehensive loss...............                                   $(2,745,468)
                                                                      ===========
Issuance of common stock in public
  offering.........................           -       138,000,000
Issue cost.........................           -       (11,391,116)
Issuance of common stock on
  conversion of preferred stock....           -                 -
Stock option exercises and other...           -         2,747,831
Warrants exercised.................           -               400
Amortization of deferred stock
  compensation.....................           -         2,209,552
                                       --------      ------------
BALANCE AT DECEMBER 31, 2000.......    $ 17,019      $168,609,370
                                       ========      ============
</TABLE>

                See notes to consolidated financial statements.

                                       F-5
<PAGE>   50

                            ASIAINFO HOLDINGS, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (IN US DOLLARS)

<TABLE>
<CAPTION>
                                                            YEARS ENDED DECEMBER 31,
                                                  ---------------------------------------------
                                                      2000             1999            1998
                                                  -------------    ------------    ------------
<S>                                               <C>              <C>             <C>
Cash flows from operating activities:
  Net (loss) income.............................  $  (2,765,747)   $ (4,945,682)   $  1,535,810
  Adjustments to reconcile net (loss) income to
     net cash used in operating activities:
     Depreciation...............................      1,300,431         620,499         351,175
     Amortization of goodwill...................      1,057,323         785,050          46,824
     Amortization of deferred stock
       compensation.............................      2,209,552       3,507,678       1,045,333
     Deferred income taxes......................       (112,965)        210,159        (365,504)
     Minority interest in loss of
       subsidiaries.............................        (31,897)        (84,131)       (122,066)
     Equity in loss of affiliate................        -                34,689         -
     Loss on disposal of property and
       equipment................................         56,231          48,574         -
     Gain on sale of business...................        -              (165,932)        -
     Provision for doubtful accounts............        (32,903)        839,552         -
     Changes in operating assets and
       liabilities:
       Restricted cash..........................    (14,543,385)     (6,189,794)     (6,000,000)
       Accounts receivable......................    (33,642,964)      2,175,416     (11,848,910)
       Inventories..............................     (5,967,584)     (2,353,513)        885,318
       Amount due from a related party..........        -                57,048        (781,685)
       Other receivables........................     (1,731,967)        739,791        (160,332)
       Deferred offering costs..................        -              (401,607)        -
       Prepaid expenses and other current
          assets................................        (23,376)        294,291         (92,889)
       Accounts payable.........................     30,169,963        (293,023)      4,056,441
       Deferred revenue.........................     12,006,054      (3,193,024)       (160,861)
       Other payables...........................      1,229,882        (351,725)       (399,174)
       Accrued employee benefit.................      5,208,974       2,231,243       1,334,758
       Accrued expenses.........................      4,264,699         265,908         174,451
       Income taxes payable.....................        126,898        (111,993)         34,969
       Other taxes payable......................       (385,580)        251,145      (1,575,764)
                                                  -------------    ------------    ------------
Net cash used in operating activities...........     (1,608,361)     (6,029,381)    (12,042,106)
                                                  -------------    ------------    ------------
Cash flows from investing activities:
  Increase in short-term investments............   (110,400,000)        -               -
  Purchases of property and equipment...........     (5,669,035)     (1,002,550)     (1,006,980)
  Proceeds on disposal of property and
     equipment..................................        156,468         -                43,708
  Cash (used) received net of cash acquired or
     disposed on purchase and sale of interests
     in subsidiaries:
     AI Zhejiang................................        -            (1,297,184)       (400,000)
     AI Data....................................        -               135,626         -
     AI CTC.....................................        -               -              (169,571)
                                                  -------------    ------------    ------------
Net cash used in investing activities...........  $(115,912,567)   $ (2,164,108)   $ (1,532,843)
                                                  =============    ============    ============
</TABLE>

                                       F-6
<PAGE>   51

<TABLE>
<CAPTION>
                                                            YEARS ENDED DECEMBER 31,
                                                  ---------------------------------------------
                                                      2000             1999            1998
                                                  -------------    ------------    ------------
<S>                                               <C>              <C>             <C>
Cash flows from financing activities:
  Net proceeds from issuance of common stock in
     public offering............................  $ 127,010,491    $ 19,850,000    $    -
  Increase in short-term bank loans.............     42,980,877      16,172,865       9,464,044
  Repayment of short-term bank loans............    (32,036,337)    (12,313,843)     (7,280,114)
  Proceeds on exercise of stock options.........      2,747,831          81,015             875
  Warrants exercised............................            400          47,346         -
  Capital contribution by minority interest.....        219,941         -               -
  Repurchase of minority interest...............        -               -              (712,018)
  Payable to stockholders.......................        -               -            (2,191,790)
                                                  -------------    ------------    ------------
Net cash provided by (used in) financing
  activities....................................    140,923,203      23,837,383        (719,003)
                                                  -------------    ------------    ------------
Net increase (decrease) in cash and cash
  equivalents...................................     23,402,275      15,643,894     (14,293,952)
Cash and cash equivalents at beginning of
  year..........................................     25,403,884       9,749,374      24,065,882
Effect of exchange rate changes on cash and cash
  equivalents...................................         27,797          10,616         (22,556)
                                                  -------------    ------------    ------------
Cash and cash equivalents at end of year........  $  48,833,956    $ 25,403,884    $  9,749,374
                                                  =============    ============    ============
Supplemental cash flow information:
  Cash paid during the year:
  Interest......................................  $   1,018,337    $    592,954    $    369,343
  Income taxes..................................        204,064         301,012          75,032
                                                  =============    ============    ============
Noncash investing and financing activities:
  Deferred stock compensation...................  $     -          $  6,589,717    $
  Issue of common stock for convertible debt and
     accrued interest...........................        -               -               510,000
                                                  =============    ============    ============
</TABLE>

Acquisitions and disposals of interests in subsidiaries:

     In April 1999 the Company acquired AI Zhejiang for cash of $2,000,000, of
     which $400,000 was paid as a deposit in 1998, and issuance of 437,500
     shares of common stock to AI Zhejiang's senior management for their past
     services, and acquired assets with a fair value of $2,872,898 and assumed
     liabilities of $3,657,914.

     In 1999 the Company sold its interest in AI Data for cash of $350,889 and
     disposed of assets with a fair value of $403,176 and liabilities of
     $183,531.

     In 1998, the Company acquired the remaining interest in AI CTC for cash of
     $1,204,819 and acquired assets with a fair value of $3,584,210 and assumed
     liabilities of $2,847,632.

                 See notes to consolidated financial statements
                                       F-7
<PAGE>   52

                            ASIAINFO HOLDINGS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
                                (IN US DOLLARS)

1.  ORGANIZATION AND PRINCIPAL ACTIVITIES

AsiaInfo Holdings, Inc. (the "Company") was incorporated in the State of Texas,
in the United States, on June 17, 1993 and was subsequently reincorporated in
the State of Delaware in June 1998. The Company currently operates through the
following subsidiaries: AsiaInfo Technologies (China), Inc. ("AI Technology")
(100% owned), Zhejiang AsiaInfo Telecommunication Technology Co., Ltd. ("AI
Zhejiang") (100% owned) and Guangdong Wangying Information Technology Co., Ltd.
("Wangying") (40% owned, but controlled by the Company), all incorporated in the
People's Republic of China ("China" or the "PRC") and MarSec Holdings, Inc.
("MarSec") (75% owned), incorporated in the Cayman Islands.

On March 2, 2000, the Company completed an initial public offering of 5,750,000
million shares of its common stock, raising net proceeds of $126.6 million. The
Company's common stock is traded on The Nasdaq National Market in the United
States.

The Company acts as a holding company and sources computer related equipment in
the U.S. for sale to customers in the PRC.

AI Technology was established as a wholly foreign owned enterprise with an
initial operating term of 15 years commencing May 2, 1995 (date of
establishment). Its principal activities are conducted in the PRC and comprise
the provision of Internet-related information technology professional services
and software products.

AI Zhejiang has an initial operating term of 20 years commencing April 5, 1995
(date of establishment). Its activities are performed in the PRC and comprise
the developing and selling of communication hardware and software as well as
providing related technology services. In connection with its acquisition in
April 1999, the Company recorded goodwill of approximately $4.7 million which is
being amortized over 5 years. AI Zhejiang's results of operations are included
in the Company's financial statements from the date of acquisition.

Wangying was established on September 6, 2000 with an initial operating term of
4 years for a particular customer project in the PRC.

MarSec, through its wholly-owned subsidiary, provides internet security
consulting and services in the PRC.

In 2000, the Company dissolved its subsidiary AsiaInfo-CTC Network Systems Inc
("AI CTC"). In 1999, the Company sold, in stages, its entire interest in its 55%
owned subsidiary, Beijing AsiaInfo Data Communication Technology Co., Ltd. ("AI
Data"), which was consolidated until the sale of a 16.5% interest in August 1999
and subsequently accounted for under the equity method until the sale in
December 1999 of the remaining interest.

2.  BASIS OF PREPARATION

These financial statements of the Company and its subsidiaries are prepared in
accordance with generally accepted accounting principles in the United States of
America ("U.S. GAAP"). This basis of accounting differs from that used in the
statutory financial statements of the PRC subsidiaries which are prepared in
accordance with the accounting principles and the relevant financial regulations
applicable to enterprises with foreign investment as established by the Ministry
of Finance of China.

                                       F-8
<PAGE>   53

The principal adjustments made to conform the statutory financial statements of
these subsidiaries to U.S. GAAP included the following:

     (i) Adjustment to depreciation expense for property and equipment to
         reflect more accurately the economic useful life of the assets;

     (ii) Adjustment to recognize sales and cost of sales in accordance with the
          Company's revenue recognition accounting policy;

     (iii) Adjustment to record goodwill and amortization on business
           acquisition; and

     (iv) Adjustment to recognize compensation expense on the issue of stock
          options.

3.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include the
financial statements of the Company and its subsidiaries. All significant
intercompany transactions and balances are eliminated on consolidation.
Affiliated companies (20% to 50% owned companies) in which the Company does not
have a controlling interest, or for which control is expected to be temporary,
are accounted for using the equity method. The Company's share of earnings
(losses) of these companies is included in the accompanying consolidated
statement of operations.

CASH AND CASH EQUIVALENTS -- Cash and cash equivalents consist of cash on hand,
demand deposits and highly liquid investments, which are unrestricted as to
withdrawal or use, and which have original maturities of three months or less.

SHORT-TERM INVESTMENTS -- Short-term investments are classified as available for
sale and consist principally of certificates of deposits issued by major
financial institutions which have maturities of between 6 and 12 months and
money market funds. As there are no significant market price movements, such
investments are held at cost and accrued interest. There were no realized or
unrealized gains or losses. At December 31, 2000, included in short-term
investments are holdings of money market funds of $90,800,000.

INVENTORIES -- Inventories of hardware and parts are stated at the lower of
cost, determined principally by the specific identification method, or market.
Cost includes the purchase price of computer-related equipment, transportation,
insurance expense, import and other taxes, and other related expenses.

PROPERTY AND EQUIPMENT -- Property and equipment is stated at cost less
accumulated depreciation. Depreciation is provided using the straight-line
method over the estimated useful lives as follows:

<TABLE>
<S>                                          <C>
Furniture, fixtures and electronic
  equipment................................  5 years
Motor vehicles.............................  5 years
Leasehold improvements.....................  Shorter of the lease term or 5 years
Accounting software........................  3 years
</TABLE>

GOODWILL -- Goodwill is capitalized and amortized on a straight-line basis over
its expected useful economic life of 5 years. Accumulated amortization was
$1,889,197 at December 31, 2000 and $831,874 at December 31, 1999.

IMPAIRMENT -- The Company reviews its long-lived assets, including goodwill, for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may no longer be recoverable. An impairment loss,
measured based on the fair value of the asset, is recognized if expected future
undiscounted cash flows are less than the carrying amount of the assets.

REVENUE RECOGNITION -- Revenue from network solutions contracts, which includes
the procurement of hardware on behalf of customers, systems design, planning,
consulting, system integration and software implementation services is
recognized based on the percentage of completion method. Labor hours are used to
determine the stage of completion except for revenues associated with the
procurement of hardware. Such hardware-related revenues are recognized upon
delivery. Estimates of hardware warranty

                                       F-9
<PAGE>   54

costs are included in determining project costs. In 1999, costs of revenues were
reduced by $1.2 million representing $0.08 per share as the Company's experience
in 1999 determined that reduced warranty cost provisions were required.

Software license revenues represent license fees which allow customers to use
the Company's software products in perpetuity up to a maximum number of users.
Revenue from software license fees is recognized in conjunction with the
revenues of the related solutions project over the installation and
customization period based on the percentage of completion of the project as
measured by labor hours. Revenues from software license fees include the benefit
of the rebate of value added taxes on sales of software received from the tax
authorities as part of the PRC government's policy of encouragement of software
development in the PRC. The rebate was $1,306,771 in 2000; no amount was
receivable before 2000.

Revisions in estimated contract profits are made in the period in which the
circumstances requiring the revision become known. Provisions, if any, are made
currently for anticipated losses on uncompleted contracts. Revenue in excess of
billings is recorded as unbilled receivables and included in trade accounts
receivable, and amounted to $33,241,532 at December 31, 2000 and $11,945,082 at
December 31, 1999. Billings in excess of revenues recognized are recorded as
deferred income. Billings are rendered based on agreed milestones included in
the contracts with customers.

At December 31, 2000 and 1999 the balance of trade account receivables of
$22,355,964 and $9,982,954, respectively, represented amounts billed but not yet
collected. All billed and unbilled amounts are expected to be collected within 1
year.

SOFTWARE DEVELOPMENT COSTS -- Costs for the development of new software products
and substantial enhancements to existing software products are expensed as
incurred until technological feasibility has been established, at which time any
additional costs would be capitalized in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 86, "Computer Software To Be Sold, Leased or
Otherwise Marketed." To date, the Company has essentially completed its software
development concurrently with the establishment of technological feasibility,
and, accordingly, no costs have been capitalized.

FOREIGN CURRENCY TRANSLATION -- The Company uses the United States dollar as its
reporting currency. Monetary assets and liabilities denominated in currencies
other than United States dollars are translated into United States dollars at
the rates of exchange ruling at the balance sheet date. Transactions in
currencies other than United States dollars during the year are converted into
United States dollars at the rates of exchange ruling at the transaction dates.
Transaction differences are recognized in the statement of operations and
amounted to exchange losses of $21,638 in 2000, $46,630 in 1999, and $691 in
1998.

The financial records of the Company's PRC subsidiaries are maintained in
Renminbi, the functional currency. Their balance sheets are translated into
United States dollars based on the rates of exchange ruling at the balance sheet
date. Their statements of operations are translated using a weighted average
rate for the period. Translation adjustments are reflected as cumulative
translation adjustments in stockholders' equity.

The Renminbi is not fully convertible into United States dollars or other
foreign currencies. The rate of exchange quoted by the People's Bank of China on
December 31, 2000 was US$1.00 = RMB8.2781. No representation is made that the
Renminbi amounts could have been, or could be, converted into United States
dollars at that rate or at any other rate.

INCOME TAXES -- Deferred income taxes are provided using the asset and liability
method. Under this method, deferred income taxes are recognized for all
significant temporary differences and classified as current or non-current based
upon the classification of the related asset or liability in the financial
statements. A valuation allowance is provided to reduce the amount of deferred
tax assets if it is considered more likely than not that some portion of, or all
of, the deferred tax asset will not be realized.

                                       F-10
<PAGE>   55

USE OF ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

STOCK-BASED COMPENSATION -- The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees."

NET INCOME (LOSS) PER SHARE ("EPS") -- Basic EPS excludes dilution and is
computed by dividing net income (loss) attributable to common stockholders by
the weighted average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock (convertible preferred stock, warrants to
purchase common stock and common stock options and warrants using the treasury
stock method) were exercised or converted into common stock. Potential common
shares in the diluted EPS computation are excluded in net loss periods as their
effect would be antidilutive. EPS for all periods presented have been computed
in accordance with SFAS No. 128 "Earnings Per Share".

STOCK SPLIT -- Share and per share amounts have been restated to reflect the 2:1
stock split that was effected in the form of a dividend in 1998.

COMPREHENSIVE INCOME -- SFAS No. 130, "Reporting Comprehensive Income,"
establishes standards for reporting and display of comprehensive income, its
components and accumulated balance. Comprehensive income is defined to include
all changes in equity except those resulting from investments by owners and
distributions to owners. Comprehensive income (loss) for the periods presented
has been disclosed within the consolidated statements of stockholders' equity
and comprehensive income (loss).

FINANCIAL INSTRUMENTS -- The carrying value of financial instruments, which
consist of cash and cash equivalents, restricted cash, short-term investments,
accounts receivable, accounts payable and short-term bank loans are carried at
cost which approximates fair value due to the short-term nature of these
instruments.

NEW ACCOUNTING STANDARD NOT YET ADOPTED -- In June 1998, the Financial
Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement requires companies to record
all derivatives on the balance sheet as assets or liabilities measured at fair
value. Gains and losses resulting from changes in fair market values of those
derivative instruments would be accounted for depending on the use of the
instrument and whether it qualifies for hedge accounting. SFAS 133 will be
effective for the Company's year ending December 31, 2001. Adoption of SFAS No.
133 will not have a material effect on the Company's financial condition,
results of operations or cash flows.

4.  PROPERTY AND EQUIPMENT, NET

<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                                      ------------------------
                                                         2000          1999
                                                      ----------    ----------
<S>                                                   <C>           <C>
Furniture, fixtures and electronic equipment........  $5,283,020    $1,993,500
Motor vehicles......................................     331,213       308,476
Leasehold improvements..............................   2,099,899       529,389
Accounting software.................................     694,729       263,163
                                                      ----------    ----------
          Total.....................................   8,408,861     3,094,528
Less: Accumulated depreciation......................   2,069,110       910,983
                                                      ----------    ----------
          Net book value............................  $6,339,751    $2,183,545
                                                      ==========    ==========
</TABLE>

                                       F-11
<PAGE>   56

5.  SHORT-TERM BANK LOANS

As of December 31, 2000, the Company had total short-term credit facilities
totaling $25.3 million expiring in March and May 2001, for working capital
purposes of which unused short-term credit facilities were $12.9 million at that
date. At December 31, 2000, borrowings under these facilities totaled $12.4
million. Approximately $24.8 million of the total short-term credit facilities
was secured by bank deposits of $18.6 million.

Additional borrowings of approximately $7.7 million were secured by bank
deposits of $8.1 million. All the borrowings were in RMB, the currency of the
PRC. The loans carry interest ranging from approximately 5.58% to 6.435% per
annum and are repayable within one year. Bank deposits pledged as security for
these bank loans and short-term credit facilities totaled $26.7 million and
$12.2 million as of December 31, 2000 and 1999, respectively, and are presented
as restricted cash in the consolidated balance sheets. In April 1999, certain
senior management pledged their holdings in shares of the Company's common stock
to a bank for a short-term revolving credit facility of $5 million. This pledge
was released in 1999.

6.  OTHER TAXES PAYABLE

<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                                      ------------------------
                                                         2000          1999
                                                      ----------    ----------
<S>                                                   <C>           <C>
Individual income tax...............................  $1,195,215    $  440,761
Business tax payable................................     197,088       202,001
Value added taxes payable, net......................     517,147     1,652,268
                                                      ----------    ----------
                                                      $1,909,450    $2,295,030
                                                      ==========    ==========
</TABLE>

The Company's PRC subsidiaries are subject to value added tax at a rate of 17%
on revenue from procurement of hardware on behalf of customers and revenues from
software license. They are also subject to business tax at the rate of 5% on
other service revenues from network solutions. Value added tax payable on
revenues is computed net of value added tax paid on purchases. In respect of
revenue on software license, however, if the net amount of value added tax
payable exceeds 3% of software sales, the excess portion of value added tax can
be refunded immediately. The Company therefore enjoys an effective net value
added tax burden of 3% on software license. This policy is effective until 2010.
The Company is also required to withhold PRC individual income tax on employees'
payroll for remittance to the tax authorities.

7.  INCOME TAXES

The components of (loss) income before income taxes and minority interests are
as follows:

<TABLE>
<CAPTION>
                                                      YEARS ENDED DECEMBER 31,
                                              -----------------------------------------
                                                 2000           1999           1998
                                              -----------    -----------    -----------
<S>                                           <C>            <C>            <C>
US..........................................  $(2,025,029)   $(4,040,098)   $(1,277,546)
PRC.........................................     (554,619)      (571,800)     2,435,786
                                              -----------    -----------    -----------
                                              $(2,579,648)   $(4,611,898)   $ 1,158,240
                                              ===========    ===========    ===========
</TABLE>

The Company is subject to US federal and state income taxes. The Company's
subsidiaries incorporated in the PRC are subject to PRC income taxes.

                                       F-12
<PAGE>   57

The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
                                                        YEARS ENDED DECEMBER 31,
                                                   ----------------------------------
                                                     2000         1999        1998
                                                   ---------    --------    ---------
<S>                                                <C>          <C>         <C>
Current
  United States:
     Federal.....................................  $   -        $  -        $  96,300
     State.......................................      -           -           13,700
  Foreign:
     PRC.........................................    330,961     173,068        -
                                                   ---------    --------    ---------
Total current income taxes.......................    330,961     173,068      110,000
                                                   ---------    --------    ---------
Deferred
  United States:
     Federal.....................................      -           -           33,250
     State.......................................      -           -            4,750
  Foreign:
     PRC.........................................   (112,965)    210,158     (403,504)
                                                   ---------    --------    ---------
Total deferred income taxes......................   (112,965)    210,158     (365,504)
                                                   ---------    --------    ---------
Total income tax expense (benefit)...............  $ 217,996    $383,226    $(255,504)
                                                   =========    ========    =========
</TABLE>

The components of deferred income tax assets (liabilities) are as follows:

<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                                       ----------------------
                                                         2000         1999
                                                       ---------    ---------
<S>                                                    <C>          <C>
Deferred tax assets:
  Net operating loss carry forwards..................  $ 618,047    $ 709,334
  Depreciation.......................................    306,310      193,345
                                                       ---------    ---------
Total gross deferred tax assets......................    924,357      902,679
Valuation allowance..................................   (618,047)    (709,334)
                                                       ---------    ---------
Total deferred tax assets............................  $ 306,310    $ 193,345
                                                       =========    =========
</TABLE>

Deferred income taxes result principally from differences in the recognition of
certain assets and liabilities for tax and financial reporting purposes and the
tax effect of tax loss carry forwards. At December 31, 2000, tax loss carry
forwards in the PRC amounted to approximately $2.6 million, which will expire
between 2001 and 2005, and tax loss carry forwards in the US amounted to
approximately $0.7 million, which will expire between 2018 and 2020. A valuation
allowance of $618,047 for the full amount of the tax losses carried forward in
the US and PRC has been established.

The subsidiaries incorporated in the PRC are governed by the Income Tax Law of
the PRC concerning Foreign Investment Enterprises and Foreign Enterprises and
various local income tax laws (the "Income Tax Laws"). Under the Income Tax
Laws, foreign investment enterprises ("FIE") generally are subject to an income
tax at an effective rate of 33% (30% state income taxes plus 3% local income
taxes) on income as reported in their statutory financial statements after
appropriate tax adjustments unless the enterprise is located in specially
designated regions or cities for which more favorable effective rates apply.
Upon approval by the PRC tax authorities, FIEs scheduled to operate for a period
of 10 years or more and engaged in manufacturing and production may be exempt
from income taxes for two years, commencing with their first profitable year of
operations, and thereafter with a 50% exemption for the next three years.

Pursuant to the Income Tax Laws, FIEs approved as high-tech or new technology
enterprises which are established in the Beijing New Technology Industry
Development Zone ("BDZ") are subject to income tax at the reduced rate of 15%.
High technology enterprises are also eligible for a three-year exemption

                                       F-13
<PAGE>   58

from income tax followed by a 50% reduction of income tax for the next three
years. This relief commences from the date of commencement of the enterprise's
business operations. AI Technology has been approved as a new technology
enterprises and as it is established in the BDZ, it enjoys the preferential tax
treatment described above. In 1998, 1999 and 2000 all of the Company's PRC
subsidiaries, except for AI Technology, were either exempt from income taxes or
did not have any assessable income. AI Technology's income tax exemption expired
and in 1998 it was subject to income tax at rate of 7.5%. No provision for
taxation has been made for AI Technology as it did not have any assessable
income for 1998. AI Technology's 50% reduction in income tax expired on December
31, 2000. AsiaInfo Technologies recently received a continuation of its
preferential tax treatment from the local government for an additional three
years, which will reduce its effective income tax rate to not less than 10%.

Income tax of AI Technology in 1999 and 2000 was $173,068 and $330,961,
respectively. In the absence of such income tax exemptions or preferential tax
treatment, income tax of $150,402 in 1998, $987 in 1999 and $251,570 in 2000
would otherwise have been payable and the effect on net income (loss) per share
would be to decrease basic income per share and diluted income per share by
$0.01 in 1998 and increase basic and diluted loss per share by $0.01 in 2000.
There was no impact on loss per share in 1999.

Undistributed earnings of the Company's PRC subsidiaries amounted to
approximately $5.7 million at December 31, 2000. Those earnings are considered
to be indefinitely reinvested and, accordingly, no provision for U.S. federal
and state income tax or foreign withholding taxes has been made. Upon
distribution of those earnings, the Company would be subject to US income taxes
(subject to a reduction for foreign tax credits) and withholding taxes payable
to China, if any. If the Company's PRC subsidiaries distributed the
undistributed earnings as of December 31, 2000, the US income tax liability
would be approximately $2,280,000.

A reconciliation between the provision for income taxes computed by applying the
US federal tax rate to loss before income taxes and the actual provision for
income taxes is as follows:

<TABLE>
<CAPTION>
                                                                  YEARS ENDED
                                                                  DECEMBER 31,
                                                              --------------------
                                                              2000    1999    1998
                                                              ----    ----    ----
<S>                                                           <C>     <C>     <C>
US federal rate.............................................   35%     35%     35%
State tax rate (net of federal benefit).....................    5       5       5
Tax exempt foreign income...................................  (26)    (15)    (84)
Expenses not deductible for tax purposes -- deferred stock
  compensation expenses.....................................  (22)    (33)     22
                                                              ---     ---     ---
                                                               (8)%    (8)%   (22)%
                                                              ===     ===     ===
</TABLE>

8.  CAPITAL STOCK

The Company's authorized capital stock consists of 110,000,000 shares,
consisting of 100,000,000 of common stock, par value $0.01 per share, and
10,000,000 shares of preferred stock, par value $0.01 per share, of which
3,000,000 shares have been designated as Series A shares and 5,000,000
designated as Series B shares.

The outstanding Series A and the Series B Convertible Preferred Stock
automatically converted into an aggregate of 6,952,153 shares of common stock
upon the Company's initial public offering in March, 2000. Prior to their
conversion into common stock the holders of the Series A and Series B
Convertible Preferred Stock were entitled to participate in all dividends paid
to the common stockholders, on an as converted base, when and if such dividends
were declared by the Board. While the convertible preferred stock was
outstanding, the Company was not permitted to pay any dividend with regard to
any share of common stock of the Company unless and until all dividends on the
convertible preferred stock had been paid. The holders of convertible preferred
stock were entitled to the same voting rights as that of common stockholders.
This Series A Convertible Preferred Stock and Series B Convertible Preferred
Stock had

                                       F-14
<PAGE>   59

aggregate liquidation preferences of $18 million and $20 million, respectively,
as of December 31, 1999 and were senior to all common stock.

On May 26, 1998 the issued and outstanding shares of the Company's common stock,
$0.01 par value, were split as effected in the form of a dividend on the basis
of two shares for each issued and outstanding share of common stock.

In 2000, the Company issued 292 shares of common stock at a price of $0.01 per
share to a third party for services provided to the Company. The Company has
accounted for such issuance in accordance with SFAS 123, "Accounting for
Stock-Based Compensation" and recorded expense of $5,191.

  Net (loss) income per share

The following is a reconciliation of the numerators and denominators of the
basic and diluted net (loss) income per share computations:

<TABLE>
<CAPTION>
                                                      YEARS ENDED DECEMBER 31,
                                              -----------------------------------------
                                                 2000           1999           1998
                                              -----------    -----------    -----------
<S>                                           <C>            <C>            <C>
Net (loss) income (numerator):
  Net (loss) income
     Basic and diluted......................  $(2,765,747)   $(4,945,682)   $ 1,535,810
                                              ===========    ===========    ===========
Shares (denominator):
  Weighted average Common Stock
     Outstanding............................   37,239,649     15,576,580     14,016,852
  Outstanding subject to repurchase.........       -             946,435        400,440
                                              -----------    -----------    -----------
  Basic.....................................   37,239,649     14,630,145     13,616,412
  Contingent shares.........................       -              -             400,440
  Convertible preferred stock...............       -              -           4,321,728
  Options...................................       -              -           3,971,617
  Warrants..................................       -              -           9,455,337
                                              -----------    -----------    -----------
  Diluted...................................   37,239,649     14,630,145     31,765,534
                                              ===========    ===========    ===========
Net (loss) income per share:
  Basic.....................................  $     (0.07)   $     (0.34)   $      0.11
  Diluted...................................  $     (0.07)   $     (0.34)   $      0.05
</TABLE>

In 2000 and 1999, the Company had securities outstanding which could potentially
dilute basic EPS in the future, but were excluded in the computation of diluted
EPS in such periods, as their effect would have been antidilutive due to the net
loss reported in these periods. Such outstanding securities consist of the
following:

<TABLE>
<CAPTION>
                                                             YEAR ENDED
                                                            DECEMBER 31,
                                                       -----------------------
                                                         2000          1999
                                                       ---------    ----------
<S>                                                    <C>          <C>
Outstanding options..................................  8,781,865     8,891,811
Convertible preferred stock..........................      -         6,952,153
Warrants.............................................      -            40,000
                                                       ---------    ----------
                                                       8,781,865    15,883,964
                                                       =========    ==========
</TABLE>

                                       F-15
<PAGE>   60

9.  COMMITMENTS

OPERATING LEASES -- As of December 31, 2000, the Company was committed under
certain operating leases, requiring annual minimum rentals as follows:

<TABLE>
<S>                                                        <C>
2001.....................................................  $1,947,602
2002.....................................................   1,792,760
2003.....................................................     276,522
                                                           ----------
                                                           $4,016,884
                                                           ==========
</TABLE>

The leased properties are principally located in the PRC and are used for
administration and research and development. The leases are renewable subject to
negotiation. Rental expense for the three years in the period ended December 31,
2000 was $2,400,975, $1,538,703 and $1,390,811, respectively.

10.  EMPLOYEE RETIREMENT BENEFITS

The Company's employees in the PRC are entitled to retirement benefits
calculated with reference to their basic salaries on retirement and their length
of service in accordance with a government managed benefits plan. The PRC
government is responsible for the benefit liability to these retired staff. The
Company is required to make contributions to the state retirement plan at 20% of
the monthly basic salaries of the current employees. The expense of such
arrangements to the Company for the three years in the period ended December 31,
2000 was $664,977, $784,413 and $537,593, respectively.

In addition, the Company is required by law to contribute approximately 15.5% to
33% of basic salaries of the PRC employees for staff welfare, housing, medical
and education benefits. The Company does not have any post retirement benefit
plans.

The Company has not established any retirement benefit plans for US employees in
the US.

11.  DISTRIBUTION OF PROFITS

As stipulated by the relevant laws and regulations applicable to China's foreign
investment enterprises, the Company's PRC subsidiaries are required to make
appropriations from net income as determined under PRC GAAP to nondistributable
reserves which include a general reserve, an enterprise expansion reserve and a
staff welfare and bonus reserve. Wholly owned PRC subsidiaries are not required
to make appropriations to the enterprise expansion reserve but appropriations to
the general reserve are required to be made at not less than 10% of the profit
after tax as determined under PRC GAAP. The staff welfare and bonus reserve is
determined by the board of directors.

The general reserve is used to offset future extraordinary losses. The
subsidiaries may, upon a resolution passed by the stockholders, convert the
general reserve into capital. The staff welfare and bonus reserve is used for
the collective welfare of the employees of the subsidiaries. The enterprise
expansion reserve is used for the expansion of the subsidiaries' operations and
can be converted to capital subject to approval by the relevant authorities.
These reserves represent appropriations of retained earnings determined
according to Chinese law. There were no appropriations to reserves by the
Company's PRC subsidiaries during any of the periods presented.

12.  CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES

Financial instruments, which potentially subject the Company to concentration of
credit risk, consist principally of temporary cash investments and trade
accounts receivable.

The Company places its temporary cash investments with various financial
institutions in the PRC and the US. At December 31, 2000 the amounts were placed
principally with financial institutions in the US.

The recorded carrying amount of cash and cash equivalents, restricted cash,
short-term investments, accounts receivable, accounts payable and debt
obligations approximate fair value.

                                       F-16
<PAGE>   61

The Company's business activities and accounts receivable are principally in the
PRC with a limited number of large customers, principally China
Telecommunications Corporation ("China Telecom") and its provincial
subsidiaries, and China United Telecommunications Corporation ("China Unicom").
Sales to China Telecom and its subsidiaries amounted to approximately 34%, 84%
and 98% of total revenues in 2000, 1999 and 1998, respectively. During the years
ended December 31, 1999 and 1998, certain entities related to China Telecom
represented more than 10% of total revenues. In 1998, provincial entity A,
provincial entity B and provincial entity C accounted for 27%, 20% and 13%,
respectively, of total revenues. In 1999, provincial entity D and provincial
entity E accounted for 29% and 17%, respectively, of total revenues. In 2000, no
individual provincial entity represented more than 10% of total revenues. The
Company has continued to diversify its customer base and sales to China Unicom
accounted for 43% of total revenues in 2000 and 14% in 1999 and sales to China
Netcom Corporation Ltd. accounted for 10% of total revenues in 2000.

Details of the amounts receivable from the customers with the largest receivable
balances at December 31, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                                                              PERCENTAGE OF
                                                           ACCOUNTS RECEIVABLE
                                                              DECEMBER 31,
                                                           -------------------
                                                           2000          1999
                                                           -----         -----
<S>                                                        <C>           <C>
Five largest receivables balances........................   51%           61%
</TABLE>

The Company maintains allowances for estimated potential bad debt losses. The
Company believes that no significant credit risk exists as credit losses, when
realized, have been within the range of management's expectations. The Company
maintained provisions for doubtful accounts of $70,444 at January 1, 1998, and
$62,685, $640,269 and $545,013 at December 31, 1998, 1999 and 2000,
respectively. Bad debt expense (recovery) was $(7,759) in 1998, $839,552 in
1999. Reduction of bad debt provision was $(32,903) in 2000 and write-offs of
bad debts were $261,968 in 1999 and 62,353 in 2000. There were no other
movements in the provision for doubtful accounts.

The Company's business growth is indirectly dependent on government budgetary
policy for the telecommunications and Internet industries in China. The laws and
regulations applicable to the Internet industry in China remain unsettled and
could have a material adverse effect on the Company's business. The Company's
customer base is concentrated and the loss of one or more customers could cause
the business to suffer.

13.  STOCK OPTION PLANS

GENERAL -- Under the Company's 2000 Stock Option Plan, in each calendar year
through 2010, the Company may grant options to purchase up to 4 million shares
of common stock to employees, directors and consultants at prices not less than
the fair market value at the date of grant for incentive stock options ("ISO")
and nonqualified options ("NQO"). Prior to adoption of the 2000 Stock Option
Plan, the Company adopted annual stock option plans for each of 1995, 1996,
1997, 1998 and 1999 (such plans, together with the 2000 Stock Option Plan, are
referred to hereinafter as the "Plans").

The vesting periods of the options under the Plans are determined based on
individual stock option agreements. Options granted prior to 1998 generally vest
and become exercisable over three one-year cliffs at an equal rate. Exercise
terms of options granted in 1998, 1999 and 2000 are substantially comparable to
options granted prior to 1998 except that the vesting and exercise periods are
generally over four one-year cliffs at a rate of 20%, 20%, 30% and 30% for the
1999 plan and are generally over four one-year cliffs at a rate of 25%, 25%, 25%
and 25% for the 2000 plan. However, for common shares issued upon exercise of
ISO's granted in 1998 and up to September 30, 1999, the Company retained a right
of repurchase at the exercise price, expiring 60 days after termination of
employment. Accordingly, these ISO awards are accounted for as variable awards.
Vesting terms on NQO's granted in 1998, 1999 and 2000 are substantially
comparable to options granted prior to 1998. The options granted prior to 1998
also contained

                                       F-17
<PAGE>   62

the right of repurchase by the Company at fair market value. Subsequent to
September 30, 1999 the Company amended the terms of the ISO's and NQO's to
eliminate the Company's right of repurchase.

Total number of options exercisable and the weighted average exercise price were
4,573,400, 5,603,111 and 4,039,625 and $0.83, $2.37 and $2.81 as of December 31,
1998, 1999 and 2000, respectively.

Option activity for the Plans is summarized as follows:

<TABLE>
<CAPTION>
                                                                   OUTSTANDING OPTIONS
                                                              -----------------------------
                                                                           WEIGHTED AVERAGE
                                                              NUMBER OF     EXERCISE PRICE
                                                                SHARES        PER SHARE
                                                              ----------   ----------------
<S>                                                           <C>          <C>
Outstanding, January 1, 1998................................  7,448,000         $ 1.24
  Granted (weighted average fair value of $0.41)............    575,000           3.00
  Canceled..................................................   (146,000)          1.64
  Exercised.................................................   (175,000)         0.005
                                                              ----------
Outstanding, December 31, 1998..............................  7,702,000           1.39
  Granted (weighted average fair value of $2.92)............  2,892,000           6.07
  Canceled..................................................    (52,300)          2.81
  Exercised.................................................  (1,649,889)         0.89
                                                              ----------
Outstanding, December 31, 1999..............................  8,891,811         $ 2.99
  Granted (weighted average fair value of $9.89)............  3,307,640          20.83
  Cancelled.................................................   (834,876)          9.43
  Exercised.................................................  (2,582,710)         1.86
                                                              ----------
Outstanding, December 31, 2000..............................  8,781,865         $ 9.43
                                                              ==========
</TABLE>

The fair value of the common stock underlying the issue of the options under the
Plans is based on valuations by independent appraisers or by reference to stock
sales prices, as appropriate.

Additional information on options outstanding at December 31, 2000 is as
follows:

<TABLE>
<CAPTION>
                                     OPTIONS OUTSTANDING AS OF         OPTIONS EXERCISABLE AS OF
                                         DECEMBER 31, 2000                 DECEMBER 31, 2000
                                ------------------------------------   --------------------------
                                               WEIGHTED
                                                AVERAGE     WEIGHTED                    WEIGHTED
                                               REMAINING    AVERAGE                      AVERAGE
RANGE OF EXERCISE AVERAGE         NUMBER      CONTRACTUAL   EXERCISE      NUMBER        EXERCISE
PRICES PRICE                    OUTSTANDING   LIFE (YRS.)    PRICE     EXERCISABLE        PRICE
-------------------------       -----------   -----------   --------   -----------      --------
<S>                             <C>           <C>           <C>        <C>              <C>
$0.005 to 0.01 ...............     900,000       4.75        $ 0.01       900,000         $0.01
$0.25 to 0.75 ................      17,952       5.58          0.75        17,952          0.75
$1.00 to 1.50 ................   1,135,347       6.07          1.13     1,035,347          1.12
$2.50 to 2.75 ................   1,110,726       6.79          2.63       990,726          2.64
$3.00 ........................     482,000       8.12          3.00       105,400          3.00
$4.17 ........................     571,000       8.41          4.17        72,600          4.17
$7.60 to 10.00 ...............   1,595,000       8.73          7.66       917,600          7.57
$24.00 .......................   1,660,700       9.13         24.00        -               -
$29.623 to 47.03 .............     330,500       9.51         32.02        -               -
$11.08 to 14.06 ..............     978,640       9.84         12.38        -               -
                                 ---------       ----        ------     ---------         -----
Total.........................   8,781,865       7.93        $ 9.43     4,039,625         $2.81
                                 =========       ====        ======     =========         =====
</TABLE>

DEFERRED STOCK COMPENSATION -- As discussed in Note 3, the Company accounts for
its stock-based awards to employees using the intrinsic value method in
accordance with APB No. 25. Accordingly, the Company recorded deferred
compensation expense equal to the difference between the grant price and deemed
fair
                                       F-18
<PAGE>   63

value of the Company's common stock for options granted prior to December 31,
1997, which were all fixed awards. Such deferred compensation expense aggregated
$3,136,000 and was amortized to expense over the three year vesting period of
the options.

As discussed above, ISO grants to employees in 1998 and 1999 were variable
awards. Accordingly, the Company recorded deferred compensation expense at the
grant date equal to the difference between the grant price and deemed fair value
of the Company's common stock at the grant date and adjusts the deferred
compensation expense at the end of each period based on the deemed fair value of
the Company's common stock at the end of the period. The related amortization of
deferred compensation expense, which is recognized over the four year exercise
period of the options, is also adjusted accordingly. At December 31, 2000 and
1999, such deferred compensation expense aggregated to nil and $6,091,111,
respectively.

In 1999, the Company issued NQO's to nonemployees to purchase 96,000 shares of
common stock at a price ranging from $3.00 to $4.17 per share. In accordance
with SFAS No. 123, "Accounting for Stock-Based Compensation", and its related
interpretations, the Company accounted for this transaction under the fair value
method and as a variable award. Accordingly, the Company recorded deferred
compensation expense at the grant date equal to the fair value of the options
(using the Black-Scholes option pricing model) at the grant date and adjusts the
deferred compensation expense at the end of the period. The related amortization
of deferred compensation expense, which is recognized over the four year
exercise period of the options, is also adjusted accordingly. At December 31,
2000 and 1999, such deferred compensation expense aggregated to nil and
$498,606, respectively.

ADDITIONAL STOCK PLAN INFORMATION -- Since the Company continues to account for
its stock-based awards to employees using the intrinsic value method in
accordance with APB No. 25, SFAS No. 123 requires the disclosure of pro forma
net income (loss) and income (loss) per share had the Company adopted the fair
value method. The Company's calculations were made using the minimum value
pricing model which requires subjective assumptions, including expected time to
exercise, which affects the calculated values. The following weighted average
assumptions were used: expected life, seven years; risk free interest rate 4.6%
in 1998, 6.5% in 1999 and 5.89% in 2000; and no dividends during the expected
term. The Company's calculations are based on a single option valuation approach
and forfeitures are recognized as they occur. If the computed fair values of the
1998, 1999 and 2000 awards had been amortized to expense over the vesting period
of the awards, pro forma net (loss) income would have been approximately
$1,299,956 ($0.10 and $0.04 per share, basic and diluted), $(5,756,676) ($(0.39)
per share, basic and diluted), $(3,378,744) ($(0.09) per share basic and
diluted) in 1998, 1999 and 2000, respectively.

14.  WARRANTS

  Convertible preferred stock

In connection with a private placement in December 1997, the Company issued
9,429,226 stock purchase warrants ("Warrants") to its Series A Convertible
Preferred Stock holders ("the Holder"), which were exercisable in whole at any
time after December 31, 1999 at an initial value of $0.005 per Warrant. Each
Warrant represented the right to purchase one share of the Company's common
stock. All the warrants were exercised in 1999 pursuant to amended warrant terms
which accelerated the warrant exercise term.

  Common stock

At December 31, 1999 and 1998, warrants granted to a consultant to purchase
40,000 and 60,000 shares of common stock at $0.01 per share, respectively, were
outstanding. In accordance with SFAS No. 123 and its related interpretations,
the arrangement was accounted for as a variable award and the Company recognized
compensation expense using an option pricing model of $47,178 in 1999 and
$81,423 in 1998. In 2000, the remaining warrants were exercised and at December
31, 2000, no warrants to purchase shares of common stock were outstanding.

                                       F-19
<PAGE>   64

15.  SEGMENT AND GEOGRAPHIC OPERATING INFORMATION

SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," establishes annual and interim reporting standards for an
enterprise's business segments and related disclosures about its products,
services, geographic areas and major customers.

Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
Company's chief operating decision maker. By this definition, the Company has
two operating segments (separate lines of business): network solutions net of
hardware costs and software license. Each business line has separate operating
data and separate management individuals responsible for the sales, marketing
and development efforts. The network solutions business provides customers the
necessary hardware (e.g. network routers and servers from third party original
equipment manufacturers) and consulting and systems integration services to
develop a network system. The Company manages its business internally based on
total revenues net of hardware costs. The software business sells software
products which include Internet customer management and billing, wireless
customer management and billing and messaging software. These software products
and the related services can be sold separately or in connection with a systems
integration arrangement. Costs and expenses allocated between operating segments
are generally on an actual basis and for those common expenses, allocation is
made proportionally to the revenue of network solutions net of hardware costs
and software license.

<TABLE>
<CAPTION>
                                                       YEARS ENDED DECEMBER 31,
                                                ---------------------------------------
                                                   2000          1999          1998
                                                -----------   -----------   -----------
<S>                                             <C>           <C>           <C>
REVENUES NET OF HARDWARE COSTS:
Network solutions net of hardware cost........  $28,020,090   $18,726,655   $17,027,372
Software license..............................   16,557,721     6,494,008     2,258,148
                                                -----------   -----------   -----------
Consolidated revenues net of hardware costs...   44,577,811    25,220,663    19,285,520
Consolidated cost of sales net of hardware
  costs.......................................   13,213,023     6,903,434     7,252,642
                                                -----------   -----------   -----------
Consolidated gross profit.....................  $31,364,788   $18,317,229   $12,032,878
                                                ===========   ===========   ===========
GROSS PROFIT:
Network solutions.............................  $14,850,858   $11,827,035   $ 9,775,549
Software license..............................   16,513,930     6,490,194     2,257,329
                                                -----------   -----------   -----------
Consolidated gross profit.....................  $31,364,788   $18,317,229   $12,032,878
                                                ===========   ===========   ===========
DEPRECIATION AND AMORTIZATION:
Network solutions.............................    1,297,493       853,380       350,239
Software license..............................    1,060,261       552,169        47,760
                                                -----------   -----------   -----------
                                                  2,357,754     1,405,549       397,999
                                                ===========   ===========   ===========
INCOME (LOSS) FROM OPERATIONS:
Network solutions.............................  $(7,061,371)  $(4,166,984)  $ 1,019,895
Software license..............................   (2,383,416)     (796,708)     (339,322)
                                                -----------   -----------   -----------
Consolidated (loss) income from operations....  $(9,444,787)  $(4,963,692)  $   680,573
                                                ===========   ===========   ===========
</TABLE>

For the years ended December 31, 2000, 1999 and 1998, all of the Company's
revenues have been derived from sales to customers in the PRC. Revenues are
attributed to the country based on the country of installation of hardware and
performance of system integration work. Also, as of December 31, 2000, 1999 and
1998, 99% of the Company's long-lived assets are located in the PRC.

                                       F-20
<PAGE>   65

16.  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

Selected quarterly financial data for the years ended December 31, 2000 and 1999
are presented in the following table.

<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED
                                             -----------------------------------------------
                                             DECEMBER 31   SEPTEMBER 30   JUNE 30   MARCH 31
                                             -----------   ------------   -------   --------
                                                  (IN THOUSANDS EXCEPT PER SHARE DATA)
<S>                                          <C>           <C>            <C>       <C>
YEAR ENDED DECEMBER 31, 2000
Revenues...................................    $44,012       $58,068      $51,091   $22,892
Gross profit...............................     10,908         9,790       7,991      2,676
Net income (loss)..........................      1,023           415         434     (4,638)
Net income (loss) per share -- basic.......       0.03          0.01        0.01      (0.16)
                              -- diluted...       0.02          0.01        0.01      (0.16)
YEAR ENDED DECEMBER 31, 1999
Revenues...................................    $11,965       $23,521      $19,546   $ 5,248
Gross profit...............................      3,537         7,300       5,677      1,803
Net (loss) income..........................     (3,817)         (522)      1,252     (1,859)
Net (loss) income per share -- basic.......      (0.26)        (0.04)       0.09      (0.14)
                              -- diluted...      (0.26)        (0.04)       0.04      (0.14)
</TABLE>

In the fourth quarter of 2000, the Company benefited from a change in
regulations issued in that quarter by the Department of Finance of Beijing,
which reduced the contributions, effective the beginning of 2000, the Company
was required to make to the government for PRC employee benefits. As a result
during the fourth quarter, the Company reversed $0.9 million of costs accrued in
the first three quarters of 2000 which had previously been expensed ($257,000 in
the first quarter, $300,000 in the second quarter and $345,000 in the third
quarter 2000).

17.  RELATED PARTY TRANSACTIONS

In the year ended December 31, 2000, the Company entered into software and
network solutions contracts with a total contract sum of approximately $30
million with China Netcom Corporation (China Netcom). Edward Tian, a Director
and major shareholder of the Company, is the Chief Executive Officer of China
Netcom. Revenue recognized in 2000 from such contracts was approximately $18
million.

                                       F-21
<PAGE>   66
                               INDEX TO EXHIBITS

The following exhibits are filed as a part of this Report.

<TABLE>
<CAPTION>
Exhibit
Number    Description of Exhibits
-------   -----------------------
<S>       <C>
3.1       Certificate of Incorporation of AsiaInfo Holdings, Inc., dated
          June 8, 1998/*/
3.2       Certificate of Amendment to Certificate of Incorporation of
          AsiaInfo Holdings, Inc., dated August 27, 1999/*/
3.3       Certificate of Amendment to Certificate of Incorporation of
          AsiaInfo Holdings, Inc., dated November 15, 2000.
3.4       Certificate of Correction to Certificate of Amendment to
          Certificate of Incorporation of AsiaInfo Holdings, Inc.,
          dated January 18, 2001.
3.5       By-Laws of AsiaInfo Holdings, Inc., dated December 19, 2000
4.1       Specimen Share Certificate representing AsiaInfo Holdings, Inc.
          shares of common stock/*/
10.1      2000 Stock Option Plan, approved and adopted as of
          October 18, 2000/**/
10.2      Certificate of Merger of HTC Investments, Inc., a Delaware
          corporation, with and into AsiaInfo Holdings, Inc., a Delaware
          corporation, dated October 13, 1999/*/
10.3      Shareholders' Agreement of MarSec Holdings Inc., dated as of
          September 15, 2000, by and among AsiaInfo Holdings, Inc. and the
          Founders (as defined therein) of MarSec Holdings, Inc./**/
10.4      Warrant to purchase Series A Preferred Shares of MarSec
          Holdings, Inc., issued to AsiaInfo Holdings, Inc. as of
          September 15, 2000/**/
10.5      Lease of AsiaInfo's headquarters at 6 Zhongguancun South Street,
          Beijing, dated August 31, 1999/*/
10.6      Agreement for the Merger of AsiaInfo Technologies (China) Inc.
          and Zhejiang AsiaInfo Telecommunications Technology Co. Ltd.
10.7      Agreement for the Establishment of a Limited Liability Company
          (Guangdong Wangying Communications Technology Company Limited)
          and Capital Contribution.
11.1      Statement regarding computation of per share earnings (included
          in note 8 to consolidated financial statements)
21.1      Subsidiaries of AsiaInfo Holdings, Inc.
23.1      Consent of Deloitte Touche Tohmatsu
24.1      Power of Attorney (included on signature page to this report)
</TABLE>

/*/  Incorporated by reference to the same numbered exhibit previously filed
with our Registration Statement on Form S-1 (No. 333-93199).

/**/ Incorporated by reference to our Quarterly Report on Form 10-Q/A for the
quarter ended September 30, 2000.