6-K

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15D-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934

For the month of June, 2010

Commission File Number: 000-30540

GIGAMEDIA LIMITED

207 Tiding Blvd — Section 2
Taipei, Taiwan (R.O.C.)

(Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.)

     Form 20-F þ          Form 40-F o

(Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.)

     Yes o          No þ

(If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-           .)

GIGAMEDIA LIMITED is submitting under cover of Form 6-K:

1.	GigaMedia Notice of Annual Shareholder Meeting and Proxy Statement (attached hereto as Exhibit 99.1)
2.	GigaMedia Annual General Meeting Proxy Card (attached hereto as Exhibit 99.2)
3.	GigaMedia Financial Statements Prepared in Accordance with U.S. GAAP (attached hereto as Exhibit 99.3)
4.	GigaMedia Financial Statements Prepared in Accordance with Singapore Financial Reporting Standards (attached hereto as Exhibit 99.4)

TABLE OF CONTENTS

Exhibit 99.1

Exhibit 99.2

Exhibit 99.3

Exhibit 99.4

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	GigaMedia Limited
	(Registrant)
Date: June 4, 2010	By:	/s/ Thomas T. Hui
		(Signature)
		Name:	Thomas T. Hui
		Title:	President and Chief Operating Officer

EX-99.1

Exhibit 99.1

NOTICE OF THE ELEVENTH ANNUAL GENERAL MEETING OF SHAREHOLDERS

GigaMedia Limited
Incorporated in the Republic of Singapore
Registration No.: 199905474H

REGISTERED OFFICE
8 Cross Street
#11-00 PWC Building
Singapore 048424

The 2010 annual general meeting of the shareholders of GigaMedia Limited (the “Company”) will be held on June 29, 2010 at 3:00 p.m. local time at The Centrium, 60 Wyndham Street, Central Hong Kong, in the Board Room on the Twenty-second Floor, for the following purposes:

ORDINARY AND SPECIAL BUSINESS

ORDINARY RESOLUTIONS:

To consider and, if thought fit, to pass, with or without modification, the following resolutions which will be proposed as Ordinary Resolutions:

1. Adoption of audited financial statements

RESOLVED that the Report of the Directors, Statement by Directors, Auditor’s Report and Audited Financial Statements of the Company for the financial year ended December 31, 2009 are received and adopted.

(Resolution 1)

2. Approval of appointment of auditors

RESOLVED that GHP Horwath, P.C. and Horwath First Trust LLP, members of Horwath International, be and are hereby appointed as the independent auditors of the Company and that the Directors be and are hereby authorized to fix their remuneration.

(Resolution 2)

3. Approval of Directors’ remuneration

RESOLVED that the remuneration of the Directors is hereby approved in an aggregate amount not exceeding US$700,000 in respect of their professional services to the Company until the conclusion of the next Annual General Meeting of the Company.

(Resolution 3)

4. Approval for authority to allot and issue shares

RESOLVED that authority be and is hereby given to the Directors of the Company to:

(1) (a) issue ordinary shares in the Company (“Shares”) whether by way of rights, bonus or otherwise; and/or

(b) make or grant offers, agreements or options (collectively, “Instruments”) that might or would require Shares to be issued, including but not limited to the creation and issue of

as well as adjustments to warrants, debentures or other instruments convertible into Shares,

	at any time and upon such terms and conditions and for such purposes and to such persons as the Directors may in their absolute discretion deem fit; and
(2)	notwithstanding that the authority conferred by this Resolution may have ceased to be in force, issue Shares pursuant to any Instrument made or granted by the Directors while this Resolution was in force.

(Resolution 4)

5. Approval for Share Purchase Mandate

RESOLVED that:

(1)

for the purposes of Sections 76C and 76E of the Companies Act, Chapter 50 of Singapore (the “Companies Act”), the exercise by the Directors of the Company of all the powers of the Company to purchase or otherwise acquire issued Shares not exceeding in aggregate the Maximum Limit (as hereafter defined), at such price or prices as may be determined by the Directors from time to time up to the Maximum Price (as hereafter defined), by way of market purchase(s) on The Nasdaq Stock Market (“Nasdaq”) and otherwise in accordance with all other laws and regulations and rules of Nasdaq as may for the time being be applicable, be and is hereby authorised and approved generally and unconditionally (the “Share Purchase Mandate”);

(2)

unless varied or revoked by the Company in general meeting, the authority conferred on the Directors of the Company pursuant to the Share Purchase Mandate may be exercised by the Directors at any time and from time to time during the period commencing from the date of the passing of this Resolution and expiring on the earlier of:

(a)	the date on which the next Annual General Meeting of the Company is held; and
(b)	the date by which the next Annual General Meeting of the Company is required by law to be held;

(3)	in this Resolution:
	“Average Closing Price” means the average of the last dealt prices of a Share for the five consecutive trading days on which the Shares are transacted on Nasdaq immediately preceding the date of market purchase by the Company and deemed to be adjusted in accordance with the listing rules of Nasdaq for any corporate action which occurs after the relevant five day period;
	“Maximum Limit” means that number of issued Shares representing 10% of the total number of issued Shares as at the date of the passing of this Resolution (excluding any Shares which are held as treasury shares as at that date); and
	“Maximum Price”, in relation to a Share to be purchased or acquired, means the purchase price (excluding brokerage, commission, applicable goods and services tax and other related expenses) which shall not exceed 105% of the Average Closing Price of the Shares.
(4)	the Directors of the Company and/or any of them be and are hereby authorised to complete and do all such acts and things (including executing such documents as may be required) as they and/or he may consider expedient or necessary to give effect to the transactions contemplated and/or authorised by this Resolution.

(Resolution 5)

6. Adoption of GigaMedia Limited 2010 Employee Share Purchase Plan

RESOLVED that,

(1)	the share purchase plan to be known as the GigaMedia Limited 2010 Employee Share Purchase Plan (the “ESPP”), under which purchase rights will be granted to persons who are employees or officers of the Company and/or its subsidiaries, and who elect to participate in the ESPP to subscribe for Shares, in the form submitted to the Eleventh Annual General Meeting and, for the purposes of identification, subscribed to by the Chairman of the Eleventh Annual General Meeting or in such other form as may be approved by any Director of the Company, be approved and hereby adopted;
(2)	the Directors of the Company be and are hereby authorized to (i) establish the ESPP and (ii) grant purchase rights in accordance with the provisions of the ESPP and to allot and issue from time to time such number of Shares as may be required to be issued pursuant to the exercise of the purchase rights granted under the ESPP; and
(3)	the Directors of the Company and each of them be and are hereby authorized to complete and do all such acts and things (including modifying the ESPP and executing all such documents as

may be required under or pursuant to the ESPP) as they or he may consider necessary, desirable or expedient to give effect to this Resolution as they or he may deem fit.

(Resolution 6)

7. Adoption of GigaMedia Limited 2010 Equity Incentive Plan

RESOLVED that,

(1)	the equity incentive plan to be known as the GigaMedia Limited 2010 Equity Incentive Plan (the “EIP”), under which options and awards will be granted to persons who, inter alia, are non-employee directors, officers, employees, advisors or consultants of the Company and/or its subsidiaries, and are selected to participate in the EIP, in the form submitted to the Eleventh Annual General Meeting, for the purposes of identification, subscribed to by the Chairman of the Eleventh Annual General Meeting or in such other form as may be approved by any Director of the Company, be approved and hereby adopted;
(2)	the Directors of the Company be and are hereby authorized to (i) establish the EIP and (ii) grant options and awards in accordance with the provisions of the EIP and to allot and issue from time to time such number of Shares as may be required to be issued pursuant to the exercise of the options and/or the terms of the awards granted under the EIP; and
(3)	the Directors of the Company and each of them be and are hereby authorized to complete and do all such acts and things (including modifying the EIP and executing all such documents as may be required under or pursuant to the EIP) as they or he may consider necessary, desirable or expedient to give effect to this Resolution as they or he may deem fit.

(Resolution 7)

8. To transact any other business as may properly be transacted at the Eleventh Annual General Meeting of the Company.

NOTES:

1. Shareholders are cordially invited to attend the annual general meeting in person. Whether or not you plan to be at the annual general meeting, you are urged to return your proxy. A shareholder entitled to attend and vote is entitled to appoint one or more proxies to attend and to vote instead of him.

2. Shareholders wishing to vote by proxy should complete the attached form.

3. The proxy form of an individual shareholder shall be signed either by the shareholder personally or by his attorney. The proxy form of a corporate shareholder shall be given either under its common seal or signed on its behalf by an attorney or a duly authorized officer of the corporate shareholder.

4. A proxy need not be a shareholder of the Company.

5. The proxy form (and if relevant, the original power of attorney, or other authority under which it is signed or a notarially certified copy of such power or authority of relevant thereof) must be deposited at the BNY Shareowner Services, Proxy Processing, PO Box 3550, South Hackensack, NJ 07606-9250, or the office of the Company, 8F, 207 Tiding Boulevard — Sec. 2, Taipei 114, Taiwan R.O.C., not less than 48 hours before the time for holding the Eleventh Annual General Meeting, that is by no later than 3:00 a.m. June 27, 2010 (New York time), or 3:00 p.m. June 27, 2010 (Taipei time), failing which the proxy shall not be treated as valid.

6. Only shareholders of record at the close of business on May 21, 2010 are entitled to notice of and to vote at the meeting, or any adjournment or postponement of the meeting.

BY ORDER OF THE BOARD
 

/s/ Arthur M. Wang  

Arthur M. Wang 

Director and Chief Executive Officer 

TABLE OF CONTENTS

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

PROXY STATEMENT

Questions and Answers about the Annual Meeting and Voting

Proposal 1

Proposal 2

Proposal 3

Proposal 4

Proposal 5

Proposal 6

Proposal 7

Other Matter

Proxy Solicitation

GigaMedia Limited
Incorporated in the Republic of Singapore
Registration No.: 199905474H

REGISTERED OFFICE
8 Cross Street
#11-00 PWC Building
Singapore 048424

PROXY STATEMENT

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING

Why Did I Receive This Proxy Statement?

          We sent you this proxy statement and the enclosed proxy card because the Company’s Board of Directors is soliciting your proxy to be used at the Company’s annual meeting of shareholders on June 29, 2010 at 3:00 p.m. local time at The Centrium, 60 Wyndham Street, Central Hong Kong, in the Board Room on the Twenty-second Floor, or at any adjournment or postponement of the meeting.

Who Can Vote?

          You are entitled to vote if you owned the Shares on the record date, which is the close of business on May 21, 2010. Each Share that you own entitles you to one vote.

How Many Shares of Voting Stock Are Outstanding?

          On the record date, there were 55,340,202 Shares outstanding. The Shares are our only class of voting stock.

What May I Vote On?

1. Adoption of Audited Financial Statements

2. Approval of Appointment of Auditors

3. Approval of Directors’ Remuneration

4. Approval for Authority to Allot and Issue Shares

5. Approval for Share Purchase Mandate

6. Adoption of GigaMedia Limited 2010 Employee Share Purchase Plan

7. Adoption of GigaMedia Limited 2010 Equity Incentive Plan

8. Other Business

How Do I Vote?

          To vote by proxy, you should complete, sign and date the enclosed proxy card and return it promptly in the prepaid envelope provided.

May I Revoke My Proxy?

          Your proxy may be revoked prior to its exercise by appropriate notice to the undersigned.

If I Plan To Attend The Meeting, Should I Still Vote By Proxy?

     Whether you plan to attend the meeting or not, we urge you to vote by proxy. Returning the proxy card will not affect your right to attend the meeting, and your proxy will not be used if you are personally present at the meeting and inform the Secretary in writing prior to the voting that you wish to vote your shares in person.

How Will My Proxy Get Voted?

     If you properly fill in your proxy card and send it to us, your proxy holder (the individual named on your proxy card) will vote your Shares as you have directed. If you sign the proxy card but do not make specific choices, the proxy holder will vote your Shares as recommended by the Board of Directors and the Company’s management.

How Will Voting On Any Other Business Be Conducted?

     Although we do not know of any business to be considered at the meeting other than the proposals described in this proxy statement, if any other business is presented at the meeting, your returned proxy gives authority to the proxy holder to vote on these matters in his discretion.

Proposal 1. ADOPTION OF AUDITED FINANCIAL STATEMENTS

          The Company seeks shareholders’ adoption of the audited financial statements of the Company (the “Audited Financial Statements”), which have been prepared under Singapore Generally Accepted Accounting Principles, in respect of the financial year ended December 31, 2009. Along with the Audited Financial Statements, the Company seeks shareholders’ adoption of the Report of the Directors, Statement by Directors, and Auditor’s Report of the Company in respect of the same financial year.

          Adoption of this proposal requires the affirmative vote of a majority of the votes cast by shareholders entitled to vote at the AGM.

          The Board of Directors of the Company (the “Board of Directors”) recommends a vote FOR this proposal.

Proposal 2. APPROVAL OF APPOINTMENT OF AUDITORS

          The Company seeks shareholders’ approval for the appointment of GHP Horwath, P.C. and Horwath First Trust LLP, members of Horwath International, as the independent auditors of the Company to hold such office until the conclusion of the next Annual General Meeting of the Company. The Board of Directors also seeks shareholders’ approval to authorize the Board of Directors to fix the remuneration for GHP Horwath, P.C. and Horwath First Trust LLP in respect of their service to the Company for the financial year ended December 31, 2010.

          Adoption of this proposal requires the affirmative vote of a majority of the votes cast by the shareholders entitled to vote thereon.

          The Board of Directors recommends a vote FOR this proposal.

Proposal 3. APPROVAL OF DIRECTORS’ REMUNERATION

          The Company seeks shareholders’ approval on the remuneration of Directors in an aggregated amount not exceeding US$700,000 in respect of their professional services to the Company until the conclusion of the next Annual General Meeting of the Company.

          Adoption of this proposal requires the affirmative vote of a majority of the votes cast by the shareholders entitled to vote thereon.

          The Company’s management recommends a vote FOR this proposal.

Proposal 4. APPROVAL FOR AUTHORITY TO ALLOT AND ISSUE SHARES

          The Company is incorporated in Singapore. Under the Companies Act, Chapter 50 of Singapore (the “Companies Act”), the Directors may exercise any power of the Company to issue new Shares only with the prior approval of the shareholders of the Company at a general meeting. Such approval, if granted, is effective from the date of the meeting at which it was given to the conclusion of the next Annual General Meeting of the Company or the expiration of the period within which the next Annual General Meeting of the Company is required by law to be held, whichever is earlier.

          Shareholders’ approval is sought to give Directors authority to allot and issue new Shares and other instruments convertible into Shares during the period from the Eleventh Annual General Meeting to the earlier of the next Annual General Meeting or the period within which the next Annual General Meeting of the Company is required by law to be held.

          Adoption of this proposal requires the affirmative vote of a majority of the votes cast by shareholders entitled to vote at the AGM.

          The Board of Directors recommends a vote FOR this proposal.

Proposal 5. APPROVAL FOR SHARE PURCHASE MANDATE

          The approval of the Share Purchase Mandate authorising the Company to purchase or acquire its Shares would give the Company the flexibility to undertake share purchases or acquisitions at any time, subject to market conditions, during the period when the Share Purchase Mandate is in force.

          In managing the business of the Company and its subsidiaries (the “Group”), management strives to increase shareholders’ value by improving, inter alia, the return on equity of the Group. A share purchase by the Company is one of the ways through which the return on equity of the Group may be enhanced.

          A Share purchase is also an available option for the Company to return surplus cash which is in excess of the financial and possible investment needs of the Group to its shareholders. In addition, the Share Purchase Mandate will allow the Company to have greater flexibility over, inter alia, the Company’s share capital structure and its dividend policy.

          The Company intends to use internal sources of funds or external borrowings or a combination of both to finance the Company’s purchase or acquisition of the Shares pursuant to the Share Purchase Mandate. The Directors do not propose to exercise the Share Purchase Mandate to such extent that it would materially and adversely affect the financial position of the Group.

          Share repurchase programmes may also help buffer short-term share price volatility and off-set the effects of short-term speculators and investors and, in turn, bolster shareholder confidence and employee morale.

          Adoption of this proposal requires the affirmative vote of a majority of the votes cast by shareholders entitled to vote at the AGM.

          The Board of Directors recommends a vote FOR this proposal.

Proposal 6. ADOPTION OF GIGAMEDIA LIMITED 2010 EMPLOYEE SHARE PURCHASE PLAN

          The requirements for shareholders’ approval under the Companies Act extends to issuance of new Shares arising from the conversion, exchange or exercise of other securities, including warrants or options to subscribe for new Shares of the Company or to purchase from the Company other securities issued or to be issued by the Company, debt securities and securities which are convertible into, exchangeable for, or exercisable for new Shares, and new Shares pursuant to any offers, agreements, options, undertakings, guarantees and/or indemnities to made, entered into or issued by the Company.

          Accordingly, shareholders’ approval is sought for the Plan and for the grant of purchase rights and issuance of Shares as may be required to be issued pursuant to the exercise of purchase rights granted under the GigaMedia Limited 2010 Employee Share Purchase Plan, which is attached to this proxy statement as Appendix 1.

          The following is a summary of the material terms of the GigaMedia Limited 2010 Employee Share Purchase Plan.

Purpose To provide employees of the Company and its subsidiaries with an opportunity to purchase Shares.

Eligibility	All employees of the Company and its subsidiaries are eligible to participate in the Plan unless excluded by the Board of Directors as permitted by applicable laws and regulations.
Shares	200,000 Shares will be reserved for the plan.
Maximum Contribution	A percentage of participant’s compensation (from 2% to 10% of participant’s compensation as elected by the participant). No Participant may contribute more than $25,000 under the Plan per calendar year if the Plan is being administered with the intent of qualifying the Shares to be purchased as eligible for treatment as purchased under an employee stock purchase plan complying with Section 423 of the U.S. Internal Revenue Code.
Offering Period	The period or periods determined by the Board of Directors.
Purchase Price	The purchase price per Share subject to an offering shall be: (a) if the Plan is being administered as a compensatory plan, not less than 85% of the lesser of (i) the fair market value of a Share as of the first day of the Offering Period or (ii) the fair market value of a Share as of the Exercise Date (or as of such other time or times determined by the Board of Directors); or (b) if the Plan is being administered as a non-compensatory plan, not less than 95% of the fair market value of a Share as of the Exercise Date.
Exercise Date	The last business day of each Offering Period.
Method of Contribution	By payroll deduction or any other method determined by the Board of Directors.
Governing Law	The laws of the Republic of Singapore.

          Adoption of this proposal requires the affirmative vote of a majority of the votes cast by shareholders entitled to vote at the AGM.

The Board of Directors recommends a vote FOR this proposal.

Proposal 7. ADOPTION OF GIGAMEDIA LIMITED 2010 EQUITY INCENTIVE PLAN

          The requirements for shareholders’ approval under the Companies Act extends to issuance of new Shares arising from the conversion, exchange or exercise of other securities, including warrants or options to subscribe for new Shares of the Company or to purchase from the Company other securities issued or to be issued by the Company, debt securities and securities which are convertible into, exchangeable for, or exercisable for new Shares, and new Shares pursuant to any offers, agreements, options, undertakings, guarantees and/or indemnities to made, entered into or issued by the Company.

          Accordingly, shareholders’ approval is sought for the Plan and for the grant of options, awards and issuance of Shares as may be required to be issued pursuant to the exercise of the options and awards granted under the GigaMedia Limited 2010 Equity Incentive Plan, which is attached to this proxy statement as Appendix 2.

          The following is a summary of the material terms of the GigaMedia Limited 2010 Equity Incentive Plan.

Purpose	To provide equity-based incentives to participants to increase their efforts on behalf of the Company and its subsidiaries.
Eligibility	Individuals who are non-employee directors, officers and other employees, advisors and consultants providing services to the Company and its subsidiaries.
Shares Reserved for Issuance	1,000,000 Shares subject to adjustment in the case of dividend or other distribution, recapitalization, stock split, reorganization, merger, consolidation or other similar corporate transaction.

	Shares to be issued under the Plan may be unissued Shares or Shares repurchased by the Company, whether in the open market, in private transactions or otherwise.
	If any part of an award granted under the Plan is forfeited, cancelled, exchanged or surrendered, or if an award terminates or expires without a distribution of Shares to the grantee, the Shares subject to such award will be again available for awards under the Plan.
Administration	The Committee appointed by the Company’s Board of Directors will administer the plan but may delegate its authority to a subcommittee or to a group of Company management employees.
	The Plan administrator has the right to determine (1) who will be selected for participation in the Plan; (2) the terms and conditions of any award granted under the Plan, including without limitation the number of Shares to be subject to the award and whether the grant, vesting or payment of any award will be contingent upon the achievement of performance goals; and (3) to make any determinations necessary or desirable for administration of the Plan.
Types of Awards:
Options	Options are the opportunity to purchase Shares in the future at a pre-determined purchase price, which under the Plan may not be less than the fair market value of the underlying shares on the date of grant.
	Options granted under the Plan may be “incentive stock options” within the meaning of Section 422 of the United States Internal Revenue Code of 1986, as amended, or nonqualified stock options.
	Options granted under the Plan may have a term of not more than ten years; the agreement setting forth the terms of the option will contain terms with respect to vesting and exercisability as the Plan administrator will determine.
	Options may be exercised by the payment of cash or by the exchange of Shares previously acquired by the option holder, through a so-called broker cashless exercise procedure approved by the Plan administrator, or a combination of the foregoing.
Stock Appreciation Rights (SARs)	An SAR confers the right to receive, with respect to each Share subject to the SAR, cash or Shares equal to the excess of (1) the fair market value of a Share on the date of exercise of the SAR over (2) the exercise price of the SAR, which may not be less than the fair market value of a Share on the date of grant.
	The Plan administrator has the right to determine whether an SAR will be payable in cash or Shares; the agreement setting forth the terms of the SAR will contain such other terms as the plan administrator may decide.
	An SAR granted under the Plan may have a term of not more than ten years.
	SARs granted under the Plan may be granted in tandem with a stock option or by itself; SARs granted in tandem with an option will be exercisable only to the extent the tandem stock option is exercisable and will have the same exercise price as the tandem stock option.
Restricted Stock	Restricted stock awards consist of Shares which are subject to forfeiture and may not be transferred by the holder until the applicable vesting conditions lapse.
	Holders of restricted stock granted under the Plan may be given certain rights of ownership such as the right to vote the Shares and to receive dividends; the payment of dividends may be deferred until such time as the vesting conditions on the underlying stock have lapsed.
Restricted Stock Units	A restricted stock unit confers the right to receive Shares or cash, or a combination of Shares and cash, at such time as the applicable vesting conditions lapse.

	The Plan administrator will determine whether cash or Shares, or a combination of Shares and cash, will be paid in respect of vesting restricted stock units.
	The agreement setting forth the terms of the grant of restricted stock units will contain such other terms as the Plan administrator may decide, which may include the payment of dividend equivalents.
Other Equity-Based Awards	The value of other-equity-based awards granted under the Plan will be based on or related to the value of Shares; the type of awards to be granted and all terms and conditions of the awards will be determined by the Plan administrator.

Change in Control	Unless otherwise determined by the Plan administrator, upon a change in control of the Company (as defined in the Plan), all awards then outstanding under the Plan will become fully vested and/or exercisable, and any performance goals applicable to the awards will be deemed satisfied.
Amendment of Awards	The Plan administrator may amend any award granted under the Plan from time to time; however, no adverse amendment to any award will be effective without the award holder’s consent.
Term of Plan	Unless earlier terminated by the Company, the Plan will automatically expire on the eleventh anniversary of its adoption.
Termination of Plan	The Plan may be terminated by the Company at any time; however, termination of the Plan will not adversely affect any award that is outstanding at the time of plan termination.
Amendment of Plan	The Plan may be amended by the Plan administrator at any time; however, no amendment to the Plan may adversely affect an award that is outstanding at the time of amendment without the award holder’s consent.
Governing Law	The laws of the Republic of Singapore.

          Adoption of this proposal requires the affirmative vote of a majority of the votes cast by shareholders entitled to vote at the AGM.

          The Board of Directors recommends a vote FOR this proposal.

OTHER MATTERS

          As of the date of this Proxy Statement, the Company does not intend to present and has not been informed that any other person intends to present any business not specified in this Proxy Statement for action at the Annual General Meeting.

          Shareholders are urged to sign the enclosed proxy form and to return it promptly in the enclosed envelope. Proxies will be voted in accordance with shareholders’ directions. Signing the proxy form does not affect a shareholder’s right to vote at the Annual General Meeting, and the proxy may be revoked prior to its exercise by appropriate notice to the undersigned.

PROXY SOLICITATION

          The Company will pay the cost of preparing and mailing this proxy statement and form of proxy to its shareholders. The Company has retained Mackenzie Partners, Inc. to request banks and brokers to forward copies of these materials to persons for whom they hold Shares and to request authority for execution of the proxies.

GIGAMEDIA LIMITED
 

/s/ Arthur M. Wang  

Arthur M. Wang 

Director and Chief Executive Officer 

Appendix 1

GIGAMEDIA LIMITED

2010 EMPLOYEE SHARE PURCHASE PLAN

     1. Purpose. The purpose of the Plan is to provide employees of the Company and its Designated Subsidiaries with an opportunity to purchase common stock of the Company.

     2. Definitions.

          a. “Board” shall mean the Board of Directors of the Company.

          b. “Change in Capitalization” shall mean any increase, reduction, or change or exchange of Common Stock for a different number or kind of shares or other securities of the Company by reason of a reclassification, recapitalization, merger, consolidation, reorganization, stock dividend, stock split or reverse stock split, combination or exchange of shares, repurchase of shares, change in corporate structure or otherwise.

          c. “Code” means the United States Internal Revenue Code of 1986, as amended.

          d. “Committee” shall mean the Board, the Compensation Committee of the Board, or such other Committee appointed by the Board to administer the Plan and to perform the functions set forth herein.

          e. “Common Stock” shall mean ordinary shares in the capital of the Company.

          f. “Company” shall mean GigaMedia Limited, a company incorporated in the Republic of Singapore (Registration No.: 199905474H).

          g. “Compensation” shall mean the fixed salary or base wage paid by the Company to an Employee as reported for income tax purposes, including where applicable such Employee’s portion of salary deferral contributions pursuant to Section 401(k) of the Code and any amount excludable pursuant to Section 125 of the Code, but in any case excluding any bonus, fee, overtime pay, severance pay, expenses, stock option or other equity incentive income, or other special emolument or any credit or benefit under any employee plan maintained by the Company.

          h. “Continuous Status as an Employee” shall mean the absence of any interruption or termination of service as an Employee. Continuous Status as an Employee shall not be considered interrupted in the case of a leave of absence agreed to in writing by the Company (including, but not limited to, military or sick leave), provided that such leave is for a period of not more than 90 days or reemployment upon the expiration of such leaves is guaranteed by contract or statute.

          i. “Designated Subsidiaries” shall mean the subsidiaries of the Company which have been designated by the Company from time to time in its sole discretion as eligible to participate in the Plan.

          j. “Employee” shall mean any person, including an officer, who is regularly employed by the Company or one of its Designated Subsidiaries.

          k. “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

          l. “Exercise Date” shall mean the last business day of each Offering Period.

          m. “Fair Market Value” per Common Stock as of a particular date shall mean (i) the closing sales price per Common Stock on the national securities exchange on which the Common Stock is principally traded, on such date or on the last preceding date on which there was a sale of such Common Stock on such exchange, or (ii) if the Common Stock are not then listed on a national securities exchange or traded in an over-the-counter market, such value as the Committee, in its sole discretion, shall determine.

          n. “Offering Date” shall mean the date or dates determined by the Committee for an Offering Period to Commence.

          o. “Offering Period” shall mean the period or periods determined by the Committee commencing on each Offering Date; provided, however, that (i) if the Offering Period is being administered with the intent of qualifying the Common Stock to be purchased as eligible for treatment as purchased under an employee stock purchase plan under Section 423 of the Code, such Offering Period may not exceed 27 months in length and (ii) if the Offering Period is being administered as provided in Section 4d hereof, the Offering Period may not exceed one calendar month in length.

          p. “Participant” shall mean an Employee who participates in the Plan.

          q. “Plan” shall mean the GigaMedia Limited 2010 Employee Share Purchase Plan, as amended from time to time.

     3. Eligibility.

          Subject to the requirements of Section 4b hereof, any person who is an Employee as of an Offering Date shall be eligible to participate in the Plan; provided, that the Committee may exclude Employees from eligibility and participation in the Plan to the extent permissible under Section 423(b)(4) of the Code and/or FAS 123(R).

     4. Grant of Purchase Right; Participation.

          a. On each Offering Date, the Company shall commence an offer by granting each eligible Employee the right to purchase Common Stock, subject to the limitations set forth in Sections 3 and 10 hereof. The resolutions adopted by the Committee with respect to the commencement of each offer shall include either (i) the maximum number of shares of Common Stock that may be purchased by a Participant with respect to the Offering Period or (ii) a formula, application of which shall establish as of the first date of the Offering Period the maximum number of shares of Common Stock that may be purchased by a Participant with respect to the Offering Period; provided, however, that if such Committee resolutions with respect to an Offering Period do not set forth such number or such formula, no more than five thousand (5,000) shares of Common Stock shall be purchasable by any Participant with respect to such Offering Period.

          b. Each eligible Employee may elect to become a Participant in the Plan with respect to an Offering Period, only by filing a notice with the Company in the form determined by the Committee. Each such notice shall be effective for subsequent Offering Periods until modified or terminated by the Participant.

          c. If the Offering Period is being administered with the intent of qualifying Common Stock to be purchased as eligible for treatment as purchased under an employee stock purchase plan under Section 423 of the Code, the purchase price per Common Stock subject to an offering shall be not less than 85% of the lesser of (i) the Fair Market Value of Common Stock as of the Offering Date or (ii) the Fair Market Value of Common Stock as of the Exercise Date (or as of such other time or times determined by the Committee).

          d. The Committee may determine that an Offering Period shall be administered with the intent that the purchase rights granted with respect to such Offering Period shall qualify as non-compensatory under FAS 123(R). In such event the purchase price for the Common Stock offering during such Offering Period shall be not less than 95% of the Fair Market Value of Common Stock as of the Exercise Date.

     5. Contributions.

          a. A Participant may, in accordance with rules adopted by the Committee, authorize a payroll deduction (or such other method of payment determined by the Committee) of any whole percentage from 2 percent to 10 percent of such Participant’s Compensation for each pay period occurring during the applicable Offering Period. A Participant may increase or decrease such payroll deduction (including a cessation of payroll deductions) at any time but not more frequently than once per calendar month, by filing a new authorization form with the Committee. Such authorization will remain effective for subsequent Offering Periods until modified or terminated by the Participant. For purposes of this Plan, any reference to contributions is deemed to also include any other method of contribution determined by the Committee from time to time.

          b. All contributions made by a Participant shall be credited to such Participant’s account under the Plan.

          c. No Participant may contribute more than $25,000 under the Plan per calendar year if the Plan is being administered with the intent of qualifying the Common Stock to be purchased as eligible for treatment as purchased under an employee stock purchase plan under Section 423 of the Code.

     6. Exercise of Purchase Rights.

          a. Unless a Participant withdraws from the Plan as provided in Section 8 hereof, such Participant’s right to purchase Common Stock will be exercised automatically on the Exercise Date, and the maximum number of Common Stock subject to such right will be purchased for such participant at the applicable purchase price with the accumulated contributions in such participant’s account.

          b. Any cash balance remaining in a Participant’s account after the termination of an Offering Period will be carried forward to the Participant’s account for the purchase of Common Stock during the next Offering Period if the Participant elects to participate in such subsequent Offering Period, and will be repaid to the Participant if the Participant does not participate in such subsequent Offering Period.

     7. Delivery of Common Stock.

          As promptly as practicable after Common Stock are purchased upon exercise of the purchase right hereunder, the Company shall arrange the delivery to such Participant a share certificate representing the Common Stock which the Participant purchases.

     8. Withdrawal; Termination of Employment.

          a. A Participant may withdraw all, but not less than all, the contributions credited to such Participant’s account (that have not been used to purchase Common Stock) under the Plan at any time by giving written notice to the Company received prior to the Exercise Date. All such contributions credited to such Participant’s account will be paid to such Participant promptly after receipt of such Participant’s notice of withdrawal and such Participant’s purchase right for the Offering Period in which the withdrawal occurs will be automatically

terminated. No further payroll deductions for the purchase of Common Stock will be made for such participant during such Offering Period and for the following Offering Period.

          b. Upon termination of a Participant’s Continuous Status as an Employee during an Offering Period for any reason, including voluntary termination, retirement or death, the contributions credited to the Participant’s account that have not been used to purchase Common Stock will be returned to such Participant or, in the case of such Participant’s death, to the person or persons entitled thereto under Section 12 hereof, and such Participant’s purchase right will be automatically terminated.

     9. Interest.

     No interest shall accrue or be paid on any contributions credited to a Participant’s account under the Plan.

     10. Common Stock.

          a. The maximum number of Common Stock which shall be reserved for sale under the Plan shall be 200,000, subject to adjustment upon Changes in Capitalization of the Company as provided in Section 15 hereof. If the total number of Common Stock which would otherwise be subject to purchase rights granted pursuant to Section 4.a. hereof on an Offering Date exceeds the number of Common Stock then available under the Plan (after deduction of all Common Stock for which purchase rights have been exercised or are then outstanding), the Committee shall make a pro rata allocation of the Common Stock remaining available for purchase in as uniform a manner as shall be practicable and as it shall determine to be equitable. In such event, the Committee shall give written notice to each Participant of such reduction of the number of Common Stock available for purchase and shall similarly reduce the rate of payroll deductions if necessary.

          b. Common Stock to be delivered to a Participant under the Plan will be registered in the name of the Participant.

     11. Administration. The Plan shall be administered by the Committee, and the Committee may select an administrator to whom its duties and responsibilities hereunder may be delegated. The Committee shall have full power and authority, subject to the provisions of the Plan, to promulgate such rules and regulations as it deems necessary for the proper administration of the Plan, to interpret the provisions and supervise the administration of the Plan, and to take all action in connection therewith or in relation thereto as it deems necessary or advisable. Any decision reduced to writing and signed by a majority of the members of the Committee shall be fully effective as if it had been make at a meeting duly held and shall be binding on all parties. The Company will pay all expenses incurred in the administration of the Plan. No member of the Committee shall be personally liable for any action, determination, or interpretation make in good faith with respect to the Plan, and all members of the Committee shall be fully indemnified by the Company with respect to any such action, determination or interpretation.

     12. Designation of Beneficiary.

          a. A Participant may file, on forms supplied by and delivered to the Company, a written designation of a beneficiary who is to receive any Common Stock and cash remaining in such Participant’s account under the Plan in the event of the Participant’s death.

          b. Such designation of beneficiary may be changed by the Participant at any time by written notice. In the event of the death of a Participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such Participant’s death, the Company shall deliver such Common Stock and/or cash to the executor or administrator of the estate of the Participant or, if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such Common Stock and/or cash to the spouse or to any one or more dependents or relatives of the Participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate.

     13. Transferability. Neither contributions credited to a Participant’s account nor any rights to purchase or to receive shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 12 hereof) by the Participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds in accordance with section 8 hereof.

     14. Use of Funds. All contributions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such contributions.

     15. Effect of Certain Changes. In the event of a Change in Capitalization or the distribution of an extraordinary dividend, the Committee shall conclusively determine the appropriate equitable adjustments, if any, to be made under the Plan, including without limitation adjustments to the number of Common Stock which have been authorized for issuance under the Plan but have not yet been placed under purchase rights, as well as the price per Common Stock covered by each purchase right under the Plan which has not yet been exercised.

     16. Plan Amendment or Termination. The Board may terminate or amend the Plan at any time and for any reason or no reason. Except as provided in Section 15 hereof, no such termination can adversely affect purchase rights previously granted and no amendment may make any change in any purchase right theretofore granted which adversely affects the rights of any Participant.

     17. Notices. All notices or other communications by a Participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the

location, or by the person, designated by the Company for the receipt thereof.

     18. Regulations and Other Approvals; Governing Law.

          a. This Plan and the rights of all persons claiming hereunder shall be construed and determined in accordance with the laws of the Republic of Singapore without giving effect to the choice of law principles thereof.

          b. The obligation of the Company to sell or deliver Common Stock with respect to purchase rights granted under the Plan shall be subject to all applicable laws, rules and regulations, and the obtaining of all such approvals by governmental agencies as may be deemed necessary or appropriate by the Committee.

     19. Effective Date. The Plan shall become effective upon the later to occur of (i) the date of its adoption and (ii) the date on which it is approved by the stockholders of the Company. The Plan shall be voted on by the stockholders of the Company within one year prior to, or following, the date on which it is authorized and approved by the Company.

Appendix 2

GIGAMEDIA LIMITED

2010 EQUITY INCENTIVE PLAN

     1. Purpose; Types of Awards; Construction.

     The purposes of the GigaMedia Limited 2010 Equity Incentive Plan (the “Plan”) are to afford an incentive to non-employee directors, selected officers and other employees, advisors and consultants of GigaMedia Limited (the “Company”), or any Subsidiary that now exists or hereafter is organized, incorporated or acquired, to continue as non-employee directors, officers or employees, advisors or consultants, as the case may be, to increase their efforts on behalf of the Company and its Subsidiaries and to promote the success of the Company’s business. The Plan provides for the grant of Options (including Incentive Stock Options and Nonqualified Stock Options), Stock Appreciation Rights, Restricted Stock, Restricted Stock Units and Other Stock-Based Awards (each term as defined herein).

     2. Definitions.

     For purposes of the Plan, the following terms shall be defined as set forth below:

          (a) “Award” means any Option, SAR, Restricted Stock, Restricted Stock Unit or Other Stock-Based Award granted under the Plan.

          (b) “Award Agreement” means any written agreement, contract, or other instrument or document evidencing an Award.

          (c) “Board” means the Board of Directors of the Company.

          (d) “Change in Control” means a change in control of the Company, which will be deemed to have occurred if:

          (i) any “person,” as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than (A) the Company, (B) any trustee or other fiduciary holding securities under an employee benefit plan of the Company, and (C) any corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of Company Stock), is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company’s then outstanding voting securities (excluding any person who becomes such a beneficial owner in connection with a transaction immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the Board, the entity surviving such transaction or, if the Company or the entity surviving the transaction is then a subsidiary, the ultimate parent thereof);

          (ii) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the Effective Date, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company’s shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the Effective Date or whose appointment, election or nomination for election was previously so approved or recommended;

          (iii) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than a merger or consolidation immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the Board, the entity surviving such merger or consolidation or, if the Company or the entity surviving such merger is then a subsidiary, the ultimate parent thereof; or

          (iv) the shareholders of the Company approve a plan of complete liquidation of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets (or any transaction having a similar effect), other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the board of directors of the entity to which such assets are sold or disposed of or, if such entity is a subsidiary, the ultimate parent thereof.

          (v) Notwithstanding the foregoing, a Change in Control shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the holders of the Company Stock immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions.

          (e) “Code” means the Internal Revenue Code of 1986, as amended from time to time.

          (f) “Committee” means the committee of members of the Board appointed by the Board to administer the Plan.

          (g) “Company” means GigaMedia Limited, a company incorporated under the Companies Act, Chapter 50 of Singapore, or any successor corporation.

          (h) “Company Stock” means the ordinary shares of the Company.

          (i) “Effective Date” means the date that the Plan was approved by the shareholders of the Company.

          (j) “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, and as now or hereafter construed, interpreted and applied by regulations, rulings and cases.

          (k) “Fair Market Value” means, with respect to Company Stock or other property, the fair market value of such Company Stock or other property determined by such methods or procedures as shall be established from time to time by the Committee. Unless otherwise determined by the Committee in good faith, the per share Fair Market Value of the Company Stock as of a particular date shall be calculated as the mean between the highest and lowest reported sales price per share of Company Stock on the national securities exchange on which the Company Stock is principally traded, for the last preceding date on which there was a sale of such Company Stock on such exchange.

          (l) “Grantee” means a person who, as a non-employee director, officer, other employee, advisor or consultant of the Company or a Subsidiary, has been granted an Award under the Plan.

          (m) “Incentive Stock Option” or “ISO” means any Option intended to be and designated as an incentive stock option within the meaning of Section 422 of the Code.

          (n) “Nonqualified Stock Option” or “NQSO” means any Option that is not designated as an ISO.

          (o) “Option” means a right, granted to a Grantee under Section 6(b), to purchase shares of Company Stock. An Option may be either an ISO or an NQSO, provided that ISOs may be granted only to employees of the Company or a Subsidiary.

          (p) “Other Stock-Based Award” means a right or other interest granted to a Grantee under Section 6(f) that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, Company Stock, including but not limited to (i) unrestricted Company Stock awarded as a bonus or upon the attainment of performance goals or otherwise as permitted under the Plan, and (ii) a right granted to a Grantee to acquire Company Stock from the Company containing terms and conditions prescribed by the Committee.

          (q) “Plan” means this GigaMedia Limited 2010 Equity Incentive Plan, as amended from time to time.

          (r) “Plan Year” means a calendar year.

          (s) “Restricted Stock” means an Award of shares of Company Stock to a Grantee under Section 6(d) that may be subject to certain restrictions and to a risk of forfeiture.

          (t) “Restricted Stock Unit” means a right granted to a Grantee under Section 6(e) to receive Company Stock or cash at the end of a specified deferral period, which right may be conditioned on the satisfaction of specified performance or other criteria.

          (u) “Securities Act” means the United States Securities Act of 1933, as amended.

          (v) “Stock Appreciation Right” or “SAR” means the right, granted to a Grantee under Section 6(c), to be paid an amount measured by the appreciation in the Fair Market Value of Company Stock from the date of grant to the date of exercise of the right.

          (w) “Subsidiary” means a “subsidiary corporation” of the Company, whether now or hereafter existing, as defined in Section 424(f) of the Code.

     3. Administration.

     The Plan shall be administered by the Committee. The Committee shall have the authority in its discretion, subject to and not inconsistent with the express provisions of the Plan, to administer the Plan and to exercise all the powers and authorities either specifically granted to it under the Plan or necessary or advisable in the administration of the Plan, including, without limitation, the authority to grant Awards; to determine the persons to whom and the time or times at which Awards shall be granted; to determine the type and number of Awards to be granted, the number of shares of Company Stock to which an Award may relate and the terms, conditions, restrictions and performance criteria relating to any Award, including whether the grant, vesting, payment or other settlement of any Award may be subject to the attainment of performance goals; and to determine whether, to what extent, and under what circumstances an Award may be settled, cancelled, forfeited, exchanged, or surrendered; to make adjustments in the terms and conditions of, and the performance goals (if any) included in, Awards; to construe and interpret the Plan and any Award; to prescribe, amend and rescind rules and regulations relating to the Plan; to determine the terms and provisions of the Award Agreements (which need not be identical for each Grantee); to re-price (or cancel and re-grant) any Option or, if applicable, other Award at a lower exercise, base or purchase price; and to make all other determinations deemed necessary or advisable for the administration of the Plan, including without limitation the determination to delegate or authorize any of the above-listed powers to a subcommittee of the Committee or to a committee comprised of members of Company management.

     The Committee may appoint a chairperson and a secretary and may make such rules and regulations for the conduct of its business as it shall deem advisable, and shall keep minutes of its meetings. All determinations of the Committee shall be made by a majority of its members either present in person or participating by conference telephone at a meeting or by written consent. The Committee may delegate to a subcommittee of one or more of its members or to one or more agents (including members of Company management) such duties as it may deem advisable, and the Committee or any person or group to whom it has delegated duties as aforesaid may employ one or more persons to render advice with respect to any responsibility the Committee or such person may have under the Plan. All decisions, determinations and interpretations of the Committee shall be final and binding on all persons, including but not limited to the Company, any subsidiary of the Company or any Grantee (or any person claiming any rights under the Plan from or through any Grantee) and any shareholder.

     No member of the Board or Committee shall be liable for any action taken or determination made in good faith with respect to the Plan or any Award granted hereunder.

     4. Eligibility.

     Awards may be granted to selected non-employee directors, officers and other employees, advisors or consultants of the Company or any Subsidiary, in the absolute discretion of the Committee. In determining the persons to whom Awards shall be granted and the type of any Award (including the number of shares to be covered by such Award), the Committee shall take into account such factors as the Committee shall deem relevant in connection with accomplishing the purposes of the Plan.

     5. Stock Subject to the Plan.

     The maximum number of shares of Company Stock reserved for the grant of Awards under the Plan shall be 1,000,000 (all or any number of which may be granted as ISOs), subject to adjustment as provided herein. Such shares may, in whole or in part, be shares that shall have been or may be reacquired by the Company in the open market, in private transactions or otherwise. If any shares of Company Stock subject to an Award are forfeited, cancelled, exchanged or surrendered or if an Award terminates or expires without a distribution of shares to the Grantee, or if shares of Company Stock are surrendered or withheld as payment of either the exercise price of an Award and/or withholding taxes in respect of an Award, such shares shall, to the extent of any such forfeiture, cancellation, exchange, surrender, withholding, termination or expiration, again be available for Awards under the Plan. Upon the exercise of any Award granted in tandem with any Awards such related Awards shall be cancelled to the extent of the number of shares of Company Stock as to which the Award is exercised and, notwithstanding the foregoing, such number of shares shall no longer be available for Awards under the Plan.

     In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, Company Stock, or other property), recapitalization, stock split, reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase, or share exchange, or other similar corporate transaction or event, affects the Company Stock such that an adjustment is appropriate in order to prevent dilution or enlargement of the rights of Grantees under the Plan, then the Committee shall make such equitable changes or adjustments as it deems necessary or appropriate to any or all of (i) the number and kind of shares of Company Stock or other property (including cash) that may thereafter be issued in connection with Awards, (ii) the number and kind of shares of Company Stock or other property (including cash) issued or issuable in respect of outstanding Awards, (iii) the exercise price, grant price, or purchase price relating to any Award; provided, that, with respect to ISOs, such adjustment shall be made in accordance with Section 424(h) of the Code; and (iv) the performance goals applicable to outstanding Awards.

     6. Terms of Awards.

          (a) General. The Committee is authorized to grant the Awards described in this Section 6, under such terms and conditions as deemed by the Committee to be consistent with the purposes of the Plan. Each Award granted under the Plan shall be evidenced by an Award Agreement containing such terms and conditions applicable to such Award as the Committee shall determine at the date of grant or thereafter. Subject to the terms of the Plan and any applicable Award Agreement, payments to be made by the Company or a Subsidiary upon the grant, maturation, or exercise of an Award may be made in such forms as the Committee shall determine at the date of grant or thereafter, including, without limitation, cash, Company Stock, or other property, and may be made in a single payment or transfer, in installments, or on a deferred basis. In addition to the foregoing, the Committee may impose on any Award or the exercise thereof, at the date of grant or thereafter, such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall determine.

          (b) Options. The Committee is authorized to grant Options to Grantees on the following terms and conditions:

          (i) Type of Award. The Award Agreement evidencing the grant of an Option under the Plan shall designate the Option as an ISO or an NQSO.

          (ii) Exercise Price. The exercise price per share of Company Stock purchasable under an Option shall be determined by the Committee. The exercise price for Company Stock subject to an Option may be paid in cash or by an exchange of Company Stock previously owned by the Grantee, through a “broker cashless exercise” procedure approved by the Committee (to the extent permitted by law), or a combination of the above, in any case in an amount having a combined value equal to such exercise price. An Award Agreement may provide that a Grantee may pay all or a portion of the aggregate exercise price by having shares of Company Stock with a Fair Market Value on the date of exercise equal to the aggregate exercise price withheld by the Company.

          (iii) Term and Exercisability of Options. Options shall be exercisable over the exercise period (which shall not exceed ten years from the date of grant), at such times and upon such conditions as the Committee may determine, as reflected in the Award Agreement; provided, that the Committee shall have the authority to accelerate the exercisability of any outstanding Option at such time and under such circumstances as it, in its sole discretion, deems appropriate. An Option may be exercised to the extent of any or all full shares of Company Stock as to which the Option has become exercisable, by giving written notice of such exercise to the Committee or its designated agent.

          (iv) Special Provisions Applicable to Incentive Stock Options. Notwithstanding any other provisions of the Plan, the following terms shall apply to ISOs:

(1)	ISOs may be granted only to Participants who are employees of the Company or any Subsidiary.
(2)	The exercise price of an ISO shall be not less than 100% of the Fair Market Value of the Company Stock as of the date of grant; provided, that the exercise price of an ISO granted to a “ten percent shareholder” (within the meaning of 422(c)(5) of the Code) shall not be less than 110% of the Fair Market Value of the Company Stock as of the date of grant.
(3)	The term of an ISO granted to a ten percent shareholder shall be no longer than five years from the date of grant.
(4)	The aggregate Fair Market Value (determined as of the date of grant) of shares of Company Stock with respect to which ISOs are exercisable for the first time by a Grantee during any calendar year (under the Plan or under any other incentive stock option plan of the Company) shall not exceed $100,000.
(5)	In the event that the Code or the regulations promulgated thereunder applicable to ISOs are amended after the Effective Date of the Plan in a manner that would cause the provisions of this Section 6(b)(5) to be inconsistent with such amended sections, such amended sections shall be automatically incorporated into the Plan and shall apply to all ISOs to the extent permitted by the Code.

To the extent that an Option intended to qualify as an Incentive Stock Option does not qualify for such treatment, such Option shall be treated as a Nonqualified Stock Option.

          (v) Other Provisions. Options may be subject to such other conditions including, but not limited to, restrictions on transferability of the shares acquired upon

exercise of such Options, as the Committee may prescribe in its discretion or as may be required by applicable law.

          (c) SARs. The Committee is authorized to grant Stock Appreciation Rights to Grantees on the following terms and conditions:

          (i) In General. Unless the Committee determines otherwise, an SAR (1) granted in tandem with an NQSO may be granted at the time of grant of the related NQSO or at any time thereafter or (2) granted in tandem with an ISO may only be granted at the time of grant of the related ISO. An SAR granted in tandem with an Option shall be exercisable only to the extent the underlying Option is exercisable. Payment of an SAR may made in cash, Company Stock, or other property as specified in the Award or determined by the Committee

          (ii) SARs. An SAR shall confer on the Grantee a right to receive an amount with respect to each share subject thereto, upon exercise thereof, equal to the excess of (1) the Fair Market Value of one share of Company Stock on the date of exercise over (2) the grant price of the SAR (which in the case of an SAR granted in tandem with an Option shall be equal to the exercise price of the underlying Option, and which in the case of any other SAR shall be such price as the Committee may determine; provided, that the per share exercise price of an SAR may not be less than the Fair Market value of a share of Company Stock on the date of grant).

          (iii) Term and Exercisability of SARs. SARs shall be exercisable over the exercise period (which shall not exceed ten years from the date of grant), at such times and upon such conditions as the Committee may determine, as reflected in the Award Agreement; provided, that the Committee shall have the authority to accelerate the exercisability of any outstanding SAR at such time and under such circumstances as it, in its sole discretion, deems appropriate. An SAR may be exercised to the extent of any or all full shares of Company Stock as to which the SAR has become exercisable, by giving written notice of such exercise to the Committee or its designated agent.

          (d) Restricted Stock. The Committee is authorized to grant Restricted Stock to Grantees on the following terms and conditions:

          (i) Issuance and Restrictions. Restricted Stock shall be subject to such restrictions on transferability and other restrictions, if any, as the Committee may impose at the date of grant or thereafter, which restrictions may lapse separately or in combination at such times, under such circumstances, in such installments, or otherwise, as the Committee may determine. The Committee may place restrictions on Restricted Stock that shall lapse, in whole or in part, only upon the attainment of performance goals. Except to the extent restricted under the Award Agreement relating to the Restricted Stock, a Grantee granted Restricted Stock shall have all of the rights of a shareholder including, without limitation, the right to vote Restricted Stock and the right to receive dividends thereon.

          (ii) Forfeiture. Upon termination of employment with the Company and its Subsidiaries, or upon termination of the director or independent contractor relationship, as the case may be, during the applicable restriction period, Restricted Stock and any accrued but unpaid dividends that are then subject to restrictions shall be forfeited; provided, that the Committee may provide, by rule or regulation or in any Award Agreement, or may determine in any individual case, that restrictions or forfeiture conditions relating to Restricted Stock will be waived in whole or in part in the event of terminations resulting from specified causes, and the Committee may in other cases waive in whole or in part the forfeiture of Restricted Stock.

          (iii) Certificates for Stock. Restricted Stock granted under the Plan may be evidenced in such manner as the Committee shall determine. If certificates representing Restricted Stock are registered in the name of the Grantee, such certificates shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock, and the Company shall retain physical possession of the certificate.

          (iv) Dividends. Dividends paid on Restricted Stock shall be either paid at the dividend payment date, or deferred for payment to such date as determined by the Committee and set forth in the Award Agreement, in cash or in shares of unrestricted Company Stock having a Fair Market Value equal to the amount of such dividends. Company Stock distributed in connection with a stock split or stock dividend, and other property distributed as a dividend, shall be subject to restrictions and a risk of forfeiture to the same extent as the Restricted Stock with respect to which such Company Stock or other property has been distributed.

          (e) Restricted Stock Units. The Committee is authorized to grant Restricted Stock Units to Grantees on the following terms and conditions:

          (i) Award and Restrictions. Delivery of Company Stock or cash, as determined by the Committee, will occur upon expiration of the deferral period specified for Restricted Stock Units by the Committee. The Committee may place restrictions on Restricted Stock Units that shall lapse, in whole or in part, only upon the attainment of performance goals.

          (ii) Forfeiture. Upon termination of employment with the Company and its Subsidiaries, or upon termination of the director or independent contractor relationship, as the case may be, during the applicable deferral period or portion thereof to which forfeiture conditions apply, or upon failure to satisfy any other conditions precedent to the delivery of Company Stock or cash to which such Restricted Stock Units relate, all Restricted Stock Units and any accrued but unpaid dividend equivalents that are then subject to deferral or restriction shall be forfeited; provided, that the Committee may provide, by rule or regulation or in any Award Agreement, or may determine in any individual case, that restrictions or forfeiture conditions relating to Restricted Stock Units will be waived in whole or in part in the event of termination resulting from specified causes, and the Committee may in other cases waive in whole or in part the forfeiture of Restricted Stock Units.

          (iii) Dividend Equivalents. The Committee may in its discretion determine whether Restricted Stock Units may be credited with dividend equivalents at such time as dividends, whether in the form of cash, Company Stock or other property, are paid with respect to the Company Stock. Any such dividend equivalents shall be credited in the form of additional Restricted Stock Units and shall subject to restrictions and a risk of forfeiture to the same extent as the Restricted Stock Unit with respect to which such dividend equivalent was credited.

          (f) Other Stock-Based Awards. The Committee is authorized to grant Other Stock-Based Awards to Grantees in such form as deemed by the Committee to be consistent with the purposes of the Plan. Awards granted pursuant to this paragraph may be granted with value and payment contingent upon performance goals. The Committee shall determine the terms and conditions of such Awards at the date of grant or thereafter.

     7. Change in Control Provisions.

     Unless otherwise determined by the Committee and evidenced in an Award Agreement, in the event of a Change of Control:

          (a) any Award carrying a right to exercise that was not previously vested and exercisable shall become fully vested and exercisable; and

          (b) the restrictions, deferral limitations, payment conditions, and forfeiture conditions applicable to any other Award granted under the Plan shall lapse and such Awards shall be deemed fully vested, and any performance conditions imposed with respect to Awards shall be deemed to be fully achieved.

     8. General Provisions.

          (a) Nontransferability. Unless otherwise provided in an Award Agreement, Awards shall not be transferable by a Grantee except by will or the laws of descent and distribution and shall be exercisable during the lifetime of a Grantee only by such Grantee or his guardian or legal representative.

          (b) No Right to Continued Employment, etc. Nothing in the Plan or in any Award, any Award Agreement or other agreement entered into pursuant hereto shall confer upon any Grantee the right to continue in the employ of or to continue as a director of the Company or any Subsidiary or to be entitled to any remuneration or benefits not set forth in the Plan or such Award Agreement or other agreement or to interfere with or limit in any way the right of the Company or any such Subsidiary to terminate such Grantee’s employment, or director or independent contractor relationship.

          (c) Taxes. The Company or any Subsidiary is authorized to withhold from any Award granted, any payment relating to an Award under the Plan, including from a distribution of Company Stock, or any other payment to a Grantee, amounts of withholding and other taxes due in connection with any transaction involving an Award, and to take such other action as the Committee may deem advisable to enable the Company and Grantees to satisfy obligations for the payment of withholding taxes and other tax obligations relating to any Award. This authority shall include authority to withhold or receive Company Stock or other property and to make cash payments in respect thereof in satisfaction of a Grantee’s tax obligations. The Committee may provide in the Award Agreement that in the event that a Grantee is required to pay any amount to be withheld in connection with the issuance of shares of Company Stock in settlement or exercise of an Award, the Grantee may satisfy such obligation (in whole or in part) by electing to have a portion of the shares of Company Stock to be received upon settlement or exercise of such Award equal to the minimum amount required to be withheld.

          (d) Shareholder Approval; Amendment and Termination.

          (i) The Plan shall take effect upon its approval by the shareholders of the Company.

          (ii) The Board may at any time and from time to time alter, amend, suspend, or terminate the Plan in whole or in part; provided, however, that an amendment that requires shareholder approval in order for the Plan to continue to comply with any applicable law, regulation or stock exchange requirement shall not be effective unless approved by the requisite vote of shareholders. Notwithstanding the foregoing, no amendment to or termination of the Plan shall affect adversely any of the rights of any Grantee, without such Grantee’s consent, under any Award theretofore granted under the Plan.

          (e) Expiration of Plan. Unless earlier terminated by the Board pursuant to the provisions of the Plan, the Plan shall expire on the tenth anniversary of the Effective Date. No Awards shall be granted under the Plan after such expiration date. The expiration of the Plan shall not affect adversely any of the rights of any Grantee, without such Grantee’s consent, under any Award theretofore granted.

          (f) No Rights to Awards; No Shareholder Rights. No Grantee shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Grantees. Except as provided specifically herein, a Grantee or a transferee of an Award shall have no rights as a shareholder with respect to any shares covered by the Award until the date of the issuance of a stock certificate to him for such shares.

          (g) Unfunded Status of Awards. The Plan is intended to constitute an “unfunded” plan for incentive and deferred compensation. With respect to any payments not yet made to a Grantee pursuant to an Award, nothing contained in the Plan or any Award shall give any such Grantee any rights that are greater than those of a general creditor of the Company.

          (h) No Fractional Shares. No fractional shares of Company Stock shall be issued or delivered pursuant to the Plan or any Award. The Committee shall determine whether cash, other Awards, or other property shall be issued or paid in lieu of such fractional shares of Company Stock or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated.

          (i) Regulations and Other Approvals.

          (i) The obligation of the Company to sell or deliver Company Stock with respect to any Award granted under the Plan shall be subject to all applicable laws, rules and regulations, including all applicable federal and state securities laws, and the obtaining of all such approvals by governmental agencies as may be deemed necessary or appropriate by the Committee.

          (ii) Each Award is subject to the requirement that, if at any time the Committee determines, in its absolute discretion, that the listing, registration or qualification of Company Stock issuable pursuant to the Plan is required by any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the grant of an Award or the issuance of Company Stock, no such Award shall be granted or payment made or Company Stock issued, in whole or in part, unless listing, registration, qualification, consent or approval has been effected or obtained free of any conditions not acceptable to the Committee.

          (iii) In the event that the disposition of Company Stock acquired pursuant to the Plan is not covered by a then current registration statement under the Securities Act and is not otherwise exempt from such registration, such Company Stock shall be restricted against transfer to the extent required by the Securities Act or regulations thereunder, and the Committee may require a Grantee receiving Company Stock pursuant to the Plan, as a condition precedent to receipt of such Company Stock, to represent to the Company in writing that the Company Stock acquired by such Grantee is acquired for investment only and not with a view to distribution.

          (iv) The Committee may require a Grantee receiving Company Stock pursuant to the Plan, as a condition precedent to receipt of such Company Stock, to enter into a shareholder agreement or “lock-up” agreement in such form as the Committee shall determine is necessary or desirable to further the Company’s interests.

          (j) Disclaimer of Liability. Notwithstanding any provision of the Plan or any Award Agreement to the contrary, the Committee and the Company shall not under any circumstances be held liable for any costs, losses, expenses and damages whatsoever and howsoever arising in any event, including but limited to the Company’s delay in issuing, or procuring the transfer of, shares of Company Stock or applying for or procuring the listing of such shares on any securities exchange.

          (k) Section 409A. The intent of the parties is that payments and benefits under the Plan comply with Section 409A of the Code to the extent subject thereto, and, accordingly, to the maximum extent permitted, the Plan shall be interpreted and be administered to be in compliance therewith. Notwithstanding

anything contained herein to the contrary, to the extent required in order to avoid accelerated taxation and/or tax penalties under Section 409A of the Code, a Grantee shall not be considered to have terminated employment with the Company for purposes of the Plan and no payment shall be due to a Grantee under the Plan or any Award Agreement until the Grantee would be considered to have incurred a “separation from service” from the Company within the meaning of Section 409A of the Code. Any payments described in the Plan that are due within the “short term deferral period” as defined in Section 409A of the Code shall not be treated as deferred compensation unless applicable law requires otherwise. Notwithstanding anything to the contrary in the Plan, to the extent that any Awards are payable upon a separation from service and such payment would result in the imposition of any individual excise tax and late interest charges imposed under Section 409A of the Code, the settlement and payment of such portion of such Award shall instead be made on the first business day after the date that is six months following such separation from service (or death, if earlier).

          (l) Governing Law. The Plan and all determinations made and actions taken pursuant hereto shall be governed by the laws of the Republic of Singapore without giving effect to the conflict of laws principles thereof. Grantees, by accepting Awards in accordance with the Plan, submit to the exclusive jurisdiction of the courts of the Republic of Singapore.

EX-99.2

Exhibit 99.2

EX-99.3

Exhibit 99.3

Audited Financial Statements

Under US GAAP

GIGAMEDIA LIMITED
CONSOLIDATED FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
DECEMBER 31, 2008 AND 2009 AND
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

GHP Horwath, P.C.
1670 Broadway, Suite 3000
Denver, Colorado 80202
303.831.5000
303.831.5032 Fax
www.GHPHorwath.com

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
GigaMedia Limited

We have audited the accompanying consolidated balance sheets of GigaMedia Limited and subsidiaries (the “Company”) as of December 31, 2009 and 2008, and the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the three years in the period ended December 31, 2009. We also have audited the Company’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A GHP Financial Group company

GHP Horwath, P.C. is a member firm of Horwath International Association. Each member firm is a separate and independent legal entity.

1

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of GigaMedia Limited and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

As discussed in Note 1 and 5 to the consolidated financial statements, on December 15, 2009, the Company entered into an agreement to sell 60 percent of substantially all of the assets and liabilities of its gaming software and services business. The closing of the sale occurred on April 8, 2010.

As discussed in Note 1 to the consolidated financial statements, during 2009 the provisions of new accounting standards relating to business combinations and noncontrolling interests were adopted.

/s/ GHP HORWATH, P.C.

Denver, Colorado
May 13, 2010

2

GIGAMEDIA LIMITED
CONSOLIDATED BALANCE SHEETS
December 31, 2008 and 2009
(in thousands)

	December 31
	2008			2009
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Note 11)	$	95,953		$	55,566
Marketable securities-current (Note 12)		3,419			3,486
Accounts receivable-net (Note 13)		15,188			4,228
Prepaid expenses		9,907			1,204
Restricted cash		—			932
Assets held for sale-current (Note 5)		—			35,444
Other current assets (Notes 15 and 23)		4,332			3,979
Total Current Assets		128,799			104,839
Marketable securities-noncurrent (Note 14)		26,041			18,356
Investments		1,905			3,477
Retained ownership of gaming software and service business (Note 5)		—			25,951
PROPERTY, PLANT AND EQUIPMENT
Land and buildings		1,832			1,171
Information and communication equipment		11,601			6,928
Office furniture and fixtures		2,575			915
Leasehold improvements		5,115			2,643
Other		250			148
		21,373			11,805
Less: Accumulated depreciation		(7,905	)		(5,816	)
		13,468			5,989
GOODWILL (Note 7)		87,098			44,417
INTANGIBLE ASSETS-NET (Note 8)		28,930			18,924
ASSETS HELD FOR SALE-NONCURRENT (Note 5)		—			31,301
OTHER ASSETS
Restricted cash		2,125			—
Refundable deposits		7,265			1,079
Prepaid licensing and royalty fees (Notes 9 and 24)		20,540			5,557
Other (Note 23)		622			291
Total Other Assets		30,552			6,927
TOTAL ASSETS	$	316,793		$	260,181

(Continued)

3

GIGAMEDIA LIMITED
CONSOLIDATED BALANCE SHEETS-(Continued)
December 31, 2008 and 2009
(in thousands)

	December 31
	2008			2009
LIABILITIES & EQUITY
CURRENT LIABILITIES
Accounts payable	$	899		$	591
Accrued compensation		3,503			2,814
Accrued expenses (Note 17)		11,345			6,719
Short-term borrowings (Notes 16 and 24)		15,243			22,503
Player account balances		32,827			—
Liabilities held for sale-current (Note 5)		—			26,458
Other current liabilities (Notes 18 and 23)		12,386			13,244
Total Current Liabilities		76,203			72,329
OTHER LIABILITIES
Accrued pension liabilities (Note 19)		108			83
Liabilities held for sale-noncurrent (Note 5)		—			1,360
Other (Note 23)		3,406			49
Total Other Liabilities		3,514			1,492
Total Liabilities		79,717			73,821
COMMITMENTS AND CONTINGENCIES (Notes 25 and 26)		—			—
EQUITY (Note 20)
GigaMedia Shareholders’ Equity:
Common shares, no par value, and additional paid-in capital; issued and outstanding 54,365 thousand and 54,995 thousand shares on December 31, 2008 and 2009		300,021			304,379
Accumulated deficit		(45,304	)		(94,389	)
Accumulated other comprehensive loss		(26,261	)		(25,245	)
Total GigaMedia shareholders’ equity		228,456			184,745
Noncontrolling interest		8,620			1,615
Total Equity		237,076			186,360
TOTAL LIABILITIES AND EQUITY	$	316,793		$	260,181

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

4

GIGAMEDIA LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2007, 2008 and 2009
(in thousands except for earnings per share amounts)

	2007			2008			2009
OPERATING REVENUES
Gaming software and service revenues	$	118,950		$	144,765		$	112,694
Online game and service revenues		32,764			45,604			46,887
Total		151,714			190,369			159,581
OPERATING COSTS
Cost of gaming software and service revenues		(16,201	)		(22,770	)		(20,102	)
Cost of online game and service revenues		(9,118	)		(12,404	)		(16,785	)
		(25,319	)		(35,174	)		(36,887	)
GROSS PROFIT		126,395			155,195			122,694
OPERATING EXPENSES
Product development and engineering expenses		(7,338	)		(13,455	)		(14,195	)
Selling and marketing expenses		(60,106	)		(74,173	)		(79,421	)
General and administrative expenses		(20,983	)		(25,035	)		(29,692	)
Bad debt expenses (Notes 13 and 15)		(548	)		(2,905	)		(1,092	)
Impairment loss on property, plant and equipment (Note 10		—			—			(1,250	)
Impairment loss on goodwill (Note 10)		—			—			(14,103	)
Impairment loss on prepaid licensing fees and intangible assets (Note 10		—			(1,524	)		(23,002	)
		(88,975	)		(117,092	)		(162,755	)
INCOME (LOSS) FROM OPERATIONS		37,420			38,103			(40,061	)
NON-OPERATING INCOME (EXPENSES)
Interest income		1,434			1,460			432
Gains on sales of marketable securities		184			373			—
Interest expense		(547	)		(976	)		(390	)
Foreign exchange (loss) gain		(679	)		240			168
Loss on disposal of property, plant and equipment		(102	)		(253	)		(31	)
Loss on equity method investments		(369	)		(3,010	)		(87	)
Impairment loss on marketable securities and investments (Note 10)		—			—			(15,743	)
Other (Note 22)		2,143			842			127
		2,064			(1,324	)		(15,524	)
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		39,484			36,779			(55,585	)
INCOME TAX EXPENSES (Note 23)		(401	)		(1,069	)		(517	)
INCOME (LOSS) FROM CONTINUING OPERATIONS		39,083			35,710			(56,102	)
INCOME FROM DISCONTINUED OPERATIONS-NET OF TAX (Note 4)		1,088			9,435			222
NET INCOME (LOSS)		40,171			45,145			(55,880	)
LESS: NET (INCOME) LOSS ATTRIBUTABLE TO THE NONCONTROLLING INTEREST		(1,281	)		(757	)		6,795
NET INCOME (LOSS) ATTRIBUTABLE TO GIGAMEDIA	$	38,890		$	44,388		$	(49,085	)
NET INCOME (LOSS) ATTRIBUTABLE TO GIGAMEDIA:
Income (loss) from continuing operations-net of tax	$	37,802		$	34,953		$	(49,307	)
Income from discontinued operations-net of tax		1,088			9,435			222
	$	38,890		$	44,388		$	(49,085	)
EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO GIGAMEDIA (Note 2)
Basic:
Income (loss) from continuing operations	$	0.72		$	0.65		$	(0.90	)
Income from discontinued operations		0.02			0.17			—
Net income (loss)	$	0.74		$	0.82		$	(0.90	)
Diluted:
Income (loss) from continuing operations	$	0.63		$	0.58		$	(0.90	)
Income from discontinued operations		0.02			0.16			—
Net income (loss)	$	0.65		$	0.74		$	(0.90	)
WEIGHTED AVERAGE SHARES USED TO COMPUTE EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO GIGAMEDIA (Note 2)
Basic		52,876			54,110			54,524
Diluted		60,022			60,152			54,524

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

5

GIGAMEDIA LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Years Ended December 31, 2007, 2008 and 2009
(in thousands)

	2007			2008			2009
NET INCOME (LOSS)	$	40,171		$	45,145		$	(55,880	)
OTHER COMPREHENSIVE INCOME-NET OF TAX:
Unrealized gain (loss) on marketable securities		58			(282	)		67
Defined benefit pension plan adjustment		(54	)		95			(68	)
Foreign currency translation adjustments		855			893			1,003
		859			706			1,002
COMPREHENSIVE INCOME (LOSS)		41,030			45,851			(54,878	)
COMPREHENSIVE (INCOME) LOSS ATTRIBUTABLE TO THE NONCONTROLLING INTEREST		(1,607	)		(1,288	)		6,809
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO GIGAMEDIA	$	39,423		$	44,563		$	(48,069	)

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

6

GIGAMEDIA LIMITED
CONSOLIDATED STATEMENTS OF EQUITY
For the Years Ended December 31, 2007, 2008 and 2009
(in thousands, except per share amounts)

	GIGAMEDIA SHAREHOLDERS
	Common shares								Accumulated other
	and additional paid-in capital					Accumulated			comprehensive			Noncontrolling
	Shares		Amount			deficit (Note 20)			income (loss)			interest			Total
Balance as of January 1, 2007		51,495	$	289,495		$	(128,439	)	$	(26,969	)	$	1,534		$	135,621
Issuance of common shares from exercise of stock options and RSUs		1,979		2,733			—			—			—			2,733
Issuance of common shares for acquisition (Note 6)		226		2,703			—			—			—			2,703
Stock-based compensation		—		1,862			—			—			58			1,920
Adjustment for initial application of new guidance related to uncertain tax positions (Note 23)		—		—			(143	)		—			—			(143	)
Acquisitions and change in ownership interest of investments		—		—			—			—			6,811			6,811
Cash dividend to noncontrolling interest shareholders of variable interest entity		—		—			—			—			(200	)		(200	)
Net income		—		—			38,890			—			1,281			40,171
Components of other comprehensive income:
Change in unrealized gain (loss) on marketable securities		—		—			—			58			—			58
Defined benefit pension plan adjustment		—		—			—			(54	)		—			(54	)
Foreign currency translation adjustments		—		—			—			529			326			855
Total comprehensive income		—		—			—			—			—			41,030
Balance as of December 31, 2007		53,700		296,793			(89,692	)		(26,436	)		9,810			190,475
Issuance of common shares from exercise of stock options and RSUs		665		495			—			—			—			495
Stock-based compensation		—		2,733			—			—			79			2,812
Purchase of T2CN common shares from noncontrolling interest and T2CN buy back and cancellation of its common shares (Note 6)		—		—			—			—			(2,257	)		(2,257	)
Cash dividend to noncontrolling interest shareholders of variable interest entity		—		—			—			—			(300	)		(300	)
Net income		—		—			44,388			—			757			45,145
Components of other comprehensive income:
Change in unrealized gain (loss) on marketable securities		—		—			—			(282	)		—			(282	)
Defined benefit pension plan adjustment		—		—			—			95			—			95
Foreign currency translation adjustments		—		—			—			362			531			893
Total comprehensive income		—		—			—			—			—			45,851
Balance as of December 31, 2008		54,365		300,021			(45,304	)		(26,261	)		8,620			237,076
Issuance of common shares from exercise of stock options and RSUs		630		1,320			—			—			—			1,320
Stock-based compensation		—		3,150			—			—			127			3,277
Purchase of T2CN common shares from noncontrolling interest (Notes 1 and 6)		—		(112	)		—			—			(173	)		(285	)
Cash dividend to noncontrolling interest shareholders of variable interest entity		—		—			—			—			(150	)		(150	)
Net loss		—		—			(49,085	)		—			(6,795	)		(55,880	)
Components of other comprehensive loss:
Change in unrealized gain (loss) on marketable securities		—		—			—			67			—			67
Defined benefit pension plan adjustment		—		—			—			(68	)		—			(68	)
Foreign currency translation adjustments		—		—			—			1,017			(14	)		1,003
Total comprehensive loss		—		—			—			—			—			(54,878	)
Balance as of December 31, 2009		54,995	$	304,379		$	(94,389	)	$	(25,245	)		1,615		$	186,360

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

7

GIGAMEDIA LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2007, 2008 and 2009
(in thousands)

	2007			2008			2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	40,171		$	45,145		$	(55,880	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation		3,184			4,031			4,358
Amortization		3,214			4,342			5,219
Stock-based compensation		1,862			2,780			3,277
Impairment loss on property, plant and equipment		—			—			1,250
Impairment loss on goodwill		—			—			14,103
Impairment loss on prepaid licensing fees and intangible assets		—			1,524			23,002
Provision for bad debt expenses		743			2,953			1,092
Gain on divestiture of business		—			(11,014	)		—
Gain on sales of investment option rights		(498	)		—			—
Gain on cancellation of prefered share call options		(1,069	)		—			—
Loss on disposal of property, plant and equipment		134			282			31
Gain on sale of marketable securities		(205	)		(400	)		—
Loss on equity method investments		369			3,010			87
Impairment loss on marketable securities and investments		—			—			15,743
Other		(86	)		300			25
Net changes in operating assets and liabilities, net of business acquisitions and divestitures:
Accounts receivable		(3,864	)		465			(5,015	)
Prepaid expenses		(2,316	)		(4,373	)		1,061
Other current assets		3,673			(2,304	)		(553	)
Accounts payable		(327	)		33			(298	)
Accrued expenses		2,893			2,326			2,243
Accrued compensation		1,991			(2,057	)		386
Player account balances		17,609			5,691			2,187
Other current liabilities		(1,259	)		336			1,500
Accrued pension liabilities		(62	)		(167	)		(25	)
Prepaid licensing and royalty fees		(9,829	)		(4,685	)		(4,216	)
Other		(165	)		2,532			(941	)
Net cash provided by operating activities		56,163			50,750			8,636
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in restricted cash		(3,550	)		4,122			187
Proceeds from disposal of marketable securities		20,151			25,095			—
Divestiture of business, net of cash transferred		4,930			16,471			1,006
Purchase of property, plant and equipment		(4,900	)		(8,814	)		(5,761	)
Proceeds from disposal of property, plant and equipment		46			35			17
Proceeds from sales of investment option rights		580			—			—
Purchase of marketable securities		(26,552	)		(24,746	)		(7,052	)
Purchase of investments		(1,827	)		(190	)		(2,612	)
Purchase of intangible assets		(4,642	)		(7,509	)		(8,807	)
Acquisitions, net of cash acquired		(13,983	)		(4,642	)		(285	)
Increase in loan receivable		(2,500	)		—			(637	)
Decrease (increase) in refundable deposits		(610	)		(5,862	)		1,986
Other		(314	)		(380	)		(120	)
Net cash used in investing activities		(33,171	)		(6,420	)		(22,078	)

(Continued)

8

GIGAMEDIA LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)
For the Years Ended December 31, 2007, 2008 and 2009
(in thousands)

	2007			2008			2009
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayment of) short-term borrowings		20,126			(18,058	)		7,261
Capital contribution received from non-controlling interest shareholders		30			—			—
Cash received from the exercise of stock options		2,733			495			1,320
Cash dividend to noncontrolling interest shareholders of variable interest entity		(200	)		(300	)		(150	)
Other		(117	)		(13	)		(5	)
Net cash provided by (used in) financing activities		22,572			(17,876	)		8,426
Exchange difference		627			936			(356	)
Cash balance included in assets held for sale and retained ownership of gaming software and service business		—			—			(35,015	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		46,191			27,390			(40,387	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		22,372			68,563			95,953
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	68,563		$	95,953		$	55,566
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the year	$	621		$	1,008		$	388
Income tax paid during the year	$	827		$	1,412		$	1,230
NON-CASH FINANCING AND INVESTING ACTIVITIES:
Change in unrealized holding gain (loss) on available-for-sale securities	$	58		$	(282	)	$	67
Accrual for investing in marketable securities	$	2,204			—			—
Issuance of common shares for acquisition	$	2,703			—			—
Divestiture of business — consideration receivable		—			1,006			—

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

9

GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

NOTE 1.  BUSINESS OVERVIEW, BASIS OF PRESENTATION, AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Business Overview

GigaMedia Limited (referred to hereinafter as GigaMedia, our Company, we, us, or our) is a provider of online entertainment software and services, with headquarters in Taipei, Taiwan.

We conduct our online entertainment business in two business segments: our gaming software and service business, which develops and licenses software for online real-money gaming solutions and applications; and our online game and service business, which operates play-for-fun games online.

The gaming software and service business develops and licenses online poker and casino gaming software solutions and application services, primarily targeting continental European markets. As a software developer and support service provider, we offer software solutions for online gaming, which we license under a software license and support service contract. On December 15, 2009, GigaMedia entered into a Stock and Asset Purchase Agreement (the “SAPA”) with Mangas Gaming, a French Corporation, (“Mangas”) to sell 60 percent of our gaming software and service business in 2010. (See Note 5, “Assets and Liabilities Held for Sale”, for additional information).

The online game and service business operates a suite of play-for-fun online games and provides related services, mainly targeting online game players in Asia.

(b) Basis of Presentation

In September 2008, we sold the remaining portion of our legacy Internet access and service business (See Note 4, “Divestitures”, for additional information). The Internet access and service business has been accounted for as a discontinued operation under accounting principles generally accepted in the United States of America (“GAAP”) and, therefore, the results of operations of the Internet access and service business have been removed from our Company’s results of continuing operations for all periods presented.

10

GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

As a result of the SAPA entered into with Mangas in December 2009, 60 percent of substantially all of the operating assets of our gaming software and service business, including certain liabilities associated with these assets, are presented as held for sale as of December 31, 2009. The gaming software and service business does not qualify as a component that may be reported as discontinued operations due to our significant continuing involvement in the component after the disposal transaction. (See Note 5, “Assets and Liabilities Held for Sale”, for additional information).

Principles of Consolidation

The Consolidated Financial Statements include the accounts of GigaMedia and our wholly-owned and majority-owned subsidiaries after elimination of all inter-company accounts and transactions. In addition, the accounts of our Company’s variable-interest entities (“VIE”) as defined by the Financial Accounting Standards Board (“FASB”) are included in the Consolidated Financial Statements. (See Note 3, “Variable-Interest Entities”). The accounting policies for other less than majority-owned investments are described in Note 1 below within the paragraphs headed “Marketable Securities” and “Investments”.

Foreign Currency Translation

The Consolidated Financial Statements of our Company and our subsidiaries have been reported in U.S. dollars. Assets and liabilities denominated in non-U.S. currency are translated to U.S. dollars at year-end exchange rates. Income and expense items are translated at weighted-average rates of exchange prevailing during the year. Cumulative translation adjustments resulting from this process are charged or credited to other comprehensive income within equity. Gains and losses on foreign currency transactions are included in other income and expenses. Cumulative translation adjustments as of December 31, 2007, 2008 and 2009 were ($27) million, ($27) million, and ($26) million, respectively.

11

GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(c) Summary of significant accounting policies

Use of Estimates

The preparation of Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Revenue Recognition

General

Our Company recognizes revenues when persuasive evidence of an arrangement exists, delivery occurs or services are rendered, the sales price is fixed or determinable and collectability is reasonably assured.

We present the sales taxes assessed by governmental authorities on our revenue transactions on a net basis in our Consolidated Financial Statements.

Multiple-Element Arrangements

Our Company enters into multiple-element revenue arrangements, which may include any combination of services, software, and/or products. To the extent that a deliverable in a multiple-element arrangement is subject to specific accounting guidance, whether and/or how to separate multiple deliverable arrangements into separate units of accounting (separability) and how to allocate the arrangement consideration among those separate units of accounting (allocation) for that deliverable is accounted for in accordance with such specific guidance.

In addition to the aforementioned general policies, the following are the specific revenue recognition policies for each major category of revenue.

Gaming Software and Service Revenues

Gaming software and service revenues are related to software products we

12

GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

develop and license and support services we provide for online real-money gaming solutions and applications.

The results of a software licensee of our Company, Ultra Internet Media, S.A. (“UIM”) have been incorporated into our Consolidated Financial Statements as UIM meets the criteria of VIE as defined by the FASB Accounting Standards Codification. UIM and GigaMedia are separately owned. (See Note 3, “Variable-Interest Entities”, for additional information). Our software licensing and support service revenues are based upon a percentage of gross receipts generated by UIM’s online gaming operations, and are recognized monthly. Software licensing and support service revenues we receive from providing such services to UIM have been eliminated in consolidation.

UIM generates revenues by providing and promoting online games of skill and chance that are available on its free download gaming software. We consider multiple-element revenue arrangements involving UIM’s provision of software and software-related elements to customers. UIM’s online gaming service is inseparable from the software element involved and UIM does not sell each element separately. UIM’s online gaming service does not involve significant production, modification, or customization of the gaming software. Revenues derived from UIM’s online gaming software platform are recognized at the time games are played and are net of player winnings. Transaction fee revenues derived from UIM’s online multi-player poker platform are recognized as services are provided.

Online Game and Service Revenues

Online game and service revenues are related to our online game and service business that operates play-for-fun games online in Asia.

Online game revenues are earned through the sale of online game points, pre-paid cards, and game packs. Virtual online game points are sold directly to end-users who can make the payments through credit cards, the Internet ATMs or telecommunication service operators. Physical pre-paid cards and game packs are sold through distributors and convenience stores. Proceeds from sales of physical cards and game packs, net of sales discounts, and online game points are deferred when received and revenue is recognized

13

GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

upon the actual usage of the playing time or in-game virtual items by the end-users; over the estimated useful life of virtual items; or when the sold game points expire and can no longer be used to access the online games or products in accordance with our published game points expiration policy.

We report sales of virtual online game points on a gross basis. In the sales of virtual online game points, we act as principal and we have latitude in establishing price. Fixed percentage fees retained by service providers for payment processing related to our online game services are recognized as cost of online game revenues.

Online game and service revenues also include revenues derived from online advertising arrangements, sponsorship arrangements, or a combination of both. These service arrangements allow advertisers to place advertisements on particular areas of our Company’s websites and online game platforms over a stated period of time. Service revenues from online advertising arrangements are recognized ratably over the displayed period of the contract when the collectability is reasonably assured.

Revenue Included within Discontinued Operations

For 2007, 2008 and 2009, a portion of our Company’s revenue was generated from our Internet access and service business. We disposed of the remaining portion of our Internet access and service business in September 2008, and as a result, have classified the income from these revenue-generating activities as part of discontinued operations. (See Note 4, “Divestitures”, for additional information).

Our Internet access and service business revenues were recorded net of discounts and net of fees paid to cable partners, and were recognized on a straight-line basis over the subscription period or for the period in which the service was performed. Any advanced payment receipts were recorded as deferred revenues included in other current liabilities in our Consolidated Balance Sheets and were amortized over the subscription period. The sale of other Internet access-related products and rental income from the lease of Internet access-related equipment to subscribers were recognized when products were delivered or services were provided.

14

GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

Player Account Balances

Player account balances are related to player deposits from our gaming software and service business. Player account balances are presented as current liabilities, which are first accrued for in full upon the receipt of player deposits, and increased or decreased based on player activities, including player wins or losses, withdrawals and refunds. (See Note 5, “Assets and Liabilities Held for Sale”, for additional information).

Deferred Revenues

Deferred revenues are included in other current liabilities, and consist of the prepaid income related to our online game and service business.

Operating Costs

Operating costs primarily consist of processing costs, online game royalties, bandwidth, production costs for prepaid game cards and game packs, amortization of intangible assets, customer service department costs, depreciation, maintenance and other overhead expenses directly attributable to our gaming software and service revenues and online game and service revenues.

Prepaid Licensing and Royalty Fees

Our Company, through our subsidiaries and VIE subsidiaries, routinely enters into agreements with licensors to acquire licenses for using, marketing, distributing, selling and publishing of multi-player online games.

Prepaid licensing fees paid to licensors are capitalized when technological feasibility is achieved, and amortized on a straight-line basis over the shorter of the useful economic life of the relevant online game or license period, which is usually within two to five years. The annual amortization is modified if the amount computed using the ratio that current gross revenues for a game license bear to the total of current and anticipated future gross revenues for that game license is greater than the amount computed using the straight-line method.

15

GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

Prepaid royalty fees and related costs are recognized in the period in which the related online game revenue is recognized.

Fair Value Measurement

We adopted the guidance issued by FASB for fair value measurements and the fair value option for financial assets and financial liabilities on January 1, 2008. We did not record an adjustment to retained earnings as a result of the adoption of the guidance for fair value measurements, and the adoption did not have a material impact on our Consolidated Financial Statements. The guidance for the fair value option for financial assets and financial liabilities provides companies the irrevocable option to measure many financial assets and liabilities at fair value with changes in fair value recognized in earnings. Our Company has not elected to measure any financial assets or liabilities at fair value that were not previously required to be measured at fair value.

Our Company generally determines or calculates the fair value of financial instruments using quoted market prices in active markets when such information is available or using appropriate present value or other valuation techniques, such as discounted cash flow analyses, incorporating adjusted available market discount rate information and our Company’s estimates for non-performance and liquidity risk. These techniques rely extensively on the use of a number of assumptions, including the discount rate, credit spreads, and estimates of future cash flows. (See Note 10, “Fair Value Measurement”, for additional information).

Cash Equivalents

Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and so near to their maturity that they present relatively insignificant risk from changes in interest rates. Commercial paper, negotiable certificates of deposit, time deposits and bank acceptances with original maturities of three months or less are considered to be cash equivalents.

16

GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

Marketable Securities

All of our Company’s investments in marketable securities are classified as available-for-sale. These marketable securities are stated at fair value with any unrealized gains or losses recorded in accumulated other comprehensive income (loss) within equity until realized.

Other-than-temporary impairments, if any, are charged to non-operating expense in the period in which the loss occurs. In determining whether an other-than-temporary impairment has occurred, our Company primarily considers, among other factors, the length of the time and the extent to which the fair value of an investment has been less than cost. When an other-than-temporary loss is recorded, the fair value of the investment becomes the new cost basis of the investment and is not adjusted for subsequent recoveries in fair value. Realized gains and losses also are included in non-operating income and expense in the Consolidated Statements of Operations. (See Note 10, “Fair Value Measurements”, for additional information).

Investments

Equity investments in non-publicly traded securities of companies over which our Company has no ability to exercise significant influence are accounted for under the cost method. The equity investments accounted for under the cost method as of December 31, 2008 and 2009 totaled $1,830 thousand and $3,255 thousand, respectively.

Equity investments in companies over which our Company has the ability to exercise significant influence but does not hold a controlling interest are accounted for under the equity method and our Company’s income or loss on equity method investments is recorded in non-operating income or expenses. The difference between the cost of the acquisition and our Company’s share of the fair value of the net identifiable assets is recognized as goodwill and is included in the carrying amount of the investment. When our Company’s carrying value in an equity method investee is reduced to zero, no further losses are recorded in our Consolidated Financial Statements unless our

17

GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

Company guaranteed obligations of the investee or has committed additional funding. When the investee subsequently reports income, our Company will not record its share of such income until it equals the amount of its share of losses not previously recognized.

The equity investments accounted for under the equity method as of December 31, 2008 and 2009 totaled $75 thousand and $222 thousand, respectively.

As of December 31, 2008, we had an investment in CJIT2 Holding Limited and Taiwan E-Sport League Co., Ltd (“E-Sport”) representing an approximate 23 percent and 20 percent ownership interest, respectively, which we accounted for under the equity method of accounting. In June 2009, our ownership interest in E-Sport decreased to 15 percent after E-Sport issued additional shares. As a result of this transaction, we no longer have the ability to exercise significant influence over E-sport. Therefore, subsequent to June 2009, we applied the cost method of accounting to our investment in E-sport.

As of December 31, 2009, we had an investment in CJIT2 Holding Limited and Digiforce Co., Ltd. representing an approximate 23 percent and 30 percent ownership interest, respectively, which we accounted for under the equity method of accounting.

During 2008 and 2009, we recognized our share of losses under the equity method of accounting of $3,010 thousand and $87 thousand, respectively.

Unrealized losses that are considered other-than-temporary, if any, are charged to non-operating expenses. Realized gains and losses, measured against carrying amount, are also included in non-operating income and expenses in the Consolidated Statements of Operations. (See Note 10, “Fair Value Measurements”, for additional information).

Allowance for Doubtful Accounts

An allowance for doubtful accounts is provided based on an evaluation of the collectability of notes receivable, accounts receivable, and other receivables.

18

GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

An allowance for doubtful accounts is also provided, when considered necessary, to loans receivable. We review the collectability of loans receivable on an individual basis and the evaluation primarily consists of an analysis based upon current information available about the borrower.

For those accounts in which a loss is probable, we record a specific reserve. Receivable losses are charged against the allowance when the Company believes the uncollectability of the receivable is confirmed. Subsequent recoveries, if any, are credited to the allowance.

Property, Plant and Equipment

Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation is provided on a straight-line basis over useful lives that correspond to categories as follows:

Categories	Years
Buildings		50
Information and communication equipment	2 to 5
Office furniture and equipment	3 to 5
Leasehold improvements	2 to 5

Leasehold improvements are depreciated over the life of the lease or the economic useful life of the assets, whichever is shorter. Improvements and replacements are capitalized and depreciated over their estimated useful lives, while ordinary repairs and maintenance are expensed as incurred.

In September 2008, we entered into agreements to lease certain of our Company’s land and buildings to a third party under an operating lease, which expires no later than September 2010. As of December 31, 2008 and 2009, the carrying amount of the land and buildings under lease was $1.6 million and $1.2 million, respectively. The rental income under the operating lease amounted to $21 thousand and $50 thousand for 2008 and 2009, respectively. The minimum rental income to be received under this operating lease is $20 thousand in 2010.

19

GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

Acquisitions

Before January 1, 2009, our Company accounted for its business acquisitions using the purchase method as required by the FASB. Under the purchase method, the acquiring company allocates the purchase price to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition, including intangible assets that can be identified. The purchase price in excess of the fair value of the net assets and liabilities identified is recorded as goodwill. Business acquisitions that our Company enters into after January 1, 2009 are being accounted for in accordance with the new accounting guidance issued by the FASB using the acquisition method. Under the new accounting guidance, our Company recognizes and measures the identifiable assets acquired, the liabilities assumed and any noncontrolling interest at their acquisition-date fair values, with limited exceptions. Acquisition-related costs will be generally expensed as incurred.

Intangible Assets and Goodwill

Intangible assets with finite lives are amortized by the straight-line method over their estimated useful lives, ranging from three to nine years. Intangible assets with indefinite useful lives are not amortized. Goodwill is not amortized.

Impairment of Intangible Assets, Goodwill and Long-Lived Assets

Potential impairment of intangible assets with indefinite useful lives is evaluated, at the reporting unit level, at least annually, or whenever events or changes in circumstances indicate that the carrying value of an asset might not be recoverable from its related future undiscounted cash flows. Impairment is measured as the difference between the carrying amounts and the fair value of the assets, and is recognized as a loss from operations.

Potential impairment of goodwill is tested annually, or sooner when circumstances indicate an impairment may exist, using a fair-value approach at the reporting unit level. A reporting unit is the operating segment, or a business, which is one level below that operating segment (the “component” level) if discrete financial information is prepared and regularly reviewed by management at the segment level. Components are aggregated as a single reporting unit if they have similar economic characteristics.

20

GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

Potential impairment of long-lived assets other than goodwill and intangible assets not being amortized (which includes prepaid licensing and royalty fees) is evaluated, at least annually, or whenever events or changes in circumstances indicate that the carrying value of an asset might not be recoverable from its related future undiscounted cash flows. If such assets are considered to be impaired, the impairment to be recognized is measured by the extent to which the carrying amounts of the assets exceeds the fair value of the assets. When an impairment is identified, the carrying amount of the asset is reduced to its estimated fair value, and is recognized as a loss from operations. (See Note 10, “Fair Value Measurement”, for additional information).

Software Cost

Costs to develop our gaming software and online game products are capitalized after technological feasibility has been established, and when the product is available for general release to customers, costs are expensed. Costs incurred prior to the establishment of technological feasibility are expensed when incurred and are included in product development and engineering expenses. Capitalized amounts are amortized using the straight-line method, which is applied over the useful economic life of the software, ranging from three to five years. The annual amortization is modified if the amount computed using the ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product is greater than the amount computed using the straight-line method.

We capitalize certain costs incurred to purchase or to internally create and implement internal-use computer software, which includes software coding, installation, testing and certain data conversion. These capitalized costs are amortized on a straight-line basis over the shorter of the useful economic life of the software or its contractual license period, which range from three to five years.

21

GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

Product Development and Engineering

Product development and engineering expenses primarily consist of research compensation, depreciation, and amortization, and are expensed as incurred.

Advertising

Direct-response advertising costs incurred related to the acquisition or origination of a customer relationship are capitalized and deferred. The deferred costs are recognized in the Consolidated Statements of Operations over the estimated lives of customer relationships. Costs of communicating advertising are recorded as expenses as advertising airtime is used. Other advertising expenditures are expensed as incurred.

Advertising expenses incurred in 2007, 2008 and 2009 totaled $50.1 million, $60.1 million and $63.6 million, respectively (including $28 thousand, $42 thousand, and $0 reported in discontinued operations in 2007, 2008 and 2009, respectively). As of December 31, 2008 and 2009, prepaid advertising amounted to $8.3 million and $6.8 million, respectively (of which $6.8 million is included in assets held for sale and retained ownership of gaming software and service business, see Note 5, “Assets and Liabilities Held for Sale”, for additional information).

Leases

Leases for which substantially all of the risks and rewards of ownership remain with the leasing company are accounted for as operating leases. Payments made under operating leases, net of any incentives received by our Company from the leasing company, are charged to the Consolidated Statements of Operations on a straight-line basis over the lease periods.

Share-Based Compensation

Share-based compensation represents the cost related to share-based awards granted to employees. We measure share-based compensation cost at the grant date, based on the estimated fair value of the award. Share-based compensation is recognized for the portion of the award that is ultimately expected to vest and the cost is amortized on a straight-line basis (net of estimated forfeitures) over the vesting period. Our Company estimates the fair

22

GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

value of stock options using the Black-Scholes valuation model. The cost is recorded in operating costs and operating expenses in the Consolidated Statement of Operations based on the employees’ respective function.

For shares and stock options granted to non-employees, we measure the fair value of the equity instruments granted at the earlier of the performance commitment date or when the performance is completed.

Retirement Plan and Net Periodic Pension Cost

Under our defined benefit pension plan, net periodic pension cost, which includes service cost, interest cost, expected return on plan assets, amortization of unrecognized net transition obligation and gains or losses on plan assets, is recognized based on an actuarial valuation report. We recognize the funded status of pension plans and non-pension post-retirement benefit plans (retirement-related benefit plans) as an asset or a liability in the Consolidated Balance Sheets.

Under our defined contribution pension plans, net periodic pension cost is recognized as incurred.

Comprehensive Income (Loss)

Comprehensive income (loss) is recorded as a component of equity. Our Company’s comprehensive income (loss) consists of net income or loss, foreign currency translation adjustments, changes in unrealized holding gains and losses on marketable securities, and unrecognized actuarial gains or losses related to our defined benefit pension plan.

Accounting for Income Taxes

The asset and liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between financial reporting and tax bases of assets and liabilities. We recognize the tax benefit from the purchase of equipment and technology, research and development expenditures, employee training, and certain equity investments using the flow-through method. Loss carryforwards and investment credits are measured using the enacted tax rate and laws that will

23

GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

be in effect when the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount that will more-likely-than-not be realized. In assessing the likelihood of realization, management considers estimates of future taxable income.

In addition, we recognize the financial statement impact of a tax position when it is more-likely-than-not that the position will be sustained upon examination. If the tax position meets the more-likely-than-not recognition threshold, the tax effect is recognized at the largest amount of the benefit that has greater than a 50 percent likelihood of being realized upon ultimate settlement. The interest and penalties are reflected as income taxes expenses in the Consolidated Financial Statements.

Earnings Per Share

Basic earnings per share is computed by dividing the net income available to common shareholders for the period by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing the net income for the period by the weighted average number of common shares and potential common shares outstanding during the period. Potential common shares, composed of incremental common shares issuable upon the exercise of warrants and options in all periods, are included in the computation of diluted earnings per share to the extent such shares are dilutive. Diluted EPS also takes into consideration the effect of diluted securities issued by subsidiaries. In a period in which a loss is incurred, only the weighted average number of common shares issued and outstanding is used to compute the diluted loss per share as the inclusion of potential common shares would be antidilutive. Therefore, for the year ended December 31, 2009, basic and diluted earnings per share are the same.

Noncontrolling Interest

We adopted the new accounting guidance issued by the FASB for noncontrolling interest on January 1, 2009. This guidance requires that the noncontrolling interest in the equity of a subsidiary be accounted for and reported as equity, provides revised guidance on the treatment of net income

24

GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

and losses attributable to the noncontrolling interest and changes in ownership interests in a subsidiary and requires additional disclosures that identify and distinguish between the interests of the controlling and noncontrolling owners. As a result, we have retrospectively applied the presentation and disclosure requirements of the new standard and adjusted prior periods for comparative purposes as required. Changes in our Company’s ownership interest in a subsidiary that do not result in deconsolidation are accounted for as equity transactions. Any retained noncontrolling equity investment upon the deconsolidation of a subsidiary is initially measured at fair value.

Noncontrolling interest includes 100 percent of the common stock of UIM held by third-party shareholders. UIM was deemed a VIE as our Company was considered the primary beneficiary of UIM. Therefore, we have incorporated the results of UIM into our Consolidated Financial Statements, even though we do not own any of UIM’s equity. (See Note 3, “Variable-Interest Entities”, for more information).

Noncontrolling interest also includes 30 percent of the common stock of Dragongate Enterprises Limited (“Dragongate Enterprises”), which is held by Cyber Gateway Pte. Ltd. (“Cyber Gateway”), which is 100 percent owned by Infocomm Asia Holdings Pte. Ltd. (“Infocomm Asia”). We also own 500,000 voting convertible preferred shares of Infocomm Asia.

Beginning in June 2007, we consolidated T2CN Holding Limited (“T2CN”), which is included in the online game and service business. As of December 31, 2008 and 2009, noncontrolling interest also includes 33.71 percent and 32.91 percent, respectively, of the common stock of T2CN, which is held by third-party shareholders. (See Note 6, “Acquisitions”, for more information).

In 2009, we adjusted additional paid-in capital by $112 thousand in connection with the purchase of 520,000 common shares of T2CN. In accordance with the new accounting guidance, we did not change the amounts recognized in our Company’s Consolidated Financial Statements for acquisitions or dispositions of noncontrolling interests that occurred before January 1, 2009. As a result, their were no changes to GigaMedia’s additional paid-in capital relating to

25

GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

transfers to and from the non-controlling interest for 2007 and 2008, as we accounted for these under the purchase method in accordance with previous accounting guidance.

Reclassification

The presentation of certain prior years’ information has been reclassified to conform with current year presentations.

Recent Accounting Pronouncements

In January 2010, the FASB issued additional disclosure requirements for fair value measurements. In accordance with the new guidance, the fair value hierarchy disclosures are to be further disaggregated by class of assets and liabilities. A class is often a subset of assets or liabilities within a line item in the statement of financial position. In addition, significant transfers between Levels 1 and 2 of the fair value hierarchy will be required to be disclosed. These additional requirements will be effective for our Company on January 1, 2010. These amendments will not have a material impact on our Consolidated Financial Statements, however they will require additional disclosures. In addition, the guidance requires more detailed disclosures of the changes in Level 3 instruments. These changes will be effective for our Company on January 1, 2011 and are not expected to have a material impact on our Consolidated Financial Statements.

In October 2009, the FASB issued amended revenue recognition guidance for arrangements with multiple deliverables. The new guidance eliminates the residual method of revenue recognition and allows the use of management’s best estimate of selling price for individual elements of an arrangement when vendor-specific objective evidence (VSOE), vendor objective evidence (VOE) or third-party evidence (TPE) is unavailable. The changes will be effective for our Company on January 1, 2011. The adoption is not expected to have a material effect in our Consolidated Financial Statements.

In October 2009, the FASB issued guidance which amends the scope of existing software revenue recognition accounting. Tangible products

26

GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

containing software components and non-software components that function together to deliver the product’s essential functionality would be scoped out of the accounting guidance on software and accounted for based on other appropriate revenue recognition guidance. This guidance must be adopted in the same period that our Company adopts the amended accounting for arrangements with multiple deliverables described in the preceding paragraph. The changes will be effective for our Company on January 1, 2011. The adoption is not expected to have a material effect on our Consolidated Financial Statements.

In July 2009, the FASB issued the FASB Accounting Standards Codification (the “Codification”). The Codification became the single source of authoritative nongovernmental U.S. GAAP, superseding existing FASB, American Institute of Certified Public Accountants (“AICPA”), Emerging Issues Task Force (“EITF”) and related literature. The Codification eliminates the previous U.S. GAAP hierarchy and establishes one level of authoritative GAAP. All other literature is considered non-authoritative. The Codification was effective for annual periods ending after September 15, 2009. Our Company adopted the Codification accordingly and there was no material impact to our Consolidated Financial Statements.

In June 2009, the FASB issued amendments to the accounting rules for VIEs and for transfers of financial assets. The new guidance for VIEs eliminates the quantitative approach previously required for determining the primary beneficiary of a variable interest entity and requires ongoing qualitative reassessments of whether an enterprise is the primary beneficiary. In addition, qualifying special purpose entities (“QSPEs”) are no longer exempt from consolidation under the amended guidance. The amendments also limit the circumstances in which a financial asset, or a portion of a financial asset, should be derecognized when the transferor has not transferred the entire original financial asset to an entity that is not consolidated with the transferor in the financial statements being presented, and/or when the transferor has continuing involvement with the transferred financial asset. These changes will be effective for our Company on January 1, 2010. We are in the process of evaluating what effect, if any, the adoption may have in our Consolidated Financial Statements.

27

GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

In May 2009, the FASB issued guidelines on subsequent event accounting which set forth: 1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; 2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and 3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. These guidelines were effective for annual periods ending after June 15, 2009. In February 2010, the FASB amended this standard whereby companies that file with the Securities and Exchange Commission (“SEC”), like our Company, are required to evaluate subsequent events through the date the financial statements are issued, but are no longer required to disclose in the financial statements that they have done so or disclose the date through which subsequent events have been evaluated. Our Company adopted the guidance accordingly, and there was no impact to our Consolidated Financial Statements.

28

GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

NOTE 2. EARNINGS PER SHARE

The following table provides a reconciliation of the denominators of the basic and diluted per share computations:

(in US$ thousands)	2007		2008		2009
Weighted average outstanding shares
Basic		52,876		54,110		54,524
Effect of dilutive securities
Employee share-based compensation		7,146		6,042		—
Diluted		60,022		60,152		54,524

Options to purchase 5,115 thousand shares of common stock were not included in dilutive securties for the year ended December 31, 2009, as the effect would be anti-dilutive.

NOTE 3. VARIABLE-INTEREST ENTITIES

UIM

Our Company entered into a software license and support service contract with UIM to provide Internet software and support services for UIM’s online gaming operations. The contract allows us to charge a percentage of UIM gross receipts resulting from UIM’s online gaming operations. The percentage of gross receipts varies depending upon the software and support services provided to UIM. We analyzed our contractual relationships with UIM and determined that we were and continue to be the primary beneficiary of UIM. As a result of such determination, we have incorporated the results of UIM into our Consolidated Financial Statements, even though we do not own any of UIM’s equity, and recorded goodwill arising from the consolidation of UIM totaling $209 thousand. The net assets (liabilities), total assets and total liabilities of UIM were approximately $448 thousand, $87.4 million and $86.9 million, respectively, as of December 31, 2008, and $(932) thousand, $82.9 million and $83.8 million, respectively, as of December 31, 2009. For the years ended December 31, 2007, 2008 and 2009, total revenue and net income (loss) of UIM were as follows:

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GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(in US$ thousands)	2007		2008			2009
Total revenue	$	118,650	$	144,765		$	112,694
Net income (loss)	$	348	$	(206	)	$	(1,226	)

T2CN

Beginning in June 2007, we consolidated T2CN. Pursuant to various agreements entered into between T2CN, Shanghai T2 Entertainment Co., Ltd. (“T2 Entertainment”), Shanghai T2 Advertisement Co., Ltd. (“T2 Advertisement”) and the equity owners of T2 Entertainment and T2 Advertisement, T2CN generally has control and the risks and rewards of ownership of T2 Entertainment and T2 Advertisement and is considered the primary beneficiary of T2 Entertainment and T2 Advertisement. T2 Entertainment and T2 Advertisement were established to hold the necessary licenses for our participation in online game and related advertisement services in the People’s Republic of China (“PRC”). Accordingly, from the date that we consolidated T2CN, the results of T2 Entertainment and T2 Advertisement are included in the accompanying Consolidated Financial Statements.

In November 2007, T2CN entered into various agreements with Shanghai Jinyou Network & Technology Co., Ltd. (“Jinyou”) and the equity owners of Jinyou. The agreements provided for T2CN to obtain conditional effective and enforceable clauses upon acquiring an Internet Content Provider (“ICP”) license by Jinyou. Jinyou was established to hold the necessary licenses for our participation in online games in the PRC. In September 2008, Jinyou acquired the ICP license and the above agreements became effective. T2CN generally has control and the risks and rewards of ownership of Jinyou and is considered the primary beneficiary of Jinyou. Accordingly, the results of Jinyou are included in the accompanying Consolidated Financial Statements starting from September 2008.

Details of certain key agreements between T2CN and its VIEs are as follows:

Shareholder Voting Rights Proxy Agreements. The shareholders of T2 Entertainment, T2 Advertisement and Jinyou entered into Shareholder Voting

30

GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

Rights Proxy Agreements with T2CN Information Technology (Shanghai) Co., Ltd. (“T2CN Technology”), under which each shareholder irrevocably granted T2CN Technology the power to exercise all voting rights to which they were entitled as shareholders of T2 Entertainment, T2 Advertisement and Jinyou.

Exclusive Equity Transfer Call Agreements. T2CN entered into exclusive equity transfer call agreements with each of the shareholders of T2 Entertainment, T2 Advertisement and Jinyou, under which the parties irrevocably agreed that, at T2CN’s sole discretion, it will be entitled to acquire all or part of the equity interests in T2 Entertainment, T2 Advertisement and Jinyou, to the extent as permitted by the then-effective PRC laws and regulations.

Exclusive Technical Service and Consultancy Agreement. T2CN Technology and T2 Entertainment, T2 Advertisement and Jinyou entered into certain exclusive technical service and consultancy agreements whereby T2CN Technology provides T2 Entertainment, T2 Advertisement and Jinyou with technical consulting and related services and information services. T2CN Technology is the exclusive provider of these services. The initial term of these agreements is seventeen to eighteen years. In consideration for those services, T2 Entertainment, T2 Advertisement and Jinyou agreed to pay service fees to T2CN Technology. The service fees are eliminated upon consolidation.

Equity Pledge Agreements. To secure the full performance of their respective obligations under a related exclusive technical service and consultancy agreement and shareholder voting rights proxy agreements, the shareholders of T2 Entertainment, T2 Advertisement and Jinyou have pledged all of their equity interests in T2 Entertainment, T2 Advertisement and Jinyou to T2CN Technology under equity pledge agreements.

The net assets, total assets and total liabilities in the aggregate of T2 Entertainment, T2 Advertisement and Jinyou were approximately $3.3 million, $17.5 million and $14.2 million, respectively, as of December 31, 2008, and $1.6 million, $18.2 million and $16.6 million, respectively, as of December 31, 2009. For the years ended December 31, 2007, 2008 and 2009, total revenue and net income (loss) in the aggregate of T2 Entertainment, T2 Advertisement and Jinyou were as follows:

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GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(in US$ thousands)	2007		2008		2009
Total revenues	$	14,973	$	20,312	$	18,673
Net income (loss)	$	2,429	$	1,571	$	(2,990	)

NOTE 4. DIVESTITURES

In September 2008, we completed the sale of our Internet access and service business, which included 100 percent of our wholly-owned subsidiaries, Koos Broadband Telecom Co., Ltd. (“KBT”) and Hoshin Multimedia Center Inc., as well as certain assets and liabilities related to our Internet access and service business, for a total transaction price of $20.0 million.

The transaction price, net of transaction costs, price adjustments and cash transferred, was approximately $16.5 million. The after-tax gain from the sale of the Internet access and service business was approximately $9.8 million.

An amount of $2.5 million of the transaction price was deposited into an escrow account established with the escrow agent for an agreed period, to be available for any price adjustment payment, severance payment, and indemnification payment set forth in the agreements. As of December 31, 2008, the escrow account balance was approximately $2.1 million after payment of the severance payment. The escrow account was released in September 2009.

In addition to the above purchase price, we may be entitled to receive additional cash payments of $3.0 million and $2.0 million if the Internet access and service business that we sold achieves certain earn-out targets by September 2009 and 2010. The earn-out targets are to be determined by future gross profits in accordance with a formula and timeline set forth in the agreements. As of December 31, 2009, we did not accrue any additional receivable for the sale of the Internet access and service business since the earn-out target for the first period ended September 2009 was not achieved.

32

GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

Results for the Internet access and service operations are reported as discontinued operations in 2007, 2008 and 2009. In 2008, income from discontinued operations was $9.4 million, which included an after-tax loss from the Internet access and service business of $0.4 million and an after-tax gain on the sale of the business of $9.8 million.

Summarized selected financial information for discontinued operations is as follows:

(in US$ thousands)	2007			2008			2009
Revenue	$	15,164		$	9,289		$	159
Income (loss) from discontinued operations before tax	$	1,090		$	(593	)	$	222
Gain on sale of the discontinued operations before tax		—			11,014			—
Income tax expenses		(2	)		(986	)		—
Income from discontinued operations	$	1,088		$	9,435		$	222

Major classes of assets and liabilities which comprised the Internet access and service business at the date of disposal, September 2008, included the following:

(in US$ thousands)
Cash	$	493
Accounts receivable		2,325
Other current assets		1,125
Property and equipment		4,328
Other assets		165
Total assets	$	8,436
Accounts payable	$	1,056
Other current liabilities		759
Noncurrent liabilities		672
Total liabilities	$	2,487

NOTE 5. ASSETS AND LIABILITIES HELD FOR SALE

On December 15, 2009, GigaMedia entered into an agreement with Mangas to sell 60 percent of substantially all of the assets and liabilities of its gaming software and service business, for approximately $100 million in cash, subject

33

GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

to certain adjustments. The closing of the sale occurred on April 8, 2010. The sale of the remaining 40 percent will be subject to a put and call mechanism in place between GigaMedia and Mangas, as defined in the agreement. GigaMedia will have the option to put all or part of its remaining 40 percent to Mangas in each of 2013, 2014, and 2015 at a mutually agreed upon price considering all relevant facts and circumstances after the end of each year. If the put option owned by GigaMedia is not fully exercised, Mangas will have the option to call the remaining interest held by GigaMedia in each of 2015 and 2016. (See Note 25, “Commitments and Contingencies”, for additional information).

As of December 31, 2009, substantially all of the assets and liabilities in our gaming software and service business were reclassified to assets and liabilities held for sale. The assets and liabilities held for sale balances were reduced by 40 percent, which represents the ownership interest that we retained in the gaming software and service business and recorded as “Retained ownership of gaming software and service business”, which amounted $26.0 million as of December 31, 2009. Therefore, the accompanying Consolidated Balance Sheet at December 31, 2009 includes the following:

34

GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(in US$ thousands)
Assets Held for Sale-Current
Cash	$	35,015
Accounts receivable		15,817
Prepaid expenses		7,609
Other current assets		632
Less: retained ownership		(23,629	)
	$	35,444
Assets Held for Sale-Noncurrent
Property, plant and equipment	$	7,358
Goodwill		29,243
Intangible assets		11,368
Other assets		4,199
Less: retained ownership		(20,867	)
	$	31,301
Liabilities Held for Sale-Current
Accounts payable	$	11
Accrued compensation		1,076
Accrued expenses		6,869
Player account balances		35,015
Other current liabilities		1,126
Less: retained ownership		(17,639	)
	$	26,458
Liabilities Held for Sale-Noncurrent
Other liabilities	$	2,266
Less: retained ownership		(906	)
	$	1,360

In accordance with the FASB accounting standards codification, the amount of goodwill to be included in the assets held for sale and the retained ownership is based on the relative fair values of the business to be sold and the portion of the business that will be retained.

The 40 percent ownership interest that we retained in the gaming software and service business is included in our Consolidated Balance Sheet as of December 31, 2009 as follows:

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GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(in US$ thousands)
Retained ownership of gaming software and service business:
Current assets	$	23,629
Noncurrent assets		20,867
Current liabilities		(17,639	)
Noncurrent liabilities		(906	)
	$	25,951

NOTE 6. ACQUISITIONS

Beginning in June 2007, we consolidated T2CN. T2CN is an operator and provider of online sport games in the PRC. We acquired T2CN in order to enhance our position in the online game market in Asia. This primary factor among others, contributed to a purchase price in excess of the fair market value of the net tangible assets and intangible assets acquired.

As of December 31, 2008 and 2009, we owned 43,113,681 and 43,633,681 common shares of T2CN, which represents a controlling interest of 66.29 percent and 67.09 percent, respectively, of the total outstanding voting rights of T2CN.

36

GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

The following summarizes our acquisitions of T2CN during the period from 2006 to 2009:

(in US$ thousands)

					Accumulated
Date of acquisition	Purchase Price			Description	voting interest
2006	$	15,000		Purchased 7,500,000 convertible		19.02	%
				voting preferred shares
2007	$	23,736	*	Acquired 38,613,681 common		58.11	%
				shares (including convertible
				voting preferred shares converted
				into common shares) in total
2008	$	3,375		Purchased 4,500,000 common		65.68	%
				shares
2009	$	285		Purchased 520,000 common		67.09	%
				shares

* Includes the issuance of 226,385 common shares of GigaMedia, valued at approximately $2.7 million.

(a) Acquisition in 2007

In connection with the step acquisitions through July 2007, we recorded goodwill of $29.4 million. Such goodwill amount is non-deductible for tax purposes. Since June 1, 2007, results of T2CN’s operations have been included in our Consolidated Financial Statements under the online game and service business.

The purchase price allocation was determined based on management’s estimate of the fair value of T2CN in connection with the acquisitions. The purchase price allocation of the acquisition was as follows:

37

GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

	Amortization life
(in US$ thousands)	(in years)		Amount
Cash acquired			$	11,773
Marketable securities / Investments				3,724
Other current assets				5,892
Fixed assets / non-current assets				3,717
Intangible assets
Capitalized software cost		3.5~5		2,974
Goodwill		N/A		29,354
Total assets acquired				57,434
Current liabilities				11,500
Noncurrent liabilities				1,050
Noncontrolling interest				6,171
Total liabilities assumed				18,721
Total purchase price			$	38,713

The following unaudited pro-forma information presents a summary of the results of operations of our Company for the year ended December 31, 2007 as if we controlled 58.11 percent of the total outstanding voting rights of T2CN and consolidated T2CN as of January 1, 2007.

(in US$ thousands,
except per share figures)	(Unaudited)
Net revenue	$	172,473
Income from operations		38,617
Net income		38,980
Basic earnings per share		0.74
Diluted earnings per share		0.65

The unaudited pro forma supplemental information is based on estimates and assumptions, which we believe are reasonable; it is not necessarily indicative of the consolidated financial position or results of operations in future periods or the results that actually would have been realized had we been a combined company during all of 2007. The above unaudited pro-forma financial information includes adjustments for the amortization of identified intangible assets.

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GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(b) Acquisition in 2008

In connection with the purchase of additional common shares of T2CN in May 2008, we recorded additional goodwill of $1.7 million. Such goodwill amount is non-deductible for tax purposes. We also recorded additional identified intangible assets of $136 thousand which are being amortized on a straight-line basis over their useful lives of three years.

In addition, T2CN bought back and cancelled part of its common shares owned by independent third parties for $1.3 million during 2008, resulting in an increase of our ownership interest in T2CN from 65.68 percent to 66.29 percent, and we recorded additional goodwill of $511 thousand.

(c) Acquisition in 2009

In connection with the purchase of additional common shares of T2CN in August 2009, which resulted an increase of our ownership interest in T2CN to 67.09 percent, we adjusted additional paid-in capital by $112 thousand, in accordance with the new accounting guidance issued by the FASB.

39

GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

NOTE 7. GOODWILL

The following table summaries the changes to our Company’s goodwill by segment:

	Gaming software			Online game
(in US$ thousands)	and service			and service			Total
Balance as of December 31, 2007	$	29,243		$	55,906		$	85,149
Acquisition-T2CN (Note 6)		—			1,738			1,738
Other adjustment		—			511			511
Translation adjustment		—			(300	)		(300	)
Balance as of December 31, 2008		29,243			57,855			87,098
Impairment charge (Note 10)		—			(14,103	)		(14,103	)
Goodwill included in assets held for sale and retained ownership of gaming software and service business (Note 5)		(29,243	)		—			(29,243	)
Translation adjustment		—			665			665
Balance as of December 31, 2009	$	—		$	44,417		$	44,417

NOTE 8. INTANGIBLE ASSETS — NET

The following table summarizes our Company’s intangible assets, by major asset class:

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GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

	December 31, 2009
	Gross carrying		Accumulated
(in US$ thousands)	amount		amortization			Net
Completed technology	$	2,363	$	(1,350	)	$	1,013
Trade name, trademark and non-competition agreement		11,160		(15	)		11,145
Capitalized software cost		8,633		(5,137	)		3,496
Customer relationships		5,695		(2,531	)		3,164
Other		115		(9	)		106
Total	$	27,966	$	(9,042	)	$	18,924

	December 31, 2008
	Gross carrying		Accumulated
(in US$ thousands)	amount		amortization			Net
Completed technology	$	3,605	$	(2,288	)	$	1,317
Trade name, trademark and non-competition agreement		11,774		(539	)		11,235
Capitalized software cost		19,077		(6,435	)		12,642
Customer relationships		5,555		(1,852	)		3,703
Other		66		(33	)		33
Total	$	40,077	$	(11,147	)	$	28,930

Intangible assets include trade name assets of approximately $11.1 million which are not amortized. The remaining intangible assets are amortized over their estimated useful lives ranging from three to nine years, and the overall weighted-average life is 5.9 years.

For the years ended December 31, 2007, 2008 and 2009, total amortization expenses of intangible assets were $3.0 million, $4.1 million, and $5.1 million, respectively (including $5 thousand, $20 thousand and $0 reported in discontinued operations in 2007, 2008 and 2009, respectively), which includes amortization of capitalized software costs of $1.9 million, $3.0 million, and $3.9 million. As of December 31, 2009, based on the current amount of intangibles subject to amortization, the estimated amortization expense for each of the succeeding five years is as follows:

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GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

	Amount
	(in US$ thousands)
2010	$	2,335
2011		2,096
2012		1,906
2013		821
2014		680
	$	7,838

NOTE 9. PREPAID LICENSING AND ROYALTY FEES

The following table summarizes changes to our Company’s prepaid licensing and royalty fees:

	Decemeber 31,
(in US$ thousands)	2008			2009
Beginning balance	$	16,739		$	20,540
Additions		6,968			5,484
Amortization of licensing and royalty costs		(3,833	)		(2,146	)
Impairment charges (Note 10)		—			(18,301	)
Translation adjustment		666			(20	)
Balance as of December 31, 2009	$	20,540		$	5,557

NOTE 10. FAIR VALUE MEASUREMENTS

The accounting framework for determining fair value includes a hierarchy for ranking the quality and reliability of the information used to measure fair value, which enables the reader of the financial statements to assess the inputs used to develop those measurements. The fair value hierarchy consists of three tiers as follows: Level 1, defined as quoted market prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than Level 1 that are observable, either directly or indirectly, such as quoted market prices for similar assets or liabilities, quoted prices in markets that are not active, model-based valuation techniques for which all significant assumptions are observable in the market, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the

42

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

assets and liabilities; and Level 3, defined as unobservable inputs that are not corroborated by market data.

Assets and Liabilities that are Measured at Fair Value on a Recurring Basis

Our Company has segregated all financial assets and liabilities that are measured at fair value on a recurring basis (at least annually) into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date in the table below.

Assets and liabilities measured at fair value on a recurring basis are summarized as below:

(in US$ thousands)

							Year Ended
	Fair Value Measurement Using						December 31,
Assets	Level 1		Level 2		Level 3		2009
Marketable securities — current
- Open-end fund	$	—	$	3,486	$	—	$	3,486
Marketable securities — noncurrent
- Debt securities		—		—		14,204		14,204
- Equity securities		4,152		—		—		4,152
Total	$	4,152	$	3,486	$	14,204	$	21,842

							Year Ended
	Fair Value Measurement Using						December 31,
Assets	Level 1		Level 2		Level 3		2008
Cash equivalents — time deposits	$	—	$	12,512	$	—	$	12,512
Marketable securities — current
- Open-end fund		—		3,419		—		3,419
Marketable securities — noncurrent
- Debt securities		—		—		26,041		26,041
Total	$	—	$	15,931	$	26,041	$	41,972

Cash equivalents — time deposits are convertible into a known amount of cash and are subject to an insignificant risk of change in value. Marketable securities — current are valued using a market approach based on the quoted market prices of identical instruments when available, or other observable inputs such as trading prices of identical instruments in inactive markets. The fair value of the marketable equity security — noncurrent is derived using publicly quoted trading prices.

43

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

In 2007, 2008 and 2009, we recognized an unrealized gain (loss) of $58 thousand, ($282) thousand and $67 thousand, respectively on marketable securities — current which is included in other comprehensive income (loss). In 2009, we recognized an other-than-temporary impairment of $2.9 million related to marketable equity securities — noncurrent which is included in non-operating expenses within “impairment loss on marketable securities and investments” in the Consolidated Statements of Operations.

For assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during 2008 and 2009, a reconciliation of the beginning and ending balances are presented as follows:

	Fair Value Measurements
	Using Significant Unobservable Inputs
	(Level 3)
	Marketable Securities — Noncurrent
	Debt Securities
(in US$ thousands)	2008		2009
Beginning Balance	$	21,018	$	26,041
Total gains or losses (realized/unrealized)
Included in earnings		—		(11,837	)
Included in other comprehensive income		—		—
Purchases and settlements		5,023		—
Transfers in and/or out of Level 3		—		—
Ending Balance	$	26,041	$	14,204
The amount of total gains or losses for the period included in earnings attributable to the change in unrealized gains or losses relating to assets still held at the reporting date.	None		None

The fair value of the marketable debt securities — noncurrent is derived using a discounted cash flow method using unobservable inputs. The discounted cash flow method incorporates adjusted available market discount rate information and the Company’s estimates of liquidity risk, and other cash flow model related assumptions.

In 2008, there were no gains or losses (realized and unrealized) for marketable debt securities — noncurrent included in the Consolidated Statements of Operations. In 2009, we recognized an other-than-temporary impairment of

44

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

$11.8 million related to marketable debt securities which is included in non-operating expenses within “impairment loss on marketable securities and investments” in the Consolidated Statements of Operations.

The carrying amounts of the Company’s cash, accounts receivable, accounts payable, and short-term debt approximate fair value due to their short-term maturities.

Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis

In 2008, we recognized an impairment charge of $641 thousand related to capitalized software costs and an impairment loss of $883 thousand on prepaid licensing fees. The impairment charges were the result of certain projects that we ceased further development on, and certain licensed games we stopped operating.

Effective January 1, 2009, we adopted the fair value accounting standard for measuring the fair value of assets and liabilities on a nonrecurring basis. Assets and liabilities measured at fair value on a nonrecurring basis include measuring impairment when required for long-lived assets. For GigaMedia, long-lived assets measured at fair value on a nonrecurring basis include investments accounted for under the equity method and cost method, property, plant, and equipment, intangible assets, prepaid licensing and royalty fees and goodwill.

Assets and liabilities measured at fair value on a nonrecurring basis which were determined to be impaired as of December 31, 2009 are summarized as below:

45

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(in US$ thousands)

							Year Ended		Total
	Fair Value Measurement Using						December 31,		Impairment
Assets	Level 1		Level 2		Level 3		2009		Losses
(a) Investment — Cost method	$	—	$	—	$	700	$	700	$	1,005
(b) Property, plant and equipment — Land and Building		—		1,171		—		1,171		473
(b) Property, plant and equipment — Information and communication equipment		—		—		79		79		777
(c) Goodwill — Resulting from acquisition of T2CN		—		—		17,500		17,500		14,103
(d) Intangible assets — Capitalized software cost		—		—		—		—		4,701
(e) Prepaid licensing and royalty		—		—		—		—		18,301
Total	$	—	$	1,171	$	18,279	$	19,450	$	39,360

(a)

Impairment losses on certain cost method investments which were determined to be impaired: In 2009, cost method investments with carrying amounts of $1.7 million were written down to their fair value of $700 thousand, resulting in an impairment charge of $1 million which is included in non-operating expenses within “impairment loss on marketable securities and investments” in the Consolidated Statements of Operations. Cost method investments are measured at fair value on a nonrecurring basis when deemed necessary, using other observable inputs such as trading prices of similar classes of the stock or using discounted cash flows, incorporating adjusted available market discount rate information and our Company’s estimates for liquidity risk.

(b)

Impairment losses on certain property, plant, and equipment which were determined to be impaired: In 2009, land and buildings with carrying amounts of $1.7 million were written down to their fair value of $1.2 million, resulting in an impairment charge of $473 thousand which is included in operating expenses within “impairment loss on property, plant and equipment” in the Consolidated Statements of Operations. The impairment charge for the land and building was related to assets that were used for the ISP business, which was disposed of in September 2008, and are currently idle after the disposal. The land and building were valued based on the quoted prices of similar assets in the market.

46

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

	In 2009, information and communication equipment with carrying amounts of $856 thousand were written down to their fair value of $79 thousand, resulting in an impairment charge of $777 thousand which is included in operating expenses within “impairment loss on property, plant and equipment” in the Consolidated Statements of Operations. The impairment charge for the equipment was related to servers used in certain impaired licensed games or internally developed games within our online game and service business for which the carrying amount was determined not to be recoverable from its related future undiscounted cash flows. This equipment was valued using unobservable inputs such as discounted cash flows, incorporating adjusted available market discount rate information and our Company’s estimates for liquidity risk, and other cash flow model related assumptions.
(c)	Impairment losses on goodwill which was determined to be impaired: In 2009, goodwill from the acquisition of T2CN with a carrying amount of $31.6 million was written down to its fair value of $17.5 million, resulting in an impairment charge of $14.1 million which is included within operating expenses in the Consolidated Statements of Operations. The impairment charge resulted because our estimates of future cash flows for T2CN’s business have been reduced due to lower than expected operating performance results in 2009, which indicated that the carrying amount of the goodwill from the acquisition of T2CN cannot be fully recovered as of December 31, 2009. Goodwill is valued on a nonrecurring basis when impairment exists, using unobservable inputs such as discounted cash flows, incorporating adjusted available market discount rate information and our Company’s estimates for liquidity risk, and other cash flow model related assumptions.
(d)	Impairment losses on certain intangible assets — Capitalized software costs which were determined to be impaired: In 2009, capitalized software costs with carrying amounts of $4.7 million were fully written down, resulting in an impairment charge of $4.7 million which is included in operating expenses within “impairment loss on prepaid licensing fees and intangible assets” in the Consolidated Statements of Operations. The impairment charge for the intangible assets was the result of certain projects

47

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

within our online game and service business that we ceased further development on and as a result we recorded a full impairment of the carrying value of the assets related to these projects.

(e)

Impairment losses on certain prepaid licensing and royalty fees which were determined to be impaired: In 2009, prepaid licensing and royalty fees with carrying amounts of $18.3 million were fully written down, resulting in an impairment charge of $18.3 million which is included in operating expenses within “impairment loss on prepaid licensing fees and intangible assets” in the Consolidated Statements of Operations. The impairment charge for the prepaid licensing and royalty fees related to certain licensed games within our online game and service business that we stopped operating or for which the carrying amounts of the related assets were determined not to be recoverable from their expected future undiscounted cash flows. The licensed games and related royalties are valued on a nonrecurring basis when impairment exists, using unobservable inputs such as discounted cash flows, incorporating adjusted available market discount rate information and our Company’s estimates for liquidity risk, and other cash flow model related assumptions.

NOTE 11. CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of the following:

	December 31,
(in US$ thousands)	2008		2009
Checking and savings accounts	$	83,441	$	55,566
Time deposits		12,512		—
Total	$	95,953	$	55,566

NOTE 12. MARKETABLE SECURITIES — CURRENT

Marketable securities — current consist of the following:

48

GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

	December 31,
(in US$ thousands)	2008		2009
Available-for-sale securities
Open-end funds	$	3,419	$	3,486

All of our Company’s marketable securities — current are classified as available-for-sale. As of December 31, 2008 and 2009, the balances of unrealized gains for marketable securities — current were $387 thousand and $454 thousand, respectively. During 2007, 2008 and 2009, realized gains from disposal of marketable securities — current amounted to $205 thousand, $400 thousand, and $0, respectively, (including $21 thousand, $27 thousand, $0 reported in discontinued operations in 2007, 2008 and 2009, respectively). The costs for calculating gains on disposal were based on each security’s average cost.

NOTE 13. ACCOUNTS RECEIVABLE — NET

	December 31,
(in US$ thousands)	2008			2009
Accounts receivable	$	15,442		$	4,428
Less: Allowance for doubtful accounts		(254	)		(200	)
Net	$	15,188		$	4,228

The following is a reconciliation of changes in our Company’s allowance for doubtful accounts during the years ended December 31, 2007, 2008 and 2009:

	For the years ended December 31,
(in US$ thousands)	2007			2008			2009
Balance at beginning of year	$	1,895		$	1,362		$	254
Additions: Provision for bad debt expenses		743			313			158
Less: Write-offs		(1,279	)		(399	)		(216	)
Divestiture — Internet access and service business		—			(1,041	)		—
Translation adjustment		3			19			4
Balance at end of year	$	1,362		$	254		$	200

49

GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

NOTE 14. MARKETABLE SECURITIES — NONCURRENT

	December 31,
(in US$ thousands)	2008		2009
Available-for-sale securities
Debt securites	$	26,041	$	14,204
Equity securites		—		4,152
	$	26,041	$	18,356

Our Company’s marketable securities — noncurrent are invested in convertible preferred shares and publicly traded common shares and classified as available-for-sale securities.

The preferred shares are convertible into common shares on 1:1 basis, subject to certain adjustments, and shall be automatically converted upon certain conditions outlined in the agreements. The convertible preferred shares are all redeemable at certain agreed-upon conditions.

The embedded conversion options of the convertible preferred shares do not meet the definition of derivative instruments defined in the FASB accounting standards codification and therefore are not bifurcated from the preferred share investment.

We have also considered and determined whether our investments in preferred shares are in-substance common shares which should be accounted for under the equity method. Given that our convertible preferred shares have substantive redemption rights and thus do not meet the criteria of in-substance common shares, we have accounted for them as debt securities in accordance with the guidance issued by FASB Accounting Standards Codification.

We assessed the estimated fair values and potential impairment of these investments as of December 31, 2008 and 2009. (See Note 10 “Fair Value Measurement”, for additional information).

50

GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

NOTE 15. OTHER CURRENT ASSETS

Other current assets include loan receivables of approximately $763 thousand and $500 thousand (net of a provision of $2.6 million and $3.6 million, respectively) as of December 31, 2008 and 2009, respectively.

In November 2006, our Company entered into a loan agreement for $214 thousand with a third party with no interest. The outstanding principal balance of this loan was due in November 2009, and is currently past due. We do not expect to collect all principal, therefore, we recognized a full provision for the loan of $214 thousand in 2009.

In December 2007, our Company entered into a loan agreement for $2.5 million with Flagship Studios, Inc. (“Flagship”), receiving in exchange a note with an interest rate of 10 percent per annum from Flagship. For 2007 and 2008, we have accrued, based on the stated interest rate, interest income of $14 thousand and $126 thousand, respectively. The outstanding principal balance of this note, together with all accrued and unpaid interest thereon, was due on or before December 31, 2008, and is currently past due. Due to the financial status of Flagship, we do not expect to collect all principal and interest. Therefore, in 2008, we recognized a full provision for the loan and interest receivable, in the aggregate of $2.6 million in 2008, and discontinued to recognize interest income.

During the period from December 2008 to December 2009, our Company entered into loan agreements in the aggregate of $1.2 million with certain companies included in our available-for-sale investments with interest rates ranging from 5 percent to 10.525 percent per annum. For 2008 and 2009, we have accrued, based on the stated interest rate, interest income of $2 thousand and $34 thousand, respectively. Due to the financial status of certain of our available-for-sale investments, we do not expect to collect all principal and interest. Therefore, we recognized a provision for certain loans and interest receivable, in the aggregate of $719 thousand in 2009, and discontinued to recognize interest income.

51

GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

NOTE 16. SHORT-TERM BORROWINGS

As of December 31, 2008 and 2009, short-term borrowings totaled $15.2 million and $22.5 million, respectively. These amounts were borrowed from certain financial institutions. The annual interest rates on these borrowings ranged from 2.5 percent to 5.038 percent for 2008, and from 1.99 percent to 4.288 percent for 2009, respectively. The maturity dates ranged from March 2009 to September 2009 as of December 31, 2008, and from January 2010 to June 2010 as of December 31, 2009, respectively. As of December 31, 2008 and 2009, the weighted-average interest rate on total short-term borrowings was 3.20 percent and 2.24 percent, respectively.

As of December 31, 2009, the unused lines of credit under short-term borrowing agreements were approximately $10.3 million.

During the period from January 2010 to March 2010, we repaid certain short-term borrowings totaling $5.3 million, and renewed short-term borrowing agreements totaling $6.3 million.

We pledged certain time deposits, land, and buildings as collateral for borrowings from certain financial institutions. The total value of collateral amounted to $1.6 million and $2.1 million as of December 31, 2008 and 2009, respectively.

NOTE 17. ACCRUED EXPENSES

Accrued expenses consist of the following:

	December 31,
(in US$ thousands)	2008		2009
Accrued advertising expenses	$	5,013	$	2,382
Accrued professional fees		2,627		1,160
Other		3,705		3,177
Total	$	11,345	$	6,719

52

GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

NOTE 18. OTHER CURRENT LIABILITIES

Other current liabilities consist of the following:

	December 31,
(in US$ thousands)	2008		2009
Deferred revenue	$	7,738	$	8,295
Income taxes payable		1,431		1,222
Other		3,217		3,727
Total	$	12,386	$	13,244

NOTE 19. PENSION BENEFITS

Our Company and our subsidiaries have defined benefit and defined contribution pension plans that cover substantially all of our employees.

Defined Benefit Pension Plan

We have a defined benefit pension plan in accordance with the Labor Standards Law of the Republic of China (R.O.C.) for our employees located in Taiwan, covering substantially all full-time employees for services provided prior to July 1, 2005, and employees who have elected to remain in the defined benefit pension plan subsequent to the enactment of the Labor Pension Act on July 1, 2005. Under the defined benefit pension plan, employees are entitled to two base points for every year of service for the first 15 years and one base point for every additional year of service, up to a maximum of 45 base points. The pension payment to employees is computed based on base point and average salaries or wages for the six months prior to approved retirement.

We use a December 31 measurement date for our defined benefit pension plan. As of December 31, 2008 and 2009, the accumulated benefit obligation amounted to $229 thousand and $233 thousand, respectively, and the funded status amounted to $108 thousand and $83 thousand, respectively. The fair value of plan assets amounted to $177 thousand and $209 thousand as of December 31, 2008 and 2009, respectively.

53

GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

The accumulated other comprehensive income amounted to $276 thousand and $208 thousand as of December 31, 2008 and 2009, respectively. Included in accumulated other comprehensive income, is a net pension gain of $14 thousand as of December 31, 2009 which is expected to be recognized in 2010.

The net periodic benefit cost for 2007, 2008 and 2009 amounted to $1 thousand, $101 thousand and $76 thousand, respectively.

We have contributed an amount equal to 2 percent of the salaries and wages paid to all qualified employees located in Taiwan to a pension fund (the “Fund”). The Fund is administered by a pension fund monitoring committee (the “Committee”) and deposited in the Committee’s name in the Central Trust of China in Taiwan. Our Company makes pension payments from our account in the Fund unless the Fund is insufficient, in which case we make payments from internal funds as payments become due. We seek to maintain a normal, highly liquid working capital balance to ensure payments are made timely.

We expect to make a contribution of $24 thousand to the Fund in 2010. We do not expect to make any benefit payments through 2019.

Defined Contribution Pension Plans

We have provided defined contribution plans for employees located in Taiwan, North America, the PRC and Hong Kong. Contributions to the plans are expensed as incurred.

Taiwan

Pursuant to the new “Labor Pension Act” enacted on July 1, 2005, our Company has a defined contribution pension plan for our employees located in Taiwan. For eligible employees who elect to participate in the defined contribution pension plan, we contribute no less than 6 percent of an employee’s monthly salary and wage and up to the maximum amount of NT$9 thousand (approximately $281), to each of the eligible employees’ individual

54

GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

pension accounts at the Bureau of Labor Insurance each month. Pension payments to employees are made either by monthly installments or in a lump sum from the accumulated contributions and earnings in employees’ individual accounts.

North America

We provide a defined contribution plan for employees located in the United States. Participants under the age of 50 are allowed to defer up to $16.5 thousand of their annual compensation under the plan, whereas participants over the age of 50 are allowed to defer up to $22 thousand annually. Our Company contributes an amount equal to the lesser of 3 percent of the participant’s compensation or 100 percent of the amount deferred by the employee.

We also provide a defined contribution plan for employees located in Canada. Participants are permitted to contribute a percentage of their earnings to this plan and select their own investments. Each participant’s annual contributions are limited to 18 percent of his or her prior year compensation or $19 thousand, whichever is less. Our Company contributes an amount equal to the lesser of 3 percent of the participant’s compensation or 100 percent of the amount contributed by the participant.

PRC

All PRC employees participate in employee social security plans, including pension and other welfare benefits, which are organized and administered by governmental authorities. We have no other substantial commitments to employees. The premiums and welfare benefit contributions that should be borne by our Company are calculated in accordance with relevant PRC regulations, and are paid to the labor and social welfare authorities.

Hong Kong

According to the relevant Hong Kong regulations, we provide a contribution plan for the eligible employees in Hong Kong. We must contribute at least 5 percent of the employees’ total salaries. For this purpose, the monthly relevant contribution to their individual contribution accounts is subject to a cap of HK$1

55

GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

thousand (approximately $128). After the termination of employment, the benefits still belong to the employees in any circumstances.

The total amount of defined contribution pension expenses pursuant to the plans in Taiwan, North America, the PRC and Hong Kong for the years ended December 31, 2007, 2008, and 2009 were $852 thousand, $1.1 million, and $1.3 million, respectively.

NOTE 20. EQUITY

In accordance with Singapore law, our Company’s common stock does not have a par value. In addition, we are not required to have a number of authorized common shares to be issued.

In accordance with R.O.C. law, an appropriation for legal reserve amounting to 10 percent of a company’s net profit is required until the reserve equals the aggregate par value of such Taiwan company’s issued capital stock. As of December 31, 2008 and 2009, the legal reserves of Hoshin GigaMedia, which represent a component of our consolidated accumulated deficit, were $2.3 million, and $3.0 million, respectively. The reserve can only be used to offset a deficit or be distributed as a stock dividend of up to 50 percent of the reserve balance when the reserve balance has reached 50 percent of the aggregate paid-in capital of Hoshin GigaMedia.

In accordance with the regulations in the PRC and their respective articles of association, subsidiaries and VIE subsidiaries of T2CN incorporated in the PRC are required to make an appropriation of retained earnings for statutory reserve equal to at least 10 percent of their respective after-tax profits, calculated in accordance with the PRC accounting standards and regulations until the reserve equals 50 percent of the registered capital of the respective companies. As of December 31, 2008 and 2009, the statutory reserves of subsidiaries and VIE subsidiaries of T2CN in the aggregate of $339 thousand and $715 thousand, respectively, are included as a component of GigaMedia’s consolidated accumulated deficit.

56

GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

The statutory reserves can be used to offset a deficit or to increase capital of the respective companies. They are not transferable to our Company in the form of dividends, advances, or loans.

Under PRC laws and regulations, there are certain foreign exchange restrictions on our Company’s PRC subsidiaries and VIE subsidiaries with respect to transferring certain of their net assets to our Company either in the form of dividends, loans or advances.

As of December 31, 2008 and 2009, our Company’s total restricted net assets, which include paid up capital and statutory reserve funds of PRC subsidiaries and the net assets of VIE subsidiaries in which our Company has no legal ownership, were approximately $13.2 million and $8.1 million, respectively.

NOTE 21. SHARE-BASED COMPENSATION

The following table summarizes the total stock-based compensation expense recognized in our Consolidated Statements of Operations:

(in US$ thousands)	2007		2008		2009
Cost of online game and service revenues	$	48	$	27	$	101
Product development & engineering expenses		250		480		59
Selling and marketing expenses		142		244		231
General and administrative expenses		1,394		1,954		2,886
Pre-tax stock-based compensation expense		1,834		2,705		3,277
Income tax benefit		249		497		382
Total stock-based compensation expense reported in continuing operations	$	1,585	$	2,208	$	2,895
Total stock-based compensation expense reported in discontinued operations, net of tax	$	28	$	63	$	—

There were no significant capitalized stock-based compensation costs at December 31, 2008 and 2009.

57

GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

GigaMedia

(a) Overview of Stock-Based Compensation Plan

2002 Employee Share Option Plan

At the June 2002 annual general meeting of shareholders, the shareholders of our Company approved the GigaMedia Limited 2002 Employee Share Option Plan (the “2002 Plan”) under which up to three million common shares of our Company have been reserved for issuance. All employees, officers, directors, supervisors, advisors, and consultants of our Company are eligible to participate in the 2002 Plan. The 2002 Plan is administered by a committee designated by the board of directors. The committee as plan administrator has complete discretion to determine the exercise price for the option grants, the eligible individuals who are to receive option grants, the time or times when options grants are to be made, the number of shares subject to grant and the vesting schedule. The maximum contractual term for the options under the 2002 Plan is 10 years.

2004 Employee Share Option Plan

At the June 2004 annual general meeting of shareholders, the shareholders of our Company approved the GigaMedia Limited 2004 Employee Share Option Plan (the “2004 Plan”) under which up to seven million common shares of our Company have been reserved for issuance. All employees, officers, directors, supervisors, advisors, and consultants of our Company are eligible to participate in the 2004 Plan. The 2004 Plan is administered by a committee designated by the board of directors. The committee as plan administrator has complete discretion to determine the exercise price for the option grants, the eligible individuals who are to receive option grants, the time or times when options grants are to be made, the number of shares subject to grant and the vesting schedule. The maximum contractual term for the options under the 2004 Plan is 10 years.

2006 Equity Incentive Plan

At the June 2006 annual general meeting of shareholders, the shareholders of our Company approved the GigaMedia Limited 2006 Equity Incentive Plan (the

58

GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

“2006 Plan”) under which up to one million common shares of our Company have been reserved for issuance. The 2006 Plan is administered by a committee designated by the board of directors. The committee as plan administrator has complete discretion to determine the grant of awards under the 2006 Plan. The maximum contractual term for the options under the 2006 Plan is 10 years.

2007 Equity Incentive Plan

At the June 2007 annual general meeting of shareholders, the shareholders of our Company approved the GigaMedia Limited 2007 Equity Incentive Plan (the “2007 Plan”) under which up to two million common shares of our Company have been reserved for issuance. The 2007 Plan is administered by a committee designated by the board of directors. The committee as plan administrator has complete discretion to determine the grant of awards under the 2007 Plan. The maximum contractual term for the options under the 2007 Plan is 10 years.

2008 Equity Incentive Plan

At the June 2008 annual general meeting of shareholders, the shareholders of our Company approved the GigaMedia Limited 2008 Equity Incentive Plan (the “2008 Plan”) under which up to one million common shares of our Company have been reserved for issuance. The 2008 Plan is administered by a committee designated by the board of directors. The committee as plan administrator has complete discretion to determine the grant of awards under the 2008 Plan. The maximum contractual term for the options under the 2008 Plan is 10 years.

2009 Equity Incentive Plan

At the June 2009 annual general meeting of shareholders, the shareholders of our Company approved the GigaMedia Limited 2009 Equity Incentive Plan (the “2009 Plan”) under which up to one and a half million common shares of our Company have been reserved for issuance. The 2009 Plan is administered by a committee designated by the board of directors. The committee as plan administrator has complete discretion to determine the grant of awards under the 2009 Plan. The maximum contractual term for the options under the 2009

59

GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

Plan is 10 years. As of December 31, 2009, no awards have been granted under the 2009 Plan.

2009 Employee Share Purchase Plan

At the June 2009 annual general meeting of shareholders, the shareholders of our Company approved the GigaMedia Limited 2009 Employee Share Purchase Plan (the “2009 ESPP”) under which up to two hundred thousand common shares of our Company have been reserved for issuance. To be eligible, employees must be regularly employed by us or our designated subsidiaries. Employees are also subject to certain restrictions on the amount that may be invested to purchase the shares and to other terms and conditions of the 2009 ESPP. The 2009 ESPP is administered by a committee designated by the board of directors. As of December 31, 2009, no shares have been issued to employees under the 2009 ESPP.

Summarized below are the general terms of our stock-based compensation plans, for which awards have been granted as of December 31, 2009.

Stock-Based			Options’ exercise	RSUs’ grant date fair
compensation plan	Granted awards	Vesting schedule	price	value
2002 plan	3,000,000	immediately upon granting	$0.79	—
2004 plan	7,528,185*	immediately upon granting to three years	$0.79 ~ $2.55	—
2006 plan	999,543	immediately upon granting to four years	$10.15 ~ $16.6	$9.81 ~ $16.01
2007 plan	1,980,907	one to four years	$4.24 ~ $18.17	$4.24 ~ $15.35
2008 plan	560,000	four to six years	$4.24	—

* The granted awards, net of forfeited or canceled shares, were within reserved shares of seven million common shares.

Options and RSUs generally vest over the schedule described above. Certain RSUs provide for accelerated vesting if there is a change in control. All options and RSUs are expected to be settled by issuing new shares.

(b) Options

In 2008 and 2009, 518,284 and 543,049 options were exercised, and cash

60

GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

received from the exercise of stock options was $0.5 million and $1.3 million, respectively, which resulted in no significant tax benefit realized on a consolidated basis.

Our Company uses the Black-Scholes formula to estimate the fair value of stock options granted to employees. There were no stock options granted in 2009. The following table summarizes the assumptions used in the model for options granted during 2007 and 2008:

	2007	2008
Option term (years)	2.77	2.77~4.58
Volatility	57.41%~58.80%	57.83%~64.58%
Weighted-average volatility	58.68%	64.01%
Risk-free interest rate	3.24%~4.56%	1.72%~2.88%
Dividend yield	0%	0%
Weighted-average fair value of options granted	$4.46	$2.36

Option term. The expected term of the options granted represents the period of time that they are expected to be outstanding. Our Company estimates the expected term of options granted based on historical experience with grants and option exercises.

Expected volatility rate. An analysis of historical volatility was used to develop the estimate of expected volatility.

Risk-free interest rate. The risk-free interest rate is based on yields of U.S. Treasury bonds for the expected term of the options.

Expected dividend yield. The dividend yield is based on our Company’s current dividend yield.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

Option transactions during the last three years are summarized as follows:

	2007					2008					2009
																Weighted-
																Average
																Remaining		Aggregate
	Weighted Avg.		No. of Shares			Weighted Avg.		No. of Shares			Weighted Avg.		No. of Shares			Contractual		Intrinsic Value
	Exercise Price		(in thousands)			Exercise Price		(in thousands)			Exercise Price		(in thousands)			Term		(in thousands)
Balance at January 1,	$	1.11		8,789		$	2.42		7,912		$	2.47		8,287
Options granted		10.78		1,145			4.69		1,341			—		—
Options exercised		1.43		(1,911	)		0.95		(518	)		2.42		(543	)
Options Forfeited/canceled/expired		2.47		(111	)		9.97		(448	)		17.98		(55	)
Balance at December 31,	$	2.42		7,912		$	2.47		8,287		$	2.36		7,689			5.36	$	13,673
Exercisable at December 31,	$	1.06		6,692		$	1.33		6,448		$	1.65		6,420			4.87	$	13,673
Vested and expected to vest at December 31,	$	2.42		7,912		$	2.47		8,287		$	2.36		7,689			5.36	$	13,673

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between GigaMedia’s closing stock price on the last trading day of 2009 and the fair value of the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had they exercised their options on December 31, 2009. This amount changes based on the fair market value of GigaMedia’s stock. The total intrinsic value of options exercised for the years ended December 31, 2007, 2008, and 2009 were $25.1 million, $7.2 million, and $0.8 million, respectively.

As of December 31 2009, there was approximately $3.2 million of unrecognized compensation cost related to nonvested options. That cost is expected to be recognized over a period of 2.92 years.

The following table sets forth information about stock options outstanding at December 31, 2009:

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GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

	Options outstanding			Options currently exercisable
			Weighted average
	No. of Shares		remaining		No. of Shares
Exercise price	(in thousands)		contractual life	Exercise price	(in thousands)
under $1		5,392	4.50 years	under $1		5,392
$1~$10		1,590	7.27 years	$1~$10		640
$10~$20		707	7.65 years	$10~$20		388
		7,689				6,420

(c) RSUs

Nonvested RSUs during 2009 were as follows:

	Number of units			Weighted-average
	(in thousands)			grant date fair value
Nonvested at December 31, 2008		641		$	10.41
Granted		100		$	6.01
Vested		(86	)	$	10.15
Forfeited		(15	)	$	7.19
Nonvested at December 31, 2009		640		$	9.83

The fair value of RSUs is determined and fixed on the grant date based on our stock price. The fair value of RSUs granted during the years ended December 31, 2007, 2008 and 2009 was $2.2 million, $6.8 million and $0.6 million, respectively. The total fair value of RSUs vested during the years ended December 31, 2007, 2008 and 2009 was $773 thousand, $1.5 million and $0.9 million, respectively, which resulted in no significant tax benefit realized on a consolidated basis.

As of December 31 2009, there was approximately $0.3 million of unrecognized compensation cost related to nonvested RSUs. That cost is expected to be recognized over a weighted-average period of 1.3 years. Our Company received no cash from employees as a result of employee stock award vesting and the forfeiture of RSUs during 2007, 2008 and 2009.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

T2CN

(a) Overview of Stock-Based Compensation Plan

The board members of T2CN approved the T2CN stock-based compensation plan for which up to 10.8 million common shares of T2CN have been reserved for issuance. The maximum contractual term is 11 years.

The stock options of T2CN generally vest over one to three years. Certain stock options contingently vest upon meeting a specific performance goal. T2CN recognizes expenses for its stock options that are ultimately expected to vest using the straight-line method over the vesting period. The options generally expire five to 10 years after the grant date. The total value of compensation expense for stock options is equal to the fair value of the award on the grant date. All stock options are expected to be settled by issuing new shares.

(b) Options

No options have been exercised since our consolidation of T2CN in June 2007.

T2CN uses the Black-Scholes option-pricing model to estimate the fair value of stock options. There were no stock options granted in 2009. The following table summarizes the assumptions used in the model for options granted during each of the years ended 2007 and 2008:

	2007	2008
Option term (years)	5.44~6.02	3.50~6.26
Volatility	44.64%~46.96%	47.85%~57.41%
Weighted-average volatility	45.03%	48.19%
Risk-free interest rate	4.31%~4.68%	2.20%~4.54%
Dividend yield	0%	0%
Weighted-average fair value of option granted	$0.52	$0.38

Option term. The expected term of the options granted represents the period of time that they are expected to be outstanding. In the absence of sufficient

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

historical data in the exercise behavior of option holders, T2CN applies the mid point of option life and average vesting period.

Expected volatility rate. The expected volatility is based on the weighted average historical volatility of the stock prices of comparable companies as at the grant dates.

Risk-free interest rate. The risk-free interest rate is based on yields of U.S. Treasury bonds for the expected term of the options.

Expected dividend yield. The dividend yield is based on T2CN’s current dividend yield.

Option and grant transactions for the period from June 1, 2007 to December 31, 2009 are summarized as follows:

	2007					2008					2009
																Weighted-
																Average
																Remaining		Aggregate
	Weighted Avg.		No. of Shares			Weighted Avg.		No. of Shares			Weighted Avg.		No. of Shares			Contractual		Intrinsic Value*
	Exercise Price		(in thousands)			Exercise Price		(in thousands)			Exercise Price		(in thousands)			Term		(in thousands)
Balance at Beginning of the year	$	1.30		2,973		$	1.24		3,300		$	1.07		6,841
Options granted		1.00		501		$	1.02		6,500		$	—		—
Options Forfeited/canceled/ expired		1.57		(174	)	$	1.15		(2,959	)	$	1.02		(1,639	)
Balance at December 31,	$	1.24		3,300		$	1.07		6,841		$	1.08		5,202			4.38	$	—
Exercisable at December 31,	$	1.20		937		$	1.27		1,406		$	1.19		2,246			5.70	$	—
Vested and expected to vest at December 31,	$	1.24		3,016		$	1.06		5,753		$	1.11		3,758			4.81	$	—

* Since the estimated fair value of T2CN’s stock was below the exercise price for all stock options on December 31, 2009, there was no aggregate intrinsic value.

As of December 31, 2009 there was $0.4 million of total unrecognized compensation cost, net of estimated forfeitures, related to unvested share options which is expected to be recognized over a weighted average period of 1.19 years. Total unrecognized compensation cost may be adjusted for future changes in estimated forfeitures.

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GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

The following table sets forth information about stock options outstanding at December 31, 2009:

	Options outstanding			Options currently exercisable
			Weighted average
Range of	No. of Shares		remaining	Weighted average		No. of Shares
exercise price	(in thousands)		contractual life	exercise price		(in thousands)
$1.00		4,502	3.98 years	$	1.00		1,546
$1.60		700	6.96 years	$	1.60		700
		5,202					2,246

NOTE 22. OTHER NON-OPERATING INCOME

	For the years ended December 31,
(in US$ thousands)	2007			2008		2009
Gain on cancellation of preferred share call options	$	1,069		$	—	$	—
Indemnification from termination of game licensing		601			—		—
Compensation from termination of investment option rights		498			—		—
Gain on early redemption of convertible notes		—			—		—
Subsidy received from tax authority					561		190
Other		(25	)		281		(63	)
	$	2,143		$	842	$	127

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GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

NOTE 23. INCOME TAXES

Income (loss) from continuing operations before income taxes by geographic location is as follows:

	For the years ended December 31,
(in US$ thousands)	2007		2008		2009
U.S. operations	$	489	$	1,095	$	1,324
Non-U.S. operations		38,995		35,684		($56,909	)
	$	39,484	$	36,779		($55,585	)

Income tax provision (benefit) from continuing operations by geographic location is as follows:

	For the years ended December 31,
(in US$ thousands)	2007		2008		2009
U.S. operations	$	224	$	620	$	557
Non-U.S. operations		177		449		($40	)
	$	401	$	1,069	$	517

The components of income tax provision from continuing operations by taxing jurisdiction are as follows:

	For the years ended December 31,
(in US$ thousands)	2007			2008			2009
U.S. federal
Current	$	281		$	(57	)	$	863
Deferred		(111	)		528			(443	)
	$	170		$	471		$	420
U.S. state and local:
Current	$	84		$	208		$	156
Deferred		(30	)		(59	)		(19	)
	$	54		$	149		$	137
Non-U.S.:
Current	$	132		$	976		$	967
Deferred		45			(527	)		(1,007	)
	$	177		$	449		$	(40	)
Total income tax provisions	$	401		$	1,069		$	517

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GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

A reconciliation of our continuing operations effective tax rate to the statutory U.S. federal tax rate is as follows:

	For the years ended December 31,
(in US$ thousands)	2007			2008			2009
Federal statutory rate		34.00	%		34.00	%		34.00	%
State and local — net of federal tax benefit		6.27	%		6.27	%		8.14	%
Foreign tax differential		(36.16	%)		(32.56	%)		(43.53	%)
Loss carryforward utilized		(3.33	%)		(2.89	%)		—
Change in valuation allowance		—			(4.69	%)		(1.73	%)
Other		0.24	%		2.78	%		2.19	%
Effective rate		1.02	%		2.91	%		(0.93	%)

The effect of tax rate changes on deferred tax assets and liabilities did not have a material impact on our continuing operations effective tax rate.

The provision for income taxes attributable to discontinued operations is $2 thousand, $986 thousand, and $0 for the years ended December 31, 2007, 2008 and 2009, respectively.

Significant components of our deferred tax assets consist of the following:

	December 31,
(in US$ thousands)	2008			2009
Net operating loss carryforwards	$	1		$	80
Deferred revenue		472			540
Amortization		378			( 136	)
Investment credits		185			—
Share-based compensation		116			230
Impairment charges		34			1,465
Pension expense		80			41
Depreciation		22			86
Others		180			121
		1,468			2,427
Less: valuation allowance		(106	)		(1,068	)
Deferred tax assets — net	$	1,362		$	1,359

As of December 31, 2008 and 2009, $442 thousand and $243 thousand, respectively, of net deferred tax assets were reported as non-current deferred tax assets and included in other assets.

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GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

Significant components of our deferred tax liabilities consist of the following:

	December 31,
(in US$ thousands)	2008			2009
Depreciation and amortization	$	1,754		$	69
Others		(244	)		(37	)
Deferred tax liabilities — net	$	1,510		$	32

As of December 31, 2008 and 2009, $1.1 million and $(3) thousand, respectively, of net deferred tax liabilities were reported as non-current deferred tax liabilities and included in other liabilities.

A reconciliation of the beginning and ending amounts of our valuation allowance on deferred tax assets for the years ended December 31, 2007, 2008 and 2009 are as follows:

	For the years ended December 31,
(in US$ thousands)	2007			2008			2009
Balance at beginning of year	$	4,032		$	3,012		$	106
Subsequent reversal/utilization of valuation
allowance		(1,224	)		(2,787	)		(45	)
Reversal of valuation allowance due to loss
carryforwards expired unused		(990	)		—			—
Addition of valuation allowance		—			—			1,006
Divestiture		—			(219	)		—
Acquisition		1,197			—			—
Exchange differences		(3	)		100			1
Balance at end of year	$	3,012		$	106		$	1,068

As of December 31, 2007, we did not believe that sufficient objective, positive evidence existed to conclude that the realization of deferred tax assets was more likely than not. Our Internet access and service operations faced slow market growth and intense market competition, and certain subsidiaries and VIE subsidiaries of our online game and service business were not likely to be able to utilize their operating loss carryforwards. As a result, we provided a valuation allowance covering substantially all of the deferred tax assets as of December 31, 2007.

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GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

For deferred tax assets as of December 31, 2008, we evaluated the available evidence and determined that it was more likely than not that we would realize the benefit of the deferred tax assets. The primary reason for the reversal of the valuation allowance in 2008 was that the sale of our Internet access and service operation was completed in September 2008. Based on weighing all available evidence, we determined that evidence existed to conclude that it is more likely than not that we will generate sufficient taxable income to utilize the majority of the deferred tax assets within the allowable carryforward periods.

In 2009, the valuation allowance on the deferred tax assets increased by $962 thousand to $1.1 million primarily because certain subsidiaries and VIE subsidiaries of our online game and service business are not likely to be able to utilize all of the deferred tax assets based on their estimated future taxable income.

In 2007, 2008 and 2009, we applied for investment tax credits and research and development tax credits in the Taiwan tax jurisdiction.

As of December 31, 2009, the Company had net operating loss carryforwards available to offset future income in Hong Kong and PRC, which begin to expire in 2011.

Under Singapore tax regulations, foreign-sourced dividend income used for capital expenditures, including investments, and repayment of borrowings, would not be deemed as remitted to Singapore and is therefore not taxable. As of December 31, 2009, the Company has not accrued deferred income taxes on $21.9 million of unremitted earnings from non-Singapore subsidiaries as such earnings are considered to be reinvested overseas or repayment of borrowings. Determination of the amount of unrecognized deferred tax liability related to these earnings is considered impracticable.

Uncertain Tax Positions

In January 2007, we adopted the new accounting guidance issued by the

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GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

FASB relating to uncertain tax positions. The cumulative effects of adopting the new guidance related to uncertain tax positions was to increase tax liabilities by $143 thousand, increase the accumulated deficit by $143 thousand and derecognize deferred tax assets and the associated valuation allowance by $66 thousand. Including the cumulative effect increase at January 1, 2007, we had approximately $209 thousand of total gross unrecognized tax benefits at the date of our adoption of the new accounting guidance.

A reconciliation of the beginning and ending amount of unrecognized tax benefits (excluding the effects of accrued interest) for the years 2007, 2008 and 2009 are as follows:

(in US$ thousands)
Balance at January 1, 2007	$	209
Decrease due to settlement		(82	)
Balance at December 31, 2007		127
Decrease due to settlement		(127	)
Balance at December 31, 2008		—
Increase for prior year tax positions		220
Increase for current year tax positions		460
Exchange differences		22
Balance at December 31, 2009	$	702

As of December 31, 2009, if recognized, the $702 thousand of unrecognized tax benefits would not have a material impact on our Company’s effective tax rate.

Interest and penalties related to income tax liabilities are included in income tax expense. In 2007, 2008 and 2009, there were no significant interest and penalties recognized in income tax expenses.

Our major tax jurisdictions are located in Taiwan, the PRC and the United States. As of December 31, 2009, the income tax filings under tax jurisdictions located in Taiwan have been examined through 2007 but we have filed appeals for 2006 and 2007 tax filings. The tax authority in the PRC has only examined the tax filings of T2 Entertainment through 2006. Our Company files income tax returns in the United States federal and state jurisdictions. With few exceptions, our Company is no longer subject to U.S. federal and state income tax examinations by tax authorities for years before 2003.

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GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

In 2007 and 2008, all of our unrecognized tax benefits were related to research and development credits filed in 2005 and 2006. These unrecognized tax benefits were all settled with tax authorities and there was no unrecognized tax benefit as of December 31, 2008.

In 2009, our unrecognized tax benefits were related to research and development credits and also related to amortization of goodwill and intangible assets resulting from the acquisition of FunTown. For research and development credits, the income tax authority is in the process of reviewing our claims in 2008. For amortization of goodwill and intangible assets resulting from the acquisition of FunTown, the income tax authority has proposed adjustments on the amortization for our 2006 and 2007 tax filings during 2009. We have filed appeals for these amortization adjustments but haven’t received a response from the tax authority.

The amount of unrecognized tax benefits may increase or decrease in the future for various reasons such as current year tax positions, expiration of statutes of limitations, litigation, legislative activity, or other changes in facts regarding realizability. However, at this time, an estimate of the potential range of change cannot be reasonably made.

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GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

NOTE 24. RELATED-PARTY TRANSACTIONS

Except for the following transactions, we were not a party to any transaction with any related party that did not arise in the ordinary course of business or that was material to us.

As of December 31, 2008 and 2009, JC Entertainment Corporation (“JC”) owned 10.8 percent, of the total outstanding voting rights of T2CN. T2CN paid certain licensing and royalty fees, totaling approximately $1.2 million, and $2.8 million, respectively, during 2008, and $1.5 million and $2.6 million, respectively, during 2009, to JC. As of December 31, 2008 and 2009, we had a royalty payable to JC of approximately $445 thousand and $925 thousand, respectively, and prepaid licensing fees of approximately $6.6 million and $5.4 million, respectively. As of December 31, 2009, based on the game licensing agreements signed with JC, T2CN also committed to pay certain licensing fees totaling approximately $1.5 million.

In 2008 and 2009, a key manager of Waterland Financial Holdings was one of our directors. As of December 31, 2008 and 2009, we had short-term borrowings in the amount of $1.5 million and $1.6 million, respectively, bearing interest of 5.038 percent and 3.288 percent, respectively, owed to Waterland Financial Holdings.

NOTE 25. COMMITMENTS AND CONTINGENCIES

Commitments

(a) Operating Leases

We rent certain properties used as office premises under lease agreements that expire at various dates through 2012. The following table sets forth our future aggregate minimum lease payments required under these operating leases, as of December 31, 2009:

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GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(in US$ thousands)

Year
2010	$	3,733
2011		1,574
2012		646
Total	$	5,953

The table above reflects the reduction of future payments resulting from the sale of our gaming software and service business in April 2010.

Rental expenses for operating leases amounted to $3.3 million, $5.0 million and $5.1 million for the years ended December 31, 2007, 2008 and 2009, respectively (including rental expense amounts of $1.8 million, $1.6 million, and $0 reported in discontinued operations in 2007, 2008 and 2009, respectively). As of December 31, 2008, our Company recorded deferred rent of $2.4 million, of which $2.1 million was included in the other liabilities. As of December 31, 2009, our Company recorded deferred rent of $2.6 million, which was included in liabilities held for sale and retained ownership of gaming software and service business.

(b) License Agreements

We have contractual obligations under various license agreements to pay the licensors license fees and minimum guarantees against future royalties. The following table summarizes the committed license fees and minimum guarantees against future royalties set forth in the major license agreements.

			Minimum
			guarantees against
(in US$ thousands)	License fees		future royalties		Total
Minimum required payments:
In 2010	$	—	$	2,625	$	2,625
After 2010		2,700		8,600		11,300
	$	2,700	$	11,225	$	13,925

In April 2010, we entered into termination agreements with certain of our game licensors. The table above reflects the future payments considering these terminations.

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GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

The initial minimum guarantees against future royalties and license fees are not required to be paid until the licensed games are commercially released or until certain milestones are achieved, as stipulated in the individual license agreements. The remaining minimum guarantees are generally required to be paid within three years subsequent to the commercial release dates of the licensed games.

Additionally, we also have contractually committed to support related marketing, promotion and advertising activities for certain games, and our commitments are contingent to occur based on the payment schedules set forth in the individual license agreements. As of December 31, 2009, our total commitments to these marketing expenditures amounted to not less than $10 million.

Contingencies

(a) T2CN VIE

PRC laws and regulations currently limit foreign ownership of companies that provide Internet content services in the PRC, which include operating online games. In addition, foreign invested enterprises are currently not eligible to apply for licenses required for operating online games in the PRC. T2CN is incorporated in the British Virgin Islands and considered a foreign entity under PRC laws. Due to the restrictions on foreign ownership on the provision of online games, T2 Entertainment and Jinyou hold necessary licenses and approvals that are essential for the online game and service business of T2CN. Hence, T2CN’s online games operation in the PRC is dependent on the game licenses and approvals held by T2 Entertainment and Jinyou. T2CN and its subsidiaries have entered into contractual arrangements with T2 Entertainment and Jinyou for use of the relevant licenses and websites. Pursuant to certain other agreements and undertakings, T2CN in substance controls T2 Entertainment and Jinyou. In the opinion of T2CN’s directors, as of December 31, 2009, the ownership structures and the contractual arrangements with T2 Entertainment, Jinyou and their equity

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GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

owners as well as their operations are in compliance with all existing PRC laws and regulations. However, there may be changes and other developments in PRC laws and regulations or their interpretation. Accordingly, T2CN cannot be assured that in the future the PRC government authorities will not take a view contrary to the opinion of T2CN’s directors. If the current ownership structures of T2CN and its contractual arrangements with T2 Entertainment and Jinyou were found to be in violation of any existing or future PRC laws or regulations, T2CN might be required to restructure its ownership structure and operations in the PRC to comply with changing or new PRC laws and regulations.

(b) Other

We are subject to legal proceedings and claims that arise in the normal course of business. We believe the ultimate liabilities with respect to these actions will not have a material adverse effect on our financial condition, results of operations or cash flows. (See Note 26, “Litigation”, for additional information).

NOTE 26. LITIGATION

Class Action

In December 2001, a class action lawsuit was filed in the United States District Court for the Southern District of New York (“District Court”) against our Company in connection with the initial public offering of our stock.

The complaint alleged that we violated Section 11 and Section 15 of the Securities Exchange Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. In October 2002, plaintiffs voluntarily dismissed the individual defendants without prejudice. On February 19, 2003, the court issued an opinion and order on defendants’ motions to dismiss, which granted the motions in part and denied the motions in part. As to GigaMedia, the Rule 10b-5 claims were dismissed without prejudice, while the Section 11 claims survived the motion. Discovery in the actions commenced.

In June 2004, plaintiffs and issuer defendants, including our Company,

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GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

presented the executed settlement agreement (the “Issuers’ Settlement”) to the judge during a court conference. Subsequently, plaintiffs and issuer defendants made a motion for preliminary approval of the settlement agreement. The key terms of the Issuers’ Settlement included: 1) the insurers of the issuers would provide an undertaking to guarantee that the plaintiffs would recover a total of $1 billion; 2) the insurers would pay up to $15 million for the notice costs arising from the settlement; 3) the issuers would assign their interest in certain claims against the underwriters to a litigation trust, represented by plaintiffs’ counsel; and 4) the plaintiffs would release all of the settling issuer defendants. That is, if plaintiffs were successful in recovering more than $1 billion from the underwriters, the issuer defendants would not be obligated to pay any additional amounts. If plaintiffs recovered less than $1 billion from the underwriters, the insurers would pay the deficit between $1 billion and the amount received from the underwriters.

On February 15, 2005, the judge issued an opinion and order granting preliminary approval to the settlement agreement subject to a narrowing of the proposed bar order as to only contribution claims. On April 24, 2006, the court held a fairness hearing on the proposed Issuers’ Settlement, which was subject to the court’s approval.

On December 5, 2006, the United States Court of Appeals for the Second Circuit issued an opinion vacating the District Court’s class certification in the six focus cases, which do not include the Company. Because the Second Circuit’s opinion was directed to class certification in the focus cases, the opinion’s effect on the proposed class to be certified by the District Court in connection with the Issuers’ Settlement was unclear.

On December 15, 2006, the District Court held a conference with all counsel in the IPO securities class action lawsuit to discuss the impact of the foregoing opinion. In the conference, the District Court agreed to stay all proceedings, including discovery and consideration of the Issuers’ Settlement, pending further decisions from the Second Circuit.

On January 5, 2007, plaintiffs filed a petition in the Second Circuit for rehearing and rehearing en banc regarding the decision on class certification (the

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

“Petition”). On April 6, 2007, the Second Circuit rendered its decision which denied the Petition.

In April, May, and June 2007, the District Court held several conferences to discuss the issues regarding class certification, statute of limitations, the Issuers’ Settlement and discovery. In June 2007, a stipulation terminating the Issuers’ Settlement was submitted to the District Court.

In September 2007, discovery moved forward in the six focus cases, which do not include the Company. Plaintiffs filed amended complaints against the focus case issuer and underwriter defendants and moved for class certification in those actions. In November 2007, the underwriters and issuers filed motions to dismiss the amended complaints in the focus cases. In December 2007, plaintiffs filed their opposition to defendants’ motions to dismiss. In January 2008, defendants filed their reply briefs in further support of the motions to dismiss.

On or about March 26, 2008, the District Court granted in part and denied in part the motion to dismiss the focus cases. The motion to dismiss was granted only as to claims brought under Section 11 of the Securities Act by plaintiffs who sold their securities for a price in excess of the initial offering price and by those plaintiffs who purchased outside the previously certified class period.

On April 9, 2008, the underwriters filed a motion for reconsideration of the holding in the March 26, 2008 opinion that the Section 11 claims against the focus case issuer was not time barred, on the basis that no Section 11 class in that case was certified in 2004. The issuers joined in that motion on behalf of the focus case issuer by letter to the District Court on April 10, 2008.

In December 2007, the issuers filed their oppositions to class certification in the focus cases. In March 2008, plaintiffs filed their reply brief in further support of class certification. The underwriters and issuers submitted sur-replies in further opposition to class certification on April 22, 2008, addressing issues related to the deposition of the plaintiffs’ expert.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

As set forth in Plaintiffs’ Motion For Preliminary Approval of the Settlement and accompanying documents, which were filed on April 2, 2009, after eight years of litigation all parties to the IPO Cases have agreed to settle the actions on a global basis. Pursuant to the settlement, the defendants have agreed to pay $586 million in total to settle all 309 IPO Cases, including the GigaMedia action. The agreement to settle was reached after a lengthy mediation followed by months of negotiation to reach agreement on the details. As to our Company’s portion of the settlement payment, our insurance companies are paying the entire settlement amount.

In June 2009, the District Court granted the plaintiffs’ motion for preliminary approval of the settlement agreement. Subsequently, in October 2009, the judge granted final approval to the settlement. Certain objectors have filed notices of appeal to the United States Circuit Court for the Second Circuit seeking to reverse or vacate the order granting final approval to the settlement agreement. However, no briefs have been filed yet with respect to these appeals.

We had an insurance policy with American Insurance Group with $10 million of liability coverage when the class action lawsuit was made. We believe that the insurance coverage is sufficient to cover the liability arising from the settlement and claim.

NOTE 27. SEGMENT INFORMATION

Segment data

Subsequent to the sale of Internet access and service business in 2008, we realigned our reportable business segments. The corresponding segment profit or loss information for 2007 has been restated to conform to the current year presentation. All income (loss) related to our Internet access and service business has been excluded from the reconciliation of our segment totals to the GigaMedia consolidated totals.

We have identified two reportable segments: a gaming software and service

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

business segment and an online game and service business segment. The gaming software and service business segment mainly derives its revenues from developing and licensing online games of chance and skill. The online game and service business segment mainly derives its revenues from recognizing the usage of game playing time or in-game items by the end-users.

Our management relies on an internal management reporting process that provides revenue and segment information for making financial decisions and allocating resources. The results are based on our method of internal reporting and are not necessarily in conformity with GAAP. Management measures the performance of each segment based on several metrics, including revenues and income or loss from operations.

Financial information for each reportable segment was as follows as of and for the years ended December 31, 2007, 2008, and 2009:

	Gaming
	software and		Online game
(in US$ thousands)	service		and service		Total
2007:
Segment profit or loss:
Net revenue from external customers	$	118,950	$	32,764	$	151,714
Income from operations	$	37,703	$	6,844	$	44,547
Share-based compensation	$	548	$	373	$	921
Interest income	$	871	$	194	$	1,065
Interest expense	$	1	$	—	$	1
Loss on sales of marketable securities	$	—	$	104	$	104
Foreign exchange loss	$	486	$	195	$	681
Loss on equity method investments	$	—	$	369	$	369
Depreciation	$	1,060	$	589	$	1,649
Amortization, including intangible assets	$	1,271	$	1,852	$	3,123
Income tax expense	$	229	$	172	$	401
Segment assets:
Equity method investments	$	—	$	2,762	$	2,762
Additions to property, plant and equipment	$	2,280	$	2,575	$	4,855
Additions to intangible assets	$	2,070	$	3,575	$	5,645
Additions to goodwill	$	—	$	29,354	$	29,354
Total assets	$	93,144	$	92,597	$	185,741

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

The reconciliation of the segment information to GigaMedia’s consolidated information was not included in the above table, as it is provided below in detail.

	Gaming
	software and		Online game
(in US$ thousands)	service		and service			Total
2008:
Segment profit or loss:
Net revenue from external customers	$	144,765	$	45,604		$	190,369
Income from operations	$	36,360	$	7,998		$	44,358
Share-based compensation	$	1,249	$	547		$	1,796
Impairment loss on prepaid licensing fees and intangible assets	$	—	$	1,524		$	1,524
Interest income	$	680	$	367		$	1,047
Interest expense	$	7	$	—		$	7
Gains on sales of marketable securities	$	—	$	4		$	4
Foreign exchange gain (loss)	$	269	$	(124	)	$	145
Loss on equity method investments	$	—	$	3,010		$	3,010
Depreciation	$	2,064	$	1,080		$	3,144
Amortization, including intangible assets	$	1,704	$	2,549		$	4,253
Income tax expense	$	743	$	326		$	1,069
Segment assets:
Equity method investments	$	—	$	75		$	75
Additions to property, plant and equipment	$	6,095	$	1,585		$	7,680
Additions to intangible assets	$	3,953	$	3,383		$	7,336
Additions to goodwill	$	—	$	2,249		$	2,249
Total assets	$	132,631	$	130,327		$	262,958

The reconciliation of the segment information to GigaMedia’s consolidated information was not included in the above table, as it is provided below in detail.

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YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

	Gaming
	software and		Online game
(in US$ thousands)	service		and service			Total
2009:
Segment profit or loss:
Net revenue from external customers	$	112,694	$	46,887		$	159,581
Income (loss) from operations	$	7,472	$	(34,649	)	$	(27,177	)
Share-based compensation	$	501	$	931		$	1,432
Impairment loss on prepaid licensing fees and intangible assets	$	212	$	22,787		$	22,999
Impairment loss on property, plant and equipment	$	—	$	777		$	777
Impairment loss on goodwill	$	—	$	14,103		$	14,103
Interest income	$	242	$	129		$	371
Interest expense	$	—	$	—		$	—
Foreign exchange gain (loss)	$	521	$	(114	)	$	407
Loss on equity method investments	$	—	$	87		$	87
Impairment loss on marketable securities and investments	$	—	$	13,719		$	13,719
Depreciation	$	2,279	$	1,500		$	3,779
Amortization, including intangible assets	$	2,027	$	3,120		$	5,147
Income tax expense (benefit)	$	871	$	(101	)	$	770
Segment assets:
Equity method investments	$	—	$	222		$	222
Additions to property, plant and equipment	$	2,731	$	2,929		$	5,660
Additions to intangible assets	$	5,793	$	2,307		$	8,100
Additions to goodwill	$	—	$	—		$	—
Total assets	$	145,776	$	111,354		$	257,130

The assets of our gaming software and service business segment are presented as assets held for sale and retained ownership of gaming software and service business as of December 31, 2009 in our Consolidated Balance Sheets.

The reconciliation of the segment information to GigaMedia’s consolidated information was not included in the above table, as it is provided below in detail.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

The reconciliations of segment information to GigaMedia’s consolidated totals are as follows:

(in US$ thousands)	2007			2008			2009
Income (loss) from operations:
Total segments	$	44,547		$	44,358		$	(27,177	)
Adjustment*		(7,127	)		(6,255	)		(12,884	)
Total GigaMedia consolidated	$	37,420		$	38,103		$	(40,061	)
Share-based compensation
Total segments	$	921		$	1,796		$	1,432
Adjustment*		913			909			1,845
Total GigaMedia consolidated	$	1,834		$	2,705		$	3,277
Impairment loss on prepaid licensing fees and intangible assets:
Total segments	$	—		$	1,524		$	22,999
Adjustment*		—			—			3
Total GigaMedia consolidated	$	—		$	1,524		$	23,002
Impairment loss on property, plant and equipment:
Total segments	$	—		$	—		$	777
Adjustment*		—			—			473
Total GigaMedia consolidated	$	—		$	—		$	1,250
Interest income:
Total segments	$	1,065		$	1,047		$	371
Adjustment*		369			413			61
Total GigaMedia consolidated	$	1,434		$	1,460		$	432
Interest expense:
Total segments	$	1		$	7		$	—
Adjustment*		546			969			390
Total GigaMedia consolidated	$	547		$	976		$	390
Gain (loss) on sales of marketable securities:
Total segments	$	(104	)	$	4		$	—
Adjustments*		288			369			—
Total GigaMedia consolidated	$	184		$	373		$	—
Foreign exchange gain (loss):
Total segments	$	(681	)	$	145		$	407
Adjustments*		2			95			(239	)
Total GigaMedia consolidated	$	(679	)	$	240		$	168
Impairment loss on marketable securities and investments:
Total segments	$	—		$	—		$	13,719
Adjustment*		—			—			2,024
Total GigaMedia consolidated	$	—		$	—		$	15,743

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(in US$ thousands)	2007		2008		2009
Depreciation:
Total segments	$	1,649	$	3,144	$	3,779
Adjustments*		—		177		579
Total GigaMedia consolidated	$	1,649	$	3,321	$	4,358
Amortization:
Total segments	$	3,123	$	4,253	$	5,147
Adjustments*		26		34		72
Total GigaMedia consolidated	$	3,149	$	4,287	$	5,219
Income tax expense:
Total segments	$	401	$	1,069	$	770
Adjustments*		—		—		(253	)
Total GigaMedia consolidated	$	401	$	1,069	$	517
Additions to property, plant and equipment:
Total segments	$	4,855	$	7,680	$	5,660
Adjustments**		1,392		1,134		101
Total GigaMedia consolidated	$	6,247	$	8,814	$	5,761
Additions to intangible assets:
Total segments	$	5,645	$	7,336	$	8,100
Adjustments**		1,088		309		707
Total GigaMedia consolidated	$	6,733	$	7,645	$	8,807
Total assets:
Total segments	$	185,741	$	262,958	$	257,130
Adjustment**		98,124		53,835		3,051
Total GigaMedia consolidated	$	283,865	$	316,793	$	260,181

*	Adjustment items include corporate and certain back-office costs and expenses not attributable to any specific segment.
**	Adjustment items include total corporate assets, the Internet access and service business segment and eliminations.

Major Customers

No single customer represented 10 percent or more of GigaMedia’s total net revenues in any period presented.

Geographic Information

Revenues by geographic area are attributed by country of the server location. Revenue from unaffiliated customers by geographic region is as follows:

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

(in US$ thousands)

Geographic region / country	2007		2008		2009
Canada	$	118,650	$	144,765	$	112,694
Taiwan		18,388		20,932		24,869
PRC		8,883		19,652		18,318
Hong Kong		5,360		4,964		3,700
Others		433		56		—
Total	$	151,714	$	190,369	$	159,581

Net long-lived assets by geographic region are as follows:

(in US$ thousands)

	December 31,
Geographic region / country	2007		2008		2009
Taiwan	$	8,431	$	4,118	$	3,642
Canada		2,053		2,264		—
PRC		1,334		1,734		1,920
United States		943		4,642		—
Hong Kong		247		710		427
Total	$	13,008	$	13,468	$	5,989

Long-lived assets of our gaming software and service business are presented as assets held for sale and retained ownership of gaming software and service business as of December 31, 2009 in our Consolidated Balance Sheets.

Note 28. SUBSEQUENT EVENTS

Litigation

On April 1, 2010, a complaint was filed on behalf of UIM against Harrah’s License Company, LLC (“Harrah’s”) in connection with the promotional agreement for the World Series of Poker dated February 24, 2008 (the “Agreement”) for: 1) breach of the Agreement; 2) breach of the implied covenant of good faith and fair dealing; 3) unjust enrichment; 4) declaratory relief; and 5) injunctive relief. The complaint seeks compensatory damages, a declaration that Harrah’s materially breached the Agreement and the Agreement is therefore terminated as of April 1, 2010, an injunction precluding Harrah’s from violating the Agreement pending the outcome of the litigation, and attorney fees and costs.

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GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

A letter of termination was also sent by UIM to Harrah’s on April 1, 2010 to terminate the Agreement for multiple material breaches by Harrah’s and to demand the refund of past payments.

An application for a temporary restraining order (“TRO”) and motion for preliminary injunction was also filed. The request for the TRO was subsequently denied by the Court. On April 28, 2010, UIM had a hearing on its motion asking the court to force Harrah’s to remove a certain non-Everest Poker name and logo reference from the broadcasts into France, as UIM has exclusive promotional and advertising rights pursuant to the Agreement. The motion was denied on the grounds that UIM failed to show that the broadcasts containing the other reference’s digital overlay were certain to continue into the future. The court did not rule on the merits of the underlying claims in any way. The judge has yet to issue a formal order.

Harrah’s also filed a motion to dismiss the complaint. The next step in the process will be oral argument, but a date for a hearing has not yet been scheduled. In addition, on April 27, 2010, Harrah’s Interactive Entertainment, Inc. (“Harrah’s Interactive”) filed a separate lawsuit against UIM for 1) breach of the Agreement; 2) breach of the implied covenant of good faith and fair dealing; and, 3) unjust enrichment, and included GigaMedia as a defendant for tortious interference with contractual relations. In May 2009 the Agreement was assigned by Harrah’s to Harrah’s Interactive. UIM has asked Harrah’s to stipulate to consolidation, and Harrah’s has agreed to do so.

The Company believes it will be successful in pursuing and defending the lawsuits of Harrah’s. However, there is no assurance that we will be successful in our claims against Harrah’s, including our claim for compensatory damages and/or attorney fees and costs.

Transactions with Infocomm Asia

On April 30, 2010, GigaMedia entered into several agreements with certain shareholders of Infocomm Asia, as well with Infocomm Asia itself, to acquire additional preferred shares of Infocomm Asia. The acquisition of Infocomm Asia is expected to be closed in the third quarter of 2010, after the closing conditions set forth in the agreements are met. The total purchase price

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GIGAMEDIA LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009

pursuant to the agreements for the preferred shares is approximately $17.2 million. After the acquisition, the total number of preferred shares owned by GigaMedia can be converted into approximately 80 percent of Infocomm Asia’s outstanding common shares.

On April 30, 2010, GigaMedia signed an agreement to provide a loan facility to Infocomm Asia with a principal amount of $7 million. The loan is to be used by Infocomm Asia to support its current operations. The loan has a five year term and bears interest at 3% per annum. GigaMedia also provided a guarantee on behalf of Infocomm Asia to a licensor of certain games to Infocomm Asia and its subsidiaries. The guarantee includes but is not limited to payment of the royalties, license fees and the minimum guarantees associated with the licensed games as set forth within the licensing agreements. The total amount of GigaMedia’s guarantee, taking into account funds received by Infocomm Asia from subscription money and the loan from GigaMedia, is approximately $13.6 million.

On April 30, 2010, GigaMedia entered into a share purchase agreement with Infocomm Asia to acquire one of its wholly-owned subsidiaries in exchange for $6 million. The agreement was closed on May 7, 2010. The agreement includes certain put/call arrangements commencing immediately upon the expiration of the first anniversary of the closing date, for a period of three years thereafter.

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EX-99.4

Exhibit 99.4

Audited Financial Statements
Under Singapore FRS

GIGAMEDIA LIMITED
(Incorporated in the Republic of Singapore)
AND ITS SUBSIDIARIES
Company Registration No. 199905474H

FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2009

INDEX

	Page No.
Report of the Directors		1 – 6
Statement by Directors		7
Independent Auditors’ Report		8 – 9
Consolidated Income Statement		10
Statement of Comprehensive Income		11
Balance Sheets		12 – 13
Consolidated Statement of Changes in Equity		14 – 15
Consolidated Cash Flow Statement		16 – 17
Notes to the Financial Statements		18 – 95

Page 1

GIGAMEDIA LIMITED
(Incorporated in the Republic of Singapore)
AND ITS SUBSIDIARIES
Company Registration No. 199905474H

REPORT OF THE DIRECTORS
For the financial year ended 31 December 2009

The directors present their report together with the audited financial statements of GigaMedia Limited (the “Company”) and its subsidiaries (collectively the “Group”) and the balance sheet of the Company for the financial year ended 31 December 2009.

1.	DIRECTORS
	The directors of the Company in office at the date of this report are as follows:
	BAO, Gilbert T.C. DING, Michael Y.J. HSU, Emmet Yu-Jui HU ZEE, Nancy Jing-Ying HUI, Thomas To. LEE, Yichin LEE, Howe Yong WANG, Arthur Minshiang
2.	ARRANGEMENTS TO ENABLE DIRECTORS TO ACQUIRE SHARES AND DEBENTURES
	Neither at the end of the financial year nor at any time during the financial year was the Company a party to any arrangement whose objective was to enable the directors of the Company to acquire benefits by means of the acquisition of shares or debentures in the Company or any other body corporate, other than as disclosed under “Employee Share Option Plan and Equity Incentive Plan” on pages 3 to 6 of this report.

Page 2

3.	DIRECTORS’ INTERESTS IN SHARES AND DEBENTURES
	The directors of the Company holding office at the end of the financial year had no interests in the shares or debentures of the Company and related corporations as recorded in the register of directors’ shareholdings kept by the Company under Section 164 of the Singapore Companies Act, Cap. 50, except as follows:

	Shareholdings registered
	in the name of Directors
Name of directors
in which interests are held	At 1.1.2009		At 31.12.2009
The Company
Ordinary shares
BAO, Gilbert T.C		5,000		5,000
DING, Michael Y.J.		5,000		5,000
HU ZEE, Nancy Jing-Ying		5,000		5,000
HUI, Thomas To		18,044		18,044
LEE, Howe Yong		5,000		5,000
LEE, Yichin		5,000		5,000
WANG, Arthur Minshiang		18,690		18,690
	No. of unissued ordinary shares
	under option
Options to subscribe for ordinary shares
BAO, Gilbert T.C		40,000		40,000
DING, Michael Y.J.		55,000		55,000
HSU, Emmet Yu-Jui		20,000		20,000
HU ZEE, Nancy Jing-Ying		30,000		30,000
HUI, Thomas To		1,600,000		1,600,000
LEE, Howe Yong		30,000		30,000
LEE, Yichin		50,000		50,000
WANG, Arthur Minshiang		2,249,000		2,249,000

4. DIRECTORS’ RECEIPT AND ENTITLEMENT TO CONTRACTUAL BENEFITS

Since the beginning of the financial year, no director has received or become entitled to receive a benefit by reason of a contract made by the Company or a related corporation with the director or with a firm of which he is a member, or with a company in which he has a substantial financial interest except as disclosed in Note 34 of the financial statements and in this report. Certain directors received remunerations from the Company and related corporations in their capacity as directors and/or executives of the Company and those related corporations.

Page 3

5. EMPLOYEE SHARE OPTION PLAN AND EQUITY INCENTIVE PLAN

(a)	Options and restricted stock units (“RSUs”) granted
	2002 Employee Share Option Plan
	At the June 2002 annual general meeting of shareholders, the shareholders of the Company approved the GigaMedia Limited 2002 Employee Share Option Plan (the “2002 Plan”) under which up to three million common shares of the Company have been reserved for issuance. All employees, officers, directors, supervisors, advisors, and consultants of the Group are eligible to participate in the 2002 Plan. The 2002 Plan is administered by a committee designated by the board of directors. The committee as plan administrator has complete discretion to determine the exercise price for the option grants, the eligible individuals who are to receive option grants, the time or times when options grants are to be made, the number of shares subject to grant and the vesting schedule. The maximum contractual term for the options under the 2002 Plan is 10 years.
	2004 Employee Share Option Plan
	At the June 2004 annual general meeting of shareholders, the shareholders of the Company approved the GigaMedia Limited 2004 Employee Share Option Plan (the “2004 Plan”) under which up to seven million common shares of the Company have been reserved for issuance. All employees, officers, directors, supervisors, advisors, and consultants of the Group are eligible to participate in the 2004 Plan. The 2004 Plan is administered by a committee designated by the board of directors. The committee as plan administrator has complete discretion to determine the exercise price for the option grants, the eligible individuals who are to receive option grants, the time or times when options grants are to be made, the number of shares subject to grant and the vesting schedule. The maximum contractual term for the options under the 2004 Plan is 10 years.
	2006 Equity Incentive Plan
	At the June 2006 annual general meeting of shareholders, the shareholders of the Company approved the GigaMedia Limited 2006 Equity Incentive Plan (the “2006 Plan”) under which up to one million common shares of the Company have been reserved for issuance. The 2006 Plan is administered by a committee designated by the board of directors. The committee as plan administrator has complete discretion to determine the grant of awards under the 2006 Plan. The maximum contractual term for the options under the 2006 Plan is 10 years.
	2007 Equity Incentive Plan
	At the June 2007 annual general meeting of shareholders, the shareholders of the Company approved the GigaMedia Limited 2007 Equity Incentive Plan (the “2007 Plan”) under which up to two million common shares of the Company have been reserved for issuance. The 2007 Plan is administered by a committee designated by the board of directors. The committee as plan administrator has complete discretion to determine the grant of awards under the 2007 Plan. The maximum contractual term for the options under the 2007 Plan is 10 years.

Page 4

5. EMPLOYEE SHARE OPTION PLAN AND EQUITY INCENTIVE PLAN (continued)

(a)	Options and restricted stock units (“RSUs”) granted (continued)
	2008 Equity Incentive Plan
	At the June 2008 annual general meeting of shareholders, the shareholders of the Company approved the GigaMedia Limited 2008 Equity Incentive Plan (the “2008 Plan”) under which up to one million common shares of the Company have been reserved for issuance. The 2008 Plan is administered by a committee designated by the board of directors. The committee as plan administrator has complete discretion to determine the grant of awards under the 2008 Plan. The maximum contractual term for the options under the 2008 Plan is 10 years.
	2009 Equity Incentive Plan
	At the June 2009 annual general meeting of shareholders, the shareholders of our Company approved the GigaMedia Limited 2009 Equity Incentive Plan (the “2009 Plan”) under which up to one and a half million common shares of our Company have been reserved for issuance. The 2009 Plan is administered by a committee designated by the board of directors. The committee as plan administrator has complete discretion to determine the grant of awards under the 2009 Plan. The maximum contractual term for the options under the 2009 Plan is 10 years. As of December 31, 2009, no awards have been granted under the 2009 Plan.
	2009 Employee Share Purchase Plan
	At the June 2009 annual general meeting of shareholders, the shareholders of our Company approved the GigaMedia Limited 2009 Employee Share Purchase Plan (the “2009 ESPP”) under which up to two hundred thousand common shares of our Company have been reserved for issuance. To be eligible, employees must be regularly employed by us or our designated subsidiaries. Employees are also subject to certain restrictions on the amount that may be invested to purchase the shares and to other terms and conditions of the 2009 ESPP. The 2009 ESPP is administered by a committee designated by the board of directors. As of 31 December 2009, no award granted shares have been issued to employees under the 2009 ESPP.

Page 5

5. EMPLOYEE SHARE OPTION PLAN AND EQUITY INCENTIVE PLAN (continued)

(a)	Options and restricted stock units (“RSUs”) granted (continued)
	Summarised below are the general terms of its share-based compensation plans as of 31 December 2009.

Share-Based							RSUs’ grant
compensation	Granted			Vesting	Options’		date
plan	awards			schedule	exercise price		fair value
					(US$)		(US$)
2002 plan		3,000,000		Immediately upon granting	$	0.79		—
2004 plan		7,528,185	*	Immediately upon granting to three years		$0.79 ~$2.55		—
2006 plan		999,543		Immediately upon granting to four years	$	10.15 ~ $16.60	$	9.81 ~ $16.01
2007 plan		1,980,907		One to four years	$	4.24 ~ $18.17	$	4.24 ~ $15.35
2008 plan		560,000		Four to six years	$	4.24		—

* The granted awards, net of forfeited or canceled shares, were within reserved shares of seven million common shares.

	All options and RSUs are expected to be settled by issuing new shares.
(b)	Shares issued
	543 thousand and 518 thousand shares have been issued during the financial years ended 31 December 2009 and 2008 respectively by virtue of the exercise of options to take up unissued shares of the Company.

Page 6

5. EMPLOYEE SHARE OPTION PLAN AND EQUITY INCENTIVE PLAN (continued)

(c)	Options outstanding (continued)
	The options on ordinary shares of the Company outstanding at the end of the financial year are as follows:

	Number of unissued shares
	under option at 31.12.2009
Exercise price	(in thousands)	Expiration date
under US$1	5,392	29.6.2014
US$1~US$10	1,590	29.6.2014~19.6.2018
US$10~US$20	707	9.8.2017~29.1.2018
	7,689

The number of total outstanding options as of 31 December 2009 is 7,689 thousand, of which the exercise price include US$0.79, US$1.45, US$2.55, US$4.24 and US$10.15, US$16.01, US$16.60 and US$18.17.

During the financial year ended 31 December 2009, a total of 55 thousand options granted pursuant to the 2006 Plan and 2007 Plan had been cancelled or forfeited. During the financial year ended 31 December 2008, a total of 448 thousand options granted pursuant to the 2004 Plan, 2006 Plan and 2007 Plan had been cancelled or forfeited.

6.	INDEPENDENT AUDITORS
	The independent auditors, Horwath First Trust LLP have indicated their willingness to accept re-appointment.

On behalf of the directors

Ding, Michael Y.J.

Director

Wang, Arthur Minshiang

Director

13 May 2010

Page 7

GIGAMEDIA LIMITED
(Incorporated in the Republic of Singapore)
AND ITS SUBSIDIARIES
Company Registration No. 199905474H

STATEMENT BY DIRECTORS

For the financial year ended 31 December 2009

We, Ding, Michael Y.J. and Wang, Arthur Minshiang state that, in the opinion of the directors:

(a)	the consolidated financial statements of the Group and the balance sheet of the Company as set out on pages 10 to 95 are drawn up as to give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2009, and of the results of the business, changes in equity and cash flows of the Group for the financial year then ended; and
(b)	at the date of this statement, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due.

On behalf of the directors Ding, Michael Y.J.
Director 

Wang, Arthur Minshiang
Director 

13 May 2010

Page 8

	Horwath First Trust LLP
	Certified Public Accountants
	7 Temasek Boulevard
	#11-01 Suntec Tower One
	Singapore 038987
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF GIGAMEDIA LIMITED	Tel: (65) 6221 0338
	Fax: (65) 6221 1080
	www.horwath.com.sg

We have audited the accompanying financial statements of Gigamedia Limited (the “Company”) and its subsidiaries (the “Group”) set out on pages 10 to 95, which comprise the balance sheets of the Company and of the Group as at 31 December 2009, and the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated cash flow statement of the Group for the financial year then ended, and a summary of significant accounting policies and other explanatory notes.

Management’s responsibility for the financial statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with the provisions of the Singapore Companies Act, Cap. 50 (the “Act”) and Singapore Financial Reporting Standards. This responsibility includes:

(a)	devising and maintaining a system of internal accounting controls sufficient to provide a reasonable assurance that assets are safeguarded against loss from unauthorised use or disposition; and transactions are properly authorised and that they are recorded as necessary to permit the preparation of true and fair profit and loss accounts and balance sheets and to maintain accountability of assets;
(b)	selecting and applying appropriate accounting policies; and
(c)	making accounting estimates that are reasonable in the circumstances.

Auditors’ responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Singapore Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

The financial statements for the year ended 31 December 2008 were audited by another firm of certified public accountants whose report dated 15 May 2009 expressed an unqualified opinion on those financial statements.

Page 9

INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF
GIGAMEDIA LIMITED (Continued)

Opinion

In our opinion:

(a)

the balance sheet of the Company and the consolidated financial statements of the Group are properly drawn up in accordance with the provisions of the Act and Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2009, and the results, changes in equity and cash flows of the Group for the financial year ended on that date; and

(b)

the accounting and other records required by the Act to be kept by the Company and by the subsidiary incorporated in Singapore of which we are the auditor, have been properly kept in accordance with the provisions of the Act.

Horwath First Trust LLP
Public Accountants and
Certified Public Accountants

Singapore
13 May 2010

Page 10

GIGAMEDIA LIMITED
(Incorporated in the Republic of Singapore)
AND ITS SUBSIDIARIES
Company Registration No. 199905474H

CONSOLIDATED INCOME STATEMENT
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2009

			The Group
	Note		2009			2008
			US$’000			US$’000
Continuing operations
Revenue		4		159,581			190,369
Cost of revenue				(36,887	)		(35,174	)
Gross profit				122,694			155,195
Product development and engineering expenses				(14,195	)		(13,455	)
Selling and marketing expenses				(79,421	)		(74,173	)
General and administrative expenses				(29,672	)		(24,973	)
Other operating income		5		1,645			2,882
Other operating expenses		6		(55,351	)		(6,463	)
Finance expenses		7		(390	)		(976	)
Share of loss of associated companies		15		(87	)		(3,010	)
(Loss) profit before income tax				(54,777	)		35,027
Income tax expense		8		(517	)		(1,069	)
(Loss) profit from continuing operations		10		(55,294	)		33,958
Discontinued operations
Profit from discontinued operations		9		222			9,435
(Loss) profit for the year				(55,072	)		43,393
Attributable to:
Equity holders of the Company				(48,277	)		42,636
Minority interests				(6,795	)		757
				(55,072	)		43,393

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

Page 11

GIGAMEDIA LIMITED
(Incorporated in the Republic of Singapore)
AND ITS SUBSIDIARIES
Company Registration No. 199905474H

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2009

	The Group
	2009			2008
	US$’000			US$’000
(Loss) profit for the year		(55,072	)		43,393
Other comprehensive income:
Change in fair value adjustment on available-for-sale financial assets		6			1,693
Currency translation differences recognized directly in equity		1,008			335
Other comprehensive income for the year, net of tax		1,014			2,028
Total comprehensive (loss) income for the year		(54,058	)		45,421
Total comprehensive (loss) income attributable to :
Equity holders of the Company		(47,249	)		44,721
Minority interests		(6,809	)		700
		(54,058	)		45,421

	2009			2008
	US$			US$
Earnings (Loss) Per Share attributable to equity holders of the Company
- Basic
(Loss) profit from continuing operations		(0.89	)		0.61
Profit from discontinued operations		—			0.18
(Loss) profit for the year		(0.89	)		0.79
- Diluted
(Loss) profit from continuing operations		(0.89	)		0.55
Profit from discontinued operations		—			0.16
(Loss) profit for the year		(0.89	)		0.71
Weighted average shares used to compute earnings (loss) per share attributable to GigaMedia
Basic		54,524			54,110
Diluted*		54,524			60,152

* Options to purchase 5,115 thousand shares of common stock were not included in dilutive securities for the year ended 31 December 2009, as the effect would be anti-dilutive.

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

Page 12

GIGAMEDIA LIMITED
(Incorporated in the Republic of Singapore)
AND ITS SUBSIDIARIES
Company Registration No. 199905474H

BALANCE SHEETS AS AT 31 DECEMBER 2009

			The Group				The Company
	Note		2009		2008		2009		2008
			US$’000		US$’000		US$’000		US$’000
Non-current assets
Property, plant and equipment		12		5,989		13,134				—
Intangible assets		13		62,231		114,918		—		—
Investment in subsidiaries		14		—		—		158,964		144,113
Investment in associates		15		222		75		—		—
Retained ownership of gaming software and service business		19		25,951		—		—		—
Other investments, available-for-sale		16		21,960		27,824		—		—
Restricted cash		23		—		2,125		—		—
Other assets		17		6,684		27,985		2		21
Deferred income tax assets		18		1,359		1,362		—		—
Total non-current assets				124,396		187,423		158,966		144,134
Assets held for sale		19		66,745		—		—		—
Current assets
Inventories				109		55		—		—
Trade and other receivables		20		5,020		18,354		3,297		473
Available-for-sale financial assets		21		3,486		3,419		—		—
Cash and cash equivalents		22		55,566		95,953		1,044		66
Restricted cash		23		932		—		—		—
Other current assets		24		3,166		10,098		—		—
				68,279		127,879		4,341		539
Total assets				259,420		315,302		163,307		144,673

Page 13

GIGAMEDIA LIMITED
(Incorporated in the Republic of Singapore)
AND ITS SUBSIDIARIES
Company Registration No. 199905474H

BALANCE SHEETS AS AT 31 DECEMBER 2009 (cont’d)

				The Group						The Company
	Note			2009			2008			2009			2008
				US$’000			US$’000			US$’000			US$’000
Current liabilities
Trade and other payables		25			10,124			15,747			166			212
Short-term borrowings		26			22,503			15,243			—			8,774
Other current liabilities		27			11,988			43,390			—			4,560
Income tax liabilities		8			1,222			1,431			—			—
Total current liabilities					45,837			75,811			166			13,546
Liabilities held for sale		19			27,818			—			—			—
Non-current liabilities
Accrued pension liabilities		28			206			322			—			—
Deferred tax liabilities		18			32			1,510			—			—
Other liabilities		29			52			2,288			—			—
Total non-current liabilities					290			4,120			—			—
Total liabilities					73,945			79,931			166			13,546
Net Assets					185,475			235,371			163,141			131,127
Capital, reserves and minority interests
Share capital		30	(a)		211,540			209,423			211,540			209,423
Share option reserve		30	(b)		10,188			7,947			8,263			7,642
Retained earnings/ (Accumulated losses)					(19,359	)		29,986			(34,615	)		(58,323	)
Statutory reserves		30	(d)		3,737			2,669			—			—
Fair value reserve					2,611			2,605			247			241
Foreign currency translation reserve					(24,857	)		(25,879	)		(22,294	)		(27,856	)
Equity attributable to equity holders of the company					183,860			226,751			163,141			131,127
Minority interests					1,615			8,620			—			—
Total equity					185,475			235,371			163,141			131,127

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

Page 14

GIGAMEDIA LIMITED
(Incorporated in the Republic of Singapore)
AND ITS SUBSIDIARIES
Company Registration No. 199905474H

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2009

The Group

							Attributable to equity holders of the Company
								Retained						Foreign
			Share					earnings/						currency
	Share		option			Statutory		(Accumulated			Fair value			translation					Minority			Total
	capital		reserve			reserves		Losses)			reserve			reserve			Total		interests			Equity
	US$’000		US$’000			US$’000		US$’000			US$’000			US$’000			US$’000		US$’000			US$’000
Balance at 1 January, 2008		207,310		6,832			2,165		(12,146	)		912			(26,239	)		178,834		9,810			188,644
Issuance of common shares		2,113		(1,618	)		—		—			—			—			495		—			495
Net profit for the year		—		—			—		42,636			—			—			42,636		757			43,393
Other comprehensive income for the year		—		32			—		—			1,693			360			2,085		(57	)		2,028
Total comprehensive income for the year		—		32			—		42,636			1,693			360			44,721		700			45,421
Recognition of share-based payments		—		2,701			—		—			—			—			2,701		79			2,780
Transfer of statutory reserves		—		—			504		(504	)		—			—			—		—			—
Acquisition of minority interests		—		—			—		—			—			—			—		(1,669	)		(1,669	)
Dividend paid to minority interests		—		—			—		—			—			—			—		(300	)		(300	)
Balance at 31 December, 2008		209,423		7,947			2,669		29,986			2,605			(25,879	)		226,751		8,620			235,371

Page 15

GIGAMEDIA LIMITED
(Incorporated in the Republic of Singapore)
AND ITS SUBSIDIARIES
Company Registration No. 199905474H

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (cont’d)
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2009

The Group

								Attributable to equity holders of the Company
									Retained						Foreign
				Share					earnings/						currency
	Share			option			Statutory		(Accumulated			Fair value			translation						Minority			Total
	capital			reserve			reserves		Losses)			reserve			reserve			Total			interests			Equity
	US$’000			US$’000			US$’000		US$’000			US$’000			US$’000			US$’000			US$’000			US$’000
Balance at 31 December, 2008		209,423			7,947			2,669		29,986			2,605			(25,879	)		226,751			8,620			235,371
Issuance of common shares		2,229			(909	)		—		—			—			—			1,320			—			1,320
Net loss for the year		—			—			—		(48,277	)		—			—			(48,277	)		(6,795	)		(55,072	)
Other comprehensive income for the year		—			—			—		—			6			1,022			1,028			(14	)		1,014
Total comprehensive income (loss) for the year		—			—			—		(48,277	)		6			1,022			(47,249	)		(6,809	)		(54,058	)
Recognition of share-based payments		—			3,150			—		—			—			—			3,150			127			3,277
Transfer of statutory reserves		—			—			1,068		(1,068	)		—			—			—			—			—
Acquisition of minority interests (Note 22)		(112	)		—			—		—			—			—			(112	)		(173	)		(285	)
Dividend paid to minority interests		—			—			—		—			—			—			—			(150	)		(150	)
Balance at 31 December, 2009		211,540			10,188			3,737		(19,359	)		2,611			(24,857	)		183,860			1,615			185,475

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

Page 16

GIGAMEDIA LIMITED
(Incorporated in the Republic of Singapore)
AND ITS SUBSIDIARIES
Company Registration No. 199905474H

CONSOLIDATED CASH FLOW STATEMENT
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2009

		The Group
	Note	2009			2008
		US$’000			US$’000
CASH FLOWS FROM OPERATING ACTIVITIES
(Loss) profit before tax			(54,555	)		45,448
Adjustments for:
Foreign currency translation adjustment			(356	)		937
Depreciation			4,358			4,031
Amortisation-intangible assets			5,110			4,102
Amortisation-deferred assets			109			240
Allowance for doubtful receivables			1,092			2,953
Loss on disposal of property, plant and equipment			31			282
Gain on sales of available-for-sale financial assets and other investment, available-for-sale			—			(400	)
Gain on divestiture of business			—			(11,014	)
Share-based compensation			3,277			2,780
Impairment loss (reversal of impairment loss) on property, plant and equipment			918			(207	)
Impairment loss on prepaid licensing fees and intangible assets			37,105			1,524
Share of loss of associated companies			87			3,010
Impairment loss on other investment, available-for-sale			16,205			—
Unrealised exchange loss on other investments, available-for-sale			(918	)		2,021
Interest expense			390			976
Interest income			(432	)		(1,460	)
Other non-cash expenses			24			300
OPERATING PROFIT BEFORE WORKING CAPITAL CHANGES			12,445			55,523
In inventories			(53	)		(51	)
In trade and other receivables			(3,614	)		(589	)
In other current assets			210			(4,661	)
In other assets			(5,137	)		(4,700	)
In trade and other payables			2,329			335
In other current liabilities			704			5,139
In accrued pension liabilities			(45	)		(230	)
In other liabilities			2,615			1,871
Cash generated from operating activities			9,454			52,637
Income tax paid			(1,230	)		(1,412	)
Net cash provided by operating activities			8,224			51,225

Page 17

GIGAMEDIA LIMITED
(Incorporated in the Republic of Singapore)
AND ITS SUBSIDIARIES
Company Registration No. 199905474H

CONSOLIDATED CASH FLOW STATEMENT (cont’d)
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2009

			The Group
	Note		2009			2008
			US$’000			US$’000
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in restricted cash				187			4,122
Purchase of property, plant and equipment				(5,761	)		(8,814	)
Proceeds from disposal of property, plant and equipment				17			35
Proceeds from disposal of available-for-sale financial assets				—			25,095
Divestiture of business, net of cash transferred		22		1,006			16,471
Purchase of available-for-sale financial assets				—			(17,518	)
Purchase of other investment, available-for-sale				(9,281	)		(7,228	)
Purchase of investment in associates				(383	)		(190	)
Purchase of intangible assets				(8,807	)		(7,509	)
Acquisitions, net of cash acquired		22		(285	)		(4,642	)
Increase in loan receivable				(637	)		—
Decrease (increase) in refundable deposit				1,986			(5,862	)
Cash balance included in assets held for sale and retained ownership of gaming software and service business		19		(35,015	)		—
Other				(120	)		(380	)
Interest received				444			1,470
Net cash used in investing activities				(56,649	)		(4,950	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from (repayment of) short-term borrowings				7,261			(18,058	)
Cash received from the exercise of share options				1,320			495
Cash dividend to minority interest shareholders of subsidiary				(150	)		(300	)
Other				(5	)		(14	)
Interest paid				(388	)		(1,008	)
Net cash generated from / (used in) financing activities				8,038			(18,885	)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS				(40,387	)		27,390
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE FINANCIAL YEAR				95,953			68,563
CASH AND CASH EQUIVALENTS AT THE END OF THE FINANCIAL YEAR		22		55,566			95,953

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

Page 18

GIGAMEDIA LIMITED
(Incorporated in the Republic of Singapore)
AND ITS SUBSIDIARIES
Company Registration No. 199905474H

NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2009

These notes form an integral part of and should be read in conjunction with the accompanying financial statements.

1. GENERAL INFORMATION

The Company is incorporated in Singapore and the address of its registered office is 8 Cross Street, #11-00 PWC Building, Singapore 048424. Its principal place of business is at 207 Tiding Boulevard, Section 2, Taipei, Taiwan, 114 Republic of China.

The principal activity of the Company is that of investment holding. The principal activities of the subsidiaries are providing online entertainment software and services.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)	Basis of Preparation
	The financial statements expressed in United States dollars (“US$”) and all values are rounded to nearest thousand (US$’000) as indicated have been prepared in accordance with Singapore Financial Reporting Standards (“FRS”) and under the historical cost convention, except as disclosed in the accounting policies below.
	The preparation of financial statements in conformity with FRS requires management to exercise its judgement in the process of applying the Group’s accounting policies. It also requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the financial year. Although these estimates are based on management’s best knowledge of current events and actions, actual results may ultimately differ from those estimates. Critical accounting estimates and assumptions used that are significant to the financial statements, and critical accounting estimates and assumptions involving a higher degree of judgement or complexity, are disclosed in Note 3.

Page 19

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

(a)	Basis of Preparation (cont’d)
	On 1 January 2009, the Group adopted the new or amended FRS and Interpretations to FRS (“INT FRS”) that are mandatory for application from that date. Changes to the Group’s accounting policies have been made as required, in accordance with the relevant transitional provisions in the respective FRS and INT FRS.
	The following are the new or amended FRS and INT FRS that are relevant to the Group:

(1)	FRS 1 (revised) Presentation of financial statements
	The revised standard prohibits the presentation of items of income and expenses (that is, “non-owner changes in equity”) in the statement of changes in equity. All non-owner changes in equity are shown in a performance statement but entities can choose whether to present one performance statement (the “statement of comprehensive income”) or two statements (the income statement and statement of comprehensive income). The Group has chosen to adopt the latter alternative. In addition, where comparative information is restated or reclassified, a restated balance sheet is required to be presented as at the beginning comparative period. There is no restatement of the balance sheet as at 1 January 2008 in the current financial year.
(2)	Amendments to FRS 18 Revenue
	FRS 18 has been amended to add guidance to determine whether an entity is acting as a principal or an agent. The Group has reported revenue on a gross basis with the customer in previous financial years. Upon adoption of the amendments to FRS 18, the Group reassessed their business relationships and determined that the amendments do not have a material impact on the financial statements.
(3)	Amendments to FRS 27 Consolidated and Separate Financial Statement
	The amendments to FRS 27 require all dividends from a subsidiary, jointly controlled entities or associates to be recognised in profit or loss of the Company’s separate financial statement. Distinction between pre- and post-acquisition profits is no longer required. The Company applied the amendments to FRS 27 prospectively. During the financial year, the change in the accounting policy had no material impact on the Company’s retained earnings.

Page 20

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

(a) Basis of Preparation (cont’d)

(4)	Amendments to FRS 107 Improving disclosures about financial statements
	The amendment requires enhanced disclosures about fair value measurement and liquidity risk. In particular, the amendment requires disclosure of fair value measurements by level of a fair value measurement hierarchy. The adoption of the amendment results in additional disclosures but does not have an impact on the accounting policies and measurement bases adopted by the Group.
(5)	FRS 108 Operating segments
	This replaces FRS 14 Segment reporting, and requires a “management approach” under which segment information is presented on the same basis as that used for internal reporting purposes.
	FRS 108 requires disclosure of information about the Group’s operating segments and replaces the requirement to determine primary and secondary reporting segments of the Group. The Group determined that the reportable operating segments are the same as the business segments previously identified under FRS 14 Segment Reporting. Additional disclosures about each of the segments are shown in Note 31.

New accounting standards and interpretations not yet adopted

The Group has not applied the following accounting standards and interpretations that have been issued as of the balance sheet date but are not yet effective:

Page 21

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

(a)	Basis of Preparation (cont’d)
	Certain new standards, amendments and interpretations to existing standards have been published as at balance sheet date and are mandatory for the Group’s accounting periods beginning on or after 1 January 2010 or later periods and which the Group has not early adopted

	Effective for annual
	periods beginning
Description	on or after
Amendments to FRS 27 Consolidated and Separate Financial Statements	1 July 2009
Amendments FRS 39 Financial Instruments: Recognition and Measurement — Eligible Hedged Items	1 July 2009
Revised FRS 103 Business Combinations	1 July 2009
Amendments to FRS 105 Non-current Assets Held-for-sale and Discontinued Operations	1 July 2009
INT FRS 117 Distributions of Non-cash Assets to Owners	1 July 2009
INT FRS 118 Transfer of Assets to Customers	1 July 2009
Improvements to FRS issued in 2009
Amendments to FRS 38 Intangible Assets	1 July 2009
Amendments to FRS 102 Share-based Payment	1 July 2009
Amendments to FRS 108 Operating Segments	1 July 2009
Amendments to INT FRS 109 Reassessment of Embedded Derivatives	1 July 2009
Amendments to INT FRS 116 Hedges of a Net Investment in a Foreign Operation	1 July 2009
Amendments to FRS 1 Presentation of Financial Statements	1 January 2010
Amendments to FRS 7 Statement of Cash Flows	1 January 2010
Amendments to FRS 17 Leases	1 January 2010
Amendments to FRS 36 Impairment of Assets	1 January 2010
FRS 39 Financial Instruments: Recognition and Measurement	1 January 2010
Amendments to FRS 105 Non-current Assets Held-for-sale and Discontinued Operations	1 January 2010
Amendments to FRS 108 Operating Segments	1 January 2010

The Group’s assessment of the impact of adopting those standards, amendments and interpretations that are relevant to the Group is set out below:

Revised FRS 27 requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is re-measured to fair value, and a gain or loss is recognised in profit or loss. The Group will apply revised FRS 27 prospectively to transactions with minority interests from 1 January 2010.

Page 22

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

(a)	Basis of Preparation (cont’d)
	FRS 103 revised continues to apply the acquisition method to business combinations, with some significant changes. For example, all payments to purchase a business are to be recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently re-measured through the income statement. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at fair vale or at the non-controlling interest’s proportionate share of the acquiree’s net assets. All acquisition-related costs should be expensed. The Group will apply revised FRS 103 prospectively to all business combinations from 1 January 2010. The amendments to FRS 105 requires that when a subsidiary is held for sale, all its assets and liabilities shall be classified as held for sale under FRS 105, even when the Group will retain a non-controlling interest in the subsidiary after the sale. The Group is in the process of evaluating what effect, if any, the adoption may have in the Group’s consolidated financial statements.
(b)	Revenue Recognition
	Revenue comprises the fair value for the sale of goods and rendering of services net of value added tax, rebates and discounts, after eliminating sales within the Group.
	Multiple-Element Arrangements
	The Group enters into multiple-element revenue arrangements, which may include any combination of services, software, and/or products. To the extent that a deliverable in a multiple-element arrangement is subject to specific accounting guidance, whether and/or how to separate multiple deliverable arrangements into separate units of accounting (separability) and how to allocate the arrangement consideration among those separate units of accounting (allocation) for that deliverable is accounted for in accordance with such specific guidance.
	Gaming software and service revenues
	Gaming software and service revenues are related to software the Group develops and license and support services the Group provides for online real-money gaming solutions and applications.
	Software licensing and support service revenues are based upon a percentage of gross receipts generated by a software licensee’s online gaming operations, and are recognised monthly. The software licensee generates revenues by providing and promoting online games of skill and chance that are available on the free download gaming software. Revenues derived from the online gaming software platform are recognised at the time games are played and are net of player winnings. Transaction fee revenues derived from the online multi-player poker platform are recognised as services are provided.

Page 23

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

(b)	Revenue Recognition
	Online game and service revenues
	Online game and service revenues are related to the Group’s online game and service business that operates play-for-fun games online in Asia.
	Online game revenues are collected through the sale of online game points, pre-paid cards, and game packs. Virtual online game points are sold directly to end-users who can make the payments through credit cards, the Internet ATMs or telecommunication service operators. Physical pre-paid cards and game packs are sold through distributors and convenience stores. Proceeds from sales of physical cards and game packs, net of sales discounts, and online game points are deferred when received and revenue is recognised upon the actual usage of the playing time or in-game virtual items by the end-users; over the estimated useful life of virtual items; or when the sold game points expire and are no longer eligible to access the online games or products in accordance with the Group’s published game points expiration policy.
	The Group reports sales of virtual online game points on a gross basis. In the sales of virtual online game points, the Group acts as principal and the Group has latitude in establishing price. Fixed percentage fees retained by service providers for payment processing related to the Group’s online game services are recognised as cost of online game revenues.
	Online game and service revenues also include revenues derived from online advertising arrangements, sponsorship arrangements, or a combination of both. These service arrangements allow advertisers to place advertisements on particular areas of the Group’s Web sites and online games platforms over a stated period of time. Service revenues from online advertising arrangements are recognised over the displayed period of the contract when the collectability is reasonably assured.
	Interest
	Interest income is recognised on a time proportion basis using the effective interest rate method.

Page 24

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

(c)	Group Accounting
	(1) Subsidiaries
	Subsidiaries are entities (including deemed special purpose entities as defined under Interpretation of Financial Reporting Standards INT FRS12) over which the Group has power to govern the financial and operating policies, generally accompanied by a shareholding giving rise to the majority of the voting rights or entities of which the Group has a beneficial interest. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. The Group entered into a software license and support service contract with Ultra Internet Media, S.A. (“UIM”) to provide Internet software support services for UIM’s online gaming operations. The contract allows for the Group to charge a percentage of UIM gross receipts resulting from UIM’s online gaming operations. The Group was considered having retained significant beneficial interest in UIM due to contractual relationship. As a result, the Group has incorporated the results of UIM into its consolidated financial statements, even though the Group does not own any of UIM’s equity.
	Pursuant to various agreements entered into between T2CN, Shanghai T2 Entertainment Co., Ltd. (“T2 Entertainment”), Shanghai T2 Advertisement Co., Ltd. (“T2 Advertisement”) and the equity owners of T2 Entertainment and T2 Advertisement, T2CN generally has control and the risks and rewards of ownership of T2 Entertainment and T2 Advertisement and is considered having retained significant beneficial interest in T2 Entertainment and T2 Advertisement. T2 Entertainment and T2 Advertisement were established to hold the necessary licenses for the Group’s participation in online game and related advertisement services in the People’s Republic of China (“PRC”). Accordingly, from the date that the Group consolidated T2CN, the results of T2 Entertainment and T2 Advertisement are included in the accompanying consolidated financial statements.

Page 25

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

(c)	Group Accounting
	(1) Subsidiaries (cont’d)
	In November 2007, T2CN entered into various agreements with Shanghai Jinyou Network & Technology Co., Ltd. (“Jinyou”) and the equity owners of Jinyou. The agreements provided for T2CN to obtain conditional effective and enforceable clauses upon acquiring an Internet Content Provider (“ICP”) license by Jinyou. Jinyou was established to hold the necessary licenses for our participation in online games in the PRC. In September 2008, Jinyou acquired the ICP license and the above agreements became effective. T2CN generally has control and the risks and rewards of ownership of Jinyou and is considered having retained significant beneficial interest in Jinyou. Accordingly, the results of Jinyou are included in the accompanying Consolidated Financial Statements starting from September 2008.
	The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition is measured at the fair value of the assets given, equity instruments issued or liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values on the date of acquisition, irrespective of the extent of any minority interest. Please refer to Note 2(e)(1) for the accounting policy on goodwill on acquisition of subsidiaries.
	Subsidiaries are consolidated from the date on which control is transferred to the Group to the date on which that control ceases. In preparing the consolidated financial statements, intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated but are considered an impairment indicator of the asset transferred.
	Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. The accounting periods of the subsidiaries are conterminous with that of the Company.

Page 26

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

(c)	Group Accounting (cont’d)
	(2) Minority interest
	Minority interest is that part of the net results of operations and of net assets of a subsidiary attributable to interests which are not owned directly or indirectly by the Group. It is measured at the minorities’ share of post-acquisition fair value of the subsidiaries’ identifiable assets and liabilities, except when the losses applicable to the minority in a subsidiary exceed the minority interest in the equity of that subsidiary. In such cases, the excess and further losses applicable to the minority are attributed to the equity holders of the Company, unless the minority has a binding obligation to, and is able to, make good the losses. When that subsidiary subsequently reports profits, the profits applicable to the minority are attributed to the equity holders of the Company until the minority’s share of losses previously absorbed by the equity holders of the Company has been recovered.
	Minority interest includes 100 percent of the common stock of UIM held by third-party shareholders.
	Minority interest also includes 30 percent of the common stock of Dragongate Enterprises Limited (“Dragongate Enterprises”), which is held by Cyber Gateway Pte. Ltd. (“Cyber Gateway”), which is 100 percent owned by Infocomm Asia Holdings Pte. Ltd. (“Infocomm Asia”).
	As of December 31, 2009 and 2008, minority interest also includes 32.91 percent and 33.71 percent, respectively, of the common stock of T2CN, which is held by third-party shareholders.
	(3) Discontinued Operations
	For 2009 and 2008, a portion of the Group’s revenues was generated from its Internet access and service business. The Group disposed of the remaining portion of its Internet access and service business in September 2008, and as a result has classified the income from these revenue-generating activities as part of discontinued operations. (See Note 9, “Discontinued Operations”, for additional information).
	The Internet access and service business revenues were recorded net of discounts and net of fees paid to cable partners, and were recognized on a straight-line basis over the subscription period or for the period in which the service was performed. Any advanced payment receipts were recorded as deferred revenues included in other current liabilities in the Consolidated Balance Sheets and were amortized over the subscription period. The sale of other Internet access-related products and rental income from the lease of Internet access-related equipment to subscribers were recognized when products were delivered or services were provided.

Page 27

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

(c)	Group Accounting (cont’d)
	(4) Transaction costs
	Costs directly attributable to an acquisition are included as part of the cost of acquisition.
	(5) Associated companies
	Associated companies are entities over which the Group has significant influence, but not control, generally accompanied by a shareholding giving rise to between and including 20% and 50% of the voting rights. Investments in associated companies are accounted for in the consolidated financial statements using the equity method of accounting.
	Investments in associated companies are initially recognised at cost. The cost of an acquisition is measured at the fair value of the assets given, equity instruments issued or liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate recognised at the date of acquisition is recognised as goodwill.
	In applying the equity method of accounting, the Group’s share of its associated companies’ post-acquisition profits or losses is recognised in the income statement. When the Group’s share of losses in an associated company equals or exceeds its interest in the associated company, including any other unsecured non-current receivables, the Group does not recognise further losses, unless it has obligations or has made payments on behalf of the associated company.
	Unrealised gains on transactions between the Group and its associated companies are eliminated to the extent of the Group’s interest in the associated companies. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associated companies have been changed where necessary to ensure consistency with the accounting policies adopted by the Group.

Page 28

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

(d) Property, Plant and Equipment

(1)	Land and buildings
	Land and buildings are initially recorded at cost. Freehold land is subsequently stated at cost less accumulated impairment losses (Note 2(g)). Buildings are subsequently stated at cost less accumulated depreciation and accumulated impairment losses (Note 2(g)).
(2)	Other property, plant and equipment
	Other property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses (Note 2(g)).
(3)	Depreciation
	Freehold land is not depreciated. Depreciation is calculated using a straight-line method to allocate the depreciable amounts of property, plant and equipment over their estimated useful lives. The estimated useful lives are as follows:

Categories	Years
Buildings		50
Information and communication equipment		2 to 5
Office furniture and equipment		3 to 5
Leasehold improvements		2 to 5
Transportation equipments		5

	Leasehold improvements are depreciated over the life of the lease or the assets, whichever is shorter.
(4)	Subsequent expenditure
	Subsequent expenditure relating to property, plant and equipment that has already been recognised is added to the carrying amount of the asset when it is probable that future economic benefits, in excess of the standard of performance of the asset before the expenditure was made, will flow to the Group and the cost can be reliably measured. Other subsequent expenditure is recognised as an expense during the financial year in which it is incurred.
(5)	Disposal
	On disposal of an item of property, plant and equipment, the difference between the net disposal proceeds and its carrying amount is taken to the income statement.

Page 29

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

(e) Intangible Assets

(1)	Goodwill on acquisition
	Goodwill arising on the acquisition of a subsidiary represents the excess of the cost of acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary recognised at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses (Note 2 (g)).
(2)	Trademarks
	Trademarks with definite lives are being amortised over their estimated useful lives, and are carried at cost less accumulated amortisation and accumulated impairment losses (Note 2(g)). Amortisation is calculated using the straight-line method over their estimated useful lives of 10 years. Trademarks with an indefinite useful life are not amortised and are carried at cost less accumulated impairment losses (Note 2(g)).
(3)	Other intangible assets
	Other intangible assets comprise completed technology, non-competition agreement, capitalised software cost, customer relationships and other. Other intangible assets are shown at historical cost. Other intangible assets have a definite useful life and are carried at cost less accumulated amortisation and accumulated impairment losses (Note 2(g)). Amortisation is calculated using a straight-line method to allocate the cost of other intangible assets over their estimated useful lives ranging from 3 to 9 years.
	Costs directly attributable to the development of software are capitalised as intangible assets only when technical feasibility of the project is demonstrated, the Group has an intention and ability to complete and use the software and the costs can be measured reliably. Such costs include purchases of materials and services and payroll-related costs of employees directly involved in the project.

Page 30

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

(f)	Investments in subsidiaries
	Investments in subsidiaries are stated at cost less accumulated impairment losses on the Company’s balance sheet. On disposal of investments in subsidiaries, the difference between net disposal proceeds and the carrying amount of the investments is taken to the income statement.
(g)	Impairment of Non-financial Assets

(1)	Goodwill
	Goodwill is tested annually for impairment, as well as when there is any indication that the goodwill may be impaired. Goodwill included in the carrying amount of an investment in associated company is tested for impairment as part of the investment, rather than separately.
	For the purpose of impairment testing of goodwill, goodwill is allocated to each of the Group’s cash-generating-units (“CGUs”) expected to benefit from synergies of the business combination.
	An impairment loss is recognised in the income statement when the carrying amount of a CGU, including the goodwill, exceeds the recoverable amount of the CGU. Recoverable amount of a CGU is the higher of the CGU’s fair value less cost to sell and value in use.
	The total impairment loss of a CGU is allocated first to reduce the carrying amount of goodwill allocated to the CGU and then to the other assets of the CGU pro-rata on the basis of the carrying amount of each asset in the CGU.
	Impairment loss on goodwill is not reversed in a subsequent period.
(2)	Long-Lived Assets
	Long-Lived assets are reviewed for impairment annually or whenever there is any objective evidence or indication that these assets may be impaired. If any such objective evidence or indication exists, the recoverable amount (i.e. the higher of the fair value less cost to sell and value in use) of the asset is estimated to determine the amount of impairment loss.
	For the purpose of impairment testing of these assets, the recoverable amount is determined on an individual asset basis unless the asset does not generate cash flows that are largely independent of those from other assets. If this is the case, the recoverable amount is determined for the CGU to which the asset belongs to.
	If the recoverable amount of the asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced to its recoverable amount. The impairment loss is recognised in the income statement unless the asset is carried at revalued amount, in which case, such impairment loss is treated as a revaluation decrease.

Page 31

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

(g)	Impairment of Non-financial Assets (con’d)
	An impairment loss for an asset other than goodwill is reversed if, and only if, there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. The carrying amount of an asset other than goodwill is increased to its revised recoverable amount, provided that this amount does not exceed the carrying amount that would have been determined (net of accumulated amortisation or depreciation) had no impairment loss been recognised for the asset in prior years. A reversal of impairment loss for an asset other than goodwill is recognised in the income statement, unless the asset is carried at revalued amount, in which case, such reversal is treated as a revaluation increase.
(h)	Financial Assets

(1)	Classification
	Available-for-sale financial assets
	The Group classifies all of its investments in financial assets as available-for-sale financial assets. The classification depends on the purpose for which the assets were acquired. Management determines the classification of its financial assets at initial recognition and re-evaluates this designation at every reporting date.
	Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. Investments included in current assets represent investments with a maturity of less than one year or investments that management intends to sell within one year. Investments classified as non-current include investments that have a maturity of more than one year or investments that management does not intend to sell within one year.
	Loans and receivables
	Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable. They are included in current assets, except those maturing more than 12 months after the balance sheet date which are classified as non-current assets. Loans and receivables are presented as trade and other receivables and cash and bank balances on the balance sheet.

Page 32

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

(h) Financial Assets (con’d)

(2)	Measurement
	Available-for-sale financial assets
	Available-for-sale financial assets are initially recognized at fair value plus transaction costs and subsequently carried at fair value. Interest and dividend income on available-for-sale financial assets are recognised separately in the income statement. Changes in the fair values of available-for-sale debt securities (i.e. monetary items) denominated in foreign currencies are analysed into currency translation differences on the amortised cost of the securities and other changes; the currency translation differences are recognised in the income statement and the other changes are recognised in the fair value reserve. Changes in fair values of available-for-sale equity securities (i.e. non-monetary items) are recognised in the fair value reserve, together with the related currency translation differences.
	Loans and receivables
	At subsequent reporting dates, loans and receivables are measured at amortised cost using the effective interest rate method. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, and through the amortisation process.
(3)	Determination of fair value
	The Group generally determines or calculates the fair value of financial instruments using quoted market prices in active markets when such information is available or using appropriate present value or other valuation techniques, such as discounted cash flow analyses, incorporating available market discount rate information and the Company’s estimates for non-performance and liquidity risk. These techniques rely extensively on the use of a number of assumptions, including the discount rate, credit spreads, and estimates of future cash flows.
(4)	Impairment of financial assets
	The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the investment below its cost is considered in determining whether the investments are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from the fair value reserve within equity and recognised in the income statement. Impairment losses recognised in the income statement on equity investments are not reversed through the income statement, until the equity investments are disposed of.

Page 33

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

(i)	Trade and Other Receivables
	Trade receivables are stated at costs less allowance for doubtful receivables based on a review of outstanding amounts at the year end. An allowance for doubtful accounts is provided based on an evaluation of collectability of notes receivable, accounts receivable, and other receivables. An allowance for doubtful accounts is also provided, when considered necessary, to loans receivables. The Group review loans receivable individually and the evaluation primarily consists of an analysis based upon current information available about the borrowers.
	For those accounts in which a loss is probable, the Group records a specific reserve. Receivable losses are charged against the allowance when the Group believes the uncollectability of the receivable is confirmed. Subsequent recoveries, if any, are credited to the allowance.
(j)	Operating Leases
	Leases of assets in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are recorded in the income statement on a straight-line basis over the period of the lease.
	When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place.
(k)	Inventories
	Inventories are stated at the lower of cost and net realisable value. Cost is determined on a weighted average basis. Net realisable value is the estimated selling price in the ordinary course of business, less selling expenses.
(l)	Player Account Balances
	Player account balances are related to player deposits from its gaming software and service business. Player account balances are presented as current liabilities, which are first accrued for in full upon the receipt of player deposits, and increased or decreased based on player activities, including player wins or losses, withdrawals and refunds. (See Note 27, “Other Current Liabilities”, for additional information).

Page 34

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

(m)	Deferred Income Taxes
	Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred income tax liability is settled.
	A deferred income tax liability is recognised on temporary differences arising on investments in subsidiaries and associated companies, except where the Group is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
	A deferred income tax asset is recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.
(n)	Provisions for Other Liabilities and Charges
	Provisions are recognised when the Group has a legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount can be made.
(o)	Employee Benefits

(1)	Retirement plan
	Defined benefit pension plan
	The Group has a defined benefit pension plan in accordance with the Labor Standards Law of the Republic of China (R.O.C.) for the employees located in Taiwan, covering substantially all full-time employees for services provided prior to 1 July 2005, and employees who have elected to remain in the defined benefit pension plan subsequent to the enactment of the Labor Pension Act on 1 July 2005. Under the defined benefit pension plan, net periodic pension cost, which includes service cost, interest cost, expected return on plan assets, amortisation of unrecognised net transition obligation and gains or losses on plan assets, is recognised based on an actuarial valuation report.
	Defined contribution pension plan
	The Group has provided defined contribution plans for employees located in Taiwan, North America, the PRC and Hong Kong. Contributions to the plans are expensed as incurred.

Page 35

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

(o)	Employee Benefits
	(2) Share-based compensation
	The Group operates an equity-settled, share-based compensation plan. The fair value of the employee or non-employee services received in exchange for the grant of the options is recognised as an expense in the income statement with a corresponding increase in the share option reserve over the vesting period. The total amount to be recognised over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions (for example, profitability and sales growth targets), on the date of grant. Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable on vesting date. At each balance sheet date, the entity revises its estimates of the number of options that are expected to become exercisable on vesting date. It recognises the impact of the revision of original estimates, if any, in the income statement, and a corresponding adjustment to equity over the remaining vesting period.
	The proceeds received net of any directly attributable transaction costs are credited to share capital when the options are exercised.

(p) Foreign Currency Translation

(1)	Functional and presentation currency
	The Company’s functional currency is New Taiwan dollar. Items included in the financial statements of each entity in the Group are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The consolidated financial statements are presented in U.S. Dollars (“US$” or “US Dollars”) which is the Group’s and the Company’s presentation currency as operations denominated in U.S. Dollars represented a significant portion of the business.
(2)	Transactions and balances
	Transactions in a currency other than the functional currency (“foreign currency”) are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Currency translation gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.
	Currencies translation difference on non-monetary items, such as equity investments classified as available-for-sale financial assets, are included in the fair value reserve within equity.

Page 36

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

(p) Foreign Currency Translation (cont’d)

(3)	Translation of the Company’s and Group entities’ financial statements
	The results and financial position of the Company, and the Group entities (none of which has the currency of a hyperinflationary economy) are translated into presentation currency as follows:

i.	Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
ii.	Income and expenses for each income statement are translated at average exchange rates; and
iii.	All resulting exchange differences are taken to the foreign currency translation reserve.

On consolidation, exchange differences arising from the translation of the net investment in foreign entities (including monetary items that, in substance, form part of the net investment in foreign entities) are taken to shareholders’ equity. When an operation, the functional currency of which is not denominated in US Dollars, is disposed of, such exchange differences are taken to the income statement as part of the gain or loss on disposal.

(q)	Cash and cash equivalents
	Cash and cash equivalents include cash on hand and unpledged deposits with financial institutions.
(r)	Non-Current Assets (or Disposal Groups) Held for Sale and Discontinued Operations
	Non-current assets (or disposal groups) are classified as assets held for sale and stated at the lower of carrying amount and fair value less costs to sell if their carrying amount is recovered principally through a sale transaction rather than through continuing use.

Page 37

3. CRITICAL ACCOUNTING ESTIMATES, ASSUMPTIONS AND JUDGEMENTS

Estimates are continually evaluated and are based on historical experience and other factors, including expectations of the future events that are believed to be reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

(a)	Estimated Impairment of Assets
	The Group tests annually whether the goodwill has suffered any impairment, and reviews long-lived assets annually or whenever there is any objective evidence or indication that these assets may be impaired, in accordance with the accounting policy stated in Note 2 (g). The recoverable amounts of CGUs or the asset are determined from value-in-use calculations or fair value approach. The key assumptions for the value-in-use calculations are those regarding the discount rates, growth rates and expected changes to revenues and costs and expenses.
(b)	Potential tax liabilities
	The Group is subject to income taxes in numerous jurisdictions. In determining the income tax liabilities, management is required to estimate the amount of capital allowances and the deductibility of certain expenses (“potential tax liabilities”) at each tax jurisdiction.
	The amount of unrecognised tax benefits may increase or decrease in the future for various reasons such as current year tax positions, expiration of statutes of limitations, litigation, legislative activity, or other changes in facts regarding realizability. However, at this time, an estimate of the potential range of change cannot be reasonably made.
(c)	Defined Benefit Pension Plan
	Weighted-average assumptions used to determine benefit obligations and net periodic pension costs at 31 December 2009 and 2008 were as follows:

	2009			2008
Discount rate		2.25	%		2.50	%
Rate of return on plan assets		2.25	%		2.50	%
Rate of compensation increase		1.00	%		1.00	%

Page 38

3. CRITICAL ACCOUNTING ESTIMATES, ASSUMPTIONS AND JUDGEMENTS (cont’d)

(d)	Share Options
	GigaMedia
	The Company used the Black-Scholes formula to estimate the fair value of share options granted to employees. There were no stock options granted in 2009 and the following summarises the assumptions used in the model for options granted during each of the years ended 31 December:

For the year ended 31 December	2009		2008
Option term (years)		—	2.77~4.58
Volatility		—	57.83%~64.58%
Weighted-average volatility		—	64.01%
Risk-free interest rate		—	1.72%~2.88%
Dividend yield		—	0%
Weighted-average fair value of option granted		—	US$2.36

T2CN

T2CN used the Black-Scholes option-pricing model to estimate the fair value of share options. There were no stock options granted in 2009 and the following summarizes the assumptions used in the model for options granted during each of the years ended 31 December:

For the years ended 31 December	2009		2008
Option term (years)		—	3.50~6.26
Volatility		—	47.85%~57.41%
Weighted-average volatility		—	48.19%
Risk-free interest rate		—	2.20%~4.54%
Dividend yield		—	0%
Weighted-average fair value of option granted		—	US$0.38

4. REVENUE

	The Group
	2009		2008
	US$’000		US$’000
Gaming software and service revenues		112,694		144,765
Online game and service revenues		46,887		45,604
		159,581		190,369

Page 39

5. OTHER OPERATING INCOME

	The Group
	2009			2008
	US$’000			US$’000
Gain on sales of available-for-sale financial assets		—			373
Reversal of impairment loss on property, plant and equipment		—			207
Interest income		432			1,460
Subsidy received from tax authority		190			561
Foreign exchange gain — net		1,086			—
Other		(63	)		281
		1,645			2,882

6. OTHER OPERATING EXPENSES

	The Group
	2009		2008
	US$’000		US$’000
Loss on disposal of property, plant and equipment		31		253
Impairment loss on prepaid licensing fees and intangible assets (Notes 10, 13 and 17)		37,105		1,524
Impairment loss on property, plant and equipment (Notes 10 and 12)		918		—
Impairment loss on other investments, available-for-sale (Notes 10 and 16)		16,205		—
Allowance for doubtful receivables (Note 20)		1,092		2,905
Foreign exchange loss – net		—		1,781
		55,351		6,463

7. FINANCE EXPENSES

	The Group
	2009		2008
	US$’000		US$’000
Interest expense on short-term borrowings		390		976

Page 40

8. INCOME TAX EXPENSE

(a) Income tax expense

	The Group
	2009			2008
	US$’000			US$’000
Tax expense attributable to profit is made up of:
From continuing operations
Current income tax
- Foreign		1,992			1,127
Deferred income tax		(1,475	)		(58	)
Income tax expense		517			1,069
From discontinued operations
Current income tax
- Foreign		—			640
Deferred income tax		—			346
Income tax expense		—			986
Tax expense is attributable to:
- continuing operations		517			1,069
- discontinued operations		—			986
		517			2,055

The tax expense on profit differs from the amount that would arise using the Singapore standard rate of income tax as explained below:

	The Group
	2009			2008
	US$’000			US$’000
Profit before tax
- continuing operations		(54,777	)		35,027
- discontinued operations		222			10,421
		(54,555	)		45,448
Tax calculated at a tax rate of 17% and 18% in 2009 and 2008, respectively		(9,274	)		8,181
Effect of
- different tax rates in other countries		10,190			(4,031	)
- utilisation of previously unrecognised tax losses		—			(1,062	)
- other		(399	)		(1,033	)
Tax charge		517			2,055

During the financial year, the Singapore corporate tax rate was reduced from 18% to 17% for the year of assessment 2010 and onwards.

Page 41

8. INCOME TAX EXPENSE (cont’d)

(b) Movement in current income tax liabilities

	The Group
	2009			2008
	US$’000			US$’000
Beginning of financial year		1,431			1,041
Income tax paid		(1,230	)		(1,412	)
Tax expense		1,992			1,767
Income tax expense classified as held- for-sale and retained ownership of gaming software and service business		(971	)		—
Currency translation and others		—			35
End of financial year		1,222			1,431

9.	PROFIT FROM DISCONTINUED OPERATIONS
	In September 2008, the Group completed the sale of its Internet access and service business. (See Note 22, “Cash and cash equivalents” for additional information)
	The (loss) profit for the years from discontinued operations is analysed as follows:

	The Group
	2009		2008
	US$’000		US$’000
Gain (loss) on Internet access and service business operation for the year-net of tax		222		(400	)
Gain on disposal of Internet access and service business operation-net of tax		—		9,835
		222		9,435

The results of the Internet access and service business are as follows:

	The Group
	2009			2008
	US$’000			US$’000
Revenues		159			9,289
Cost of revenues		—			(6,592	)
Product development and engineering expenses		—			(419	)
Selling and marketing expenses		—			(1,306	)
General and administrative expenses		—			(1,437	)
Other operating income		64			72
Other operating expenses		(1	)		(200	)
Income (loss) before tax		222			(593	)
Income tax credit		—			193
Total profit / (loss) for the year from discontinued operations-net of tax		222			(400	)

Page 42

10. (LOSS) PROFIT FROM CONTINUING OPERATIONS

The following items have been included in arriving at loss / profit from continuing operations for the year:

	The Group
	2009			2008
	US$’000			US$’000
Charging/(crediting):
Amortisation charge on intangible assets		5,110			4,046
Depreciation of property, plant and equipment
- Buildings		23			6
- Information and communication equipment		2,768			2,690
- Office furniture and equipment		587			216
- Transportation equipment		24			6
- Leasehold improvements		956			403
Foreign exchange (gain) loss – net		(1,086	)		1,781
Impairment loss (reversal of impairment loss) of property, plant and equipment (Note 12)		918			(207	)
Impairment loss on prepaid licensing fees and intangible assets (Note 13 and 17)		37,105			1,524
Impairment loss on other investment, available-for-sale (Note 16)		16,205			—
Allowance for doubtful receivables (Note 20)		1,092			2,905
Rental expense-operating lease		5,091			3,431

11. STAFF COSTS

	The Group
	2009		2008
	US$’000		US$’000
Wages and salaries		35,545		32,865
Employee share-based payment		3,277		2,780
Employee expense relating to defined benefit and contribution pension plans		1,184		829
Termination benefits		295		99
		40,301		36,573

Key management remuneration is disclosed in Note 34.

Page 43

12. PROPERTY, PLANT AND EQUIPMENT

     The Group

							Information						Office
							and			Cable			furniture									Equipment
							communication			modem			and			Transportation			Leasehold			under
	Land			Buildings			equipment			rented			equipment			equipment			improvements			installation			Total
	US$’000			US$’000			US$’000			US$’000			US$’000			US$’000			US$’000			US$’000			US$’000
Cost
At 1 January 2008		685			1,168			23,163			1,674			2,029			324			2,222			22			31,287
Additions		—			—			4,143			—			1,286			—			3,551			72			9,052
Disposals		—			—			(11,104	)		(1,249	)		(786	)		(127	)		(551	)		—			(13,817	)
Reclassification		—			—			(227	)		—			227			—			—			—			—
Transfer from / (out to) inventory / intangible assets		—			—			—			(134	)		—			—			—			—			(134	)
Eliminated on disposal of subsidiary		—			—			(4,880	)		(338	)		(176	)		(41	)		(115	)		—			(5,550	)
Foreign currency translation adjustment		(7	)		(13	)		506			47			(5	)		3			8			(3	)		536
At 31 December 2008		678			1,155			11,601			—			2,575			159			5,115			91			21,374
Additions		—			—			4,251			—			111			—			180			1,219			5,761
Disposals		—			—			(144	)		—			(32	)		(15	)		(21	)		—			(212	)
Reclassification		—			—			1,736			—			(850	)		—			12			(898	)		—
Transfer from / (out to) inventory/ intangible assets		—			—			—			—			—			—			—			(98	)		(98	)
Classified as assets held for sale and retained ownership of gaming software and service business		—			—			(9,617	)		—			(899	)		—			(2,682	)		(313	)		(13,511	)
Foreign currency translation adjustment		16			29			112			—			10			3			39			—			209
At 31 December 2009		694			1,184			7,939			—			915			147			2,643			1			13,523

Page 44

12. PROPERTY, PLANT AND EQUIPMENT (cont’d)

     The Group

						Information						Office
						and			Cable			furniture									Equipment
						communication			modem			and			Transportation			Leasehold			under
	Land		Buildings			equipment			rented			equipment			equipment			improvements			installation		Total
	US$’000		US$’000			US$’000			US$’000			US$’000			US$’000			US$’000			US$’000		US$’000
Accumulated depreciation and impairment
At 1 January 2008		—		709			14,317			1,285			1,249			214			1,044			—		18,818
Depreciation charge		—		24			3,114			33			268			28			564			—		4,031
Disposals		—		—			(8,930	)		(918	)		(646	)		(105	)		(297	)		—		(10,896	)
Transfer from / (out to) inventory/ intangible assets		—		—			(59	)		(101	)		100			—			12			—		(48	)
Eliminated on disposal of subsidiary		—		—			(3,219	)		(335	)		(144	)		(33	)		(93	)		—		(3,824	)
Foreign currency translation adjustment		—		(1	)		319			36			3			2			7			—		366
Reversal of impairment charge		54		(261	)		—			—			—			—			—			—		(207	)
At 31 December 2008		54		471			5,542			—			830			106			1,237			—		8,240
Depreciation charge		—		23			2,768			—			587			24			956			—		4,358
Disposals		—		—			(40	)		—			(92	)		(13	)		(18	)		—		(163	)
Transfer from / (out to) inventory/ intangible assets		—		—			751			—			(552	)		—			13			—		212
Classified as assets held for sale and retained ownership of gaming software and service business		—		—			(5,410	)		—			(247	)		—			(496	)		—		(6,153	)
Foreign currency translation adjustment		6		12			67			—			8			3			26			—		122
Impairment charge		148		(7	)		777			—			—			—			—			—		918
At 31 December 2009		208		499			4,455			—			534			120			1,718			—		7,534
Net book value
At 31 December 2009		486		685			3,484			—			381			27			925			1		5,989
At 31 December 2008		624		684			6,059			—			1,745			53			3,878			91		13,134

The Group has pledged land and buildings having a net book value of US$1.2 million (2008: US$1.3 million) as collateral for bank borrowings as of 31 December 2009 (Note 26)

Page 45

12. PROPERTY, PLANT AND EQUIPMENT (cont’d)

In 2009 and 2008, the Group recorded an impairment charge (reversal of impairment loss) of US$141 thousand and US$ (207) thousand, respectively, related to land and buildings. The land and building were valued based on the quoted prices of similar assets in the market.

In 2009, the Group recorded an impairment charge of US$777 thousand related to information and communication equipment. The impairment charge for the equipment was related to servers used in certain licensed games or internally developed games within its online game and service segment for which the carrying amount was determined not to be recoverable from its related future undiscounted cash flows. This equipment was valued using unobservable inputs such as discounted cash flows, incorporating available market discount rate information and the Group’s estimates for liquidity risk, and other cash flow model related assumptions.

13. INTANGIBLE ASSETS

	The Group
	2009		2008
	US$’000		US$’000
Goodwill arising on acquisition (Note (a))		43,307		85,988
Trademarks (Note (b))		11,085		11,178
Others (Note (c))		7,839		17,752
		62,231		114,918

(a) Goodwill Arising on Acquisition

	The Group
	2009			2008
	US$’000			US$’000
Cost
At 1 January		85,988			84,039
Acquisition of subsidiaries (Note 22)		—			1,738
Goodwill included in assets held for sale and retained ownership of gaming software and service business		(29,243	)		—
Buy-back of common shares by majority-owned subsidiary		—			511
Translation adjustment		665			(300	)
At 31 December		57,410			85,988
Accumulated impairment
At 1 January and 31 December		(14,103	)		—
Net book value		43,307			85,988

In 2008, T2CN bought back and cancelled part of its common shares owned by independent third parties for US$1.3 million, resulting in an increase of the Group’s ownership interest in T2CN, and the Group recorded additional goodwill of US$511 thousand.

Page 46

13. INTANGIBLE ASSETS (cont’d)

(a)	Goodwill Arising on Acquisition (con’d)
	In 2009, the Group recorded an impairment charge of US$14.1 million related to goodwill from the acquisition of T2CN. The impairment charge resulted because our estimates of future cash flows for T2CN’s business have been reduced due to lower than expected operating performance results in 2009, which indicated that the carrying amount of the goodwill from the acquisition of T2CN cannot be fully recovered as of December 31, 2009. Goodwill is valued using unobservable inputs such as discounted cash flows, incorporating available market discount rate information and the Group’s estimates for liquidity risk, and other cash flow model related assumptions.
(b)	Trademarks

	The Group
	2009			2008
	US$’000			US$’000
At 1 January		11,178			11,372
Amortisation for the financial year		(70	)		(70	)
Trademarks included in assets held for sale and retained ownership of gaming software and service business		(298	)		—
Translation adjustment		275			(124	)
At 31 December		11,085			11,178
Cost		11,085			11,511
Accumulated amortisation		—			(333	)
Net book value		11,085			11,178

The above includes trademarks with indefinite useful life of approximately US$11.1 million which are not amortised. No impairment of trademarks has been identified for 2009 and 2008.

Page 47

13. INTANGIBLE ASSETS (cont’d)

(c) Other intangible assets

	The Group
	2009			2008
	US$’000			US$’000
At 1 January		17,752			14,688
Acquired during the year - - software and game license		—			136
Capitalised during the year		10,523			7,609
Amortisation for the year		(5,040	)		(4,032	)
Impairment loss		(4,701	)		(641	)
Other intangible assets classified as held-for-sale and retained ownership of gaming software and service business		(11,070	)		—
Translation adjustment		375			(8	)
At 31 December		7,839			17,752
Cost		16,881			28,566
Accumulated amortisation and impairment		(9,042	)		(10,814	)
Net book value		7,839			17,752

In 2009 and 2008, the Group recorded an impairment charge of US$4.7 million and US$641 thousand related to capitalized software costs, respectively. The impairment charge for the intangible asset was the result of certain projects within its online game and service segment that the Group ceased further development on and as a result the Group recorded a full impairment to the carrying value of the assets related to these projects.

(d)

Amortisation expense and impairment loss included in the income statement is analysed as follows:

	The Group
	2009		2008
	US$’000		US$’000
Amortisation expense
Cost of revenue		2,565		2,808
Product development and engineering expenses		1,192		9
Selling and marketing expenses		3		1
General and administrative expenses		1,350		1,284
Total		5,110		4,102

	The Group
	2009		2008
	US$’000		US$’000
Impairment loss
Other operating expenses		18,804		641

Page 48

14. INVESTMENTS IN SUBSIDIARIES

	The Company
	2009		2008
	US$’000		US$’000
Investments, at cost		158,964		199,812
Less: Accumulated impairment losses		—		(55,699	)
		158,964		144,113

The fair value of the net assets acquired and the effect of the acquisition to the Group’s financial position is described in Note 22.

In September 2008, the Group completed the sale of its Internet access and service business. (See Note 9, “Discontinued Operations” and Note 22, “Cash and Cash Equivalents” for additional information)

On December 15, 2009, the Company entered into a Stock and Asset Purchase Agreement (the “SAPA”) with Mangas Gaming, a French Corporation, (“Mangas”) to sell 60 percent of its gaming software and service business in 2010. (See Note 19, “Assets and Liabilities Held for Sale”, for additional information).

Details of significant subsidiaries are as follows:

		Percentage of
Name of company		equity held
(country of incorporation)	Principal activities	2009		2008
GigaMedia International Holdings Limited (British Virgin Islands)	Investment holding		100		100
GigaMedia Finance International Limited (Cayman Islands)	Investment holding		100		100
Cambridge Entertainment Software Limited (British Virgin Islands)	Software development and application services		100		100
GigaMedia (HK) Limited (Hong Kong)	Corporate office		100		100
Implus International Limited (British Virgin Islands)	Investment holding		100		100
FunTown Hong Kong Limited (Hong Kong)	Online games		100		100
FunTown Software (Shanghai) Limited (PRC)	Online games		100		100
Dragongate Enterprises Limited (British Virgin Islands)	Online games		70		70
GigaMedia Development Limited (British Virgin Islands)	Investment holding		100		100

Page 49

14. INVESTMENTS IN SUBSIDIARIES (cont’d)

		Percentage of
Name of company		equity held
(country of incorporation)	Principal activities	2009		2008
Centermax Limited (British Virgin Islands)	Investment holding		100		100
GigaMedia Freestyle Holdings Limited (British Virgin Islands)	Investment holding		100		—
Dragon Mark Holdings Limited (British Virgin Islands)	Investment holding		100		—
Wolverine Holdings Group Limited (British Virgin Islands)	Investment holding		100		—
GigaMedia Capital Limited (British Virgin Islands)	Investment holding		100		100
Premier Vantage Holdings Limited (British Virgin Islands)	Investment holding		100		—
GigaMedia Asia Pacific Limited (British Virgin Islands)	Investment holding		100		100
E-Sports International Corporation Limited (Hong Kong)	Online games		100		100
T2CN Holding Limited (British Virgin Islands)	Investment holding		67.09		66.29
T2CN Information Technology (Shanghai) Co., Ltd.	Online games		67.09		66.29
J-Town Information Technology (Shanghai) Co., Ltd.	Online games		67.09		66.29
Hoshin GigaMedia Center, Inc. (Republic of China)	Online games		100		100
Cambridge Interactive Development Corporation (Quebec) Inc. (Canada)	Financial and management services		100		100
Cambridge Interactive Development Corp. (Delaware)	Software development and application services		100		100
Internet Media Licensing Ltd. (British Virgin Islands)	Software development and application services		100		100
Cambridge Interactive Development Co. Ltd (UK)	Software support services		100		100
Apexstar Pacific Limited (British Virgin Islands)	Software development and application services		100		100

Page 50

15. INVESTMENTS IN ASSOCIATES

	The Group
	2009			2008
	US$’000			US$’000
Equity shares at cost		3,229			2,836
At 1 January		75			2,762
Addition of associated companies		383			190
Share of profits (losses)		(87	)		(3,010	)
Transfer to other investments, available-for-sale		(150	)		—
Currency translation differences		1			133
At 31 December		222			75

The summarised financial information of the associates was as follows:

	2009			2008
	US$’000			US$’000
Revenue		6,163			2,301
Net loss for the year		(4,580	)		(16,902	)
Total assets		12,445			15,612
Total liabilities		9,770			9,128

As of 31 December 2008, the Group had investments in CJIT2 Holding Limited and Taiwan E-Sport League Co., Ltd (“E-Sport”) representing an approximate 23 percent interest and 20 percent ownership interest, respectively, which the Group accounted for under the equity method of accounting. In June 2009, the Group’s ownership interest in E-Sport decreased to 15 percent after E-Sport issued additional shares. As a result of this transaction, the Group no longer has the ability to exercise significant influence over E-sport. Therefore, subsequent to June 2009, the Group reclassified its investment in E-sport to other investments, available-for-sale.

As of 31 December 2009, the Group had investment in CJIT2 Holding Limited and Digiforce Co., Ltd. representing an approximate 23 percent interest and 30 percent ownership interest, respectively, which the Group accounted for under the equity method of accounting.

During 2009 and 2008, the Group recognized its share of losses under the equity method of accounting of US$87 thousand and US$3.0 million, respectively.

The Group has not recognised losses amounting to US$931 thousand (2008: US$2.0 million) for an associated company because the Group’s share of losses has exceeded its interest in an associated company. The accumulated losses not recognised were US$2.9 million (2008: US$2.0 million).

Page 51

16. OTHER INVESTMENTS, AVAILABLE-FOR-SALE (NON-CURRENT)

	The Group
	2009		2008
	US$’000		US$’000
Listed securities		4,152		—
Unlisted securities		17,808		27,824
		21,960		27,824

The investments above include publicly traded securities and non-publicly traded securities.

In 2009, the Group recorded an impairment charge of US$16.2 million (2008: Nil) related to other investments, available for sale (non-current). The impairment charge for other investments, available for sale (non-current) is measured at fair value using publicly quoted trading prices or other observable inputs such as trading prices of different class of the stock or using discounted cash flows, incorporating available market discount rate information and the Group’s estimates for liquidity risk.

17. OTHER ASSETS

	The Group
	2009		2008
	US$’000		US$’000
Refundable deposits		1,079		7,265
Deferred assets		48		180
Prepaid licensing and royalty fees		5,557		20,540
		6,684		27,985

In 2009 and 2008, the Group recorded an impairment charge of US$18.3 million and US$883 thousand related to prepaid licensing and royalty fees, respectively. The impairment charge for the prepaid licensing and royalty fees related to certain licensed games within its online game and service segment that the Group stopped operating or for which the carrying amounts of the related assets was determined not to be recoverable from its related future undiscounted cash flows. The Group recorded a full impairment on the games that the Group stopped operating. The licensed games and related royalties are valued when impairment exists, using unobservable inputs such as discounted cash flows, incorporating available market discount rate information and the Group’s estimates for liquidity risk, and other cash flow model related assumptions.

Page 52

18. DEFERRED INCOME TAXES

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to set off current income tax assets against current income tax liabilities and when the deferred income taxes relate to the same fiscal authority. The amounts, determined after appropriate offsetting, are shown on the balance sheets as follows:

	The Group
	2009			2008
	US$’000			US$’000
Deferred income tax assets:
- to be recovered within 12 months		1,116			920
- to be recovered after more than 12 months		243			442
Subtotal		1,359			1,362
Deferred income tax liabilities:
- to be settled within 12 months		(32	)		(392	)
- to be settled after more than 12 months		—			(1,118	)
Subtotal		(32	)		(1,510	)
Net deferred income tax assets / (liabilities)		1,327			(148	)

The movement in the deferred income tax account is as follows:

	The Group
	2009			2008
	US$’000			US$’000
At 1 January		(148	)		107
Tax (charged) credited to income statement and currency translation		1,475			(255	)
At 31 December		1,327			(148	)

	The Group
	Investment			Amorti-			Deferred
	credits			sation			Revenue		Others		Total
	US$’000			US$’000			US$’000		US$’000		US$’000
Deferred income tax assets:
At 1 January 2009		185			378			472		327		1,362
Tax (charged) credited to income statement and currency translation		(185	)		(514	)		68		628		(3	)
At 31 December 2009		—			(136	)		540		955		1,359
At 1 January 2008		—						—				—
Tax (charged) credited to income statement and currency translation		185			378			472		327		1,362
At 31 December 2008		185			378			472		327		1,362

Page 53

18. DEFERRED INCOME TAXES (cont’d)

	The Group
	Depreciation
	and
	amortisation			Others			Total
	US$’000			US$’000			US$’000
Deferred income tax liabilities:
At 1 January 2009		(1,754	)		244			(1,510	)
Charged (Credited) to income statement and currency translation		1,891			(413	)		1,478
At 31 December 2009		137			(169	)		(32	)
At 1 January 2008		—			107			107
Charged (Credited) to income statement and currency translation		(1,754	)		137			(1,617	)
At 31 December 2008		(1,754	)		244			(1,510	)

In 2009 and 2008, the Group applied for investment tax credits and research and development tax credits in Taiwan tax jurisdiction.

Under Singapore tax regulations, foreign-sourced dividend income used for capital expenditures, including investments, and repayment of borrowings, would not be deemed as remitted to Singapore and is therefore not taxable. As of 31 December 2009, the Group has not accrued deferred income taxes on US$21.9 million (2008: US$101.5 million) of unremitted earnings from non-Singapore subsidiaries as such earnings are considered to be reinvested overseas or repayment of borrowings. Determination of the amount of unrecognized deferred tax liability related to these earnings is considered impracticable.

Page 54

19.	ASSETS AND LIABILITIES HELD FOR SALE
	On December 15, 2009, the Group entered into an agreement with Mangas to sell 60 percent of substantially all of the assets and liabilities of its gaming software and service business, for approximately US$100 million in cash, subject to certain adjustments. The closing of the sale occurred on April 8, 2010. The sale of the remaining 40 percent will be subject to a put and call mechanism in place between GigaMedia and Mangas, as defined in the agreement. The Group will have the option to put all or part of its remaining 40 percent to Mangas in each of 2013, 2014, and 2015 at a mutually agreed upon price considering all relevant facts and circumstances after the end of each year. If the put option owned by the Group is not fully exercised, Mangas will have the option to call the remaining interest held by the Group in each of 2015 and 2016. (See Note 33, “Commitments and Contingencies”, for additional information)
	As of 31 December 2009, substantially all of the assets and liabilities in its gaming software and service business were reclassified to assets and liabilities held for sale. The assets and liabilities held for sale balances were reduced by 40 percent, which represents the ownership interest that the Group retained in the gaming software and service business and recorded as “Retained ownership of gaming software and service business”, which amounted approximately US$26.0 million as of 31 December 2009. Therefore, the accompanying Consolidated Balance Sheet at 31 December 2009 includes the following:

	US$’000
Assets held for sale
Cash		35,015
Trade and other receivables		16,449
Other current assets		7,609
Property, plant and equipment		7,358
Intangible assets		40,611
Other assets		4,199
Less: retained ownership		(44,496	)
		66,745
Liabilities held for sale
Trade and other payable		8,111
Player account balances		35,015
Other current liabilities		971
Other liabilities		2,266
Less: retained ownership		(18,545	)
		27,818

Page 55

19.	ASSETS AND LIABILITIES HELD FOR SALE (cont’d)
	The 40 percent ownership interest that the Group retained in the gaming software and service business is included in its Consolidated Balance Sheet as of 31 December 2009 as follows:

	US$ ’000
Retained ownership of gaming software and service business:
Assets		44,496
Liabilities		(18,545	)
		25,951

20. TRADE AND OTHER RECEIVABLES

	The Group						The Company
	2009			2008			2009		2008
	US$’000			US$’000			US$’000		US$’000
Trade receivables
- related entities		—			3			—		—
- third parties		4,428			15,438			—		—
		4,428			15,441			—		—
Less: Allowance for doubtful receivables		(200	)		(254	)		—		—
		4,228			15,187			—		—
Notes receivable
- third parties		—			1			—		—
		—			1			—		—
Other receivables
- related entities		503			552			3,287		—
- third parties		289			2,614			10		473
		792			3,166			3,297		473
Trade and other receivables		5,020			18,354			3,297		473

Page 56

20.	TRADE AND OTHER RECEIVABLES (cont’d)
	Other receivables include loan receivables of approximately US$500 thousand and US$763 thousand (net of a provision of US$3.6 million and US$2.6 million, respectively) as of 31 December 31 2009 and 2008, respectively.
	In November 2006, the Group entered into a loan agreement for US$214 thousand with a third party with no interest. The outstanding principal balance of this loan was due in November 2009, and is currently past due. The Group does not expect to collect all principal, therefore, the Group recognized a full provision for the loan of US$214 thousand in 2009.
	In December 2007, the Group entered into a loan agreement for US$2.5 million with Flagship Studios, Inc. (“Flagship”), receiving in exchange a note with an interest rate of 10 percent per annum from Flagship. For 2008, the Group has accrued, based on the stated interest rate, interest income of US$126 thousand. The outstanding principal balance of this note, together with all accrued and unpaid interest thereon, was due on or before December 31, 2008, and is currently past due. Due to the financial status of Flagship, the Group do not expect to collect all principal and interest. Therefore, in 2008, the Group recognized a full provision for the loan and interest receivable, in the aggregate of US$2.6 million in 2008, and discontinued to recognize interest income.
	During the period from December 2008 to December 2009, the Group entered into loan agreements in the aggregate of US$1.2 million with certain companies included in its other investments, available-for-sale with interest rates ranging from 5 percent to 10.525 percent per annum. For 2009 and 2008, the Group has accrued, based on the stated interest rate, interest income of US$34 thousand and US$2 thousand, respectively. Due to the financial status of certain of its available-for-sale investments, the Group does not expect to collect all principal and interest. Therefore, the Group recognized a full provision for certain loans and interest receivable, in the aggregate of US$719 thousand in 2009, and discontinued to recognize interest income.

Page 57

21.	AVAILABLE-FOR-SALE FINANCIAL ASSETS — CURRENT
	Available-for-sale financial assets-current include the following:

	The Group
	2009		2008
	US$’000		US$’000
	At fair value		At fair value
Open-end funds:
Unlisted		3,486		3,419

Available-for-sale financial assets-current are measured in accordance with the accounting policy as set out in Note 2(h).

22. CASH AND CASH EQUIVALENTS

	The Group				The Company
	2009		2008		2009		2008
	US$’000		US$’000		US$’000		US$’000
Cash at banks and on hand		55,566		83,441		1,044		66
Fixed deposits with banks		—		12,512		—		—
Cash and cash equivalents		55,566		95,953		1,044		66

Fixed bank deposits have an average maturity of 29 days from the end of the financial year for 2008 with the following weighted average effective interest rates:

	The Group					The Company
	2009		2008			2009		2008
	%		%			%		%
US Dollar		—		2.50	%		—		—
NT Dollar		—		2.13	%		—		—
HK Dollar		—		0.75	%		—		—

(a)	Disposal of Subsidiaries- Internet access and service business
	In September 2008, the Group completed the sale of its Internet access and service business, which included 100 percent of its wholly-owned subsidiaries, Koos Broadband Telecom Co., Ltd. (“KBT”) and Hoshin Multimedia Center Inc., as well as certain assets and liabilities related to its Internet access and service business, for a total transaction price of US$20.0 million.

Page 58

22. CASH AND CASH EQUIVALENTS (cont’d)

The transaction price, net of transaction costs, price adjustments and cash transferred, was approximately US$16.5 million. The after-tax gain from the sale of the Internet access and service business was approximately US$9.8 million.

An amount of US$2.5 million of the transaction price was deposited into an escrow account established with the escrow agent for an agreed period, to be available for any price adjustment payment, severance payment, and indemnification payment set forth in the agreements. As of 31 December 2008, the escrow account balance was approximately US$2.1 million after payment of the severance payment. After payment of price adjustment and other payments, the balance of escrow account of approximately US$1.0 million was released in September 2009.

In addition to the above purchase price, the Group may be entitled to receive additional cash payments of US$3.0 million and US$2.0 million if the Internet access and service business that the Group sold achieves certain earn-out targets by September 2009 and 2010. The earn-out targets are to be determined by future gross profits in accordance with a formula and timeline set forth in the agreements. As of 31 December 2009, the Group did not accrue any additional receivable for the sale of the Internet access and service business since the earn-out target for the first period ended September 2009 was not achieved.

Page 59

22. CASH AND CASH EQUIVALENTS (cont’d)

(a)	Disposal of Subsidiaries- Internet access and service business (cont’d)
	The aggregate effect of the disposal of Internet access and service business is as follows:

	The Group
	US$’000
Cash and cash equivalents		493
Available-for-sale financial assets		602
Trade and other receivables		2,376
Inventories		202
Other current assets		271
Property, plant and equipment		4,328
Non-current assets		165
Total assets		8,437
Trade and other payables		(1,815	)
Non-current liabilities		(672	)
Total liabilities		(2,487	)
Net identifiable assets		5,950
Add: Purchase price allocation and related transaction costs		2,996
Add: Gain on disposal of Internet access and service business		11,014
Total sales price		19,960
Less: Cash and cash equivalents on hand		(493	)
Less: Paid purchase price allocation and related transaction costs		(2,996	)
Net cash inflow from disposal of Internet access and service business in 2008		16,471

Page 60

22. CASH AND CASH EQUIVALENTS (cont’d)

(b)	Acquisition of Subsidiaries-T2CN
	In May 2008, the Group acquired 4,500,000 additional common shares of T2CN for all-cash consideration of US$3.4 million.
	In addition, T2CN bought back and cancelled part of its common shares owned by independent third parties for US$1.3 million during 2008.
	The aggregate effect of the additional acquisition of T2CN is as follows:

	The Group
	US$’000
Cash and cash equivalents		772
Trade and other receivables		165
Other current assets		43
Other investment, available-for-sale		199
Property, plant and equipment		86
Intangible assets — Capitalized software cost		165
Other non-current assets		765
Total assets		2,195
Trade and other payables		(558	)
Total liabilities		(558	)
Net identifiable assets purchased		1,637
Add: Goodwill (Note 13(a))		1,738
Total purchase price		3,375
Net cash outflow from acquisition of a subsidiary in 2008		3,375

The fair value of identifiable assets and liabilities other than intangible assets arising on acquisition approximated their carrying amount.

In August 2009, the Group acquired 520,000 additional common shares of T2CN for all-cash consideration of US$285 thousand. In connection with the purchase of additional common shares of T2CN in August 2009, which resulted an increase of the Group’s ownership interest in T2CN to 67.09 percent from 66.29 percent, the Group adjusted additional paid-in capital by US$112 thousand.

Page 61

23.	RESTRICTED CASH
	Restricted cash recorded consists of the following:

	The Group
	2009		2008
	US$’000		US$’000
Compensating balance as guarantees for bank loans (to be recovered within 12 months)		932		—
Time deposit pledged to a bank as escrow amount for divestiture of Internet access and service business (to be recovered after more than 12 months)		—		2,125
Total		932		2,125

Time deposits pledged for bank loans bear interest at a weighted average effective rate of 0.57% per annum and for a tenure of 58 days in 2008.

24. OTHER CURRENT ASSETS

	The Group
	2009		2008
	US$’000		US$’000
Prepayments		2,636		9,907
Others		530		191
		3,166		10,098

25. TRADE AND OTHER PAYABLES

	The Group				The Company
	2009		2008		2009		2008
	US$’000		US$’000		US$’000		US$’000
Trade payables
- related parties		—		9		—		—
- third parties		591		878		—		—
		591		887		—		—
Notes payable
- third parties		—		12		—		—
Accrued expenses
- third parties		9,533		14,848		166		212
Trade and other payables		10,124		15,747		166		212

Page 62

26.	SHORT-TERM BORROWINGS
	The Group
	As of 31 December 2009 and 2008, short-term borrowings totaled US$22.5 million and US$15.2 million, respectively. These amounts were borrowed from certain financial institutions. The annual interest rates on these borrowings ranged from 1.99 percent to 4.288 percent for 2009, and from 2.5 percent to 5.038 percent for 2008, respectively. The maturity dates ranged from January 2010 to June 2010 as of December 31, 2009, and from March 2009 to September 2009 as of December 31, 2008, respectively. As of December 31, 2009 and 2008, the weighted-average interest rate on total short-term borrowings was 2.24 percent and 3.20 percent, respectively.
	As of 31 December 2009, the unused lines of credit under short-term borrowing agreements were approximately US$10.3 million.
	During the period from January 2010 to March 2010, The Group repaid certain short-term borrowings totaling $5.3 million, and renewed short-term borrowing agreements totaling $6.3 million
	The Group pledged certain cash at banks, land, and buildings as collateral for borrowings from certain financial institutions. (See Note 12, “Property, Plant and Equipment”, for additional information.) The total value of collateral amounted to US$2.1 million and US$1.3 million as of 31 December 2009 and 2008, respectively.
	The Company
	As of 31 December 2009 and 2008, short-term borrowings totaled Nil and US$8.8 million, respectively. These amounts were due to subsidiaries and are interest-free.

27. OTHER CURRENT LIABILITIES

	The Group				The Company
	2009		2008		2009		2008
	US$’000		US$’000		US$’000		US$’000
Player account balance		—		32,827		—		—
Deferred revenue		8,295		7,738		—		—
Due to subsidiaries		—		—		—		4,560
Others		3,693		2,825		—		—
		11,988		43,390		—		4,560

As of 31 December 2009, the Group recorded player account balance of US$35.0 million included in the liabilities held for sale and retained ownership of gaming software and service business. (See Note 19 “Assets and Liabilities Held for Sale”, for additional information.)

Page 63

28.	ACCRUED PENSION LIABILITIES
	The Group has defined benefit and defined contribution pension plans that covered substantially all of the Group’s employees.

(a)	Defined Benefit Pension Plan
	The Group has a defined benefit pension plan in accordance with the Labor Standards Law of the Republic of China (R.O.C.) for its employees located in Taiwan, covering substantially all full-time employees for services provided prior to 1 July 2005, and employees who have elected to remain in the defined benefit pension plan subsequent to the enactment of the Labor Pension Act on 1 July 2005. Under the defined benefit pension plan, employees are entitled to two base points for every year of service for the first 15 years and one base point for every additional year of service, up to a maximum of 45 base points. The pension payment to employees is computed based on base point and average salaries or wages for the six months prior to approved retirement. The actuarial assumptions of the Group’s defined benefit pension plan are stated in Note 3 (c).
	The following provides a reconciliation of projected benefit obligation and funded status of the plan and the components of net periodic benefit cost recognized

	The Group
	2009			2008
	US$’000			US$’000
Projected benefit obligation at 1 January		285			600
Service cost		—			—
Interest cost		7			11
Actuarial gain (loss)		51			(37	)
Curtailment		(59	)		(87	)
Divestiture		—			(208	)
Exchange difference		7			6
Projected benefit obligation at 31 December		291			285

	The Group
	2009			2008
	US$’000			US$’000
Fair value of plan assets		(209	)		(177	)
Projected benefit obligation		291			285
Funded status		82			108
Unrecognised net actuarial gain		124			214
Net amount recognised		206			322
Deferred pension cost (other assets)		—			—
Accrued pension liabilities		206			322

Page 64

28. ACCRUED PENSION LIABILITIES (cont’d)

(a)	Defined Benefit Pension Plan (cont’d)
	The net periodic benefit cost for the plans included the following components:

	The Group
	2009			2008
	US$’000			US$’000
Interest cost		7			11
Expected return on plan assets		(1	)		(4	)
Amortisation of net gain		(23	)		(21	)
Net periodic benefit cost		(17	)		(14	)

The Group has contributed an amount equal to 2 percent of the salaries and wages paid to all qualified employees located in Taiwan to a pension fund (the “Fund”). The Fund is administered by a pension fund monitoring committee (the “Committee”) and deposited in the Committee’s name in the Central Trust of China in Taiwan. The Group makes pension payments from its account in the Fund unless the Fund is insufficient, in which case the Group makes payments from internal funds as payments become due. The Group seeks to maintain a normal, highly liquid working capital balance to ensure payments are made timely.

The Group expects to make a contribution of US$24 thousand to the Fund in 2010. The Group does not expect to make any benefit payments through 2019.

Page 65

28. ACCRUED PENSION LIABILITIES (cont’d)

(b)	Defined Contribution Pension Plan
	The Group has provided defined contribution plans for employees located in Taiwan, North America, the PRC and Hong Kong. Contributions to the plans are expensed as incurred.
	Taiwan
	Pursuant to the new “Labor Pension Act” enacted on 1 July 2005, the Group set up a defined contribution pension plan for its employees located in Taiwan. For eligible employees who elect to participate in the defined contribution pension plan, the Group contribute no less than 6% of the employees’ salaries and wages paid each month , up to the maximum amount of NT$9 thousand (approximately US$281), to the employees’ individual pension accounts at the Bureau of Labor Insurance. Pension payments to employees are made either by monthly installments or in a lump sum from the accumulated contributions and earnings in employees’ individual accounts.
	North America
	The Group has provided a defined contribution plan for employees located in the United States. Participants under the age of 50 are allowed to defer up to US$16,500 of their annual compensation under the plan, whereas participants over the age of 50 are allowed to defer up to US$22,000 annually. The Group contributes an amount equal to the lesser of 3% of the participant’s compensation or 100% of the amount deferred by the employee.
	The Group has also provided a defined contribution plan for employees located in Canada. Participants are permitted to contribute a percentage of their earnings to this plan and select their own investments. Each participant’s annual contributions are limited to 18 percent of his or her prior year compensation or US$19,000, whichever is less. The Group contributes an amount equal to the lesser of 3 percent of the participant’s compensation or 100% of the amount contributed by the employee.
	PRC
	All PRC employees participate in employee social security plans, including pension and other welfare benefits, which are organized and administered by governmental authorities. The Group has no other substantial commitments to employees. The premiums and welfare benefit contributions that should be borne by the Group are calculated in accordance with relevant PRC regulations, and are paid to the labor and social welfare authorities.

Page 66

28. ACCRUED PENSION LIABILITIES (cont’d)

(b)	Defined Contribution Pension Plan (cont’d)
	Hong Kong
	According to the relevant Hong Kong regulations, the Group provides a contribution plan for the eligible employees in Hong Kong. The Group must contribute at least 5 percent of their total salaries, up to the maximum amount of HK$1,000 (approximately US$128), to their individual contribution accounts of the authorities monthly. After the termination of employment, the benefits still belong to the employees in any circumstances.
	The defined contribution pension expenses pursuant to the plans in Taiwan, North America, the PRC and Hong Kong for the years ended 31 December 2009 and 2008 were approximately US$1.3 million and approximately US$1.1 million, respectively.

29. OTHER LIABILITIES (NON-CURRENT)

	The Group
	2009		2008
	US$’000		US$’000
Deferred rent		—		2,091
Others		52		197
		52		2,288

30. CAPITAL AND OTHER RESERVES

(a) Issued and Fully Paid-Up Ordinary Share Capital

	Shares (’000)				Amount (US$’000)
	2009		2008		2009			2008
At 1 January		54,365		53,700		209,423			207,310
Issue of shares under option exercised		543		518		1,320			495
Issue of shares under RSU exercised		87		147		909			1,618
Change in T2CN ownership interest (Note22)		—		—		(112	)		—
At 31 December		54,995		54,365		211,540			209,423

The holders of ordinary shares have no par value, are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All shares rank equally with regard to the Group’s residual assets.

Page 67

30. CAPITAL AND OTHER RESERVES (cont’d)

(b)	Share Options
	GigaMedia
	Details on the share-based compensation plan of the Company are disclosed in the directors’ report.
	Movements in the number of share options outstanding at the end of the financial year and their exercise prices are as follows:

Financial year
ended
31 December	Number of outstanding share options
2009	(in thousands)
	At		Granted		Canceled/			Exercised			At end of
Range of	beginning of		during the		forfeited/ expired			during the			the
exercise	the financial		financial		during the financial			financial			financial		Expiration
price	year		year		year			year			year		date
under US$1		5,431		—		—			(39	)		5,392	29.6.2014
US$1~US$10		2,094		—		—			(504	)		1,590	29.6.2014~19.6.2018
US$10~US$20		762		—		(55	)		—			707	9.8.2017~29.1.2018
		8,287		—		(55	)		(543	)		7,689

Financial year
ended
31 December	Number of outstanding share options
2008	(in thousands)
	At		Granted		Canceled/			Exercised			At end of
Range of	beginning of		during the		forfeited/ expired			during the			the
exercise	the financial		financial		during the financial			financial			financial		Expiration
price	year		year		year			year			year		date
under US$1		5,901		—		—			(470	)		5,431	29.6.2014
US$1~US$10		866		1,290		(14	)		(48	)		2,094	29.6.2014~19.6.2018
US$10~US$20		1,145		51		(434	)		—			762	9.8.2017~29.1.2018
		7,912		1,341		(448	)		(518	)		8,287

Out of the unrecognized options for 7,689 thousand (2008: 8,287 thousand) shares, options for 6,420 thousand (2008: 6,448 thousand) shares are exercisable at the balance sheet date. The weighted-average share price at the time of exercise price was US$2.42 (2008: US$0.95) per share. The fair value of options granted during 2008 was US$3.2 million.

As of December 31 2009, there was approximately US$3.2 million of unrecognized compensation cost related to nonvested options. That cost is expected to be recognized over a period of 2.92 years.

Page 68

30. CAPITAL AND OTHER RESERVES (cont’d)

(b)	Share Options (cont’d)
	T2CN
	The board members of T2CN approved the T2CN share-based compensation plan for which up to 10.8 million common shares of T2CN have been reserved for issuance.
	The share options of T2CN generally vest over one to three years. Certain share options contingently vest upon meeting a specific performance goal. T2CN recognizes expenses for its share options that are ultimately expected to vest using the straight-line method over the vesting period. The options generally expire five to 10 years after the grant date. The total value of compensation expense for share options is equal to the fair value of the award on the grant date. All share options are expected to be settled by issuing new shares.
	Movements in the number of share options outstanding at the end of the financial year and their exercise prices are as follows:

Financial year

ended

31 December

Number of outstanding share options

2009

(in thousands)

At

Granted

Canceled/

Exercised

At end of

Range of

beginning of

during the

forfeited/ expired

during the

the

exercise

the financial

financial

during the financial

financial

financial

Expiration

price

year

year

year

year

year

date

US$1.00

6,075

—

(1,573

)

—

4,502

1.4.2013~1.10.2017

US$1.60

766

—

(66

)

—

700

15.9.2016~31.12.2017

6,841

—

(1,639

)

—

5,202

Financial year

ended

31 December

Number of outstanding share options

2008

(in thousands)

At

Granted

Canceled/

Exercised

At end of

Range of

beginning of

during the

forfeited/ expired

during the

the

exercise

the financial

financial

during the financial

financial

financial

Expiration

price

year

year

year

year

year

date

US$1.00

1,995

6,300

(2,220

)

—

6,075

1.4.2013~1.10.2017

US$1.60

1,305

200

(739

)

—

766

15.9.2016~31.12.2017

3,300

6,500

(2,959

)

—

6,841

As of 31 December 2009 there was US$0.4 million of total unrecognized compensation cost, net of estimated forfeitures, related to unvested share options which are expected to be recognized over a weighted average period of 1.19 years. Total unrecognized compensation cost may be adjusted for future changes in estimated forfeitures.

Page 69

30. CAPITAL AND OTHER RESERVES (cont’d)

(c)	Restricted Stock Units (RSUs)
	Nonvested RSUs during 2009 were as follows:

	Number of units			Weighted-average
	(’000)			grant date fair value
Nonvested at 31 December 2008		641		$	10.41
Granted		100		$	6.01
Vested		(86	)	$	10.15
Forfeited		(15	)	$	7.19
Nonvested at 31 December 2009		640		$	9.83

	The fair value of RSUs is determined and fixed on the grant date based on the Company’s share price. The fair value of RSUs granted during the years ended 31 December 2009 and 2008 was US$0.6 million and US$6.8 million, respectively. The total fair value of RSUs vested during the years ended 31 December 2009 and 2008 was approximately US$0.9 million and approximately US$1.5 thousand, respectively, which resulted in no significant tax benefit realized on a consolidated basis.
	As of 31 December 2009, there was approximately US$0.3 million of unrecognised compensation cost related to nonvested RSUs. That cost is expected to be recognised over a weighted-average period of 1.3 years. The Company received no cash from employees as a result of employee share award vesting and the release of RSUs during 2009 and 2008.
(d)	Statutory reserves
	In accordance with R.O.C. law, an appropriation for legal reserve amounting to 10 percent of a company’s net profit is required until the reserve equals the aggregate par value of such Taiwan company’s issued capital stock. As of December 31, 2009 and 2008, the legal reserves of Hoshin GigaMedia, which represent a component of the Group’s consolidated accumulated deficit, were US$3.0 million, and US$2.3 million, respectively. The reserve can only be used to offset a deficit or be distributed as a stock dividend of up to 50 percent of the reserve balance when the reserve balance has reached 50 percent of the aggregate paid-in capital of Hoshin GigaMedia.

Page 70

30. CAPITAL AND OTHER RESERVES (cont’d)

(d)	Statutory reserves (cont’d)
	In accordance with the regulations in the PRC and their respective articles of association, subsidiaries of T2CN incorporated in the PRC are required to make an appropriation of retained earnings for statutory reserve equal to at least 10 percent of their respective after-tax profits, calculated in accordance with the PRC accounting standards and regulations until the reserve equals 50 percent of the registered capital of the respective companies. As of December 31, 2009 and 2008, the statutory reserves of subsidiaries of T2CN in the aggregate of US$715 thousand and US$339 thousand, respectively, are included as a component of the Group’s consolidated accumulated deficit.
	The statutory reserves can be used to offset a deficit or to increase capital of the respective companies. They are not transferable to the Company in the form of dividends, advances, or loans.

31. SEGMENT INFORMATION

Segment data

The Group has identified two reportable segments: a gaming software and service business segment and an online game and service business segment. The gaming software and service business segment mainly derives its revenues from developing and licensing online games of chance and skill. The online game and service business segment mainly derives its revenues from recognizing the usage of game playing time or in-game items by the end-users.

The Group’s management relies on an internal management reporting process that provides revenue and segment information for making financial decisions and allocating resources. The results are based on the Group’s method of internal reporting and are not necessarily in conformity with GAAP. Management measures the performance of each segment based on several metrics, including revenues and income or loss from operations.

Page 71

31.	SEGMENT INFORMATION (cont’d)
	Segment data (cont’d)
	Financial information for each reportable segment was as follows as of and for the years ended December 31, 2009, and 2008:

	Gaming
	software and		Online game
	service		and service			Total
	US$’000		US$’000			US$’000
2009:
Segment profit or loss:
Net revenue from external customers		112,694		46,887			159,581
Profit (loss) before income tax		8,236		(48,664	)		(40,428	)
Share-based compensation		501		931			1,432
Impairment loss on prepaid licensing fees and intangible assets		212		36,890			37,102
Impairment loss on property, plant and equipment		—		777			777
Interest income		242		129			371
Interest expense		—		—			—
Foreign exchange gain (loss)		521		804			1,325
Share of loss of accociated companies		—		87			87
Impairment loss on other investment, available-for-sale		—		14,181			14,181
Allowance for doubtful debt		372		—			372
Depreciation		2,279		1,500			3,779
Amortization, including intangible assets		2,027		3,120			5,147
Income tax expense (benefit)		871		(101	)		770
Segment assets:
Investment in accociates		—		222			222
Additions to property, plant and equipment		2,731		2,929			5,660
Additions to intangible assets		5,793		2,307			8,100
Total assets		144,666		111,703			256,369
Segment liabilities:
Total liabilities		27,180		79,616			106,796

The segment assets of our gaming software and service business are presented as assets held for sale and retained ownership of gaming software and service business as of December 31, 2009 in the Group’s Consolidated Balance Sheets.

The reconciliation of the segment information to GigaMedia’s consolidated information was not included in the above table, as it is provided below in detail.

Page 72

31.	SEGMENT INFORMATION (cont’d)
	Segment data (cont’d)

	Gaming
	software and		Online game
	service		and service			Total
	US$’000		US$’000			US$’000
2008:
Segment profit or loss:
Net revenue from external customers		144,765		45,604			190,369
Profit before income tax		37,183		3,719			40,902
Share-based compensation		1,249		547			1,796
Impairment loss on prepaid licensing fees and intangible assets		—		1,524			1,524
Interest income		680		367			1,047
Interest expense		7		—			7
Gains on sales of available-for-sale financial assets and other investments, available-for-sale		—		4			4
Foreign exchange gain (loss)		269		(2,145	)		(1,876	)
Share of loss of accociated companies		—		3,010			3,010
Allowance for doubtful debt		—		2,905			2,905
Depreciation		2,064		1,080			3,144
Amortization, including intangible assets		1,704		2,549			4,253
Income tax expense		743		326			1,069
Segment assets:
Investment in accociates		—		75			75
Additions to property, plant and equipment		6,095		1,585			7,680
Additions to intangible assets		3,953		5,632			9,585
Total assets		131,521		130,280			261,801
Segment liabilities:
Total liabilities		42,112		83,302			125,414

The reconciliation of the segment information to GigaMedia’s consolidated information was not included in the above table, as it is provided below in detail.

Page 73

31.	SEGMENT INFORMATION (cont’d)
	Segment data (cont’d)
	The reconciliations of segment information to GigaMedia’s consolidated totals are as follows:

	2009			2008
	US$’000			US$’000
Profit (loss) before income tax:
Total segments		(40,428	)		40,902
Adjustment*		(14,349	)		(5,875	)
Total GigaMedia consolidated		(54,777	)		35,027
Share-based compensation
Total segments		1,432			1,796
Adjustment*		1,845			909
Total GigaMedia consolidated		3,277			2,705
Impairment loss on prepaid licensing fees and intangible assets:
Total segments		37,102			1,524
Adjustment*		3			—
Total GigaMedia consolidated		37,105			1,524
Impairment loss on property, plant and equipment:
Total segments		777			—
Adjustment*		141			—
Total GigaMedia consolidated		918			—
Interest income:
Total segments		371			1,047
Adjustment*		61			413
Total GigaMedia consolidated		432			1,460
Interest expense:
Total segments		—			7
Adjustment*		390			969
Total GigaMedia consolidated		390			976
Gain (loss) on sales of available-for-sale financial assets and other investments, available-for-sale:
Total segments		—			4
Adjustments*		—			369
Total GigaMedia consolidated		—			373

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31.	SEGMENT INFORMATION (cont’d)
	Segment data (cont’d)

	2009			2008
	US$’000			US$’000
Foreign exchange gain (loss):
Total segments		1,325			(1,876	)
Adjustments*		(239	)		95
Total GigaMedia consolidated		1,086			(1,781	)
Impairment loss on other investments, available-for-sale:
Total segments		14,181			—
Adjustment*		2,024			—
Total GigaMedia consolidated		16,205			—
Allowance for doubtful debt
Total segments		372			2,905
Adjustments*		720			—
Total GigaMedia consolidated		1,092			2,905
Depreciation:
Total segments		3,779			3,144
Adjustments*		579			177
Total GigaMedia consolidated		4,358			3,321
Amortization:
Total segments		5,147			4,253
Adjustments*		72			34
Total GigaMedia consolidated		5,219			4,287
Income tax expense:
Total segments		770			1,069
Adjustments*		(253	)		—
Total GigaMedia consolidated		517			1,069

Page 75

31.	SEGMENT INFORMATION (cont’d)
	Segment data (cont’d)

	2009			2008
	US$’000			US$’000
Additions to property, plant and equipment:
Total segments		5,660			7,680
Adjustments**		101			1,134
Total GigaMedia consolidated		5,761			8,814
Additions to intangible assets:
Total segments		8,100			9,585
Adjustments**		707			309
Total GigaMedia consolidated		8,807			9,894
Total assets:
Total segments		256,369			261,801
Adjustment**		3,051			53,501
Total GigaMedia consolidated		259,420			315,302
Total Liabilities:
Total segments		106,796			125,414
Adjustment**		(32,851	)		(45,483	)
Total GigaMedia consolidated		73,945			79,931

*	Adjustment items include corporate and certain back-office costs and expenses not attributable to any specific segment.
**	Adjustment items include total corporate assets, the Internet access and service business segment and eliminations.

Major Customers

No single customer represented 10 percent or more of the Group’s total net revenues in any period presented.

Page 76

31.	SEGMENT INFORMATION (cont’d)
	Geographic Information(cont’d)
	Revenues by geographic area are attributed by country of the server location. Revenue from unaffiliated customers by geographic region is as follows:

Geographic region/country	2009		2008
	US$’000		US$’000
Canada		112,694		144,765
Taiwan		24,869		20,932
PRC		18,318		19,652
Hong Kong		3,700		4,964
Others		—		56
Total		159,581		190,369

Net long-lived assets by geographic region are as follows:

Geographic region	2009		2008
	US$’000		US$’000
Taiwan		3,642		3,784
Canada		—		2,264
PRC		1,920		1,734
United States		—		4,642
Hong Kong		427		710
Total		5,989		13,134

Long-lived assets of the Group’s gaming software and service business are presented as assets held for sale and retained ownership of gaming software and service business as of December 31, 2009 in the Group’s Consolidated Balance Sheets.

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32. MATERIAL LITIGATION

Class Action

In December 2001, a class action lawsuit was filed in the United States District Court for the Southern District of New York (“District Court”) against the Company in connection with the initial public offering of its share.

The complaint alleged that the Company violated Section 11 and Section 15 of the Securities Exchange Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. In October 2002, plaintiffs voluntarily dismissed the individual defendants without prejudice. On 19 February 2003, the court issued an opinion and order on defendants’ motions to dismiss, which granted the motions in part and denied the motions in part. As to GigaMedia, the Rule 10b-5 claims were dismissed without prejudice, while the Section 11 claims survived the motion. Discovery in the actions commenced.

In June 2004, plaintiffs and issuer defendants, including the Company, presented the executed settlement agreement (the “Issuers’ Settlement”) to the judge during a court conference. Subsequently, plaintiffs and issuer defendants made a motion for preliminary approval of the settlement agreement. The key terms of the Issuers’ Settlement included: 1) the insurers of the issuers would provide an undertaking to guarantee that plaintiffs would recover a total of US$1 billion; 2) the insurers would pay up to US$15 million for the notice costs arising from the settlement; 3) the issuers would assign their interest in certain claims against the underwriters to a litigation trust, represented by plaintiffs’ counsel; and 4) the plaintiffs would release all of the settling issuer defendants. That is, if plaintiffs were successful in recovering more than US$1 billion from the underwriters, the issuer defendants would not be obligated to pay any additional amounts. If plaintiffs recovered less than US$1 billion from the underwriters, the insurers would pay the deficit between US$1 billion and the amount received from the underwriters.

Page 78

32.	MATERIAL LITIGATION (cont’d)
	Class Action (cont’d)
	On 15 February 2005, the judge issued an opinion and order granting preliminary approval to the settlement agreement subject to a narrowing of the proposed bar order as to only contribution claims. On 24 April 2006, the court held a fairness hearing on the proposed Issuers’ Settlement, which was subject to the court’s approval.
	On 5 December 2006, the United States Court of Appeals for the Second Circuit issued an opinion vacating the District Court’s class certification in the six focus cases, which do not include the Company. Because the Second Circuit’s opinion was directed to class certification in the focus cases, the opinion’s effect on the proposed class to be certified by the District Court in connection with the Issuers’ Settlement was unclear.
	On 15 December 2006, the District Court held a conference with all counsel in the IPO securities class action lawsuit to discuss the impact of the foregoing opinion. In the conference, the District Court agreed to stay all proceedings, including discovery and consideration of the Issuers’ Settlement, pending further decisions from the Second Circuit.
	On 5 January 2007, plaintiffs filed a petition in the Second Circuit for rehearing and rehearing en banc regarding the decision on class certification (the “Petition”). On 6 April 2007, the Second Circuit rendered its decision which denied the Petition.
	In April, May, and June 2007, the District Court held several conferences to discuss the issues regarding class certification, statute of limitations, the Issuers’ Settlement and discovery. In June 2007, a stipulation terminating the Issuers’ Settlement was submitted to the District Court.
	In September 2007, discovery moved forward in the six focus cases, which do not include the Company. Plaintiffs filed amended complaints against the focus case issuer and underwriter defendants and moved for class certification in those actions. In November 2007, the underwriters and issuers filed motions to dismiss the amended complaints in the focus cases. In December 2007, plaintiffs filed their opposition to defendants’ motions to dismiss. In January 2008, defendants filed their reply briefs in further support of the motions to dismiss.
	On or about 26 March 2008, the District Court granted in part and denied in part the motion to dismiss the focus cases. The motion to dismiss was granted only as to claims brought under Section 11 of the Securities Act by plaintiffs who sold their securities for a price in excess of the initial offering price and by those plaintiffs who purchased outside the previously certified class period.
	On 9 April 2008, the underwriters filed a motion for reconsideration of the holding in the 26 March 2008 opinion that the Section 11 claims against the focus case issuer was not time barred, on the basis that no Section 11 class in that case was certified in 2004. The issuers joined in that motion on behalf of the focus case issuer by letter to the District Court on 10 April 2008.

Page 79

32.	MATERIAL LITIGATION (cont’d)
	Class Action (cont’d)
	In December 2007, the issuers filed their oppositions to class certification in the focus cases. In March 2008, plaintiffs filed their reply brief in further support of class certification. The underwriters and issuers submitted sur-replies in further opposition to class certification on 22 April 2008, addressing issues related to the deposition of the plaintiffs’ expert.
	As set forth in Plaintiffs’ Motion For Preliminary Approval of the Settlement and accompanying documents, which were filed on April 2, 2009, after eight years of litigation all parties to the IPO Cases have agreed to settle the actions on a global basis. Pursuant to the settlement, the defendants have agreed to pay US$586 million in total to settle all 309 IPO Cases, including the GigaMedia action. The agreement to settle was reached after a lengthy mediation followed by months of negotiation to reach agreement on the details. As to the Company’s portion of the settlement payment, the Company’s insurance companies are paying the entire settlement amount.
	In June 2009, the District Court granted the plaintiffs’ motion for preliminary approval of the settlement agreement. Subsequently, in October 2009, the judge granted final approval to the settlement. Certain objectors have filed notices of appeal to the United States Circuit Court for the Second Circuit seeking to reverse or vacate the order granting final approval to the settlement agreement. However, no briefs have been filed yet with respect to these appeals.
	The Company had an insurance policy with American Insurance Group with US$10 million of liability coverage when the class action lawsuit was made. The Company believes that the insurance coverage is sufficient to cover the liability arising from the settlement and claim.

Page 80

33.	COMMITMENTS AND CONTINGENCIES
	Commitments

(a)	Operating Leases
	The Group rents certain properties used as offices premises under lease agreements that expire at various dates through 2012. The following table sets forth its future aggregate minimum lease payments required under these operating leases, as of 31 December 2009:

	The Group
	2009		2008
	US$’000		US$’000
Not later than one year		3,733		5,256
Later than one year but not later than five years		2,220		14,658
		5,953		19,914

The table above reflects the reduction of future payments resulting from the sale of our gaming software and service business in April 2010.

Rental expenses for operating leases amounted to US$5.1 million and US$5.0 million for the years ended December 31, 2009 and 2008, respectively (including rental expense amounts of Nil, and US$1.6 million reported in discontinued operations in 2009 and 2008, respectively). As of December 31, 2009, The Group recorded deferred rent of US$2.6 million, which was included in liabilities held for sale and retained ownership of gaming software and service business. As of December 31, 2008, The Group recorded deferred rent of US$2.4 million, of which US$2.1 million was included in the other liabilities.

Page 81

33. COMMITMENTS AND CONTINGENCIES (cont’d)

(b)	License Agreements
	The Group has contractual obligations under various license agreements to pay the licensors license fees and minimum guarantees against future royalties. The following table summarizes the committed licensing fees and minimum guarantees against future royalties set forth in the major licenses agreements.

			Minimum
			guarantees
			against
			future
	License fees		royalties		Total
	US$’000		US$’000		US$’000
Minimum required payments :
In 2010		—		2,625		2,625
After 2010		2,700		8,600		11,300
		2,700		11,225		13,925

In April 2010, we entered into termination agreements with certain of our game licensors. The table above reflects the future payments considering these terminations.

The initial minimum guarantees against future royalties and license fees are not required to be paid until the licensed games are commercially released or until certain milestones are achieved, as stipulated in the individual license agreements. The remaining minimum guarantees are generally required to be paid within three years subsequent to the commercial release dates of the licensed games.

Additionally, the Group also has contractually committed to support related marketing, promotion and advertising activities for certain games, and its commitments are contingent to occur based on the payment schedules set forth in the individual license agreements. As of 31 December 2009, its total commitments to these marketing expenditures amounted to not less than US$10 million.

Page 82

33.	COMMITMENTS AND CONTINGENCIES (cont’d)
	Contingencies

(a)	T2CN’s subsidiaries
	PRC laws and regulations currently limit foreign ownership of companies that provide Internet content services, which include operating online games. In addition, foreign invested enterprises are currently not eligible to apply for licenses required for operating online games in the PRC. T2CN is incorporated in the British Virgin Islands and considered a foreign entity under PRC laws. Due to the restrictions on foreign ownership on the provision of online games, T2 Entertainment and Jinyou hold necessary licenses and approvals that are essential for the online game and service business of T2CN. Hence, T2CN’s online games operation in the PRC is dependent on the game licenses and approvals held by T2 Entertainment and Jinyou. T2CN and its subsidiaries have entered into contractual arrangements with T2 Entertainment and Jinyou for use of the relevant licenses and websites. Pursuant to certain other agreements and undertakings, T2CN in substance controls T2 Entertainment and Jinyou. In the opinion of T2CN’s directors, as of 31 December 2009, the ownership structures and the contractual arrangements with T2 Entertainment, Jinyou and their equity owners as well as their operations are in compliance with all existing PRC laws and regulations. However, there may be changes and other developments in PRC laws and regulations or their interpretation. Accordingly, T2CN cannot be assured that in the future the PRC government authorities will not take a view contrary to the opinion of T2CN’s directors. If the current ownership structures of T2CN and its contractual arrangements with T2 Entertainment and Jinyou were found to be in violation of any existing or future PRC laws or regulations, T2CN might be required to restructure its ownership structure and operations in the PRC to comply with changing or new PRC laws and regulations.
(b)	Other
	The Group is subject to legal proceedings and claims that arise in the normal course of business. The Group believes the ultimate liabilities with respect to these actions will not have a material adverse effect on its financial condition, results of operations or cash flows. (See Note 32, “Material Litigation”, for additional information).

Page 83

34.	RELATED PARTIES TRANSACTIONS
	Except for the following transactions, the Group was not a party to any transaction with any related party that did not arise in the ordinary course of business or that was material to it.

(a)	Share Options/RSUs Granted to Key Management
	As at the end of the financial year, the total outstanding number of share options granted to key management of the Group was 5,101 thousand (2008: 5,650 thousand).
	As at the end of the financial year, the total outstanding number of RSUs granted to key management of the Group was 82 thousand (2008: 489 thousand).
(b)	Key Management’s Remuneration
	Key management’s remuneration includes fees, salary, bonus, commission and other emoluments (including benefits-in-kind) computed based on the cost incurred by the Group and the Company, and where the Group or Company did not incur any costs, the value of the benefit. Key management’s remuneration is as follows:

	The Group
	2009		2008
	US$’000		US$’000
Wages and salaries		3,722		1,537
Director fee		161		288
Share-based compensation		927		848
Other benefit		16		5
Total		4,826		2,678

Page 84

34. RELATED PARTY TRANSACTIONS (cont’d)

(c)	Other
	As of 31 December 2009 and 2008, JC Entertainment Corporation (“JC”) owned 10.8 percent, of the total outstanding voting rights of T2CN. T2CN paid certain licensing and royalty fees, totaling approximately US$1.5 million and US$2.6 million, respectively, during 2009, and US$1.2 million and US$2.8 million, respectively, during 2008, to JC. As of 31 December 2009 and 2008, the Group had a royalty payable to JC of approximately US$925 thousand and US$445 thousand, respectively, and prepaid licensing fees of approximately US$5.4 million and US$6.6 million, respectively. As of 31 December 2009, based on the game licensing agreements signed with JC, T2CN also committed to pay certain licensing fees and a minimum guarantee for royalty payments in the future years totaling approximately US$1.5 million and Nil, respectively.
	In 2009 and 2008, a key manager of Waterland Financial Holdings was one of the Group’s directors. As of 31 December 2009 and 2008, the Group had short-term borrowings in the amount of US$1.6 million and US$1.5 million, respectively, bearing interest of 3.288 percent and 5.038 percent, respectively, owed to Waterland Financial Holdings.

35.	FINANCIAL RISK MANAGEMENT
	The Group’s principal financial instruments comprise cash and cash equivalents. The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group has various other financial assets and liabilities such as available-for-sale financial assets, trade receivables, short-term borrowings and other receivables and payables, which arise directly from its operations.
	The Group’s activities expose it to a variety of financial risks, including the effects of changes in debt and equity market prices, foreign exchange rates and interest rates. The Group does not hedge its exposures to these risks.

Page 85

35.	FINANCIAL RISK MANAGEMENT (cont’d)
	Foreign currency risk
	The subsidiaries of the Group conclude most of its business transactions in its own measurement currencies; therefore the foreign currency risks derived from operations are not significant. However, the Group holds some assets or liabilities in foreign currency other than measurement currency and the value of these assets and liabilities are subject to foreign currency risks resulting from fluctuations in exchange rates between the foreign currency and the measurement currency.
	As of 31 December 2009 and 2008, the Group’s foreign currency exposure is as follows, for balances subject to foreign currency risk:

	USD			KRW		TWD			RMB			OTHER			TOTAL
	US$’000			US$’000		US$’000			US$’000			US$’000			US$’000
The Group
2009
Financial assets
Cash and cash equivalents		38,860			—		7,490			8,471			745			55,566
Available-for-sale financial assets		3,486			—		—			—			—			3,486
Trade and other receivables		33			—		3,865			341			781			5,020
Restricted cash		932			—		—			—			—			932
Other investments, available-for-sale		10,129			9,955		1,876			—			—			21,960
Refundable deposits		200			—		506			147			226			1,079
		53,640			9,955		13,737			8,959			1,752			88,043
Financial liabilities
Trade and other payables		1,278			—		4,098			4,364			384			10,124
Short-term borrowings		—			—		22,503			—			—			22,503
		1,278			—		26,601			4,364			384			32,627
Net financial assets (liabilities)		52,362			9,955		(12,864	)		4,595			1,368			55,416
Less: Net financial assets: denominated in the respective entities’ functional currencies		(49,580	)		—		13,003			(4,595	)		(1,015	)		(42,187	)
Currency exposure		2,782			9,955		139			—			353			13,229

Page 86

35.	FINANCIAL RISK MANAGEMENT (cont’d)
	Foreign currency risk (cont’d)

	USD			KRW		TWD			RMB			OTHER			TOTAL
	US$’000			US$’000		US$’000			US$’000			US$’000			US$’000
The Group
2008
Financial assets
Cash and cash equivalents		76,257			—		5,362			11,443			2,891			95,953
Available-for-sale financial assets		3,419			—		—			—			—			3,419
Trade and other receivables		12,999			—		3,921			533			901			18,354
Restricted cash		—			—		2,125			—			—			2,125
Other investments, available-for-sale		20,587			5,407		1,830			—			—			27,824
Refundable deposits		6,404			—		506			113			242			7,265
		119,666			5,407		13,744			12,089			4,034			154,940
Financial liabilities
Trade and other payables		8,473			—		4,610			2,130			534			15,747
Short-term borrowings		—			—		15,243			—			—			15,243
		8,473			—		19,853			2,130			534			30,990
Net financial assets (liabilities)		111,193			5,407		(6,109	)		9,959			3,500			123,950
Less: Net financial assets: denominated in the respective entities’ functional currencies		(110,659	)		—		6,109			(9,959	)		(3,098	)		(117,607	)
Currency exposure		534			5,407		—			—			402			6,343

Page 87

35.	FINANCIAL RISK MANAGEMENT (cont’d)
	Foreign currency risk (cont’d)
	As of 31 December 2009 and 2008, the Company’s foreign currency exposure is as follows, for balances subject to foreign currency risk:

	USD		TWD			OTHER		TOTAL
	US$’000		US$’000			US$’000		US$’000
The Company
2009
Financial assets
Cash and cash equivalents		1,044		—			—		1,044
Other receivables		3,297		—			—		3,297
		4,341		—			—		4,341
Financial liabilities
Other payables		29		137			—		166
Net financial assets (liabilities)		4,312		(137	)		—		4,175
Less: Net financial liabilities denominated in the respective entities’ functional currencies		—		137			—		137
Currency exposure		4,312		—			—		4,312
The Company
2008
Financial assets
Cash and cash equivalents		66		—			—		66
Trade and other receivables		402		—			71		473
		468		—			71		539
Financial liabilities
Trade and other payables		—		212			—		212
Short-term borrowing		—		8,774			—		8,774
		—		8,986			—		8,986
Net financial assets (liabilities)		468		(8,986	)		71		(8,447	)
Less: Net financial liabilities denominated in the respective entities’ functional currencies		—		8,986			—		8,986
Currency exposure		468		—			71		539

Page 88

35.	FINANCIAL RISK MANAGEMENT (cont’d)
	Foreign currency risk (cont’d)
	If the KRW and NTD change against the USD by 10% (2008:10%) with all other variables including tax rate being held constant, the effects arising from the net financial liability/asset position will be as follows:

	2009						2008
	Profit after						Profit
	tax			Equity			after tax			Equity
	US$’000			US$’000			US$’000			US$’000
The Group
KRW against USD
- strengthened		996			996			541			541
- weakened		(996	)		(996	)		(541	)		(541	)
NTD against USD
- strengthened		(278	)		(278	)		(53	)		(53	)
- weakened		278			278			53			53
The Company
NTD against USD
- strengthened		(431	)		(431	)		(47	)		(47	)
- weakened		431			431			47			47

Cashflow and fair value interest rate risk

The Group’s net income is dependent on changes in market interest rates. The Group’s exposure to changes in interest rates relates primarily to interest bearing financial assets and liabilities, which comprises cash at bank, fixed deposits with financial institutions, investment funds and short-tern borrowings. The Group does not consider its present interest rate risk to be significant.

Price risk

The Group is exposed to price risk arising from the investments held by the Group which are classified as available-for-sale. Available-for-sale investments are held for strategic rather than trading purposes, the Group believes these securities are not directly exposed to price risk.

If prices for equity securities listed in Korea change by 15% with all other variables being held constant, the effects on profit after tax and equity will be:

	2009					2008
	Profit					Profit
	before tax		Equity			before tax		Equity
	US$’000		US$’000			US$’000		US$’000
The Group
Listed in Korea
- increased by		—		623			—		—
- decreased by		—		(623	)		—		—

Page 89

35.	FINANCIAL RISK MANAGEMENT (cont’d)
	Credit risk
	The customers of the Group settle the payments in accordance with one of the following ways: (1) by bank transfer or credit card and (2) by advanced payment. The Group is subject to credit risk only for those receivables with credits granted.
	None of the Group’s customers accounted for over 10 percent of net operating revenues in 2009 and 2008 or of the balance of notes and accounts receivable as of 31 December 2009 and 2008. The Group has not sustained material credit losses from its customers.
	Except as disclosed elsewhere in the financial statements, the Group’s loan receivable from third party was neither past due nor impaired as of 31 December 2009 and 2008.
	The credit risk of the Group’s and the Company’s other financial assets, which comprise bank deposits and other receivables, the maximum exposure to credit risk is the carrying amounts of these instruments.
	The quantitative data in respect of the Group’s exposure to credit risk arising from trade receivable is as follows:

As at 31 December	2009		2008
	US$’000		US$’000
Trade receivables past due:
Less than 3 months		1,178		333
3 to 6 months		61		—
6 months and above		8		8
		1,247		341

The carrying amount of trade receivables past due individually determined to be impaired and the movement of the related allowance for doubtful trade receivables are as follows:

As at 31 December	2009			2008
	US$’000			US$’000
Gross amount		1,247			341
Less: Allowance for doubtful trade receivables		(200	)		(254	)
		1,047			87
Beginning of financial year		254			1,362
Currency translation difference		4			19
Allowance made		158			313
Allowance utilised		(216	)		(399	)
Divestiture — Internet access and services business		—			(1,041	)
End of financial year		200			254

Page 90

35.	FINANCIAL RISK MANAGEMENT (cont’d)
	Liquidity risk
	The Group maintains cash and cash equivalents with various financial institutions and short-term investments. As part of the Group’s investment strategy to minimize liquidity risk, short-term investments are managed using highly liquid financial instruments with relatively short settlement periods.
	As of 31 December 2009 and 2008, the maturity profile of the Group’s and the Company’s financial liabilities based on the contracted undiscounted payments are as follows:

	On		Less than		3 to 6		Over 6
	demand		3 months		months		months		Total
	US$’000		US$’000		US$’000		US$’000		US$’000
The Group
2009
Short-term borrowings and interest payables		—		17,467		10,940		—		28,407
Trade payables		17		409		165		—		591
Other payables		1,200		1,495		349		585		3,629
		1,217		19,371		11,454		585		32,627
2008
Short-term borrowings and interest payables		—		15,370		—		3,049		18,419
Trade payables		60		620		219		—		899
Other payables		684		8,620		1,239		1,129		11,672
		744		24,610		1,458		4,178		30,990

Page 91

35.	FINANCIAL RISK MANAGEMENT (cont’d)
	Liquidity risk (cont’d)

	On		Less than		3 to 6		Over 6
	demand		3 months		months		months		Total
	US$’000		US$’000		US$’000		US$’000		US$’000
The Company
2009
Other payables		—		166		—		—		166
		—		166		—		—		166
2008
Short-term borrowings		8,774		—		—		—		8,774
Other payables		105		104		3		—		212
		8,879		104		3		—		8,986

Capital risk

The Group’s primary objective when managing capital is to safeguard the Group’s ability to continue as a going concern while looking for appropriate opportunities to expand its business. In order to do so, the Group may obtain new borrowings or issue new shares.

The Group actively and regularly reviews and manages its capital structure to ensure optimal capital structure and shareholder returns, taking into consideration the future capital requirements of the Group and capital efficiency, prevailing and projected profitability, projected operating cash flows, projected capital expenditures and projected strategic investment opportunities. The Group currently does not adopt any formal dividend policy.

The Group and the Company are in compliance with all externally imposed capital requirements for the financial years ended 31 December, 2008 and 2009.

Page 92

35.	FINANCIAL RISK MANAGEMENT (cont’d)
	Fair value measurements
	Effective 1 January 2009, the Group adopted the amendment to FRS 107 which requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:

(a)	Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);
(b)	Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (is as prices) or indirectly (ie derived from prices) (Level 2); and
(c)	Inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3).

The following table presents the assets and liabilities measured at fair value at 31 December 2009.

	Level 1		Level 2		Level 3		31 December 2009
	US$’000		US$’000		US$’000		US$’000
The Group
Assets
Available-for-sale financial assets		—		3,486		—		3,486
Other investments, available-for sale (non-current)		4,152		—		17,808		21,960
Total		4,152		3,486		17,808		25,446

Available-for-sale financial assets — current are valued using a market approach based on the quoted market prices of identical instruments when available, or other observable inputs such as trading prices of identical instruments in inactive markets. The fair value of listed securities of the other investments, available-for-sale (non-current) is derived using publicly quoted trading prices.

Page 93

35.	FINANCIAL RISK MANAGEMENT (cont’d)
	Fair value measurements
	For assets and liabilities measured at fair value using significant unobservable inputs (Level 3) during 2009, a reconciliation of the beginning and ending balances are presented as follows:

	2009
	US$’000
Beginning Balance		27,824
Total gains of losses (realised / unrealised)
Included in earnings		(12,385	)
Included in other comprehensive income		(60	)
Purchases and settlements		2,388
Translation adjustment		41
Ending Balance		17,808

The fair value of the other investments, available-for-sale (non-current) is derived using a discounted cash flow method using unobservable inputs. The discounted cash flow method incorporates available market discount rate information and the Group’s estimates of non-performance and liquidity risk, and other cash flow model related assumptions.

The carrying amounts of the Group’s cash, accounts receivable, accounts payable, and short-term debt approximate fair value due to their short-term maturities.

Page 94

36. SUBSEQUENT EVENTS

(a)	Litigation
	On April 1, 2010, a complaint was filed on behalf of UIM against Harrah’s License Company, LLC (“Harrah’s”) in connection with the promotional agreement for the World Series of Poker dated February 24, 2008 (the “Agreement”) for: 1) breach of the Agreement; 2) breach of the implied covenant of good faith and fair dealing; 3) unjust enrichment; 4) declaratory relief; and 5) injunctive relief. The complaint seeks compensatory damages, a declaration that Harrah’s materially breached the Agreement and the Agreement is therefore terminated as of April 1, 2010, an injunction precluding Harrah’s from violating the Agreement pending the outcome of the litigation, and attorney fees and costs.
	A letter of termination was also sent by UIM to Harrah’s on April 1, 2010 to terminate the Agreement for multiple material breaches by Harrah’s and to demand the refund of past payments.
	An application for a temporary restraining order (“TRO”) and motion for preliminary injunction was also filed. The request for the TRO was subsequently denied by the Court. On April 28, 2010, UIM had a hearing on its motion asking the court to force Harrah’s to remove a certain non-Everest Poker name and logo reference from the broadcasts into France, as UIM has exclusive promotional and advertising rights pursuant to the Agreement. The motion was denied on the grounds that UIM failed to show that the broadcasts containing the other reference’s digital overlay were certain to continue into the future. The court did not rule on the merits of the underlying claims in any way. The judge has yet to issue a formal order.
	Harrah’s also filed a motion to dismiss the complaint. The next step in the process will be oral argument, but a date for a hearing has not yet been scheduled. In addition, on April 27, 2010, Harrah’s Interactive Entertainment, Inc. (“Harrah’s Interactive”) filed a separate lawsuit against UIM for 1) breach of the Agreement; 2) breach of the implied covenant of good faith and fair dealing; and, 3) unjust enrichment, and included GigaMedia as a defendant for tortious interference with contractual relations. In May 2009 the Agreement was assigned by Harrah’s to Harrah’s Interactive. UIM has asked Harrah’s to stipulate to consolidation, and Harrah’s has agreed to do so.
	The Company believes it will be successful in pursuing and defending the lawsuits of Harrah’s. However, there is no assurance that we will be successful in our claims against Harrah’s, including our claim for compensatory damages and/or attorney fees and costs.

Page 95

36. SUBSEQUENT EVENTS (cont’d)

(b)	Transactions with Infocomm Asia
	On April 30, 2010, the Company entered into several agreements with certain shareholders of Infocomm Asia, as well with Infocomm Asia itself, to acquire additional preferred shares of Infocomm Asia. The acquisition of Infocomm Asia is expected to be closed in the third quarter of 2010, after the closing conditions set forth in the agreements are met. The total purchase price pursuant to the agreements for the preferred shares is approximately US$17.2 million. After the acquisition, the total number of preferred shares owned by the Company can be converted into approximately 80 percent of Infocomm Asia’s outstanding common shares.
	On April 30, 2010, the Company signed an agreement to provide a loan facility to Infocomm Asia with a principal amount of US$7 million. The loan is to be used by Infocomm Asia to support its current operations. The loan has a five year term and bears interest at 3% per annum. The Company also provided a guarantee on behalf of Infocomm Asia to a licensor of certain games to Infocomm Asia and its subsidiaries. The guarantee includes but is not limited to payment of the royalties, license fees and the minimum guarantees associated with the licensed games as set forth within the licensing agreements. The total amount of the Company’s guarantee, taking into account funds received by Infocomm Asia from subscription money and the loan from the Company, is approximately US$13.6 million.
	On April 30, 2010, the Company entered into a share purchase agreement with Infocomm Asia to acquire one of its wholly-owned subsidiaries in exchange for US$6 million. The agreement was closed on May 7, 2010. The agreement includes certain put/call arrangements commencing immediately upon the expiration of the first anniversary of the closing date, for a period of three years thereafter.

37. AUTHORISATION OF FINANCIAL STATEMENTS

These financial statements were authorized for issue in accordance with a resolution of the Board of Directors of GigaMedia Limited on 13 May 2010.

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