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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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FORM 20-F/A
(Amendment No. 1)



|o |  | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934
|- |  | ------------------------------------------------------------------------------------------------

OR



|x |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
|- |  | ------------------------------------------------------------------------------------
| 
|  |  | For the fiscal year ended December 31, 2002.                                        
| 
|  |  | Commission file number: 000-30134                                                   

OR



|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|- |  | ----------------------------------------------------------------------------------------

(CHINADOTCOM CORPORATION LOGO)

(Exact name of Registrant as specified in its charter)


Cayman Islands
(Jurisdiction of incorporation or organization)

34/F Citicorp Centre
18 Whitfield Road
Causeway Bay
Hong Kong
telephone: (852) 2893-8200
facsimile: (852) 2893-5245
e-mail: investor-relations@hk.china.com
(Address of principal executive offices)

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

Class A Common Shares

Indicate the number of outstanding shares of each of the Issuers class of
capital or common stock as of the close of the period covered by this Annual
Report:

|                                       |  |                                           
|-------------------------------------- |  | ------------------------------------------
|Class of shares                        |  | Number outstanding as of December 31, 2002
|                                       |  |                                           
|Class A Common Shares
Preferred Shares |  | 101,296,363
Nil                           

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 o

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

Item 17 o     Item 18 x



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EXPLANATORY NOTE

This amendment no. 1 on Form 20-F/A hereby amends chinadotcoms annual
report on Form 20-F for the fiscal year ended December 31, 2002, which was
filed on June 11, 2003. This amendment no. 1 is being filed for the purpose of
providing additional details to our disclosures in the original report pursuant
to comments we received from the Staff of the U.S. Securities and Exchange
Commission in conjunction with their review of our Amendment No. 1 to Form F-4,
which was filed on October 24, 2003. This amendment no. 1 is not intended to
revise other information presented in our annual report on Form 20-F for the
fiscal year ended December 31, 2002 as originally filed.

This amendment no. 1 on Form 20-F/A does not reflect events occurring
after the filing of the original Form 20-F and does not modify or update the
disclosure therein in any way other than as required to reflect the amendments
discussed above. As a result, this amendment no. 1 to the annual report on
Form 20-F continues to speak as of June 11, 2003.

-2-



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|                                                                                      |  |  |  |  |  |  |  | 
|------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS                        
|ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE                                      
|ITEM 3. KEY INFORMATION                                                              
|ITEM 4. INFORMATION ON THE COMPANY                                                   
|ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                 
|ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                   
|ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                            
|ITEM 8. FINANCIAL INFORMATION                                                        
|ITEM 9. THE OFFER AND LISTING                                                        
|ITEM 10. ADDITIONAL INFORMATION                                                      
|ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                  
|ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                      
|ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                             
|ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
|ITEM 15. CONTROLS AND PROCEDURES                                                     
|ITEM 16. [RESERVED]                                                                  
|ITEM 17. FINANCIAL STATEMENTS                                                        
|ITEM 18. FINANCIAL STATEMENTS                                                        
|ITEM 19. EXHIBITS                                                                    
|SIGNATURES                                                                           
|INDEX TO FINANCIAL STATEMENTS                                                        
|REPORT OF THE INDEPENDENT AUDITORS                                                   
|CONSOLIDATED BALANCE SHEETS                                                          
|CONSOLIDATED STATEMENTS OF OPERATIONS                                                
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                                
|CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY                           
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                           
|EX-8 LIST OF PRINCIPAL SUBSIDIARIES                                                  
|EX-12.1 CERTIFICATION OF CEO - RULE 13A-14(A)                                        
|EX-12.2 CERTIFICATION OF CFO - RULE 13A-14(A)                                        
|EX-13.A.1 CERTIFICATION OF CEO - SECTION 906                                         
|EX-13.A.2 CERTIFICATION OF CFO - SECTION 906                                         



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TABLE OF CONTENTS

|         |  |                                                                              |  |  |     |      |  | 
|-------- |  | ---------------------------------------------------------------------------- |  |  | --- | ---- |  | 
|         |  |                                                                              |  |  |     | Page
|         |  |                                                                              |  |  |     |     
|Item 1.  |  | Identity Of Directors, Senior Management And Advisors                        |  |  | 3   |     
|Item 2.  |  | Offer Statistics And Expected Timetable                                      |  |  | 3   |     
|Item 3.  |  | Key Information                                                              |  |  | 4   |     
|Item 4.  |  | Information On The Company                                                   |  |  | 39  |     
|Item 5.  |  | Operating And Financial Review And Prospects                                 |  |  | 54  |     
|Item 6.  |  | Directors, Senior Management And Employees                                   |  |  | 75  |     
|Item 7.  |  | Major Shareholders And Related Party Transactions                            |  |  | 82  |     
|Item 8.  |  | Financial Information                                                        |  |  | 87  |     
|Item 9.  |  | The Offer And Listing                                                        |  |  | 87  |     
|Item 10. |  | Additional Information                                                       |  |  | 89  |     
|Item 11. |  | Quantitative And Qualitative Disclosures About Market Risk                   |  |  | 99  |     
|Item 12. |  | Description Of Securities Other Than Equity Securities                       |  |  | 103 |     
|Item 13. |  | Defaults, Dividend Arrearages And Delinquencies                              |  |  | 103 |     
|Item 14. |  | Material Modifications To The Rights Of Security Holders And
Use Of Proceeds |  |  | 103 |     
|Item 15. |  | Controls and Procedures                                                      |  |  | 103 |     
|Item 16. |  | [Reserved]                                                                   |  |  | 103 |     
|Item 17. |  | Financial Statements                                                         |  |  | 104 |     
|Item 18. |  | Financial Statements                                                         |  |  | 104 |     
|Item 19. |  | Exhibits                                                                     |  |  | 104 |     

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GENERAL INTRODUCTION

In this Annual Report, except as otherwise specified, all references to
we, us, our, the Company or chinadotcom refer to chinadotcom
corporation and its consolidated subsidiaries and their respective operations.
Unless otherwise specified, all information contained in this Annual Report,
including share and per share data, reflects the two-for-one share splits
approved by our shareholders as of each of December 6, 1999 and April 28, 2000,
respectively, and effective as of the close of trading on the Nasdaq National
Market on December 13, 1999 and May 8, 2000, respectively. All references to
GAAP mean the generally accepted accounting principles of the United States. In
this Annual Report, reference to US$ is to United States dollars.

Presentation of Financial Information

chinadotcom was incorporated as China Information Infrastructure Limited
under the laws of the Cayman Islands in June 1997 as a wholly-owned subsidiary
of China Internet Corporation Limited, or CIC, a company incorporated under the
laws of Bermuda. In June 1999, CIC distributed its total interest in
chinadotcom to CICs shareholders in a reorganization. The transaction involved
the distribution of a total of 46,975,972 of chinadotcoms Class A Common
Shares to CICs shareholders on a one-for-one basis with respect to each issued
and outstanding share of CICs capital stock at the time of the distribution.
Upon completion of its reorganization, CIC ceased to have any ownership
interest in chinadotcom. As part of this corporate reorganization, CIC also
transferred certain subsidiaries, portals and related assets, comprising the
integrated portal business, which began in early 1996, to chinadotcom. The
transfer was accounted for as a reorganization of entities under common control
in a manner similar to a pooling of interests. In April 2000, our shareholders
voted to change our name to chinadotcom corporation.

The summary consolidated financial data for fiscal years 1998 and 1999 in
this Annual Report have been prepared as if the corporate reorganization of
chinadotcom referred to above had occurred retroactively. Accordingly, the
results of operations and related net assets and liabilities of the operations
transferred by CIC to chinadotcom as a part of CICs reorganization have been
included in the summary consolidated financial data for fiscal years 1998 and
1999. chinadotcom believes that the methods used in the allocation of expenses
are reasonable and the statements of operations include all revenues and costs
directly and indirectly attributable to the Company. The amounts related to
chinadotcom have been determined by segregating amounts related to the
operation of chinadotcom from those related to the operations retained by CIC.
The determination of these amounts was made by reference to individual records
for costs specifically relating to chinadotcom or by allocation based on number
of personnel, time spent by personnel or similar references. Management
believes the allocated costs are representative of the costs that would have
been incurred if chinadotcom had operated on a stand-alone basis.

As of each of December 13, 1999 and May 8, 2000, chinadotcom effected a
two-for-one share split. Upon the occurrence of each of these share splits,
each issued and outstanding Class A Common Share of chinadotcom was split into
two Class A Common Shares of half the previous par value per share. The current
par value of our Class A Common Share is US$0.00025 per share. Unless indicated
otherwise, the consolidated financial statements and related notes in this
Annual Report have been prepared, and the consolidated financial and share
information in this Annual Report, including share and per share data, have
been presented, as if the two share splits had occurred retroactively.

The consolidated financial statements have been prepared in accordance
with GAAP.

Forward-Looking Statements

Included in this Annual Report are forward-looking statements, which can
be identified by the use of forward-looking terminology including may,
will, expect, anticipate, estimate, plan, continue,

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believe or other similar words. We have made forward-looking statements
concerning the following, among others:



| |  |  | our goals and strategies;                                                               
| | - |  | ----------------------------------------------------------------------------------------
|
| |  |  | our acquisition and expansion strategy;                                                 
|
| |  |  | the importance and expected growth of software, Internet and mobile phone
applications; 
|
| |  |  | the pace of change in the software, Internet and mobile phone applications
marketplaces;
|
| |  |  | the demand for software, Internet and mobile phone applications and
services; and       
|
| |  |  | advertising revenues.                                                                   

These statements are forward-looking and reflect managements current
expectations only. They are subject to a number of risks and uncertainties,
including but not limited to, the following:



| |  |  | our ability to realize strategic objectives by taking advantage of
market opportunities in our geographic markets;                                                                                                         
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | our ability to make changes in business strategy, development plans
and product offerings to respond to the needs of current, new and
potential customers, suppliers and strategic partners;                               
|
| |  |  | our ability to integrate operations or new acquisitions in accordance with business strategy;                                                                                                                              
|
| |  |  | the effects of restructurings and our ability to successfully support our operations;                                                                                                                                      
|
| |  |  | the potential negative reaction by customers or shareholders to
reduced size or market capitalization;                                                                                                                     
|
| |  |  | our ability to recruit and retain qualified, experienced employees;                                                                                                                                                        
|
| |  |  | our ability to successfully partner with other companies;                                                                                                                                                                  
|
| |  |  | our ability to acquire additional companies and technologies and
manage an increasingly broad range of businesses;                                                                                                         
|
| |  |  | negotiation and resolution of disputes and claims with our former
and current shareholders;                                                                                                                                
|
| |  |  | evaluating the reduced importance of material shareholders and
strategic investors;                                                                                                                                        
|
| |  |  | risks associated with the development and licensing of software
generally, including potential delays in software development and
technical difficulties that may be encountered in the development or
use of our software;
|
| |  |  | increased global competition;                                                                                                                                                                                              
|
| |  |  | our ability to manage regulatory and litigation risks;                                                                                                                                                                     
|
| |  |  | our ability to rationalize operations in a cost effective manner,
particularly as related to certain subsidiaries and employees;                                                                                           
|
| |  |  | technological changes and developments;                                                                                                                                                                                    
|
| |  |  | general risks of the Internet, marketing and software sectors; and                                                                                                                                                         
|
| |  |  | the uncertain economic and political climate in Asia, the United
States and throughout the rest of the world, and the potential that
such climate may deteriorate further, including the recent                            

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| |  |  | adverse effects on general economic conditions in Asia as a result of the
outbreak of severe acute respiratory syndrome, or SARS.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------

We would like to caution you not to place undue reliance on these
statements and you should read these statements in conjunction with the risk
factors disclosed in Item 3.D. of this Annual Report, Key Information  Risk
Factors.




ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

Not applicable.




ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

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ITEM 3. KEY INFORMATION



|A. |  | Selected Financial Data
|-- |  | -----------------------

The following selected consolidated financial data of chinadotcom and our
subsidiaries should be read in conjunction with the consolidated balance sheets
as of December 31, 2001 and 2002 and the related consolidated statements of
operations, cash flows and changes in shareholders equity for the years ended
December 31, 2000, 2001 and 2002 and the notes thereto, or together referred to
as the Consolidated Financial Statements, included as Item 18 of this Annual
Report, Financial Statements, and the information included in Item 5 of this
Annual Report, Operating and Financial Review and Prospects. The Consolidated
Financial Statements have been prepared and presented in accordance with GAAP.
The following selected consolidated financial data of chinadotcom and our
subsidiaries as of and for the years ended December 31, 1998 and 1999, are
derived from our audited financial data, which is not included in this Annual
Report.

Unless otherwise indicated, share and per share data is expressed as if
our two-for-one share splits that were effected as of each of December 13, 1999
and May 8, 2000 had occurred retroactively (see Item 4 of this Annual Report,
Information on the Company, and Note 1 to our Consolidated Financial Statements
included as Item 18 of this Annual Report, Financial Statements). The selected
consolidated financial data for fiscal years 1998 and 1999 present financial
results of chinadotcom and our subsidiaries as if our 1999 reorganization had
been completed retroactively. The financial data reflect the financial
condition and results of operation of chinadotcom and our subsidiaries for such
periods and do not necessarily reflect our financial condition as if we had
been a stand-alone entity for all periods.

Summary Consolidated Financial Data

|                                                         |  |  |                         |   |                                                                |        |         |   |      |        |          |   |      |         |          |   |  |         |         |   |  |         |  
|-------------------------------------------------------- |  |  | ----------------------- | - | -------------------------------------------------------------- | ------ | ------- | - | ---- | ------ | -------- | - | ---- | ------- | -------- | - |  | ------- | ------- | - |  | ------- | -
|                                                         |  |  |                         |   | Year ended December 31,                                       
|                                                         |  |  |                         |   |                                                               
|                                                         |  |  |                         |   | 1998                                                           |        | 1999    |   | 2000 |        | 2001     |   | 2002
|                                                         |  |  |                         |   |                                                                |        |         |   |      |        |          |   |     
|                                                         |  |  |                         |   | (in thousands of U.S. dollars except share and per share data)
|Income Statement Data:(1)                                |  |  |                         |   |                                                                |        |         |   |      |        |          |   |      |         |          |   |  |         |         |  
|Revenues:                                                |  |  |                         |   |                                                                |        |         |   |      |        |          |   |      |         |          |   |  |         |         |  
|                                                         |  |  | e-business Solutions(2) |   |                                                                | 2,689  |         |   |      | 11,045 |          |   |      | 61,327  |          |   |  | 32,591  |         |   |  | 23,003  |  
|                                                         |  |  | Advertising             |   |                                                                | 658    |         |   |      | 7,593  |          |   |      | 43,769  |          |   |  | 21,404  |         |   |  | 28,250  |  
|                                                         |  |  | Sale of IT products(2)  |   |                                                                |       |         |   |      | 289    |          |   |      | 3,276   |          |   |  | 4,580   |         |   |  | 4,631   |  
|                                                         |  |  | Other income(2)         |   |                                                                | 105    |         |   |      | 1,306  |          |   |      | 1,296   |          |   |  | 5,899   |         |   |  | 3,418   |  
|                                                         |  |  |                         |   |                                                                |        |         |   |      |        |          |   |      |         |          |   |  |         |         |   |  |         |  
|                                                         |  |  | 3,452                   |   |                                                                |        | 20,233  |   |      |        | 109,668  |   |      |         | 64,474   |   |  |         | 59,302  |  
|Cost of revenues:                                        |  |  |                         |   |                                                                |        |         |   |      |        |          |   |      |         |          |   |  |         |         |  
|                                                         |  |  | e-business Solutions(3) |   |                                                                | (2,518 | )       |   |      | (5,769 | )        |   |      | (38,600 | )        |   |  | (21,922 | )       |   |  | (14,022 | )
|                                                         |  |  | Advertising             |   |                                                                | (220   | )       |   |      | (5,232 | )        |   |      | (29,109 | )        |   |  | (13,508 | )       |   |  | (20,045 | )
|                                                         |  |  | Sale of IT products(3)  |   |                                                                |       |         |   |      | (207   | )        |   |      | (56     | )        |   |  | (3,466  | )       |   |  | (3,306  | )
|                                                         |  |  | Other income(3)         |   |                                                                |       |         |   |      | (606   | )        |   |      | (1,275  | )        |   |  | (2,010  | )       |   |  | (1,484  | )
|                                                         |  |  |                         |   |                                                                |        |         |   |      |        |          |   |      |         |          |   |  |         |         |   |  |         |  
|Gross margin                                             |  |  | 714                     |   |                                                                |        | 8,419   |   |      |        | 40,628   |   |      |         | 23,568   |   |  |         | 20,445  |  
|Selling, general and administrative expenses             |  |  | (6,628                  | ) |                                                                |        | (25,939 | ) |      |        | (101,275 | ) |      |         | (87,865  | ) |  |         | (37,963 | )
|Depreciation and amortization expenses                   |  |  | (2,200                  | ) |                                                                |        | (6,792  | ) |      |        | (37,775  | ) |      |         | (27,388  | ) |  |         | (11,860 | )
|Impairment of goodwill and intangible assets             |  |  |                        |   |                                                                |        |        |   |      |        | (43,373  | ) |      |         | (40,698  | ) |  |         |        |  
|Stock compensation expense                               |  |  | (767                    | ) |                                                                |        | (4,446  | ) |      |        | (5,083   | ) |      |         | (1,227   | ) |  |         | (309    | )
|                                                         |  |  |                         |   |                                                                |        |         |   |      |        |          |   |      |         |          |   |  |         |         |   |  |         |  
|Operating loss                                           |  |  | (8,881                  | ) |                                                                |        | (28,758 | ) |      |        | (146,878 | ) |      |         | (133,610 | ) |  |         | (29,687 | )
|Interest income                                          |  |  | 58                      |   |                                                                |        | 3,826   |   |      |        | 29,934   |   |      |         | 26,809   |   |  |         | 23,927  |  
|Interest expense                                         |  |  |                        |   |                                                                |        |        |   |      |        | (949     | ) |      |         | (1,474   | ) |  |         | (2,629  | )
|Gain/(loss) arising from share issuance of a subsidiary  |  |  |                        |   |                                                                |        |        |   |      |        | 140,031  |   |      |         | (55      | ) |  |         |        |  
|Gain/(loss) on disposal of available-for-sale securities |  |  |                        |   |                                                                |        | 6,282   |   |      |        | 1,682    |   |      |         | 4,411    |   |  |         | (158    | )
|Gain/(loss) on disposal of subsidiaries and cost         |  |  |                         |   |                                                                |        |         |   |      |        |          |   |      |         |          |   |  |         |         |  
|investments                                              |  |  |                        |   |                                                                |        |        |   |      |        | 13,981   |   |      |         | (1,933   | ) |  |         | (117    | )
|Other non-operating gains                                |  |  |                        |   |                                                                |        |        |   |      |        |         |   |      |         |         |   |  |         | 1,173   |  
|Other non-operating losses                               |  |  |                        |   |                                                                |        |        |   |      |        | (1,992   | ) |      |         | (1,321   | ) |  |         | (288    | )
|Impairment of cost investments and available-for-sale    |  |  |                         |   |                                                                |        |         |   |      |        |          |   |      |         |          |   |  |         |         |  
|securities                                               |  |  |                        |   |                                                                |        |        |   |      |        | (84,696  | ) |      |         | (12,260  | ) |  |         | (5,351  | )
|Share of (losses)/income in equity investees(4)          |  |  |                        |   |                                                                |        | (65     | ) |      |        | (9,423   | ) |      |         | (2,592   | ) |  |         | 682     |  

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|                                                                   |                                               |                                                                                                                                                  |            |   |                                                                |  |            |   |      |  |            |   |        |   |             |   |        |   |             |     |        |   | 
|------------------------------------------------------------------ | --------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------ | ---------- | - | -------------------------------------------------------------- |  | ---------- | - | ---- |  | ---------- | - | ------ | - | ----------- | - | ------ | - | ----------- | --- | ------ | - | 
|                                                                   |                                               |                                                                                                                                                  |            |   | Year ended December 31,                                       
|                                                                   |                                               |                                                                                                                                                  |            |   |                                                               
|                                                                   |                                               |                                                                                                                                                  |            |   | 1998                                                           |  | 1999       |   | 2000 |  | 2001       |   | 2002  
|                                                                   |                                               |                                                                                                                                                  |            |   |                                                                |  |            |   |      |  |            |   |       
|                                                                   |                                               |                                                                                                                                                  |            |   | (in thousands of U.S. dollars except share and per share data)
|                                                                   |                                               |                                                                                                                                                  |            |   |                                                                |  |            |   |      |  |            |   |        |   |             |   |        |   |             |     |        |   | 
|Loss before income taxes                                           |                                               |                                                                                                                                                  | (8,823     | ) |                                                                |  | (18,715    | ) |      |  | (58,310    | ) |        |   | (122,025    | ) |        |   | (12,448     | )  
|Income taxes                                                       |                                               |                                                                                                                                                  |           |   |                                                                |  |           |   |      |  | (682       | ) |        |   | (148        | ) |        |   | (160        | )  
|                                                                   |                                               |                                                                                                                                                  |            |   |                                                                |  |            |   |      |  |            |   |        |   |             |   |        |   |             |     |        |   | 
|Loss before minority interests                                     |                                               |                                                                                                                                                  | (8,823     | ) |                                                                |  | (18,715    | ) |      |  | (58,992    | ) |        |   | (122,173    | ) |        |   | (12,608     | )  
|Minority interests in losses/(income) of
consolidated subsidiaries |                                               |                                                                                                                                                  | 282        |   |                                                                |  | (2         | ) |      |  | 553        |   |        |   | 4,010       |   |        |   | 1,036       |    
|                                                                   |                                               |                                                                                                                                                  |            |   |                                                                |  |            |   |      |  |            |   |        |   |             |   |        |   |             |     |        |   | 
|Loss from continuing operations                                    |                                               |                                                                                                                                                  | (8,541     | ) |                                                                |  | (18,717    | ) |      |  | (58,439    | ) |        |   | (118,163    | ) |        |   | (11,572     | )  
|Discontinued operations                                            |                                               |                                                                                                                                                  |            |   |                                                                |  |            |   |      |  |            |   |        |   |             |   |        |   |             |    
|                                                                   |                                               | Loss from operations of discontinued subsidiaries,
net of related tax benefit of US$42 and tax
expense of US$213 for 2000 and 2001, respectively |            |   |                                                               |  |            |   |     |  |            |   | (1,363 | ) |             |   | (6,222 | ) |             |     | (7,204 | )
|                                                                   | Gain on disposal of discontinued subsidiaries |                                                                                                                                                  |            |  |                                                                |  |            |  |      |  |            |  |        |   |             |  |        |   |             | 545 |       
|                                                                   |                                               |                                                                                                                                                  |            |   |                                                                |  |            |   |      |  |            |   |        |   |             |   |        |   |             |     |        |   | 
|Net loss                                                           |                                               |                                                                                                                                                  | (8,541     | ) |                                                                |  | (18,717    | ) |      |  | (59,802    | ) |        |   | (124,385    | ) |        |   | (18,231     | )  
|                                                                   |                                               |                                                                                                                                                  |            |   |                                                                |  |            |   |      |  |            |   |        |   |             |   |        |   |             |     |        |   | 
|Basic and diluted loss per share(5)                                |                                               |                                                                                                                                                  | (0.18      | ) |                                                                |  | (0.26      | ) |      |  | (0.61      | ) |        |   | (1.21       | ) |        |   | (0.18       | )  
|Weighted average
number of shares                                  |                                               |                                                                                                                                                  | 46,996,420 |   |                                                                |  | 71,879,704 |   |      |  | 98,091,541 |   |        |   | 102,589,760 |   |        |   | 102,269,735 |    

|                                      |                            |  |                                |        |      |  |         |         |      |  |         |         |  |  |         |         |  |  |         |         | 
|------------------------------------- | -------------------------- |  | ------------------------------ | ------ | ---- |  | ------- | ------- | ---- |  | ------- | ------- |  |  | ------- | ------- |  |  | ------- | ------- | 
|                                      |                            |  | As of December 31,            
|                                      |                            |  |                               
|                                      |                            |  | 1998                           |        | 1999 |  | 2000    |         | 2001 |  | 2002   
|                                      |                            |  |                                |        |      |  |         |         |      |  |        
|                                      |                            |  | (in thousands of U.S. dollars)
|Balance Sheet Data:                   |                            |  |                                |        |      |  |         |         |      |  |         |         |  |  |         |         |  |  |         |        
|Cash and cash equivalents             |                            |  | 2,323                          |        |      |  | 12,913  |         |      |  | 47,483  |         |  |  | 20,820  |         |  |  | 33,153  |        
|Restricted cash                       |                            |  | 3,000                          |        |      |  |        |         |      |  | 4,134   |         |  |  | 1,274   |         |  |  | 109     |        
|Available-for-sale debt securities(6) |                            |  |                               |        |      |  | 111,612 |         |      |  | 242,324 |         |  |  | 346,980 |         |  |  | 320,056 |        
|Restricted debt securities            |                            |  |                               |        |      |  |        |         |      |  | 148,622 |         |  |  | 134,960 |         |  |  | 151,123 |        
|Available-for-sale equity securities  |                            |  | 5,700                          |        |      |  | 5,419   |         |      |  | 10,368  |         |  |  | 2,064   |         |  |  | 2,050   |        
|Bank loans(7)                         |                            |  |                               |        |      |  |        |         |      |  | 3,934   |         |  |  | 118,455 |         |  |  | 127,384 |        
|Working capital                       |                            |  | 4,027                          |        |      |  | 124,209 |         |      |  | 450,391 |         |  |  | 359,412 |         |  |  | 340,476 |        
|                                      | Total assets               |  |                                | 14,645 |      |  |         | 183,123 |      |  |         | 622,920 |  |  |         | 596,494 |  |  |         | 580,957 | 
|                                      | Total shareholders equity |  |                                | 12,302 |      |  |         | 163,822 |      |  |         | 512,024 |  |  |         | 389,861 |  |  |         | 377,700 | 



---

|(1) |  | During the year ended December 31, 2002, we discontinued the operations
of certain subsidiaries in the e-business Solutions and the Advertising
segments. With the adoption of SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, the operating results of the discontinued
operating units were classified as loss from operations of discontinued
subsidiaries on the consolidated statements of operations. As a result of
SFAS 144, the results of the continuing operations of 1998, 1999, 2000 and
2001 were restated.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | For comparative purposes, due to increasing materiality, figures prior to
2001 have been revised to reflect a new line of services called Sale of
IT products, adopted during 2001, to account for the sale of information
technology products by our various business units.                                                                                                                                                                                                                                                                      
|   
|(3) |  | For comparative purposes, figures prior to 2000 have been revised to
reflect new classifications of costs of revenues adopted during 2000.                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(4) |  | The term equity investees refers to our 20% or more owned minority
investments other than subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(5) |  | The computation of diluted loss per share did not assume the conversion
of any issued stock options or warrants during the year because their
inclusion would have been antidilutive.                                                                                                                                                                                                                                                                                                                                                                
|   
|(6) |  | Available-for-sale debt securities includes short-term and long-term debt
securities available-for-sale.                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(7) |  | Bank loans include short-term and long-term bank loans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

5



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|B. |  | Capitalization and Indebtedness
|-- |  | -------------------------------

Not applicable.



|C. |  | Reasons for the Offer and Use of Proceeds
|-- |  | -----------------------------------------

Not applicable.



|D. |  | Risk Factors
|-- |  | ------------

Risks Relating to chinadotcom

Risks relating to our overall business

Because we have a limited operating history and our business model and strategy
are evolving, we lack experience in our new markets and cannot provide any
assurance that we will be successful in meeting the needs of customers in these
markets

We have a limited operating history and were organized in June 1997 as a
wholly-owned subsidiary of China Internet Corporation Limited, or CIC. We were
subsequently spun-off from CIC prior to our initial public offering in July
1999, and CIC does not have any continued holdings in chinadotcom. We have
historically operated as a pan-Asian integrated Internet company with our
business model centered around our e-business Solutions and advertising
businesses, including e-marketing services, portal services and other media.
Our business model is evolving from a pan-Asian Internet company to a provider
of enterprise software and related support services, outsourced software
development and support services, advertising, short messaging services for
mobile devices and portal services. Our goal is to be a leading integrated
enterprise solutions company offering technology, marketing and media services
for companies and end users throughout Greater China and the Asia-Pacific
region, the United States and the United Kingdom.

Each of our targeted markets is rapidly evolving, and we cannot provide
any assurance that we can successfully adapt our business model and strategy to
meet the needs of customers in these markets, or cross-sell our core
competencies. If we fail to modify our business model or strategy to adapt to
these markets, our business could suffer. Changes in our business model and
strategy may intensify the risks described in this Annual Report or subject us
to new risks.

We have until recently a history of losses and cannot provide any assurances
that we can achieve or sustain profitability

Since our corporate organization in June 1997, we have incurred net losses
in each of our fiscal years as follows:

|         |  |                                |  |      |         |      |  |      |         |      |  |  |          |   |  |  |         |   |  | 
|-------- |  | ------------------------------ |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  |  | -------- | - |  |  | ------- | - |  | 
|         |  | 1998                           |  | 1999 |         | 2000 |  | 2001 |         | 2002
|         |  |                                |  |      |         |      |  |      |         |     
|         |  | (in thousands of U.S. dollars)
|Net loss |  | (8,541)                        |  |      | (18,717 | )    |  |      | (59,802 | )    |  |  | (124,385 | ) |  |  | (18,231 | )

While we have recorded net profits in each of the fourth quarter of 2002
and first quarter of 2003, we have continued to post losses from operations
during these periods. Our operating losses may increase in the future and we
may never achieve operating profitability or sustain net profitability. We may
continue to incur operating losses and post net losses in the future due to:

6



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| |  |  | additional acquisition activities related to the growth and
development of our enterprise software, outsourced software
development, short messaging services for mobile devices and
portal businesses and services;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | a high level of planned operating expenditures;                                                                                                                                                                     
|
| |  |  | increased sales and marketing costs;                                                                                                                                                                                
|
| |  |  | increased investment activities;                                                                                                                                                                                    
|
| |  |  | further decreases in the value of our prior investments, including
prior Internet-related acquisitions and our publicly traded,
unlisted and other marketable securities;                                           
|
| |  |  | greater levels of product development;                                                                                                                                                                              
|
| |  |  | even greater competition; and                                                                                                                                                                                       
|
| |  |  | our general business and growth objectives.                                                                                                                                                                         

In addition, while we have experienced sequential increases in revenues
between the fourth quarter of 2002 and first quarter of 2003, we cannot be
certain that revenue growth will continue in the future. We may see a reversal
of the recent growth in quarterly revenues due to:



| |  |  | the continued slowdown in the Asian, U.S. and other economic
markets;                                                                                                                                  
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the ongoing low level of expenditures in the software, Internet
and media markets;                                                                                                                     
|
| |  |  | the potential or actual loss of key clients and key personnel,
including those from our software development and outsourcing,
e-business Solutions, mobile service and e-marketing services
businesses;
|
| |  |  | our inability to identify or acquire suitable target companies to
implement our business model and strategy and grow our business;                                                                     
|
| |  |  | our decision to exit the low-margin online network advertising
business in South Korea which will cause revenues from our
advertising and e-marketing businesses to decline;                           
|
| |  |  | our disposal of certain subsidiaries and investments;                                                                                                                                                  
|
| |  |  | our decision to discontinue certain products and services; and                                                                                                                                         
|
| |  |  | the recent adverse effect on general economic conditions in Asia
as a result of concerns about the severe acute respiratory
syndrome or SARS virus.                                                    

These factors could also adversely affect our ability to sustain
profitability. We cannot assure you that we will generate sufficient revenue to
sustain profitability. We cannot assure you that we can sustain or increase
profitability on a quarterly or annual basis in the future. If revenue does not
meet our expectations, or if operating expenses exceed what we anticipate or
cannot be reduced accordingly, our business, results of operations and
financial condition will be materially and adversely affected.

We have significant fixed operating expenses, which may be difficult to adjust in response to unanticipated fluctuations in revenues, and therefore could have a material adverse effect on operations

A high percentage of our operating expenses, particularly personnel, rent,
depreciation and amortization, are fixed in advance of any particular quarter.
As a result, an unanticipated decrease in the number or average size of, or an
unanticipated delay in the scheduling for, our
engagements may cause significant variations in operating results in any
particular quarter and could have a material adverse effect on operations for
that quarter.

An unanticipated termination or decrease in size or scope of a major
engagement, a clients decision not to proceed with a project we anticipated or
the completion during a quarter of several major client engagements could
require us to maintain underutilized employees and could have a material
adverse effect on our business, results of operations and financial condition.

Our strategy of expansion through acquisitions has been and will continue to be costly and may not be effective, and we may realize losses on our investments

7



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As a key component of our business and growth strategy, we have acquired,
and intend to continue to acquire, companies and assets that we feel will
enhance our business model, revenue base, operations and profitability,
particularly relating to our strategy in enterprise software, outsourced
software development and mobile services. Our acquisitions have resulted in,
and will continue to result in, the use of significant amounts of cash,
dilutive issuances of our Class A Common Shares and amortization expenses
related to certain intangible assets, each of which could materially and
adversely affect our business. As of January 1, 2002, we began to apply SFAS
142 and no longer amortize expenses related to goodwill and other intangible
assets with an indefinite life for distinct acquisitions. For an overview of
SFAS 142, see Item 5.B of this Annual Report, Operating and Financial Review
and Prospects  Impact of Certain Recently Issued Accounting Standards.

We will need to implement effective controls, procedures and policies as we continue to grow through acquisitions. Failure to do so will involve strains on our resources, including diverting managements attention, increasing transaction costs and reducing employee morale

We have been expanding and broadening our operations rapidly, both in size
and scope. Our ability to implement controls, procedures and policies
appropriate for a public company in a rapidly evolving market requires an
effective planning and management process. We will need to continue to improve
our financial, managerial and operational controls and reporting systems, and
to expand, train and manage our work force. These acquisitions involve
significant strains and risks, including:



| |  |  | the difficulties of integrating, assimilating and managing the
operations, technologies, intellectual property, products and
personnel of the acquired business;                                                                                                                                                                                                    
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the need to implement controls, procedures and policies
appropriate for a public company such as ours at the acquired
business that prior to acquisition had lacked such controls,
procedures and policies, particularly if such acquired business is
intended to continue to exist as a separate business unit or is a
subsidiary of ours that is not wholly-owned;
|
| |  |  | the diversion of management attention from other business concerns
both during the period of negotiation through closing and further
diversion of such time after closing, as well as a shift of focus
from operating the businesses to issues of integration and future
products;                                                                                  
|
| |  |  | the reduced availability of favorable financing for future
acquisitions;                                                                                                                                                                                                                                                                                            
|
| |  |  | our inability to manage adequately the currency, interest rate and
equity price fluctuations relating to our acquisitions and
investments;                                                                                                                                                                                                                          
|
| |  |  | declining employee morale and retention issues for employees in
the acquired businesses;                                                                                                                                                                                                                                                                            
|
| |  |  | the risk of being sued by terminated employees and contractors;
and                                                                                                                                                                                                                                                                                                 
|
| |  |  | our lack of familiarity with local market and other conditions and
business practices.                                                                                                                                                                                                                                                                              

We may not be able to successfully integrate our acquisitions, and failure to do so could have a material adverse effect on our operations and financial condition

We will need to integrate, manage and protect our interests in our
acquired businesses successfully, and our failure to do so could have a
material adverse effect on our business, results of operations and financial
condition. We may experience difficulties in integrating, assimilating and
managing the operations, technologies, intellectual property, products and
personnel of its acquired businesses. Our acquisitions and investments may
also be difficult to integrate in the aggregate and it may need to reorganize
or restructure to better achieve our operating goals. This may include having
to create or retain separate focused units or entities within each of our areas
of emphasis, including enterprise software, outsourced software development and
mobile services. We will continue to attempt to achieve what we believe to be
the most effective corporate structure to better enhance value and liquidity
for our shareholders and better utilize our non-cash assets as consideration
for acquisitions or investments. This may include the spin-off or listing of
one or more of our units or entities such as occurred with our hongkong.com
Corporation, which was listed on the Growth Enterprise Market of The Stock
Exchange of Hong Kong, or GEM in March 2000. We continue to hold over 81% of
hongkong.com Corporation with the balance of the shares being held by the
public. We undertook the

8



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spin-off of a portion of hongkong.com Corporation in
order to raise capital to fund future expansion of hongkong.coms business
which at the time focused specifically on the operation of online portals
services in Hong Kong under its distinct brandname and to achieve greater brand
recognition of its name in the local market it served.

Our continued acquisitions and investments in Asia and other markets may expose us to additional regulatory and political risks which could lead to a material adverse impact on our financial condition

Our expansion throughout Asia and into other markets, could harm our
business because we will be exposed to:



| |  |  | adverse changes in regulatory requirements;                                                                            
| | - |  | -----------------------------------------------------------------------------------------------------------------------
|
| |  |  | potentially adverse tax and regulatory consequences;                                                                   
|
| |  |  | general export restrictions and export controls relating to encryption
technology;                                     
|
| |  |  | differences in accounting practices;                                                                                   
|
| |  |  | different cultures which may be relatively less accepting of our business;                                             
|
| |  |  | difficulties in staffing and managing operations;                                                                      
|
| |  |  | greater legal uncertainty;                                                                                             
|
| |  |  | tariffs and other trade barriers;                                                                                      
|
| |  |  | changes in the general economic and investment climate affecting
valuations and perception of the our business sectors;
|
| |  |  | political instability and fluctuations in currency exchange rates; and                                                 
|
| |  |  | different seasonal trends in business activities,                                                                      

any one of which could have a material adverse effect on the success of our business and future growth.

Decrease in the value of our investments may lead to impairment of its goodwill and other intangible assets leading to a material adverse impact on our financial condition

As economic, market and other conditions continue to fluctuate, we have
recorded impairment losses for the decrease in value of our investments and
have incurred unrealized losses in the fair value of our marketable securities.
For the financial years ended December 31, 2001 and 2002, we recognized an
impairment loss in an aggregate amount of US$8.1 million and US$0.3 million,
respectively, for the decrease in fair value of our less than 20% owned
unlisted equity investments, and incurred an unrealized aggregate loss of
US$4.2 million and US$5.1 million, respectively, for the decrease in fair value
of our marketable securities. On January 1, 2002, we began to apply SFAS 142,
which requires that intangible assets with indefinite useful lives must be
reviewed annually for impairment, or more frequently if indications of
impairment arise. The standard established specific guidance for testing for
impairment of goodwill and intangible assets with indefinite useful lives.
While we performed the transitional impairment test for goodwill on June 30,
2002 and the annual impairment test on December 31, 2002, and no impairment
charge was recorded during 2002, we cannot give you assurances that we will not
have to record impairment of our goodwill and intangible assets in the future,
depending upon the future performance of and outlook for these assets.

Our results of operations, financial condition, prospects and share price
could be adversely and materially affected, particularly if we are unable to
adequately hedge our exposure to reduced valuations. For a further discussion
of our interest rate risk and equity price risk, see Item 11 of this Annual
Report, Quantitative and Qualitative Disclosures About Market
Risk  Interest
Rate Riskand  Equity Price Risk.

Because we rely on local management for many of our localized businesses our business may be adversely affected if we cannot effectively manage local officers or prevent them from acting or failing to act at our direction

9



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In connection with our strategy to develop our enterprise software
business, outsourced software development and service business, and mobile and
portal businesses, we may acquire interests in companies in local markets where
we have limited experience with these assets and businesses, including
enterprise software companies in the United States and Canada, outsourced
software developers in the Peoples Republic of China, or PRC, and India, and
developers of add-on services for mobile devices in Hong Kong and the PRC. As a
result, it may be necessary for us to rely on our local management with limited
oversight. If we cannot effectively manage our local officers and management,
or prevent them from acting or failing to act at our direction, these problems
could have a material adverse effect on our business, financial condition,
results of operations and share price.

Because some of our directors and officers act in similar capacities for CIC or Xinhua, they may not be able to devote sufficient attention to us or may face conflicts of interest with us

Two of our eight directors also serve as directors for CIC. Our Vice
Chairman and Chief Executive Officer also serves as an officer for CIC and
beneficially owns a significant percentage of the equity of both chinadotcom
and CIC. Affiliated companies of Xinhua News Agency, or Xinhua, a significant
shareholder, also own a significant percentage of CIC. Among our directors, one
is an executive officer of Xinhua. Because these individuals are or will be
required to devote attention to CIC or Xinhua, they may be unable to devote a
sufficient amount of attention to chinadotcom. Furthermore, additional
conflicts of interest may arise to the extent that future changes in our
business model and strategy cause it to compete with CIC, Xinhua and their
respective affiliates in similar industries and markets in Greater China and
elsewhere in Asia. In June 1999, we entered into an agreement with CIC which
limits the ability of those of our directors or officers who are also CIC
directors or officers to take advantage of corporate
opportunities presented to them as directors or officers of chinadotcom.
There is no assurance that this agreement can be enforced effectively if it is
violated against our interest.

Some of our shareholders, suppliers, customers and debtors may compete with us or may experience adverse business conditions that could affect us negatively

AOL Time Warner Inc., or AOL, one of our largest shareholders, is also an
active investor in the Internet and media markets, as well as companies which
develop services delivered via mobile devices. It is possible that conflicts of
interest have arisen or will arise as chinadotcom and AOL further compete in
similar markets in Greater China and other geographic regions.

In addition, there can be no assurance that despite non-compete and
confidentiality arrangements and other fiduciary obligations that may apply,
our shareholders or directors have not used or will not use information
obtained as a result of association with us to compete against us, directly or
indirectly. If such information is used to compete against us, our business,
financial or other condition, results of operation and share price could be
materially and adversely affected.

Our shares are held by institutional investors, strategic shareholders,
suppliers, customers, investees, guarantors and debtors, one or more of whom
may from time to time experience further downturns or slowdowns in market,
economic, business, operational, sales, financial or other condition that could
have a material adverse effect on their business, financial or other condition
and share price, as the case may be. If these conditions, competition or other
factors cause, or result in the deterioration of our relationships with any of
these shareholders, and they sell our shares, or if one or more of our major
shareholders change or is expected to change their shareholding in us
materially, our financial, business, share price, financial and other condition
and prospects could be materially affected in an adverse manner.

We are subject to risks related to our purchase of URLs from CIC, which could materially and adversely impact our business strategy and value of these assets in the event the value paid for the URLs was not reasonable, third

10



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##### Table of Contents



parties bring claims for intellectual property infringement, third party creditors of CIC bring claims of unfair preference in the event CIC is liquidated, or we are required to record an impairment on the value of the URLs

In February 2002 we completed the payment related to the purchase of three
Uniform Resource Locators, or URLs, www.china.com, www.hongkong.com and
www.taiwan.com, and related intellectual property rights for US$16.8 million
from CIC pursuant to an agreement reached with CIC in October 2001.

While we believe that the URLs are of material importance to our business
strategy and operations, our acquisition of the URLs involves significant
risks, including:



| |  |  | While we relied upon valuations as determined by internationally
recognized third party valuation concerns, as well as commercial
negotiations with CIC, we cannot guarantee, however, that the
purchase price we paid for the URLs is fair, reasonable or market
value or that such fair, reasonable and market value price is
readily or objectively determinable.                                                                                                                                                     
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Under existing intellectual property laws in various countries
(such as the United States and Hong Kong), a mark that has
location significance or geographical significance such as the
URLs cannot be registered as a trademark. As a result, the
purchase of the URLs may not be an effective means to resolve our
trademark ownership concerns and we may continue to be vulnerable
to intellectual property ownership and use risks, such as
challenges by third parties of infringement.                           
|
| |  |  | We believe that the URLs will serve an important business purpose
for us for a period of 20 years, and as such we have chosen to
amortize them on a straight-line basis over a period of 20 years.
However, given the unique nature of the URLs and our short
operating history, we cannot be assured that this time period will
accurately correlate with the actual useful life of the URLs.                                                                                                                           
|
| |  |  | Although as part of the purchase of the URLs, we have made a bulk
sales notice in Hong Kong to put CICs creditors on notice of the
transaction, as with any potential liquidation, in the event CIC
is liquidated, if the proceeds from the purchase of the URLs are
thought to be below fair market value by CICs creditors or
distributed preferentially to certain of its creditors in a manner
that unfairly prejudices the other creditors of CIC, its
liquidator may set aside the URLs purchase transaction.
|
| |  |  | We cannot provide any assurances that under SFAS 144, Accounting
for the Impairment or Disposal of Long-Lived Assets, we will not
have to record impairment of the value of the URLs, depending upon
the future performance of and useful life for these assets.                                                                                                                                                                                                                                                         

Risks relating to treasury management

In an attempt to increase its treasury yield, chinadotcom we have invested in debt securities, which exposes us to interest rate and credit risks and could cause us to lose our interest payments or invested principal

In order to increase the yield from our invested cash pending its use in
the conduct of our business, we have increased our leverage and invested in
debt securities that expose us to market risks such as credit default and
interest rate risk. For a summary of the exposure of our debt securities to
market risks associated with our treasury management activities, see Item 11 of
this Annual Report, Quantitative and Qualitative Disclosures About Market Risk.

We manage our interest rate risk by maintaining a portfolio of trading and
held-to-maturity investments which we believe to have high credit quality and
relatively short average maturities. These instruments may include, but are
not limited to, money-market instruments, bank time deposits, and variable rate
and fixed rate obligations of corporations, government, and government
sponsored enterprises such as the Federal National Mortgage Association, or
Fannie Mae, in accordance with an investment policy approved by its Board of
Directors. These instruments are denominated in U.S. dollars. The fair market
value of our debt security investments, as of June 30, 2003, was
$350.4 million.

11



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We also hold cash balances in accounts with commercial banks in the United
States and foreign countries. These cash balances represent operating balances
only and are invested in short-term time deposits of the local bank.

Many of our investments carry interest rate risk. When interest rates
fall, the income from our investments in variable-rate securities declines.
When interest rate rise, the fair market value of our investments in fixed-rate
securities declines. Due in part to these factors, our future investment
income may fall short of expectations or we may suffer losses in principal if
forced to sell securities, which have declined in market value due to changes
in interest rates. We attempt to mitigate risk by holding fixed-rate
securities to maturity, but, if our liquidity needs force us to sell fixed-rate
securities prior to maturity, we may experience a loss of principal.

We are
also exposed to the risk of default by the issuers of our debt
securities. We attempt to mitigate credit default risk by purchasing only
investment grade securities as categorized by Moodys Investor Service and
Standard and Poors. The following chart breaks down our debt securities
portfolio into four primary risk categories based on the Standard and Poors
credit ratings as of June 30, 2003.

|                                                                             |  |     |       |    |  |   |     |     |  |       |     |  |  |  |      |  |  |  |       | 
|---------------------------------------------------------------------------- |  | --- | ----- | -- |  | - | --- | --- |  | ----- | --- |  |  |  | ---- |  |  |  | ----- | 
|Rating (Standard & Poors)                                                   |  | AAA |       | AA |  | A |     | BBB |  | Total
|                                                                             |  |     |       |    |  |   |     |     |  |      
|Amounts of debt securities outstanding as of
June 30, 2003
(in US$ millions) |  |     |       |    |  |   |     |     |  |       |     |  |  |  |      |  |  |  |       | 
|Moodys Investors Service                                                    |  |     | 330.4 |    |  |   | 0.0 |     |  |       | 0.0 |  |  |  | 20.0 |  |  |  | 350.4 | 
|Standard & Poors                                                            |  |     | 330.4 |    |  |   | 0.0 |     |  |       | 0.0 |  |  |  | 20.0 |  |  |  | 350.4 | 

At the end of each quarter, if the end of quarter price is below
the original investment cost, the difference is charged to accumulated other
comprehensive income under the shareholders equity section of our
consolidated balance sheet. If the fair market value of any of our debt
investments remains below its investment cost and is considered other than
temporary, this decline would then be reflected as an expense under
impairment of cost investments and available-for-sale securities in our
consolidated income statement. Any such adjustment could have a material
adverse effect on our business, financial condition, results of operations and
share price.

In addition, sharp price movements or volatility shocks may reduce the
liquidity of our treasury portfolio and in some circumstances our debt
instruments may have no tradeable market. This could prevent us from altering
or closing our security positions without incurring substantial losses. Certain
of our investments would be subject to the additional risks of trading in
foreign debt securities, which may not be regulated as rigorously as similar
investments in the United States. Any losses from our investments in treasury
instrument could have a material adverse effect on our business, financial
condition, results of operations and share price.

Our entry into repurchase facilities with Fortis Bank and DBS Bank exposes us to interest rate, market and credit risks when we borrow funds from these facilities to make other investments

We have entered into repurchase facilities with Fortis Bank nv-sa an
AA-rated bank (as rated by Standard & Poors) and DBS Bank, an A+ rated bank
(as rated by Standard & Poors). The Fortis Bank facility allows us to draw up
to $250.0 million for a one-year term. The DBS Bank facility allows us to draw
up to $150.0 million for a three year term. Each drawdown will be agreed upon
with the corresponding bank before execution. Both facilities were established
to provide us with a source of capital to give us the flexibility to finance
working capital requirements and acquisitions, as well as its treasury
management program, without having to liquidate our investment portfolio on
short notice.

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Under the repurchase facilities, a drawdown requires us to sell debt
securities from our portfolio to the bank at an agreed to price, and the bank
agrees to sell back to us the same securities at the same purchase price at a
later date. In effect, the bank retains title to our securities as collateral
during the life of the drawdown; however, the bank has agreed to pay us any
income associated with the debt securities sold. In return, we have agreed to
pay interest to the bank at a base-rate of Libor plus a fixed 0.20% or 0.35%.
This base rate is set on every 3 month, 6 month or 1 year anniversary of the
execution of the drawdown, as chinadotcom and the bank may mutually agree.

Use of the repurchase facilities with Fortis Bank and DBS Bank creates the
following three primary risks:



| |  |  | The risk associated with increased leverage which includes our
obligation to pay back the borrowed funds in a timely manner.
Required repayment of the facilities may cause us to liquidate a
portion of our treasury portfolio at a time when such liquidation will
result in losses on the sale of such debt instruments.                                             
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | By setting aside debt securities as collateral under either
repurchase facility, we incur the risk that if the banks themselves
were to undergo an insolvency event, it could lose all or part of its
debt securities set aside at such time with the bank.                                                                                                             
|
| |  |  | The interest that we pay under the repurchase facilities floats
depending upon Libor. Therefore, our future interest expenses with
respect to amounts drawn under the repurchase facilities is uncertain
because Libor rates may change. For example, if Libor rises extremely
rapidly over the next few years chinadotcoms interest expenses will
rise commensurately.

Further, because we have purchased, as
of June 30, 2003 under the
repurchase facilities, approximately $50.8 million of debt securities with
drawdowns under its repurchase facilities, we are subject to risk associated
with investment leverage. Since the base rate (Libor) of our drawdowns are
reset periodically, in a rising interest rate environment, we run the risk that
our borrowing rate might exceed any interest income that we receive from the
debt securities purchased with the proceeds of drawdowns from the repurchase
facilities. Any such negative interest rate differential, or negative carry,
could have a material adverse effect on our financial results.

We rely upon our internal control systems to manage our treasury operations, and our treasury portfolio and returns on our treasury portfolio may be adversely affected if we incur greater risk than otherwise appropriate or downgrades occur in our portfolio

If we do not maintain adequate treasury management control systems, it
could have a material adverse effect on our business, results of operations and
financial condition. While we continually assess and improve our treasury
management systems and policies, there is no assurance that our system of
controls and policies will effectively prevent the incurrence of greater risk
than is otherwise appropriate for us. Downgrades in our portfolio of investment
grade debt securities may have a material adverse effect on our business,
results of operations and financial condition. We may decide to outsource all
or a portion of the investment management of our portfolio of debt securities
to third party professional bond portfolio managers. For a summary of our
treasury management program, its effects on our liquidity and capital resources
and the material market risks, see Item 4.B. of this Annual Report, Business
Overview  Treasury management,Item 5.B of this Annual Report, Operating and
Financial Review and Prospects  Liquidity and Capital Resourcesand Item 11 of
this Annual Report, Quantitative and Qualitative Disclosures About Market Risk,
respectively.

We generally have not outsourced management of our debt investment portfolio to professional portfolio managers. A professional portfolio manager may be able to generate a higher return on our debt investments than our internal treasury staff.

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We generally have not outsourced a significant portion of our debt
investment portfolio to professional portfolio managers. Professional managers
may have broader experience and might enjoy greater resources than available to
our internal treasury personnel. These factors might have meant we would have
achieved a higher return than these on investments if we had outsourced
management of our debt investment portfolio. Our portfolio of securities
managed by a third party professional manager includes only $20.0 million
invested with the Centauri Fund (currently rated BBB by Standard & Poors and
Baa2 by Moodys Investors Service) which is a bond fund. Accordingly, we are
exposed to external management risk for this investment, and we rely on the
professional skills of the fund manager to deliver our target interest income.
The investment in the Centauri Fund is highly illiquid and could be difficult
to realize prior to first available redemption in 2006.

Risks relating to our e-business Solutions business

The overall market for our e-business Solutions business remained relatively weak during 2002, and demand may remain weak for some time because of the current economic climate, which could lead to cancellations or delays in business and technology consulting initiatives, adversely affecting our business and growth prospects

The market for e-business Solutions has changed rapidly over the last four
years. Since the second half of 2000, many companies have experienced financial
difficulties or uncertainty, and canceled or delayed spending on technology
initiatives as a result. These companies typically are not demonstrating the
same urgency regarding technology initiatives that existed during the economic
expansion that stalled in 2000. If large companies continue to cancel or delay
their business and technology consulting initiatives because of the current
economic climate, or for other reasons, our business, results of operations and
financial condition and results of operations may be materially and adversely
affected.

A substantial amount of our consulting revenues are billed on a fixed price basis which may be subject to cost overruns if we do not accurately estimate the costs of these engagements or if clients change the scope of a project

A substantial percentage of our consulting engagements are individual,
non-recurrent, short-term projects billed on a fixed price basis as
distinguished from a method of billing on a time and materials basis. Our
failure to obtain new consulting business in any given quarter or estimate
accurately the resources and time required for a consulting engagement, to
manage client expectations effectively regarding the scope of the services to
be delivered for the estimated fees or to complete fixed price engagements
within budget, on time and to clients satisfaction (particularly if a client
changes the scope of the project) could expose us to risks associated with cost
overruns and penalties, any of which could have a material adverse effect on
our business, results of operations and financial condition. We have been
required to commit unanticipated additional resources to complete consulting
engagement in the past, which has resulted in losses on those contracts. In
addition, we may fix the price for some consulting engagements at an early
stage of the process, which could result in a fixed price that turns out to be
too low.

Our clients could unexpectedly terminate their contracts for our services which could result in a loss of expected revenues and additional expenses for staff

Some of our e-business Solutions contracts can be cancelled by the client
with limited advance notice and without significant penalty. Termination by any
client of a contract for our services could result in a loss of expected
revenues and additional expenses for redeployment of staff and resources that
were allocated to that clients engagement. We could be required to maintain
underutilized employees who were assigned to the terminated contract. The
unexpected cancellation or significant reduction in the scope of any of our
large projects could have a material adverse effect on our business, results of
operations and financial condition.

The service contracts we sign with our customers may expose us to potential liabilities

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Our e-business Solutions and advertising businesses have executed services
agreements with customers, some of which do not have disclaimers or limitations
on liability for special, consequential and incidental damages, or do not have
caps or have relatively high caps on the amounts our customers can recover for
damages. We do not carry professional indemnity or other insurance covering our
exposure to any claims or breaches under the customer contracts. In addition,
we do not currently maintain any insurance policy with respect to our exposure
to any claims with respect to limitation of liability or professional
indemnity. A claim related to breaches under customer contracts could subject
us to litigation and give rise to substantial liability for damages, including
special, consequential or incidental, that in turn could materially and
adversely affect our business and financial condition.

Failure by our third party suppliers to provide us with software and hardware components will affect our ability to operate our business

We depend on third party suppliers of software and hardware components.
For our various business units, we rely on components that are sourced from key
suppliers, including Best Software, Inc., Cisco Systems, Inc., International
Business Machines Corporation, LSI Logic Corporation, Microsoft Corporation,
Network Appliance, Inc., Oracle Corporation, Siebel Systems Inc., Sun
Microsystems Corporation and Vignette Corporation. Any failure or delay on the
part of our suppliers may prevent us from receiving the components, products
and support we need to conduct our operations. Our inability to develop
alternative sources for the software and hardware we need to operate our
business may materially and adversely affect our operating efficiency and
results of operations.

Risks relating to our Advertising and Marketing business

We are seeking to re-orient our advertising strategy, and significantly reduced operations in online advertising and e-marketing services. We cannot assure you that we will be successful in generating sufficient revenues or margins from our reoriented advertising strategy to replace revenues and margins from our reduced online advertising and e-marketing services businesses

During 2002, because of low margins, we significantly reduced our
operations in online advertising and e-marketing services that involve the
planning, sales, electronic delivery, tracking and post-campaign analysis of
online banner advertisement campaigns and online direct mailing and
sponsorships programs. While our operations have ceased in Australia, Hong
Kong, Japan, the PRC, Singapore and Taiwan, we continue to maintain a presence
in this sector in South Korea. However, following the expiry in April 2003 of
our exclusive service agreement with Daum Communications, a leading South
Korean portal company, the revenues from its online advertising and e-marketing
services business have contracted. We are seeking to re-orient our advertising
strategy away from online advertising and e-marketing services with low margins
performed for a fixed fee which relies upon short-term advertising campaigns
dependent upon high volume to higher margin database marketing related services
used to develop targeted campaigns for clients. In our experience, margins
from online advertising and e-marketing services range from 20% to 30% versus
margins in database marketing related services which range from 50% to 70%. We
cannot assure you that we will be successful in generating sufficient revenues
or margins from our database marketing related services to replace revenues and
margins from our reduced online advertising and e-marketing services business.

Our ability to generate and maintain significant revenues from online
advertising and e-marketing services will depend, among other things, on:



| |  |  | advertisers acceptance of the Internet as an effective and
sustainable advertising medium;                                              
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the development of a large base of users of its portal network
possessing demographic characteristics that are attractive to
advertisers;

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| |  |  | availability of adequate and suitable ad serving technology;                                                                                          
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | our ability to contract with a diverse group of advertising
affiliates with traffic patterns and user demographics that are
attractive to advertisers;
|
| |  |  | the effectiveness of its advertising delivery, tracking and
reporting systems; and                                                                    
|
| |  |  | the effect of the development of Web software that blocks
Internet advertisements before they appear on a users screen.                              

Our strategy to target higher margin database marketing related services, which generated only a very small portion of our advertising revenues in 2002, is subject to numerous risks, may not be successful, and could therefore limit the amount of advertising revenues we can generate

Our re-oriented advertising strategy is to target higher margin database
marketing related services utilizing data mining techniques. Data mining
involves the process of analyzing significant amounts of data retained in a
database to uncover underlying patterns that may indicate trends or
relationships, and has become a more important part of customer relationship
management as a method to better understand customer behavior and preferences.
The uncovered relationship can then be utilized by a client to develop a
targeted customer campaign. Database marketing related services generated only
a very small portion of our advertising revenues in 2002, and is subject to
numerous risks, including the following:



| |  |  | our ability to successfully integrate Layabo Pty, Limited (now
renamed Mezzo Business Databases Pty Limited), an Australian database
marketing business and owner of the trademark IncNet, which we
acquired in March 2002 to help us migrate towards higher margin
database marketing related services stylizing data mining techniques;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | our ability to integrate the databases from each of our marketing
businesses to build a robust data set to enable effective application
of data mining techniques;                                                                                                                                                                       
|
| |  |  | our ability to successfully market services in this business
segment outside of Australia where most of the businesses providing
these services are currently located;                                                                                                                                                                   
|
| |  |  | our ability to attract larger clients with correspondingly larger
marketing budgets due to the limited size and scope of our currently
operational base in Australia;                                                                                                                                                                    
|
| |  |  | our ability to compete against other companies in this business
segment which may have or develop better quality data sets and related
products and services than ours; and                                                                                                                                                              
|
| |  |  | our ability to successfully migrate, if necessary, our current
data sets, products and services to other technology formats in the
future.                                                                                                                                                                                               

Our re-oriented advertising strategy depends upon Mezzos ability to maintain up-to-date data sets. If Mezzo fails to maintain its data sets, its services will be less attractive to customers

Mezzo
Business Databases Pty Limited is a wholly-owned subsidiary of
chinadotcom, and is at the forefront of our re-oriented advertising strategy to
target higher margin database marketing related services. We launched Mezzo in
September 2001 as a new brand to encompass our advertising activities. Mezzo
maintains multiple databases containing information about companies and
businesses in Australia and New Zealand, such as standard and proprietary
industry codes, sales revenue turnover, number of employees and company contact
details. Mezzo maintains and updates the database through information it
gathers from publicly available

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sources, as well as proprietary telephone
inquires. Mezzo provides access to the database to assist clients in
developing and refining marketing campaigns. While clients may simply pay a
fee to access the database, Mezzo also offers clients analytical services
utilizing data mining techniques. In addition, Mezzo will conduct direct
marketing activities for clients using information available from the database,
such as telemarketing campaigns conducted through an in-house call center,
direct mailing campaigns, and management of customer loyalty programs and
campaigns.

Our re-oriented advertising strategy depends upon Mezzos ability to
maintain up-to-date data sets. If Mezzo fails to maintain its data sets, its
services will be less attractive to customers. The ability of Mezzo to maintain
its data sets can be affected by governmental actions in Australia, as well as
actions by third parties to protect their proprietary rights, although Mezzo is
not aware of any current prohibitions applicable to it which would prohibit its
ability to maintain its data sets. For example:



| |  |  | The Australian government has moved to restrict the use of
publicly available telephone data in the Integrated Public Number
Database for both consumers and business. While Mezzo believes that
such governmental action will not impact Mezzos business because such
data has not historically been used as a data source, restrictions on
the use of such data climinates a potentially cost effective manner to
increase the accuracy of telephone contact data in Mezzos datasets;
and                                                                                                           
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | A number of other database marketing organizations in Australia
which compete with Mezzo rely on digitized versions of the Yellow
Pages business telephone directory to generate and maintain their
databases. Telstra, which owns the copyright to the Australian Yellow
Pages, has recently moved to restrict the publishing and sale of
Yellow Pages data by taking legal action against the major publisher
of that material in Australia. Mezzo does not believe that actions by
Telstra will impact Mezzos business because Mezzo does not rely on
Yellow Pages material to produce its datasets.

Privacy concerns may limit or prevent us from selling demographically targeted online advertising in the future

To the extent we collect data derived from user activity on our online
advertising network, we cannot be certain that any trade secret, copyright or
other protection will be available for this data or that third parties will not
assert their rights to the data. We must also keep information regarding Web
publishers confidential under our contracts with Web publishers. In addition,
various technologies seeking to protect privacy, including the following, have
affected or may affect our advertising business:



| |  |  | any limitation on our ability to use cookies, which are bits of
information keyed to a specific server, file pathway or directory
location that are stored on a users hard drive and passed to a
Web sites server through the users browser software, could
impair our future targeting capabilities; and                         
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | web-browsing software with enhanced privacy preference settings,
allowing users to define settings to reject third party cookies
automatically, may lower the total pool of users from whom any
cookie-based
third party ad serving solutions can collect and target ad
delivery based on demographic data or data mining techniques.

In Hong Kong, a company will contravene the Personal Data Ordinance if it
collects information on its users, analyzes the information for a profile of
the users interests and sells or transmits the profiles to third parties for
direct marketing purposes without the users consent. As part of our future
advertisement delivery system, we will be integrating information including a
users online response rate to advertisements, name, address, age or e-mail
address with third party databases to generate a comprehensive demographic
profile of the Internet user. The transfer of this information, which provides
an individuals profile, may contravene the Personal Data Ordinance unless the
individual expressly consents to the use of this information. Our future
inability to obtain demographic profiles from Internet users that do not
consent to this use or any contravention

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of relevant privacy legislation in our
data collection or use or storage may have a material and adverse effect on our
business.

If we lose the support of Xinhua News Agency, the ability of our www.china.com portal to penetrate the PRC Internet market may be adversely affected

We conduct our operations in the PRC with the sponsorship and support of
Xinhua, the PRC government controlled media organization. During 2003, the
operational control of the www.china.com portal was shifted from Xinhua to our
own company management. Further transactions or consolidation may occur with
respect to our portals. Xinhua, however, maintains editorial control over the
www.china.com portal. We have entered into agreements with Xinhua and its
affiliates to receive business-related content, consultation as to compliance
with PRC regulations and related services that are fundamental to our ability
to penetrate the PRC Internet market. Xinhua controls access to all foreign
economic information disseminated in the PRC. The loss of Xinhuas support, or
any change in the policies of the PRC government regarding Xinhua and their
support for our operations, could have a material adverse effect on the ability
of our www.china.com portal to penetrate the PRC Internet market. In addition,
our relationship with Xinhua may restrict our ability to provide information
over our portal network outside the PRC since information may be considered
offensive to Chinese regulatory authorities. These limitations may be a
competitive disadvantage.

Risks relating to the sale of IT products and our enterprise software business

Our failure to successfully introduce, market and sell new products and technologies, enhance and improve existing products in a timely manner, and properly position and/or price our products, as well as undetected errors or delays in new products or new versions of a product and/or the failure of anticipated market growth could have a material adverse effect on our business, results of operations or financial position

Our IT and enterprise software products compete in a market characterized
by rapid technological advances in hardware and software development, evolving
standards in computer hardware and software technology and frequent new product
introductions and enhancements. We continually seek to expand and
refresh our
product offerings to include newer features or products, and enter into
agreements allowing integration of third-party technology into its products.
The introduction of new products or updated versions of continuing products has
inherent risks, including, but not limited to:



| |  |  | product quality, including the possibility of software defects;                                    
| | - |  | ---------------------------------------------------------------------------------------------------
|
| |  |  | the fit of the new products and features with the customers needs;                                
|
| |  |  | the successful adaptation of third-party technology into our products;                             
|
| |  |  | educating our sales, marketing and consulting personnel to work
with the new products and features;
|
| |  |  | competition from earlier and more established entrants;                                            
|
| |  |  | market acceptance of initial product releases;                                                     
|
| |  |  | marketing effectiveness; and                                                                       
|
| |  |  | the accuracy of assumptions about the nature of customer demand.                                   

As newer products are deployed, our service and maintenance organizations,
along with our partners, will have to rapidly increase their ability to install
and service these products, and we must rapidly improve our products
ease-of-implementation and ease-of-use. The failure to successfully increase
these capacities and make

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these improvements could result in significantly
lower customer satisfaction, which could lead to lower license revenue.

Failure to upgrade older products will adversely affect revenue.

As we or our competition introduce newer products, the markets demand for
our older products declines. Declining demand reduces revenue from additional
licenses and reduces maintenance revenue from past purchasers of our
software. We must continually upgrade our older products in order for
our
customers to continue to see value in our maintenance services. If we
are
unable to provide continued improvements in functionality, or, alternatively,
more customers with our older products to our newer products, declining
maintenance and new license revenue from older products could have a material
adverse effect on our enterprise software business.

If we are unable to develop new and enhanced products that achieve widespread market acceptance, we may be unable to recoup product development costs, and our earnings and revenue may decline

Our future success depends on our ability to address the rapidly changing
needs of customers by developing and introducing new products, product updates
and services on a timely basis. We must also extend the operation of our
products to new platforms and keep pace with technological developments and
emerging industry standards. We commit substantial resources to developing new
software products and services. If the markets for these new products do not
develop as anticipated, or demand for our products and services in these
markets does not materialize or occurs slower than we expect, we will have
expended substantial resources and capital without realizing sufficient
revenue, and our enterprise software business and operating results could be
adversely affected.

Our enterprise software revenues and operating results fluctuate significantly from quarter to quarter which may cause volatility in our share price

Many factors have caused and may in the future cause our enterprise
software revenue and operating results to fluctuate significantly. Some of
these factors are:



| |  |  | the timing of significant orders, delivery and implementation of their products;                                                                                                          
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the gain or loss of any significant customer;                                                                                                                                             
|
| |  |  | the number, timing and significance of new product announcements
and releases by us or our competitors;                                                                                   
|
| |  |  | our ability to acquire or develop (independently or through
strategic relationships with third parties), introduce and market new
and enhanced versions of our products on a timely basis;
|
| |  |  | possible delays in the shipment of new products and purchasing
delays of current products as our customers anticipate new product
releases;                                               
|
| |  |  | order cancellations and shipment rescheduling or delays;                                                                                                                                  
|
| |  |  | patterns of capital spending and changes in budgeting cycles by our customers;                                                                                                            
|
| |  |  | market acceptance of new and enhanced versions of our products;                                                                                                                           
|
| |  |  | changes in the pricing and the mix of products and services we sell;                                                                                                                      
|
| |  |  | seasonal variations in our sales cycle;                                                                                                                                                   

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| |  |  | the level of product and price competition;          
| | - |  | -----------------------------------------------------
|
| |  |  | changes in operating expenses;                       
|
| |  |  | exchange rate fluctuations;                          
|
| |  |  | the timing of any acquisitions and related costs; and
|
| |  |  | changes in personnel and related costs.              

In addition, we expect that a substantial portion of our enterprise
software revenues will continue to be derived from renewals of maintenance
contracts from customers of our software applications. These maintenance
contracts typically expire on an annual basis, and the timing of cash
collections of related revenues varies from quarter to quarter. In addition,
our new license revenue and results of operations may fluctuate significantly
on a quarterly and annual basis in the future, as a result of a number of
factors, many of which are outside of its control. A sale of a
new license generally requires a customer to make a purchase decision that
involves a significant commitment of capital. As a result, the sales cycle
associated with the new license revenue will vary substantially and will be
subject to a number of factors, including customers budgetary constraints,
timing of budget cycles and concerns about our pricing or introduction of new
products.

If China Mobile or China Unicom fails to provide us with access to their mobile networks or their billing and collection systems, our mobile business could be terminated.

Our mobile services and applications revenues, which are derived from our
acquisition of Newpalm in the second quarter of 2003, rely exclusively on China
Mobile and China Unicom, and their respective provincial affiliates, for access
to their customers over their mobile networks and for revenue through their
billing and collection systems. Currently, there are no other mobile services
providers in China. If China Mobile, China Unicom or any of their affiliates
fails to provide us with these services or limits these services, we may be
unable to find a reliable and cost-effective replacement in a timely manner and
upon acceptable terms, if at all. In this event, our mobile services and
applications business would not be viable and could be terminated.

If China Mobile or China Unicom increases its prices for accessing their mobile network or their billing and collection systems, our operating costs could increase.

Our mobile services and applications revenues rely exclusively on China
Mobile and China Unicom, and their respective provincial affiliates, for access
to our subscribers over their mobile networks and for revenue through their
billing and collection systems. We pay the mobile operators for these services
pursuant to non-exclusive, short-term, renewable contracts. We cannot assure
you that our existing contracts will be offered for renewal in a timely manner
and upon acceptable terms, if at all. We have no control over the amount we are
charged for these services. China Mobile or China Unicom, or any one of their
respective affiliates, may increase the amount they charge us for their
services. If this were to happen, our operating costs could increase and our
results of operations could be materially and adversely affected.

If China Mobile or China Unicom fails to bill their customers or provide billing confirmations for our mobile services and applications, our revenues could be significantly reduced.

Our mobile services and applications revenues, rely exclusively on China
Mobile and China Unicom, and their respective provincial affiliates, to record
and bill their customers for our services in the subscribers monthly bills. We
rely on billing confirmations provided by the mobile operators that reflect the
actual services they have billed to their customers to receive payment and
recognize revenue. A mobile operator may fail to bill a customer for services
we have recorded as having been provided due to technical problems with the
mobile operators billing system, in which case we would not recognize the
revenue associated with such services without confirmation from the mobile
operator. The magnitude and frequency of these transmission failures can

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vary
from month to month, and from operator to operator. For example, for the nine
months ended September 30, 2003, the average monthly transmission failure rate
ranged from 10% to 30%. We do not expect to recover revenue that is lost as a
result of transmission failures. If a mobile operator refuses or otherwise
fails to pay us our share of the subscription fees collected from their mobile
customers, our revenues could be significantly reduced.



| |  |  | if CMCC, Unicom or another mobile network operator is unwilling
to cooperate with chinadotcom, it may not be able to find substitute
partners;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------

If the PRC government considers our existing licensing structures to be insufficient in meeting compliance requirements with applicable licensing restrictions, or if we fail to comply with changes to these requirements or restrictions, our portal and SMS businesses could be materially adversely affected.

The PRC government regulates access to the Internet by imposing strict
licensing requirements on Internet service providers, or ISPs. Generally, the
provision of different types of infrastructure telecommunication services and
value-added telecommunication services is subject to different licensing
regimes in the PRC. In April 2003, a new regulation was promulgated by the
Ministry of Information Industry, or the MII, in connection with the
categorization of each kind of telecommunication business.

While we believe that our current operation complies with all existing PRC
laws, rules and regulations, there are substantial uncertainties regarding the
interpretation of current Internet laws and regulations. It is possible the PRC
government may take a view contrary to ours because there are no well
established precedents or clear judicial interpretations to support our
interpretations and views of the laws,
rules and regulations. Issues, risks and uncertainties relating to PRC
government regulation of Chinas Internet sector include:



| |  |  | recently enacted regulations applying to Internet-related
services and telecom-related activities. While many aspects of these
regulations remain unclear, they purport to limit and require
licensing of various aspects of the provision of Internet information
services. If these regulations are interpreted to preclude our current
ownership structure or business model, our portal and SMS businesses
could be severely impaired; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the MII has stated that the activities of Internet content
providers, or ICPs, are subject to regulation by various PRC
government authorities depending on the specific activities conducted
by the ICP. Various government authorities have enacted several new
laws and regulations that govern these activities. The areas of
regulation currently contemplated include:                                                                  
|
| |  |  | online advertising;                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  |  | online news reporting;                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  |  | online publishing;                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  |  | online securities trading;                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  |  | online gaming;                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  |  | online broadcasting;                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  |  | bulletin board service; and                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  |  | the provision of industry-specific information (e.g.,
pharmaceutical products) over the Internet, etc.                                                                                                                                                                                                                                                                                                                                        

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Other aspects of our online operations may be subject to regulation in the
future.

In addition to the regulations promulgated by the PRC national government,
some local governments, such as the Beijing local government, have also
promulgated local rules applicable to Internet companies operating within their
respective jurisdictions. These local rules may also create additional barriers
in relation to the operation of our business.

If we fail to establish and maintain relationships with content providers and mobile network operators, we may not attract or retain users

We rely on a number of third party relationships to attract traffic and
provide content to make our portals more attractive to advertisers and
consumers. Most of these arrangements are not exclusive and are short-term or
may be terminated at the convenience of the other party. We cannot assure you
that our existing relationships will result in sustained business partnerships,
successful service offerings, significant traffic or significant revenues. In
addition, much of the third party content provided to our portal is also
available from other sources or may be provided to other companies. If our
competitors present the same or similar content in a superior manner, it would
adversely affect our visitor traffic.

We may be held liable for information retrieved from our portal network which may expose us to liability for claims for defamation, infringement of third party intellectual property rights, or violation of censorship laws

Because our services can be used to download and distribute information to
others, there is a risk that claims may be made against us for defamation,
negligence, copyright or trademark infringement or other claims based on the
nature and content of that material, such as violation of censorship laws in
the PRC. We do not carry liability insurance to cover potential claims of this
type, except for directors and officers liability insurance, so any
imposition of liability could have a material adverse effect on our business,
results of operations and financial condition. See Political, Economic and
Regulatory Risks  PRC regulation of content distributed on the Internet may
adversely affect our business below.

We and Newpalm have attempted to comply with restrictions on foreign investment in the PRC Internet and mobile content sectors imposed by the PRC government. If the PRC government finds that these arrangements do not comply with the relevant foreign investment restrictions or changes its restrictions, our business in the PRC will be adversely affected.

The PRC government regulates access to the Internet by imposing strict
licensing requirements and requiring Internet service providers, or ISPs, in
the PRC to use the international inbound and outbound Internet backbones. The
PRC government may require that we obtain a license for Internet access in the
future based on new legislation or otherwise. We cannot provide assurance that
we will be able to obtain any necessary license required in the future or that
future changes in PRC government policies will not impose additional regulatory
requirements on us or our service providers, intensify competition in the PRC
information industry or otherwise have a material adverse effect on our
business, financial condition and results of operations.

The PRC has recently begun to regulate its Internet sector by making
pronouncements or enacting regulations regarding the legality of foreign
investment in the PRC Internet sector and the existence and enforcement of
content restrictions on the Internet. We believe that our current ownership
structure complies with all existing PRC laws, rules and regulations. There
are, however, substantial uncertainties regarding the interpretation of current
PRC Internet laws and regulations. In addition, new PRC Internet laws and
regulations were recently adopted. Accordingly, it is possible that the PRC
government will ultimately take a view contrary to ours because there are no
well established precedents or clear judicial interpretations to support and
approve the interpretations and views of the laws, rules and regulations we
have taken.

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Issues, risks and uncertainties relating to PRC government regulation of
the PRC Internet sector include the following:



| |  |  | the PRC recently enacted regulations applying to
Internet-related services and telecom-related activities. While
many aspects of these regulations remain unclear, they purport to
limit and require licensing of various aspects of the provision of
Internet information services. If these regulations are interpreted
to be inconsistent with our current structure, our business will be
severely impaired;                                                                                                                                                                                                                                                                                                               
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | under the agreement reached in November 1999 between the
PRC and the United States concerning the United States support of
Chinas entry into the World Trade Organization, or WTO, foreign
investment in PRC Internet services will be liberalized to allow
for 30% foreign ownership in key telecommunication services,
including PRC Internet ventures, for the first year after Chinas
entry into the WTO, 49% in the second year and 50% thereafter.
China officially entered the WTO on December 11, 2001. However, the
implementation of Chinas WTO accession agreements is still subject
to various conditions; and                                                                                                 
|
| |  |  | the Ministry of Information Industry, or MII, has also
stated that the activities of Internet content providers, or ICPs,
are subject to regulation by various PRC government authorities,
depending on the specific activities conducted by the ICP. Various
government authorities have stated publicly that they are in the
process of preparing new laws and regulations that will govern
these activities. The areas of regulation currently include online
advertising, online news reporting, online publishing, online
securities trading and the provision of industry-specific (e.g.,
drug-related) information over the Internet. Other aspects of our
online operations may be subject to regulation in the future.

The interpretation and application of existing PRC laws and regulations,
the stated positions of the MII and the prospect of new laws or regulations
have created substantial uncertainty regarding the legality of existing and
future foreign investments in, and the businesses and activities of, PRC
Internet companies, including us and Newpalm.

Accordingly, it is possible that the relevant PRC authorities could, at
any time, assert that any portion or all of our or Newpalms existing or future
businesses and ownership structure that involve trust deed arrangements violate
existing or future PRC laws, regulations or policies. If we or Newpalm are
found to be in violation of any existing or future PRC laws or regulations, the
relevant PRC authorities would have broad discretion in dealing with such
violation, including, without limitation, the following:



| |  |  | levying fines on us or Newpalm;                                                                                       
| | - |  | ----------------------------------------------------------------------------------------------------------------------
|
| |  |  | confiscation our or Newpalms income;                                                                                 
|
| |  |  | revoking our business license or the business license of Newpalm;                                                     
|
| |  |  | closing the business operations of ourselves or Newpalm in the
PRC;                                                   
|
| |  |  | requiring us to restructure our or Newpalms ownership structure,
operations or business relationships in the PRC; and
|
| |  |  | requiring us or Newpalm to discontinue any portion or all of our
Internet or telecommunications business in the PRC.  

Any of these actions would have a material adverse effect on our business,
financial condition and results of operations.

We and Newpalm have entered into trust deed arrangements and depend upon these contractual arrangements for the success of our business. These arrangements may not be as effective in providing operational control as direct ownership of these businesses, and may be difficult to enforce

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Because the PRC government has imposed restrictions and prohibitions on
owning Internet content or telecommunications operations in the PRC, we and
Newpalm have entered into trust deed arrangements pursuant to which ICP
licenses may be owned legally but held on our behalf through various onshore
and offshore arrangements by PRC citizens who may be our directors, officers,
employees or other agents. Trust deed arrangements have been entered into to
provide services through contractual agreements between the parties. These
arrangements may not be as effective in providing control over our Internet
content or telecommunications operations as direct ownership of these
businesses, although we may take additional measures to increase our ability to
exert control, such as entering into comprehensive licensing agreements. If the
trustees under our trust deed arrangements which are PRC individuals fail to
perform their obligations under these arrangements, we may have to rely on
legal remedies under PRC law, Hong Kong law and decisions or arbitral bodies,
which we cannot assure you would be effective or sufficient. Also, there can be
no assurance that any of these structures adopted or apparently approved, or
any structure that we may eventually reorganize into, will or can be approved
by the relevant PRC authorities. Furthermore, these arrangements may be viewed
as entrenching certain persons or persons in management or other positions
with us or transferring certain value to such person or persons, especially if
any conflict of interest arose in connection with the arrangements.

Risks relating to our network, intellectual property and personnel

Our computer network is vulnerable to hacking, viruses, spamming and other disruptions which may cause us to lose key clients, expose us to liability for our clients losses, or prevent us from securing future business

Inappropriate use of our Internet services or errors or omissions in
processing instructions or data available in our computer system or databases
could jeopardize the security of confidential information stored in our
computer system, which may cause us to lose key clients, expose us to liability
for our clients losses and prevent us from securing future business, any of
which could have a material adverse effect on our business, financial
condition, results of operations and share price.

Inappropriate use of the Internet includes attempting to gain unauthorized
access to information or systems (commonly known as cracking or hacking) and
repeated transmission of unsolicited e-mail messages (commonly known as e-mail
bombing or spamming). Our current policies, procedures and configurations for
managing our systems, including our computer servers, may not be adequate to
protect our facilities and the integrity of our user and customer information.
Although we implement security measures to protect our facilities and the
integrity of our user and customer information, such measures could be
ineffective or circumvented.

Spam

As is typical for many businesses offering online based products and
services such as emails, we experience spam attacks on a regular basis. Our
systems use filters which identify common words and sentence structures
typically used in spamming to block spam attacks. Our network administrators
constantly review spam activities as a part of system maintenance, and also
consult with outside authorities to learn about the latest techniques spammers
use to attack systems which is often used to update our filters. In addition,
the email products we offer have their own filtering capabilities which allow
users to further refine the emails which should be blocked. We encourage users
to notify us of any suspect email activity, and we will terminate user accounts
which are detected as engaging in spamming activities. However, our systems
continue to experience spam attacks regularly, and there is no assurance that
the spam attacks will not become more frequent and materially disrupt our
operations.

Viruses

While our computer systems have occasionally experienced problems as a
result of viruses, we have not experienced extended system outages as a result
of viruses. To protect our systems from viruses, we have

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installed in on our
networks commercially available antivirus software produced for enterprise
networks. We update on a daily basis our library of viruses to be scanned for,
and perform anti-virus updating activities upon computers when they log on to
our network. In addition, upon receipt of specific information that a new
virus is causing difficulties across the computer networks of a number of other
companies, our system administrators will send out virus alerts to its users to
inform them about the virus activities, including, when applicable, advice not
to open emails with specified tag lines or headers. Nonetheless, our efforts to
protect our systems from viruses may not be adequate and there is no assurance
that we will not experience extended system outages due to viruses in the
future.

Hacking

Our computer networks have been the target of sporadic hacking activities
over the years, although most hacking activities have been targeted against the
gateways our computer systems use to access the Internet which are operated by
third parties, rather than directly against our systems. We have set up
firewalls using commercially available software to shield its systems from
hacker attacks. In addition, we use commercially available software which
monitors traffic across our network looking for abnormal activities and traffic
which may signal a hacker attack, and also use restricted access lists to
restrict to unauthorized traffic on our routers to limit hacker attacks.
However, we may continue to be the target of hacking activities, and there is
no assurance that the firewalls and software we have implemented will
adequately protect our systems from such hacking activities.

Alleviating problems caused by computer viruses or other inappropriate
uses or security breaches may require interruptions, delays or cessation in our
services, in addition to the outages that occur in our systems from time to
time for various reasons, including power interruptions,
errors in instructions, equipment inadequacy, capacity and other technical
problems. We do not carry errors and omissions or other insurance covering
losses or liabilities caused by computer viruses, security breaches or spamming
attacks. Compromises or breaches in the security or integrity of our facilities
or customer or user information, or inappropriate use of our Internet services,
could subject us to litigation and could adversely affect our customer base,
business, share price, results of operation and financial condition.

We rely on software and hardware systems that are susceptible to failure, and in the event of service operations or other related problems, our operating efficiency and results of operations may be adversely affected

Any system failure or inadequacy that interrupts our services or increases
the response time of our services could reduce user satisfaction, future
traffic and our attractiveness to advertisers and consumers. There can be no
assurance that our technologies, services and products will not experience
interruptions or other related problems, which could affect our operating
efficiency and results of operations.

In addition, as our Web pages and traffic increases, there can be no
assurance that we will be able to scale our systems proportionately. There also
can be no assurance that our ad serving capabilities will be adequate for our
business needs or properly track the number of impressions on our advertising
affiliates. We also depend on Web browsers, ISPs, and other Web site operators
in Greater China and elsewhere that have experienced significant system
failures and electrical outages in the past. Our users have experienced
difficulties due to system failures that were unrelated to our systems and
services.

We have limited backup systems and redundancy and we have experienced
system failures and electrical outages that have disrupted our operations. We
do not have a disaster recovery plan in the event of damage from fire, natural
disasters, power loss, telecommunications failures, break-ins and similar
events. We may experience a complete system shut-down if any of these events
were to occur. To improve performance and to prevent disruption of our
services, we may have to make substantial investments to deploy additional
servers or one or more copies of our Web sites to mirror our online resources.
Because we carry property insurance with low coverage limits, our coverage may
not be adequate to compensate us for our losses. If we do not increase our

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capacity and our redundancy, these constraints could have a material adverse
effect on our business, results of operations and financial condition.

We may be unable to protect or enforce our own intellectual property rights adequately and may be involved in future litigation over our use of technology rights

As we increasingly develop or acquire intellectual property, including the
recent purchase of the URLs, the recent purchase of OpusOne Technologies
International Inc., or OpusOne Technologies, which has developed several
proprietary enterprise software related applications for use in human
resources, payroll administration, attendance tracking and financial
accounting, and the development of expresso (our proprietary e-mail direct
marketing technology) by in-house developers, our ability to adequately protect
our intellectual property rights becomes relatively more important to our
business as a whole. We regard the protection of our trademarks, service marks,
copyrights, patents, domain names, trade dress and trade secrets as important
to our success. We protect our intellectual property rights by relying on a
combination of trademark, service mark, copyright, patent, trade dress and
trade secret laws and through the domain name dispute resolution system. We
also rely on contractual restrictions to protect our proprietary rights in
products, services and methodologies.

We enter into confidentiality agreements and assignments of intellectual
property with our employees, consultants, resellers and sub-agents, and control
access to and distribution of our documentation, source code and other licensed
information. In spite of these precautions, it may be possible for such persons
to breach such precautions or controls or a third party to copy or otherwise
obtain and use our licensed services or technology without authorization, or to
develop and apply similar technology independently. In addition, effective
copyright, trademark, service mark and trade secret protection is very
expensive to maintain, may be unavailable or limited, and the global nature of
the markets in which we operate makes it practically impossible to control the
ultimate destination of our goods and products. Protection may not be available
in every country in which our intellectual property and technology is used.
Furthermore, we must also protect our trademarks, patents and domain names in
an increasing number of jurisdictions, a process that is expensive and may not
be successful in every location. Policing the unauthorized use of our licensed
technology is difficult as are the steps necessary to prevent the
misappropriation or infringement of our licensed technology. In addition,
further 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 cost to us,
divert our resources and have a material adverse effect on our business,
results of operations and financial condition.

We currently own, license, resell and distribute via sub-agents
intellectual property and technology from third parties. As we continue to
develop intellectual property and introduce new products and services that
require new technology, we anticipate that we may need to obtain licenses for
additional third party technology. We cannot provide assurance that these
existing and additional technology licenses will be or will continue to be
available to us on commercially reasonable terms, if at all. In addition, it is
possible that in the course of using new technology, we or our sub-agents may
inadvertently breach the technology rights of third parties and face liability
for our breach. Our inability to obtain these technology licenses or avoid
breaching third party technology rights could require us to obtain substitute
technologies of lower quality or performance standards or at greater cost which
could delay or compromise our introduction of new products and services, and
could materially and adversely affect our business and financial condition.

We are subject to possible infringement claims, which could be time consuming and costly to defend, divert managements attention and resources or cause product shipment delays

We expect that software product developers will increasingly be subject to
infringement claims as the number of products and competitors in our various
industry segments grow and the functionality of products in different industry
segments overlaps. Any such claims, with or without merit, could be time
consuming and costly to defend, divert managements attention and resources,
cause product shipment delays or require

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chinadotcom to enter into royalty or
licensing agreements. Such royalty or licensing agreements, if required, may
not be available on terms acceptable to us, if at all, and may require the
payment of substantial amounts of money. In the event of a successful product
infringement claim against us or its failure or inability to license the
infringed or similar technology, our business, operating results and financial
condition could be materially adversely affected.

We are exposed to product liability claims, which could be time consuming and costly to defend, divert managements attention and resources or cause product shipment delays

Our enterprise software license agreements with its customers typically
contain provisions designed to limit its exposure to potential product
liability claims. We carry insurance to protect
against such claims. It is possible, however, that the limitation of
liability provisions contained in our license agreements may not be effective
as a result of U.S. or foreign laws or ordinances enacted in the future or
because of judicial decisions, and that liability insurance may not be
available, or that coverage for specific claims may be denied. Although we
have not experienced any material product liability claims to date, our sale
and support of products may entail the risk of such claims. A successful
product liability claim brought against us could have a material adverse effect
upon its business, operating results and financial condition.

Defects in our enterprise software products could increase our costs, adversely affect our reputation, diminish demand for our products and hurt our operating results

As a result of their complexity, our enterprise software products may
contain undetected errors or viruses. Errors in new products or product
enhancements might not be detected until after initiating commercial shipments,
which could result in additional costs, delays, possible damage to our
reputation and could cause diminished demand for our products. This could lead
to customer dissatisfaction and reduce the opportunity to renew maintenance or
sell new licenses.

We rely on key personnel. In the event we lose the services of key employees, it may be costly and time consuming for us to locate other personnel with the required skills and experience.

Our success depends on the continued efforts of our board members, our
senior management and our technical, marketing and sales personnel. These
persons may terminate their association or employment with us, or they may be
terminated by us, at any time. We do not maintain key person life insurance
policies. Our loss of the services of key members of senior management or
experienced personnel in our key revenue producing businesses, or our inability
to attract or retain additional qualified board members, senior managers or
personnel in a timely manner, or health, family or other personal problems of
key personnel could have a material adverse effect on our business, financial
condition, results of operations and share price.

Our success also depends on our ability to attract and retain additional
highly qualified management, technical, marketing and sales personnel, although
there are no special personnel specific to IMI upon which we depend. The
process of hiring employees with the combination of skills and attributes
required to implement our business strategy can be extremely competitive and
time-consuming. We compete with more established companies with greater
resources that offer more attractive compensation or employment conditions for
a limited number of qualified individuals. As a result, we may be unable to
retain or integrate existing personnel or identify and hire additional
qualified personnel. Furthermore, our success depends upon our ability to
retain or replace the members, particularly the independent members, of our
Board of Directors.

We have relied on stock options to compensate our employees. In the event employees do not consider their options as valuable compensation, we may need to provide additional compensation at additional expense.

We have granted stock options to many of our employees in lieu of additional
salary. In August 2001 we cancelled approximately 1.2 million stock options,
and in February 2002 we issued 665,000 new stock options

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with an exercise price of US$2.87 per share pursuant to
our stock option program. However, there remain a significant number of
employees and all of our directors and executive officers who did not receive,
or were not eligible to participate to receive grants of new stock options who
continue to hold stock options that have strike prices that may be far above
our current share price. As a result, some of our employees may not consider
their options to be valuable compensation, and we may need to provide
additional compensation, in the form of additional salary, bonuses or equity,
in an effort to retain those existing employees. Our inability to retain our
employees, particularly our senior officers, and key sales, technical,
marketing and other service personnel in our key revenue producing businesses
could have a material adverse effect on our business, financial conditions,
results of operations and share price.

Risks Relating to our Class A Common Shares

Our share price could be adversely affected if our major strategic shareholders
materially change their holdings in our shares, particularly if the share
holdings are not disposed of in an orderly manner

As of September 30, 2003, Xinhua, through a wholly-owned subsidiary, owned
7,362,734 of our common shares, or approximately 7.4% of our total outstanding
share capital and has appointed one director to our board. If Xinhua does not
dispose of its shareholdings in an orderly manner, or if the market expects
Xinhua to dispose of additional shares, this could adversely affect our share
price, our business, and financial or other condition. During 2001, Xinhua
disposed of 1,411,600 shares of our shares reducing their ownership in our
shares from 9.1% as of December 31, 2000 to 7.4% as of March 31, 2003. There
is no guarantee that Xinhua will continue to hold our shares going forward for
any length of time.

On September 23, 2003, AOL Time Warner, or AOL, which previously held 6.8%
of our outstanding share capital, filed a Schedule 13G/A indicating that it
ceased to be one of our shareholders following the sale of its entire
shareholding in chinadotcom. In addition, in January 2003, New World
Infrastructure Limited ceased to be one of our shareholders following the sale
of its entire shareholding in the open market, as well as in privately
negotiated transactions with us, Asia Pacific Online Limited, or APOL, and its
chairman. In this transaction, in January 2003, New World Infrastructure
Limited and its wholly-owned subsidiary entered into a binding summary of terms
with APOL with respect to its entire holdings of 8,968,560 of chinadotcom
common shares. Under the summary of terms, New World agreed to sell 4.5
million shares to APOL at US$2.50 per share and provided APOL with a thirty day
option and right of first refusal to purchase the balance of the shares at
US$2.50 per share. APOLs option and right of first refusal on the balance of
the shares, however, was subordinated to a right granted to us to purchase such
shares at US$2.50 per share which right we elected to exercise. APOL assigned
the right to purchase 200,000 of its 4.5 million shares to Dr. Raymond Chien,
our Chairman. Later in January 2003, New World Infrastructure Limited executed
agreements with each of chinadotcom, APOL and Dr. Chien whereby we purchased
4,468,560 common shares. APOL purchased 4,300,000 common shares, and its
chairman purchased 200,000 common shares from New World Infrastructure Limited
in January 2003, respectively, each at a price per share of $2.50. APOL is
owned by the spouse of Mr. Peter Yip, our chief executive officer, and by a
trust established for the benefit of Mr. Yips children.

A small group of our existing shareholders control a significant percentage of
our common shares, and their interests may differ from other shareholders

APOL has beneficial ownership of approximately 19.0% of our common shares.
In addition, Xinhua, Capital Group International, Inc. and Jayhawk Capital
Management, L.L.C. have beneficial ownership of approximately 7.4%, 7.1% and
7.0% of our common shares, respectively.

Accordingly, these shareholders, particularly if they act together, will
have significant influence in determining the outcome of any corporate
transaction or other matter submitted to shareholders for approval, including:

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| |  |  | mergers, consolidations and other business combinations which
under the law of the Cayman Island requires the approval of at least
75% of the shares voting at the meeting;                  
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | election of directors which under the law of the Cayman Islands
requires the approval of a simple majority of the shares voting at the
meeting;                                              
|
| |  |  | removal of directors which under the law of the Cayman Islands
requires the approval of at least 66 2/3% of the shares voting at the
meeting; and                                            
|
| |  |  | amendments to chinadotcoms  memorandum and articles of
association which under the laws of the Cayman Islands requires the
approval of at least 66 2/3% of the shares voting at the meeting.

At the result, these shareholders, if they act together, may be able to
effectively prevent a merger, consolidation or other business combination,
prevent removal of a director and prevent amendments to our memorandum and
articles of association.

Our share price has been, and may continue to be, extremely volatile, which may
not be attractive to investors

The trading price of our common shares has been, and is likely to continue
to be, extremely volatile. During the period from July 12, 1999, the date we
completed our initial public offering, to December 31, 2002, the closing price
of our shares ranged from US$1.86 to US$73.4375, adjusted for our two stock
splits. From January 1, 2003 to December 31, 2003, the closing price of our
shares ranged from a low of US$2.73 per share on March 11, 2003 to a high of
US$14.46 per share on July 14, 2003. There is no assurance that our share price
will not fall below its historic or yearly low.

The trading price of our Class A Common Shares is subject to significant
volatility in response to, among other factors:



| |  |  | investor perceptions of our business, the market performance of our
peer companies in the Greater China portal business, and enterprise
software businesses in general;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | our significant acquisitions, partnerships, joint ventures or
capital commitments;                                                                                     
|
| |  |  | trends and developments in all the markets in which we compete;                                                                                                        
|
| |  |  | variations in our operating results;                                                                                                                                   
|
| |  |  | our new product or service offerings;                                                                                                                                  
|
| |  |  | changes in our financial estimates by securities analysts;                                                                                                             
|
| |  |  | technological innovations;                                                                                                                                             
|
| |  |  | litigation;                                                                                                                                                            
|
| |  |  | changes in pricing made by us, our competitors or providers of
alternative services;                                                                                   
|
| |  |  | the depth and liquidity of the market for our shares; and                                                                                                              
|
| |  |  | general economic and other factors.                                                                                                                                    

In addition, the trading price of our common shares has experienced extreme
price and volume fluctuations. These fluctuations often have been unrelated or
disproportionate to our operating performance. Broad market, political and
industry factors may also decrease the price of our common shares, regardless
of our operating performance. Securities class-action litigation and regulatory
investigations often have been instituted against companies following steep
declines in the market price of their securities.

We are currently the subject of a class action lawsuit with respect to its
initial public offering allocations which, if finally judicially determined
against us, could cause us to be liable for significant judgment awards.

We are currently the subject of multiple class action lawsuits with respect to
our initial public offering, or IPO, allocations. On June 26, 2003, the
plaintiffs in the consolidated initial public offering class action lawsuits

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currently pending against us and over 300 other issuers who went public between
1998 and 2000, announced a proposed settlement with us and the other issuer
defendants. The proposed settlement provides that the insurers of all settling
issuers will guarantee that the plaintiffs recover $1 billion from non-settling
defendants, including the investment banks that acted as underwriters in those
offerings. In the event that the plaintiffs do not recover $1 billion, the
insurers for the settling issuers will make up the difference. Under the
proposed settlement, the maximum amount that could be charged to our insurance
policy in the event that the plaintiffs recovered nothing from the investment
banks would be approximately $3.9 million. We believe that we have sufficient
insurance coverage to cover the maximum amount that it may be responsible for
under the proposed settlement. The independent members of our board of
directors approved the proposed settlement at a meeting held in June 2003. It
is possible, however, that the parties may not reach agreement on the final
settlement documents or that the federal district court may not approve the
settlement in whole or in part, in which event litigation could continue, and
we could be liable for significant judgment awards against us if a final
judgment is rendered against us. No provision has been made for any expenses
that might arise as a result of the class action lawsuits.

There can also be no assurance that we will not be subjected to additional
litigation of a similar form or type in the future. These class action
lawsuits and any future litigation or investigations, if initiated against us
would result in substantial costs and a diversion of its managements attention
and resources and could have a material adverse affect on our business, results
of operation, financial condition and share price.

We may incur significant costs to avoid being considered an investment company
under the Investment Company Act of 1940

We may incur significant costs and management time to avoid investment
company status under the Investment Company Act of 1940. Based upon an analysis
of our assets as at December 31, 2002 and income for the year 2002 and the
manner in which we intend to operate our business, we do not believe we will be
considered an investment company. The determination of whether we will be an
investment company will be based primarily upon the composition and value of
our assets, which are subject to change, particularly when market conditions
are volatile. As a result, we could inadvertently become an investment company
in the future. It is not feasible for us to be regulated as an investment
company because application of Investment Company Act regulations are
inconsistent with our strategy of actively managing, operating and promoting
collaboration among our businesses and network of strategic partners.

We are classified as a passive foreign investment company which will subject
our U.S. investors to adverse tax rules

Based upon an analysis of our assets as at December 31, 2002 and income
for the year 2002, during 2002, we were a passive foreign investment company,
or PFIC, for United States federal income tax purposes. We have substantial
passive assets in the form of cash and cash equivalents and treasury
instruments, and can provide no assurance that we will not continue to be
classified as a PFIC for 2003 or any future tax year. The determination of
whether we would continue to be a PFIC would be principally based upon:



| |  |  | the composition of our assets, including goodwill, the amount of
which will depend, in part, on our total net assets and the market
value of our Class A Common Shares, which is subject to change; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the amount and nature of our income from time to time.                                                                                                                                                 

We have limited control over these variables. To the extent we do have
control over these variables, we may take steps to reduce the material and
adverse effect that our PFIC classification may have on our business, financial
condition and results of operations.

Since we are a PFIC, U.S. investors will be subject to adverse United
States federal income tax consequences, see Item 10.E. of this Annual Report,
Additional Information  Taxation  Tax Consequences

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of U.S. Holders  Passive Foreign Investment Company Status. U.S.
investors are strongly urged to consult their own tax advisors regarding the
application of the PFIC rules to their particular circumstances.

The Nasdaq National Market may delist our common shares, and if we are delisted
there may not be an active trading market for our common shares

Our ability to remain listed on the Nasdaq National Market will depend on
our ability to satisfy applicable Nasdaq criteria including our ability to
maintain a minimum bid price of US$1.00. Since our initial public offering and
listing on Nasdaq in July 1999, the lowest closing price for our shares was
US$1.86 per share on July 23, 2002. On December 31, 2003, the closing price for
our shares was US$8.07 per share. If we are unable to continue to satisfy the
applicable Nasdaq listing criteria, Nasdaq may begin procedures to remove our
common shares from the Nasdaq National Market. If we are delisted from the
Nasdaq National Market, an active trading market for our common shares may no
longer exist and the price of our common shares will decrease.

Substantial amounts of our common shares are eligible for future sale, which
could adversely affect the market price of our shares

Sales of substantial amounts of our Class A Common Shares in the public
market could adversely affect the market price for our shares. As of December
31, 2002, we had 101,296,363 Class A Common Shares issued and outstanding,
substantially all of which may be sold pursuant to an effective registration
statement under the Securities Act or an applicable exemption from registration
thereunder, including Rule 144, which permits resales of securities subject to
limitations depending on the holding period of such securities.

In addition, as we continue to issue and register shares to fulfill our
contractual and acquisition-related obligations, and as our employees and other
grantees have been or are granted additional options and warrants to purchase
our shares, additional shares will be available-for-sale in the public market.
We have also granted options to certain of our shareholders, directors and
officers to purchase our shares, the vesting of which options may be
accelerated upon a change-of-control event occurring. As a result, additional
shares may be available-for-sale in the public market. The availability or
perceived availability of additional shares could have a dilutive and negative
impact on the market price of our shares.

In connection with AOLs strategic acquisition of 6,795,200 of our Class A
Common Shares prior to our initial public offering in July 1999, we granted AOL
two warrants to purchase up to 18.5% and 6.5% of our total outstanding capital
at an exercise price of US$5.00 per share and US$42.50 per share, respectively.
The first warrant has been exercisable since October 2000 and the second
warrant since July 2001. Both warrants will expire in July 2003. To the extent
that AOL exercises all or a significant portion of these warrants, our
shareholders will experience substantial dilution.

We have also issued other warrants, which may require that we issue
additional common shares. In the future, we also may issue additional shares,
or warrants to purchase our shares, in connection with acquisitions and our
efforts to expand our business. Shareholders could face further dilution from
our future share issuances.

Anti-takeover provisions in our charter documents may adversely affect the
rights of holders of our common shares

Our memorandum and articles of association include provisions that could
limit the ability of others to acquire control of chinadotcom, modify our
structure or cause us to engage in change-of-control transactions. These
provisions could have the effect of depriving shareholders of an opportunity to
sell their shares at a premium over prevailing market prices by discouraging
third parties from seeking to obtain control of chinadotcom in a tender offer
or similar transaction.

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For example, our Board of Directors is divided into three classes, each
having a term of three years, with the term of one class expiring each year.
This provision would delay the replacement of a majority of our directors and
would make changes to the Board of Directors more difficult than if such
provision was not in place. In addition, our Board of Directors has the
authority, without further action by our shareholders, to issue up to 5,000,000
preferred shares in one or more series and to fix their designations, powers,
preferences, privileges, and relative participating, optional or special rights
and the qualifications, limitations or restrictions, including dividend rights,
conversion rights, voting rights, terms of redemption and liquidation
preferences, any or all of which may be greater than the rights associated with
our Class A Common Shares. Our Board of Directors, without shareholder
approval, may issue preferred shares with voting, conversion or other rights
that could adversely affect the voting power and other rights of the holders of
our Class A Common Shares. Preferred shares could be issued quickly with terms
calculated to delay or prevent a change in control of chinadotcom or make
removal of management more difficult. If our Board of Directors issues
preferred shares, the price of our Class A Common Shares may fall and the
voting and other rights of the holders of our Class A Common Shares may be
adversely affected.

Our shareholders may face difficulties in protecting their interests because we
are incorporated under Cayman Islands law

Our corporate affairs are governed by our memorandum and articles of
association, by the Companies Law and the common law of the Cayman Islands. The
rights of shareholders to take action against our directors, actions by
minority shareholders and the fiduciary responsibilities of our directors under
Cayman Islands law are to a large extent governed by the common law of the
Cayman Islands. The common law in the Cayman Islands is derived in part from
comparatively limited judicial precedent in the Cayman Islands and from English
common law, the decisions of whose courts are of persuasive authority but are
not binding on a court in the Cayman Islands. Cayman Islands law in this area
may conflict with jurisdictions in the United States. As a result, our public
shareholders, may face more difficulties in protecting their interests in the
face of actions against the management, directors or our controlling
shareholders than would shareholders of a corporation incorporated in a
jurisdiction in the United States. For instance a class action lawsuit may not
be available to our shareholders as a vehicle for litigating securities matters
against us in the Cayman Islands. In addition, shareholder derivative actions
may generally not be brought by a minority shareholder in the Cayman Islands.

If you are not a registered shareholder and do not hold greater than 10,000
shares, you may not receive our proxy materials or other corporate
communications.

chinadotcom is a Cayman Islands company and as such, we only need to distribute
our proxy materials to its registered shareholders. Our proxy materials are
delivered to all of our registered shareholders. We offer electronic delivery
of proxy materials to our registered shareholders, and we mail proxy materials
to each registered owner who has not opted to receive materials electronically.
You are a registered shareholder if you have an account with our transfer
agent, The Bank of New York, and if you hold a stock certificate evidencing
your ownership of our common shares. Although we only need to distribute our
proxy materials to registered shareholders under Cayman Islands law, we also
distribute proxy materials to beneficial shareholders who hold greater than
10,000 of our shares. In an effort to maintain cost effectiveness, we have, and
will continue to, mail the proxy materials to those beneficial shareholders who
hold greater than 10,000 of our shares. You are a beneficial shareholder if a
brokerage firm, bank trustee or other agent holds your common shares, and your
name does not appear anywhere on our records. Rather, the name of the broker,
bank or other nominee appears on our records as retained by our transfer agent,
The Bank of New York. If you are not a registered shareholder and do not hold
greater than 10,000 of our shares, you may not receive our proxy materials or
other corporate communications. Therefore, if you are a beneficial shareholder
and want to ensure that you do receive proxy materials, you are urged to become
a registered owner. If you have questions on how to do so, we encourage you to
contact your broker or bank to find out how to do so and you may also contact
us.

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There is uncertainty as to our shareholders ability to enforce civil
liabilities in Australia, the Cayman Islands, Hong Kong, South Korea, the PRC
and Singapore

We are a Cayman Islands company and a substantial majority of our assets
are located outside the United States. A substantial portion of our current
operations is conducted in Australia, Hong Kong, South Korea, the PRC and
Singapore. In addition, a majority of our directors and officers are nationals
and/or residents of countries other than the United States. All or a
substantial portion of the assets of these persons are located outside the
United States. As a result, it may be difficult for you to effect service of
process within the United States upon these persons. In addition, there is
uncertainty as to whether the courts of Australia, the Cayman Islands, Hong
Kong, South Korea, the PRC, Singapore and other jurisdictions would recognize
or enforce judgments of United States courts obtained against us or such
persons predicated upon the civil liability provisions of the securities laws
of the United States or any state thereof, or be competent to hear original
actions brought in Australia, the Cayman Islands, Hong Kong, South Korea, the
PRC, Singapore or other jurisdictions against us or such persons predicated
upon the securities laws of the United States or any of its states.

Risks Relating to the Greater China and Asian Software, Consulting, Mobile Applications and Marketing Industries

The industries in which we compete are intensely competitive and volatile,
which could cause us to experience lower valuations, greater difficulty in
obtaining funding, reduced liquidity, risks of consolidation and litigation

The Greater China and Asian technology and internet markets encompassing
software, e-business consulting, mobile applications, internet portal and
marketing are characterized by intense competition. These markets in North
America, Asia and elsewhere have experienced marked downturns resulting in,
among other things, lower valuations, greater difficulty in obtaining funding,
increased consolidation, reduced liquidity, litigation and other structural
problems in these markets. As a result, our competitors may be able to better
position themselves to compete in our markets as they further consolidate,
deteriorate, change or mature.

In addition, many of our existing competitors, as well as a number of
potential new competitors, have longer operating histories in each of our
target markets, greater name recognition, larger customer bases and greater
financial, technical and marketing resources when compared to us. Any of our
present or future competitors may provide products and services that provide
significant performance, price, creative or other advantages over those offered
by us. We can provide no assurance that we will be able to compete successfully
against our current or future competitors, particularly as markets continue to
consolidate, deteriorate, change or mature.

e-business Solutions competition. Our competition for strategic expertise,
online marketing, technical solution delivery, and general business consultancy
problem solving skills include:



| |  |  | computer hardware and service vendors including International
Business Machines and Hewlett-Packard Company;                                                                         
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Internet integrators and Web site design and development companies
including Sapient Corporation, Digitas, Inc., Delirium Cybertouch
Corporation and Dimension Data Holdings Limited;
|
| |  |  | large information technology consulting service providers including
Accenture Ltd., Cambridge Technology Partners Inc. and Electronic
Data Systems Corporation; and                  
|
| |  |  | local service providers in an individual market.                                                                                                                                     

Many of these companies are well funded with long operating histories of
profitable performance. They possess a number of tangible strengths and
advantages including extensive client lists and large numbers of skilled staff,
complemented by well-established operating infrastructures. In addition to
this, market conditions

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are currently extremely challenging. Our revenue streams have been
volatile and despite the extended market downturn, the competitive threat has
still not evaporated and it remains challenging in most markets. This has
resulted in continued price pressure and an intensive level of competition in
these markets.

Enterprise software and sale of IT products competition.Our competition
in the market for a broad range of sophisticated business applications,
including B2B electronic commerce, procurement, collaborative planning,
financial, manufacturing, distribution, supply chain management, customer
relationship management and human resource management is varied and includes a
combination of international and local software providers. Our major
competitors include:



| |  |  | enterprise solutions software companies targeting mid-market
companies, including Scala Business Solutions NV, Systems Union
Group Inc., Exact Corporation, Microsoft Corporation, and local
providers such as FlexSystem Holdings Ltd., Kingdee International
Software Group Company Limited and UFSoft;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | human resources and payroll solution providers, including
PeopleSoft, Inc, SAP AG, and various local providers in Greater
China including Cityray Technology (China) Ltd. and UFSoft;                                                                                                                    
|
| |  |  | process manufacturing enterprise resource planning providers,
including JD Edwards & Company and QAD, Inc.;                                                                                                                                                                                              
|
| |  |  | large information technology consulting and outsourcing service
providers including Accenture Ltd., Cambridge Technology Partners
Inc., Electronic Data Systems Corporation, Wipro Ltd, and Infosys
Technologies;                                                                                        
|
| |  |  | customer relationship management providers including Sales Logics
and Siebel Systems, Inc.;                                                                                                                                                                                                              
|
| |  |  | various providers of internet portal and web content applications;
and                                                                                                                                                                                                                                   
|
| |  |  | providers of business intelligence solutions including Brio
Software, Inc., Business Objects SA and Cognos, Inc.                                                                                                                                                                                         

Many of these companies are well funded with long operating histories of
profitable performance. They possess a number of tangible strengths and
advantages, including high quality client lists and high numbers of highly
qualified staff, complemented by extensive operating infrastructures. The
principal competitive factors in the market for enterprise software application
software include product reputation, product functionality, performance,
quality of customer support, size of installed base, financial stability,
hardware and software platforms supported, price, and timeliness of
installation.

Advertising competition.With respect to our strategy of moving towards
higher margin database marketing related services, we anticipate that we will
compete with companies that have developed high quality data sets and related
products and services, such as The Dun & Bradstreet Corporation and Axciom.
With respect to our online advertising strategy, we compete with a variety of
Internet advertising networks, including DoubleClick, Inc. and BMC Software,
Inc., for the sale of advertisements to our network of advertising affiliates.

In our overall advertising business, we also compete with content
aggregators, companies engaged in advertising sales networks, advertising
agencies, and traditional advertising media including print, radio and
television.

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Portal competition.Our competition for user traffic, ease of use and
functionality include Chinese and/or English language based Web search and
retrieval companies, including Yahoo!, Inc., Lycos, Inc., Google, Inc.,
Overture Services, Inc., FindWhat.com, Sina Corporation, Netease.com, Inc.,
Sohu.com, Inc., Shanghai Online, ChinaByte, AltaVista Co., HotWired Ventures,
HotBot, Tom.com Ltd., Apple Daily, Mingpao.com, MSN and Netvigator.com.

We may also encounter increased competition from ISPs, Web site operators
and providers of Web browser software, including Netscape Communications
Corporation or Microsoft Corporation, that incorporate search and retrieval
features in their products. Our competitors may develop Web search, retrieval
services, freemail and community services that are equal or superior to those
we offer our users and may achieve greater market acceptance than our offerings
in the area of performance, ease of use and functionality.

Mobile applications competition.In April 2003, we entered the business of
providing mobile value added services through our acquisition of Newpalm. As we
pursue our strategy of growing our mobile applications business and generating
subscription revenues derived principally from providing value added SMS, we
anticipate that we will face competition for subscribers, applications and
content from competitors such as Sina Corporation, Sohu.com, Netease, Tom.com,
Tencent.com and Linktone Group, Inc., as well as a host of other smaller
companies that service the SMS market. We anticipate we will face intense
competition in this market as barriers to entry are low in certain areas of
this business. In addition, we cannot give assurances that the mobile network
operators in the PRC, including CMCC and Unicom, on whom we depend for
networks, gateways, billing systems and payment collection will not seek to
develop and launch competing services.

Outsourced software development and support services competition. In
February 2003, we acquired Praxa Limited which is seeking to develop a China
and India-based outsourcing platform which can offer clients outsourced
software application development and support services. As our business evolves
to place greater emphasis on outsourced software development and support
services, we will face competition from many of the large Asia Pacific-based
outsourcing firms such as Wipro Ltd and Infosys Technologies Ltd. While these
competitors have traditionally focused on servicing the US markets, due to
lower demand in the United States they have entered the English-speaking
markets in Asia (such as Australia, Singapore and Hong Kong) where we are
developing our markets.

Merger and acquisition competition.The significant slowdown in capital
markets activity over the past three years has resulted in an increased trend
of mergers and acquisitions as a means for companies to expand and realize
value. Across the Asia-Pacific region, many of our competitors have greater
financial and other resources and brand name recognition when compared to us.
These competitors may limit our ability to effect strategic acquisitions or
combinations, particularly as our markets consolidate further through local and
regional mergers and acquisitions. If we cannot merge or combine with or
acquire strategically significant companies on reasonable terms, our ability to
compete in our markets may be compromised.

Our entry into the PRC Internet market depends on the establishment of an
adequate telecommunications infrastructure in the PRC by the PRC government. In
the event of any disruption or failure, we may have no means of accessing
alternative networks or services which would adversely affect our business

Unlike Taiwan and Hong Kong, where the telecommunications infrastructure
is comparable to U.S. standards and where private companies compete as ISPs,
the telecommunications infrastructure in the PRC is not as well developed. In
addition, access to the Internet in the PRC is accomplished primarily by means
of the governments backbone of separate national interconnecting networks that
connect with the international gateway to the Internet. This gateway is owned
and operated by the PRC government and is the only means for the domestic PRC
Internet network to connect to the international Internet network. Although
private sector ISPs exist in the PRC, almost all access to the Internet is
accomplished through ChinaNet, the PRCs primary commercial network, which is
owned and operated by the PRC government. We rely on this backbone and

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China Telecom to provide data communications capacity primarily through
local telecommunications lines. As a result, we will continue to depend on the
PRC government to establish and maintain a reliable Internet infrastructure to
reach a broader base of Internet users in the PRC. We will have no means of
accessing alternative networks and services in the PRC, on a timely basis or at
all, in the event of any disruption or failure. There can be no assurance that
the Internet infrastructure in Greater China will support the demands
associated with continued growth. If the necessary infrastructure standards or
protocols or complementary products, services or facilities are not developed
by the PRC government, our business could be materially and adversely affected.

Political, Economic and Regulatory Risks

Increased Sino-U.S. political tension may make our company less attractive to
investors and clients and our Web sites more vulnerable to hacking and other
disruptions

The relationship between the United States and the PRC is subject to
sudden fluctuation and periodic tension. For example, relations may be
compromised if the U.S. becomes a more vocal advocate of Taiwan or proceeds to
sell certain military weapons and technology to Taiwan. Any weakening of
relations between the U.S. and the PRC could have a material adverse effect on
our business and could attract hacking or result in other disruptions to our
Web sites. Anti-U.S. or anti-PRC sentiment could make our company and our
shares less attractive since we are listed in the United States. In addition,
changes in political conditions in the PRC and changes in the state of
Sino-U.S. relations are difficult to predict and could adversely affect our
operations or cause the Greater China market to become less attractive to
investors and clients because of our relationship with Xinhua and AOL and
because we operate in the PRC.

The economic climate in Asia is volatile and vulnerable, which has affected and
may continue to affect, our business through declining spending levels by
customers, deferred or uncollectible accounts receivable, and restricted
ability to access lines of credit

Beginning in mid-1997, when the Thai baht first depreciated substantially,
many countries in Asia experienced significant economic downturns and related
difficulties. As a result of the decline in the value of the regions currencies, many Asian governments and companies had difficulties servicing
foreign currency-denominated debt and many corporate borrowers defaulted on
their payments. As the economic crisis spread across the region, governments
raised interest rates to defend their weakening currencies, which adversely
impacted domestic growth rates. In addition, liquidity was substantially
reduced as foreign investors curtailed investments in the region and domestic
banks restricted additional lending activity. The currency fluctuations, as
well as higher interest rates and other factors, have materially and adversely
affected the economies of a number of countries in Asia, many of which are
still recovering or have yet to recover.

Economic developments in countries outside Asia could materially and
adversely affect our business, results of operations and financial condition.
For example, the recent volatility of the U.S. stock market and the interest
rate environment, the downturn in the high-tech sector, and the slowdown of the
U.S. economy have had a negative impact on Asian markets. A further reduction
in exports and a further decrease in direct foreign investment could reduce
demand for our services, especially in those countries heavily dependent on
technology export sales from where we derive significant revenue.

The economic crisis and its effect on the Asian economies has had and may
continue to have an adverse impact on our business in the following respects:



| |  |  | spending levels by both Asian and international companies for
advertising in the Asian markets may continue to decline;
| | - |  | -----------------------------------------------------------------------------------------------------------------------
|
| |  |  | spending by companies in Asia for e-business Solutions may continue
to decline;                                        

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| |  |  | payments on our accounts receivable may be deferred and may become
more difficult to collect or uncollectable; and
| | - |  | ------------------------------------------------------------------------------------------------------------------
|
| |  |  | our ability to access lines of credit or other financing may be
restricted.                                       

Recently, general economic conditions in Asia have also been adversely
affected as a result of the outbreak of severe acute respiratory syndrome, or
SARS, which could have a material adverse effect on our business, financial
condition and results of operations.

There are economic risks associated with doing business in the countries in
which we primarily operate which could adversely affect our business

PRC. A significant part of our current revenues are, and a significant
part of our future revenues are expected to be, derived from the PRC market.
The PRC government has been reforming its economic system since the late 1970s.
The economy of the PRC has historically been a planned economy subject to
governmental plans and quotas and has, in certain aspects, been transitioning
to a more market-oriented economy. Although we believe the economic reform and
the macroeconomic measures adopted by the PRC government have had a positive
effect on the economic development of the PRC, we cannot predict the future
direction of these economic reforms or the effects these measures may have on
our business, financial position or results of operations. In addition, the PRC
economy differs from the economies of most countries belonging to the
Organization for Economic Cooperation and Development, or OECD. These
differences include:



| |  |  | economic structure;                            
| | - |  | -----------------------------------------------
|
| |  |  | level of government involvement in the economy;
|
| |  |  | level of development;                          
|
| |  |  | level of capital reinvestment;                 
|
| |  |  | control of foreign exchange;                   
|
| |  |  | growth rates;                                  
|
| |  |  | methods of allocation resources; and           
|
| |  |  | balance of payments position.                  

As a result of these differences, our business may not develop in the same
way or at the same rate as might be expected if the PRC economy were similar to
those of the OECD member countries. Changes in the PRCs  political, economic
and social conditions, adjustments in policies of the PRC government or changes
in the PRCs laws and regulations may adversely affect our results of
operations and financial condition.

The PRC economy has experienced significant growth in the past decade, but
this growth has been uneven across geographic and economic sectors and has
recently been slowing. There can be no assurance that such growth will not
continue to decrease or that any slow down will not have a negative effect on
our business.

Hong Kong. A significant part of our facilities and operations are
currently located in Hong Kong. Hong Kong is a Special Administrative Region of
the PRC with its own government and legislature. Hong Kong enjoys a high degree
of autonomy from the PRC under the principle of one country, two systems. We
can give no assurance that Hong Kong will continue to enjoy autonomy from the
PRC.

The Hong Kong dollar has remained relatively constant due to the U.S.
dollar peg and currency board system that has been in effect in Hong Kong since
1983. However, in early 1999, the Hong Kong dollar was subject to currency
speculation and the SAR government substantially supported the market for the
Hong Kong dollar, both directly and indirectly through the large-scale purchase
of securities listed on the Hong Kong Stock Exchange. We can give no assurance
that the historical currency peg of the Hong Kong dollar to the U.S. dollar
will be maintained. The historical currency peg could adversely affect our
business.

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South Korea.A significant part of our revenues are derived from the South
Korean market, although we expect such contribution to decline because our
South Korean online network advertising business has lost its exclusive service
agreement with Daum Communications, a leading South Korean portal company.

Since early 1997, a number of developments have adversely affected the
South Korean economy, resulting in severe economic contraction. Despite a
strong economic recovery following a severe economic recession from early 1997
to late 1998, our South Korean operations face significant risks because:



| |  |  | slow reform of the chaebol system presents a continuous risk to South
Koreas banking sector;
| | - |  | ---------------------------------------------------------------------------------------------
|
| |  |  | increased level of imports erodes positive trade balance and foreign
currency reserves; and  
|
| |  |  | an appreciating South Korean won threatens the competitive position of the
export sector.    

In addition, the reform program being implemented by the South Korean
government may:



| |  |  | restrict economic growth;                                                                               
| | - |  | --------------------------------------------------------------------------------------------------------
|
| |  |  | cause a budget deficit because of a decrease in tax revenues and an
increase in government expenditures;
|
| |  |  | increase the rate of inflation;                                                                         
|
| |  |  | increase the number of bankruptcies of South Korean companies; and                                      
|
| |  |  | increase unemployment.                                                                                  

Finally, relations with North Korea have been tense over most of Koreas
history. The level of tension between the two Koreas has fluctuated and may
increase or change abruptly as a result of current or future events. The
occurrence of these events could have a material adverse effect on our
business, results of operations and financial condition.

Australia.We anticipate that a more significant part of our future
revenues may be derived from the Australian market. The Australian dollar has
experienced some volatility against the US dollar. As of January 1, 2002, the
Australian dollar traded at US$1.00 = A$1.957, although it had appreciated to
US$1.00 = A$1.3001 as of January 15, 2004.

PRC regulation of content distributed on the Internet may adversely affect our
business

The PRC has enacted regulations governing Internet access and the
distribution of news and other information. The Ministry of Information
Industry or the MII has published implementing regulations that subject online
information providers to potential liability for content included on their
portals and the actions of subscribers and others using their systems,
including liability for violation of the PRC laws prohibiting the distribution
of content deemed to be socially destabilizing. Because many PRC laws,
regulations and legal requirements with regard to the Internet are relatively
new and untested, their interpretation and enforcement of what is deemed to be
socially destabilizing by PRC authorities may involve significant uncertainty.

Under the PRCs regulations on telecommunications and Internet information
services, Internet information service providers are prohibited from producing,
duplicating, releasing or distributing any information which falls within one
or more of nine stipulated categories of undesirable
content. These
categories cover any information which:



| |  |  | contravenes the basic principles enshrined in the PRC Constitution;                                         
| | - |  | ------------------------------------------------------------------------------------------------------------
|
| |  |  | endangers the security or unity of the State;                                                               
|
| |  |  | undermines the States religious policies;                                                                  
|
| |  |  | undermines public order or social stability; or                                                             
|
| |  |  | contains obscene, pornographic, violent or other illegal
content or information otherwise prohibited by law.

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In addition, the PRC legal system is a civil law system based on written
statutes. Unlike common law systems, it is a system in which decided legal
cases have little precedential value. As a result, it is difficult to determine
the type of content that may result in liability. We cannot predict the effect
of further developments in the PRC legal system, particularly with regard to
the Internet and the dissemination of news content, including the creation of
new laws, changes to existing laws or the interpretation or enforcement
thereof, or the pre-emption of local rules and regulations by national laws.

Violations or perceived violations of PRC laws arising from information
displayed, retrieved from or linked to our portals could result in significant
penalties, including a temporary or permanent cessation of our business in the
PRC. PRC government agencies have announced restrictions on the transmission of
state secrets through the Internet. State secrets have been broadly interpreted
by PRC governmental authorities in the past. We may be liable under these
pronouncements for content and materials posted or transmitted by users on our
message boards, virtual communities, chat rooms or e-mails. If the PRC
government were to take any action to limit or eliminate the distribution of
information through our portal network or to limit or regulate any current or
future applications available to users on our portal network, this action could
have a material adverse effect on our business, financial condition and results
of operations.

A change in currency exchange rates could increase our costs relative to our
revenues thereby potentially adversely affecting our financial condition,
results of operations and increasing market risk

Substantially all of our revenues, expenses and liabilities are
denominated in renminbi, Hong Kong dollars, South Korean won, US dollars and
Australian dollars. We also generate revenues, expenses and liabilities in
other currencies such as Singapore dollars, British pounds and New Taiwan
dollars. However, our quarterly and annual financial results are reported in US
dollars. In the future, we may also conduct business in additional foreign
countries and generate revenues, expenses and liabilities in other foreign
currencies. As a result, we are subject to the effects of exchange rate
fluctuations with respect to any of these currencies and the related interest
rate fluctuations. We have not entered into agreements or purchase instruments
to hedge our exchange rate risks although we may do so in the future.

Restrictions on currency exchange, the PRC may limit our ability to utilize our
revenues effectively to fund business activities outside the PRC, which could
result in increased costs for capital

Although PRC government policies were introduced in 1996 to allow greater
convertibility of the renminbi, significant restrictions still remain. We can
provide no assurance that the PRC regulatory authorities will not impose
greater restrictions on the convertibility of the renminbi. Because a
significant amount of our future revenues may be in the form of renminbi, any
future restrictions on currency exchanges may limit our ability to utilize
revenue generated in renminbi to fund our business activities outside the PRC.




ITEM 4. INFORMATION ON THE COMPANY



|A. |  | History and Development of the Company
|-- |  | --------------------------------------

We were incorporated in June 1997 as China Information Infrastructure
Limited, a company limited by shares under the Companies Law of the Cayman
Islands. Our principal executive offices are located at 34/F Citicorp Centre,
18 Whitfield Road, Causeway Bay, Hong Kong. Our contact telephone number in
Hong Kong is (852) 2893-8200 and in the United States is (212) 661-2160. We
have a website that you may access at http://www.corp.china.com/. Information
contained on our website does not constitute part of this Annual Report.

We were organized as a wholly-owned subsidiary of CIC. CIC Holding Limited
was incorporated in July 1996 and renamed China Internet Corporation Limited in
October 1996 to be the holding company for

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Yorking Limited, a Hong Kong corporation, renamed CUC Asia Limited in
November 1994 and renamed China Internet Corporation (Hong Kong) Limited, or
CIC-HK, in August 1995. Yorking Limited was incorporated in September 1994 to
provide computer-based information and communication services to businesses in
the PRC. In January 1998, CIC acquired a 51% controlling interest in The Web
Connection, a Hong Kong company that engages in e-business Solutions services,
in exchange for cash and shares of CIC for an aggregate consideration of
US$2.94 million.

CIC established chinadotcom to operate CICs Internet portal and related
businesses. Subsequent to the incorporation of chinadotcom, the board of
directors of CIC authorized the transfer of all material contracts that were
relevant to the business operations of chinadotcom from CIC and CIC-HK to
chinadotcom, as well as CICs equity and beneficial interests in the following
subsidiaries:



| |  |  | The Connection Group (BVI) Limited, also known as The Web
Connection and rebranded Ion Global (BVI) Ltd. in April 2001, is a
British Virgin Islands company that serves as the holding company for
our e-business Solutions subsidiaries;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | CIC (Shanghai) Company Limited, a PRC company that engages in
Web-based advertising sales in the PRC and serves as the holding
company for our other operations in the PRC; and                                                          
|
| |  |  | China.com Corporation Limited, a Hong Kong company.                                                                                                                                                                                      

The aggregate value of the assets transferred to chinadotcom was recorded
at a historical cost of US$12.7 million.

In June 1999, CIC distributed its entire interest in chinadotcom to CICs
shareholders. The transaction involved the distribution of a total of
46,975,972 Class A Common Shares to CICs shareholders on a one-for-one basis
with respect to each issued and outstanding share of CICs capital stock at the
time of the distribution. Upon completion of that transaction, CIC ceased to
have any ownership interest in chinadotcom. A wholly-owned subsidiary of Xinhua
and APOL provided a mutual right of first refusal to buy the other partys
shares of chinadotcom owned as of that time in the event either party sought to
dispose of its chinadotcom shareholdings. Additionally, APOL received rights to
place shares of chinadotcom owned by the Xinhua subsidiary to prospective
buyers on behalf of the Xinhua subsidiary in exchange for a commission. New
World Infrastructure Limited also provided a right of first refusal to a
wholly-owned subsidiary of Xinhua to buy its shares of chinadotcom in the event
New World Infrastructure Limited sought to dispose of its shareholdings in
chinadotcom.

In July 1999, we completed our IPO of the equivalent of 19,320,000 Class A
Common Shares on the Nasdaq National Market at the equivalent of a public
offering price of US$5.00 per share. All of the shares registered were sold and
net proceeds from the IPO totaled US$85.6 million.

On December 6, 1999, our shareholders approved a two-for-one share split
that became effective on December 13, 1999 and split the par value of our
shares to US$0.0005 per share.

In January 2000, we completed a second public offering of the equivalent
of 9,952,884 Class A Common Shares on the Nasdaq National Market at the
equivalent of a public offering price equal to US$42.50 per share. Of the
9,952,884 Class A Common Shares sold, 2,325,000 shares were offered by certain
of our shareholders. Then selling shareholders received an aggregate of US$94.1
million in net proceeds for their shares. All of the shares registered were
sold and net proceeds from the offering to chinadotcom totaled US$303.9
million.

In March 2000, we listed our then wholly-owned subsidiary hongkong.com
Corporation on the Growth Enterprise Market, or GEM, of the Hong Kong Stock
Exchange and received net proceeds of approximately US$168.5 million for
selling approximately 18% of hongkong.com Corporation. We currently continue to
own approximately 81% of hongkong.com Corporation.

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In April 2000, our shareholders approved the change of our company name
from China.com Corporation to chinadotcom corporation. On April 28, 2000, our
shareholders approved a further two-for-one share split that became effective
as of May 8, 2000 and split the par value of our shares to US$0.00025 per
share.

Our total capital expenditures amounted to US$29.2 million, US$8.3 million
and US$5.5 million in 2000, 2001 and 2002, respectively. The primary capital
expenditure in each of those years was the purchase of computers, servers and
network equipment, and other items related to the expansion of our business
network across the Asia Pacific, the United States and the United Kingdom.

We have recorded an operating loss in every year since our inception,
although we recorded net profits of US$1.2 million and US$1.3 million in the
fourth quarter of 2002 and first quarter of 2003, respectively. We have funded
our operations and capital expenditures entirely through funds raised from our
shareholders, including private rounds of financing prior to our IPO in July
1999 and a second public offering in January 2000, and interest income derived
from those funds. For the foreseeable future we anticipate that we will fund
our operations and capital expenditures primarily by applying the cash holdings
still available to us from the proceeds of our equity offerings.

Our principal divestitures in 2000 amounted to US$170.8 million, of which
our sale of 18% of hongkong.com Corporation in its IPO on GEM resulted in a one
time gain of US$140 million. We did not make any principal divestitures in
2001. In 2002, the following chinadotcom subsidiaries either ceased operations,
were liquidated or were disposed of, which resulted in a gain of approximately
US$1 million: 24/7 Media Singapore Pte Ltd, Ion Global (Taiwan) Ltd, Ion Global
(Australia) Pty Ltd, Shanghai Full-Time Internet Corporation, MEZZO Marketing
(Taiwan) Ltd, Pandora Interactive Studio Pte Ltd and Travellerzone Limited.

We spent approximately US$5.3 million in connection with two significant
acquisition and investment transactions during 2002. The following is a summary
of our material and strategic transactions which includes those in which we
either paid, committed or received consideration of US$5.0 million or more
during the course of such respective transactions. These transactions represent
our principal acquisitions and investments during 2002.

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|                                        |  |                                                    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--------------------------------------- |  | -------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                        |  | Acquisition,                                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Acquisition or partner                  |  | payment or                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|company                                 |  | partnership date                                   |  | Acquired or partner companys activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                        |  |                                                    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|URLs from CIC                           |  | Via tranches during
October 2001 and
February 2002 |  | We acquired from CIC the three URLs,
www.china.com, www.hongkong.com and
www.taiwan.com, and the related
intellectual property rights.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                       
|Layabo Pty. Limited                     |  | March 2002                                         |  | We acquired Layabo Pty. Limited (now
renamed Mezzo Business Databases Pty
Limited), an Australian database
marketing business and owner of the
trademark IncNet. With the acquisition
of Layabo Pty. Limited and the prior
acquisition of RNR International
Marketing Group (Australia) Pty Limited
in 2000, we are consolidating our
marketing business in Australia under
the MEZZO brand. We believe that the
acquisition of the IncNet trademark is
an important step in re-orienting our
advertising strategy from online sales
of banner advertisements, direct
mailing and sponsorships to higher
margin database marketing related
services utilizing data mining
techniques to develop targeted
campaigns for clients.                   
|                                       
|OpusOne Technologies
International Inc. |  | March 2002                                         |  | We acquired a majority interest in
OpusOne Technologies International
Inc., the parent of Platinum China
Holdings, Inc., a developer and service
provider of business management
software solutions for state
enterprises and multi-national
corporations in Greater China. In May
2003, we entered into an agreement to
purchase the remaining interest in
OpusOne Technologies that we did not
otherwise already own. We expect the
transaction to close later in 2003.                                                                                                                                                                                                                                                                         
|                                       
|Sagent Technology, Inc.                 |  | October 2002                                       |  | We entered into US$7 million
transaction with Sagent, a provider of
enterprise business intelligence
solutions, involving an asset-based
senior secured loan with warrants for
Sagent with a view to developing
operational initiatives going forward.
In March 2003, based upon the
occurrence of what we viewed to be
certain events of default under the
loan, we exercised our rights as a
secured lender to enforce our security
interest in certain loan collateral and
filed a claim for damages against
Sagent. In April 2003, we reached a
settlement with Sagent pursuant to
which our loan was repaid in full, and
in addition we received an agreed upon
sum in respect of terminated warrants
and other rights we had in the company.

Certain Recent Developments

The following is a summary of our material and strategic acquisitions and
investments completed since December 31, 2002 which includes those in which we
paid, committed or received consideration of US$5.0 million or more during the
course of each transaction:

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|                                                 |  |                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------------------------------------------------ |  | ---------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                 |  | Acquisition,     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Acquisition or partner                           |  | payment or       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|company                                          |  | partnership date |  | Acquired or partner companys activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                 |  |                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Praxa Limited                                    |  | February 2003    |  | Our subsidiary, CDC Australia Limited,
completed the acquisition of Praxa, a
leading Australian information
technology professional services
organization with a 21-year operating
history. The acquisition was completed
for a purchase price of up to A$11
million (approximately US$6.4 million),
subject to clawback provisions based on
future performance.                                                                                                                                                                                                                           
|                                                
|Newpalm (China) Information
Technology Co., Ltd. |  | April 2003       |  | We completed the acquisition of
Newpalm, a leading short message
service mobile software platform
developer and application service
provider in China, through our mobile
applications and portal arm and 81%
owned subsidiary, hongkong.com
Corporation. Cash consideration of
US$14 million was paid with the
remaining consideration to be paid on
an earn-out basis over the next two
years.                                                                                                                                                                                           
|                                                
|vMoksha Technologies Limited                     |  | May 2003         |  | Our wholly-owned subsidiary, CDC
Outsourcing Holdings Ltd., entered into
a 51% owned joint venture agreement
with vMoksha Technologies Limited, an
information technology outsourcing
company headquartered in Bangalore,
India. The joint venture aims to
provide a broad range of outsourcing
related services to major software
vendors and enterprises in the United
States, Europe and the Asia-Pacific
region. We expect the transaction to
close later in 2003.                                                                                                                     
|                                                
|PK Information Systems                           |  | August 2003      |  | Our wholly-owned subsidiary, CDC
Australia Ltd., acquired PK Information
Systems, an established IT services
business in Australia which has
specialized capabilities in the areas
of .Net application development and
business intelligence solutions, with
clients mainly in the New South Wales
state government sector.                                                                                                                                                                                                                                                                
|                                                
|Industri-Matematik
International Corp.           |  | September 2003   |  | We acquired a 51% stake in the holding
company of IMI, an international
provider of software to the supply
chain management sector principally
across Europe and the United States.
The acquisition of the controlling
stake in IMI was made through the
formation of a joint venture between
chinadotcoms CDC Software unit, which
holds a 51% interest, and Symphony
Technology Group, a Palo Alto,
California-based venture capital
company which holds the remaining 49%
interest.                                                                                                    
|                                                
|Pivotal Corporation
(pending)                    |  | December 2003    |  | We announced that we had entered into a
definitive agreement to acquire Pivotal by way of either an all-cash or a
cash-and-stock transaction. Pivotal is
a leading international customer
relationship management company that
provides a complete set of highly
flexible customer relationship
management applications and
implementation services for mid-sized
enterprises, with over 1,600 clients
worldwide. The transaction with
Pivotal is subject to the final
approval by Pivotals shareholders, as
well as regulatory approval and
satisfaction of customary closing
conditions.

As of May 31, 2003, the following chinadotcom subsidiaries had either
ceased operations, were liquidated or were disposed of: Netville Co. Ltd, Dai
Job.com Inc., eIndia and e2e Business Solutions Limited.

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|B. |  | Business Overview
|-- |  | -----------------

We are a leading enterprise software and solutions company offering the
following services for companies throughout Greater China and the Asia-Pacific
region, the United States and the United Kingdom:



| |  |  | Technology, including implementation and development of packaged
enterprise software targeting mid-market manufacturers;                                                                     
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Outsourcing, including offering economical, high-quality software
development services to our enterprise software customer base
utilizing programmers located principally in China and India;
|
| |  |  | Marketing, including developing targeted advertising campaigns
utilizing information gathered from chinadotcoms proprietary
databases; and                                                  
|
| |  |  | Mobile Applications Services, including offering value added
short messaging services to mobile phone subscribers in China.                                                                  

Our enterprise software business focuses on key industry groups including
manufacturing for export, finance and travel, and in key business areas,
including supply chain management, human resource and payroll administration
and customer relationship management. We aim to leverage our expertise in its
core business areas through alliances and partnerships to help drive
innovative client solutions. We currently have operations in more than 10
markets internationally, with over 1,000 employees.

We established a separate software unit, CDC Software Holdings Limited, or
CDC Software, in 2002 as a part of our strategy to move up the value curve in
the software services and products area. CDC Software focuses on building our
intellectual property asset base, establishing partnerships with software
vendors and broadening our overall software product offerings in the areas of
enterprise solutions and integration. We may pursue CDC Softwares strategy
through acquisitions, strategic partnerships, joint ventures, consolidation of
our software assets and restructurings or combinations of the foregoing
approaches. CDC Software currently has over 1,000 installations and 600
customers in the Asia Pacific region. By integrating our software services and
products with our e-business Solutions services, mobile application services,
and our media assets network, we offer a comprehensive suite of software and
Internet-based products, services and solutions to a diverse clientele of
Web-based and other enterprises, Internet users and mobile SMS and applications
users.

We have also invested in Internet and related technology and software
companies in the pan-Asian region and the United States that we believe add
value and depth to our business. We plan to manage our investments actively to
enhance our strategic relationships with partners in new technology areas and
provide original content for our media assets. In addition, during 2002 we
completed the purchase of the three Internet domain names, or URLs,
www.china.com, www.hongkong.com and www.taiwan.com, and related intellectual
property rights, which we consider fundamental to the core foundation of our
overall operations.

We believe that our synergistic, multiple business-line structure, in
tandem with our geographical diversity across ten markets in the Asia Pacific
region as well as the United States and the United Kingdom, has enabled us to
better weather the volatile economic and market turbulence of the past two
years. Despite significant restructuring and downsizing during 2001 and 2002,
we have maintained our overall scope of service in all areas with the exception
of the online network advertising business, which by the end of 2002 had been
reduced to the South Korean market.

We have also established CDC Outsourcing, which allows for elements of
workflow such as client and project management to be provided in the contracted
country, including the United Kingdom, the United States or Australia, with
technology and applications sourced from either of chinadotcoms low-cost,
industry standard CMM-certified, or Capability Maturity Model, outsourcing
centers in China or India. In May 2003, CDC

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Outsourcing announced a 51%-49% joint venture with vMoksha Technologies,
or vMoksha, an offshore IT outsourcing company headquartered in Bangalore,
India that has experienced recent growth. The intent of this joint venture is
to provide a broad range of outsourcing related services to major software
vendors and enterprises in the United States, Europe and the Asia-Pacific
region. CDC Outsourcing has sales and marketing offices in the United States,
the United Kingdom and Australia, while its offshore development will be
focused on India and China.

In February 2003, we completed the acquisition of Praxa Limited, or Praxa,
an Australian IT outsourcing and professional services organization, focusing
on the development of relationships with large organizations that have a need
for outsourced application development, management and maintenance. Since
Praxas incorporation, it has established a client base consisting mainly of
large enterprises and government agencies in Australia. In addition,
chinadotcom anticipates that Praxa will provide a distribution platform for
chinadotcoms self-developed software products as well as for the range of
software solutions that chinadotcom currently delivers across the Asia-Pacific
region.

In our Mobile and Portals unit, we operate news, email and consumer
service portal Web sites in China, Hong Kong and Taiwan. Through the recent
acquisition of Newpalm (China) Information Technology Co. Ltd., or Newpalm,. we
offer consumer-based and enterprise-based short message service, or SMS, and
mobile application software development services. As of June 2003, Newpalm had
over 4.4 million paid subscriptions in China on a platform that works on both
the CDMA and GSM systems, with connectivity and service agreements with local
mobile network operators in 26 provinces.

We have also invested in Internet and related technology and software
companies in the pan-Asian region and the United States that we believe add
value and depth to our business. We plan to manage our investments actively to
enhance our strategic relationships with partners in new technology areas and
provide original content for its media assets. In addition, during 2002 we
completed the purchase of the three Internet domain names, or URLs,
www.china.com, www.hongkong.com and www.taiwan.com, and related intellectual
property rights, which we consider fundamental to our portal operations. We
believe that our synergistic, multiple business-line structure, in tandem with
our geographical diversity across ten markets in the Asia-Pacific region as
well as the United States and the United Kingdom, has enabled us to better
weather the volatile economic and market turbulence of the past three years.
By integrating our software services and products with our e-Business
consulting services services, mobile application services and our media assets
network, we offer a comprehensive suite of software and Internet-based
products, services and solutions to a diverse clientele of Web-based and other
enterprises, Internet users and mobile SMS and application users. Despite
significant restructuring and downsizing during 2001 and 2002, we have
maintained our overall scope of service in all areas with the exception of the
online network advertising business, which by the end of 2002 had been reduced
to only the South Korean market.

Subsequent to the year ending December 31, 2002, due to changes in our
business model and our shift to enterprise software and related services, in
order to present our revenue in a more representative format, we changed our
business segmental reporting from e-business Solutions, Advertising, Sale
of IT Products and Other Income to Software and Consulting Services,
Advertising and Marketing Activities and Other Income, respectively,
effective from January 1, 2003. From the first quarter of 2003 onwards, all
prior periods comparative figures will be adjusted accordingly.

e-business Solutions services

Revenue contributed by e-business Solutions services constituted US$61.3
million or approximately 56% of our total revenues in 2000, US$32.6 million or
approximately 51% of our total revenues in 2001 and US$23.0 million or
approximately 39% of our total revenues in 2002. Because we have been evolving
our business model to a provider of enterprise software and related support
services, revenues for e-business Solutions in 2002 included a portion of the
revenues we will be characterizing as software and consulting

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services in future periods. Software and consulting services will
include fees for professional services provided after the sale of the
enterprise software product, as well as revenues for consulting services,
training and post-contract support.

e-business Solutions services are primarily offered through our Ion Global
unit. Ion Global is engaged in planning, architecting, and delivering
e-business Solutions for both Fortune 500 multinational corporations and blue
chip pan-Asian clients. We typically assist our clients with the adoption of
web-based technologies to help them improve their customer relationship
management, enterprise application integration, and/or supply chain management.
We focus on helping clients deploy web-based initiatives to either lower costs,
increase sales, or increase efficiency. The industries with which we have the
most experience are financial services, automotive, travel and transportation,
government and consumer goods.

Our e-business Solutions business is organized around four core
competencies that, when combined, provide end-to-end Internet integration
services for our clients on a global basis across our offices in seven
countries. These competencies are:



| |  |  | strategy;       
| | - |  | ----------------
|
| |  |  | user experience;
|
| |  |  | marketing; and  
|
| |  |  | technology.     

Geographically, we are mainly focused on the major markets of Asia,
including Tokyo, Seoul, Beijing, Shanghai, Hong Kong and Singapore. We also
have offices in San Francisco, New Jersey and London. While these non-Asian
offices service many local clients in their own markets, we believe our global
presence enables us to better understand the issues and develop solutions for
our clients in both local and international contexts, and enables us to price
our services more competitively. For example, in our contract with the United
Kingdom Department of Trade and Industry, work was performed by both our London
and Shanghai offices, and we were able to leverage the synergies of having
offices worldwide. During 2002, however, we closed local offices of Ion Global
in Sydney and Taiwan because competition made it unprofitable to maintain
offices in these markets. In addition, during 2003 our e2e business unit ceased
operations as it continued to incur losses during the course of 2002 and in
early 2003.

Our e-business Solutions clients include many of the worlds leading
companies such as Adecco Temporary Staffing Services, BMW South Korea, Cathay
Pacific, Citibank, Daimler-Chrysler, Emirate Airlines, General Motors, Haier,
Hilton International, Hisense, Johnson & Johnson, KTF (Korea
Telecoms wireless
services arm), LG Insurance, LOreal, Northwest Airlines, Panasonic China,
Samsung Electronics, Sony, Steelcase and Wells Fargo. Clients also include
governmental agencies such as the Hong Kong Housing Authority, the United
Kingdom Department of Trade and Industry and the United Kingdom Department of
Land Registry.

The e-business Solutions market remains highly challenging and has become
increasingly competitive. Our revenue streams are largely dependent upon new
contracts and, as such, are highly volatile. We believe that a significant
source of competition comes from large Asia Pacific-based outsourcing firms
such as Wipro Ltd and Infosys Technologies Ltd that had previously focused on
servicing the U.S. markets but have recently entered the English-speaking
markets in Asia such as Australia, Singapore and Hong Kong. We are seeking to
address these competitive issues with our own outsourced software development
that we are building through our acquisition of Praxa Limited which is seeking
to develop a low cost outsourcing platform in the PRC and India, and our
prospective joint venture with vMoksha Technologies Limited, an information
technology outsourcing company based in India.

Advertising and e-marketing services

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Revenue contributed by our Internet advertising and e-marketing services
constituted US$43.8 million or approximately 40% of our total revenues in 2000,
US$21.4 million or approximately 33% of our total revenues in 2001 and US$28.3
million or approximately 48% of our total revenues in 2002.

We are seeking to re-orient our advertising strategy from online sales of
banner advertisements, direct mailing and sponsorships in which we deliver
advertising for a fixed fee based upon short-term advertising dependent upon
high volume to more higher margin database marketing related services utilizing
data mining techniques to develop targeted campaigns for clients. In September
2001, we launched a new brand for our advertising and e-marketing business,
MEZZO Marketing, to encompass all of our advertising segments, including online
advertising, online direct marketing, offline direct marketing, database
marketing related services utilizing data mining techniques, and other
marketing opportunities as they arise.

As an important part of our strategy to begin focus on high-value
advertising services, we acquired Layabo Pty. Limited (now renamed Mezzo
Business Databases Pty Limited), an Australian database marketing business and
owner of the trademark IncNet, in March 2002. With the acquisition of Layabo
Pty. Limited and the prior acquisition of RNR International Marketing Group
(Australia) Pty Limited in 2000, we are consolidating our marketing business in
Australia under the MEZZO brand. Layabo Pty. Limited and RNR International
Marketing Group (Australia) Pty Limited have co-located their operations, and
are in the process of integrating their respective database marketing and
related marketing services activities. Following the acquisition of Layabo Pty.
Limited, MEZZO Interactive Pty Limited discontinued its online advertising
activities in the Australian market, and now focuses on growing its database
marketing business in the areas of traditional direct marketing and e-mail
marketing utilizing data mining techniques. Data mining involves a process of
analyzing significant amounts of data to uncover patterns and relationships,
and has become a more important part of customer relationship management as a
method to better understand customer behavior and preferences. While these
services constituted only a very small part of our advertising revenues during
2002, we believe they will represent an increasing proportion in future
periods, although this business is subject to many risks. See Item 3.D. of this
Annual Report, Key Information  Risk Factors  Risks
relating to chinadotcom  Although we expect to generate revenue from advertising in the future, this
revenue may not be substantial.

During 2002, because of low margins, we significantly reduced our
operations in Internet advertising and e-marketing services that involve the
planning, sales, electronic delivery, tracking and post-campaign analysis of
advertisements on a network of Web sites. While our operations have ceased in
Australia, Hong Kong, Japan, the PRC, Singapore and Taiwan, we continue to
maintain a presence in this sector in South Korea. However, we expect our South
Korean online network advertising business will also contract following the
loss of our exclusive service agreement with Daum Communications, a leading
South Korean portal company.

Portal services and other media assets

Our portal services and other media assets deliver content, create
community and enable commerce across Asia including Greater China. The
financial results of these services and assets are reflected primarily in the
Advertising revenue segment for 2002.

Each of our Web sites is a portal that acts as a gateway to the Internet.
We have been developing our portal network since our inception in June 1997.
Our portal network currently provides users with Chinese versions of Greater
China content services, online community products, and e-commerce services, and
an English version for Hong Kong through our portals located at www.china.com,
www.hongkong.com and www.taiwan.com. Each of our portals offers a unique blend
of:



| |  |  | content delivery services such as search engines, directories
and localized information;                
| | - |  | --------------------------------------------------------------------------------------------------------
|
| |  |  | community products such as e-mail, SMS, web-hosting,
newsletters, chat and message boards; and          
|
| |  |  | e-commerce products such as an online shopping mall and online
subscription based products and services.

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With the acquisition in April 2003 of Newpalm, a leading SMS mobile
software platform developer and application service provider in China, we are
seeking to grow our mobile applications business and generate additional
subscription-based revenues over the long term. Growth in the SMS market could
generate subscription revenues from value added SMS, such as mobile chatting,
dating and friends matching, e-mail, ringtone and logo downloads and other
related mobile phone products. Subscription fees are charged on a monthly or
per message basis. Pursuant to contractual arrangements between Newpalm and a
number of mobile network operators in China which are subsidiaries of CMCC and
Unicom, we will be relying on the operators for billing and collection of
subscription fees. We pay service fees that range from approximately 10% to 50%
of the subscription fees, and are based on contracted rates. Generally,



| |  |  | within 15 to 90 days after the end of each month, Newpalm
receives a statement from CMCC and Unicom confirming the amount of
subscription charges billed to that operators mobile phone users;
and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | within 30 to 120 days after delivering a monthly statement to
Newpalm, each operator remits the subscription fees, net of its
service fees, to Newpalm.                                            

Sale of IT products and other services

During 2002, our e-business Solutions and Advertising business units also
conducted a certain proportion of business involving the sale of hardware and
software products. The bulk of these revenues reflected the sale of third party
products including software packages from various software vendors. Because we
have been evolving our business model to a provider of enterprise software and
related support services, revenues for sale of IT products and other services
included a portion of the revenues we will be characterizing as Software and
Consulting Services in future periods. Software and Consulting Services will
also include sales and licensing fees from distributing the business
applications of a number of software companies to the Greater China and Asia
market, including content management, portal solutions, financial accounting
applications, process manufacturing applications and enterprise resource
planning applications.

Software and other investment initiatives

As part of our strategy to increase our overall gross profit margins and
our percentage of recurrent or annuity-style revenues, we are introducing
world class software applications to the Greater China market through master
distributorship and value-added reseller arrangements and looking to acquire or
develop proprietary intellectual property.

We established CDC Software in 2002 to provide the sales, marketing,
support and localized infrastructure necessary to enter into a master
distributorship and value-added reseller arrangements. CDC Software has since
entered into master distributorship arrangements with a number of software
companies to distribute business applications to the Greater China market,
including arrangements with Vignette to distribute content management and
portal solutions, Best Software to distribute financial accounting and process
manufacturing applications and Ross Software to distribute enterprise software
applications to process manufacturers. We believe the formation of CDC Software
is an important step in our strategy to become a provider of enterprise
software and related support services and outsourced software development and
support services.

In March 2002, we acquired a majority stake in OpusOne Technologies
International Inc., a leading provider of business management software
solutions in the PRC. In May 2003, we entered into agreement to purchase the
remaining interest in OpusOne Technologies that we did not otherwise already
own. [We expect the transaction to close later in 2003.] We believe the
acquisition of OpusOne Technologies allows us to more quickly enter and gain
experience in the enterprise software market because it has developed several
proprietary enterprise software related applications, including PowerHRP which
is used in human resources and payroll

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administration, PowerATS which is an attendance tracking system, PowerESS
which is a Web based employee self service application, and PowerBooks which is
a financial accounting application. Furthermore, the acquisition of OpusOne
Technologies also enhanced our intellectual property portfolio. After
establishing CDC Software, the proprietary enterprise software related
applications of OpusOne Technologies have become part of CDC Software.

In February 2003, we acquired Praxa Limited, an established company in
Australia which specializes in the provision of information technology products
and services in the form of outsourcing, application development and support,
and system integration in Australia. As a result of the Praxa acquisition, we
expect to increase the number of potential clients for a low-cost PRC and
India-based outsourcing platform. Praxa is also seeking to develop and to
extend the distribution of our own software products into the Australian
marketplace.

Treasury management

As of December 31, 2002, we had generated a significant portion of our
interest income from our investment of US$471.2 million, of which US$125.0
million was borrowed under our repurchase facilities, in AAA US Agency debt
securities. For further information on our repurchase facilities and their
related risks, see Item 5.B of this Annual Report, Operating and Financial
Review and Prospects  Liquidity and Capital Resourcesand Item 11 of this
Annual Report, Quantitative and Qualitative Disclosures About Market Risk,
respectively.Our interest income, which was US$23.9 million for 2002,
partially offset our operating losses and is a source of liquidity for our
working capital needs. The prolonged period of low interest rates in 2002
presented us with the opportunity to continue executing our strategy of
reducing our investments in long-term debt and transitioning to shorter-term,
callable debt in our anticipation of rising interest rates. We decreased our
holdings in long-term Range Accrual Notes from US$260.0 million as at January
1, 2002 to US$62.0 million as of December 31, 2002. As of June 5, 2003, we had
eliminated all of our holdings of Range Accrual Notes.

Our quarterly interest income ranged from approximately US$3.9 million to
US$7.3 million during 2002, reflecting a yield of approximately 4.8% on our
total investment portfolio of US$471.2 million (on a net basis which accounts
for the assets and drawdowns relating to the repurchase facility), prior to any
unrealized or realized gains or losses from the sale and reinvestment of any of
the securities within our portfolio. Yield was approximately 7% in 2001. The
drop in yield was due to lower cash levels in 2002, declining interest rates,
the implementation of a more conservative investment strategy of buying more
highly rated securities for our investment portfolio and a decrease in our
holdings of long-term Range Accrual Notes. Yields have dropped further thus far
in 2003 due to ongoing interest rate reductions and the continued move into
lower yielding but higher credit rating securities.

We invest on the basis of recommendations from international investment
banks, as well as information and ratings provided by independent ratings
agencies including Moodys Investors Service and Standard &
Poors. When purchasing or selling debt securities, our policy is to obtain between three
and five competing quotes. Generally, a debt securitys credit quality depends
on the issuers ability to pay interest on the amount borrowed and repay
principal. The lower the credit rating, the greater the risk the issuer will
default or fail to meet their payment obligations, as determined by the rating
agency. Our investment parameters became more conservative in 2002 as we
shifted our investment portfolio from lower rated debt to AAA-rated debt
securities of U.S. government sponsored enterprises, such as the Federal Home
Loan Bank, or FHLB. Our desire to improve the overall credit quality of our
portfolio was due to the economic and political instability of 2002. As of
April 30, 2003, 93.3% of our debt securities are invested in AAA-rated callable
securities of U.S. government sponsored enterprises, excluding cash not yet
invested. At present, we hold only one security that is rated lower than AAA.
In the event of a downgrade in an investment to below BBB-, as rated by
Standard & Poors, or Baa3, as rated by Moodys Investors Service, we will
generally implement an orderly sale of the security in order to maintain a
relatively conservative stance in our portfolio, although on a case-by-case
basis we may decide to retain such debt securities. For a summary of the
effects of our treasury management program on our liquidity and capital
resources and its material market risks, see Item 3.D. of this Annual Report,
Key

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Information  Risk Factors  Risks relating to chinadotcom  Attempts to
enhance our treasury yield have caused us to increase leverage and may expose
us to various market risksand  We rely on our internal control systems to
effectively manage our treasury management operations, Item 5.B of this Annual
Report, Operating and Financial Review and Prospects  Liquidity and Capital
Resourcesand Item 11 of this Annual Report, Quantitative and Qualitative
Disclosures About Market Risk.

Goals and Strategy

We have historically operated as a pan-Asian integrated Internet company
with our business model centered around our e-business Solutions and
advertising businesses, including e-marketing services, portal services and
other media. Our business model is evolving from a pan-Asian Internet company
to a provider of enterprise software and related support services, outsourced
software development and support services, and mobile applications and portal
services to end users. Our goal is to be a leading integrated enterprise
solutions company offering technology, marketing and media services for
companies and end users throughout Greater China and the Asia-Pacific region,
the United States and the United Kingdom. In light of the challenging
environment in which our businesses operate, we have been and intend to be
flexible in fulfilling our goal. With operations in ten markets, the companies
under the chinadotcom group have extensive experience in several industry
groups including finance, travel and manufacturing, and in key business areas,
including e-business strategy, packaged software implementation, marketing,
supply chain management and mobile applications. We seek to leverage our
expertise in these areas with alliances and partnerships to help develop
innovative client solutions. We seek to become the consultant of choice in
providing e-business Solutions services to corporations exploring
Asias Internet market as part of their business strategy and seek to offer premier
portal services for Greater China and selected markets in Asia.

Furthermore, we are increasingly seeking to invest in, acquire and develop
technology solutions and companies that add value and depth to our products and
services, as part of our software and outsourcing strategy. In the post-WTO
era, we believe we can capitalize on opportunities in China as enterprises
upgrade networks and systems to international standards. We have acquired
software products and services with a development center in the PRC during the
course of 2002, and have signed various master distribution agreements and
value-added reseller agreements with international software companies to expand
our channel partnership network. We also recently acquired Praxa Limited, an
established company in Australia which specializes in the provision of
information technology products and services in the form of outsourcing,
application development and support, and system integration in Australia. As a
result of the Praxa acquisition, we expect to increase the number of potential
clients for a low-cost China and India-based outsourcing platform it is seeking
to develop and to extend the distribution of our own software products into the
Australian marketplace.

During the course of 2002 we began to exit the low-margin, non-performing
online network advertising business. As of May 31, 2003, we only maintain a
presence in this sector in South Korea, and we expect the significance of our
South Korean online network advertising business will decrease substantially as
our software products, services and consulting revenues increase. We will
maintain our higher-margin online marketing business, and we will focus on
proprietary marketing and data mining services using our existing Australian
marketing assets. Our current strategy involves developing and enhancing our
existing proprietary marketing databases, extending into recurring subscription
based data services and solidifying our existing sales channel relationships.

In our portal operations, we have managed expenses broadly in line with
revenues, and we are focusing on improving the contribution from
non-advertising revenues. We are also exploring initiatives that include the
potential introduction of games and SMS-related content. Our acquisition of
Newpalm in April 2003 represents a first step into the market for mobile
applications services using SMS-related content.

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We believe the Greater China and Asian markets, and Chinese language users
globally, represent three of the largest and fastest growing user groups on the
Web today. As the Internet gains broader acceptance as a new business medium in
Greater China and Asia, we believe online advertising and e-commerce will also
experience significant growth. To capitalize on this opportunity, our business
strategy is to continue to improve and supplement our Internet products and
services, either independently or through strategic alliances, partnerships or
acquisitions, and to continue to expand our brand-name recognition throughout
Asia.

Effective January 1, 2003, we changed our business segment reporting to
reflect more accurately our current business strategy. As a result, our prior
business segments will now be presented as Software and Consulting Services,
Advertising and Marketing Activities and Other Income, and figures for all
prior periods will be restated accordingly.

Markets and Operations

We operate in ten markets across the Asia Pacific, the United States and
the United Kingdom. Our primary geographic source of revenues has been the
Greater China region, made up of Hong Kong, Taiwan and the PRC, which
collectively represented 54%, 39% and 31%, of our total revenue in 2000, 2001
and 2002, respectively. e-business Solutions has been our primary revenue
contributor over the last three years, accounting for 56%, 51% and 39% of total
revenues in 2000, 2001 and 2002, respectively. The percentage of total revenue
generated by e-business Solutions declined in 2002 principally due to our
decision to close some non-profitable subsidiaries. Advertising, including
advertising revenues from the network of affiliated Web sites and advertising
revenues recorded on our portals across Greater China, accounted for 40%, 33%
and 48% of total revenues in 2000, 2001 and 2002, respectively. Sale of IT
products accounted for 3%, 7% and 8% of total revenues in 2000, 2001 and 2002,
respectively. Other revenues, accounted for 1%, 9% and 5% of total revenues in
2000, 2001 and 2002, respectively.

As a material percentage of our business is derived from Greater China,
seasonality linked to those markets, particularly the PRC, may affect our
business. For example, the PRC, which accounted for 18% of our total revenues
in the fourth quarter of 2002, has an extended holiday for the Lunar New Year
in the first quarter of each year which affects all our operations in the
mainland. Furthermore, it is generally accepted that within the e-marketing and
advertising business there is some seasonality, with more activity prior to
holidays, such as Christmas and the New Year. This level of activity will vary
from market to market depending on the nature and timing of the holiday season.
Our e-solutions business also experiences a summer slowdown. Our primary
marketing channels are the Internet and traditional media, industry seminars
and public relations. We have maintained our standard operational practice in
offering services to our client base in the financial year for 2002.

e-business solutions service fees are derived from services provided for
the design and development of Internet Web sites, system integration and
monthly maintenance and hosting of computer-based information. Projects are
generally priced to clients on a project-completion basis, employing a
time-sheet with hourly billable charges for different stages of a project,
although certain short-term Web design and development engagements are billed
on a fixed-price basis. e-business solutions service fees are recognized when
services are provided. Professional services and other revenues include
revenues from consulting services, training, and post-contract support.
Revenues from customer training and education are recognized at the date the
services are performed. Revenue from post-contract support, such as unspecified
upgrades and telephone support, is recognized ratably over the period the
support is provided.

Advertising service fees are derived from the online sales of banner
advertisements, direct mailing and sponsorships in which we deliver advertising
for a fixed fee on our Web sites and advertising with our affiliates, which
comprises third party Web sites and offline advertising campaigns. Online
advertising revenue is derived principally from short-term advertising
contracts in which we may guarantee a minimum number of impressions to
advertisers over a specific period of time for a fixed fee. Advertising service
fees from direct mailing are derived from advertisements sent to electronic
mail users registered with us, and are recognized when

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advertisements are sent. Offline advertising revenue is derived
principally from fees for services and production of advertisements.

Sale of IT products revenue is derived principally from the distribution
of computer hardware and software products. In instances where the license
agreements provide that we will provide the client with ongoing post-contract
support and/or rights to upgrades and updates, and our service cannot be
separated from the third party software license, revenue from licensing the
software is recognized ratably over the period of the application management
services agreement.

For a description of the extent to which we depend on patents, licenses,
industrial, commercial or financial contracts that are material to our business
or profitability, see Item 3.D. of this Annual Report, Key Information  Risk
Factors  Risks Relating to chinadotcom.

For description of the material effects of government regulations on our
business, see Item 3.D. of this Annual Report, Key
Information  Risk Factors  Political, Economic and Regulatory Risks.



|C. |  | Organizational Structure
|-- |  | ------------------------

chinadotcom corporation was incorporated in June 1997. As of May 31, 2003,
our principal holding company subsidiaries were held as follows:

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(ORGANIZATIONAL STRUCTURE CHART)

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|D. |  | Property, Plant and Equipment
|-- |  | -----------------------------

Our executive headquarters occupy approximately 26,302 square feet of
gross office space under various leasing arrangements at 34/F, Citicorp Centre,
18 Whitfield Road, Causeway Bay, Hong Kong. During 2002, we consolidated our
executive headquarters office space and reduced our gross office space from
48,646 to 26,302 square feet. We also lease office and other space, as well as
space for our servers, in various locations in Asia, Australia and the United
States. The only real estate we own is our building located at 2-4 Old Street,
Islington, London, which houses our Ion Global operations in the United
Kingdom.




ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

You should read the following discussion of our financial condition and
results of operations together with our consolidated financial statements and
the related notes included elsewhere in this Annual Report. This discussion
contains forward-looking statements that involve risks and uncertainties. Our
actual results may differ significantly from those anticipated in these
forward-looking statements as a result of factors including, but not limited
to, those set forth under Item 3.D. of this Annual Report, Key
Information  Risk Factors, and included elsewhere in this Annual Report and Item 11 of this
Annual Report, Quantitative and Qualitative Disclosures About Market Risk.

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Overview

CIC incorporated chinadotcom as China Information Infrastructure Limited
under the laws of the Cayman Islands in June 1997 as a wholly-owned subsidiary
of CIC. In June 1999, CIC distributed its total interest in China.com
Corporation to CICs shareholders in a corporate reorganization. In April 2000,
we changed our name from China.com Corporation to chinadotcom corporation. The
following discussion reflects our financial condition and results of our
operations and our subsidiaries.

We first introduced our products and services through our former parent
company in 1996. Initially, these products and services included Web hosting
and maintenance. During 1996 and 1997, we derived all of our revenue from our
e-business Solutions services, which were referred to as Web solutions
services in our earlier prospectuses and financial statements. In addition, we
developed relationships with content providers to our portal network, hired
personnel, hosted conferences for industry participants and engaged in
additional marketing activities to develop brand name awareness for our portal
network. We also developed relationships with potential advertisers on our
portal network and purchased, installed and operated the computer equipment we
use in connection with our portal network.

In January 1998, our former parent, CIC acquired a 51% interest in The Web
Connection, a Hong Kong based strategic consulting, Web site design and
development enterprise, to expand our e-business Solutions services. Since
December 31, 1998, we have since completed the acquisition of the remaining 49%
of The Web Connection and have made many other acquisitions in the e-business
Solutions area, including OpusOne Technologies International Inc. in 2002 and
Praxa Limited in 2003. In May 1998, our former parent, CIC commenced its portal
network services. Each of these interests and rights has been distributed by
CIC to us as of June 1999. In September 2001, we launched a new brand for our
e-marketing business, MEZZO Marketing, which represents the broader advertising
and marketing based opportunities available in the current market, and a
departure from the reliance on the online advertising network line of business.
We have sought to build the MEZZO Marketing brand, especially in Australia,
with the acquisition of Layabo Pty. Limited in 2002.

In July 1999, we completed our initial public offering and received net
proceeds of US$85.6 million. In January 2000, we completed our second public
offering and received net proceeds of US$303.9 million. In

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March 2000, we completed the initial public offering of our subsidiary,
hongkong.com Corporation, on the Growth Enterprise Market of The Stock Exchange
of Hong Kong, or GEM, and received net proceeds of US$168.5 million. We have
applied a portion of these net proceeds toward further acquisitions and
investments in majority or minority interests in companies.

Approximately 39% of our revenue was generated by our e-business Solutions
services in 2002, declining from 51% of our revenues in 2001, due primarily to
the overall deterioration in market conditions in 2002 across all our major
markets, as well as the closure of non-profitable business units. Approximately
48% of our revenue was generated by our advertising business in 2002.
Advertising revenue increased to $28.3 million in 2002 from $21.4 million in
2001 due principally to a partial recovery from the difficult market conditions
which existed in 2001, as well as the strong performance of the Korean
operation during the course of the World Cup Soccer Tournament in mid 2002. The
sale of IT products revenue segment was introduced in the fourth quarter of
2001, and in 2002 represented approximately 8% of our revenues. Prior to such
time, the sale of IT products was included as other income.

We ceased to provide e-business Solutions and advertising support services
to CIC in connection with AOL-branded services in Hong Kong on June 30, 2001.
Such termination may materially and adversely change our relationship with AOL,
which could have a material adverse effect on our business, results of
operation, financial condition and share price. See risk factors disclosed in
Item 3.D. of this Annual Report, Key Information  Risk Factors  Risks
relating to our Class A Common Shares  We could be adversely affected if our
major strategic shareholders materially change their holdings in our shares.

Our selling, general and administrative expenses decreased as a percentage
of revenues from 136% during 2001 to 64% in 2002 due primarily to the
implementation of cost control measures, as well as the closing of some
non-profitable business units during the period. Global headcount has fallen by
approximately 50% from its peak at the start of 2001, as we moved to implement
an across-the-board integration and rationalization of our business units.
During the course of 2001 and 2002, we successfully consolidated our offices in
each geographic market in which we operate, and more than halved the overall
number of individual office locations. As a result, we realized many of the
benefits of such measures in 2002.

Since December 31, 1998, we have made over 68 other acquisitions,
including the acquisition of the remaining 49% of The Web Connection (which was
subsequently renamed Ion Global) in Hong Kong in 1999 and 2000, acquisition of
Pacific Connections Limited in Hong Kong in 1999, XT3 Pty Limited (which was
subsequently renamed Ion Global (Australia) Pty Ltd.) in Australia in 2000 and
2001, Coghuff Limited, which owns 100% of Revolution Limited (which was
subsequently renamed Ion Global (UK) Limited) in the United Kingdom in 2000,
Venex Corporation in Japan in 2000, Wealth Corporation Ltd, which owns Beijing
Chinaholiday Network Co. Ltd. and Beijing Tian Jian Rainbow Airline Service Co.
in the PRC in 2000 and 2001, the URLs from CIC in Hong Kong in 2001 and 2002,
Beijing China-Railway Times Science & Technology Co. Ltd. in the PRC in 2001,
Layabo Pty. Limited in 2002, a majority interest in OpusOne Technologies
International Inc. in 2002 with an agreement to purchase the remainder in June
2003, Praxa Limited in 2003, and Newpalm (China) Information Technology Co.,
Ltd. in 2003. As a result of those acquisitions, we recorded substantial
goodwill amortization and stock compensation expense in 2000, 2001 and 2002. In
2000, we recorded approximately US$40.2 million of goodwill. Goodwill decreased
to US$6.4 million as of December 31, 2001 and increased to US$12.0 million as
of December 31, 2002. In 2000 and 2001, following our review of our
acquisitions in light of changed and deteriorated market and other conditions,
we recorded impairment of goodwill and intangible assets of US$43.4 million and
US$40.7 million, respectively. The assessed impairment of goodwill and
intangible assets was based on projected discounted cash flows of the entities
acquired over the remaining amortization period. In 2002, there was no
impairment of goodwill and intangible assets. As market and other conditions
continue to change or deteriorate, we may need to provide for further
impairment, dependent on the assessed projections of future discounted
cashflows from our operating assets.

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Our annual revenues for 2002 have decreased from 2001 by 8% from US$64.5
million to US$59.3 million. Our quarterly revenues have varied, and we have
incurred significant net losses from inception through 2002. For the financial
year ended December 31, 2002 we recorded a net loss of US$18.2 million,
although we recorded net profits of US$1.2 million in the fourth quarter of
2002.

As of December 31, 2000, 2001 and 2002, we had an accumulated deficit of
US$91.8 million, US$216.2 million and US$234.4 million, respectively. We may
continue to incur significant net losses for the next several years partially
due to our expansion plans and any acquisitions as we execute our business
strategy. We and our prospects must be considered in light of the risks, costs
and difficulties frequently encountered by companies in the early stages of
development, particularly companies in the new and rapidly evolving Greater
China and Asian technology and Internet markets.

Our expense levels are based in part on our expectations as to future
revenues and to a large extent are proportional to the size of our operations.
As a result of our limited operating history, the recent emergence of the
Greater China and Asian technology and Internet markets and the volatility and
dynamic nature of the Internet sector generally, we do not have the benefit of
internal or industry-based historical financial data for any significant period
of time from which we can plan future operating expenses. We may be unable to
adjust spending in a timely manner to compensate for unexpected revenue growth
or unexpected increases in operating expenses, including selling, general and
administrative expenses related to companies we may acquire. Any significant
shortfall in relation to our revenue expectations would have an immediate
adverse impact on our business, results of operations and financial condition.

Subsequent to the year ending December 31, 2002, due to changes in our
business model and our shift to enterprise software and related services, in
order to present our revenue in a more representative format, we changed our
business segmental reporting from e-business Solutions, Advertising, Sale
of IT Products and Other Income to Software and Consulting Services,
Advertising and Marketing Activities and Other Income, respectively,
effective from January 1, 2003. From the first quarter of 2003 onwards, all
prior periods comparative figures will be adjusted accordingly.



|A. |  | Operating Results
|-- |  | -----------------

The following table summarizes our historical results of operations as a
percentage of total revenues for the years ended December 31, 2000, 2001 and
2002 of US$109.7 million, US$64.5 million and US$59.3 million, respectively.

|                                             |                         |  |                            |     |      |  |      |     |   |  |     |     |  
|-------------------------------------------- | ----------------------- |  | -------------------------- | --- | ---- |  | ---- | --- | - |  | --- | --- | -
|                                             |                         |  | Year ended December 31,(1)
|                                             |                         |  |                           
|                                             |                         |  | 2000                       |     | 2001 |  | 2002
|                                             |                         |  |                            |     |      |  |     
|Revenues:                                    |                         |  |                            |     |      |  |      |     |   |  |     |    
|                                             | e-business Solutions(2) |  |                            | 56  | %    |  |      | 51  | % |  |     | 39  | %
|                                             | Advertising(3)          |  |                            | 40  | %    |  |      | 33  | % |  |     | 48  | %
|                                             | Sale of IT products     |  |                            | 3   | %    |  |      | 7   | % |  |     | 8   | %
|                                             | Other income            |  |                            | 1   | %    |  |      | 9   | % |  |     | 5   | %
|                                             |                         |  |                            |     |      |  |      |     |   |  |     |     |  
|Total revenues(4)                            |                         |  | 100                        | %   |      |  | 100  | %   |   |  | 100 | %  
|                                             |                         |  |                            |     |      |  |      |     |   |  |     |     |  
|Cost of revenues:                            |                         |  |                            |     |      |  |      |     |   |  |     |    
|                                             | e-business Solutions    |  |                            | -35 | %    |  |      | -34 | % |  |     | -24 | %
|                                             | Advertising             |  |                            | -27 | %    |  |      | -21 | % |  |     | -34 | %
|                                             | Sale of IT products     |  |                            | 0   | %    |  |      | -5  | % |  |     | -6  | %
|                                             | Other income            |  |                            | -1  | %    |  |      | -3  | % |  |     | -2  | %
|                                             |                         |  |                            |     |      |  |      |     |   |  |     |     |  
|Gross margin                                 |                         |  | 37                         | %   |      |  | 37   | %   |   |  | 34  | %  
|Selling, general and administrative expenses |                         |  | -92                        | %   |      |  | -136 | %   |   |  | -64 | %  
|Depreciation and amortization expenses       |                         |  | -34                        | %   |      |  | -43  | %   |   |  | -20 | %  
|Impairment of goodwill and intangible assets |                         |  | -40                        | %   |      |  | -63  | %   |   |  |    |    

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|                                                                   |                                                                                                                                     |  |                            |    |      |  |      |     |   |  |     |     |  
|------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | -- | ---- |  | ---- | --- | - |  | --- | --- | -
|                                                                   |                                                                                                                                     |  | Year ended December 31,(1)
|                                                                   |                                                                                                                                     |  |                           
|                                                                   |                                                                                                                                     |  | 2000                       |    | 2001 |  | 2002
|                                                                   |                                                                                                                                     |  |                            |    |      |  |     
|Stock compensation expense                                         |                                                                                                                                     |  | -5                         | %  |      |  | -2   | %   |   |  | -1  | %  
|                                                                   |                                                                                                                                     |  |                            |    |      |  |      |     |   |  |     |    
|Operating loss                                                     |                                                                                                                                     |  | -134                       | %  |      |  | -207 | %   |   |  | -51 | %  
|Interest income                                                    |                                                                                                                                     |  | 27                         | %  |      |  | 41   | %   |   |  | 40  | %  
|Interest expense                                                   |                                                                                                                                     |  | -1                         | %  |      |  | -2   | %   |   |  | -4  | %  
|Gain/(loss) arising from share issuance of a subsidiary            |                                                                                                                                     |  | 128                        | %  |      |  | 0    | %   |   |  | 0   | %  
|Gain on disposal of available-for-sale securities                  |                                                                                                                                     |  | 2                          | %  |      |  | 7    | %   |   |  | 0   | %  
|Gain/(loss) on disposal of subsidiaries and cost investments       |                                                                                                                                     |  | 13                         | %  |      |  | -3   | %   |   |  | 0   | %  
|Other non-operating gains                                          |                                                                                                                                     |  | 0                          | %  |      |  | 0    | %   |   |  | 2   | %  
|Other non-operating losses                                         |                                                                                                                                     |  | -2                         | %  |      |  | -2   | %   |   |  | 0   | %  
|Impairment of cost investments and available-for-sale securities   |                                                                                                                                     |  | -77                        | %  |      |  | -19  | %   |   |  | -9  | %  
|Share of gain/(loss) in equity investees(4)                        |                                                                                                                                     |  | -9                         | %  |      |  | -4   | %   |   |  | 1   | %  
|                                                                   |                                                                                                                                     |  |                            |    |      |  |      |     |   |  |     |    
|Loss before income taxes                                           |                                                                                                                                     |  | -53                        | %  |      |  | -189 | %   |   |  | -21 | %  
|Income taxes                                                       |                                                                                                                                     |  | -1                         | %  |      |  | 0    | %   |   |  | 0   | %  
|                                                                   |                                                                                                                                     |  |                            |    |      |  |      |     |   |  |     |    
|Loss before minority interests                                     |                                                                                                                                     |  | -54                        | %  |      |  | -189 | %   |   |  | -21 | %  
|Minority interests in losses/(income) of consolidated subsidiaries |                                                                                                                                     |  | 0                          | %  |      |  | 6    | %   |   |  | 1   | %  
|                                                                   |                                                                                                                                     |  |                            |    |      |  |      |     |   |  |     |    
|Loss from continuing operations                                    |                                                                                                                                     |  | -54                        | %  |      |  | -183 | %   |   |  | -20 | %  
|                                                                   |                                                                                                                                     |  |                            |    |      |  |      |     |   |  |     |    
|Discontinued operations:                                           |                                                                                                                                     |  |                            |    |      |  |      |     |   |  |     |    
|                                                                   | Loss from operations of discontinued subsidiaries, net of related
tax benefit of US$42 and tax expenses of US$213 for 2000
and 2001 |  |                            | -1 | %    |  |      | -10 | % |  |     | -12 | %
|                                                                   | Gain on disposal of discontinued subsidiaries                                                                                       |  |                            | 0  | %    |  |      | 0   | % |  |     | 1   | %
|                                                                   |                                                                                                                                     |  |                            |    |      |  |      |     |   |  |     |    
|Net loss                                                           |                                                                                                                                     |  | -55                        | %  |      |  | -193 | %   |   |  | -31 | %  
|                                                                   |                                                                                                                                     |  |                            |    |      |  |      |     |   |  |     |    



---

|(1) |  | During the year ended December 31, 2002, we discontinued the operations
of certain subsidiaries in the e-business Solutions and the Advertising
segments. With the adoption of SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, the operating results of the discontinued
operating units were classified as loss from operations of discontinued
subsidiaries on the consolidated statements of operations. As a result of
SFAS 144, the results of the continuing operations of 2000 and 2001 were
restated.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Includes revenues from services provided to CIC in connection with
AOL-branded services in Hong Kong representing 18%, 0% and 0% of
e-business Solutions revenues for 2000, 2001 and 2002, respectively.                                                                                                                                                                                                                                                                                                                               
|   
|(3) |  | Includes revenues from services provided to CIC in connection with
AOL-branded services in Hong Kong representing 17%, 0% and 0% of
Advertising revenues for 2000, 2001 and 2002, respectively.                                                                                                                                                                                                                                                                                                                                        
|   
|(4) |  | Includes revenues from CIC representing 16%, 0% and 0% of total revenues,
for each of 2000, 2001 and 2002, respectively.                                                                                                                                                                                                                                                                                                                                                                                                               

Financial Year Ended December 31, 2002 compared to Financial Year Ended
December 31, 2001

Because we discontinued the operations of certain subsidiaries in the
e-business Solutions and advertising segments, certain historical comparative
amounts have been reclassified to conform with the current year#146;s presentation.
Only the numbers from continuing operations are presented for comparison
purposes in the following sections.

Net loss of the subsidiaries classified as discontinued operations for the
years ended December 31, 2001 and 2002 were US$6.2 million and US$7.2 million,
respectively. Revenues of the discontinued operations for the years ended
December 31, 2001 and 2002 were US$11.1 million and US$4.3 million,
respectively. Pretax loss reported in discontinued operations for the years
ended December 31, 2001 and 2002 were US$6.0 million and US$7.2 million,
respectively.

Revenues

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e-business Solutions. Services offered through our
e-business Solutions services include professional consulting, Web site design,
systems integration and online marketing strategy development. Revenues from
our e-business Solutions services decreased to US$23.0 million in 2002 from
US$32.6 million in 2001. The decline in e-business Solutions services revenue
was generally attributable to an overall deterioration in market conditions in
2002 across all our major markets, as well as the closure of non-profitable
business units. The continued global economic slowdown in 2002 resulted in a
dramatic reduction in the demand for our services and in the ability of
companies to budget for and commission such services.

Advertising. Our advertising revenues increased to US$28.3 million in 2002
from US$21.4 million in 2001. This increase was due principally to increased
online network advertising revenues from South Korea which experienced a
significant increase in demand for marketing services as a result of hosting
the 2002 Soccer World Cup, as well as additional revenues resulting from our
acquisition of Layabo Pty. Limited and other direct marketing and data mining
businesses in Australia.

Sale of IT products.This revenue segment was introduced in the fourth
quarter of 2001 as prior to the new segmentation, in 2001 the revenue in our
other income segment increased to over 10% of total revenues. Revenue from
the sale of IT products remained stable at US$4.6 million in 2002 and 2001.

Other income. Revenues from other products and services we offer to our
clients, excluding the sale of IT products revenue above, decreased to US$3.4
million in 2002 from US$5.9 million in 2001. The decrease in other income was
due principally to decreased sales of non-Internet related products and
services, in particular to the contribution and performance of Travel Trade
Gazette, a Singapore-based trade publication owned by hongkong.com.

Cost of revenues

e-business Solutions.Our cost of e-business Solutions revenues decreased
to US$14.0 million in 2002 from US$21.9 million in 2001. As a percentage of
revenues, our cost of revenues for our e-business Solutions decreased to 24% in
2002 from 34% in 2001. Cost of revenues for e-business Solutions in 2002
decreased from 2001 due principally to the reduced level of business activity
during 2002 together with the closure of non-profitable business units.

Advertising.Our cost of advertising revenues increased to US$20.0 million
in 2002 from US$13.5 million in 2001. As a percentage of revenues, our cost of
revenues for our advertising services increased to 34% in 2002 from 21% in
2001. Cost of revenues for advertising in 2002 increased from 2001 due
principally to the increase in advertising revenues in 2002 particularly from
the Korean marketing operation.

Sale of IT products.Our cost of sale of IT products decreased to US$3.3
million in 2002 from US$3.5 million in 2001. As a percentage of revenues, our
cost of revenues for our sale of IT products increased to 6% in 2002 from 5% in
2001.

Other income.Our cost of other income decreased to US$1.5 million in
2002 from US$2.0 million in 2001. As a percentage of revenues, our cost of
revenues for our other income decreased to 2% in 2002 from 3% in 2001.

Operating expenses

Selling, general and administrative expenses. Our selling, general and
administrative expenses significantly decreased to US$38.0 million in 2002 from
US$87.9 million in 2001. As a percentage of revenues, our selling, general and
administrative expenses decreased to 64% of revenues in 2002 from 136% of
revenues in 2001. This reduction in selling, general and administration
expenses was due to effective cost control measures, as well as the closing of
some non-profitable business units during the period. The decrease in our

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selling, general and administrative expenses was due principally to our
decreased headcount, as well as across-the-board cost savings throughout the
company.

Depreciation and amortization expense.Our depreciation and amortization
expense decreased to US$11.9 million in 2002 from US$27.4 million in 2001. This
decrease reflected the decrease in the purchase of property, plant and
equipment during the course of the years 2001 and 2002, the lower book value of
fixed assets in 2002 due to previous writedowns for impairment in 2001, and the
end of the three-year straight line depreciation period for investments in
assets made in 1998 and 1999.

Impairment of goodwill and intangible assets.There was no impairment of
goodwill and intangible assets in 2002 as compared to US$40.7 million in 2001.
SFAS 142 requires that goodwill and intangible assets with indefinite useful
lives no longer be amortized; however, these assets must be reviewed at least
annually for impairment. Intangible assets with finite useful lives will
continue to be amortized over their respective useful lives. The standard also
establishes specific guidance for testing for impairment of goodwill and
intangible assets with indefinite useful lives. The non-amortization provisions
of SFAS 142 were effective immediately for goodwill and intangible assets
acquired after June 30, 2001. We adopted the remaining provisions of SFAS 142
effective January 1, 2002. The adoption of SFAS 142 will not have a material
impact on our amortization of goodwill and intangible assets as the majority of
our goodwill and intangible assets affected by the adoption of SFAS 142 were
written off in prior years. Upon adoption of SFAS 142, we were required to
perform a transitional impairment test for all recorded goodwill within six
months and for intangible assets with indefinite lives within three months and,
if necessary, determine the amount of an impairment loss by December 31, 2002.
We performed the transitional impairment test for goodwill on June 30, 2002 and
the annual impairment test on December 31, 2002. No impairment charge was
recorded during 2002.

Stock compensation expense. Our stock compensation expense consists of
those expenses we are required to recognize when we issue shares and grant
options to acquire our shares to directors and employees at a discount to fair
market value at the time of the issue or grant, or that can only be exercised
following the satisfaction of certain performance milestones. Our stock
compensation expense decreased to US$0.3 million in 2002 from US$1.2 million in
2001.

Interest income

Our interest income decreased to US$23.9 million in 2002 from US$26.8
million in 2001. This decrease was due to several factors, including lower
overall prevailing interest rates during 2002, our implementation of a more
conservative investment strategy of buying more highly rated debt securities
for our investment portfolio with lower yields, and lower cash levels in 2002.
The treasury management program in 2002 utilized the Global Master Repurchase
Agreement, or Repurchase Agreement, with Fortis Bank, and the Total Return Swap
Transaction Agreement, or Swap Agreement, with DBS Bank, to purchase more
conservative, lower yielding instruments, such as debt securities of U.S.
government sponsored enterprises.

As of December 31, 2002, the total amount drawn under the Repurchase
Agreement and the Swap Agreement was US$125.0 million, and as of May 31, 2003,
we may borrow up to US$400.0 million under these facilities on such terms as we
and the counterparty banks may mutually agree. Except for bank loans of
US$115.0 million due in 2003 and US$10.0 million due between 2004 through 2011,
these arrangements do not have termination dates, but are reviewed annually for
renewal.

Under our Repurchase Agreement, we sold certain debt securities to Fortis
Bank at a discounted price, and the bank agreed to sell back to us at that same
discounted price the same debt securities at a later date. Either party with a
net exposure from the transaction arising from fluctuations in the market value
of the debt securities may request the other party to make a cash transfer or
transfer of acceptable debt securities at least equal to that net exposure.
During the period between the date that we sold the debt securities to the bank
and the later date we repurchase such securities, the bank has agreed to pay us
any income in respect of the debt securities sold,

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and we have agreed to pay interest to the bank at Libor plus a spread per
annum based on the discounted price of the debt securities we sold to the bank
and the number of days between the date we sold the securities to the bank and
the date the bank sells them back to us. At December 31, 2002, the repurchase
transactions entered into only allowed the buyer to request the seller to make
a cash or acceptable debt securities transfer at least equal to the net
exposure.

Under our Swap Agreement with DBS Bank, we transferred securities and
financial instruments to the bank in exchange for cash, and concurrently, we
agreed to reacquire the securities and financial instruments at a future date
for an amount equal to the cash exchanged plus interest. The Swap Agreement
permits us to elect for net cash settlement upon termination of the total
return swap transaction. During the period between the date we transferred the
securities and financial instruments and date we reacquire them, which is three
calendar years, the bank has agreed to pay us any income in respect of the
securities transferred and we have agreed, in turn, to pay the bank a price
differential calculated on the cash exchanged multiplied by Libor plus a spread
per annum and the number of days between the date we transferred the securities
to the bank and the date we reacquire the securities and financial instruments.

As of December 31, 2002, an aggregate of US$125.0 million was outstanding
under our repurchase facilities with US$115 million outstanding under our
Repurchase Agreement with Fortis Bank and US$10 million outstanding under our
Swap Agreement with DBS Bank. Proceeds from the drawdowns were used to purchase
additional debt securities from U.S. government sponsored enterprises that
yielded US$3.8 million in interest income in 2002. For a further description of
these agreements, see Item 5.B of this Annual Report, Operating and Financial
Review and Prospects  Liquidity and Capital Resources.For a summary of
certain risks related to these agreements, see Item 11 of this Annual Report,
Quantitative and Qualitative Disclosures About Market Risk. Approximately
US$151.1 million of our total cash and cash equivalents and debt securities
available-for-sale as of December 31, 2002 is effectively set aside as
collateral under the Repurchase Agreement and Swap Agreement, and categorized
as restricted debt securities in our consolidated balance sheet.

The weighted average interest rate on short-term borrowings as of December
31, 2001 and 2002 was 2.2% and 2.1%, respectively.

Interest Expense

Our interest expense increased to US$2.6 million in 2002 from US$1.5
million in 2001. This increase was principally due to increased aggregate
borrowings under our repurchase facilities for the purchase of additional
investments in high grade debt of U.S. government treasuries, U.S. government
sponsored enterprises and other debt obligations.

Other Gains and Losses

There was no gain or loss arising from share issuance of a subsidiary as
compared to a loss of US$55,000 in 2001. Our loss on disposal of
available-for-sale securities was US$158,000 in 2002 as compared to a US$4.4
million gain in 2001. Our gain or loss on disposal of subsidiaries decreased to
a loss of US$117,000 in 2002 from a loss of US$1.9 million in 2001 which
included the write-off of balances due from disposed subsidiaries of US$93,000.
We recorded other non-operating gains of US$1.2 million in 2002. We recorded
other non-operating losses of US$288,000 in 2002. We recorded a gain of
US$682,000 from our share of gains in equity investees in 2002 as compared to
US$2.6 million loss in 2001.

Impairment of cost investments and available-for-sale securities

We recorded a loss of US$5.4 million for the impairment of cost
investments and available-for-sale securities in 2002. This loss was
principally the result of impairments on our available-for-sale securities.

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Net loss from continuing operations

We recognized a net loss of US$11.6 million in 2002 compared to a net loss
of US$118.2 million in 2001.

Financial Year Ended December 31, 2001 compared to Financial Year Ended December 31, 2000

Because we discontinued the operations of certain subsidiaries in the
e-business Solutions and advertising segments, certain historical comparative
amounts have been reclassified to conform with the current years presentation.
Only the numbers from continuing operations are presented for comparison
purposes in the following sections.

Net loss of the subsidiaries classified as discontinued operations for the
years ended December 31, 2000 and 2001 were US$1.4 million and US$6.2 million,
respectively. Revenues of the discontinued operations for the years ended
December 31, 2000 and 2001 were US$11.6 million and US$11.1 million,
respectively. Pretax loss reported in discontinued operations for the years
ended December 31, 2000 and 2001 were US$1.4 million and US$6.0 million,
respectively.

Revenues

e-business Solutions. Services offered through our e-business Solutions
services included professional consulting, Web site design, systems integration
and online marketing strategy development. Revenues from our e-business
Solutions services decreased to US$32.6 million in 2001 from US$61.3 million in
2000. The decline in e-business Solutions services revenue was generally
attributable to an overall deterioration in market conditions in 2001 across
all our major markets. The collapse of the Internet bubble in 2000 and the
global economic slowdown in 2001 resulted in a dramatic reduction in the demand
for our services and in the ability of companies to budget for and commission
such services. Our revenues from e-business Solutions also decreased as a
result of not booking any revenues for services provided to CIC in 2001 in
connection with AOL-branded services in Hong Kong, as compared to US$12.0
million for such services which were booked in 2000. Prior to the introduction
of the sale of IT products segment, revenues from e-business solutions would
have amounted to US$61.3 million in 2000.

Advertising. Our advertising revenues decreased to US$21.4 million in 2001
from US$43.8 million in 2000. This decrease was again due principally to
deteriorating market conditions in 2001 which resulted in the loss of revenue
from several large online advertising customers, including infoislive and
Register.com, amounting to $16.3 million. Our revenues from advertising also
decreased as a result of not booking any revenues in 2001 for services provided
to CIC in connection with AOL-branded services in Hong Kong, as compared to
US$7.9 million booked in 2000.

Sale of IT products.This revenue segment was introduced in the fourth
quarter of 2001 as prior to the new segmentation, in 2001 the revenue in our
other income segment increased to over 10% of total revenues. Revenue from
the sale of IT products increased to US$4.6 million in 2001 from US$3.3 million
in 2000 when the revenue of non-profitable business units were excluded.

Other income. Revenues from other products and services we offer to our
clients, excluding the sale of IT products revenue above, increased to US$5.9
million in 2001 from US$1.3 million in 2000. The increase in other income was
due principally to increased sales of non-Internet related products and
services, in particular to the contribution and performance of Travel Trade
Gazette, a Singapore-based trade publication owned by hongkong.com. Prior to
the introduction of the sale of IT products segment, the other income
segment amounted to US$4.6 million in 2000.

Cost of revenues

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e-business Solutions.Our cost of e-business Solutions revenues decreased
to US$21.9 million in 2001 from US$38.6 million in 2000. As a percentage of
revenues, our cost of revenues for our e-business Solutions decreased to 34% in
2001 from 35% in 2000. Cost of revenues for e-business Solutions in 2001
decreased from 2000 due principally to the reduced level of business activity
during 2001. Prior to the introduction of the sale of IT products segment,
cost of revenues from e-business Solutions would have amounted to US$38.6
million in 2000.

Advertising.Our cost of advertising revenues decreased to US$13.5 million
in 2001 from US$29.1 million in 2000. As a percentage of revenues, our cost of
revenues for our advertising services decreased to 21% in 2001 from 27% in
2000. Cost of revenues for advertising in 2001 decreased from 2000 due
principally to poorer market conditions in 2001.

Sale of IT products.Our cost of sale of IT products increased to US$3.5
million in 2001 from US$0.1 million in 2000 from the continuing operations.

Other income.Our cost of other income increased to US$2.0 million in
2001 from US$1.3 million in 2000. As a percentage of revenues, our cost of
revenues for our other income increased to 3% in 2001 from 1% in 2000,
representing principally the cost of sales relating to Travel Trade Gazette.
Prior to the introduction of the sale of IT products segment, revenues from
the other income segment would have amounted to US$5.5 million in 2001, from
US$1.3 million in 2000.

Operating expenses

Selling, general and administrative expenses. Our selling, general and
administrative expenses decreased to US$87.9 million in 2001 from US$101.3
million in 2000. As a percentage of revenues, our selling, general and
administrative expenses increased to 136% of revenues in 2001 from 92% of
revenues in 2000. This reduction in selling, general and administrative
expenses was due to revenues falling at a more rapid rate than selling, general
and administrative expenses during the period. The decrease in our selling,
general and administrative expenses was due principally to our decreased
headcount as well as across-the-board cost savings throughout the company.

Depreciation and amortization expense.Our depreciation and amortization
expense decreased to US$27.4 million in 2001 from US$37.8 million in 2000. The
year-over-year decrease was due principally to fewer acquisitions of companies,
as well as to the establishment of a lower goodwill base during 2001 due to the
write-off of certain investments at the end of 2000 and during 2001. This was
partially offset by the purchase of property, plant and equipment during the
course of the year 2000, particularly the second half of the year, which
increased the level of depreciation expense on a full year basis in 2001.

Impairment of goodwill and intangible assets.Our expenses related to the
impairment of goodwill and intangible assets decreased to US$40.7 million in
2001 from US$43.4 million in 2000. This included impairment of US$7.8 million
related to the acquisition of Wealth Corporation in the PRC, US$3.2 million
related to the acquisition of Coghuff Limited, which owns 100% of Revolution
Limited in the UK, US$7.1 million related to the acquisition of Ion Global
(Australia) Pty Ltd in Australia, US$6.6 million related to the acquisition of
DAE Advertising Inc. in the US, US$7.8 million related to the acquisition of
Venex Corporation in Japan, and US$2.77 million related to the impairment of
software purchased from PurchasePro.com, Inc, or PurchasePro.com. The US$2.77
million impairment of the PurchasePro.com software was an adjustment made to
our previously reported fourth quarter 2001 and full year 2001 results, and was
the result of our re-assessment and valuation of this software in light of
changed and deteriorated market and other conditions. As a result, our net loss
for both fourth quarter 2001 and full year 2001 increased by US$2.77 million as
compared to previously reported numbers. Our fourth quarter 2001 net loss was
adjusted to US$12.97 million, as compared to the previously reported US$10.2
million loss, while the full year 2001 net loss increased to US$124.4 million
from

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the previously reported US$121.6 million loss. Including this adjustment,
total impairment of goodwill and intangible assets totaled US$40.7 million for
the full year 2001.

Stock compensation expense. Our stock compensation expense consists of
those expenses we are required to recognize when we issue shares and grant
options to acquire our shares to directors and employees at a discount to fair
market value at the time of the issue or grant, or that can only be exercised
following the satisfaction of certain performance milestones. Our stock
compensation expense decreased to US$1.2 million in 2001 from US$5.1 million in
2000, of which US$2.0 million represented the recognition of stock compensation
and other compensation expense incurred by our acquisition of The Web
Connection.

Interest income

Our interest income decreased to US$26.8 million in 2001 from US$29.9
million in 2000. This decrease was principally due to lower levels of interest
income derived from investments in debt obligations as the size of our cash
holdings reduced during the course of 2001 versus 2000. The investments in 2000
were composed of more conservative, lower yielding instruments, involving the
investment of cash holdings raised through the capital markets in 1999 and 2000
primarily into the debt securities of U.S. government sponsored enterprises, as
compared to a more active management program in 2001. The reduction in cash
levels in 2001 more than offset the positive benefit of the repurchase facility
and the more active treasury management program in 2001.

Our interest income in 2001 included US$0.8 million earned from additional
debt instruments which we purchased with the US$100.0 million drawdown amount
as of December 31, 2001 under our repurchase facility. For a further
description of our repurchase facility, see Item 5.B of this Annual Report,
Operating and Financial Review and Prospects  Liquidity and Capital Resources.
For a summary of the exposure of certain risks related to our repurchase
facility, see Item 11 of this Annual Report, Quantitative and Qualitative
Disclosures About Market Risk. Borrowings from our repurchase facility amounted
to US$114.9 million as of December 31, 2001, of which we have used US$100.0
million to purchase additional debt instruments. Approximately US$135.0 million
or 26.8% of our total cash and cash equivalents and debt securities
available-for-sale of US$504.0 million as of December 31, 2001 is effectively
set aside as collateral under the repurchase agreement and categorized as
restricted debt securities in our consolidated balance sheet. Approximately
10.1% and 20.0% of quarterly interest income in the fourth quarter 2001 and
first quarter 2002, respectively, was derived from interest income resulting
from funds used from the repurchase facility to invest in debt securities.

Interest expense.chinadotcoms interest expense increased to US$1.3
million in 2001 from US$857,000 in 2000. Increased interest expense of
US$529,000 was incurred as a result of draw downs under chinadotcoms
repurchase facilities with Fortis Bank and DBS Bank amounting to US$114 million
obtained between October 2001 and December 2001 for the purchase of additional
investments in debt obligations. Excluding the interest expense arising on the
new bank loans, interest expense fell slightly in 2001 compared with 2000 as a
result of lower interest rates.

Gain / (loss) arising from share issuance of a subsidiary

Our gain or loss arising from share issuance of a subsidiary decreased to
a loss of US$55,000 in 2001 from a gain of US$140.0 million in 2000 which
represented the gain from our sale of 18% of hongkong.com Corporation by way of
its initial public offering and listing on the Growth Enterprise Market Stock
Exchange of Hong Kong.

Gain on disposal of available-for-sale securities

Our gain on disposal of available-for-sale securities increased to US$4.4
million in 2001 from US$1.7 million in 2000 due principally to greater gain
realized from the disposal of treasury instruments.

Gain / (loss) on disposal of subsidiaries and cost investments

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Our gain or loss on disposal of subsidiaries decreased to a loss of US$1.9
million in 2001 from a gain of US$14.0 million in 2000 which included the gain
of US$2.9 million realized from the sale of 20% of Pacific Connections Ltd. and
the gain of US$10.5 million from our sale of 19.9% of MEZZO Marketing to 24/7
Real Media.

Other non-operating losses

Other non-operating losses amounting to $1.3 million represents the
expenses the merger and acquisition department of chinadotcom recorded,
including $1.1 million representing payroll expense of the merger and
acquisition department.

Impairment of cost investments and available-for-sale securities

We recorded a loss of US$12.3 million for the impairment of cost
investments and available-for-sale securities in 2001. This loss was
principally the result of a US$8.1 million impairment on our interest in
certain of our less than 20% owned minority investments, and a US$4.2 million
write down of our available-for-sale securities including our holding in Panpac
Media.com Limited.

Share of losses in equity investees

We recorded a loss of US$2.6 million for the share of losses in equity
method investees in 2001, compared with a loss of US$9.4 million in 2000. The
decrease in losses from equity method investees is due to the investment basis
being written down to nil due to prior losses. chinadotcom has no financial
commitments or guarantees to the investees and therefore has suspended the
equity method accounting.

Net loss from continuing operations

We recognized a net loss of US$118.2 million in 2001 compared to a net
loss of US$58.4 million in 2000.

Annual Variations

Our historical revenues and operating results have varied substantially
from year to year, and we expect this to continue. Factors that cause
fluctuations in our operating results include:



| |  |  | marketing expenditures;                                                                                        
| | - |  | ---------------------------------------------------------------------------------------------------------------
|
| |  |  | discontinuation of non-performing and non-profitable businesses                                                
|
| |  |  | salaries and benefits to our employees;                                                                        
|
| |  |  | interest income from our treasury portfolio;                                                                   
|
| |  |  | mark to market or realized losses and realized gains related to our treasury portfolio;                        
|
| |  |  | administrative expenditures such as legal and other professional services;                                     
|
| |  |  | general health of the economy and our sector and the ability of
our customers to pay for our services provided;
|
| |  |  | level of usage of technology, the Internet and mobile
applications in the Greater China and Asia markets;      
|
| |  |  | demand for Internet advertising in the Greater China and Asia markets;                                         
|
| |  |  | demand for Internet and Web site development in the Greater China and Asia markets;                            
|
| |  |  | the amount and timing of capital expenditures and other costs
relating the expansion of our operations;        
|
| |  |  | completion of acquisitions, divestitures, partnerships, joint
ventures and other business combinations;        
|
| |  |  | our ability to record revenue from key clients; and                                                            
|
| |  |  | the introduction or elimination of products and services by us or our competitors.                             

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Credit risks:

We provide e-business solutions, advertising and sale of IT products to
businesses in Australia, Hong Kong, Japan, South Korea, the PRC, the Republic
of China, Singapore, the United Kingdom and the United States. We generally do
not require collateral for accounts receivable.

We maintain cash and cash equivalents with various financial institutions
in Australia, Hong Kong, Japan, South Korea, the PRC, the Republic of China,
Singapore, the United Kingdom and the United States. Our policies are designed
to limit exposure to any one institution. We perform periodic evaluations of
the relative credit standing of those financial institutions that are
considered in our investment strategy.

In connection with our sale of IT products and enterprise software
business, we may purchase from vendors and then resell to customers. Typically
the payment terms for the third party software are 60 days from the date of
invoice, but in some cases payment may be required upon delivery. If the
customers do not pay the full amount we invoice, which may occur, such as if
the customer files for bankruptcy, we may not collect sufficient funds from
customers to cover the original cost of the third party software that we have
already purchased, or if we cannot collect funds from our customers in a timely
manner which may occur, such as if the customer is experiencing issues with
respect to its own collections or other cashflow issues, we may not generate
sufficient cashflows to cover the original purchase price of the third-party
products.

Business risks:

Our top ten customers accounted for 30%, 9% and 14% of our revenue for the
years ended December 31, 2000, 2001 and 2002, respectively. The percentage of
revenues generated from our top ten customers increased between 2001 and 2002
due to the addition of several large governmental contracts, including a
contract with the Department of Trade and Industry in the United Kingdom. No
single customer accounted for 10% or more of the revenues during any of years
ended December 31, 2000, 2001 or 2002.

Currency risks:

The functional currency for our operations is the respective currency of
the countries in which we operate. There were no material operating trends or
effects on liquidity as a result of fluctuations in currency exchange rates. We
do not, in the normal course of business, use any types of derivatives to hedge
against foreign currency fluctuations, nor do we speculate in foreign currency.
However, some of our business is transacted in renminbi, or RMB, which is not
freely convertible into foreign currencies. On January 1, 1994, the PRC
government abolished the dual rate system and introduced a single rate of
exchange as quoted daily by the Peoples Bank of China. However, the
unification of the exchange rates does not imply the convertibility of RMB into
United States dollars or other foreign currencies. All foreign exchange
transactions continue to take place either through the Bank of China or other
banks authorized to buy and sell foreign currencies at the exchange rates
quoted by the Peoples Bank of China. Approval of foreign currency payments by
the Bank of China or other institutions requires submitting a payment
application form together with suppliers invoices, shipping documents and
signed contracts. This serves to minimize foreign currency translation loss and
risks associated with RMB currency fluctuations, although there is a minimal
associated cost.

Inflation and changing prices

We do not anticipate any material impact on our net sales and revenues, or
on our income from continuing operations as a result of the impact of inflation
and changing prices.

B. Liquidity and Capital Resources

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Since July 1999, we have financed our operations and met our capital
expenditures and commitments from the net proceeds of our private placements,
our July 1999 initial public offering, our second public offering in January
2000 and our March 2000 initial public offering for hongkong.com Corporation,
as well as the interest income derived from investing such proceeds in debt
securities. For a summary of the exposure of our debt securities to various
market risks including credit default or investment and interest rate, see Item
11 of this Annual Report, Quantitative and Qualitative Disclosures About Market
Risk.

Cash from operating activities

We had positive operating cash flow of US$15.9 million for 2002 compared
to a negative operating cash flow of US$17.6 million for 2001. Our shift to
positive cash flow from operations was attributable principally to our
reduction of net losses from US$124.4 million in 2001 to US$18.2 million in
2002. As described above, the significant reduction in net losses was
attributable to many factors, most notably a steep reduction in operating
expenses in 2002. Adjustments for certain non-cash items including
depreciation, amortization, stock option compensation expense, net investment
impairment, net goodwill and intangible asset impairment restructuring costs
and other non-cash items, and the effect of changes in working capital and
other activities (including US$10.9 million of positive cash flows from
deposits, prepayments and other receivables) of US$34.1 million contributed to
our 2002 positive operating cash flow of US$15.9 million.

Cash from investing activities

Net cash used in investing activities was US$8.8 million for fiscal year
2002 and US$120.5 million for fiscal year 2001. During 2002, chinadotcom used
US$18.9 million to expand its business in the Asia-Pacific region, which
included US$5.5 million used for property and equipment and US$4.6 million used
for the acquisitions of OpusOne Technologies, IncNet, and Ion Global. In
addition, chinadotcom used US$8.8 million to make the final installment payment
for the purchase of the URLs www.china.com, www.taiwan.com, and
www.hongkong.com.

Cash provided by financing activities

In 2002, cash provided by our financing activities was approximately
US$5.2 million. Cash provided by our financing activities decreased by 95% from
approximately US$111.5 million for the financial year ended December 31, 2001.
The lower levels of cash provided by financing activities in 2002 was due to a
lack of capital markets activity during the year. Cash provided by our
financing activities in 2002 was primarily due to the drawdown of US$125.3
million from our bank repurchase facilities, and was offset by repayment of
US$116.3 million under our bank repurchase facilities. For a summary of the
exposure of certain risks related to our repurchase facility, see Item 11 of
this Annual Report, Quantitative And Qualitative Disclosures About Market Risk.

Our financing activities over the last three years include:



| |  |  | US$303.9 million from our sale of the equivalent of 7,626,000
Class A Common Shares in our January 2000 second public offering;    
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | US$168.5 million from our sale of 18% of our subsidiary,
hongkong.com Corporation in its March 2000 initial public offering on
GEM;
|
| |  |  | US$125.0 million from our bank repurchase facilities in 2002;
and                                                                  
|
| |  |  | US$12 million from our bank repurchase facilities in January
2003 which was repaid in February 2003.                               

On October 3, 2000, we filed with the Commission, our registration
statement on Form F-3 relating to the sale of 3,314,685 Class A Common Shares.
We did not receive any proceeds from the sale of those registered shares as
they were sold for the account of selling shareholders.

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On January 12, 2001, we registered 15 million Class A Common Shares, par
value US$0.00025 per share, that may be offered and issued from time to time in
connection with acquisition of other businesses, assets or securities. We do
not expect to receive any proceeds from the sale of these registered shares as
the subsequent sales will be solely to and for the accounts of the selling
shareholders, if any.

We currently anticipate the net proceeds from our financing activities to
date, including the interest income derived from previous capital raising
exercises and the available funds and cash flows generated from our operations,
will be sufficient to meet our anticipated needs for working capital, capital
expenditures and business expansion in the near future. We may need to raise
additional funds, however, in order to:



| |  |  | fund further expansion and acquisitions;                             
| | - |  | ---------------------------------------------------------------------
|
| |  |  | develop new or enhanced services or products;                        
|
| |  |  | respond to competitive pressures; and/or                             
|
| |  |  | acquire complementary operations, products, business or technologies.

Commitments, leases and long-term contracts

As of December 31, 2002, we had future minimum office rental and telephone
line lease payments under non-cancelable operating leases of US$1.5 million in
2003 and US$0.2 million in 2004.

Liquidity

As of December 31, 2002, we had US$33.3 million in cash, cash equivalents
and restricted cash and approximately US$471.2 million mainly invested in
available-for-sale debt securities issued by U.S. government sponsored
enterprises, international corporations and commercial banking institutions.
The US$471.2 million includes U.S. government sponsored enterprises and
corporate debt securities with a market value of US$151.1 million which are
segregated and secured in accordance with certain repurchase agreements
covering such debt securities. All debt securities held by the Company have
maturity terms from one to over nine years. At December 31, 2002 and March 31,
2003, all the debt securities (both available-for-sale and those restricted
pursuant to our repurchase facility) were carried at market value of US$471.2
million and US$302.1 million, respectively, and unrealized gain of US$3.4
million and US$2.0 million as at December 31, 2001 and March 31, 2002,
respectively, were reported as accumulated other comprehensive income on our
consolidated balance sheet.

Our primary liquidity source is the interest income generated from our
cash holdings and debt securities, which can fluctuate according to the
composition of our investment portfolio. In addition, we have primary lines of
credit with two commercial banks through our repurchase facilities, which as of
May 31, 2003 in the aggregate enable us to borrow up to a total of US$400.0
million on such terms as we and the banks may mutually agree. As of December
31, 2002, we have drawn an aggregate amount of US$125.0 million against these
lines of credit, US$115.0 million of which are repayable in 2003 and US$10.0
million of which are repayable through 2011. In addition, certain of our
operating companies maintain usual and customary lines of credit and over-draft
protection accounts with banks to meet their operating needs.

In August 2001, each of us and our subsidiary, hongkong.com Corporation
entered into a Global Master Repurchase Agreement with Fortis Bank nv-sa, an
AA- rated bank (as rated by Standard & Poors) to establish a repurchase
facility which enables us to draw down via Fortis Bank, Hong Kong Branch as of
May 31, 2003 up to US$250 million in funding for a one year term. The Fortis
Bank facility has been renewed for 2002. In addition, another repurchase
facility with similar terms was negotiated with DBS Bank, an A+ rated bank (as
rated by Standard & Poors), allowing us to draw down up to US$150 million for
a three-year term. Each drawdown under the DBS Bank facility is to be agreed
upon between ourselves and DBS Bank prior to execution. Both facilities were
established to provide us with a source of reasonably priced capital to give us
flexibility to finance operational working capital requirements, acquisitions,
as well as our treasury management program, without

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having to liquidate our investment portfolio at short notice. Under these
repurchase facilities, any draw down requires us to sell certain debt
securities to the bank at a certain price, and the bank agrees to sell back to
us the same securities at the same purchase price at a later date. The
repurchase dates are set in three or six month intervals for an entire term of
one year or three years, depending on which facility is drawn. In effect, the
bank retains title to our securities as collateral to enable us to draw down up
to a total of US$400 million.

Under
our Repurchase Agreement with Fortis Bank, we sold certain of our
debt securities to Fortis Bank at a discounted price, and the bank agreed to
sell back to us at that same discounted price the same debt securities at a
later date. Either party with a net exposure from the transaction arising from
fluctuations in the market value of the debt securities may request the other
party to make a cash or transfer of acceptable debt securities at least equal
to that net exposure. During the period between the date that we sold the debt
securities to the bank and the later date it repurchased such securities, the
bank has agreed to pay to us any income in respect of the debt securities, and
we have agreed to pay interest to the bank at LIBOR plus a spread per annum.

Under our Swap Agreement with DBS Bank, we transferred securities and
financial instruments to the bank in exchange for cash, and concurrently, we
agreed to reacquire the securities and financial instruments at a future date
for an amount equal to the cash exchanged plus an interest factor. The Swap
Agreement permits us to elect for net cash settlement upon termination of the
total return swap transaction. During the period between the date we
transferred the securities and financial instruments and date we reacquire
them, which is three calendar years, the bank has agreed to pay to us any
income in respect of the securities transferred and we have agreed, in turn, to
pay the bank a price differential calculated on the cash exchanged multiplied
by LIBOR plus a spread per annum.

During the period after we have sold the debt securities to the bank and
before we buy back the same debt securities, we consider such debt securities
to be restricted debt securities. As of December 31, 2002, we held US$19.2
million of restricted debt securities under our Repurchase Agreement with
Fortis and US$11.9 million of restricted debt securities under our Swap
Agreement with DBS.

Capital Expenditures

Our total capital expenditures amounted to US$29.2 million, US$8.3 million
and US$5.5 million in 2000, 2001 and 2002, respectively. Our primary capital
expenditure in each of those years was the purchase of computers, servers and
network equipment, and other items related to the expansion of our business
network across the Asia Pacific, the United States and the United Kingdom. We
have funded our operations and capital expenditures entirely through funds
raised from our shareholders, including private rounds of financing prior to
our IPO in July 1999 and a second public offering in January 2000. For the
foreseeable future we anticipate that we will fund our operations and capital
expenditures primarily by applying the cash holdings still available to us from
the proceeds of our equity offerings.

Contractual Obligations and Other Commitments

Total long-term bank loans amounted to US$11.6 million at December 31,
2002, in which there was a mortgage loan of US$1.5 million on a building we
purchased in 2001. The mortgage loans will be repaid by installments with the
last payment due in 2011. Freehold land and buildings with a carrying amount at
December 31, 2002 of US$2.5 million are pledged as collateral to secure these
loans. The weighted average interest rates on our long-term bank loans as of
December 31, 2002 was 2.1% compared to 4.1% as of December 31, 2001. The
decline was attributable to an overall decline in interest rates.

As of December 31, 2002, we had future commitments to purchase additional
shareholdings in three subsidiaries for an aggregate of US$1.0 million and
additional consideration based on the future revenues, gross margins and/or
operating results of the subsidiaries. The commitments shall be settled by cash
and/or our shares.

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During the year ended December 31, 2002, 1,764,555 Class A Common Shares
were repurchased at prices ranging from US$1.92 to US$3.24 per share. 1,692,001
of the repurchased Class A Common Shares were retired at prices ranging from
US$2.334 to US$2.826 per share. The redemption premium was deducted from the
additional paid-in capital.

Financial Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have
been prepared in accordance with GAAP. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure
of contingent assets and liabilities. On an on-going basis, we evaluate our
estimates, including those related to goodwill and intangible assets,
investment, revenue recognition, accounts receivable and allowance for doubtful
accounts. We base our estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
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.

Revenue recognition

We generate revenues from three primary sources: e-business solutions,
advertising and sales of IT products. In addition, we generate revenue from the
provision of software licenses, professional services and application of
management services.

e-business solutions service fees are derived from services provided for
the design and development of Internet Web sites, system integration and
monthly maintenance and hosting of computer-based information. Projects are
generally priced to clients on a project-completion basis, employing a
time-sheet with hourly billable charges for different stages of a project,
although certain Web design and development engagements which are short-term
projects are billed on a fixed-price basis. e-business solutions service fees
are recognized when services are provided. Professional services and other
revenues include revenues from consulting services, training, and post-contract
support. Revenues from customer training and education are recognized at the
date the services are performed. Revenue from post-contract support, such as
unspecified upgrades and telephone support, is recognized ratably over the
period the support is provided.

Advertising service fees are derived from the online sales of banner
advertisements, direct mailing and sponsorships in which we deliver advertising
for a fixed fee on our Web sites and advertising with our affiliates, which
comprises third party Web sites and offline advertising campaigns. Online
advertising revenue is derived principally from short-term advertising
contracts in which we may guarantee a minimum number of impressions to
advertisers over a specific period of time for a fixed fee. Revenues from
online banner advertising are recognized ratably in the period in which the
advertisement is displayed, provided that we have no significant remaining
obligations and collection of the resulting receivable is reasonably assured,
at the lesser of the ratio of impressions delivered over total guaranteed
impressions or the straight-line basis over the term of contract. Advertising
service fees from direct mailing are derived from advertisements sent to
electronic mail users registered with us, and are recognized when
advertisements are sent. Offline advertising revenue is derived principally
from fees for services and production of advertisements. Revenue is realized
when the service is performed, in accordance with the terms of the contractual
arrangement, and collection is reasonably assured.

Certain of our subsidiaries act as an advertising agent for their
customers, and the related revenues are recorded net in the consolidated
statement of operations.

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We pay affiliated Web sites a percentage of advertising revenue, ranging
from 50% to 85%, in exchange for providing advertising space to our network. We
become obligated to make payments to such advertising affiliates in the period
the advertising is delivered. Such expenses are classified as cost of revenues
in the consolidated statements of operations.

Sale of IT products revenue is derived principally from the distribution
of computer hardware and software products. Revenue is recognized when the
title to the products and risk of ownership are transferred to customers, which
occurs principally upon delivery to the customer. In instances where the
license agreements provide that we will provide the customer with ongoing
post-contract support and/or rights to upgrades and updates, and our service
cannot be separated from the third party software license, revenue from
licensing the software is recognized ratably over the period of the concurrent
application management services agreement. Provisions for discounts and rebates
to customers, estimated returns and allowances, and other adjustments are
provided for in the same period in which the related sales are recorded.

Goodwill and intangible assets

Goodwill represents the excess of cost over the fair value of net tangible
and identifiable intangible assets of acquired businesses. Effective January 1,
2002, we adopted SFAS 142, Goodwill and Other Intangible Assets. In accordance
with SFAS 142, we ceased amortizing goodwill and performed a transitional test
of goodwill as of January 1, 2002. SFAS 142 requires that goodwill be tested
for impairment at the reporting unit level (operating segment or one level
below an operating segment) on an annual basis and, in certain circumstances,
between annual tests. The test involves a two-step process. The first step
involves comparing the fair value of the reporting unit with the reporting
units carrying amount, including goodwill. Fair value is primarily determined
by computing the future discounted cash flows expected to be generated by the
reporting unit. If the carrying value exceeds the fair value, goodwill may be
impaired. If this occurs, we perform the second step of the test to determine
the amount of impairment loss. Fair value is allocated to the reporting units
assets and liabilities in a manner similar to a purchase price allocation in
order to determine the implied fair value of the reporting units goodwill.
This implied fair value is then compared with the carrying amount of the
reporting units goodwill, and if it is less, we would then recognize an
impairment loss. Prior to January 1, 2002, goodwill was amortized to expense on
a straight-line basis over a period of two to five years. The carrying value of
goodwill was reviewed for possible impairment whenever events or changes in
circumstances indicated that an impairment might exist. No goodwill impairment
losses have been recognized in 2002.

Our intangible assets represent our trademarks, service marks, URLs,
software applications and programs, and customer databases. Intangible assets
are carried at cost less accumulated amortization. Amortization is computed
using the straight-line method over the estimated economic life of the
respective assets. We have registered certain trademarks, service marks and
domain names with the United States Patent and Trademark Office and in other
jurisdictions. We believe the service marks and domain names are of material
importance to our business and have an estimated useful life of twenty years.
Accordingly, these trademarks, service marks and domain names are amortized on
a straight-line basis over a period of twenty years. We have purchased certain
software programs and customer databases as a result of acquisitions. We
consider the software applications and customer databases will generate
revenues for us for three years. Accordingly, these software applications and
programs and customer database are amortized on a straight-line basis over a
period of three years. We annually review and adjust the carrying value of
purchased intangible assets if the facts and circumstances suggest purchased
intangible assets may be impaired. If this review indicates purchased
intangible assets may not be recoverable, as determined based on the
undiscounted cash flows of the acquired entity over the remaining amortization
period, the carrying value of intangible assets will be reduced by the
estimated shortfall in discounted cash flows.

Investments

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Debt and marketable equity investments which represent available-for-sale
securities are stated at fair value. Unrealized holding gain or loss, net of
tax, on available-for-sale securities is included in a separate component of
shareholders equity. Realized gains and losses and decline in value judged to
be other than temporary on available-for-sale securities are included in
gain/loss on disposal of available-for-sale securities and impairment of
available-for-sale securities, respectively. The cost of securities sold is
based on the first-in, first-out method. Interest and dividends on securities
classified as available-for-sale are included in interest income and other
income, respectively.

All other investments, for which we do not have the ability to exercise
significant influence and there is not a readily determinable market value, are
accounted for under the cost method of accounting. Dividends and other
distributions of earnings from investees, if any, are included in income when
declared. We periodically evaluate the carrying value of our investments
accounted for under the cost method of accounting, and declines in value are
included in impairment of cost investments.

Accounts receivable and allowance for doubtful accounts

The allowance for doubtful accounts is established when factors indicate
collection from customers is no longer reasonably assured. Factors that may
indicate a change in probability of collection include customer liquidity
difficulties, continuing billing disputes or customer bankruptcy or litigation.
Allowances are made based upon regular reviews of all significant outstanding
invoices and in addition, invoices not specifically reviewed are provided for
at differing rates, based upon the age of the receivable. The determination of
these rates is based upon our historical collection experience and assessment
of the economic environment in which the customer is situated. Receivables
more than 180 days past due are automatically reserved unless collection is
deemed probable. If the assessments made and historical data used to calculate
the allowance for doubtful accounts does not reflect our ability to collect
outstanding receivables, additional provisions for doubtful accounts may be
needed and the future results of operations could be materially affected.

Provision for bad debt expenses were $3.0 million, $3.1 million and $4.3
million for the three years ended December 31, 2000, 2001 and 2002,
respectively. Ratio of provision for bad debt expenses to total revenue were
2.46%, 4.04% and 6.75% for the three years ended December 31, 2000, 2001 and
2002, respectively. The increasing ratio of bad debt expenses in the past
three years was due to the general economic downturn and the increasing sales
in China. Credit assessment work is more difficult to perform accurately in
China because of less credit rating in information available as compared to
other parts of the world.

Impact of Certain Recently Issued Accounting Standards

In April 2002, the Financial Accounting Standards Board, or FASB, issued
SFAS 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections. Among other provisions, SFAS 145
rescinds SFAS 4, Reporting Gains and Losses from Extinguishment of Debt.
Accordingly, gains or losses from extinguishment of debt shall not be reported
as extraordinary items unless the extinguishment qualifies as an extraordinary
item under the criteria of Accounting Principles Board, or APB, Opinion No. 30,
Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions. Gains or losses from extinguishment of debt that do
not meet the criteria of APB 30 should be reclassified to income from
continuing operations in all prior periods presented. We adopted SFAS 145
effective January 1, 2002, and expect the adoption to have no material effect
on our results of operations and financial condition.

In June 2002, the FASB issued SFAS 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS 146 provides guidance related to
accounting for costs associated with disposal activities covered by SFAS 144 or
with exit or restructuring activities previously covered by Emerging Issues
Task Force, or EITF, 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 146 supersedes EITF Issue No. 94-

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3 in its entirety. SFAS 146 requires that costs related to exiting an
activity or to a restructuring not be recognized until the liability is
incurred. SFAS 146 will be applied prospectively to exit or disposal activities
that are initiated after December 31, 2002.

In December 2002, the FASB issued SFAS 148, Accounting for Stock-Based
Compensation, Transition and Disclosure. SFAS 148 provides alternative methods
of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. SFAS 148 also requires that
disclosures of the pro forma effect of using the fair value method of
accounting for stock-based employee compensation be displayed more prominently
and in a tabular format. Additionally, SFAS 148 requires disclosure of the pro
forma effect in interim financial statements. The transition and annual
disclosure requirements of SFAS 148 were effective for us in 2002. We do not
expect SFAS 148 to have a material effect on our results of operations or
financial condition.

In November 2002, the EITF reached a consensus on Issue No. 00-21, Revenue
Arrangements with Multiple Deliverables. EITF 00-21 provides guidance on how to
account for arrangements that involve the delivery or performance of multiple
products, services and/or rights to use assets. The provisions of EITF 00-21
will apply to revenue arrangements entered into in fiscal periods beginning
after June 15, 2003. We are currently evaluating the effect that the adoption
of EITF 00-21 will have on our results of operations and financial condition.

In November 2002, the FASB issued FASB Interpretation No. 45, or FIN 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45 requires that a liability
be recorded in the guarantors balance sheet upon issuance of a guarantee. In
addition, FIN 45 requires disclosures about the guarantees that an entity has
issued, including a roll-forward of the entitys product warranty liabilities.
We do not expect the adoption of FIN 45 will have an impact on our consolidated
financial position and results of operations.

In January 2003, the FASB issued FASB Interpretation No. 46, or FIN 46,
Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.
FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first
interim or annual period beginning after June 15, 2003. We are currently
evaluating the effect that the adoption of FIN 46 will have on our results of
operations and financial condition.

C. Research and Development, Patents and Licenses, etc.

We do not have a formal research and development policy, and to date we
have not spent significant amounts on company-sponsored research and
development activities. In 2002, research and development costs represented
less than 1% of our revenues. As part of our overall strategy to develop and
introduce more proprietary products to sell across our business lines and
service offerings, we anticipate that our research and development costs may
increase as a percentage of overall revenues, particularly considering the
anticipated cost of software development activities in China. At this time, we
do not expect our research and development costs for future years to account
for a greater percentage of revenues than currently expected in 2003.

D. Trend Information

The industries in which we compete continued to undergo rapid change over
the course of 2002 as competitive models evolved, a trend compounded by
continuing subdued investment and business sentiment towards the businesses
that we own and operate. Similar to many other companies in related parts of
the

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technology and Internet industries, we saw a slowdown or reversal in our
existing operations throughout the first half of 2002, and then a stabilization
during the second half of 2002. We discontinued non-performing and
non-profitable operations during the course of 2002, and have taken additional
cost cutting measures in order to reduce losses. At the same time, we continue
to execute our software strategy to move up the value curve through investments
in software-related business and through entering strategic partnerships with
leading software vendors. As a result of these actions, we recorded a net
profit for the first time since our public offering (with the exception of the
one-time non-operating profit recorded in 2000 from the sale of shares in
Hongkong.com), of US$1.2 million in the fourth quarter of 2002.

While the first half of 2002 continued to reflect the effects of the
regional and global economic slowdown, there were signs by the fourth quarter
of 2002 that conditions were beginning to stabilize, as evidenced by a 2%
improvement in our revenues for the fourth quarter of 2002 compared to the
third quarter of 2002. Looking forward, we will seek to increase the proportion
of recurrent revenues in our business by actively seeking out longer-term,
annuity-style projects, as well as by looking to acquire companies that are
profitable and have a high percentage of recurrent revenues in their current
business mix. We believe such characteristics can be found in some of our
recent acquisition activities, such as our recent acquisition of Praxa Limited
whose core business is the provision of information technology products and
services through outsourcing, application development and support, and system
integration in Australia. As a result of the acquisition, we expect to increase
the number of potential clients for a low-cost China and India-based
outsourcing platform Praxa is seeking to develop, and to extend the
distribution of our own software products into the Australian marketplace. We
expect the addition of Newpalm, a mobile SMS services and applications provider
in the PRC, will contribute to our revenue growth in a rapidly growing sector
of the mobile applications market in China, and help contribute to an overall
increase in gross margins for the company. We will also look to add investments
in companies that feature their own proprietary intellectual property. In this
way, we aim to broaden our service offering in the enterprise solutions space
by overlaying such acquisitions on our existing software, solutions,
implementation and integration capabilities. However, we expect our advertising
revenues to decline in future periods as a significant part of our advertising
revenues have been derived from our South Korean online network advertising
business which has now lost its exclusive service agreement with Daum
Communications, a leading South Korean portal company, and revenues from our
database marketing related businesses in Australia will require time to grow.

In light of the many risks and uncertainties surrounding chinadotcom,
Greater China, Asia and the enterprise software, technology, marketing and
media markets, shareholders, investors and prospective investors should keep in
mind that we cannot guarantee that the forward-looking statements described in
this Annual Report will or can prove true.

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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Directors and Senior Management

The following table sets forth information regarding our directors and
executive officers as of each of December 31, 2002 and May 31, 2003:

|                       |  |      |    |          |  |                                                              |  |                            
|---------------------- |  | ---- | -- | -------- |  | ------------------------------------------------------------ |  | ---------------------------
|Board of Directors     |  | Age* |    | Position |  | Class of Directorship                                       
|                       |  |      |    |          |  |                                                             
|Raymond K.F. Chien    |  |      | 50 |          |  | Executive Chairman                                           |  | III, term to expire in 2005
|Peter Yip              |  |      | 50 |          |  | Vice Chairman and Chief Executive Officer                    |  | III, term to expire in 2005
|Zhou Shun Ao           |  |      | 53 |          |  | Vice Chairman                                                |  | III, term to expire in 2005
|J. Carter Beese, Jr.   |  |      | 46 |          |  | Director                                                     |  | I, term to expire in 2003**
|Thomas M. Britt, III   |  |      | 42 |          |  | Director                                                     |  | I, term to expire in 2003**
|Chan Wing-Tak, Douglas |  |      | 53 |          |  | Director                                                     |  | II, term to expire in 2004 
|Harry Edelson          |  |      | 69 |          |  | Director                                                     |  | I, term to expire in 2003**
|William Fung           |  |      | 53 |          |  | Director                                                     |  | II, term to expire in 2004 
|                      
|                      
|Executive Officers     |  |      |    |          |  |                                                              |  |                            
|                       |  |      |    |          |  |                                                              |  |                            
|Daniel Widdicombe      |  |      | 36 |          |  | Chief Financial Officer                                      |  |                            
|Steven Chan            |  |      | 35 |          |  | Director, Legal and Company Secretary                        |  |                            
|Rudy Chan              |  |      | 41 |          |  | Chief Executive Officer of hongkong.com Corporation          |  |                            
|Herman Cheng           |  |      | 35 |          |  | Principal, Ion Global and Managing Director of Greater China |  |                            



---

|*  |  | As of December 31, 2002.                                                  
|-- |  | --------------------------------------------------------------------------
|  
|** |  | Subject to re-election by shareholders at our 2003 annual general meeting.

The address of each of our executive officers and directors is c/o
chinadotcom corporation, 34/F Citicorp Centre, 18 Whitfield Road, Causeway Bay,
Hong Kong. The following is a brief biography of each of our directors and
executive officers:

Raymond K.F. Chienhas served as Executive Chairman of our Board of
Directors since April 2001. Previously, since January 1999, Dr. Chien served
as our Chairman. Between October 1996 and March 2001, he was also a member of
the Board of Directors of our former parent company CIC. Dr. Chien is Chairman
and Executive Committee member of our Hong Kong listed subsidiary, hongkong.com
Corporation. Dr. Chien is also currently on the boards of HSBC Holdings plc,
the Hongkong and Shanghai Banking Corporation Limited, Inchcape plc, Inmarsat
Ventures plc, Convenience Retail Asia Limited, VTech Holdings Ltd., MTR
Corporation Limited and The Wharf (Holdings) Limited. He is also non-executive
chairman of HSBC Private Equity (Asia) Limited. Dr. Chien is Chairman of the
Hong Kong/Japan Business Co-operation Committee and Chairman of the Advisory
Committee on Corruption of the Independent Commission Against Corruption. In
addition, Dr. Chien is the honorary president and past chairman of the
Federation of Hong Kong Industries. He is also President of Hong Chi
Association, Hong Kongs leading non-government organization helping mentally
handicapped persons. Dr. Chien was appointed a member of the Executive Council
of the Hong Kong SAR and served until July 2002. Dr. Chien received a doctoral
degree in economics from the University of Pennsylvania in 1978, was appointed
a Justice of the Peace in 1993 and a Commander in the Most Excellent Order of
the British Empire in 1994. In 1999, he was awarded the Gold Bauhinia Star
medal.

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Peter Yipis a Vice Chairman of our Board of Directors. He has been our
Chief Executive Officer since January 1999. Mr. Yip is also an Executive
Director of our Hong Kong listed subsidiary, hongkong.com Corporation. He has
also served as the Vice Chairman of the Board of Directors of CIC since May
1996. Mr. Yip has international experience as an entrepreneur in the media and
telecommunications industry. Prior to forming chinadotcom, Mr. Yip founded a
systems integration company which eventually was sold to SHL Systemshouse, a
company since acquired by MCI. He previously was a senior management consultant
at KPMG Consulting and was a Senior Research Fellow at Wharton Applied
Research. Mr. Yip received his MBA from the Wharton School and his MSEE and
BSEE from the University of Pennsylvania.

Zhou Shun Aohas been a Vice Chairman of our Board of Directors since
December 2000. He was our Chief China Officer from January 1999 to December
2000. Mr. Zhou has served for more than 30 years at Xinhua News Agency, and is
currently General Manager of the Asia-Pacific Bureau at Xinhua News Agency. He
has also served as Executive Deputy General Manager at Xinhua News Agency. He
was Deputy Director of Xinhua Department for Business Development, General
Manager of China Media Development Corporation and Chairman of the Board of
China Global Public Relations Corporation. Mr. Zhou has also served as an
Executive Director of our Hong Kong listed subsidiary, hongkong.com
Corporation. He has also served as the Chairman of the Board of Directors of
CIC since October 1998.

J. Carter Beese, Jr.has served as an independent director since April
1999. He is President of Riggs Capital Partners, a venture capital fund in
excess of US$100 million, and the Vice-Chairman of Riggs & Co, both of which
are affiliated with Riggs National Corporation. Mr. Beese is also a Senior
Advisor to the Center for Strategic and International Studies. Prior to the
merger between Bankers Trust and Alex.Brown, Mr. Beese was Chairman of
Alex.Brown International. He originally joined Alex.Brown in 1978, became an
officer in 1984, and a partner in 1987. In 1992, he was appointed as the U.S.
Commissioner of the Securities and Exchange Commission, where he served until
November 1994. Mr. Beese currently also serves as director of Aether Systems,
Inc. and Riggs National Corporation.

Thomas M. Britt, IIIhas served as an independent director since May 2000.
Mr. Britt is the co-founder and Managing Director of IRG Limited, an investment
banking boutique focused on the telecommunications, media and technology
sectors in Asia. Prior to co-founding IRG in 2000, Mr. Britt was the senior
partner of the U.S. Securities Group in the Hong Kong office of Clifford Chance
LLP, the worlds largest law firm, and the founding and managing partner of the
Hong Kong office of Rogers & Wells LLP, a leading U.S. law firm. Mr. Britt has
JD and MBA degrees from New York University and an AB degree from Georgetown
University.

Chan Wing-Tak, Douglashas served as a director since January 1999 and is
a Non-Executive Director of our Hong Kong listed subsidiary, hongkong.com
Corporation. Mr. Chan is currently an executive director of New World China
Land Limited, a Hong Kong listed company, the Managing Director of New World
Infrastructure Limited., a Hong Kong listed company. Mr. Chan is also the
deputy chairman of Pacific Ports Co. Ltd., a Hong Kong listed company. He also
served as a director of CIC from September 1997. Mr. Chan holds a Bachelor of
Commerce degree from the University of Windsor in Canada, and is a member of
the Institute of Chartered Accountants of Ontario, Canada.

Harry Edelsonhas served as a non-executive director of chinadotcom since
January 1999. Mr. Edelson also served as a Non-Executive Director of our Hong
Kong listed subsidiary, hongkong.com Corporation, from November 1999 until
February 2002 when he resigned and as a director of CIC from October 1996 until
June 2001 when he resigned. Mr. Edelson is the founding partner of Edelson
Technology Partners, a high technology venture capital partnership providing
assistance to multinational corporations. Strategic investors in these
partnerships include AT&T Corp., Viacom Inc., 3M Company, Ford Motor Company,
Colgate-Palmolive Company, Asea Brown Boveri, Reed Elsevier plc and Cincinnati
Bell Inc.

William Funghas served as an independent director since June 2001. Dr.
Fung is Group Managing Director of Li & Fung Limited, and has held key
positions in major trade associations. He is past Chairman of

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the Hong Kong General Chamber of Commerce, the Hong Kong Exporters
Association and the Hong Kong Committee for the Pacific Economic Cooperation
Council. Dr. Fung holds a BS in Engineering from Princeton University and an
MBA from the Harvard Graduate School of Business. He has been awarded an
Honorary Doctorate degree of Business Administration by the Hong Kong
University of Science and Technology. Dr. Fung is also non-executive director
of Convenience Retail Asia Limited, HSBC Holdings plc, Vtech Holdings Limited
and CLP Group Holdings Limited.

Daniel Widdicombehas served as our Chief Financial Officer since December
2000. Prior to joining chinadotcom, Mr. Widdicombe was Chief Financial Officer
of I-Quest Corporation. He was also the Managing Director of Telecoms and
Internet Equity Research at Bear Stearns Asia Ltd. where he worked as an
investment analyst researching and evaluating companies across Asia. He was
previously an equity analyst at HSBC James Capel in London and Hong Kong. Mr.
Widdicombe is a First Class Honors graduate of Edinburgh University, Scotland.

Steven Chanhas served as our Director, Legal and Company Secretary since
May 2001. He advises the management of the company on legal, operational and
strategic issues. Mr. Chan previously was a corporate associate with the New
York offices of each of Morrison & Foerster LLP and Milbank, Tweed, Hadley &
McCloy LLP. He received a JD degree from Boston College Law School and an AB
degree from University of California at Berkeley.

Rudy Chanhas served as Chief Executive Officer at our Hong Kong publicly
listed unit, hongkong.com Corporation since February 2000. Mr. Chan first
joined us as Director of e-commerce in November 1999. Immediately prior to
joining us, Mr. Chan was a founding member of Bartercard in Hong Kong. His
previous experience includes eight years with Time Inc., and he has served as
the Managing Director of Time Inc.s Asian operations. Mr. Chan received his BS
and MBA degrees from the Wharton School at the University of Pennsylvania. He
is also a certified public accountant registered with the State of New York.

Herman Chenghas been a Principal with Ion Global since May 1999 and is
currently Managing Director of Greater China. He is responsible for helping
clients create and manage strategic e-business initiatives and for growing the
Hong Kong office. Mr. Cheng has extensive experience in implementing e-business
solutions. He joined Ion Global from Accenture (formerly Andersen Consulting),
where he was a senior consulting manager in their U.S. and Hong Kong technology
practices. Mr. Cheng has over 12 years of hands-on experience in major systems
integration projects. He holds an MBA from Butler University and a BS in
Electrical Engineering from Purdue University.

B. Compensation

Directors

We paid an aggregate amount of compensation (inclusive of directors fees)
during 2002 to our directors as a group equal to US$322,592, as well as options
to purchase our Class A Common Shares as described below. Directors are
reimbursed for all expenses incurred in connection with each Board of Directors
meeting and when carrying out their duties as directors of chinadotcom.

In 2002, our Board of Directors established the director compensation
structure with respect to our 2002 non-executive directors and Chairman. We pay
each non-employee director and the Chairman US$25,000 per year for their
respective services, provided they attend at least 60% of the board meetings
held each year. We pay members of our Audit Committee US$10,000 per year for
their services on the Committee, and we pay US$40,000 to the independent member
of our Executive Committee, provided they each attend at least 60% of their
respective committee meetings held each year.

During 2002, we granted our director options to purchase a total of
400,000 Class A Common Shares. Under the 2002 director compensation measures
approved by our Board of Directors, each non-employee

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director who served on our Board of Directors throughout 2002 is to be
granted 50,000 stock options with 1/3 to be vested as of the grant date and the
future vesting to be dependent upon future attendance by the respective
director of not less than 60% of the Board meetings held during the course of
the next two years. An additional 50,000 stock options with similar vesting
provisions was granted to the independent member of our Executive Committee.

Executive Officers

We paid an aggregate amount of compensation during 2002 to our executive
officers as a group equal to US$811,766, as well as options to purchase Class A
Common Shares as described below. We have entered into employment agreements
with a number of the executive officers named in Item 6.A. of this Annual
Report, Directors, Senior Management and Employees  Directors and Senior
Management. These arrangements provide for terms of service, salary and
additional compensation arrangements, including in some cases housing refunds
and other benefits, all of which have been reflected in the 2002 aggregate
compensation amount. For certain directors and executive officers, these
arrangements also include the right to receive a severance payment equal to
three months of their respective salaries if such persons are terminated by us
without cause and a right to have their respective stock options accelerated
under certain conditions, including a change of control of chinadotcom.

Mandatory Provident Fund

The Mandatory Provident Fund, or MPF, scheme is the standard pension
payment required by the Hong Kong government. In the MPF scheme, mandatory
contributions are basically calculated on the basis of 10% of an employees
relevant income, with the employer and employee each paying US$128 per month or
up to 5% of the employees relevant income. This requirement also applies to
our executive officers in compliance with the overall scheme.

1999 Stock Option Plan

Pursuant to our 1999 Stock Option Plan, as amended, options may be granted
to directors, executive officers, employees and consultants of chinadotcom
corporation and its subsidiaries for the purchase of up to an aggregate of 20
million Class A Common Shares. As of March 31, 2003 under our 1999 Stock Option
Plan, we had granted options to directors and employees to purchase
approximately 7.9 million Class A Common Shares at a weighted average exercise
price of approximately US$5.8856 per share. In addition, our directors and
employees had exercised options to purchase approximately 2.3 million Class A
Common Shares. Currently, the number of options vested as of March 31, 2003
under our 1999 Stock Option Plan is approximately 4.9 million of our Class A
Common Stock. These options generally have a five or ten year term. The 20
million options available under our 1999 Stock Option Plan do not include
1,881,442 of the 2,081,442 options granted to APOL, a company controlled by our
Chief Executive Officer. We have granted APOL the right to purchase 1,881,442
and 200,000 of our Class A Common Shares at an exercise price of US$5.00 and
US$2.82 per share, respectively.

Our 1999 Stock Option Plan is administered by the Compensation Committee
of the Board of Directors, which determines, in its discretion, the number of
Class A Common Shares subject to each option granted and the related purchase
price and option period.

The 1999 Stock Option Plan requires that each option shall expire on the
date specified by the Compensation Committee, but not more than ten years from
the date on which the option was granted. Under the Plan, upon the voluntary
termination of employment by an option holder or termination of an option
holder for cause by chinadotcom, any options granted under the 1999 Stock
Option Plan to the option holder generally will terminate. If termination was
due to death, retirement or disability, the option holder, or his or her
successors, have a period of one year within which to exercise the option
holders options. If termination was due to any

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other reasons, options granted under the 1999 Stock Option Plan may be
exercised within three months of the termination. Options granted are
nontransferable except by will or as otherwise authorized by the Compensation
Committee.

Upon the occurrence of any change in our capital structure, including any
merger, liquidation, reorganization, recapitalization, the Compensation
Committee may amend the 1999 Stock Option Plan, in a way as to preserve the
rights of option holders substantially proportionate to their rights existing
prior to the occurrence of such event, as it may feel necessary. Upon the
occurrence of a change of control in chinadotcom, the Compensation Committee
may amend the 1999 Stock Option Plan as it may deem appropriate provided that
such adjustments do not have a substantial adverse impact on the option holder.
Unless terminated earlier by action of the Board of Directors, the 1999 Stock
Option Plan will terminate on May 17, 2009, the ten-year anniversary of the
approval of the Plan by the Board and the shareholders.

Share Option Replacement Program

On August 27, 2001, we cancelled options held by our employees to purchase
approximately 1.2 million Class A Common Shares. On February 28, 2002, we
issued options to hose same employees to purchase approximately 665,000 Class A
Common Shares. The exercise price of the options granted on February 28, 2002
was US$2.87 per share, being the last reported closing price of our Class A
Common Shares on February 27, 2002. Our then-current Board of Directors members
and executive officers were not eligible to participate in this share option
replacement program. Further, our employees, including our executive officers,
who received benefits under our bonus scheme as described below were also not
able to participate. A total of 490 of our employees participated in this
program.

2002 Bonus Scheme

We introduced a performance-based cash bonus scheme in July 2002 to retain
and motivate our business unit heads, senior management and top 20% of the
full-time general employees of the Company. An aggregate target bonus of
approximately US$0.5 million was budgeted for the scheme, but no award had been
paid as of March 31, 2003. Four of our executive officers, Mr. Daniel
Widdicombe, Mr. Rudy Chan, Mr. Steven Chan and Mr. Herman Cheng, were selected
to participate in the bonus scheme.

Options Held by Directors and Officers

As of March 31, 2003, of the approximately 7.9 million options we had
granted for the purchase of our Class A Common Shares, our directors and
executive officers as a group held options to purchase a total of approximately
3.8 million of our Class A Common Shares. The weighted average exercise price
of these options is approximately US$4.8316 per share. The options granted to
such directors and executive officers generally vest 25%, 33-1/3% or 50% per
year on a quarterly basis over a two, three or four year period, as applicable,
commencing either immediately upon grant or on the first anniversary of the
relevant grant. As of March 31, 2003, our directors and officers, as a group,
held vested options to purchase approximately 2.6 million Class A Common
Shares.

Warrants

In connection with AOLs strategic acquisition of 6,795,200 of our Class A
Common Shares prior to our initial public offering in July 1999, we granted AOL
two warrants to purchase subject to certain conditions up to 18.5% and 6.5% of
our total outstanding capital at an exercise price of US$5.00 per share and
US$42.50 per share, respectively. The first of these warrants became
exercisable in October 2000 and the second became exercisable in July 2001.
Both warrants will expire in July 2003.

In connection with our acquisition of all the issued and outstanding
shares of Pacific Connections Limited, we granted the initial shareholders of
Pacific Connections Limited an option to acquire an additional

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240,000 Class A Common Shares at an exercise price of US$9 per share. The
options have not been exercised and expire in August 2009.

No warrants may be sold, transferred, assigned, or hypothecated to any
person, other than to any limited partnership with the same general partner, or
to any company that directly, or indirectly, controls or is controlled by or is
under common control with the holder of the warrants, without our prior
consent.

C. Board Practices

Terms of Directors and Executive Officers

Our Board of Directors is divided into three classes, each class generally
having a term of three years. Each year the term of one class expires and
nominees for membership in that class are eligible to be elected at the
relevant annual meeting of shareholders. All directors hold office until the
relevant annual meeting of shareholders or until their successors have been
duly elected and qualified. Executive officers are elected by and serve at the
discretion of the Board of Directors.

Mr. Peter Yip was appointed as Chief Executive Officer of chinadotcom
pursuant to a services agreement, as amended, dated July 12, 1999 between
chinadotcom and APOL. The services agreement was replaced and approved by the
Board of Directors in January 2002. The current services agreement had an
initial term of one year with automatic renewal provisions, and the agreement
and Mr. Yips appointment can be terminated by either APOL or chinadotcom with
six months notice. The current services agreement was automatically renewed
for 2003. For a summary of the terms of Mr. Yips services agreement, see Item
7.B of this Annual Report, Major Shareholders and Related Party Transactions 
Related Party Transactions. Mr. Yip currently also serves as Vice Chairman and
Director of our Board of Directors and his term as director ends in 2005
subject to re-election by shareholders at the 2005 annual shareholder meeting.

Dr. Raymond Chien was appointed as Executive Chairman of our Board of
Directors pursuant to a services agreement between chinadotcom and Dr. Chien.
The term of Dr. Chiens services agreement ends as of April 27, 2004 while his
term as director ends in 2005 subject to re-election by shareholders at the
2005 annual shareholder meeting. For a summary of the terms of Dr. Chiens
services agreement, see Item 7.B of this Annual Report, Major Shareholders and
Related Party Transactions  Related Party Transactions.

No director or executive officer has been the subject of any order,
judgment, or decree of any governmental agency or administrator or of any court
of competent jurisdiction, revoking or suspending for cause any license, permit
or other authority of such person or of any corporation in which he or she is a
director or executive officer, to engage in normal business activities of such
person or corporation.

There are no family relationships between any of the named directors and
executive officers. There are no material arrangements or understandings that
exist between any such director or executive officer and chinadotcom pursuant
to which any such person was appointed as a director or executive officer of
chinadotcom except for the arrangements between chinadotcom and each of Mr. Yip
and Dr. Chien.

Committees of the Board of Directors

During 2002, the Board of Directors had four standing committees:



| |  |  | the Executive Committee;                                                                                                         
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the Audit Committee;                                                                                                             
|
| |  |  | the Compensation Committee; and                                                                                                  
|
| |  |  | the Related Party Transactions Committee the duties of which,
since February 2002, have been integrated with the Audit Committee.

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The Executive Committee is authorized during any interim period between
quarterly meetings of the full Board of Directors, to act for and in lieu of
the full Board of Directors and to approve of any transaction requiring Board
approval that does not exceed US$20.0 million in consideration to be paid by
chinadotcom, including in the form of up to 1 million Class A Common Shares.
Currently, Messrs. Chien, Yip, Zhou and Britt serve on the Executive Committee
with Dr. Chien serving as Chairman.

The Audit Committee selects and engages, on our behalf, the independent
public accountants to audit our annual financial statements, and will review
and approve the planned scope of our annual audit. In addition, since February
2002, the Audit Committee reviews the terms of proposed transactions with
related parties in accordance with the terms of our Articles of Association. We
have appointed to the Audit Committee each of our directors who qualify as an
independent director for purposes of the rules and regulations of the Nasdaq
National Market. The Audit Committee operates under a charter that is compliant
with the rules and regulations of the Nasdaq National Market. Currently,
Messrs. Beese, Britt and Edelson serve on the Audit Committee with Mr. Britt
serving as Chairman.

The Compensation Committee establishes remuneration levels for our
officers, performs such functions as provided under employee benefit programs
and administers the 1999 Stock Option Plan and the 2000 and 2001 Employee Share
Purchase Plans. Currently, Messrs. Chien, Edelson and Fung serve on the
Compensation Committee with Dr. Chien serving as Chairman.

D. Employees

As of December 31, 2002, we had approximately 952 full-time, part-time and
temporary employees, as compared to 1,300 at the beginning of 2002. Of our 952
employees, 371 are in technical, 131 in design and editorial, 115 in sales and
business development, 34 in marketing, 64 in finance, 11 in legal, 19 in human
resources, 43 in administration and 74 in general and operations management,
with the remainder principally consisting of part-time and temporary employees.
A significant portion of our reduction in head count was the result of the
closing of under-performing subsidiaries. Going forward, we aim to continue to
attract, retain and motivate highly qualified technical and management
personnel, particularly highly skilled technical personnel and engineers
involved in new product development. From time to time, we also employ
independent contractors to support our research and development, marketing,
sales and support and administrative organizations. Our employees are not
represented by any collective bargaining unit, and we have never experienced a
work stoppage.

E. Share Ownership

Beneficial ownership of our Class A Common Shares by our directors, senior
executive officers and other major shareholders is determined in accordance
with the rules of the Commission, and generally includes voting or investment
power with respect to those shares. In computing the number of Class A Common
Shares beneficially owned by a person, and the percentage ownership of that
person, Class A Common Shares subject to options or warrants held by that
person that are currently exercisable or will become exercisable within 60 days
after March 31, 2003 are deemed beneficially owned and outstanding, but such
Class A Common Shares are not deemed outstanding for the purposes of computing
the ownership percentage of any other person.

None of our directors or senior executive officers beneficially owned more
than 1% of our Class A Common Shares as of March 31, 2003, other than Mr. Peter
Yip who is the beneficial owner of approximately 18.8 million, or approximately
19%, of our Class A Common Shares. Mr. Yips beneficial ownership under the
Commissions rules is the same as that of his spouse and APOL. APOL is the
owner of record of 16,135,686 Class A Common Shares and the beneficial owner of
an additional 2,271,442 Class A Common Shares due to exercisable options
attributable to APOL and Mr. Yip. Mr. Yips spouse owns 442,219 Class A Common
Shares. APOL is a company owned by Mr. Yips spouse and a trust established for
the benefit of Mr. Yips children.

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ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. Major Shareholders

We are a publicly owned corporation, and our shares are owned by U.S.
residents and residents of other countries. As of March 31, 2003, we were not
directly owned or controlled by another corporation or by any foreign
government, and a total of 414 shareholders of record were U.S. residents
holding approximately 72.4% of our Class A Common Shares. Holders of our Class
A Common Shares do not have different voting rights.

The following table sets forth information concerning each person known by
us who own beneficially 5% or more of our Class A Common Shares at March 31,
2003:

|                                         |  |                      |            |         |  |  |       |  
|---------------------------------------- |  | -------------------- | ---------- | ------- |  |  | ----- | -
|                                         |  | Beneficial Ownership
|                                         |  |                     
|Shareholder                              |  | Shares               |            | Percent
|                                         |  |                      |            |        
|AOL Time Warner Inc.(1)                  |  |                      | 24,820,371 |         |  |  | 25.00 | %
|Asia Pacific Online Limited(2)           |  |                      | 18,849,347 |         |  |  | 18.99 | %
|Xinhua News Agency(3)                    |  |                      | 7,362,734  |         |  |  | 7.42  | %
|Capital Group International, Inc.(4)(5)  |  |                      | 7,003,100  |         |  |  | 7.05  | %
|Jayhawk Capital Management, L.L.C.(5)(6) |  |                      | 6,942,000  |         |  |  | 6.99  | %



---

|(1) |  | America Online, Inc., a wholly-owned subsidiary of AOL Time Warner Inc.
is the owner of record of 6,795,200 Class A Common Shares and the holder
of two exercisable warrants to purchase up to 25% of our Class A Common
Shares on a fully-diluted basis.                                                                                                                                                             
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Asia Pacific Online Limited, or APOL, is owned by the spouse of our Chief
Executive Officer and a trust established for the benefit of Mr. Yips
children. APOL is the owner of record of 16,135,686 Class A Common Shares
and the beneficial owner of an additional 2,271,442 Class A Common Shares
due to exercisable options attributable to APOL and Mr. Yip. Mr. Yips
spouse owns 442,219 Class A Common Shares.
|   
|(3) |  | Xinhua News Agency holds our shares through a wholly-owned subsidiary,
Golden Tripod Technology Limited.                                                                                                                                                                                                                                                                                                              
|   
|(4) |  | Capital Group International, Inc. is the parent holding company of
Capital International, Inc., the beneficial owner of 1,502,500 Class A
Common Shares. Emerging Markets Growth Fund, Inc. is the beneficial owner
of 5,500,600 Class A Common Shares and is advised by Capital
International, Inc.                                                                                                                  
|   
|(5) |  | Information concerning the basic beneficial ownership of our Class A
Common Shares for Capital Group International, Inc. and Jayhawk Capital
Management, L.L.C. has been derived from publicly available information as
of February 10, 2003 and January 16, 2003, respectively. We do not have
access to information, other than publicly available information, for such
owners of our Class A Common Shares.       
|   
|(6) |  | Jayhawk Capital Management, L.L.C. is the beneficial owner of 6,942,000
Class A Common Shares, of which 5,315,000 Class A Common Shares are held
by Jayhawk China Fund (Cayman), Ltd., 986,700 Class A Common Shares are
held by Jayhawk Institutional Partners, L.P. and 640,300 Class A Common
Shares are held by Lucky Henry, L.P.                                                                                 

New World Infrastructure Limited ceased to be one of our shareholders in
January 2003 following the sale of its entire shareholding in December 2002 and
January 2003.

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B. Related Party Transactions

New World InfrastructureVia tranches during 2000 and 2001, we acquired a
majority interest in Wealth Corporation Ltd, a company that indirectly owns
Beijing Chinaholiday Network Company and Beijing TianJian Rainbow Airline
Service Company, a group of PRC travel companies. The acquisition was based on
our strategy of building a Greater China online and off-line travel capability
by focusing both on the individual as well as the tour-group markets, which at
that time were considered to have a reasonable long-term potential for growth.
Total consideration was valued at US$12.0 million, of which US$5.2 million was
in paid in cash and the balance was paid with 495,900 of our Class A Common
Shares issued at the then market value of US$13.71 per share. The selling
shareholders of Wealth Corporation Ltd included our former shareholder, New
World Infrastructure Limited, which received approximately 11.3% of the total
consideration paid by us to Wealth Corporation Ltd. We were in a dispute with
the minority shareholders of Wealth Corporation Ltd, which includes New World
Infrastructure Limited, concerning our ability to dilute the minority
shareholders interests in Wealth Corporation and such minority shareholders
right to receive further consideration. In November 2002, we entered into an
amendment agreement and a share repurchase agreement with the other
shareholders of Wealth Corporation Ltd whereby we reduced our stake in Wealth
Corporation Ltd to 19.9% in exchange for a cash payment of US$1.0 million from
the minority shareholders, including New World Infrastructure Limited.

In January 2003, New World Infrastructure Limited ceased to be one of our
shareholders following the sale of its entire shareholding in the open market,
as well as in privately negotiated transactions with us, APOL and our Chairman.
We purchased 4,468,560 Class A Common Shares, APOL purchased 4,300,000 Class A
Common Shares, and our Chairman purchased 200,000 Class A Common Shares from
New World Infrastructure Limited in January 2003.

See Item 7.A. of this Annual Report, Major Shareholders and Related Party
Transactions  Major shareholders.

24/7 Real Media, Inc.In October 1998, pursuant to the License and Software
Agreement, or License Agreement, between ourselves and 24/7 Real Media, Inc.
(formerly known as 24/7 Media, Inc.), or 24/7, which was a shareholder of our
company as of December 31, 2001 and 2002, 24/7 granted us a non-exclusive
license to use certain 24/7 software products to serve advertisements on the
Internet and an exclusive license to use the 24/7 Media trademark in the
Asian market. We were obligated to pay 24/7 a percentage of certain revenues
generated from advertisements on our advertising network. Under the License
Agreement, 24/7 served as our exclusive agent for the sale of U.S. based
advertisements on our advertising network and we served through a subsidiary as
an agent of 24/7 Media Asia for the sale of Asian-based advertisements on
24/7s U.S. network of advertising affiliates. In August 2000, the License
Agreement was superceded by the 24/7 Media-Asia Agreement, or the Media Asia
Agreement. In October 2000, as part of the Media Asia Agreement, we sold 19.9%
of our shares in 24/7 Media Asia Limited, then a wholly-owned subsidiary, and
the agent through which we sold Asian-based advertisements on 24/7s U.S.
network of advertising affiliates, to 24/7 in exchange for 2,500,000 shares of
common stock of 24/7 valued at US$4.3125 per share. We continue to own less
than 5% of 24/7. In June 2001, we gave 24/7 notice of termination of the Media
Asia Agreement, which notice was effective in September 2001.

In June 2001, we demanded from 24/7 Media Asia Limited repayment of a
portion of all loans that we had extended to 24/7 Media Asia Limited. The loans
consisted of $10,956 made prior to June 30, 2000 and $9,569 made during the
period from July 1, 2000 to May 31, 2001. We entered into negotiations with
24/7 Media Asia Limited, and, due to the limited cash resources available at
24/7 Media Asia Limited and a desire by the parties to allow 24/7 Media Asia
Limited to keep the proceeds of the remaining $9,569 to enable it to continue
to fund its operations, we agreed that 24/7 Media Asia Limited would repay only
the loans made prior to June 30, 2000 amounting to $10,956. In January 2002,
24/7 Media Asia Limited completed a rights issue whereby it issued and allotted
additional equity shares to all shareholders participating in the rights issue
as a

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means to settle loans amounting to $10,956. While we participated in this
rights issue, 24/7 chose not to participate and, therefore, 24/7s interest in
24/7 Media Asia Limited was effectively diluted to under 2% while our interest
in 24/7 Media Asia Limited increased to approximately 98%. In February 2003,
24/7 filed suit against us in Federal District Court in New York to enforce
obligations allegedly owed under the Media Asia Agreement. We contest these
allegations and, in May 2003, obtained an order compelling arbitration of the
claims.

AOL Time Warner, Inc.In March 2001, we entered into a software license
agreement with PurchasePro.com to purchase a non-exclusive, non-transferable
and perpetual right to use their Marketplace Software. PurchasePro.com had a
strategic relationship with our shareholder AOL which included AOLs promotion
of various PurchasePro.com products. We paid PurchasePro.com through a payment
to AOL a fee of US$3.7 million for the license, of which we believe AOL
retained a commission. We are dissatisfied with the PurchasePro.com software
and we are seeking a remedy for this and other matters from AOL. As a result,
in addition to amortization of US$925,000 during the course of 2001, we have
recorded an impairment of the US$2.77 million of the remaining intangible asset
balance for this software at the end of December 2001.

In other matters involving AOL, we sought the return of US$2.2 million
spent by us under a software development agreement among AOL, CIC and us.
Under the terms of the software development agreement dated February 1, 2000,
we agreed to provide AOL with $2.2 million to finance the development of AOL
software which could be utilized in the China market. We entered into the
software development agreement in anticipation of a joint venture between AOL
and us to develop consumer interactive services for the Chinese market. No
joint venture arrangement with AOL was ever entered into, and AOL never
delivered a software product to us. In addition, we sought the return of
US$3.5 million in connection with an agreement to purchase advertising services
from AOL. Under the terms of the agreement dated March 8, 2001, AOL agreed to
render ad impressions for us on its web sites for a total fee of approximately
$7 million, and we paid $3.5 million, approximately one-half of the amount due,
on March 31, 2001. These amounts were expensed under sales, general and
administrative in March 2001. We entered into the agreement to purchase
advertising services from AOL and made partial payment under the contract as a
result of representations from AOLs representatives that AOL would be more
favorably inclined to enter into a joint venture with us to develop consumer
interactive services for the Chinese market if we purchased the advertising
services, which did not occur following our purchase of and payment for the
advertising services. We are cooperating with information requests by the
Commission and other government agencies in connection with their investigation
of AOL with respect to the PurchasePro.com and advertising services
transactions.

On July 28, 2003, AOL and chinadotcom announced that we had reached a
settlement including a settlement of all claims between the two companies and
their affiliates. The companies also agreed to cancel AOLs two warrants to
acquire additional shares in chinadotcom. The companies currently have no
remaining operational, strategic or other agreements. Based solely upon
filings with the Commission, on September 11, 2003, AOL disposed of its entire
holding of chinadotcom shares. See Item 3.D. of this Annual Report, Key
Information  Risk Factors  Risks Relating to chinadotcom  We could be
adversely affected if our major strategic shareholders materially change their
holdings in our shares.

Golden TripodIn June 2001, we signed contracts with entities affiliated
with Xinhua, Golden Tripod (Holdings) Limited, or Golden Tripod, and Xinhua
News Agency Shanghai Branch, or Shanghai Xinhua, to acquire 30% of the shares
of Xin Hua Asia Pacific TV (H.K.) Center Limited, a company 51% owned by Golden
Tripod and 49% owned by Shanghai Xinhua, as well as to form a 50% owned joint
venture in the PRC. We paid US$500,000 as a deposit after the contracts had
been signed. As certain conditions precedent for the joint venture were not met
during the course of 2001 we terminated the transaction and made a bad debt
provision for the full deposit amount at the end of the year. We actively
sought a refund during the course of 2001 and 2002, and in 2002 US$347,000 was
subsequently received from remaining funds in the joint venture, which was used
to partially offset the bad debt previously written-off. Additionally, as we
continue to reposition our portal services and other media assets to better
scale our revenues with costs, we risk worsening our relationship with

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Xinhua whose personnel until December 2002 participated in the day to day
management of our portal services and certain other media assets in the PRC,
and who to date still participate in the editorial oversight of the portal
service. These and other developments could result in a material adverse change
in our relationship with Xinhua including whether they choose to maintain a
director on our Board of Directors, whether they choose to continue to remain
active with respect to our operations in the PRC, whether they choose to reduce
their holdings in our shares, liabilities, arbitration, litigation, settlement
or unfavorable publicity, any of which could divert significant amounts of
management time and other corporate resources. See Item 3.D. of this Annual
Report, Key Information  Risk Factors  Risks Relating to chinadotcom  We
could be adversely affected if our major strategic shareholders materially
change their holdings in our shares.For the year ended December 31, 2002, we
paid management fees of approximately US$293,000 to our shareholders, Golden
Tripod Technology Limited, the wholly-owned subsidiary of Xinhua. These fees
included salary and expenses for certain senior officers of our China portal
operation, as well as fees for translation and other related expenses.

We held a series of strategic discussions with AOL regarding a potential
joint venture for Internet-related services across the Greater China and
Asia-Pacific region. During that time, we continued to provide e-business
Solutions and advertising services in connection with our support services
agreement with CIC, which related to the provision of the AOL-branded Hong Kong
services. We did not recognize any revenue incurred from the provision of these
services during the first half of 2001 due to the uncertainty of the
collectibility of the receivable from CIC. Our Board of Directors determined
that it would be in our best interest to continue to fund the AOL-branded Hong
Kong services in good faith, through the provision of services to CIC, while
these strategic discussions and negotiations with AOL took place. Accordingly,
we continued to provide these services without seeking repayment from CIC at
the time. We have incurred a total of US$7.7 million in connection with the
provision of these support services, and the full amount was recorded as our
own selling, general and administrative expenses, including US$5.4 million for
2001, with a view that these expenses were not recoverable. None of these
amounts were recorded as revenues. After the AOL-branded Hong Kong service was
terminated, in March 2001, we entered into two agreements with CIC under which
we agreed not to enforce the immediate repayment, until September 30, 2001, of
a total of US$4.0 million owed to us for services provided in connection with
the AOL-branded Hong Kong services. The agreements were made on the express
condition that CIC or its shareholders provide us with bank letters of credit,
or similar guarantees of payment, for the full US$4.0 million. We subsequently
received bank letters of credit or similar guarantees of payment for the full
US$4.0 million and in October 2001 we demanded and received full payment under
those guarantees.

hongkong.comIn each of April and May 2001, we extended guarantee
agreements in favor of our majority-owned subsidiary, hongkong.com Corporation
in which we agreed to pay hongkong.com fees owed for services provided to CIC
in an amount up to HK$7 million, and up to HK$7 million in connection with
hongkong.coms provision of support services for the AOL-branded Hong Kong
Services during the first and second quarter of 2001.

Dr. Raymond ChienIn April 2001, we entered into an executive services
agreement with our chairman and director Raymond Chien to serve as our
Executive Chairman. Under this agreement we have agreed to provide Dr. Chien
the following:



| |  |  | options to purchase 400,000 Class A Common Shares, par value
US$0.00025 per share, at an exercise price of US$2.74 per share that
vest quarterly over three years starting July 27, 2001;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | options to purchase up to 400,000 additional Class A Common
Shares at an exercise price of US$2.97 that vest quarterly over three
years starting October 13, 2001;                       
|
| |  |  | an annual salary of US$1.00;                                                                                                                                                             
|
| |  |  | reimbursement of company car expenses, as well as office
executive assistant expenses incurred, capped at a maximum amount of
US$100,000 per annum; and                                  
|
| |  |  | reimbursement of all reasonable travel, entertainment and
subscription fees incurred in the performance of his duties as
Executive Chairman.                                             

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CICIn June 1999, we entered into a Support Services Agreement with CIC
under which we agreed to provide CIC with the services required to operate
local online services for America Online, Inc. (AOL) in Hong Kong for a fee
equal to the cost of providing such services to CIC plus 10%. In April 2000, we
signed an Amended and Restated Support Services Agreement with CIC which
increased the markup of the provision of software and consulting services and
advertising and marketing services while the markup of the provision of
personnel services remained at 10%. CIC was our parent company until June 1999
when, concurrently with entry into the Support Services Agreement, CIC
distributed its total interest in us to CICs shareholders. At the time of
entry into the Support Services Agreement, several members the board of
directors of CIC also served as members of our board of directors. The
following table sets forth the common directors, the date each such director
ceased to be a member of CICs board of directors of CIC and the date each such
director ceased to be a member of our board of directors (as applicable), and
the percentage ownership each such director held in CIC and in chinadotcom as
of June 1999. While the percentage ownership such directors held in CIC and
chinadotcom may have changed since June 1999, unless otherwise indicated, such
percentage ownership in CIC and the Company have only decreased as of the
subsequent dates of other events described under this
Note 17(c).

|                    |  |                     |  |                     |  |                      |      |             |  |  |      |     
|------------------- |  | ------------------- |  | ------------------- |  | -------------------- | ---- | ----------- |  |  | ---- | ----
|                    |  |                     |  |                     |  | Percentage Ownership
|                    |  |                     |  | Date Ceased as a    |  |                     
|                    |  | Date Ceased as a    |  | Director of the     |  | CIC                  |      | chinadotcom
|Director            |  | Director of CIC     |  | Company             |  | (as of June 1999)   
|                    |  |                     |  |                     |  |                     
|Dr. Raymond Chien  |  | March 14, 2001      |  | continuing director |  |                      | 4.0  | %           |  |  | 1.2  | %(1)
|Mr. Peter Yip       |  | February 17, 2003   |  | continuing director |  |                      | 2.4  | %(1)        |  |  | 18.7 | %(1)
|Mr. Zhou Shun Ao    |  | continuing director |  | continuing director |  |                      | (2   | )           |  |  | (2   | )   
|Mr. Zhong Guo Liang |  | April 13, 2001      |  | May 24, 2002        |  |                      | (2   | )           |  |  | (2   | )   
|Mr. Douglas Chan    |  | February 18, 2003   |  | July 17, 2003       |  |                      | (3   | )           |  |  | (3   | )   
|Mr. Harry Edelson   |  | June 22, 2001       |  | June 17, 2003       |  |                      | 11.3 | %(4)        |  |  | 3.5  | %(4)



---

|(1) |  | Includes holdings through Asia Pacific Online Limited, a trust
established for the benefit of Mr. Yips children owned by the spouse of
Mr. Yip.                                                                                                                                                                                                                                                                          
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Less than 1%.                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(3) |  | Mr. Chan was appointed as a representative of New World
Infrastructure Limited (NWI), a former strategic shareholder of
chinadotcom. As of June 1999, NWI held 67.7% of CICs Class A Common
Shares, in addition to holdings in CICs Series A Convertible Preference
Shares. As of June 1999, NWI held 25.9% of chinadotcoms Class A Common
Shares. NWI has since disposed of its entire shareholdings in
chinadotcom.
|   
|(4) |  | Held through Edelson Technology Partners.                                                                                                                                                                                                                                                                                                                                                                                 

For the year ended December 31, 2000, we derived total revenue of
USD19,880 from CIC.

Since January 1, 2001, we did not recognize any revenue incurred from the
provision of software and consulting services and advertising and marketing
services in connection with the Amended and Restated Support Services Agreement
due to the uncertainty of the collectibility of the receivable from CIC. We
recorded $5,425 incurred in connection with the provision of these services
under selling, general and administrative expenses in 2001. In September 2001,
we agreed to CICs request to waive the legal rights with respect to up to
$7,730 owed to us by CIC.

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In October 2001, we entered into an Asset Purchase Agreement with CIC to
purchase the three URLs, www.china.com, www.hongkong.com and www.taiwan.com,
and related intellectual property rights for US$16.8 million and the final
payment for the purchase was made in February 2002. A portion of the proceeds
was used to repay loans extended to CIC by certain of its shareholders and
members of its board, some of whom are also our shareholders, officers and
members of our board of directors. We sought third party advice related to
accounting, legal and valuation issues when considering the transaction. We
obtained releases with respect to registered charges over CICs assets,
including the URLs from material creditors of CIC which included our
affiliates. We obtained legal advice from our outside legal counsel on relevant
issues that included the threat to our prior license of the URLs in the event
of the liquidation of CIC, the unfair prejudice risk and applicable PRC and
other regulations. See Item 3.D. of this Annual Report, Key Information  Risk
Factors  Risks relating to chinadotcom  We are subject to risks related to
our purchase of the URLs from CICand Item 4.B. of this Annual Report, Business
Overview  Software and other investment initiatives.

SportasiaIn November 2001, as part of the liquidation of our equity
investee Sportasia Media Limited, we acquired the URL, www.sportasia.com.

Asia Pacific Online LimitedFor the years ended December 31, 2000, 2001
and 2002, we reimbursed $120 per year, to Asia Pacific Online Limited, or APOL,
for expenses incurred for the provision of general management services
principally consisting of providing the full-time services of Mr. Peter Yip to
act as our chief executive officer. APOL is a trust owned by the spouse of
Mr. Peter Yip, who is our chief executive officer, for the benefit of Mr. Yips
children. As of March 31, 2003, APOL had beneficial ownership of approximately
18.99% of our Class A Common Shares. There are no common directors between us
and APOL.

In January 2002, we entered into a new services agreement with APOL. Under
this agreement, we agreed to provide an annual management fee of $0.001 and
reimburse expenses incurred up to $270 annually for the provision of general
management services principally consisting of providing the full-time services
of Mr. Peter Yip to act as our chief executive officer.

Mr. Yip acted as our chief executive officer in each of 2000, 2001 and
2002.

C. Interests of Experts and Counsel

Not applicable.




ITEM 8. FINANCIAL INFORMATION

We have appended our Consolidated Financial Statements as of and for the
year ended December 31, 2002 to our Annual Report, (see pages F-1 to F-45).




ITEM 9. THE OFFER AND LISTING

A. Offer and Listing Details

Our shares have been quoted on the Nasdaq National Market under the symbol
CHINA since our initial public offering on July 12, 1999. Prior to July 12,
1999, there was no public market for our shares. The following table sets
forth, for the years indicated, the high and low closing prices per share as
reported on the Nasdaq National Market. On June 10, 2003, the closing price for
our Class A Common Shares on the Nasdaq National Market was US$5.148 per share.

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|                          |                                  |  |                    |         |     |  |  |        | 
|------------------------- | -------------------------------- |  | ------------------ | ------- | --- |  |  | ------ | 
|                          |                                  |  | Closing prices(1) 
|                          |                                  |  |                   
|                          |                                  |  | High               |         | Low
|                          |                                  |  |                    |         |    
|                          |                                  |  | (in US$ per share)
|2003:                     |                                  |  |                    |         |     |  |  |       
|                          | First quarter                    |  |                    | 3.5800  |     |  |  | 2.7300 | 
|                          | Second quarter (through June 10) |  |                    | 5.4200  |     |  |  | 3.2100 | 
|2002:                     |                                  |  |                    |         |     |  |  |       
|                          | First quarter                    |  |                    | 3.2800  |     |  |  | 2.6300 | 
|                          | Second quarter                   |  |                    | 2.7800  |     |  |  | 2.1600 | 
|                          | Third quarter                    |  |                    | 2.5400  |     |  |  | 1.8600 | 
|                          | Fourth quarter                   |  |                    | 3.0722  |     |  |  | 1.9100 | 
|                          | Annual                           |  |                    | 3.2800  |     |  |  | 1.8600 | 
|2001:                     |                                  |  |                    |         |     |  |  |       
|                          | First quarter                    |  |                    | 7.6250  |     |  |  | 2.3125 | 
|                          | Second quarter                   |  |                    | 3.5500  |     |  |  | 2.0625 | 
|                          | Third quarter                    |  |                    | 4.0000  |     |  |  | 1.8700 | 
|                          | Fourth quarter                   |  |                    | 3.0000  |     |  |  | 1.9500 | 
|                          | Annual                           |  |                    | 7.6250  |     |  |  | 1.8700 | 
|2000:                     |                                  |  |                    |         |     |  |  |       
|                          | Annual                           |  |                    | 73.4375 |     |  |  | 4.4063 | 
|Past six calendar months: |                                  |  |                    |         |     |  |  |       
|2003:                     |                                  |  |                    |         |     |  |  |       
|                          | June (through June 10)           |  |                    | 5.3200  |     |  |  | 4.9500 | 
|                          | May                              |  |                    | 5.4200  |     |  |  | 4.3000 | 
|                          | April                            |  |                    | 5.2400  |     |  |  | 3.2100 | 
|                          | March                            |  |                    | 3.5040  |     |  |  | 2.7300 | 
|                          | February                         |  |                    | 3.3600  |     |  |  | 3.1200 | 
|                          | January                          |  |                    | 3.5800  |     |  |  | 2.7700 | 
|2002:                     |                                  |  |                    |         |     |  |  |       
|                          | December                         |  |                    | 2.9000  |     |  |  | 2.2650 | 
|                          | November                         |  |                    | 3.0722  |     |  |  | 2.1600 | 



---

|(1)                |  | All share prices are adjusted retroactively to reflect the two-for-one
share splits effected as of each of December 13, 1999 and May 8, 2000,
respectively.
|------------------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|Source: Bloomberg.

B. Plan of Distribution

Not applicable.

C. Markets

Our Class A Common Shares have been traded on the Nasdaq National Market
in the United States under the symbol CHINA since our initial public offering
on July 12, 1999. Prior to July 12, 1999, there was no public market for our
shares. There can be no assurance we can continue to satisfy the relevant
criteria for maintaining our listing on the Nasdaq National Market.

D. Selling Shareholders

Not applicable.

E. Dilution

Not applicable.

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F. Expenses of the Issue

Not applicable.




ITEM 10. ADDITIONAL INFORMATION

A. Share Capital

Not Applicable.

B. Memorandum and Articles of Association

We incorporate by reference into this Annual Report the description of our
Amended and Restated Articles of Association contained in our Current Report of
Foreign Private Issuer on Form 6-K (File No. 000-30134) filed with the
Commission on September 18, 2002.

C. Material Contracts

Expansion through Acquisitions and Partnerships

Since January 1999, we have pursued a program of growth and expansion
through acquisitions and joint ventures in the Greater China and Asian markets.
These transactions have allowed us to increase our headcount, expand our client
base and supplement our revenues more quickly than would be possible if we
relied on internal growth alone. While this strategy has enabled us to achieve
scale quickly, it has also led to significant write-downs and impairments for
the diminution in value in certain of our investments, as many of our
investments were made at a time when pricing was at considerably inflated
levels relative to pricing today. We intend to continue to build our brand and
expand our market presence through additional strategic acquisitions and joint
ventures using the proceeds of our public offerings and private placements. A
brief summary of our material transactions during the past two years is set
forth below:

In March 2000, we acquired a 60% interest in DAE Advertising, Inc. (which
was subsequently renamed Ion Global (California) Inc.), or Ion Global
(California), a full service agency specializing in Asian language advertising
in both traditional and interactive media and in implementing global and
multilingual web solutions, for US$3.049 million in cash, 92,772 Class A Common
Shares valued at US$64.6811 per share and certain options which have since been
terminated. In April 2001, we acquired an additional 21% of Ion Global
(California) for US$2.307 million in cash. During 2002, we acquired the
remaining shares of Ion Global (California) for US$1.5 million in cash.

In May 2000, we granted GE Capital Equity Investments Ltd., or GE, a
warrant under which GE was entitled to receive a number of Class A Common
Shares determined according to our revenue from services provided to affiliates
of General Electric Capital Corporation during 2000 and 2001. The warrants
expired unexercised on January 4, 2003.

In June 2000, we acquired a 55% interest in XT3 Pty Limited (which was
subsequently renamed Ion Global (Australia) Pty Ltd), an Australian company
that provides strategic, information technology and marketing consulting
services to companies on their use of Internet technologies for approximately
US$6.3 million in cash and US$7.334 million in promissory notes. Pursuant to
the share purchase agreement, we agreed to purchase the remaining shares of Ion
Global (Australia) over six tranches by 2003 for consideration based on its
future audited results. In May 2001 we accelerated the purchase under the share
purchase agreement of a further 42.6% interest in Ion Global (Australia) from
eight of the minority shareholders for a total of US$7.0
million. This further acquisition brought our total ownership in Ion
Global (Australia) to 97.6%. In September

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2001 and January 2002, we acquired
the remaining 2.4% interest in Ion Global (Australia) for US$0.9 million in
cash from the remaining two minority shareholders. Our total ownership in Ion
Global (Australia) is now 100%.

In July 2000, we acquired a minority interest in BMC Media.com Limited, an
Australian online marketing and advertising network listed on the Australian
Stock Exchange for US$5.0 million. We had divested our entire interest in BMC
by the end of February 2002.

In August 2000, we acquired a 57% interest in Coghuff Limited, which owns
100% of Revolution Ltd (which was subsequently renamed Ion Global (UK)
Limited), an interactive brand development agency company organized under the
laws of England and Wales, for US$2.668 million in cash, US$4.32 million in
other payables, US$3.369 million in promissory notes and 627,424 Class A Common
Shares valued at US$12.3125 per share. Under the share purchase agreement we
agreed to purchase the remaining shares of Coghuff in three tranches by 2003
for a consideration based on its future revenues and net profits. Pursuant to
the share purchase agreement, in February 2002, we acquired a further 14.3%
from the minority shareholder, raising our total ownership in Coghuff Limited
to 71.3%.

In October 2001, we entered into an Asset Purchase Agreement with CIC to
purchase the three URLs, www.china.com, www.hongkong.com and www.taiwan.com,
and related intellectual property rights for US$16.8 million from CIC, and the
final payment for the purchase was made in February 2002. For further details,
see Item 3.D. of this Annual Report, Key Information  Risk Factors  Risks
relating to chinadotcom  We are subject to risks related to our purchase of
the URLs from CIC,Item 4.B. of this Annual Report, Information On The Company
- Business Overview  Software and other investment initiativesand Item 7.B of
this Annual Report, Major Shareholders and Related Party Transactions  Related
Party Transactions.

In March 2002, we acquired Layabo Pty. Limited (now renamed Mezzo Business
Databases Pty Limited), an Australian database marketing business and owner of
the trademark IncNet. With the acquisition of Layabo Pty. Limited and the prior
acquisition of RNR International Marketing Group (Australia) Pty Limited in
2000, we are consolidating our marketing business in Australia under the MEZZO
brand. We believe that the acquisition of the IncNet trademark is an important
step in re-orienting our advertising strategy from online sales of banner
advertisements, direct mailing and sponsorships to higher margin database
marketing related services utilizing data mining techniques to develop targeted
campaigns for clients.

In March 2002, we acquired a 51% interest in OpusOne Technologies
International Inc., the parent of Platinum China Holdings, Inc., a developer
and service provider of business management software solutions for state
enterprises and multi-national corporations in Greater China. In May 2003, we
entered into an agreement to purchase the remaining interest in OpusOne
Technologies International Inc. that we did not otherwise already own. We
expect the transaction to close later in 2003. In accordance with this
transaction, the aggregate purchase price payable cash and shares of
chinadotcom is no longer subject to a fixed floor or ceiling amount. Instead,
the total consideration will be based upon a set multiple of average net
earnings under US GAAP for the three years from 2003 through 2005 inclusive,
and paid in installments during that period. The total consideration will
therefore be contingent upon the future performance of the business.

In October 2002, we entered into US$7 million transaction with Sagent
Technology, Inc., a provider of enterprise business intelligence solutions,
involving an asset-based senior secured loan with warrants for Sagent with a
view to developing operational initiatives going forward. In March 2003, based
upon the occurrence of what we viewed to be certain events of default under the
loan, we exercised our rights as a secured lender to enforce our security
interest in certain loan collateral and filed a claim for damages against
Sagent. In April 2003, we reached a settlement with Sagent pursuant to which
our loan was repaid in full, and we received an additional agreed upon sum in
respect of terminated warrants and other rights we had in the company.

In February 2003, our subsidiary, CDC Australia Limited, completed the
acquisition of Praxa Limited, a leading Australian information technology
professional services organization with a 21-year operating history.

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The acquisition was completed for a purchase price of up to A$11 million
(approximately US$6.4 million), subject to clawback provisions based on future
performance.

In April 2003, we completed the acquisition of Newpalm (China) Information
Technology Co., Ltd., a leading short message service mobile software platform
developer and application service provider in China, through our mobile
applications and portal arm and 81%-owned subsidiary, hongkong.com Corporation.
Cash consideration of US$14 million was paid with the remaining consideration
to be paid on an earn-out basis over the next two years.

In May 2003, our wholly-owned subsidiary, CDC Outsourcing Holdings Ltd.,
entered into a 51% owned joint venture agreement with vMoksha Technologies
Limited, an information technology outsourcing company headquartered in
Bangalore, India. The joint venture aims to provide a broad range of
outsourcing related services to major software vendors and enterprises in the
United States, Europe and the Asia-Pacific region. We expect the transaction to
close later in 2003.

Financings

Each of us and our subsidiary, hongkong.com Corporation has entered into a
Global Master Repurchase Agreement with Fortis Bank nv-sa, an AA- rated bank
(as rated by Standard & Poors) to establish a repurchase facility which
enables us to draw down via Fortis Bank, Hong Kong Branch as of May 31, 2003 up
to US$250 million in funding for a one year term. The Fortis Bank facility has
been renewed for 2002. In addition, another repurchase facility with similar
terms was negotiated with DBS Bank, an A+ rated bank (as rated by Standard &
Poors), allowing us to draw down up to US$150 million for a three-year term.
Each drawdown under the DBS Bank facility is to be agreed upon between
ourselves and DBS Bank prior to execution. Both facilities were established to
provide us with a source of reasonably priced capital to give us flexibility to
finance operational working capital requirements, acquisitions, as well as our
treasury management program, without having to liquidate our investment
portfolio at short notice. Under these repurchase facilities, any draw down
requires us to sell certain debt securities to the bank at a certain price, and
the bank agrees to sell back to us the same securities at the same purchase
price at a later date. The repurchase dates are set in three or six month
intervals for an entire term of one year or three years, depending on which
facility is drawn. In effect, the bank retains title to our securities as
collateral to enable us to draw down up to a total of US$400 million. See Item
5.B of this Annual Report, Operating and Financial Review and Prospects  Liquidity and Capital Resourcesand Item 11 of this Annual Report, Quantitative
and Qualitative Disclosures About Market Risk.



|D. |  | Exchange Controls
|-- |  | -----------------

General

There are no exchange control restrictions on payments of dividends on our
Class A Common Shares or on the conduct of our operations in Hong Kong, where
our principal executive offices are located, or the Cayman Islands, where
chinadotcom is incorporated. In addition, both Hong Kong and the Cayman Islands
are not party to any double tax treaties and no exchange control regulations or
currency restrictions exist in these countries.

We are a Cayman Islands company and our affairs are governed by, among
other things, the Companies Law of the Cayman Islands. The following is a
summary of material differences between the Companies Law and general corporate
law in the United States insofar as they relate to the material terms of our
Class A Common Shares.

Differences in Corporate Law

The Companies Law of the Cayman Islands is modeled after that of England
but does not follow recent United Kingdom statutory enactments and differs from
laws applicable to United States corporations and their shareholders. Set forth
below is a summary of the significant differences between the provisions of the

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Companies Law applicable to chinadotcom and the laws applicable to companies
incorporated in the United States and their shareholders.

Mergers and Similar Arrangements.Cayman Islands law does not provide for
mergers as that expression is understood under U.S. corporate law. However,
there are statutory provisions that facilitate the reconstruction and
amalgamation of companies, provided that the arrangement in question is
approved by a majority in number of each class of shareholders and creditors
with whom the arrangement is to be made, and who must in addition represent
three-fourths in value of each such class of shareholders or creditors, as the
case may be, that are present and voting either in person or by proxy at a
meeting, or meetings convened for that purpose. The convening of the meetings
and subsequently the arrangement must be sanctioned by the Grand Court of the
Cayman Islands. While a dissenting shareholder would have the right to express
to the court the view that the transaction ought not to be approved, the court
can be expected to approve the arrangement if it satisfies itself that:



| |  |  | the statutory provisions as to majority vote have been complied with;                                             
| | - |  | ------------------------------------------------------------------------------------------------------------------
|
| |  |  | the shareholders have been fairly represented at the meeting in question;                                         
|
| |  |  | the arrangement is such as a businessman would reasonably approve; and                                            
|
| |  |  | the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Law.

When a take over offer is made and accepted by holders of 90% of the
shares within four months, the offeror may, within a two month period, require
the holders of the remaining shares to transfer such shares on the terms of the
offer. An objection can be made to the Grand Court of the Cayman Islands but
this is unlikely to succeed unless there is evidence of fraud, bad faith or
collusion.

If the arrangement and reconstruction is thus approved, the dissenting
shareholder would have no rights comparable to appraisal rights, which would
otherwise ordinarily be available to dissenting shareholders of United States
corporations, providing rights to receive payment in cash for the judicially
determined value of the shares.

Shareholders Suits. Based solely on our inspection of the Register of
Writs and Other Originating process in the Grand Court of the Cayman Islands
from the date of our incorporation, except for the petition filed by e-Planet
Sdb. Bhd. for US$2.3 million with respect to consideration that it alleges we
owe to it, there were no actions or petitions pending against us in the courts
of the Cayman Islands as at close of business in the Cayman Islands on April
30, 2003.

The rule in Foss v. Harbottle(and the exceptions thereto which permit a
minority shareholder to commence a class action against or derivative actions
in the name of the company to challenge:



| |  |  | an act which is ultra vires the company or illegal;                                                                                                                         
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | an act which constitutes a fraud against the minority where the
wrongdoers are themselves in control of the company; and                                                    
|
| |  |  | an action which requires a resolution with a qualified (or special)
majority which has not been obtained) has been applied and followed by
the courts in the Cayman Islands.

Indemnification

Cayman Islands law does not limit the extent to which a companys articles
of association may provide for indemnification of officers and directors,
except to the extent any such provision may be held by the Cayman Islands
courts to be contrary to public policy, such as to provide indemnification
against civil fraud or the consequences of committing a crime. Our Articles of
Association provide for indemnification of officers and

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directors for losses,
damages, costs and expenses incurred in their capacities as such, except if
they acted in a willfully negligent manner or defaulted in any action against
them.

Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, we have been informed that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.

Inspection of Books and Records

Holders of the our Class A Common Shares will have no general right under
Cayman Islands law to inspect or obtain copies of our list of shareholders or
our corporate records. However, we provide our shareholders with annual audited
financial statements.

Proxy materials

Under Cayman Islands law, we are only obligated to send proxy materials to
members which is equivalent to the registered shareholders of record. Our
proxy materials are delivered to all of our registered shareholders. We offer
electronic delivery of proxy materials to our registered shareholders, and we
mail proxy materials to each registered owner who has not opted to receive
proxy materials electronically. In an effort to maintain cost effectiveness, we
have, and will continue to, mail the proxy materials to those beneficial
shareholders who hold greater than a certain number of our shares.

Restrictions on Nonresident or Foreign Shareholders

Under Cayman Islands law there are no limitations on the rights of
nonresident or foreign shareholders to hold or vote our Class A Common Shares.



|E. |  | Taxation
|-- |  | --------

The following is a summary of the material Cayman Islands and United
States Federal income tax consequences of an investment in the Class A Common
Shares based upon laws and relevant interpretations thereof in effect as of the
date of this Annual Report, all of which are subject to change. This summary
does not deal with all possible tax consequences relating to an investment in
the Class A Common Shares, such as the tax consequences under state, local and
other tax laws.

Cayman Islands Taxation

The Cayman Islands currently levy no taxes on individuals or corporations
based upon profits, income, gains or appreciation and there is no taxation in
the nature of inheritance tax or estate duty. There are no other taxes likely
to be material to us levied by the Government of the Cayman Islands except for
stamp duties which may be applicable on instruments executed in, or after
execution brought within the jurisdiction of, the Cayman Islands. The Cayman
Islands are
not party to any double taxation treaties. There are no exchange control
regulations or currency restrictions in the Cayman Islands.

United States Federal Income Taxation

The following summary sets forth certain material U.S. Federal income tax
consequences of the purchase, ownership and disposition of the Class A Common
Shares as a capital asset. This summary is based upon the Internal Revenue Code
of 1986, as amended, or the Code, its legislative history, existing and
proposed U.S. Treasury regulations promulgated thereunder, published rulings by
the U.S. Internal Revenue Service, or the IRS, and court decisions, all in
effect as of the date of this Annual Report, all of which authorities are
subject to change or differing interpretations, which changes or differing
interpretations could apply retroactively. This

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summary does not purport to
discuss all aspects of U.S. Federal income tax which may be relevant to
particular investors, such as financial institutions, insurance companies,
dealers or traders in securities or currencies, regulated investment companies,
tax-exempt entities, U.S. holders, as defined below, liable for alternative
minimum tax, persons holding Class A Common Shares as part of a position in a
straddle or as part of a hedging transaction or conversion transaction for U.S.
tax purposes, persons that enter into a constructive sale transaction with
respect to Class A Common Shares, persons holding 10% or more of our voting
shares or U.S. holders whose functional currency as defined in Section 985 of
the Code is not the U.S. dollar. In addition, this summary does not discuss any
foreign, state or local tax considerations. This summary only applies to
original purchasers of Class A Common Shares who purchase Class A Common Shares
as capital assets, or property held for investment within the meaning of
Section 1221 of the Code.

The term U.S. holder means a beneficial owner of a note or Class A Common
Shares who or which is:



| |  |  | a citizen or resident of the United States;                                                                                                                                                                                                                                                                   
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | a corporation or partnership created or organized in or under the laws
of the United States or of any political subdivision of the United
States;                                                                                                                                                             
|
| |  |  | an estate the income of which is subject to U.S. Federal income tax
regardless of its source;                                                                                                                                                                                                                 
|
| |  |  | a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or
more U.S. persons have authority to control all substantial decisions
of the trust, or the trust elects under U.S. Treasury Regulations to
be treated as a U.S. person; or
|
| |  |  | any other person who is subject to U.S. Federal income taxation on a
net income basis with respect to a Class A Common Share.                                                                                                                                                                                 

Partners of a partnership holding Class A Common Shares should consult
their tax advisor.

Tax Consequences of U.S. Holders

Dividends

Subject to the discussion in Passive Foreign Investment Company Status
below, in the event that a U.S. holder receives a distribution, other than pro
rata distributions of Class A Common Shares or rights with respect to Class A
Common Shares, on the Class A Common Shares, that U.S. holder will be required
to include the distribution in gross income as a taxable dividend to the extent
such distribution is paid from our current or accumulated earnings and profits
as determined for United States Federal income tax purposes. Distributions in
excess of
our current and accumulated earnings and profits will first be treated,
for United States Federal income tax purposes, as a nontaxable return on
capital to the extent of the U.S. holders basis in the Class A Common Shares
and thereafter as gain from the sale or exchange of a capital asset. Dividends
paid by us will not be eligible for the corporate dividends received deduction.
The amount of any distribution of property other than cash will be the fair
market value of such property on the date of distribution.

Dividends will constitute foreign source income for foreign tax credit
limitation purposes. The limitation on foreign taxes eligible for credit is
calculated separately with respect to specific classes of income. For this
purpose, dividends distributed by us with respect to Class A Common Shares will
be passive income or, in the case of U.S. holders, financial services income.
Special rules apply to individuals whose foreign source income during the
taxable year consists entirely of qualified passive income and whose creditable
foreign taxes paid or accrued during the taxable year do not exceed US$300 or
US$600 in the case of a joint return. Further, in particular circumstances, a
U.S. holder that:



| |  |  | has held Class A Common Shares for less than a specified minimum
period during which it is not protected from risk of loss;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------
|
| |  |  | is obligated to make payments related to the dividends; or                                                                 

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| |  |  | holds the Class A Common Shares in arrangements in which the U.S.
holders expected economic profit, after non-U.S. taxes, is
insubstantial
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------

will not be allowed a foreign tax credit for foreign taxes imposed on dividends
paid on Class A Common Shares.

Distributions to a U.S. holder of Class A Common Shares or rights to
subscribe for Class A Common Shares that are received as part of a pro rata
distribution to all our shareholders should not be subject to United States
Federal income tax. The basis of the new Class A Common Shares or rights so
received will be determined by allocating the U.S. holders basis in the old
Class A Common Shares between the old Class A Common Shares and the new Class A
Common Shares or rights received, based on their relative fair market values on
the date of distribution. However, the basis of the rights will be zero if (i)
the fair market value of the rights is less than 15% of the fair market value
of the old Class A Common Shares at the time of distribution or (ii) the rights
are not exercised and expire.

Dispositions of Shares

Subject to the discussion in Passive Foreign Investment Company Status
below, gain or loss realized by a U.S. holder on the sale or other disposition
of the Class A Common Shares will be subject to United States Federal income
tax as capital gain or loss in an amount equal to the difference between that
U.S. holders basis in the Class A Common Shares and the amount realized on the
disposition. Such capital gain or loss will be long-term capital gain or loss
if the U.S. holder has held the Class A Common Shares for more than one year at
the time of the sale or exchange. Generally, gain or loss realized by a U.S.
holder will be treated as U.S. source gain or loss for U.S. foreign tax credit
purposes.

Passive Foreign Investment Company Status

Based upon an analysis of our assets as at December 31, 2002 and income
for the year 2002, during 2002, we are a passive foreign investment company, or
PFIC, for United States federal income tax purposes. Although we intended to
conduct our business activities in a manner to reduce the risk of our
classification as a PFIC, we have substantial passive assets in the form of
cash and cash equivalents and treasury instruments, and can provide no
assurance that we will not continue to be classified as a PFIC for 2002 or any
future tax year. The determination of whether we would continue to be a PFIC
would be principally based upon:



| |  |  | the composition of our assets, including goodwill, the amount of
which will depend, in part, on our total net assets and the market
value of our Class A Common Shares, which is subject to change; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the amount and nature of our income from time to time.                                                                                                                                                 

We have limited control over these variables. To the extent we do have
control over these variables, we may take steps to reduce the material and
adverse effect that our PFIC classification may have on our business, financial
condition and results of operations.

In general, we will be a PFIC with respect to a U.S. holder if, for any
taxable year in which the holder owns Class A Common Shares:



| |  |  | at least 75% of our gross income for such taxable year is passive income; or                                                         
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | at least 50% of our assets, measured by value on a quarterly average basis, produce or are held for the production of
passive income.

For this purpose, passive income generally includes dividends, interest,
rents, royalties, other than certain rents and royalties derived in the active
conduct of a trade or business, annuities, gains from assets that produce
passive income, net income from notional principal contracts and certain
payments with respect to securities loans. If we own, directly or indirectly,
at least 25% by value of the stock of another corporation, we

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will be treated
as owning our proportionate share of the assets of the other corporation and as
receiving directly our proportionate share of the other corporations income.

Subject to the discussion of the mark to market election and qualified
electing fund, or QEF, election below, if we were a PFIC for any taxable year
during which the investor held Class A Common Shares, the investor would be
subject to special tax rules, regardless of whether we ceased to be a PFIC at a
later date, with respect to:



| |  |  | any excess distribution by us to the investor, which means any
distributions, possibly including any return of capital distributions,
received by the investor on the Class A Common Shares in a taxable
year that are greater than 125% of the average annual distributions
received by the investor in the three preceding taxable years, or the
investors holding period for the Class A Common Shares, if shorter;
and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | any gain realized on the sale or other disposition, including a
pledge, of Class A Common Shares.                                                                                                                                                                                                                                                                                                                          

Under these special tax rules:



| |  |  | the excess distribution or gain would be allocated ratably over the
U.S. holders holding period for the Class A Common Shares;                                   
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the amount allocated to the current taxable year and any taxable year
prior to the first taxable year in which we were a PFIC would be
treated as ordinary income;
|
| |  |  | the amount allocated to each of the other years would be taxed as
ordinary income at the highest tax rate in effect for that year; and                            
|
| |  |  | the interest charge applicable to underpayments of tax would be
imposed with respect to the resulting tax attributable to each prior
year in which we were a PFIC.

If we are a PFIC in any year, you will be required to make an annual
return on Internal Revenue Service, or IRS, Form 8621 regarding distributions
received with respect to the Class A Common Shares and any gain realized on the
disposition of the Class A Common Shares.

As an alternative to the special rules, a U.S. holder may elect to treat
its Class A Common Shares that constitute marketable stock as if those Class A
Common Shares were sold and immediately repurchased by the U.S. holder at the
close of each taxable year, a mark to market election. If the election is made,
the U.S. holder would be required to include as ordinary income the amount of
any increase in the market value of the Class A Common Shares since the close
of the preceding taxable year, or the beginning of the U.S. holders holding
period, if such holding period began during the taxable year. Likewise, the
U.S. holder would be allowed an ordinary deduction for the amount of any
decrease in the market value of the Class A Common Shares since the close of
the preceding taxable year, up to the amount of any prior increase in the Class
A Common Shares market value that has not previously been taken into account
in calculating allowable deductions. The U.S. holders basis in its Class A
Common Shares would be increased by the amount of any ordinary income, and
reduced by the amount of any deduction, arising under the mark to market
election. In the case of a sale or other disposition of Class A Common Shares
as to which a mark to market election is in effect, any gain realized on the
sale or other disposition would be treated as ordinary income. Any loss
realized on the sale or other disposition would be treated as an ordinary
deduction, up to the amount of any prior increase in the Class A Common Shares
market value that has not previously been taken into account in calculating
allowable deductions, and as a capital loss to the extent of any excess. PFIC
shares, other than shares held by certain regulated investment companies, are
considered marketable only if the foreign exchange or market on which the
shares are regularly traded is designated by the U.S. Treasury Department as a
qualified foreign exchange or market. Under the Treasury Regulations, the Class
A Common Shares would be considered to be regularly traded on a qualified
foreign exchange or market if (i) the ordinary shares are traded at least 15
days during each calendar quarter of the relevant calendar year in more than de
minimis quantities, and (ii) the foreign exchange

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or market on which the
ordinary shares are regularly traded is subject to regulation or supervision by
a governmental authority of the country in which such exchange or market is
located and the exchange has financial disclosure, surveillance and other
requirements designed to prevent fraudulent and manipulative practices and
remove impediments to the mechanism of a free and open, fair and orderly market
and the rules of the exchange effectively promote active trading of listed
stocks. We expect that the Class A Common Shares to be marketable within the
meaning of the Treasury Regulations.

As a second alternative, a U.S. holder can make a QEF election to include
annually its pro rata share of a PFICs earnings and net capital gains
currently in income each year, regardless of whether or not dividend
distributions are actually distributed. This means a U.S. holder could have a
tax liability for the earnings or gain without a corresponding receipt of cash.
The U.S. holders basis in the common stock will be increased to reflect the
amount of the taxed but undistributed income. Distributions of income that had
previously been taxed will result in a corresponding reduction of basis in the
common stock and will not be taxed again as a distribution to the U.S. holder.
Each U.S. holder who desires QEF treatment must individually make a QEF
election. To make a QEF election you will need to have an annual information
statement from the PFIC setting forth the earnings and capital gains for the
year. As a PFIC, we would supply the PFIC annual information statement to any
shareholder or former shareholder who requests it. In general, a U.S. holder
must make a QEF election on or before the due date for filing its income tax
return for the first year to which the QEF election will apply. U.S. holders
will be permitted to make retroactive elections in particular circumstances,
including if the U.S. holder had a reasonable belief that the foreign
corporation was not a PFIC and filed a protective
election. Investors should consult their tax advisors as to the
consequences of making a protective QEF election or other consequences of the
QEF election.

We have made our 2002 PFIC annual information statement and other
PFIC-related information available under a link entitled PFIC on our
corporate website which you may access at http://www.corp.china.com/.
Information contained on our website does not constitute a part of this Annual
Report.

Although we generally will be treated as a PFIC as to any U.S. holder if
we are a PFIC for any year during a U.S. holders holding period, if we cease
to satisfy the requirements for PFIC classification, you may avoid such
classification for years after such cessation if (1) you have made a QEF
election in the first taxable year in which you own the Class A Common Shares,
or (2) you elect to recognize gain based on the realized appreciation in the
Class A Common Shares through the close of the tax year in which we cease to be
a PFIC.

Transfer Reporting Requirements

Under recently promulgated regulations, a U.S. holder, including a tax
exempt entity, that purchases Class A Common Shares for cash will be required
to file an IRS Form 926 or similar form with the IRS, if (1) the U.S. holder
owned, directly or by attribution, immediately after the transfer at least 10%
by vote or value of us, or (2) the purchase, when aggregated with all purchases
made by that U.S. holder, or any related person thereto, within the preceding
12 month period, exceeds US$100,000. If a U.S. holder fails to file any such
required form, the U.S. holder could be required to pay a penalty equal to 10%
of the gross amount paid for the Class A Common Shares, subject to a maximum
penalty of US$100,000, except in cases involving intentional disregard. You
should consult your tax advisors with respect to this or any other reporting
requirement which may apply with respect to their acquisition of the Class A
Common Shares.

97



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Backup Withholding and Information Reporting

The relevant paying agents for the shares must comply with information
reporting requirements in connection with dividend payments or other taxable
distributions made within the U.S. on the Class A Common Shares to a
non-corporate U.S. person. In addition, backup withholding at the rate of 31%
generally will apply to those payments unless the beneficial owner provides an
accurate taxpayer identification number on a properly completed IRS Form W-9,
certifies its non-U.S. status under penalties of perjury on a properly
completely IRS Form W-8BEN, or otherwise certifies that the beneficial owner is
not subject to backup withholding.

Payment of the proceeds from sale of the Class A Common Shares to or
through a U.S. office of a broker is subject to both U.S. backup withholding
and information reporting requirements, unless the beneficial owner provides an
accurate taxpayer identification number or establishes an exemption from backup
withholding, as described in the preceding paragraph. In general, neither U.S.
backup withholding nor information reporting will apply to a payment of sale
proceeds made outside the U.S. through an office outside the U.S. of a non-U.S.
broker. Special rules may require information reporting in the case of payments
of sale proceeds made outside the U.S. through a U.S. broker.

Amounts withheld under the backup withholding rules may be credited
against a U.S. Holders U.S. federal income tax liability, and a holder may
obtain a refund of any excess amounts withheld under the backup withholding
rules by filing the appropriate claim for refund with the IRS.



|F. |  | Dividends and Paying Agents
|-- |  | ---------------------------

Not applicable.



|G. |  | Statement by Experts
|-- |  | --------------------

Not applicable.



|H. |  | Documents on Display
|-- |  | --------------------

Any statement in this Annual Report about any of our contracts or other
documents is not necessarily complete. If the contract or document is filed as
an exhibit to the registration statement, the contract or document is deemed to
modify the description contained in this Annual Report. You should review the
exhibits for a complete description of the contract or document.

We are subject to the periodic reporting and other informational
requirements of the Securities Exchange Act of 1934, as amended. Under the
Exchange Act, we are required to file reports and other information with the
Commission. Specifically, we are required to file annually a Form 20-F no later
than six months after the close of our fiscal year, which is December 31.
Copies of the registration statement, its accompanying exhibits, as well as
reports and other information, when filed, may be inspected without charge and
may be obtained at prescribed rates at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Securities and
Exchange Commission located at Seven World Trade Center, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. The public may obtain information regarding the Washington,
D.C. Public Reference Room by calling the Commission at 1-800-SEC-0330. You may
access the Securities and Exchange Commissions Web site at http://www.sec.gov.
Our Class A Common Shares are listed for trading on NASDAQ under the symbol
CHINA. As a foreign private issuer, we are exempt from the rules under the
Exchange Act prescribing the furnishing of proxy statements, and officers,
directors and principal
shareholders are exempt from the reporting and short-swing profit recovery
provisions contained in Section 16 of the Exchange Act.

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We furnish our shareholders with annual reports, which include a review of
operations and annual audited consolidated financial statements prepared in
conformity with United States generally accepted accounting principles in the
United States, or GAAP.



|I. |  | Subsidiary Information
|-- |  | ----------------------

For a listing of our material subsidiaries, see Item 4.C. of this Annual
Report, Information on the Company  Organizational Structure.




ITEM 11.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

You should read the following discussion of our Quantitative and
Qualitative Disclosures About Market Risk together with our financial condition
and results of operations as set forth in Item 5 of this Annual Report,
Operating and Financial Review and Prospects and with our consolidated
financial statements and the related notes included elsewhere in this Annual
Report. This discussion contains forward-looking statements that involve risks
and uncertainties. Our actual results may differ significantly from those
anticipated in these forward-looking statements as a result of factors included
elsewhere in this Annual Report.

During 2002 we continued our active treasury management program, which
commenced during 2001 with our Repurchase Agreement with Fortis Bank, by
entering into a Total Return Swap Transaction Agreement with DBS Bank. Under
these repurchase agreements, we may borrow as of May 31, 2003 up to US$400
million on such terms as we and the banks may mutually agree. As of December
31, 2002, an aggregate of US$125 million was outstanding under our repurchase
facilities with US$115 million outstanding under our Repurchase Agreement with
Fortis Bank and US$10 million outstanding under our Swap Agreement with DBS
Bank. Such borrowed proceeds have been used to invest in debt securities as
part of our treasury management program. Approximately US$115.0 million under
such facilities are due in 2003.

Our treasury management program and our repurchase facilities are subject
to market risk. Further, we are affected by market risks in respect of our
shareholdings in publicly listed companies and foreign exchange risk. See Item
4.B. of this Annual Report, Business Overview  Treasury managementand Item
5.B of this Annual Report, Operating and Financial Review and Prospects #
Liquidity and Capital Resources.

Credit Default and Investment Risk

When we purchase debt securities as part of our treasury management
program, we are subject to risks that can reduce the value of our investments.
Historically, the fluctuation in value of our debt portfolio as a whole has not
exceeded 5%, although there can be no assurance that the value of our
portfolio, or even the mark to market or actual loss, will not exceed 5%,
either as a whole or with respect to any individual debt security. The primary
factors that can cause significant fluctuations or a decline in the fair market
value of our investments include:



| |  |  | the issuers actual or perceived credit quality following changes
in its debt to equity ratio;
| | - |  | ----------------------------------------------------------------------------------------------
|
| |  |  | increased writedowns for goodwill or intangible assets;                                       
|
| |  |  | declining revenues or earnings that fall short of expectations;
and                           
|
| |  |  | inability to comply with financial instrument covenants.                                      

These and other indicators could reduce the value of our
investments due to:



| |  |  | reduced liquidity;                                           
| | - |  | -------------------------------------------------------------
|
| |  |  | ratings downgrades, or a negative outlook by credit agencies;

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| |  |  | a decline in the price of an issuers equity or debt securities;
or
| | - |  | -------------------------------------------------------------------
|
| |  |  | an issuer being placed on CreditWatch.                             

While all of our current investments in debt securities are investment
grade, there can be no assurance that the issuers of those securities will not
default on their obligations or their ratings will remain investment grade. A
debt security may remain an investment grade instrument, but events such as
those listed above could cause the value of that debt security to decline. In
such an instance, we would suffer either an actual loss if we were to sell the
debt security or a mark to market loss if the fair market value were to be less
than our purchase price for six or more consecutive months. As of March 31,
2003, a value of approximately US$2.0 million has been recorded in accumulated
other comprehensive income in the shareholders equity item in our
consolidated balance sheet, reflecting an aggregate appreciation in fair market
value of our debt portfolio compared to our date of investment. Approximately
11.6% of our debt portfolio is currently trading below investment cost.

We are exposed to the risk of default by the issuers of our debt
securities. We can quantify the risk by dividing our debt securities portfolio
into the four primary risk categories based on the Standard and Poors credit
ratings of the debt issuers as of each of December 31, 2002 and April 30, 2003.
Even if an issuer did not default, but the market perceives an increased
likelihood of a default, we may suffer a principal loss if we sold a debt
security of such issuer under unfavorable market circumstances. The table below
shows the value of our debt securities as of each of December 31, 2002 and
April 30, 2003 as categorized based on ratings assigned to our debt securities
by each of Standard & Poors and Moodys Investors Service. The discrepancy in
value as between the two rating agencies is due to the fact that certain
issuers are split-rated as between the respective ratings assessed by
Standard & Poors and Moodys Investors Service.

|                                                                                 |  |     |       |    |  |   |      |     |  |       |     |  |  |  |      |  |  |  |       | 
|-------------------------------------------------------------------------------- |  | --- | ----- | -- |  | - | ---- | --- |  | ----- | --- |  |  |  | ---- |  |  |  | ----- | 
|Rating (Standard & Poors)                                                       |  | AAA |       | AA |  | A |      | BBB |  | Total
|                                                                                 |  |     |       |    |  |   |      |     |  |      
|Amounts of debt securities
outstanding as of December
31, 2002
(in US$ millions) |  |     |       |    |  |   |      |     |  |       |     |  |  |  |      |  |  |  |       | 
|Moodys Investors Service                                                        |  |     | 407.1 |    |  |   | 35.0 |     |  |       | 0   |  |  |  | 29.1 |  |  |  | 471.2 | 
|Standard & Poors                                                                |  |     | 407.1 |    |  |   | 35.0 |     |  |       | 9.0 |  |  |  | 20.1 |  |  |  | 471.2 | 
|Amounts of debt securities
outstanding as of April 30,
2003
(in US$ millions)    |  |     |       |    |  |   |      |     |  |       |     |  |  |  |      |  |  |  |       | 
|Moodys Investors Service                                                        |  |     | 366.8 |    |  |   | 0    |     |  |       | 0   |  |  |  | 20.0 |  |  |  | 386.8 | 
|Standard & Poors                                                                |  |     | 366.8 |    |  |   | 0    |     |  |       | 0   |  |  |  | 20.0 |  |  |  | 386.8 | 

With respect to our US$20.0 million investment in Centauri Fund (currently
rated Baa2 by Moodys Investors Service and BBB by Standard & Poors), a bond
fund managed by a third party professional manager, we are also exposed to
external management risk, and we rely on the professional skills of the fund
manager to deliver our target interest income. There can be no assurance that
we will achieve our interest income target. Also, our investment in the
Centauri Fund is highly illiquid and could be difficult to realize prior to
first available redemption in 2006.

Interest Rate Risk

We are exposed to risk related to fluctuations in interest rates, as
determined principally by the U.S. Federal Reserve Board changing of short-term
interest rates. This is reflected in related changes in U.S.

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Treasuries and
Libor interest rates and relates to our investment in debt securities issued by
the U.S. government, U.S. and foreign investment-grade corporations and by U.S.
government sponsored enterprises (such as the Federal National Mortgage
Association, or Fannie Mae, and the Federal Home Loan Mortgage Corporation,
or Freddie Mac). As of December 31, 2002, we had invested US$471.2 million in
fixed and floating rate debt securities which included US$151.1 million of
restricted debt securities set aside as collateral pursuant to US$125.0 million
in drawdowns under our repurchase facilities. We value our debt securities
according to their fair market value. Debt securities with a fixed rate coupon
having relatively long maturities are subject to interest rate expectations,
and their values are generally likely to fall if interest rates are expected to
increase. This also applies to the fixed-spread portion of our investments in
floating rate debt securities, impacting the value of our floating rate
securities. Debt securities that use interest rate indices such as Libor as a
reference are exposed to any expectation of rising interest rates and may
suffer significant mark to market losses in an adverse interest rate
environment. If we were to sell such securities under adverse interest rate
conditions, we could suffer significant loss of principal. Historically the
fluctuation in value of our debt portfolio has not exceeded 5%, although there
can be no guarantee that our portfolio will not undergo greater fluctuations in
future.

Our future interest income may decline due to a decrease in interest rates
or the replacement of existing securities with lower yielding securities,
either to shorten the maturity of the portfolio, or to reduce credit risk
exposure, or both. In addition, we may receive no coupon from debt investments
if interest rates rise over certain predetermined benchmarks as set forth below
under  Negative Interest Rate Differential.

If interest rates decrease, it is possible that issuers of debt securities
with the right to call such instruments might exercise their right to call
(namely exercise the right to buy back their debt at predetermined dates prior
to their maturity date at the original issue price, or par). If this were to
happen our portfolio yield would potentially decrease and we might have to
reinvest this portion of the portfolio in new investments at lower interest
rates.

The table below groups our investment securities into different risk
categories based on their exposure to interest rate fluctuations in terms of
the market value of the securities. We have attempted to mitigate interest rate
risk during 2002 by reducing securities with interest rate risk categorized as
Medium to High from US$247.5 million as of December 31, 2001 to US$6.0
million as of December 31, 2002. The remaining US$6.0 million of securities in
this category matures in June 2003. We have shifted the majority of our
portfolio to debt securities with an interest rate risk categorized as Low to
Medium.

|               |  |                                                                                                   |  |                 |       |                    |       | 
|-------------- |  | ------------------------------------------------------------------------------------------------- |  | --------------- | ----- | ------------------ | ----- | 
|               |  |                                                                                                   |  |                 |       | Amount Invested as
|Interest       |  |                                                                                                   |  | of December 31,
|Rate Risk      |  | Type of Security                                                                                  |  | 2002           
|               |  |                                                                                                   |  |                
|               |  |                                                                                                   |  |                 |       | (in US$ millions) 
|Very Low       |  | Floating notes /Floating rate funds                                                               |  |                 | 20.0  |                   
|Low            |  | Fixed rate bonds of less than 18 months maturity                                                  |  |                 | 9.1   |                   
|Low to Medium  |  | Fixed rate bonds with 18 months to 5 years maturity                                               |  |                 | 279.8 |                   
|Medium         |  | Floating rate bonds with Libor-linked coupon and fixed rate bonds of longer than 5 years maturity |  |                 | 156.3 |                   
|Medium to High |  | Fixed rate bonds with Libor-linked coupon                                                         |  |                 | 6.0   |                   
|               |  |                                                                                                   |  |                 |       |                    |       | 
|               |  |                                                                                                   |  |                 |       |                    | 471.2 | 

Negative Interest Rate Differential

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To enhance our interest income, we have borrowed from our collateralized
repurchase facilities to invest in fixed rate AAA-rated debt securities issued
by U.S. government sponsored enterprises. As of December 31, 2002, we have
borrowed US$125 million from our repurchase facilities for this purpose.
Because of the very low interest rate environment, we expect that the debt
securities purchased with proceeds from the repurchase facilities will pay a
coupon substantially higher than we would otherwise received. However, we may
be exposed to the risk of a negative interest rate differential, or negative
carry situation, if interest rates rise.

Risks Related to the Repurchase Facilities

Use of the repurchase facilities with Fortis Bank and DBS Bank creates the
following three primary risks for us:



| |  |  | The risk associated with increased leverage, which includes our
ability to pay back the borrowed funds in a timely manner without
which may cause us to liquidate a portion of our treasury
portfolio at a time where we may need to incur losses on the sale
of sufficient debt instruments to repay the borrowing.                                                                                                                                       
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | By setting aside debt securities as collateral under either
repurchase facility, we incur the risk that if the banks
themselves were to undergo an insolvency event, we could lose all
or part of our debt securities set aside at such time with the
bank. Currently, Fortis credit rating is AA- by Standard & Poors
and Aa3 by Moodys Investors Service and DBS Banks credit rating
is A+ by Standard & Poors and Aa2 by Moodys Investors Service.
|
| |  |  | The interest that we pay under our repurchase facilities is
dependent upon Libor and therefore, our future interest expenses
with respect to any amounts drawn down under the repurchase
facilities may exceed our expectations due to changes in interest
rates. For example, if Libor rises extremely rapidly over the next
few years, interest expenses will rise commensurately.                                                                       

Equity Price Risk

As of December 31, 2002, we had US$2.1 million invested in shares of
publicly listed companies. The table below presents the carrying amounts and
fair values of our investment in
shares of publicly listed companies, which are held for non-trading purposes.
The amount of the carrying value is the same as the fair value because we have
marked to market the carrying amount of our investments as at the end of the
period.

|                                                   |  |                   |     |                   |  |                 |     |            |  |  |     |  |  |  |     | 
|-------------------------------------------------- |  | ----------------- | --- | ----------------- |  | --------------- | --- | ---------- |  |  | --- |  |  |  | --- | 
|                                                   |  | December 31, 2001 |     | December 31, 2002
|                                                   |  |                   |     |                  
|                                                   |  | Carrying amount   |     | Fair value        |  | Carrying amount |     | Fair value
|                                                   |  |                   |     |                   |  |                 |     |           
|Available-for-sale equity securities (US$ million) |  |                   | 2.1 |                   |  |                 | 2.1 |            |  |  | 2.1 |  |  |  | 2.1 | 

Foreign Currency Risk

Approximately 83% of our revenues for the year ended December 31, 2002 was
derived from our Asia subsidiaries, which conducted their businesses and also
incurred expenses in their local currency. We do not use any derivatives to
hedge against foreign currency fluctuations. As exchange rates in these Asian
currencies vary, our revenues and operating results, when translated, may be
adversely impacted and vary from expectations. The effect of foreign exchange
rate fluctuations on our financial results for the year ended December 31, 2002
was not material. All of our debt securities are US-dollar denominated and
therefore not subject to foreign currency risk. However, as long as we continue
to rely on US-dollar denominated interest income for a significant portion of
our cashflows and use this to support our operations, any material depreciation
of the US dollar versus currencies of the countries where we have our
operations might have a negative effect on our cashflows.

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ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

PART II




ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

Not applicable.




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

None.




ITEM 15. CONTROLS AND PROCEDURES

An evaluation of the effectiveness of our disclosure controls and
procedures was carried out under the supervision and with the participation of
our management, including our Chief Executive Officer, or CEO, and our Chief
Financial Officer, or CFO. Based on that evaluation, our CEO and CFO concluded
that as of the end of the period covered by this report we maintained
disclosure controls and procedures that are effective in providing reasonable
assurance that information required to be disclosed in our reports under the
Securities Exchange
Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the Commissions rules and forms, and that such
information is accumulated and communicated to our management, including our
CEO and its CFO, as appropriate, to allow timely decisions regarding required
disclosure. Our management necessarily applied its judgment in assessing the
costs and benefits of such control and procedures, which, by their nature, can
provide only reasonable assurance regarding managements control objectives.
There have been no changes in our internal control over financial reporting
that occurred during the period covered by this report that have materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.

In 2003, we hired a Director of Internal Audit who will have
responsibilities overseeing several of our management and control processes,
including internal control, internal audit and compliance with the laws under
the Sarbanes-Oxley Act of 2002 and the rules and regulations of the Commission.
In addition, we have instituted policies under which our managing directors,
financial controllers and financial managers will need to provide our CEO and
CFO monthly certifications with respect to their financial reporting and
controls. We have also implemented a whistle-blower protection procedure with
an independent third party under which staff can make reports on a confidential
basis which are then passed directly on to the Director of Internal Audit and
the Audit Committee.




ITEM 16. [RESERVED]

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PART III




ITEM 17. FINANCIAL STATEMENTS

Not applicable.




ITEM 18. FINANCIAL STATEMENTS

We have appended our Consolidated Financial Statements as of and for the
year ended December 31, 2002 to our Annual Report, (see pages F-1 to F-45).




ITEM 19. EXHIBITS



|(a) |  | Financial Statements.
|--- |  | ---------------------

|                                                                                                                              |  |      |      | 
|----------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---- | 
|                                                                                                                              |  | Page
|                                                                                                                              |  |     
|Report of the Independent Auditors                                                                                            |  |      | F-1  | 
|Consolidated Balance Sheets as of December 31, 2001 and 2002                                                                  |  |      | F-2  | 
|Consolidated Statements of Operations for each of the three years ended December 31, 2000, 2001 and 2002                      |  |      | F-3  | 
|Consolidated Statements of Cash Flows for each of the three years ended December 31, 2000, 2001 and 2002                      |  |      | F-5  | 
|Consolidated Statements of Changes in Shareholders Equity for each of the three years ended December 31, 2000, 2001 and 2002 |  |      | F-9  | 
|Notes to Consolidated Financial Statements                                                                                    |  |      | F-10 | 



|(b) |  | Exhibits.
|--- |  | ---------

|    |         |             |  |                                                                                                                                                       
|--- | ------- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|No. |         | Description
|    |         |            
|    | 1.1     |             |  | Conformed copy of the Amended and Restated Memorandum of
Association.*******                                                                          
|    | 1.2     |             |  | Conformed copy of the Amended and Restated Articles of Association.*******                                                                            
|    | 2.1     |             |  | 1999 Employee Stock Option Plan, as amended.*                                                                                                         
|    | 2.2     |             |  | 2000 Employee Share Purchase Plan.**                                                                                                                  
|    | 2.3     |             |  | 2001 Employee Share Purchase Plan.*****                                                                                                               
|    | 4.(a).1 |             |  | Amended and Restated Support Services Agreement dated April 1, 2000 by
and between China Internet Corporation Limited and chinadotcom
corporation.****
|    | 4.(a).2 |             |  | Agreement dated March 12, 2001 by and between China Internet Corporation
Limited and chinadotcom corporation.****                                     
|    | 4.(a).3 |             |  | Agreement dated March 13, 2001 by and between China Internet Corporation
Limited and chinadotcom corporation.****                                     

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|    |          |             |  |                                                                                                                                                  
|--- | -------- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|No. |          | Description
|    |          |            
|    | 4.(a).4  |             |  | Guarantee Agreement dated April 4, 2001 by chinadotcom corporation in
favor of hongkong.com Limited.****                                         
|    | 4.(a).5  |             |  | Asset Purchase Agreement dated October 24, 2001 between China Internet
Corporation Limited and chinadotcom Strategic, Inc.******                 
|    | 4.(b).1  |             |  | 24/7 Media-Asia Agreement dated August 24, 2000 by and among 24/7 Media,
Inc, 24/7 Media-Asia Ltd., Sift, Inc. and China Internet Corporation.***
|    | 4.(b).2  |             |  | Equity Exchange Agreement dated August 24, 2000 by and among chinadotcom
corporation, 24/7 Media-Asia Ltd. and 24/7 Media, Inc.***               
|    | 4.(c)1   |             |  | Executive Services Agreement dated April 27, 2001, by and between
chinadotcom corporation and Raymond Chien.****                                
|    | 4.(c)2   |             |  | Executive Services Agreement effective as of January 1, 2002, by and
between chinadotcom corporation and Asia Pacific Online Limited.******      
|    | 6.       |             |  | Details of how EPS information is calculated can be found in Note 19 to
our Consolidated Financial Statements.                                   
|    | 8.       |             |  | List of principal subsidiaries of
the Company.                                                                                                   
|    | 12.1     |             |  | Certification of Chief Executive Officer required by Rule 13a-14(a)                                                                              
|    | 12.2     |             |  | Certification of Chief Financial Officer required by Rule 13a-14(a)                                                                              
|    | 13.(a).1 |             |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|    | 13.(a).2 |             |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002



---

|*       |  | Incorporated by reference to our registration statement on Form S-8 (File
No.: 333-12966) filed with the Commission on December 7, 2000.
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------
|       
|**      |  | Incorporated by reference to our registration statement on Form S-8 (File
No.: 333-12958) filed with the Commission on December 7, 2000.
|       
|***     |  | Incorporated by reference to our registration statement on Form F-3 (File
No. 333-12674) filed with the Commission on October 3, 2000.  
|       
|****    |  | Incorporated by reference to our annual report on Form 20-F (File No.
000-30134) filed with the Commission on May 10, 2001.             
|       
|*****   |  | Incorporated by reference to our current report on Form 6-K (File No.
000-30134) filed with the Commission on February 28, 2002.        
|       
|******  |  | Incorporated by reference to our annual report of Form 20-F (File No.
000-30134) filed with the Commission on June 11, 2002.            
|       
|******* |  | Incorporated by reference to our current report on Form 6-K (File No.
000-30134) filed with the Commission on September 18, 2002.       

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SIGNATURES

The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F/A and that it has duly caused and authorized the
undersigned to sign this Annual Report on its behalf on this 20th day of
January, 2004.

| |                                                    
| | ---------------------------------------------------
| | (CHINADOTCOM CORPORATION LOGO                      
|
| | /s/ Raymond K.F. Chien                            
| |                                                    
| | Raymond K.F. Chien
Executive Chairman             
|
|
|
| | /s/ Peter Yip                                      
| |                                                    
| | Peter Yip
Vice Chairman and Chief Executive Officer
|
|
|
| | /s/ Daniel Widdicombe                              
| |                                                    
| | Daniel Widdicombe
Chief Financial Officer          

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chinadotcom corporation




INDEX TO FINANCIAL STATEMENTS

PagesReport of the Independent Auditors
    
    
    F-1Consolidated Balance Sheets as of December 31, 2001 and 2002
    
    
    F-2Consolidated Statements of Operations for each of the three
years ended December 31, 2000, 2001 and 2002
    
    
    F-3 - 4Consolidated Statements of Cash Flows for each of the three
years ended December 31, 2000, 2001 and 2002
    
    
    F-5 - 6Consolidated Statements of Changes in Shareholders Equity for each
of the three years ended December 31, 2000, 2001 and 2002
    
    
    F-7 - 9Notes to Consolidated Financial Statements
    
    
    F-10 - 49






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REPORT OF THE INDEPENDENT AUDITORS

The Board of Directors and Shareholders
chinadotcom corporation

We have audited the accompanying consolidated balance sheets of
chinadotcom corporation and subsidiaries as of December 31, 2001 and 2002 and
the related consolidated statements of operations, cash flows and shareholders
equity for each of the three years in the period ended December 31, 2002.
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. 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of chinadotcom
corporation and subsidiaries at December 31, 2001 and 2002, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2002, in conformity with
accounting principles generally accepted in the United States.

As discussed in note 4(e) of the consolidated financial statements, in
2002 the Company changed its method of accounting for goodwill.

Hong Kong
February 13, 2003

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##### Table of Contents






chinadotcom corporation
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands of U.S. dollars, except number of shares and per share data)

December 31,
    
    December 31,Notes
    
    2001
    
    2002ASSETSCurrent assets:Cash and cash equivalents
    
    
    
    
    
    
    20,820
    
    
    
    33,153Restricted cash
    
    
    5
    
    
    
    1,274
    
    
    
    109Accounts receivable
(net of allowance of USD6,538 for 2001 and 4,139 for 2002)
    
    
    6
    
    
    
    21,074
    
    
    
    15,030Deposits, prepayments and other receivables
    
    
    
    
    
    
    16,746
    
    
    
    8,363Available-for-sale debt securities
    
    
    7
    
    
    
    329,952
    
    
    
    300,056Restricted debt securities
    
    
    7
    
    
    
    134,960
    
    
    
    139,255Total current assets
    
    
    
    
    
    
    524,826
    
    
    
    495,966Property, plant and equipment, net
    
    
    9
    
    
    
    21,288
    
    
    
    9,375Goodwill
    
    
    10
    
    
    
    6,430
    
    
    
    12,016Intangible assets
    
    
    11
    
    
    
    17,092
    
    
    
    16,980Investment in equity investees
    
    
    
    
    
    
    2,668
    
    
    
    330Investments under cost method
    
    
    
    
    
    
    2,878
    
    
    
    387Available-for-sale debt securities
    
    
    7
    
    
    
    17,028
    
    
    
    20,000Restricted debt securities
    
    
    7
    
    
    
    
    
    
    
    11,868Available-for-sale equity securities
    
    
    12
    
    
    
    2,064
    
    
    
    2,050Other assets
    
    
    
    
    
    
    2,220
    
    
    
    11,985Total assets
    
    
    
    
    
    
    596,494
    
    
    
    580,957LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    
    
    
    
    
    15,082
    
    
    
    13,662Other payables
    
    
    
    
    
    
    7,100
    
    
    
    12,952Accrued liabilities
    
    
    
    
    
    
    14,099
    
    
    
    9,064Short-term bank loans
    
    
    13
    
    
    
    116,820
    
    
    
    115,650Long-term bank loans, current portion
    
    
    14
    
    
    
    131
    
    
    
    149Deferred revenue
    
    
    
    
    
    
    932
    
    
    
    2,693Tax payable
    
    
    
    
    
    
    1,002
    
    
    
    636Amounts due to related companies
    
    
    8
    
    
    
    10,248
    
    
    
    684Total current liabilities
    
    
    
    
    
    
    165,414
    
    
    
    155,490Long-term bank loans, net of current portion
    
    
    14
    
    
    
    1,504
    
    
    
    11,585Other payables, net of current portion
    
    
    
    
    
    
    2,860
    
    
    
    Minority interests
    
    
    
    
    
    
    36,855
    
    
    
    36,182Shareholders equity:Class A common shares, USD0.00025 par value:Authorized shares  800,000,000 sharesIssued and outstanding 102,691,872 shares as of December 31, 2001 and
101,296,363 shares as of December 31, 2002
    
    
    
    
    
    
    26
    
    
    
    25Preferred shares, USD0.001 par value:Authorized shares  5,000,000 sharesIssued and outstanding  Nil as of December 31, 2001 and 2002
    
    
    
    
    
    
    
    
    
    
    Additional paid-in capital
    
    
    
    
    
    
    613,460
    
    
    
    610,340Treasury stock  63,564 shares
    
    
    
    
    
    
    
    
    
    
    (238
    )Accumulated other comprehensive income
    
    
    15
    
    
    
    (7,439
    )
    
    
    1,990Accumulated deficits
    
    
    
    
    
    
    (216,186
    )
    
    
    (234,417
    )Total shareholders equity
    
    
    
    
    
    
    389,861
    
    
    
    377,700Total liabilities and shareholders equity
    
    
    
    
    
    
    596,494
    
    
    
    580,957


The accompanying notes form an integral part of these consolidated financial statements.

F-2



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##### Table of Contents






chinadotcom corporation
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands of U.S. dollars, except number of shares and per share data)

Year ended
    
    Year ended
    
    Year endedDecember 31,
    
    December 31,
    
    December 31,Notes
    
    2000
    
    2001
    
    2002Revenues (a)e-business solutions
    
    
    
    
    
    
    61,327
    
    
    
    32,591
    
    
    
    23,003Advertising
    
    
    
    
    
    
    43,769
    
    
    
    21,404
    
    
    
    28,250Sale of IT products
    
    
    
    
    
    
    3,276
    
    
    
    4,580
    
    
    
    4,631Other income
    
    
    
    
    
    
    1,296
    
    
    
    5,899
    
    
    
    3,418109,668
    
    
    
    64,474
    
    
    
    59,302Less: Cost of revenuese-business solutions
    
    
    
    
    
    
    (38,600
    )
    
    
    (21,922
    )
    
    
    (14,022
    )Advertising
    
    
    
    
    
    
    (29,109
    )
    
    
    (13,508
    )
    
    
    (20,045
    )Sale of IT products
    
    
    
    
    
    
    (56
    )
    
    
    (3,466
    )
    
    
    (3,306
    )Other income
    
    
    
    
    
    
    (1,275
    )
    
    
    (2,010
    )
    
    
    (1,484
    )Gross margin
    
    
    
    
    
    
    40,628
    
    
    
    23,568
    
    
    
    20,445Selling, general and administrative expenses (b)
    
    
    16
    
    
    
    (101,275
    )
    
    
    (87,865
    )
    
    
    (37,963
    )Depreciation and amortization expenses
    
    
    
    
    
    
    (37,775
    )
    
    
    (27,388
    )
    
    
    (11,860
    )Impairment of goodwill and intangible assets
    
    
    
    
    
    
    (43,373
    )
    
    
    (40,698
    )
    
    
    Stock compensation expense
    
    
    24
    
    
    
    (5,083
    )
    
    
    (1,227
    )
    
    
    (309
    )Operating loss
    
    
    
    
    
    
    (146,878
    )
    
    
    (133,610
    )
    
    
    (29,687
    )Interest income
    
    
    
    
    
    
    29,934
    
    
    
    26,809
    
    
    
    23,927Interest expense
    
    
    
    
    
    
    (949
    )
    
    
    (1,474
    )
    
    
    (2,629
    )Gain/(loss) arising from share issuance of
a subsidiary
    
    
    
    
    
    
    140,031
    
    
    
    (55
    )
    
    
    Gain/(loss) on disposal of
available-for-sale securities
    
    
    
    
    
    
    1,682
    
    
    
    4,411
    
    
    
    (158
    )Gain/(loss) on disposal of
subsidiaries and cost investments
    
    
    
    
    
    
    13,981
    
    
    
    (1,933
    )
    
    
    (117
    )Other non-operating gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,173Other non-operating losses
    
    
    
    
    
    
    (1,992
    )
    
    
    (1,321
    )
    
    
    (288
    )Impairment of cost investments and
available-for-sale securities
    
    
    
    
    
    
    (84,696
    )
    
    
    (12,260
    )
    
    
    (5,351
    )Share of (losses)/income in equity investees
    
    
    
    
    
    
    (9,423
    )
    
    
    (2,592
    )
    
    
    682Loss before income taxes
    
    
    
    
    
    
    (58,310
    )
    
    
    (122,025
    )
    
    
    (12,448
    )Income taxes
    
    
    18
    
    
    
    (682
    )
    
    
    (148
    )
    
    
    (160
    )Loss before minority interests
    
    
    
    
    
    
    (58,992
    )
    
    
    (122,173
    )
    
    
    (12,608
    )Minority interests in losses of
consolidated subsidiaries
    
    
    
    
    
    
    553
    
    
    
    4,010
    
    
    
    1,036Loss from continuing operations
    
    
    
    
    
    
    (58,439
    )
    
    
    (118,163
    )
    
    
    (11,572
    )Discontinued operations
    
    
    20Loss from operations of discontinued
subsidiaries, net of related tax benefit of
USD42 and tax expense of USD213 for 2000
and 2001, respectively
    
    
    
    
    
    
    (1,363
    )
    
    
    (6,222
    )
    
    
    (7,204
    )Gain on disposal of discontinued subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    545Net loss
    
    
    19
    
    
    
    (59,802
    )
    
    
    (124,385
    )
    
    
    (18,231
    )Basic and diluted loss per share
    
    
    19
    
    
    
    (0.61
    )
    
    
    (1.21
    )
    
    
    (0.18
    )


F-3



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chinadotcom corporation
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands of U.S. dollars, except number of shares and per share data)

Year ended
    
    Year ended
    
    Year endedDecember 31,
    
    December 31,
    
    December 31,Notes
    
    2000
    
    2001
    
    2002(a)  Revenues from related parties
    
    
    17e-business solutions
    
    
    
    
    
    
    13,921
    
    
    
    60
    
    
    
    Advertising
    
    
    
    
    
    
    7,870
    
    
    
    
    
    
    
    Other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,791
    
    
    
    60
    
    
    
    (b)  Selling, general and
administrativeexpenses to related parties
    
    
    17
    
    
    
    (1,200
    )
    
    
    (10,106
    )
    
    
    (413
    )


The accompanying notes form an integral part of these consolidated financial statements.

F-4



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##### Table of Contents






chinadotcom corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands of U.S. dollars, except number of shares and per share data)

Year ended
    
    Year ended
    
    Year endedDecember 31,
    
    December 31,
    
    December 31,2000
    
    2001
    
    2002Cash flows from operating activities:Net loss
    
    
    (59,802
    )
    
    
    (124,385
    )
    
    
    (18,231
    )Adjustments to reconcile income to net cash
provided by operating activities:Minority interests in income/(loss)
of consolidated subsidiaries
    
    
    (553
    )
    
    
    (4,010
    )
    
    
    (1,036
    )Loss on disposal/write-off of property, plant and equipment
    
    
    117
    
    
    
    3,066
    
    
    
    1,732Gain on disposal of available-for-sale securities
    
    
    (1,682
    )
    
    
    (4,411
    )
    
    
    158(Gain)/loss arising from share issuance of a subsidiary
    
    
    (140,031
    )
    
    
    55
    
    
    
    (Gain)/loss on disposal of subsidiaries
and cost investments
    
    
    (13,981
    )
    
    
    2,055
    
    
    
    (428
    )Amortization of goodwill and intangible assets
    
    
    29,690
    
    
    
    15,323
    
    
    
    1,183Depreciation
    
    
    8,452
    
    
    
    12,739
    
    
    
    11,340Stock compensation expense
    
    
    5,083
    
    
    
    1,169
    
    
    
    309Share of loss in equity investees
    
    
    9,423
    
    
    
    2,592
    
    
    
    (682
    )Impairment of cost investments and available-for-sale securities
    
    
    84,696
    
    
    
    12,260
    
    
    
    5,351Impairment of goodwill and intangible assets
    
    
    43,389
    
    
    
    40,698
    
    
    
    Gain in value of derivative instruments
    
    
    
    
    
    
    
    
    
    
    (571
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (19,841
    )
    
    
    10,427
    
    
    
    7,191Deposits, prepayments and other receivables
    
    
    (12,931
    )
    
    
    (8
    )
    
    
    10,909Due from related companies
    
    
    (17,381
    )
    
    
    21,450
    
    
    
    Other assets
    
    
    (1,565
    )
    
    
    1,623
    
    
    
    (252
    )Accounts payable
    
    
    4,008
    
    
    
    (1,468
    )
    
    
    (1,107
    )Other payables
    
    
    2,724
    
    
    
    (5,754
    )
    
    
    4,824Accrued liabilities
    
    
    10,438
    
    
    
    145
    
    
    
    (3,968
    )Deferred revenue
    
    
    1,531
    
    
    
    (2,307
    )
    
    
    (66
    )Due to related companies
    
    
    618
    
    
    
    1,099
    
    
    
    (730
    )Net cash (used in)/provided by operating activities
    
    
    (67,598
    )
    
    
    (17,642
    )
    
    
    15,926Cash flows from investing activities:Acquisition of subsidiaries, net of cash acquired
    
    
    (17,259
    )
    
    
    (15,580
    )
    
    
    (4,587
    )Acquisition of equity investees
    
    
    (6,848
    )
    
    
    
    
    
    
    Acquisition of property, plant and equipment
    
    
    (29,228
    )
    
    
    (8,250
    )
    
    
    (5,471
    )Acquisition of cost investments
    
    
    (21,150
    )
    
    
    (398
    )
    
    
    Acquisition of available-for-sale securities
    
    
    (2,875,048
    )
    
    
    (1,932,249
    )
    
    
    (660,599
    )Acquisition of intangible assets
    
    
    
    
    
    
    (12,392
    )
    
    
    (8,800
    )Advances of loans to equity investees
    
    
    (4,389
    )
    
    
    (179
    )
    
    
    Purchase of promissory note and warrants
    
    
    
    
    
    
    
    
    
    
    (7,000
    )Proceeds from disposal of available-for-sale securities
    
    
    2,582,685
    
    
    
    1,843,943
    
    
    
    675,728Proceeds from disposal of property, plant and equipment
    
    
    183
    
    
    
    138
    
    
    
    1,386Proceeds/(cash disbursements) from share issuance
by/disposal of subsidiaries
    
    
    169,835
    
    
    
    982
    
    
    
    (652
    )Proceeds from disposal of cost investments
    
    
    970
    
    
    
    598
    
    
    
    Restricted cash
    
    
    (4,134
    )
    
    
    2,860
    
    
    
    1,165Net cash used in investing activities
    
    
    (204,383
    )
    
    
    (120,527
    )
    
    
    (8,830
    )Cash flows from financing activities:Issuance of share capital
    
    
    312,438
    
    
    
    279
    
    
    
    724Additional minority interests
    
    
    217
    
    
    
    
    
    
    
    Additional bank loans
    
    
    2,495
    
    
    
    117,307
    
    
    
    125,278Repayment of bank loans
    
    
    
    
    
    
    (2,737
    )
    
    
    (116,349
    )Purchase of treasury stocks
    
    
    
    
    
    
    
    
    
    
    (4,416
    )Settlement of promissory notes in relation to acquisitions
    
    
    (8,599
    )
    
    
    (3,343
    )
    
    
    Net cash provided by in financing activities
    
    
    306,551
    
    
    
    111,506
    
    
    
    5,237Net increase/(decrease) in cash and cash equivalents
    
    
    34,570
    
    
    
    (26,663
    )
    
    
    12,333Cash and cash equivalents at beginning of year
    
    
    12,913
    
    
    
    47,483
    
    
    
    20,820Cash and cash equivalents at end of year
    
    
    47,483
    
    
    
    20,820
    
    
    
    33,153


F-5



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##### Table of Contents



chinadotcom corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands of U.S. dollars, except number of shares and per share data)

Year ended
    
    Year ended
    
    Year endedDecember 31,
    
    December 31,
    
    December 31,2000
    
    2001
    
    2002Interest paid
    
    
    954
    
    
    
    1,495
    
    
    
    2,632Non-cash activities:Class A common shares issued for purchases
of available-for-sale securities and cost investments
    
    
    45,359
    
    
    
    
    
    
    
    Class A common shares issued for acquisitions
    
    
    39,095
    
    
    
    
    
    
    
    Class A common shares issued for settlement
of other payables
    
    
    294
    
    
    
    4,467
    
    
    
    Class A common shares issued for settlement
of promissory notes
    
    
    7,492
    
    
    
    3,033
    
    
    
    Stock options issued/allocated for acquisitions
    
    
    1,212
    
    
    
    
    
    
    
    Promissory notes issued and other payables
incurred in respect of acquisitions
    
    
    38,643
    
    
    
    
    
    
    
    Subsidiarys ordinary shares issued for acquisitions
    
    
    
    
    
    
    1,410
    
    
    
    Subsidiarys ordinary shares issued for purchase of assets
    
    
    
    
    
    
    221
    
    
    
    Repurchase of Class A common shares from disposal of an
equity investee
    
    
    
    
    
    
    53
    
    
    
    Reissuance of treasury stocks for settlement of employee
stock ownership plan obligations
    
    
    
    
    
    
    
    
    
    
    24


The accompanying notes form an integral part of these consolidated financial statements.

F-6



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##### Table of Contents






chinadotcom corporation
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
(Amounts in thousands)

Accumulated
    
    
    
    
    
    TotalAdditional
    
    
    
    
    
    
    
    
    
    other
    
    Retained
    
    shareholders'Number
    
    Common
    
    paid-in
    
    Treasury
    
    Comprehensive
    
    comprehensive
    
    earnings
    
    equityof
    
    shares
    
    capital
    
    stock
    
    income
    
    income
    
    (deficit)
    
    (deficit)shares
    
    USD
    
    USD
    
    USD
    
    USD
    
    USD
    
    USD
    
    USDBalance at January 1, 2000
    
    
    87,374
    
    
    
    22
    
    
    
    193,596
    
    
    
    
    
    
    
    
    
    
    
    2,203
    
    
    
    (31,999
    )
    
    
    163,822Issuance of shares for cash
    
    
    7,626
    
    
    
    2
    
    
    
    303,182
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    303,184Exercise of warrants
    
    
    800
    
    
    
    
    
    
    
    4,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,000Exercise of employee stock options
    
    
    1,526
    
    
    
    
    
    
    
    5,254
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,254Issuance of shares for non-cash transactions
    
    
    4,502
    
    
    
    1
    
    
    
    94,213
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    94,214Stock options issued/allocated
for acquisitions
    
    
    
    
    
    
    
    
    
    
    1,212
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,212Stock compensation expenses
on options granted
    
    
    
    
    
    
    
    
    
    
    3,109
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,109Unrealized loss, net of unrealized
gains on available-for-sale
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (44,858
    )
    
    
    (44,858
    )
    
    
    
    
    
    
    (44,858
    )Other-than-temporary impairment
of available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44,929
    
    
    
    44,929
    
    
    
    
    
    
    
    44,929Foreign currency translation
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (804
    )
    
    
    (804
    )
    
    
    
    
    
    
    (804
    )Less: reclassification
adjustment for gains, net of
losses included in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,236
    )
    
    
    (2,236
    )
    
    
    
    
    
    
    (2,236
    )Net loss for the year
ended December 31, 2000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (59,802
    )
    
    
    
    
    
    
    (59,802
    )
    
    
    (59,802
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (62,771
    )Balance at December 31, 2000
    
    
    101,828
    
    
    
    25
    
    
    
    604,566
    
    
    
    
    
    
    
    
    
    
    
    (766
    )
    
    
    (91,801
    )
    
    
    512,024


The accompanying notes form an integral part of these consolidated financial statements.

F-7



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##### Table of Contents



chinadotcom corporation
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
(Amounts in thousands)

Accumulated
    
    
    
    
    
    TotalAdditional
    
    
    
    
    
    
    
    
    
    other
    
    Retained
    
    shareholders'Number
    
    Common
    
    paid-in
    
    Treasury
    
    Comprehensive
    
    comprehensive
    
    earnings
    
    equityof
    
    shares
    
    capital
    
    stock
    
    income
    
    income
    
    (deficit)
    
    (deficit)shares
    
    USD
    
    USD
    
    USD
    
    USD
    
    USD
    
    USD
    
    USDBalance at January 1, 2001
    
    
    101,828
    
    
    
    25
    
    
    
    604,566
    
    
    
    
    
    
    
    
    
    
    
    (766
    )
    
    
    (91,801
    )
    
    
    512,024Exercise of employee stock options
    
    
    92
    
    
    
    
    
    
    
    279
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    279Issuance of shares for non-cash transactions
    
    
    795
    
    
    
    1
    
    
    
    7,499
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,500Redemption and retirement of shares
for non-cash transactions
    
    
    (23
    )
    
    
    
    
    
    
    (53
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (53
    )Stock compensation expenses
on options granted
    
    
    
    
    
    
    
    
    
    
    1,169
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,169Unrealized loss, net of unrealized gains
on available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,956
    )
    
    
    (9,956
    )
    
    
    
    
    
    
    (9,956
    )Other-than-temporary impairment of
available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,216
    
    
    
    4,216
    
    
    
    
    
    
    
    4,216Minority interests share of unrealizedloss, net of unrealized gains on
available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    337
    
    
    
    337
    
    
    
    
    
    
    
    337Foreign currency translation
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,199
    )
    
    
    (1,199
    )
    
    
    
    
    
    
    (1,199
    )Less: reclassification adjustment
for gains, net of losses included
in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (71
    )
    
    
    (71
    )
    
    
    
    
    
    
    (71
    )Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (124,385
    )
    
    
    
    
    
    
    (124,385
    )
    
    
    (124,385
    )(131,058
    )Balance at December 31, 2001
    
    
    102,692
    
    
    
    26
    
    
    
    613,460
    
    
    
    
    
    
    
    
    
    
    
    (7,439
    )
    
    
    (216,186
    )
    
    
    389,861


The accompanying notes form an integral part of these consolidated financial statements.

F-8



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##### Table of Contents



chinadotcom corporation
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
(Amounts in thousands)

Accumulated
    
    
    
    
    
    TotalAdditional
    
    
    
    
    
    
    
    
    
    other
    
    Retained
    
    shareholders'Number
    
    Common
    
    paid-in
    
    Treasury
    
    Comprehensive
    
    comprehensive
    
    earnings
    
    equityof
    
    shares
    
    capital
    
    stock
    
    income
    
    income
    
    (deficit)
    
    (deficit)shares
    
    USD
    
    USD
    
    USD
    
    USD
    
    USD
    
    USD
    
    USDBalance at January 1, 2002
    
    
    102,692
    
    
    
    26
    
    
    
    613,460
    
    
    
    
    
    
    
    
    
    
    
    (7,439
    )
    
    
    (216,186
    )
    
    
    389,861Exercise of employee stock options
    
    
    296
    
    
    
    
    
    
    
    724
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    724Redemption of shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,416
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,416
    )Retirement of shares
    
    
    (1,692
    )
    
    
    (1
    )
    
    
    (4,153
    )
    
    
    4,154
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Reissuance of treasury stock for
non-cash transactions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24Stock compensation expenses
on options granted
    
    
    
    
    
    
    
    
    
    
    309
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    309Unrealized loss, net of unrealized gains
on available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,276
    )
    
    
    (1,276
    )
    
    
    
    
    
    
    (1,276
    )Other-than-temporary impairment of
available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,125
    
    
    
    5,125
    
    
    
    
    
    
    
    5,125Minority interests share of unrealized
gain, net of unrealized loss on
available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (484
    )
    
    
    (484
    )
    
    
    
    
    
    
    (484
    )Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    661
    
    
    
    661
    
    
    
    
    
    
    
    661Less: reclassification adjustment
for gains, net of losses included
in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,403
    
    
    
    5,403
    
    
    
    
    
    
    
    5,403Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,231
    )
    
    
    
    
    
    
    (18,231
    )
    
    
    (18,231
    )(8,802
    )Balance at December 31, 2002
    
    
    101,296
    
    
    
    25
    
    
    
    610,340
    
    
    
    (238
    )
    
    
    
    
    
    
    1,990
    
    
    
    (234,417
    )
    
    
    377,700


F-9



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##### Table of Contents



chinadotcom corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares, number of options and per share data)






|1. |  | ORGANIZATION AND BASIS OF PRESENTATION
|-- |  | --------------------------------------



| |  | chinadotcom corporation is an integrated enterprise solutions company
offering technology, marketing and media services for companies throughout
Greater China and the Asia-Pacific region, the US and the UK. With
operations in 10 markets, the companies under the chinadotcom group have
extensive experience in several industry groups including finance, travel
and manufacturing, and in key business areas, including e-business
strategy, packaged software implementation, precision marketing, and
supply chain management. chinadotcom leverages this expertise with
alliances and partnerships to help drive innovative client solutions.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Company was incorporated as China.com Corporation under the laws
of the Cayman Islands in June 1997 as a wholly-owned subsidiary of China
Internet Corporation Limited (CIC), a company incorporated under the
laws of Bermuda. In June 1999, CIC distributed its total interest in the
Company to CICs shareholders (the Reorganization). The transaction
involved the distribution of a total of 46,975,972 of the Companys Class
A common shares to CICs shareholders on a one-for-one basis with respect
to each issued and outstanding share of CICs capital stock at the time of
the distribution. Upon completion of the Reorganization, CIC ceased to
have any ownership interest in the Company. As part of such corporate
reorganization, CIC transferred certain subsidiaries, portals and related
assets, comprising the integrated portal business, which began in early
1996, to the Company. The transfer has been accounted for as a
reorganization of entities under common control in a manner similar to a
pooling of interests.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | As of each of December 13, 1999 and May 8, 2000, the Company effected
a two-for-one share split (Share Split). Upon the occurrence of each of
these share splits, each issued and outstanding Class A common share of
the Company was split into two Class A common shares of half the previous
par value per share. The consolidated financial statements have been
prepared as if the Share Split had occurred retroactively.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In March 2000, hongkong.com Corporation (hongkong.com), a
wholly-owned e-business solutions and advertising services provider, was
listed on the Growth Enterprise Market of the Stock Exchange of Hong Kong
Limited and 736,000,000 shares of hongkong.com were issued at USD0.24 per
share for a net proceed of USD168,462. As a result, the Companys
shareholding in hongkong.com was diluted to 82%. No deferred tax has been
provided for the gain as the future disposal of shares in hongkong.com by
the Company will not be taxable in any jurisdiction.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Pursuant to a shareholders special resolution passed on April 28,
2000, the name of the Company was changed from China.com Corporation to
chinadotcom corporation.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In 2001, hongkong.com issued 5,351,473 shares at USD0.0409 per share
amounting to USD219 for the acquisition of property, plant and equipment
of Powernet Technology Inc. and 30,207,269 shares at USD0.04635 per share
amounting to USD1,400 for the acquisition of Beijing China-Railway Times
Science and Technology Company Ltd.. As a result, the Companys
shareholding in hongkong.com was diluted from 82% to 81%. No deferred tax
credit was recognized for the loss as the future disposal of shares in
hongkong.com by the Company will not be taxable in any jurisdiction.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The consolidated financial statements were prepared in accordance
with accounting principles generally accepted in the United States.
| |  | -------------------------------------------------------------------------------------------------------------------------------------

F-10



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##### Table of Contents



chinadotcom corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares, number of options and per share data)



|2. |  | BUSINESS COMBINATIONS
|-- |  | ---------------------



| |  | On February 28, 2002, the Company acquired a 51% equity interest in
OpusOne Technologies International Inc. (OpusOne) through the purchase
of outstanding and newly issued common shares of OpusOne. The results of
OpusOnes operations have been included in the consolidated financial
statements since the date of acquisition. OpusOne is a developer of
business software solutions in the Peoples Republic of China (the PRC).
As a result of the acquisition, the Company is expected to complement and
serve to further expand the Companys portfolio of proprietary software
solutions in the PRC market, and is expected to reduce costs and improve
operational profitability through economies of scale.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The aggregate initial purchase price was USD8,950 cash for 368,100
issued and outstanding and 300,000 newly issued common shares of OpusOne.
The Company paid USD4,488 cash on the date of acquisition. The remaining
purchase price will be paid in three yearly installment payments after
December 31, 2002 and will be adjusted based on the audited financial
statements of OpusOne for each of the fiscal years ending December 31,
2002, 2003 and 2004. The following table summarizes the estimated fair
values of the assets acquired and liabilities assumed at the date of
acquisition.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | At February 28, 2002
| |  | --------------------

USDCurrent assets
    
    
    1,850Property, plant and equipment, net
    
    
    297Intangible assets subject to amortization (3 year useful life):Software applications and programs
    
    
    720Other assets
    
    
    821Goodwill
    
    
    4,764Total assets acquired
    
    
    8,452Current liabilities
    
    
    (3,532
    )Long-term debt
    
    
    (432
    )Total liabilities assumed
    
    
    (3,964
    )Net assets acquired
    
    
    4,488




| |  | The USD4,764 of goodwill was assigned to the sale of IT product
segment. The following unaudited pro forma consolidated financial
information reflects the results of the operation of the Company for the
years ended December 31, 2001 and 2002, as if the acquisition of the
subsidiary had occurred on January 1, 2001. These pro forma results have
been prepared for comparative purposes only and do not purport to be
indicative of what operating results would have been had the acquisition
actually taken place on January 1, 2001, and may not be indicative of
future operating results.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-11



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##### Table of Contents



chinadotcom corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares, number of options and per share data)



|2. |  | BUSINESS COMBINATIONS (continued)
|-- |  | ---------------------------------

December 31,
    
    December 31,2001
    
    2002USD
    
    USD(unaudited)
    
    (unaudited)Revenue
    
    
    69,003
    
    
    
    60,398Net loss
    
    
    (129,217
    )
    
    
    (18,045
    )Loss per share
    
    
    (1.26
    )
    
    
    (0.18
    )




| |  | The difference in pro forma and audited net loss for the year ended
December 31, 2001 is primarily due to the inclusion of the results of
operations from the beginning to the end of the year, net of the
impairment of goodwill and the effect of additional amortization of
goodwill and purchased intangible assets in the years ended December 31,
2001. The difference in pro forma and audited net loss for the year ended
December 31, 2002 is primarily due to the inclusion of the results of
operations from the beginning of the year to the date of acquisition, net
of the additional amortization of purchased intangible assets in the year
ended December 31, 2002.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. |  | CHANGES IN PRESENTATION OF COMPARATIVE FINANCIAL STATEMENTS
|-- |  | -----------------------------------------------------------



| |  | Due to the discontinued operation of certain components of the
Company, certain comparative amounts have been reclassified to conform
with the current years presentation.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- |  | ------------------------------------------



| | (a) |  | Principles of consolidation
| | --- |  | ---------------------------



| |  | The accompanying consolidated financial statements include the
accounts of the Company and its majority-owned subsidiaries, after
elimination of all material inter-company accounts, transactions and
profits.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) |  | Use of estimates
| | --- |  | ----------------



| |  | The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) |  | Cash and cash equivalents
| | --- |  | -------------------------



| |  |  | The Company considers all highly liquid investments with a maturity
of three months or less when purchased to be cash equivalents. Except for
the restricted cash disclosed in note 5, none of the Companys cash is
restricted as to withdrawal or use.
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-12



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##### Table of Contents



chinadotcom corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares, number of options and per share data)



|4. |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|-- |  | ------------------------------------------------------



| | (d) |  | Property, plant and equipment and depreciation
| | --- |  | ----------------------------------------------



| |  | Leasehold improvements, furniture and fixtures, office equipment,
computer equipment and motor vehicles are stated at cost less accumulated
depreciation. Maintenance, repairs and minor renewals are expensed as
incurred. Depreciation of leasehold improvements, furniture and fixtures,
office equipment, computer equipment and motor vehicles is computed using
the straight-line method over the assets estimated useful life. No
depreciation is provided on freehold land. The principal annual rates
used are as follows:
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Buildings
    
    
    4%Leasehold improvements
    
    
    Over the lesser of the lease term or the useful lifeFurniture and fixtures
    
    
    20%Office equipment
    
    
    20%Computer equipment
    
    
    33 1/3%Motor vehicles
    
    
    33 1/3%




| | (e) |  | Goodwill and intangible assets
| | --- |  | ------------------------------



| |  | Goodwill represents the excess of cost over the fair value of net
tangible and identifiable intangible assets of acquired businesses.
Effective January 1, 2002, the Company adopted SFAS 142, Goodwill and
Other Intangible Assets. In accordance with SFAS 142, the Company ceased
amortizing goodwill and performed a transitional test of its goodwill as
of January 1, 2002. SFAS 142 requires that goodwill be tested for
impairment at the reporting unit level (operating segment or one level
below an operating segment) on an annual basis and between annual tests in
certain circumstances. The performance of the test involves a two-step
process. The first step of the impairment test involves comparing the fair
value of the Companys reporting units with the reporting units carrying
amount, including goodwill. Fair value is primarily determined by
computing the future discounted cash flows expected to be generated by the
reporting unit. If the carrying value exceeds the fair value, goodwill
may be impaired. If this occurs, the Company performs the second step of
the goodwill impairment test to determine the amount of impairment loss.
The fair value of the reporting unit is allocated to its assets and
liabilities in a manner similar to a purchase price allocation in order to
determine the implied fair value of the reporting unit goodwill. This
implied fair value is then compared with the carrying amount of the
reporting unit goodwill, and if it is less, the Company would then
recognize an impairment loss. Prior to January 1, 2002, goodwill was
amortized to expense on a straight-line basis over a period of two to five
years. The carrying value of goodwill was reviewed for possible
impairment whenever events or changes in circumstances indicated that an
impairment might exist. No goodwill impairment losses have been
recognized in any of the periods presented herein.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-13



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##### Table of Contents



chinadotcom corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares, number of options and per share data)



|4. |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|-- |  | ------------------------------------------------------



| | (e) |  | Goodwill and intangible assets (continued)
| | --- |  | ------------------------------------------



| |  | Intangible assets represent trademarks, service marks, Uniform
Resource Locators (URL), software applications and programs, and
customer database. Intangible assets are carried at cost less accumulated
amortization. Amortization is computed using the straight-line method
over the estimated economic lives of the respective assets. The Company
has certain trademarks, service marks and domain names registered in the
United States Patent and Trademark Office and other jurisdictions. The
Company believes the service marks and domain names are of material
importance to the Companys business and have an estimated useful life of
twenty years. Accordingly, these trademarks, service marks and domain
names are amortized on a straight-line basis over a period of twenty
years. The Company purchased certain software programs and customer
database from acquisition of entities. The Company considers the software
applications and customer database will generate revenue for the Company
for 3 years. Accordingly, these software applications and programs and
customer database are amortized on a straight-line basis over a period of
three years. Annually, the Company reviews and adjusts the carrying value
of purchased intangible assets if the facts and circumstances suggest
purchased intangible assets may be impaired. If this review indicates
purchased intangible assets may not be recoverable, as determined based on
the undiscounted cash flows of the entity acquired over the remaining
amortization period, the carrying value of intangible assets will be
reduced by the estimated shortfall in discounted cash flows.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (f) |  | Investment
| | --- |  | ----------



| |  | Debt and marketable equity investments, which represent
available-for-sale securities are stated at fair value. Unrealized
holding gain or loss, net of tax, on available-for-sale securities is
included in a separate component of shareholders equity. Realized gains
and losses and decline in value judged to be other-than-temporary on
available-for-sale securities are included in gain/loss on disposal of
available-for-sale securities and impairment of available-for-sale
securities, respectively. The cost of securities sold is based on the
first-in, first-out method. Interest and dividends on securities
classified as available-for-sale are included in interest income and other
income, respectively.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | All other investments, for which the Company does not have the
ability to exercise significant influence and there is not a readily
determinable market value, are accounted for under the cost method of
accounting. Dividends and other distributions of earnings from investees,
if any, are included in income when declared. The Company periodically
evaluates the carrying value of its investments accounted for under the
cost method of accounting and decline in value is included in impairment
of cost of investments.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | When determining whether an impairment of investments exists or a
decline in value of an available-for-sale security is
other-than-temporary, the Company evaluates evidence to support a
realizable value in excess of the current market price for securities with
readily determinable fair value. Such information may include the
investments financial performance (including such factors as earnings
trends, dividend payments, asset quality and specific events), the near
term prospects of the investment, the financial condition and prospects of
the investments region and industry, and the Companys investment intent.
Typically, a sustained decline in the market value of a quoted security
for six months is generally indicative of an other-than-temporary
impairment.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (g) |  | Investments in equity investees
| | --- |  | -------------------------------

F-14



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##### Table of Contents



chinadotcom corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares, number of options and per share data)



| |  | The Companys investments in equity investees for which its ownership
exceeds 20%, but which are not majority-owned, are accounted for using the
equity method. Under the equity method, the Companys proportionate share
of each equity investees net income or loss and amortization of the
Companys net excess investment over its equity in each equity investees
net assets is included in share of losses in equity investees.
Amortization is recorded on a straight-line basis over the estimated
useful life of three years.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-15



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##### Table of Contents



chinadotcom corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares, number of options and per share data)



|4. |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|-- |  | ------------------------------------------------------



| | (h) |  | Foreign currency translation
| | --- |  | ----------------------------



| |  | Foreign currency transactions are translated at the applicable rates
of exchange ruling at the transaction dates. Monetary assets and
liabilities denominated in foreign currencies at the balance sheet date
are translated at the applicable rates of exchange ruling at that date.
Exchange differences are dealt with in the income statement.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The functional currency of the Company is the Hong Kong Dollar. The
functional currency of the Companys subsidiaries in the locations outside
Hong Kong are the respective local currencies. The financial statements
of the Companys subsidiaries have been translated into United States
dollars in accordance with SFAS 52, Foreign Currency Translation. All
balance sheet accounts have been translated using the exchange rates in
effect at the balance sheet date. Income statement amounts have been
translated using the exchange rates in effect during the year.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (i) |  | Advertising expenses
| | --- |  | --------------------



| |  | Advertising expenses, net of reimbursements, are charged to the
consolidated statement of operations when incurred.
| |  | -------------------------------------------------------------------------------------------------------------------



| | (j) |  | Shipping and handling
| | --- |  | ---------------------



| |  | Costs related to shipping and handling are included in cost of sales
for all periods presented.
| |  | -----------------------------------------------------------------------------------------------



| | (k) |  | Revenue recognition
| | --- |  | -------------------



| |  | The Company generates revenues from three primary sources: e-business
solutions, advertising and sale of IT products. Revenue is recognized in
accordance with accounting principles generally accepted in the United
States, or GAAP. The specific literature the Company follows in connection
with revenue recognition are the Securities and Exchange Commissions Staff
Accounting Bulletin No. 101 (SAB 101) Revenue Recognition in Financial
Statements, the American Institute of Certified Public Accountants
Statement of Position (SOP) 97-2, Software Revenue Recognition, as
amended by SOP 98-9 Modification of SOP 97-2, Software Revenue
Recognition, with Respect to Certain Transactions, and in certain
instances, the American Institute of Certified Public Accountants SOP 81-1,
Accounting for Performance of Construction-Type and Certain
Production-Type Contracts. The Company recognizes revenue when it has
persuasive evidence of an arrangement, the product has been shipped and the
title to the goods is assured, the services have been delivered, the price
is fixed or determinable and collectibility is reasonably assured. In
addition to these basic criteria, the following are the specific revenue
recognition policies followed for each major stream of revenue by reporting
segment.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Companys e-business solutions segment includes revenues from the
design and development of internet web sites, integration of those
internet web sites with a customers computer systems, and provision of
maintenance services related to those internet web sites. e-business
solutions revenue is also earned from the outsourcing of information
technology consultants to third parties, the provision of implementation
and training services, and the provision of maintenance services to
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-16



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##### Table of Contents



chinadotcom corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares, number of options and per share data)



| |  | customers who purchased computer software from the Company. Sales of
computer software were classified under the Sales of IT products revenue
segment.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The majority of engagements in the software and consulting services
segment are for the design, development and integration of internet web
sites. These projects are usually fixed price and most have durations of
six months or less. Customers enter into contractual arrangements with
the Company that specify the required web design features and layout,
functionality, implementation services required, expected deliverables,
pricing, payment terms and project timetable. Invoicing and payments are
usually made throughout the term of the project in accordance with the
contractual terms. The majority of projects include acceptance clauses
requiring customers sign off at the conclusion of the project. The
arrangements allow the customer to withhold 10% of the total project cost
as a retention until sign off and acceptance is obtained. Historically,
the Company has not experienced projects where sign off or acceptance has
been withheld by a customer resulting in a material loss on a project. In
limited situations, the Company receives change orders from customers in
which case each change order request is assessed its impact on the
existing arrangement, and contract revenues and costs are only adjusted
after both parties agree to the changes. The Company also receives change
orders which result in the initiation of a separate project. When a
customer fails to make payments in accordance with the terms stipulated in
the arrangement, the Company suspends the recognition of revenue.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Revenues from the design and development of internet web sites and
the integration of those web sites with clients computer systems are
recognized using contract accounting. In order to calculate the amount of
revenue earned, the Company uses the cost-to-cost percentage-of-completion
method whereby amounts recognized are calculated by reference to the hours
incurred as a percentage of the total estimated hours to complete the
project. The Company uses this input method to calculate revenues because
historical experience has demonstrated that it produces a reliable
indication of the progress on each engagement. Estimates of total
projected contract costs are re-evaluated on a regular basis and, if
appropriate, revised. Any adjustments to revenue due to changes in
estimates are accounted for in the period of the change in estimate. When
estimates indicate that a loss will be incurred on a contract upon
completion, a provision for the expected loss is recorded in the period in
which the loss becomes evident. Historically, the Company has not
experienced material losses on fixed-price contracts. The majority of the
Companys contracts are short term in duration, and use of the completed
contract method would not result in a material difference in revenue
earned.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Company provides maintenance services related to internet web
sites, the revenues from which are also recorded in its e-business
solutions segment. Maintenance services related to internet web sites
involves support in connection with non-significant customer requested
changes to web site functionality, updates to web site information, and
telephone support for web site administrators. Revenues from internet web
site maintenance agreements are deferred and recognized ratably over the
term of the related agreements which are usually for periods of six months
or one year.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Outsourcing of information technology consultants, the revenues from
which are recorded in the Companys e-business solutions segment, involves
contractual time and material outsourcing agreements whereby consultants
are provided at agreed-upon billing rates for customers to deploy on their
own internal projects. Revenues from time and materials outsourcing
contracts are recognized as the services are delivered assuming all other
basic criteria for revenue recognition have been met.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Revenues related to training services are deferred and recognized as
the services are delivered assuming all other basic criteria for revenue
recognition have been met. Where training services are sold as part of a
multi-element deal, those services are evaluated, on a case-by-case basis,
to determine whether they are essential to the functionality of the other
elements of the arrangement. In cases where training services are
considered essential to the functionality of the other elements of the
arrangement, revenue from the total arrangement is deferred and recognized
as the training services are delivered.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-17



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##### Table of Contents



chinadotcom corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares, number of options and per share data)



| |  | Revenues related to maintenance agreements on software products are
deferred and recognized ratably over the term of the agreement which is
normally one year.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Advertising revenues are derived from the sale of online banner
advertising, sponsorships, direct mailings and offline advertising
campaigns.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  | Online banner advertising revenues are derived from short-term
advertising contracts (normally less than 90 days) in which customers
advertisements are placed on web sites for a set period of time or for a
set number of impressions. Impressions are defined as the number of times
that an advertisement appears on a selected web page. Customers typically
identify the web sites they wish their advertisements to be displayed on,
and in certain situations, the advertisements are also displayed on the
Companys own or affiliated company web sites. Revenues from online
banner advertising are recognized in the period in which the advertisement
is displayed at the lesser of the ratio of impressions delivered over
total guaranteed impressions or ratably over the term of contract.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Sponsorship revenues are derived from advertisements placed on the
Companys own or affiliated company web sites and are usually for longer
display periods than online banner advertisement agreements, but normally
do not exceed one year. Sponsorship revenues are recognized ratably over
the term of contracts assuming all other basic criteria for revenue
recognition have been met.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Direct mailing revenues are derived from targeted advertising
campaigns. The Company transmits the advertisements in either electronic
or hard copy form to the target profile or market. On occasion, the
Company may also assist with the design of the advertisements. Revenues
from direct mailing are recognized when the advertisements are sent,
assuming all other basic criteria for revenue recognition have been met.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Offline advertising revenues are derived from the production and
placement of advertisements in magazines and publications for the travel
and tourism industry. Revenues are realized when the advertisements are
published assuming all other basic criteria for revenue recognition have
been met.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Company pays web sites for providing advertising space and
becomes obligated to make the payment in the period the advertising is
delivered. Such expenses are classified as cost of revenues in the
consolidated statements of operations.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Certain subsidiaries of the Company act as advertising agents for
their customers, and the related revenues derived from these agreements
are recorded net in the consolidated statement of operations.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Company pays affiliated web sites a percentage of advertising
revenue, ranging from 50% to 85%, in exchange for providing advertising
space to the Companys network. The Company becomes obligated to make
payments to such affiliated web sites in the period the advertising is
delivered. Such expenses are classified as cost of revenues in the
consolidated statements of operations. The Company records the revenue on
a gross basis since it is responsible for fulfillment of the contract,
including the selection of the website, arrangement of the ad placement
and acceptability of the ad. In addition, the Company assumes the credit
risk for the amount billed to the customer and owed to an affiliated web
site after the web site performs, regardless of whether the Company fully
collects the sales price from the customer.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Revenues in the sale of IT products segment are derived from the sale
of computer hardware, software and printers.
| |  | ------------------------------------------------------------------------------------------------------------------



| |  | The products offered in the sale of IT products revenue segment
include railroad ticketing machines and financial software packages. The
financial software packages sold include a combination of both hardware
and software. The Company allocates the arrangement fee in these
multi-element
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-18



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##### Table of Contents



chinadotcom corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares, number of options and per share data)



| |  | deals to each individual element using its fair value as determined
by vendor specific objective evidence. Vendor specific objective
evidence of fair value is determined by the customary price charged for
each element when sold separately after the application of any standard
approved discount. Where fair value exists for all undelivered elements
of the arrangement, the Company applies the residual method of
accounting and defers revenue allocated to the undelivered elements whilst
recognizing the residual revenue allocated to the delivered elements. In
the absence of vendor specific objective evidence for any undelivered
element, the Company defers the entire arrangement fee and recognizes
revenue when all undelivered elements are delivered, assuming all other
basic criteria for revenue recognition have been met.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Provisions for discounts and rebates to customers, estimated returns
and allowances, and other adjustments are provided for in the same period
in which the related revenues are recorded. Such provisions are
calculated after considering relevant historical data.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-19



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##### Table of Contents



chinadotcom corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares, number of options and per share data)



|4. |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|-- |  | ------------------------------------------------------



| | (k) |  | Revenue recognition (continued)
| | --- |  | -------------------------------



| |  | Advertising service fees are derived from the online sales of banner
advertisements, direct mailing and sponsorships in which the Company
delivers advertising for a fixed fee on the Companys Web sites and
advertising affiliates, which comprises third-party Web sites and offline
advertising campaigns. Online advertising revenue is derived principally
from short-term advertising contracts in which the Company may guarantee a
minimum number of impressions to advertisers over a specific period of
time for a fixed fee. Revenues from online banner advertising are
recognized ratably in the period in which the advertisement is displayed,
provided that no significant Company obligations remain at the lesser of
the ratio of impressions delivered over total guaranteed impressions or
the straight-line basis over the term of contract, and collection of
resulting receivable is reasonably assured. Advertising service fees from
direct mailing are derived from advertisement sent to electronic mail
users registered with the Company and are recognized when each
advertisement is sent. Offline advertising revenue is derived principally
from fees for services and production of advertisements. Revenue is
realized when the service is performed, in accordance with the terms of
the contractual arrangement, and collection is reasonably assured.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Certain subsidiaries of the Company act as an advertising agent for
their customers and the related revenues are recorded net in the
Consolidated Statement of Operations.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Company pays affiliated Web sites a percentage of advertising
revenue, ranging from 50% to 85%, in exchange for providing advertising
space to the Companys network. The Company becomes obligated to make
payments to such advertising affiliates in the period the advertising is
delivered. Such expenses are classified as cost of revenues in the
consolidated statements of operations.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Sale of IT products revenue is derived principally from the
distribution of computer hardware and software products. Revenue is
recognized when the title to the products and risk of ownership are
transferred to customers, which occurs principally upon delivery to the
customer. In instances where the license agreements provide for ongoing
post-contract support, rights to upgrades and updates as provided by the
Company and the service deliverable cannot be separated from the software
license deliverable, revenue from software licenses is recognized ratably
over the period of the application management services agreement.
Provisions for discounts and rebates to customers, estimated returns and
allowances, and other adjustments are provided for in the same period in
which the related sales are recorded.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (l) |  | Deferred revenue
| | --- |  | ----------------



| |  | Deferred revenue represents cash received or receivable for
e-business solutions and advertising services in advance of services being
rendered.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| | (m) |  | Income taxes
| | --- |  | ------------



| |  | Income taxes, if any, are determined under the liability method as
required by SFAS No. 109, Accounting for Income Taxes.
| |  | -------------------------------------------------------------------------------------------------------------------------

F-20



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##### Table of Contents



chinadotcom corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares, number of options and per share data)



|4. |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|-- |  | ------------------------------------------------------



| | (n) |  | Stock compensation expenses
| | --- |  | ---------------------------



| |  | The Company accounts for stock-based employee compensation
arrangements in accordance with the provisions of Accounting Principles
Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees,
and complies with the disclosure provisions of SFAS 123, Accounting for
Stock-Based Compensation. Under APB 25, compensation cost is recognized
over the vesting period based on the difference, if any, on the date of
grant between the fair value of the Companys stock and the amount an
employee must pay to acquire the stock. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS 123, the Companys net income would have been reduced
as indicated below:
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Year ended
    
    Year ended
    
    Year endedDecember 31,
    
    December 31,
    
    December 31,2000
    
    2001
    
    2002USD
    
    USD
    
    USDNet loss:As reported
    
    
    (59,802
    )
    
    
    (124,385
    )
    
    
    (18,231
    )Pro forma
    
    
    (102,243
    )
    
    
    (152,783
    )
    
    
    (33,846
    )Net loss per share:As reported
    
    
    (0.61
    )
    
    
    (1.21
    )
    
    
    (0.18
    )Pro forma
    
    
    (1.04
    )
    
    
    (1.49
    )
    
    
    (0.33
    )




| | (o) |  | Earnings per share
| | --- |  | ------------------



| |  | The Company computes earnings per share in accordance with SFAS 128,
Earnings per Share. Under the provisions of SFAS 128, basic net income or
loss per share is computed by dividing the net income or loss available to
common shareholders for the period by the weighted average number of
common shares outstanding during the year. Diluted net income or loss per
share is computed by dividing the net income or loss for the year by the
weighted average number of common and common equivalent shares outstanding
during the year. Common equivalent shares, composed of incremental common
shares issuable upon the exercise of stock options, are included in
diluted net income or loss per share to the extent such shares are
dilutive.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Loss per share has been provided for all years assuming that all
shares issued as part of the Reorganization had been outstanding for all
years.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| | (p) |  | Repurchase agreements
| | --- |  | ---------------------



| |  | Debt securities sold under agreements to repurchase are classified as
secured borrowings. Agreements with the third party specify the third
parties rights to request additional collateral. Both parties monitor
the fair value of the underlying securities as compared with the related
receivable or payable, including accrued interest, and may request a cash
transfer at least equal to that net exposure as necessary.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-21



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##### Table of Contents



chinadotcom corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares, number of options and per share data)



|4. |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|-- |  | ------------------------------------------------------



| | (q) |  | Gain on issuances of stock by subsidiaries
| | --- |  | ------------------------------------------



| |  | At the time a subsidiary sells its stock to unrelated parties at a
price in excess of its book value, the Companys net investment in that
subsidiary increases. If at that time, the subsidiary is not a
newly-formed, non-operating entity, nor a research and development,
start-up or development stage company, nor is there question as to the
subsidiarys ability to continue in existence, the Company records the
increase as a non-operating gain in the Consolidated Statements of
Operations. Otherwise, the increase is reflected in effect of
subsidiaries equity transactions in the Companys Consolidated
Statements of Stockholders Equity.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (r) |  | Derivative instruments
| | --- |  | ----------------------



| |  | SFAS 133, Accounting for Derivative Instruments and Hedging
Activities, requires all contracts which meet the definition of a
derivative to be recognized on the balance sheet as either assets or
liabilities and recorded at fair value. Changes in the fair value of
derivative financial instruments are either recognized periodically in the
income statement or in shareholders equity as a component of other
comprehensive income depending on the use of the derivative and whether it
qualifies for hedge accounting. Changes in fair values of derivatives not
qualified as hedges are reported in income. The estimated fair values of
derivative instruments are determined at discrete points in time based on
the relevant market information. These estimates are calculated with
reference to the market rates using industry standard valuation
techniques.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (s) |  | Impact of recently issued accounting standards
| | --- |  | ----------------------------------------------



| |  | In April 2002, the FASB issued SFAS 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections. Among other provisions, SFAS 145 rescinds SFAS 4,
Reporting Gains and Losses from Extinguishment of Debt. Accordingly,
gains or losses from extinguishment of debt shall not be reported as
extraordinary items unless the extinguishment qualifies as an
extraordinary item under the criteria of Accounting Principles Board
(APB) Opinion No. 30, Reporting the Results of Operations-Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions. Gains or losses from
extinguishment of debt that do not meet the criteria of APB 30 should be
reclassified to income from continuing operations in all prior periods
presented. The Company adopted SFAS 145 effective January 1, 2002 and
expects the adoption to have no material effect on its results of
operations and financial condition.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In June 2002, the FASB issued SFAS 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS 146 provides guidance
related to accounting for costs associated with disposal activities
covered by SFAS 144 or with exit or restructuring activities previously
covered by Emerging Issues Task Force (EITF) 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 146 supercedes EITF Issue No. 94-3 in its entirety. SFAS 146
requires that costs related to exiting an activity or to a restructuring
not be recognized until the liability is incurred. SFAS 146 will be
applied prospectively to exit or disposal activities that are initiated
after December 31, 2002.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-22



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##### Table of Contents



chinadotcom corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares, number of options and per share data)



|4. |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|-- |  | ------------------------------------------------------



| | (s) |  | Impact of recently issued accounting standards (continued)
| | --- |  | ----------------------------------------------------------



| |  | In December 2002, the FASB issued SFAS 148, Accounting for
Stock-Based Compensation, Transition and Disclosure. SFAS 148 provides
alternative methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation. SFAS 148
also requires that disclosures of the pro forma effect of using the fair
value method of accounting for stock-based employee compensation be
displayed more prominently and in a tabular format. Additionally, SFAS 148
requires disclosure of the pro forma effect in interim financial
statements. The transition and annual disclosure requirements of SFAS 148
are effective for the Company in 2002. The Company does not expect SFAS
148 to have a material effect on its results of operations or financial
condition.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In November 2002, the EITF reached a consensus on Issue No. 00-21,
Revenue Arrangements with Multiple Deliverables. EITF 00-21 provides
guidance on how to account for arrangements that involve the delivery or
performance of multiple products, services and/or rights to use assets.
The provisions of EITF 00-21 will apply to revenue arrangements entered
into in fiscal periods beginning after June 15, 2003. The Company is
currently evaluating the effect that the adoption of EITF 00-21 will have
on its results of operations and financial condition.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In November 2002, the FASB issued FASB Interpretation No. 45 (FIN
45), Guarantors Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others. FIN 45 requires
that a liability be recorded in the guarantors balance sheet upon
issuance of a guarantee. In addition, FIN 45 requires disclosures about
the guarantees that an entity has issued, including a roll-forward of the
entitys product warranty liabilities. The Company does not expect the
adoption of FIN 45 will have an impact on its consolidated financial
position and results of operations.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In January 2003, the FASB issued FASB Interpretation No. 46 (FIN
46), Consolidation of Variable Interest Entities, an Interpretation of
ARB No. 51. FIN 46 requires certain variable interest entities to be
consolidated by the primary beneficiary of the entity if the equity
investors in the entity do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity
to finance its activities without additional subordinated financial
support from other parties. FIN 46 is effective for all new variable
interest entities created or acquired after January 31, 2003. For
variable interest entities created or acquired prior to February 1, 2003,
the provisions of FIN 46 must be applied for the first interim or annual
period beginning after June 15, 2003. The Company is currently evaluating
the effect that the adoption of FIN 46 will have on its results of
operations and financial condition.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. |  | RESTRICTED CASH
|-- |  | ---------------



| |  | At December 31, 2001 and 2002, cash of USD1,274 and USD109,
respectively, were pledged for bank facilities.
| |  | -----------------------------------------------------------------------------------------------------------

F-23



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##### Table of Contents



chinadotcom corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares, number of options and per share data)



|6. |  | ACCOUNTS RECEIVABLE
|-- |  | -------------------

December 31,
    
    December 31,2001
    
    2002USD
    
    USDAccounts receivable:Amounts billed
    
    
    25,302
    
    
    
    17,648Unbilled
    
    
    2,310
    
    
    
    1,52127,612
    
    
    
    19,169Allowance for doubtful accounts
    
    
    (6,538
    )
    
    
    (4,139
    )Net
    
    
    21,074
    
    
    
    15,030Allowance for doubtful accounts:Balance at beginning of year
    
    
    3,488
    
    
    
    6,538Additions
    
    
    3,050
    
    
    
    4,296Write-offs net of recoveries
    
    
    
    
    
    
    (6,695
    )Balance at end of year
    
    
    6,538
    
    
    
    4,139




| |  |  | Unbilled receivable of USD2,310 and USD1,521 in 2001 and 2002,
respectively, represented recognized sales value of performance relating
to e-business solutions services and these amounts had not been billed and
were not billable to the customers at the date of the balance sheet. The
balances will be billed upon the fulfillment of certain conditions agreed
between the parties.
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 7. |  | AVAILABLE-FOR-SALE DEBT SECURITIES
| | -- |  | ----------------------------------

December 31,
    
    December 31,2001
    
    2002USD
    
    USDDebt obligations issued by corporations and
federally supervised private companies:Amortized cost
    
    
    487,606
    
    
    
    467,842Gross unrealized gain/(loss)
    
    
    (5,666
    )
    
    
    3,337Estimated fair value
    
    
    481,940
    
    
    
    471,179Restricted debt securities pledged for bank facilities
    
    
    (134,960
    )
    
    
    (151,123
    )Non-restricted
    
    
    346,980
    
    
    
    320,056


F-24



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##### Table of Contents



chinadotcom corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares, number of options and per share data)



|7. |  | AVAILABLE-FOR-SALE DEBT SECURITIES (continued)
|-- |  | ----------------------------------------------



| |  | Non-restricted available-for-sale debt securities consist of:
| |  | -------------------------------------------------------------

Current
    
    
    329,952
    
    
    
    300,056Non-current
    
    
    17,028
    
    
    
    20,000346,980
    
    
    
    320,056




| |  | All debt securities held by the Company have maturity terms ranging
from one to over ten years. At December 31, 2002, all the debt securities
were carried at market value and temporary unrealized gains and losses at
December 31, 2002 were reported in other comprehensive income.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Included in debt securities owned as of December 31, 2002 were
corporate debt securities with a market value of USD151,123 (2001:
USD134,960) which were segregated and secured in accordance with the
Global Master Repurchase Agreement and the Total Return Swap Transaction
Agreement detailed in note 13.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|8. |  | DUE FROM/(TO) RELATED COMPANIES
|-- |  | -------------------------------



| |  | The amounts due to related companies as of December 31, 2001 and
2002, were unsecured and interest-free.
| |  | --------------------------------------------------------------------------------------------------------



|9. |  | PROPERTY, PLANT AND EQUIPMENT
|-- |  | -----------------------------

December 31,
    
    December 31,2001
    
    2002USD
    
    USDFreehold land
    
    
    1,262
    
    
    
    1,262Buildings
    
    
    1,262
    
    
    
    1,262Leasehold improvements
    
    
    3,306
    
    
    
    2,579Furniture and fixtures
    
    
    2,385
    
    
    
    2,531Office equipment
    
    
    2,031
    
    
    
    2,142Computer equipment
    
    
    33,297
    
    
    
    29,408Motor vehicles
    
    
    478
    
    
    
    48844,021
    
    
    
    39,672Less: Accumulated depreciation
    
    
    (22,733
    )
    
    
    (30,297
    )21,288
    
    
    
    9,375


F-25



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##### Table of Contents



chinadotcom corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares, number of options and per share data)



|10. |  | GOODWILL
|--- |  | --------



| |  | The changes in the carrying amount of goodwill for the year ended
December 31, 2002, are as follows:
| |  | ----------------------------------------------------------------------------------------------------

e-business
    
    
    
    
    
    Sale of ITSolutions
    
    Advertising
    
    products
    
    TotalUSD
    
    USD
    
    USD
    
    USDBalance as of January 1, 2002
    
    
    233
    
    
    
    4,596
    
    
    
    1,601
    
    
    
    6,430Goodwill acquired during the year
    
    
    233
    
    
    
    1,295
    
    
    
    5,044
    
    
    
    6,572Less: Goodwill written off related
to sale of business units
    
    
    (25
    )
    
    
    (783
    )
    
    
    (178
    )
    
    
    (986
    )Less: Impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance as of December 31, 2002
    
    
    441
    
    
    
    5,108
    
    
    
    6,467
    
    
    
    12,016




| |  | Due to the adoption of SFAS 142 on January 1, 2002, the Company
ceased amortizing goodwill. Had SFAS 142 been in effect during the years
ended December 31, 2001, and 2000, the Company would not have recorded
goodwill amortization expenses of USD15,323 and USD29,690, respectively.
The following table summarizes net loss adjusted to exclude goodwill
amortization expenses that is no longer subject to amortization:
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Year ended
    
    Year ended
    
    Year endedDecember 31,
    
    December 31,
    
    December 31,2000
    
    2001
    
    2002USD
    
    USD
    
    USDReported net loss
    
    
    (59,802
    )
    
    
    (124,385
    )
    
    
    (18,231
    )Goodwill amortization
    
    
    29,690
    
    
    
    15,323
    
    
    
    Adjusted net loss
    
    
    (30,112
    )
    
    
    (109,062
    )
    
    
    (18,231
    )Net loss per share
    
    
    (0.31
    )
    
    
    (1.06
    )
    
    
    (0.18
    )




| |  | The goodwill represents the excess consideration paid for the
purchase of subsidiaries over the fair values of the net assets acquired
on the date of acquisition adjusted for contingent consideration paid, if
any.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-26



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##### Table of Contents



chinadotcom corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares, number of options and per share data)



|11. |  | INTANGIBLE ASSETS
|--- |  | -----------------



| |  | The following table summarizes the Companys amortized intangible assets, net, as of December 31:
| |  | -------------------------------------------------------------------------------------------------

2001
    
    2002Gross
    
    
    
    
    
    
    
    
    
    Grosscarrying
    
    Accumulated
    
    
    
    
    
    carrying
    
    Accumulatedamount
    
    amortization
    
    Net
    
    amount
    
    amortization
    
    NetUSD
    
    USD
    
    USD
    
    USD
    
    USD
    
    USDTrademarks, service marks
and URLs
    
    
    17,092
    
    
    
    
    
    
    
    17,092
    
    
    
    17,092
    
    
    
    (885
    )
    
    
    16,207Software applications and
programs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    720
    
    
    
    (200
    )
    
    
    520Customer database
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    351
    
    
    
    (98
    )
    
    
    25317,092
    
    
    
    
    
    
    
    17,092
    
    
    
    18,163
    
    
    
    (1,183
    )
    
    
    16,980




| |  | For the year ended December 31, 2002, the Company recognized USD1,183 amortization expense. Based on the current amount of intangible
assets subject to amortization, the estimated amortization expense for each of the succeeding five years is as follows:
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Year ended December 31:
| |  | -----------------------

USD2003
    
    
    1,2452004
    
    
    1,2452005
    
    
    9082006
    
    
    8402007
    
    
    840




|12. |  | AVAILABLE-FOR-SALE EQUITY SECURITIES
|--- |  | ------------------------------------

December 31,
    
    December 31,2001
    
    2002USD
    
    USDCost
    
    
    3,894
    
    
    
    1,875Impairment of equity securities included in earnings
    
    
    (1,756
    )
    
    
    Gross unrealized gain/(loss)
    
    
    (74
    )
    
    
    175Market value
    
    
    2,064
    
    
    
    2,050


F-27



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##### Table of Contents



chinadotcom corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares, number of options and per share data)



|13. |  | CREDIT ARRANGEMENTS
|--- |  | -------------------



| |  | Under line of credit arrangements with three banks, including the
Global Master Repurchase Agreement (the Repurchase Agreement) and the
Total Return Swap Transaction Agreement (the Swap Agreement) as
described below, the Company may borrow up to USD389,176 on such terms as
the Company and the banks mutually agree upon. Except for bank loans of
USD115,799 due in 2003 and USD11,585 due in 2004 through 2011, these
arrangements do not have termination dates but are reviewed annually for
renewal. At December 31, 2002, the unused portion of the credit lines was
USD261,792.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Company has entered into the Repurchase Agreement with a bank
pursuant to which the Company sold certain debt securities to the bank at
a discounted price (the Purchase Price) and the bank agreed to sell back
to the Company at the Purchase Price at a later date (the Repurchase
Date). Either party with a net exposure from the transaction arising
from the fluctuations in the market value of the securities or other means
may request the other party to make a cash or acceptable debt securities
transfer at least equal to that net exposure. During the period between
the date that the Company sold the debt securities to the bank (the
Purchase Date) and the Repurchase Date, the bank shall pay to the
Company any income in respect of the debt securities and the Company shall
pay to the bank an interest calculated at the Purchase Price at LIBOR plus
0.23% per annum and the number of days between the Purchase Date and the
Repurchase Date. At December 31, 2002, the repurchase transactions
entered into only allowed the buyer to request the seller to make a cash
or acceptable debt securities transfer at least equal to the net exposure.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Company has entered into the Swap Agreement with another bank
pursuant to which the Company transferred securities and financial
instruments to the bank in exchange for cash and concurrently the Company
agreed to reacquire the securities and financial instruments at a future
date for an amount equal to the cash exchanged and an interest factor.
The Swap Agreement permitted the Company to elect for net cash settlement
upon termination of the total return swap transaction. During the period
between the Purchase Date and the Repurchase Date of three calendar years,
the bank would pay to the Company any income in respect of the securities
transferred and the Company would in return pay to the bank a price
differential calculated by the Purchase Price multiply by LIBOR plus 0.35%
per annum and the number of days between the Purchase Date and the
Repurchase Date.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In connection with these credit lines, the Company maintained
compensating balances of USD109 in cash, and pledged debt securities and
land and buildings with a net book value at December 31, 2002 of
USD151,123 and USD2,524, respectively.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The weighted average interest rate on short-term borrowings as of
December 31, 2001 and 2002 was 2.2% and 2.1%, respectively.
| |  | -----------------------------------------------------------------------------------------------------------------------------

F-28



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##### Table of Contents



chinadotcom corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares, number of options and per share data)



|14. |  | LONG-TERM BANK LOANS
|--- |  | --------------------



| |  | Long-term bank loans consisted of the following:
| |  | ------------------------------------------------

December 31,
    
    December 312001
    
    2002USD
    
    USDLIBOR + 1.75% mortgage loan through 2011
    
    
    818
    
    
    
    8314.1% mortgage loan through 2011
    
    
    817
    
    
    
    830LIBOR + 0.35% total return swap transaction
loan through 2005
    
    
    
    
    
    
    10,0731,635
    
    
    
    11,734Less: Current portion
    
    
    (131
    )
    
    
    (149
    )1,504
    
    
    
    11,585




| |  | Maturities of long-term debt for the five years succeeding December
31, 2002 are USD149 in 2003, USD163 in 2004, USD10,249 in 2005, USD189 in
2006, USD204 in 2007 and USD780 thereafter.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The above mortgage loans will be repaid by installments with the last
payment due in 2011. Freehold land and buildings with a carrying amount
of USD2,524 at December 31, 2001 and 2002 are pledged as collateral to
secure these loans.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The above total return swap transaction loan is due in 2005. Debt
securities with a fair value of USD11,868 at December 31, 2002 are pledged
as collateral to secure the loan.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The weighted average interest rate on long-term bank loans as of
December 31, 2001 and 2002 was 4.1% and 2.1%, respectively.
| |  | ----------------------------------------------------------------------------------------------------------------------------

F-29



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##### Table of Contents



chinadotcom corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares, number of options and per share data)



|15. |  | ACCUMULATED OTHER COMPREHENSIVE INCOME
|--- |  | --------------------------------------



| |  | The components of other comprehensive income are as follows:
| |  | ------------------------------------------------------------

Unrealizedappreciation
    
    Foreign
    
    Accumulatedof available-
    
    currency
    
    otherfor-sale
    
    translation
    
    comprehensivesecurities
    
    adjustments
    
    incomeUSD
    
    USD
    
    USDBalance at December 31, 1999
    
    
    2,236
    
    
    
    (33
    )
    
    
    2,203Unrealized loss, net of unrealized gain of
available-for-sale securities
    
    
    (44,858
    )
    
    
    
    
    
    
    (44,858
    )Other-than-temporary impairment of available-for-sale securities
    
    
    44,929
    
    
    
    
    
    
    
    44,929Foreign currency translation adjustments
    
    
    
    
    
    
    (804
    )
    
    
    (804
    )Less: reclassification adjustment for gains,
net of losses included in net income
    
    
    (2,236
    )
    
    
    
    
    
    
    (2,236
    )Balance at December 31, 2000
    
    
    71
    
    
    
    (837
    )
    
    
    (766
    )Unrealized loss, net of unrealized gain of
available-for-sale securities
    
    
    (9,956
    )
    
    
    
    
    
    
    (9,956
    )Other-than-temporary impairment of available-for-sale securities
    
    
    4,216
    
    
    
    
    
    
    
    4,216Minority interests share of unrealized loss,
net of unrealized gains of available-for-sale securities
    
    
    337
    
    
    
    
    
    
    
    337Foreign currency translation adjustments
    
    
    
    
    
    
    (1,199
    )
    
    
    (1,199
    )Less: reclassification adjustment for gains,
net of losses included in net income
    
    
    (71
    )
    
    
    
    
    
    
    (71
    )Balance at December 31, 2001
    
    
    (5,403
    )
    
    
    (2,036
    )
    
    
    (7,439
    )Unrealized loss, net of unrealized gain of
available-for-sale securities
    
    
    (1,276
    )
    
    
    
    
    
    
    (1,276
    )Other-than-temporary impairment of available-for-sale securities
    
    
    5,125
    
    
    
    
    
    
    
    5,125Minority interests share of unrealized gain,
net of unrealized loss of available-for-sale securities
    
    
    (484
    )
    
    
    
    
    
    
    (484
    )Foreign currency translation adjustments
    
    
    
    
    
    
    661
    
    
    
    661Less: reclassification adjustment for gains,
net of losses included in net income
    
    
    5,403
    
    
    
    
    
    
    
    5,403Balance at December 31, 2002
    
    
    3,365
    
    
    
    (1,375
    )
    
    
    1,990


F-30



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##### Table of Contents



chinadotcom corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares, number of options and per share data)



|16. |  | SUPPLEMENTARY OPERATIONS STATEMENT INFORMATION
|--- |  | ----------------------------------------------

Year ended
    
    Year ended
    
    Year endedDecember 31,
    
    December 31,
    
    December 31,2000
    
    2001
    
    2002USD
    
    USD
    
    USDThe Company incurred the following expenses:Rental expenses
    
    
    6,974
    
    
    
    8,100
    
    
    
    4,198Advertising expenses
    
    
    19,647
    
    
    
    9,110
    
    
    
    930Defined contribution retirement plans expenses
    
    
    58
    
    
    
    475
    
    
    
    1,423




|17. |  | RELATED PARTY TRANSACTIONS
|--- |  | --------------------------



| |  | The Company had the following transactions with related parties
during the year:
| |  | --------------------------------------------------------------------------------



| | (a) |  | 24/7 Real Media, Inc.
| | --- |  | ---------------------



| |  | Pursuant to the License and Software Agreement (the Agreement)
entered into by the Company and 24/7 Real Media, Inc. (formerly known as
24/7 Media, Inc. and hereafter referred to as 24/7), which was a
shareholder of the Company as of December 31, 2001 and 2002, on October
23, 1998, 24/7 granted to the Company a non-exclusive license to use
certain 24/7 software products to serve advertisements on the Internet and
an exclusive license to use the 24/7 Media trademark in the Asian
market.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Under the terms of the agreement with 24/7, the Company was obligated
to pay to 24/7 10% of the Companys net revenues generated from
advertisements on the Companys advertising network. Net revenue included
all revenue generated from advertising sales, net of commissions retained
or paid to advertising agencies, and service fees paid to advertising
affiliates or the Companys Web sites. Services fees paid to the
Companys Web sites, exclusive of the Companys www.cww.comportal, was
set at 70% of advertising sales while service fees to the advertising
affiliates, including the Companys www.cww.comportal, ranged from 30% to
50% of advertising sales. During the year ended December 31, 2001 and
December 31, 2002, payments made under the Agreement amounted to USD800
and nil, respectively.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Where U.S. based advertisements were sold on the Companys
advertising network by 24/7, 24/7 was obligated to pay 70% of the sales
revenue, net of commissions retained or paid to advertising agencies, to
the Company. 24/7 served as the Companys exclusive agent for the sale of
U.S. based advertisements on the Companys advertising network.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-31



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##### Table of Contents



chinadotcom corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares, number of options and per share data)



|17. |  | RELATED PARTY TRANSACTIONS (continued)
|--- |  | --------------------------------------



| | (a) |  | 24/7 Real Media, Inc. (continued)
| | --- |  | ---------------------------------



| |  | Where Asian-based advertisements were sold on 24/7 U.S. network of
advertising affiliates, the Company would pay 70% of such sales revenue,
net of commissions retained or paid to advertising agencies, to 24/7. The
Company served as 24/7 Media Asias exclusive agent for the sale of
Asian-based advertisements on 24/7 U.S. network of advertising affiliates.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In August 2000, the Agreement was superceded by the 24/7 Media-Asia
Agreement and supplemental related agreements (collectively, the Media
Asia Agreement). In October 2000, as part of the Media Asia Agreement,
the Company sold 19.9% of its shares in 24/7 Media Asia Limited, a then
wholly-owned subsidiary, to 24/7 in exchange for 2,500,000 shares of
common stock of 24/7 valued at USD4.3125 per share, resulting in a net
gain of USD10,417.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In June 2001, the Company gave notice of termination of the Media
Asia Agreement to 24/7, which notice was effective September 2001.
| |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  | In June 2001, the Company demanded from 24/7 Media Asia Limited the
repayment of a portion of loans that the Company had extended to 24/7
Media Asia Limited. In January 2002, 24/7 Media Asia Limited completed a
rights issue whereby it issued and allotted additional equity shares to
all shareholders participating in the rights issue as a means to settle
the loan demand. While the Company participated in this rights issue,
24/7 chose not to participate in this rights issue and therefore, 24/7s
interest in 24/7 Media Asia Limited was effectively diluted. The
Companys interest in 24/7 Media Asia Limited increased to approximately
98% while 24/7s interest declined to under 2%.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) |  | Equity investees
| | --- |  | ----------------



| |  | The Company derived e-business Solutions revenues from the following
equity investees of the Company:
| |  | -----------------------------------------------------------------------------------------------------

Year ended
    
    Year ended
    
    Year endedDecember 31,
    
    December 31,
    
    December 31,2000
    
    2001
    
    2002USD
    
    USD
    
    USDThe Bigstore Asia.com Limited
    
    
    250
    
    
    
    
    
    
    
    LJ Digital Inc.
    
    
    802
    
    
    
    
    
    
    
    Sportasia Media Limited
    
    
    859
    
    
    
    60
    
    
    
    1,911
    
    
    
    60
    
    
    
    




| |  | In November 2001, the Company acquired the Uniform Resource Locator
(the URL) of www.sportasia.com from Sportasia Media Limited for a
consideration of USD39.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

F-32



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##### Table of Contents



chinadotcom corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares, number of options and per share data)



|17. |  | RELATED PARTY TRANSACTIONS (continued)
|--- |  | --------------------------------------



| | (c) |  | CIC
| | --- |  | ---



| |  | In June 1999, the Company entered into a Support Services Agreement
with CIC, which has certain common directors and shareholders with the
Company, under which the Company agreed to provide CIC with the services
required for operating the local America Online, Inc. (AOL) Hong Kong
online services for a fee equal to the cost of providing such services to
CIC plus 10% and operating the local Netscape guide and search development
services. In April 2000, the Company signed an Amended and Restated
Support Services Agreement with CIC which increased the markup of the
provision of e-business solutions and advertising services, while the
markup of the provision of personnel services remained at 10%. For the
year ended December 31, 2000, the Company derived total revenue of
USD19,880 from CIC.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Since January 1, 2001, the Company did not recognize any revenue
incurred from the provision of e-business solutions and advertising
services in connection with the Amended and Restated Support Services
Agreement due to the uncertainty of the collectibility of the receivable
from CIC. USD5,425 incurred in connection with the provision of these
services was recorded under selling, general and administrative expenses
in 2001. In September 2001, the Company agreed to CICs request to waive
the legal rights with respect to up to USD7,730 owed to the Company from
CIC.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In October 2001, the Company entered into an Asset Purchase Agreement
with CIC to acquire the URLs of www.china.com, www.hongkong.com and
www.taiwan.com, and all intellectual property and other proprietary
rights in connection with the URLs for a cash consideration of USD16,800.
The purchase price of the URLs was determined by reference to valuations
performed by independent appraisers and negotiation with CIC.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (d) |  | Golden Tripod Limited
| | --- |  | ---------------------



| |  | For the years ended December 31, 2000, 2001 and 2002, the Company
paid management fees of USD439, USD261 and USD293, respectively, to a
shareholder, Golden Tripod Limited, for the provision of general
management services to the Company.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (e) |  | Asia Pacific Online Limited
| | --- |  | ---------------------------



| |  | For the years ended December 31, 2000, 2001 and 2002 the Company
reimbursed USD120 per year, to Asia Pacific Online Limited (APOL), a
shareholder of the Company that has common directors with the Company, for
expenses incurred for the provision of general management services to the
Company.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In January 2002, the Company has entered into a new services
agreement with APOL. Under this agreement, the Company agreed to provide
an annual management fee of USD0.001 and to reimburse for expenses
incurred for the provision of general management services rendered to the
Company up to USD270 annually.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-33



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##### Table of Contents



chinadotcom corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares, number of options and per share data)



|17. |  | RELATED PARTY TRANSACTIONS (continued)
|--- |  | --------------------------------------



| | (f) |  | New World Infrastructure
| | --- |  | ------------------------



| |  | In October 2000, the Company entered into an agreement to acquire a
majority interest in Wealth Corporation Ltd., a company that indirectly
owned www.chinaholiday.com, a PRC travel b2b portal, from its
shareholders. The selling shareholders included New World Infrastructure,
a shareholder of the Company, who received 99,180 of the Companys Class A
common shares as consideration for its shares.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In November 2002, the Company entered into an amendment agreement and
share repurchase agreement with the other shareholders of Wealth
Corporation Ltd. whereby the Company reduced its stake in Wealth
Corporation Ltd. to 19.9% for a payment from the other shareholders of
US$1,044,589. The purchasing shareholders included New World
Infrastructure.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (g) |  | AOL Time Warner Inc.
| | --- |  | --------------------



| |  | During 2001, the Company paid advertising fees totaling USD3,500 to
AOL Time Warner Inc., a shareholder of the Company, for the provision of
Internet advertising services to the Company. In addition, the Company
paid AOL Time Warner Inc. USD3,700 for computer software from
PurchasePro.com, Inc., a strategic alliance partner of AOL Time Warner
Inc.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|18. |  | INCOME TAXES
|--- |  | ------------



| |  | Under the current laws of the Cayman Islands, the Company and its
subsidiaries are not subject to tax on income or capital gains, and no
Cayman Islands withholding tax is imposed upon payments of dividends by
the Company to its shareholders.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The subsidiaries in all geographical regions are governed by the
respective local income tax laws with statutory tax rates ranging from 0%
to 35%. No deferred tax expenses for operations in all geographical
locations were recognized in any periods.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Pre-tax loss from operations for the years ended December 31, 2000,
2001 and 2002 was taxed in the following jurisdictions:
| |  | ---------------------------------------------------------------------------------------------------------------------------

Year ended
    
    Year ended
    
    Year endedDecember 31,
    
    December 31,
    
    December 31,2000
    
    2001
    
    2002USD
    
    USD
    
    USDLoss from continuing operations:United States (US)
    
    
    (1,746
    )
    
    
    (3,932
    )
    
    
    (1,074
    )Non-US
    
    
    (56,564
    )
    
    
    (118,093
    )
    
    
    (11,374
    )(58,310
    )
    
    
    (122,025
    )
    
    
    (12,448
    )Loss from discontinued operations:Non-US
    
    
    (1,405
    )
    
    
    (6,009
    )
    
    
    (7,204
    )Pre-tax loss
    
    
    (59,715
    )
    
    
    (128,034
    )
    
    
    (19,652
    )


F-34



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##### Table of Contents



chinadotcom corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares, number of options and per share data)



|18. |  | INCOME TAXES (continued)
|--- |  | ------------------------



| |  | Significant components of the provision for income taxes are as
follows:
| |  | ------------------------------------------------------------------------

Year ended
    
    Year ended
    
    Year endedDecember 31,
    
    December 31,
    
    December 31,2000
    
    2001
    
    2002USD
    
    USD
    
    USDCurrent:Tax expense allocated to net income from
continuing operations:US
    
    
    156
    
    
    
    
    
    
    
    Non-US
    
    
    526
    
    
    
    148
    
    
    
    160682
    
    
    
    148
    
    
    
    160Tax expense/(benefit) allocated to
discontinued operations:Non-US
    
    
    (42
    )
    
    
    213
    
    
    
    Total current
    
    
    640
    
    
    
    361
    
    
    
    160Deferred:US
    
    
    
    
    
    
    
    
    
    
    Non-US
    
    
    
    
    
    
    
    
    
    
    Total deferred
    
    
    
    
    
    
    
    
    
    
    640
    
    
    
    361
    
    
    
    160




| |  | Deferred tax liabilities and assets are comprised of the following:
| |  | -------------------------------------------------------------------

December 31,
    
    December 31,2001
    
    2002USD
    
    USDDeferred tax liabilities:Accelerated depreciation allowances
    
    
    (686
    )
    
    
    (193
    )Deferred tax assets:Net operating loss carryforwards (net of USD2,297
expired or disposed of during the year)
(2001: USD2,119)
    
    
    34,893
    
    
    
    34,484Others
    
    
    3,979
    
    
    
    5,213Total deferred tax assets
    
    
    38,872
    
    
    
    39,697Valuation allowance for deferred tax assets
    
    
    (38,186
    )
    
    
    (39,504
    )Net deferred tax assets
    
    
    686
    
    
    
    193Net deferred tax liabilities
    
    
    
    
    
    
    


F-35



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##### Table of Contents



chinadotcom corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares, number of options and per share data)



|18. |  | INCOME TAXES (continued)
|--- |  | ------------------------



| |  | The reconciliation of income taxes computed at the statutory tax
rates to the effective income tax provision recorded is as follows:
| |  | ------------------------------------------------------------------------------------------------------------------------------------

Year ended
    
    Year ended
    
    Year endedDecember 31,
    
    December 31,
    
    December 31,2000
    
    2001
    
    2002USD
    
    USD
    
    USDIncome tax benefit computed at the
respective statutory rates
    
    
    (10,979
    )
    
    
    (18,700
    )
    
    
    (3,793
    )Change in tax rates
    
    
    
    
    
    
    
    
    
    
    425Non-deductible items
    
    
    1,157
    
    
    
    2,391
    
    
    
    221Non-taxable items
    
    
    (3,922
    )
    
    
    (3,378
    )
    
    
    (308
    )Benefit from operating losses not recorded
    
    
    14,384
    
    
    
    20,048
    
    
    
    3,615Total income taxes
    
    
    640
    
    
    
    361
    
    
    
    160




| |  | Due to its history of losses, the Company does not believe that
sufficient objective, positive evidence currently exists to conclude that
the recoverability of its net deferred tax assets is more likely than not.
Consequently, the Company has provided a valuation allowance covering
100% of its net deferred tax assets.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | At December 31, 2002, the Company had net operating loss
carryforwards of approximately USD132,200 for income tax purposes that
expire in years 2003 to indefinite.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



|19. |  | BASIC AND DILUTED LOSS PER SHARE
|--- |  | --------------------------------



| |  | The following table sets forth the computation of basic and diluted loss
per share:
| |  | -----------------------------------------------------------------------------------

Year ended
    
    Year ended
    
    Year endedDecember 31,
    
    December 31,
    
    December 31,2000
    
    2001
    
    2002USD
    
    USD
    
    USDNumerator for basic and diluted
loss per share:Loss from continuing operations
    
    
    (58,439
    )
    
    
    (118,163
    )
    
    
    (11,572
    )Loss from discontinued operations,
net of gain on disposal
    
    
    (1,363
    )
    
    
    (6,222
    )
    
    
    (6,659
    )Loss attributable to common shareholders
    
    
    (59,802
    )
    
    
    (124,385
    )
    
    
    (18,231
    )Number
    
    Number
    
    NumberDenominator for basic and diluted loss per share:Weighted average number of shares after
adjusting for the Share Splits
    
    
    98,091,541
    
    
    
    102,589,760
    
    
    
    102,269,735


F-36



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##### Table of Contents



chinadotcom corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares, number of options and per share data)



|19. |  | BASIC AND DILUTED LOSS PER SHARE (continued)
|--- |  | --------------------------------------------

Year ended
    
    Year ended
    
    Year endedDecember 31,
    
    December 31,
    
    December 31,2000
    
    2001
    
    2002USD
    
    USD
    
    USDBasic and diluted loss per share:Loss from continuing operations
    
    
    (0.60
    )
    
    
    (1.15
    )
    
    
    (0.11
    )Loss from discontinued operations
    
    
    (0.01
    )
    
    
    (0.06
    )
    
    
    (0.07
    )Loss attributable to common shareholders
    
    
    (0.61
    )
    
    
    (1.21
    )
    
    
    (0.18
    )




| |  | The computation of diluted loss per share did not assume the
conversion of the stock options and the warrants of the Company during the
year because their inclusion would have been antidilutive.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|20. |  | DISCONTINUED OPERATIONS
|--- |  | -----------------------



| |  | During the year ended December 31, 2002, the Company discontinued the
operations of certain subsidiaries in the e-business Solutions and the
Advertising segments. With the adoption of SFAS 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, the operating results of the
discontinued operating units were classified as loss from operations of
discontinued subsidiaries on the consolidated statements of operations.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | From August to December 2002, liquidators were appointed to oversee
the dissolution of the discontinued subsidiaries. The combined assets and
liabilities of the discontinued subsidiaries on the respective dates of
liquidation were USD2,019 and USD2,564, respectively, resulting in a net
gain on disposal of USD545, which was included in the gain on disposal of
discontinued subsidiaries for the year ended December 31, 2002.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Net loss of the subsidiaries classified as discontinued operations
for the year ended December 2000, 2001 and 2002 were USD1,363, USD6,222
and USD7,204, respectively. Revenue of the discontinued operations for
the year ended December 2000, 2001 and 2002 were USD11,571, USD11,061 and
USD4,044, respectively. Pretax loss reported in discontinued operations
for the year ended December 2000, 2001 and 2002 were 1,405, USD6,009 and
USD7,204, respectively.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|21. |  | FINANCIAL INSTRUMENTS
|--- |  | ---------------------



| |  | The carrying amount of the Companys cash and cash equivalents
approximates their fair values because of the short maturity of those
instruments. The carrying value of receivables, payables and short-term
debt approximates their market values based on their short-term
maturities. The total fair values of the equity securities in listed
companies as of December 31, 2001 and 2002 were USD2,064 and USD2,050,
respectively based on the market values of publicly traded shares as of
December 31, 2001 and 2002. The total fair values of the debt securities
as of December 31, 2001 and 2002 were USD481,940 and USD471,179,
respectively based on the market values of publicly traded debt securities
as of December 31, 2001 and 2002. The fair value of related party
receivable and payable cannot be determined due to the related party
nature of the accounts.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-37



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chinadotcom corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares, number of options and per share data)



|21. |  | FINANCIAL INSTRUMENTS (continued)
|--- |  | ---------------------------------



| |  | In October 2002, the Company entered into a promissory note and
warrant purchase agreement with Sagent Technology Inc. (Sagent), a
NASDAQ listed company, whereby the Company paid USD7,000 cash to Sagent
for a promissory note and for 8,000,000 warrants to purchase Sagents
common shares for investment purposes. The fair value of the promissory
note and the warrants as of December 31, 2002 were USD5,325 and USD2,320,
respectively. These amounts are recorded in other assets on the
consolidated balance sheets. The Company recognized a USD571 gain in
value of the warrants in other non-operating gains on the consolidated
statements of operations for the year ended December 31, 2002. The
Company determined the estimated fair value amounts by using available
market information and commonly accepted valuation methodologies.
However, considerable judgment is required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the Company or
holders of the instruments could realize in a current market exchange.
The use of different assumptions and/or estimation methodologies may have
a material effect on the estimated fair values.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|22. |  | CONCENTRATION OF RISKS
|--- |  | ----------------------



| |  | Concentration of credit risk:
| |  | -----------------------------



| |  | The Company is engaged in the provision of e-business solutions,
including Web site development, hosting and maintenance, advertising and
sale of IT products to businesses in Hong Kong, Australia, Japan, Korea,
the Peoples Republic of China (the PRC), Singapore, the Republic of
China, the United Kingdom and the United States. The Company generally
does not require collateral for accounts receivable.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Company maintains cash and cash equivalents with various
financial institutions in Hong Kong, Australia, Japan, Korea, the PRC,
Singapore, the Republic of China, the United Kingdom and the United
States. The Companys policy is designed to limit exposure to any one
institution. The Company performs periodic evaluations of the relative
credit standing of those financial institutions that are considered in the
Companys investment strategy.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Concentration of business risk:
| |  | -------------------------------



| |  | Revenue has been derived from a number of clients that use the
Companys services. The top 10 customers accounted for 30%, 9% and 14% of
the revenue for the years ended December 31, 2000, 2001 and 2002,
respectively. 16%, nil and nil of the revenue were attributable to CIC
for the years ended December 31, 2000, 2001 and 2002, respectively.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Current vulnerability due to certain concentrations:
| |  | ----------------------------------------------------



| |  | The Companys operations may be adversely affected by significant
political, economic and social uncertainties in the PRC. Although the PRC
government has been pursuing economic reform policies for the past 20
years, no assurance can be given that the PRC government will continue to
pursue such policies or that such policies may not be significantly
altered, especially in the event of a change in leadership, social or
political disruption or unforeseen circumstances affecting the PRCs
political, economic and social conditions. There is also no guarantee
that the PRC governments pursuit of economic reforms will be consistent
or effective.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

38



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##### Table of Contents



chinadotcom corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares, number of options and per share data)



|22. |  | CONCENTRATION OF RISKS (continued)
|--- |  | ----------------------------------



| |  | The PRC has recently enacted new laws and regulations governing
Internet access and the provision of online business, economic and
financial information. Current or proposed laws aimed at limiting the use
of online services to transmit certain materials could, depending upon
their interpretation and application, result in significant potential
liability to the Company, as well as additional costs and technological
challenges in order to comply with any statutory or regulatory
requirements imposed by such legislation. Additional legislation and
regulations that may be enacted by the PRC government could have an
adverse effect on the Companys business, financial condition and results
of operations.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Some of the Companys business is transacted in Renminbi (RMB),
which is not freely convertible into foreign currencies. On January 1,
1994, the PRC government abolished the dual rate system and introduced a
single rate of exchange as quoted daily by the Peoples Bank of China.
However, the unification of the exchange rates does not imply the
convertibility of RMB into United States dollars or other foreign
currencies. All foreign exchange transactions continue to take place
either through the Bank of China or other banks authorized to buy and sell
foreign currencies at the exchange rates quoted by the Bank of China.
Approval of foreign currency payments by the Bank of China or other
institutions requires submitting a payment application form together with
suppliers invoices, shipping documents and signed contracts.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|23. |  | SHARE CAPITAL
|--- |  | -------------



| |  | Pursuant to the Articles of Association of the Company, each Class A
common share is entitled to one vote on all matters upon which the Class A
common share is entitled to vote. The Board of Directors has the
authority, without further action by the shareholders, to issue up to five
million preferred shares in one or more series and to fix the
designations, powers preference, privileges and relative participatory,
optional or special rights and the qualifications, limitation or
restrictions thereof, including dividend rights, conversion rights, voting
rights, terms of redemption and liquidation preferences, any or all of
which may be greater than the rights of common shares. No preferred
shares have been issued.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | On January 20, 2000, the Company completed its secondary offering of
6,975,000 Class A common shares at an offering price of USD42.5 per share.
In January 2000, the underwriters exercised their over-allotment options
and purchased an additional 651,000 shares at the offering price of
USD42.5 per share. The net proceeds from the secondary offering to the
Company were approximately USD303,844.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | On July 26, 2000, Lehman Brothers Inc. fully exercised its warrants
to purchase 800,000 Class A common shares at an exercise price of USD5
per share of the Company.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | During the year ended December 31, 2000, 1,525,757 Class A common
shares were issued at prices ranging from USD1.25 to USD11.9688 from the
exercise of stock options granted to employees. In addition, 1,854,515
Class A common shares were issued at prices ranging from USD5 to
USD64.6811 per share for the acquisitions of its subsidiaries and for the
settlement of the contingent considerations relating to certain prior year
acquisitions.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

39



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##### Table of Contents



chinadotcom corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares, number of options and per share data)



|23. |  | SHARE CAPITAL (continued)
|--- |  | -------------------------



| |  | During the year ended December 31, 2000, 22,484 Class A common shares
were issued at a price of USD53.25 per share for the acquisition of equity
investees, 1,504,438 Class A common shares were issued at prices ranging
from USD15.625 to USD40.5 per share for the acquisition of
available-for-sale equity securities and cost investments, 495,900 Class A
common shares were issued at USD13.7124 as a prepayment for the
acquisition of a subsidiary, 486,529 Class A common shares were issued at
prices from 15.3253 to 17.9375 as the settlement of promissory notes and
20,685 Class A common shares were issued at prices ranging from USD17.10
to USD56.00 as the settlement of other payables.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | During the year ended December 31, 2000, 117,599 Class A common
shares were issued pursuant to the agreement for the acquisition of the
Web Connection at prices ranging from USD7.25 to USD17.625 per share to an
employee. Accordingly, a stock compensation expense of approximately
USD1,974 was charged to the statement of operations of the Company for the
year ended December 31, 2000.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | During the year ended December 31, 2001, 91,426 Class A common shares
were issued at prices ranging from USD1.75 to USD6.8125 per share from the
exercise of stock options granted to employees.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | During the year ended December 31, 2001, 521,589 Class A common
shares were issued at a price of USD5.8125 per share as settlement of
promissory notes and 273,198 Class A common shares were issued at a price
of USD16.3516 per share as settlement of other payables. In addition,
23,084 Class A common shares were redeemed and retired at a price of
USD2.35 per share arising from the disposal of an equity investee. The
redemption premium was deducted from the additional paid-in capital.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | During the year ended December 31, 2002, 296,492 Class A common
shares were issued at prices ranging from USD2.03 to USD2.5266 per share
from the exercise of stock options granted to employees.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | During the year ended December 31, 2002, 1,764,555 Class A common
shares were repurchased at prices ranging from USD1.92 to USD3.24 per
share. 1,692,001 of the repurchased Class A common shares were retired at
prices ranging from USD2.334 to USD2.826 per share. The redemption
premium was deducted from the additional paid-in capital.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|24. |  | STOCK-BASED COMPENSATION AND WARRANTS
|--- |  | -------------------------------------



| | (a) |  | Stock options
| | --- |  | -------------



| |  | The Company applies APB 25 in accounting for stock options granted to
employees. Accordingly, the compensation expense is recorded for the
difference between the fair value of shares at date of grant and the
option price.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

40



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##### Table of Contents



chinadotcom corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares, number of options and per share data)



|24. |  | STOCK-BASED COMPENSATION AND WARRANTS (continued)
|--- |  | -------------------------------------------------



| | (a) |  | Stock options (continued)
| | --- |  | -------------------------



| |  | Pursuant to the 1999 Stock Option Plan (the Plan), options may be
granted to employees of and consultants and advisors to the Company and
its subsidiaries for the purchase of up to an aggregate of 12 million
Class A common shares. During 2000, an additional 8 million Class A
common shares options were made available, which increased the options
available for grant to employees of and consultants and advisors to the
Company and its subsidiaries for the purchase of Class A common shares to
20 million. The Plan is administered by a committee of the Board of
Directors, which will determine, in its discretion, the number of shares
subject to each option granted and the related purchase price and option
period. Incentive stock options, as defined by the U.S. Internal Revenue
Code of 1986, as amended, and non-qualified stock options may be granted
under the Plan.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | A summary of the Companys stock option activity, and related
information for the years ended December 31, is as follows:
| |  | -------------------------------------------------------------------------------------------------------------------------

2001
    
    2002Weighted-
    
    
    
    
    
    
    
    
    
    Weighted-average
    
    
    
    
    
    
    
    
    
    averageAvailable
    
    Options
    
    exercise
    
    Available
    
    Options
    
    exercisefor grant
    
    outstanding
    
    price
    
    for grant
    
    outstanding
    
    price(Number)
    
    (Number)
    
    USD
    
    (Number)
    
    (Number)
    
    USDOutstanding at the beginning of the year
    
    
    4,726,108
    
    
    
    16,429,577
    
    
    
    11.36
    
    
    
    6,998,268
    
    
    
    14,065,911
    
    
    
    6.66Granted
    
    
    (5,740,965
    )
    
    
    5,740,965
    
    
    
    2.88
    
    
    
    (1,648,960
    )
    
    
    1,648,960
    
    
    
    2.44Forfeited
    
    
    8,013,125
    
    
    
    (8,013,125
    )
    
    
    13.63
    
    
    
    4,083,536
    
    
    
    (4,083,536
    )
    
    
    7.89Exercised
    
    
    
    
    
    
    (91,426
    )
    
    
    3.05
    
    
    
    
    
    
    
    (296,492
    )
    
    
    2.42Outstanding at the end of the year
    
    
    6,998,268
    
    
    
    14,065,991
    
    
    
    6.66
    
    
    
    9,432,844
    
    
    
    11,334,843
    
    
    
    5.94Exercisable at the end of the year
    
    
    
    
    
    
    6,177,211
    
    
    
    
    
    
    
    
    
    
    
    7,686,104Weighted-average fair value of
options granted during the year
    
    
    
    
    
    
    2.53
    
    
    
    
    
    
    
    
    
    
    
    2.00




| |  | The Companys stock options are exercisable at exercise prices
ranging between USD1.86 to USD73.4375 per share (inclusive).
| |  | ---------------------------------------------------------------------------------------------------------------------------

41



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##### Table of Contents



chinadotcom corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares, number of options and per share data)



|24. |  | STOCK-BASED COMPENSATION AND WARRANTS (continued)
|--- |  | -------------------------------------------------



| | (a) |  | Stock options (continued)
| | --- |  | -------------------------



| |  | The following table summarizes information concerning outstanding and
exercisable options at December 31, 2002.
| |  | ---------------------------------------------------------------------------------------------------------------

Options outstanding
    
    Options exercisableWeighted
    
    Weighted
    
    
    
    
    
    Weightedaverage
    
    average
    
    
    
    
    
    averageremaining
    
    exercise
    
    
    
    
    
    exerciseExercise
    
    Numbers
    
    contractual
    
    price
    
    Numbers
    
    priceprice range
    
    outstanding
    
    life (in years)
    
    per share
    
    exercisable
    
    per shareUSD
    
    
    
    
    
    USD
    
    
    
    USD$1.86-2.7
    
    
    2,926,473
    
    
    
    8.88
    
    
    
    2.32
    
    
    
    1,302,837
    
    
    
    2.43$2.71-3.375
    
    
    3,356,159
    
    
    
    7.57
    
    
    
    3.13
    
    
    
    2,362,626
    
    
    
    3.20$3.55-5
    
    
    2,366,922
    
    
    
    6.77
    
    
    
    4.83
    
    
    
    2,266,287
    
    
    
    4.86$5.0625-9.62
    
    
    1,442,413
    
    
    
    7.63
    
    
    
    7.28
    
    
    
    899,234
    
    
    
    7.39$10.1875-19.5469
    
    
    792,010
    
    
    
    7.19
    
    
    
    14.50
    
    
    
    524,695
    
    
    
    14.34$20.4375-29.9219
    
    
    214,851
    
    
    
    7.38
    
    
    
    24.84
    
    
    
    183,470
    
    
    
    24.59$30.2625-39.5
    
    
    55,180
    
    
    
    7.08
    
    
    
    36.29
    
    
    
    36,418
    
    
    
    36.35$40.5-48.405
    
    
    76,080
    
    
    
    7.11
    
    
    
    46.07
    
    
    
    51,788
    
    
    
    46.12$51-58.5625
    
    
    90,680
    
    
    
    7.24
    
    
    
    52.76
    
    
    
    49,163
    
    
    
    53.03$60.75-73.4375
    
    
    14,075
    
    
    
    7.16
    
    
    
    65.87
    
    
    
    9,586
    
    
    
    65.8111,334,843
    
    
    
    
    
    
    
    
    
    
    
    7,686,104




| |  | Pursuant to resolutions adopted by the Board of Directors in December
2000, the vesting of certain of the Companys options were accelerated
such that vesting would be changed from an annual basis to a quarterly
basis upon the lapse of twelve months from the date of grant. Based on
the historical and expected employee turnover and the expected market
price of the Class A common shares, the Company estimated that the number
of options the employees will ultimately retain that would have been
otherwise forfeited was minimal for the year ended December 31, 2001 and
2002.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Company applies APB 25 in accounting for stock options granted to
employees. Accordingly, the compensation expense is recorded for the
difference between the fair value of shares at date of grant and the
option price. For the year ended December 31, 2000, a total stock
compensation expense of USD5,083 was recognized in the financial
statements. For the purpose of determining the fair value of the options
under SFAS 123, the Company used the Black-Scholes model based on the
United States risk-free interest rate ranging from 5.17% to 6.69%, a
weighted average expected option life of 5 years, assuming volatility
factors of the expected price of the Companys common stock ranging from
38% to 167% and no dividends.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

42



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##### Table of Contents



chinadotcom corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares, number of options and per share data)



|24. |  | STOCK-BASED COMPENSATION AND WARRANTS (continued)
|--- |  | -------------------------------------------------



| | (a) |  | Stock options (continued)
| | --- |  | -------------------------



| |  | For the year ended December 31, 2001, a total stock compensation
expense of USD2,552 was recognized in the financial statements. For the
purpose of determining the fair value of the options under SFAS 123, the
Company used the Black-Scholes model based on the United States risk-free
interest rate ranging from 3.91% to 6.69%, a weighted average expected
option life of 5 years, assuming volatility factors of the expected price
of the Companys common stock ranging from 38% to 167% and no dividends.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | For the year ended December 31, 2002, a total stock compensation
expense of USD309 was recognized in the financial statements. For the
purpose of determining the fair value of the options under SFAS 123, the
Company used the Black-Scholes model based on the United States risk-free
interest rate ranging from 2.65% to 6.69%, a weighted average expected
option life of 5 years, assuming volatility factors of the expected price
of the Companys common stock ranging from 38% to 167% and no dividends.
Had the Company determined compensation cost based on the fair value at
the grant date for its stock options under SFAS 123, the Companys net
income would have been reduced as indicated below:
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Year ended
    
    Year ended
    
    Year endedDecember 31,
    
    December 31,
    
    December 31,2000
    
    2001
    
    2002USD
    
    USD
    
    USDNet loss:As reported
    
    
    (59,802
    )
    
    
    (124,385
    )
    
    
    (18,231
    )Pro forma
    
    
    (102,243
    )
    
    
    (152,783
    )
    
    
    (33,846
    )Net loss per share:As reported
    
    
    (0.61
    )
    
    
    (1.21
    )
    
    
    (0.18
    )Pro forma
    
    
    (1.04
    )
    
    
    (1.49
    )
    
    
    (0.33
    )




| |  | During 2000, 104,469 of the Companys options with exercise prices
ranging from USD2.21 to USD28.58 per share were issued in connection with
the acquisition of investments in DAE and XT3.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In 2001, 95,369 options were settled by USD1,383 discretionary cash
settlements to the shareholder.
| |  | ---------------------------------------------------------------------------------------------------



| |  | In January 2002, the Company granted to APOL additional stock options
to purchase up to 200,000 Class A common shares as of January 1, 2002 with
an exercise price of USD2.82 per share and a quarterly vesting schedule
over the one-year term of the new services agreement and the right to
accelerate existing share options upon a change of control of the Company.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

43



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chinadotcom corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares, number of options and per share data)



|24. |  | STOCK-BASED COMPENSATION AND WARRANTS (continued)
|--- |  | -------------------------------------------------



| | (b) |  | 2000 and 2001 Employee Share Purchase Plan
| | --- |  | ------------------------------------------



| |  | During each of 2000 and 2001, the Company established and implemented
an employee share purchase plan, which was qualified as a non-compensatory
plan under Section 423 of the Internal Revenue Code. The plan allows
qualified employees to purchase the Companys Class A common shares during
the relevant six-month plan period. Qualifying employees are allowed to
purchase up to 500 Class A common shares for each plan period. The maximum
number of Class A common shares, par value US$0.00025 per share, issuable
under the plan is 500,000, and a maximum of 100,000 shares will be
available for issuance for each plan period.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) |  | Warrants
| | --- |  | --------



| |  | In connection with the private placement of 6,795,200 Class A common
shares issued to AOL on June 8, 1999, warrants were granted to AOL to
purchase, subject to certain conditions, up to 18.5% and 6.5% of the
Companys total outstanding capital at an exercise price of USD5.00 per
share and USD42.50 per share, respectively. The first and the second of
these warrants became exercisable in October 2000 and in July 2001,
respectively. Both warrants will expire in July 2003. At December 31,
2002, these warrants were not exercised.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | On June 22, 1999, 800,000 warrants were granted to Lehman Brothers
Inc., the private placement agent of the Company, as compensation for
private placements completed from April to June 1999. On July 26, 2000,
these warrants were fully exercised at an exercise price of USD5 per
share.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In May 2000, GE Capital Equity Investments Ltd., (GE), was granted
a warrant under which GE will be entitled to purchase a number of Class A
common shares determined according to the Companys revenue from services
provided to affiliates of General Electric Capital Corporation during 2000
and 2001. The warrants are exercisable during the period between January
5, 2002 and January 4, 2003 at an exercise price of USD39.5 per share. As
of December 31, 2002, no warrant was exercised.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | All warrants may not be sold, transferred, assigned, or hypothecated
to any person, other than to any limited partnership with the same general
partner, or to any company that directly, or indirectly, controls or is
controlled by or is under common control with the holder of the warrants,
without the prior consent of the Company.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

44



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chinadotcom corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares, number of options and per share data)



|25. |  | CONTINGENCIES AND COMMITMENTS
|--- |  | -----------------------------



| |  | Operating lease commitments
| |  | ---------------------------



| |  | As of December 31, 2002, the Company had future minimum office rental
and telephone line lease payments under non-cancelable operating leases as
follows:
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

Year ended December 31:
    
    USD2003
    
    
    1,5442004
    
    
    2241,768




| |  | As of December 31, 2002, the Company had future commitments to
purchase additional shareholdings in three subsidiaries for an aggregate
of USD986 and additional consideration based on the future revenues, gross
margins and/or operating results of the subsidiaries. The commitments
shall be settled by cash and/or shares of the Company.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Class action lawsuit against chinadotcom
| |  | ----------------------------------------



| |  | A class action lawsuit was filed in the United States District Court,
Southern District of New York on behalf of purchasers of the securities of
chinadotcom, between July 12, 1999 and December 6, 2000, inclusive. The
complaint charges defendants chinadotcom, Lehman Brothers, Inc. (Lehman
Brothers), Bear, Stearns & Co., Inc. (Bear Stearns), BancBoston
Robertson Stephens (Robertson Stephens), Merrill Lynch, Pierce Fenner &
Smith Inc. (Merrill Lynch), Raymond Chien, Peter Yip, Zhou Shun Ao, and
David Kim with violations of Sections 11, 12(a) (2) and 15 of the
Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of
1934 and Rule 10b-5 promulgated thereunder.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | On or about July 12, 1999, chinadotcom commenced an initial public
offering of 4.2 million of its shares of common stock at an offering price
of US$20 per share (the chinadotcom IPO). In connection therewith,
chinadotcom filed a registration statement, which incorporated a
prospectus (the Prospectus), with the SEC. The complaint further
alleges that the Prospectus was materially false and misleading because it
failed to disclose, among other things, that (i) the Underwriter
Defendants (Lehman Brothers, Bear Stearns, Robertson Stephens and Merrill
Lynch) had solicited and received excessive and undisclosed commissions
from certain investors in exchange for which the Underwriter Defendants
allocated to those investors material portions of the restricted number of
chinadotcom shares issued in connection with the chinadotcom IPO; and (ii)
the Underwriter Defendants had entered into agreements with customers
whereby the Underwriter Defendants agreed to allocate chinadotcom shares
to those customers in the chinadotcom IPO in exchange for which the
customers agreed to purchase additional chinadotcom shares in the
aftermarket at pre-determined prices.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

45



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chinadotcom corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares, number of options and per share data)



|25. |  | CONTINGENCIES AND COMMITMENTS (continued)
|--- |  | -----------------------------------------



| |  | Class action lawsuit against chinadotcom (continued)
| |  | ----------------------------------------------------



| |  | The class action lawsuit against each of Raymond Chien, Peter Yip,
Zhou Shun Ao, and David Kim has been dismissed. The management considered
the outcome of any judgment on the lawsuit with respect to the Company as
quite uncertain and any expenditure from the lawsuit is not estimable.
Consequently, no provision has been made for any expenses that may arise
on the class action lawsuit.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Panpac Media.com Limited (Panpac) Lawsuit
| |  | -------------------------------------------



| |  | In February 2000, the Company acquired a minority interest in Panpac,
a publisher listed in Singapore Stock Exchange in exchange for 593,224
Class A common shares of the Company pursuant to the Equity Exchange and
Option Agreement (the Agreement) between Panpac and a subsidiary of the
Company. In February 2003, Panpac served such subsidiary of the Company
with a writ with respect to a breach of contract claim under the
Agreement. The Company is contesting this lawsuit and has filed a defense
to this writ. The management considered the outcome of the judgment on
and the expenditures from the lawsuit to be quite uncertain. Therefore,
no provision was made for any losses that may arise on the Panpac lawsuit.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | e-Asia Sdn. Bhd. (e-Asia) Lawsuit
| |  | -----------------------------------



| |  | Mezzo Marketing Limited (Mezzo), a subsidiary of the Company,
entered into a sales and purchase agreement (the e-Asia Agreement) with
Khoo Sin Aik and e-Planet Sdn Bhd.(e-Planet) to acquire up to 100%
(equal to 250,000 shares) of e-Asia Sdn. Bhd. (e-Asia) on November 2,
1999. On November 30, 1999, Mezzo acquired 60% of e-Asia in the form of
22,644 Class A common shares of the Company for a consideration of
USD1,268. The agreement further stated that provided that certain
performance targets were achieved by e-Asia, Mezzo would acquire the
remaining 40% of e-Asia through the issuance of the Companys shares as
well as provide contingent consideration in Companys shares if certain
revenue criteria are met by e-Asia. e-Planet filed a petition in Cayman
Islands against the Company for an amount of USD2,340 on October 15, 2002
with respect to the Company share consideration that it alleges it is owed
under the e-Asia Agreement.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In addition, the Company is a defendant in various matters of
litigation generally arising out of the normal course of business.
Although it is difficult to predict the ultimate outcome of these cases,
management believes, based on discussions with counsel, that any ultimate
liability would not materially affect the Companys financial position,
result of operations or cash flows.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

46



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chinadotcom corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares, number of options and per share data)



|26. |  | SEGMENTAL INFORMATION
|--- |  | ---------------------



| |  | Description of Products and Services by Segment
| |  | -----------------------------------------------



| |  | The Company has three reportable segments: e-business Solutions
services, advertising services and sales of IT products. The Companys
e-business Solutions services mainly represent Web site design, hosting
and maintenance services and Internet strategy consultancy services for
companies seeking to utilize the Internet to facilitate their business
processes online. The Companys advertising services involve the
provision of online advertising through the sale of advertisements for the
network of Web sites, electronically delivering such advertisements and
tracking the number of such advertisements delivered, and offline
advertising and marketing services. The Companys sale of IT products
mainly represents the distribution of computer hardware and software
products.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Measurement of Segment Profit or Loss and Segment Assets
| |  | --------------------------------------------------------



| |  | The Company evaluates performance and allocates resources based on
revenues and gross margins from operations. Revenues and gross margins
for the three reportable segments are reported separately for internal
purposes, but selling, general and administrative expenses, other
operating expenses, net loss and assets and liabilities are not reported
separately for each segment because this information is not produced
internally. The accounting policies of the reportable segments are the
same as those described in the summary of significant accounting policies.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Factors Management Used to Identify the Enterprises Reportable Segments
| |  | ------------------------------------------------------------------------



| |  | The Companys reportable segments are business units that offer
different services. The reportable segments are each managed separately.
Revenue from segments in the other category is mainly attributable to
publishing and event organizing services. Neither of these segments has
ever met the quantitative thresholds for determining reportable segments.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Year ended
    
    Year ended
    
    Year endedDecember 31,
    
    December 31,
    
    December 31,2000
    
    2001
    
    2002USD
    
    USD
    
    USDRevenues by segmente-business Solutions
    
    
    61,327
    
    
    
    32,591
    
    
    
    23,003Advertising
    
    
    43,769
    
    
    
    5,641
    
    
    
    28,250Sale of IT products
    
    
    3,276
    
    
    
    4,580
    
    
    
    4,631Other income
    
    
    1,296
    
    
    
    5,899
    
    
    
    3,418109,668
    
    
    
    64,474
    
    
    
    59,302Long-lived assets by segmente-business Solutions
    
    
    52,125
    
    
    
    13,131
    
    
    
    7,522Advertising
    
    
    7,408
    
    
    
    5,641
    
    
    
    5,977Sale of IT products
    
    
    727
    
    
    
    2,138
    
    
    
    7,148Other income
    
    
    10,095
    
    
    
    6,808
    
    
    
    1,517Corporate
    
    
    
    
    
    
    17,092
    
    
    
    16,20770,355
    
    
    
    44,810
    
    
    
    38,371


47



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chinadotcom corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares, number of options and per share data)



|26. |  | SEGMENTAL INFORMATION (continued)
|--- |  | ---------------------------------



| |  | Geographic information is provided below:
| |  | -----------------------------------------

Year ended
    
    Year ended
    
    Year endedDecember 31,
    
    December 31,
    
    December 31,2000
    
    2001
    
    2002USD
    
    USD
    
    USDRevenue:Australia
    
    
    728
    
    
    
    1,711
    
    
    
    3,003Greater China
    
    
    59,691
    
    
    
    25,027
    
    
    
    18,150North Asia
    
    
    31,163
    
    
    
    18,976
    
    
    
    25,449South Asia
    
    
    7,406
    
    
    
    9,918
    
    
    
    5,702United Kingdom
    
    
    2,247
    
    
    
    2,911
    
    
    
    1,750United States
    
    
    8,433
    
    
    
    5,931
    
    
    
    5,248Total revenue
    
    
    109,668
    
    
    
    64,474
    
    
    
    59,302Long-lived assets:Australia
    
    
    1,122
    
    
    
    974
    
    
    
    339Greater China
    
    
    65,871
    
    
    
    39,586
    
    
    
    34,136North Asia
    
    
    1,673
    
    
    
    498
    
    
    
    235South Asia
    
    
    1,032
    
    
    
    855
    
    
    
    789United Kingdom
    
    
    206
    
    
    
    2,633
    
    
    
    2,738United States
    
    
    451
    
    
    
    264
    
    
    
    134Total long-lived assets
    
    
    70,355
    
    
    
    44,810
    
    
    
    38,371




|27. |  | SUBSEQUENT EVENTS
|--- |  | -----------------



| |  | On February 12, 2003, the Company acquired 100 percent of the
outstanding common shares of Praxa Limited (Praxa). The results of
Praxas operations will be included in the consolidated financial
statements since that date. Praxas core business is the provision of
information technology products and services in the form of outsourcing,
application development and support, and system integration in Australia
and Asia. As a result of the acquisition, the Company is expected to
increase the number of potential clients for its low-cost China-based
outsourcing platform and to extend the distribution of the Companys own
software products into the Australian marketplace.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The aggregate purchase price at maximum was approximately USD6,400
(AUD11,000) cash for 6,304,478 common shares of Praxa. The Company paid
USD3,490 (AUD60,000) cash on the date of acquisition. The remaining
USD2,910 (AUD5,000) payment of the maximum acquisition price is dependent
on Praxa achieving earnings targets for the year ended December 31, 2003
and will be adjusted in accordance with terms stipulated in the share
purchase agreement. An amount of USD2,327 (AUD4,000) has been placed in
escrow until June 30, 2004 and a further USD582 (AUD1,000) until October
31, 2004 as security deposit.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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chinadotcom corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares, number of options and per share data)



|27. |  | SUBSEQUENT EVENTS (continued)
|--- |  | -----------------------------



| |  | The following table summarizes the estimated fair values of the
assets acquired and liabilities assumed at the date of acquisition. The
Company is in the process of obtaining third-party valuations of certain
intangible assets; thus, the allocation of the purchase price is subject
to refinement.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

At February 12, 2003
    
    USDCurrent assets
    
    
    4,935Property, plant and equipment, net
    
    
    985Other assets
    
    
    863Goodwill
    
    
    5,117Total assets acquired
    
    
    11,900Current liabilities
    
    
    (5,938
    )Long-term debt
    
    
    (2,472
    )Total liabilities assumed
    
    
    (8,410
    )Net assets acquired
    
    
    3,490




| |  | The USD5,117 (AUD8,795) of goodwill was assigned to Sale of IT
products segment in total. Of that total amount, USD1,627 (AUD2,795) is
expected to be deductible for tax purposes.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

49



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##### Table of Contents



INDEX TO EXHIBITS

|         |  |                                                                                                                                                        |  |      |  |  |  | 
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- |  |  |  | 
|No.      |  | Description                                                                                                                                            |  | Page
|         |  |                                                                                                                                                        |  |     
|1.1      |  | Conformed copy of the Amended and Restated
Memorandum of Association.*******                                                                          
|        
|1.2      |  | Conformed copy of the Amended and Restated Articles of Association.*******                                                                            
|        
|2.1      |  | 1999 Employee Stock Option Plan, as amended.*                                                                                                         
|        
|2.2      |  | 2000 Employee Share Purchase Plan.**                                                                                                                  
|        
|2.3      |  | 2001 Employee Share Purchase Plan.*****                                                                                                               
|        
|4.(a).1  |  | Amended and Restated Support Services Agreement dated April 1, 2000
by and between China Internet Corporation Limited and chinadotcom corporation.****
|        
|4.(a).2  |  | Agreement dated March 12, 2001 by and
between China Internet Corporation Limited and chinadotcom corporation.****                                     
|        
|4.(a).3  |  | Agreement dated March 13, 2001 by and
between China Internet Corporation Limited and chinadotcom corporation.****                                     
|        
|4.(a).4  |  | Guarantee Agreement dated April 4, 2001 by
chinadotcom corporation in favor of hongkong.com Limited.****                                              
|        
|4.(a).5  |  | Asset Purchase Agreement dated October 24, 2001 between China
Internet Corporation Limited and chinadotcom Strategic, Inc.******                      
|        
|4.(b).1  |  | 24/7 Media-Asia Agreement dated August 24, 2000 by and among 24/7 Media,
Inc, 24/7 Media-Asia Ltd., Sift, Inc. and China Internet Corporation.***     
|        
|4.(b).2  |  | Equity Exchange Agreement dated August 24, 2000 by and among
chinadotcom corporation, 24/7 Media-Asia Ltd. and 24/7 Media, Inc.***                    
|        
|4.(c)1   |  | Executive Services Agreement dated April 27, 2001, by and
between chinadotcom corporation and Raymond Chien.****                                     
|        
|4.(c)2   |  | Executive Services Agreement effective as of January 1, 2002, by
and between chinadotcom corporation and Asia Pacific Online Limited.******           
|        
|6        |  | Details of how EPS information is calculated
can be found in Note 19 to our Consolidated Financial Statements.                                        
|        
|8        |  | List of principal subsidiaries of the Company.                                                                                                        
|        
|12.1     |  | Certification of Chief Executive Officer required by Rule 13a-14(a)                                                                                   
|        
|12.2     |  | Certification of Chief Financial Officer required by Rule 13a-14(a)                                                                                   
|        
|13.(a).1 |  | Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002     
|        
|13.(a).2 |  | Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002     



---

|* |  | Incorporated by reference to our registration statement on Form S-8 (File
No.: 333-12966) filed with the Commission on December 7, 2000.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------





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##### Table of Contents



|**      |  | Incorporated by reference to our registration statement on Form S-8 (File
No.: 333-12958) filed with the Commission on December 7, 2000.
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------
|       
|***     |  | Incorporated by reference to our registration statement on Form F-3 (File
No. 333-12674) filed with the Commission on October 3, 2000.  
|       
|****    |  | Incorporated by reference to our annual report on Form 20-F (File No.
000-30134) filed with the Commission on May 10, 2001.             
|       
|*****   |  | Incorporated by reference to our current report on Form 6-K (File No.
000-30134) filed with the Commission on February 28, 2002.        
|       
|******  |  | Incorporated by reference to our annual report of Form 20-F (File No.
000-30134) filed with the Commission on June 11, 2002.            
|       
|******* |  | Incorporated by reference to our current report on Form 6-K (File No.
000-30134) filed with the Commission on September 18, 2002.