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 May, 2013

Commission File Number: 000-30540

GIGAMEDIA LIMITED

8F, No. 22, Lane 407,

Section 2, Tiding Boulevard

Neihu District

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  x Form 40-F  ¨

(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  ¨ No  x

(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 2011 Financial Statements Prepared in Accordance with U.S. GAAP (attached hereto as Exhibit 99.3)

4. GigaMedia 2011 Statements Prepared in Accordance with Singapore GAAP (attached hereto as Exhibit 99.4)

5. GigaMedia to Report First-Quarter 2013 Financial Results on May 20 (attached hereto as Exhibit 99.5)

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: May 17, 2013	By: /s/ Dirk Chen
	(Signature)
	Name: Dirk Chen
	Title: Chief Financial Officer

EX-99.1

Exhibit 99.1

NOTICE OF THE FOURTEENTH ANNUAL GENERAL MEETING OF SHAREHOLDERS

GigaMedia Limited

Incorporated in the Republic of Singapore

Registration No.: 199905474H

REGISTERED OFFICE

80 Robinson Road, #02-00

Singapore 068898

The 2013 annual general meeting of the shareholders of GigaMedia Limited (the “Company”) will be held on June 7, 2013 at 3 p.m. local time at 1404-5 Sunbeam Plaza, 1155 Canton Road, Kowloon, Hong Kong, for the following purposes:

AS 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 the Directors, Auditor’s Report and Audited Financial Statements of the Company for the financial year ended December 31, 2012 are received and adopted.

(Resolution 1)

2. Approval of appointment of auditors

RESOLVED that KPMG and KPMG LLP be and are hereby appointed as the independent external 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$350,000 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 pursuant to Section 161 of the Companies Act, Chapter 50 of Singapore (“Companies Act”), 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) options, 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; and
(3)	unless varied or revoked by the Company in general meeting, such authority conferred on the Directors of the Company shall continue in force:
	(i)	until the conclusion of the next Annual General Meeting of the Company or the date by which the next Annual General Meeting of the Company is required by law to be held whichever is earlier; or
	(ii)	in the case of Shares to be issued in pursuance of the Instruments, made or granted pursuant to this Resolution, until the issuance of such Shares in accordance with the terms of the Instruments.

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(Resolution 4)

5. Approval for share purchase mandate

RESOLVED that:

(1) for the purposes of Sections 76C and 76E of 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”) or off-market purchase(s) on an equal access scheme(s) as may be determined by the Directors as they see fit, which scheme(s) shall satisfy all the conditions of the Companies Act, 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 or the date of making the offer pursuant to an equal access scheme 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 pursuant to the Share Purchase Mandate, 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; and

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

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NOTES:

1. Shareholders are cordially invited to attend the Fourteenth Annual General Meeting in person. Whether or not you plan to be at the Fourteenth 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) must be deposited at Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717, or the office of the Company, 8F, No. 22, Lane 407, Section 2, Tiding Boulevard, Taipei 114, Taiwan R.O.C., not less than 48 hours before the time for holding the Fourteenth Annual General Meeting, that is by no later than 3 a.m. June 4, 2013 (New York time), or 3 p.m. June 5, 2013 (Taipei time), failing which the proxy shall not be treated as valid.

6. Electronic Delivery of Future Proxy Materials. Shareholders can consent to receiving all future proxy statements, proxy card and annual reports electronically via e-mail or the internet. To sign up for electronic delivery, please follow the instructions below relating to “Electronic Delivery of Future Proxy Materials” and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.

7. Only shareholders of record at the close of business on April 9, 2013 are entitled to notice of and to vote at the Fourteenth Annual General Meeting, or any adjournment or postponement of the Fourteenth Annual General Meeting.

8. 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 Company and its subsidiaries. The amount of financing required for the Company to purchase or acquire its Shares, and the impact on the Company’s financial position, cannot be ascertained as at the date of this Notice as this will depend on the number of Shares purchased or acquired, the price at which such Shares were purchased or acquired and whether the Shares purchased or acquired would be held in treasury or cancelled.

BY ORDER OF THE BOARD

/s/ Kuo-Lun Huang                                

Kuo-Lun Huang (aka Collin Hwang)

Director and Chief Executive Officer

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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

Other Matters

Proxy Solicitation

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GigaMedia Limited

Incorporated in the Republic of Singapore

Registration No.: 199905474H

REGISTERED OFFICE

80 Robinson Road, #02-00

Singapore 068898

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 7, 2013 at 3 p.m. local time at 1404-5 Sunbeam Plaza, 1155 Canton Road, Kowloon, Hong Kong, 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 (“Record Date”), which is the close of business on April 9, 2013. Each Share that you own entitles you to one vote.

How Many Shares of Voting Stock Are Outstanding?

On the Record Date, there were 50,719,976 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

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.

Electronic Delivery of Future Proxy Materials

If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the internet. To sign up for electronic delivery, please go to www.proxyvote.com to indicate that you agree to receive or access proxy materials electronically in future years.

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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.

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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, 2012. Along with the Audited Financial Statements, the Company seeks Shareholders’ adoption of the Report of the Directors, Statement by the 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 Fourteenth Annual General Meeting of the Company (“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 KPMG and KPMG LLP as the independent external 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 KPMG and KPMG LLP in respect of their service to the Company for the financial year ended December 31, 2013.

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 3.         APPROVAL OF DIRECTORS’ REMUNERATION

The Company seeks shareholders’ approval on the remuneration of Directors in an aggregated amount not exceeding US$350,000 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 shareholders entitled to vote at the AGM.

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 general meeting at which the approval was given until the date on which the next Annual General Meeting of the Company is held or 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 Fourteenth Annual General Meeting to the earlier of the next Annual General Meeting or the date by 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”), the Company’s 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.

7

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.

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 Fourteenth 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 Fourteenth 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/ Kuo-Lun Huang                            

Kuo-Lun Huang (aka Collin Hwang)

Director and Chief Executive Officer

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EX-99.2

Exhibit 99.2

GIGAMEDIA LIMITED 8F, NO. 22, LANE 407, SECTION 2 TIDING BLVD. NEIHU DISTRICT, TAIPEI 114 TAIWAN R.O.C ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please go to www.proxyvote.com, indicate that you agree to receive or access proxy materials electronically in future years.   VOTE BY MAIL Mark, sign and date your proxy card and return it, not less than 48 hours before the time of the meeting, in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.

TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
	M56241-P37670	KEEP THIS PORTION FOR YOUR RECORDS
		DETACH AND RETURN THIS PORTION ONLY
PLEASE SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED POSTAGE PRE-PAID ENVELOPE.

GIGAMEDIA LIMITED

The Board of Directors recommends you vote FOR proposals 1 through 5.			For	Against	Abstain
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		¨	¨	¨
NOTE: Such other business as may properly come before the meeting or any adjournment thereof.
For address change/comments, mark here. (see reverse for instructions)		¨
Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer.

Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:

The Notice and Proxy Statement, U.S. Annual Report and Singapore Annual Report are available at www.proxyvote.com.

M56242-P37670        

GIGAMEDIA LIMITED Annual Meeting of Shareholders June 7, 2013 3:00 PM This proxy is solicited by the Board of Directors I/We, being a Shareholder/Shareholders of the above named Company, hereby appoint Kuo-Lun Huang (aka Collin Hwang) of 8F, No. 22 Lane 407, Section 2, Tiding Blvd., Neihu District, Taipei R.O.C. failing whom the Chairman of the Meeting, as my/our proxy to vote for me/us on my/our behalf at the Annual General Meeting of the Company to be held at 1404-5 Sunbeam Plaza, 1155 Canton Rd, Kowloon, Hong Kong on Friday, June 7, 2013, at 3:00 p.m. local time, and at any adjournment or postponement thereof. This Proxy, when properly executed, and returned in a timely manner, will be voted at the Annual General Meeting and any adjournments thereof in the manner described herein. If no contrary indication is made, the proxy will be voted as recommended by the Board of Directors and the Company’s management. 1. The proxy form must be signed by the shareholder or by the shareholder’s attorney duly authorized in writing or, if the appointer is a corporation, either, under seal or in some other manner approved by the directors of the Company. 2. To be effective, the proxy form (and power of attorney or other authority under which it is signed or a notarially certified copy of such power of authority, if relevant) must be returned to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717, not less than 48 hours before the meeting.
	Address Changes/Comments:
	(If you noted any Address Changes and/or Comments above, please mark corresponding box on the reverse side.)
	Continued and to be signed on reverse side

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, 2011 AND 2012 AND

FOR THE YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

GHP Horwath, P.C. Member Crowe Horwath International   1670 Broadway, Suite 3000 Denver, Colorado 80202 +1 303.831.5000 +1 303.831.5032 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, 2012 and 2011, and the related consolidated statements of income (loss), comprehensive income (loss), equity, and cash flows for each of the three years in the period ended December 31, 2012. We also have audited the Company’s internal control over financial reporting as of December 31, 2012, 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, included in the accompanying Management’s Report on 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 audit 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.

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, 2012 and 2011, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2012, 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, 2012, based on the criteria established in Internal Control—Integrated Framework issued by the COSO.

/s/ GHP HORWATH, P.C.

April 30, 2013

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GIGAMEDIA LIMITED

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2011 AND 2012

(in thousands)

	December 31
	2011			2012
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Note 11)	$	63,997		$	62,731
Marketable securities - current (Note 12)		42,347			17,773
Accounts receivable - net (Note 13)		6,451			2,829
Prepaid expenses		1,574			801
Restricted cash (Note 17)		3,000			—
Other current assets (Notes 14 and 25)		1,551			1,001
Total Current Assets		118,920			85,135
Marketable securities - noncurrent (Note 15)		7,084			4,292
Investments (Note 16)		8,315			5,223
PROPERTY, PLANT AND EQUIPMENT
Land and buildings		1,237			1,243
Information and communication equipment		7,651			3,986
Office furniture and fixtures		928			295
Leasehold improvements		1,781			455
Other		336			28
		11,933			6,007
Less: Accumulated depreciation		(7,645	)		(4,058	)
		4,288			1,949
GOODWILL (Note 7)		28,437			16,934
INTANGIBLE ASSETS - NET (Note 8)		15,534			15,675
OTHER ASSETS
Refundable deposits		1,777			392
Prepaid licensing and royalty fees (Notes 9 and 27)		7,103			8,644
Other (Note 6)		248			2,150
Total Other Assets		9,128			11,186
TOTAL ASSETS	$	191,706		$	140,394

(Continued)

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GIGAMEDIA LIMITED

CONSOLIDATED BALANCE SHEETS—(Continued)

DECEMBER 31, 2011 AND 2012

(in thousands)

	December 31
	2011			2012
LIABILITIES & EQUITY
CURRENT LIABILITIES
Accounts payable	$	1,831		$	324
Accrued compensation		2,100			1,233
Accrued expenses (Note 18)		10,634			5,182
Short-term borrowings (Notes 17 and 26)		11,774			7,748
Other current liabilities (Note 19)		9,319			7,160
Total Current Liabilities		35,658			21,647
OTHER LIABILITIES
Accrued pension liabilities (Note 20)		171			281
Other (Notes 21 and 25)		1,015			573
Total Other Liabilities		1,186			854
Total Liabilities		36,844			22,501
COMMITMENTS AND CONTINGENCIES (Note 27)		—			—
SUBSIDIARY PREFERRED SHARES (Note 22)
Par value $1, redeemable; convertible; issued and outstanding 2,018 thousand shares on December 31, 2011		1,786			—
EQUITY (Note 23)
GigaMedia Shareholders’ Equity:
Common shares, no par value, and additional paid-in capital; issued and outstanding 50,720 thousand shares on December 31, 2011 and 2012		304,672			304,851
Accumulated deficit		(162,951	)		(178,241	)
Accumulated other comprehensive (loss) income		14,351			(8,379	)
Total GigaMedia shareholders’ equity		156,072			118,231
Noncontrolling interest		(2,996	)		(338	)
Total Equity		153,076			117,893
TOTAL LIABILITIES AND EQUITY	$	191,706		$	140,394

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

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GIGAMEDIA LIMITED

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

FOR THE YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

(in thousands except for earnings per share amounts)

	2010			2011			2012
OPERATING REVENUES
Gaming software and service revenues	$	25,820		$	—		$	—
Asian online game and service revenues		38,862			34,367			27,470
Total		64,682			34,367			27,470
OPERATING COSTS
Cost of gaming software and service revenues		(4,010	)		—			—
Cost of Asian online game and service revenues		(17,103	)		(14,413	)		(11,388	)
		(21,113	)		(14,413	)		(11,388	)
GROSS PROFIT		43,569			19,954			16,082
OPERATING EXPENSES
Product development and engineering expenses		(7,301	)		(1,956	)		(1,471	)
Selling and marketing expenses		(21,589	)		(10,079	)		(8,377	)
General and administrative expenses		(31,780	)		(18,101	)		(13,384	)
Bad debt expense (Notes 13 and 14)		(1,639	)		(1,820	)		(169	)
Impairment loss on property, plant and equipment		(278	)		—			—
Impairment loss on goodwill (Notes 7 and 10)		(2,255	)		(5,097	)		(12,489	)
Impairment loss on intangible assets (Note 10)		(1,330	)		(2,583	)		(15	)
Impairment loss on prepaid licensing and royalty fees (Notes 9 and 10)		(870	)		(247	)		(702	)
Impairment loss on deconsolidation of T2CN (Note 5)		(22,234	)		—			—
Other		(1,989	)		—			(49	)
		(91,265	)		(39,883	)		(36,656	)
LOSS FROM OPERATIONS		(47,696	)		(19,929	)		(20,574	)
NON-OPERATING INCOME (EXPENSES)
Interest income		956			762			283
Gain on sales of marketable securities (Notes 12 and 15)		—			6,299			5,665
Interest expense		(370	)		(426	)		(247	)
Foreign exchange gain (loss)		(606	)		(365	)		434
Loss on disposal of property, plant and equipment		(125	)		(49	)		(208	)
Gain (loss) on equity method investments—net (Note 16)		(20,770	)		(47,869	)		234
Gain on sale of T2CN (Note 5)		—			4,739			—
Impairment loss on marketable securities and investments (Note 10)		(4,677	)		(13,327	)		(1,193	)
Gain on deconsolidation and sale of the gaming software and service business (Note 6)		79,140			—			2,480
Recovery of loss on termination of third-party contract (Notes 4 and 10)		—			2,012			—
Gain on fair value changes of warrant derivative (Note 10)		2,595			—			—
Other		221			518			201
		56,364			(47,706	)		7,649
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		8,668			(67,635	)		(12,925	)
INCOME TAX (EXPENSE) BENEFIT (Note 25)		(7,260	)		245			(671	)
INCOME (LOSS) FROM CONTINUING OPERATIONS		1,408			(67,390	)		(13,596	)
LOSS FROM DISCONTINUED OPERATIONS—NET OF TAX (Note 6)		(128	)		(4,188	)		(2,521	)
NET INCOME (LOSS)		1,280			(71,578	)		(16,117	)
LESS: NET LOSS ATTRIBUTABLE TO THE NONCONTROLLING INTEREST AND SUBSIDIARY PREFERRED SHARES		1,370			366			827
NET INCOME (LOSS) ATTRIBUTABLE TO GIGAMEDIA	$	2,650		($	71,212	)	($	15,290	)
NET INCOME (LOSS) ATTRIBUTABLE TO GIGAMEDIA:
Income (loss) from continuing operations—net of tax	$	2,778		($	67,024	)	($	12,769	)
Loss from discontinued operations—net of tax		(128	)		(4,188	)		(2,521	)
	$	2,650		($	71,212	)	($	15,290	)
EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO GIGAMEDIA
Basic:
Income (loss) from continuing operations	$	0.05		($	1.23	)	($	0.25	)
Loss from discontinued operations		—			(0.08	)		(0.05	)
Net income (loss)	$	0.05		($	1.31	)	($	0.30	)
Diluted:
Income (loss) from continuing operations	$	0.04		($	1.23	)	($	0.25	)
Loss from discontinued operations		—			(0.08	)		(0.05	)
Net income (loss)	$	0.04		($	1.31	)	($	0.30	)
WEIGHTED AVERAGE SHARES USED TO COMPUTE EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO GIGAMEDIA (Note 2)
Basic		55,834			54,268			50,720
Diluted		59,291			54,268			50,720

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

5

GIGAMEDIA LIMITED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE YEARS DECEMBER 31, 2010, 2011 AND 2012

(in thousands)

	2010			2011			2012
NET INCOME (LOSS)	$	1,280		($	71,578	)	($	16,117	)
OTHER COMPREHENSIVE INCOME—NET OF TAX:
Unrealized gain (loss) on marketable securities		21,789			16,167			(24,004	)
Defined benefit pension plan adjustment		31			69			(323	)
Foreign currency translation adjustments		4,756			(1,813	)		1,814
Deconsolidation of subsidiaries		(1,311	)		—			2,799
		25,265			14,423			(19,714	)
COMPREHENSIVE INCOME (LOSS)		26,545			(57,155	)		(35,831	)
COMPREHENSIVE (INCOME) LOSS ATTRIBUTABLE TO THE NONCONTROLLING INTEREST AND SUBSIDIARY PREFERRED SHARES		1,278			366			(2,189	)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO GIGAMEDIA	$	27,823		($	56,789	)	($	38,020	)

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, 2010, 2011 AND 2012

(in thousands, except per share amounts)

	GIGAMEDIA SHAREHOLDERS
	Common shares and additional paid-in capital						Accumulated deficit (Note 23)			Accumulated other comprehensive income (loss)			Noncontrolling interest			Total
	Shares			Amount
Balance as of January 1, 2010		54,995			$304,379			($94,389	)		($25,245	)		$  1,615			$186,360
Issuance of common shares from exercise of stock options and RSUs		402			174			—			—			—			174
Stock-based compensation		—			2,961			—			—			53			3,014
Acquisition of IAHGames (Note 4)		866			2,192			—			—			1,192			3,384
Acquisition of UIM (Note 3)		—			178			—			—			(578	)		(400	)
Deconsolidation of T2CN (Note 5)		—			( 552	)		—			—			(3,276	)		(3,828	)
Cumulative dividend to subsidiary preferred shares (Note 22)		—			—			—			—			(148	)		(148	)
Net income		—			—			2,650			—			(1,370	)		1,280
Components of other comprehensive income (loss):
Change in unrealized gain (loss) on marketable securities		—			—			—			21,789			—			21,789
Defined benefit pension plan adjustment		—			—			—			31			—			31
Foreign currency translation adjustments		—			—			—			4,744			12			4,756
Deconsolidation of T2CN (Note 5)		—			—			—			(1,391	)		80			(1,311	)
Total comprehensive income		—			—			—			—			—			26,545
Balance as of December 31, 2010		56,263			309,332			(91,739	)		(72	)		(2,420	)		215,101
Issuance of common shares from exercise of stock options and RSUs		79			—			—			—			—			—
Stock-based compensation		—			1,165			—			—			—			1,165
Acquisition of OneNet		—			—			—			—			111			111
Share repurchase and retirement of common shares (Note 23)		(5,622	)		( 5,825	)		—			—			—			(5,825	)
Cumulative dividend to subsidiary preferred shares (Note 22)		—			—			—			—			(321	)		(321	)
Net loss		—			—			(71,212	)		—			(366	)		(71,578	)
Components of other comprehensive income (loss):
Change in unrealized gain (loss) on marketable securities		—			—			—			16,167			—			16,167
Defined benefit pension plan adjustment		—			—			—			69			—			69
Foreign currency translation adjustments		—			—			—			(1,813	)		—			(1,813	)
Total comprehensive loss		—			—			—			—			—			(57,155	)
Balance as of December 31, 2011		50,720			304,672			(162,951	)		14,351			(2,996	)		153,076
Stock-based compensation		—			179			—			—			—			179
Reversal of cumulative dividend to subsidiary preferred shares (Note 22)		—			—			—			—			469			469
Net loss		—			—			(15,290	)		—			(827	)		(16,117	)
Components of other comprehensive income (loss):
Change in unrealized gain (loss) on marketable securities		—			—			—			(24,004	)		—			(24,004	)
Defined benefit pension plan adjustment		—			—			—			(323	)		—			(323	)
Foreign currency translation adjustments		—			—			—			1,814			—			1,814
Deconsolidation of IAHGames (Note 6)		—			—			—			(217	)		3,016			2,799
Total comprehensive loss		—			—			—			—			—			(35,831	)
Balance as of December 31, 2012		50,720			$304,851			($178,241	)		($8,379	)		($  338	)		$117,893

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, 2010, 2011 AND 2012

(in thousands)

	2010			2011			2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	1,280		($	71,578	)	($	16,117	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation		2,092			2,080			1,224
Amortization		2,779			2,314			2,204
Stock-based compensation		3,014			1,165			179
Gain on deconsolidation and sale of gaming software and service business		(79,140	)		—			(2,480	)
Impairment loss on property, plant and equipment		278			—			—
Impairment loss on goodwill		2,255			5,097			12,489
Impairment loss on intangible assets		1,330			2,583			15
Impairment loss on prepaid licensing and royalty fees		870			247			702
Provision for bad debt expenses		1,639			1,820			169
Loss on disposal of property, plant and equipment		125			49			208
Gain on sales of marketable securities		—			(6,299	)		(5,665	)
Gain on sale of T2CN		—			(4,739	)		—
Loss (gain) on equity method investments		20,770			47,869			(234	)
Impairment loss on marketable securities and investments		4,677			13,327			1,193
Impairment loss on deconsolidation of T2CN		22,234			—			—
Gain on cancellation of warrant liabilities		—			(665	)		—
Gain on fair value changes of warrant derivative		(2,595	)		—			—
Other		(125	)		200			377
Net changes in operating assets and liabilities, net of business acquisitions and divestitures:
Accounts receivable		3,263			(153	)		1,537
Prepaid expenses		(2,992	)		871			755
Other current assets		2,215			865			(174	)
Accounts payable		1,867			(336	)		(515	)
Accrued expenses		3,519			(452	)		(59	)
Accrued compensation		1,667			(2,139	)		(831	)
Player account balances		229			—			—
Other current liabilities		4,568			(1,334	)		(467	)
Accrued pension liabilities		(39	)		128			110
Prepaid licensing and royalty fees		(3,855	)		(3,007	)		(2,397	)
Other		(847	)		(361	)		454
Net cash used in operating activities		(8,922	)		(12,448	)		(7,323	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in restricted cash		(4,068	)		2,000			3,694
Cash dividends received from equity method investees		945			1,907			—
Proceeds from disposal of marketable securities		—			9,899			8,610
Divestiture of business, net of cash transferred		—			4,739			(1,308	)
Purchase of property, plant and equipment		(3,784	)		(768	)		(429	)
Proceeds from disposal of property, plant and equipment		119			117			76
Proceeds from disposal of businesses, net of transaction costs		85,669			—			1,735
Purchase of marketable securities		(1,500	)		—			—
Purchase of investments		(5,261	)		—			—
Purchase of intangible assets		(2,317	)		(1,274	)		(1,679	)
Acquisitions, net of cash acquired		(5,831	)		11			—
Advances to equity investees		(13,804	)		(5,243	)		—
Decrease (increase) in refundable deposits		(146	)		185			428
Other		—			(22	)		(10	)
Net cash provided by investing activities		50,022			11,551			11,117

(Continued)

8

GIGAMEDIA LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

(in thousands)

	2010			2011			2012
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayment of short-term borrowings		(12,543	)		(400	)		(4,348	)
Repurchase and retirement of common shares		—			(5,825	)		—
Cash received from the exercise of stock options		174			—			—
Other		5			—			—
Net cash used in financing activities		(12,364	)		(6,225	)		(4,348	)
Exchange difference		(410	)		130			(712	)
Deconsolidation of T2CN		(12,903	)		—			—
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		15,423			(6,992	)		(1,266	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		55,566			70,989			63,997
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	70,989		$	63,997		$	62,731
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the year	$	313		$	436		$	248
Income tax paid during the year	$	3,799		$	783		$	121
NON-CASH FINANCING AND INVESTING ACTIVITIES:
Change in unrealized holding gain (loss) on available-for-sale securities	$	21,789		$	16,167		($	24,004	)
Issuance of common shares for acquisition	$	2,192		$	—		$	—
Transfer of marketable securities from current to non-current	$	—		$	42,347		$	—

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, 2010, 2011 AND 2012

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. In the second half year of 2012, we also began developing the business of providing cloud computing services, which launched in March 2013.

Through July 31, 2012, we conducted our online entertainment business in two business segments: the gaming software and service business, which develops and licenses software for online real-money gaming solutions and applications; and the Asian online game and service business, which develops a wide range of online games for the Asian and worldwide market.

In April 2010, we sold a 60 percent interest in our online gaming software and service business to Mangas Gaming S.A.S., a French Corporation, now renamed as BetClic Everest Group (“BEG”). Our retained non-controlling interest in the online gaming software and service business was sold to BEG in July 2012. (See Note 6, “Divestitures”, for additional information.)

Our gaming software and service business developed and licensed online poker and casino gaming software solutions and application services, primarily targeting continental European markets. Prior to our disposal of the remaining ownership, through our equity investment, the gaming software and service business offered software solutions for online gaming, which was licensed under a software license and support service contract.

Our Asian online game and service business operates a suite of play-for-fun online games and provides related services, mainly targeting online game players across Asia, including Greater China and Southeast Asia.

We began developing a new cloud computing business in the second half of 2012. The cloud business aims at providing an integrated platform of services and tools for small-to-medium enterprises in Greater China to increase flexibility, efficiency and competitiveness. The business launched in late March 2013.

10

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

(b) Basis of Presentation

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 initial disposal of our 60 percent interest in 2010. After the sale transaction was completed in April 2010, we deconsolidated the results of the gaming software and service business and began accounting for the remaining interest under the equity method of accounting until the closing of the disposal transaction in July 2012 when we sold our remaining ownership. (See Note 6, “Divestitures”, for additional information.)

Discontinued Operations

In June 2012, our board of directors approved a plan to liquidate and dissolve JIDI Network Technology (Shanghai) Co., Ltd. (“JIDI”), a wholly-owned subsidiary, and Shanghai JIDI Network Technology Co., Ltd. (“Shanghai JIDI”), a variable-interest entity controlled through a series of contractual arrangements. Therefore the results of these entities are reported as discontinued operations for all periods presented. (See Note 6, “Divestitures”, for additional information.)

Principles of Consolidation

The Consolidated Financial Statements include the accounts of GigaMedia and our wholly-owned, majority-owned and majority-controlled 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”, for additional information.) The accounting policies for other less than majority-owned investments are described in Note 1 below within the paragraphs headed “Marketable Securities” and “Investments”.

11

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

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, 2010, 2011 and 2012 were $(22.6) million, $(24.4) million, and $(22.8) million, respectively.

(c) Summary of significant accounting policies

Use of Estimates

The preparation of Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America (“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

12

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

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.

Asian Online Game and Service Revenues

Asian online game and service revenues are related to our Asian online game and service business that operates play-for-fun games online to players across Asia.

Online game revenues are earned through the sale of online game points, prepaid cards, game packs, through the sublicensing of certain games to distributors and through licensing fee revenues. Virtual online game points are sold to distributors or end-users who can make the payments through credit cards, Internet ATMs or telecommunication service operators. Physical prepaid 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 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. Sublicensing revenues from the distributors are recognized based on end-users’ activation to the game system and when the performance obligations have been completed. Licensing fee revenues are recognized when the delivery of licensed products has occurred and the fee is fixed or determinable.

13

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

We report sales of virtual online game points and licensing fee revenues on a gross basis. In the sales of virtual online game points and game licenses, 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. We report sublicensing revenues on a net basis. In the sublicense agreements, we act as agent and the distributors are responsible for the operating and the marketing.

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.

Gaming Software and Service Revenues

Prior to our sale of a majority interest in the online gaming software and service business in April 2010, gaming software and service revenues were related to software products we developed and licensed and support services we provided for online real-money gaming solutions and applications.

Deferred Revenues

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

14

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

Prepaid Licensing and Royalty Fees

Our Company, through our subsidiaries, routinely enters into agreements with licensors to acquire licenses for using, marketing, distributing, selling and publishing 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 estimated 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.

Prepaid royalty fees and related costs are initially deferred when paid to licensors and recognized as operating costs in the period in which the related online game revenue is recognized.

Fair Value Measurements

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 Measurements”, 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.

15

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

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 at a value 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 Income (Loss). (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.

Equity investments in companies over which our Company has the ability to exercise significant influence but does not hold a controlling financial 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 Company guaranteed obligations of the investee or has committed to 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.

16

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

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. (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 accounts receivable, and other receivables. An allowance for doubtful accounts is also provided, when considered necessary, for 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 in the allowance. The receivable is written off against the allowance when our 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:

17

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

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

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

We have entered into agreements to lease certain of our Company’s land and buildings to a third party under operating leases, which were renewed in November 2012, and which expire no later than September 2013. As of December 31, 2011 and 2012, the carrying amount of the land and buildings under lease was approximately $1.3 million and $1.2 million, respectively. The rental income under the operating lease amounted to $41 thousand, $72 thousand and $74 thousand for 2010, 2011 and 2012, respectively. The minimum rental income to be received under this operating lease is $53 thousand through September 2013.

Acquisitions

Our Company accounts for its business acquisitions using the acquisition method. Under this method, 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 are 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.

18

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

Impairment of Intangible Assets, Goodwill and Long-Lived Assets

Goodwill is tested for impairment 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. In connection with our goodwill impairment test, we first assess qualitative factors as a basis for determining whether it is necessary to perform the two-step goodwill impairment test.

Intangible assets with indefinite useful lives are tested for impairment 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 discounted 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. In connection with our impairment test for the intangible assets with indefinite useful lives, we first assess qualitative factors as a basis for determining whether it is necessary to perform the quantitative impairment test.

Long-lived assets other than goodwill and intangible assets not being amortized are tested for impairment 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 amount of the assets exceeds the fair value of the assets. When 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 Measurements”, for additional information.)

19

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

Software Cost

Costs to develop our gaming software and Asian 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 estimated 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.

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 in relation to the acquisition or origination of a customer relationship are capitalized and deferred. The deferred costs are recognized as expense in the Consolidated Statements of Income (Loss) over the estimated lives of customer relationships. Costs of broadcast advertising are recorded as expenses as advertising airtime is used. Other advertising expenditures are expensed as incurred. Subsequent to the sale of a majority interest in the online gaming and software service business in April 2010, deferred costs related to advertising have not been significant.

20

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

Advertising expenses incurred in 2010, 2011 and 2012 totaled $12.7 million, $3.5 million and $3.2 million, respectively. As of December 31, 2011 and 2012, prepaid advertising amounted to $110 thousand and $1 thousand, respectively.

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 Income (Loss) on a straight-line basis over the lease periods.

Leases are classified as capital leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. Assets held under capital leases are recognized as assets of our Company at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a lease obligation. Lease payments are apportioned between finance charges and a reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to profit or loss.

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

21

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

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.

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. Net operating loss carryforwards and investment credits are measured using the enacted tax rate and laws that will be in effect when the differences are expected to reverse. A valuation allowance is 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.

22

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

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 tax expense 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 dilutive 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 anti-dilutive. Therefore, for the years ended December 31, 2011 and 2012, basic and diluted loss per share are the same.

Noncontrolling Interest

Noncontrolling interest in the equity of a subsidiary is accounted for and reported as equity. 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.

23

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

Reclassifications

The presentation of certain amounts in our 2011 Consolidated Financial Statements have been reclassified to conform to the presentation in our Consolidated Financial Statements as of and for the year ended December 31, 2012.

Recent Accounting Pronouncements

In February 2013, Accounting Standards Update (“ASU”) guidance was issued related to items reclassified from Accumulated Other Comprehensive Income. The new standard requires either in a single note or parenthetically on the face of the financial statements:(i) the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source and (ii) the income statement line items affected by the reclassification. The update is effective for our fiscal year beginning January 1, 2013 with early adoption permitted. We do not expect the updated guidance to have a significant impact on our consolidated financial position, results of operations or cash flows.

In July 2012, the FASB issued updated guidance that simplifies the impairment test for intangible assets not subject to amortization. For its annual and interim impairment test for intangible assets, an entity may first assess qualitative factors to determine whether it is “more likely than not” that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the quantitative impairment test. This update is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. However, early adoption is permitted, if an entity’s financial statements for the most recent annual or interim period have not yet been issued. We adopted the updated guidance for our annual impairment test for intangible assets not subject to amortization in 2012. The adoption of this guidance had no impact on our consolidated financial position, results of operations, or cash flows.

24

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

In June 2011, the ASU guidance was issued related to comprehensive income. Under the updated guidance, an entity will have the option to present the total of comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In addition, the update required certain disclosure requirements when reporting other comprehensive income. The update does not change the items reported in other comprehensive income or when an item of other comprehensive income must be reclassified to income. We adopted the new guidance and its deferral and opted to present the total of comprehensive income in two separate but consecutive statements. The adoption of this guidance had no impact on our consolidated financial position, results of operations or cash flows.

NOTE 2. EARNINGS PER SHARE

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

(in thousand shares)	2010		2011		2012
Weighted average number of outstanding shares
Basic		55,834		54,268		50,720
Effect of dilutive securities
Employee share-based compensation		3,457		—		—
Diluted		59,291		54,268		50,720

Options to purchase 1,432 thousand and 1,444 thousand shares of common stock were not included in dilutive securities for the years ended December 31, 2011 and 2012, respectively, as the effect would be anti-dilutive.

NOTE 3. VARIABLE-INTEREST ENTITIES

25

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

Shanghai JIDI

In order to comply with foreign ownership restrictions and to hold the necessary licenses required, through June 2012 we operated our Asian online game and service business in the People’s Republic of China (“PRC”) through our VIE, Shanghai JIDI. We had no ownership interest in Shanghai JIDI and relied on a series of contractual arrangements that were intended to give us effective control over Shanghai JIDI. Those contractual arrangements were duly executed and the share pledge agreements were registered with local government authority in compliance with PRC legal requirements. In June 2012, our board of directors approved a plan to dispose of Shanghai JIDI. As a result, Shanghai JIDI’s operations have been accounted for as discontinued operations. (See Note 6, “Divestitures”, for additional information.) Therefore, we still effectively control Shanghai JIDI, and are therefore the primary beneficiary of Shanghai JIDI. Shanghai JIDI was established in December, 2010 and is effectively controlled by us through a series of contractual arrangements. Shanghai JIDI holds an Internet Content Provider (“ICP”) license, an Internet cultural operation license and an Internet publishing license. The financial results of Shanghai JIDI have been included in our consolidated financial statements since January 2011.

For the years ended December 31, 2011 and 2012, total revenues and net loss of Shanghai JIDI (which are included within discontinued operations) were as follows:

(in US$ thousands)	2011			2012
Total revenues	$	29		$	100
Net loss	$	(2,110	)	$	(888	)

Ultra Internet Media, S.A. (“UIM”)

Through the date of our sale of a majority interest in the gaming software and service business to BEG in April 2010, we had a software license and support service contract with UIM to provide Internet software and support services for UIM’s online gaming operations. The contract allowed us to charge UIM a percentage of its gross receipts resulting from UIM’s online gaming operations. The percentage of gross receipts varied depending upon the software and support services provided to UIM. We analyzed our contractual relationships with UIM and determined that we were the primary beneficiary of UIM. As a result of such determination, we had incorporated the financial results of UIM into our Consolidated Financial Statements, even though we did not own any of UIM’s equity. In connection with the sale to BEG, we purchased 100 percent of the ownership in UIM from its shareholders for $400 thousand and adjusted additional paid-in capital and noncontrolling interest by approximately $178 thousand and $(578) thousand, respectively.

26

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

For the period from January to March 2010, total revenues and net income of UIM were as follows:

(in US$ thousands)	2010
Total revenues	$	25,820
Net income	$	1,514

T2CN Holding Limited (“T2CN”)

Pursuant to various agreements entered into among Shanghai T2 Entertainment Co., (“T2 Entertainment”), T2 Information Technology (Shanghai) Co., Ltd. (“T2 Technology”) and the equity interest owners of T2 Entertainment, until June 30, 2010, T2CN, through its wholly owned subsidiary T2 Technology, had effective control over T2 Entertainment and was considered the primary beneficiary of T2 Entertainment. T2 Entertainment was established to hold the necessary licenses required for the operation of our Asian online game and services business in the PRC. Accordingly, from the date that we consolidated T2CN through July 1, 2010, the date we deconsolidated T2CN (See Note 5, “Deconsolidation”, for additional information), the financial results of T2 Entertainment were included in our Consolidated Financial Statements.

27

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

Pursuant to various agreements entered into among Shanghai T2 Advertisement Co., Ltd. (“T2 Advertisement”), T2 Technology and the equity interest owners of T2 Advertisement, until June 30, 2010, T2CN, through its wholly owned subsidiary T2 Technology, had effective control over T2 Advertisement and was considered the primary beneficiary of T2 Advertisement. T2 Advertisement was established to hold the necessary licenses required for the operation of our Asian online game related advertisement services in the PRC. Accordingly, from the date that we consolidated T2CN through July 1, 2010, the date we deconsolidated T2CN (See Note 5, “Deconsolidation”, for additional information), the financial results of T2 Advertisement were included in our Consolidated Financial Statements.

T2 Technology also entered into various agreements with Shanghai Jinyou Network & Technology Co., Ltd. (“Jinyou”) and the equity interest owners of Jinyou. Until June 30, 2010, T2CN, through its wholly owned subsidiary T2 Technology, had effective control over Jinyou and was considered the primary beneficiary of Jinyou. In September 2008, Jinyou acquired an ICP license required for the operation of our Asian online game and services business in the PRC and the agreements entered into by and among T2 Technology, Jinyou and the equity interest owners of Jinyou became effective. Accordingly, the financial results of Jinyou were included in our Consolidated Financial Statements starting from September 2008 through July 1, 2010.

T2 Technology, J-Town Information (Shanghai) Co., Ltd. (“J-Town”), T2 Entertainment, T2 Advertisement and Jinyou are hereby collectively referred to as “T2CN Operating Entities”.

As a result of a dispute that arose in July 2010 with T2CN’s former Chief Executive Officer, we had been prevented from obtaining the financial information necessary to report the financial results of T2CN, and we had effectively lost control over T2CN’s financial reporting process. Therefore, we deconsolidated T2CN’s financial results with effect from July 1, 2010. As a result, we also ceased treating T2 Entertainment, T2 Advertisement and Jinyou as our variable-interest entities. (See Note 5, “Deconsolidation”, for additional information.)

28

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

The net assets, total assets and total liabilities in the aggregate of T2 Entertainment, T2 Advertisement and Jinyou were approximately $2.5 million, $20.9 million and $18.4 million, respectively, as of July 1, 2010 (the date of deconsolidation). For the period from January to June 2010, total revenues and net income in the aggregate of T2 Entertainment, T2 Advertisement and Jinyou recorded in our Consolidated Financial Statements were as follows:

(in US$ thousands)	2010
Total revenues	$	10,126
Net income	$	834

NOTE 4. ACQUISITIONS

IAHGames

In July 2010, we began consolidating Infocomm Asia Holdings Pte Ltd. (“IAHGames”), an online game operator, publisher and distributor in Southeast Asia. We acquired IAHGames in order to enhance our position in the online game market in Southeast Asia and strengthen our online entertainment product portfolio. 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, 2011, we owned 5,982,230 Class A preferred shares and 1,208,881 Class B preferred shares of IAHGames, which represented a controlling financial interest of 80 percent of the total outstanding voting rights of IAHGames.

29

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

In July 2012, we entered into agreements to sell a 60 percent ownership in IAHGames, together with the sale of a 100 percent ownership in Spring Asia Limited (“Spring Asia”), which has a 30 percent interest in Game First International Corporation (“GFI”). We retained a 20 percent ownership in IAHGames. Upon the closing of the agreements, we deconsolidated the results of IAHGames’ operations and began accounting for our remaining 20 percent interest under the equity method. (See Note 6, “Divestitures” and Note 29, “Subsequent Event”, for additional information.)

30

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

The following unaudited pro-forma information presents a summary of the results of operations of our Company for the year ended December 31, 2010 as if we controlled 80 percent of the total outstanding voting rights of IAHGames and consolidated IAHGames as of the beginning of the period presented:

(in US$ thousands,
except per share figures)	2010
	Unaudited
Net revenue	$	69,403
Loss from operations		(50,378	)
Net loss		(1,570	)
Net income attributable to GigaMedia		255
Basic earnings per share attributable to GigaMedia		0.00
Diluted earnings per share attributable to GigaMedia		0.00

The unaudited pro-forma supplemental information is based on estimates and assumptions, which we believe are reasonable; they are 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 consolidated company during all of 2010. The above unaudited pro-forma financial information includes adjustments for the amortization of identified intangible assets with definite lives.

Monsoon

We, through IAHGames, made an equity investment in Monsoon Online Pte Ltd. (“Monsoon”), an operator and distributor of online games in Southeast Asia, in connection with our acquisition of a controlling financial interest in IAHGames with effect from July 1, 2010. In connection with a strategic alliance, Monsoon entered into various agreements with a game licensor to distribute selected games in Southeast Asia (collectively referred to as the “Distribution Partnership”). Although IAHGames owns 100 percent of the common stock of Monsoon, we decided not to consolidate Monsoon at the time of the acquisition as the game licensor had substantive participating rights in Monsoon’s business operations pursuant to Monsoon’s management agreement. In September 2011, IAHGames, Monsoon and the game licensor entered into an agreement whereby all parties agreed to terminate early Monsoon’s management agreement and other agreements with the game licensor which had granted the licensor the abovementioned substantive participating rights in connection with Monsoon. The agreement was effective from August 31, 2011. Starting from September 1, 2011, IAHGames had effective control over Monsoon and therefore has consolidated Monsoon since that date.

31

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

The agreement was effective from the third quarter of 2011. In January 2012, IAHGames’ and Monsoon’s commitments under the Distribution Partnership with the game licensor were fully terminated. The execution and closing of this agreement resulted in the following significant financial statement impacts in our Consolidated Financial Statements:

(in US$ thousands)	2011
Gain on cancellation of warrant liabilities	$	665
Gain on reversal of impairment of prepaid expenses		1,347
Recovery of loss on termination of third-party contract	$	2,012

NOTE 5. DECONSOLIDATION

In June 2007, we began consolidating T2CN, an operator and provider of online sports games in the PRC. As of December 31, 2010 and December 13, 2011, we owned 43,633,681 common shares of T2CN, which represented an ownership interest of 67.09 percent of the total outstanding voting rights of T2CN. We disposed of all of our ownership interest in T2CN in December 2011 through sale to a third party.

32

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

As a result of a dispute with T2CN’s former Chief Executive Officer arising in July 2010, GigaMedia was prevented from obtaining access to the assets and financial information of the entities held by T2CN. Therefore, we effectively lost control over T2CN’s financial reporting process of that time. In spite of owning 67.09 percent of T2CN’s common stock, we deconsolidated T2CN’s results with effect from July 1, 2010. The following is a breakdown of our retained investment at the date of deconsolidation:

(in US$ thousands)	Amount
Cash	$	12,903
Other current assets		1,266
Fixed assets / non-current assets		1,679
Prepaid licensing and royalty		5,339
Intangible assets		1,098
Total assets of T2CN		22,285
Total liabilities of T2CN		(12,331	)
Net equity of T2CN		9,954
Noncontrolling interest		(3,276	)
Goodwill acquired		17,500
Advances to T2CN Operating Entities		1,405
	$	25,583

In connection with our year-end financial reporting process, we were required to perform an impairment analysis for our investment in and advances to T2CN Operating Entities as of December 31, 2010. Given we had been prevented from obtaining the financial information necessary to report the financial results of T2CN, and we had effectively lost control over a majority of T2CN’s assets and its financial reporting process, we decided to completely write-off both our Company’s investment in and its advances to T2CN Operating Entities in order to properly reflect GigaMedia’s financial position as of December 31, 2010. The impairment charges recorded for the investment and the advances in 2010 were approximately $22.2 million (after removing the other comprehensive income component of equity related to T2CN from our Company’s balance sheet) and approximately $1.4 million, respectively.

33

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

On December 2, 2011, we entered into an agreement with Hornfull Limited, and Hangzhou NewMargin Ventures Co. Ltd. (“Hangzhou NewMargin”) whereby we agreed to sell all of our ownership interest in T2CN to Hornfull Limited, and Hangzhou NewMargin agreed to guarantee the payment and performance of Hornfull Limited under the agreement. On December 14, 2011, the parties completed the sale and purchase of the T2CN shares. Pursuant to the agreement, we sold all of our ownership interest in T2CN to Hornfull Limited in exchange for a cash payment of $4.7 million, resulting in a gain of $4.7 million being recorded in 2011. Hornfull Limited also reimbursed us $790 thousand in cash for legal fees incurred by us in connection with the T2CN dispute.

NOTE 6. DIVESTITURES

IAHGames

In July 2012, we entered into agreements to sell 100 percent of the shares of Spring Asia, an investment holding company which owns 30 percent of the shares of GFI, to IAHGames, as well as a 60 percent ownership in IAHGames (with a 20 percent ownership of IAHGames retained by us) to IAHGames’ management and Management Capital International Limited (“MCIL”), a British Virgin Islands company owned by IAHGames’ management.

In consideration for the sale of IAHGames and Spring Asia, we are to receive $3 million in cash. The consideration is to be collected in four equal installments, with the first due upon closing, the second due in October 2012, the third due in January 2013 and the fourth due in April 2013. The payments are collateralized by the shares of Spring Asia and are only released from the escrow in proportion to the payment made upon each installment. The first installment of $750 thousand was received upon the closing on August 15, 2012. However, the buyer has defaulted on the remaining three installments. We have provided IAHGames sufficient payment demand notices, and also granted the buyer a 90-day curing period for each defaulted payment following the due dates for each of the respective installments. Additionally, we have also provided notices upon the expiration of each of the 90-day curing period of our intention to enforce repossession rights on the proportionate shares held by the escrow agent. The curing period of the last installment will expire on July 2, 2013. (See Note 29, “Subsequent Event”, for additional information.)

34

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

Our Company accounted for the deconsolidation of and the retained noncontrolling investment in IAHGames in August 2012 at fair value. Considering the uncertainty as to the collectability of the remaining three installments, we deferred the disposal gain of $211 thousand against the consideration installments receivable of $2,250 thousand as of December 31, 2012. The deferred gain is measured as the difference between:

(In US$ thousand)	Amount
The fair value of consideration received and receivable, net of any transaction costs, plus	$	3,000
The fair value of the 20% retained noncontrolling investment in IAH at the date of deconsolidation		—
		3,000
The carrying amount (credit balance) of IAHGames at the date of deconsolidation		(14,536	)
Net receivables due to GigaMedia from IAHGames waived upon the closing of the sale		17,542
Other comprehensive income component of equity related to IAHGames at the date of the deconsolidation		(217	)
		2,789
Deferred gain on deconsolidation of IAH	$	211

JIDI Network Technology (Shanghai) Co., Ltd. (“JIDI”)

In June 2012, our board of directors approved a plan to liquidate and dissolve JIDI, a wholly-owned subsidiary, and Shanghai JIDI, a VIE controlled through a series of contractual arrangements.

35

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

Results for JIDI and Shanghai JIDI operations are reported as discontinued operations for all periods presented. The carrying amounts of the remaining assets and liabilities of JIDI and Shanghai JIDI were not significant to our Consolidated Financial Statements as of December 31, 2012, and we recorded a loss of approximately $588 thousand in connection with the disposal of property, plant and equipment, which is included within discontinued operations. Summarized selected financial information for discontinued operations of JIDI and Shanghai JIDI are as follows:

(in US$ thousands)	2011			2012
Revenue	$	29		$	100
Loss from discontinued operations before tax	$	(4,240	)	$	(2,521	)
Income tax expense		—			—
Loss from discontinued operations	$	(4,240	)	$	(2,521	)

Gaming software and service business

On December 15, 2009, we entered into an agreement with BEG to sell 60 percent of substantially all of the assets and liabilities of our gaming software and service business for approximately $100 million in cash, subject to certain adjustments. The closing of the sale occurred on April 8, 2010. The sale resulted in the recognition of a gain of $79.1 million, net of transaction costs. The sale of the remaining 40 percent was subject to a put and call mechanism in place between GigaMedia and BEG, as defined in the agreement. GigaMedia had the option to put all or part of its remaining 40 percent to BEG in each of 2013, 2014, and 2015 at a value considering all relevant facts and circumstances after the end of each year. If the put option owned by GigaMedia was not fully exercised, BEG would have the option to call the remaining interest held by GigaMedia in each of 2015 and 2016.

36

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

We deconsolidated the gaming software and service business and recognized a gain when we completed the sale of 60 percent of substantially all of the assets and liabilities to BEG on April 8, 2010, the date on which our Company ceased to have a controlling financial interest. The remaining ownership we retained in the gaming software and service business, a 40 percent, later diluted to 33.66 percent interest had been accounted for under the equity method accounting from April 2010 to July 2012, when we entered into another agreement with BEG to sell our remaining ownership interest in the gaming software and service business for a consideration of $1.7 million. Of this consideration, $985 thousand was paid to us in cash, while the remainder related to the extinguishment of a 2009 tax liability. The closing of the sale occurred in August 2012. The sale resulted in the recognition of a gain of $2.5 million, net of transaction costs.

Our Company accounted for the deconsolidation of the gaming software and service business in 2010 at fair value and recognized a gain of $79.1 million measured as the difference between:

(In US$ thousands)	2010
The fair value of any consideration received, including purchase price adjustments, net of any transaction costs	$	82,984
The fair value of the 40% retained noncontrolling investment in the gaming software and service business at the date the business was deconsolidated		54,240
Less : The carrying amount of the gaming software and service business at the date of the deconsolidation		(58,084	)
Gain on deconsolidation of the gaming software and services business	$	79,140

37

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

NOTE 7. GOODWILL

The following table summarizes the changes to our Company’s goodwill:

(In US$ thousands)	2010			2011			2012
Balance at beginning of year	$	44,417		$	39,493		$	28,437
Acquisition—IAHGames (Note 4) and OneNet		12,188			1,049			—
Impairment charge—T2CN, IAHGames, OneNet and FunTown (Notes 5 and 10)		(19,755	)		(5,097	)		(12,489	)
Reversal of contingent payment of minimum guarantee under licensing agreement		—			(5,885	)		—
Translation adjustment		2,643			(1,123	)		986
Balance at end of year	$	39,493		$	28,437		$	16,934

38

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

NOTE 8. INTANGIBLE ASSETS—NET

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

	December 31, 2012
(In US$ thousands)	Gross carrying amount		Accumulated amortization		Net
Finite-lived intangible assets
Completed technology	$	2,603	$	2,603	$	—
Capitalized software development cost		3,480		1,414		2,066
Customer relationships		6,274		4,880		1,394
Other		137		133		4
		12,494		9,030		3,464
Indefinite-lived intangible assets
Trade name and trademark		12,211		—		12,211
	$	24,705	$	9,030	$	15,675

	December 31, 2011
(In US$ thousands)	Gross carrying amount		Accumulated amortization		Net
Finite-lived intangible assets
Completed technology	$	2,497	$	2,140	$	357
Capitalized software development cost		7,525		6,112		1,413
Customer relationships		6,017		4,011		2,006
Other		206		159		47
		16,245		12,422		3,823
Indefinite-lived intangible assets
Trade name and trademark		11,711		—		11,711
	$	27,956	$	12,422	$	15,534

The finite-lived intangible assets are amortized over their estimated useful lives ranging from 3 to 9 years, with the overall weighted-average life of 5.5 years.

39

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

For the years ended December 31, 2010, 2011 and 2012, total amortization expense of intangible assets were $2.7 million, $2.3 million and $2.2 million, respectively, which includes amortization of capitalized software development costs of $1.5 million, $962 thousand and $1.1 million. As of December 31, 2012, based on the current amount of intangibles subject to amortization, the estimated amortization expense for each of the following years is as follows:

(In US$ thousands)	Amount
2013	$	1,389
2014		1,386
2015		689
	$	3,464

NOTE 9. PREPAID LICENSING AND ROYALTY FEES

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

40

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

(in US$ thousands)	2010			2011			2012
Balance at beginning of year	$	5,557		$	4,214		$	7,103
Net operating additions		3,855			3,379			2,395
Acquisition—IAHGames and OneNet		1,011			129			—
Deconsolidation (Note 5)—T2CN and IAHGames		(5,339	)		—			(152	)
Impairment charges (Note 10)		(870	)		(247	)		(702	)
Impairment charges (Note 10) recorded in loss from discontinued operations		—			(372	)		—
Balance at end of year	$	4,214		$	7,103		$	8,644

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 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.

41

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

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

(in US$ thousands)	Fair Value Measurement Using						Year Ended December 31, 2012
	Level 1		Level 2		Level 3
Assets
Cash equivalents—time deposits	$	—	$	1,514	$	—	$	1,514
Marketable securities—current
Equity securities		17,773		—		—		17,773
Marketable securities—noncurrent
Debt securities		—		—		2,727		2,727
Equity securities		—		—		1,565		1,565
	$	17,773	$	1,514	$	4,292	$	23,579

(in US$ thousands)	Fair Value Measurement Using						Year Ended December 31, 2011
	Level 1		Level 2		Level 3
Assets
Cash equivalents—time deposits	$	—	$	6,631	$	—	$	6,631
Marketable securities—current
Equity securities		42,347		—		—		42,347
Marketable securities—noncurrent
Debt securities		—		—		5,454		5,454
Equity securities		—		1,630		—		1,630
	$	42,347	$	8,261	$	5,454	$	56,062

Level 1 and 2 measurements:

Cash equivalents – time deposits are convertible into a known amount of cash and are subject to an insignificant risk of change in value. Certain marketable securities 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 securities that have publicly quoted trading prices are valued using those observable prices, unless adjustments are required to available observable inputs.

42

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

In 2010, 2011 and 2012, we recorded unrealized gains (losses) of $21.8 million, $16.2 million and $(24.0) million, respectively, on marketable securities, which are included in other comprehensive income

Level 3 measurements:

For assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during 2011 and 2012, a reconciliation of the beginning and ending balances are presented as follows:

(in US$ thousands)	Marketable Securities—Debt and Equity Securities
	2011		2012
Balance at beginning of year	$	5,454	$	5,454
Total gains or (losses) (realized/unrealized) included in earnings		—		(493	)
Purchase		—		—
Sale		—		(2,727	)
Transfer into Level 3		—		2,058
Balance at end of year	$	5,454	$	4,292
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.	$	—	$	493

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

43

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

In 2010, 2011 and 2012, we recognized other-than-temporary impairments of $4.5 million, $0 and $493 thousand, respectively, related to marketable debt and equity securities, which is included in non-operating expenses within “impairment loss on marketable securities and investments” in the Consolidated Statements of Income (Loss).

For liabilities measured at fair value on a recurring basis using significant unobservable inputs (level 3) during 2011, a reconciliation of the beginning and ending balances are presented as follows (there were none during 2012):

(in US$ thousands)	Other liabilities— Warrant Derivative
	2011
Balance at beginning of year	$	665
Total (gains) or losses (realized/unrealized) included in earnings		(665	)
Purchase		—
Balance at end of year	$	—
The amount of total (gains) or losses for the period included in earnings attributable to the change in unrealized gains or losses relating to liabilities still held at the reporting date.	$	—

IAHGames had warrants outstanding in which the holder could purchase an aggregate of 15 percent of IAHGames’ common stock, on a fully diluted basis, at an exercise price of $3.40 per warrant share subject GigaMedia’s share of loss to certain adjustments in accordance with the warrant agreement. The warrants expired upon the expiration of certain game licenses or in certain circumstances in accordance with the warrant agreement. In 2010, we recognized a gain of approximately $2.6 million related to the revaluation of the warrants, which is included in non-operating income (expenses) within “gain on fair value changes of warrant derivative” in the Consolidated Statements of Income (Loss).

As a part of the early termination of the management agreement related to Monsoon (please refer to Note 4, “Acquisition”), all the warrants outstanding were cancelled. As a result, we recognized a gain of $665 thousand upon cancellation of the warrants in 2011.

44

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

Financial instruments:

The carrying amounts of our Company’s cash, accounts receivable, restricted cash, accounts payable, and short-term debt approximate fair value due to their short-term maturities. The fair value of amounts due to and from related parties is not practicable to estimate due to the related party nature of the underlying transactions.

Assets and Liabilities that are Measured at Fair Value 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 that were determined to be impaired as of December 31, 2011 and 2012 are summarized as below:

45

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

(in US$ thousands)	Fair Value measurement Using						Year Ended December 31, 2012		Total Impairment Losses
Assets	Level 1		Level 2		Level 3
(a)    Investments—Cost-method	$	—	$	—	$	—	$	—	$	700
(b)    Goodwill—Resulting from acquisition of FunTown		—		—		16,934		16,934		12,489
(c)    Intangible assets—Capitalized software cost		—		—		—		—		15
(d)    Prepaid licensing and royalty fees		—		—		—		—		702
Total	$	—	$	—	$	16,934	$	16,934	$	13,906

(in US$ thousands)	Fair Value measurement Using						Year Ended December 31, 2011		Total Impairment Losses
Assets	Level 1		Level 2		Level 3
(a)    Investments—Cost-method	$	—	$	—	$	700	$	700	$	679
(a)    Investments—Equity-method		—		—		2,500		2,500		12,648
(b)    Goodwill—Resulting from acquisition of IAH and OneNet		—		—		—		—		5,097
(c)    Intangible assets—Capitalized software cost		—		—		—		—		40
(c)    Intangible assets— Favorable lease right		—		—		—		—		2,543
(d) Prepaid licensing and royalty fees		—		—		—		—		619
Total	$	—	$	—	$	3,200	$	3,200	$	21,626

(a) Impairment losses on certain cost method and equity method investments which were determined to be impaired:

In 2011, certain cost method investments with carrying amounts of $1.4 million were written down to their estimated fair value of $700 thousand, resulting in an impairment charge of $679 thousand, and an equity method investment with a carrying amount of $15.1 million was written down to its estimated fair value of $2.5 million, resulting in an impairment charge of $12.6 million. In 2012, certain cost method investments were fully written down, resulting in an impairment charge of $700 thousand. The impairment charges are included in non-operating expenses within “impairment loss on marketable securities and investments” in the Consolidated Statements of Income (Loss).

46

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

Cost method and equity method investments are measured at fair value on a nonrecurring basis when declines in fair value are determined to be other-than-temporary, 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 goodwill which was determined to be impaired:

Goodwill from the acquisition of FunTown, which constitutes our Asian online game and service business, was written down to its estimated fair value of $16.9 million as of December 31, 2012, resulting in an impairment charge of $12.5 million in the fourth quarter 2012, which is included within operating expenses in the Consolidated Statements of Income (Loss). As a result of the slowdown in the PC-based online game market and our repositioning of FunTown to focus on market growth in browser/mobile games in the multi-platform market, we estimated that the fair value of our Asian online game and service business had decreased and, as a result, impaired the goodwill related to FunTown as of December 31, 2012. The impairment charge was determined by our estimates of future cash flows from the FunTown business which have been reduced due to our change in strategic focus to self-developed casual games versus licensed MMOs (massive multiplayer online games) and the slowdown in the PC-based online games market where we are currently positioned, indicating that the original carrying amount of the goodwill from the acquisition of FunTown could not be fully recovered as of December 31, 2012.

Goodwill from the acquisition of IAHGames was fully written down to $0 as of December 31, 2011, resulting in an impairment charge of $4.0 million in 2011, which is included within operating expenses in the Consolidated Statements of Income (Loss). The impairment charges resulted as our estimates of future cash flows for IAHGames’ business had been reduced due to lower than expected operating performance results in 2011, indicating that the carrying amount of the goodwill from the acquisition of IAHGames could not be fully recovered as of December 31, 2011.

47

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

Goodwill from the acquisition of OneNet Co., Ltd. (“OneNet”) was fully written down to $0 as of December 31, 2011, resulting in an impairment charge of $1.0 million in 2011, which is included within operating expenses in the Consolidated Statements of Income (Loss). The impairment charge resulted as our estimates of future cash flows for OneNet’s business had been reduced due to lower than expected operating performance results in 2011, indicating that the carrying amount of the goodwill from the acquisition of OneNet could not be fully recovered as of December 31, 2011.

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.

(c) Impairment losses on certain intangible assets which were determined to be impaired:

In 2011 and 2012, certain capitalized software development costs were fully written down, resulting in impairment charges of $40 thousand and $15 thousand, respectively, included in operating expenses within “impairment loss on intangible assets” in the Consolidated Statements of Income (Loss). The impairment charges for the capitalized software costs were the result of certain projects within our Asian 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.

As of December 31, 2011, a favorable lease right resulting from the acquisition of IAHGames with a carrying amount of $2.5 million was fully written down, resulting in an impairment charge of $2.5 million. This impairment is included in operating expenses within “impairment loss on intangible assets” in the Consolidated Statements of Income (Loss). The impairment charges resulted as our estimates of future cash flows related to the favorable lease right were reduced to lower than originally expected, which indicated that the carrying amount of these intangible assets could not be recovered as of December 31, 2011.

48

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

(d) Impairment losses on certain prepaid licensing and royalty fees which were determined to be impaired:

In 2011 and 2012, certain prepaid licensing and royalty fees were fully written down, resulting in impairment charges of $619 and $702 thousand, respectively. This impairment is included in operating expenses in the Consolidated Statements of Income (Loss). The impairment charges for the prepaid licensing and royalty fees related to certain licensed games within our Asian 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 licensing fee 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, along with 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)	2011		2012
Cash and savings accounts	$	57,366	$	61,217
Time deposits		6,631		1,514
	$	63,997	$	62,731

49

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

We maintain cash and cash equivalents in bank accounts with major financial institutions with high credit ratings located in the following jurisdictions:

	December 31
(in US$ thousands)	2011		2012
Taiwan	$	45,098	$	59,195
Hong Kong		4,467		2,809
PRC		6,759		626
Malaysia		100		100
Korea		6,260		—
Singapore		1,105		—
Thailand		113		—
Others		95		1
	$	63,997	$	62,731

50

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

NOTE 12. MARKETABLE SECURITIES – CURRENT

Marketable securities—current consist of the following:

	December 31
(in US$ thousands)	2011		2012
Available-for-sale securities:
Equity securities	$	42,347	$	17,773

All of our Company’s marketable securities—current are classified as available-for-sale. As of December 31, 2011 and 2012, the balances of unrealized gains for marketable securities—current were $38.8 million and $14.4 million, respectively. During 2010, 2011 and 2012, realized gains from the disposal of marketable securities—current amounted to $0, $535 thousand, and $2.3 million, respectively. The costs for calculating gains on disposal were based on each security’s average cost.

NOTE 13. ACCOUNTS RECEIVABLE – NET

Accounts receivable consist of the following:

	December 31
(in US$ thousands)	2011			2012
Accounts receivable	$	9,045		$	2,959
Less: Allowance for doubtful accounts		(2,594	)		(130	)
	$	6,451		$	2,829

The following is a reconciliation of changes in our Company’s allowance for doubtful accounts during the years ended December 31, 2010, 2011 and 2012:

(in US$ thousands)	2010			2011			2012
Balance at beginning of year	$	200		$	842		$	2,594
Additions: Provision for bad debt expense		156			1,820			169
Less: Write-offs		(219	)		(61	)		(269	)
Acquisition—IAHGames		691			—			—
Deconsolidation—IAHGames		—			—			(2,370	)
Translation adjustment		14			(7	)		6
Balance at end of year	$	842		$	2,594		$	130

51

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

NOTE 14. OTHER CURRENT ASSETS

Other current assets consist of the following:

	December 31
(in US$ thousands)	2011			2012
Loans receivable—current	$	5,666		$	3,437
Less: Allowance for loans receivable—current		(5,057	)		(3,437	)
Deferred income tax assets—current, net (Note 25)		759			840
Other		183			161
	$	1,551		$	1,001

The following is a reconciliation of changes in our Company’s allowance for loans receivable—current during the years ended December 31, 2010, 2011 and 2012:

(in US$ thousands)	2010		2011		2012
Balance at beginning of year	$	3,574	$	5,057	$	5,057
Additions: Provision for bad debt expenses		1,483		—		—
Less: Writes-offs		—		—		(1,620	)
Balance at end of year	$	5,057	$	5,057	$	3,437

52

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

As of the date of our deconsolidation of T2CN in July 2010, we had $1.4 million of loans receivable outstanding. As a result of the ongoing dispute, we do not expect to collect these outstanding loans due from T2CN. Therefore, we recognized a full provision for the loans of $1.4 million in 2010. (See Note 5, “Deconsolidation” for additional information.)

NOTE 15. MARKETABLE SECURITIES – NONCURRENT

Marketable securities—noncurrent consist of the following:

	December 31
(in US$ thousands)	2011		2012
Available-for-sale securities
Debt securities	$	5,454	$	2,727
Equity securities		1,630		1,565
	$	7,084	$	4,292

Our Company’s marketable securities—noncurrent are invested in convertible preferred shares and publicly-traded common shares and are 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 based upon 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.

53

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

During 2010, 2011 and 2012, realized gains from the disposal of marketable securities—non-current amounted to $0, $5.8 million and $3.4 million, respectively. Gains on disposal were based on the security’s average cost. In December 2011, our Board of Directors authorized management to dispose of a majority of our equity securities in the first half of 2012. Accordingly, we reclassified those marketable securities as current as of December 31, 2011. In 2012 we disposed of 74 thousand shares, or 6.07 percent, of such marketable securities (valued at $2.5 million as of the time of sale) with realized gains of $2.3 million. Due to the downturn in global economy and the securities market in 2012, all of the sales were not completed, and therefore were re-authorized to proceed in 2013. (See Note 12, “Marketable Securities—Current”, for additional information.)

54

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

NOTE 16. INVESTMENTS

Investments consist of the following:

	December 31
(in US$ thousands)	2011		2012
Investments accounted for under the equity method	$	7,615	$	5,223
Investments accounted for under the cost method		700		—
	$	8,315	$	5,223

Our Company’s investments in companies that are accounted for under the equity method of accounting primarily consist of the following: (a) through July 31, 2012, a 40 percent, later diluted to 33.66 percent interest in Mangas Everest S.A.S. (“Mangas Everest”), which is engaged in the gaming software and service business (See Note 6 “Divestitures” for additional information); (b) through August 15, 2012, a 30 percent interest in Game First International Corporation (“GFI”), an operator and distributor of online games in Taiwan (See Note 6 “Divestitures” for additional information); (c) through August 31, 2011, a 100 percent interest in Monsoon Online Pte Ltd. (“Monsoon”), an operator and distributor of online games in Southeast Asia; and (d) an 18 percent interest in East Gate Media Contents & Technology Fund (“East Gate”), a Korean Fund that invests in online game businesses and films. The investments in these companies amounted to $7.6 million and $5.2 million as of December 31, 2011 and 2012, respectively.

As of December 31, 2011, our share of the underlying net assets of Mangas Everest exceeded the carrying value of its investment by $9.3 million. The excess results from the difference between the fair value we assigned to the 40 percent retained interest in Mangas Everest at the date the business was deconsolidated, compared to 40 percent of the total fair value of Mangas Everest as determined by BEG, the purchaser of the 60 percent interest.

From the date of our sale of a 60 percent interest in our online gaming software and service business in 2010 through July 31, 2012 when we sold the remaining 33.66 percent interest to BEG, we recognized our share of losses in Mangas Everest under the equity method of accounting which totaled $9.8 million, $49.7 million and $0 in 2010, 2011 and 2012, respectively, which resulted in a negative investment balance as of December 31, 2011 and July 31, 2012. In accordance with the FASB codification, we charged this negative investment balance against the loan receivable that Mangas Everest had outstanding to us as of December 31, 2011 and July 31, 2012. (See Note 26, “Related Party Transactions”, for additional information.)

55

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

We, through IAHGames, made an equity investment in Monsoon in connection with our acquisition of a controlling financial interest in IAHGames. Although IAHGames owns 100 percent of the common stock of Monsoon, prior to September 2011 we determined that Monsoon could not be consolidated by IAHGames due to the substantive participating rights that the game licensor had in Monsoon pursuant to Monsoon’s management agreement. From the date of our acquisition of IAHGames through August 31, 2011, we recognized our share of gains (losses) under the equity method of accounting which totaled $(12.6) million and $230 thousand in 2010 and 2011, respectively, which resulted in a negative investment balance. In accordance with the FASB codification, we charged this negative investment balance against the loan receivable that Monsoon had outstanding to us as of December 31, 2010 and August 31, 2011. (See Note 26, “Related Party Transactions”, for additional information.)

In September 2011, IAHGames, Monsoon and the game licensor entered a transition agreement to early terminate the previous agreement in which the abovementioned substantive participating rights were granted, effective August 31, 2011, and thus restored IAHGames’ full control in Monsoon. Therefore, starting September 1, 2011, we consolidated Monsoon. (See Note 4, “Acquisition”, for additional information.)

Our Company has an 18 percent interest in East Gate, a Korean Limited Partnership. We account for this limited partnership investment under the equity method accounting in accordance with the FASB codification as our interest is not considered to be minor. We have influence over partnership operating and financial policies based on the terms of the partnership agreement.

56

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

NOTE 17. SHORT-TERM BORROWINGS

As of December 31, 2011 and 2012, short-term borrowings totaled $11.8 million and $7.7 million, respectively. These amounts were borrowed from certain financial institutions. The annual interest rates on these borrowings ranged from 1.30 percent to 7.54 percent for 2011, and was 1.42 percent for 2012. The maturity dates fell in late January 2012 as of December 31, 2011 and in mid-January 2013 as of December 31, 2012. As of December 31, 2011 and 2012, the weighted-average interest rate on total short-term borrowings was 2.87 percent and 1.42 percent, respectively.

As of December 31, 2012, the total amount of unused lines of credit available for borrowing under these agreements was approximately $6.9 million.

During the period from January 2013 to March 2013, we repaid certain short-term borrowings totaling $22.9 million, and renewed short-term borrowing agreements totaling $22.9 million.

We pledged certain time deposits, land, and buildings as collateral for borrowings from certain financial institutions. The total value of collateral amounted to $4.2 million and $0 as of December 31, 2011 and 2012, respectively, in which time deposits pledged are recorded as restricted cash totaling $3 million and $0 as of December 31, 2011 and 2012, respectively.

57

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

NOTE 18. ACCRUED EXPENSES

Accrued expenses consist of the following:

	December 31
(in US$ thousands)	2011		2012
Accrued advertising expenses	$	717	$	696
Accrued royalties		1,269		967
Accrued professional fees		3,263		1,319
Purchase price adjustment accrual to BEG		2,326		—
Other		3,059		2,200
	$	10,634	$	5,182

NOTE 19. OTHER CURRENT LIABILITIES

Other current liabilities consist of the following:

	December 31
(in US$ thousands)	2011		2012
Deferred revenue	$	4,319	$	3,174
Income taxes payable		4,251		3,588
Other		749		398
	$	9,319	$	7,160

58

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

NOTE 20. 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 a lump sum retirement benefit upon retirement equivalent to the aggregate of 2 months’ pensionable salary for each of the first 15 years of service and 1 month’s pensionable salary for each year of service thereafter subject to a maximum of 45 months’ pensionable salary. The pensionable salary is the monthly average salary or wage of the final six months prior to approved retirement.

We use a December 31 measurement date for our defined benefit pension plan. As of December 31, 2011 and 2012, the accumulated benefit obligation amounted to $169 thousand and $429 thousand, respectively, and the funded status of accrued pension liability (prepaid pension) amounted to $(68) thousand (recorded in other long-term assets for $239 thousand and accrued pension liabilities for $171 thousand) and $281 thousand, respectively. The fair value of plan assets amounted to $263 thousand and $291 thousand as of December 31, 2011 and 2012, respectively. The accumulated other comprehensive income amounted to $308 thousand and $2 thousand as of December 31, 2011 and 2012, respectively. The net periodic benefit cost (income) for 2010, 2011 and 2012 amounted to $12 thousand, $(18) thousand and $30 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 Bank of 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.

59

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

We expect to make a contribution of $8 thousand to the Fund in 2013. We do not expect to make any benefit payments through 2020.

Defined Contribution Pension Plans

We have provided defined contribution plans for employees located in Taiwan, the PRC, Hong Kong and Singapore. 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 $310), to each of the eligible employees’ individual 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.

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.

60

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

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$1.25 thousand (approximately $161). After the termination of employment, the benefits still belong to the employees in any circumstances.

Singapore

In accordance with Singapore regulations, through July 2012 we made contributions to the Singapore Central Provident Fund Scheme, a defined contribution pension plan, for eligible employees. We contributed 14.5 percent of the employees’ gross salaries, subject to a cap of SG$5 thousand (approximately $4,000). We have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and preceding financial years.

The total amount of defined contribution pension expenses pursuant to our defined contribution plans for the years ended December 31, 2010, 2011, and 2012 were $1.0 million, $896 thousand, and $585 thousand, respectively.

61

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

NOTE 21. OTHER LIABILITIES – OTHER

Other liabilities consist of the following:

	December 31
(in US$ thousands)	2011		2012
Deferred tax liabilities (Note 25)	$	1,006	$	561
Other		9		12
	$	1,015	$	573

NOTE 22. SUBSIDIARY PREFERRED SHARES

In connection with our acquisition of a controlling financial interest in IAHGames, we had assumed Class A preferred shares, which were owned by the noncontrolling shareholders. As of December 31, 2011 and August 15, 2012 when we deconsolidated IAHGames, these Class A preferred shares were valued at $1.8 million and $1.3 million, respectively, and both represented 8.9 percent of IAHGames’ accumulated voting interest. The holder of the Class A preferred shares was entitled to cumulative dividends at 10 percent per annum. The preferred shares were redeemable at the holder’s option at any time after the expiration of certain licensed games, and were convertible into ordinary shares at any time. Pursuant to agreements entered into in connection with our acquisition of IAHGames in July 2010, all Class A preferred shares were to be converted to ordinary shares of IAHGames at the acquisition date. The preferred shares were fully converted into ordinary shares by the closing date when we sold 60 percent of IAHGames. (See Note 6, “Divestitures”, for additional information.)

As the redemption feature on the Class A preferred stock was not solely within the control of IAHGames, the amount was presented in the mezzanine section of the Consolidated Balance Sheet. Also, since the Class A preferred shares were never currently redeemable and it was not probable that they would become redeemable as a result of our acquisition of IAHGames, the subsequent adjustment for accretion was not required. However, the cumulative dividends and the reversal of dividends upon the conversion described above for these Class A preferred shares of $148 thousand, $321 thousand and $(469) thousand for the years ended December 31, 2010, 2011 and the period from January to July 31, 2012, respectively, are included as a component of “net income (loss) attributable to the noncontrolling interest” in the Consolidated Statement of Operations.

62

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

NOTE 23. 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, 2011 and 2012, the legal reserves of Hoshin GigaMedia Center Inc. (“Hoshin GigaMedia”), which represent a component of our consolidated accumulated deficit, were $3.0 million for each period. 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.

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, 2011 and 2012, our Company’s total restricted net assets, which include paid up capital of PRC subsidiaries and the net assets of VIE subsidiaries in which our Company has no legal ownership, were approximately $3.6 million and $1.5 million, respectively.

63

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

On May 20, 2011, our board of directors approved an $11 million share repurchase program of GigaMedia’s common stock. Under the terms of the share repurchase program, GigaMedia could repurchase up to $11 million worth of its issued and outstanding shares during the period starting from June 1, 2011 to November 30, 2011. The repurchases could be made from time to time on the open market at prevailing market prices pursuant to a Rule 10b5-1 plan, subject to restrictions relating to volume, pricing and timing. The timing and extent of any repurchases depended upon market conditions, the trading price of GigaMedia’s shares and other factors. This share repurchase program was implemented in a manner consistent with market conditions, in the interests of our shareholders, and in compliance with GigaMedia’s securities trading policy and relevant Singapore and U.S. laws and regulations. During 2011, repurchases under this program amounted to approximately 5.6 million shares at a cost of $5.8 million. All of the shares repurchased under this program were cancelled by the end of 2011.

64

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

NOTE 24. SHARE-BASED COMPENSATION

The following table summarizes the total stock-based compensation expense recognized in our Consolidated Statements of Income (Loss):

(in US$ thousands)	2010			2011			2012
Cost of online game and service revenues	$	10		$	—		$	—
Product development & engineering expenses		18			—			—
Selling and marketing expenses		64			62			20
General and administrative expenses		2,922			1,103			159
Pre-tax stock-based compensation expense		3,014			1,165			179
Income tax benefit		(90	)		(109	)		(41	)
Total stock-based compensation expense reported in continuing operations	$	2,924		$	1,056		$	138
Total stock-based compensation expense reported in discontinued operations, net of tax	$	—		$	—		$	—

There were no significant capitalized stock-based compensation costs at December 31, 2011 and 2012.

(a) Overview of Stock-Based Compensation Plans

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.

65

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

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 “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.

66

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

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.

2008 Employee Share Purchase Plan

At the June 2008 annual general meeting of shareholders, the shareholders of our Company approved the GigaMedia Limited 2008 Employee Share Purchase Plan (the “2008 ESPP”) under which up to two hundred thousand common shares of our Company were reserved for issuance. Any person who is regularly employed by our Company or our designated subsidiaries shall be eligible to participate in the 2008 ESPP. Pursuant to the 2008 ESPP, our Company would offer the shares to qualified employees on favorable terms. 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 2008 ESPP. The 2008 ESPP is administered by a committee designated by the board of directors. As of December 31, 2012, no shares have been subscribed by qualified employees under the 2008 ESPP.

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.

67

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

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, 2012, no shares have been issued to employees under the 2009 ESPP.

2010 Equity Incentive Plan

At the June 2010 annual general meeting of shareholders, the shareholders of our Company approved the GigaMedia Limited 2010 Equity Incentive Plan (the “2010 Plan”) under which up to one million common shares of our Company have been reserved for issuance. The 2010 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 2010 Plan. The maximum contractual term for the options under the 2010 Plan is 10 years.

2010 Employee Share Purchase Plan

At the June 2010 annual general meeting of shareholders, the shareholders of our Company approved the GigaMedia Limited 2010 Employee Share Purchase Plan (the “2010 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 2010 ESPP. The 2010 ESPP is administered by a committee designated by the board of directors. As of December 31, 2012, no shares have been issued to employees under the 2010 ESPP.

68

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

Summarized below are the general terms of our stock-based compensation plans, for which awards have been granted as of December 31, 2012.

Stock-Based compensation plan	Granted awards			Vesting schedule	Options’ exercise price	RSUs’ grant date fair value
2002 Plan		3,000,000		immediately upon granting	$0.79	—
2004 Plan		7,703,185	(1)	immediately upon granting to four years	$0.79~$2.55	—
2006 Plan		1,197,333	(2)	immediately upon granting to four years	$0.8101~$16.6	$2.91~$16.01
2007 Plan		3,205,217	(3)	immediately upon granting to four years	$1.2~$18.17	$2.47~$15.35
2008 Plan		1,000,000		immediately upon granting to six years	$2.47~$4.24	—
2009 Plan		2,500,000	(4)	immediately upon granting to four years	$0.955~$2.47	—
2010 Plan		1,600,000	(5)	three years	$0.8101~$1.05	—
2011 Plan		—		—	—	—

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

(2) The granted awards, net of forfeited or canceled shares, were within reserved shares of one million common shares.

(3) The granted awards, net of forfeited or canceled shares, were within reserved shares of two million common shares.

(4) The granted awards, net of forfeited or canceled shares, were within reserved shares of one and a half million common shares.

(5) The granted awards, net of forfeited or canceled shares, were within reserved shares of one million common shares.

Options and Restricted Stock Units (“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.

69

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

(b) Options

In 2010, 2011 and 2012, 200,500, 0 and 0 options were exercised, and cash received from the exercise of stock options was $0.2 million, $0 and $0, respectively, which resulted in no significant tax benefit realized on a consolidated basis.

Our Company uses the Black-Scholes option-pricing model to estimate the fair value of stock options granted to employees. The following table summarizes the assumptions used in the model for options granted during 2011 and 2012:

	2011	2012
Option term (years)	5.99	5.73
Volatility	58.89%~63.03%	59.76%~67.02%
Weighted-average volatility	59%	62%
Risk-free interest rate	2.14%~2.31%	0.885%~1.152%
Dividend yield	0%	0%
Weighted-average fair value of option granted	$0.60	$0.54

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.

70

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

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

	2010					2011					2012
	Weighted Avg. Exercise Price		No. of Shares (in thousands)			Weighted Avg. Exercise Price		No. of Shares (in thousands)			Weighted Avg. Exercise Price		No. of Shares (in thousands)			Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value (in thousands)
Balance at January 31	$	2.36		7,689		$	2.33		9,780		$	2.13		9,493
Options granted		2.47		2,565			1.06		1,060			0.96		2,070
Options exercised		0.87		(201	)		—		—			—		—
Options Forfeited /canceled /expired		5.66		(273	)		2.72		(1,347	)		1.74		(2,353	)
Balance at December 31	$	2.33		9,780		$	2.13		9,493		$	1.97		9,210		$	3.90		890
Exercisable at December 31	$	2.04		7,190		$	2.19		7,754		$	2.15		7,584		$	2.69		882
Vested and expected to vest at December 31	$	2.33		9,780		$	2.13		9,493		$	1.97		9,210		$	3.90		890

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between GigaMedia’s closing stock price on the last trading day of 2012 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, 2012. 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, 2010, 2011, and 2012 were $0.3 million, $0, and $0, respectively.

As of December 31 2012, there was approximately $707 thousand of unrecognized compensation cost related to nonvested options. That cost is expected to be recognized over a period of 2.7 years.

71

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

The following table sets forth information about stock options outstanding at December 31, 2012:

Options outstanding			Option currently exercisable
Exercise price	No. of Shares (in thousands)	Weighted average remaining contractual life	Exercise price	No. of Shares (in thousands)
Under $1	6,211	2.87 years	Under $1	5,191
$1~$10	2,383	6.40 years	$1~$10	1,777
$10~$20	616	4.65 years	$10~$20	616
	9,210			7,584

(c) RSUs

Nonvested RSUs during 2011 and 2012 were as follows:

	2011					2012
	Number of units (in thousands)			Weighted- average grant date fair value		Number of units (in thousands)		Weighted- average grant date fair value
Nonvested at January 1		390		$	10.99		—	$	—
Granted		323			3.01		—		—
Vested		(80	)		2.99		—		—
Forfeited		(633	)		7.92		—		—
Nonvested at December 31		—			—		—		—

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, 2010, 2011 and 2012 was $0.3 million, $1.0 million and $0, respectively. The total fair value of RSUs vested during the years ended December 31, 2010, 2011 and 2012 was $1.0 million, $0.2 million and $0, respectively, which resulted in no significant tax benefit realized on a consolidated basis.

72

GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

As of December 31 2012, there was no unrecognized compensation cost related to nonvested RSUs. Our Company received no cash from employees as a result of employee stock award vesting and the forfeiture of RSUs during 2010, 2011 and 2012.

NOTE 25. INCOME TAXES

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

(in US$ thousands )	2010		2011			2012
U.S. operations	$	5,678	$	(1,444	)	$	(418	)
Non-U.S. operations		2,990		(66,191	)		(12,507	)
	$	8,668	$	(67,635	)	$	(12,925	)

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

(in US$ thousands )	2010		2011			2012
U.S. operations	$	4,992	$	(616	)	$	23
Non-U.S. operations		2,268		371			648
	$	7,260	$	(245	)	$	671

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

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YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

( in US$ thousands )	2010		2011			2012
U.S. Federal :
Current	$	4,244	$	(493	)	$	—
Deferred		20		—			—
	$	4,264	$	(493	)	$	—
U.S. State and Local :
Current	$	617	$	(123	)	$	23
Deferred		111		—			—
	$	728	$	(123	)	$	23
Non - U.S. :
Current	$	2,032	$	77		$	602
Deferred		236		294			46
	$	2,268	$	371		$	648
Total income tax provision (benefit)	$	7,260	$	(245	)	$	671

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

	2010			2011			2012
Federal statutory rate		34.00	%		34.00	%		34.00	%
State and local—net of federal tax benefit		6.69	%		5.45	%		5.45	%
Foreign tax differential		(88.75	%)		(14.58	%)		(15.77	%)
Permanent differences		31.58	%		(2.75	%)		(19.30	%)
Change in valuation allowance		52.73	%		(21.70	%)		(4.00	%)
Tax effect of earnings for equity method investees and certain subsidiaries		42.72	%		(0.02	%)		(4.38	%)
Other		4.79	%		(0.06	%)		(1.19	%)
Effective rate		83.76	%		0.34	%		(5.19	%)

In 2010, the primary reason for the increase in the income tax provision and the effective income tax rate was due to the sale of 60 percent of our gaming software and service business. (See Note 6, “Divestiture”, for additional information.) The income tax provision related to the sale of the gaming software and service business in 2010 was approximately $6.1 million, which represented approximately 70 percent of our income from continuing operations.

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GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

The provision (benefit) for income taxes attributable to discontinued operations was $0 for each of the years ended December 31, 2010, 2011 and 2012, respectively.

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

(in US$ thousands)	December 31
	2011			2012
Net operating loss carryforwards	$	9,901		$	3,248
Loss on equity method investment		15,621			15,621
Share-based compensation		190			234
Impairment charges		97			177
Pension expense		29			26
Depreciation		111			37
Other		66			(61	)
		26,015			19,282
Less: valuation allowance		(25,256	)		(18,333	)
Deferred tax assets—net	$	759		$	949

As of December 31, 2011 and 2012, $759 thousand and $840 thousand, respectively, of the net deferred tax assets were reported as current and included in other current assets on the balance sheet.

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YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

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

(in US$ thousands)	December 31
	2011		2012
Depreciation and amortization	$	344	$	255
Tax effect on undistributed earnings of equity method investees		662		306
Deferred tax liabilities	$	1,006	$	561

As of December 31, 2011 and 2012, $1.0 million and $561 thousand, respectively, of 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, 2010, 2011 and 2012 are as follows:

(in US$ thousands)	2010			2011			2012
Balance at beginning of year	$	1,068		$	7,402		$	25,256
Subsequent reversal/utilization of valuation allowance		(12	)		(270	)		(4	)
Additions to valuation allowance		4,583			15,597			214
Divestitures		(874	)		—			(7,026	)
Acquisitions		2,624			2,491			—
Exchange differences		13			36			(107	)
Balance at end of year	$	7,402		$	25,256		$	18,333

In 2010, the valuation allowance on the deferred tax assets increased by $6.3 million to $7.4 million primarily due to the acquisition of IAHGames. IAHGames had successive losses in prior years and therefore we do not believe that sufficient objective, positive evidence existed at the date of our acquisition to conclude that the realization of the deferred tax assets that we acquired from IAHGames was more likely than not. We also provided a valuation allowance against deferred tax assets related to certain of our other subsidiaries, as they are not likely to be able to utilize all of their deferred tax assets based on their estimated future taxable income.

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GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

In 2011, the valuation allowance on the deferred tax assets increased by $17.9 million to $25.3 million primarily due to the evaluation of the loss related to our investment in Mangas Everest. We provided a valuation allowance against the deferred tax asset related to our investment loss in Mangas Everest as we believe that the subsequent disposal of this investment will not likely offset the related deferred tax asset based on our estimation of any future disposal gain, as Mangas Everest has had successive losses, and therefore we do not believe that sufficient objective, positive evidence exists to conclude that the realization of the deferred tax asset related to our investment losses in Mangas Everest is more likely than not.

As of December 31, 2012, we had net operating loss carryforwards available to offset future income, amounting to $13.5 million. Below is the breakdown of the expiration of the net operating loss carryforwards in major jurisdictions:

Jurisdiction	Amount		Expiring year
Hong Kong		9,174	indefinite
Taiwan		4,333	2021
		13,507

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.

Uncertain Tax Positions

A reconciliation of the beginning and ending amount of unrecognized tax benefits (excluding the effects of accrued interest) for the years 2010, 2011 and 2012 are as follows:

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YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

(in US$ thousands)	2010			2011			2012
Balance at beginning of year	$	702		$	1,667		$	2,079
Acquisition of IAHGames		535			—			—
Increase for prior year tax positions		194			451			116
Increase for current year tax positions		323			—			—
Decrease due to settlement		(166	)		—			—
Deconsolidation of IAHGames		—			—			(1,072	)
Exchange differences		79			(39	)		45
Balance at end of year	$	1,667		$	2,079		$	1,168

As of December 31, 2010, 2011 and 2012, there were approximately $1.7 million, $2.1 million and $1.2 million of unrecognized tax benefits that if recognized would affect the effective tax rate.

Interest and penalties related to income tax liabilities are included in income tax expense. In 2010, 2011 and 2012, there were no significant interest and penalties recognized in income tax expense.

Our major tax jurisdictions are located in Taiwan, the PRC, and Singapore. As of December 31, 2012, the income tax filings under tax jurisdictions located in Taiwan have been examined for the years through 2008 and for 2010, but we have filed appeals for the 2006, 2007 and 2008 tax filings. Our Company also files income tax returns in the United States federal and state jurisdictions. The tax authority in the U.S. is currently examining the 2012 tax filing.

In 2010, 2011 and 2012, our unrecognized tax benefits were related to research and development credits and were also related to amortization of goodwill and intangible assets resulting from the acquisition of FunTown. For research and development credits, these unrecognized tax benefits were settled with tax authorities though the 2008 tax filings. For amortization of goodwill and intangible assets resulting from the acquisition of FunTown, the income tax authority has made decisions on the amortization for our 2006, 2007 and 2008 tax filings. We have filed appeals against the unfavorable parts of the decision regarding these amortization adjustments, appending further response from the tax authority.

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GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

In 2010 and 2011, our unrecognized tax benefits increased due to the acquisition of IAHGames. These unrecognized tax benefits primarily related to certain related party transactions.

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.

NOTE 26. RELATED-PARTY TRANSACTIONS

In 2010 and 2011, to support our current operations we had short-term indebtedness from Waterland Financial Holdings (“Waterland”), a key manager of which was one of our directors. The largest amounts of outstanding short-term indebtedness to Waterland during the years ended December 31, 2010 and 2011 were $1.5 million and $1.7 million, respectively. As of December 31, 2011 and 2012, we did not have any indebtedness owed to Waterland.

We, through IAHGames, made an equity investment in Monsoon in connection with our acquisition of IAHGames with effect from July 1, 2010. In 2010, prior to our acquisition, IAHGames loaned $5.0 million to Monsoon to support Monsoon’s current operations at interest of 7 percent per annum. In addition, from September to December 2010, we loaned an additional $5.1 million to Monsoon to support its operation at an interest rate of 7 percent per annum. The largest amount outstanding to Monsoon from July 1, 2010 through August 31, 2011, after which we began to consolidate Monsoon, was $10.3 million. As of August 31, 2011, the balance of this loan receivable was $3.2 million, after being reduced in connection with absorbing additional losses of Monsoon as discussed in more detail in Note 16, “Investments”.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

During 2011, our Company entered into loan agreements in the aggregate of $5.2 million with Mangas Everest, with interest rates of 3 percent per annum. As of December 31, 2011, the balance of this loan receivable was nil after being reduced in connection with absorbing additional losses of Mangas Everest (as discussed in more detail in Note 16, “Investments”) and considering the financial status of Mangas Everest, from which we do not expect to collect all principal and interest. We also reversed the interest recognized previously on these loans and ceased to recognize interest income going forward.

NOTE 27. COMMITMENTS AND CONTINGENCIES

Commitments

(a) Operating Leases

We rent certain properties which are used as office premises under lease agreements that expire at various dates through 2016. The following table sets forth our future aggregate minimum lease payments required under these operating leases, as of December 31, 2012:

(in US$ thousands)	Amount
2013	$	930
2014		798
2015		681
2016		114
	$	2,523

Rental expense for operating leases amounted to $3.0 million, $2.5 million and $1.8 million for the years ended December 31, 2010, 2011 and 2012, respectively.

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YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

(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 our significant license agreements as of December 31, 2012.

(in US$ thousands)	License fees		Minimum guarantees against future royalties		Total
Minimum required payments:
In 2013	$	189	$	100	$	289
After 2013		5,700		1,500		7,200
	$	5,889	$	1,600	$	7,489

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.

(c) Guaranty

In 2008, Cambridge Interactive Development Corp. (“CIDC”), a then wholly owned subsidiary of GigaMedia, entered into a lease agreement (the “CIDC Lease”) for an office in Delaware. The term of the CIDC Lease is for the period from October 1, 2008 through September 30, 2014. Pursuant to the CIDC Lease, CIDC deposited $689,789 with a bank in exchange for a letter of credit issued by the bank (the “CIDC L/C”) and GigaMedia’s guaranty of all of CIDC’s obligations under the CIDC Lease.

In July 2012, we entered into an agreement with BEG to sell and assign our remaining ownership interest in Mangas Everest (including the CIDC lease) (the “Mangas Agreement”). Pursuant to the Mangas Agreement, BEG was to use all its reasonable efforts to procure the cancellation and return of the CIDC L/C to GigaMedia and the landlord’s release of GigaMedia’s lease guaranty by September 30, 2012; and unless and until BEG procures the cancellation and return of the CIDC L/C and landlord’s release of GigaMedia’s lease guaranty, BEG is obligated to indemnify and hold GigaMedia (and any Affiliate thereof) harmless from any and all losses, costs and expenses that may be borne by GigaMedia (and any Affiliate thereof) arising under or in connection with the CIDC L/C and/or GigaMedia’s lease guaranty.

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YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

In accordance with the Mangas Agreement, BEG procured that the bank cancel the CIDC L/C and issue to BEG a new letter of credit under the same terms and conditions as the CIDC L/C. BEG, however, did not obtain the landlord’s consent to release us from our lease guaranty within the allotted time. BEG’s major shareholders, therefore, issued a separate guaranty to us wherein they are obligated to indemnify and hold GigaMedia (and any Affiliate thereof) harmless from any and all losses, costs and expenses arising under or in connection with the CIDC Lease. GigaMedia’s commitment amount under this lease guaranty will be reduced as Mangas Everest’s subsidiary who assumed the CIDC Lease makes its monthly rental payments. The leasee is current on its monthly payments through March 2013.

Contingencies

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

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YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

NOTE 28. SEGMENT INFORMATION

Segment data

We have identified two reportable segments: an online gaming software and service business segment (through July 31, 2012) and an Asian online game and service business segment. The online gaming software and service business segment mainly derives its revenues from developing and licensing online games of chance and skill. Subsequent to the sale transaction with BEG through our disposal of this investment in July 2012, we accounted for our 40 percent percentage ownership interest in our gaming software and service business under the equity method accounting, and record gains or losses from our equity method investment in one line on our Consolidated Statement of Operations. The Asian 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 new cloud computing service business described in Note 1 has not met any of the quantitative thresholds required to be reportable.

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, 2010, 2011, and 2012:

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YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

(in US$ thousands)	Gaming software and service			Asian online game and service			Total
2010:
Segment profit or loss:
Net revenue from external customers	$	25,820		$	38,862		$	64,682
Income (loss) from operations	$	78		$	(31,554	)	$	(31,476	)
Share-based compensation	$	80		$	342		$	422
Impairment loss on prepaid licensing fees and intangible assets	$	—		$	2,200		$	2,200
Impairment loss on property, plant and equipment	$	—		$	278		$	278
Impairment loss on goodwill	$	—		$	2,255		$	2,255
Impairment loss on deconsolidation of T2CN	$	—		$	22,234		$	22,234
Interest income	$	83		$	438		$	521
Interest expense	$	1		$	59		$	60
Foreign exchange gain (loss)	$	(29	)	$	91		$	62
Loss on equity method investments—net	$	9,768		$	11,002		$	20,770
Impairment loss on marketable securities and investments	$	—		$	4,677		$	4,677
Depreciation	$	—		$	1,556		$	1,556
Amortization, including intangible assets	$	—		$	2,696		$	2,696
Income tax expense	$	6,445		$	1,118		$	7,563
Segment assets:
Equity method investments	$	44,472		$	20,923		$	65,395
Additions to property, plant and equipment	$	1,209		$	1,534		$	2,743
Additions to intangible assets	$	1,198		$	1,114		$	2,312
Additions to goodwill	$	—		$	12,188		$	12,188
Total assets	$	168,671		$	76,679		$	245,350

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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GIGAMEDIA LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

(in US$ thousands)	Gaming software and service			Asian online game and service			Total
2011:
Segment profit or loss:
Net revenue from external customers	$	—		$	34,367		$	34,367
Loss from operations	$	(204	)	$	(10,931	)	$	(11,135	)
Share-based compensation	$	—		$	308		$	308
Impairment loss on intangible assets	$	—		$	2,583		$	2,583
Impairment loss on prepaid licensing and royalty fees	$	—		$	247		$	247
Impairment loss on goodwill	$	—		$	5,097		$	5,097
Interest income	$	—		$	492		$	492
Interest expense	$	55		$	(50	)	$	5
Foreign exchange gain (loss)	$	6		$	(282	)	$	(276	)
Loss (gain) on equity method investments— net	$	49,715		$	(1,846	)	$	47,869
Impairment loss on marketable securities and investments	$	—		$	13,327		$	13,327
Depreciation	$	—		$	1,790		$	1,790
Amortization, including intangible assets	$	—		$	2,251		$	2,251
Income tax (benefit) expense	$	(934	)	$	859		$	(75	)
Segment assets:
Equity method investments	$	—		$	7,615		$	7,615
Additions to property, plant and equipment	$	—		$	487		$	487
Additions to intangible assets	$	—		$	1,271		$	1,271
Additions to goodwill	$	—		$	1,049		$	1,049
Total assets	$	4,757		$	126,038		$	130,795

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, 2010, 2011 AND 2012

(in US$ thousands)	Gaming software and service			Asian online game and service			Total
2012:
Segment profit or loss:
Net revenue from external customers	$	—		$	27,470		$	27,470
Income (loss) from operations	$	7		$	(12,271	)	$	(12,264	)
Share-based compensation	$	—		$	199		$	199
Impairment loss on intangible assets	$	—		$	15		$	15
Impairment loss on prepaid licensing and royalty fees	$	—		$	702		$	702
Impairment loss on goodwill	$	—		$	12,489		$	12,489
Contract termination costs	$	—		$	49		$	49
Interest income	$	1		$	9		$	10
Interest expense	$	10		$	44		$	54
Foreign exchange gain (loss)	$	(82	)	$	55		$	(27	)
Gain on equity method investments— net	$	—		$	234		$	234
Impairment loss on marketable securities and investments	$	—		$	1,193		$	1,193
Depreciation	$	—		$	1,059		$	1,059
Amortization, including intangible assets	$	—		$	2,181		$	2,181
Income tax expense	$	37		$	710		$	747
Segment assets:
Equity method investments	$	—		$	5,223		$	5,223
Additions to property, plant and equipment	$	—		$	318		$	318
Additions to intangible assets	$	—		$	1,679		$	1,679
Total assets	$	3,685		$	78,613		$	82,298

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, 2010, 2011 AND 2012

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

(in US$ thousands)	2010			2011			2012
Income (loss) from operations:
Total segments	$	(31,476	)	$	(11,135	)	$	(12,264	)
Adjustment*		(16,220	)		(8,794	)		(8,310	)
Total GigaMedia consolidated	$	(47,696	)	$	(19,929	)	$	(20,574	)
Share-based compensation
Total segments	$	422		$	308		$	199
Adjustment*		2,592			857			(20	)
Total GigaMedia consolidated	$	3,014		$	1,165		$	179
Impairment loss on intangible assets:
Total segments	$	1,330		$	2,583		$	15
Adjustment*		—			—			—
Total GigaMedia consolidated	$	1,330		$	2,583		$	15
Impairment loss on prepaid licensing and royalty fees:
Total segments	$	870		$	247		$	702
Adjustment*		—			—			—
Total GigaMedia consolidated	$	870		$	247		$	702
Impairment loss on property, plant and equipment:
Total segments	$	278		$	—		$	—
Adjustment*		—			—			—
Total GigaMedia consolidated	$	278		$	—		$	—
Interest income:
Total segments	$	521		$	492		$	10
Adjustment*		435			270			273
Total GigaMedia consolidated	$	956		$	762		$	283
Interest expense:
Total segments	$	60		$	5		$	54
Adjustment*		310			421			193
Total GigaMedia consolidated	$	370		$	426		$	247
Gain on sales of marketable securities:
Total segments	$	—		$	6,299		$	5,665
Adjustments*		—			—			—
Total GigaMedia consolidated	$	—		$	6,299		$	5,665
Foreign exchange gain (loss):
Total segments	$	62		$	(276	)	$	(27	)
Adjustments*		(668	)		(89	)		461
Total GigaMedia consolidated	$	(606	)	$	(365	)	$	434

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

(in US$ thousands)	2010			2011			2012
Impairment loss on marketable securities and investments:
Total segments	$	4,677		$	13,327		$	1,193
Adjustment*		—			—			—
Total GigaMedia consolidated	$	4,677		$	13,327		$	1,193
Depreciation:
Total segments	$	1,556		$	1,790		$	1,059
Adjustments*		536			290			165
Total GigaMedia consolidated	$	2,092		$	2,080		$	1,224
Amortization:
Total segments	$	2,696		$	2,251		$	2,181
Adjustments*		83			63			23
Total GigaMedia consolidated	$	2,779		$	2,314		$	2,204
Income tax expense (benefit):
Total segments	$	7,563		$	(75	)	$	747
Adjustments*		(303	)		(170	)		(76	)
Total GigaMedia consolidated	$	7,260		$	(245	)	$	671
Additions to property, plant and equipment:
Total segments	$	2,743		$	487		$	318
Adjustments**		1,041			281			111
Total GigaMedia consolidated	$	3,784		$	768		$	429
Additions to intangible assets:
Total segments	$	2,312		$	1,271		$	1,679
Adjustments**		5			3			—
Total GigaMedia consolidated	$	2,317		$	1,274		$	1,679
Total assets:
Total segments	$	245,350		$	130,795		$	82,298
Adjustment**		22,239			60,911			58,096
Total GigaMedia consolidated	$	267,589		$	191,706		$	140,394

* Adjustment items include corporate and certain back-office costs and expenses not attributable to any specific segment.

** Adjustment items include total corporate assets, discontinued operations and eliminations.

Major Customers

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

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

Geographic Information

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

(in US$ thousands)
Geographic region / country	2010		2011		2012
Canada	$	25,820	$	—	$	—
Taiwan		19,449		21,214		18,744
PRC		9,885		—		—
Hong Kong		4,026		5,061		4,703
Singapore		3,702		4,150		2,004
Malaysia		1,603		2,228		1,550
Thailand		—		1,447		204
Others		197		267		265
	$	64,682	$	34,367	$	27,470

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

(in US$ thousands)	December 31,
Geographic region / country	2010		2011		2012
Taiwan	$	3,130	$	2,375	$	1,932
PRC		921		763		—
Hong Kong		213		107		17
Singapore		902		551		—
Malaysia		20		—		—
Thailand		—		380		—
Other		115		112		—
	$	5,301	$	4,288	$	1,949

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

NOTE 29. SUBSEQUENT EVENT

On April 17, 2013, we entered into a settlement agreement (the “Settlement Agreement”) with IAHGames, IAHGames’ management, and MCIL. Pursuant to the terms of the Settlement Agreement, either IAHGames or IAHGames’ management is to pay us $2,258 thousand, which includes interest, to fulfill IAHGames’ obligation under the Spring Asia Share Purchase Agreement executed in July 2012. In addition, pursuant to the terms of the Settlement Agreement, MCIL is to purchase all of our remaining shares in IAHGames for $1,000 thousand, pursuant to MCIL’s April 15, 2013 exercise of a call option which was included within the IAH Share Purchase Agreement executed in July 2012. The payment date for the transactions outlined in the Settlement Agreement was agreed by the parties to occur in early May 2013.

90

EX-99.4

Exhibit 99.4

GIGAMEDIA LIMITED

Registration No. 199905474H

(Incorporated in Singapore)

AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE FINANCIAL YEAR ENDED

31 DECEMBER 2012

TOGETHER WITH REPORTS OF

DIRECTORS AND AUDITORS

GIGAMEDIA LIMITED

(Incorporated in Singapore)

AND SUBSIDIARIES

DIRECTORS’ REPORT

FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2012

The directors present their report to the members together with the audited financial statements of GigaMedia Limited (the “Company”) and subsidiaries (collectively the “Group”) for the financial year ended 31 December 2012 and the balance sheet of the Company as at 31 December 2012.

Directors

The directors of the Company in office at the date of this report are as follows:

CHEN, Dirk Chi-Ching
CHIEN, Mo-Na
HU ZEE, Nancy Jing-Ying
HUANG, John Ping Chang
HUANG, Billy Bing-Yuan	(appointed on 18 April 2013)
HWANG, Collin	(appointed on 9 November 2012)
LEE, Howe Yong
LIU, Nick Chia-En
TUNG, Casey Kuo Chong

Arrangements to enable directors to acquire benefits by means of the acquisition of 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 2 to 5 of this report.

Directors’ interests in shares or 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:

	Direct interest
Name of directors in which interests are held	At 1 January 2012		At 31 December 2012
The Company
Ordinary shares
HU ZEE, Nancy Jing-Ying		5,000		5,000
LEE, Howe Yong		5,000		5,000
HWANG, Collin		—		961,200

1

DIRECTORS’ REPORT (Continued)

Directors’ interests in shares or debentures (Continued)

	No. of unissued ordinary shares under option
	At 1 January 2012 or date of appointment if later		At 31 December 2012
Options to subscribe for ordinary shares
CHIEN, Mo-Na		20,000		20,000
HU ZEE, Nancy Jing-Ying		50,000		50,000
HUANG, John Ping Chang		20,000		20,000
HWANG, Collin		—		1,000,000
LEE, Howe Yong		50,000		50,000
LIU, Nick Chia-En		20,000		20,000
TUNG, Casey Kuo Chong		—		20,000

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 33 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.

Employee share option plan and equity incentive plan

(i) Options 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.

2

DIRECTORS’ REPORT (Continued)

Employee share option plan and equity incentive plan (Continued)

(i) Options granted (Continued)

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.

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.

2008 Employee Share Purchase Plan

At the June 2008 annual general meeting of shareholders, the shareholders of the Company approved the GigaMedia Limited 2008 Employee Share Purchase Plan (the “2008 ESPP”) under which up to two hundred thousand common shares of the Company were reserved for issuance. Any person who is regularly employed by the Company or its designated subsidiaries shall be eligible to participate in the 2008 ESPP. Pursuant to the 2008 ESPP, the Company would offer the shares to qualified employees on favorable terms. 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 2008 ESPP. The 2008 ESPP is administered by a committee designated by the board of directors. As of the date of this annual report, no shares have been subscribed by qualified employees under the 2008 ESPP.

2009 Equity Incentive Plan

At the June 2009 annual general meeting of shareholders, the shareholders of the Company approved the GigaMedia Limited 2009 Equity Incentive Plan (the “2009 Plan”) under which up to one and a half million common shares of the 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.

3

DIRECTORS’ REPORT (Continued)

Employee share option plan and equity incentive plan (Continued)

(i) Options granted (Continued)

2009 Employee Share Purchase Plan

At the June 2009 annual general meeting of shareholders, the shareholders of the Company approved the GigaMedia Limited 2009 Employee Share Purchase Plan (the “2009 ESPP”) under which up to two hundred thousand common shares of the Company have been reserved for issuance. To be eligible, employees must be regularly employed by the Company or its 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 the date of this annual report, no shares have been subscribed by qualified employees under the 2009 ESPP.

2010 Equity Incentive Plan

At the June 2010 annual general meeting of shareholders, the shareholders of the Company approved the GigaMedia Limited 2010 Equity Incentive Plan (the “2010 Plan”) under which up to one million common shares of the Company have been reserved for issuance. The 2010 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 2010 Plan. The maximum contractual term for the options under the 2010 Plan is 10 years.

2010 Employee Share Purchase Plan

At the June 2010 annual general meeting of shareholders, the shareholders of the Company approved the GigaMedia Limited 2010 Employee Share Purchase Plan (the “2010 ESPP”) under which up to two hundred thousand common shares of the Company have been reserved for issuance. To be eligible, employees must be regularly employed by the Company or its 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 2010 ESPP. The 2010 ESPP is administered by a committee designated by the board of directors. As of the date of this annual report, no shares have been subscribed by qualified employees under the 2010 ESPP.

Summarised below are the general terms of its share-based compensation plans as of 31 December 2012.

Share-Based Compensation plan	Granted awards			Vesting schedule	Options’ exercise price
					(US$)
2002 plan		3,000,000		Immediately upon granting	$0.79
2004 plan		7,703,185	*	Immediately upon granting to four years	$0.79~$2.55
2006 plan		1,197,333	**	Immediately upon granting to four years	$0.81~$16.60
2007 plan		3,205,217	***	Immediately upon granting to four years	$1.20~$18.17
2008 plan		1,000,000		Immediately upon granting to six years	$2.47 ~ $4.24
2009 plan		2,500,000	****	Immediately upon granting to four years	$0.96 ~ $2.47
2010 plan		1,600,000	*****	Three years	$0.81 ~ $1.05

4

DIRECTORS’ REPORT (Continued)

Employee share option plan and equity incentive plan (Continued)

(i) Options granted (Continued)

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

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

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

**** The granted awards, net of forfeited or canceled shares, were within reserved shares of one and a half million common shares.

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

All options are expected to be settled by issuing new shares.

(ii) Shares issued

No shares have been issued during the financial years ended 31 December 2012 and 2011, by virtue of the exercise of options to take up unissued shares of the Company.

(iii) Options outstanding

The options on ordinary shares of the Company outstanding at the end of the financial year are as follows:

Exercise price	Number of unissued shares under option at 31.12.2012 (in thousands)		Weighted average remaining contractual life
Under US$1		6,211		2.87 years
US$1~US$10		2,383		6.40 years
US$10~US$20		616		4.65 years
		9,210

The number of total outstanding options as of 31 December 2012 is 9,210,000, and there were no options exercised during 2012.

During the financial year, The Group has granted 2,070,000 share options under 2006 plan, 2007 plan, 2009 and 2010 plan.

During the financial year ended 31 December 2012, a total of 2,353,000 options granted pursuant to the 2004 Plan, 2006 Plan, 2007 Plan, 2008 Plan, 2009 Plan and 2010 Plan had been forfeited. During the financial year ended 31 December 2011, a total of 1,347,000 options granted pursuant to the 2004 Plan, 2006 Plan, 2007 Plan, 2008 Plan and 2009 Plan had been forfeited.

5

DIRECTORS’ REPORT (Continued)

Independent auditors

The independent auditors, Crowe Horwath First Trust LLP, have expressed their willingness to accept re-appointment as auditors of the Company.

On behalf of the Board of Directors

CHIEN, MO-NA	HWANG, COLLIN
Director	Director

30 April 2013

6

Statement by Directors

In the opinion of the directors,

(a) the balance sheet of the Company and the consolidated financial statements of the Group as set out on pages 10 to 88 are drawn up 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 2012 and of the results, 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 Board of Directors

CHIEN, MO-NA	HWANG, COLLIN
Director	Director

30 April 2013

7

	Crowe Horwath First Trust LLP Certified Public Accountants Member Crowe Horwath International
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF GIGAMEDIA LIMITED	8 Shenton Way #05-01 AXA Tower Singapore 068811 +65 6221 0338 +65 6221 1080 Fax www.crowehorwath.com.sg

Report on the Financial Statements

We have audited the accompanying financial statements of GigaMedia Limited (the “Company”) and its subsidiaries (the “Group”) set out on pages 10 to 88, which comprise the consolidated balance sheet and the balance sheet of the Company as at 31 December 2012, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows of the Group for the financial year then ended, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation of financial statements that give a true and fair view in accordance with the provisions of the Singapore Companies Act (the “Act”) and Singapore Financial Reporting Standards, and for 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 that 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.

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 about 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 of the financial statements that give a true and fair view 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.

Crowe Horwath First Trust LLP (UEN: T08LL1312H) is an accounting limited liability partnership registered in Singapore under the Limited Liability Partnership Act (Chapter 163A).

8

INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF

GIGAMEDIA LIMITED (Continued)

Opinion

In our opinion, the consolidated financial statements of the Group and the balance sheet of the Company 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 Group and of the Company as at 31 December 2012, and the results, changes in equity and cash flows of the Group for the financial year ended on that date.

Report on Other Legal and Regulatory Requirements

In our opinion, the accounting and other records required by the Act to be kept by the Company have been properly kept in accordance with the provisions of the Act.

Crowe Horwath First Trust LLP

Public Accountants and

Certified Public Accountants

Singapore

30 April 2013

9

GIGAMEDIA LIMITED

(Incorporated in Singapore)

AND SUBSIDIARIES

BALANCE SHEETS

AS AT 31 DECEMBER 2012

(Amounts in United States dollars)

	Note		Group				Company
			2012		2011		2012		2011
			US$’000		US$’000		US$’000		US$’000
ASSETS
Non-current assets
Property, plant and equipment		12		2,144		4,688		—		—
Intangible assets		13		32,609		43,971		—		—
Subsidiaries		14		—		—		118,514		168,063
Associates		15		5,223		7,615		—		—
Available-for-sale financial assets		16		4,647		9,033		—		—
Other assets		17		9,038		8,888		—		—
Deferred income tax assets		18		388		417		—		—
				54,049		74,612		118,514		168,063
Current assets
Inventories				8		30		—		—
Trade and other receivables		19		2,891		8,119		3,129		3,873
Available-for-sale financial assets		20		17,773		42,347		—		—
Other current assets		23		3,142		1,586		—		—
Restricted cash		22		—		3,000		—		—
Cash and cash equivalents		21		62,731		63,997		2		3
				86,545		119,079		3,131		3,876
TOTAL ASSETS				140,594		193,691		121,645		171,939
LIABILITIES
Current liabilities
Trade and other payables		24		6,739		15,096		423		506
Short-term borrowings		25		7,748		11,774		—		—
Other current liabilities		26		3,572		6,852		—		—
Income tax liabilities				3,588		4,251		—		—
				21,647		37,973		423		506

The accompanying notes are an integral part of the financial statements.

10

GIGAMEDIA LIMITED

(Incorporated in Singapore)

AND SUBSIDIARIES

BALANCE SHEETS (Continued)

AS AT 31 DECEMBER 2012

(Amounts in United States dollars)

	Note			Group						Company
				2012			2011			2012			2011
				US$’000			US$’000			US$’000			US$’000
Non-current liabilities
Accrued pension liabilities		27			210			171			—			—
Deferred income tax liabilities		18			—			664			—			—
Other liabilities		28			12			11			—			—
					222			846			—			—
TOTAL LIABILITIES					21,869			38,819			423			506
NET ASSETS					118,725			154,872			121,222			171,433
EQUITY
Capital, reserves and non-controlling interests
Share capital		29	(a)		209,643			209,643			209,643			209,643
Share option reserve		29	(b)		12,557			12,378			12,557			12,378
Statutory reserves		29	(d)		3,022			3,022			—			—
Accumulated losses		29	(g)		(99,732	)		(82,294	)		(93,044	)		(36,175	)
Fair value reserve		29	(f)		15,256			38,521			—			—
Foreign currency translation reserve		29	(g)		(21,683	)		(23,402	)		(7,934	)		(14,413	)
Equity attributable to equity holders of the Company					119,063			157,868			121,222			171,433
Non-controlling interests					(338	)		(2,996	)		—			—
TOTAL EQUITY					118,725			154,872			121,222			171,433

The accompanying notes are an integral part of the financial statements.

11

GIGAMEDIA LIMITED

(Incorporated in Singapore)

AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENT

FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2012

(Amounts in United States dollars)

	Note		Group
			2012			2011
			US$’000			US$’000
						(Restated)
Revenue		4		27,470			33,969
Cost of revenue				(11,388	)		(14,016	)
Gross profit				16,082			19,953
Product development and engineering expenses				(1,471	)		(1,957	)
Selling and marketing expenses				(8,377	)		(10,079	)
General and administrative expenses				(13,380	)		(18,115	)
Other operating income		5		6,383			14,822
Other operating expenses		6		(16,777	)		(23,712	)
Finance expenses		7		(247	)		(426	)
Share of profit of associates		15		234			1,476
Loss before tax				(17,553	)		(18,038	)
Income tax (expense) / benefit		8		(671	)		245
Loss from continuing operations		9		(18,224	)		(17,793	)
Discontinued operations
Loss from discontinued operations		10		(41	)		(53,903	)
Loss for the year				(18,265	)		(71,696	)
Attributable to:
Equity holders of the Company
- Continuing operations				(17,397	)		(17,353	)
- Discontinued operations				(41	)		(53,903	)
				(17,438	)		(71,256	)
Non-controlling interests
- Continuing operations				(827	)		(440	)
				(18,265	)		(71,696	)

The accompanying notes are an integral part of the financial statements.

12

GIGAMEDIA LIMITED

(Incorporated in Singapore)

AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2012

(Amounts in United States dollars)

	Group
	2012			2011
	US$’000			US$’000
				(Restated)
Loss for the year		(18,265	)		(71,696	)
Other comprehensive (loss) / income:
Change in fair value on available-for-sale financial assets		(23,265	)		16,622
Currency translation differences recognised directly in equity		1,936			(1,937	)
Other comprehensive (loss) / income for the year, net of tax		(21,329	)		14,685
Total comprehensive loss for the year		(39,594	)		(57,011	)
Total comprehensive loss attributable to:
Equity holders of the Company		(38,767	)		(56,571	)
Non-controlling interests		(827	)		(440	)
		(39,594	)		(57,011	)
Loss per share attributable to equity holders of the Company (US$)
- Basic and Diluted
Loss from continuing operations		(0.34	)		(0.32	)
Loss from discontinued operations		—			(0.99	)
Loss for the year		(0.34	)		(1.31	)
Weighted average shares used to compute (loss) / earnings per share attributable to equity holders of the Company (Note 30) (‘000)
Basic and Diluted		50,720			54,268

The accompanying notes are an integral part of the financial statements.

13

GIGAMEDIA LIMITED

(Incorporated in Singapore)

AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2012

(Amounts in United States dollars)

Group	Attributable to equity holders of the Company
	Share capital			Share option reserve			Statutory reserves		Accumulated losses			Fair value reserve		Foreign currency translation reserve			Total			Non-controlling interests			Total equity
	US$’000			US$’000			US$’000		US$’000			US$’000		US$’000			US$’000			US$’000			US$’000
Balance at 1 January 2011		215,201			11,480			3,022		(11,038	)		21,899		(21,465	)		219,099			(2,346	)		216,753
Net loss for the year		—			—			—		(71,256	)		—		—			(71,256	)		(440	)		(71,696	)
Other comprehensive income for the year		—			—			—		—			16,622		(1,937	)		14,685			—			14,685
Total comprehensive income for the year		—			—			—		(71,256	)		16,622		(1,937	)		(56,571	)		(440	)		(57,011	)
Contribution by and distribution to owners
Issuance of common shares		267			(267	)		—		—			—		—			—			—			—
Share repurchase and retirement of common shares		(5,825	)		—			—		—			—		—			(5,825	)		—			(5,825	)
Cumulative dividend to non-controlling interests		—			—			—		—			—		—			—			(321	)		(321	)
Recognition of share-based payments		—			1,165			—		—			—		—			1,165			—			1,165
		(5,558	)		898			—		—			—		—			(4,660	)		(321	)		(4,981	)
Changes in ownership interest in subsidiary
Acquisition of OneNet		—			—			—		—			—		—			—			111			111
Balance at 31 December 2011		209,643			12,378			3,022		(82,294	)		38,521		(23,402	)		157,868			(2,996	)		154,872

The accompanying notes are an integral part of the financial statements.

14

GIGAMEDIA LIMITED

(Incorporated in Singapore)

AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Continued)

FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2012

(Amounts in United States dollars)

Group	Attributable to equity holders of the Company
	Share capital		Share option reserve		Statutory reserves		Accumulated losses			Fair value reserve			Foreign currency translation reserve			Total			Non-controlling interests			Total equity
	US$’000		US$’000		US$’000		US$’000			US$’000			US$’000			US$’000			US$’000			US$’000
Balance at 1 January 2012		209,643		12,378		3,022		(82,294	)		38,521			(23,402	)		157,868			(2,996	)		154,872
Net loss for the year		—		—		—		(17,438	)		—			—			(17,438	)		(827	)		(18,265	)
Other comprehensive loss for the year		—		—		—		—			(23,265	)		1,936			(21,329	)		—			(21,329	)
Total comprehensive income for the year		—		—		—		(17,438	)		(23,265	)		1,936			(38,767	)		(827	)		(39,594	)
Contribution by and distribution to owners
Recognition of share-based payments		—		179		—		—			—			—			179			—			179
Waiver of cumulative dividend to non-controlling interests		—		—		—		—			—			—			—			469			469
		—		179		—		—			—			—			179			469			648
Changes in ownership interest in subsidiary
Deconsolidation of IAHGames		—		—		—		—			—			(217	)		(217	)		3,016			2,799
Balance at 31 December 2012		209,643		12,557		3,022		(99,732	)		15,256			(21,683	)		119,063			(338	)		118,725

The accompanying notes are an integral part of the financial statements.

15

GIGAMEDIA LIMITED

(Incorporated in Singapore)

AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2012

(Amounts in United States dollars)

	Group
	2012			2011
	US$’000			US$’000
Cash flows from operating activities
Loss before tax
- continuing operations		(17,553	)		(18,038	)
- discontinued operations		(41	)		(53,903	)
Adjustments:
Depreciation		1,226			2,080
Amortisation-intangible assets		2,192			2,299
Amortisation-deferred assets		12			15
Allowance for doubtful receivables		169			1,820
Loss on disposal of property, plant and equipment		208			49
Gain on deconsolidation of IAHGames		(234	)		—
Loss on sale of Spring Asia		23			—
Gain on sale of associate		(2,480	)		—
Gain on sale of available-for-sale financial assets		(5,665	)		(6,299	)
Gain on sale of T2CN		—			(4,739	)
Share-based compensation		179			1,165
Impairment loss on property, plant and equipment		217			—
Impairment loss on prepaid licensing fees and intangible assets		13,206			7,927
Share of (profit) / loss of associated companies		(234	)		48,239
Impairment loss on available-for-sale financial assets (non-current)		1,193			679
Impairment loss on investments in associates		—			12,648
Unrealised exchange loss on available-for-sale financial assets (non-current)		1,633			224
Gain on cancellation of warrant liabilities		—			(665	)
Interest expense		247			426
Interest income		(283	)		(767	)
Other		179			225
Operating loss before working capital changes		(5,806	)		(6,615	)
Inventories		9			915
Trade and other receivables		1,504			(1,000	)
Other current assets		1,443			1,504
Other assets		(2,916	)		(3,587	)
Trade and other payables		(1,357	)		(2,386	)
Other current liabilities		(885	)		(605	)
Accrued pension liabilities		104			(98	)
Other liabilities		1			3
Cash used in operating activities		(7,903	)		(11,869	)
Income taxes paid		(121	)		(783	)
Net cash used in operating activities		(8,024	)		(12,652	)

The accompanying notes are an integral part of the financial statements.

16

GIGAMEDIA LIMITED

(Incorporated in Singapore)

AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)

FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2012

(Amounts in United States dollars)

	Group
	2012 US$’000			2011 US$’000
Cash flows from investing activities
Decrease in restricted cash		3,000			2,000
Proceeds from disposal of T2CN		—			4,739
Proceeds from disposal of available-for-sale financial assets		8,610			9,899
Purchase of property, plant and equipment		(429	)		(768	)
Proceeds from disposal of property, plant and equipment		76			117
Proceeds from disposal of associate		985			—
Purchase of intangible assets		(1,679	)		(1,274	)
Acquisition of business, net of cash acquired		—			11
Net cash outflow from disposal of IAHGames and Spring Asia (Note 14(a))		(558	)		—
Increase in loan receivable		—			(5,243	)
Refundable deposit		1,122			185
Cash dividends received from equity method investees		—			1,907
Other		(10	)		(22	)
Interest received		284			770
Net cash generated from investing activities		11,401			12,321
Cash flows from financing activities
Repayment of short-term borrowings		(4,348	)		(400	)
Repurchase and retirement of common shares		—			(5,825	)
Interest paid		(295	)		(436	)
Net cash used in financing activities		(4,643	)		(6,661	)
Net decrease in cash and cash equivalents		(1,266	)		(6,992	)
Cash and cash equivalents at the beginning of the financial year		63,997			70,989
Cash and cash equivalents at the end of the financial year		62,731			63,997

The accompanying notes are an integral part of the financial statements.

17

GIGAMEDIA LIMITED

(Incorporated in Singapore)

AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2012

(Amounts in United States dollars)

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

1. GENERAL INFORMATION

GigaMedia Limited (the “Company”) is a limited liability company domiciled and incorporated in Singapore. The address of its registered office is at 80 Robinson Road, #02-00, Singapore 068898. Its principal place of business is at 8^th Floor, No. 22, Ln. 407, Sec. 2, Tiding Blvd., 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 and investment holding.

The financial statements for the financial year ended 31 December 2012 were authorised for issue in accordance with a resolution of the Board of Directors on 30 April 2013.

2. SIGNIFICANT ACCOUNTING POLICIES

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.

Adoption of new and revised standards

On 1 January 2012, the Group adopted the new or amended FRS and Interpretations of FRS (“INT FRS”) that are mandatory for application from that date. The adoption of these new or amended FRS and INT FRS did not result in substantial changes to the Group’s and Company’s accounting policies and had no material effect on the amounts reported for the current or prior financial years.

18

NOTES TO THE FINANCIAL STATEMENTS (Continued)

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Standards issued but not yet effective

The Group has not adopted the following standards and interpretations that have been issued but not yet effective:

Description	Effective for annual periods beginning on or after
Amendments to FRS 1 Presentation of Items of Other Comprehensive Income	1 July 2012
Revised FRS 19 Employee Benefits	1 January 2013
FRS 113 Fair Value Measurement	1 January 2013
Amendments to FRS 107 Disclosures – Offsetting Financial Assets and Financial Liabilities	1 January 2013
Improvements to FRSs 2012
- Amendment to FRS 1 – Presentation of Financial Statements	1 January 2013
- Amendment to FRS 16 – Property, Plant and Equipment	1 January 2013
- Amendment to FRS 32 – Financial Instruments: Presentation	1 January 2013
Revised FRS 27 Separate Financial Statements	1 January 2014
Revised FRS 28 Investments in Associates and Joint Ventures	1 January 2014
FRS 110 Consolidated Financial Statements	1 January 2014
FRS 111 Joint Arrangements	1 January 2014
FRS 112 Disclosure of Interests in Other Entities	1 January 2014
Amendments to FRS 32 Offsetting Financial Assets and Financial Liabilities	1 January 2014

Except for the Amendments to FRS 1, revised FRS 19, FRS 110 and revised FRS 112, the directors expect that the adoption of the other standards and interpretations above will have no material impact on the financial statements in the period of initial application. The nature of the impending changes in accounting policy on adoption of the Amendments to FRS 1, revised FRS 19, FRS 110 and revised FRS 112 is described below.

Amendments to FRS 1 Presentation of Items of Other Comprehensive Income (“OCI”)

The Amendments to FRS 1 changes the grouping of items presented in OCI. Items that could be reclassified to profit or loss at a future point in time would be presented separately from items which will never be reclassified. As the Amendments only affect the presentations of items that are already recognised in OCI, the Group does not expect any impact on its financial position or performance upon adoption of this standard in 2013.

FRS 19 Employee Benefits

The amendments to FRS 19 change the accounting for defined benefit plans and termination benefits. The most significant change relates to the accounting for changes in defined benefit obligations and plan assets. The amendments require the recognition of changes in defined benefit obligations and in fair value of plan assets when they occur, and hence eliminate the “corridor approach” permitted under the previous version of FRS 19 and accelerate the recognition of past service costs. The amendments require all actuarial gains and losses to be recognised immediately through other comprehensive income in order for the net pension asset or liability recognised in the consolidated statement of financial position to reflect the full value of the plan deficit or surplus.

The amendments to FRS 19 are effective for annual periods beginning on or after 1 January 2013 and require retrospective application with certain exceptions. The directors anticipate that the application of the amendments to FRS 19 may have impact on amounts reported in respect of the Group’s defined benefit plans. However, the directors have not yet performed a detailed analysis of the impact of the application of the amendments and hence have not yet quantified the extent of the impact.

19

NOTES TO THE FINANCIAL STATEMENTS (Continued)

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Standards issued but not yet effective (Continued)

FRS 110 Consolidated Financial Statements and Revised FRS 27 Separate Financial Statements

FRS 110 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by FRS 110 will require management to exercise significant judgement to determine which entities are controlled, and therefore are required to be consolidated with the Group, compared with the requirements that were in FRS 27. Therefore, FRS 110 may change which entities are consolidated within a group. The revised FRS 27 was amended to address accounting for subsidiaries, jointly controlled entities and associates in separate financial statements.

The Group is currently determining the impact of the changes to the control upon adoption of FRS 110 in 2014.

FRS 112 Disclosure of Interests in Other Entities

FRS 112 is a new and comprehensive standard on disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. FRS 112 requires an entity to disclose information that helps users of its financial statements to evaluate the nature and risks associated with its interests in other entities and the effects of those interests on its financial statements. The Group is currently determining the impact of the disclosure requirements. As this is a disclosure standard, it will have no impact to the financial position and financial performance of the Group upon adoption of this standard in 2014.

Group accounting

(i) Subsidiaries

(a) Basis of consolidation

From 1 January 2010

Subsidiaries are entities (including special purpose entities) over which the Group has power to govern the financial and operating policies so as to obtain benefits from its activities, generally accompanied by a shareholding giving rise to a majority of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date on which control ceases.

In preparing the consolidated financial statements, transactions, balances and unrealised gains on transactions between group entities 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.

Non-controlling interests are that part of the net results of operations and of net assets of a subsidiary attributable to the interests which are not owned directly or indirectly by the equity holders of the Company. They are shown separately in the consolidated statement of comprehensive income, statement of changes in equity and balance sheet. Total comprehensive income is attributed to the non-controlling interests based on their respective interests in a subsidiary, even if this results in the non-controlling interests having a deficit balance.

20

NOTES TO THE FINANCIAL STATEMENTS (Continued)

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Group accounting (Continued)

(i) Subsidiaries (Continued)

(a) Basis of consolidation (Continued)

Prior to 1 January 2010

Certain of the above-mentioned requirements were applied on a prospective basis. The following differences, however, are carried forward in certain instances from the previous basis of consolidation:

• Losses incurred by the Group were attributed to the non-controlling interest until the balance was reduced to nil. Any further losses were attributed to the Group, unless the non-controlling interest had a binding obligation to cover these. Losses prior to 1 January 2010 were not reallocated between non-controlling interest and the equity holders of the Company.

(b) Acquisition of businesses

From 1 January 2010

The acquisition method of accounting is used to account for business combinations by the Group. The consideration transferred for the acquisition of a subsidiary comprises the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred also includes the fair value of any contingent consideration arrangement. Acquisition-related costs, other than those associated with the issue of debt or equity securities, are expensed as incurred.

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability, will be recognised in accordance with FRS 39 either in profit or loss or as a change to other comprehensive income. If the contingent consideration is classified as equity, it will not be remeasured until it is finally settled within equity.

In business combinations achieved in stages, previously held equity interests in the acquiree are remeasured to fair value at the acquisition date and any corresponding gain or loss is recognised in profit or loss.

For non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the acquiree’s net assets in the event of liquidation, the Group elects on an acquisition-by-acquisition basis whether to recognise them either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net identifiable assets, at the date of acquisition.

The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree, and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired and the measurement of all amounts has been reviewed, the difference is recognised directly in profit or loss as a bargain purchase.

21

NOTES TO THE FINANCIAL STATEMENTS (Continued)

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Group accounting (Continued)

(i) Subsidiaries (Continued)

(b) Acquisition of businesses (Continued)

Prior to 1 January 2010

In comparison to the above-mentioned requirements, the following differences applied:

• Transactions costs directly attributable to the acquisition formed part of the acquisition costs. The non-controlling interests were measured at the proportionate share of the acquiree’s identifiable net assets.

• Business combinations achieved in stages were accounted for as separate steps. Adjustments to those fair values relating to previously held interests are treated as a revaluation and recognised in equity. Any additional acquired share of interest did not affect previously recognised goodwill.

• Contingent consideration was recognised if, and only if, the Group had a present obligation, the economic outflow was more likely than not and a reliable estimate was determinable. Subsequent adjustments to the contingent consideration were recognised as part of goodwill.

(c) Disposals of subsidiaries or businesses

From 1 January 2010

The assets and liabilities of the subsidiary, including any goodwill, are derecognised when a change in the Company’s ownership interest in a subsidiary results in a loss of control over the subsidiary. Amounts recognised in other comprehensive income in respect of that entity are also reclassified to profit or loss or transferred directly to retained earnings if required by a specific Standard.

Any retained interest in the entity is remeasured at fair value. The difference between the carrying amount of the retained investment at the date when control is lost and its fair value is recognised in profit or loss. Subsequently, the retained interest is accounted for as an equity-accounted investee or as an available-for-sale financial asset depending on the level of influence retained.

Prior to 1 January 2010

In comparison to the above-mentioned requirements, the following differences applied:

• Upon loss of control, the Group accounted for the investment retained at its proportionate share of net asset value at the date control was lost. The carrying values of such investments as at 1 January 2010 have not been restated.

(ii) Transactions with non-controlling interests

Changes in the Company’s ownership interest in a subsidiary that do not result in a loss of control over the subsidiary are accounted for as transactions with equity owners of the Group. Any difference between the change in the carrying amounts of the non-controlling interest and the fair value of the consideration paid or received is recognised in a separate reserve within equity attributable to the equity holders of the Company.

22

NOTES TO THE FINANCIAL STATEMENTS (Continued)

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Group accounting (Continued)

(iii) Associates

Associates are entities over which the Group exercises significant influence, but not control, over the financial and operating policy decision, generally accompanied by a shareholding giving rise to voting rights of 20% and above but not exceeding 50%. Investments in associates are accounted for in the consolidated financial statements using the equity method of accounting less impairment losses, if any.

Investments in associates 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. Goodwill on associates represents the excess of the cost of acquisition of the associate over the Group’s share of the fair value of the identifiable net assets of the associate and is included in the carrying amount of the investments.

In applying the equity method of accounting, the Group’s share of its associates’ post-acquisition profits or losses are recognised in profit or loss and its share of post-acquisition other comprehensive income is recognised in other comprehensive income. These post-acquisition movements and distributions received from the associates are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associates, 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 associates.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. The accounting policies of associates have been changed where necessary to ensure consistency with the accounting policies adopted by the Group.

Investments in associates are derecognised when the Group loses significant influence. Any retained interest in the entity is remeasured at its fair value. The difference between the carrying amount of the retained investment at the date when significant influence is lost and its fair value is recognised in profit or loss.

Gains and losses arising from partial disposals or dilutions in investments in associates in which significant influence are retained are recognised in profit or loss.

Subsidiaries and associates

Investments in subsidiaries and associates are carried at cost less accumulated impairment losses in the Company’s balance sheet. On disposal of investments in subsidiaries and associates, the difference between disposal proceeds and the carrying amounts of the investments are recognised in profit or loss.

23

NOTES TO THE FINANCIAL STATEMENTS (Continued)

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Currency translation

(i) Functional and presentation currency

The Company’s functional currency is New Taiwan dollars. 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.

(ii) Transactions and balances

Transactions in a currency other than the functional currency (“foreign currency”) are measured in the respective functional currencies of the Company and its subsidiaries and are recorded on initial recognition in the functional currencies at exchange rates approximating those ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at balance sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

Exchange differences arising on the settlement of monetary items or on translating monetary items at the balance sheet date are recognised in profit or loss except for exchange differences arising on monetary items that form part of the Group’s net investment in foreign operations, which are recognised initially in other comprehensive income and accumulated under foreign currency translation reserve in equity in the consolidated financial statements. The foreign currency translation reserve is reclassified from equity to profit or loss of the Group on disposal of the foreign operation.

(iii) Translation of the Group’s financial statements

The assets and liabilities of foreign operations are translated at the rate of exchange ruling at the balance sheet date and their profit or loss are translated at the exchange rates prevailing at the date of the transactions. The exchange differences arising on the translation are recognised in other comprehensive income. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognised in the profit or loss.

In the case of a partial disposal without loss of control of a subsidiary that includes a foreign operation, the proportionate share of the cumulative amount of the exchange differences are re-attributed to non-controlling interest and are not recognised in profit or loss. For partial disposals of associates or jointly controlled entities that are foreign operations, the proportionate share of the accumulated exchange differences is reclassified to profit or loss.

24

NOTES TO THE FINANCIAL STATEMENTS (Continued)

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Property, plant and equipment

All items of property, plant and equipment are initially recorded at cost. The cost of an item of property, plant and equipment initially recognised includes its purchase price and any cost that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. The cost of an item of property, plant and equipment including subsequent expenditure is recognised as an asset if, and only if, it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. When significant parts of property, plant and equipment is required to be replaced in intervals, the Group recognises such parts as individual assets with specific lives and depreciation, respectively. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance expenses are recognised in profit or loss when incurred.

After initial recognition, property, plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment loss.

Freehold land and equipment under installation are 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
Transportation equipment	5 to 10
Leasehold improvements	3 to 5

Leasehold improvements are depreciated over the life of the lease or the assets, whichever is shorter.

Equipment under installation includes computer server and other electronic equipment which have not been fully installed on balance sheet date. Equipment under installation is reclassified to information and communication equipment, office furniture and equipment and transportation equipment when ready for use.

The estimated useful life and depreciation method are reviewed, and adjusted as appropriate, at each balance sheet date to ensure that the amount, method and period of depreciation are consistent with the expected pattern of economic benefits from items of property, plant and equipment. Fully depreciated assets are retained in the financial statements until they are no longer in use.

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 will flow to the Group and the cost can be reliably measured. Other repair and maintenance is recognised as an expense during the financial year in which it is incurred.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. The gain or loss on retirement or disposal is determined as the difference between any sales proceeds and the carrying amounts of the asset and is recognised in the profit or loss within “Other income (expenses)”.

25

NOTES TO THE FINANCIAL STATEMENTS (Continued)

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Intangible assets

(i) Goodwill on acquisition

Goodwill on acquisitions of subsidiaries and businesses on or after 1 January 2010 represents the excess of (i) the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over (ii) the fair value of the net identifiable assets acquired.

Goodwill on acquisition of subsidiaries and businesses prior to 1 January 2010 and on acquisition of associates represents the excess of the cost of the acquisition over the fair value of the Group’s share of the net identifiable assets acquired.

Goodwill on subsidiaries is recognised separately as intangible assets and carried at cost less accumulated impairment losses (see the accounting policy for impairment in this Note).

Goodwill on associates is included in the carrying amount of the investments.

Gains and losses on the disposal of subsidiaries and associates include the carrying amount of goodwill relating to the entity sold.

For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

The cash-generating unit to which goodwill has been allocated is tested for impairment annually and whenever there is an indication that the cash-generating unit may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of each cash-generating unit (or group of cash generating units) to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised in profit or loss. Impairment losses recognised for goodwill are not reversed in subsequent periods.

Where goodwill forms part of a cash-generating unit and part of the operation within that cash-generating unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative fair values of the operations disposed of and the portion of the cash-generating unit retained.

Goodwill and fair value adjustments arising on the acquisition of foreign operation on or after 1 January 2005 are treated as assets and liabilities of the foreign operations and are recorded in the functional currency of the foreign operations and translated in accordance with the accounting policy set out in this Note.

Goodwill and fair value adjustments which arose on acquisitions of foreign operation before 1 January 2005 are deemed to be assets and liabilities of the Company and are recorded in New Taiwan dollars at the rates prevailing at the date of the acquisition.

(ii) Trademarks

Trademarks with definite lives are amortised over their estimated useful lives, and are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is calculated using the straight-line method over their estimated useful lives. Trademarks with an indefinite useful life are not amortised and are carried at cost less accumulated impairment losses.

26

NOTES TO THE FINANCIAL STATEMENTS (Continued)

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Intangible assets (Continued)

(iii) Other intangible assets

Intangible assets acquired separately are measured on initial recognition at cost, which includes the purchase price and other directly attributable cost of preparing the asset for its intended use. The cost of intangible assets acquired in a business combination is their fair values at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and are recognised in profit or loss in the year in which the expenditure is incurred. The useful lives of intangible assets are assessed to be finite.

Intangible assets with finite lives are amortised on a straight-line basis over the estimated economic useful lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method are reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the profit or loss in the expense category consistent with the function of the intangible asset.

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the profit or loss when the asset is derecognised.

Other intangible assets comprise capitalised software cost and others. 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.

Impairment of non-financial assets

The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when an annual impairment assessment for an asset is required, the Group makes an estimate of the asset’s recoverable amount.

An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely dependent on those from other assets. Where the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows expected to be generated by the asset are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, recent market transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators.

27

NOTES TO THE FINANCIAL STATEMENTS (Continued)

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Impairment of non-financial assets (Continued)

The Group bases its impairment calculation on detailed budgets and forecast calculations which are prepared separately for each of the Group’s cash-generating units to which the individual assets are allocated. These budgets and forecasts calculations are generally covering a period of five years. For longer periods, a long-term growth rate is calculated and applied to project future cash flows after the fifth years.

Impairment losses are recognised in profit or loss in those expense categories consistent with the function of the impaired asset.

For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group estimates the asset’s or cash-generating unit’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the recoverable amount of an asset since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. This increase cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised previously. Such reversal is recognised in the profit and loss.

Financial assets

(i) Initial recognition and measurement

Financial assets are recognised on the balance sheet when, and only when, the Group becomes a party to the contractual provisions of the financial instrument. Financial assets are initially recognised at fair value plus, in the case of financial assets classified as held-to-maturity, directly attributable transaction costs.

The Group classifies its financial assets in the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, and available-for-sale financial assets. The classification depends on the nature of the assets and the purpose for which the assets were acquired. Management determines the classification of its financial assets at initial recognition and for held-to-maturity investments, re-evaluates this designation at every balance sheet date. As at the balance sheet date, the Group has no financial assets in the categories of held-to-maturity and fair value through profit or loss.

(ii) Subsequent measurement

The subsequent measurement of financial assets depends on the classification, as follows:

(a) 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 are presented as current assets, except for those expected to be realised later than 12 months after the balance sheet date which are classified as non-current assets. Loans and receivables comprise cash and cash equivalents, trade and other receivables, including amounts due from related parties.

Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest rate method, less impairment. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, and through the amortisation process.

28

NOTES TO THE FINANCIAL STATEMENTS (Continued)

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Financial assets (Continued)

(ii) Subsequent measurement (Continued)

(b) Available-for-sale financial assets

Available-for-sale financial assets include equity and debt securities. Equity investments classified as available-for-sale are those, which are neither classified as held for trading nor designated at fair value through profit or loss. Debt securities in this category are those which are intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity or in response to changes in the market conditions. Assets in this category are presented as non-current assets unless the investment matures or management intends to dispose of the assets within 12 months after the balance sheet date.

After initial recognition, available-for-sale financial assets are subsequently measured at fair value. Any gains or losses arising from changes in fair value of the financial assets are recognised in other comprehensive income, except that impairment losses, foreign exchange gains and losses on monetary instruments and interest calculated using the effective interest method are recognised in profit or loss. The cumulative gain or loss previously recognised in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment when the financial asset is derecognised.

Investments in equity instruments whose fair value cannot be reliably measured are stated at cost less impairment loss.

(iii) Derecognition

Financial assets are derecognised when the contractual rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. On derecognition of a financial asset in its entirety, the difference between the carrying amount and the sum of the consideration received and any cumulative gain or loss that had been recognised in other comprehensive income is recognised in profit or loss.

All regular way purchases and sales of financial assets are recognised or derecognised on the trade date, i.e. the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of the assets within the period generally established by regulation or convention in the marketplace concerned.

Impairment of financial assets

The Group assesses at each balance sheet date whether there is any objective evidence that a financial asset or group of financial assets is impaired.

(i) Financial assets carried at amortised cost

For financial assets carried at amortised cost, the Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be recognised are not included in a collective assessment of impairment.

29

NOTES TO THE FINANCIAL STATEMENTS (Continued)

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Impairment of financial assets (Continued)

(i) Financial assets carried at amortised cost (Continued)

An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account. The impairment loss is recognised in the profit or loss.

When the asset becomes uncollectible, the carrying amount of impaired financial assets is reduced directly or if an amount was charged to the allowance account, the amounts charged to the allowance account are written off against the carrying value of the financial asset.

To determine whether there is objective evidence that an impairment loss on financial assets has been incurred, the Group considers factors such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments.

If in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed to the extent that the carrying amount of the asset does not exceed its amortised cost at the reversal date. The amount of reversal is recognised in profit or loss.

(ii) Financial assets carried at cost

If there is objective evidence (such as significant adverse changes in the business environment where the issuer operates, probability of insolvency or significant financial difficulties of the issuer) that an impairment loss on financial assets carried at cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses are not reversed in subsequent periods.

(iii) Available-for-sale financial assets

Considerations to determine whether there is objective evidence that investment securities classified as available-for-sale financial assets are impaired include (i) a significant or prolonged decline in the fair value of the investment below its costs, (ii) significant financial difficulties of the issuer or obligor, and (iii) information about significant changes with an adverse effect that have taken place in the technological, market, economic or legal environment in which the issuer operates, and indicates that the cost of the investment in equity instrument may not be recovered. ‘Significant’ is to be evaluated against the original cost of the investment and ‘prolonged’ against the period in which the fair value has been below its original cost.

When the available-for-sale financial asset is impaired, the cumulative loss is the difference between the acquisition cost (net of any principal repayment and amortisation) and current fair value, less any impairment loss previously recognised in the profit or loss, is transferred from other comprehensive income and recognised in profit or loss. Reversals of impairment losses in respect of equity instruments are not recognised in profit or loss; increases in their fair value after impairment are recognised directly in other comprehensive income.

30

NOTES TO THE FINANCIAL STATEMENTS (Continued)

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Impairment of financial assets (Continued)

(iii) Available-for-sale financial assets (Continued)

For debt instruments classified as available-for-sale, impairment is assessed based on the same criteria as the financial assets carried at amortised cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortised cost and the current fair value, less any impairment loss on that investment previously recognised in profit or loss. Future interest income continues to be accrued based on the reduced carrying amount of the asset and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income. If, in a subsequent year, the fair value of a debt instrument increases and the increases can be objectively related to an event occurring after the impairment loss was recognised in the profit or loss, the impairment loss is reversed in profit or loss.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined on a weighted average basis and comprises purchase costs and includes all costs in bringing the inventories to their present location and condition.

Where necessary, allowance is provided for damaged, obsolete and slow moving items to adjust the carrying value of inventories to the lower of cost and net realisable value.

Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and costs necessary to be incurred for selling and distribution.

Financial liabilities

(i) Initial recognition and measurement

Financial liabilities are recognised when, and only when, the Group becomes a party to the contractual provisions of the financial instrument. The Group determines the classification of its financial liabilities at initial recognition. Financial liabilities are recognised initially at fair value, plus, in the case of financial liabilities not at fair value through profit or loss, directly attributable transaction costs.

(ii) Subsequent measurement

The measurement of financial liabilities depends on their classification as follows:

(a) Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss includes financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value. Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value. Any gains or losses arising from changes in fair value of the financial liabilities are recognised in profit or loss.

31

NOTES TO THE FINANCIAL STATEMENTS (Continued)

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Financial liabilities (Continued)

(ii) Subsequent measurement (Continued)

(b) Other financial liabilities

Subsequent to initial recognition, other financial liabilities are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in profit or loss when liabilities are derecognised, and through the amortisation process.

(iii) Derecognition

A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the profit or loss.

Leases

The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date: whether fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset, even if that right is not explicitly specified in an arrangement. For arrangements entered into prior to 1 January 2006, the date of inception is deemed to be 1 January 2006 in accordance with the transitional requirements of INT FRS 104.

(i) As lessor

Leases where the Group retains substantially all the risks and rewards of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same bases as rental income. The accounting policy for rental income is set out in this Note. Contingent rents are recognised as revenue in the period in which they are earned.

(ii) As lessee

Finance leases, which transfers to the Group substantially all the risks and rewards incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased item or, if lower, at the present value of the minimum lease payments. Any initial direct costs are also added to the amount capitalised. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to profit or loss. Contingent rents, if any, are charged as expenses in the periods in which they are incurred. Capitalised lease assets are depreciated over the shorter of the estimated useful life of the asset or the lease term, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term.

Leases where the lessor effectively retains substantially all the risks and rewards of ownership of the leased item are classified as operating leases. Operating lease payments are recognised as an expense in the profit or loss on a straight-line basis over the lease term. The aggregate benefit of incentives provided by the lessor is recognised as a reduction of rental expense over the lease term on a straight-line basis.

32

NOTES TO THE FINANCIAL STATEMENTS (Continued)

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Provisions

A provision is recognised when the Group has a present obligation, legal or constructive, as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of economic resources will be required to settle the obligation, the provision is reversed. Where the effect of the time value of money is material, provisions are discounted using a current pre tax rate that reflects, where appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

Borrowings

Borrowings are presented as current liabilities unless the Group has an unconditional right to defer settlement for at least 12 months after the balance sheet date, in which case they are presented as non-current liabilities.

(i) Borrowings

Borrowings are initially recorded at fair value, net of transaction costs and subsequently carried for at amortised costs using the effective interest method. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in profit or loss over the period of the borrowings using the effective interest method. Borrowings which are due to be settled within twelve months after the balance sheet date are included in current borrowings in the balance sheet even though the original term was for a period longer than twelve months and an agreement to refinance, or to reschedule payments, on a long-term basis is completed after the balance sheet date and before the financial statements are authorised for issue.

(ii) Convertible redeemable preference shares

When convertible redeemable preference shares are issued, the total proceeds are allocated to the liability component and the equity component, which are separately presented on the balance sheet based on the terms of the contracts. On issuance of the convertible redeemable preference shares, the liability component is determined initially at its fair value, using a market interest rate for an equivalent non-convertible bond. It is classified as financial liabilities measured at amortised cost until the liability is extinguished on conversion or redemption of the preference shares.

The remainder of the proceeds of the shares issue is allocated to the conversion option (equity component), which is presented in shareholders’ equity, net of transaction costs. The carrying amount of the conversion option is not remeasured in subsequent years.

Transaction costs are apportioned between the liability and equity components of the convertible redeemable preference shares based on the allocation or proceeds to the liability and equity components when the instrument is initially recognised. When a conversion option is exercised, the carrying amount of the conversion option will be taken to share capital. When the conversion option is allowed to lapse, the carrying amount of the conversion option will be taken to retained earnings.

33

NOTES TO THE FINANCIAL STATEMENTS (Continued)

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Borrowing costs

Borrowing costs are capitalised as part of the cost of a qualifying asset if they are directly attributable to the acquisition, construction or production of that asset. Capitalisation of borrowing costs commences when the activities to prepare the asset for its intended use or sale are in progress and the expenditures and borrowing costs are incurred. Borrowing cost are capitalised until the assets are substantially completed for their intended use or sale. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

Share capital and treasury shares

Proceeds from issuance of ordinary shares are classified as share capital in equity. Incremental costs directly attributable to the issuance of new ordinary shares are deducted against share capital.

When ordinary shares are reacquired (“treasury shares”), the amount of consideration paid including any directly attributable incremental costs is presented as a component within equity, until they are cancelled, sold or reissued. When treasury shares are subsequently cancelled, the cost of the treasury shares are deducted against the share capital account if the shares are purchased out of capital of the Company, or against the retained earnings of the Company, if the shares are purchased out of earnings of the Company. When treasury shares are subsequently sold or reissued pursuant to the employee share option scheme, the cost of treasury shares is reversed from the treasury shares account and the realised gain or loss on sale or reissue, net of any directly attributable incremental transaction costs and related income tax, is recognised in the capital reserve of the Company.

Deferred revenue

Deferred revenue is included in other current liabilities, and consist of the prepaid income related to the Asian online game and service business.

Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured.

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.

Asian online game and service revenues

Asian online game and service revenues are related to the Group’s Asian online game and service business that operates play-for-fun games online to players across Asia.

34

NOTES TO THE FINANCIAL STATEMENTS (Continued)

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Revenue recognition (Continued)

Asian online game and service revenues (Continued)

Online game revenues are earned through the sale of online game points, prepaid cards, game packs and also through the sublicensing of certain games to distributors. Virtual online game points are sold to distributors or end-users who can make the payments through credit cards, Internet banking or telecommunication service operators. Physical prepaid 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. Sublicensing revenues from the distributors are recognised based on end users’ activation to the game system and when the performance obligations have been completed.

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. The Group report sublicensing revenues on a net basis. In the sublicense agreements, the Group acts as agent and the distributors are responsible for the operating and the marketing.

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.

Sales of box games

Revenue from the sale of box games are recognised when all the following conditions are satisfied:

(a) The Group has transferred to the buyer the significant risks and rewards of ownership of the goods,

(b) The Group retains neither continuing managerial involving to the degree usually associated to the ownership nor effective control over the goods sold,

(c) The amount of revenue can be measured reliably,

(d) It is probable that the economic benefits associated with the transaction will flow to the entity; and

(e) The costs incurred or to be incurred in respect of transaction can be measured reliably.

Interest income

Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.

Dividend income

Dividend income is recognised when the Company’s right to receive payment is established.

Rental income

Rental income from equipment is recognised on a straight-line basis over the term of the relevant lease.

35

NOTES TO THE FINANCIAL STATEMENTS (Continued)

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Employees’ benefits

(i) 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. The Group recognises the funded status of pension plan and non-pension post retirement benefit plans (retirement-related benefit plans) as an asset or liabilities in the balance sheet.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are not recognised unless the cumulative unrecognised gain or loss at the end of the previous reporting period exceeds the greater of 10 percent of the scheme assets or liabilities (“the corridor approach”). In these circumstances the excess is charged or credited to profit or loss over the employees’ expected average remaining working lives.

Defined contribution pension plan

The Group has provided defined contribution plans for employees located in Taiwan, the PRC, Hong Kong and Singapore. Contributions to the plans are expensed as incurred.

(ii) Share-based compensation

The Group operates an equity-settled, share-based compensation plan. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense 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, on the date of grant. Non-market vesting conditions are included in the estimation of the number of options under options that are expected to become exercisable on vesting date. At each balance sheet date, the Group revises its estimates of the number of shares under options that are expected to become exercisable on the vesting date. It recognises the impact of the revision of the original estimates, if any, in the profit or loss, and a corresponding adjustment to the share option reserve over the remaining vesting period.

No expense is recognised for options that do not ultimately vest, except for options where vesting is conditional upon a market or non-vesting condition, which are treated as vested irrespective of whether or not the market condition or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied. In the case where the option does not vest as a result of a failure to meet a non-vesting condition that is within the control of the Group or the employee, it is accounted for as a cancellation. In such case, the amount of the compensation cost that otherwise would be recognised over the remainder of the vesting period is recognised immediately in profit or loss upon cancellation. The share option reserve is transferred to retained earnings upon expiry of the share options.

When the options are exercised, the proceeds received (net of any directly attributable transaction costs) and the related balance previously recognised in the share option reserve are credited to the share capital account, when new ordinary shares are issued, or to the treasury shares account when treasury shares are re-issued to the employees.

36

NOTES TO THE FINANCIAL STATEMENTS (Continued)

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Employees’ benefits (Continued)

(iii) Employee leave entitlement

Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made for the estimated liability as a result of services rendered by employees up to the balance sheet date.

Income tax

Income tax expense represents the sum of the tax currently payable and deferred tax.

Current income tax for current and prior periods is recognised at the amount expected to be paid to or recovered from the tax authorities, using tax rates and tax laws that have been substantively enacted by the balance sheet date in the countries where the Group operates and generates taxable income. Current income taxes are recognised in profit or loss except to the extent that the tax relates to items recognised outside profit or loss, either in other comprehensive income or directly in equity. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries associates and joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be utilised. Unrecognised deferred tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow deferred tax assets to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised, based on tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is charged or credited to profit or loss, except when it relates to items charged or credited directly to other comprehensive income or equity, in which case the deferred tax is also dealt with in other comprehensive income or equity.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

37

NOTES TO THE FINANCIAL STATEMENTS (Continued)

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Related parties

A related party is defined as follows:

(a) A person or a close member of that person’s family is related to the Group and the Company if that person:

(i) Has control or joint control over the Company;

(ii) Has significant influence over the Company; or

(iii) Is a member of the key management personnel of the Group or the Company or of a parent of the Company.

(b) An entity is related to the Group and the Company if any of the following conditions applies:

(i) The entity and the Company are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).

(ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).

(iii) Both entities are joint ventures of the same third party.

(iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity.

(v) The entity is a post-employment benefit plan for the benefit of employees of either the Company or an entity related to the Company.

(vi) The entity is controlled or jointly controlled by a person identified in (a);

(vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

Cash and cash equivalents

For the purpose of the consolidated statement of cash flows, cash and cash equivalents comprise cash on hand, deposits with financial institutions, and short term, highly liquid investments readily convertible to known amounts of cash and subjected to an insignificant risk of changes in value.

Contingencies

A contingent liability is a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group, or a present obligation that arises from past events but is not recognised because it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation or the amount of the obligation cannot be measured with sufficient reliability.

A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group.

Contingent liabilities and assets are not recognised on the balance sheet of the Group, except for contingent liabilities assumed in a business combination that are present obligations and which the fair values can be reliably determined.

38

NOTES TO THE FINANCIAL STATEMENTS (Continued)

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker responsible for allocating resources and assessing performance of the operating segments.

Non-current assets (or disposal groups) held for sale and discontinued operations

Non-current assets (or disposal groups) is classified as assets held for sale when the sale is highly probable and the assets or disposal group is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Non-current assets held for sale are measured 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. These non-current assets are not depreciated or amortised while they are classified as held for sale.

A discontinued operation is a component of an entity that either has been disposed of, or that is classified as held for sale and represents a separate major line of business or geographical area of operations or is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations or is a subsidiary acquired exclusively with a view to resale.

Any impairment loss on initial classification and subsequent measurement is recognised as an expense. Any subsequent increase in fair value less costs to sell (not exceeding the accumulated impairment loss that has been previously recognised) is recognised in profit or loss.

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 to 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.

(i) Estimated impairment of assets

The Group tests annually whether goodwill and other intangible assets with indefinite lives have suffered any impairment, and reviews other non-financial 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. 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 of goodwill are those regarding the discount rates, growth rates and expected changes to revenues and costs and expenses and further details are in Note 13.

The key assumptions pertaining to available-for-sale financial assets and investment in associates are in Notes 16 and 15 respectively.

39

NOTES TO THE FINANCIAL STATEMENTS (Continued)

3. CRITICAL ACCOUNTING ESTIMATES, ASSUMPTIONS AND JUDGEMENTS (Continued)

(ii) 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 realisability. However, at this time, an estimate of the potential range of change cannot be reasonably made.

(iii) Defined benefit pension plan

Weighted-average assumptions used to determine benefit obligations and net periodic pension costs at 31 December 2012 and 2011 were as follows:

	2012			2011
Discount rate		1.75	%		2.00	%
Rate of return on plan assets		1.75	%		2.00	%
Rate of compensation increase		1.50	%		1.00	%

Further details are given at Note 27(i).

(iv) Share options

The Company used the Black-Scholes option-pricing model to estimate the fair value of share options granted to employees. The following summarises the assumptions used in the model for options granted during the year ended 31 December 2012 and 2011:

For the year ended 31 December	2012	2011
Option term (years)	5.73	5.99
Volatility	59.76%~67.02%	58.89%~63.03%
Weighted-average volatility	62%	59%
Weighted-average share price	US$0.96	US$1.06
Risk-free interest rate	0.885%~1.152%	2.14%~2.31%
Dividend yield	0%	0%
Weighted-average fair value of option granted during the year	US$0.54	US$0.60

Option term—The expected term of the options granted represents the period of time that they are expected to be outstanding. The 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 the Company’s current dividend yield.

40

NOTES TO THE FINANCIAL STATEMENTS (Continued)

4. REVENUE

	Group
	2012		2011
	US$’000		US$’000
Asian online game and service revenues		27,470		33,969

5. OTHER OPERATING INCOME

	Note	Group
		2012		2011
		US$’000		US$’000
Gain on sale of available-for-sale financial assets			5,665		6,299
Gain on sale of T2CN shares			—		4,739
Gain on sale of IAHGames	14(a)		234		—
Interest income			283		762
Recovery of loss on termination of third-party contract	14(b)		—		2,012
Others			201		1,010
			6,383		14,822

6. OTHER OPERATING EXPENSES

	Note	Group
		2012		2011
		US$’000		US$’000
Loss on disposal of property, plant and equipment			208		49
Loss on sale of Spring Asia	14(a)		23		—
Impairment loss on prepaid licensing fees and intangible assets	13 & 17		13,206		7,927
Impairment loss on available-for-sale financial assets (non-current)	16		1,193		679
Impairment loss on property, plant and equipment	12		217		—
Impairment loss on investment in associates	15		—		12,648
Allowance for doubtful receivables	34		169		1,820
Foreign exchange loss, net			1,199		589
Other			562		—
			16,777		23,712

41

NOTES TO THE FINANCIAL STATEMENTS (Continued)

7. FINANCE EXPENSES

	Group
	2012		2011
	US$’000		US$’000
Interest expense on short-term borrowings		247		426

8. INCOME TAX EXPENSE / (BENEFIT)

	Note	Group
		2012		2011
		US$’000		US$’000
Continuing operations
Current income tax
- Foreign			625		(539	)
Deferred income tax	18		46		294
Income tax expense / (benefit)			671		(245	)

The tax expense on loss before tax differs from the amount that would arise using the Singapore standard rate of income tax as explained below:

	Group
	2012			2011
	US$’000			US$’000
Loss before tax
- continuing operations		(17,553	)		(18,038	)
- discontinued operations		(41	)		(53,903	)
		(17,594	)		(71,941	)
Tax calculated at a tax rate of 17% (2011: 17%)		(2,991	)		(12,230	)
Tax effect of
- different tax rates in other countries		—			(5,588	)
- deferred tax assets not recognised		517			2,786
- non-taxable income		(472	)		—
- expenses not deductible for tax purpose		3,356			14,758
- other		261			29
Tax expense / (benefit)		671			(245	)

42

NOTES TO THE FINANCIAL STATEMENTS (Continued)

9. LOSS FROM CONTINUING OPERATIONS

The following items have been included in arriving at loss from continuing operations for the year:

	Note	Group
		2012			2011
		US$’000			US$’000
Gain on sale of IAHGames	14(a)		(234	)		—
Loss on sale of Spring Asia	14(a)		23			—
Amortisation charge on intangible assets	13		2,156			2,299
Depreciation of property, plant and equipment	12		1,056			1,787
Foreign exchange loss—net			1,199			589
Impairment loss of property, plant and equipment	12		217			—
Impairment loss on prepaid licensing fees and intangible assets	13 &17		13,206			7,927
Impairment loss on available-for-sale financial assets (non-current)	16		1,193			679
Impairment loss on investment in associates	15		—			12,648
Rental expense—operating lease			1,486			2,146

10. LOSS FROM DISCONTINUED OPERATIONS

JIDI Network Technology (Shanghai) Co., Ltd. (JIDI)

In June 2012, the board of directors approved a plan to liquidate and dissolve JIDI Network Technology (Shanghai) Co., Ltd. (“JIDI”), a wholly-owned subsidiary in the PRC, and Shanghai JIDI Network Technology Co., Ltd. (“Shanghai JIDI”), a Variable Interest Entity (“VIE”) controlled through a series of contractual arrangements. Results for JIDI and Shanghai JIDI operations are reported as discontinued operations in 2011 and 2012. The carrying amounts of the remaining assets and liabilities of JIDI and Shanghai JIDI were not significant to the Consolidated Financial Statements as of 31 December 2012.

Gaming software and service business

The 40% ownership of Everest Gaming held by the Group diluted to 33.66 percent after Betclic Everest Group (“BEG”) converted its US$8.3 million shareholder loan in April 2012, and the Group entered into another agreement with BEG to sell the remaining 33.66 percent in Everest Gaming for a consideration of US$1.7 million, in which US$985,000 were to be settled in cash, while the remainder were to fulfill a 2009 tax liability. The disposal was completed in early August 2012. The sale resulted in the recognition of a gain of US$2.5 million, inclusive of gain on mutually waived net liabilities, and net of transaction costs.

43

NOTES TO THE FINANCIAL STATEMENTS (Continued)

10. LOSS FROM DISCONTINUED OPERATIONS (Continued)

	Group
	2012			2011
	US$’000			US$’000
				(Restated)
Revenue		99			79
Cost of revenues		(455	)		(896	)
Product development and engineering expenses		(235	)		(44	)
Selling and marketing expenses		(245	)		(606	)
General and administrative expenses		(1,091	)		(2,292	)
Other operating income		4			4
Other operating expenses		(598	)		(433	)
Gain on sale of associate		2,480			—
Share of loss of associate		—			(49,715	)
Total loss for the year from discontinued operations, net of tax		(41	)		(53,903	)

The net cash flows attributable to the above discontinued operations are as follows:

	Discontinued operations
	2012			2011
	US$’000			US$’000
Operating cash outflows		(942	)		(2,745	)
Investing cash inflows / (outflows)		1,003			(5,424	)
Financing cash outflows		—			2,022
Total cash inflows / (outflows)		61			(6,147	)

11. STAFF COSTS

	Group
	2012		2011
	US$’000		US$’000
Wages and salaries		12,209		14,697
Employee equity-settled share-based payment		179		1,165
Employee expense relating to defined benefit and contribution pension plans		684		892
Termination benefits		639		(36	)
		13,711		16,718

Key management remuneration is disclosed in Note 33(ii).

44

NOTES TO THE FINANCIAL STATEMENTS (Continued)

12. PROPERTY, PLANT AND EQUIPMENT

Group	Freehold land			Buildings			Information and communication equipment			Office furniture and equipment			Transportation equipment			Leasehold improvements			Equipment under installation			Total
	US$’000			US$’000			US$’000			US$’000			US$’000			US$’000			US$’000			US$’000
Cost
At 1 January 2011		763			1,300			6,565			906			152			2,133			921			12,740
Additions		—			—			404			83			—			88			193			768
Disposals		—			—			(120	)		(137	)		—			(621	)		—			(878	)
Reclassification		—			—			803			46			—			72			(921	)		—
Acquisition of business—OneNet		—			—			825			46			—			136			—			1,007
Consolidation of business—Monsoon		—			—			15			—			—			—			—			15
Currency translation difference		(29	)		(49	)		(188	)		(16	)		(4	)		(27	)		(5	)		(318	)
At 31 December 2011		734			1,251			8,304			928			148			1,781			188			13,334
Additions		—			—			229			12			—			95			93			429
Disposals		—			—			(1,124	)		(300	)		(106	)		(711	)		—			(2,241	)
Reclassification		—			—			82			—			—			175			(257	)		—
Deconsolidation of business—IAHGames		—			—			(2,793	)		(357	)		(44	)		(898	)		—			(4,092	)
Written off		—			—			(5	)		(1	)		—			—			(1	)		(7	)
Currency translation difference		31			53			164			6			2			13			5			274
At 31 December 2012		765			1,304			4,857			288			—			455			28			7,697

45

NOTES TO THE FINANCIAL STATEMENTS (Continued)

12. PROPERTY, PLANT AND EQUIPMENT (Continued)

Group	Freehold land			Buildings			Information and communication equipment			Office furniture and equipment			Transportation equipment			Leasehold improvements			Equipment under installation		Total
	US$’000			US$’000			US$’000			US$’000			US$’000			US$’000			US$’000		US$’000
Accumulated depreciation and impairment
At 1 January 2011		27			352			4,752			427			116			1,349			—		7,023
Depreciation charge to profit or loss		—			18			1,409			219			13			421			—		2,080
Depreciation capitalised in intangible assets		—			—			20			—			—			—			—		20
Disposals		—			—			(112	)		(90	)		—			(510	)		—		(712	)
Acquisition of business—OneNet		—			—			290			30			—			91			—		411
Acquisition of business—Monsoon		—			—			6			—			—			—			—		6
Currency translation difference		(1	)		(14	)		(132	)		(8	)		(4	)		(23	)		—		(182	)
At 31 December 2011		26			356			6,233			578			125			1,328			—		8,646
Depreciation charge to profit or loss		—			17			887			130			3			189			—		1,226
Depreciation capitalised in intangible assets		—			—			13			—			—			—			—		13
Disposals		—			—			(595	)		(177	)		(106	)		(490	)		—		(1,368	)
Deconsolidation of business—IAHGames		—			—			(2,404	)		(268	)		(24	)		(664	)		—		(3,360	)
Impairment charge		188			29			—			—			—			—			—		217
Currency translation difference		4			16			139			6			2			12			—		179
At 31 December 2012		218			418			4,273			269			—			375			—		5,553
Net book value
At 31 December 2012		547			886			584			19			—			80			28		2,144
At 31 December 2011		708			895			2,071			350			23			453			188		4,688

The Group pledged land and buildings with a net book value of US$Nil (2011: US$1.6 million) as collateral for bank borrowings as of 31 December 2012 (Note 25).

46

NOTES TO THE FINANCIAL STATEMENTS (Continued)

12. PROPERTY, PLANT AND EQUIPMENT (Continued)

In 2012, the Group recorded an impairment charge of US$217,000, for its land and buildings, based on an independent valuation performed by an independent valuer which is based on quoted prices of similar assets in the market.

13. INTANGIBLE ASSETS

	Group
	2012		2011
	US$’000		US$’000
Goodwill arising on acquisition of business		16,934		28,437
Trademarks		12,211		11,711
Others		3,464		3,823
		32,609		43,971

(i) Goodwill arising on acquisition of business

	Note	Group
		2012			2011
		US$’000			US$’000
Cost
At 1 January			35,789			41,748
Deconsolidation of business—IAHGames	14(a)		(7,352	)		—
Acquisition of business—OneNet			—			1,049
Reversal of contingent payment of minimum guarantee under licensing agreement			—			(5,885	)
Currency translation difference			1,214			(1,123	)
At 31 December			29,651			35,789
Accumulated impairment
At 1 January			7,352			2,255
Deconsolidation of business—IAHGames	14(a)		(7,352	)		—
Impairment charges			12,489			5,097
Currency translation difference			228			—
At 31 December			12,717			7,352
Net book value			16,934			28,437

47

NOTES TO THE FINANCIAL STATEMENTS (Continued)

13. INTANGIBLE ASSETS (Continued)

(i) Goodwill arising on acquisition of business (Continued)

Provisional accounting for acquisition of IAHGames

In July 2010, a contingent payment of minimum guarantee under licensing agreement has been identified arising from this acquisition. Management and their in-house legal counsel has determined, on a provisional basis, that the fair value of the contingent payment is $5.9 million, as the Group was still in discussion with the game developer to waive or reduce the minimum guarantee. In 2011, the Group has received objective evidence that the game developer is highly unlikely to demand repayment for this amount and thus, this amount has been adjusted against goodwill.

Impairment tests for goodwill

Goodwill acquired through business combinations have been allocated to the Group’s cash-generating units (CGUs) in the Asian online game and service operating segment, and the carrying amounts are as follows:

	2012		2011
	US$’000		US$’000
FunTown Group		16,934		28,437

(The Funtown Group refers to a sub-group of operating entities held by Funtown World Limited, a wholly owned subsidiary of GigaMedia Limited, incorporated in the British Virgin Islands.)

The recoverable amount of a CGU was determined based on value-in-use calculations. Cash flow projections used in these calculations were based on financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period were extrapolated using the estimated growth rates stated below. The growth rate did not exceed the long-term average growth rate for the business in which the CGU operates.

Key assumption used for value-in-use calculations:

	2012			2011
	FunTown Group			FunTown Group			IAHGames
Operating margin (1)		19.4	%		36.1	%		(1.2	)%
Growth rate (2)		0.0	%		0.0	%		3.0	%
Discount rate (3)		20.6	%		20.3	%		15.8	%

⁽¹⁾  Budgeted operating margin.

⁽²⁾  Weighted average growth rate used to extrapolate cash flows beyond the budget period.

⁽³⁾  Pre-tax discount rate applied to the pre-tax cash flow projections.

Further key assumptions pertain to continuous popularity of current games. Management determined budgeted operating margin based on past performance and its expectations of the market development. The weighted average growth rates used were consistent with the forecasts included in industry reports. Management recognises that the speed of technological change and the possibility of new entrants can have a significant impact on operating margin and growth rate assumptions. The discount rates used were pre-tax and reflected specific risks relating to the relevant segments.

48

NOTES TO THE FINANCIAL STATEMENTS (Continued)

13. INTANGIBLE ASSETS (Continued)

(i) Goodwill arising on acquisition of business (Continued)

Goodwill from the acquisition of FunTown, which constitutes our Asian online game and service business, was written down to its recoverable amount of US$16.9 million as at 31 December 2012, resulting in an impairment charge of US$12.5 million in 2012, which is included within other operating expenses in the Consolidated Statement of Comprehensive Income. As a result of the overall downturn of the online game industry and repositioning of FunTown to focus on market growth in browser/mobile games in the multi-platform market, the Group estimated that the fair value of the Asian online game and service business had decreased and, as a result, impaired the goodwill related to FunTown as of 31 December 2012. The impairment charge was determined by estimates of future cash flows from FunTown’s business which have been reduced due to the Group’s change in strategic focus to self-developed casual games versus licensed MMOs (massive multiplayer online games) and the slowdown in the PC-based online games market where the Group are currently positioned, indicating that the original amount of the goodwill from the acquisition of FunTown could not be fully recovered as of 31 December 2012.

Goodwill from acquisition of IAHGames was fully written down to US$Nil as of 31 December 2011, resulting in an impairment charge of US$4.0 million in 2011 which is included within other operating expenses in the statement of comprehensive income. The impairment charge resulted as the Group’s estimates of future cash flows for IAHGames’ business had been reduced due to lower than expected operating performance results in 2011 indicating that the carrying amount of the goodwill from the acquisition of IAHGames could not be fully recovered as of 31 December 2011.

Goodwill from the acquisition of OneNet Co., Ltd. (“OneNet”) was fully written down to US$Nil as of 31 December 2011, resulting in an impairment charge of US$1.0 million in 2011, which is included within other operating expenses in the Consolidated Statement of Comprehensive Income. The impairment charge resulted as the Group’s estimates of future cash flows for OneNet’s business had been reduced due to lower than expected operating performance results in 2011, indicating that the carrying amount of the goodwill from the acquisition of OneNet could not be recovered as of 31 December 2011.

(ii) Trademarks

	Group
	2012		2011
	US$’000		US$’000
At 1 January		11,711		12,173
Currency translation difference		500		(462	)
At 31 December		12,211		11,711

The above includes trademarks with indefinite useful life of approximately US$12.2 million (2011: US$11.7 million) as of 31 December 2012, which are not amortised. No impairment of trademarks has been identified for 2012 and 2011.

Trademarks are treated as having indefinite useful live as management expects to continue the related business indefinitely and all other conditions for treatment as an intangible with an indefinite useful life has been met.

The CGU which the above belongs to is the Funtown Group and key assumption pertaining to the impairment testing can be found at Note 13 (i).

49

NOTES TO THE FINANCIAL STATEMENTS (Continued)

13. INTANGIBLE ASSETS (Continued)

(iii) Other intangible assets

	Group
	2012			2011
	US$’000			US$’000
At 1 January		3,823			7,596
Additions and capitalised during the year		1,707			1,265
Amortisation for the year		(2,192	)		(2,299	)
Impairment charges		(15	)		(2,583	)
Currency translation difference		141			(156	)
At 31 December		3,464			3,823
Cost		12,494			16,245
Accumulated amortisation and impairment		(9,030	)		(12,422	)
Net book value		3,464			3,823

In 2012 and 2011, the Group recorded an impairment charge of US$15,000 and US$40,000 related to capitalised software costs, respectively. The impairment charges for the capitalised software costs were the result of certain projects within its Asian 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.

As of 31 December 2011, the favourable lease right resulting from the acquisition of IAHGames with a carrying amount of US$2.5 million was fully written down, resulting in an impairment charge of US$2.5 million. The impairment charges resulted as the Group’s estimates of future cash flows related to the non-compete contracts and favourable lease rights (part of the IAHGames CGU), which indicated that the carrying amount of the CGU to which non-compete contracts and favourable lease right might belong could not be recovered as of 31 December 2011.

(iv) Amortisation expense and impairment loss included in the consolidated statement of comprehensive income is analysed as follows:

	Group
	2012		2011
Amortisation expense	US$’000		US$’000
Cost of revenue		249		859
Product development and engineering expenses		731		4
Selling and marketing expenses		13		14
General and administrative expenses		1,163		1,422
Loss from discontinued operations		36		—
Total		2,192		2,299

50

NOTES TO THE FINANCIAL STATEMENTS (Continued)

13. INTANGIBLE ASSETS (Continued)

(iv) Amortisation expense and impairment loss included in the consolidated statement of comprehensive income is analysed as follows: (Continued)

	Group
	2012		2011
	US$’000		US$’000
Impairment loss
Other operating expenses		12,504		7,680

14. SUBSIDIARIES

	Company
	2012			2011
	US$’000			US$’000
At beginning of year		168,063			174,764
Impairment during the year		(56,884	)		—
Disposal of subsidiary		(34	)		—
Currency alignment		7,369			(6,701	)
		118,514			168,063

The fair value of the net assets acquired and the effect of the acquisition to the Group’s financial position is described below in this note.

Details of the significant subsidiaries are as follows:

Entity	Place of incorporation	Percentage ownership interest						Principal activities
		2012			2011
Held by the Company
GigaMedia International Holdings Limited	British Virgin Islands		100	%		100	%	Holding company
Held by GigaMedia International Holdings Limited
GigaMedia SuperCup Holdings Limited	British Virgin Islands		—	**		100	%	Holding company
GigaMedia Global Limited	British Virgin Islands		100	%		100	%	Online games
Cambridge Entertainment Software Limited	British Virgin Islands		100	%		100	%	Holding company
GigaMedia (HK) Limited	Hong Kong		100	%		100	%	Holding company
Crestmillion International Limited	British Virgin Islands		—	**		100	%	Holding company

51

NOTES TO THE FINANCIAL STATEMENTS (Continued)

14. SUBSIDIARIES (Continued)

Entity	Place of incorporation	Percentage ownership interest						Principal activities
		2012			2011
Held by GigaMedia International Holdings Limited (Continued)
GigaMedia Japan Pte. Ltd.	Singapore		—	**		100	%	Holding company
GigaMedia Finance International Limited	Cayman Islands		—	**		100	%	Holding company
Bridgepoint International Limited	British Virgin Islands		100	%		100	%	Holding company
Gloryland Asia Limited	British Virgin Islands		—	**		100	%	Online games
GigaMedia Online Entertainment Corp.	Cayman Islands		100	%		100	%	Holding company
Held by GigaMedia Online Entertainment Corp.
FunTown World Limited	British Virgin Islands		100	%		100	%	Holding company
GigaMedia Asia Limited	British Virgin Islands		100	%		100	%	Holding company
GigaMedia Asia Pacific Limited	British Virgin Islands		100	%		100	%	Holding company
Skyace Pacific Limited	British Virgin Islands		100	%		100	%	Online games
Centermax Limited	British Virgin Islands		100	%		100	%	Holding company
GigaMedia Capital Limited	British Virgin Islands		100	%		100	%	Holding company
GigaMedia Development Limited	British Virgin Islands		—	**		100	%	Online games
Giga Slam Dunk Corporation	Malaysia		100	%		100	%	Online games
Giga Wartime Corporation	Malaysia		100	%		100	%	Online games
E-Sports International Corporation Limited	Hong Kong		—	**		100	%	Online games
Dragon Mark Holdings Limited	British Virgin Islands		100	%		100	%	Holding company
Premiere Vantage Holdings Limited	British Virgin Islands		100	%		100	%	Holding company
GigaMedia Freestyle Holdings Limited	British Virgin Islands		100	%		100	%	Holding company
Spring Asia Limited (formally known as New Media Investment Corporation)	Labuan		100	%		100	%	Holding company
Asia Online Games Corporation (formally known as GigaMedia (Labuan New) Limited)	Labuan		—	**		100	%	Holding company
GigaMedia (Labuan) Limited	Labuan		100	%		100	%	Holding company
Megabiz Limited	British Virgin Islands		100	%		100	%	Holding company
Nova Matrix Limited	British Virgin Islands		—	**		100	%	Holding company

52

NOTES TO THE FINANCIAL STATEMENTS (Continued)

14. SUBSIDIARIES (Continued)

Entity	Place of incorporation	Percentage ownership interest						Principal activities
		2012			2011
Held by FunTown World Limited
FunTown Hong Kong Limited	Hong Kong		100	%		100	%	Online games
Held by FunTown Hong Kong Limited
FunTown Software (Shanghai) PRC Limited	PRC		100	%		100	%	Online games
Held by Skyace Pacific Limited
Dragongate Enterprises Limited	British Virgin Islands		70	%		70	%	Online games
Held by Dragongate Enterprises Limited
GigaMedia Dragongate Limited	Labuan		100	%		100	%	Online games
Held by Cambridge Entertainment Software Limited
Cambridge Interactive Development Corporation	U.S.A.		100	%		100	%	Online games
Cambridge Interactive Development Corporation (Quebec) Inc.	Canada		—	**		100	%	Financial and management services
Internet Media Licensing Limited	British Virgin Islands		100	%		100	%	Software development and application services
Held by Internet Media Licensing Limited
Ultra Internet Media S.A. (“UIM”)	Nevis		100	%		100	%	Online entertainment operator
Held by Dragon Mark Holdings Limited
Wolverine Holdings Group Limited	British Virgin Islands		100	%		100	%	Holding company
Held by GigaMedia (Labuan) Limited
Leisure Alliance Sdn. Bhd.	Malaysia		100	%		100	%	Holding company

53

NOTES TO THE FINANCIAL STATEMENTS (Continued)

14. SUBSIDIARIES (Continued)

Entity	Place of incorporation	Percentage ownership interest						Principal activities
		2012			2011
Held by Leisure Alliance Sdn. Bhd.
Hoshin GigaMedia Center Inc.	Taiwan		100	%		100	%	Online games
GigaMedia Cloud Services Co., Ltd.	Taiwan		100	%		100	%	Cloud computing services
Held by Bridgepoint International Limited
Implus International Limited	British Virgin Islands		100	%		100	%	Holding company
Held by GigaMedia Asia Pacific Limited
Spring Asia Limited – (“Spring Asia”)	British Virgin Islands		—			100	%	Holding company
Infocomm Asia Holdings Pte. Ltd. (“IAHGames”)	Singapore		note	(a)		80	%	Online games
Held by GigaMedia Asia Limited
GigaMedia China Limited	British Virgin Islands		100	%		100	%	Holding company
Held by GigaMedia (HK) Limited
GigaMedia Europe Limited S.à.r.l.	Luxembourg		100	%		100	%	Holding company for 40% of Everest Mangas
JIDI Network Technology (Shanghai) Co., Ltd. (“JIDI”)	PRC		100	%*		100	%*	Online games
Controlled by JIDI Network Technology (Shanghai) Co., Ltd.
Shanghai JIDI Network Technology Co., Ltd. (“Shanghai JIDI”)	PRC		—	*		—	*	Online gaming operator

54

NOTES TO THE FINANCIAL STATEMENTS (Continued)

14. SUBSIDIARIES (Continued)

* In order to comply with foreign ownership restrictions and to hold the necessary licenses required, the Group operates its Asian online game and service business in the People’s Republic of China (“PRC”) through Shanghai JIDI Network Technology Co., Ltd. (“Shanghai JIDI”). The Group has no ownership interest in Shanghai JIDI and relies on a series of contractual arrangements that are intended to give the Group effective control over Shanghai JIDI, and the Group is therefore considered having retained significant beneficial interest in Shanghai JIDI. As part of contractual arrangements, each of the shareholders of Shanghai JIDI has pledged all of their respective equity interests in Shanghai JIDI to JIDI Network Technology (Shanghai) Co., Ltd. (“JIDI”) as security for the full performance of their respective obligations under all of their agreements with JIDI. According to the PRC Property Rights Law, a pledge over the equity interests of a limited liability company is created only when such equity pledge agreements are registered with the relevant local branch of the State Administration for Industry and Commerce (the “SAIC”). Shanghai JIDI has successfully registered the equity pledge agreements with the relevant local branch of the SAIC. The Group believes that it will be able to enforce these pledges in the PRC courts since these equity pledge agreements have been properly registered.

Those contractual arrangements have been duly executed and the share pledge agreements have been registered with local government authority in compliance with PRC legal requirements. Shanghai JIDI holds an Internet Content Provider (“ICP”) license, an Internet cultural operation licenses and an Internet publishing license. The financial results of Shanghai JIDI have been included in the accompanying consolidated financial statements since January 2011.

JIDI’s contribution to the Group’s results for 2011 is immaterial and no goodwill was recognised.

During the financial year, due to strategic reasons to further simplify its operations and reduce its cost structure, the board of directors approved a plan to liquidate Shanghai JIDI as disclosed in Note 10.

** Dormant / investment holding companies liquidated or deregistered with no material financial impact during the year.

(a) Deconsolidation of IAHGames and Disposal of Spring Asia in 2012

In July 2012, the Group entered into various agreements to dispose 100 percent of the shares of Spring Asia, an investment holding subsidiary which holds 30 percent of the shares of Game First International Corporation (“GFI”) (Note 15), to IAHGames, as well as a 60 percent ownership in IAHGames to the non-controlling interests in IAHGames. Subsequent to the disposal, the Group lost control of IAHGames and retained 20 percent of IAHGame’s equity interest, and consequently classified the investment as associate (Note 15).

The control to these two subsidiaries was determined to be lost in August 2012 and hence was deconsolidated thereon.

In consideration for the sale of IAHGames and Spring Asia, the Group will receive US$1 and US$3 million respectively in cash. The Spring Asia consideration is to be collected in four equal installments, with the first due upon closing, the second due in October 2012, the third due in January 2013 and the fourth due in April 2013. The payments are collateralised by the shares of Spring Asia and its shares in GFI and are only released from the escrow in proportion to the payment made upon each installment. The first installment of US$750,000 was received upon the closing on 15 August 2012. However, the buyer has defaulted on the remaining three installments. The Group have provided IAHGames sufficient payment demand notices, and also granted the buyer a 90-day curing period for each defaulted payment following the due dates for each of the respective installments. Additionally, the Group has also provided notices upon the expiration of each of the 90-day curing period of the Group’s intention to enforce re-possessing rights on the proportionate shares held by the escrow agent. The curing period of the last installment will expire on 2 July 2013 (Note 36).

55

NOTES TO THE FINANCIAL STATEMENTS (Continued)

14. SUBSIDIARIES (Continued)

(a) Deconsolidation of IAHGames and Disposal of Spring Asia in 2012 (Continued)

The Group accounted for the deconsolidation of and the retained non-controlling investment of IAHGames in August 2012 at fair value. Net assets of the IAHGames and Spring Asia as at the date of lost of control were as follows:

	Note		IAHGames and Spring Asia
			As at date of disposal
			US$’000
Assets:
Cash and bank balances				1,308
Trade receivables				1,009
Other receivables, deposits and prepayment				25
Investments in associates				3,023
Property, plant and equipment		12		732
Other non-current assets				366
Total assets				6,463
Liabilities:
Trade payables				992
Other payables and accruals				2,080
Income tax payable				1,080
Other current liabilities				239
Other liabilities				2,082
Total liabilities				6,473
Net liabilities derecognised				(10	)
Less: Foreign currency translation reserve reclassified				(217	)
Add: Non-controlling interest				3,016
				2,789
Fair value of consideration				3,000
The fair value of the 20% retained non-controlling investment in IAHGames at the date the control was lost				—
Net assets of IAHGames and Spring Asia at the date of the deconsolidation				(2,789	)
Net gain on disposal				211
Representing:
Gain on deconsolidation of IAHGames				234
Loss on disposal of Spring Asia				(23	)
Net gain on disposal				211

56

NOTES TO THE FINANCIAL STATEMENTS (Continued)

14. SUBSIDIARIES (Continued)

(a) Deconsolidation of IAHGames and Disposal of Spring Asia in 2012 (Continued)

	Note		IAHGames and Spring Asia
			As at date of disposal
			US$’000
Consideration received				750
Consideration receivable		23		2,250
				3,000
			US$’000
Net cash inflow on disposal
Consideration received in cash				750
Less: Cash and cash equivalent disposed				(1,308	)
				(558	)

(b) Acquisition of business in 2011 - Monsoon

The Group acquired an equity investment in Monsoon Online Pte Ltd (“Monsoon”), an operator and distributor of online games in Southeast Asia, as a result of the Group’s acquisition of a majority voting interest in IAHGames with effect from 1 July 2010. In connection with the strategic alliance, Monsoon entered into various agreements with a game licensor (“Game Licensor”) to distribute selected games (“Distributor Agreements”) in Southeast Asia. Although IAHGames holds 100 percent of the common stock of Monsoon, the Group concluded not to consolidate Monsoon at the date of acquisition as the Game Licensor had substantive participating rights to Monsoon’s business operations pursuant to a management agreement (“Management Agreement”). In September 2011, IAHGames, Monsoon and the Game Licensor entered into a termination agreement whereby all parties agreed to terminate the Management Agreement and Distributor Agreements with effect from 31 August 2011.

From 1 September 2011, IAHGames obtained effective control over Monsoon and therefore the Group commenced consolidation of Monsoon’s results since that date. As part of the termination, Monsoon received approximately US$2.2 million in cash, including proceeds from sales of the remaining game inventories.

Accordingly, IAHGames’ and Monsoon’s commitments under the Distribution Agreement with the Game Licensor were terminated, resulting in the following financial impact:

	Note		2011 US$’000
Gain on cancellation of warrant liabilities		5		665
Gain on reversal of impairment of prepaid expenses				1,347
				2,012

Following the loss of control over IAHGames in the current financial year as disclosed in Note 14(a), Monsoon was no longer a subsidiary of the Group with effect from August 2012.

57

NOTES TO THE FINANCIAL STATEMENTS (Continued)

14. SUBSIDIARIES (Continued)

(c) Acquisition of business in 2011 - Onenet

On 1 January 2011, the Group entered into a convertible loan agreement with OneNet resulting in potential voting rights of 13.07% (in addition to the 49.9% equity shares already owned) and is assessed to have obtained control over OneNet. The results of OneNet were consolidated from that date. Goodwill arising at this date amounted to US$1.05 million (Note 13). The contribution of OneNet to the Group’s results in 2011 is not considered to be significant. In August 2011, the Group exercised the option to convert to equity shares. On that same date, the Group also purchased an additional 37.03% equity stake, giving the Group 100% shareholdings in OneNet. Transfer of these shares has not been completed as of 31 December 2011 and is pending receipt of curtained required governmental certificates. Upon completion, the Group will hold 100% of the equity shares.

Following the loss of control over IAHGames in the current financial year as disclosed in Note 14(a), Onenet was no longer a subsidiary of the Group with effect from August 2012.

15. ASSOCIATES

	Note			Group
				2012			2011
				US$’000			US$’000
Equity shares at cost					5,055			74,138
Carrying amount
At 1 January					7,615			65,395
Disposal of Everest Gaming		(a	)		—			—
Disposal of GFI		(b	)		(3,023	)		—
Share of profit of associates for the year					234			(48,239	)
Recognising of losses against loan receivable from associate forming part of the Group’s net investment in the associates					—			5,382
Transfer to investment in subsidiaries—OneNet					—			(194	)
Impairment charges					—			(12,648	)
Cash dividend received					—			(1,907	)
Currency translation differences					397			(174	)
At 31 December					5,223			7,615

The summarised financial information of the associates, not adjusted for the percentage ownership held by the Group is as follows:

	2012			2011
	US$’000			US$’000
Revenue		6,641			82,144
Net loss for the period / year		(2,412	)		(106,757	)
Total assets		40,808			68,624
Total liabilities		5,054			11,311

58

NOTES TO THE FINANCIAL STATEMENTS (Continued)

15. ASSOCIATES (Continued)

Details of the Group’s associates at 31 December 2012 are as follows:

Name of companies	Principal activities	Country of incorporation and place of business	Effective equity held by the Group
			2012		2011
			%		%
Mangas Everest S.A.S. (“Everest Gaming”)	Gaming software and service business	France/North America and Malta		—		40
Game First International Corporation (“GFI”) (Note 14(a))	Distribution of online games	Taiwan		—		30
East Gate Media Contents & Technology Fund (“East Gate”)	Online game business and films	Korea		18		18
Infocomm Asia Holdings Pte. Ltd. (Note 14(a))	Online games	Singapore		20		—

(a) The Group recognised its share of losses in Everest Gaming for the year 2011 under the equity method of accounting which totaled US$49.7 million, which resulted in a negative investment balance as of 31 December 2011. During 2011, the Group entered into loan agreements in the aggregate of US$5.2 million with Everest Gaming, with interest rates of 3 percent per annum. The Group charged this negative investment balance against this loan receivable that Everest Gaming has outstanding to the Group as of 31 December 2011, which the Group considers as part of the investment in Everest Gaming.

As of 31 December 2011, the balance of this loan receivable was US$Nil after being reduced in connection with absorbing additional losses of Everest Gaming and considering the financial status of Everest Gaming, from which the Group does not expect to collect all principal and interest. The Group also reversed the interest recognised previously on these loans and ceased to recognise interest income going forward.

During the financial year, Everest Gaming was disposed in early August 2012 and the transaction result can be found at Note 10.

(b) During the financial year 2011, the Group recognised an impairment loss of US$12.6 million on investment in GFI as fair value less cost to sell of US$2.5 million was determined based on indicative selling price. The impairment loss was recognised and included in other operating expenses.

During the financial year, GFI was disposed as a result of the disposal of its immediate holding company Spring Asia (Note 14(a)) by the Group in August 2012.

(c) The Group has an 18 percent interest in East Gate, a Korean Limited Partnership. The Group has significant influence over partnership operating and financial policies based on the terms of the partnership agreement. The Group accounts for this limited partner investment under the equity method of accounting.

(d) The Group has not recognized its share of losses in IAHGames amounting to US$156,000 because the Group’s cumulative share of losses exceeds its interest in that entity and the Group has no obligation in respect of those losses.

59

NOTES TO THE FINANCIAL STATEMENTS (Continued)

16. AVAILABLE-FOR-SALE FINANCIAL ASSETS (NON-CURRENT)

	Note			Group
				2012		2011
				US$’000		US$’000
At fair value
Equity instrument (quoted)		(a	)		1,565		1,630
Debt instrument (unquoted)					3,082		6,703
At cost
Equity instrument (unquoted)		(b	)		—		700
					4,647		9,033

For information on determination of fair value, refer to Note 34.

(a) In 2012, the Group recorded an impairment charge of US$493,000 (2011: US$Nil) in profit or loss related to available-for-sale financial assets (non-current), which is carried at fair value. This impairment charge has been reclassified from other comprehensive income as there is objective evidence of impairment. Considering the prolonged decline in the fair value of the investment which is currently facing cash flow problems and lower operating margins, its fair value has been written down.

(b) In 2012, the Group recorded an impairment charge of US$700,000 (2011: US$679,000) in profit or loss related to available-for-sale financial assets (non-current), which is carried at cost. Considering the financial status of the available-for-sale financial asset, which is currently facing cash flow problems and has frozen development of its game codes, the fair value has been written down to zero.

As of 31 December 2012, the balance of unrealised fair value gains for available-for-sale financial assets (non-current) recognised in equity (fair value reserve) was US$850,000 (2011: US$2,598,000),

17. OTHER ASSETS

	Group
	2012			2011
	US$’000			US$’000
Refundable deposits		392			1,777
Prepaid licensing and royalty fees		9,346			7,722
Deferred assets		2			8
		9,740			9,507
Less: Impairment loss on prepaid licensing and royalty fees		(702	)		(247	)
Impairment charges recorded in loss from discontinued operations		—			(372	)
		9,038			8,888

60

NOTES TO THE FINANCIAL STATEMENTS (Continued)

17. OTHER ASSETS (Continued)

In 2012, the Group recorded an impairment charge of US$702,000 (2011: US$619,000) relating to prepaid licensing and royalty fees. The impairment charge for the prepaid licensing and royalty fees related to certain licensed games within its Asian 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 indication for 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.

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:

	Group
	2012		2011
	US$’000		US$’000
Deferred income tax assets:
– to be recovered within 12 months		388		417
Deferred income tax liabilities:
– to be settled within 12 months		—		(3	)
– to be settled after more than 12 months		—		(661	)
Subtotal		—		(664	)
Net deferred income tax assets / (liabilities)		388		(247	)

The movement in the deferred income tax account is as follows:

	Note			Group
				2012			2011
				US$’000			US$’000
At 1 January					(247	)		(546	)
Deconsolidation of business – IAHGames and disposal of Spring Asia		14	(a)		768			—
Tax charged to profit or loss		8			(46	)		(294	)
Currency translation difference					(87	)		593
At 31 December					388			(247	)
Presented after appropriate offsetting as follows:
Deferred tax assets, net					388			—
Deferred tax liabilities, net					—			(247	)
					388			(247	)

61

NOTES TO THE FINANCIAL STATEMENTS (Continued)

18. DEFERRED INCOME TAXES (Continued)

The components and movement of deferred tax assets and liabilities during the financial year prior to offsetting are as follows:

	Group
	Unutilised tax losses		Deferred revenue			Share based compensation		Others			Total
	US$’000		US$’000			US$’000		US$’000			US$’000
Deferred income tax assets:
At 1 January 2012		480		—			190		89			759
Tax (charged) credited to income statement and currency translation		179		—			44		(33	)		190
At 31 December 2012		659		—			234		56			949
At 1 January 2011		318		9			162		92			581
Tax (charged) credited to income statement and currency translation		162		(9	)		28		(3	)		178
At 31 December 2011		480		—			190		89			759

	Group
	Depreciation and amortisation			Dividend withholding tax from investees			Others		Total
	US$’000			US$’000			US$’000		US$’000
Deferred income tax liabilities:
At 1 January 2012		(344	)		(662	)		—		(1,006	)
Deconsolidation of business – IAHGames and disposal of Spring Asia (Note 14(a))		—			768			—		768
Tax charged (Credited) to income statement and currency translation		89			(412	)		—		(323	)
At 31 December 2012		(255	)		(306	)		—		(561	)
At 1 January 2011		(117	)		(1,010	)		—		(1,127	)
Tax charged (Credited) to income statement and currency translation		(227	)		348			—		121
At 31 December 2011		(344	)		(662	)		—		(1,006	)

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.

62

NOTES TO THE FINANCIAL STATEMENTS (Continued)

18. DEFERRED INCOME TAXES (Continued)

As of 31 December 2012, the Company has net operating losses carried forward, available to offset future income, amounting to US$13.5 million. Below is the breakdown of the expiration of the net operating losses carried forward in major jurisdictions:

Jurisdiction	Amount (US$’000)		Expiring year
Hong Kong		9,174		Indefinite
Taiwan		4,333		2021
		13,507

As of 31 December 2011, the Company had net operating loss carry forwards available to offset future income, amounting to US$51.5 million. Below is the breakdown of the expiration of the net operating loss carry forward in major jurisdictions:

Jurisdiction	Amount (US$’000)		Expiring year
Singapore		35,455		Indefinite
Hong Kong		8,535		Indefinite
China		3,946		2016
Other		3,550
		51,486

Out of the above tax losses, an amount US$ 9,631,000 (2011: US$ 48,662,000) relating to unutilized tax losses, has not been recognised due to the unpredictability of future profit streams.

19. TRADE AND OTHER RECEIVABLES

	Group						Company
	2012			2011			2012		2011
	US$’000			US$’000			US$’000		US$’000
Trade receivables
– third parties		2,912			9,904			—		—
Less: Allowance for doubtful receivables		(130	)		(2,594	)		—		—
		2,782			7,310			—		—
Notes receivable
– third parties		47			58			—		—
Other receivables
– associates		—			5,656			—		—
– subsidiaries		—			—			3,129		3,873
– third parties		62			151			—		—
		62			5,807			3,129		3,873
Less: Allowance for doubtful receivables		—			(5,056	)		—		—
		62			751			3,129		3,873
Trade and other receivables		2,891			8,119			3,129		3,873

Other receivables include loan receivables of approximately US$Nil and US$609,000 (net of a provision of US$Nil and US$5.1 million, respectively) as of 31 December 2012 and 2011, respectively.

63

NOTES TO THE FINANCIAL STATEMENTS (Continued)

20. AVAILABLE-FOR-SALE FINANCIAL ASSETS (CURRENT)

	Group
	2012		2011
	US$’000		US$’000
At fair value
Equity instrument (quoted)		17,773		42,347

As of 31 December 2012, the balance of unrealised fair value gains for available-for-sale financial assets (current) recognised in equity (fair value reserve) were US$14.4 million (2011: US$35.9 million),

21. CASH AND CASH EQUIVALENTS

	Group				Company
	2012		2011		2012		2011
	US$’000		US$’000		US$’000		US$’000
Cash at banks / on hand		61,217		57,366		2		3
Fixed deposits with banks		1,514		6,631		—		—
Cash and cash equivalents		62,731		63,997		2		3

22. RESTRICTED CASH

Restricted cash consists of the following:

	Note		Group
			2012		2011
			US$’000		US$’000
Compensating balance as guarantees for bank loans (to be recovered within 12 months)		25		—		3,000

23. OTHER CURRENT ASSETS

	Note		Group
			2012		2011
			US$’000		US$’000
Prepayments				807		1,586
Others				85		—
Assets relating to deconsolidation of IAHGames and Spring Asia		14(a)
– Proceeds receivable				2,250		—
				3,142		1,586

64

NOTES TO THE FINANCIAL STATEMENTS (Continued)

24. TRADE AND OTHER PAYABLES

	Group				Company
	2012		2011		2012		2011
	US$’000		US$’000		US$’000		US$’000
Trade payables
– third parties		324		2,362		—		—
Accrued expenses
– third parties		6,415		12,734		423		506
Trade and other payables		6,739		15,096		423		506

25. SHORT-TERM BORROWINGS

As of 31 December 2012, short-term borrowings of the Group totaled US$7.7 million (2011: US$11.8 million). These amounts were borrowed from certain financial institutions. The annual interest rates on these borrowings was 1.42 percent (2011: ranging from 1.30 percent to 7.54 percent). The maturity dates fell in mid-January 2013 as of 31 December 2012 (2011: late January 2012). As of 31 December 2012, the weighted-average interest rate on total short-term borrowings was 1.42 percent (2011: 2.87 percent).

As of 31 December 2012, the total amount of unused lines of credit available for borrowing under these agreements was approximately US$6.9 million (2011: US$28.0 million).

During the period from January 2013 to March 2013, the Group repaid certain short-term borrowings totaling US$22.9 million, and renewed short-term borrowing agreements totaling US$22.9 million.

The Group pledged certain time deposits, land and buildings as collateral for borrowings from certain financial institutions. The total value of collateral amounted to US$Nil and US$4.6 million as of 31 December 2012 and 2011, respectively, in which time deposits pledged are recorded as restricted cash totaling US$Nil and US$3 million as of 31 December 2012 and 2011, respectively. (See Notes 12 and 22 for additional information.)

26. OTHER CURRENT LIABILITIES

	Group				Company
	2012		2011		2012		2011
	US$’000		US$’000		US$’000		US$’000
Deferred revenue		3,174		4,319		—		—
Others		398		2,533		—		—
		3,572		6,852		—		—

65

NOTES TO THE FINANCIAL STATEMENTS (Continued)

27. ACCRUED PENSION LIABILITIES

The Group has defined benefit and defined contribution pension plans that covered substantially all of the Group’s employees.

(i) Defined benefit pension plan

The Group has a defined benefit pension plan in accordance with the Labor Standards Law of the 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 times of monthly salary for every year of service for the first 15 years and one time more for every additional year of service, up to a maximum of 45 times of monthly salary. The pension payment to employees is computed based on the average monthly salary or wage for the six months prior to approved retirement.

The actuarial assumptions of the Group’s defined benefit pension plan are stated in Note 3(iii).

The following provides a reconciliation of projected benefit obligation and funded status of the plan and the components of net periodic benefit cost recognised:

	Group
	2012		2011
	US$’000		US$’000
Projected benefit obligation at 1 January		208		302
Service cost		6		1
Interest cost		7		5
Actuarial loss / (gain)		27		(91	)
Adjustment		309		—
Currency translation difference		15		(9	)
Projected benefit obligation at 31 December		572		208

	Group
	2012			2011
	US$’000			US$’000
Fair value of plan assets		(291	)		(263	)
Projected benefit obligation		572			208
Funded status		281			(55	)
Unrecognised net actuarial (loss) / gain		(92	)		226
Recognised net actuarial loss		21			—
Accrued pension liabilities		210			171

66

NOTES TO THE FINANCIAL STATEMENTS (Continued)

27. ACCRUED PENSION LIABILITIES (Continued)

(i) Defined benefit pension plan (Continued)

The net periodic benefit cost for the plans included the following components:

	Group
	2012			2011
	US$’000			US$’000
Service cost		6			1
Interest cost		7			5
Expected return on plan assets		(2	)		(3	)
Amortisation of net gain		(8	)		(7	)
Curtailment		22			—
Net periodic benefit cost		25			(4	)

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 Bank of 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$8,000 to the Fund in 2013. The Group does not expect to make any benefit payments through 2020.

(ii) Defined contribution pension plan

The Group has provided defined contribution plans for employees located in Taiwan, PRC, Hong Kong and Singapore. 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 percent of the employees’ salaries and wages paid each month, up to the maximum amount of NT$9,000 (approximately US$310 per individual), 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.

PRC

All PRC employees participate in employee social security plans, including pension and other welfare benefits, which are organised 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.

67

NOTES TO THE FINANCIAL STATEMENTS (Continued)

27. ACCRUED PENSION LIABILITIES (Continued)

(ii) Defined contribution pension plan (Continued)

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$1,250 (approximately US$161 per individual), to their individual contribution accounts of the authorities monthly. After the termination of employment, the benefits still belong to the employees in any circumstances.

Singapore

In accordance with Singapore regulations, through July 2012 the Group made contributions to the Singapore Central Provident Fund Scheme, a defined contribution pension plan, for eligible employees. The Group contributed 14.5 percent of the employees’ gross salaries, subject to a cap of S$5,000 (approximately US$4,000). The Group has no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and preceding financial years.

The total amount of defined contribution pension expenses pursuant to defined contribution plans for the years ended 31 December 2012 were US$585,000 (2011: US$896,000).

28. OTHER LIABILITIES

	Group
	2012		2011
	US$’000		US$’000
Refundable deposits		12		11

29. CAPITAL AND OTHER RESERVES

(i) Issued and fully paid-up ordinary share capital

	Group and Company
	Shares (‘000)					Amount (US$‘000)
	2012		2011			2012		2011
At 1 January		50,720		56,263			209,643		215,201
Issue of shares under Restricted Stock Units exercised		—		79			—		267
Share repurchase and retirement – Note (e)		—		(5,622	)		—		(5,825	)
At 31 December		50,720		50,720			209,643		209,643

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.

68

NOTES TO THE FINANCIAL STATEMENTS (Continued)

29. CAPITAL AND OTHER RESERVES (Continued)

(ii) Share option reserve

Employee share options represent the equity-settled share option granted to employees and executive director of the Group, the details of which are disclosed in the directors’ report. The reserve is made up of the cumulative value of services received from employee and executive directors recorded over the vesting period commencing from the grant date of share options, and is reduced by the expiry or exercise of the share options.

Movements in the number of share options outstanding at the end of the financial year and their exercise prices are as follows:

2012	Number of outstanding share options (in thousands)
Range of exercise price	At beginning of the financial year		Granted during the financial year		Forfeited during the financial year			Exercised during the financial year		At end of the financial  year		Weighted average remaining life
Under US$1		5,201		1,620		(610	)		—		6,211		2.87 years
US$1~US$10		3,676		450		(1,743	)		—		2,383		6.40 years
US$10~US$20		616		—		—			—		616		4.65 years
		9,493		2,070		(2,353	)		—		9,210

2011	Number of outstanding share options (in thousands)
Range of exercise price	At beginning of the financial year		Granted during the financial year		Forfeited during the financial year			Exercised during the financial year		At end of the financial  year		Weighted average remaining life
Under US$1		5,201		—		—			—		5,201		2.50 years
US$1~US$10		3,950		1,060		(1,334	)		—		3,676		7.44 years
US$10~US$20		629		—		(13	)		—		616		5.65 years
		9,780		1,060		(1,347	)		—		9,493

69

NOTES TO THE FINANCIAL STATEMENTS (Continued)

29. CAPITAL AND OTHER RESERVES (Continued)

(ii) Share option reserve (Continued)

Out of the total options granted of 9,210,000 (2011: 9,493,000) shares, options for 7,584,000 (2011: 7,754,000) shares are exercisable at the balance sheet date.

As of 31 December 2012, there was approximately US$707,000 of unrecognised compensation cost related to non-vested options. That cost is expected to be recognised over a period of 2.7 years.

The key assumptions in estimating the fair value of the Company’s share options are stated in Note 3 (iv).

(iii) Restricted Stock Units (RSUs)

Non-vested RSUs during 2012 and 2011 were as follows:

	2012				2011
	Number of units (in thousands)		Weighted- average grant date fair value		Number of units (in thousands)			Weighted- average grant date  fair value
Non-vested at 1 January		—		—		390			10.99
Granted		—		—		323			3.01
Vested		—		—		(79	)		2.99
Forfeited		—		—		(634	)		7.92
Non-vested at 31 December		—		—		—			—

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 2012 and 2011 was US$Nil and US$1.0 million, respectively. The total fair value of RSUs vested during the years ended 31 December 2012 and 2011 was approximately US$Nil and US$0.2 million, respectively, which resulted in no significant tax benefit realised on a consolidated basis.

As of 31 December 2012, there was no unrecognised compensation cost related to nonvested RSUs. The Company received no cash from employees as a result of employee share award vesting of RSUs during 2012 and 2011.

(iv) 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 31 December 2012 and 2011, the legal reserves of Hoshin GigaMedia Center Inc. (“Hoshin GigaMedia”), which represent a component of the Group’s consolidated accumulated deficit, were both US$3.0 million. 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.

Under PRC laws and regulations, there are certain foreign exchange restrictions on the Group’s PRC subsidiaries with respect to transferring certain of their net assets to the Group either in the form of dividends, loans or advances. As of 31 December 2012 and 2011, the Group’s total restricted net assets, which include paid up capital and the net assets of those subsidiaries in which the Group has no legal ownership, were approximately US$1.5 million and US$3.6 million, respectively.

70

NOTES TO THE FINANCIAL STATEMENTS (Continued)

29. CAPITAL AND OTHER RESERVES (Continued)

(v) Share repurchase and retirement of common shares

On 20 May 2011, the Group’s board of directors approved an US$11 million share repurchase program of GigaMedia’s common stock. Under the terms of the share repurchase program, GigaMedia could repurchase up to US$11 million worth of its issued and outstanding shares during the period starting from 1 June 2011 to 30 November 2011. The repurchases could be made from time to time on the open market at prevailing market prices pursuant to a Rule 10b5-1 plan, subject to restrictions relating to volume, pricing and timing. The timing and extent of any repurchases depended upon market conditions, the trading price of GigaMedia’s shares and other factors. This share repurchase program was implemented in a manner consistent with market conditions, in the interests of GigaMedia’s shareholders, and in compliance with its securities trading policy and relevant Singapore and U.S. laws and regulations. During 2011, repurchases under this program amounted to approximately 5.6 million shares at a cost of US$5.8 million. All of the shares repurchased under this program were cancelled by the end of 2011. There were no repurchase of share during 2012.

(vi) Fair value reserve

Fair value reserve represents the cumulative fair value changes, net of tax, of available-for-sale financial assets until they are disposed of or impaired.

	Group
	2012			2011
	US$’000			US$’000
At the beginning of the year		38,521			21,899
Financial assets, available-for-sale
– Fair value (loss) / gains		(18,093	)		22,921
Reclassification to profit or loss
– Impairment of available-for-sale financial assets		493			—
– On disposal of available-for-sale financial assets		(5,665	)		(6,299	)
		15,256			38,521

(vii) Accumulated losses / Translation reserve

The foreign currency translation reserve represents exchange differences arising from the translation of the financial statements of the Company whose functional currency is different from that of the Group’s presentation currency.

	Company
	2012			2011
	US$’000			US$’000
Accumulated losses:
At the beginning of the year		(36,175	)		(35,691	)
Total loss for the year		(56,869	)		(484	)
At the end of the year		(93,044	)		(36,175	)

71

NOTES TO THE FINANCIAL STATEMENTS (Continued)

29. CAPITAL AND OTHER RESERVES (Continued)

(vii) Accumulated losses / Translation reserve (Continued)

	Company
	2012			2011
	US$’000			US$’000
Translation reserve:
At the beginning of the year		(14,413	)		(7,375	)
Other comprehensive income / (loss)		6,479			(7,038	)
At the end of the year		(7,934	)		(14,413	)

30. (LOSS) / EARNINGS PER SHARE

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

	2012		2011
	US$’000		US$’000
Weighted average outstanding shares
Basic and Diluted		50,720		54,268

Options to purchase common stock were not included in dilutive securities for the year ended 31 December 2012, as the effect would be anti-dilutive.

31. SEGMENT INFORMATION

Segment data

The Group has identified two reportable segments: an online gaming software and service business segment (through 31 July 2012) and an Asian online game and service business segment. The online gaming software and service business segment mainly derives its revenues from developing and licensing online games of chance and skill. The Asian online game and service business segment mainly derives revenues from recognising the usage of game playing time or in-game items by the end-users. It also includes investment in associates and quoted and unquoted equity investments in companies operating in similar gaming business area. The Group’s new cloud computing service business has not met any of the quantitative thresholds required to be reportable. Other business activities include investment holding and treasury / corporate functions.

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. Management measures the performance of each segment based on several metrics, including revenues and income or loss from operations.

72

NOTES TO THE FINANCIAL STATEMENTS (Continued)

31. SEGMENT INFORMATION (Continued)

Segment data (Continued)

Financial information for each reportable segment was as follows as of and for the years ended 31 December 2012 and 2011:

	Discontinued operations		Continuing operations
	Gaming software and service#		Asian online game and service**			Total
	US$’000		US$’000			US$’000
2012
Segment profit or loss:
Net revenue from external customers		—		27,470			27,470
Profit / (loss) before income tax		2,423		(9,271	)		(6,848	)
Share of profit of associates		—		(234	)		(234	)
Allowance for doubtful receivables		—		169			169
Amortisation including intangible assets		—		2,136			2,136
Depreciation		—		891			891
Foreign exchange loss		83		1,577			1,660
Impairment loss on prepaid licensing fees and intangible assets		—		13,206			13,206
Impairment loss on available-for-sale financial assets (non-current)		—		1,193			1,193
Share-based compensation		—		199			199
Segment assets:
Investment in associates		—		5,223			5,223
Additions to property, plant and equipment		—		314			314
Additions to intangible assets		—		1,679			1,679
Total assets		3,685		78,332			82,017
Segment liabilities:
Total liabilities		1,801		5,954			7,755

73

NOTES TO THE FINANCIAL STATEMENTS (Continued)

31. SEGMENT INFORMATION (Continued)

Segment data (Continued)

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

Financial information for each reportable segment was as follows as of and for the years ended 31 December 2012 and 2011:

	Discontinued operations			Continuing operations
	Gaming software and service#			Asian online game and service**			Total
	US$’000			US$’000			US$’000
2011
Segment profit or loss:
Net revenue from external customers		—			33,969			33,969
Loss before income tax		(49,968	)		(10,777	)		(60,745	)
Share-based compensation		—			308			308
Impairment loss on prepaid licensing fees and intangible assets		—			7,927			7,927
Impairment loss on available-for-sale financial assets (non-current)		—			679			679
Impairment loss on associate		—			12,648			12,648
Interest income		—			492			492
Interest expense		55			(50	)		5
Foreign exchange gain / (loss)		6			(506	)		(500	)
Share of (loss) / profit of associates		(49,715	)		1,476			(48,239	)
Allowance for doubtful receivables		—			1,820			1,820
Depreciation		—			1,497			1,497
Amortisation including intangible assets		—			2,251			2,251
Income tax (benefit) / expense		(934	)		859			(75	)
Segment assets:
Investment in associates		—			7,615			7,615
Additions to property, plant and equipment		—			369			369
Additions to goodwill		—			1,049			1,049
Additions to intangible assets		—			1,235			1,235
Total assets		4,756			125,340			130,096
Segment liabilities:
Total liabilities		1,768			12,904			14,672

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

^# With the disposal of Mangas (see note 10), the entire segment of Gaming software and service was discontinued and the comparative segment information was restated accordingly.

** The discontinued operations JIDI taken out of the Asian online game and service segment and comparative information was restated accordingly.

74

NOTES TO THE FINANCIAL STATEMENTS (Continued)

31. SEGMENT INFORMATION (Continued)

Segment data (Continued)

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

	2012			2011
	US$’000			US$’000
Loss before income tax
Total segments		(6,848	)		(60,745	)
Add: Loss in other business		(8,282	)		(7,261	)
Less: Discontinued operations		(2,423	)		49,968
Total loss before tax and discontinued operations		(17,553	)		(18,038	)
Share-based compensation
Total segments		199			308
Add: other segment		(20	)		857
Total GigaMedia consolidated		179			1,165

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

	2012			2011
	US$’000			US$’000
Foreign exchange loss
Total segments		1,660			500
Adjustment *		(461	)		89
Total GigaMedia for continuing operations		1,199			589
Depreciation
Total segments		891			1,497
Adjustment *		165			290
Total GigaMedia for continuing operations		1,056			1,787

Amortisation
Total segments	2,136	2,251
Adjustment *	20	63
Total GigaMedia for continuing operations	2,156	2,314

75

NOTES TO THE FINANCIAL STATEMENTS (Continued)

31. SEGMENT INFORMATION (Continued)

Segment data (Continued)

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

	2012		2011
	US$’000		US$’000
Additions to property, plant and equipment
Total segments		314		369
Adjustment *		111		281
Total GigaMedia for continuing operations		425		650
Additions to intangible assets
Total segments		1,679		1,235
Adjustment *		—		4
Total GigaMedia for continuing operations		1,679		1,239
Total assets
Total segments		82,017		130,096
Unallocated corporate assets
– Cash and cash equivalents		51,569		50,749
– Property, plant and equipment		1,567		1,640
– Prepaid licensing fee		3,040		1,920
– Restricted cash		—		3,000
– Deferred tax assets		388		417
– Others		1,377		3,346
Total GigaMedia consolidated (exclude JIDI)		139,958		191,168
Total liabilities
Total segments		7,755		14,672
Short-term borrowings		7,748		11,774
Income tax liabilities		3,588		4,251
Unallocated corporate liabilities
– Accrued expense		2,173		6,759
– Others		402		994
Total GigaMedia consolidated (exclude JIDI)		21,666		38,450

* Adjustment items relate to other business operations such as investment holding which is included as corporate and certain back-office costs and expenses not attributable to any specific segment.

76

NOTES TO THE FINANCIAL STATEMENTS (Continued)

31. SEGMENT INFORMATION (Continued)

Major customers

No single customer represented 10 percent or more of the Group’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:

Geographic region / country	2012		2011
	US$’000		US$’000
Taiwan		18,744		21,214
Hong Kong		4,703		5,061
Singapore		2,004		3,751
Malaysia		1,550		2,228
Thailand		204		1,447
Others		265		268
Total		27,470		33,969

Non-current assets by geographic region are as follows:

Geographic region / country	2012		2011
	US$’000		US$’000
Taiwan		40,286		52,185
PRC		—		823
Hong Kong		461		285
Singapore		—		1,066
United States		—		744
Other		3,044		2,444
Total		43,791		57,547

Non-current assets information presented above consist of property, plant and equipment, intangible assets, and other assets mainly prepaid licensing and royalty fees as presented in the consolidated balance sheet.

77

NOTES TO THE FINANCIAL STATEMENTS (Continued)

32. COMMITMENTS AND CONTINGENCIES

Commitments

(a) Operating leases

The Group rents certain properties which are used as offices premises under lease agreements that expire at various dates through 2016. The following table sets forth their future aggregate minimum lease payments required under these operating leases as of 31 December 2012 and 2011:

	Group
	2012		2011
	US$’000		US$’000
Not later than 1 year		930		1,472
Later than 1 year but not later than 5 years		1,593		5,097
		2,523		6,569

Rental expense for operating leases amounted to US$1.8 million (2011: US$2.5 million) for the current financial year.

(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 summarises the committed licensing fees and minimum guarantees against future royalties set forth in the major licenses agreements as of 31 December 2012.

	License fees		Minimum guarantees against future royalties		Total
	US$’000		US$’000		US$’000
Minimum required payments:
In 2013		189		100		289
After 2013		5,700		1,500		7,200
		5,889		1,600		7,489

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.

(c) Guaranty

In 2008, Cambridge Interactive Development Corp. (“CIDC”), a then wholly owned subsidiary of GigaMedia, entered into a lease agreement (the “CIDC Lease”) for an office in Delaware. The term of the CIDC Lease is for the period from 1 October 2008 through 30 September 2014. Pursuant to the CIDC Lease, CIDC deposited US$689,789 with a bank in exchange for a letter of credit issued by the bank (the “CIDC L/C”) and GigaMedia’s guaranty of all of CIDC’s obligations under the CIDC Lease.

78

NOTES TO THE FINANCIAL STATEMENTS (Continued)

32. COMMITMENTS AND CONTINGENCIES (Continued)

Commitments (Continued)

(c) Guaranty (Continued)

In July 2012, the Group entered into an agreement with BEG to sell and assign our remaining ownership interest in Mangas Everest (including the CIDC lease) (the “Mangas Agreement”). Pursuant to the Mangas Agreement, BEG was to use all its reasonable efforts to procure the cancellation and return of the CIDC L/C to GigaMedia and the landlord’s release of GigaMedia’s lease guaranty by 30 September 2012; and unless and until BEG procures the cancellation and return of the CIDC L/C and landlord’s release of GigaMedia’s lease guaranty, BEG is obligated to indemnify and hold GigaMedia (and any Affiliate thereof) harmless from any and all losses, costs and expenses that may be borne by GigaMedia (and any Affiliate thereof) arising under or in connection with the CIDC L/C and/or GigaMedia’s lease guaranty.

In accordance with the Mangas Agreement, BEG procured that the bank cancel the CIDC L/C and issue to BEG a new letter of credit under the same terms and conditions as the CIDC L/C. BEG, however, did not obtain the landlord’s consent to release us from our lease guaranty within the allotted time. BEG’s major shareholders, therefore, issued a separate guaranty to us wherein they are obligated to indemnify and hold GigaMedia (and any Affiliate thereof) harmless from any and all losses, costs and expenses arising under or in connection with the CIDC Lease. GigaMedia’s commitment amount under this lease guaranty will be reduced as Mangas Everest’s subsidiary who assumed the CIDC Lease makes its monthly rental payments. The leasee is current on its monthly payments through March 2013.

33. 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.

(i) Share Options 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 1,363,000 (2011: 6,374,000).

(ii) 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:

	Group
	2012		2011
	US$’000		US$’000
Wages and salaries		1,699		2,542
Director fee		190		341
Share-based compensation		56		707
Other benefit		6		8
Total		1,951		3,598

79

NOTES TO THE FINANCIAL STATEMENTS (Continued)

34. FINANCIAL INSTRUMENTS

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, 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.

Foreign currency risk

The subsidiaries of the Group assessed and concluded that most of its business transactions are denominated in its own functional 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 functional 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 functional currency.

As of 31 December 2012 and 2011, the Group’s foreign currency exposure is as follows, for balances subject to foreign currency risk:

Group	USD			KRW		TWD			RMB			HKD			Other			Total
2012	US$’000			US$’000		US$’000			US$’000			US$’000			US$’000			US$’000
Financial assets
Cash and cash equivalents*		52,554			—		6,832			398			2,853			94			62,731
Available-for-sale financial assets (current)		—			17,773		—			—			—			—			17,773
Trade and other receivables*		1			—		2,506			—			384			—			2,891
Available-for-sale financial assets (non-current)		—			3,082		1,565			—			—			—			4,647
Refundable deposits*		5			—		353			—			34			—			392
		52,560			20,855		11,256			398			3,271			94			88,434
Financial liabilities at amortised cost
Trade and other payables		2,239			—		3,596			482			422			—			6,739
Short-term borrowings		—			—		7,748			—			—			—			7,748
		2,239			—		11,344			482			422			—			14,487
Net financial assets / (liabilities)		50,321			20,855		(88	)		(84	)		2,849			94			73,947
Less: Net financial (assets) / liabilities denominated in the respective entities’ functional currencies		(49,916	)		—		88			84			(2,850	)		(89	)		(52,683	)
Foreign currency exposure		405			20,855		—			—			(1	)		5			21,264

* Loans and receivables.

Other currencies include Malaysia Ringgit and Euros which are not considered material to the Group.

80

NOTES TO THE FINANCIAL STATEMENTS (Continued)

34. FINANCIAL INSTRUMENTS (Continued)

Foreign currency risk (Continued)

Group	USD			KRW		TWD			RMB			HKD			Other			Total
2011	US$’000			US$’000		US$’000			US$’000			US$’000			US$’000			US$’000
Financial assets
Cash and cash equivalents*		48,961			6,260		4,026			270			2,841			1,639			63,997
Available-for-sale financial assets (current)		—			42,347		—			—			—			—			42,347
Trade and other receivables*		3,626			—		3,339			25			679			450			8,119
Restricted cash*		3,000			—		—			—			—			—			3,000
Available-for-sale financial assets (non-current)		700			6,703		1,630			—			—			—			9,033
Refundable deposits*		785			—		306			22			168			496			1,777
		57,072			55,310		9,301			317			3,688			2,585			128,273
Financial liabilities at amortised cost
Trade and other payables		8,498			—		4,143			484			436			1,535			15,096
Short-term borrowings		—			—		8,917			2,857			—			—			11,774
Other current liabilities		1,786			—		—			—			—			—			1,786
		10,284			—		13,060			3,341			436			1,535			28,656
Net financial assets / (liabilities)		46,788			55,310		(3,759	)		(3,024	)		3,252			1,050			99,617
Less: Net financial (assets) / liabilities denominated in the respective entities’ functional currencies		(43,291	)		—		3,916			3,020			(3,215	)		(1,154	)		(40,724	)
Foreign currency exposure		3,497			55,310		157			(4	)		37			(104	)		58,893

* Loans and receivables.

As of 31 December 2012 and 2011, the Company’s foreign currency exposure is as follows, for balances subject to foreign currency risk:

Company	USD		TWD			Other		Total
2012	US$’000		US$’000			US$’000		US$’000
Financial assets
Cash and cash equivalents*		2		—			—		2
Trade and other receivables*		2,312		817			—		3,129
		2,314		817			—		3,131
Financial liabilities at amortised cost
Trade and other payables		33		390			—		423
Net financial assets		2,281		427			—		2,708
Less: Net financial assets denominated in the Company’s functional currency		—		(427	)		—		(427	)
Foreign currency exposure		2,281		—			—		2,281

81

NOTES TO THE FINANCIAL STATEMENTS (Continued)

34. FINANCIAL INSTRUMENTS (Continued)

Foreign currency risk (Continued)

Company	USD		TWD			Other		Total
2011	US$’000		US$’000			US$’000		US$’000
Financial assets
Cash and cash equivalents*		3		—			—		3
Trade and other receivables*		3,018		839			16		3,873
		3,021		839			16		3,876
Financial liabilities at amortised cost
Trade and other payables		4		502			—		506
Net financial assets		3,017		337			16		3,370
Less: Net financial assets denominated in the Company’s functional currency		—		(337	)		—		(337	)
Foreign currency exposure		3,017		—			16		3,033

* Loans and receivables.

If the KRW, SGD and TWD change against the USD by 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:

Group	2012						2011
	Profit after tax			Equity			Profit after tax			Equity
	US$’000			US$’000			US$’000			US$’000
KRW against USD
- strengthened		308			1,777			1,296			4,235
- weakened		(308	)		(1,777	)		(1,296	)		(4,235	)
TWD against USD
- strengthened		(41	)		—			(334	)		—
- weakened		41			—			334			—
SGD against USD
- strengthened		—			—			7			—
- weakened		—			—			(7	)		—
Company
TWD against USD
- strengthened		(228	)		—			(302	)		—
- weakened		228			—			302			—

82

NOTES TO THE FINANCIAL STATEMENTS (Continued)

34. FINANCIAL INSTRUMENTS (Continued)

Cashflow and fair value interest rate risk

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 and short-term 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 equity will be:

Group	2012 Equity			2011 Equity
	US$’000			US$’000
Listed in Korea
- increased by		2,666			6,352
- decreased by		(2,666	)		(6,352	)

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 2012 and 2011 or of the balance of notes and accounts receivables as of 31 December 2012 and 2011. The Group has provided for trade receivables based on estimated irrecoverable amounts from the sale of goods and services, determined by reference to past default experience.

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.

83

NOTES TO THE FINANCIAL STATEMENTS (Continued)

34. FINANCIAL INSTRUMENTS (Continued)

Credit risk (Continued)

The quantitative data in respect of the Group’s exposure to credit risk arising from trade receivables (included notes receivables) is as follows:

	Note	2012			2011
		US$’000			US$’000
Neither past due nor impaired			2,381			4,740
Past due but not impaired:
- Less than 3 months			395			1,706
- 3 to 6 months			50			434
- 6 months and above			3			488
			448			2,628
Past due and impaired			130			2,594
Gross amount			2,959			9,962
Less: Allowance for doubtful trade receivables			(130	)		(2,594	)
			2,829			7,368

The movement in allowance for doubtful trade receivables is as follows:

	Note	2012			2011
		US$’000			US$’000
At 1 January			2,594			842
Allowance made			169			1,820
Allowance utilised			(269	)		(61	)
Deconsolidation of business – IAHGames			(2,370	)		—
Currency translation difference			6			(7	)
At 31 December (Note 19)			130			2,594

84

NOTES TO THE FINANCIAL STATEMENTS (Continued)

34. FINANCIAL INSTRUMENTS (Continued)

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 minimise liquidity risk, short-term investments are managed using highly liquid financial instruments with relatively short settlement periods.

As of 31 December 2012 and 2011, the maturity profile of the Group’s and the Company’s financial liabilities based on the contracted undiscounted payments are as follows:

Group	On demand		Less than 3 months		3 to 6 months		Over 6 months		Total
2012	US$’000		US$’000		US$’000		US$’000		US$’000
Short-term borrowings and interest payables		—		7,753		—		—		7,753
Trade payables		—		274		50		—		324
Other payables		—		3,175		1,003		2,232		6,410
Other liabilities		—		—		—		12		12
		—		11,202		1,053		2,244		14,499
2011
Short-term borrowings and interest payables		—		8,970		—		2,857		11,827
Trade payables		—		1,350		80		932		2,362
Other payables		3,239		7,601		663		1,178		12,681
Other liabilities		—		—		—		11		11
Other current liabilities		—		—		—		1,786		1,786
		3,239		17,921		743		6,764		28,667

Company	On demand		Less than 3 months		3 to 6 months		Over 6 months		Total
2012	US$’000		US$’000		US$’000		US$’000		US$’000
Other payables		—		100		85		238		423
		—		100		85		238		423
2011
Other payables		—		506		—		—		506
		—		506		—		—		506

85

NOTES TO THE FINANCIAL STATEMENTS (Continued)

34. FINANCIAL INSTRUMENTS (Continued)

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 2012 and 2011.

Fair value measurements

The Group classifies fair value measurements using a fair value hierarchy that reflects the significant of the inputs used in making the measurements. The fair value hierarchy has the following levels:

(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 (i.e. as prices) or indirectly (i.e. 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 2012 and 2011.

Group	Level 1		Level 2		Level 3		Total
2012	US$’000		US$’000		US$’000		US$’000
Assets
Available-for-sale financial assets (current)		17,773		—		—		17,773
Available-for-sale financial assets (non-current)		—		1,565		3,082		4,647
Total		17,773		1,565		3,082		22,420

Group	Level 1		Level 2		Level 3		Total
2011	US$’000		US$’000		US$’000		US$’000
Assets
Available-for-sale financial assets (current)		42,347		—		—		42,347
Available-for-sale financial assets (non-current)		—		1,630		6,703		8,333
Total		42,347		1,630		6,703		50,680

86

NOTES TO THE FINANCIAL STATEMENTS (Continued)

34. FINANCIAL INSTRUMENTS (Continued)

Fair value measurements (Continued)

The fair value of certain available-for-sale financial assets (non-current) that have publicly quoted trading prices are valued using those observable prices unless adjustments are required to available observable inputs. These instruments are included in Level 1. Certain available-for-sale financial assets – current and – non-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. These instruments are classified as Level 2.

Level 3 measurements:

For assets and liabilities measured at fair value using significant unobservable inputs (Level 3) during 2012 and 2011, a reconciliation of the beginning and ending balances are presented as follows:

	2012			2011
	US$’000			US$’000
At 1 January		6,703			6,471
Total gains or losses (realised / unrealised)
Included in earnings (including foreign exchange)		4,576			(223	)
Included in other comprehensive income		(2,100	)		455
Settlement		(6,097	)		—
At 31 December		3,082			6,703

The fair value of the other investments and available-for-sale financial assets (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.

Financial instruments:

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

35. COMPARATIVES

As disclosed in Note 10, the results from Jidi and Gaming software and service segment have been discontinued and are classified as discontinued operations in accordance with FRS 105 Non-current Assets Held for Sale and Discontinued Operations. The comparative statement of comprehensive income and segment information at Note 31 has been re-presented as if the operations discontinued during the current financial year have been discontinued at the beginning of the comparative period.

87

NOTES TO THE FINANCIAL STATEMENTS (Continued)

36. SUBSEQUENT EVENT

On 17 April 2013, the Group entered into a settlement agreement (the “Settlement Agreement”) with IAHGames, IAHGames’ management, and Management Capital International Limited (“MCIL”). Pursuant to the terms of the Settlement Agreement, either IAHGames or IAHGames’ management is to pay the Group US$2.3 million, which includes interest, to fulfill IAHGames’ obligation under the Spring Asia Share Purchase Agreement executed in July 2012. In addition, pursuant to the terms of the Settlement Agreement, MCIL is to purchase all of the Group’s remaining shares in IAHGames for US$1.0 million, pursuant to MCIL’s 15 April 2013 exercise of a call option which was included within the IAH Share Purchase Agreement executed in July 2012. The payment date for the transactions outlined in the Settlement Agreement was agreed by the parties to occur in early May 2013.

88

EX-99.5

Exhibit 99.5

FOR IMMEDIATE RELEASE For further information contact: Brad Miller, Investor Relations Director Country/City Code 8862 Tel: 2656-8016 brad.miller@gigamedia.com.tw

GigaMedia to Report First-Quarter 2013

Financial Results on May 20

TAIPEI, Taiwan, May 10, 2013 – GigaMedia Limited (NASDAQ: GIGM) announced today that it will report its first-quarter 2013 financial results on Monday, May 20, 2013 after the market closes.

Management will hold an investor conference call and webcast on May 20, 2013 at 8:00 p.m. Eastern Standard Time, which is 8:00 a.m. Taipei Time on May 21, 2013, to discuss GigaMedia’s first-quarter 2013 performance.

Dial-in numbers:

U.S.: +1-718-354-1231

International: +65-6723-9381

Passcode: 69183630

A replay will be available from 11:00 p.m. Eastern Standard Time on May 20, 2013 for seven days.

U.S.: +1-646-254-3697

International: +612-8199-0299

Passcode: 69183630

A link to the live and archived webcast will be available at www.gigamedia.com.

Conference Call Format

The call will consist of brief prepared remarks, followed by live Q&A and management responses to questions submitted via email. Questions may be sent in advance to IR@gigamedia.com.tw.

About GigaMedia

Headquartered in Taipei, Taiwan, GigaMedia Limited (Singapore registration number: 199905474H) is a diversified provider of online games and cloud computing services. GigaMedia’s online games business develops and operates a suite of games in Taiwan and Hong Kong, with focus on Web-based/mobile games. The company’s cloud computing business is focused on providing SMEs in Greater China with critical communications services and IT solutions that increase flexibility, efficiency and competitiveness. More information on GigaMedia can be obtained from www.gigamedia.com.

The statements included above and elsewhere in this press release that are not historical in nature are “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. GigaMedia cautions readers that forward-looking statements are based on the company’s current expectations and involve a number of risks and uncertainties. Actual results may differ materially from those contained in such forward-looking statements. Information as to certain factors that could cause actual results to vary can be found in GigaMedia’s Annual Report on Form 20-F filed with the United States Securities and Exchange Commission in April 2013.

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