1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
---- ----
Commission File Number 001-15713
ASIAINFO HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 752506390
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4TH FLOOR, ZHONGDIAN INFORMATION TOWER
6 ZHONGGUANCUN SOUTH STREET, HAIDIAN DISTRICT
BEIJING 100086, CHINA
(Address of principal executive office, including zip code)
+8610 6250 1658
(Registrant's telephone number, including area code)
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
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 [ ]
The number of shares outstanding of the Registrant's common stock as of
May 10, 2001 was 41,357,277
================================================================================
- 1 -
2
ASIAINFO HOLDINGS, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2001
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited) 3
a) Condensed Consolidated Statements of Operations For the
three months ended March 31, 2000 and 2001 3
b) Condensed Consolidated Balance Sheets as of December 31, 2000
and March 31, 2001 4
c) Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 2000 and 2001 5
d) Notes to Condensed Consolidated Financial Statements for the
three months ended March 31, 2001 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 28
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 29
Item 5. Other Information 29
Item 6. Exhibits and Reports on Form 8-K 29
SIGNATURE 31
- 2 -
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ASIAINFO HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN US DOLLARS)
Three Months Ended March 31,
----------------------------
2000 2001
----------- -----------
(unaudited)
Revenues:
Network solutions $21,099,279 $30,306,747
Software license 1,793,026 5,471,770
----------- -----------
Total revenues 22,892,305 35,778,517
----------- -----------
Cost of revenues:
Network solutions 20,214,725 24,499,745
Software license 1,798 222
----------- -----------
Total cost of revenues 20,216,523 24,499,967
----------- -----------
Gross profit 2,675,782 11,278,550
----------- -----------
Operating expenses:
Sales and marketing (excluding
stock-based compensation:
2000: $219,611; 2001: $211,164) 3,450,672 5,626,809
General and administrative (excluding
stock-based compensation:
2000: $353,745; 2001: $157,936) 2,371,444 3,606,297
Research and development (excluding
stock-based compensation:
2000: $125,735; 2001: $68,035) 1,095,754 1,631,891
Amortization of deferred stock
compensation 699,091 437,135
----------- -----------
Total operating expenses 7,616,961 11,302,132
----------- -----------
Loss from operations (4,941,179) (23,582)
----------- -----------
Other income (expense):
Interest income 533,741 2,385,797
Interest expense (268,929) (326,527)
Other income (expenses), net 81,582 (6,894)
----------- -----------
Total other income, net 346,394 2,052,376
----------- -----------
(Loss) income before income taxes and
minority interests (4,594,785) 2,028,794
Income tax expense 43,710 471,165
----------- -----------
(Loss) income before minority interests (4,638,495) 1,557,629
Minority interests in profit of consolidated
subsidiaries -- (178,247)
----------- -----------
Net (loss) income $(4,638,495) $ 1,379,382
=========== ===========
Net (loss) income per share:
Basic $ (0.16) $ 0.03
=========== ===========
Diluted $ (0.16) $ 0.03
=========== ===========
Shares used in computation:
Basic 28,821,413 40,967,627
=========== ===========
Diluted 28,821,413 45,148,897
=========== ===========
See notes to condensed consolidated financial statements.
- 3 -
4
ASIAINFO HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In US dollars)
December 31, March 31,
------------ ------------
2000 2001
------------ ------------
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 48,833,956 $ 27,964,354
Restricted cash 26,733,179 28,478,628
Short-term investments 110,400,000 129,900,507
Accounts receivable, trade (net of allowance for
doubtful accounts of $545,013 and $445,851 at
December 31, 2000 and March 31, 2001, respectively) 55,597,496 45,430,160
Inventories -- hardware and parts 8,876,010 260,553
Other receivables 3,078,851 4,194,911
Deferred income taxes 78,203 83,398
Prepaid expenses and other current assets 592,201 1,106,528
------------ ------------
Total current assets 254,189,896 237,419,039
Property and equipment -- net 6,339,751 6,657,291
Goodwill, at cost less accumulated amortization 3,245,310 2,980,979
Deferred income taxes 228,107 258,390
------------ ------------
Total Assets $264,003,064 $247,315,699
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term bank loans $ 20,644,834 $ 23,435,896
Accounts payable 42,037,151 31,738,876
Deferred revenue 12,501,524 4,138,510
Other payables 1,590,850 944,929
Accrued employee benefits 10,019,624 7,894,162
Accrued expenses 6,194,844 5,128,127
Income taxes payable 307,373 776,516
Other taxes payable 1,909,450 1,902,848
------------ ------------
Total current liabilities 95,205,650 75,959,864
------------ ------------
Minority interest 188,044 366,291
------------ ------------
Commitments and contingencies (Note 8)
Stockholders' Equity:
Common stock, 100,000,000 shares authorized, $0.01
par value, shares issued and outstanding: 2000:
40,822,940; 2001: 41,059,077 408,229 410,591
Additional paid-in capital 175,370,544 175,934,281
Deferred stock compensation (1,655,821) (1,218,686)
Accumulated deficit (5,530,601) (4,151,219)
Accumulated other comprehensive income 17,019 14,577
------------ ------------
Total stockholders' equity 168,609,370 170,989,544
------------ ------------
Total Liabilities and Stockholders' Equity $264,003,064 $247,315,699
============ ============
See notes to condensed consolidated financial statements.
- 4 -
5
ASIAINFO HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN US DOLLARS)
Three Months Ended March 31,
----------------------------
2000 2001
------------ ------------
(unaudited)
Cash flows from operating activities:
Net (loss) income $ (4,638,495) $ 1,379,382
Adjustments to reconcile net (loss)
income to net cash (used in)
operating activities:
Depreciation 243,923 556,001
Amortization of goodwill 264,331 264,331
Amortization of deferred stock compensation 699,091 437,135
Deferred income taxes 43,710 (35,478)
Minority interest in profit of
consolidated subsidiaries -- 178,247
Loss on disposal of property and equipment 5,162 5,542
Bad debt expense (76,470) (99,162)
Changes in operating assets and liabilities:
Restricted cash (2,000,000) (1,745,449)
Accounts receivable (9,961,317) 10,256,788
Inventories (2,979,329) 8,615,457
Other receivables 2,951 (1,116,060)
Prepaid expenses and other current assets (1,115,653) (514,327)
Accounts payable 4,689,254 (10,298,275)
Deferred revenue 2,027,987 (8,363,014)
Other payables 147,015 (645,921)
Accrued employee benefits 1,355,428 (2,125,462)
Accrued expenses (155,687) (1,066,717)
Other taxes payable (806,082) (6,602)
Income taxes payable (15,951) 469,143
------------ ------------
Net cash used in operating
activities (12,270,132) (3,854,441)
------------ ------------
Cash flows from investing activities:
Increase in short-term investments -- (19,500,507)
Purchases of property and equipment (298,164) (874,836)
Proceeds on disposal of property and equipment -- 363
------------ ------------
Net cash used in investing activities (298,164) (20,374,980)
------------ ------------
- 5 -
6
ASIAINFO HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(IN US DOLLARS)
Three Months Ended March 31,
----------------------------
2000 2001
------------ ------------
(unaudited)
Cash flows from financing activities:
Net proceeds on issuance of
Common stock in initial public
offering $127,851,874 $ --
Increase in short-term bank loans 12,495,011 15,704,965
Repayment of short-term bank loans (8,678,033) (12,913,903)
Proceeds on exercise of stock options 746,313 566,099
Warrants exercised 200 --
------------ ------------
Net cash provided by financing
activities 132,415,365 3,357,161
------------ ------------
Net increase (decrease) in cash and cash
equivalents: 119,847,069 (20,872,260)
Cash and cash equivalents at beginning
of period 25,403,884 48,833,956
Effect of exchange rate changes on cash
and cash equivalents (4,487) 2,658
------------ ------------
Cash and cash equivalents at end of
period $145,246,466 $ 27,964,354
============ ============
Supplemental cash flow information:
Cash paid during the period:
Interest $ 203,569 $ 323,732
Income taxes -- $ 37,500
============ ============
See notes to condensed consolidated financial statements.
- 6 -
7
ASIAINFO HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Three Months Ended March 31, 2000 and 2001
(In US dollars except shares)
1. GENERAL AND BASIS OF PREPARATION
AsiaInfo Holdings, Inc. (the "Company") was incorporated in the State of Texas,
in the United States, on June 17, 1993 and was subsequently reincorporated in
the State of Delaware in June 1998. The Company currently operates through the
following subsidiaries: AsiaInfo Technologies (China), Inc. ("AI Technology")
(100% owned), Zhejiang AsiaInfo Telecommunication Technology Co., Ltd. ("AI
Zhejiang") (100% owned) and Guangdong Wangying Information Technology Co., Ltd.
("Wangying") (40% owned, but controlled by the Company), all incorporated in the
People's Republic of China ("China" or the "PRC") and MarSec Holdings, Inc.
("MarSec") (75% owned), incorporated in the Cayman Islands.
On March 2, 2000, the Company completed an initial public offering of 5,750,000
shares of its common stock, raising net proceeds of $126.6 million. The
Company's common stock is traded on The Nasdaq National Market in the United
States.
The Company acts as a holding company and sources computer related equipment in
the U.S. for sale to customers in the PRC.
AI Technology was established as a wholly foreign owned enterprise with an
initial operating term of 15 years commencing May 2, 1995 (date of
establishment). Its principal activities are conducted in the PRC and comprise
the provision of Internet-related information technology professional services
and software products.
AI Zhejiang has an initial operating term of 20 years commencing April 5, 1995
(date of establishment). Its activities are performed in the PRC and comprise
the development and sale of communication hardware and software, as well as
providing related technology services. In connection with its acquisition in
April 1999, the Company recorded goodwill of approximately $4.7 million, which
is being amortized over 5 years. AI Zhejiang's results of operations are
included in the Company's financial statements from the date of acquisition. In
March 2001, the Company commenced the process of merging AI Zhejiang into AI
Technology.
Wangying was established on September 6, 2000 with an initial operating term of
4 years for a particular customer project in the PRC.
MarSec, through its wholly owned subsidiary, provides internet security
consulting and services in the PRC.
The consolidated financial statements of the Company include the accounts of the
Company and its subsidiaries. Investments in 50% or less owned affiliates over
which the Company exercises significant influence, but not control, are
accounted for using the equity method. Intercompany transactions and balances
have been eliminated.
In the Company's opinion, all adjustment necessary for a fair presentation of
the unaudited results of operations for the three months ended March 31, 2000
and 2001 are included. All such adjustments are accruals of a normal and
recurring nature. The results of operations for the periods are not necessarily
indicative of the results of operations for the full year. The financial
statements are unaudited.
- 7 -
8
ASIAINFO HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Three Months Ended March 31, 2000 and 2001
(In US dollars)
Revenue from network solutions contracts, which includes the procurement of
hardware on behalf of customers, systems design, planning, consulting, system
integration and software implementation services is recognized based on the
percentage of completion method. Labor hours are used to determine the stage of
completion except for revenues associated with the procurement of hardware. Such
hardware-related revenues are recognized upon delivery.
Software license revenues represent license fees which allow customers to use
the Company's software products in perpetuity up to a maximum number of users.
Revenue from software license fees is recognized in conjunction with the
revenues of the related solutions project over the installation and
customization period based on the percentage of completion of the project as
measured by labor hours. Revenues from software license fees include the benefit
of the rebate of value added taxes on sales of software received from the tax
authorities as part of the PRC government's policy of encouragement of software
development in the PRC. The rebate was approximately $672,000 and $137,000 for
the three months ended March 31, 2000 and 2001, respectively.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at December 31, 2000 and March 31, 2001 and
the reported amounts of revenues and expenses during the three months ended
March 31, 2000 and 2001. Actual results could differ from those estimates.
Revenue in excess of billings on service contracts is recorded as unbilled
receivables and included in trade accounts receivable, and amounted to
$33,241,532 at December 31, 2000 and $29,504,843 at March 31, 2001. Billings in
excess of revenues recognized on service contracts are recorded as deferred
income until revenue recognition criteria are met. At December 31, 2000 and
March 31, 2001, the balance of trade account receivables of $22,355,964 and
$15,925,317, respectively, represented amounts billed but not yet collected. All
billed and unbilled amounts are expected to be collected within 1 year.
The financial records of the Company's PRC subsidiaries are maintained in
Renminbi. The Renminbi is not fully convertible into United States dollars or
other foreign currencies. The rate of exchange quoted by the People's Bank of
China on March 31, 2001 was US$1.00 = RMB8.2779. No representation is made that
the Renminbi amounts could have been, or could be, converted into United States
dollars at that rate or at any other rate.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which was
amended by SFAS137 and SFAS138. This statement requires companies to record all
derivatives on the balance sheet as assets or liabilities measured at fair
value. Gains and losses resulting from changes in fair market values of those
derivative instruments are accounted for depending on the use of the instrument
and whether it qualifies for hedge accounting. SFAS No. 133 was adopted by the
Company on January 1, 2001. Adoption of SFAS No. 133 did not have a significant
effect on the Company's financial position, results of operations or cash flows.
- 8 -
9
ASIAINFO HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Three Months Ended March 31, 2000 and 2001
(In US dollars)
Information concerning the organization and business of the Company, accounting
policies followed by the Company and other information is contained in the notes
to the Company's financial statements for the year ended December 31, 2000
prepared as part of the Company's Form 10-K filed with the Securities and
Exchange Commission on March 16, 2001. This report should be read in conjunction
with such financial statements.
2. SHORT-TERM INVESTMENTS
Short-term investments are classified as available for sale and consist
principally of certificates of deposit issued by major financial institutions
which have maturities of between 6 and 12 months and money market funds. As
there are no significant market price movements, such investments are held at
cost and accrued interest. There were no realized or unrealized gains or losses.
At December 31, 2000 and March 31, 2001, included in short-term investments are
holdings of money market funds of $90,800,000 and $42,500,000, respectively.
3. COMPREHENSIVE (LOSS) INCOME
The components of comprehensive (loss) income for the periods presented are as
follows:
Three Months Ended March 31,
----------------------------
2000 2001
----------- ----------
(unaudited)
Net (loss) income $(4,638,495) $1,379,382
Change in cumulative translation adjustment 27,480 (2,442)
----------- ----------
Comprehensive (loss) income $(4,611,015) $1,376,940
=========== ==========
4. SHORT-TERM BANK LOANS
As of March 31, 2001, the Company had total short-term credit facilities
totaling $23.3 million expiring in May, 2001 for working capital purposes of
which unused short-term credit facilities were $10 million at that date. At
March 31, 2001, borrowings under these facilities totaled $13.3 million.
Additional borrowings of approximately $10.1 million were secured by bank
deposits of $11.1 million. All the borrowings were in RMB, the currency of the
PRC. The loans carry interest of 5.58% per annum and are repayable within one
year. Bank deposits pledged as security for the bank loans and short-term credit
facilities totaled $26.7 million and $28.5 million as of December 31, 2000 and
March 31, 2001, respectively, and are presented as restricted cash in the
condensed consolidated balance sheets.
- 9 -
10
ASIAINFO HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Three Months Ended March 31, 2000 and 2001
(In US dollars)
5. INCOME TAXES
The Company is subject to US federal and state income taxes. The Company's
subsidiaries incorporated in the PRC are subject to PRC income taxes.
The provision for income tax consists of the following:
Three Months Ended March 31,
----------------------------
2000 2001
------- -------
(unaudited)
Current $ -- 506,643
Deferred 43,710 (35,478)
------- -------
$43,710 471,165
======= =======
A reconciliation between the provision for income taxes computed by applying the
US federal tax rate to (loss) income before income taxes and the actual
provision for income taxes is as follows:
Three Months Ended March 31,
----------------------------
2000 2001
---- ----
(unaudited)
US federal rate (35)% 35%
State tax rate (net of federal benefit) (5) 5
Tax exempt foreign income 35 (22)
Expenses not deductible for tax purpose -- deferred
stock compensation expense 6 5
---- ----
1% 23%
==== ====
6. CAPITAL STOCK
Option activity in the Company's stock option plans is summarized as follows:
Outstanding options
weighted average
Number of shares exercise price per share
---------------- ------------------------
(unaudited)
Outstanding, January 1, 2001: 8,781,865 $9.43
Granted 2,022,560 9.34
Cancelled (644,320) 15.51
Exercised (236,137) 2.40
--------- -----
Outstanding, March 31, 2001 9,923,968 $9.18
========= =====
- 10 -
11
ASIAINFO HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Three Months Ended March 31, 2000 and 2001
(In US dollars except shares)
7. NET (LOSS) INCOME PER SHARE
The following is a reconciliation of the numerators and denominators of the
basic and diluted net (loss) income per share computations:
Three Months Ended March 31,
----------------------------
2000 2001
----------- -----------
(unaudited)
Net (loss) income (numerator):
Net (loss) income
Basic and diluted $(4,638,495) $ 1,379,382
=========== ===========
Shares (denominator):
Weighted average
Common Stock Outstanding 28,821,413 40,967,627
----------- -----------
Basic 28,821,413 40,967,627
Options (Treasury Method) -- 4,181,270
----------- -----------
Diluted 28,821,413 45,148,897
=========== ===========
Net (loss) income per share:
Basic $ (0.16) $ 0.03
Diluted $ (0.16) $ 0.03
During the first quarter of 2000, the Company had securities outstanding which
could potentially diluted basic EPS in the future, but were excluded in the
computation of diluted EPS in the period, as their effect would have been
antidilutive due to the net loss reported in the period. Such outstanding
securities consist of the following:
Three Months Ended
March 31, 2000
------------------
(unaudited)
Outstanding Options 10,018,015
Warrants 20,000
----------
10,038,015
==========
8. COMMITMENTS
As of March 31, 2001, the Company was committed under certain operating leases,
requiring annual minimum rentals as follows (unaudited):
2001 $1,444,927
2002 1,792,760
2003 276,522
----------
$3,514,209
==========
- 11 -
12
ASIAINFO HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Three Months Ended March 31, 2000 and 2001
(In US dollars)
9. SEGMENT AND GEOGRAPHIC OPERATING INFORMATION
Information on the Company's operating segments is as follows:
Three Months Ended March 31,
--------------------------------
2000 2001
----------- -----------
(unaudited)
Revenues net of hardware cost:
Network solutions net of
hardware cost $ 3,678,184 $ 8,734,276
Software license 1,793,026 5,471,770
----------- -----------
Consolidated revenues
net of hardware cost 5,471,210 14,206,046
Consolidated cost of sales
net of hardware cost 2,795,428 2,927,496
----------- -----------
Consolidated gross profit $ 2,675,782 $11,278,550
=========== ===========
Gross profit:
Network Solutions $ 884,554 $ 5,807,002
Software license 1,791,228 5,471,548
----------- -----------
Consolidated gross profit $ 2,675,782 $11,278,550
=========== ===========
Depreciation and amortization:
Network Solutions $ 341,689 $ 504,363
Software license 166,565 315,969
----------- -----------
$ 508,254 $ 820,332
=========== ===========
Loss from operations:
Network Solutions $(3,615,875) $ (138,534)
Software license (1,325,304) 114,952
----------- -----------
Consolidated loss from operations $(4,941,179) $ (23,582)
=========== ===========
For the three months ended March 31, 2000 and 2001, all of the Company's
revenues have been derived from sales to customers in the People's Republic of
China. Revenues are attributed to the country based on the installation of
hardware and performance of system integration work. Also, as of December 31,
2000 and March 31, 2001, 99% of the Company's long-lived assets are located in
the People's Republic of China.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for historical information, the statements contained in this Quarterly
Report on Form 10-Q are forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. The Private Securities Litigation Reform Act of 1995 (the "Reform Act")
contains certain safe harbors regarding forward-looking statements. Certain of
the forward-looking statements include management's expectations, intentions and
beliefs with respect to our growth, our operating results, the nature of the
industry in which we are engaged, our business strategies and plans for future
operations, our needs for capital expenditures, capital resources and liquidity;
and similar expressions concerning matters that are not historical facts. Such
forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ materially from those expressed in the
statements. All forward-looking statements included in this document are based
on information available to us on the date hereof, and we assume no obligation
to update any such forward-looking statements. These cautionary statements are
being made pursuant to the provisions of the Reform Act with the intention of
obtaining the benefits of the safe harbor provisions of the Reform Act. Among
the factors that could cause actual results to differ materially are the factors
discussed below under the heading "Factors Affecting our Operating Results and
our Common Stock."
OVERVIEW
We are a leading China-based company providing world class software products and
network solutions. Our software products and network solutions enable our
customers to build, maintain, operate and continuously improve their Internet
and communications infrastructure.
We commenced our operations in Texas in 1993 and moved our operations from Texas
to China in 1995. We began generating significant network solutions revenues in
1996 and significant software license revenues in 1998. While we source hardware
for our customers through our U.S. parent company, AsiaInfo Holdings, Inc., we
conduct the bulk of our business through our wholly-owned operating subsidiary,
AsiaInfo Technologies (China) Inc., which is a Chinese company.
Sales to China Telecom and its provincial subsidiaries accounted for
approximately 98%, 84% and 34% of our gross revenues in 1998, 1999 and 2000,
respectively. Our customer base is continuing to diversify and, at March 31,
2001, approximately 45% of our backlog net of hardware costs was attributable to
China Telecom, while 33% was attributable to China Unicom, 6% was attributable
to China Netcom and 11% was attributable to China Mobile.
We expect our business to continue to evolve as the Internet and
telecommunications markets in China change and expand. Recently, sales of
software products have been an increasingly significant contributor to our
business, accounting for 39% of revenues net of hardware costs in the
three-month period ended March 31, 2001. We expect this trend to continue and
intend to establish arrangements with foreign companies to distribute our
software products outside of China.
We believe that there are opportunities for us to expand into new business
areas. As of March 31, 2001, we had invested a total of $2 million in our
majority-owned network security business, MarSec, which focuses on high-end
security services for our customers. MarSec generated sales orders of
approximately $175,000 in the fourth quarter of 2000, and we anticipate that it
will generate sales orders of approximately $3 million in 2001. In view of the
recent and potential future changes to our business, our historical financial
data may not be a meaningful basis upon which to evaluate us and our prospects.
- 13 -
14
REVENUES
Our total revenues have grown from $44.2 million in 1998 to $60.3 million in
1999 and $176.1 in 2000. We generate our revenues from our two principal
business lines: network solutions and software products. Although we account for
our network solutions revenues on a gross basis, inclusive of hardware
acquisition costs that are passed through to our customers, we manage our
business internally based on revenues net of hardware costs, which is consistent
with our strategy to focus increasingly on providing our customers with high
value IT professional services while gradually outsourcing lower-end services
such as hardware acquisition and installation. This strategy may result in lower
growth rates for total revenues as against prior periods, but will not adversely
impact revenues net of hardware costs. The following table shows our revenue
breakdown by business line on this basis:
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
------------------ ------------------------------------------------------
BUSINESS LINE 2001 2000 2000 1999 1998 1997 1996
------------- ---- ---- ---- ---- ---- ---- ----
Network solutions net of 61% 67% 63% 74% 88% 93% 89%
hardware costs
Software license 39% 33% 37% 26% 12% 7% 11%
---- ---- ---- ---- ---- ---- ----
Total revenues net of
hardware costs 100% 100% 100% 100% 100% 100% 100%
==== ==== ==== ==== ==== ==== ====
As demonstrated by the foregoing table, software products have accounted for an
increasing portion of our total revenues net of hardware costs over the past
several years, increasing from 11% in 1996 to 39% in the first quarter of 2001.
We expect that software products will account for a growing portion of our
future net revenues.
BACKLOG. Most of our revenues are derived from customers' orders under separate
binding contracts for hardware, network solutions and software products. These
contracts constitute our backlog at any given time. Revenues for hardware,
network solutions and software products are recognized during the course of the
relevant project, as described in more detail below. At March 31, 2001, our
backlog net of hardware costs was $44 million, approximately 66% of which
related to network solutions and 34% of which related to software orders.
NETWORK SOLUTIONS REVENUES. Network solutions revenues consist of hardware sales
for equipment procured by us on behalf of our customers from hardware vendors,
as well as services for planning, design, systems integration, training and
customization of our proprietary and third party software. We procure for and
sell hardware to our customers as part of our total solutions strategy. We
minimize our exposure to hardware risks by sourcing equipment from hardware
vendors against back-to-back orders and letters of credit from our customers. We
believe that, as the Internet-related market in China develops, our customers
will increasingly purchase hardware directly from hardware vendors and pay us
separately for the full value of our professional services.
We generally charge a fixed price for our network solutions projects and
recognize revenue based on the percentage of completion of the project. Labor
hours are used to determine the stage of completion, except for revenues
associated with the procurement of hardware on behalf of the customer. Such
hardware-related revenues are recognized upon delivery. Since a large part of
the cost of a network solutions project often relates to hardware, the timing of
hardware delivery can cause our quarterly gross revenues to fluctuate
significantly. However, this does not significantly affect our gross profit, as
hardware revenues generally approximate the related costs. Our quarterly results
are also subject to fluctuations because a significant part of our network
solutions revenues are derived from a limited number of large contracts.
- 14 -
15
There are three key milestones in the life of a network solutions project. The
first milestone occurs when the hardware is delivered, which is usually between
three and four months after signing the contract. The second milestone in a
network solutions project is at primary acceptance, which usually occurs around
five months after hardware delivery. The third milestone is project acceptance,
which occurs when the customer agrees that we have satisfactorily completed all
our work for the project.
SOFTWARE LICENSE REVENUES. Software license revenues consist of fees received
from customers for licenses to use our software products in perpetuity, up to a
specified maximum number of users. The customer must purchase additional user
licenses from us when the number of users exceeds the specified maximum.
Beginning with the year 2000, our software license revenues also include the
benefit of value added tax rebates on software license sales, which are part of
the Chinese government's policy of encouraging China's software industry.
Substantially all our software license revenues are derived from our customer
management and billing, and messaging software products. We recognize
substantially all software license revenues in conjunction with the revenues of
the related solutions project over the installation and customization period
based on the percentage of completion of the project as measured by labor hours.
The foregoing revenue recognition policies result in our recognizing certain
revenues even though we are not due to receive the corresponding cash payment
under the contract. In the case of hardware sales, the customer typically holds
back around 10% of the hardware contract amount at the time of delivery. In the
case of services, while there may be some down payment, most of the revenues
becomes billable at the time of primary acceptance. The unpaid amounts for
hardware and services become payable at the time of final project acceptance,
when payment of all unpaid contract amounts is due. When we recognize revenues
for which payments are not yet due, we book unbilled accounts receivable until
the corresponding amounts become payable.
COST OF REVENUES
NETWORK SOLUTIONS COSTS. Network solutions costs consist primarily of third
party hardware costs, compensation and travel expenses for the professionals
involved in designing and implementing projects, and hardware warranty costs. We
recognize hardware costs in full upon delivery of the hardware to our customers.
In order to minimize our working capital requirements, we generally obtain from
our hardware vendors payment terms that are timed to permit us to receive
payment from our customers for the hardware before our payments to hardware
vendors are due. However, in certain recent large projects, we obtained less
favorable payment terms from our customers, thereby increasing our working
capital requirements. We recognize compensation and travel costs for project
professionals as incurred. We accrue hardware warranty costs when hardware
revenue is recognized upon final acceptance. We obtain manufacturers' warranties
for hardware we sell, which cover a portion of the warranties that we give to
our customers. We currently accrue 0.8% of hardware sales to cover potential
warranty expenses. This estimate of warranty cost is based on our current
experience with contracts for which the warranty period has expired. See
"Factors Affecting our Operating Results and our Common Stock -- We extend
warranties to our network solutions customers that expose us to potential
liabilities."
SOFTWARE LICENSE COSTS. Software license costs consist primarily of packaging
and written manual expenses. Software license costs are negligible, since most
of the costs associated with creating and enhancing software are classified as
research and development expenses as incurred.
- 15 -
16
OPERATING EXPENSES
Operating expenses are comprised of sales and marketing expenses, research and
development expenses, general and administrative expenses, and amortization
expenses for goodwill and deferred stock compensation.
Operating expenses consist for the most part of compensation expenses, which
have risen as we have expanded and hired new personnel. In 1998, we undertook a
comprehensive review of human resource policies, including salaries paid by
leading multinational IT companies operating in China. This review resulted in a
special increase in salaries for most of our employees to bring their
compensation to market levels. Although we review salaries on an annual basis in
order to ensure that we remain competitive with the market, we do not foresee
the need to make material increases in the near term. However, we may be
required to do so from time to time in the future.
Research and development expenses relate almost entirely to the development of
new software and the enhancement and upgrading of existing software. We expense
these costs as they are incurred. As we expand our software business, we expect
these expenses to continue to increase.
We provide most of our officers and employees, and some of our directors, with
stock options. In the past, we granted a number of options with exercise prices
below the fair market value of the related shares at the time of grant, most of
which were issued prior to 1997. We do not, however, intend to issue options
below fair market value in the future. Therefore, our deferred compensation
expenses have been significantly higher historically than we expect them to be
in future years. The difference between the exercise price and the fair market
value of the related shares is amortized over the vesting period of the options
and reflected on our income statement as amortization of deferred stock
compensation. See note 13 to our consolidated financial statements for the year
ended December 31, 2000, included in our annual report on Form 10-K, filed with
the Securities and Exchange Commission on March 16, 2001.
We make bad debt provisions for accounts receivable balances based on
management's assessment of the recoverability of revenues on a
project-by-project basis. Because of the generally high credit-worthiness of the
leading Chinese telecommunications service providers, who are our major
customers, we do not believe that we are exposed to significant bad debt risk.
Generally, a majority of our accounts receivable are paid within 90 days of
billing.
TAXES
Except for hardware procurement and resale, we conduct substantially all of our
business through our Chinese operating subsidiaries. Our Chinese subsidiaries
are generally subject to a 30% state corporate income tax and a 3% local income
tax. AsiaInfo Technologies, our principal operating subsidiary, is classified as
a "high technology" company and, as such, is entitled to preferential treatment
under Chinese tax law. AsiaInfo Technologies operated free of Chinese state
corporate income tax for three years, beginning with its first year of
operation, and was entitled to a 50% tax reduction for the subsequent three
years. The tax holiday for AsiaInfo Technologies expired on December 31, 1997
and the 50% tax reduction expired on December 31, 2000. However, AsiaInfo
Technologies recently received a continuation of its preferential tax treatment
from the local government for an additional three years, which will reduce its
effective income tax rate to not less than 10%. In 2001, we anticipate that the
effective corporate income tax rate applicable to AsiaInfo Technologies will be
10%. Changes in Chinese tax laws may adversely affect our future operations.
- 16 -
17
We are also subject to U.S. income taxes on our procurement activities in the
U.S.
Sales of hardware in China are subject to a 17% value added tax. Most of our
hardware sales are made through our U.S. parent company and thus are not subject
to the value added tax. We effectively pass these taxes through to our customers
and do not include them in revenues reported in our financial statements. In
respect of revenue on software license, if the net amount of value added tax
payable exceeds 3% of software sales, the excess portion of value added tax can
be refunded immediately. The Company therefore enjoys an effective net value
added tax burden of 3% on software license revenues. This policy is effective
until 2010.
FOREIGN EXCHANGE
Substantially all of our revenues and expenses relating to hardware sales are
denominated in U.S. dollars, and substantially all of our revenues and expenses
relating to the service component of our network solutions business and software
business are denominated in Renminbi. Although, in general, our exposure to
foreign exchange risks should be limited, the value of our shares will be
affected by the foreign exchange rate between the U.S. dollars and Renminbi
because the value of our business is effectively denominated in Renminbi, while
our shares are traded in U.S. dollars. Furthermore, a decline in the value of
Renminbi could reduce the U.S. dollar equivalent of the value of the earnings
from, and our investment in, our subsidiaries in China.
CONSOLIDATED RESULTS OF OPERATIONS
REVENUES. Our gross revenues increased 56% to $35.8 million in the first quarter
of 2001, as compared to $22.9 million in the first quarter of 2000. Although
gross revenue for the quarter increased as compared to the quarterly period
ended March 31, 2000, it decreased sequentially due to high hardware
pass-through costs in the fourth quarter of 2000. Revenues net of hardware costs
increased approximately 160%, from $5.5 million in the comparable quarter of
2000 to $14.2 million in the three months ended March 31, 2001. Software license
revenues were $5.5 million in the three months ended March 31, 2001,
representing 39% of revenues net of hardware costs and a 205% increase over
software license revenues of $1.8 million in the comparable period of 2000. Our
revenue growth in the three months ended March 31, 2001 is particularly
significant in view of the first quarter being a seasonally slow period due to
the long Chinese New Year holiday. Our strong growth in software revenue
resulted from continued user capacity expansion in China's telecom services
market and our strategy of leveraging our established network solutions customer
base to grow our software business. In addition, approximately $500,000 of the
increase in software license revenues was attributable to the value added tax
rebates discussed above under the heading "Taxes."
COST OF REVENUES. Our cost of revenues increased 21% to $24.5 million in the
first quarter of 2001, from $20.2 million in the first quarter of 2000,
primarily due to our having several large network solutions projects in progress
during the first quarter of 2001.
GROSS PROFIT. Our gross profit increased 322% in the first quarter of 2001 to
$11.3 million, as compared to $2.7 million for the first quarter of 2000. Gross
profit as a percentage of gross revenues, or gross margin, increased to 32% in
the first quarter of 2001, as compared to 12% in the first quarter of 2000. The
increases in gross profit and gross margin are attributable to the continued
growth in our higher-margin software revenues and the increased contribution of
high-end services (as opposed to hardware acquisition and installation) in our
network solutions projects.
- 17 -
18
OPERATING EXPENSES. Total operating expenses increased 48% to $11.3 million in
the first quarter of 2001, from $7.6 million in the first quarter of 2000.
However, total operating expenses decreased 6% sequentially, as we controlled
our general and administrative spending and realized lower costs across the
board due to the long Chinese New Year holiday.
Sales and marketing expenses increased 63% to $5.6 million in the first quarter
of 2001, from $3.5 million in the first quarter of 2000, primarily as a result
of our aggressive marketing of our software products and expansion of our
network solutions sales department.
Research and development expenses increased 49% to $1.6 million in the first
quarter of 2001 from $1.1 million in the first quarter of 2000. While we expect
our research and development expenses for the full year 2001 to increase by
50-60% in dollar terms, we expect these expenses to remain constant as a
percentage of net revenues, at approximately 13%.
General and administrative expenses increased 52% to $3.6 million in the first
quarter of 2001, from $2.4 million in the first quarter of 2000. For the full
year 2001, we expect general and administrative expenses to remain relatively
constant in dollar terms as compared to the full year 2000.
Amortization of deferred stock compensation decreased 37%, from approximately
$699,000 in the first quarter of 2000 to approximately $437,000 in the first
quarter of 2001, because deferred stock compensation arising from awards in 1996
had been completely amortized and no new deferred stock compensation has arisen
since October of 1999.
INCOME (LOSS) FROM OPERATIONS. Our operating loss for the quarter decreased
substantially, from $4.9 million in the comparable period of 2000 to
approximately $24,000 in the first quarter of 2001, nearly breakeven.
OTHER INCOME AND EXPENSES. Other income and expenses, consisting primarily of
net interest income and expense, increased from income of approximately $346,000
in the first quarter of 2000 to income of $2.1 million in the first quarter of
2001, primarily due to interest income on the proceeds of our initial public
offering in March of 2000. We anticipate that interest income will decrease
sequentially in the second quarter of 2001 due to lower interest rates.
MINORITY INTEREST. In the first quarter of 2001, minority interest of
approximately ($178,000) represented the portion of our income before minority
interests attributable to the other shareholders of our subsidiaries MarSec and
Guangdong Wangying.
NET (LOSS) INCOME. Net income was $1.4 million for the three months ended March
31, 2001, or $0.03 basic earnings per share, as compared to a loss of $4.6
million in the comparable period of 2000. The increase in net income is
attributable to interest income earned on the proceeds of our initial public
offering and our continued progress towards operating profitability, which we
expect to achieve in the second quarter of 2001.
LIQUIDITY AND CAPITAL RESOURCES
In March 2000, we completed an initial public offering of our common stock, from
which we derived net proceeds of approximately $126.6 million. Total contributed
shareholder equity at March 31, 2001 was $176.3 million.
Our capital requirements are primarily working capital requirements related to
hardware sales and costs associated with the expansion of our business, such as
research and development and sales and marketing
- 18 -
19
expenses. We recognize hardware costs in full upon delivery of the hardware to
our customers. In order to minimize our working capital requirements, we
generally obtain from our hardware vendors payment terms that are timed to
permit us to receive payment from our customers for the hardware before our
payments to hardware vendors are due. However, in certain recent large projects,
we obtained less favorable payment terms from our customers, thereby increasing
our working capital requirements. We have historically financed our working
capital and other financing requirements through careful management of our
network solutions billing cycle, private placements of equity securities, our
initial public offering in March of 2000 and, to a limited extent, bank loans.
Our accounts receivable balance at March 31, 2001 was $45 million, consisting of
$16 million in billed receivables and $29 million in unbilled receivables. Our
unbilled receivables are based on revenue we have booked through the percentage
completion method, but for which we have not yet billed the customer. Our billed
receivables are based on revenue we have booked and billed. The process of
billing receivables in China is somewhat different than in the United States, as
customers typically do not make full payment until complete satisfaction of the
project. Despite these longer receivable cycles, since our inception we have
only made bad debt provisions for approximately 1% of our accounts receivable.
At the end of the first quarter, our accounts receivable were 115 days sales
outstanding, significantly down from 127 days at the end of the same period last
year. Our inventory position at the end of the quarter was approximately
$261,000. We were able to keep our accounts receivable and inventory positions
low as a result of lower hardware pass-through costs and an increase in the
high-end services proportion of our network solutions projects.
As of March 31, 2001, we had total short-term credit facilities totaling $23.3
million expiring in May 2001, for working capital purposes, of which unused
short-term credit facilities were $10 million at that date. At March 31, 2001,
borrowings under these facilities totaled $13.3 million. Additional borrowings
of approximately $10.1 million were secured by bank deposits of $11.1 million.
All the borrowings were in Renminbi, the currency of China. The loans carry
interest of 5.58% per annum and are repayable within one year. Bank deposits
pledged as security for these bank loans and short-term credit facilities
totaled $28.5 million and $26.7 million as of March 31, 2001 and December 31,
2000, respectively, and are presented as restricted cash in our consolidated
balance sheets.
We ended the quarter with a strong cash position of $186 million, of which $130
million was in short term investments, $28 million was in restricted cash for
the purpose of securing local currency loans, and the remainder of which was in
cash and cash equivalents.
We anticipate that the net proceeds of our initial public offering in March
2000, together with available funds and cash flows generated from operations,
will be sufficient to meet our anticipated needs for working capital, capital
expenditures and business expansion through 2001. We may need to raise
additional funds in the future, however, in order to fund acquisitions, develop
new or enhanced services or products, respond to competitive pressures to
compete successfully for larger projects involving higher levels of hardware
purchases, or if our business otherwise grows more rapidly than we currently
predict. We plan to raise additional funds, if necessary, through new issuances
of shares of our equity securities in one or more public offerings or private
placements, or through credit facilities extended by lending institutions.
In the event that we decide to pay dividends to our shareholders, our ability to
pay dividends will depend in part on our ability to receive dividends from our
operating subsidiaries in China. Foreign exchange
- 19 -
20
and other regulations in China may restrict our ability to distribute retained
earnings from our operating subsidiaries in China or convert those payments from
Renminbi into foreign currencies.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Boards issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". This statement
requires companies to record all derivatives on the balance sheet as assets or
liabilities measured at fair value. Gains and losses resulting from changes in
fair market values of those derivative instruments would be accounted for
depending on the use of the instrument and whether it qualifies for hedge
accounting. We adopted SFAS No. 133 on January 1, 2001 and it did not have a
material effect on our financial condition, results of operations or cash flows.
FACTORS AFFECTING OUR OPERATING RESULTS AND OUR COMMON STOCK
In addition to the other information in this report, the following factors
should be considered in evaluating our business and our future prospects:
THE GROWTH OF OUR BUSINESS IS DEPENDENT ON GOVERNMENT BUDGETARY POLICY,
PARTICULARLY THE ALLOCATION OF FUNDS TO SUSTAIN THE GROWTH OF THE
TELECOMMUNICATIONS INDUSTRY AND THE INTERNET IN CHINA.
Virtually all of our large customers are directly or indirectly owned or
controlled by the government of China. Accordingly, their business strategies,
capital expenditure budgets and spending plans are largely decided in accordance
with government policies, which, in turn, are determined on a centralized basis
at the highest level by the State Planning Commission of the PRC. As a result,
the growth of our business is heavily dependent on government policies for
telecommunications and Internet infrastructure. Despite the high priority
currently accorded by the government to the development of telecommunications
industry and Internet infrastructure, and a high level of funding allocated by
the government to these sectors, insufficient government allocation of funds to
sustain the growth of the telecommunications and Internet industries in the
future could reduce the demand for our products and services and have a material
adverse effect on our ability to grow our business.
Furthermore, if demand for Internet and telecommunications service from Chinese
enterprises and households is not as strong as projected, our customers'
investment in Internet and telecommunications infrastructure is likely to
decrease. Although China's Internet population has increased dramatically in
recent years and is expected to grow at a 77.3% compound annual growth rate from
1999 to 2002, the average annual household income level in China is low relative
to other industrialized nations. This may dampen the overall commercial impact
of the Internet's growth in China relative to other countries.
LAWS AND REGULATIONS APPLICABLE TO THE INTERNET IN CHINA REMAIN UNSETTLED AND
COULD HAVE A MATERIAL ADVERSE EFFECT ON THE INTERNET'S GROWTH AND THEREBY HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
Growth of the Internet in China could be materially adversely affected by
governmental regulation of the industry. Due to the increasing popularity and
use of the Internet and other online services, new regulations have been and may
continue to be adopted with respect to the Internet or other online services.
The Ministry of Information Industry has recently promulgated the Administrative
Measures on Internet Information Services and related implementing regulations.
Among other things, the "Administrative Measures on Internet Information
Services":
- 20 -
21
-- require Internet content providers to obtain approval from the Ministry of
Information Industry before they can list securities overseas or obtain foreign
investment;
-- require Internet content providers to obtain licenses from various
ministries, depending on the nature of the content they provide; and
-- require Internet content providers to police their content in order to
prevent restricted material from appearing on their websites.
Because we are engaged in Internet infrastructure development and
Internet-related software development and licensing, we do not expect these new
regulations to have a direct impact on us. However, we cannot guarantee that the
adoption of these regulations or other regulations will not slow the growth of
the Internet or other online services in China. In particular, the prohibitions
against a broad but vague range of information on the Internet (such as
information that is damaging to national security, national interest, and social
order), the relevant monitoring, record-keeping, reporting and other
administrative burdens imposed on Internet access and content providers, and the
severe penalties for violations of these regulations could have a chilling
effect on Internet content providers and Internet users and could lead to
increased compliance costs for Internet content providers. Any slow-down in the
growth of the Internet in China could in turn lead to reduced Internet traffic,
and a decrease in the demand for our network solutions and Internet-related
software products.
OUR CUSTOMER BASE IS CONCENTRATED AND THE LOSS OF ONE OR MORE OF OUR CUSTOMERS
COULD CAUSE OUR BUSINESS TO SUFFER SIGNIFICANTLY.
We have derived and believe that we will continue to derive a significant
portion of our revenues from a limited number of large customers, such as China
Telecom, China Unicom, China Mobile and China Netcom. China Telecom accounted
for almost all of our revenues in 1997 and 1998. In 1999, China Telecom,
together with China Unicom, accounted for almost all of our revenues. At March
31, 2001, China Telecom and China Unicom accounted for approximately 78% of our
backlog net of hardware costs. In the future, we expect to derive an increasing
portion of our revenues from China Unicom, China Mobile and China Netcom. The
loss, cancellation or deferral of any large contract by any of our large
customers would have a material adverse effect on our revenues, and consequently
our profits.
THE LONG AND VARIABLE SALES CYCLES FOR OUR PRODUCTS AND SERVICES CAN CAUSE OUR
REVENUES AND OPERATING RESULTS TO VARY SIGNIFICANTLY FROM PERIOD TO PERIOD AND
MAY ADVERSELY AFFECT THE TRADING PRICE OF OUR COMMON STOCK.
Our revenues and operating results will vary significantly from quarter to
quarter due to a number of factors, many of which are outside of our control and
any of which may cause our stock price to fluctuate. A customer's decision to
purchase our services and products involves a significant commitment of its
resources and an extended evaluation. As a result, our sales cycle tends to be
lengthy. We spend considerable time and expense educating and providing
information to prospective customers about features and applications of our
services and products. Because our major customers operate large and complex
networks, they usually expand their networks in large increments on a sporadic
basis. The combination of these factors can cause our revenues and results of
operations to vary significantly and unexpectedly. Other factors that may affect
us include the following:
-- fluctuation in demand for our products and services as a result of budgetary
cycles of our large customers, particularly state-owned enterprises;
- 21 -
22
-- the reduction, delay, interruption or termination of one or more
infrastructure projects; and
-- our ability to introduce, develop and deliver new software products that meet
customer requirements in a timely manner.
A large part of the contract amount of a network solutions project usually
relates to hardware procurement. Since we recognize most of the revenues
relating to hardware plus a portion of contract services revenues at the time of
hardware delivery, the timing of hardware delivery can cause our quarterly
revenues to fluctuate significantly.
Due to the foregoing factors, we believe that quarter-to-quarter comparisons of
our operating results are not a good indication of our future performance and
should not be relied upon. It is likely that our operating results in some
periods may be below the expectations of public market analysts and investors.
In this event, the price of our common stock will probably decline, perhaps
significantly more in percentage terms than the decline in operating results.
OUR WORKING CAPITAL REQUIREMENTS MAY INCREASE SIGNIFICANTLY.
We typically purchase hardware for our customers as part of our turn-key total
solutions services. We generally require our customers to pay 90% of the invoice
value of the hardware upon delivery. We typically place orders for hardware
against back-to-back orders from customers and seek favorable payment terms from
hardware vendors. This policy has historically minimized our working capital
requirements. However, for certain large and strategically important projects,
we have agreed to payment of less than 90% of the invoice value of the hardware
upon delivery in order to maintain competitiveness. Wider adoption of less
favorable payment terms or delays in hardware deliveries would require us to
increase our working capital needs.
Our working capital requirements may also increase significantly in order to
fund more rapid expansion and acquisitions, to develop new or enhanced services
or products, to respond to competitive pressure to compete successfully for
larger projects involving higher levels of hardware purchases or otherwise if
our business grows more rapidly than we currently predict. An increase in our
working capital needs may require that we raise additional funding sooner than
we presently expect.
WE HAVE SUSTAINED LOSSES IN PRIOR YEARS AND MAY INCUR SLOWER EARNINGS GROWTH,
EARNINGS DECLINES OR NET LOSSES IN THE FUTURE.
Although we made a net profit in 1996 and 1998, we have sustained losses in
1997, 1999, 2000 and prior years. There are no assurances that we can regain or
sustain profitability or avoid net losses in the future. We continue to expect
that certain of our operating expenses will increase as our business grows. The
level of these expenses will be largely based on anticipated organizational
growth and revenue trends and a high percentage will be fixed. As a result, any
delays in expanding sales volume and generating revenue could result in
substantial operating losses. Any such developments could cause the market price
of our common stock to decline.
MANAGEMENT'S ABILITY TO IMPLEMENT ADEQUATE CONTROL SYSTEMS WILL BE CRITICAL TO
THE SUCCESSFUL MANAGEMENT OF OUR FUTURE GROWTH.
In recent years, we have been expanding our operations rapidly, both in size and
scope. Our growth places a significant strain on our management systems and
resources. Our ability to market our products successfully and implement our
business plan in a rapidly evolving market requires an effective planning and
management process. We will need to continue to improve our financial,
managerial and operational
- 22 -
23
controls and reporting systems, and to expand, train and manage our work force.
We may not be able to implement adequate control systems in an efficient and
timely manner.
WE FACE A COMPETITIVE LABOR MARKET IN CHINA FOR SKILLED PERSONNEL AND THEREFORE
ARE HIGHLY DEPENDENT ON THE SKILLS AND SERVICES OF OUR EXISTING KEY SKILLED
PERSONNEL AND OUR ABILITY TO HIRE ADDITIONAL SKILLED EMPLOYEES.
Competition for highly skilled software design, engineering and sales and
marketing personnel is intense in China. Failure to attract, assimilate or
retain qualified personnel to fulfill our current or future needs could impair
our growth. Competition for skilled personnel comes primarily from a wide range
of foreign companies active in China, many of which have substantially greater
resources than we have. Limitations on our ability to hire and train a
sufficient number of personnel at all levels would limit our ability to
undertake projects in the future and could cause us to lose market share.
SINCE OUR BUSINESS HAS BEEN EVOLVING, OUR HISTORICAL FINANCIAL INFORMATION MAY
NOT BE AN APPROPRIATE BASIS ON WHICH TO EVALUATE US OR OUR PROSPECTS.
We moved our operations from Texas to China in 1995 and began generating
significant network solutions revenue in 1996 and significant software license
revenues in 1998. We expect our business to continue to evolve as the Internet
and telecommunications markets in China change and expand. In particular, we are
currently investing substantial personnel and financial resources in expanding
our software business, which we expect to account for a significantly greater
portion of our operating expenses and revenues than in the past. As a result,
our historical financial data may not provide a meaningful basis upon which
investors may evaluate us and our prospects. You should consider the risks and
difficulties encountered by companies like ours in a new and rapidly evolving
market. Our ability to sell products and our level of success depend, among
other things, on the level of demand for Internet-related, professional IT
services and software products in China.
WE EXTEND WARRANTIES TO OUR NETWORK SOLUTIONS CUSTOMERS THAT EXPOSE US TO
POTENTIAL LIABILITIES.
We customarily provide our customers with one to three year warranties, under
which we agree to maintain the installed systems at no additional cost to our
customers. The maintenance services cover both hardware and our proprietary and
third party software products. Although we seek to arrange back-to-back
warranties with hardware and software vendors, we have the primary
responsibility to maintain the installed hardware and software. Our contracts do
not have disclaimers or limitations on liability for special, consequential and
incidental damages, nor do we cap the amounts recoverable for damages. In
addition, we do not currently maintain any insurance policy with respect to our
exposure to warranty claims. Although to date we have not incurred any liability
for special, consequential or incidental damages, failure of our installed
projects to operate properly could give rise to substantial claims against us
that in turn could materially and adversely affect us.
WE SELL OUR LARGE SYSTEMS INTEGRATION PROJECTS ON A FIXED PRICE, FIXED-TIME
BASIS WHICH EXPOSES US TO RISKS ASSOCIATED WITH COST OVERRUNS AND DELAYS.
We sell substantially all of our systems integration projects on a fixed-price,
fixed-time basis. Failure to complete a fixed-price, fixed-time project within
budget and the required time frame would expose us to cost overruns and
penalties that could have a material adverse effect on our business, operating
results and financial condition. In contracts with our customers, we typically
agree to pay
- 23 -
24
late completion fines up to 5% of the total contract value. In large scale
Internet infrastructure projects, there are many factors beyond our control
which could cause delays or cost overruns. In this event, we would be exposed to
cost overruns and liable for late completion fines. A part of our network
solutions business is installing Internet network hardware. If we are unable to
obtain access to such equipment in a timely manner or on acceptable commercial
terms, our business, particularly our relationships with our customers, may be
materially and adversely affected.
WE MAY BECOME LESS COMPETITIVE IF WE ARE UNABLE TO DEVELOP OR ACQUIRE NEW
PRODUCTS OR ENHANCEMENTS TO OUR SOFTWARE PRODUCTS THAT ARE MARKETABLE ON A
TIMELY AND COST-EFFECTIVE BASIS.
We continually develop new services and proprietary software products.
Unexpected technical, operational, distribution or other problems could delay or
prevent the introduction of one or more of these products or services or any
products or services that we may plan to introduce in the future. Moreover, we
cannot be sure that any of these products and services will achieve widespread
market acceptance or generate incremental revenues.
OUR PROPRIETARY RIGHTS MAY BE INADEQUATELY PROTECTED AND THERE IS A RISK OF POOR
LAW ENFORCEMENT.
Our success and ability to compete depend substantially upon our intellectual
property rights, which we protect through a combination of copyright, trade
secret law and trademark law. We have filed trademark applications with the
United States Trademark Office, the Trademark Bureau of the State Administration
of Industry and Commerce in China and the Trade Marks Registry in Hong Kong. We
have also been granted copyrights by the State Copyright Bureau in China with
respect to Internet-related software products, although we have not applied for
copyright protection elsewhere (including the United States). Despite these
precautions, the legal regime protecting intellectual property rights in China
is weak. Because the Chinese legal system in general, and the intellectual
property regime in particular, are relatively weak, it is often difficult to
enforce intellectual property rights in China. In addition, there are other
countries where effective copyright, trademark and trade secret protection may
be unavailable or limited, and the global nature of the Internet makes it
virtually impossible to control the ultimate destination of our products.
We do not own any patents and have not filed any patent applications, as we do
not believe that the benefits of patent protection outweigh the costs of filing
and updating patents for our software products. We enter into confidentiality
agreements with our employees and consultants, and control access to, and
distribution of, our documentation and other licensed information. Despite these
precautions, it may be possible for a third party to copy or otherwise obtain
and use our licensed services or technology without authorization, or to develop
similar technology independently. Policing unauthorized use of our licensed
technology is difficult and there can be no assurance that the steps taken by us
will prevent misappropriation or infringement of our proprietary technology. In
addition, litigation may be necessary in the future in order to enforce our
intellectual property rights, to protect our trade secrets or to determine the
validity and scope of the proprietary rights of others, which could result in
substantial costs and diversion of our resources.
WE ARE EXPOSED TO CERTAIN BUSINESS AND LITIGATION RISKS WITH RESPECT TO
TECHNOLOGY RIGHTS HELD BY THIRD PARTIES.
We currently license technology from third parties and intend to do so
increasingly in the future. As we introduce services that require new
technology, we will probably need to license additional third party
- 24 -
25
technology. We cannot assure you that these technology licenses will be
available to us on commercially reasonable terms, if at all. Our inability to
obtain any of these licenses could delay or compromise our ability to introduce
new services. In addition, we may or may allegedly breach the technology rights
of others and incur legal expenses and damages, which, in the aggregate, could
be substantial.
INVESTORS MAY NOT BE ABLE TO ENFORCE JUDGMENTS BY UNITED STATES COURTS AGAINST
US.
We are incorporated in the State of Delaware. However, a majority of our
directors, executive officers and shareholders live outside the United States,
principally in Beijing, China and Hong Kong. Also, all or most of our assets are
located outside the United States. As a result, you may not be able to:
-- effect service of process upon us or these persons within the United States,
or
-- enforce against us or these persons judgments obtained in United States
courts, including judgments relating to the federal securities laws of the
United States.
WE DO NOT INTEND TO PAY AND MAY BE RESTRICTED FROM PAYING DIVIDENDS ON OUR
COMMON STOCK.
We have never declared or paid any dividends on our capital stock and we do not
intend to declare any dividends. We currently intend to retain future earnings
to fund growth. Furthermore, if we decide to pay dividends, foreign exchange and
other regulations in China may restrict our ability to distribute retained
earnings from China or convert these payments from Renminbi into foreign
currencies. In addition, loan agreements and contractual arrangements we enter
into in the future may also restrict our ability to pay dividends.
THE FACT THAT OUR BUSINESS IS CONDUCTED IN BOTH U.S. DOLLARS AND RENMINBI MAY
SUBJECT US TO CURRENCY EXCHANGE RATE RISK DUE TO FLUCTUATIONS IN THE EXCHANGE
RATE BETWEEN THESE TWO CURRENCIES.
Substantially all of our revenues, expenses and liabilities are denominated in
either U.S. dollars or Renminbi. As a result, we are subject to the effects of
exchange rate fluctuations between these currencies. Most contracts we enter
into with our customers provide for price adjustments reflecting foreign
exchange fluctuations; however, we cannot guarantee that future contracts will
contain such provisions. As a result of the unitary exchange rate system
introduced in China on January 1, 1994, the official bank exchange rate for
conversion of Renminbi to U.S. dollars experienced a devaluation of
approximately 50%. We report our financial results in U.S. dollars, therefore,
any future devaluation of the Renminbi against the U.S. dollar may have an
adverse effect upon our reported net income.
Substantially all our revenues and expenses relating to hardware sales are
denominated in U.S. dollars, and substantially all our revenues and expenses
relating to the service component of our network solutions business and software
business are denominated in Renminbi. Although, in general, our exposure to
foreign exchange risks should be limited, the value in our shares may be
affected by the foreign exchange rate between the U.S. dollar and the Renminbi
because the value of our business is effectively denominated in Renminbi, while
our shares are traded in U.S. dollars. Furthermore, a decline in the value of
the Renminbi could reduce the U.S. dollar value of earnings from, and our
investment in, our subsidiaries in China.
- 25 -
26
THE MARKETS IN WHICH WE SELL OUR SERVICES AND PRODUCTS ARE HIGHLY COMPETITIVE
AND WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY.
The network solutions market for Internet infrastructure in China is new and
rapidly changing. Our competitors in the market mainly include domestic systems
integrators such as Ztec and Autian. Although we are a leading player in this
market, there are many large multinational companies with substantial, existing
information technology operations in other markets in China, that have
significantly greater financial, technological, marketing and human resources.
Should they decide to enter the network solutions market for Internet
infrastructure, this could hurt our profitability and erode our market share.
In the customer management and billing software market, we compete with both
international and local software providers. In the online billing segment, we
compete primarily with Portal Software, MIND and Ztec, and in the wireless
billing segment, we compete with more than ten local competitors. The messaging
software sector is highly competitive. Our principal competitors in this sector
are Open Wave (formerly known as Software.com) and Netease. Currently, due in
part to a stringent approval system for providers of wireless billing software
in China and competitive pricing offered by domestic companies, some
multinational information technology companies have been deterred from entering
this market. In view of the gradual deregulation of the Chinese
telecommunications industry and China's pending entry into the WTO, we
anticipate the entrance of new competitors into the customer management and
billing software market.
Our competitors, some of whom have greater financial, technical and human
resources than us, may be able to respond more quickly to new and emerging
technologies and changes in customer requirements or devote greater resources to
the development, promotion and sale of new products or services. It is possible
that competition in the form of new competitors or alliances, joint ventures or
consolidation among existing competitors may decrease our market share.
Increased competition could result in lower personnel utilization rates, billing
rate reductions, fewer customer engagements, reduced gross margins and loss of
market share, any one of which could materially and adversely affect our profits
and overall financial condition.
POLITICAL AND ECONOMIC POLICIES OF THE CHINESE GOVERNMENT COULD AFFECT OUR
INDUSTRY IN GENERAL AND OUR COMPETITIVE POSITION IN PARTICULAR.
Since the establishment of the PRC in 1949, the Communist Party has been the
governing political party in China. The highest bodies of leadership are the
Politburo of the Communist Party, the Central Committee and the National
People's Congress. The State Council, which is the highest institution of
government administration, reports to the National People's Congress and has
under its supervision various commissions, agencies and ministries, including
The Ministry of Information Industry, the telecommunications regulatory body of
the Chinese government. Since the late 1970s, the Chinese government has been
reforming the Chinese economic system. Although we believe that economic reform
and the macroeconomic measures adopted by the Chinese government have had and
will continue to have a positive effect on the economic development in China,
there can be no assurance that the economic reform strategy will not from time
to time be modified or revised. Such modifications or revisions, if any, could
have a material adverse effect on the overall economic growth of China and
investment in the Internet and the telecommunications industry in China. Such
developments could reduce, perhaps significantly, the demand for our products
and services. There is no guarantee that the Chinese government will not impose
other economic or regulatory controls that would have a material adverse effect
on our business. Furthermore, changes in political, economic and social
conditions in China, adjustments in policies of the Chinese government or
changes in laws and
- 26 -
27
regulations could adversely affect our industry in general and our competitive
position in particular.
THE FAILURE OF CHINA TO GAIN ENTRY INTO THE WTO COULD NEGATIVELY IMPACT THE
CHINESE ECONOMY AND OUR GROWTH.
Failure by China to join the World Trade Organization, as expected, could slow
down China's economic growth and could result in lower than forecasted spending
in the telecommunications sector in China, which in turn could adversely affect
the demand for our products and services from our large customers.
UNCERTAINTIES WITH RESPECT TO THE CHINESE LEGAL SYSTEM COULD ADVERSELY AFFECT
US.
Our principal operating subsidiary, AsiaInfo Technologies, is a wholly foreign
owned enterprise for Chinese legal purposes, which means that it is incorporated
in China and wholly-owned by foreign investors. AsiaInfo Technologies, along
with our indirect majority-owned subsidiary, MarSec Systems Inc., are subject to
laws and regulations applicable to foreign investment in China in general and
laws applicable to wholly foreign owned enterprises in particular. The
legislation and regulations over the past 20 years have significantly enhanced
the protections afforded to various forms of foreign investment in China.
However, since the Chinese legal system is still evolving, the interpretations
of many laws, regulations and rules are not always uniform and enforcement of
these laws, regulations and rules involve uncertainties, which may limit
remedies available to us.
HIGH TECHNOLOGY AND EMERGING MARKET SHARES HAVE HISTORICALLY EXPERIENCED EXTREME
VOLATILITY AND MAY SUBJECT YOU TO LOSSES.
The trading price of our shares may be subject to significant market volatility
due to:
-- investor perceptions of us and investments relating to China and Asia;
-- developments in the Internet and telecommunications industries;
-- variations in our operating results from period to period due to project
timing; and
-- announcements of new products or services by us or by our competitors.
In addition, the high technology sector of the stock market frequently
experiences extreme price and volume fluctuations, which have particularly
affected the market prices of many Internet and computer software companies and
which have often been unrelated to the operating performance of these companies.
FUTURE SALES OF SHARES BY OUR COMPANY OR EXISTING SHAREHOLDERS COULD CAUSE THE
MARKET PRICE OF OUR COMMON STOCK TO FALL.
If our stockholders sell substantial amounts of our common stock in the public
market, including shares issued upon the exercise of outstanding options, the
market price of our common stock could fall. Such sales also might make it more
difficult for us to sell equity or equity-related securities in the future at a
time and price that we deem appropriate.
A SMALL NUMBER OF SHAREHOLDERS CONTROLS US.
Our six largest shareholders, Warburg-Pincus Ventures, ChinaVest Group, and
Intel Pacific, Inc., and their affiliates, as well as Edward Tian,
- 27 -
28
one of our directors, James Ding, our President and Chief Executive Officer, and
Louis Lau, our Chairman, in the aggregate, control over 70% of our voting stock.
As a result, these shareholders are able to control all matters requiring
shareholder approval, including election of directors and approval of
significant corporate transactions, such as a sale of our assets and the terms
of future equity financings. The combined voting power of our large shareholders
could have the effect of delaying or preventing a change in control.
WE ARE SUBJECT TO ANTI-TAKEOVER PROVISIONS THAT COULD PREVENT A CHANGE OF
CONTROL OF ASIAINFO AND PREVENT OUR SHAREHOLDERS FROM REALIZING A PREMIUM ON
THEIR COMMON STOCK.
Our board of directors has the authority to issue up to 10,000,000 shares of our
preferred stock. Without any further vote or action on the part of our
stockholders, the board of directors has the authority to determine the price,
rights, preferences, privileges and restrictions of the preferred stock. This
preferred stock, if it is ever issued, may have preference over and harm the
rights of the holders of common stock. Although the issuance of this preferred
stock will provide us with flexibility in connection with possible acquisitions
and other corporate purposes, this issuance may make it more difficult for a
third party to acquire a majority of our outstanding voting stock.
We currently have authorized the size of our board of directors to be not less
than three nor more than nine directors. The terms of the office of the
seven-member board of directors have been divided into three classes: Class I,
whose term will expire at the annual meeting of the stockholders to be held in
2003; Class II, whose term will expire at the annual meeting of stockholders to
be held in 2004; and Class III, whose term will expire at the annual meeting of
stockholders to be held in 2002. This classification of the board of directors
may have the effect of delaying or preventing changes in control or management.
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. In general, the statute prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date when the person became
an interested stockholder unless, subject to exceptions, the business
combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the stockholder.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to interest-rate risk primarily associated with our underlying
liabilities. To date, we have not entered into any types of derivatives to hedge
against interest-rate changes, nor do we speculate in foreign currency. However,
we do maintain a significant portion of our cash deposits in U.S. dollars to
avoid currency risk related to Renminbi. A portion of these U.S. dollar deposits
are used to collateralize Renminbi-denominated loans from Chinese banks.
Because substantially all of our revenues and expenses relating to hardware
sales are denominated in U.S. dollars, and substantially all of our revenues and
expenses relating to the service component of our network solutions business and
software business are denominated in Renminbi, we do not have significant
exposure to either the U.S. dollar or Renminbi. Thus, we do not believe that it
is necessary to enter into derivatives contracts to hedge our exposures to
either currency.
- 28 -
29
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On March 2, 2000, our Registration Statement on Form S-1 covering the offering
of 5,000,000 shares of our common stock (No. 333-93199) was declared effective.
The underwriters in the offering exercised an over-allotment option to purchase
an additional 750,000 shares of our common stock. The total price to the public
for the shares offered and sold was $138,000,000. The net proceeds of the
offering (after deducting expenses) was approximately $126,608,884. As of March
31, 2001, $5.96 million of the net proceeds had been used for purchases and
installation of machinery and equipment, $2.14 million had been invested in our
subsidiaries, Marsec Holdings, Inc., and Guangdong Wanying Information
Technology Co., Ltd., and $11.82 million had been applied to research and
development and sales and marketing expenses. The remainder of the net proceeds
were held in temporary investments.
The net proceeds will be used for general corporate purposes, including working
capital, and expenses such as research and development and sales and marketing.
A portion of the net proceeds may also be used to acquire or invest in
complementary businesses or products. None of the net proceeds of the offering
have been paid directly or indirectly to our directors, officers or their
associates, to persons owning ten percent or more of our common stock, or to our
affiliates.
ITEM 5. OTHER INFORMATION
We held our Annual Meeting of Shareholders on April 17, 2001. For more
information on the following proposals, please refer to our definitive proxy
statement dated March 16, 2001, the relevant portions of which are incorporated
herein by reference. The results of the shareholder votes taken at our Annual
Meeting are as follows:
(1) Our shareholders elected each of the two nominees to our Board of Directors
for a three-year term:
DIRECTOR FOR WITHHELD
-------- ---------- --------
Louis Lau 33,409,265 190,004
Patrick L. Keen 33,421,522 177,747
(2) Our shareholders ratified the appointment of Deloitte Touche Tohmatsu as
our independent auditors:
For 33,540,073
Against 51,969
Abstain 7,227
----------
Total 33,599,269
On April 27, 2001, we invested $6,157,376 to acquire 244,447 preferred shares of
Intrinsic Technology (Holdings) Ltd. ("Intrinsic"), representing 14.25% of the
outstanding share capital of Intrinsic, on a fully-diluted basis, as of that
date. Intrinsic is a leading provider of wireless Internet infrastructure
products and solutions in China. In connection with this investment, we also
received warrants from Intrinsic that will entitle our co-investors (which are
various investment funds sponsored by Fidelity Ventures) and us to acquire a
controlling interest in Intrinsic.
- 29 -
30
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed as a part of this Report.
Exhibit Number Description Exhibits
-------------- --------------------
3.1 Certificate of Incorporation of AsiaInfo Holdings, Inc., dated June 8,
1998/*/
3.2 Certificate of Amendment to Certificate of Incorporation of AsiaInfo
Holdings, Inc., dated August 27, 1999/*/
3.3 Certificate of Amendment to Certificate of Incorporation of AsiaInfo
Holdings, Inc., dated November 15, 2000/***/
3.4 Certificate of Correction to Certificate of Amendment to Certificate of
Incorporation of AsiaInfo Holdings, Inc., dated January 18, 2001/***/
3.5 By-Laws of AsiaInfo Holdings, Inc., dated December 19, 2000/***/
4.1 Specimen Share Certificate representing AsiaInfo Holdings, Inc. shares of
common stock/*/
10.1 2000 Stock Option Plan, approved and adopted as of October 18, 2000/**/
10.2 Certificate of Merger of HTC Investments, Inc., a Delaware Corporation, with
and into AsiaInfo Holdings, Inc., a Delaware corporation, dated October 13,
1999/*/
10.3 Shareholders' Agreement of MarSec Holdings, Inc., dated as of September 15,
2000, by and among AsiaInfo Holdings, Inc. and the Founders (as defined
therein) of MarSec Holdings, Inc./**/
10.4 Warrant to purchase Series A Preferred Shares of MarSec Holdings, Inc.,
issued to AsiaInfo Holdings, Inc. as of September 15, 2000/**/
10.5 Lease of AsiaInfo's headquarters at 6 Zhongguancun South Street, Beijing,
China, dated August 31, 1999/*/
10.6 Agreement for the Merger of AsiaInfo Technologies (China) Inc. and Zhejiang
AsiaInfo Telecommunications Technology Co. Ltd. /***/
10.7 Agreement for the Establishment of a Limited Liability Company (Guangdong
Wangying Communications Technology Company Limited) and Capital
Contribution/***/
11.1 Statement regarding computation of per share earnings (included in note 7 to
condensed consolidated financial statements)]
/*/ Incorporated by reference to our Registration Statement on Form S-1 (No.
333-93199).
/**/ Incorporated by reference to our Quarterly Report on Form 10-Q/A for the
quarter ended September 30, 2000.
/***/ Incorporated by reference to our Annual Report on Form 10-K for the fiscal
year ended December 31, 2000.
(b) Reports on form 8-K
None.
- 30 -
31
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, AsiaInfo
Holdings, Inc. has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AsiaInfo Holdings, Inc.
Date: March 14, 2001 By: /s/ Ying Han
---------------------------------------
Name: Ying Han
Title: Chief Financial Officer
(duly authorized officer
and principal financial officer)
- 31 -
32
INDEX TO EXHIBITS
The following exhibits are filed as a part of this Report.
Exhibit Number Description Exhibits
-------------- --------------------
3.1 Certificate of Incorporation of AsiaInfo Holdings, Inc., dated June 8,
1998/*/
3.2 Certificate of Amendment to Certificate of Incorporation of AsiaInfo
Holdings, Inc., dated August 27, 1999/*/
3.3 Certificate of Amendment to Certificate of Incorporation of AsiaInfo
Holdings, Inc., dated November 15, 2000/***/
3.4 Certificate of Correction to Certificate of Amendment to Certificate of
Incorporation of AsiaInfo Holdings, Inc., dated January 18, 2001/***/
3.5 By-Laws of AsiaInfo Holdings, Inc., dated December 19, 2000/***/
4.1 Specimen Share Certificate representing AsiaInfo Holdings, Inc. shares of
common stock/*/
10.1 2000 Stock Option Plan, approved and adopted as of October 18, 2000/**/
10.2 Certificate of Merger of HTC Investments, Inc., a Delaware Corporation, with
and into AsiaInfo Holdings, Inc., a Delaware corporation, dated October 13,
1999/*/
10.3 Shareholders' Agreement of MarSec Holdings, Inc., dated as of September 15,
2000, by and among AsiaInfo Holdings, Inc. and the Founders (as defined
therein) of MarSec Holdings, Inc./**/
10.4 Warrant to purchase Series A Preferred Shares of MarSec Holdings, Inc.,
issued to AsiaInfo Holdings, Inc. as of September 15, 2000/**/
10.5 Lease of AsiaInfo's headquarters at 6 Zhongguancun South Street, Beijing,
China, dated August 31, 1999/*/
10.6 Agreement for the Merger of AsiaInfo Technologies (China) Inc. and Zhejiang
AsiaInfo Telecommunications Technology Co. Ltd./***/
10.7 Agreement for the Establishment of a Limited Liability Company (Guangdong
Wangying Communications Technology Company Limited) and Capital
Contribution/***/
11.1 Statement regarding computation of per share earnings (included in note 7 to
the condensed consolidated financial statements included in this report)