<PAGE>

================================================================================
                                 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, 2002
                                      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)

                     Delaware                   752506390
             (State of incorporation)       (I.R.S. Employer
                                           Identification No.)

                    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. [_]

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes [X] No [_]

Based on the closing sale price of the common stock on the Nasdaq National
Market System on June 28, 2002, the aggregate market value of the voting stock
held by non-affiliates of the Registrant was $260,841,487.50.

The number of shares outstanding of the Registrant's common stock, $0.01 par
value, was 44,243,527 at March 11, 2003.

                      DOCUMENTS INCORPORATED BY REFERENCE

Certain information is incorporated by reference to the Proxy Statement for the
Registrant's 2003 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.
================================================================================

<PAGE>

                            ASIAINFO HOLDINGS, INC.

                                   FORM 10-K
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

                               TABLE OF CONTENTS

<TABLE>
<C>      <S>                                                                                  <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................................. 22

                                               PART II
ITEM 5.  Market for Registrant's Common Equity and Related Stockholder Matters............... 22
ITEM 6.  Selected Financial Data............................................................. 23
ITEM 7.  Management's Discussion and Analysis of Financial Condition and Results of Operation 24
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.......................... 43
ITEM 8.  Financial Statements and Supplementary Data......................................... 43
ITEM 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 43

                                               PART III
ITEM 10. Directors and Executive Officers of the Registrant.................................. 43
ITEM 11. Executive Compensation.............................................................. 44
ITEM 12. Security Ownership of Certain Beneficial Owners and Management...................... 44
ITEM 13. Certain Relationships and Related Transactions...................................... 44
ITEM 14. Controls and Procedures............................................................. 44
ITEM 15. Exhibits, Financial Statement Schedule, and Reports on Form 8-K..................... 44
SIGNATURES................................................................................... 46
</TABLE>

<PAGE>

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 provider of telecommunications network integration services
and software solutions in China. Our software products and network services
enable our customers to build, maintain, operate, manage and continuously
improve their communications infrastructure and customer applications.

Our key customers are the leading telecommunications service providers in
China, including China Telecommunications Corporation, or China Telecom, China
Network Communications Group Corporation, or China Netcom Group, China Mobile
Communications Corporation, or China Mobile, China United Telecommunications
Corporation, or China Unicom, and China Railway Communications, or China
Railcom.

We founded our business in the United States in 1993 and relocated our
principal operations to China in 1995. In China we have designed and
implemented most of the nation's major commercial Internet backbone projects,
including ChinaNET for China Telecom, UniNET for China Unicom and CMCCNET for
China Mobile. Each of those projects included the carrier-class, meaning high
performance, highly fault tolerant software components that we develop and
sell. Our software products can support millions of users, are designed with
open architecture to facilitate customization, and are tailored for the
specific needs of the China market. Because those software products, along with
our network integration services, have a broad range of applications for our
customers' businesses, including their fixed-line, wireless and Internet
services, our business has grown from a pure Internet infrastructure developer
to a total telecommunications infrastructure software and services provider.

Our operations are now organized as two strategic business units:
Communications Solutions and Operation Support System Solutions.

..   Communications Solutions includes network solutions, service application
    solutions, network security solutions, and network monitoring solutions.

..   Operation Support System, or OSS, Solutions includes our highly scalable
    software, which is capable of automating a telecom carrier's key business
    processes, such as customer care and billing, order fulfillment, and
    customer relationship management.

                                      3

<PAGE>

Although we are organized as a Delaware corporation, we conduct most of our
operations through two of our wholly-owned subsidiaries, AsiaInfo Technologies
(China), Inc., or AsiaInfo Technologies, and AsiaInfo Management Software, Inc.
(previously Guangzhou Bonson Technology Limited), or AsiaInfo Management, which
are both Chinese companies.

RECENT DEVELOPMENTS

Business Reorganization and New Segment Reporting

We conducted a business reorganization in the fourth quarter of 2002 in order
to reflect more accurately our strategic focus. As part of the reorganization,
our strategic business units, or SBUs, were restructured into two units:
Communications Solutions and Operation Support System Solutions, or OSS
Solutions. Our Communications Solutions business unit now offers network
solutions, service application solutions, network security solutions and
network monitoring solutions. We had previously offered network security
solutions through a majority-owned subsidiary, Marsec Holdings Inc., or Marsec,
but have integrated Marsec's network security business into our Communications
Solutions business unit. We acquired the outstanding minority shares of Marsec
in January 2003. The reorganization emphasizes the growing importance of our
OSS business and allows us to offer those products through an integrated
operational structure. In addition, we expect to be able to achieve cost
efficiencies as a result of the combined sales teams within both business units.

Our results of operations were previously reported under the segments "network
solutions" and "software solutions." In connection with the reorganization, we
have reclassified our reporting segments into OSS Solutions and Communications
Solutions in order to reflect our operations more accurately. For detailed
financial information and more information on our new reporting segments,
please refer to our consolidated financial statements and notes thereto
included in this report and the discussion below under "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operation."

                                      4

<PAGE>

INDUSTRY BACKGROUND

According to China's Ministry of Information Industry, or MII, in 2002 China's
fixed-line phone subscribers increased by 20% to 214 million and wireless phone
users increased by approximately 43% to 207 million. During that period, total
revenue generated by the telecommunications sector reached approximately $49.8
billion, up 16% from the previous year. China's telecommunications sector
continues to serve as a growth engine for the country's overall economy, whose
GDP grew at a rate of 7% to 8% in 2002. As the overall telecommunications
market expanded in 2002, the wireless sector has grown even more rapidly.
According to the MII, the number of mobile phone users has exceeded 206 million
by the end of 2002 and China had become the largest mobile phone market in
terms of the number of mobile phone users. The following table sets forth
certain information relating to the telecommunications industry in China as of
the dates indicated:

<TABLE>
<CAPTION>
                                                                   Compound Annual
                                           As of December 31,        Growth Rate
                                       --------------------------  ---------------
                                        1999   2000   2001   2002    (1999-2002)
                                       -----  -----  -----  -----  ---------------
<S>                                    <C>    <C>    <C>    <C>    <C>
China's population (in millions)...... 1,258  1,267  1,276  1,286        0.7%
China's GDP per capita (RMB).......... 6,551  7,081  7,543  7,930        6.6%
Fixed-line Telephone
 Access lines in service (in millions) 108.8  144.8  180.4  214.4       25.4%
 Penetration rate /(1)/...............   8.6%  11.4%  14.1%  16.7%        --
Wireless Telephone
 Subscribers (in millions)............  43.2   84.5  144.8  206.6       68.5%
 Penetration rate /(1)/...............   3.4%   6.7%  11.3%  16.1%        --
Internet
 Users (in millions)..................   8.9   22.5   33.7   59.1       88.0%
 Penetration rate /(1)/...............   0.7%   1.8%   2.6%   4.6%        --
</TABLE>
--------
(1) Determined by dividing the number of subscribers or users by the total
    population of China.
Sources: Data in respect of China's population and GDP per capita are derived
         from information published by the National Statistical Bureau; data in
         respect of mobile subscribers are derived from information published
         by the Ministry of Information Industry; data in respect of Internet
         users are derived from information published by CNNIC.

China's government has set aggressive goals for the future growth of China's
telecommunications industry. According to the MII's Tenth Five-Year Plan, the
industry will continue to grow three times as fast as China's GDP during the
period from 2001 through 2005. By 2005, the MII expects telecommunications
service revenues to reach approximately $110 billion, which is triple the
figure in 2000. The capacity of fixed switching equipment is expected to reach
300 million lines, while mobile switching capacity is expected to reach 360
million lines. According to the Tenth Five-Year Plan, there will be
approximately 500 million telephone subscribers in China by 2005, representing
a penetration rate of more than 40%. The number of fixed-line subscribers is
expected to reach 240 million to 280 million with a penetration rate of 18% in
2005, compared to 16.7% in 2002. The number of mobile subscribers is expected
to reach 260 million to 290 million with a penetration rate of 21% in 2005,
compared to 16.1% in 2002. There will be approximately 200 million subscribers
of data, multimedia and Internet services with a penetration rate of 15%. Based
on preliminary calculations, a total of approximately $150 billion will be
invested in the telecommunications industry, which is 20-30% higher than the
total investment under China's Ninth Five-Year Plan.

Over the past several years, the telecommunications industry in China has gone
through several restructurings. These restructurings have been accompanied by
industry deregulation and rapid growth in the market for telecommunications
services. Prior to a major industry restructuring in 1999, the
telecommunications market in China was dominated by the predecessor company of
China Telecom. In 1999, the predecessor company of China Telecom was divided
into the following four companies:

..   China Telecom--providing fixed-line and data communication services;

                                      5

<PAGE>

..   China Mobile--providing mobile and data communication services;

..   China Satellite--providing satellite communications; and

..   Guoxin Paging--a paging business that was subsequently merged into China
    Unicom.

In May 2002, the telecommunications industry was further restructured with the
split of China Telecom into two independent companies. China Netcom Group was
formed by merging the telecommunications assets of China Telecom in ten
northern provinces of China with China Netcom Corporation Ltd., or China
Netcom, and Jitong Communication. The southern division of the original China
Telecom continues to operate under the China Telecom name.

At the end of 2002, there were five major licensed telecommunications operators
in China. China Telecom, China Netcom Group, China Unicom and China Railcom
provide fixed-line services while China Mobile and China Unicom are licensed to
provide wireless services. China Satellite Communications Corporation, or China
Satcom, the sixth licensed telecommunications operator in China, has smaller
operations and specializes in satellite communications. All six operators are
Internet service providers. According to the MII, China Mobile has recently
replaced China Telecom as China's largest telecommunications operator. In terms
of total income in 2002, China Mobile held 37.4% of the market in China,
followed by China Telecom with 32.5% and China Netcom Group with 16.6%. China
Unicom ranked fourth with a market share of 12.1% while China Railcom and China
Satellite together held the remaining 1.4%.

With the introduction of more competition, telecommunications service providers
are becoming more conscious of the return on their infrastructure investments.
With the rapidly increasing number of subscribers and the restructuring of
China's telecommunications industry, the competitive focus of carriers is
moving from pricing to quality and product differentiation, while their
investment focus is moving from network construction to operation support
systems that help increase service quality and customer satisfaction, and
reduce response time to market demands and trends.

Notwithstanding the growth in the number of telecommunications users, overall
capital expenditure by China's telecommunications providers declined in 2002 as
a result of the global slowdown of the telecommunications industry, the
industry restructuring in China, and the shift of focus in China from
infrastructure expansion to customer service. According to the MII, overall
capital expenditure in the telecommunications sector decreased by 20% to $24.6
billion in 2002. This decrease in overall capital expenditure caused our
revenues net of hardware costs to decrease approximately 9% to $64.7 million in
2002 from $71.4 million in 2001. We expect that capital expenditure in China's
telecommunications industry will begin to return to pre-restructuring levels in
the second half of 2003 and will increase further over the next few years.

MARKET OPPORTUNITIES

We believe that the major market opportunities for our business include the
following:

NETWORK CONSULTING, INTEGRATION AND MANAGEMENT SERVICES.  With broad usage of
sophisticated technology and software applications, telecommunications networks
are becoming more complex, more customized and more difficult to manage. The
deployment of telecommunications and Internet infrastructure in a complex,
multi-vendor environment requires significant expertise that usually is not
internally available to Chinese telecommunications services providers. As a
result, they rely on experienced information technology, or IT, services
companies like ours to provide total solutions to their telecommunications
infrastructure requirements in order to increase network efficiency,
differentiate their services and ensure service quality. We believe that as the
telecommunications market develops in China, our customers will continue to
require high value IT services such as network design, network planning,
network security and project management.

MISSION CRITICAL OPERATION SUPPORT SYSTEM, OR OSS, SOFTWARE AND SERVICES.  As a
result of increased competition, telecommunications service providers in China
are investing in operation support system solutions

                                      6

<PAGE>

to manage their fast growing businesses, meet the varying needs of their
customers and reduce response time to market demands and trends.
Telecommunications and Internet service providers in China are now focusing on
differentiating their services, rather than competing solely on price. They are
investing in customer care and support in order to study customer behavior and
enhance customer satisfaction. Telecommunications and Internet service
providers in China must be able to monitor customer activity, bill customer
usage on a real-time basis, and scale services to millions of users in order to
facilitate the rapid growth of their subscriber bases. These mission-critical
needs cannot be met by traditional customer care and billing solutions that are
inflexible, capable only of period processing, and difficult to scale. Our
experience indicates that service providers in China prefer real-time, scalable
and reliable billing and business management software and services that support
their packaged services, flexible pricing policies and integrated customer care
initiatives.

Convergent application software.  The emergence of convergent communications
has created an increasing demand for convergent software and solutions.
Providers of convergent communications services, such as Internet protocol
telephony and wireless data services, require customer care and billing
software that is capable of accounting for and billing their 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.

Broadband network services and application software.  As a result of increased
competition in China's telecommunications and Internet markets, carriers with
narrowband networks are continuing to upgrade to broadband networks with new
service offerings. As a result, service providers in China are investing in
broadband solutions for their backbone and provincial access networks, such as
unified messaging, media streaming, video conferencing and wireless data
related applications, to boost network usage and to generate revenue.

OUR STRATEGY

Our vision is to be the leading China-based company providing world class
network integration and management solutions by continuing to enable our
customers to build, maintain, operate, manage and continuously improve their
telecommunications and network infrastructure. The key aspects of our strategy
include the following:

Expand and deepen our software solutions to support the overall
telecommunications industry in China.  With over seven years of experience in a
fast-growing market, we are a leading provider of network integration services
and software solutions to the largest telecommunications companies in China.
Our reputation has allowed us to grow our business as a provider of software
solutions in vertical telecommunications markets. For example, our suite of
operation support system solutions has allowed us to capitalize on
opportunities in the wireless telecommunications market. With our acquisition
of Bonson in 2002, we have established a leadership position in the wireless
and data communication OSS market and increased our OSS Solutions revenues net
of hardware costs by 75%. In 2002, we won nine provincial installations with
China Mobile for their full scale billing operation support systems, which is
twice the number of installations by any of our closest competitors. Although
there has been a recent decline in capital expenditure as a result of the
industry restructuring, based on our communications with our customers and
government agencies, we expect investment in China's telecommunications
industry to resume and continue to grow rapidly in the long term, despite
cyclical adjustments. We expect most investment to be made through our
customers, which are the largest 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. In the
process, we plan to continue our transition from a pure systems integration
business to a software solutions dominant business.

Focus on high value information technology professional services.  Currently,
we offer our information technology professional services primarily 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

                                      7

<PAGE>

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. We believe the service
components of our telecommunications solutions will become increasingly
important as telecommunications networks become more complex and more
customized. As such, we intend to continue to develop our services business to
include more high-value consulting services.

LEVERAGE OUR HIGH QUALITY CUSTOMER BASE TO GENERATE RECURRING REVENUES.  We
have a high quality group of 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 Netcom Group, China Mobile, China Unicom, and China Railcom,
which together have accounted for a majority of the investment in
telecommunications infrastructure in China. Our high quality customer base
enables us to foster close relationships with our customers and develop
in-depth understandings of their specific needs. Furthermore, our customers may
face significant costs and technological risks by switching from our services
and products to others. We 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
strategy to attract and retain the best and most qualified personnel in China's
IT industry. In view of the specific needs of the China market, we target our
recruitment effort on Chinese citizens 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 attractive compensation packages, a challenging
and rewarding work environment, and the opportunity to work for a leading
company in China. Given our continuing transition to a software dominant
business, we are focusing our recruitment efforts on more highly-skilled
software engineers.

OUR COMPETITIVE STRENGTHS

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

TELECOMMUNICATIONS INFRASTRUCTURE TECHNOLOGY LEADERSHIP IN CHINA.  Our
engineering personnel have industry-leading expertise in telecommunications
infrastructure technologies in China. This expertise enables us to design and
implement network technology that is suitable for the Chinese market and 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 companies in Asia, and make us well positioned to anticipate and
capitalize on market opportunities for our business in China.

REAL-TIME, SCALABLE AND ADAPTABLE SOFTWARE.  Our 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

                                      8

<PAGE>

targeting efforts. The scalability of our software allows telecommunications
service providers to develop their network infrastructure incrementally as
their level of business grows, without the need for architecture re-engineering
or large-scale system replacements. In addition, our software products 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.

CUSTOMER-CENTRIC AND COST-EFFECTIVE PROJECT MANAGEMENT CAPABILITY.  Our project
delivery time with key customers usually lasts between three to six months, and
at times may last over a year. We believe customer satisfaction is essential to
preserve customer loyalty. As such, we remain in close contact with our
customers to meet their needs and demands during the course of these projects.
Through experience and time, we have developed a unique project management
system to achieve maximum customer satisfaction in a cost-effective manner. We
believe our effective project management system distinguishes us from of our
competitors in China.

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

PRODUCTS AND SERVICES

We provide telecommunications network integration services and software
solutions to the leading telecommunications service providers in China. We
offer these solutions to our customers by leveraging our core strengths in
information technology services and software, and maintaining close
relationships with multiple hardware and third party software vendors.
Substantially all of our network integration and software solutions business is
accounted for by the various provincial entities of China Telecom, China Mobile
and China Netcom Group, as well as China Unicom and China Railcom. Our
longstanding relationships with these customers and our understanding of their
specific requirements make us well positioned to respond to their requests for
proposals.

We develop, market and produce our offerings, or "solutions," through our two
strategic business units:

..   Communications Solutions (which includes network solutions, service
    application solutions, network security solutions and network monitoring
    solutions); and

..   Operation Support System, or OSS, Solutions.

We provide maintenance and technical support in connection with all our
projects, including 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. Our policy of on-going maintenance and technical support
helps us to foster long-term relationships with our customers. We also provide
technical training to our customers and strategic partners to increase their
awareness and knowledge of network technologies and software in the Chinese
information technology market and to support the operations of our customers'
integrated network systems.

COMMUNICATIONS SOLUTIONS

NETWORK SOLUTIONS--The core area of our Communications Solutions business unit
is network solutions, which represented approximately 72% of our net revenues
in the Communications Solutions business unit in 2002. Network solutions
includes network access and backbone infrastructure design and implementation
for

                                      9

<PAGE>

telecommunications and Internet service providers. Network solutions support a
wide array of network technologies and generally involve one or more of the
following services:

..   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 a 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.

..   Network implementation.  We install 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 developing customized
    network and services management applications. We believe that our expertise
    in integrating new systems without disrupting our customers' ongoing
    business operations adds significant value and reduces risks.

..   Network performance optimization.  We maximize the efficiency of
    communications networks by improving network utilization. Examples of these
    services include network traffic analysis and identification of
    bottlenecks, recommendations for efficient allocation of bandwidth, fault
    detection and isolation, and performance audit and tuning.

Network solutions projects give us an intricate understanding of our customers'
infrastructure requirements and allow us to understand the software
requirements that are needed to support those infrastructures. Software
products within network solutions include AINetXpert and AsiaInfo VisionXpert.

AINetXpert.  AINetXpert is a service-oriented network management software
product with high-end features. AINetXpert 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 AINetXpert differentiate it from other network management
software products. Through its multi-vendor support feature, AINetXpert
significantly increases the cost efficiency of network management activities.
Further, by monitoring and assessing network traffic in real time, AINetXpert
collects and analyzes statistical data on the system by service category, which
can be used to manage service level agreements and make sound investment
decisions for network expansion. For large-scale networks, AINetXpert groups
and manages systems by service category such as leased line services, dial-up
services and Web services, enabling operators to streamline management
processes and prioritize management tasks. Furthermore, while traditional
network management software products only deal with static network elements
such as hardware, AINetXpert also manages dynamic factors such as usage
patterns. AINetXpert also facilitates many customer-oriented value-added
services such as customer self-evaluation on service usage. AINetXpert has a
modular design to adapt flexibly to the actual needs of customers.

AsiaInfo VisionXpert (AIVX).  AIVX is a support system for video-conferencing
operations, providing the following functions:

..   Conference management--scheduling users' participation in conferences and
    booking meeting times and venues;

..   Resource management--carrying out deployment strategies over system
    resources, supporting products of different manufacturers and providing
    inter-operator development and redundancy design;

..   User management--managing users' data and users' rights, and matching users
    and terminals;

..   Billing management--collecting billing records, generating billing
    messages, answering billing inquiries and performing bill payment functions.

                                      10

<PAGE>

SERVICE APPLICATION SOLUTIONS--We design and provide applications for Internet
access, Internet protocol telephony and virtual private networks that allow our
clients to provide commercial services to their customers. We also provide high
volume messaging software and services, and Web-based as well as other Internet
applications. Software products within our service application solutions
include AsiaInfo Mail Center (AIMC), AsiaInfo Unified Messaging System (AIUM)
and AsiaInfo Internet Short Messaging Gateway (AIISMG).

AsiaInfo Mail Center (AIMC).  Our flagship online messaging software, AIMC, is
an integral part of our service application offerings. 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 in China such as chinadotcom and 21cn.com are among
the key customers for AIMC. To meet the demand for more efficient and secure
electronic message exchanges, AIMC provides innovative functions and anti-spam
control. The wireless application protocol, or WAP, and short messaging system,
or SMS, functions allow the end user to access email at any time with a mobile
connection. AIMC also enhances user experience with its stream-based video mail
function.

AsiaInfo Unified Messaging System (AIUM).  AIUM is an information-exchanging
platform for wire, wireless and Internet networks providing customers complete
access to message transmission and retrieval. AIUM gives the user freedom to
choose among various media, such as e-mail, telephone, facsimile and mobile
telephone, to send and retrieve messages.

AsiaInfo Internet Short Messaging Gateway (AIISMG).  AIISMG is a business
support platform for value-added short messaging services. AIISMG improves
connectivity between the mobile user and the short message content provider to
boost short messaging services. AIISMG is the only one-layer short messaging
gateway used by China Mobile (which facilitated more than 80 billion short
messages in 2002) to achieve single-point access and provincial roaming.
Furthermore, AIISMG supports multi-protocols to enable short messages
transported between different carriers and different mobile networks, including
digital mobile (global system for mobile communications, or GSM), code division
multiple access, or CDMA, personal handy phone system, or PHS, and third
generation, or 3G networks.

NETWORK SECURITY SOLUTIONS--We provide high-end network security solutions to
telecommunications carriers, Internet data centers, Internet content providers
and Internet service providers using third party software applications. We
previously offered network security solutions through a majority-owned
subsidiary, Marsec, but have integrated Marsec's network security business into
our Communications Solutions business unit. We acquired the outstanding
minority shares of Marsec in January 2003. Our network security solutions
include the following services:

..   assessing, designing and deploying network security systems;

..   managing network security systems; and

..   providing technical training and support.

NETWORK MONITORING SOLUTIONS--Some of our Communications Solutions projects
involve the provision of base station network monitoring services for wireless
telecommunications carriers. We acquired this business through our acquisition
of Bonson in February of 2002. Software products in our network monitoring
business include AI-BS-ViewFocus, which is embedded in the hardware equipment
we design and use in providing network monitoring solutions. AI-BS-ViewFocus is
a web-based product that monitors transmission and power stations for mobile
communications.

                                      11

<PAGE>

Operation Support System, or OSS, Solutions

Currently, our Operation Support System Solutions include three primary types
of products:

..   customer care and billing, or CC&B;

..   customer relationship management, or CRM; and

..   order fulfilment management.

Our Operation Support System Solutions allow our customers to manage their
network infrastructure utilizing our proprietary and third-party software tools
and applications. In addition to software, OSS Solutions projects generally
involve one or more of the following services:

..   software customization and installation;

..   design and implementation of network management centers; and

..   technical training and support.

CUSTOMER CARE AND BILLING PRODUCTS.  We offer complex customer care and billing
solutions to support our clients' businesses. With the integration of Bonson's
wireless billing software into our OSS Solutions business unit, we are able to
provide a broader range of solutions to our clients. Our main CC&B product
offerings include wireless solutions, Internet protocol (IP) solutions,
clearance and settlement solutions, and convergent billing solutions. Software
products within these offerings include:

AsiaInfo Online Billing System (AIOBS).  AIOBS is the software product used in
our wireless solutions. It is a real time, scalable software that enables
service providers to address mission critical needs such as customer care,
services support, and accurate and timely billing. AIOBS enables
telecommunications 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.

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

..   caller ID usage-based and restricted line services that allow telephone
    customers to log on to the Internet without first registering with 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 that 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 that 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.

AsiaInfo Convergent Billing System (AICBS).  Our convergent billing solutions
software, AICBS, offers real time, scalable solutions for customer care and
billing operations of wireless and long-distance telephony service providers,
including:

..   customer care, together with customer service, hierarchies and rapid report
    management;

..   call center support, including usage processing;

                                      12

<PAGE>

..   fraud detection and management;

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

..   inter-carrier settlement.

With AICBS, we pioneered the fraud management software market in China, which
has seen increasing customer demand. We believe AICBS is the first and most
widely used customer care and billing software used by Chinese operators that
supports wireless services based on the CDMA standard in addition to the
digital mobile (GSM) standard.

AI-BS Mobile Business Operating Support System (AI-BS-BOSS).  AI-BS-BOSS is an
integrated customer care and billing system used in our wireless solutions,
supporting all second generation, or 2G, 2.5 generation, or 2.5G, voice and
data services. It provides rating, provisioning and billing functions, as well
as powerful customer care, business and service management capabilities.
AI-BS-BOSS is a highly configurable, expandable and scalable system which
accommodates both pre-paid and post-paid subscribers. AI-BS-BOSS supports voice
services such as digital mobile (GSM), analog and voice over Internet protocol,
or VoIP, and data services such as WAP, and general packet radio service, or
GPRS.

AsiaInfo Integrated Settlement System (AIISS).  AIISS is an integrated
settlement software we provide to telecommunications operators through our
clearance and settlement solutions. AIISS covers all aspects of settlement,
including inter-operator and intra-operator, roaming, and service provider
settlement. It also supports most business lines of a carrier such as domestic
direct dial, or DDD, international direct dial, or IDD, data, VoIP and
value-added services. AIISS uses advanced plug-and-play component architecture,
offering flexibility, security and scalability to the carriers. Services
supported by AIISS include digital mobile (GSM), analog systems, 2.5G, third
generation mobile system, or 3G, IP, access, VoIP, public switched telephone
network, or PSTN, leased-line, generic digital subscriber line, or xDSL, CDMA,
broadband access and leased-line access.

CUSTOMER RELATIONSHIP MANAGEMENT.  Our suite of customer relationship
management solutions allows wireless and fixed-line telecommunications
operators to improve customer service and establish strong customer
relationships. Our main CRM product offerings include solutions for Decision
Support Systems and Business Integration. Software products in these offerings
include:

AIOmniVision.  AIOmniVision is our analytical customer relationship management
software product used in our solutions for Decision Support Systems and
Business Integration. With embedded technology such as data warehousing, online
analytical process and data mining, AIOmniVision enables carriers to make
management decisions based on analysis of customer behavior, competitive
environment, business profitability and other parameters. The system is able to
proactively generate business operation reports, which serve as a basis for top
management decisions.

AIOmniVision allows service providers to:

..   understand and maximize business value from their existing customers;

..   identify and focus on profitable customer groups;

..   explore and attract potential customers;

..   improve service quality and ensure customer satisfaction and retention;

..   enhance return on investment of new service offerings;

..   increase service usage and network utilization; and

..   improve efficiency and reduce costs.

                                      13

<PAGE>

AsiaInfo Customer Care and Relationship Management System (AICRM Suite).  AICRM
Suite is our integrated marketing management software product for fixed-line
and wireless telecommunications service providers. It provides carriers a
complete marketing management solution which enables them to formulate and
execute marketing policies and conduct operation analyses. Carriers are thus
able to effectively manage their customer service and strengthen their partner
and alliance relationships. AICRM features a multi-level architecture,
independent customer interfaces and databases, and quick time-to-market
response capabilities.

ORDER FULFILMENT MANAGEMENT.  Our order fulfilment management software,
AsiaInfo Order Management System, or AIOMS, assists fixed-line
telecommunications providers in managing their orders, business processes,
operations and resources. AIOMS is a comprehensive production and operation
management software product with fast and flexible order management
capabilities. We currently offer AIOMS to fixed-line carriers but AIOMS is also
capable of supporting the systems of wireless service providers. AIOMS features
a multi-level architecture, independent customer interfaces and databases, and
flexible control mechanisms.

STRATEGIC ACQUISITIONS AND ALLIANCES

From time to time, we enter into strategic acquisitions and alliances in order
to further our business objectives, including:

..   expanding our product and service offerings;

..   entering vertical markets and obtaining complementary technology; and

..   increasing our distribution channels and co-marketing opportunities.

Our strategic investments have included our acquisition of Bonson Information
Technology Holdings Limited, or Bonson, a leading provider of operation support
system solutions to China's wireless telecommunications carriers. We acquired
Bonson in February of 2002 for a combination of cash and shares of our common
stock valued at a total of approximately $51.4 million. The wireless operation
support system solutions market in China is fragmented, and we believe the
acquisition of Bonson has given us the largest share of any participant in that
market.

PRICING

We currently price our projects on the following basis:

..   Hardware procurement.  We sell hardware as part of our total solutions and
    price hardware together with the total contract price as a fixed-fee. To
    minimize exposure to hardware risk, we source equipment from hardware
    vendors against letters of credit from our customers.

..   Software sales.  We price our software products (except for AIOmniVision
    and AINetXpert) based on the number of user licenses which our customers
    purchase from us. We price AIOmniVision based on modules, functions and
    requirements for follow-on services, and price AINetXpert based on the
    number of networks we monitor using the software. 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 charge 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.

..   Services.  We price our services internally on an estimated time and
    material basis. However, services are quoted to customers as a fixed fee.

Contracts for our projects are generally subject to competitive bidding
processes.

                                      14

<PAGE>

TECHNOLOGY

Customer care and billing software.  Our on-line customer care and billing
software, AIOBS, 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 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.

CONVERGENT BILLING SOFTWARE.  Our convergent billing software, AICBS, 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,
Internet protocol 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.

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

CUSTOMER RELATIONSHIP MANAGEMENT SOFTWARE.  Our analytical customer
relationship management software, AIOmniVision, uses data-warehousing
technology, offering integrated systems and information for decision support
and execution. The advantages of AIOmniVision include:

..   the flexibility and universal design of the data-warehousing model;

..   dynamic component modules that can be modified separately when a new
    product is introduced and updated without any system down times; and

..   fully documented application programming interfaces that support standard
    scripts, allowing our customers to build client applications without
    compilation and customize and write new interface applications with minimum
    training.

Our marketing management software product, AICRM, for fixed-line and wireless
telecommunications service also uses a multi-level architecture to provide
carriers complete marketing management solutions with independent customer
interfaces and databases, and quick time-to-market response capabilities.

ORDER MANAGEMENT SOFTWARE.  Our order management software, AIOMS, uses a
multi-tier architecture to provide flexibility in managing order distribution
and business processes. It also has fast and flexible order mechanisms by
providing a separate database for business processes and customer interfaces.

                                      15

<PAGE>

We closely monitor world-wide technological developments in our service and
product areas. In developing these and other technologies, we sometimes source
knowledge, software and other products from 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 services and software products to our customers.

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. We develop 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 OSS solutions, such as fixed-line operation support
systems and settlement systems.

The focus of our network services research is on new network technology
development and the evaluation of solutions based on multi-vendor products. The
focus of our 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, particularly in the area of operation support system
solutions.

CUSTOMERS

Our customers currently consist primarily of Chinese telecommunications service
providers, including China Telecom, China Netcom Group, China Mobile, China
Unicom and China Railcom. For the year ended December 31, 2002, China Telecom
(including contracts signed with all China Telecom entities merged into China
Netcom Group in May, 2002) accounted for 22% of our revenues net of hardware
costs, while China Unicom accounted for 22%, China Mobile accounted for 42%,
China Netcom Group (excluding contracts signed with the China Telecom entities
merged into China Netcom Group in May, 2002) accounted for 5%, China Railcom
accounted for 4% and other customers accounted for 5%. Our customer base is
changing and diversifying as the overall China telecommunications market
deregulates. For more information on recent restructurings and regulatory
changes affecting our customers, please see the discussion above under the
heading "Industry Background" and the discussion below under the heading
"Government Regulation."

CHINA TELECOM.  China Telecom is the oldest voice and data communications
provider in China and is the leading provider of fixed-line telephone, data and
Internet and leased line services in four of the most economically developed
regions in China. Before the recent restructurings of the telecommunications
industry in China that began in 1999, China Telecom, together with its various
provincial subsidiaries, constituted our largest customer, accounting for
almost all of our revenues in 1997 and 1998. As part of the industry
reorganization completed in May 2002, the northern division of China Telecom
(comprising ten provinces) merged with China Netcom and Jitong Communication to
form China Netcom Group. The southern division (comprising twenty-one
provinces) continues to operate under the China Telecom name.

CHINA NETCOM GROUP.  China Netcom was originally formed in 1999 to provide
nationwide Internet broadband access and integrated telecommunications
services. As part of the recent industry reorganization, China Netcom merged
with the northern division of China Telecom and Jitong Communication, and the
combined business now operates under the China Netcom Group name. As a result
of the reorganization, China Netcom Group is permitted to operate nationwide
fixed-line telecommunications networks and provide nationwide services.

CHINA MOBILE.  China Mobile was established in July 1999 to operate mobile
telecommunications networks nationwide that had previously been operated by
China Telecom. China Mobile is the largest telephony service provider in China
with over 101 million wireless voice service subscribers and has various
provincial subsidiaries throughout China which are responsible for local
networks. China Mobile's digital mobile (GSM)

                                      16

<PAGE>

network covers all of China's cities and 96% of its rural areas. In addition to
mobile services, the company operates an Internet Protocol telephony service
and is an Internet service provider.

CHINA UNICOM.  China Unicom was established in 1994 and is China's second
largest mobile operator, providing services to over 39 million mobile customers
through its digital mobile (GSM) network and since January 2002, its second
generation, or 2G, CDMA network. In 2002, the first year of operation of China
Unicom's CDMA network, China Unicom had seven million subscribers and is
targeting to achieve 20 million subscribers by the end of 2003 with the launch
of its new CDMA 1X data services. China Unicom also provides a wide array of
services, including long distance telephone services, local telephone services,
Internet and data communications services, paging services, communications
value-added services and other communications services.

CHINA RAILCOM.  China Railcom was established in December 2000 and is the
newest of the six licensed telecommunications service providers in China. With
the second largest fixed communications network in China, it is a multi-service
vendor, providing long distance and local fixed-line services, as well as data
communications services. China Railcom is 51% owned by China's Ministry of
Railway and 49% owned by 14 railway bureaus.

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 our customers. We employ direct
sales personnel in regional offices in Beijing, Shanghai, Wuhan, Chengdu and
Guangzhou. In connection with our recent reorganization, our sales teams from
network solutions, service application solutions and network security solutions
have been combined into one team under the Communications Solutions business
unit. The Bonson sales team has been integrated into the OSS Solutions business
unit. For more detailed information on our recent reorganization, please see
the discussion above under "Item 1. Business--Recent Developments."

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. Sales quotas are assigned to all
sales personnel according to annual sales plans. 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 a report has been approved, a sales team is
appointed consisting of sales personnel, system design engineers and a senior
system architect.

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 dedicated marketing teams 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 strategies. They also assist in the planning of the roll-out of
our solutions and products in anticipation of customers' needs.

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;

                                      17

<PAGE>

..   producing corporate and product brochures and monthly customer newsletters;

..   conducting seminars and media conferences;

..   conducting ongoing public relations programs; and

..   creating and placing advertisements.

COMPETITION

Communications Solutions

The market for network solutions in China is new and rapidly changing. Our
competitors in the network solutions market mainly include domestic systems
integrators such as Zoom Networks, Openet Information Technology (Shenzhen)
Corporation, Digital China Holdings Limited and Legend Group Limited. 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, this could hurt our profitability and erode our market share.

The service application solutions sector is highly competitive. Our principal
competitor in this sector is Openwave Systems Inc. (formerly Software.com and
Phone.com). In the network security solutions market, we mainly compete with
Information Security One Limited, Nsfocus Information Technology Co., Ltd., and
21ViaNet China Inc. An increasing number of companies are devoting their
resources to this sector in developing network security products. In the
network monitoring solutions market, our principal competitor is Emerson
Electric Co. (through its acquisition of Avansys Power Co., Ltd. from Huawei
Technologies).

Operation Support System Solutions

In the operation support system solutions market, we compete with both
international and local software and solutions providers. In the online billing
segment, we compete primarily with Portal Software, MIND C.T.I. Ltd., and Zoom
Networks, and in the wireless billing segment we compete mainly with more than
eight local competitors. We also expect to compete with more than ten local
competitors in the fixed-line OSS market. Currently, due in part to each
telecommunication provider's 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. However, multinational companies have
recently formed alliances with Chinese companies to expand into China's
telecommunications solutions market. For example, CSG Systems, or CSG, has
formed a strategic alliance with a subsidiary of Legend Group Limited to
develop a suite of customer care and billing solutions for China's
telecommunications carriers. In view of the gradual deregulation of the Chinese
telecommunications industry and China's entry into the World Trade
Organization, or WTO, we anticipate the entrance of new competitors into the
operation support system market.

We believe that we have competitive advantages in all of our product and
service segments due to our network infrastructure technology leadership,
combined international and China expertise, high performance, scalable and
flexible software, customer-centric and cost effective project management
capability, and established customer relationships. 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.

                                      18

<PAGE>

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 telecommunications
industry in which our customers operate, however, is subject to extensive
government regulation and control. Currently, all the major telecommunications
and Internet service providers in China are primarily 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 from time to time by China's
Ministry of Information Industry, or MII, and other ministries and government
departments.

In September 2000, China published the Regulations of the People's Republic of
China on Telecommunications, also known as the Telecommunications Regulations.
The Telecommunications Regulations are the first comprehensive set of
regulations governing the conduct of telecommunications businesses in China.
The principles expressed by the Telecommunications Regulations reflected on
China's commitment to accede to the WTO. In particular, the Telecommunications
Regulations set out in clear terms the framework for operational licensing,
network interconnection, the setting of telecommunications charges and
standards of telecommunications services in China.

The Circular on the Structural Adjustment of Telecommunication Charges, issued
in December of 2000, reduced telecommunications service and Internet service
fees in China, such as Internet access fees and leased line renting fees,
permitting Internet protocol 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 Circular has positively impacted our business because, with the
decline in telecommunications and Internet services fees, China's Internet
population and tele-density have grown, which in turn has generated more demand
for our products and services. For example, the number of Internet users in
China increased to 59.1 million in 2002 due in part to the decrease in Internet
access fees. In addition, with declining leased line tariffs, more and more
enterprises will be able to afford to use the Internet as a business tool.

Under regulations introduced in December of 2001, foreign investors are now
permitted to invest in China's telecommunications industry through Sino-foreign
joint ventures. The new regulations, known as the Provisions on the
Administration of Foreign-Invested Telecommunications Enterprises, or the
Provisions, were the result of China's accession to the WTO. Under the
Provisions, foreign investors will be ultimately permitted to own up to 49% of
basic telecommunications businesses (with the exception of wireless paging
businesses) in China, and up to 50% of value-added telecommunications
businesses (which include Internet service providers and Internet content
providers) and wireless paging businesses.

Notwithstanding the recent developments in China's telecommunications
regulations, many laws and regulations applicable to the telecommunications
industry in China are still evolving and unsettled. In September 2000, China's
State Council approved the Administrative Measures on Internet Information
Services. The Administrative Measures on Internet Information Services provide
for control and censoring of information on the Internet. A restrictive
regulatory environment for our customers could adversely affect our business.
For a further discussion of the changing regulatory environment in China,
please see the discussion below under "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 in part upon our intellectual
property rights, which we protect through a combination of confidentiality
arrangements and copyright and trademark registrations. We have filed

                                      19

<PAGE>

five trademark applications with the United States Patent and Trademark Office,
three of which have been passed on to registration and two of which are
currently 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 67
versions of our software products with the State Copyright Bureau in China,
including the AIOBS series, the AISerBase series, the AIMC series and the
AIOmniVision 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, which does not require registration for
protection of copyrights). 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. 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. Policing unauthorized use of our licensed technology is difficult
and there can be no assurance that the steps we take 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.

A portion of our business involves the development and customization of
software applications for customers. We generally retain significant ownership
or rights to use and market such software for other customer projects, where
possible. However, our customers sometimes retain co-ownership and rights to
use the applications, processes, and intellectual property so developed. In
some cases, we may have no right or only limited rights to reuse or provide
these developments in projects involving other customers. To the extent that we
are unable to negotiate contracts which permit us to reuse source-codes and
methodologies, or to the extent that we have conflicts with our customers
regarding our ability to do so, we may be unable to provide similar solutions
to our other customers.

EMPLOYEES

We have over 900 employees. We devote significant resources to recruiting
professionals with 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 employee stock option plans that include vesting provisions designed to
encourage long term employment.

OUR CODE OF ETHICS

In 1999, we adopted a code of ethics, or the Code, which applies to all of our
employees. Recently, we conducted a thorough review and updating of the Code. A
copy of the Code and a brief description of any amendments to or waivers from
the Code relating to any of our principal executive officers or senior
financial officers will be posted on our website at www.asiainfo.com.

                                      20

<PAGE>

SEC REPORTS AVAILABLE ON WEBSITE

Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports
on Form 8-K and amendments to reports filed pursuant to Sections 13(a) and
15(d) of the Securities Exchange Act of 1934, as amended, are available on our
website at www.asiainfo.com, when such reports are available on the Securities
and Exchange Commission website.

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, Nanjing and Wuhan, as well as a
regional office in Santa Clara, California.

ITEM 3.  Legal Proceedings

On December 4, 2001, a securities class action case was filed in New York City
against us, certain of our current officers and directors and the underwriters
of our initial public offering, or IPO. The lawsuit alleged violations of the
federal securities laws and was docketed in the United States District Court
for the Southern District of New York, or the Court, as Hassan v. AsiaInfo
Holdings, Inc., et al. The lawsuit alleged, among other things, that the
underwriters of our IPO improperly required their customers to pay the
underwriters excessive commissions and to agree to buy additional shares of our
common stock in the aftermarket as conditions to their purchasing shares in our
IPO. The lawsuit further claimed that these supposed practices of the
underwriters should have been disclosed in our IPO prospectus and registration
statement. The suit seeks rescission of the plaintiffs' alleged purchases of
our common stock as well as unspecified damages. In addition to the case
against us, various other plaintiffs have filed approximately 1,000 other,
substantially similar class action cases against approximately 300 other
publicly traded companies and their IPO underwriters in New York City, which
along with the case against us have all been transferred to a single federal
district judge for purposes of case management. On July 15, 2002, together with
the other issuer defendants, we filed a collective motion to dismiss the
consolidated, amended complaints against the issuers on various legal grounds
common to all or most of the issuer defendants. The underwriters also filed
separate motions to dismiss the claims against them.

On October 9, 2002, the Court dismissed without prejudice all claims against
the individual defendants in the litigation (Louis Lau, our Chairman, James
Ding, our President and Chief Executive Officer and Ying Han, our Chief
Financial Officer). The dismissals were based on stipulations signed by those
defendants and the plaintiffs' representatives.

On February 19, 2003, the Court issued its ruling on the motions to dismiss
filed by the underwriter and issuer defendants. In that ruling the Court
granted in part and denied in part those motions. As to the claims brought
against us under the anti-fraud provisions of the securities laws, the Court
dismissed all such claims without prejudice. As to the claims brought under the
registration provisions of the securities laws, which do not require that
intent to defraud be pleaded, the Court denied the motion to dismiss such
claims as to us and as to substantially all of the other issuer defendants. The
Court also denied the underwriter defendants' motion to dismiss in all
respects. While we cannot guarantee the outcome of these proceedings, we
believe that the final result of these actions will have no material effect on
our consolidated financial condition, results of operations or cash flows.
Moreover, we believe that the underwriters may have an obligation to indemnify
us for the legal fees and other costs of defending this suit and that our
directors' and officers' liability insurance policies will also cover the
defense and potential exposure or settlement of the suit.

                                      21

<PAGE>

ITEM 4.  Submission of Matters to a Vote of Security Holders

No matters were submitted during the fourth quarter of the fiscal year covered
by this report to a vote of our security holders.

                                    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. The following table
sets forth, for the periods indicated, the high and low sales prices per share
of the common stock as reported on the Nasdaq National Market.

<TABLE>
<CAPTION>
                                                                      High   Low
                                                                     ----- -----
<S>                                                                    <C>   <C>
2002:
 Fourth Quarter....................................................   8.90  2.04
 Third Quarter.....................................................  13.78  3.22
 Second Quarter....................................................  13.88  9.80
 First Quarter.....................................................  24.25 10.66
2001:
 Fourth Quarter....................................................  21.25 11.10
 Third Quarter.....................................................  20.00  9.37
 Second Quarter....................................................  20.39  8.44
 First Quarter.....................................................  19.94  6.94
</TABLE>

As of February 28, 2003, we had approximately 164 holders of record of our
common stock.

We have never declared or paid any dividends on our capital stock, and do not
intend to pay dividends on our shares of common stock in the forseeable future.
Instead, we intend to retain all earnings 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) were approximately $126,610,000. From the
effective date of the Registration Statement through December 31, 2002, the net
proceeds have been used for the following purposes:

<TABLE>
    <S>                                                        <C>
    Purchase and installation of machinery and equipment...... $  7,120,000
    Temporary investments, including cash and cash equivalents   36,690,000
    Investments in subsidiaries...............................   50,900,000
    Research and development and sales and marketing expenses.   31,900,000
                                                               ------------
                                                               $126,610,000
                                                               ============
</TABLE>

                                      22

<PAGE>

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.

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
Operation" beginning on page 20 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,
                                              -----------------------------------------------------------------------
                                                  2002      2001/(1)/         2000             1999             1998
                                              -----------  -----------  -----------      -----------      -----------
                                                 (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:
  Communications Solutions................... $    68,018  $   146,541     N/A/(2)/         N/A/(2)/         N/A/(2)/
  Operation Support System Solutions.........      53,248       42,465     N/A/(2)/         N/A/(2)/         N/A/(2)/
                                              -----------  -----------  -----------      -----------      -----------
    Total revenues...........................     121,266      189,006  $   176,063      $    60,280      $    44,222
                                              -----------  -----------  -----------      -----------      -----------
Cost of revenues:
  Communications Solutions...................      48,714      106,622     N/A/(2)/         N/A/(2)/         N/A/(2)/
  Operation Support System Solutions.........      32,286       26,911     N/A/(2)/         N/A/(2)/         N/A/(2)/
                                              -----------  -----------  -----------      -----------      -----------
    Total cost of revenues...................      81,000      133,533      144,698           41,963           32,189
                                              -----------  -----------  -----------      -----------      -----------
Gross profit.................................      40,266       55,473       31,365           18,317           12,033
                                              -----------  -----------  -----------      -----------      -----------
Operating expenses:
  Sales and marketing........................      14,680       21,768       19,734            8,768            2,408
  General and administrative/(3)/............       9,907       14,905       12,893            8,167            6,463
  Research and development...................       8,503        7,304        5,974            2,838            1,436
  In-process research and development........         350           --           --               --               --
  Amortization of deferred stock
   compensation..............................         407        1,144        2,209            3,508            1,045
  Amortization of acquired intangible assets.       1,749           --           --               --               --
                                              -----------  -----------  -----------      -----------      -----------
    Total operating expenses.................      35,596       45,121       40,810           23,281           11,352
                                              -----------  -----------  -----------      -----------      -----------
Operating income (loss)......................       4,670       10,352       (9,445)          (4,964)             681
  Other income (expense), net................       1,450        6,107        6,865              352              477
  Income tax expense (benefit)...............         824        3,444          218              383             (256)
  Minority interests in (income) loss of
   consolidated subsidiaries.................          75         (396)          32               84              122
  Equity in loss of affiliate................      (2,465)        (885)          --              (35)              --
                                              -----------  -----------  -----------      -----------      -----------
Net income (loss)............................ $     2,906  $    11,734  $    (2,766)     $    (4,946)     $     1,536
                                              ===========  ===========  ===========      ===========      ===========
Net income (loss) per share:.................
    Basic.................................... $      0.07  $      0.28  $     (0.07)     $     (0.34)     $      0.11
                                              ===========  ===========  ===========      ===========      ===========
    Diluted/(4)/............................. $      0.06  $      0.26  $     (0.07)     $     (0.34)     $      0.05
                                              ===========  ===========  ===========      ===========      ===========
Shares used in computation:..................
  Basic......................................  43,583,420   41,525,159   37,239,649       14,630,145       13,616,412
                                              ===========  ===========  ===========      ===========      ===========
  Diluted/(4)/...............................  45,961,545   45,924,724   37,239,649       14,630,145       31,765,534
                                              ===========  ===========  ===========      ===========      ===========
Additional Data:
Total revenues net of hardware costs......... $    64,733  $    71,391  $    44,578      $    25,221      $    19,286
</TABLE>

                                      23

<PAGE>

<TABLE>
<CAPTION>
                                                             As of December 31,
                                                 ------------------------------------------
                                                   2002   2001/(1)/   2000    1999    1998
                                                 -------- --------  -------- ------- -------
<S>                                              <C>      <C>       <C>      <C>     <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents....................... $115,153 $110,635  $ 48,834 $25,404 $ 9,749
Total current assets............................  215,094  232,836   254,190  64,773  42,805
Total assets....................................  263,430  245,860   264,003  71,427  45,359
Total liabilities (excluding minority interests)   52,955   60,460    95,206  31,639  26,048
Total stockholders' equity......................  210,158  184,790   168,609  39,788  19,247
</TABLE>
--------
(1) Reclassified to conform with 2002 presentation.
(2) Prior to the restructuring of our operating units in the fourth quarter of
    2002, we reported our operating results on the basis of our old reporting
    segments (network solutions and software solutions). Although we have
    reclassified our revenues for the year 2001 according to our new reporting
    segments, reclassifying our revenues for 2000, 1999 and 1998 would be not
    be reasonably practicable.
(3) In 2002, we adopted Statement of Financial Accounting Standards No.142,
    "Goodwill and Other Intangible Assets," and as a result we discontinued
    amortization of goodwill on January 1, 2002 (see note 3 of Note to
    Consolidated Financial Statements).
(4) In 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 had an antidilutive effect on the net
    loss reported in those periods. In 2002 and 2001, the Company had options
    outstanding which could potentially dilute earnings per share in the
    future, but were excluded from the computation of diluted earnings per
    share in the year, as their exercise prices were above the average market
    values in the year. See note 12 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.

ITEM 7.  Management's Discussion and Analysis of Financial Condition and
Results of Operation

OVERVIEW

We are a leading provider of telecommunications network integration services
and software solutions in China. Our software products and network services
enable our customers to build, maintain, operate, manage and continuously
improve their communications infrastructure.

We commenced our operations in the United States in 1993 and moved our
operations from the United States to China in 1995. We began generating
significant network solutions revenues in 1996 and significant software
solutions revenues in 1998. We conduct the bulk of our business through our
wholly-owned operating subsidiaries, AsiaInfo Technologies (China), Inc., or
AsiaInfo Technologies, and AsiaInfo Management Software, Inc., or AsiaInfo
Management, which are both Chinese companies.

We develop, market and sell our products and services through our two strategic
business units: Communications Solutions and Operation Support System
Solutions. Communications Solutions offers network infrastructure solutions,
service application solutions, network security solutions and network
monitoring solutions. We had previously offered network security solutions
through a majority-owned subsidiary, Marsec Holdings Inc., or Marsec, but have
integrated Marsec's network security business into our Communications Solutions
business unit. We acquired the outstanding minority shares of Marsec in January
2003. Operation Support System Solutions offers customer care and billing,
customer relationship management and similar software solutions for
telecommunications providers.

On February 6, 2002, we completed our acquisition of Bonson Information
Technology Holdings Limited, or Bonson, a leading provider of operation support
system solutions to wireless telecommunications carriers in China. The
consideration paid to the former shareholders of Bonson consisted of $32.76
million (net of acquisition costs) in cash and 1,031,686 shares of our common
stock which were valued at approximately $18 million at the time the
acquisition was announced. The cash we paid in connection with the acquisition
was paid out of our existing cash reserves. Bonson's operating results have
been consolidated with our operating results from February 6, 2002. We believe
that there are opportunities for us to expand into new business areas and to
grow our business both organically and through acquisitions. In view of the
Bonson acquisition and potential future acquisitions we may engage in, our
historical operating results may not be an adequate basis on which to evaluate
our prospects.

                                      24

<PAGE>

As a result of the recent restructuring in China's telecommunications industry,
new orders for telecommunications infrastructure expansion and improvement
projects have decreased over the past several quarters, adversely affecting our
net revenue and profitability. According to the MII, overall capital
expenditure by telecommunications services decreased by 20% to 24.6 billion in
2002. Although we expect that the restructuring will have a positive impact on
growth in the telecommunications industry in China in the long-term and that
spending will begin to return to pre-restructuring levels in the second half of
2003, continued delays in capital expenditure projects could continue to
negatively affect our growth in the near-term. Similar restructurings of this
nature could cause our operating results to vary unexpectedly from quarter to
quarter in the future.

Revenues

We reorganized our operating units in the fourth quarter of 2002 in order to
more accurately reflect our strategic focus. Our operations are now organized
into two strategic business units: Communications Solutions and Operation
Support System Solutions. Communications Solutions include the following
business lines: network solutions, service application solutions, network
security solutions and network monitoring solutions. Operation Support System
Solutions, or OSS, includes our highly scalable customer care and billing
software capable of automating a telecom carrier's key business processes, such
as billing and order management. Our results of operations were previously
reported under the segments "network solutions" and "software solutions."

Although we report our 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 of providing our customers with high value IT
professional services and, where efficient, 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 on this basis both under our new and old reporting segments:

<TABLE>
<CAPTION>
                                                                  Year Ended December 31,
                                                         ------------------------------------
                                                         2002 2001      2000     1999     1998
                                                         ---- ----      ----     ----     ----
<S>                                                      <C>  <C>       <C>      <C>      <C>
New Reporting Segments
Communications Solutions net of hardware costs..........  48%  73%/(1)/ N/A/(2)/ N/A/(2)/ N/A/(2)/
Operation Support System Solutions net of hardware costs  52%  27%/(1)/ N/A/(2)/ N/A/(2)/ N/A/(2)/
Old Reporting Segments
Network solutions net of hardware costs.................  51%  61%      61%      74%      88%
Software solutions......................................  49%  39%      39%      26%      12%
</TABLE>
--------
(1) Reclassified to conform with 2002 presentation.
(2) Prior to the restructuring of our operating units in the fourth quarter of
    2002, we reported our operating results on the basis of our old reporting
    segments (network solutions and software solutions). Although we have
    reclassified our revenues for the year 2001 according to our new reporting
    segments, reclassifying our revenues for 2000, 1999 and 1998 would be not
    be reasonably practicable.

Most of the projects we undertake for our customers, both in the Communications
Solutions business unit and the OSS Solutions business unit include revenue
from hardware, software and professional services.

Hardware revenue.  We generate significant revenue through hardware sales for
equipment procured by us on behalf of our customers from hardware vendors. 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 letters of credit from our customers. We believe that
as the telecommunications-related market in China develops our customers will
increasingly purchase hardware directly from hardware vendors and hire us for
our professional services and software solutions.

Software license revenue.  We generate revenue in the form of fees received
from customers for licenses to use our software products in perpetuity,
typically up to a specified maximum number of users. In most cases, our

                                      25

<PAGE>

customers must purchase additional user licenses from us when the number of
users exceeds the specified maximum. We also include in revenue 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.

SERVICES REVENUE.  Services revenue consists of revenue for the professional
services we provide to our customers for network planning, design and systems
integration, software customization and installation, and related training
services.

We generally charge a fixed price for all of our projects and recognize revenue
based on the percentage of completion of the project. Revenues in both
communications solutions and operation support system solutions from customer
orders requiring significant production, modifications, or customization of the
software are recognized over the installation and customization period. We use
labor costs and direct project expenses to determine the stage of completion,
except for revenue associated with the procurement of hardware on behalf of the
customer. We recognize such hardware-related revenues upon delivery. Since a
large part of the cost of certain projects, particularly network solutions,
often relates to hardware, the timing of hardware delivery can cause our
quarterly gross revenue to fluctuate significantly. However, these fluctuations
do not significantly affect our gross profit because hardware-related revenues
generally approximate the costs of the hardware.

Our projects generally have a life of nine to twelve months, during which there
are three key milestones. 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 project is at primary acceptance, which
usually occurs around three to four months after hardware delivery. At primary
acceptance, most of the services and products are delivered. The third
milestone is final acceptance, which occurs when the customer agrees that we
have satisfactorily completed all of our work on the project.

UNBILLED REVENUE.  Our revenue recognition policies result in our recognizing
certain revenues even though we are not due to receive the corresponding cash
payment under the relevant contract. In the case of hardware sales, the
customer typically holds back around 10 to 20% of the hardware contract
payments at the time of delivery until final project acceptance. Although we
record all hardware revenue at the time of delivery, the 10 to 20% held back by
the customer is recorded as unbilled receivables and does not become billable
until final project acceptance. In the case of services and software license
revenues, most of the revenue becomes billable at the time of primary
acceptance, but the customer typically holds back around 10 to 20% of the
services and software contract payments until final acceptance. Unpaid amounts
for services and software, as well as for hardware, become payable at the time
of final project acceptance. When we recognize revenue for which payments are
not yet due, we book unbilled accounts receivable until the corresponding
amounts become billable.

REVENUE BACKLOG.  Most of our revenues are derived from customers' orders under
contracts for hardware, software and services. Our backlog at any given time
includes the contracts we have signed but have not yet commenced and the
portion of uncompleted contracts for which revenue has not yet been recognized.
Revenues are recognized during the course of the relevant project, as described
above. At December 31, 2002, our revenue backlog net of hardware costs was
$40.3 million, an 8% decrease compared to backlog one year ago. The decrease in
total net revenue backlog was primarily due to the prolonged delays in the
restructuring of certain state-controlled telecommunications companies in
China, including China Telecom, causing the carriers to delay their orders
longer than previously expected. OSS Solutions backlog was $17.24 million, or
43% of net revenue backlog, a 4% increase over the period a year ago. Orders
under contracts generated by Bonson accounted for 18% of the total backlog net
of hardware costs and 43% of OSS Solutions backlog. We believe that these
changes illustrate our successful transition from a pure systems integration
company to a provider of total software solutions to China's telecommunications
service providers.

COST OF REVENUES

Costs of revenues in both the Communications Solutions business unit and the
OSS Solutions business unit include hardware costs, software-related costs and
compensation and travel expenses for the professionals involved in the relevant
projects.

                                      26

<PAGE>

Hardware costs consist primarily of third party hardware costs and related
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 large projects we
sometimes obtain less favorable payment terms from our customers, thereby
increasing our working capital requirements. We accrue hardware warranty costs
when hardware revenue is fully 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 0.5% 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.

Software-related costs consist primarily of packaging and written manual
expenses for our proprietary software products and software license fees paid
to third-party software providers for the right to sublicense their products to
our customers as part of our solutions offerings. We do not accrue any software
warranty costs for our proprietary software and accrue 0.5% of sales of third
party software as warranty costs when such revenue is recognized upon final
acceptance. The costs associated with creating and enhancing our proprietary
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 intangible assets and deferred stock compensation.

Sales and marketing expenses include compensation expenses for employees in our
sales and marketing departments, third party advertising expenses, as well as
sales commissions and sales agency fees.

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.

Overall operating expenses include significant compensation expenses. In the
third quarter of 2002, in an effort to scale our business to accommodate lower
market demand, we reduced these costs through a 10% headcount reduction and a
10% salary cut for employees at the manager level and above.

We provide most of our officers, employees and 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, resulting in deferred
compensation expenses. Most of the options granted with exercise prices below
fair market value on the date of grant were issued prior to 1997 and we do not
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 consolidated statement of operations
as amortization of deferred stock compensation. For more information on our
deferred compensation expenses, please see note 17 to our consolidated
financial statements included in this report.

We make bad debt provisions for accounts receivable balances based on
management's assessment of their recoverability. In any event, we make bad debt
provisions for all accounts receivable balances that are aged over one year. We
include those bad debt provisions in general and administrative expenses.

TAXES

Except for certain of our hardware procurement and resale transactions, 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.

                                      27

<PAGE>

Pursuant to the income tax laws of China, foreign invested enterprises meeting
certain criteria set out by the relevant tax authorities can enjoy various
preferential tax treatments. AsiaInfo Technologies, our principal operating
subsidiary for our Communications Solutions SBU, is registered and operates in
the Beijing Zhongguancun Science Park and is classified as a "new technology
enterprise." The effective income tax rate for "new technology enterprises"
registered and operating in Beijing Zhongguancun Science Park is 15%. "New
technology enterprises," including Asiainfo Technologies, are also exempt from
Chinese state and local corporate income tax for three years, beginning with
their first year of operations, and are entitled to a 50% tax reduction at the
rate of 7.5% for the subsequent three years. The tax exemption for AsiaInfo
Technologies expired on December 31, 1997 and the 50% tax reduction expired on
December 31, 2000. However, AsiaInfo Technologies received a continuation of
its preferential tax treatment from the local tax authorities in China for an
additional three years, expiring at the end of 2003, which reduces our
effective income tax rate to 10%.

AsiaInfo Management is registered and operates in the High and New Technology
Industry Development Zone in Guangzhou, and is classified as a "high and new
technology enterprise." The effective income tax rate, subject to the approval
of the relevant tax authorities, for "high and new technology enterprises"
registered in High and New Technology Industry Development Zones is 15%. "High
and new technology enterprises," including AsiaInfo Management are also exempt
from Chinese state and local corporate income tax for two years, beginning with
their first profitable year of operations, and are entitled to a 50% tax
reduction at the rate of 7.5% for the subsequent three years. The tax exemption
for AsiaInfo Management expired on December 31, 2001 and the 50% tax reduction
will expire on December 31, 2004.

AsiaInfo Technologies (Chengdu), Inc., or AsiaInfo Chengdu, our subsidiary that
sources hardware in China for our customers, is registered in the High and New
Technology Industry Development Zone in Chengdu and is classified as a "high
and new technology enterprise." Subject to anticipated formal governmental
approval, it is likely that AsiaInfo Chengdu will operate free of Chinese state
and local corporate income tax for two years beginning from its first
profitable year of operation, which was 2002, and should be entitled to a 50%
tax reduction at the rate of 7.5% for the subsequent three years. As such, the
anticipated tax holiday for AsiaInfo Chengdu should expire on December 31, 2003
and the 50% tax reduction should expire on December 31, 2006.

Sales of hardware procured in China are subject to a 17% value added tax. Most
of our sales of hardware procured outside China are made through our Hong Kong
subsidiary, AsiaInfo H.K. Limited, or AsiaInfo H.K., and thus are not subject
to the value added tax. We effectively pass value-added taxes on hardware sales
through to our customers and do not include them in revenues reported in our
financial statements. Although sales of software in China are subject to a 17%
value added tax, companies that develop their own proprietary software are
generally entitled to a value added tax refund. If the net amount of the value
added tax payable exceeds 3% of software sales, the excess portion of the value
added tax is refundable immediately. This policy is effective until 2010.
Changes in Chinese tax laws may adversely affect our future operations.

We are also subject to U.S. income taxes on revenues generated in the United
States, including revenues from our limited hardware procurement activities
through our U.S. parent company, AsiaInfo Holdings, Inc., and interest income
earned in the United States.

FOREIGN EXCHANGE

A majority 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 software and service components of our 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
exchange rate between 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.

                                      28

<PAGE>

CONSOLIDATED RESULTS OF OPERATIONS

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

REVENUES.  Total revenues, including hardware pass-through, decreased 36% to
$121.3 million in 2002, from $189 million in 2001. Revenues net of hardware
costs decreased approximately 9% to $64.7 million in 2002. OSS Solutions
revenue was $33.5 million in 2002, representing 52% of total revenues net of
hardware costs and a 75% increase over OSS Solutions revenue of $19.1 million
in 2001. This increase was primarily due to our acquisition of Bonson, which
has been consolidated since February 6, 2002 and contributed $13.3 million to
OSS Solutions revenue in 2002. Communications Solutions revenue was $31.2
million in 2002, compared to $52.3 million in 2001, representing a decrease of
40%. This decrease was partially attributable to our shift in focus to high-end
systems integration projects involving less hardware pass-through revenue.

Under our previous reporting structure, software solutions revenues were $31.7
million in 2002, representing 49% of total revenues net of hardware costs and a
14% increase over software solutions revenues from the previous year. Network
solutions revenues net of hardware costs were $33 million in 2002, a 24%
decrease from the previous year.

The decrease in total revenues are primarily attributable to a shift in our
customer's focus from increasing network capacity to increasing network
productivity through the provision of more advanced applications, as well as
our shift in focus to high-end systems integration projects involving less
hardware pass-through revenue. The decrease in net revenues was attributable to
the prolonged telecommunications industry restructuring in China resulting in
an estimated 20% decrease of total capital expenditure in 2002 on the part of
telecommunications carriers in China. The decrease in net revenues was
partially offset by our acquisition of Bonson, which contributed 23% of total
net revenue and approximately 40% of net revenue in our OSS Solutions business
unit. For more information on the restructuring, please see the discussion
above under the heading "Item 1. Business--Industry Background."

Looking forward, we anticipate that our net revenues will increase 2 to 8% in
2003. We expect OSS Solutions revenue to account for 45 to 55% of total net
revenues in 2003.

COST OF REVENUES.  Our cost of revenues decreased 39% to $81 million in 2002,
partially as a result of more customers purchasing hardware directly from
hardware vendors. Our cost of revenues net of hardware costs increased 54% to
$24.5 million in 2002 while our revenues net of hardware cost decreased 9%.
This was primarily due to the increased number of employees in our OSS
Solutions business unit and lower margins on hardware pass-through.

GROSS PROFIT.  Gross profit decreased 27% in 2002 to $40.3 million. Gross
profit as a percentage of gross revenues, or gross margin, increased to 33% in
2002, as compared to 29% in 2001. The increase in gross margin is primarily
attributable to the smaller amount of low margin hardware pass-through revenue
recognized in 2002. Gross profit as a percentage of net revenues decreased to
62% in 2002, as compared to 78% in 2001, primarily due to the increased number
of employees in the OSS Solutions business unit and lower margins on hardware
pass-through.

OPERATING EXPENSES.  Total operating expenses decreased 21% to $35.6 million in
2002, from $45.1 million in 2001. These decreases resulted from cost cutting
measures implemented during the year, including a 10% headcount decrease and a
10% salary cut for employees at the manager level and above. We expect to
continue to maintain tight cost controls in 2003.

Sales and marketing expenses decreased 33% to $14.7 million in 2002, from $21.8
million in 2001. This decrease was partially attributable to the integration of
our sales teams within Communications Solutions, the integration of Bonson's
sales team into OSS Solutions, reductions in staff, reduced efforts in
international and channel sales, and tighter control of our marketing expenses.

                                      29

<PAGE>

General and administrative expenses decreased 34% to $9.9 million in 2002, from
$14.9 million in 2001. We plan to continue to reduce general and administrative
expenses as part of our cost cutting efforts.

Research and development expenses increased 16% to $8.5 million in 2002, from
$7.3 million in 2001, due to our continued focus on developing new software
products and solutions for China's telecom carriers.

We recognized a charge of $1.7 million for amortization of intangible assets in
2002 related to our acquisition of Bonson. As a result of that acquisition, we
will amortize a total of $4.4 million in intangible assets over a remaining
period of two to three and a half years.

INCOME FROM OPERATIONS.  Our operating income for 2002 decreased 55% to $4.7
million. This decrease in profitability was attributable to our decrease in
revenue and the partially fixed nature of our cost structure. Bonson
contributed 22% of our operating profit for the year.

OTHER INCOME (EXPENSES).  Other income (expenses), consisting primarily of net
interest income and expense, decreased from income of approximately $6.1
million in 2001 to income of $1.5 million in 2002, partially due to a decrease
in interest rates and our having less cash on our balance sheet as a result of
our acquisition of Bonson. The decrease was also due to our recording a charge
of $0.75 million to provide for a promissory note receivable the collection of
which we have determined to be not reasonably assured.

INCOME TAX EXPENSE.  Income tax expense decreased to $0.82 million in 2002 from
approximately $3.4 million in 2001, primarily due to a decrease in our net
taxable income for the year ended December 31, 2002.

MINORITY INTEREST.  In 2002, minority interest of $0.08 million represented the
portion of our loss before minority interests attributable to the minority
shareholders of two of our subsidiaries, Marsec and Guangdong Wangying
Information Technology Co. Ltd., or Guangdong Wangying.

EQUITY IN LOSS OF AFFILIATES.  Equity in loss of affiliate in 2002 of
approximately $2.5 million included our proportionate share of the loss
incurred by Intrinsic, in which we hold a 14.25% equity interest, as well as an
impairment charge of approximately $2.0 million we recorded in connection with
that investment.

NET INCOME (LOSS).  Net income decreased 75% to $2.9 million in 2002, or $0.06
per share on a fully diluted basis, from $11.7 million, or $0.26 per share on a
fully diluted basis in 2001. Bonson contributed 35% of total net income in
2002. Excluding the impairment charge related to Intrinsic and the $0.75
million provision for a promissory note receivable, our net income would have
been US$5.7 million, or $0.12 per share on a fully diluted basis, in 2002. We
expect net income in 2003 to be in the range or $4 million to $6 million or
$0.08 to $0.12 per basic share.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

REVENUES.  Total revenues, including hardware pass-through, increased 7% to
$189 million in 2001, from $176 million in 2000. Revenues net of hardware costs
increased approximately 60%, to $71.4 million in 2001. Software solutions
revenues were $27.9 million in 2001, representing 39% of total revenues net of
hardware costs and a 61% increase over software solutions revenues from the
previous year. We experienced significant net revenue growth in 2001 as the
overall market for network infrastructure software and solutions continued to
grow in China. Although our net revenues in each quarter of 2001 grew as
compared to the comparable periods in 2000, we experienced a sequential decline
in net revenues during the fourth quarter of 2001. Software solutions revenues
were $6.5 million, down 15% as compared to the preceding quarter, and total net
revenues were $20.0 million, down approximately 1% as compared to the preceding
quarter. This sequential decline was attributable to a slow-down in network
infrastructure spending resulting from the announcement of the restructuring of
certain state-controlled telecommunications companies in China, including China
Telecom. For more information on the restructuring, please see the discussion
above under the heading "Item 1. Business--Industry Background."

                                      30

<PAGE>

COST OF REVENUES.  Our cost of revenues decreased 7.7% to $133.5 million in
2001, primarily due to a 10.5% decrease in total hardware costs to $117.6
million. This decrease in total hardware costs illustrated our continuing focus
on high-end solutions as opposed to hardware resale in 2001. Our cost of
revenues net of hardware costs increased 20% to $15.9 million in 2001 while our
revenues net of hardware cost increased 60%.

GROSS PROFIT.  Our gross profit increased 77% to $55.5 million in 2001. Gross
profit as a percentage of net revenues was 78% in 2001, as compared to 70% in
2000, reflecting a large contribution from our higher-margin software solutions
revenues and our increasing focus on high-end network solutions projects.

OPERATING EXPENSES.  Total operating expenses, nearly half of which consisted
of sales and marketing expenses, increased 11% to $45.1 million in 2001. Sales
and marketing expenses in 2001 grew at a slightly lower rate than total
operating expenses, and decreased substantially to $4.0 million in the fourth
quarter of 2001 as compared to $6.4 million in the fourth quarter of 2000 and
$6.3 million in the immediately preceding quarter. This decrease was a direct
result of effective cost control measures we implemented in the fourth quarter
to counteract the impact of the planned telecommunications industry
restructuring in China. Research and development expenses increased 22% to $7.3
million in 2001. The growth rate in research and development in 2001 was slower
as compared to that in 2000 because our previous research and development
investments reached a level of scalability in 2001. General and administrative
expenses increased 16% to $14.9 million in 2001.

OTHER INCOME AND EXPENSES.  Other income and expenses, consisting primarily of
net interest income and expense, decreased to income of $6.1 million in 2001
from income of $6.9 million in 2000, primarily due to a decrease in our
interest income attributable to lower interest rates and lower cash balances
held during 2001.

INCOME TAX EXPENSE.  Income tax expense increased to $3.4 million in 2001 from
approximately $218,000 in 2000, primarily due to an increase in our net income
for the year ended December 31, 2001.

MINORITY INTEREST.  In 2001, minority interest of approximately $396,000
represented the portion of our income before minority interests attributable to
the minority shareholders of two of our subsidiaries, Marsec and Guangdong
Wangying.

EQUITY IN LOSS OF AFFILIATES.  In April 2001, we invested $6.2 million in
Intrinsic for a 14.25% interest in that company. Our provision for equity in
loss of affiliate of $885,000 included amortization of goodwill in the amount
of approximately $751,000.

NET INCOME (LOSS).  Net income increased to $11.7 million in 2001, or $0.26 per
share on a fully diluted basis, as compared to a net loss of $2.8 million in
2000.

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, 2001 and 2002. 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.

                                      31

<PAGE>

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, June 30,  March 31,
                                      2002       2002/(1)/   2002/(1)/ 2002/(1)/  2001/(1)/     2001/(1)/   2001/(1)/ 2001/(1)/
                                  ------------ ------------- --------  --------- ------------ ------------- --------  ---------
                                                             (Amounts in thousands of U.S. dollars)
<S>                               <C>          <C>           <C>       <C>       <C>          <C>           <C>       <C>
Consolidated Statements of
 Operations Data:
Revenues:
  Communications Solutions.......   $ 15,620     $ 19,848    $ 15,256  $ 17,294    $ 31,388     $ 75,898    $ 13,592  $ 25,663
  Operation Support System
   Solutions.....................      7,979       12,723      21,303    11,243       6,257       18,133       7,959    10,116
                                    --------     --------    --------  --------    --------     --------    --------  --------
    Total revenues...............     23,599       32,571      36,559    28,537      37,645       94,031      21,551    35,779
Cost of revenues.................    (16,158)     (24,071)    (23,522)  (17,249)    (22,340)     (78,491)     (8,202)  (24,500)
                                    --------     --------    --------  --------    --------     --------    --------  --------
Gross profit.....................      7,441        8,500      13,037    11,288      15,305       15,540      13,349    11,279
                                    --------     --------    --------  --------    --------     --------    --------  --------
Operating expenses:
  Sales and marketing............     (3,220)      (3,082)     (4,809)   (3,569)     (3,999)      (6,322)     (5,820)   (5,627)
  General and administrative.....     (2,171)      (2,719)     (1,472)   (3,545)     (4,210)      (3,550)     (3,539)   (3,606)
  Research and development.......     (1,797)      (2,097)     (2,345)   (2,264)     (1,782)      (1,945)     (1,945)   (1,632)
  In-process research and
   development...................         --           --          --      (350)         --           --          --        --
  Amortization of deferred stock
   compensation expense..........        (76)         (82)        (97)     (152)       (208)        (216)       (283)     (437)
  Amortization of acquired
   intangible assets.............       (477)        (477)       (477)     (318)         --           --          --        --
                                    --------     --------    --------  --------    --------     --------    --------  --------
Total operating expenses.........     (7,741)      (8,457)     (9,200)  (10,198)    (10,199)     (12,033)    (11,587)  (11,302)
                                    --------     --------    --------  --------    --------     --------    --------  --------
Operating income (loss)..........       (300)          43       3,837     1,090       5,106        3,507       1,762       (23)
Net interest income..............        476          522         470       690         825        1,428       1,854     2,059
Other income, net................       (752)           6          37         1         (20)          (5)        (27)       (7)
                                    --------     --------    --------  --------    --------     --------    --------  --------
Income (loss) before tax.........       (576)         571       4,344     1,781       5,911        4,930       3,589     2,029
Income tax expense (benefit).....        (46)          74         529       267       1,182          986         805       471
                                    --------     --------    --------  --------    --------     --------    --------  --------
Income (loss) before minority
 Interest........................       (530)         497       3,815     1,514       4,729        3,944       2,784     1,558
Minority interest................         12           73         (45)       35        (160)        (105)         48      (179)
Equity in loss of affiliate......     (2,082)        (102)       (154)     (127)       (309)        (320)       (256)       --
                                    --------     --------    --------  --------    --------     --------    --------  --------
Net income (loss)................   $ (2,600)    $    468    $  3,616  $  1,422    $  4,260     $  3,519    $  2,576  $  1,379
                                    ========     ========    ========  ========    ========     ========    ========  ========
Additional Data:
Total revenues net of hardware
 costs...........................   $ 13,360     $ 14,687    $ 19,612  $ 17,074    $ 20,013     $ 20,146    $ 17,026  $ 14,206
</TABLE>
--------
(1) Reclassified to conform with December 31, 2002 presentation.

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.

                                      32

<PAGE>

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.

LIQUIDITY AND CAPITAL RESOURCES

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, we sometimes obtain less favorable payment terms from our
customers, thereby increasing our working capital requirements. See "Factors
Affecting Our Operating Results and Our Common Stock--Our working capital
requirements may increase significantly." We have historically financed our
working capital and other financing requirements through careful management of
our 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 balance at December 31, 2002 was $49.4 million,
consisting of $20.6 million in billed receivables and $28.8 million in unbilled
receivables. Our billed receivables are based on revenue we have booked and
billed. 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. For example, we recognize revenues for hardware pass-through at the
time the hardware is accepted by the customer, based on the cost of the
underlying hardware. However, our contracts with our customers will often allow
the customers to withhold 10-20% of the total contract payments until final
project acceptance, which on average is eight to nine months after hardware
delivery. As a result, revenues from hardware pass-through generally represent
a significant portion of our unbilled receivables and can cause the aging of
these receivables to be relatively long.

At December 31, 2002, our days sales outstanding were 147 days, as compared to
173 days as of the end of the third quarter. Our billed receivables were 61
days sales outstanding and our unbilled receivables were 86 days sales
outstanding. The improvement in our days sales outstanding as compared to the
end of the third quarter is primarily attributable to improved collection
efforts and efficient delivery services.

As of December 31, 2002, we had short-term credit facilities totaling $20
million, expiring in October, 2003, for working capital purposes, of which
unused short-term credit facilities were $18.6 million, with $1.4 million
having been used as security for issuing standby letters of credit to hardware
suppliers and customers. In addition to the short-term credit facilities, we
had a short-term loan in Renminbi of $0.06 million as of December 31, 2002 for
Bonson's working capital purposes, secured by Bonson's assets. The Renminbi
loan bears interest at a rate of 4.8% per annum and is repayable upon demand by
the lending bank. Bank deposits pledged as security for these credit facilities
totaled $14.5 million as of December 31, 2002, and are presented as restricted
cash in our consolidated balance sheets.

As of December 31, 2002, we were committed under certain operating leases,
requiring annual minimum rentals of approximately $1.5 million, $1.4 million
and $0.2 million in 2003, 2004 and 2005, respectively.

We ended the year with a cash position of $140.9 million, of which $11.3
million was in short term investments, $14.5 million was in restricted cash and
$115.1 million was in cash and cash equivalents. The $14.5 million in
restricted cash consists of $10 million used to secure our $20 million credit
facility, $4 million used as security for issuing a standby letter of credit
and $0.4 million held by Bonson and pledged as security for a bank guarantee.
Our short-term investments feature fixed income, liquidity and low risk. The
cash equivalents include investments in cash management accounts to enhance our
interest income. We had net operating cash inflow of $17.8 million in 2002,
primarily attributable to the reduction of our days sales outstanding.

                                      33

<PAGE>

Our inventory position at the end of 2002 was approximately $10.9 million, up
from $1.2 million at the beginning of the year. This increase was attributable
to the quarter ending in the middle of delivery windows for certain large
projects with significant hardware components.

We anticipate that the net proceeds of our initial public offering in March
2000, together with available funds and cash flows generated from operations,
will be sufficient to meet our anticipated needs for working capital, capital
expenditures and business expansion through 2003. 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. If we do need to raise additional funds, we expect to raise those
funds 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.

CRITICAL ACCOUNTING POLICIES

We prepare our consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America. The preparation
of these financial statements requires us to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements
and the reported amount of revenues and expenses during the reporting period.
On an on-going basis, we evaluate our estimates and judgments, including those
related to revenues and cost of revenues under customer contracts, warranty
obligations, bad debts, income taxes, investment in affiliate, goodwill and
other intangible assets, and litigation. We base our estimates and judgments on
historical experience and on various other factors that we believe are
reasonable. Actual results may differ from these estimates under different
assumptions or conditions.

We believe the following critical accounting policies affect the more
significant judgments and estimates used in the preparation of our consolidated
financial statements.

REVENUES AND COST OF REVENUES.  We derive a significant portion of our revenue
from fixed-price contracts using the percentage of completion method, which
relies on estimates of total expected contract revenue and costs. We follow
this method since reasonably dependable estimates of the revenue and costs
applicable to various stages of a contract can be made. Recognized revenues and
profit are subject to adjustments in current periods as the contract progresses
to completion. Accordingly, any changes in our estimates would impact our
future operating results.

WARRANTY OBLIGATIONS.  We record our estimate of warranty costs at the time of
final project acceptance, when all hardware pass-through revenue has been
recognized. Revisions for estimated warranties may be required in the period in
which actual warranty costs become known, thereby impacting our future
operating results.

BAD DEBTS.  We maintain allowances for doubtful accounts for estimated losses
resulting from the aging of accounts receivables or the inability of our
customers to make required payments. If the financial condition of our
customers were to change, changes to these allowances may be required, which
would impact our future operating results.

INCOME TAXES.  We record a valuation allowance to reduce our deferred tax
assets to the amount that we believe is more likely than not to be realized. In
the event we were to determine that we would be able to realize our deferred
tax assets in the future in excess of their recorded amount, an adjustment to
the deferred tax asset would

                                      34

<PAGE>

increase income in the period such determination was made. Likewise, should we
determine that we would not be able to realize all or part of our net deferred
tax asset in the future, an adjustment to the deferred tax asset would be
charged to income in the period such determination is made.

INVESTMENT IN AFFILIATE.  We account for our 14.25% interest in Intrinsic
Technology (Holdings), Ltd., or Intrinsic, using the equity method. Intrinsic
has incurred operating losses since our investment in April 2001. We conducted
an asset impairment test during the fourth quarter of 2002 in connection with
our private equity investments, including our 14% interest in Intrinsic, which
is recorded on our balance sheet as an "investment in affiliate". As a result
of this test, we have recorded an impairment charge of approximately $2.0
million in investments in affiliates. Sustained operating losses of this
affiliate or other adverse events could result in our inability to recover the
carrying value of the investment, which may require us to record an additional
impairment charge in the future.

GOODWILL AND OTHER INTANGIBLE ASSETS.  We make assumptions regarding estimated
future cash flows and other factors to determine the fair value of goodwill and
other intangible assets. If these estimates or their related assumptions change
in the future, we may be required to record an impairment charge if the
estimated fair value of goodwill and other intangible assets is less than its
recorded amount. As required under Statement of Financial Accounting Standards
No. 142, we have completed a transitional goodwill impairment test and have
concluded that no impairment of recorded goodwill was necessary as of January
1, 2002. Similar impairment tests are required to be performed at least
annually going forward.

LITIGATION.  We record contingent liabilities relating to litigation or other
loss contingencies when we believe that the likelihood of loss is probable and
the amount of the loss can reasonably be estimated. Changes in judgments of
outcome and estimated losses are recorded, as necessary, in the period such
changes are determined or become known. Any changes in estimates would impact
our future operating results. Significant contingent liabilities, which we
believe are at least possible, are disclosed in the notes to our consolidated
financial statements.

RECENT ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset
Retirement Obligations," which addresses accounting for the recognition of
obligations associated with the retirement of tangible long-lived assets. SFAS
No. 143 is effective for financial statements issued for years beginning after
June 15, 2002. We do not believe that the adoption of SFAS Nos. 143 will have a
significant impact on our financial position or results of operations.

In July 2002, the Financials Accounting Standards Board issued SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities," which
requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a commitment to an
exit or disposal plan. Such costs covered by the standard include lease
termination costs and certain employee severance costs that are associated with
a restructuring, discontinued operation, plant closing, or other exit or
disposal activity. SFAS No. 146 replaces the previous accounting guidance
provided by the Emerging Issues Task Force Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No.
146 is to be applied prospectively to exit or disposal activities initiated
after December 31, 2002 and we do not anticipate that the statement will have a
material impact on our financial statements or results of operations.

In November 2002, the Financial Accounting Standards Board issued
Interpretation Number 45, "Guarantor's Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others," or
FIN 45. This interpretation requires certain disclosures to be made by a
guarantor in its interim and annual financial statements about its obligations
under certain guarantees that it has issued. It also requires a guarantor to
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in

                                      35

<PAGE>

issuing the guarantee. The disclosure requirements of FIN 45 are effective for
interim and annual periods after December 15, 2002 and we have adopted those
requirements for our financial statements. The initial recognition and initial
measurement requirements of FIN 45 are effective prospectively for guarantees
issued or modified after December 31, 2002.

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 TELECOMMUNICATIONS
INFRASTRUCTURE AND BUDGETARY POLICIES, PARTICULARLY THE ALLOCATION OF FUNDS TO
SUSTAIN THE GROWTH OF THE TELECOMMUNICATIONS INDUSTRY 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 Development and Planning
Commission of China. As a result, the growth of our business is heavily
dependent on government policies for telecommunications infrastructure.
Insufficient government allocation of funds to sustain the growth of China's
telecommunications 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.

On December 11, 2001, in an effort to increase the efficiency of
telecommunications service providers through competition, China's State Council
announced that it would split China Telecom geographically into a northern
division (comprising ten provinces) and a southern division (comprising 21
provinces). Under the State Council's plan, the northern division of China
Telecom has merged with China Netcom and Jitong Communication, and has been
renamed China Netcom Group, while the southern division operates under the
China Telecom name. As a result of the restructuring, new orders for
telecommunications infrastructure expansion and improvement projects have
decreased over the past several quarters, adversely affecting our backlog and
our net revenue. According to China's Ministry of Information Industry, overall
capital expenditure by telecommunications carriers decreased by 20% to 24.6
billion in 2002. The restructuring has also caused widespread personnel shifts
in both China Telecom and China Netcom Group, which have slowed or prevented a
large number of investment decisions in new infrastructure and network
management solutions. Although we expect that the restructuring will have a
positive impact on growth in the telecommunications industry in China in the
long-term and that spending will begin to return to pre-restructuring levels in
the second half of 2003, continued delays in capital expenditure projects could
continue to negatively affect our growth in the near-term. In addition, similar
restructurings of this nature could cause our operating results to vary
unexpectedly from quarter to quarter in the future.

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 Netcom Group and China Mobile. China Telecom
accounted for almost all of our revenues in 1998. In 1999, China Telecom,
together with China Unicom, accounted for almost all of our revenues. 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.

                                      36

<PAGE>

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 from quarter to quarter.

A large part of the contract amount of our projects usually relates to hardware
procurement. Since we recognize most of the revenues relating to hardware plus
a portion of services and software revenues at the time of hardware delivery,
the timing of hardware delivery can cause our quarterly gross 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 any
corresponding decline in our 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 80 to 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 80 to 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 will
require us to increase our working capital needs significantly.

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

Although we had net income in 1998, 2001 and 2002 we sustained net losses in
1999 and 2000. Recently, we have experienced a decline in earnings growth and
had breakeven net income per share for the fourth quarter of 2002. There are no
assurances that we can 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 percentage will
be fixed. As a result, any delays in expanding sales volume and generating
revenue could result in substantial operating losses.

BUSINESS ACQUISITIONS WE UNDERTAKE MAY BE CHALLENGING, AND WE MAY REALIZE
LOSSES ON OUR INVESTMENTS.

In February of 2002, as a key component of our business and growth strategy, we
acquired Bonson, a leading provider of operation support system solutions in
China. In the future, we may acquire other companies or assets that we feel
will enhance our revenue growth, operations and profitability. Such
acquisitions could result in the use of significant amounts of cash and
dilutive issuances of our common stock. Such acquisitions involve other
significant risks, including:

..   the difficulties of integrating, assimilating and managing the operations,
    technologies, intellectual property, products and personnel of the acquired
    business;

                                      37

<PAGE>

..   the diversion of management attention from other business concerns;

..   the additional expense associated with acquired contingent liabilities;

..   the loss of key employees in acquired businesses; and

..   the risk of being sued by terminated employees and contractors.

We will need to integrate and manage any businesses we determine to acquire in
the future. Our failure to do so successfully could have a material adverse
effect on our business, results of operations and financial condition.

ASSET IMPAIRMENT REVIEWS MAY RESULT IN FUTURE PERIODIC WRITE-DOWNS.

Effective January 1, 2002, we adopted SFAS No. 142 which requires us, among
other things, to review goodwill and intangible assets for impairment annually.
In connection with our business acquisitions, we make assumptions regarding
estimated future cash flows and other factors to determine the fair value of
goodwill and intangible assets. In assessing the related useful lives of those
assets, we have to make assumptions regarding their fair value, our
recoverability of those assets and our ability to successfully develop and
ultimately commercialize acquired technology. If those assumptions change in
the future when we conduct our periodic reviews in accordance with accounting
standards, we may be required to record impairment charges. We have conducted
an asset impairment test during the fourth quarter of 2002 and recorded an
impairment charge of approximately $2.0 million from our investment in
Intrinsic. There is no assurance that future reviews will not result in further
write-downs to goodwill and other intangible assets.

WE ARE HIGHLY DEPENDENT ON OUR EXECUTIVE OFFICERS.

Each of our executive officers is responsible for an important segment of our
operations. Although we believe that we have significant depth at all levels of
management, the loss of any of our executive officers' services could be
detrimental to our operations. We do not have, and do not plan to obtain, "key
man" life insurance on any of our employees.

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. Our 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.

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

We customarily provide our customers with one to three year warranties, under
which we agree to maintain 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 our customers can recover for
damages. In addition, we do not currently maintain any insurance policy with
respect to our exposure to warranty claims. The failure of our installed
projects to operate properly could give rise to substantial liability for
special, consequential or incidental damages, that in turn could materially and
adversely affect us.

                                      38

<PAGE>

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

We sell most of our services on a fixed-price, fixed-time basis. In contracts
with our customers, we typically agree to pay late completion fines of up to 5%
of the total contract value. In large scale telecommunications 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.

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 ENFORCEMENT OF INTELLECTUAL PROPERTY RIGHTS IN CHINA.

Our success and ability to compete depend substantially upon our intellectual
property rights, which we protect through a combination of confidentiality
arrangements and copyright and trademark registrations. We have registered some
marks and filed trademark applications for other marks with the United States
Patent and 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 registered copyrights with the State Copyright Bureau in China with
respect to certain of our 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. Moreover, Bonson, which we acquired in February, 2002, had never
registered copyrights for its software products prior to the acquisition.
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.

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
we take will prevent misappropriation or infringement of our proprietary
technology. In addition, litigation may be necessary 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.

A portion of our business involves the development and customization of
software applications for customers. We generally retain significant ownership
or rights to use and market such software for other customer projects, where
possible. However, our customers sometimes retain co-ownership and rights to
use the applications, processes, and intellectual property so developed. In
some cases, we may have no right or only limited rights to reuse or provide
these developments in projects involving other customers. To the extent that we
are unable to negotiate contracts which permit us to reuse source-codes and
methodologies, or to the extent that we have conflicts with our customers
regarding our ability to do so, we may be unable to provide similar solutions
to our other customers.

                                      39

<PAGE>

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. There can be no assurance 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 could be substantial.

INVESTORS MAY NOT BE ABLE TO ENFORCE JUDGMENTS BY UNITED STATES COURTS AGAINST
CERTAIN OF OUR OFFICERS AND DIRECTORS.

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

..   effect service of process upon those persons within the United States; or

..   enforce against those 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 dividends on our capital stock and we do not
intend to declare any dividends in the foreseeable future. We currently intend
to retain future earnings to fund our 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 those payments
from Renminbi, the currency of China, into foreign currencies.

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 THOSE 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 those currencies. Because 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 on 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 software and services component of our 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 investments in, our
subsidiaries in China.

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

The market for network solutions in China is new and rapidly changing. Our
competitors in the network solutions market mainly include domestic systems
integrators such as Zoom Networks, Openet Information Technology (Shenzhen)
Corporation, Digital China Holdings Limited and Legend Group Limited. Although
we are a leading

                                      40

<PAGE>

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, this
could hurt our profitability and erode our market share.

The service application solutions sector is highly competitive. Our principal
competitor in that sector is Openwave Systems Inc. (formerly Software.com and
Phone.com). In the network security solutions market, we mainly compete with
Information Security One Limited, Nsfocus Information Technology Co., Ltd., and
21ViaNet China Inc. An increasing number of companies are devoting their
resources to this sector in developing network security products. In the
network monitoring solutions market, our principal competitor is Emerson
Electric Co. (through its acquisition of Avansys Power Co., Ltd. from Huawei
Technologies).

In the operation support system solutions market, we compete with both
international and local software and solutions providers. In the online billing
segment, we compete primarily with Portal Software, MIND C.T.I. Ltd., and Zoom
Networks, and in the wireless billing segment we compete mainly with more than
eight local competitors. We also expect to compete with more than ten local
competitors in the fixed-line OSS market. Currently, due in part to each
telecommunication provider's 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. However, multinational companies have
recently formed alliances with Chinese companies to expand into China's
telecommunications solutions market. For example, CSG Systems, or CSG, has
formed a strategic alliance with a subsidiary of Legend Group Limited to
develop a suite of customer care and billing solutions for China's
telecommunications carriers. In view of the gradual deregulation of the Chinese
telecommunications industry and China's entry into the WTO, we anticipate the
entrance of new competitors into the operation support system 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 People's Republic of China 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 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. 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.

                                      41

<PAGE>

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 investments relating to China and Asia, as well
as developments in the Internet and telecommunications industries. 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 software companies and which have often been unrelated to the
operating performance of those companies.

IF OUR STOCK PRICE IS VOLATILE, WE MAY BECOME SUBJECT TO SECURITIES LITIGATION,
WHICH IS EXPENSIVE AND COULD RESULT IN A DIVERSION OF RESOURCES.

In the past, following periods of volatility in the market price of a
particular company's securities, securities class action litigation has often
been brought against that company. Many companies in our industry have been
subject to this type of litigation in the past, and we are currently involved
in this type of litigation as a result of allegedly improper allocation
procedures relating to the sale of our common stock in connection with our
initial public offering in March of 2000. For more information on that
litigation, please see the discussion under the heading "Item 3. Legal
Proceedings" in Part I of this report. Litigation is often expensive and
diverts management's attention and resources, which could materially and
adversely affect our business.

FUTURE SALES OF SHARES BY 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.

A small number of shareholders, including Warburg-Pincus Ventures, ChinaVest
Group, 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, control over 50% of our voting stock. As a result, these shareholders
collectively 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 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 our common stock. Although the issuance of this
preferred stock will provide us with flexibility in connection with possible
acquisitions and other corporate purposes, such an 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
eight-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 2004; and Class III, whose term will expire at the

                                      42

<PAGE>

annual meeting of stockholders to be held in 2005. This classification of the
board of directors may have the effect of delaying or preventing changes in our
control or management.

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 cash,
short-term investments and short-term bank loans. 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 and software components of our 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.

There have been no significant changes in our exposure to changes in either
interest rates or foreign currency exchange rates for the year ended December
31, 2002. Our exposure to interest rates is limited as we do not have variable
rate and long-term borrowings. We are subject to variable interest rates on our
bank deposits that are short-term investments. As there are no significant
market price movements, such investments are held at cost. As of December 31,
2002, a hypothetical 10% immediate increase or decrease in interest rates would
increase our annual interest expense by approximately $11,417 or decrease our
annual interest income by approximately $227,226, respectively. The effect of
changes in exchange rates on our results of operations has been insignificant.

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.

                                   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 I Directors" and "Management--Executive Officers"
contained in our definitive proxy statement with respect to our 2003 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

                                      43

<PAGE>

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," "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 section entitled "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.

ITEM 14.  Controls and Procedures

Within 90 days prior to the filing date of this annual report, we carried out
an evaluation, under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Rule 13a-14 under the Securities Exchange Act of 1934,
as amended. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer have concluded that those disclosure controls and procedures
are effective. There were no significant changes in our internal controls or in
other factors that could significantly affect those controls subsequent to the
date of our evaluation.

ITEM 15.  Exhibits, Financial Statement Schedule, and Reports on 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.

                                       44

<PAGE>

(c) Exhibit Listing

<TABLE>
<CAPTION>
Exhibit
Number  Description of Exhibits
------- -----------------------
<C>     <S>
2.1     Share Purchase Agreement for the acquisition of Bonson Information Technology Holdings
        Limited/****/
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    Lease of AsiaInfo's headquarters at 6 Zhongguancun South Street, Beijing, dated August 31, 1999/*/
11.1    Statement regarding computation of per share earnings (included in note 12 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)
99.1    Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to
        Section 906 of the Sarbanes-Oxley Act of 2002
99.2    Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to
        Section 906 of the Sarbanes-Oxley Act of 2002
</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.
/***/ Incorporated by reference to our Annual Report on Form 10-K for the
      fiscal year ended December 31, 2000.
/****/ Incorporated by reference to our Current Report on Form 8-K filed on
       February 21, 2002.

                                      45

<PAGE>

                                  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 21, 2003.

                                                  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.

          Signature                        Title                    Date
          ---------                        -----                    ----

        /s/ Louis Lau            Board Member and Chairman     March 21, 2003
-----------------------------    of the Board
          Louis Lau

       /s/ James Ding            Board Member, President and   March 21, 2003
-----------------------------    Chief Executive Officer
         James Ding              (principal executive
                                 officer)

        /s/ Ying Han             Executive Vice President      March 21, 2003
-----------------------------    and Chief Financial Officer
          Ying Han               (principal financial
                                 officer and principal
                                 accounting officer)

      /s/ Michael Zhao           Board Member, Senior Vice     March 21, 2003
-----------------------------    President and General
        Michael Zhao             Manager for Communications
                                 Solutions

      /s/ Alan Bickell           Board Member                  March 21, 2003
-----------------------------
        Alan Bickell

                                      46

<PAGE>


       /s/ Steve Chang           Board Member                  March 21, 2003
-----------------------------
         Steve Chang

        /s/ Tao Long             Board Member                  March 21, 2003
-----------------------------
          Tao Long

        /s/ Chang Sun            Board Member                  March 21, 2003
-----------------------------
          Chang Sun

       /s/ Edward Tian           Board Member                  March 21, 2003
-----------------------------
         Edward Tian

                                      47

<PAGE>

                                 Certification

I, James Ding, certify that:

1. I have reviewed this annual report on Form 10-K of AsiaInfo Holdings, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
   statement of a material fact or omit to state a material fact necessary to
   make the statements made, in light of the circumstances under which such
   statements were made, not misleading with respect to the period covered by
   this annual report;

3. Based on my knowledge, the financial statements, and other financial
   information included in this annual report, fairly present in all material
   respects the financial condition, results of operations and cash flows of
   the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
   establishing and maintaining disclosure controls and procedures (as defined
   in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

   (a) designed such disclosure controls and procedures to ensure that material
       information relating to the registrant, including its consolidated
       subsidiaries, is made known to us by others within those entities,
       particularly during the period in which this annual report is being
       prepared;

   (b) evaluated the effectiveness of the registrant's disclosure controls and
       procedures as of a date within 90 days prior to the filing date of this
       annual report (the "Evaluation Date"); and

   (c) presented in this annual report our conclusions about the effectiveness
       of the disclosure controls and procedures based on our evaluation as of
       the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on
   our most recent evaluation, to the registrant's auditors and the audit
   committee of registrant's board of directors (or persons performing the
   equivalent function):

   (a) all significant deficiencies in the design or operation of internal
       controls which could adversely affect the registrant's ability to
       record, process, summarize and report financial data and have identified
       for the registrant's auditors any material weaknesses in internal
       controls; and

   (b) any fraud, whether or not material, that involves management or other
       employees who have a significant role in the registrant's internal
       controls; and

6. The registrant's other certifying officers and I have indicated in this
   annual report whether or not there were significant changes in internal
   controls or in other factors that could significantly affect internal
   controls subsequent to the date of our most recent evaluation, including any
   corrective actions with regard to significant deficiencies and material
   weaknesses.

Date: March 21, 2003

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

                                      48

<PAGE>

                                 Certification

I, Ying Han, certify that:

1. I have reviewed this annual report on Form 10-K of AsiaInfo Holdings, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
   statement of a material fact or omit to state a material fact necessary to
   make the statements made, in light of the circumstances under which such
   statements were made, not misleading with respect to the period covered by
   this annual report;

3. Based on my knowledge, the financial statements, and other financial
   information included in this annual report, fairly present in all material
   respects the financial condition, results of operations and cash flows of
   the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
   establishing and maintaining disclosure controls and procedures (as defined
   in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

   (a) designed such disclosure controls and procedures to ensure that material
       information relating to the registrant, including its consolidated
       subsidiaries, is made known to us by others within those entities,
       particularly during the period in which this annual report is being
       prepared;

   (b) evaluated the effectiveness of the registrant's disclosure controls and
       procedures as of a date within 90 days prior to the filing date of this
       annual report (the "Evaluation Date"); and

   (c) presented in this annual report our conclusions about the effectiveness
       of the disclosure controls and procedures based on our evaluation as of
       the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on
   our most recent evaluation, to the registrant's auditors and the audit
   committee of registrant's board of directors (or persons performing the
   equivalent function):

   (a) all significant deficiencies in the design or operation of internal
       controls which could adversely affect the registrant's ability to
       record, process, summarize and report financial data and have identified
       for the registrant's auditors any material weaknesses in internal
       controls; and

   (b) any fraud, whether or not material, that involves management or other
       employees who have a significant role in the registrant's internal
       controls; and

6. The registrant's other certifying officers and I have indicated in this
   annual report whether or not there were significant changes in internal
   controls or in other factors that could significantly affect internal
   controls subsequent to the date of our most recent evaluation, including any
   corrective actions with regard to significant deficiencies and material
   weaknesses.

Date: March 21, 2003

                                                     /s/ Ying Han
                                                     ---------------------------
                                                         Ying Han
                                                         Chief Financial Officer

                                      49

<PAGE>

                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S>                                                                                           <C>
Independent auditors' report.................................................................         F-2
Consolidated balance sheets as of December 31, 2002 and 2001.................................         F-3
Consolidated statements of operations for the years ended December 31, 2002, 2001 and 2000...         F-4
Consolidated statements of stockholders' equity and comprehensive income (loss) for the years
  ended December 31, 2002, 2001 and 2000.....................................................         F-5
Consolidated statements of cash flows for the years ended December 31, 2002, 2001 and 2000...  F-6 to F-7
Notes to consolidated financial statements................................................... F-8 to F-27
</TABLE>


                                      F-1

<PAGE>

                         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. (the "Company") and its subsidiaries as of December 31, 2002 and
2001, and the related consolidated statements of operations, stockholders'
equity and comprehensive income (loss), and cash flows for the years then
ended. 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 present fairly, in all
material respects, the financial position of the Company and its subsidiaries
at December 31, 2002 and 2001, and the results of its operations and its cash
flows for the years then ended, in conformity with accounting principles
generally accepted in the United States of America.

As described in Note 3 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill
and Other Intangible Assets," effective January 1, 2002.

/s/ Deloitte Touche Tohmatsu

Hong Kong
January 22, 2003 (February 22, 2003 as to the last 4 paragraphs of Note 13)


                                      F-2

<PAGE>

                            ASIAINFO HOLDINGS, INC.
                          CONSOLIDATED BALANCE SHEETS
              (In US Dollars thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                                     December 31,
                                                                                  ------------------
                                                                                    2002      2001
                                                                                  --------  --------
                                     ASSETS
<S>                                                                               <C>       <C>
Current Assets:
 Cash and cash equivalents....................................................... $115,153  $110,635
 Restricted cash.................................................................   14,458    13,475
 Short-term investments..........................................................   11,260    27,184
 Accounts receivable, trade (net of allowance for doubtful accounts of $1,133 and
   $1,094 at December 31, 2002 and 2001, respectively)...........................   49,437    66,723
 Inventories.....................................................................   10,934     1,180
 Other receivables...............................................................    8,758    10,533
 Deferred income taxes--current..................................................    1,653     1,689
 Prepaid expenses and other current assets.......................................    3,441     1,417
                                                                                  --------  --------
   Total current assets..........................................................  215,094   232,836
 Property and equipment-net......................................................    4,046     5,376
 Goodwill........................................................................   37,255     2,188
 Other acquired intangible assets-net............................................    4,031        --
 Investment in affiliate.........................................................    2,808     5,272
 Deferred income taxes...........................................................      196       188
                                                                                  --------  --------
   Total Assets.................................................................. $263,430  $245,860
                                                                                  ========  ========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
 Short-term bank loans........................................................... $     60  $  2,924
 Accounts payable................................................................   21,708    23,789
 Other payables..................................................................    2,483     1,682
 Deferred revenue................................................................    5,056     4,279
 Accrued employee benefits.......................................................    5,083     9,088
 Accrued expenses................................................................   13,226    11,431
 Income taxes payable............................................................    2,760     4,743
 Other taxes payable.............................................................    2,579     2,524
                                                                                  --------  --------
   Total current liabilities.....................................................   52,955    60,460
                                                                                  --------  --------
Minority interest................................................................      317       610
Commitments and contingencies (Note 13)
Stockholders' Equity:
 Preferred stock, 10,000,000 shares authorized, $0.01 par value..................       --        --
 Common stock, 100,000,000 shares authorized, $0.01 par value, shares issued and
   outstanding: 2002:44,193,474; 2001:42,132,818.................................      442       421
 Additional paid-in capital......................................................  200,649   178,649
 Deferred stock compensation.....................................................     (105)     (512)
 Retained earnings...............................................................    9,110     6,204
 Accumulated other comprehensive income..........................................       62        28
                                                                                  --------  --------
   Total stockholders' equity....................................................  210,158   184,790
                                                                                  --------  --------
   Total Liabilities and Stockholders' Equity.................................... $263,430  $245,860
                                                                                  ========  ========
</TABLE>

                See notes to consolidated financial statements.


                                      F-3

<PAGE>

                            ASIAINFO HOLDINGS, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
              (In US Dollars thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                                                     Years Ended December 31,
                                                                                              -------------------------------------
                                                                                                  2002         2001         2000
                                                                                              -----------  -----------  -----------
<S>                                                                                           <C>          <C>          <C>
Revenues:
Communications solutions..................................................................... $    68,018  $   146,541
Operation support system solutions...........................................................      53,248       42,465
                                                                                              -----------  -----------
Total revenues...............................................................................     121,266      189,006  $   176,063
                                                                                              -----------  -----------  -----------
Cost of revenues:
  Communications solutions...................................................................      48,714      106,622
  Operation support system solutions.........................................................      32,286       26,912
                                                                                              -----------  -----------
  Total cost of revenues.....................................................................      81,000      133,533  $   144,698
                                                                                              -----------  -----------  -----------
Gross profit.................................................................................      40,266       55,473       31,365
                                                                                              -----------  -----------  -----------
Operating expenses:
  Sales and marketing (excluding stock-based compensation: 2002: $95; 2001: $380; 2000: $653
   and amortization of other acquired intangible assets: 2002: $1,238; 2001: nil; 2000: nil).      14,680       21,768       19,734
  General and administrative (excluding stock-based compensation: 2002: $242; 2001: $584; 2000:
   $1,180 and amortization of other acquired intangible assets: 2002: $176; 2001: nil; 2000:
   nil)......................................................................................       9,907       14,905       12,893
  Research and development (excluding stock-based compensation: 2002: $70; 2001: $180; 2000:
   $376 and amortization of other acquired intangible assets: 2002: $335; 2001: nil; 2000: nil)     8,503        7,304        5,974
  In-process research and development........................................................         350           --           --
  Amortization of deferred stock compensation................................................         407        1,144        2,209
  Amortization of acquired intangible assets.................................................       1,749           --           --
                                                                                              -----------  -----------  -----------
   Total operating expenses..................................................................      35,596       45,121       40,810
                                                                                              -----------  -----------  -----------
Income (loss) from operations................................................................       4,670       10,352       (9,445)
                                                                                              -----------  -----------  -----------
Other income (expense):
  Interest income:
   Bank......................................................................................       2,272        7,099        7,919
   Other.....................................................................................          --           36           --
  Bank interest expense......................................................................        (114)        (969)      (1,032)
  Other expense, net.........................................................................        (708)         (59)         (22)
                                                                                              -----------  -----------  -----------
    Total other income, net..................................................................       1,450        6,107        6,865
                                                                                              -----------  -----------  -----------
Income (loss) before income taxes, minority interests and equity in loss of affiliates.......       6,120       16,459       (2,580)
Income tax expense...........................................................................         824        3,444          218
                                                                                              -----------  -----------  -----------
Income (loss) before minority interests......................................................       5,296       13,015       (2,798)
Minority interests in loss (income) of consolidated subsidiaries.............................          75         (396)          32
Equity in loss of affiliates.................................................................      (2,465)        (885)          --
                                                                                              -----------  -----------  -----------
Net income (loss)............................................................................ $     2,906  $    11,734  $    (2,766)
                                                                                              ===========  ===========  ===========
Net income (loss) per share:.................................................................
  Basic...................................................................................... $      0.07  $      0.28  $     (0.07)
                                                                                              ===========  ===========  ===========
  Diluted.................................................................................... $      0.06  $      0.26  $     (0.07)
                                                                                              ===========  ===========  ===========
Shares used in computation:
  Basic......................................................................................  43,583,420   41,525,159   37,239,649
                                                                                              ===========  ===========  ===========
  Diluted....................................................................................  45,961,545   45,924,724   37,239,649
                                                                                              ===========  ===========  ===========
</TABLE>


                See notes to consolidated financial statements.

                                      F-4

<PAGE>

                            ASIAINFO HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
              (In US Dollars thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                             Convertible
                                                           Preferred Stock     Common Stock    Additional   Deferred
                                                          -----------------  -----------------  Paid-in      Stock
                                                            Shares    Amount   Shares   Amount  Capital   Compensation
                                                          ----------  ------ ---------- ------ ---------- ------------
<S>                                                       <C>         <C>    <C>        <C>    <C>        <C>
Balance at January 1, 2000...............................  4,791,289   $ 48  25,532,144  $255   $ 46,118    $(3,865)
Comprehensive loss:
  Net loss...............................................         --     --          --    --         --         --
  Other comprehensive income, net of tax:
   Foreign currency translation adjustments..............         --     --          --    --         --         --

    Comprehensive loss...................................

Issuance of common stock in public offering..............         --     --   5,750,000    58    137,942         --
Issue cost...............................................         --     --          --    --    (11,391)        --
Issuance of common stock on conversion of preferred stock (4,791,289)   (48)  6,952,153    70        (22)        --
Stock option exercises and other.........................         --     --   2,548,643    25      2,723         --
Warrants exercised.......................................         --     --      40,000    --         --         --
Amortization of deferred stock compensation..............         --     --          --    --         --      2,209
                                                          ----------   ----  ----------  ----   --------    -------
Balance at December 31, 2000.............................         --     --  40,822,940   408    175,370     (1,656)


Comprehensive income:
  Net income.............................................         --     --          --    --         --         --
  Other comprehensive income, net of tax:
   Foreign currency translation adjustments..............         --     --          --    --         --         --

    Comprehensive income.................................

Stock option exercises and other.........................         --     --   1,309,878    13      3,279         --
Amortization of deferred stock compensation..............         --     --          --    --         --      1,144
                                                          ----------   ----  ----------  ----   --------    -------
Balance at December 31, 2001.............................         --     --  42,132,818   421    178,649       (512)


Comprehensive income:
  Net income.............................................         --     --          --    --         --         --
  Other comprehensive income, net of tax:................
   Foreign currency translation adjustments..............         --     --          --    --         --         --

    Comprehensive loss...................................

Issuance of common stock on acquisition of a subsidiary..         --     --   1,031,686    11     17,992
Stock option exercises and other.........................         --     --   1,028,970    10      2,748         --
Income tax benefit from exercise of stock options........                                          1,260
Amortization of deferred stock compensation..............         --     --          --    --         --        407
                                                          ----------   ----  ----------  ----   --------    -------
Balance at December 31, 2002.............................         --   $ --  44,193,474  $442   $200,649    $  (105)
                                                          ==========   ====  ==========  ====   ========    =======
</TABLE>
<TABLE>
<CAPTION>

                                                            (Accumulated        Other                       Total
                                                          Deficit) Retained Comprehensive Comprehensive Stockholders'
                                                              Earnings         Income     (Loss) Income    Equity
                                                          ----------------- ------------- ------------- -------------
<S>                                                       <C>               <C>           <C>           <C>
Balance at January 1, 2000...............................      $(2,764)          $(3)                     $ 39,789
Comprehensive loss:
  Net loss...............................................       (2,766)           --         $(2,766)       (2,766)
  Other comprehensive income, net of tax:
   Foreign currency translation adjustments..............           --            20              20            20
                                                                                             -------
    Comprehensive loss...................................                                    $(2,746)
                                                                                             =======
Issuance of common stock in public offering..............           --            --                       138,000
Issue cost...............................................           --            --                       (11,391)
Issuance of common stock on conversion of preferred stock           --            --                            --
Stock option exercises and other.........................           --            --                         2,748
Warrants exercised.......................................           --            --                            --
Amortization of deferred stock compensation..............           --            --                         2,209
                                                               -------           ---                      --------
Balance at December 31, 2000.............................       (5,530)           17                      $168,609
                                                                                                          ========

Comprehensive income:
  Net income.............................................       11,734            --         $11,734        11,734
  Other comprehensive income, net of tax:
   Foreign currency translation adjustments..............           --            11              11            11
                                                                                             -------
    Comprehensive income.................................                                    $11,745
                                                                                             =======
Stock option exercises and other.........................           --            --                         3,292
Amortization of deferred stock compensation..............           --            --                         1,144
                                                               -------           ---                      --------
Balance at December 31, 2001.............................        6,204            28                      $184,790
                                                                                                          ========

Comprehensive income:
  Net income.............................................        2,906            --         $ 2,906         2,906
  Other comprehensive income, net of tax:................
   Foreign currency translation adjustments..............           --            34              34            34
                                                                                             -------
    Comprehensive loss...................................                                    $ 2,940
                                                                                             =======
Issuance of common stock on acquisition of a subsidiary..                                                   18,003
Stock option exercises and other.........................           --            --                         2,758
Income tax benefit from exercise of stock options........                                                    1,260
Amortization of deferred stock compensation..............           --            --                           407
                                                               -------           ---                      --------
Balance at December 31, 2002.............................      $ 9,110           $62                      $210,158
                                                               =======           ===                      ========
</TABLE>

                See notes to consolidated financial statements.

                                      F-5

<PAGE>

                            ASIAINFO HOLDINGS, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
              (In US Dollars thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                           Years Ended December 31,
                                                                        -----------------------------
                                                                          2002      2001       2000
                                                                        --------  --------  ---------
<S>                                                                     <C>       <C>       <C>
Cash flows from operating activities:
 Net income (loss)..................................................... $  2,906  $ 11,734  $  (2,766)
 Adjustments to reconcile net income (loss) to net cash generated from
   (used in) operating activities:
 Depreciation..........................................................    2,936     2,232      1,301
 Amortization of goodwill..............................................       --     1,083      1,057
 Amortization of other acquired intangible assets......................    1,749        --         --
 In-process research and development...................................      350        --         --
 Amortization of deferred stock compensation...........................      407     1,144      2,209
 Deferred income taxes.................................................     (438)   (1,571)      (113)
 Minority interest in (loss) income of subsidiaries....................      (75)      396        (32)
 Equity in loss of affiliates..........................................    2,465       885         --
 Loss on disposal of property and equipment............................      185         2         56
 Provision for doubtful accounts.......................................      762     2,782        (33)
 Provision for short-term investment...................................      750        --         --
 Changes in operating assets and liabilities net of effects of business
   acquisition:
   Restricted cash.....................................................    3,544    13,258    (14,543)
   Accounts receivable.................................................   27,782   (13,896)   (33,642)
   Inventories.........................................................   (8,523)    7,696     (5,968)
   Other receivables...................................................   (4,201)   (1,025)    (1,732)
   Prepaid expenses and other current assets...........................      822      (825)       (23)
   Accounts payable....................................................   (4,418)  (18,248)    30,170
   Deferred revenue....................................................     (796)   (8,222)    12,006
   Other payables......................................................      652        91      1,230
   Accrued employee benefits...........................................   (4,557)     (931)     5,209
   Accrued expenses....................................................    1,533     5,236      4,265
   Income taxes payable................................................     (723)    4,436        127
   Other taxes payable.................................................   (1,030)      614       (386)
                                                                        --------  --------  ---------
Net cash generated from (used in) operating activities.................   22,082     6,871     (1,608)
                                                                        --------  --------  ---------

Cash flows from investing activities:
   Decrease (increase) in short-term investments.......................   15,174    83,215   (110,400)
   Purchases of property and equipment.................................   (1,004)   (1,342)    (5,669)
   Proceeds on disposal of property and equipment......................       57        73        156
   Increase in other receivable........................................   (3,572)   (6,428)        --
   Purchase of a subsidiary, net of cash acquired......................  (26,063)       --         --
   Investment in affiliates............................................       --    (6,157)        --
                                                                        --------  --------  ---------
Net cash (used in) generated from investing activities................. $(15,408) $ 69,361  $(115,913)
                                                                        --------  --------  ---------
</TABLE>



                                      F-6

<PAGE>

                            ASIAINFO HOLDINGS, INC.

              CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
              (In US Dollars thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                 Years Ended December 31,
                                                               ----------------------------
                                                                 2002      2001      2000
                                                               --------  --------  --------
<S>                                                            <C>       <C>       <C>
Cash flows from financing activities:
 Net proceeds from issuance of common stock in public offering $     --  $     --  $127,010
 Increase in short-term bank loans............................    2,984    43,460    42,981
 Repayment of short-term bank loans...........................   (7,708)  (61,185)  (32,036)
 Proceeds on exercise of stock options........................    2,758     3,292     2,748
 Capital contribution by minority interest....................       --        --       220
 Distribution to minority shareholder.........................     (218)       --        --
                                                               --------  --------  --------
Net cash (used in) generated from financing activities........   (2,184)  (14,433)  140,923
                                                               --------  --------  --------
Net increase in cash and cash equivalents.....................    4,490    61,799    23,402
Cash and cash equivalents at beginning of year................  110,635    48,834    25,404
 Effect of exchange rate changes on cash and cash equivalents.       28         2        28
                                                               --------  --------  --------
Cash and cash equivalents at end of year...................... $115,153  $110,635  $ 48,834
                                                               ========  ========  ========
Supplemental cash flow information:
 Cash paid during the year:
 Interest..................................................... $     59  $    937  $  1,018
 Income taxes.................................................    1,519       578       204
                                                               ========  ========  ========
</TABLE>

Non-cash investing activity:

In February 2002, the Company acquired 100% of the outstanding equity shares of
Bonson for cash of $33,387, of which $624 represented acquisition costs, and
the issuance of 1,031,686 shares of common stock with a fair market value at
the time the acquisition was announced of approximately $18,003. Of the cash
amount, $20,433 was paid on April 4, 2002. In connection with the acquisition,
the Company acquired tangible assets with a fair value of $28,364 and assumed
liabilities of $17,737.



                See notes to consolidated financial statements.

                                      F-7

<PAGE>

                            ASIAINFO HOLDINGS, INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 Years ended December 31, 2002, 2001 and 2000
              (In US Dollars thousands, except per share amounts)

1.  Organization and Principal Activities

AsiaInfo Holdings, Inc. (the "Company") is incorporated in the State of
Delaware, in the United States of America (the "US"). The Company principally
operates through the following directly owned subsidiaries, or their respective
subsidiaries: AsiaInfo Technologies (China), Inc. ("AI Technologies") (100%
owned), Guangdong Wangying Information Technology Co., Ltd. ("Wangying") (40%
owned, but controlled by the Company), both incorporated in the People's
Republic of China ("China" or the "PRC"), Marsec Holdings, Inc. ("Marsec") (79%
owned), and Bonson Information Technology Holdings Limited, ("Bonson") (100%
owned), both incorporated in the Cayman Islands.

On March 2, 2000, the Company completed an initial public offering of 5,750,000
shares of its common stock, raising net proceeds of $126,610. The Company's
common stock is traded on The Nasdaq National Market in the United States.

The Company acts as a holding company and, through certain subsidiaries,
sources network-related equipment in the United States for sale to customers in
the PRC.

AI Technologies 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 telecommunications-related information technology professional
services and software products. In November 2001, the Company merged its wholly
owned subsidiary, Zhejiang AsiaInfo Telecommunication Technology Co., Ltd. ("AI
Zhejiang"), into AsiaInfo Technologies. AI Zhejiang's activities were performed
in the PRC and comprised the development and sale of communication hardware and
software as well as providing related technology services. AI Zhejiang was
acquired in April 1999.

On December 31, 2001, AsiaInfo Technologies formed a wholly owned subsidiary,
AsiaInfo Technologies (Chengdu), Inc. ("AI Chengdu"), with an initial operating
term of 15 years to provide hardware procurement support for communications
solutions projects.

Wangying was established on September 6, 2000 with an initial operating term of
4 years for a particular customer project in the PRC. As of December 31, 2002,
Wangying was being liquidated.

Marsec, through its wholly owned subsidiary, provides network security
consulting and services in the PRC. In September 2001, the Company exercised
warrants to purchase 200,000 additional voting preferred shares of Marsec at
$3.50 a share, increasing its investment in Marsec from 75% to 79%. In January
2003, the Company acquired the remaining 21% ownership interest in Marsec (see
Note 21).

On April 27, 2001, the Company invested approximately $6,157 to acquire a
14.25% interest (in the form of voting preferred shares) in Intrinsic
Technology (Holdings), Ltd. ("Intrinsic"), a Cayman Islands company engaged in
wireless infrastructure solutions development through two wholly owned
subsidiaries in the PRC.

In 2000, the Company dissolved its subsidiary AsiaInfo-CTC Network Systems Inc.

In February 2002, the Company acquired 100% of the outstanding equity shares of
Bonson, a leading developer of wireless telecommunications software and
solutions, operating through its subsidiary AsiaInfo Management Software, Inc.
(formerly Guangzhou Bonson Technology Limited) ("AsiaInfo Management"), based
in Guangzhou, China, for $32,763 in cash and the issuance of 1,031,686 shares
of the Company's common stock. (See Note 5).

                                      F-8

<PAGE>

2.  Basis of Preparation

These financial statements of the Company and its subsidiaries are prepared in
accordance with accounting principles generally accepted 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
China's Ministry of Finance.

The principal adjustments made to conform the statutory financial statements of
these subsidiaries to U.S. GAAP included the adjustment to record goodwill from
business acquisitions and adjustment to recognize compensation expense on the
issuance 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
inter-company transactions and balances are eliminated in consolidation.
Investment in 50% or less owned affiliates over which the Company exercises
significant influence, but not control, 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 maturities of three months or less when
purchased.

Short-term investments--Short-term investments are classified as available for
sale and consist principally of certificates of deposits issued by major
financial institutions that have maturities of between 6 and 12 months. 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. During the fourth quarter 2002, the Company recorded a charge of $750
to fully reduce a promissory note receivable balance with a third party as the
Company determined that collection of that balance was not reasonably assured.
The charge is recorded as other expense in the consolidated statements of
operations.

Inventories--Included in inventories are hardware, software and parts.
Inventories 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, software, transportation, insurance expense, import
and other taxes, and other related expenses.

Property and equipment--Property and equipment are 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--Beginning in 2002, with the adoption of SFAS 142, "Goodwill and Other
Intangible Assets," goodwill is no longer amortized, but instead tested for
impairment at least annually. Prior to 2002, goodwill was amortized using
straight-line method over its economic life of 5 years. Accumulated
amortization recorded through December 31, 2001 was $2,971.

Other acquired intangible assets--Other acquired intangible assets with
definitive lives are capitalized and amortized on a straight-line basis over
their expected useful economic lives as summarized at Note 7. The Company
periodically evaluates the recoverability of these intangible assets and takes
into account events or circumstances that warrant revised estimates of useful
lives or that indicate that impairment exists.

                                      F-9

<PAGE>

Impairment--The Company reviews its long-lived assets, including goodwill
through December 31, 2001, 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--The Company's revenue is derived from the procurement of
hardware on behalf of customers, software license fees, and professional
services for systems design, planning, consulting, and system integration, and
is recognized based on the percentage of completion method. Revenues in both
communications solutions and operation support system solutions from customer
orders requiring significant production, modifications, or customization of the
software are recognized over the installation and customization period. Labor
costs and direct project expenses 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 costs are included in determining project costs. Revenue from
packaged software license fees through reseller arrangements is recorded when
the related products are shipped and installed. Costs related to insignificant
obligations for a period of up to one year, which include telephone support,
are accrued at the time the revenue is recorded.

Revenues in both communications solutions and operation support system
solutions 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
$2,218, $2,950 and $1,314 in 2002, 2001 and 2000, respectively.

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 $28,767 at December 31, 2002 and $45,910 at
December 31, 2001. 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, 2002 and 2001, the balance of trade accounts receivable of
$20,670 and $20,813, 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. 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 (gains) losses of $(2) in 2002, $59 in 2001, and $22 in
2000.

The financial records of the Company's PRC subsidiaries are maintained in
Renminbi, their functional currency and the currency of the PRC. 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.

                                     F-10

<PAGE>

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, 2002 was US$1.00 = RMB8.2773. 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 tax credits
and net operating losses available for carry-forwards and significant temporary
differences. Deferred tax assets and liabilities are classified as current or
non-current based upon the classification of the related asset or liability in
the financial statements or the expected timing of their reversal if they do
not relate to a specific asset or liability. 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 assets will not be
realized.

Use of estimates--The preparation of financial statements in conformity with
U.S. GAAP 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.

Comprehensive income(loss)--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, other payables and short-term bank loans
are carried at cost that approximates fair value due to the short-term nature
of these instruments. The Company does not use derivative investments to manage
risks.

Accounting standards recently adopted--In June 2001, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 142, "Goodwill and Other Intangible Assets". SFAS No. 142 provides
that goodwill and other intangible assets with indefinite lives are not to be
amortized, but are to be tested for impairment at least annually. SFAS No. 142
became effective on January 1, 2002, at which time the Company discontinued
amortization of its existing goodwill, which arose from the acquisition of
Zhejiang AsiaInfo Telecommunication Technology Co., Ltd. and the Company's
equity investment in Intrinsic Technology (Holdings), Ltd.

In addition, the standard includes provisions for the reclassification of
certain existing recognized intangibles such as goodwill, reassessment of the
useful lives of existing recognized intangibles, reclassification of certain
intangibles out of previously reported goodwill and the identification of
reporting units for purposes of assessing potential future impairment of
certain intangible assets, including goodwill. The effects of adopting the
non-amortization provisions of SFAS No. 142, assuming those provisions were
adopted as of January 1, 2000, are

                                     F-11

<PAGE>

summarized at Note 4. SFAS No. 142 also requires the Company to complete a
transitional goodwill impairment test six months from the date of adoption. The
Company completed the transitional goodwill impairment test and concluded that
no impairment of recorded goodwill was necessary as of January 1, 2002.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets," which is effective for fiscal years
beginning after December 15, 2001. SFAS No. 144 addresses the financial
accounting and reporting requirements for the impairment or disposal of
long-lived assets and discontinued operations. SFAS No. 144 applies to all
recorded long-lived assets that are held for use or that will be disposed of,
but excludes goodwill and other intangible assets that are not amortized. SFAS
No. 144 was adopted by the Company on January 1, 2002. Adoption of SFAS No. 144
did not have a significant effect on the Company's financial position or
results of operations.

New accounting standards not yet adopted--In August 2001, the FASB issued SFAS
No. 143, "Accounting for Asset Retirement Obligations," which addresses the
accounting for the recognition of obligations associated with the retirement of
tangible long-lived assets. SFAS No. 143 is effective for financial statements
issued for years beginning after June 15, 2002. Management does not believe
that the adoption of SFAS No. 143 will have a significant impact on its
financial position or results of operations.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather than
at the date of a commitment to an exit or disposal plan. Such costs covered by
the standard include lease termination costs and certain employee severance
costs that are associated with a restructuring, discontinued operation, plant
closing, or other exit or disposal activity. SFAS No. 146 replaces the previous
accounting guidance provided by the Emerging Issues Task Force Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS No. 146 is to be applied prospectively to exit or
disposal activities initiated after December 31, 2002 and the Company does not
anticipate that the statement will have a material impact on the Company's
financial position or results of operations.

In November 2002, the FASB issued Interpretation Number 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). This interpretation requires
certain disclosures to be made by a guarantor in its interim and annual
financial statements about its obligations under certain guarantees that it has
issued. It also requires a guarantor to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The disclosure requirements of FIN 45 are effective for
interim and annual periods after December 15, 2002 and the Company has adopted
those requirements for these financial statements. The initial recognition and
initial measurement requirements of FIN 45 are effective prospectively for
guarantees issued or modified after December 31, 2002.

Reclassifications--Certain comparative figures of revenues and cost of revenues
have been reclassified to conform with current year's presentation.

                                     F-12

<PAGE>

4.  Accounting Change

Net income and earnings per share for 2001 and 2000 adjusted to exclude
goodwill amortization expense are as follows:

<TABLE>
<CAPTION>
                                                                                    Years Ended December 31,
                                                                                    -----------------------
                                                                                       2001         2000
                                                                                      -------     -------
<S>                                                                                 <C>         <C>
Reported net income................................................................   $11,734     $(2,766)
Add back:  Goodwill amortization...................................................     1,083       1,057
         Goodwill amortization recorded within equity in loss of affiliate.........       751          --
                                                                                      -------     -------
Adjusted net income................................................................    13,568      (1,709)
                                                                                      =======     =======
Basic earnings per share:
 Reported net income...............................................................      0.28       (0.07)
 Goodwill amortization.............................................................      0.03        0.03
 Goodwill amortization recorded within equity in loss of affiliate.................      0.02          --
                                                                                      -------     -------
 Adjusted basic earnings per share.................................................      0.33        0.04
                                                                                      =======     =======
Diluted earnings per share:
 Reported net income...............................................................      0.26       (0.07)
 Goodwill amortization.............................................................      0.02        0.03
 Goodwill amortization recorded within equity in loss of affiliate.................      0.02          --
                                                                                      -------     -------
 Adjusted diluted earnings per share...............................................      0.30        0.04
                                                                                      =======     =======
</TABLE>


5.  Acquisition

On February 6, 2002 (the "date of acquisition"), the Company acquired all of
the outstanding common shares of Bonson. The results of Bonson's operations
have been included in the consolidated financial statements since that date.
Bonson is a provider of operation support system solutions and other services
in China. As a result of the acquisition, the Company is expected to be the
leading provider of operation support system solutions in China market.

The aggregate purchase price was $51,390, including $32,763 of cash, $624 of
acquisition costs and common stock valued at $18,003. The value of the
1,031,686 common shares issued was determined based on the average market price
of the Company's common shares over the 5-day period before and after the terms
of the acquisition were agreed to and announced.

The following table summarizes the estimated fair values of the assets acquired
and liabilities assumed at the date of acquisition:

<TABLE>
<CAPTION>
                                                 At February 6, 2002
                                                 -------------------
 <S>                                             <C>
 Current assets..............................         $ 27,517
 Property, plant, and equipment                            843
 Intangible assets...........................            6,130
 Goodwill....................................           35,067
 Deferred tax assets.........................                4
                                                      --------
  Total assets acquired......................           69,561
 Current liabilities.........................          (17,737)
 Deferred tax liabilities....................             (434)
                                                      --------
  Total liabilities assumed..................          (18,171)
                                                      --------
  Net assets acquired........................         $ 51,390
                                                      ========
</TABLE>

                                     F-13

<PAGE>

The total purchase price had been allocated to the assets acquired and
liabilities assumed based on their respective fair values as follows:

<TABLE>
   <S>                                                     <C>      <C>
   Purchase Price Allocation:
    Fair market value of net tangible assets acquired....  $10,627
   Intangible assets acquired:                                      Economic Life
                                                                    -------------
    Core technology......................................    1,280  3.5 years
    Trade name...........................................      700  Indefinite
    Contract backlog.....................................    2,700  2 years
    Favorable lease......................................      400  2.1 years
    License..............................................      700  Indefinite
    In-process technology................................      350
    Goodwill.............................................   35,067  Indefinite
    Deferred tax liabilities.............................     (434)
                                                           -------
                                                           $51,390
                                                           =======
</TABLE>

The Company recorded a one-time charge of $350 at the date of acquisition in
accordance with FASB Interpretation No. 4, "Applicability of FASB Statement No.
2 to Business Combinations Accounted for by the Purchase Method," for purchased
in-process technology related to a development project that had not reached
technological feasibility, had no alternative future use, and for which
successful development was uncertain. The conclusion that the in-process
development effort, or any material sub-component, had no alternative future
use was reached in consultation with the Company's management and Bonson's
management.

The goodwill of $35,067 is assigned to the operation support system segment and
is not expected to be deductible for tax purpose.

The following selected unaudited pro forma combined results of operations for
the year ended December 31, 2002 and 2001 of the Company and Bonson have been
prepared assuming that the acquisitions occurred at the beginning of the
periods presented. The following pro forma financial information is not
necessarily indicative of the results that would have occurred had the
acquisition been completed at the beginning of the periods indicated nor is it
indicative of future operating results:

<TABLE>
<CAPTION>
                                          Years Ended December 31,
                                          ------------------------
                                              2002         2001
                                            --------    --------
<S>                                       <C>          <C>
Total revenue.........................      $121,797     $216,060
Net income............................         2,585        4,806
Net income per share
 --Basic..............................      $   0.06     $   0.11
 --Diluted............................      $   0.06     $   0.10
</TABLE>

The pro forma results of operations give effect to certain adjustments,
including amortization of purchased intangibles with definite lives, associated
with the acquisition. The charge for purchased in-process research and
development of $350 has been excluded from the pro forma results, as it is a
material non-recurring charge. Amortization of goodwill and other
indefinite-life assets reflected in the 2001 pro forma amounts above totalled
$8,847, net of taxes. Amortization of these assets ceased upon the adoption of
SFAS No. 142 (see Note 3).

                                     F-14

<PAGE>

6.  Property and Equipment, Net

<TABLE>
<CAPTION>
                                                          December 31,
                                                         --------------
                                                           2002   2001
                                                         ------- ------
<S>                                                      <C>     <C>
Furniture, fixtures and electronic equipment..........   $ 6,645 $5,836
Motor vehicles........................................       460    420
Leasehold improvements................................     2,340  1,834
Accounting software...................................     1,809  1,047
                                                         ------- ------
 Total................................................    11,254  9,137
Less: Accumulated depreciation and amortization.......     7,208  3,761
                                                         ------- ------
Property and equipment, net...........................   $ 4,046 $5,376
                                                         ======= ======
</TABLE>


7.  Other Acquired Intangible Assets, Net

<TABLE>
<CAPTION>
                                                    December 31,
                                                    -------------
                                                     2002   2001
                                                    ------ ------
<S>                                                 <C>    <C>
Core technology................................     $1,280 $   --
Trade name.....................................        700     --
Contract backlog...............................      2,700     --
Favorable lease................................        400     --
License........................................        700     --
                                                    ------ ------
 Total.........................................      5,780     --
Less: Accumulated amortization.................      1,749     --
                                                    ------ ------
Other acquired intangible assets, net..........     $4,031 $   --
                                                    ====== ======
</TABLE>

Amortization expense for the net carrying amount of intangible assets with
definitive lives will be $1,908 in 2003, $510 in 2004 and $213 in 2005.

8.  Investment in Affiliate

In April 2001, the Company invested $6,157 in Intrinsic Technology (Holdings),
Ltd. ("Intrinsic") for a 14.25% equity interest. Intrinsic and its wholly owned
subsidiaries are engaged in wireless Internet application and development. The
investment in Intrinsic is recorded using the equity method because the Company
is able to exercise significant influence over the operating and financial
policies of Intrinsic through its representation on the Board of Directors. The
excess of purchase price over the Company's percentage interest in the recorded
amount of the net assets of Intrinsic as of the acquisition date is $5,631. The
period of amortization for that goodwill was five years based on its estimated
economic life. On January 1, 2002, the Company discontinued amortization of
goodwill upon its adoption of SFAS No. 142 (see Note 3). The carrying value of
that goodwill on January 1, 2002 was $4,880, which included amortization
recorded through December 31, 2001 of $751 as a component of equity in loss of
affiliate for the year ended December 31, 2001.

In December 2002, the Company determined that their investment in Intrinsic had
suffered an other-than-temporary decline in value. As a result, the Company
reduced its carrying amount of that investment to its estimated fair value by
recording a charge of $2,000, which is included in equity in loss of affiliate
for the year ended December 31, 2002. At December 31, 2002, the difference
between the amount at which the investment is carried and the amount of
underlying equity in net assets of Intrinsic was $2,880.

In connection with the investment, the Company also received warrants from
Intrinsic that will entitle the Company and its co-investors to acquire a
controlling interest in Intrinsic.

                                     F-15

<PAGE>

9.  Short-Term Bank Loans

As of December 31, 2002 and 2001, the Company had total short-term credit
facilities for working capital purposes totaling $20,000 and $20,870 expiring
by October 2003 and June 2002, respectively. The facilities were secured by
bank deposits of $10,000 and $10,900 as of December 31, 2002 and 2001,
respectively. At December 31, 2002, unused short-term credit facilities were
$18,574 and used facilities totaled $1,426. The used facilities are pledged as
security for standby letters of credit issued to hardware suppliers and
customers. Additional bank deposits of $4,458 were used for issuing standby
letters of credit and guarantees as of December 31, 2002. At December 31, 2001,
unused short-term credit facilities were $18,865 and used facilities totaled
$2,005 of which $1,376 were used for issuing standby letters of credit provided
to hardware suppliers. As of December 31, 2001, bank deposits of $2,367 secured
additional borrowings of $2,295 and additional bank deposits of $208 were used
for issuing a standby letter of credit. Bank deposits pledged as security for
these credit facilities totaled $14,458 and $13,475 as of December 31, 2002 and
2001, respectively, and are presented as restricted cash in the consolidated
balance sheets.

In addition, as of December 31, 2002, the Company had short-term borrowings of
$60 in RMB, the currency of the PRC, bearing an interest rate of 4.8% and
secured by Bonson's assets. In 2001, the Company had short-term bank loans of
$2.924 in RMB, bearing an interest rate of 5.58%. The RMB loan is repayable
upon demand by the lending bank.

10.  Other Taxes Payable

<TABLE>
<CAPTION>
                                                  December 31,
                                                 -------------
                                                  2002   2001
                                                 ------ ------
<S>                                              <C>    <C>
Individual income tax.......................     $  994 $1,125
Business tax payable........................        259    530
Value added taxes payable, net..............      1,326    869
                                                 ------ ------
                                                 $2,579 $2,524
                                                 ====== ======
</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 licenses. They are also subject to business tax at the rate of 5%
on other service revenues. 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% from software license revenues. This government 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.

11.  Income Taxes

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

<TABLE>
<CAPTION>
                                   Years Ended December 31,
                                   -----------------------
                                    2002    2001     2000
                                   ------  ------- -------
<S>                                <C>     <C>     <C>
United States.................     $ (477) $ 2,543 $(2,025)
Foreign.......................      6,597   13,916    (555)
                                   ------  ------- -------
                                   $6,120  $16,459 $(2,580)
                                   ======  ======= =======
</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-16

<PAGE>

The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
                                          Years Ended December 31,
                                          ----------------------
                                           2002      2001    2000
                                          ------   -------  -----
<S>                                       <C>      <C>      <C>
Current
 United States:
   Federal............................    $  192   $ 4,006  $  --
   State..............................        15       212     --
 Foreign..............................     1,055       797    331
                                          ------   -------  -----
Total current income taxes............     1,262     5,015    331
                                          ------   -------  -----
Deferred
 United States:
   Federal............................       119    (1,931)    --
   State..............................        42       (94)    --
 Foreign..............................      (599)      454   (113)
                                          ------   -------  -----
Total deferred income taxes...........      (438)   (1,571)  (113)
                                          ------   -------  -----
Total income tax expense..............    $  824   $ 3,444  $ 218
                                          ======   =======  =====
</TABLE>

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

<TABLE>
<CAPTION>
                                                   December 31,
                                                  --------------
                                                   2002    2001
                                                  ------  ------
<S>                                               <C>     <C>
Deferred tax assets (liabilities):
 Allowances and reserves.......................   $1,834  $1,615
 Depreciation..................................      236     188
 Net operating loss carry forwards.............      436     347
 Acquired intangible assets....................     (327)     74
                                                  ------  ------
Total gross deferred tax assets................    2,179   2,224
Valuation allowance............................     (330)   (347)
                                                  ------  ------
Total net deferred tax assets..................   $1,849  $1,877
                                                  ======  ======
</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, 2002, tax loss carry
forwards amounted to approximately $1,100 for federal and $300 for California,
which will begin to expire in year 2023 and 2008, respectively. A valuation
allowance of $67 for tax losses carried forward in California has been
established. An additional valuation allowance of $263 has been established for
the provision of short-term investment as it is considered more likely than not
that the relevant deferred tax asset will not be realized.

The Company's 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.

                                     F-17

<PAGE>

Pursuant to the Income Tax Laws, FIEs approved as new technology enterprises
("New Technology Enterprises") that are established in the Beijing Zhongguanzun
Science Park are subject to income tax at the reduced rate of 15%. New
Technology Enterprises are also eligible for a three-year exemption 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 Technologies has been approved as a New Technology Enterprise
and enjoys the preferential tax treatment described above. FIEs approves as
high and new technology enterprises ("High and New Technology Enterprises")
which meet certain criteria set out by tax authorities are also eligible for a
reduced income tax rate at 15%, and a two-year exemption from income tax,
commencing with the first profitable year of the enterprise's business
operations, and thereafter with a 50% reduction at the rate of 7.5% for the
next three years. AsiaInfo Management has been approved as a High and New
Technology Enterprise and has obtained confirmation from the relevant tax
authority to enjoy such preferential tax treatment. AI Chengdu has been
approved as a High and New Technology Enterprise and subject to formal approval
from the relevant tax authority, it is likely that AI Chengdu will also enjoy
such preferential tax treatment. The Company believes that based on the current
tax practice in Chengdu, the possibility of AI Chengdu's failure to obtain such
preferential tax treatment is remote. In 2002, 2001 and 2000, all of the
Company's PRC subsidiaries, except for AI Technologies and AsiaInfo Management,
were either exempt from income taxes or did not have any assessable income. AI
Technologies' 50% reduction in income tax expired on December 31, 2000. AI
Technologies 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 10%. The tax holiday for AsiaInfo Management expired on
December 31, 2001 and the 50% tax reduction in income tax will expire on
December 31, 2004. The corporate income tax rate for AsiaInfo Management is
7.5%.

Income tax of AI Technologies in 2002, 2001 and 2000 was $450, $1,251 and $218,
respectively. In the absence of such income tax exemptions or preferential tax
treatment, additional income tax of $880 in 2002, $615 in 2001 and $252 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
$0.02 in 2002 and $0.01 in 2001 and increase basic and diluted loss per share
by $0.01 in 2000.

Undistributed foreign earnings amounted to approximately $11,400 at December
31, 2002. Those earnings are considered to be indefinitely reinvested and,
accordingly, no provision for US 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.

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

<TABLE>
<CAPTION>
                                                       Years Ended December 31,
                                                       ----------------------
                                                        2002    2001    2000
                                                        ----    ----    ----
<S>                                                    <C>     <C>     <C>
US federal statutory rate............................    35%     35%    (35)%
Differences between statutory rate and foreign
  effective tax rate.................................   (27)    (20)     29
Amortization of goodwill.............................    --       2      14
Others...............................................     6       4      --
                                                        ----    ----    ----
                                                         14%     21%      8%
                                                        ====    ====    ====
</TABLE>

12.  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.

The Company's previously issued the Series A and 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

                                     F-18

<PAGE>

2000 (the "IPO"). 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 basis, when and if such dividends were declared by the Board of
Directors. 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
aggregate liquidation preferences of $18 million and $20 million, respectively,
as of December 31, 1999 and were senior to all 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.

Net income (loss) per share

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

<TABLE>
<CAPTION>
                                                 Years Ended December 31,
                                           -----------------------------------
                                              2002        2001         2000
                                           ----------- ----------- -----------
<S>                                        <C>         <C>         <C>
Net income (loss) (numerator):
 Net income (loss)
   Basic and diluted...................... $     2,906 $    11,734 $    (2,766)
                                           =========== =========== ===========
Shares (denominator):
 Weighted average Common Stock Outstanding
   Basic..................................  43,583,420  41,525,159  37,239,649
   Options................................   2,378,125   4,399,565          --
                                           ----------- ----------- -----------
   Diluted................................  45,961,545  45,924,724  37,239,649
                                           =========== =========== ===========
Net income (loss) per share:
   Basic.................................. $      0.07 $      0.28 $     (0.07)
   Diluted................................ $      0.06 $      0.26 $     (0.07)
</TABLE>

In 2000, the Company had 8,781,865 outstanding common stock options shares that
could have potentially diluted basic earnings per share ("EPS") in the future,
but were excluded in the computation of diluted EPS in such period, as their
effect would have been antidilutive due to the net loss reported in the period.

As of December 31, 2002 and 2001, the Company had 4,716,680 and 1,326,180
common stock options outstanding, respectively, that could have potentially
diluted EPS in the future, but were excluded in the computation of diluted EPS
in those periods, as their exercise prices were above the average market values
in such periods.

13.  Commitments and Contingencies

Operating Leases - As of December 31, 2002, the Company was committed under
certain operating leases, requiring annual minimum rentals as follows:

<TABLE>
<S>                                                      <C>
2003..................................................   $1,535
2004..................................................    1,376
2005..................................................      178
                                                         ------
                                                         $3,089
                                                         ======
</TABLE>

                                     F-19

<PAGE>

The leased properties are principally located in the PRC and are used for
administration and research and development purposes. The leases are renewable
subject to negotiation. Rental expense for the three years in the period ended
December 31, 2002 was $2,314, $2,190 and $2,401, respectively.

Letters of Credit--At December 31, 2002, the Company had outstanding letters of
credit to vendors of $4,458 fully collateralized by pledge of bank deposits and
$1,426 by credit facilities, respectively.

Product Warranty--The Company estimates its warranty cost based on experience
with contracts for which the warranty period had expired and currently provides
0.5% of hardware sales to cover future warranty expense. Changes in product
warranty provision are as follows:

<TABLE>
<CAPTION>
                                            Years Ended December 31,
                                            -----------------------
                                             2002     2001    2000
                                            ------   ------   ----
<S>                                         <C>      <C>      <C>
Balance at beginning of year............    $1,273   $  818   $828
Warranties paid.........................      (186)     (21)   (57)
Warranty provision......................     1,142      476     47
                                            ------   ------   ----
Balance at end of year..................    $2,229   $1,273   $818
                                            ======   ======   ====
</TABLE>

Litigation--On December 4, 2001, a securities class action suit was filed in
the United States against the Company, certain of the Company's directors and
the co-lead underwriters involved in the Company's Initial Public Offering (the
"IPO") on behalf of all persons and entities who purchased, converted,
exchanged or otherwise acquired the common stock of the Company between March
2, 2000 and December 6, 2000, inclusive. The complaint alleged that the Company
and certain of its officers and directors at the time of the IPO violated the
federal securities laws by issuing and selling the Company's common stock
pursuant to the IPO without disclosing to investors that several of the
underwriters of the IPO had solicited and received excessive and undisclosed
commissions from certain investors. The plaintiffs sought class action
certification and claimed for an unspecified amount of damages. On July 15,
2002, the Company, together with other issuer defendants, filed a collective
motion to dismiss the claims on various legal grounds common to all or most of
the issuer defendants.

On October 9, 2002, the United States District Court for the Southern District
of New York (the "Court") dismissed without prejudice all claims against the
individual defendants in the litigation (Louis Lau, Chairman of the Board,
James Ding, President and Chief Executive Officer and Ying Han, Chief Financial
Officer). The dismissals were based on stipulations signed by those defendants
and the plaintiffs' representatives.

On February 19, 2003, the Court issued its ruling on the motions to dismiss
filed by the underwriter and issuer defendants. In that ruling, the Court
granted in part and denied in part those motions. As to the claims brought
against the Company under the anti-fraud provisions of the securities laws, the
Court dismissed all claims without prejudice. As regards the claims brought
under the registration provisions of the securities laws, which do not require
that intent to defraud be pleaded, the Court denied the motion to dismiss such
claims as to the Company and as to substantially all of the other issuer
defendants. The Court also denied the underwriter defendants' motion to dismiss
in all respects.

While the Company cannot guarantee the outcome of the proceedings, it believes
that the final result of the actions will have no material effect on the
Company's consolidated financial condition, results of operations or cash
flows. In addition, management believes that the co-lead underwriters may have
an obligation to indemnify the Company for the legal fees and other costs of
defending this suit and that the Company's directors' and officers' liability
insurance policies may also cover the defense and exposure or settlement of the
suit.


                                     F-20

<PAGE>

14.  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
employees. The Company is required to make contributions to the state
retirement plan at 19% to 25.5% of the monthly basic salaries of the current
employees.

In addition, the Company is required by law to contribute approximately 14.5%
to 21.5% of basic salaries of the PRC employees for staff welfare, housing,
medical and education benefits representing expense of $1,806, $3,443 and
$2,921 for 2002, 2001 and 2000, respectively.

Employees who are citizens or permanent residents of the United States and who
have been employed for more than six months are entitled to retirement benefits
under a Simplified Employee Pension Plan (the "Plan"). The Company contributes
5% of employees' monthly salaries to the Plan. The expense of such arrangements
to the Company for the three years in the period ended December 31, 2002 was
$1,183, $754 and $736, respectively.

15.  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 accounting principles
generally accepted in the PRC ("PRC GAAP") to non-distributable reserves which
include a general reserve, an enterprise expansion reserve and a employee
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 employee welfare and bonus reserve
is determined by the Company's 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 employee 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. Appropriations to general reserves by the Company's
PRC subsidiaries were $591 and $697 in 2002 and 2001, respectively. There were
no appropriations to reserves prior to 2001.

16.  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 United States. At December 31, 2002 the amounts
were placed principally with financial institutions in the United States.

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 21%, 31%
and 34% of total revenues in 2002, 2001 and 2000, respectively. In 2002, 2001
and 2000, no individual provincial entity represented more than 10% of total
revenues. Sales to China Unicom accounted for 22% of total revenues in 2002,
45% in 2001 and 43% in 2000. Sales to China Netcom Corporation accounted for 6%
of total revenues in 2002, 9% in 2001 and 10% in 2000. Sales to China Mobile
Corporation accounted for 42% of total revenues in 2002, 10% in 2001 and 8% in
2000.

                                     F-21

<PAGE>

Details of the amounts receivable from the customers with the largest
receivable balances at December 31, 2002 and 2001 are as follows:

<TABLE>
<CAPTION>
                                                    Percentage of accounts
                                                    receivable December 31,
                                                    ----------------------
                                                    2002        2001
                                                    ----        ----
<S>                                                 <C>         <C>
Five largest receivables balances................    95%         84%
</TABLE>

The Company maintains allowances for estimated potential bad debt losses and
revises its estimates of collectibility on a periodic basis. Activity in the
allowance for doubtful accounts is as follows:

<TABLE>
<CAPTION>
                                           Years Ended December 31,
                                           ---------------------
                                            2002       2001   2000
                                           ------    -------  ----
<S>                                        <C>       <C>      <C>
Balance at beginning of year............   $1,094    $   545  $640
Bad debt expense (recovery).............      762      2,782   (33)
Write-offs and other....................     (723)    (2,233)  (62)
                                           ------    -------  ----
Balance at end of year..................   $1,133    $ 1,094  $545
                                           ======    =======  ====
</TABLE>

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 telecommunications and 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 Company's business to suffer.

17.  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, those 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 the right of repurchase by the Company at
fair market value. During September 1999, the Company amended the terms of the
ISO's and NQO's to eliminate the Company's right of repurchase. Accordingly,
the Company ceased using variable accounting for these options in October 1999.


                                     F-22

<PAGE>

Total number of options exercisable and the weighted average exercise price
were 4,037,745, 3,775,807 and 4,039,625, and $7.89, $5.44, and $2.81 as of
December 31, 2002, 2001 and 2000, respectively.

Option activity for the Plans is summarized as follows:

<TABLE>
<CAPTION>
                                                           Outstanding Options
                                                -----------------------------------------
                                                                     Weighted average
                                                Number of shares exercise price per share
                                                ---------------- ------------------------
<S>                                             <C>              <C>
Outstanding, January 1, 2000...................     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
 Granted (weighted average fair value of $7.02)     2,476,840               9.50
 Cancelled.....................................    (1,639,659)             15.21
 Exercised.....................................    (1,309,878)              2.51
                                                   ----------
Outstanding, December 31, 2001.................     8,309,168               9.40
 Granted (weighted average fair value of $3.56)     3,346,917               4.27
 Cancelled.....................................      (741,550)             12.46
 Exercised.....................................    (1,028,970)              2.68
                                                   ----------
Outstanding, December 31, 2002.................     9,885,565               8.14
                                                   ==========
</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, 2002 is as
follows:

<TABLE>
<CAPTION>
                                                                            Options Exercisable as of
                                Options Outstanding as of December 31, 2002     December 31, 2002
                                ------------------------------------------- --------------------------
                                            Weighted average
                                               remaining        Weighted                   Weighted
                                  Number      contractual       average       Number       average
Range of average exercise price outstanding   life (yrs.)    exercise price exercisable exercise price
------------------------------- ----------- ---------------- -------------- ----------- --------------
<S>                             <C>         <C>              <C>            <C>         <C>
       $0.005 to 0.01..........    150,000        2.75             0.01        150,000      $ 0.01
       $0.25 to 0.75...........      6,167        3.58             0.75          6,167        0.75
       $1.00 to 1.50...........    581,400        4.11             1.12        581,400        1.12
       $2.00 to 2.75...........    837,265        4.72             2.67        837,265        2.67
       $3.00 to 4.17...........  3,594,053        9.24             3.97        281,216        3.50
       $7.07 to 10.00..........  2,752,055        8.08             8.50      1,332,242        8.05
       $10.18 to 13.67.........    755,065        7.93            12.30        343,345       12.34
       $14.06 to 19.63.........     44,200        9.06            15.98          6,750       17.09
       $24.00..................    920,960        7.13            24.00        378,860       24.00
       $29.625 to 47.03........    244,400        7.52            31.92        120,500       31.51
                                 ---------        ----           ------      ---------      ------
       Total...................  9,885,565        7.79           $ 8.14      4,037,745      $ 7.89
                                 =========                                   =========
</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 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 and was amortized to expense over the three-year vesting
period of the options.

                                     F-23

<PAGE>

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.

In 1999, the Company issued NQO's to non-employees to purchase 96,000 shares of
common stock at prices 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.

Amortization of deferred stock compensation was $407, $1,144 and $2,209 for the
years ended December 31, 2002, 2001 and 2000, 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 Black-Scholes
valuation model that 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 1.16% in 2002, 4.4% in 2001 and 5.89% in 2000; volatility of 103% in 2002,
78% in 2001 and 75% 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
2002, 2001 and 2000 awards had been amortized to expense over the vesting
period of the awards, pro forma net loss would have been as follows:

<TABLE>
<CAPTION>
                                          Years Ended December 31,
                                        ---------------------------
                                          2002      2001     2000
                                        --------  -------  --------
<S>                                     <C>       <C>      <C>
Pro forma net loss...................   $(14,705) $(7,084) $(11,409)
Pro forma net loss per share
 Basic...............................   $  (0.34) $ (0.17) $  (0.31)
 Diluted.............................   $  (0.34) $ (0.17) $  (0.31)
</TABLE>

18.  Warrants

At December 31, 1999 warrants granted to a consultant to purchase 40,000 shares
of common stock at $0.01 per share 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. In 2000, the remaining warrants were
exercised and at December 31, 2002 and 2001 no warrants to purchase shares of
common stock were outstanding.

19.  Segment Information

During the fourth quarter of 2002, the Company conducted a business
reorganization in order to more accurately reflect its strategic focus. As
such, the company restructured its operations into two strategic business units
("SBUs"): Operation Support System Solutions ("OSS") and Communications
Solutions ("CS"). 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

                                     F-24

<PAGE>

operating segments (separate lines of business): OSS and CS net of hardware
costs. Each business line has separate operating data and separate management
individuals responsible for the sales, marketing and development efforts. The
OSS SBU is designed to offer customers a "one window" shopping solution for all
of their OSS needs. The second SBU, CS, includes all the remaining business
lines from the Company such as network solutions, service applications solutions
and network security solutions as well as network monitoring services. Both
units contain revenues previously listed under Network Solutions and Software
Solutions. The new units benefit from cost efficiencies gained from combined
sales staff and offer more integrated quality services to their customers. 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 CS and OSS, both net of hardware costs.

<TABLE>
<CAPTION>
                                                         Years Ended December 31,
                                                         ------------------------
                                                            2002         2001
                                                           -------      -------
<S>                                                      <C>          <C>
Revenues net of hardware costs:
Communications solutions net of hardware cost.........     $31,223      $52,288
Operation support system solutions....................      33,510       19,103
                                                           -------      -------
Consolidated revenues net of hardware costs...........      64,733       71,391
Consolidated cost of sales net of hardware costs......      24,467       15,918
                                                           -------      -------
Consolidated gross profit.............................     $40,266      $55,473
                                                           =======      =======
Gross profit:
Communications solutions..............................     $19,303      $39,919
Operation support system solutions....................      20,963       15,554
                                                           -------      -------
Consolidated gross profit.............................     $40,266      $55,473
                                                           =======      =======
Depreciation and Amortization:
Communications solutions..............................     $ 1,416      $ 2,428
Operation support system solutions....................       1,520          887
                                                           -------      -------
                                                           $ 2,936      $ 3,315
                                                           =======      =======
Amortization of deferred stock compensation:
Communications solutions..............................     $   196      $   838
Operation support system solutions....................         211          306
                                                           -------      -------
                                                           $   407      $ 1,144
                                                           =======      =======
Amortization of acquired intangible assets:
Communications solutions..............................     $    --      $    --
Operation support system solutions....................       1,749           --
                                                           -------      -------
                                                           $ 1,749      $    --
                                                           =======      =======
Income (loss) from operations:
Communications solutions..............................     $ 3,000      $ 8,368
Operation support system solutions....................       1,670        1,984
                                                           -------      -------
Consolidated income (loss) from operations............     $ 4,670      $10,352
                                                           =======      =======
</TABLE>

The 2001 information has been reclassified to conform to the current operating
segments. Separate information for 2000 is not presented as it is not practical
to reclassify such information.

                                      F-25

<PAGE>

Segment information based on the Company's previous reporting segments is
presented in the table below. Reclassifying information for 2002 based on the
Company's previous reporting segments is not reasonably practicable.

<TABLE>
<CAPTION>
                                                          Years Ended
                                                          December 31,
                                                        ---------------
                                                         2001     2000
                                                        ------- -------
<S>                                                     <C>     <C>
Revenues net of hardware costs:
Network solutions net of hardware cost...............   $43,516 $27,211
Software solutions...................................    27,875  17,367
                                                        ------- -------
Consolidated revenues net of hardware costs..........    71,391  44,578
Consolidated cost of sales net of hardware costs.....    15,918  13,213
                                                        ------- -------
Consolidated gross profit............................   $55,473 $31,365
                                                        ======= =======
Gross profit:
Network solutions....................................   $31,419 $17,028
Software solutions...................................    24,054  14,337
                                                        ------- -------
Consolidated gross profit............................   $55,473 $31,365
                                                        ======= =======
Depreciation and amortization:
Network solutions....................................   $ 2,021 $ 1,263
Software solutions...................................     1,294   1,095
                                                        ------- -------
                                                        $ 3,315 $ 2,358
                                                        ======= =======
Amortization of deferred stock compensation:
Network solutions....................................   $   588 $ 1,119
Software solutions...................................       556   1,090
                                                        ------- -------
                                                        $ 1,144 $ 2,209
                                                        ======= =======
Income (loss) from operations:
Network solutions....................................   $ 8,368 $(4,283)
Software solutions...................................     1,984  (5,162)
                                                        ------- -------
Consolidated income (loss) from operations...........   $10,352 $(9,445)
                                                        ======= =======
</TABLE>

For the years ended December 31, 2002, 2001 and 2000, almost 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, software and performance of systems integration and software related
services. As of December 31, 2002, 2001 and 2000, 99% of the Company's
long-lived assets are located in the PRC.

20.  Related Party Transactions

In the years ended December 31, 2002 and 2001, the Company entered into
communications solutions and operation support system solutions contracts with
China Netcom Corporation Ltd. ("China Netcom") with a total contract sum of
approximately $10,108 and $9,300, respectively. Edward Tian, a Director and
major shareholder of the Company, is the Chief Executive Officer of China
Netcom, as well as a Vice President of China Netcom's parent company, China
Netcom Communication Group Corporation. Revenue recognized in 2002 and 2001
from such contracts was approximately $6,741 and $17,000, respectively.
Accounts receivable due from China Netcom as of December 31, 2002 and 2001 were
$3,886 and $2,226, respectively.

On May 16, 2002, China Merchants Bank, Beijing Branch ("Merchants Bank")
entered into an agreement to provide a revolving credit facility to China
Netcom of up to approximately $9,061 in connection with China

                                      F-26

<PAGE>

Netcom's past and future purchases of communications solutions and operation
support system solutions from AsiaInfo Technologies. China Netcom may draw on
the facility to fund amounts that will become payable to AsiaInfo Technologies
under bankers' acceptances and the amount drawn down by China Netcom was
approximately $2,055 as of December 31, 2002. AsiaInfo Technologies has
guaranteed China Netcom's obligations to Merchants Bank under the facility and
will pay the Merchants Bank principle plus interest of the drawn loan if China
Netcom defaults on the loan and interest. The facility will expire on May 16,
2003.

On January 17, 2001, the Company purchased a convertible promissory note of
$750 from China PalmInfo Holdings Co., Ltd. ("China PalmInfo"). At the time of
the purchase, ChinaVest V, L.P., in which a former director of the Company is a
partner, also held a convertible promissory note of China PalmInfo of $500.
During the fourth quarter of 2002, the Company recorded a charge of $750 to
fully reduce the promissory note as the Company determined that collection of
that balance was not reasonably assured.

21.  Subsequent Event

On January 22, 2003, the Company entered into an agreement (the "Agreement") to
acquire 250,000 common shares of Marsec Holdings, Inc. ("Marsec"), a provider
of telecommunications security consulting and services through its wholly owned
subsidiary in China, thereby increasing its ownership interest in Marsec from
79% to 100%. The aggregate acquisition price is expected to consist of shares
of the Company's common stock and approximately $150,000 in cash, subject to
adjustment.

22.  Selected Quarterly Financial Data (Unaudited)

Selected quarterly financial data for the years ended December 31, 2002 and
2001 are presented in the following table.

<TABLE>
<CAPTION>
                                                           Three Months Ended
                                                -----------------------------------------
                                                December 31 September 30 June 30 March 31
                                                ----------- ------------ ------- --------
Year Ended December 31, 2002
----------------------------
<S>                                             <C>         <C>          <C>     <C>
Revenues.......................................   $23,599     $32,571    $36,559 $28,537
Gross profit...................................     7,441       8,500     13,037  11,288
Net (loss) income..............................    (2,600)        468      3,616   1,422
Net (loss) income per share--basic.............     (0.06)       0.01       0.08    0.03
                           --diluted...........     (0.06)       0.01       0.08    0.03

Year Ended December 31, 2001
----------------------------
Revenues.......................................   $37,645     $94,031    $21,551 $35,779
Gross profit...................................    15,305      15,540     13,349  11,279
Net income.....................................     4,260       3,519      2,576   1,379
Net income per share--basic....................      0.10        0.08       0.06    0.03
                    --diluted..................      0.09        0.08       0.06    0.03
</TABLE>

                                     F-27

<PAGE>

                               INDEX TO EXHIBITS

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

<TABLE>
<CAPTION>
Exhibit
Number  Description of Exhibits
------  -----------------------
<C>     <S>
2.1     Share Purchase Agreement for the acquisition of Bonson Information Technology Holdings Limited
        /****/
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    Lease of AsiaInfo's headquarters at 6 Zhongguancun South Street, Beijing, dated August 31, 1999/*/
11.1    Statement regarding computation of per share earnings (included in note 12 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)
99.1    Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to
        Section 906 of the Sarbanes-Oxley Act of 2002
99.2    Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to
        Section 906 of the Sarbanes-Oxley Act of 2002
</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.
/***/ Incorporated by reference to our Annual Report on Form 10-K for the
      fiscal year ended December 31, 2000.
/****/ Incorporated by reference to our Current Report on Form 8-K filed on
       February 21, 2002.