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, 2019

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 General Meeting of Shareholders and Proxy Statement (attached hereto as Exhibit 99.1)

2. GigaMedia Annual General Meeting of Shareholders Proxy Card (attached hereto as Exhibit 99.2)

3. GigaMedia 2018 Financial Statements Prepared in Accordance with U.S. GAAP (attached hereto as Exhibit 99.3)

4. GigaMedia 2018 Financial Statements Prepared in Accordance with Singapore GAAP (attached hereto as Exhibit 99.4)

Signatures

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

	GigaMedia Limited
	(Registrant)
Date: May 24, 2019	By: /s/ HUANG, CHENG-MING
	(Signature)
	Name: HUANG, CHENG-MING
	Title: Chief Executive Officer

EX-99.1

NOTICE OF THE TWENTIETH 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

NOTICE IS HEREBY GIVEN that the 20th annual general meeting of the shareholders of GigaMedia Limited (the “Company”) will be held on June 28, 2019 at 11 a.m. local time at Flat C, 7/F, Lucky Horse Industrial Building, 64 Tong Mi Road, Mongkok, 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 Statement by the Directors, Auditor’s Report and Audited Financial Statements of the Company for the financial year ended December 31, 2018 are received and adopted.

(Resolution 1)

2. Approval of appointment of auditors

RESOLVED that Deloitte & Touche and Deloitte & Touche LLP be and are hereby appointed as the independent external auditors of the Company until the next Annual General Meeting 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$350,000in 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

1

(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.

(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 authorized and approved generally and unconditionally (the “Share Purchase Mandate”);

(2) unless varied or revoked by the Company in a 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 authorized 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 authorized by this Resolution.

(Resolution 5)

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

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NOTES:

1.Shareholders are cordially invited to attend the Twentieth Annual General Meeting in person.  Whether or not you plan to be at the Twentieth 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 Twentieth Annual General Meeting, that is by no later than 11 p.m. June 25, 2019 (New York time), or 11 a.m. June 26, 2019 (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 26, 2019 are entitled to notice of and to vote at the Twentieth Annual General Meeting, or any adjournment or postponement of the Twentieth 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/ Cheng-Ming Huang

………………………………………..

Cheng-Ming Huang (aka James Huang)

Chairman of the Board 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 28, 2019 at Flat C, 7/F, Lucky Horse Industrial Building, 64 Tong Mi Road, Mongkok, 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 26, 2019.  Each Share that you own entitles you to one vote.

How Many Shares of Voting Stock Are Outstanding?

On the Record Date, there were 11,052,235 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.

May I Revoke My Proxy?

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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.

6

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 Financial Reporting Standards in Singapore (“FRSs”) , in respect of the financial year ended December 31, 2018. Along with the Audited Financial Statements, the Company seeks Shareholders’ adoption of the  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 Twentieth 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 Deloitte & Touche and Deloitte & Touche 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 Deloitte & Touche and Deloitte & Touche LLP in respect of their service to the Company for the financial year ended December 31, 2019.

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 Twentieth 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 authorizing 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 Twentieth 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 Twentieth 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/ Cheng-Ming Huang

………………………………………..

Cheng-Ming Huang (aka James Huang)

Chairman of the Board and Chief Executive Officer

8

EX-99.2

VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 48 hours before the time of the meeting. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.    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 follow the instructions above to vote using the Internet and, when prompted, 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 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:  THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.    KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY For Against Abstain Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Notice & Proxy Statement, U.S. Annual Report and Singapore Annual Report are available at www.proxyvote.com    GIGAMEDIA LIMITED Annual Meeting of Shareholders June 28, 2019 11:00 AM This proxy is solicited by the Board of Directors  I/We, being a Shareholder/Shareholders of the above named Company, hereby appoint Cheng-Ming Huang (aka James Huang) 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 Flat C, 7/F, Lucky Horse Industrial Building, 64 Tong Mi Rd., Mongkok, Kowloon, Hong Kong on Friday, June 28, 2019, at 11:00 AM 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 Shareholders' 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, no less than 48 hours before the meeting.Address change/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

GIGAMEDIA LIMITED

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND 2018

FOR THE YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018

(With Reports of Independent Registered Public Accounting Firms Thereon)

GIGAMEDIA LIMITED AND SUBSIDIARIES

Index to Consolidated Financial Statements

	Page
Reports of Independent Registered Public Accounting Firms	2
Consolidated balance sheets as of December 31, 2017 and 2018	4
Consolidated statements of operations for the years ended December 31, 2016, 2017 and 2018	6
Consolidated statements of comprehensive income (loss) for the years ended December 31, 2016, 2017 and 2018	7
Consolidated statements of changes in shareholders’ equity for the years ended December 31, 2016, 2017 and 2018	8
Consolidated statements of cash flows for the years ended December 31, 2016, 2017 and 2018	9
Notes to consolidated financial statements	11

1

Report of Independent Registered Public Accounting Firm

To the shareholders and the Board of Directors of GigaMedia Limited:

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of GigaMedia Limited and subsidiaries (the “Company”) as of December 31, 2018 and 2017, the related consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2018 and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

The financial statements of the Company for the year ended December 31, 2016, before the effects of the adjustments to retrospectively apply the change in accounting discussed in Note 1 to the financial statements, was audited by other auditors whose report, dated April 26, 2017, expressed an unqualified opinion on those statements. We have also audited the adjustments to the 2016 financial statement to retrospectively apply the change in accounting for ASU No. 2017-07, Compensation—Retirement Benefits (Topic 715) in 2017, as discussed in Note 1 and Note 16 to the financial statement. Our procedures included examining evidence regarding the amounts and disclosures of retrospective adjustments in the financial statements. In our opinion, such retrospective adjustment is appropriate and has been properly applied. However, we were not engaged to audit, review, or apply any procedures to the 2016 financial statements of the Company other than with respect to the retrospective adjustment, and accordingly, we do not express an opinion or any other form of assurance on the 2016 financial statements taken as a whole.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for revenue from contracts with customers in 2018 due to the adoption of ASC Topic 606.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/S/ Deloitte & Touche

Taipei, Taiwan

Republic of China

April 29, 2019

We have served as the Company's auditor since 2017.

2

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

GigaMedia Limited:

We have audited, before the effects of the adjustments to retrospectively apply the change in accounting described in Note 1, the accompanying consolidated statements of operations, comprehensive loss, changes in equity and cash flows of GigaMedia Limited and subsidiaries for the year ended December 31, 2016. The 2016 consolidated financial statements before the effects of adjustments discussed in Note 1 are not presented herein. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.

In our opinion, the 2016 consolidated financial statements, before the effects of the adjustments to retrospectively apply the change in accounting described in Note 1, present fairly, in all material respects,  the results of operations and cash flows of GigaMedia Limited and subsidiaries for the year ended December 31, 2016 in conformity with U.S. generally accepted accounting principles.

We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply the change in accounting described in Note 1, and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by a successor auditors.

/S/ KPMG

Taipei, Taiwan (the Republic of China)

April 26, 2017

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GIGAMEDIA LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2017 AND 2018

(in thousands of US dollars)

	December 31
	2017		2018
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Note 7)	$	63,670	$	59,308
Accounts receivable - net (Note 8)		751		523
Prepaid expenses		390		122
Restricted cash (Note 7)		507		518
Other current assets (Note 9)		193		124
Total Current Assets		65,511		60,595
PROPERTY, PLANT AND EQUIPMENT, NET (Note 11)		158		121
INTANGIBLE ASSETS - NET (Note 4)		3		38
OTHER ASSETS
Refundable deposits		208		197
Prepaid licensing and royalty fees (Note 5)		459		435
Other (Note 13)		74		59
TOTAL ASSETS	$	66,413	$	61,445

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GIGAMEDIA LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS - (Continued)

DECEMBER 31, 2017 AND 2018

(in thousands of US dollars, except share data)

	December 31
	2017			2018
LIABILITIES & EQUITY
CURRENT LIABILITIES
Accounts payable	$	314		$	104
Accrued compensation		549			170
Accrued expenses (Note 12)		2,158			1,263
Deferred revenue		1,863			1,370
Other current liabilities		164			366
Total Current and Total Liabilities		5,048			3,273
COMMITMENTS AND CONTINGENCIES (Note 19)		—			—
SHAREHOLDERS' EQUITY (Note 14)
Common shares, no par value, and additional paid-in capital; issued    and outstanding 11,052 thousand shares in 2017 and 2018		308,747			308,750
Accumulated deficit		(225,399	)		(228,246	)
Accumulated other comprehensive loss		(21,983	)		(22,332	)
Total GigaMedia Shareholders’ Equity		61,365			58,172
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	66,413		$	61,445

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

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GIGAMEDIA LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018

(in thousands of US dollars, except for earnings per share amounts)

	2016			2017			2018
OPERATING REVENUES
Digital entertainment service revenues	$	8,971		$	11,596		$	7,101
COSTS OF REVENUES
Cost of digital entertainment service revenues		(4,138	)		(5,098	)		(3,585	)
GROSS PROFIT		4,833			6,498			3,516
OPERATING EXPENSES
Product development and engineering expenses		(1,045	)		(1,072	)		(1,091	)
Selling and marketing expenses		(5,513	)		(3,993	)		(3,297	)
General and administrative expenses		(3,458	)		(3,528	)		(3,684	)
Impairment loss on property, plant and equipment (Note 6)		(471	)		—			—
Impairment loss on intangible assets (Note 6)		(57	)		—			—
Impairment loss on prepaid licensing and royalty fees (Notes 5 and 6)		(1,386	)		—			(244	)
Gain on termination of licensing agreement (Note 5)		—			1,732			—
Other (Note 8)		(35	)		(127	)		(23	)
		(11,965	)		(6,988	)		(8,339	)
LOSS FROM OPERATIONS		(7,132	)		(490	)		(4,823	)
NON-OPERATING INCOME (EXPENSES)
Interest income		302			602			1,302
Gain on disposal of marketable securities		—			2			—
Gain on disposal of property, plant and equipment - net (Note 11)		751			1			—
Interest expense		(81	)		(34	)		—
Foreign exchange gain (loss), net		(301	)		(551	)		267
Net loss on equity investments (Note 10)		(1,731	)		(24	)		—
Impairment loss on investments (Note 6)		—			(52	)		—
Gain on disposal of subsidiary and equity investments (Note 3)		849			—			—
Other (Note 13)		128			(39	)		61
		(83	)		(95	)		1,630
LOSS BEFORE INCOME TAXES		(7,215	)		(585	)		(3,193	)
INCOME TAX BENEFIT (Note 17)		1,149			1,671			—
NET INCOME (LOSS) ATTRIBUTABLE TO SHAREHOLDERS OF GIGAMEDIA	$	(6,066	)	$	1,086		$	(3,193	)
EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO GIGAMEDIA
Basic and Diluted:	$	(0.55	)	$	0.10		$	(0.29	)
WEIGHTED AVERAGE SHARES USED TO COMPUTE EARNINGS (LOSS)    PER SHARE ATTRIBUTABLE TO GIGAMEDIA SHAREHOLDERS (Note 2)
Basic		11,052			11,052			11,052
Diluted		11,052			11,052			11,052

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

6

GIGAMEDIA LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018

(in thousands of US dollars)

	2016			2017			2018
NET INCOME (LOSS)	$	(6,066	)	$	1,086		$	(3,193	)
OTHER COMPREHENSIVE INCOME (LOSS) - NET OF TAX:
Unrealized gain on marketable securities		(1	)		—			—
Realized gain on marketable securities reclassified into income		—			(2	)		—
Defined benefit pension plan adjustment		(58	)		(11	)		(17	)
Foreign currency translation adjustment		(217	)		641			(332	)
		(276	)		628			(349	)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO    GIGAMEDIA SHAREHOLDERS	$	(6,342	)	$	1,714		$	(3,542	)

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

7

GIGAMEDIA LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018

(in thousands of US dollars and shares)

	GIGAMEDIA SHAREHOLDERS
	Common shares and additional paid-in capital					Accumulated deficit			Accumulated other comprehensive loss
	Shares		Amount			(Note 14)			(Note 15)			Total
Balance as of January 1, 2016		11,052	$	308,745		$	(220,419	)	$	(22,335	)	$	65,991
Stock-based compensation		—		9			—			—			9
Net loss		—		—			(6,066	)		—			(6,066	)
Other comprehensive loss		—		—			—			(276	)		(276	)
Balance as of December 31, 2016		11,052		308,754			(226,485	)		(22,611	)		59,658
Stock-based compensation		—		(7	)		—			—			(7	)
Net income		—		—			1,086			—			1,086
Other comprehensive income		—		—			—			628			628
Balance as of December 31, 2017		11,052	$	308,747		$	(225,399	)	$	(21,983	)	$	61,365
Cumulative effect of initially applying new accounting standards (Note 1)		—		—			346			—			346
Stock-based compensation		—		3			—			—			3
Net loss		—		—			(3,193	)		—			(3,193	)
Other comprehensive loss		—		—			—			(349	)		(349	)
Balance as of December 31, 2018		11,052	$	308,750		$	(228,246	)	$	(22,332	)	$	58,172

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

8

GIGAMEDIA LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018

(in thousands of US dollars)

	2016			2017			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(6,066	)	$	1,086		$	(3,193	)
Adjustments to reconcile net income (loss) to net cash used in operating    activities:
Depreciation		162			43			100
Amortization		111			12			36
Stock-based compensation		9			(7	)		3
Gain on disposal of subsidiary and equity investments		(849	)		—			—
Impairment loss on property and equipment		471			—			—
Impairment losses on intangible assets		57			—			—
Impairment losses on prepaid licensing and royalty fees		1,386			—			244
Bad debt		35			127			23
Gains on disposals of property, plant and equipment - net		(751	)		(1	)		—
Gains on disposal of marketable securities		—			(2	)		—
Net loss on equity investments		1,731			24			—
Impairment losses on marketable securities and investments		—			52			—
Deferred income tax benefits		(41	)		(1,672	)		—
Net changes in:
Accounts receivable		341			14			205
Prepaid expenses		(12	)		137			267
Other current assets		49			(6	)		35
Prepaid licensing and royalty fees		(2,167	)		561			(220	)
Prepaid pension assets		46			(9	)		14
Accounts payable		(24	)		48			(210	)
Accrued compensation		(331	)		339			(378	)
Accrued expenses		1,071			(1,670	)		(895	)
Other current liabilities		(916	)		(186	)		55
Net cash used in operating activities		(5,688	)		(1,110	)		(3,914	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash dividends received from investees		1,438			—			—
Proceeds from disposals of marketable securities		—			2			—
Carrying amount of cash from divestiture of business		(482	)		—			—
Purchases of property, plant and equipment		(496	)		(192	)		(66	)
Proceeds from disposals of property, plant and equipment		1,950			1			—
Proceeds from disposals of subsidiary and equity investments		872			1,058			—
Increase in intangible assets		(86	)		(11	)		(61	)
Decrease in refundable deposits		27			37			11
Other		30			40			26
Net cash provided by (used in) investing activities		3,253			935			(90	)

9

GIGAMEDIA LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018

(in thousands of US dollars)

	2016			2017			2018
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings		—			986			—
Repayments of short-term borrowings		(3,722	)		(3,617	)		—
Other		(10	)		—			—
Net cash used in financing activities		(3,732	)		(2,631	)		—
Net foreign currency exchange differences on cash, restricted cash and    cash equivalents		(54	)		772			(347	)
NET INCREASE (DECREASE) IN CASH, RESTRICTED CASH AND    CASH EQUIVALENTS		(6,221	)		(2,034	)		(4,351	)
CASH, RESTRICTED CASH AND CASH EQUIVALENTS AT    BEGINNING OF YEAR		72,432			66,211			64,177
CASH, RESTRICTED CASH AND CASH EQUIVALENTS AT END    OF YEAR	$	66,211		$	64,177		$	59,826
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the year	$	83		$	35		$	—
Income tax paid during the year	$	46		$	1		$	—

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

10

GIGAMEDIA LIMITED AND SUBSIDIARIES

Notes To Consolidated Financial Statements

December 31, 2016, 2017 and 2018

NOTE 1. Principal Activities, Basis of Presentation, and Summary of Significant Accounting Policies

(a) Principal Activities

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

Our digital entertainment service business operates a suite of play-for-fun digital entertainment services, mainly targeting online and mobile-device users across Asia.

(b) Basis of Presentation

The accompanying consolidated financial statements of our Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

(c) Summary of significant accounting policies

Principles of Consolidation

The consolidated financial statements include the accounts of GigaMedia and subsidiaries after elimination of all inter-company accounts and transactions.

Foreign Currency Translation and Transactions

Assets and liabilities denominated in non-U.S. dollars are translated to U.S. dollars at year-end exchange rates. Income and expense items are translated at average rates of exchange prevailing during the year. Cumulative translation adjustments resulting from this process are charged or credited to other comprehensive income. Gains and losses on foreign currency transactions are included in other income and expenses.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Management bases its estimates on historical experience and also on assumptions that it believes are reasonable. Management assesses these estimates on a regular basis; however, actual results could differ from those estimates. Items subject to such estimates and assumptions include but not limit to the deferral and breakage of revenues; the useful lives of property, plant and equipment; allowances for doubtful accounts; the valuation of deferred tax assets, long-lived assets, investments and share-based compensation; and accrued pension liabilities (prepaid pension assets), income tax uncertainties and other contingencies. We believe the critical accounting policies listed below affect management’s judgments and estimates used in the preparation of the financial statements.

Revenue Recognition and Deferral

General

On January 1, 2018, we adopted Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers”, using the modified retrospective transition method applied to contracts that were not complete as of the adoption date. Consolidated financial results for reporting periods beginning after January 1, 2018 are presented under ASC Topic 606, while prior period amounts continue to be reported in accordance with ASC Topic 605, “Revenue Recognition”.  

Please refer to Note 1 of our consolidated financial statements contained in our previously-filed Annual Report on Form 20-F for the year ended December 31, 2017 for our revenue recognition accounting policy as it relates to revenue transactions prior to January 1, 2018. The revenue recognition accounting policy described below relates to revenue transactions from January 1, 2018 and onward, which are accounted for in accordance with ASC Topic 606.

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Our recognition of revenue from contracts with customers is in accordance withthe five-step revenue recognition model: (1) Identify the contract with a customer; (2) Identify the performance obligation in the contract; (3) Determine the transaction price; (4) Allocate the transaction price to each performance obligation; and (5) Recognize revenue when or as we satisfy a performance obligation.

Sales taxes assessed by governmental authorities on our revenue transactions are presented on a net basis and therefore are excluded from revenues in our consolidated financial statements.

In addition to the aforementioned general policies, the following are the specific revenue recognition policies for revenue from contracts with customers.

Digital Entertainment Product and Service Revenues

Digital entertainment product and service revenues are mainly generated through sale of virtual points and in-game items, and those virtual goods purchased in our game can only be consumed in our game. Therefore, we regard the sale of a virtual good as a service, where related performance obligation is satisfied over time, and revenues are recognized by measuring progress toward satisfying the performance obligation in a manner that best depicts the transfer of goods or services to the customer. Accordingly, we recognize revenues from the sale of virtual goods over the period of time using the output method, which is generally the estimated service period.

Digital entertainment product and service revenues are generated through the sale of virtual points, prepaid cards and game packs via various third-party storefronts, distributors and payment channels, including but not limited to “Google Play Store”, “Apple App Store”, convenience stores, telecom service providers and other payment service providers. Proceeds from sales of prepaid cards and game packs, net of sales discounts, and virtual 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; or over the estimated useful life of virtual items; or when the game is terminated and the period of refund claim for any sold virtual items is ended in accordance with our published policy; or when the likelihood of the customer exercising the remaining rights becomes remote. (See the paragraphs under the caption “Deferred Revenues and Breakage” below for more discussion of accounting treatments of the unexercised rights)

Estimated Service Period

The virtual goods for our games may have different service periods. We use the weighted average number of days of a player’s payment interval as the estimate for the service period of each game. We evaluate the appropriateness of such estimates quarterly to see if they are in line with our observations in the operations. We believe this provides a reasonable depiction of the transfer of services to our customers, as it is the best representation of the time period during which our customers play our games. Determining the estimated service period is subjective and requires management’s judgment. Future usage patterns may differ from historical ones, and therefore the estimated service period may change in the future. The estimated service periods for players of our current games are generally less than 6 months.

Principal Agent Considerations

For the revenues generated from our digital entertainment offerings which we are licensed for using, marketing, distributing, selling and publishing, and for the sales of our products and services via third-party storefronts and other channels, we evaluate to determine whether our revenues should be reported on a gross or net basis. Key indicators that we evaluate in determining whether we are the principal in the sale (gross reporting) or an agent (net reporting) include, but are not limited to:

• which party isprimarily responsible for fulfilling the promise to provide the specified good or service; and

• which party has discretion in establishing the price for the specified good or service.

Based on our evaluation of various indicators, we report revenues on a gross basis for games that we publish and operate, as we are, and we present ourselves as, responsible for fulfilling the promise of delivering the virtual goods in the game and maintaining the game environment for customers’ consumption of such virtual goods. We have the discretion in establishing the price for those virtual goods, including the power to decide the range and extent of price discount or quantity discount, while the licensors or the third-party channels charge a fixed percentage of fees for such sales. And any loss on the receivables has to be absorbed by us and not the third-party channels.

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Deferred Revenues and Breakage

Deferred revenues representing contract liabilities consist mainly of the advanced income related to our digital entertainment business. Deferred revenue represents proceeds received relating to the sale of virtual points and in-game items which are activated or charged to the respective user account by users, but which have not been consumed by the users or expired. Deferred revenue is credited to profit or loss when the virtual points and in-game items are consumed or have expired. Pursuant to relevant requirements in Taiwan, as of December 31, 2017 and 2018, cash totaling $507 thousand and $518 thousand, respectively, had been deposited in an escrow account in a bank as a performance bond for the users’ prepayments and virtual points, and is included within restricted cash in the consolidated balance sheets.

For deferred revenues, some users may not exercise all of their contractual rights, and those unexercised rights are referred to as breakage. We estimate and recognize the breakage amount as revenue when the likelihood of the customer exercising the remaining rights becomes remote. We consider a variety of data points when determining the estimated breakage amount, including the time when we ceased selling prepaid products for certain services and when such prepaid products were last used in charging users’ accounts.

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 digital entertainment offerings.

Prepaid licensing fees paid to licensors are amortized on a straight-line basis over the shorter of the estimated useful economic life of the relevant product and service or license period, which is usually within one to two years.

Prepaid royalty fees and related costs are initially deferred when paid to licensors and amortized as operating costs based on certain percentage of revenues generated by the licensee from operating the related digital entertainment product and service in the specific country or region over the contract period.

Fair Value Measurements

Our Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. We determine fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

• Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

• Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

• Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

Our Company generally determines or calculates the fair value of financial instruments using quoted market prices in active markets when such information is available; otherwise we apply 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 6, “Fair Value Measurements”, for additional information.)

Cash Equivalents, Restricted Cash and Presentation of Statements of Cash Flows

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.

13

Ourconsolidated statement of cash flows explain the change during the period in thetotal of cash, cash equivalents, and amounts generally described as restricted cash or restricted cashequivalents. Amounts generally described as restricted cash and restricted cash equivalentsare included with cash and cash equivalents when reconciling the beginning-of-period and end-of-periodtotal amounts shown on the statement of cash flows.

Marketable Securities

Prior to 2018, our Company’s investments in marketable securities were classified either as available-for-sale or trading. For the marketable securities classified as available-for-sale, the investments were stated at fair value with any unrealized gains or losses reported in accumulated other comprehensive income (loss) within equity until realized. For the marketable security classified as trading, we recognized the changes of the fair value of the investment in our consolidated statements of operations.

Other-than-temporary impairments, if any, were charged to non-operating expense in the period in which the loss occurs. In determining whether an other-than-temporary impairment had occurred, our Company primarily considered, among other factors, the length of the time and the extent to which the fair value of an investment had been at a value less than cost. When an other-than-temporary loss was recognized, the fair value of the investment became the new cost basis of the investment and was not adjusted for subsequent recoveries in fair value. Realized gains and losses also were included in non-operating income and expense in the consolidated statements of operations.

The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) No. 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The new guidance makes targeted improvements to existing U.S. GAAP mainly by requiring the following accounting treatments, along with certain disclosure and presentation requirements and improvements:

• Equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) are to be measured at fair value with changes in fair value recognized in net income;

• Public business entities are to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes.

• An entity are to evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets.

Our Company adopted this new guidance as of January 1, 2018 on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings or accumulated deficits. As we had disposed of all our marketable securities by the end of 2017, the adoption did not have any impact on our consolidated financial statements.

Investments

Prior to 2018, equity investments in non-publicly traded securities of companies over which our Company had no ability to exercise significant influence were accounted for under the cost method. Unrealized losses that were considered other-than-temporary, if any, were charged to non-operating expenses. Realized gains and losses, measured against carrying amount, were also included in non-operating income and expenses. (See Note 6, “Fair Value Measurements”, for additional information.)

For equity investments accounted for as available-for-sale or trading, cash dividends were recognized as investment income. Stock dividends were recognized as an increase in the number of shares held and did not affect investment income. The cost per share was recalculated based on the new total number of shares.

For equity investments accounted under equity method, stock dividends received from investees as a result of appropriation of net earnings and additional paid-in capital were recognized as an increase in the number of shares held and did not affect investment income. The cost per share was recalculated based on the weighted-average method. Cash dividends were accounted for as a reduction to the carrying value of the investment.

14

Equity investments in companies over which our Company had the ability to exercise significant influence but did not hold a controlling financial interest were accounted for under the equity method. We recognized our share of the earnings or losses of the investee. Under the equity method, the difference between the cost of the acquisition and our Company’s share of the fair value of the net identifiable assets was recognized as goodwill and was included in the carrying amount of the investment. When our Company’s carrying value in an equity method investee was reduced to zero, no further losses were 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 would not record its share of such income until it equaled the amount of its share of losses not previously recognized.

As discussed above, for our equity investments we had adopted ASU No. 2016-01 as of January 1, 2018 on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings or accumulated deficits. Since all of our equity investments in non-publicly traded securities of companies were fully impaired as of December 31, 2017, the adoption did not have any impact on our consolidated financial statements.

Receivables

Accounts receivable are recorded at the invoiced amount and do not bear interest. Amounts collected on accounts receivable are included in net cash provided by operating activities in the consolidated statements of cash flows. Our Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers historical losses adjusted to take into account current market conditions and our customers’ financial condition, the amount of receivables in dispute, and the current receivables aging and current payment patterns. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

Property, Plant and Equipment

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

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

Leasehold improvements are amortized 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.

Business 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.

Software Cost and Other Intangible Assets

We capitalize certain costs incurred to purchase computer software. 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 is typically one to three years. Other intangible assets with finite lives are amortized by the straight-line method over their estimated useful lives, typically one to three years.

15

Impairment of Intangible Assets and Long-Lived Assets

Long-lived assets other than goodwill and intangible assets not being amortized are reviewed 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. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. 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 6, “Fair Value Measurements”, for additional information.)

Product Development and Engineering

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

Advertising

Costs of broadcast advertising are recorded as expenses as advertising airtime is used. Other advertising expenditures are expensed as incurred.

Advertising expenses incurred in 2016, 2017 and 2018 totaled $3.3 million, $1.9 million and $1.2 million, respectively. As of December 31, 2017 and 2018, prepaid advertising amounted to $18 thousand and $1 thousand, respectively.

Leases

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

Share-Based Compensation

Share-based compensation represents the cost related to share-based awards granted to employees. We measure share-based compensation cost at the grant date, based on the estimated fair value of the award. Share-based compensation is recognized for the portion of the award that is ultimately expected to vest, and the cost is amortized on a straight-line basis (net of estimated forfeitures) over the vesting period. Our Company estimates the fair value of stock options using the Black-Scholes valuation model. The cost is recorded in costs of revenues and operating expenses in the consolidated statements of operations on the date of grant based on the employees’ respective function.

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

Retirement Plan and Net Periodic Pension Cost

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

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

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. Deferred tax assets and liabilities, classified as noncurrent on the consolidated balance sheets, are measured using the enacted tax rate and laws that will be in effect when the related temporary 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. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences and loss carryforwards become deductible.

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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 measured at the largest amount that is greater than a 50% likely of being realized upon settlement. Interest and penalties on an underpayment of income taxes are reflected as income tax expense in the consolidated financial statements.

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing the net income (loss) attributable to common shareholders for the period by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed by dividing the net earnings (loss) 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 options in all periods, are included in the computation of diluted earnings (loss) per share to the extent such shares are dilutive. Diluted earnings (loss) per share 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, 2016 and 2018, basic and diluted loss per share were 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.

Segment Reporting

Our segment reporting is mainly based on lines of business. We use the management approach in determining reportable operating segments. The management approach considers the internal organization and reporting used by our Company’s chief operating decision maker for making operating decisions, allocating resources and assessing performance as the source for determining our operating segments. Our Company’s chief operating decision maker (“CODM”) has been identified as the Chief Executive Officer.

Segment profit and loss is determined on a basis that is consistent with how our Company reports operating loss in its consolidated statements of operations. Our Company does not report segment asset information to the CODM. Consequently, no asset information by segment is presented. There are no intersegment transactions.

(d) Recently Adopted Accounting Pronouncements

Revenue from Contracts with Customers

As noted above, we adopted the new revenue accounting standard effective January 1, 2018. We utilized the modified retrospective method upon adoption and as a result, the comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. Additionally, we elected to apply the new revenue accounting standard only to contracts not completed as of the adoption date. For contracts that were modified before the period of adoption, we elected to reflect the aggregate effect of all modifications when (1) identifying the satisfied and unsatisfied performance obligations, (2) determining the transaction price, and (3) allocating the transaction price to the satisfied and unsatisfied performance obligations. We recognized the cumulative effect of initially applying the new revenue accounting standard as an adjustment to the opening balance of retained earnings (accumulated deficits). The cumulative effect adjustment recorded to our accumulated deficits was $346 thousand (see our consolidated statements of changes in shareholders’ equity) and included the impact from the following adjustments to our consolidated balance sheet at January 1, 2018:

(In US$ thousand)	Balance at December 31, 2017			Adjustments due to adoption of new revenue accounting standard			Balance at January 1, 2018
Consolidated Balance Sheet
Liabilities
Deferred revenue	$	1,863		$	(346	)	$	1,517
Shareholders' equity
Accumulated deficit		(225,399	)		346			(225,053	)

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The cumulative effects of the new revenue accounting standard are mainly from the breakage. Under the prior accounting standards, deferred revenues were derecognized if and only if the liabilities extinguished upon delivery of goods or services or upon payments made to the customer in other ways, or when we were released from being the primary obligator. Under the new revenue standard, we are required to derecognize the amount related to breakage when the likelihood of the customer exercising the remaining rights becomes remote.

Except for the cumulative effects discussed above, adoption of the new revenue accounting standard did not have significant impact to our consolidated balance sheet, consolidated statement of operations, and consolidated statement of cash flows as of and for the year ended December 31, 2018.

Financial Instruments

As discussed above, the FASB issued ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, and our Company adopted this new guidance as of January 1, 2018, on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings or accumulated deficits. As we had disposed of all our marketable securities by the end of 2017 and all of our equity investments in non-publicly traded securities of companies were fully impaired as of December 31, 2017, the adoption did not have any impact on our consolidated financial statements.

Income Tax

The FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, in October 2016. Previous GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. The amendments require an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments eliminate the exception for an intra-entity transfer of an asset other than inventory. Our Company adopted the amendments in ASU 2016-16 as of January 1, 2018, on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings or accumulated deficits. The adoption of this new guidance did not have a material impact on our Company’s financial position, results or cash flows.

Retirement Plan and Net Periodic Pension Cost

The FASB issued ASU No. 2017-07, Compensation—Retirement Benefits (Topic 715), in March 2017. The amendments in this ASU require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. The amendments in this Update also allow only the service cost component to be eligible for capitalization when applicable (for example, as a cost of internally manufactured inventory or a self-constructed asset). Our company early adopted this ASU on January 1, 2017, retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the statement of operations, and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. The adoption only affected, immaterially, the presentation of our consolidated statements of operations. Please refer to Note 13 - "Pension Benefits" for information about the effect of reclassification for 2016.

Share-Based Compensation

The FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718), in May 2017. This guidance clarifies which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. An entity should account for the effects of a modification unless all the specified conditions are met. Our Company adopted the amendments in ASU 2017-09 as of January 1, 2018, prospectively to an award modified on or after the adoption date. The adoption did not have a material impact on our consolidated financial statements.

The FASB issued ASU No. 2016-09, Compensation Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting in March 2016. The amendments in this ASU simplify the accounting for share-based payments regarding (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. Our company adopted this ASU on January 1, 2017. The adoption did not have a material impact on our consolidated financial statements.

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Statement of Cash Flows

The FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, in November 2016. The amendments require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. As a result, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments do not provide a definition of restricted cash or restricted cash equivalents. Our Company early applied the amendments in the ASU No. 2016-18 effective January 1, 2016, to include restricted cash with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on our consolidated statements of cash flows.

(e) Recent Accounting Pronouncements Not Yet Adopted

Financial Instruments

The FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, in June 2016. The ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. The ASU also requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. Our Company will apply the amendments in ASU 2016-13 as of January 1, 2020, on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings or accumulated deficits. We do not expect the adoption of this new guidance to have a material impact on our Company’s financial position, results or cash flows.

Lease

The FASB issued new lease accounting guidance in ASU No. 2016-02, Leases (Topic 842), in February 2016. Under the new guidance, lessees will be required to recognize for all leases (with the exception of short-term leases), at the commencement date, (a) a lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and (b) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. When measuring assets and liabilities arising from a lease, a lessee (and a lessor) should include payments to be made in optional periods only if the lessee is reasonably certain to exercise an option to extend the lease or not to exercise an option to terminate the lease. Similarly, optional payments to purchase the underlying asset should be included in the measurement of lease assets and lease liabilities only if the lessee is reasonably certain to exercise that purchase option. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. Our Company will implement the amendments in ASU 2016-02 as of January 1, 2019 using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements.

The FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, in July 2018. Entities originally are required to adopt the new leases standard using a modified retrospective transition method. Under that transition method, an entity initially applies the new leases standard (subject to specific transition requirements and optional practical expedients) at the beginning of the earliest period presented in the financial statements (which is January 1, 2017, for calendar-year-end public business entities that adopt the new leases standard on January 1, 2019). This means that starting on January 1, 2017 (for those calendar-year-end public business entities just described), lessees must recognize lease assets and liabilities for all leases even though those leases may have expired before the effective date. Lessees also must provide the new and enhanced disclosures for each period presented, including the comparative periods. The ASU 2018-11 provides another transition method in addition to the existing transition method by allowing entities to initially apply the new leases standard at the adoption date (such as January 1, 2019, for calendar year-end public business entities) and recognize a cumulative-effect adjustment to the opening balance of retained earnings or accumulated deficits in the period of adoption.

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Topic 842 is effective for our fiscal year beginning January 1, 2019. We will elect the package of practical expedients in ASC 842-10-65-1(f) and the additional transition method provided in ASU 2018-11. We will initially apply thenew leases standard at the adoption date and not to restate the comparative periods when transitioning to ASC 842, and recognize a cumulative-effect adjustment tothe opening balance of retained earnings or accumulated deficits in the period of adoption.Accordingly, wewill account for our existing operating leases as operating leases under the new guidance, without reassessing (a)whether the contracts contain a lease under ASC 842, (b) whether classification of the operating leases would be different in accordance with ASC Topic 842, or (c)whether the unamortized initial direct costs before transition adjustments (as of December31, 2018) would have met the definition of initial direct costs in ASC 842 at lease commencement. As a result of the adoption of the new lease accounting guidance, we expect to recognize on January1, 2019 (a) a lease liability of approximately $1.0 million, which represents the present value of the remaining lease payments of approximately $1.1 million, discounted at incremental borrowing rate of approximately 2%, and (b)aright-of-useasset of approximately $1.0 million which approximates the lease liability of $1.0 million. Adoption of the new standard is not expected to have a material impact on our Company’soperating results or cash flows from operations. The most significant impact would be the recognition of ROU assets and lease obligations for operating leases.We do not anticipate significant changes to our current business processes and systems to support the adoption of the new standard in the year beginning January 1, 2019. Additionally, we are currently in the process of evaluating the required financial statement disclosures to allow users of our consolidated financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from leases.

Fair Value Measurement

The FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement to improve the effectiveness of disclosure requirements on fair value measurement.  Certain disclosure requirements were removed, modified or added from Topic 820. In addition, the amendments eliminate at a minimum from the phrase an entity shall disclose at a minimum to promote the appropriate exercise of discretion by entities when considering fair value measurement disclosures and to clarify that materiality is an appropriate consideration of entities and their auditors when evaluating disclosure requirements. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty will be applied prospectively for only the most recent annual period presented in the initial fiscal year of adoption. All other amendments will be applied retrospectively to all periods presented upon the effective date. Early adoption is permitted upon issuance of this Update. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this Update and delay adoption of the additional disclosures until their effective date. Our Company will adopt the amendments in this Update for fiscal years beginning January 1, 2020, and will early adopt certain items as permitted.

Retirement Plan

The FASB issued ASU No. 2018-14, Compensation—Retirement Benefits — Defined Benefit Plans — General (Subtopic 715-20): Disclosure Framework — Changes to the Disclosure Requirements for Defined Benefit Plans, in August 2018 to improve the effectiveness of disclosure requirements on defined benefit plans. The amendments in this Update modify certain disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amendments in this Update will be effective for our Company’s fiscal years ending at December 31, 2020.  We will apply the amendments in this Update on a retrospective basis to all periods presented. We do not expect the adoption of this Update to have a material impact on our Company’s financial position, results or cash flows.

NOTE 2. EARNINGS (LOSS) PER SHARE

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

(in thousand shares)	2016		2017		2018
Weighted average number of outstanding shares
Basic		11,052		11,052		11,052
Effect of dilutive securities
Employee share-based compensation		—		—		—
Diluted		11,052		11,052		11,052

Certain outstanding options were excluded from the computation of diluted EPS since their effect would have been anti-dilutive. The antidilutive stock options excluded and their associated exercise prices per share were 613 thousand shares at the range of $3.85 to $83.00 as of December 31, 2016, 308 thousand shares at $2.90 to $80.05 as of December 31, 2017, and 229 thousand shares at $2.90 to $12.35 as of December 31, 2018. There were no antidilutive RSUs as of December 31, 2018, 2017, and 2016.

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NOTE 3. DIVESTITURES

PerfectPairs

In January 2016, we entered into an agreement to sell our 100% ownership interest in PerfectPairs Gaming Co., Ltd. (“PerfectPairs), a Taiwan-based subsidiary of our digital entertainment service business operations, to two Taiwanese individuals unrelated to our Group for total cash consideration of $760 thousand. Upon the disposal, we deconsolidated the results of PerfectPairs’ operations.

The disposal gain was as follows:

(In US$ thousand)	Amount
The fair value of consideration received, net of any    transaction costs	$	760
The carrying amount of PerfectPairs
Cash		482
Receivables and other current assets		40
Property, plant and equipment		71
Intangible and other noncurrent assets		13
Accounts payable and accrued expenses		(528	)
Other payable and other current liabilities		(144	)
The carrying amount of PerfectPairs at the date of    deconsolidation		(66	)
Exchange difference		1
Gain on disposal of PerfectPairs	$	827

East Gate

As the term of the East Gate fund expired in August 2017, the fund had stopped entering into new investments and in September 2016, it distributed excess cash to its investors. We received $1,438 thousand from the distribution.

In November 2016, we entered into an agreement to sell a 17.65% partnership interest in East Gate to a Korean investor unrelated to our Group. The disposal gain was as follows:

(In US$ thousand)	Amount
The fair value of consideration received, net of any    transaction costs	$	112
The fair value of consideration receivable, net of any    transaction costs		1,058
		1,170
The carrying amount of the investment of East Gate at the    date of disposal		1,398
Exchange difference		250
Gain on disposal of investment in East Gate	$	22

The consideration receivable of $1.1 million as of December 31, 2016 was recorded as other receivable and has been fully collected in 2017.  

NOTE 4. INTANGIBLE ASSETS - NET

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

	December 31, 2018
(In US$ thousands)	Gross carrying amount		Accumulated amortization		Net
With finite-life intangible assets
Purchased software cost	$	64	$	26	$	38

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For the years ended December 31, 2016, 2017 and 2018, total amortization expense of intangible assets were $106 thousand, $7 thousand and $27 thousand, respectively, which includes amortization of purchased software costs of $89 thousand, $7 thousand and $27 thousand.

At the end of 2016, we recognized an impairment loss of $57 thousand on intangible assets as a result of consecutive operating losses in recent years that are expected to continue and therefore the carrying amounts of those intangible assets would not be recoverable based on cash flow projections from current games, which typically have shorter lives.

NOTE 5. PREPAID LICENSING AND ROYALTY FEES

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

(in US$ thousands)	2016			2017			2018
Balance at beginning of year	$	239		$	1,020		$	459
Addition		2,581			486			968
Amortization and usage		(416	)		(1,040	)		(747	)
Exchange difference		2			(7	)		(1	)
Impairment charges (Note 6)		(1,386	)		—			(244	)
Balance at end of year	$	1,020		$	459		$	435

At the end of 2016 and 2018, we recognized impairment losses of $1.4 million and $244 thousand, respectively, for the prepaid licensing and royalty fees related to certain licensed games 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.

 We have entered licensing arrangements for our digital entertainment business and in prior years, prepaid licensing and royalty fees for one of the licensed games had been fully impaired and as a result the cost became nil. In 2017, the licensor of that gaming development company reached an agreement with us to terminate the license by compensating us in the amount of $1.75 million and accordingly, we have recognized a gain of $1.7 million as a reduction of operating expenses in the consolidated statements of operations in 2017.

NOTE 6. FAIR VALUE MEASUREMENTS

The following table presents the carrying amounts and estimated fair values of our Company’s financial instruments at December 31, 2017 and 2018.

(in US$ thousands)	2017				2018
	Carrying amount		Fair value		Carrying amount		Fair value
Financial assets
Cash and cash equivalents	$	63,670	$	63,670	$	59,308	$	59,308
Accounts receivable		751		751		523		523
Restricted cash		507		507		518		518
Refundable deposits		208		208		197		197
Financial liabilities
Accounts payable		314		314		104		104
Accrued compensation		549		549		170		170
Accrued expenses		2,158		2,158		1,263		1,263

The carrying amounts shown in the table are included in the consolidated balance sheets under the indicated captions.

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The fair values of the financial instruments shown in the above table as of December 31, 2017 and 2018 represent the amounts that would be received to sell those assets or that would be paid to transfer those liabilities in an arm’s length transaction between market participants at that date. Those fair value measurements maximize the use of observable inputs. In situations where there is little market activity for the asset or liability at the measurement date, the fair value measurement reflects our Company’s own judgments about the assumptions that market participants would use in pricing the asset or liability. Those judgments are developed by us based on the best information available in the circumstances, including expected cash flows and appropriately risk-adjusted discount rates, available observable and unobservable inputs.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

• Cash and cash equivalents, accounts receivable, restricted cash, accounts payable, accrued compensation and expenses: The carrying amounts, at face value or cost plus accrued interest, approximate fair value because of the short maturity of these instruments.

• Refundable deposits: Measurement of refundable deposits with no fixed maturities is based on carrying amounts.

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

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

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

(in US$ thousands)	Fair Value Measurement Using
	Level 1		Level 2		Level 3		At December 31, 2018
Assets
Cash equivalents - time deposits	$	—	$	6	$	—	$	6
Restricted cash - time deposits		—		518		—		518
	$	—	$	524	$	—	$	524

(in US$ thousands)	Fair Value Measurement Using
	Level 1		Level 2		Level 3		At December 31, 2017
Assets
Cash equivalents - time deposits	$	—	$	6	$	—	$	6
Restricted cash - time deposits		—		507		—		507
	$	—	$	513	$	—	$	513

Our Company’s accounting policy is to recognize transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer. There were no transfers into or out of Level 1 for the years ended December 31, 2017 and 2018.

Level 1 and 2 measurements:

Cash equivalents – time deposits and restricted cash – time deposits are interest-earning deposits in banks, and the cash flows are estimated based on the terms of the contracts and discounted using the market interest rates applicable to the maturity of the contracts, which are adjusted to reflect credit risks on counterparties. As the inputs into the valuation techniques are readily observable, these deposits are classified in Level 2 of the fair value hierarchy.

Level 3 measurements:

We did not hold assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during 2017 and 2018.

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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, and prepaid licensing and royalty fees.

Assets and liabilities measured at fair value on a nonrecurring basis that were determined to be impaired as of December 31, 2017 and 2018 are summarized as below:

(in US$ thousands)	Fair Value measurement Using
Assets	Level 1		Level 2		Level 3		At December 31, 2018		Total Impairment Losses
(a) Prepaid licensing and royalty fees		—		—		84		84		244
Total	$	—	$	—	$	84	$	84	$	244

(in US$ thousands)	Fair Value measurement Using
Assets	Level 1		Level 2		Level 3		At December 31, 2017		Total Impairment Losses
(b) Investments - Cost-method	$	—	$	—	$	—	$	—	$	52
Total	$	—	$	—	$	—	$	—	$	52

(a) Impairment losses on certain prepaid licensing and royalty fees which were determined to be impaired:
In 2018, certain prepaid licensing and royalty fees were written down to $84 thousand, resulting in an impairment charge of $244 thousand. This impairment is included in operating expenses in the consolidated statements of operations. The impairment charges for the prepaid licensing and royalty fees related to certain licensed games within our Asian digital entertainment 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 and related royalties are re-valued 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.

(b) Impairment losses on certain cost method investments which were determined to be impaired:
In 2017, certain cost method investment with carrying amounts of $52 thousand was considered fully impaired as it has incurred consecutive losses but unable to reduce cash burn, and thus its cash was expected to be depleted within months. Therefore it was fully written down to zero, resulting in an impairment charge of $52 thousand. The impairment charges are included in non-operating expenses within “impairment loss on marketable securities and investments” in the consolidated statements of operations.

NOTE 7. CASH, RESTRICTED CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of the following:

	December 31
(in US$ thousands)	2017		2018
Cash and savings accounts	$	63,664	$	59,302
Time deposits		6		6
Cash and cash equivalents reported on the consolidated    balance sheets		63,670		59,308
Cash restricted as collateral and performance bond		507		518
Total cash, restricted cash and cash equivalents reported    on the consolidated statements of cash flows	$	64,177	$	59,826

As of December 31, 2017 and 2018, cash amounting to $507 thousand and $518 thousand, respectively, has been deposited in an escrow account in a bank as a performance bond for our players’ game points. These deposits are restricted and are included in restricted cash in the consolidated balance sheets.

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

	December 31
(in US$ thousands)	2017		2018
Taiwan	$	62,350	$	54,078
Hong Kong		1,811		5,732
China		16		16
	$	64,177	$	59,826

NOTE 8. ACCOUNTS RECEIVABLE – NET

Accounts receivable consist of the following:

	December 31
(in US$ thousands)	2017			2018
Accounts receivable	$	763		$	528
Less: Allowance for doubtful accounts		(12	)		(5	)
	$	751		$	523

The following is a summary of the changes in our Company’s allowance for doubtful accounts during the years ended December 31, 2016, 2017 and 2018:

(in US$ thousands)	2016			2017			2018
Balance at beginning of year	$	29		$	32		$	12
Additions: Bad debt expense		35			127			23
Less: Write-off		(33	)		(149	)		(29	)
Translation adjustment		1			2			(1	)
Balance at end of year	$	32		$	12		$	5

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NOTE 9. OTHER CURRENT ASSETS

Other current assets consist of the following:

	December 31
(in US$ thousands)	2017			2018
Loans receivable - current		64			29
Less: Allowance for loans receivable - current		(30	)		(29	)
Other receivables		34			3
Other		125			121
	$	193		$	124

The following is a reconciliation of changes in our Company’s allowance for loans receivable - current during the years ended December 31, 2016, 2017 and 2018:

(in US$ thousands)	2016		2017		2018
Balance at beginning of year	$	28	$	28	$	30
Reversal for collection of bad debt		—		—		—
Translation adjustment		—		2		(1	)
Balance at end of year	$	28	$	30	$	29

NOTE 10. EQUITY INVESTMENTS

Our Company’s investments accounted for under the equity method primarily consist of the following: (a) from August 2010 to November 2016, a 17.65% equity interest investment in East Gate Media Contents & Technology Fund (“East Gate”), a Korean Fund Limited Partnership that invests in online game businesses and films (See Note 3 “Divestitures”, for additional information); and (b) from May 2014 to February 2017, a 22.86% equity interest investment in Double2 Network Technology Co., Ltd. (“Double2”), a Taiwanese company that mainly engaged in development of causal gaming software. In March 2017, our share of equity interest in Double 2 was diluted to 11.43%, and as the investment no longer qualified for the equity method, we discontinued accruing the share of the earnings or losses of the investee and began accounted for it under the cost method.

In November 2016, we entered into an agreement to sell a 17.65% partnership interest in East Gate to a Korean investor unrelated to our Group. (See Note 3, “Divestitures” for additional information.)

East Gate

Our Company had a 17.65% interest in East Gate, a Korean fund partnership. Before the disposal of such interest, we accounted for our investment in this limited partnership under the equity method accounting since we had the ability to exercise significant influence over partnership operating and financial policies based on the terms of the partnership agreement.

East Gate was considered an investment company that primarily invests in: (1) Equity securities of small, medium-sized companies or venture companies, mainly Korean game companies, and (2) funding for specific projects, mainly Korean films, of an entrepreneur or venture company in return for the rights to a future revenue stream from the income generated by the entrepreneur or venture company from the film and related products.

Summarized U.S. GAAP financial information of East Gate as of November 30, 2016 (right before we disposed of it), and the eleven-month period ended November 30, 2016 is presented below (in US$ thousands):

	2016
Investments and other related assets	$	7,911
Other assets		332
Total assets	$	8,243
Total liabilities	$	318
Total net assets of the fund	$	7,925

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	2016
Investment and related income (loss)	$	(1,513	)
Impairment loss		(105	)
Other costs and expenses		(7,513	)
Net loss	$	(9,131	)

NOTE 11. PROPERTY, PLANT AND EQUIPMENT

In January 2016, we entered into disposal agreements to sell certain office premises which were not used for our principal business to several counterparties unrelated to our Group, for total cash considerations approximating $1.9 million. The closing of the disposal occurred in March 2016. Upon the closing, we recognized disposal gains of approximately $798 thousand.

At the end of 2016, we recognized an impairment loss of $471 thousand on property, plant and equipment as a result of consecutive operating losses in recent years that are expected to continue and therefore the carrying amounts of those long-lived assets would not be recoverable based on cash flow projections from current games, which are typically with shorter lives.

For the year ended December 31, 2017 and 2018, there were no significant changes in our property, plant and equipment. For the year ended December 31, 2016, a reconciliation of the beginning and ending amounts of our property, plant and equipment is as follows:

(in US$ thousands)	Cost			Accumulated depreciation			Net
Balance at beginning of year	$	5,165		$	3,774		$	1,391
Purchase		496			—			496
Depreciation		—			162			(162	)
Disposal of office premises		(1,120	)		(44	)		(1,076	)
Disposal of other property, plant and equipment		(1,092	)		(969	)		(123	)
Deconsolidation (Note 3)		(104	)		(33	)		(71	)
Impairment (Note 6)		(3,423	)		(2,952	)		(471	)
Exchange differences		85			62			23
Balance at end of year	$	7		$	—		$	7

NOTE 12. ACCRUED EXPENSES

Accrued expenses consist of the following:

	December 31
(in US$ thousands)	2017		2018
Accrued advertising expenses	$	371	$	134
Accrued professional fees		580		429
Accrued royalties		502		275
Accrued director compensation and liability insurance		256		70
Other		449		355
	$	2,158	$	1,263

NOTE 13. PENSION BENEFITS

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

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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 December 31 as the measurement date for our defined benefit pension plan. As of December 31, 2017 and 2018, the accumulated benefit obligation amounted to $211 thousand and $233 thousand, respectively, and the funded status of prepaid pension assets amounted to $70 thousand and $56 thousand, respectively. The fair value of plan assets amounted to $365 thousand and $376 thousand as of December 31, 2017 and 2018, respectively. The accumulated other comprehensive income (loss) amounted to ($69) thousand and ($86) thousand as of December 31, 2017 and 2018, respectively. The net periodic benefit cost (income) for 2016, 2017 and 2018 amounted to ($2) thousand, $0 thousand and $1 thousand, respectively.

The following table sets forth the plan’s benefit obligations, fair value of plan assets, and funded status at December 31, 2017 and 2018:

	December 31
(in US$ thousands)	2017			2018
Benefit Obligation	$	295		$	320
Fair value of plan assets		365			376
	$	(70	)	$	(56	)
Amounts recognized in the balance sheet consist of:
Noncurrent liabilities (assets)	$	(70	)	$	(56	)
Accumulated other comprehensive income		—			—
Net amount recognized	$	(70	)	$	(56	)
Amounts recognized in accumulated comprehensive income    (loss) consist of:
Unrecognized net gain (loss)	$	(69	)	$	(86	)

For the years ended December 31, 2016, 2017 and 2018, the net period pension cost consisted of the following:

	December 31
(in US$ thousands)	2016			2017			2018
Service cost	$	—		$	—		$	—
Interest cost		4			4			5
Expected return on plan assets		(6	)		(5	)		(6	)
Amortization of net loss		—			1			2
Curtailment gain		—			—			—
	$	(2	)	$	—		$	1

Effective January 1, 2017, our Company applied the amendments in ASU No. 2017-07 retrospectively for the presentation of the service cost component and the other components of net periodic pension cost in the statement of operations, and accordingly, all components other than service cost, amounting to income of $2 thousand for 2016, were reclassified to non-operating income (expense) – other.

Weighted average assumptions used to determine benefit obligations for 2017 and 2018 were as follows:

	December 31
	2017			2018
Discount rate		1.625	%		1.375	%
Rate of compensation increase		2.00	%		2.00	%

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Weighted average assumptions used to determine net periodic benefit cost for end of fiscal year were as follows:

	2017			2018
Discount rate		1.375	%		1.625	%
Rate of return on plan assets		1.375	%		1.625	%
Rate of compensation increase		2.00	%		2.00	%

Management determines the discount rate and rate of return on plan assets based on the yields of twenty year ROC central government bonds which is in line with the respective employees remaining service period and the historical rate of return on the above mentioned Fund mandated by the ROC Labor Standard Law.

We have contributed an amount equal to 2% 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.

We expect to make a contribution of $8 thousand to the Fund in 2019. We expect to make benefit payments of $1 thousand from 2019 to 2023 and $20 thousand from 2024 to 2028.

Defined Contribution Pension Plans

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

Taiwan

Pursuant to the new “Labor Pension Act” enacted on July 1, 2005, our Company has a defined contribution pension plan for our employees located in Taiwan. For eligible employees who elect to participate in the defined contribution pension plan, we contribute no less than 6% of an employee’s monthly salary and wage and up to the maximum amount of NT$9 thousand (approximately $293), 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.

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% of the employees’ total salaries. For this purpose, the monthly relevant contribution to their individual contribution accounts is subject to a cap of HK$1.5 thousand (approximately $191). After the termination of employment, the benefits still belong to the employees in any circumstances.

The total amount of defined contribution pension expenses pursuant to our defined contribution plans for the years ended December 31, 2016, 2017, and 2018 were $183 thousand, $190 thousand, and $210 thousand, respectively.

NOTE 14. SHAREHOLDERS’ EQUITY

In accordance with Singapore law, the holders of ordinary shares that do not have par value, are entitled to receive dividends as declared from time to time and are entitled to one vote per share at the general meeting of our company. All shares rank equally with regard to our company’s residual assets. 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% 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, 2017 and 2018, the legal reserves of Hoshin GigaMedia Center Inc. (“Hoshin GigaMedia”) were $1.5 million and $1.5 million, respectively. The reserve can only be used to offset a deficit or be distributed as a stock dividend of up to 50% of the reserve balance when the reserve balance has reached 50% of the aggregate paid-in capital of Hoshin GigaMedia.

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NOTE 15. ACCUMULATED OTHER COMPREHENSIVE LOSS

The accumulated balances for each component of other comprehensive income (loss) are as follows:

(in US$ thousands)	Foreign currency items			Unrealized gain on securities			Pension and post retirement benefit plans			Accumulated other comprehensive loss
Balance at January 1, 2016	$	(22,338	)	$	3		$	—		$	(22,335	)
Net current period change		5			(1	)		(58	)		(54	)
Reclassification adjustments for gains reclassified    into income		(222	)		—			—			(222	)
Balance at December 31, 2016		(22,555	)		2			(58	)		(22,611	)
Net current period change		641			—			(11	)		630
Reclassification adjustments for gains reclassified    into income		—			(2	)		—			(2	)
Balance at December 31, 2017	$	(21,914	)	$	—		$	(69	)	$	(21,983	)
Net current period change		(332	)					(17	)		(349	)
Balance at December 31, 2018	$	(22,246	)	$	—		$	(86	)	$	(22,332	)

There were no significant tax effects allocated to each component of other comprehensive income for the years ended December 31, 2016, 2017 and 2018.

NOTE 16. SHARE-BASED COMPENSATION

During 2016, 2017 and 2018, all the stock-based compensation expenses were recognized in the general and administrative expenses in our consolidated statements of operations. The stock-based compensation expense recognized in the general and administrative expenses in our consolidated statements of operations were $9 thousand, ($7) thousand and $3 thousand, respectively.

There were no significant capitalized stock-based compensation costs at December 31, 2017 and 2018. There was no recognized stock-based compensation tax benefit for the years ended December 31, 2016, 2017 and 2018, as our Company recognized a full valuation allowance on net deferred tax assets as of December 31, 2017 and 2018.

(a) Overview of Stock-Based Compensation Plans

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 1.4 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 200 thousand 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.

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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 400 thousand common shares of our Company have been reserved for issuance. The 2007 Plan is administered by a committee designated by the board of directors. The committee as plan administrator has complete discretion to determine the grant of awards under the 2007 Plan. The maximum contractual term for the options under the 2007 Plan is 10 years.

2008 Equity Incentive Plan

At the June 2008 annual general meeting of shareholders, the shareholders of our Company approved the GigaMedia Limited 2008 Equity Incentive Plan (the “2008 Plan”) under which up to 200 thousand 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 40 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, 2018, 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 300 thousand 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.

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 40 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, 2018, no shares were 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 200 thousand 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 40 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, 2018, no shares were issued to employees under the 2010 ESPP.

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Summarized below are the general terms of our stock-based compensation plans, for which awards have been granted as of December 31, 2018.

Stock-Based compensation plan	Granted awards			Vesting schedule	Options’ exercise price	RSUs’ grant date fair value
2004 plan		1,575,037	(1)	immediately upon granting to four years	$3.95~$12.75		—
2006 Plan		256,716	(2)	immediately upon granting to four years	$3.85~$83	$14.55~$80.05
2007 Plan		675,057	(3)	immediately upon granting to four years	$2.90~$90.85	$12.35~$76.75
2008 Plan		200,000		immediately upon granting to six years	$12.35~$21.20		—
2009 Plan		500,000	(4)	immediately upon granting to four years	$4.775~$12.35		—
2010 Plan		440,000	(5)	three years	$4.0505~$5.7		—

(1) The granted awards, net of forfeited or canceled options, were within reserved shares of 1,400 thousand common shares.

(2) The granted awards, net of forfeited or canceled options or shares, were within reserved shares of 200 thousand common shares.

(3) The granted awards, net of forfeited or canceled options or shares, were within reserved shares of 400 thousand common shares.

(4) The granted awards, net of forfeited or canceled options, were within reserved shares of 300 thousand common shares.

(5) The granted awards, net of forfeited or canceled options, were within reserved shares of 200 thousand 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.

(b) Options

In 2016, 2017 and 2018, no options were exercised for each year.

Our Company uses the Black-Scholes option-pricing model to estimate the fair value of stock options granted to employees on the grant date. No options were granted to employees during 2016 and 2018. The following table summarizes the assumptions used in the model for options granted during 2017:

	2017
Option term (years)		6.01
Volatility	48.997%
Weighted-average volatility	48.997%
Risk-free interest rate	2.031%
Dividend yield	0%
Weighted-average fair value of option granted	$	1.41

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

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

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

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

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

	2016					2017					2018
	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 1	$	20.51		617		$	20.63		613		$	14.78		308
Options granted		—		—			2.90		4			—		—
Options exercised		—		—			—		—			—		—
Options Forfeited / canceled / expired		3.85		(4	)		26.24		(309	)		26.08		(79	)
Balance at December 31	$	20.63		613		$	14.78		308		$	10.88		229			2.14	$	—
Exercisable at December 31	$	20.57		606		$	15.16		298		$	10.97		227			2.07	$	—
Vested and expected to vest at    December 31	$	20.63		613		$	14.78		308		$	10.88		229			2.14	$	—

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 2018 and the exercise price of an option, 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, 2018. This amount changes based on the fair market value of GigaMedia’s stock.

As of December 31, 2018, there was approximately $1 thousand of unrecognized compensation cost related to nonvested options. That cost is expected to be recognized over a period of 1.50 years.

The following table sets forth information about stock options outstanding at December 31, 2018:

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 $5		12	5.87years	Under $5		10
$5~$50		217	1.93years	$5~$50		217
$50~$100		—		$50~$100		—
		229				227

(c) RSUs

The fair value of RSUs is determined and fixed on the grant date based on our stock price. No RSUs were granted during the years ended December 31, 2016, 2017 and 2018.

As of December 31 2017 and 2018, 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 2016, 2017 and 2018.

NOTE 17. INCOME TAXES

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

(in US$ thousands )	2016			2017			2018
Taiwan operations	$	(1,119	)	$	893		$	(3,146	)
Non-Taiwan operations		(6,096	)		(1,478	)		(47	)
	$	(7,215	)	$	(585	)	$	(3,193	)

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The components of income tax benefit (expense) by taxing jurisdiction are as follows:

( in US$ thousands )	2016		2017			2018
Taiwan:
Current	$	1,108	$	—		$	—
Deferred		—		—			—
	$	1,108	$	—		$	—
Non-Taiwan:
Current	$	—	$	(1	)	$	—
Deferred		41		1,672			—
	$	41	$	1,671		$	—
Total current income tax benefit (expense)	$	1,108	$	(1	)	$	—
Total deferred income tax benefit	$	41	$	1,672		$	—
Total income tax benefit	$	1,149	$	1,671		$	—

Our ultimate parent company is based in Singapore.

A reconciliation of our effective tax rate related to the statutory tax rate in Taiwan, where our major operations are based, is as follows:

	2016			2017			2018
Taiwan statutory rate, including taxes on income and    retained earnings		23.85	%		23.85	%		24.00	%
Foreign tax differential		(12.37	)%		1.10	%		3.43	%
Reversal of deferred withholding tax liabilities		—			285.84	%		—
Tax-exempt income		3.28	%		—			—
Non-deductible items - bad debts		(3.08	)%		—			(0.22	)%
Other non-deductible expenses		(1.65	)%		(44.79	)%		(3.50	)%
Changes in unrecognized tax benefits		1.10	%		—			17.17	%
Adjustment for prior year payable		0.04	%		—			—
Change in deferred tax assets and valuation allowance		6.87	%		13.43	%		(42.02	)%
Change in tax rate		—			—			0.15	%
Other		(2.12	)%		6.33	%		0.99	%
Effective rate		15.92	%		285.76	%		—

The significant components of our deferred tax assets consist of the following:

(in US$ thousands)	December 31
	2017			2018
Net operating loss carryforwards	$	9,178		$	11,136
Prepaid licensing and royalty fees		5			—
Investments		135			131
Intangible assets and goodwill		183			119
Share-based compensation		299			292
Other		128			87
		9,928			11,765
Less: valuation allowance		(9,928	)		(11,765	)
Deferred tax assets - net	$	—		$	—

In October 2017, a subsidiary of ours in the U.S. resolved to dissolve and liquidate, for which it filed a final tax return in February 2018. The gain resulted from such liquidation was treated as capital gain, which is exempt from U.S. withholding tax. As such, there was a reversal of the deferred income tax liabilities of $1,671 thousand as such deferred income tax liabilities were originally accrued for a potential withholding obligation upon possible distribution.

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A reconciliation of the beginning and ending amounts of our valuation allowance on deferred tax assets for the years ended December 31, 2016, 2017 and 2018 are as follows:

(in US$ thousands)	2016			2017			2018
Balance at beginning of year	$	11,025		$	11,852		$	9,928
Subsequent reversal and utilization of valuation allowance		(753	)		(3,352	)		—
Additions to valuation allowance		1,739			745			2,107
Divestitures		(312	)		—			—
Exchange differences		153			683			(270	)
Balance at end of year	$	11,852		$	9,928		$	11,765

Under ROC Income Tax Act, the tax loss carryforward in the preceding ten years would be deducted from income tax for Taiwan operations. The statutory losses from Taiwan operations would be deducted from undistributed earnings when calculating the tax on the undistributed earnings and were not subject to expiration.

As of December 31, 2018, we had net operating loss carryforwards available to offset future taxable income, shown below by major jurisdictions:

Jurisdiction	Amount		Expiring year
Hong Kong	$	15,721	indefinite
Taiwan		35,594	2020~2028
	$	51,315

Pursuant to the amendment of the ROC Income Tax Act in February 2018, starting from 2018, the corporate income tax rate was adjusted from 17% to 20%. In addition, the tax rate applicable to the undistributed portion of earnings to be made in 2018 and thereafter was reduced from 10% to 5%.

Unrecognized Tax Benefits

A reconciliation of the beginning and ending amount of unrecognized tax benefits (excluding the effects of accrued interest) for the years 2016, 2017 and 2018 are as follows:

(in US$ thousands)	2016			2017		2018
Balance at beginning of year	$	1,203		$	1,024	$	1,110
Increase related to prior year tax positions		1,025			—		—
Decrease related to prior year tax positions		—			—		—
Settlement of intercompany charge adjustments		—			—		(1,095	)
Expiration of statute of limitations		(1,225	)		—		—
Exchange differences		21			86		(15	)
Balance at end of year	$	1,024		$	1,110	$	—

As of December 31, 2016, 2017 and 2018, there were no unrecognized tax benefits that if recognized would affect the effective tax rate. As of December 31, 2016, 2017 and 2018, $1.0 million, $1.1 million and $0 of the total unrecognized tax benefit were presented as a reduction of a deferred tax asset that, if recognized, would be offset by a valuation allowance.

There were no interest and penalties related to income tax liabilities recognized for the years ended December 31, 2016, 2017 and 2018.

Our major tax paying components are all located in Taiwan. As of December 31, 2018, the income tax filings in Taiwan have been examined for the years through 2016.

In 2016, 2017 and 2018, our unrecognized tax benefits were related to intercompany charges in 2014 and 2015. The income tax authority has made decisions on the intercompany charges for our tax filings through 2014. We filed appeals against the unfavorable parts of the decision regarding these intercompany charge adjustments, and subsequently reached agreement and settlement in 2018 with the tax authority regarding the tax filings for those years. The settlement did not have significant impact to our financial statements.

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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. Taiwanese entities are customarily examined by the tax authorities and it is reasonably possible that a future examination may result in positive or negative adjustment to our unrecognized tax benefit within the next 12 months.

NOTE 18. RELATED-PARTY TRANSACTIONS

During 2018, there were nosignificant transactions with our related parties.

NOTE 19. 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 2021. The following table sets forth our future aggregate minimum lease payments required under these operating leases, as of December 31, 2018:

(in US$ thousands)	Amount
2019	$	450
2020		432
2021		72
	$	954

Rental expense for operating leases amounted to $821 thousand, $577 thousand and $493 thousand for the years ended December 31, 2016, 2017 and 2018, respectively.

(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, 2018.

(in US$ thousands)	License fees		Minimum guarantees against future royalties		Total
Minimum required payments:
In 2019	$	—	$	200	$	200
After 2019		—		—		—
	$	—	$	200	$	200

The minimum guarantees against future royalties and license fees are generally 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.

For a certain licensed game, we are committed to paying $30 thousand to the licensor for every $500 thousand additional revenues generated from the game during the agreement period from January 2018 to January 2020.

Contingencies

We are subject to legal proceedings and claims that arise in the normal course of business.

On January 15, 2018, Ennoconn Corporation (“Ennoconn”) filed a complaint against one of our subsidiaries, GigaMedia Cloud Services Co., Ltd. (“GigaMedia Cloud”) in the Taiwan Taipei District Court. The complaint alleged that GigaMedia Cloud is obligated to pay Ennoconn the amount totally NTD 79,477,648 (around $2,697,471) to compensate their loss pursuant to certain documents in connection with purchasing taximeters signed in 2015. GigaMedia Cloud filed an answer to the complaint denying all their allegations in the lack of factual and legal basis on March 1, 2018. On November 15, 2018, the Taiwan Taipei District Court

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announced all the Ennoconn’s claims without merit and made a judgmentdenying thecomplaint by Ennoconn. Unfortunately, On January 3, 2019, Ennoconnfiledanappealdemanded the judgment which was entered in the District Courtshould be reversed and amended. The civil court of the second instance, the Taiwan High Court, has conducted the session of the preparatory proceedingsfor two times on March 12, 2019 and April 16, 2019 separately.The Companyfirmly believes these claims of Ennoconn to be without merit and will keep defending them vigorously.Furthermore, we believe the Taiwan High Court will find such appeal meritless and enter a judgment denying the appeal by Ennoconn. Since the litigation process is still running, we are unable to assess the likelihood of the claim and the amount of potential damages. However, we believe the ultimate result with respect to this claim will not have a material adverse effect on our financial condition, results of operations or cash flows.

NOTE 20. SEGMENT, PRODUCT, GEOGRAPHIC AND OTHER INFORMATION

We only have one segment. Certain corporate activities are not allocated to the segment and therefore are reflected as adjustments in the reconciliation.

Financial information for the operating segment was as follows for the years ended December 31, 2016, 2017, and 2018:

(in US$ thousands)	Digital entertainment
2016:
Net revenue from external customers	$	8,971
Loss from operations	$	(3,924	)
Share-based compensation	$	3
Impairment loss on property, plant and equipment	$	288
Impairment loss on intangible assets	$	53
Impairment loss on prepaid licensing and royalty fees	$	1,386
Interest income	$	2
Interest expense	$	—
Gain on disposal of marketable securities - net	$	—
Foreign exchange gain (loss)	$	(174	)
Net gain (loss) on equity investments	$	(1,731	)
Impairment loss on marketable securities and investments	$	—
Depreciation	$	142
Amortization, including intangible assets	$	93
Income tax expense (benefits)	$	—

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(in US$ thousands)	Digital entertainment
2017:
Net revenue from external customers	$	11,596
Income from operations	$	1,747
Share-based compensation	$	1
Impairment loss on property, plant and equipment	$	—
Impairment loss on intangible assets	$	—
Impairment loss on prepaid licensing and royalty fees	$	—
Interest income	$	1
Interest expense	$	1
Gain on disposal of marketable securities - net	$	2
Foreign exchange gain (loss)	$	(148	)
Net gain (loss) on equity investments	$	(24	)
Impairment loss on marketable securities and investments	$	52
Depreciation	$	43
Amortization, including intangible assets	$	12
Income tax expense (benefits)	$	—

(in US$ thousands)	Digital entertainment
2018:
Net revenue from external customers	$	7,101
Loss from operations	$	(2,727	)
Share-based compensation	$	—
Impairment loss on property, plant and equipment	$	—
Impairment loss on intangible assets	$	—
Impairment loss on prepaid licensing and royalty fees	$	244
Interest income	$	51
Interest expense	$	—
Gain on disposal of marketable securities - net	$	—
Foreign exchange gain (loss)	$	158
Net gain (loss) on equity investments	$	—
Impairment loss on marketable securities and investments	$	—
Depreciation	$	100
Amortization, including intangible assets	$	36
Income tax expense (benefits)	$	—

38

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

(in US$ thousands)	2016			2017			2018
Loss from operations:
Total segments	$	(3,924	)	$	1,747		$	(2,727	)
Adjustment*		(3,208	)		(2,237	)		(2,096	)
Total GigaMedia consolidated	$	(7,132	)	$	(490	)	$	(4,823	)
Share-based compensation
Total segments	$	3		$	1		$	—
Adjustment**		6			(8	)		3
Total GigaMedia consolidated	$	9		$	(7	)	$	3
Impairment loss on property, plant and equipment:
Total segments	$	288		$	—		$	—
Adjustment**		183			—			—
Total GigaMedia consolidated	$	471		$	—		$	—
Impairment loss on intangible assets:
Total segments	$	53		$	—		$	—
Adjustment**		4			—			—
Total GigaMedia consolidated	$	57		$	—		$	—
Impairment loss on prepaid licensing and royalty fees:
Total segments	$	1,386		$	—		$	244
Adjustment**		—			—			—
Total GigaMedia consolidated	$	1,386		$	—		$	244
Interest income:
Total segments	$	2		$	1		$	51
Adjustment**		300			601			1,251
Total GigaMedia consolidated	$	302		$	602		$	1,302
Interest expense:
Total segments	$	—		$	1		$	—
Adjustment**		81			33			—
Total GigaMedia consolidated	$	81		$	34		$	—
Gain on disposal of marketable securities - net:
Total segments	$	—		$	2		$	—
Adjustments**		—			—			—
Total GigaMedia consolidated	$	—		$	2		$	—
Foreign exchange gain (loss):
Total segments	$	(174	)	$	(148	)	$	158
Adjustments**		(127	)		(403	)		109
Total GigaMedia consolidated	$	(301	)	$	(551	)	$	267

39

(in US$ thousands)	2016			2017			2018
Net gain (loss) on equity investments:
Total segments	$	(1,731	)	$	(24	)	$	—
Adjustment**		—			—			—
Total GigaMedia consolidated	$	(1,731	)	$	(24	)	$	—
Impairment loss on marketable securities and    investments:
Total segments	$	—		$	52		$	—
Adjustment**		—			—			—
Total GigaMedia consolidated	$	—		$	52		$	—
Depreciation:
Total segments	$	142		$	43		$	100
Adjustments**		20			—			—
Total GigaMedia consolidated	$	162		$	43		$	100
Amortization:
Total segments	$	93		$	12		$	36
Adjustments**		18			—			—
Total GigaMedia consolidated	$	111		$	12		$	36
Income tax expense (benefit):
Total segments	$	—		$	—		$	—
Adjustments**		(1,149	)		(1,671	)		—
Total GigaMedia consolidated	$	(1,149	)	$	(1,671	)	$	—

* Adjustment items include corporate and certain back-office costs and expenses not attributable to any specific segment. For the years ended December 31, 2016, 2017 and 2018, the compensation related items were approximately $1.6 million, $1.3 million and $1.2 million, respectively; professional fees were approximately $612 thousand, $365 thousand and $310 thousand, respectively.

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

Major Product Lines

Revenues from the Company’s major product lines are summarized as follow:

(in US$ thousands)	2016		2017		2018
MahJong and casino casual games	$	2,459	$	2,364	$	1,816
PC massively multiplayer online games		1,560		1,400		1,272
Mobile role playing games		4,674		7,776		3,998
Other games and game related revenues		278		56		15
	$	8,971	$	11,596	$	7,101

Major Customers

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

Geographic Information

Revenues by geographic area are attributed by country of the operating entity location. Revenue from by geographic region is as follows:

(in US$ thousands)
Geographic region / country	2016		2017		2018
Taiwan	$	2,664	$	2,349	$	2,958
Hong Kong		6,307		9,247		4,143
	$	8,971	$	11,596	$	7,101

40

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

(in US$ thousands)	December 31
Geographic region / country	2016		2017		2018
Taiwan	$	7	$	62	$	94
Hong Kong		—		96		27
	$	7	$	158	$	121

NOTE 21. SUBSEQUENT EVENT

There have been no events that have occurred subsequent to December 31, 2018 and through the date that the consolidated financial statements are issued that would require adjustment to or disclosure except as already disclosed in the consolidated financial statements.

41

EX-99.4

GigaMedia Limited and its subsidiaries
Registration Number: 199905474H

Annual Report

Year ended 31 December 2018

GIGAMEDIA  LIMITED  AND  ITS  SUBSIDIARIES

(Registration  Number:  199905474H)

ANNUAL  REPORT

YEAR  ENDED  31  DECEMBER  2018

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

C O N T E N T S

PAGE

Directors’ statement	1 - 4
Independent auditor’s report	5 – 8
Statements of financial position	9
Consolidated statement of profit or loss	10
Consolidated statement of comprehensive income	11
Consolidated statement of changes in equity	12 -13
Consolidated statement of cash flows	14
Notes to the consolidated financial statements	15 - 63

GigaMedia Limited and its subsidiariesFinancial statementsYear ended 31 December 2018

Directors’ statement

We are pleased to submit this annual report to the members of the Company together with the audited financial statements for the financial year ended 31 December 2018.

In our opinion:

(a) the financial statements set out on pages 9 to 63 are drawn up so as to give a true and fair view of the financial position of the Group and of the Company as at 31 December 2018 and the financial performance, changes in equity and cash flows of the Group and changes in equity of the Company for the year ended on that date in accordance with the provisions of the Singapore Companies Act, Chapter 50 (the “Act”) and Singapore Financial Reporting Standards; 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.

Directors

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

Huang, James Cheng-Ming

Hong, Chin Fock (Damian)

Huang, John Ping Chang

Huang, Billy Bing-Yuan

Liu, Nick Chia-En

Tung, Casey Kuo Chong

Directors' interests

According to the register kept by the Company for the purposes of Section 164 of the Act, particulars of interests of directors who held office at the end of the financial year (including those held by their spouses and infant children) in shares, debentures, warrants and share options in the Company and in related corporations (other than wholly-owned subsidiaries) are as follows:

Name of director and corporation in which interests are held	Holdings at beginning of the financial year	Holdings at end of the financial year
The Company
Huang, James Cheng-Ming
-ordinary shares
-interests held	336,811	700,066
-options to subscribe for ordinary shares	4,000	4,000

Huang, John Ping Chang
-options to subscribe for ordinary shares	4,000	4,000

GigaMedia Limited and its subsidiariesFinancial statementsYear ended 31 December 2018

Name of director and corporationin which interests are held	Holdings at beginning of the financial year	Holdings at end of the financial year
Huang, Billy Bing-Yuan
-options to subscribe for ordinary shares	4,000	4,000
Liu, Nick Chia-En
-options to subscribe for ordinary shares	4,000	4,000
Tung, Casey Kuo Chong
-options to subscribe for ordinary shares	4,000	4,000
Hong, Chin Fock (Damian)
-options to subscribe for ordinary shares	4,000	4,000

Except as disclosed in this statement, no director who held office at the end of the financial year had interests in shares, debentures, warrants or share options of the Company or of related corporations either at the beginning of the financial year or at the end of the financial year.

Except as disclosed under the “Share options” section of this statement, neither at the end of, nor at any time during the financial year, was the Company a party to any arrangement whose objects are, or one of whose objects is, to enable the directors of the Company to acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate.

Share options

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 400 thousand ordinary 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. There were 4,000 shares granted in May 2017. The 2007 Plan has lapsed in June 2017.

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 200 thousand ordinary 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. No shares have been issued under the 2008 Plan during the current financial year.

GigaMedia Limited and its subsidiariesFinancial statementsYear ended 31 December 2018

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 40 thousand ordinary 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 granted or 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 300 thousand ordinary 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. No shares have been issued under the 2009 Plan during the current financial year.

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 40 thousand ordinary 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 granted or 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 200 thousand ordinary 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. No shares have been issued under the 2010 Plan during the current financial year.

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 40 thousand ordinary 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 granted or subscribed by qualified employees under the 2010 ESPP.

GigaMedia Limited and its subsidiariesFinancial statementsYear ended 31 December 2018

Summarised below are the general terms of its share-based compensation plans as of 31 December 2018.

Date granted	Balance at beginning of year	Granted during the year	Expired/ forfeited during the year	Balance at end of year	Options’ exercise price	Exercise period
	’000	’000	’000	’000	US$
29.01.2008	8	–	(8)	–	$80.05	29.01.2008 - 29.01.2018
01.12.2008	68	–	(68)	–	$21.20	01.12.2008 - 19.06.2018
13.05.2010	176	–	–	176	$12.35	13.05.2010 - 13.05.2020
20.05.2011	12	–	–	12	$6.25	20.05.2011 - 20.05.2021
05.01.2012	4	–	–	4	$4.05	05.01.2012 - 05.01.2022
28.10.2013	4	–	–	4	$5.05	28.10.2013 - 28.10.2023
28.03.2014	25	–	–	25	$7.15	28.03.2014 - 28.03.2024
31.03.2015	8	–	(4)	4	$3.85	31.03.2015 - 31.03.2025
05.05.2017	4	–	–	4	$2.90	05.05.2017 - 05.05.2027
	309	–	(80)	229

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

Auditors

The auditors, Deloitte & Touche LLP, have indicated their willingness to accept re-appointment.

On behalf of the Board of Directors

/S/ HUANG, JAMES CHENG-MING

─────────────────────

HUANG, JAMES CHENG-MING

Director

/S/ HUANG, JOHN PING CHANG

─────────────────────

HUANG, JOHN PING CHANG

Director

29 April 2019

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF

GIGAMEDIA LIMITED

Report on the audit of the financial statements

Opinion

We have audited the accompanying financial statements of GigaMedia Limited (the “Company”) and its subsidiaries (the “Group”), which comprise the consolidated statement of financial position of the Group and the statement of financial position of the Company as at 31 December 2018, the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows of the Group for the year then ended, and the notes to the financial statements, including a summary of significant accounting policies, as set out on pages 9 to 63.

In our opinion, the accompanying consolidated financial statements of the Group and the statement of financial position of the Company are properly drawn up in accordance with the provisions of the Companies Act, Chapter 50 (the “Act”) and Financial Reporting Standards in Singapore (“FRSs”) so as to give a true and fair view of the consolidated financial position of the Group and the financial position of the Company as at 31 December 2018, and of the consolidated financial performance, consolidated changes in equity and consolidated cash flows of the Group for the year ended on that date.

Basis for opinion

We conducted our audit in accordance with Singapore Standards on Auditing (“SSAs”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Group in accordance with the Accounting and Corporate Regulatory Authority (“ACRA”) Code of Professional Conduct and Ethics for Public Accountants and Accounting Entities (“ACRA Code”) together with the ethical requirements that are relevant to our audit of the financial statements in Singapore, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the ACRA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF

GIGAMEDIA LIMITED

Revenue recognition for sale of virtual points

Revenue from sale of virtual points of the Group amounted to US$5.8 million, which accounted for 82% of total revenue for the year ended 31 December 2018.  Revenue for virtual points is recognised in profit or loss based on usage by end-users over its estimated life. The estimated lives for virtual points is a significant estimate which involves management’s judgement. Key inputs include historical virtual points redemption ratio and turnover rate of the virtual points, amount of outstanding virtual points, and the projected time interval between purchases and consumption by end users.   All unearned revenue is recorded as contract liabilities at the end of each reporting period. The contract liabilities and revenue are disclosed in Notes 15 and 16 to the financial statements.

Our audit performed and responses thereon

Our audit procedures focussed on evaluating and challenging the key assumptions used by management in the accuracy of revenue recognition.  

Our procedures included:

• Obtaining an understanding and testing of the operative effectiveness of the relevant internal controls over management’s process on revenue recognition of virtual points;

• Assessing and testing inputs used by management;

• Involving information technology specialists to assist in the testing of the general information technology (“IT”) controls surrounding the Group’s operating system and automated controls, including interface between different IT applications; and

• Independently developing expectation on estimated lives.

Based on our procedures, we noted that management’s estimate to be reasonable.

Other information

Management is responsible for the other information. The other information comprises the directors’ statement.

Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

If, based on the work we have performed on the other information that we obtained prior to the date of this auditors’ report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF

GIGAMEDIA LIMITED

Responsibilities of management and directors 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 Act and FRSs, 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 transactions are properly authorised and that they are recorded as necessary to permit the preparation of true and fair financial statements and to maintain accountability of assets.

In preparing the financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

The directors’ responsibilities include overseeing the Group’s financial reporting process.

Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with SSAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit 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 Group’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Group to cease to continue as a going concern.

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF

GIGAMEDIA LIMITED

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

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.

The engagement partner on the audit resulting in this independent auditor’s report is Lee Boon Teck.

/S/ Deloitte & Touche LLP

Public Accountants and

Chartered Accountants

Singapore

29 April 2019

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2018

Statements of financial position As at 31 December 2018
		Group		Company
	Note	2018	2017	2018	2017
		US$’000	US$’000	US$’000	US$’000
Assets
Property, plant and equipment	4	121	158	–	–
Intangible assets	5	38	3	–	–
Subsidiaries	6	–	–	62,640	64,650
Other assets (non-current)	7	256	282	–	–
Non-current assets		415	443	62,640	64,650
Trade and other receivables	8	769	1,334	1,665	1,760
Other assets (current)	7	435	459	–	–
Cash and cash equivalents	9	59,826	64,177	2,268	2,652
Current assets		61,030	65,970	3,933	4,412
Total assets		61,445	66,413	66,573	69,062
Equity attributable to owners of the Company
Share capital	10	213,238	213,238	213,238	213,238
Reserves	11	(6,822)	(6,495)	(1,702)	429
Accumulated losses		(148,483)	(145,378)	(145,169)	(144,857)
Total equity		57,933	61,365	66,367	68,810
Liability
Deferred tax liabilities	12	–	–	–	–
Non-current liability		–	–	–	–
Trade and other payables	14	1,904	3,185	206	252
Contract liabilities	15	1,608	–	–	–
Deferred revenue		–	1,863	–	–
Current liabilities		3,512	5,048	206	252
Total liabilities		3,512	5,048	206	252
Total equity and liabilities		61,445	66,413	66,573	69,062

See accompanying notes to financial statements.

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2018

Consolidated statement of profit or loss Year ended 31 December 2018
	Note	2018	2017
		US$’000	US$’000
Revenue	16	7,101	11,596
Cost of sales		(3,585)	(5,098)
Gross profit		3,516	6,498
Other income	17	328	1,735
Product development and engineering expenses		(1,091)	(1,072)
Selling and marketing expenses		(3,297)	(3,993)
General and administrative expenses		(3,682)	(3,527)
Other operating expenses		(267)	(769)
Results from operating activities		(4,493)	(1,128)
Finance income		1,302	602
Finance expenses		–	(34)
Net finance income	18	1,302	568
Share of loss of associates, net of tax		–	(24)
Loss before tax		(3,191)	(584)
Tax credit	19	–	1,671
(Loss) Profit for the year	20	(3,191)	1,087

See accompanying notes to financial statements.

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2018

Consolidated statement of comprehensive income Year ended 31 December 2018
	Note	2018	2017
		US$’000	US$’000
(Loss) Profit for the year		(3,191)	1,087
Other comprehensive income:
Item that will not be reclassified to profit or loss:
Defined benefit plan remeasurements	13	(22)	(7)
		(22)	(7)
Items that may be reclassified subsequently to profit or loss:
Net change in fair value of available-for-sale financial assets reclassified to profit or loss on disposal		–	(2)
Foreign currency translation differences – foreign operations		(330)	636
		(330)	634
Other comprehensive (loss) income for the year, net of tax		(352)	627
Total comprehensive (loss) income for the year		(3,543)	1,714

See accompanying notes to financial statements

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2018

Consolidated statement of changes in equity (cont’d) Year ended 31 December 2018
		Attributable to owners of the Company
	Note	Share capital	Share option reserve	Statutory reserve	Accumulated losses	Fair value reserve	Foreign currency translation reserve	Total
		US$’000	US$’000	US$’000	US$’000	US$’000	US$’000	US$’000
At 1 January 2017		213,238	12,865	1,516	(146,458)	2	(21,505)	59,658
Total comprehensive income for the year
Income for the year		–	–	–	1,087	–	–	1,087
Other comprehensive income
Foreign currency translation		–	–	–	–	–	636	636
Defined benefit plan remeasurements	13	–	–	–	(7)	–	–	(7)
Net change in fair value of available-for-sale financial assets    on disposal		–	–	–	–	(2)	–	(2)
Total other comprehensive income, net of tax		–	–	–	(7)	(2)	636	627
Total comprehensive income for the year		–	–	–	1,080	(2)	636	1,714
Transactions with owners, recognised directly in equity
Contributions by and distributions to owners
Share-based payment transactions	11	–	(7)	–	–	–	–	(7)
Total transactions with owners		–	(7)	–	–	–	–	(7)
At 31 December 2017		213,238	12,858	1,516	(145,378)	–	(20,869)	61,365
Adoption of FRS 115	2	–	–	–	108	–	–	108
At 1 January 2018		213,238	12,858	1,516	(145,270)	–	(20,869)	61,473

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2018

Consolidated statement of changes in equity Year ended 31 December 2018
		Attributable to owners of the Company
	Note	Share capital	Share option reserve	Statutory reserve	Accumulated losses	Foreign currency translation reserve	Total
		US$’000	US$’000	US$’000	US$’000	US$’000	US$’000
At 1 January 2018		213,238	12,858	1,516	(145,270)	(20,869)	61,473
Total comprehensive income (loss) for the year
Loss for the year		–	–	–	(3,191)	–	(3,191)
Other comprehensive income
Foreign currency translation		–	–	–	–	(330)	(330)
Defined benefit plan remeasurements	13	–	–	–	(22)	–	(22)
Total other comprehensive income, net of tax		–	–	–	(22)	(330)	(352)
Total comprehensive income (loss) for the year		–	–	–	(3,213)	(330)	(3,543)
Transactions with owners, recognised directly in equity
Contributions by and distributions to owners
Share-based payment transactions	11	–	3	–	–	–	3
Total transactions with owners		–	3	–	–	–	3
At 31 December 2018		213,238	12,861	1,516	(148,483)	(21,199)	57,933

See accompanying notes to financial statements

GigaMedia Limited and its subsidiaries

Financial statements

Year ended 31 December 2018

Consolidated statement of cash flows Year ended 31 December 2018
	2018	2017
	US$’000	US$’000
Cash flows from operating activities
Loss before tax	(3,191)	(584)
Adjustments for:
Loss allowances for trade receivables	23	127
Amortisation – intangible assets	26	7
Depreciation of property, plant and equipment	100	42
Gain on sale of available-for-sale financial assets	–	(2)
Loss on disposal of an associate	–	52
Impairment loss on prepaid licensing fees and royalty fees	244	–
Interest expense	–	34
Interest income	(1,302)	(602)
Share-based compensation	3	(7)
Share of loss of associates, net of tax	–	24
Operating loss before working capital changes	(4,097)	(909)
Changes in:
Trade and other receivables	542	149
Other assets	(220)	561
Trade and other payables	(1,281)	(1,464)
Contract liabilities	(147)	–
Prepaid pension plans	12	(9)
Cash used in operating activities, representing net cash used
in operating activities	(5,191)	(1,672)

Cash flows from investing activities
Interest received	1,302	602
Proceeds from disposal of available-for-sale financial assets	–	3
Proceeds from disposal of an associate	–	1,058
Purchase of property, plant and equipment	(66)	(192)
Purchase of intangible assets	(61)	(11)
Refundable deposit	11	37
Others	–	35
Net cash from investing activities	1,186	1,532

Cash flows from financing activities
Repayment of short-term borrowings		–	(2,631)
Deposits pledged		(11)	(7)
Interest paid		–	(35)
Net cash used in financing activities		(11)	(2,673)
Net decrease in cash and cash equivalents		(4,016)	(2,813)
Cash and cash equivalents at 1 January		63,670	65,711
Effect of exchange rate fluctuations on cash held in foreign currencies		(346)	772
Cash and cash equivalents at 31 December	9	59,308	63,670

See accompanying notes to financial statements

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

1. Corporate 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 8th 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 disclosed in Note 6 to the financial statements.

The Company is listed on the NASDAQ Stock Market in the United States.

The consolidated financial statements of the Group and statement of financial position of the Company for the year ended 31 December 2018 were authorised for issue by the Board of Directors on 29 April 2019.

2.Summary of significant accounting policies

Basis of preparation

The financial statements have been prepared in accordance with the historical cost basis except as disclosed in the accounting polices below, and are drawn up in accordance with the provisions of the Singapore Companies Act and Financial Reporting Standards in Singapore (“FRS”).

Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability which market participants would take into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of FRS 102 Share-based Payment, leasing transactions that are within the scope of FRS 17 Leases, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in FRS 2 Inventories or value in use in FRS 36 Impairment of Assets.

In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

▪ Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;

▪ Level 2 - 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); and

▪ Level 3 - Unobservable inputs for the asset or liability.

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

2.Summary of significant accounting policies (cont’d)

Adoption of new and revised standards

In the current financial year, the Group has adopted all the new and revised FRSs and interpretations of FRS (“INT FRS”) that are relevant to its operations and effective for annual periods beginning on or after 1 January 2018. The adoption of these new/revised FRSs and INT FRSs does not result in changes to the Group’s and Company’s accounting policies except as follows:

FRS 109 Financial Instruments

FRS 109 introduces new requirements for 1) the classification and measurement of financial assets and financial liabilities, 2) impairment of financial assets and 3) general hedge accounting. Details of these new requirements as well as their impact on the financial statements are described below.

The Group and Company applied FRS 109 with an initial application date of 1 January 2018. The transition provisions of FRS 109 allow an entity not to restate comparatives. The Group and Company have elected not to restate the comparative information, which continues to be reported under FRS 39.

The significant accounting policies for financial instruments under FRS 109 is as disclosed in Note 2 below.

FRS 109 Financial Instruments

(a) Classification and measurement of financial assets and financial liabilities

The Group has applied the requirements of FRS 109 to instruments that have not been derecognised as at 1 January 2018 and has not applied the requirements to instruments that have already been derecognised as at 1 January 2018. The classification of financial assets is based on two criteria: the Group’s business model for managing the assets and whether the instruments’ contractual cash flows represent ‘solely payments of principal and interest’ on the principal amount outstanding. There are no changes in classification and measurement of the Group’s financial assets and financial liabilities.

(b) Impairment of financial assets

FRS 109 requires an expected credit loss model as opposed to an incurred credit loss model under FRS 39. The expected credit loss model requires the company to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition of the financial assets. It is no longer necessary for a credit event to have occurred before credit losses are recognised.

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

2.Summary of significant accounting policies (cont’d)

Specifically, FRS 109 requires the company to recognise a loss allowance for expected credit losses on i) debt investments subsequently measured at amortised cost or at fair value through other comprehensive income, ii) lease receivables, iii) contract assets and iv) loan commitments and financial guarantee contracts to which the impairment requirements of FRS 109 apply.

Based on the assessment, management is of the view that the adoption of FRS 109 has no material effect on the amounts reported for the current or prior years.

FRS 115 Revenue from Contracts with Customers

FRS 115 supersedes FRS 11 Construction Contracts, FRS 18 Revenue and the related Interpretations. FRS 115 introduces a 5-step approach to revenue recognition. Far more prescriptive guidance has been added in FRS 115 to deal with specific scenarios.

The Group and Company have applied FRS 115 using the modified retrospective method with the cumulative effect of initially applying this standard recognised at the date of initial application (1 January 2018) as an adjustment to the opening balance of retained earnings. Therefore, the comparative information was not restated and continues to be reported under FRS 11, FRS 18 and the related interpretations. The Group and Company have elected to apply this standard retrospectively only to contracts that are not completed contracts at the date of initial application. Apart from providing more extensive disclosures on the Group’s revenue transactions, the amount of adjustment for each financial statement line item affected by the application of FRS 115 for the prior years is illustrated below. Management has determined that the adoption of FRS 115 has no material impact on the amounts reported for the current year.

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

2.Summary of significant accounting policies (cont’d)

	Previously reported as at 31 December 2017	Adoption of FRS 115	Note	Adjusted as at 1 January 2018
	US$’000	US$’000		US$’000
Assets
Property, plant and equipment	158			158
Intangible assets	3			3
Subsidiaries	–			–
Other assets (non-current)	282			282
Non-current assets	443			443
Trade and other receivables	1,334			1,334
Other assets (current)	459			459
Cash and cash equivalents	64,177			64,177
Current assets	65,970			65,970
Total assets	66,413			66,413
Equity attributable to owners of the Company
Share capital	213,238			213,238
Reserves	(6,495)			(6,495)
Accumulated losses	(145,378)	108	(a)	(145,270)
Total equity	61,365			61,473
Liabilities
Deferred tax liabilities	–			–
Non-current liability	–			–
Trade and other payables	3,185			3,185
Contract liabilities	–	1,755	(a)	1,755
Deferred revenue	1,863	(1,863)	(a)	–
Current liabilities	5,048			4,940
Total liabilities	5,048			4,940
Total equity and liabilities	66,413			66,413

(a) Proceeds received relating to the sale of virtual points and in-game virtual items which are activated or charged to the respective user game account but which have not been consumed by the users or expired were recognised as deferred revenue previously. Under the contractual terms, some users may not exercise all of their contractual rights, and these unexercised rights are referred to as breakage in accordance with FRS 115. The amount of breakage is recognised as revenue when the likelihood of the users exercising the remaining rights becomes remote. Arising from this, there has been an adjustment to deferred revenue and revenue to reflect the change in accounting and the amount previously recognised as deferred revenue has been reclassified as contract liabilities.

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

2.Summary of significant accounting policies (cont’d)

At the date of authorisation of these financial statements, the following new and revised FRSs and amendments to FRSs that are relevant to the Group and the Company were issued but not effective:

• FRS 116 Leases¹

FRS 116 Leases

The Standard provides a comprehensive model for the identification of lease arrangements and their treatment in the financial statements of both lessees and lessors. The identification of leases, distinguishing between leases and service contracts, are determined on the basis of whether there is an identified asset controlled by the customer.

Significant changes to lessee accounting are introduced, with the distinction between operating and finance leases removed and assets and liabilities recognised in respect of all leases (subject to limited exceptions for short-term leases and leases of low value assets). The Standard maintains substantially the lessor accounting approach under the existing framework.

As at 31 December 2018, the Group has non-cancellable operating lease commitments of approximately US$954,000. FRS 17 does not require the recognition of any right-of-use asset or liability for future payments for these leases; instead, certain information is disclosed as operating lease commitment in Note 21.  A preliminary assessment indicates that these arrangements will meet the definition of a lease under FRS 116, and hence the Group will recognise a right-of-use asset and a corresponding liability in respect of these leases unless they qualify for low value or short-term leases upon application of FRS 116.  

Other than the above, management has considered and is of the view that the adoption of the other amendments to FRSs that are issued as at date of authorisation of these financial statements but effective only in future periods will not have a material impact on the financial statements in the period of their initial adoption.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities (including structured entities) controlled by the Company and its subsidiaries. Control is achieved when the Company:

•Has power over the investee;

• Is exposed, or has rights, to variable returns from its involvement with the investee; and

•Has the ability to use its power to affect its returns.

The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

2.Summary of significant accounting policies (cont’d)

When the Company has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Company considers all relevant facts and circumstances in assessing whether or not the Company's voting rights in an investee are sufficient to give it power, including:

• The size of the Company's holding of voting rights relative to the size and dispersion of holdings of the other vote holders;

• Potential voting rights held by the Company, other vote holders or other parties;

• Rights arising from other contractual arrangements; and

• Any additional facts and circumstances that indicate that the Company has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders' meetings.

Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date the Company gains control until the date when the Company ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with the Group's accounting policies.

Changes in the Group's ownership interests in existing subsidiaries

Changes in the Group's ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group's interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company.

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

2.Summary of significant accounting policies (cont’d)

When the Group loses control of a subsidiary, a gain or loss is recognised in profit or loss and is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. All amounts previously recognised in other comprehensive income in relation to that subsidiary are accounted for as if the Group had directly disposed of the related assets or liabilities of the subsidiary (i.e. reclassified to profit or loss or transferred to another category of equity as specified/permitted by applicable FRSs). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under FRS 109, when applicable, the cost on initial recognition of an investment in an associate or a joint venture.

In the Company’s financial statements, investments in subsidiaries and associates are carried at cost less any impairment in net recoverable value that has been recognised in profit or loss.

Business Combinations

Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration for each acquisition is measured at the aggregate of the acquisition date fair values of assets given, liabilities incurred by the Group to the former owners of the acquiree, and equity interests issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred.

Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration arrangement, measured at its acquisition-date fair value. Subsequent changes in such fair values are adjusted against the cost of acquisition where they qualify as measurement period adjustments (see below). The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates at fair value, with the corresponding gain or loss being recognised in profit or loss.

Where a business combination is achieved in stages, the Group’s previously held interests in the acquired entity are remeasured to fair value at the acquisition date (i.e. the date the Group attains control) and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss, where such treatment would be appropriate if that interest were disposed of.

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

2.Summary of significant accounting policies (cont’d)

The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under the FRS are recognised at their fair value at the acquisition date, except that:

• Deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in accordance with FRS 12 Income Taxes and FRS 19 Employee Benefits respectively;

• Liabilities or equity instruments related to share-based payment transactions of the acquiree or the replacement of an acquiree’s share-based payment awards transactions with share-based payment awards transactions of the acquirer in accordance with the method in FRS 102 Share-based Payment at the acquisition date; and

• Assets (or disposal groups) that are classified as held for sale in accordance with FRS 105 Non-current Assets Held for Saleand Discontinued Operations are measured in accordance with that Standard.

Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests’ proportionate share of the recognised amounts of the acquiree’s identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests are measured at fair value or, when applicable, on the basis specified in another FRS.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see below), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date.

The measurement period is the period from the date of acquisition to the date the Group obtains complete information about facts and circumstances that existed as of the acquisition date – and is subject to a maximum of one year from acquisition date.

If the Group’s interest in the fair value of the acquiree’s identifiable net assets exceeds the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the acquirer’s previously held equity interest in the acquire (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.

Associate

An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

2.Summary of significant accounting policies (cont’d)

The results and assets and liabilities of the associate are incorporated in these consolidated financial statements using the equity method of accounting, except when the investment, or a portion thereof, is classified as held for sale, in which case it is accounted for in accordance with FRS 105. Under the equity method, an investment in an associate is initially recognised in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Group's share of the profit or loss and other comprehensive income of the associate. When the Group's share of losses of an associate exceeds the Group's interest in that associate (which includes any long-term interests that, in substance, form part of the Group's net investment in the associate), the Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.

An investment in an associate is accounted for using the equity method from the date on which the investee becomes an associate. On acquisition of the investment in an associate, any excess of the cost of the investment over the Group's share of the net fair value of the identifiable assets and liabilities of the investee is recognised as goodwill, which is included within the carrying amount of the investment. Any excess of the Group's share of the net fair value of the identifiable assets and liabilities over the cost of the investment, after reassessment, is recognised immediately in profit or loss in the period in which the investment is acquired.

The requirements of FRS 109 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group’s investment in an associate. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with FRS 36 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount, any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with FRS 36 to the extent that the recoverable amount of the investment subsequently increases.

The Group discontinues the use of the equity method from the date when the investment ceases to be an associate, or when the investment is classified as held for sale. When the Group retains an interest in the former associate and the retained interest is a financial asset, the Group measures the retained interest at fair value at that date and the fair value is regarded as its fair value on initial recognition in accordance with FRS 109. The difference between the carrying amount of the associate at the date the equity method was discontinued, and the fair value of any retained interest and any proceeds from disposing of a part interest in the associate is included in the determination of the gain or loss on disposal of the associate. In addition, the Group accounts for all amounts previously recognised in other comprehensive income in relation to that associate on the same basis as would be required if that associate had directly disposed of the related assets or liabilities. Therefore, if a gain or loss previously recognised in other comprehensive income by that associate would be reclassified to profit or loss on the disposal of the related assets or liabilities, the Group reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment) when the equity method is discontinued.

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

2.Summary of significant accounting policies (cont’d)

When the Group reduces its ownership interest in an associate but the Group continues to use the equity method, the Group reclassifies to profit or loss the proportion of the gain or loss that had previously been recognised in other comprehensive income relating to that reduction in ownership interest if that gain or loss would be reclassified to profit or loss on the disposal of the related assets or liabilities.

When a Group entity transacts with an associate or a joint venture of the Group, profits and losses resulting from the transactions with the associate are recognised in the Group's consolidated financial statements only to the extent of interests in the associate that are not related to the Group.

Foreign currency

The individual financial statements of each Group entity are measured and presented in the currency of the primary economic environment in which the entity operates (its functional currency). The Group’s consolidated financial statements are presented in US dollars as the Company is listed on the NASDAQ Stock Market at United States. The Company’s functional currency is New Taiwan dollars.

a) Transactions and balances

Transactions in foreign currencies are measured in the respective functional currencies of the Company and its subsidiariesand are recorded on initial recognition in the functional currencies at exchange rates approximating those prevailing at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the closing rate of exchange prevailing at the reporting date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when fair value was determined.

Exchange differences arising on the settlement of monetary items or on translating monetary items at the reporting date are recognised in profit or loss for the period 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 translation reserve in equity. The translation reserve is reclassified from equity to the profit or loss of the Group on disposal of the foreign operation.

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

2.Summary of significant accounting policies (cont’d)

b) Group companies

The assets and liabilities of foreign operations are translated into US dollars at the rate of exchange prevailing at the reporting date and income and expenses are translated at the average exchange rates for the year. The exchange differences arising on the translation are taken directly to other comprehensive income. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognised in 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 that are foreign operations, the proportionate share of the accumulated exchange differences is reclassified to profit or loss.

Property, plant and equipment

Property, plant and equipment including buildings held for use in the production or supply of goods or services, or for administrative purposes are stated in the consolidated statement of financial position at cost, less subsequent accumulated depreciation and accumulated impairment losses, if any.

Depreciation is charged so as to write off the cost of items of property, plant, and equipment less their residual values over their estimated useful lives, using the straight-line method, on the following bases:

Buildings-50 years

Leasehold improvements -3 to 5 years

Information and communication equipment-2 to 5 years

Office furniture and equipment-3 to 5 years

The residual values, useful life and depreciation method are reviewed at end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

The gain or loss arising on disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amounts of the asset and is recognised in profit or loss.

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

2.Summary of significant accounting policies (cont’d)

Intangible assets

Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortisation and impairment losses. Amortisation for intangible assets with finite useful lives is recognised on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

The following useful life is used in the calculation of amortisation:

Purchased software development costs-1 to 3 years

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 annual impairment testing 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 independent of those from other assets or group of 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, an appropriate valuation model is used. These calculations are corroborated by valuation multiples or other available fair value indicators.

Impairment losses of continuing operations are recognised in profit or loss in those expense categories consistent with the function of the impaired asset, except for assets that are previously revalued where the revaluation was taken to other comprehensive income. In this case the impairment is also recognised in other comprehensive income up to the amount of any previous revaluation.

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

2.Summary of significant accounting policies (cont’d)

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 asset’s recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised previously. Reversal is recognised in the profit or loss unless the asset is measured at revalued amount, in which case the reversal in excess of impairment loss previously recognised through the profit or loss is treated as a revaluation increase.

Financial instruments

Financial assets and financial liabilities are recognised on the Group’s statement of financial position when the Group becomes a party to the contractual provisions of the instrument.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

Financial assets (before 1 January 2018)

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial instrument and of allocating interest income or expense over the relevant period.  The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments through the expected life of the financial instrument, or where appropriate, a shorter period.

Initial recognition and measurement

Financial assets are recognised on the statements of financial position 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 assets at initial recognition.

When financial assets are recognised initially, they are measured at fair value plus transaction costs, except for those financial assets classified as fair value through profit or loss which are initially measured at fair value.

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

2.Summary of significant accounting policies (cont’d)

Subsequent measurement

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

a) Loans and receivables

Non-derivative financial assets with fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest 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.

The Group classifies the following financial assets as loans and receivables:

• cash and short term deposits

• trade and other receivables, including amounts due from subsidiaries,

an associate and related parties.

b) Available-for-sale financial assets

Certain shares securities held by the Group are classified as being available-for-sale and are stated at fair value. Fair value is determined in the manner described in Note 23. Gains and losses arising from changes in fair value are recognised in other comprehensive income with the exception of impairment losses, interest calculated using the effective interest method and foreign exchange gains and losses on monetary assets which are recognised directly in profit or loss. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognised in other comprehensive income and accumulated in fair value reserve is reclassified to profit or loss. Dividends on available-for-sale equity instruments are recognised in profit or loss when the Group’s right to receive payments is established. The fair value of available-for-sale monetary assets denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at end of the reporting period. The change in fair value attributable to translation differences that result from a change in amortised cost of the available-for-sale monetary asset is recognised in profit or loss, and other changes are recognised in other comprehensive income.

Investments in equity securities whose fair value cannot be reliably measured are carried at cost less impairment losses.

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

2.Summary of significant accounting policies (cont’d)

Derecognition

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.

Impairment of financial assets

The Group assesses at each reporting date whether there is any objective evidence that a financial asset is impaired.

a) Financial assets

For financial assets carried at amortised cost, the Group first assesses individually 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 characteristicsand collectively assesses them for impairment. Assets that are individually assessed for impairment and for which animpairment loss is, or continues to be recognised are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss on financial assets carried at amortised 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 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.

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

2.Summary of significant accounting policies (cont’d)

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. Any subsequent reversal of an impairment loss is recognised in the profit or loss, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date. The amount of reversal is recognised in the profit or loss.

For financial assets that are carried at cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods.

b) Available-for-sale financial assets

In the case of equity investments classified as available-for-sale, objective evidence of impairment include (i) significant financial difficulty of the issuer or obligor, (ii) 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; and (iii) a significant or prolonged decline in the fair value of the investment below its costs. ‘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.

In respect of available-for-sale equity instruments, impairment losses previously recognised in profit or loss are not reversed through profit or loss. Any subsequent increase in fair value after an impairment loss is recognised in other comprehensive income and accumulated under the heading of investments revaluation reserves.

Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand and fixed deposits which are readily convertible to known amounts of cash and subject to an insignificant risk of changes in value.

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

2.Summary of significant accounting policies (cont’d)

Financial assets (after 1 January 2018)

Classification of financial assets

Financial assets mainly comprise cash and cash equivalents and trade and other receivables. Financial assets that meet the following conditions are subsequently measured at amortised cost:

• the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and

• the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Amortised cost and effective interest method

The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period.

The amortised cost of a financial asset is the amount at which the financial asset is measured at initial recognition minus the principal repayments, plus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, adjusted for any loss allowance.

Interest income is recognised using the effective interest method for debt instruments measured subsequently at amortised cost. Interest income is recognised in profit or loss.

Impairment of financial assets

The Group recognises a loss allowance for expected credit loss (“ECL”) on financial assets at amortised costs. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective financial instrument.

The Group measures the loss allowance based on lifetime ECL when there has been a significant increase in credit risk since initial recognition. If, on the other hand, the credit risk on the financial instrument has not increased significantly since initial recognition, the Group measures the loss allowance for that financial instrument at an amount equal to 12-months ECL (“12m ECL”). The assessment of whether lifetime ECL should be recognised is based on significant increases in the likelihood or risk of a default occurring since initial recognition instead of on evidence of a financial asset being credit-impaired at the reporting date or an actual default occurring.

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

2.Summary of significant accounting policies (cont’d)

Significant increase in credit risk

In assessing whether the credit risk on a financial instrument has increased significantly since initial recognition, the Group compares the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition. In making this assessment, the Group considers both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward-looking information that is available without undue cost or effort. Forward-looking information considered includes the future prospects of the industries in which the Group’s debtors operate.

The Group assumes that the credit risk on a financial instrument has not increased significantly since initial recognition if the financial instrument is determined to have low credit risk at the reporting date. A financial instrument is determined to have low credit risk if i) the financial instrument has a low risk of default, ii) the borrower has a strong capacity to meet its contractual cash flow obligations in the near term and iii) adverse changes in economic and business conditions in the longer term may, but will not necessarily, reduce the ability of the borrower to fulfil its contractual cash flow obligations.

The Group regularly monitors the effectiveness of the criteria used to identify whether there has been a significant increase in credit risk and revises them as appropriate to ensure that the criteria are capable of identifying significant increase in credit risk before the amount becomes past due.

Definition of default

The Group considers that default has occurred when a financial asset is more than 90 days past due unless the Group has reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate.

Credit-impaired financial assets

A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred.

Write-off policy

The Group writes off a financial asset when there is information indicating that the counterparty is in severe financial difficulty and there is no realistic prospect of recovery. Any recoveries made are recognised in profit or loss.

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

2.Summary of significant accounting policies (cont’d)

Measurement and recognition of expected credit losses

For financial assets, the expected credit loss is estimated as the difference between all contractual cash flows that are due to the Group in accordance with the contract and all the cash flows that the Group expects to receive, discounted at the original effective interest rate.

If the Group has measured the loss allowance for a financial instrument at an amount equal to lifetime ECL in the previous reporting period, but determines at the current reporting date that the conditions for lifetime ECL are no longer met, the Group measures the loss allowance at an amount equal to 12m ECL at the current reporting date.

Derecognition of financial assets

The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party.

On derecognition of a financial asset measured at amortised cost, the difference between the asset's carrying amount and the sum of the consideration received and receivable is recognised in profit or loss.

Financial liabilities

Financial liabilities include trade and other payables and interest bearing loans and borrowings.

Initial recognition and measurement

Financial liabilities are recognised on the statement of financial position 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.

All financial liabilities are recognised initially at fair value plus directly attributable transaction costs.

Subsequent measurement

After initial recognition, financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

2.Summary of significant accounting policies (cont’d)

Derecognition

The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire.

Borrowings

Interest-bearing bank loans are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. Interest expense calculated using the effective interest method is recognised over the term of the borrowings.

All borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that the Group incurs in connection with the borrowing of funds.

Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) where, as a result of a past event, 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 on the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities.  Equity instruments are recorded at the proceeds received, net of direct issue costs.

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

2.Summary of significant accounting policies (cont’d)

Employee benefits

a) Defined contribution plans

The Group participates in the national pension schemes as defined by the laws of the countries in which it has operations. In particular, the Company makes contributions to the Central Provident Fund (CPF) scheme in Singapore, a defined contribution pension scheme. Contributions to defined contribution pension schemes are recognised as an expense in the period in which the related service is performed.

b) Employee leave entitlement

Employee entitlements to annual leave are recognised as a liability when they accrue to the employees. The estimated liability for leave is recognised for services rendered by employees up to reporting date.

c) Defined benefits plan

A defined benefit plan is a post-employment benefit plan other than a defined contribution plan.  The Group’s net obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value.  The fair value of any plan assets is deducted.  The Group determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the net defined benefit liability (asset).

The calculation is performed annually by a qualified actuary using the projected unit credit method.  When the calculation results in a benefit to the Group, the recognised asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan.  In order to calculate the present value of economic benefits, consideration is given to any minimum funding requirements that apply to any plan in the Group.  An economic benefit is available to the Group if it is realisable during the life of the plan, or on settlement of the plan liabilities.

Remeasurements from defined benefit plans comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest).  The Group recognises them immediately in other comprehensive income and all expenses related to defined benefit plans in employee benefits expense in profit or loss.

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

2.Summary of significant accounting policies (cont’d)

When the benefits of a plan are changed, or when a plan is curtailed, the portion of the changed benefit related to past service by employees, or the gain or loss on curtailment, is recognised immediately in profit or loss when the plan amendment or curtailment occurs.

The Group recognises gains and losses on the settlement of a defined benefit plan when the settlement occurs.  The gain or loss on settlement is the difference between the present value of the defined benefit obligation being settled as determined on the date of settlement and the settlement price, including any plan assets transferred and any payments made directly by the Group in connection with the settlement.

d) Share-based payment transactions

The grant date fair value of share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards.  The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet the related service and non-market performance conditions at vesting date.  For share-based payment awards with non-vesting conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.

The fair value of the amount payable to employees in respect of share appreciation rights, which are settled in cash, is recognised as an expense with a corresponding increase in liabilities, over the period that the employees become unconditionally entitled to payment.  The liability is remeasured at each reporting date and at settlement date based on the fair value of the share appreciation rights.  Any changes in the fair value of the liability are recognised as employee benefits expense in profit or loss.

Taxes

a) Current income tax

Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the end of the reporting period, in the countries where the Group operates and generates taxable income.

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

2.Summary of significant accounting policies (cont’d)

Current income taxes are recognised in the profit or loss except to the extent that the tax relates to items recognised outside the 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.

b) Deferred tax

Deferred income tax is provided using the liability method on temporary differences at the reporting period between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

• Where the deferred tax arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• In respect of temporary differences associated with investments in subsidiaries and associates, where the timing of the reversal of the temporary differences can be controlled by the Group and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax credits and unused tax losses can be utilised, except:

• Where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• In respect of deductible temporary differences associated with investments in subsidiaries and associates, deferred income tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

2.Summary of significant accounting policies (cont’d)

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

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the end of the reporting period. Except for investment properties measured using the fair value model, the measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Deferred income tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transaction either in other comprehensive income or directly in equity and deferred tax arising from a business combination is adjusted against goodwill on acquisition.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee.  All other leases are classified as operating leases.

As lessee

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.

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

2.Summary of significant accounting policies (cont’d)

Revenue recognition

Revenue is measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. The Group recognises revenue when it transfers control of a product or service to a customer.

Digital entertainment service revenue

Digital entertainment product and service revenues are generated through the sale of virtual points, prepaid cards and game packs. Virtual 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 prepaid cards and game packs, net of sales discounts, and virtual points are deferred when received, and revenue is recognised over time upon the actual usage of the playing time or in-game virtual items by the end-users based on the estimated service period of virtual items determined with reference to expiry period of the sold points in accordance with the Group’s published points expiration policy and the estimated useful life of virtual items.

The Group reports sales of virtual points on a gross basis. In the sales of virtual points, the Group acts as a principal and the Group has latitude in establishing price. Fixed percentage fees retained by convenient stores and service providers for payment processing related to the Group’s digital entertainment services are recognised as cost of digital entertainment revenues.

Segment reporting

An operating segment is a component of the Group that engages in business activities from which it may earn revenue and incur expenses, including revenue and expenses that relate to transactions with any of the Group’s other components.  All operating segments’ operating results are reviewed regularly by the Board of Directors (the chief operating decision maker) to make decisions about resources to be allocated to the segment and to assess its performance, and for which discrete financial information is available.

Segment results that are reported to the Board of Directors include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.  Unallocated items comprise mainly corporate assets (primarily the Company’s headquarters), head office expenses and tax assets and liabilities.

Segment capital expenditure is the total cost incurred during the year to acquire property, plant and equipment and intangible assets.

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

3. Critical accounting judgements and key sources of estimation uncertainty

In the application of the Group’s accounting policies, which are described in Note 2, Management is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant.  Actual results may differ from these estimates.

The estimates and underlying assumptions would be reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Critical judgements in applying the Group’s accounting policies

Management is of the opinion that any instances of application of judgement are not expected to have a significant effect on the amounts recognised in the financial statements, except for judgements relating to accounting estimates as discussed below.

Key sources of estimation uncertainty

The key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below:

a) Recognition of digital entertainment service revenue

Digital entertainment service revenue is earned via the sale of virtual points, prepaid cards and game packs. Proceeds from the sale of virtual points are deferred when received and revenue is recorded over time when the virtual points are consumed based on estimated life of virtual points. Management determines the estimated useful life of the virtual points based on the weighted average number of days of a user’s payment interval, the average turnover rate of the circulation of virtual point in the Group’s online games and the historical period based on the Group’s previously released online games.

The carrying amount of the Group’s contract liabilities and digital entertainment service revenue are disclosed in Notes 15 and 16 to the financial statements.

b) Impairment of prepaid licensing and royalty fees

The Group regularly reviews whether there are any indications of impairment and recognises an impairment loss if the carrying amount of the prepaid licensing and royalty fees is lower than its recoverable amount. The determination of recoverable amount is subject to management’s estimation based on the life cycle and sales generated from the online games.

The carrying amount of the Group’s prepaid licensing and royalty fees is disclosed in Note 9 to the financial statements.

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

4 Property, plant and equipment

	Leasehold improvements	Information and communication equipment	Office furniture and equipment	Equipment under installation	Total
Group	US$’000	US$’000	US$’000	US$’000	US$’000
Cost
At 1 January 2017	–	306	–	7	313
Additions	141	3	32	16	192
Reclassification	–	23	–	(23)	–
Effect of movements in exchange rates	–	15	1	–	16
At 31 December 2017	141	347	33	–	521
Additions	–	66	–	–	66
Disposals/Write offs	–	(317)	–	–	(317)
Effect of movements in exchange rates	(2)	(5)	(1)	–	(8)
At 31 December 2018	139	91	32	–	262
Accumulated depreciation
At 1 January 2017	–	306	–	–	306
Depreciation charge to profit or loss	35	1	6	–	42
Effect of movements in exchange rates	–	14	1	–	15
At 31 December 2017	35	321	7	–	363
Depreciation charge to profit or loss	72	20	8	–	100
Disposals/Write offs	–	(317)	–	–	(317)
Effect of movements in exchange rates	–	(4)	(1)	–	(5)
At 31 December 2018	107	20	14	–	141
Carrying amounts
At 31 December 2017	106	26	26	–	158
At 31 December 2018	32	71	18	–	121

41

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

5 Intangible assets

	Purchased software development costs
	US$’000
Group
Cost
At 1 January 2017	–
Additions	11
At 31 December 2017	11
Additions	61
Disposals/Write offs	(13)
Effect of movements in exchange rates	5
At 31 December 2018	64
Accumulated amortisation and impairment losses
At 1 January 2017	–
Amortisation for the year	7
Effect of movements in exchange rates	1
At 31 December 2017	8
Amortisation for the year	26
Disposals/Write offs	(13)
Effect of movements in exchange rates	5
At 31 December 2018	26
Carrying amounts
At 31 December 2017	3
At 31 December 2018	38

6 Subsidiaries

	Company
	2018	2017
	US$’000	US$’000
At 1 January	64,650	59,658
Effect of movements in exchange rates	(2,010)	4,992
At 31 December	62,640	64,650

42

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

Details of the subsidiaries are as follows:

Name of subsidiaries	Principal activities	Country of incorporation	Percentage ownership interest
			2018	2017
			%	%
Held by the Company
GigaMedia International Holdings Limited	Holding company	British Virgin Islands	100	100
Held by GigaMedia International Holdings Limited
Cambridge Entertainment Software Limited	Holding company	British Virgin Islands	100	100
GigaMedia (HK) Limited	Holding company	Hong Kong	100	100
GigaMedia Online Entertainment Corp.	Holding company	Cayman Islands	100	100
GigaMedia (Cayman) Limited.	Holding company	Cayman Islands	100	100

Held by FunTown World Limited
FunTown Hong Kong Limited	Online games	Hong Kong	100	100

Held by GigaMedia Online Entertainment Corp.
FunTown World Limited	Holding company	British Virgin Islands	100	100
GigaMedia Freestyle Holdings Limited	Holding company	British Virgin Islands	100	100
GigaMedia (Labuan) Limited	Holding company	Labuan	100	100
Megabiz Limited	Holding company	British Virgin Islands	100	100

43

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

Name of subsidiaries	Principal activities	Country of incorporation	Percentage ownership interest
			2018	2017
			%	%
Held by GigaMedia (Cayman) Limited.
Hoshin GigaMedia Center Inc.	Online games	Taiwan	100	100
Giga Development Corporation	Holding company	Taiwan	100	100
GigaMedia Cloud Services Co., Ltd.	Cloud computing services	Taiwan	100	100
Held by Cambridge Entertainment Software Limited
Cambridge Interactive Development Corporation	Software development and application services	U.S.A.	–(1)	100
Held by GigaMedia (Labuan) Limited
Leisure Alliance Sdn. Bhd.	Holding company	Malaysia	–(1)	100
Held by Giga Development Corporation
Wen He Investment Ltd.	Holding company	Taiwan	100	100
Held by Hoshin GigaMedia Center IncPlay2gether Digital Technology Co., Ltd.Online gamesTaiwan100100Gaminfinity Publishing Co., Ltd.Online gamesTaiwan100100Held by GigaMedia (HK) LimitedShanghai Pontoon Networking Technology Co., Ltd.Online gamesChina100100 (1) Liquidated in 2018.

44

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

7 Other assets

		Group
	Note	2018	2017
		US$’000	US$’000
Refundable deposits		197	208
Prepaid licensing and royalty fees		637	1,619
Prepaid pension assets	13	56	70
Others		3	4
		917	1,901
Less: Impairment loss on prepaid licensing and royalty fees		(202)	(1,160)
		691	741
Non-current assets		256	282
Current assets		435	459
		691	741

Assessment of impairment of prepaid licensing and royalty fees

The Group recorded prepaid licensing and royalty fees of US$637,000 (2017: US$1,619,000) arising from the purchase of licences for its online games for subsequent financial periods.

At the reporting date, the impairment charge for prepaid licensing and royalty fees relates to certain licensed online games, which the carrying amounts of the related assets were determined not to be recoverable based on their expected life cycle and the forecasted sales.  Based on the assessment, an impairment loss of US$244,000 (2017: US$Nil) was recorded in profit or loss. Movements in allowance for impairment losses on prepaid licensing and royalty fees during the year were as follows:

	Group
	2018	2017
	US$’000	US$’000
At 1 January	1,160	1,386
Impairment loss recognised	244	–
Amounts written off	(1,202)	(226)
At 31 December	202	1,160

45

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

8 Trade and other receivables

	Group		Company
	2018	2017	2018	2017
	US$’000	US$’000	US$’000	US$’000
Trade receivables
-third parties	528	763	–	–
Less: Allowance for doubtful receivables	(5)	(12)	–	–
	523	751	–	–
Other receivables
-subsidiaries	–	–	1,665	1,760
-third parties	3	68	–	–
Prepayments	122	390	–	–
Others	121	125	–	–
	769	1,334	1,665	1,760

Trade balances

The trade amounts are unsecured, interest-free and with an average credit period of
30 days (2017: 30 days).

Loss allowance for trade receivables has been measured at an amount equal to lifetime ECL. The ECL on trade receivables are estimated by reference to past default experience of the debtor and an analysis of the debtor’s current financial position, adjusted for factors that are specific to the debtors, general economic conditions of the industry in which the debtors operate.

A trade receivable is written off when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery, e.g. when the debtor has been placed under liquidation or has entered into bankruptcy proceedings. None of the trade receivables that have been written off is subject to enforcement activities.

The following is an aged analysis of trade receivables at the end of the reporting period, net of loss allowance for trade receivables:

	Group
	2018	2017
	US$’000	US$’000
Current	424	588
Past due 0 – 90 days	92	152
Past due 91 – 180 days	2	1
More than 180 days	5	10
	523	751

46

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

The table below shows the movement in loss allowance for trade receivables:

	Group
	2018	2017
	US$’000	US$’000
Balance at 1 January	12	32
Charge to profit or loss	23	127
Written off	(29)	(149)
Effect of movements in exchange rates	(1)	2
Balance at 31 December	5	12

For the financial year ended 31 December 2018, the trade receivables have been assessed based on lifetime ECL individually and are not credit impaired.

Other receivables and amounts due from subsidiaries

The non-trade amounts due from subsidiaries are unsecured, interest-free and repayable on demand.

For purpose of impairment assessment, other receivables and amounts due from subsidiaries are considered to have low credit risk as they are not due for payment at the end of the reporting period and there has been no significant increase in the risk of default on the receivables since initial recognition.

Management estimates the loss allowance on other receivables at an amount equal to 12-month ECL, taking into account the historical default experience, current financial conditions of the counterparties and subsidiaries and the future prospects of the industry of each counterparty and subsidiary.

Based on the assessment, management is of the view that the ECL is insignificant as the credit risk of the counterparties and subsidiaries are low.

47

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

9 Cash and cash equivalents

	Group		Company
	2018	2017	2018	2017
	US$’000	US$’000	US$’000	US$’000
Bank balances	59,302	63,664	2,268	2,652
Short-term deposits	524	513	–	–
	59,826	64,177	2,268	2,652
Less: Restricted cash	(518)	(507)
Cash and cash equivalents in the statement of cash flows	59,308	63,670

The weighted average effective interest rate per annum relating to the fixed deposits at the reporting date for the Group is 3.20% (2017: 2.05%).  Depending on the terms of the deposit, interest rates reprice every half-yearly and yearly.

In 2018, restricted cash amounting to US$518,000 (2017: US$507,000) relates to deposits pledged for unutilised game point cards.

10 Share capital

	2018	2017
	No. of shares	No. of shares
	’000	’000
Group and Company
In issue at 1 January and 31 December	11,052	11,052

All issued shares are fully paid, with no par value.

(i) Ordinary shares

The holders of ordinary shares are entitled to receive dividends as declared from time to time, and are entitled to one vote per share at meetings of the Company.

(ii) Capital management

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.

There were no changes in the Group’s approach to capital management during the year.

The Group is not subject to externally imposed capital requirements.

48

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

11 Reserves

	Group		Company
	2018	2017	2018	2017
	US$’000	US$’000	US$’000	US$’000
Share option reserve	12,861	12,858	12,861	12,858
Statutory reserve	1,516	1,516	–	–
Foreign currency translation reserve	(21,199)	(20,869)	(14,563)	(12,429)
	(6,822)	(6,495)	(1,702)	429

Share option reserve

Employee share options represent the equity-settled share option granted to employees and executive director of the Group.  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. The details of the share options are disclosed as follows:

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 400 thousand ordinary 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. There were 4,000 shares granted in May 2017. The 2007 Plan has lapsed in June 2017.

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 200 thousand ordinary 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. No shares have been issued under the 2008 Plan during the current financial year.

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 40 thousand ordinary 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 granted or subscribed by qualified employees under the 2008 ESPP.

49

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

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 300 thousand ordinary 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. No shares have been issued under the 2009 Plan during the current financial year.

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 40 thousand ordinary 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 granted or 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 200 thousand ordinary 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. No shares have been issued under the 2010 Plan during the current financial year.

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 40 thousand ordinary 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 granted or subscribed by qualified employees under the 2010 ESPP.

50

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

Summarised below are the general terms of its share-based compensation plans as of 31 December 2018.

Date granted	Balance at beginning of year	Granted during the year	Expired/ forfeited during the year	Balance at end of year	Options’ exercise price	Exercise period
	’000	’000	’000	’000	US$
29.01.2008	8	–	(8)	–	$80.05	29.01.2008 - 29.01.2018
01.12.2008	68	–	(68)	–	$21.20	01.12.2008 - 19.06.2018
13.05.2010	176	–	–	176	$12.35	13.05.2010 - 13.05.2020
20.05.2011	12	–	–	12	$6.25	20.05.2011 - 20.05.2021
05.01.2012	4	–	–	4	$4.05	05.01.2012 - 05.01.2022
28.10.2013	4	–	–	4	$5.05	28.10.2013 - 28.10.2023
28.03.2014	25	–	–	25	$7.15	28.03.2014 - 28.03.2024
31.03.2015	8	–	(4)	4	$3.85	31.03.2015 - 31.03.2025
05.05.2017	4	–	–	4	$2.90	05.05.2017 - 05.05.2027
	309	–	(80)	229

All options are expected to be settled by issuing new shares. At the end of the financial year, details of the options granted are as follow:

	Number of outstanding share options
Range of exercise price	At beginning of the year	Granted during the year	Expired/ forfeited during the year	Exercised during the year	At end of the year	Weighted average remaining exercise period
	’000	’000	’000	’000	’000
2018
Under US$5	16	–	(4)	–	12	5.87 years
US$5–US$50	285	–	(68)	–	217	1.93 years
US$50–US$100	8	–	(8)	–	–	–
	309	–	(80)	–	229
2017
Under US$5	112	4	(100)	–	16	6.97 years
US$5–US$50	378	–	(93)	–	285	2.35 years
US$50–US$100	123	–	(115)	–	8	0.08 years
	613	4	(308)	–	309

227,000 options (2017: 298,000) out of options 229,000 (2017: 309,000) are exercisable at the end of the year.

As at 31 December 2018, approximately US$1,000 (2017: US$4,000) of unrecognised compensation cost relates to non-vested options.  That cost is expected to be recognised over a period of 1.35 years (2017: 0.94 years).

51

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

The Company has used the Black-Scholes option-pricing model to derive the fair value of share options granted to employees on the grant date.  There was no share option granted in 2018.  The following summarises the assumptions used for share option granted in 2017:

	2017
Option term (years)	6.01
Volatility	48.997%
Weighted average volatility	49%
Weighted average share price	US$2.90
Risk–free interest rate	2.031%
Dividend yield	0%
Weighted-average fair value of option granted during the year	US$1.41

Option term

Option term represents the period of time that they are expected to be outstanding.  Management estimates this based on historical trends.

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

Expected dividend yield is based on the Company’s current dividend yield.

Statutory reserves

In accordance with R.O.C. law, an appropriation for legal reserve amounting to 10% 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 2018 and 2017, the legal reserves of Hoshin GigaMedia Center Inc. (“Hoshin GigaMedia”), were US$1.5 million and US$1.5 million, respectively.  The reserve can only be used to offset a deficit or be distributed as a stock dividend of up to 50% of the reserve balance when the reserve balance has reached 50% of the aggregate paid-in capital of Hoshin GigaMedia.

Translation reserve

The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations.

52

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

12 Deferred tax liabilities

Movement in temporary differences during the year

	At 1 January 2017	Recognised in profit or loss (Note 19)	At 31 December 2017 and 2018
	US$’000	US$’000	US$’000
Group
Deferred tax liabilities
Dividend withholding tax from investees	(1,671)	1,671	–

In October 2017, a subsidiary of the Group in the U.S. resolved to dissolve and liquidate. The subsidiary completed the process and filed final tax return in February 2018. The distributions from the liquidation were deemed capital gains and thus free of dividend withholding tax. Accordingly, the Group reversed the deferred income tax liabilities relating to the withholding obligations upon possible dividend distribution.

As at 31 December 2018, the Group has tax losses carried forward, available to offset against future taxable income, the natures and jurisdictions of which were summarised as follows:

	2018		2017
Jurisdiction	Amount (US$’000)	Expiring year	Amount (US$’000)	Expiring year
Hong Kong	15,721	Indefinite	15,444	Indefinite
Taiwan	32,283	2020-2027	30,952	2020-2027

Deferred tax assets relating to unutilised tax losses has not been recognised due to the unpredictability of future profit streams.  Consequently, the Group did not recognise deferred tax assets of US$11,771,000 (2017: US$10,322,000).

13 Prepaid pension assets

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

Defined benefit pension plan

In accordance with the Labor Standards Law of the Republic of China, the Group has a defined benefit pension plan for its employees in Taiwan.  The pension plan covers 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 twice the monthly salary for each year of service for the first 15 years, and an additional one month for every additional year of service, up to a maximum of 45 months.  The pension payment to employees is computed based on the average monthly salary for the six months prior to approved retirement.

53

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

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 following provides fund status of the plan and a reconciliation of employee benefits.

	Group
	2018	2017
	US$’000	US$’000
Fair value of plan assets	(376)	(365)
Projected benefit obligation	320	295
Other assets – prepaid pension assets	(56)	(70)

Expense recognised in profit or loss
	Group
	2018	2017
	US$’000	US$’000
Current service costs	–	–
Net interest on net defined benefit liability	(1)	(1)
Employee benefits	(1)	(1)
Movement in the present value of the defined benefit obligations
Projected benefit obligation at 1 January	295	263
Interest cost	5	4
Actuarial loss	30	6
Currency translation difference	(10)	22
Defined benefit obligation at 31 December	320	295
Movement in the fair value of plan assets
Fair value of plan assets at 1 January	365	325
Expected return on plan assets	6	5
Actuarial gains (losses)	8	(1)
Contributions by employer	9	8
Currency translation difference	(12)	28
Fair value of plan assets at 31 December	376	365
Return on plan assets
Expected return on plan assets	6	5
Actuarial gains (losses)	8	(1)
Actual return on plan assets	14	4
Assets Categories
Cash	100%	100%

54

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

Actuarial assumptions

Weighted-average assumptions used to determine defined benefit obligations as at 31 December 2018 and 2017 were as follows:

	2018	2017
Discount rate	1.375%	1.625%
Rate of compensation increase	2.00%	2.00%

The Group expects to make a contribution of US$8,000 to the Fund in 2019.  The Group expect to make benefit payments of US$1,000 from 2019 to 2023 and US$20,000 from 2024 to 2028.

Defined contribution pension plan

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

Taiwan

Pursuant to the new “Labor Pension Act” enacted on 1 July 2005, the Group set up a defined contribution pension plan for its employees located in Taiwan.  For eligible employees who elect to participate in the defined contribution pension plan, the Group contribute no less than 6% of the employees’ salaries and wages paid each month, up to the maximum amount of NT$9,000 (approximately US$293 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.

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$1,500 (approximately US$191 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.

The total amount of defined contribution pension expenses pursuant to defined contribution plans for the years ended 31 December 2018 were US$210,000 (2017: US$190,000).

14 Trade and other payables

	Group		Company
	2018	2017	2018	2017
	US$’000	US$’000	US$’000	US$’000
Trade payables	104	314	–	–
Accrued expenses	1,433	2,707	206	252
Other payables	367	164	–	–
Trade and other payables	1,904	3,185	206	252

55

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

15 Contract liabilities

Contract liabilities represent proceeds received from the sale of virtual points and in-game virtual items which have not been consumed by the users or expired.  Contract liabilities are credited to profit or loss and recognised as revenue when the virtual points and virtual in-game items are consumed or expired.

16 Revenue

	Group
	2018	2017
	US$’000	US$’000
Digital entertainment service revenue*	7,101	11,596

* Included in the digital entertainment service revenue is revenue from sale of virtual points amounted to US$5.8 million (2017: US$10.1 million). The digital entertainment service revenue is recognised over time.

As at 31 December 2018, there are unsatisfied performance obligations amounting to US$1,608,000.

17 Other income

	Group
	2018	2017
	US$’000	US$’000
Gain on sale of available-for sale financial asset	–	2
Refund of licensing and royalty fees written off in     prior years	–	1,732
Net exchange gain	267	–
Others	61	1
	328	1,735

18 Net finance (expenses) income

	Group
	2018	2017
	US$’000	US$’000
Finance income
Interest income	1,302	602
Finance expenses
Interest expense	–	(34)
Net finance income	1,302	568

56

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

19 Tax credit

	Group
	2018	2017
	US$’000	US$’000
Deferred tax benefit
Adjustment for prior years	–	1,671

Reconciliation of effective tax rate
Loss before tax	(3,191)	(584)
Tax calculated at 17% (2017: 17%)	543	99
Effect of tax rates in foreign jurisdictions	338	46
Non-deductible expenses	(118)	(240)
Current year losses for which no deferred tax asset was recognised	(1,587)	(117)
Over provision in prior years	–	1,671
Recognition of tax effects of previously unrecognised tax losses	560	544
Others	264	(332)
	–	1,671

20 (Loss) Profit for the year

Other than those disclosed elsewhere in the financial statements, the following items have been included in arriving at loss for the year:

	Group
	2018	2017
	US$’000	US$’000
Employee benefits expense (see below)	4,582	4,364
Amortisation charge on intangible assets	26	7
Depreciation of property, plant and equipment	100	42
Rental expenses	516	600
Employee benefits expense
Wages and salaries	4,308	4,162
Employee equity-settled share-based payment	3	(7)
Employee expense relating to defined benefit and contribution pension plans	210	190
Termination benefits	61	19
	4,582	4,364

57

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

21 Commitments

Operating leases

The Group leases offices premises under operating leases, where the lease agreements expire in 2021 (2017: 2021).  The following table sets forth the future minimum lease payments required under these operating leases:

	2018	2017
	US$’000	US$’000
Payable:
Within 1 year	450	499
After 1 year but within 5 years	504	967
	954	1,466

Licence agreements

The Group has contractual obligations under various licence agreements to pay the licensors licence 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 licences agreements as at year end.

	Licence fees	Minimum guarantees against future royalties	Total
	US$’000	US$’000	US$’000
31 December 2018
Minimum required payments:
Within 1 year	–	200	200
31 December 2017
Minimum required payments:
Within 1 year	-	400	400

The minimum guarantees against future royalties and licence fees are generally not required to be paid until the licensed games are commercially released or until certain milestones are achieved, as stipulated in the individual licence agreements.  

58

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

22 Related parties

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.

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 24,000 (2017: 24,911).

Transaction with key management personnel

Key management personnel of the Group are those persons having the authority and responsibility for planning, directing and controlling the activities of the entity.  The directors are considered as key management personnel of the Group.

Key management personnel compensation comprised:

	Group
	2018	2017
	US$’000	US$’000
Wages and salaries	404	402
Director fee	135	135
Share-based payments	3	2
Other benefit	34	31
	576	570

Other related party transactions

There are no significant related party transactions during 2018 and 2017.

23 Financial instruments

(a) Categories of financial instruments

The following table sets out the financial instruments as at the end of the reporting period:

	Group		Company
	2018	2017	2018	2017
	US$’000	US$’000	US$’000	US$’000
Financial assets at amortised cost	60,670	65,329	3,933	4,412
Financial liabilities at amortised cost	1,904	3,185	206	252

59

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

(b)Financial risk management

The Group has exposure to the following risks from its use of financial instruments:

• Credit risk

• Liquidity risk

• Market risk

This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s management of capital.

Risk management framework

The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Board has established the Audit Committee, which is responsible for overseeing the Group’s risk management policies.  The Audit Committee reports regularly to the Board of Directors on its activities.

The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits.  Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities.  The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

The Audit Committee oversees how management monitors compliance with the Group’s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Group.  The Audit Committee is assisted in its oversight role by Internal Audit.  Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.

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 revenue in 2018 and 2017 or of the balance of trade receivables as of 31 December 2018 and 2017.  

The credit risk of the Group’s and the Company’s financial assets, which comprise bank deposits and other receivables, represents the maximum exposure to credit risk is the carrying amounts of these instruments.

Cash and cash equivalents are held with reputable financial institutions.

60

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

For trade related balances, the Group has applied the simplified approach in FRS 109 to measure the loss allowance at lifetime ECL. The Group determines the expected credit losses on these items based on historical credit loss experience based on the past due status of the debtors, adjusted as appropriate to reflect current conditions and estimates of future economic conditions. Note 8 includes further details on the loss allowance for the trade receivables.

For non-trade related balances, the Group has established a policy to perform an assessment as at 31 December 2018, of whether a financial instrument’s credit risk has increased significantly since initial recognition, by considering the change in the risk of default occurring over the remaining life of the financial instrument. The Group groups its other receivables into Stage 1, Stage 2 and Stage 3, as described below:

Stage 1 When other receivables are first recognised, the Group recognised an allowance based on 12 months’ ECL.

Stage 2 When other receivables have shown a significant increase in credit risk since origination, the Group records an allowance for the lifetime ECLs.

Stage 3 Other receivables considered credit-impaired. The Group records an allowance for the lifetime ECLs.

Management also makes periodic collective assessments for other receivables (including amounts due from subsidiaries) as well as individual assessment on the recoverability of other receivables based on historical settlement records, past experience and other factors. The Group classified other receivables in stage 1 and continuously monitored their credit risk.

Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset.  The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.

The Group’s and Company’s financial assets and liabilities are due on demand or within one year from the end of the reporting period.

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income of the value of its holdings of financial instruments.  The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising returns.

61

GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

Foreign currency risk

The Group holds some assets or liabilities in foreign currency other than functional currency and the value of these assets and liabilities are mainly subject to foreign currency risks resulting from fluctuations in exchange rates between the US dollar (USD) and the functional currency.

The Group’s and Company’s exposures to foreign currencies in US dollar equivalent are as follows:

	Group		Company
	2018	2017	2018	2017
	US$’000	US$’000	US$’000	US$’000
Group
Financial assets
USD	8,002	3,625	3,933	4,412
Financial liabilities
USD	40	93	40	40

Sensitivity analysis

The following table details the Group’s and Company’s sensitivity to a 10% increase and decrease in the USD against the relevant functional currencies. 10% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change in foreign currency rates.

If the USD weakens by 10% against the functional currency of each group entity, profit before tax will increase (decrease by):

	Group		Company
	2018	2017	2018	2017
	US$’000	US$’000	US$’000	US$’000
Group
USD	797	353	389	437

If the USD strengthens by 10% against the functional currency of each group entity, profit before tax will decrease (increase) by the same amount above.

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of the Group’s and Company’s financial instruments will fluctuate because of changes in market interest rates. The Group and Company are not exposed to significant interest rate risk.

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GIGAMEDIA LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

31 DECEMBER 2018

(c)Fair values of financial assets and financial liabilities

The fair values of current financial assets and liabilities approximate the carrying amounts of those assets and liabilities reported in the statement of financial position due to the relatively short-term maturity of these financial instruments.

24 Segment information

Business segments

For the reportable segment, the Group’s chief operating decision maker reviews internal management reports on at least a quarterly basis. Management assesses the performance of the Group’s operations based on the profit before income tax, total assets and total liabilities which are measured in a manner consistent with that of the consolidated financial statements. The following summary describes the operations in the Group’s reportable segments:

Digital entertainment service: The development and licensure of digital entertainment products and services and investment in associates and available-for-sale financial assets.

Major Customers

No single customer represented 10 percent or more of the Group’s total revenue in 2018 and 2017.

Geographic Information

In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of revenue sources.  Segment assets are based on the geographical location of the assets.

Revenue	2018	2017
	US$’000	US$’000
Taiwan	2,958	2,349
Hong Kong	4,143	9,247
Total	7,101	11,596
Non-current assets
Taiwan	340	79
Hong Kong	75	364
	415	443

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