##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D. C. 20549
 
 FORM 20-F
 
 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2007
 Commission File Number: 000-30540
 
 GIGAMEDIA LIMITED
 (Exact name of registrant as specified in its charter)
 
 REPUBLIC OF SINGAPORE
(Jurisdiction of incorporation or organization)
 8 TH FLOOR,
207 TIDING BOULEVARD, SECTION 2, TAIPEI 114, TAIWAN, R.O.C.
(Address of principal executive offices)
 Registrants telephone number, including area code
886-2- 2656-8000
 
 Securities registered or to be registered pursuant to Section 12(b) of the Exchange Act:
 Title of Each Class
    
    Name of Each Exchange on Which RegisteredOrdinary Shares
    
    The NASDAQ Stock Market LLC
 Securities registered or to be registered pursuant to Section 12(g) of the Exchange Act:
None
 Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
  53,699,740 ordinary shares
 þ o
 o þ
  þ o
  U.S. GAAP þ
    
    International Financial Reporting Standards as issued
by the International Accounting Standards Board o
    
    Other o
  o þ o
 o þ
 o þ




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##### 



TABLE OF CONTENTS
 PagePART I
    
    
    
    
    
    
    2ITEM 1.
    
    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
    
    
    2ITEM 2.
    
    OFFER STATISTICS AND EXPECTED TIMETABLE
    
    
    2ITEM 3.
    
    KEY INFORMATION
    
    
    2ITEM 4.
    
    INFORMATION ON THE COMPANY
    
    
    18ITEM 4A.
    
    UNRESOLVED STAFF COMMENTS
    
    
    45ITEM 5.
    
    OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    
    
    45ITEM 6.
    
    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    
    
    70ITEM 7.
    
    MAJOR SHAREHOLDERS AND RELATED-PARTY TRANSACTIONS
    
    
    76ITEM 8.
    
    FINANCIAL INFORMATION
    
    
    77ITEM 9.
    
    THE OFFER AND LISTING
    
    
    79ITEM 10.
    
    ADDITIONAL INFORMATION
    
    
    80ITEM 11.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    94ITEM 12.
    
    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    
    94PART
II
    
    
    
    
    
    
    94ITEM 13.
    
    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    
    94ITEM 14.
    
    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
    
    
    95ITEM 15.
    
    CONTROLS AND PROCEDURES
    
    
    95ITEM 16.
    
    [Reserved]
    
    
    96ITEM 16 A.
    
    AUDIT COMMITTEE FINANCIAL EXPERT
    
    
    96ITEM 16 B.
    
    CODE OF ETHICS
    
    
    96ITEM 16 C.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    96ITEM 16 D.
    
    EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
    
    
    97ITEM 16 E.
    
    PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
    
    
    97PART
III
    
    
    
    
    
    
    97ITEM 17.
    
    FINANCIAL STATEMENTS
    
    
    97ITEM 18.
    
    FINANCIAL STATEMENTS
    
    
    97ITEM 19.
    
    EXHIBITS
    
    
    98EX-4.55 EXCLUSIVE BUSINESS CONSULTANCY SERVICE AGREEMENT DATED NOVEMBER 15, 2006EX-4.56 SUPPLEMENTAL AGREEMENT TO EXCLUSIVE BUSINESS CONSULTANCY SERVICE AGREEMENT DATED APRIL 1, 2007EX-4.57 EXCLUSIVE TECHNICAL SERVICE AND CONSULTANCY AGREEMENT DATED NOVEMBER 15, 2006EX-4.58 SUPPLEMENTAL AGREEMENT TO EXCLUSIVE TECHNICAL SERVICE AND CONSULTANCY AGREEMENT DATED APRIL 1, 2007EX-4.59 AGREEMENT FOR PLEDGE OF SHARES DATED FEBRUARY 9, 2007EX-4.60 EXCLUSIVE CALL OPTION AGREEMENT DATED FEBRUARY 9, 2007EX-4.61 PROXY VOTING AGREEMENT DATED FEBRUARY 9, 2007EX-4.62 EXCLUSIVE BUSINESS CONSULTANCY SERVICE AGREEMENT DATED NOVEMBER 15, 2006EX-4.63 SUPPLEMENTAL AGREEMENT TO EXCLUSIVE BUSINESS CONSULTANCY SERVICE AGREEMENT DATED JANUARY 1, 2007EX-4.64 AGREEMENT FOR PLEDGE OF SHARES DATED MARCH 20, 2008EX-4.65 EXCLUSIVE CALL OPTION AGREEMENT DATED MARCH 20, 2008EX-4.66 PROXY VOTING AGREEMENT DATED MARCH 20, 2008EX-4.67 SHARE PURCHASE AGREEMENT DATED JUNE 3, 2007EX-4.68 SHARE PURCHASE AGREEMENT DATED JUNE 6, 2007EX-4.69 SHARE PURCHASE AGREEMENT DATED JUNE 10, 2007EX-4.70 SHARE PURCHASE AGREEMENT DATED JULY 5, 2007EX-4.71 SHARE PURCHASE AGREEMENT DATED JULY 6, 2007EX-4.72 SHARE PURCHASE AGREEMENT DATED JULY 6, 2007EX-4.73 SHARE PURCHASE AGREEMENT DATED MAY 26, 2008EX-12.1 CERTIFICATION BY CEOEX-12.2 CERTIFICATION BY CFOEX-13.1 CERTIFICATION BY CEOEX-13.2 CERTIFICATION BY CFOEX-15.1 CONSENT OF GHP HORWATH, P.C.




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====================================================================================================================================

USE OF CERTAIN TERMS
  DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
  
    
    our business plan and strategies;
    
    our future business development and potential financial condition, results of
operations and other projected financial information;
    
    our ability to manage current and potential future growth;
    
    expected continued acceptance of our revenue model;
    
    our plans for strategic partnerships, licenses and alliances;
    
    our acquisition and strategic investment strategy, and ability to successfully
integrate any past, current, or future acquisitions into our operations;
    
    our ability to protect our intellectual property rights and the security of our
customers information;
    
    expected continued acceptance of our online games and gaming software, including
expected growth of the online games and online gaming industry, and consumer
preferences for our products and services;
    
    the development of new online game and gaming software products in-house, our plans
to license additional games from third parties, and the launch of these new games or
gaming software systems, including the timing of any such development, licenses or
launches;
    
    potential entry of new competitors in any of our business lines;
    
    changes in PRC laws and governmental regulation, and future enforcement of those
laws and regulations, including laws and regulations relating to Internet usage,
advertising over the Internet, Internet content providers, foreign investors in online
business and distribution of dividends;
    
    expected growth in the number of Internet, online games, and gaming software users
in the PRC and other areas of operation;
    
    changes or stability in certain regulatory environments in our places of operation,
including our licensees operations or gaming licenses;
    
    the outcome of ongoing, or any future, litigation or arbitration; and
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
    
    our corporate classification by various governmental entities.
  
 PART I
 
 ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
  
 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
  
 ITEM 3. KEY INFORMATION
 Exchange Rates
   A. Selected Financial Data
  2




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For the Years Ended December 31,
 2003
    
    2004
    
    2005
    
    2006
    
    2007US$
    
    US$
    
    US$
    
    US$
    
    US$STATEMENT OF OPERATIONS DATA:OPERATING REVENUESGaming software and service revenues
    
    
    0
    
    
    
    11,434
    
    
    
    22,511
    
    
    
    55,019
    
    
    
    118,950Online game and service revenues
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    18,692
    
    
    
    32,764Internet access and service revenues
    
    
    19,396
    
    
    
    21,303
    
    
    
    21,589
    
    
    
    20,537
    
    
    
    15,147Other revenues
    
    
    117
    
    
    
    107
    
    
    
    87
    
    
    
    44
    
    
    
    17Total operating revenues
    
    
    19,513
    
    
    
    32,844
    
    
    
    44,187
    
    
    
    94,292
    
    
    
    166,878OPERATING COSTSCost of gaming software and service revenues
    
    
    0
    
    
    
    (1,592
    )
    
    
    (3,327
    )
    
    
    (7,824
    )
    
    
    (16,201
    )Cost of online game and service revenues
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    (3,667
    )
    
    
    (9,118
    )Cost of Internet access and service revenues
    
    
    (15,093
    )
    
    
    (13,873
    )
    
    
    (13,568
    )
    
    
    (11,449
    )
    
    
    (10,002
    )Cost of other revenues
    
    
    (1,022
    )
    
    
    (644
    )
    
    
    (488
    )
    
    
    (391
    )
    
    
    (223
    )Total operating costs
    
    
    (16,115
    )
    
    
    (16,109
    )
    
    
    (17,383
    )
    
    
    (23,331
    )
    
    
    (35,544
    )GROSS PROFIT
    
    
    3,398
    
    
    
    16,735
    
    
    
    26,804
    
    
    
    70,961
    
    
    
    131,334OPERATING EXPENSESProduct development and engineering expenses
    
    
    (1,211
    )
    
    
    (2,513
    )
    
    
    (3,562
    )
    
    
    (5,738
    )
    
    
    (7,911
    )Selling and marketing expenses
    
    
    (2,432
    )
    
    
    (6,310
    )
    
    
    (10,777
    )
    
    
    (30,123
    )
    
    
    (62,349
    )General and administrative expenses
    
    
    (5,162
    )
    
    
    (5,657
    )
    
    
    (7,892
    )
    
    
    (12,421
    )
    
    
    (22,240
    )Bad debt expenses
    
    
    (128
    )
    
    
    220
    
    
    
    (207
    )
    
    
    (715
    )
    
    
    (743
    )Impairment loss on property, plant and equipment
    
    
    (1,557
    )
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0(10,490
    )
    
    
    (14,260
    )
    
    
    (22,438
    )
    
    
    (48,997
    )
    
    
    (93,243
    )Income (loss) from operations
    
    
    (7,092
    )
    
    
    2,475
    
    
    
    4,366
    
    
    
    21,964
    
    
    
    38,091Income (loss) from continuing operations
    
    
    (9,799
    )
    
    
    1,253
    
    
    
    6,490
    
    
    
    30,784
    
    
    
    38,890Income (loss) from discontinued operations
    
    
    (4,296
    )
    
    
    429
    
    
    
    (154
    )
    
    
    0
    
    
    
    0Net income (loss)
    
    
    (14,095
    )
    
    
    1,682
    
    
    
    6,336
    
    
    
    30,784
    
    
    
    38,890Earnings (loss) per share (in dollars)Basic:Income (loss) from continuing operations
    
    
    (0.20
    )
    
    
    0.02
    
    
    
    0.13
    
    
    
    0.60
    
    
    
    0.74Income (loss) from discontinued operations
    
    
    (0.08
    )
    
    
    0.01
    
    
    
    0
    
    
    
    0
    
    
    
    0Net income (loss)
    
    
    (0.28
    )
    
    
    0.03
    
    
    
    0.13
    
    
    
    0.60
    
    
    
    0.74Diluted:Income (loss) from continuing operations
    
    
    (0.20
    )
    
    
    0.02
    
    
    
    0.12
    
    
    
    0.51
    
    
    
    0.65Income (loss) from discontinued operations
    
    
    (0.08
    )
    
    
    0.01
    
    
    
    0
    
    
    
    0
    
    
    
    0Net income (loss)
    
    
    (0.28
    )
    
    
    0.03
    
    
    
    0.12
    
    
    
    0.51
    
    
    
    0.65
 As of December 31,
 2003
    
    2004
    
    2005
    
    2006
    
    2007US$
    
    US$
    
    US$
    
    US$
    
    US$BALANCE SHEET DATA:Total current assets
    
    
    77,709
    
    
    
    67,726
    
    
    
    70,204
    
    
    
    64,176
    
    
    
    115,417Property, plant and equipment-net
    
    
    15,636
    
    
    
    15,056
    
    
    
    10,747
    
    
    
    10,098
    
    
    
    13,008Goodwill
    
    
    
    
    
    
    29,607
    
    
    
    29,243
    
    
    
    55,817
    
    
    
    85,149Intangible assets-net
    
    
    6,199
    
    
    
    8,372
    
    
    
    2,704
    
    
    
    23,067
    
    
    
    26,060Total assets
    
    
    119,792
    
    
    
    125,977
    
    
    
    113,519
    
    
    
    182,619
    
    
    
    283,865Total shareholders equity
    
    
    90,363
    
    
    
    95,971
    
    
    
    100,648
    
    
    
    134,087
    
    
    
    180,665Common shares, no par value, and
additional paid-in capital
    
    
    239,004
    
    
    
    287,657
    
    
    
    287,920
    
    
    
    289,495
    
    
    
    296,793
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2003
    
    2004
    
    2005
    
    2006
    
    2007US$
    
    US$
    
    US$
    
    US$
    
    US$Number of issued shares (in thousands)
    
    
    50,154
    
    
    
    50,154
    
    
    
    50,344
    
    
    
    51,495
    
    
    
    53,700Dividend declared per share (in dollars)
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
  B. Capitalization and Indebtedness
  C.
    
    Reasons for the Offer and Use of Proceeds
  D. Risk Factors
 Risks Related to Our Business
 Our limited operating history as a gaming software and services provider and an online games
operator, and the unproven long-term potential of those business models make evaluating our
business and prospects difficult
   
    
    retain existing customers or attract new customers;
    
    license, develop, or acquire additional online games that are appealing to
consumers;
    
    anticipate and adapt to changing consumer preferences;
    
    adapt to competitive market conditions;
    
    adapt to regulatory changes;
    
    respond to technological changes or resolve unexpected service interruptions in a
timely manner;
    
    adequately and efficiently operate, upgrade and develop our transaction and service
platforms; or
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
    
    maintain adequate control of our expenses.
  Our businesses face intense competition, which may adversely affect our revenues,
profitability and planned business expansion
  
    
    significantly greater technological, financial, sales and marketing resources;
    
    larger customer bases and longer operating histories;
    
    greater name recognition; and
    
    more established relationships with distribution partners, advertisers, content and
application providers and/or other strategic partners.
 Competition in the gaming software and service business
     5




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Competition in the online games business
    Competition in the Internet access service business
  Our business could suffer if we do not successfully manage current growth and potential future
growth
   We expect the marketing costs for our gaming software and service business to continue to
increase, which could have an adverse effect on our business
  6




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Our business strategy, which contemplates growth through acquisitions and strategic
investments, exposes us to significant risks
     
    
    It may be difficult to assimilate the operations and personnel of an acquired
business into our organization;
    
    Management, information, and accounting systems of an acquired business may be
different from our current systems and need to be successfully integrated;
    
    Our management must devote its attention to assimilating acquired businesses, which
diverts attention from other business concerns;
    
    Suppliers, vendors and/or distributors may renegotiate or cancel contracts with us
following the acquisition of a business;
    
    We may enter markets in which we have limited prior experience. For example, in
December 2006, we entered into a strategic alliance with Infocomm Asia Holdings Pte Ltd
(Infocomm Asia), an online gaming operator and distributor operating primarily in the
Southeast Asia region. In addition, in June 2007, we also acquired control of a
majority of the voting rights over the shares of T2CN, an online casual sports game
operator in China, a market in which we had limited prior experience; and
    
    We could lose some of our key employees or key employees of an acquired business.
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Unauthorized use of our intellectual property by third parties, and the expenses incurred in
protecting our intellectual property rights, may adversely affect our business
    Our results of operations are subject to significant fluctuations
  
    
    Gaming software and service business: availability of Internet infrastructure,
competition from existing and new competitors, the revenues, expenses and results of
operations of our customer and major licensee, UIM, and the regulatory restrictions
applicable to the Internet gaming industry.
    
    Online games business: existing and new competitors, the pace of rollout of new
games and price competition in the industry, regulatory and other risks arising in
connection with our China operations.
    
    Internet access service business: price competition in the Internet access
business, the rate at which new customers subscribe to our services, subscriber
turnover rates and the pace of rollout of our services.
  The markets for our principal businesses are characterized by rapid technological change, and
failure to respond quickly and sufficiently to new Internet technologies or standards may have a
material adverse effect on our business
    8




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Our gaming software and service business, online games business, and Internet access and
service business depend on the reliability of our network infrastructure, which is subject to
physical, technological, security and other risks
   The adoption of new laws or changes to or the application of existing laws relating to
Internet commerce may affect the growth of our gaming software and services and online games
businesses
    The worldwide legal and regulatory environment in which our gaming software and service
business operates is characterized by uncertainties that could adversely affect our business and
operating results
  9




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Our business is international and therefore faces associated risks
  Our gaming software and service business is dependent on one master licensee, and any adverse
effect on its business could have an adverse effect on our revenues, operating results and
financial condition
  10




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Online gaming is a relatively new industry and therefore, we do not know if the market will
continue to grow
   We may be vulnerable to delays or interruptions due to our reliance on infrastructure and
related services provided by third parties
   The licensees of our gaming software depend on credit card transactions for a substantial
portion of the deposits or payments by their customers
   Undetected programming errors or defects in our software, services and games and the
proliferation of cheating programs could materially and adversely affect our gaming software and
services and online games businesses, financial condition and results of operations
   11




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We could be liable for breaches of security on our Web sites and fraudulent transactions by
users of our Web sites
  We face the risks of changing consumer preferences and uncertainty of market acceptance of our
new products in our online games business
  
    
    the popularity of existing and new online games operated by us;
    
    the introduction of new online games, competing with or replacing our existing
online games;
    
    general economic conditions, particularly economic conditions adversely affecting
discretionary consumer spending;
    
    changes in customer tastes and preferences;
    
    the availability of other forms of entertainment; and
    
    critical reviews and public tastes and preferences, all of which change rapidly and
cannot be predicted.
     12




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Our future results of operations or the growth of our business may suffer if we are unable to
maintain a satisfactory relationship with the licensors of our online games
  PRC laws and regulations restrict foreign ownership of the Internet content provision,
Internet culture operation and Internet publishing licenses, and substantial uncertainties exist
with respect to the application and implementation of PRC laws and regulations
     We depend on certain operating licenses for the operation of our online games business in the
PRC. Our business could be disrupted and our results of operations may be materially and adversely
affected if either T2 Entertainment or T2 Advertisement violates their contractual arrangements
with us
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The principal shareholders of T2 Entertainment and T2 Advertisement have potential conflicts
of interest with us, which may adversely affect our business
  The laws and regulations governing the online games industry in the PRC are evolving and new
regulations may adversely affect our business
   There are no clear laws or regulations governing virtual asset property rights, in particular,
in Greater China, and therefore, it is not clear what liabilities, if any, online game operators
may have in respect of virtual assets
  14




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Our
business may be adversely affected by government policies and regulation of online games
and Internet cafés in the PRC
  Failure to maintain effective internal controls could have a material adverse effect on our
business, results of operations and the trading price of Shares
    We may need additional capital in the future, and it may not be available on acceptable terms
  
    
    fund our operations;
    
    enhance and expand the range of products and services we offer; and
    
    respond to competitive pressures and perceived opportunities, such as investment,
acquisition and international expansion activities.
  15




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We depend on our key personnel, and our business and growth prospects may be severely
disrupted if we lose their services
   We may be classified as a passive foreign investment company for U.S. federal income tax
purposes. As a result, you may be subject to materially adverse tax consequences with respect to
Shares
  Fluctuations in the exchange rates between the U.S. dollar and other currencies in which we
conduct our business could adversely affect our profitability
  We are controlled by the Koo family, which has significant influence in determining the
outcome of any corporate transaction or other matters submitted to our shareholders for approval,
and their interests may conflict with your interests
  Our transactions with affiliates may not benefit us and may harm our Company
  16




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Our operating results and financial condition are affected by general economic conditions,
levels of consumer spending, political stability, as well as the occurrence of natural disasters and
epidemics
  There are economic risks associated with doing business in Taiwan, particularly due to the
tense relationship between Taiwan and the PRC
  The ability of our subsidiaries to distribute dividends to us may be subject to restrictions
under the laws of Taiwan and the PRC
   We are a Singapore company, and because the rights of shareholders under Singapore law differ
from those under U.S. law, you may have difficulty protecting your shareholder rights
  17




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Anti-takeover provisions under the Singapore Securities and Futures Act (Chapter 289) and the
Singapore Code on Take-overs and Mergers may delay, deter or prevent a future takeover or change of
control of our Company, which could adversely affect the price of Shares
  Our shareholders may be subject to Singapore taxes
  We may be subject to claims of intellectual property right infringement, and our limited
intellectual property protection causes us to be vulnerable to competitors infringing upon or
misappropriating our proprietary rights
   Risks Related to Shares
 The price of Shares has been volatile historically and may continue to be volatile, which may
make it difficult for holders to resell the Shares when desired or at attractive prices
  
 ITEM 4. INFORMATION ON THE COMPANY
 A. History and Development of our Company
  18




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19




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##### Table of Contents



B. Business Overview
    FreeStyle Basketball
  20




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Our Business Strategy
  Focus on our core business of product and service offerings in gaming software and online games
  Diversify our operations through strategic investments to expand into selected new markets
  Focus on attracting and developing an experienced and motivated management and design and marketing
teams
  Gaming Software and Service Business
 Overview
  Our Products
  21




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Online Gaming Management
 Online Gaming Modules
 Our Services
  Infrastructure Design Services 
 
    
    Infrastructure Design: Architecture design of servers, routers, firewalls, network
software and management tools required for an Internet property.
    
    Site Creation: Creation and branding of our clients Internet property, customized
to match our licensees unique identities and creative themes.
 Transaction Processing Design Services 
 
    
    Payment: Consultation for the design of timely collection and distribution of
payments through a variety of channels and merchants.
    
    Billing: Consultation for the design of real-time and out-of-band transaction
processing and order management.
    
    Risk Management: Consultation for design of tools and processes for fraud
detection, prevention, and management.
 Customer Support Services 
 
    
    Infrastructure Consultation Support: Complete round-the-clock consultation support
to help clients resolve infrastructure issues.
    
    Platform Technical Support: Consultation during periodic maintenance to update,
patch, and fine-tune the system performance of our software solutions.
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Custom Gaming Software Development Services 
 
    
    Design and development of custom entertainment modules and interfaces for our
platform meeting client-specific requests.
 Our Technology and Infrastructure
   UIM
  www.everestcasino.com
   23




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Competition
      Online Games Business
 Overview
  FunTown
  24




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Phantasy
Star Universe
 Holic Online
 NBA Street Online NBA Street Online
 Warhammer® Online: Age of Reckoning Warhammer®
Online: Age of Reckoning
     25




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T2CN
    
    
    Shareholder Voting Rights and Proxy Agreements. T2CN Information Technology
(Shanghai) Co., Ltd. (T2 Technology), a wholly-owned subsidiary of T2CN incorporated
in Shanghai, entered into shareholder voting rights and proxy agreements with the
shareholders of T2 Entertainment and T2 Advertisement, pursuant to which each of these
shareholders have irrevocably granted T2 Technology the power to exercise all of the
voting rights of T2 Entertainment and T2 Advertisement.
    
    Exclusive Equity Transfer Call Agreements. T2 Technology entered into exclusive
equity transfer call agreements with each of the shareholders of T2 Entertainment and
T2 Advertisement, pursuant to which each of these shareholders has granted T2
Technology an irrevocable option to acquire all or part of the equity interests held by
them in T2 Entertainment and T2 Advertisement, to the extent permitted by
then-effective laws and regulations in the PRC.
    
    Exclusive Technical Service and Consultancy Agreements. T2 Technology entered into
certain exclusive technical service and consultancy agreements with each of T2
Entertainment and T2 Advertisement, pursuant to which T2 Technology provides technical
consulting and related information services for an initial term of eighteen years.
Service fees paid to T2 Technology by T2 Entertainment and T2 Advertisement are
eliminated in the consolidated financial statements.
    
    Equity Pledge Agreements. Each of the shareholders of T2 Entertainment and T2
Advertisement have pledged all of their respective equity interests in these companies
as security for the full performance of their respective obligations under each of the
agreements described above.
  Holic Sky-Romance The House of Flying Dagger
 Our Products
  26




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##### Table of Contents



Freestyle Basketball NeoSteam
  MahJong
   Advanced Casual Games
 Freestyle Basketball
 Tales Runner Nanaimo Nanaimo NBA Street
Online NBA Street Online
 Phantasy
Star Universe
 Chinese Poker, Chinese Chess, Puzzle-Style Games and Chance-Based Games
  27




---



##### Table of Contents



MMORPGs
 NeoSteam Neosteam
 Hellgate: London Hellgate:
London Diablo® Starcraft® Warcraft®
 Holic Online
 House of Flying Daggers
 Warhammer Online: Age of Reckoning Warhammer Online: Age of Reckoning Warhammer Warhammer Online: Age of Reckoning
 Social Games
  Our Services  FunTown
  28




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##### Table of Contents



Player Clubs
  Tournaments
  Friends and Family
  Social Networking
  Avatars
  Customer Services
  Our Services  T2CN
  Membership Management
  29




---



##### Table of Contents



Social Networking
  Customer Services
   Our Pricing, Distribution and Payment
    
    
    Physical distribution channels. Physical distribution channels include convenience
chain stores, such as 7-11, and Internet cafés. At these locations, users may purchase
pre-paid cards with varying amounts of credits to play FunTowns and T2CNs casual
games. In addition, players may purchase game packs to play specific games on
FunTowns and T2CNs platforms.
    
    Virtual distribution channels. Virtual distribution channels consist of various Web
sites, including FunTown and T2CNs official Web sites. Users of FunTown may also
purchase game credits through online sites with their credit card, bill charges through
their telecom carrier or web ATM.
  Our Marketing
  
    
    In-Game Events and Marketing. We organize in-game events for our users, which we
believe encourages the development of virtual communities among our users and increases
user interest in our games. Examples of in-game
 30




---



##### Table of Contents



events include special challenges or
features introduced to the game environments for a scheduled period. In addition, we
use in-game events to introduce users to new features of our games. We may also post
announcements in the game environment to promote new features, other improvements to
the games, and in-game events. We may conduct in-game marketing programs from time to
time, including online contests for prizes.
 
    
    Cross-Marketing. We have cross-marketing relationships with popular consumer
brands, technology companies and major telecom carriers. We believe that our
cross-marketing relationships with certain well-known companies, including Coca-Cola,
7-11 and Microsoft Corporation (Microsoft), will increase the recognition of our
online game brands.
    
    Open Beta Testing. Our open beta testing system tests both the operation of new
games under open market conditions and introduces new games to users. During open beta
testing, we do not charge users to play the new game. Open beta testing provides an
initial user base and creates initial interest and word-of-mouth publicity to support
the commercial launch of the game.
    
    Offline Events/Promotions. From time to time we distribute free game-related
posters, promotional prepaid cards for beginners and game-related souvenirs at trade
shows, selected Internet cafés and other locations. We may conduct events
at popular venues to stage exhibitions, distribute software and game content-related
merchandise, and interact directly with our user base. Furthermore, we may sponsor
select media events, such as industry-related awards shows and TV shows, to promote our
brand names and our games.
    
    TV Commercials.We use TV commercials to attract potential customers and to promote
our games and brand.
    
    Marketing Research.We use various qualitative and quantitative market research
methods to analyze our target market and to differentiate our product offerings from
those of our competitors.
    
    Game Magazine Advertisements.We also advertise certain games in various game
magazines. From time to time, we also collaborate with these magazines in various
promotions, including giving away copies of certain games free of charge with each
magazine sold.
    
    Direct Marketing.We use telemarketing and email correspondence to inform our users
of new products, promotions and other product related services.
 Our Players
  Our Sources of Products and Services
 Tales Runner Hellgate: London Phantasy Star Universe,
Nanaimo, NBA Street Online, Holic, Sky-Romance Warhammer Online
   31




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##### Table of Contents



Our Technology and Infrastructure
   Competition
   Intellectual Property and Proprietary Rights
  Tales Runner, Hellgate: London, Phantasy Star Universe Nanaimo NBA Street Online, Holic, Sky-Romance Warhammer Online.
 Internet Access and Service Business
 Our Services
  32




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##### Table of Contents



Internet Access and Services Offerings
 Cable Modems
 Corporate Internet Access And Services
 ADSL
 Markets for Internet Access and Services
 Consumer Internet Access And Services
  Number of SubscribersDate
    
    2005
    
    2006
    
    200731-Mar
    
    
    18,645
    
    
    
    16,417
    
    
    
    10,15530-Jun
    
    
    17,929
    
    
    
    15,154
    
    
    
    8,84430-Sep
    
    
    17,386
    
    
    
    13,185
    
    
    
    7,52131-Dec
    
    
    16,534
    
    
    
    11,447
    
    
    
    6,906
  Corporate Access Services
 33




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##### Table of Contents



Other Services
  Our Broadband Network  Cable and ADSL Network
  
    
    the provision of key community services, including electronic mail, photo albums and
personal Web hosting, to subscribers;
    
    the management of network performance;
    
    the replication of content and applications; and
    
    the provision of a cost-efficient infrastructure to cache data.
  Network Operations Centers
 Data Backbone
    Information System
  34




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##### Table of Contents



Sales and Marketing
 Consumer Access Services
 Turnkey Cable Modem Services
 Corporate Access Services
 Customer Service
   Competition
      Intellectual Property and Proprietary Rights
  35




---



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Regulation
 Regulation Relating to Online Gaming
         36




---



##### Table of Contents



Regulations Relating to Online Games in Taiwan
  Rating of Internet Content
 37




---



##### Table of Contents



Computer Software Ratings.
 Online Game Contract Template.
 Regulations Relating to Online Games in the PRC
      38




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##### Table of Contents



Telecommunications Regulation in Taiwan
   Regulation of Type II Operators
 
    
    License. A Type II license is valid for ten years, and may be renewed six months
before its expiration. The license is nontransferable. Hoshin GigaMedias license is
due to expire in 2008. KBTs license is due to expire in 2012.
    
    Tariff Regulation. Type II operators are required to announce their business
regulations with respect to the terms for provision of services, including tariffs for
major rates and charges. Any changes to the business regulations must be filed with
the NCC before they become effective. Tariff information must include the types of
services provided, terms and fee schedules for all service items, rights and
obligations of customers, contract termination events and other matters affecting the
right and obligations of customers, all to be included in the operators business
plans.
    
    Change in Business. Under Taiwans Regulations Governing Type II Telecommunications
Operators, any change of type or scope of business must be approved by the NCC. For
change of the systems structure stated in the business plan, a report shall be filed
with the NCC for recording within one month from the effective date of change of such
system structure. In addition, Type II operators must report to the NCC and inform
their customers in advance of any plan to suspend or terminate any of their businesses.
    
    Technical Standards. Special Type II operators are required to retain qualified
senior telecommunications engineers to install and maintain telecommunications
equipment. Any telecommunications equipment used by a Type II operator must also
satisfy technical standards adopted by the NCC.
 Regulation of Type I Operators
 Liberalization of Type I Fixed Network Licensing.
 39




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Content Liability
 Cable Regulation in Taiwan
 Regulation on Shareholding
 Operating Licenses
  Market Share Limitations
 Competition
 Open Access Regulation
 40




---



##### Table of Contents



C. Organizational Structure
  41




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##### Table of Contents



Organization
Structure*
 
 
  42




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##### Table of Contents



Place of
    
    OurYear of
    
    Incorporation
    
    PercentageEntity
    
    Incorporation
    
    Operation
    
    Holding
    
    Principal ActivitiesHeld by our CompanyGigaMedia International Holdings Limited
    
    
    2004
    
    
    British Virgin Islands
    

    100%
    
    
    Holding companyHoshin GigaMedia Center Inc.
    
    
    1998
    
    
    Taiwan
    

    100%
    
    
    Cable-based Internet
access services and
FunTown online games
portalHeld by Hoshin GigaMedia Center IncKoos Broadband Telecom Co., Ltd.
    
    
    2001
    
    
    Taiwan
    

    100%
    
    
    Broadband Internet
access services
targeting business
clientsHeld by GigaMedia International Holdings LimitedCambridge Entertainment Software Limited
    
    
    2004
    
    
    British Virgin Islands
    

    100%
    
    
    Holding companyFunTown World Limited
    
    
    2005
    
    
    British Virgin Islands
    

    100%
    
    
    Holding companyGigaMedia Asia Limited
    
    
    2005
    
    
    British Virgin Islands
    

    100%
    
    
    Holding companyGigaMedia Asia Pacific Limited
    
    
    2006
    
    
    British Virgin Islands
    

    100%
    
    
    Holding companyGigaMedia Finance International Limited
    
    
    2000
    
    
    Cayman Islands
    

    100%
    
    
    Holding companyGigaMedia Global Limited
    
    
    2004
    
    
    British Virgin Islands
    

    100%
    
    
    Online game companyGigaMedia (HK) Limited
    
    
    2004
    
    
    Hong Kong
    

    100%
    
    
    Holding companySkyace Pacific Limited
    
    
    2006
    
    
    British Virgin Islands
    

    100%
    
    
    Holding companyCentermax Limited
    
    
    2007
    
    
    British Virgin Islands
    

    100%
    
    
    Holding companyGigaMedia Capital Limited
    
    
    2007
    
    
    British Virgin Islands
    
    100%
    
    
    Holding companyGigaMedia Development Limited
    
    
    2007
    
    
    British Virgin Islands
    

    100%
    
    
    Holding companyGiga Slam Dunk Corporation
    
    
    2007
    
    
    Malaysia
    

    100%
    
    
    Holding companyGiga Wartime Corporation
    
    
    2007
    
    
    Malaysia
    

    100%
    
    
    Online game company
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##### Table of Contents



Place of
    
    OurYear of
    
    Incorporation
    
    PercentageEntity
    
    Incorporation
    
    Operation
    
    Holding
    
    Principal ActivitiesE-Sports International Corporation Limited
    
    
    2008
    
    
    Hong Kong
    

    100%
    
    
    Online game companyGigaMedia SuperCup Holdings Limited
    
    
    2008
    
    
    British Virgin Islands
    

    100%
    
    
    Online game companyHeld by FunTown World LimitedFunTown Hong Kong Limited
    
    
    1999
    
    
    Hong Kong
    

    100%
    
    
    Online games portalHeld by GigaMedia Asia LimitedGigaMedia China Limited
    
    
    2005
    
    
    British Virgin Islands
    

    100%
    
    
    Holding companyHeld by Skyace Pacific LimitedDragongate Enterprises Limited
    
    
    2006
    
    
    British Virgin Islands
    

    70%
    
    
    Online game developer
and operatorHeld by Cambridge Entertainment Software LimitedCambridge Interactive Development Corporation
    
    
    1997
    
    
    U.S.A.
    

    100%
    
    
    Software developer and
application service
providerCambridge Interactive Development Corporation
(Quebec) Inc.
    
    
    2005
    
    
    Canada
    

    100%
    
    
    Financial and management
servicesCambridge Interactive Development Co., Ltd
    
    
    2008
    
    
    United Kingdom
    

    100%
    
    
    Software support servicesInternet Media Licensing Limited
    
    
    2005
    
    
    British Virgin Islands
    

    100%
    
    
    Software developer and
application service
providerHeld by GigaMedia China LimitedT2CN Holding Limited
    
    
    2004
    
    
    British Virgin Islands
    

    65.68%
    
    
    Online game developer
and operatorHeld by T2CN Holding LimitedJ-Town Information Co., Ltd.
    
    
    2005
    
    
    Shanghai, PRC
    

    100%
    
    
    Online game developer
and technical service
providerT2CN Information Technology (Shanghai) Co., Ltd.
    
    
    2004
    
    
    Shanghai, PRC
    

    100%
    
    
    Online game developer
and technical service
providerHeld by T2CN Information Technology (Shanghai)
Co., Ltd.Shanghai T2 Entertainment Co., Ltd.
    
    
    2004
    
    
    Shanghai, PRC
    
    100% controlled
    
    Online game developer
and operatorShanghai T2 Advertisement Co., Ltd.
    
    
    2006
    
    
    Shanghai, PRC
    
    100% controlled
    
    Advertising
 44




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##### Table of Contents



D. Property, Plant and Equipment
 th th
     
 ITEM 4A. UNRESOLVED STAFF COMMENTS
  
 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
 A. Operating Results
  Overview
  
    
    Through our gaming software and service business, we develop and license online
poker and casino gaming software solutions and application services, primarily
targeting emerging continental European markets. As a software developer and support
service provider, we offer software solutions for online gaming, which we license under
software license and support service contracts.
    
    Our online game and service business operates a suite of play-for-fun online games,
mainly targeting online game players in Asia.
 45




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##### Table of Contents




    
    Our legacy Internet access and service business, which provides Internet access and
service with multiple delivery technologies to consumers and broadband services to
corporate customers in Taiwan.
  Gaming Software and Service Business
    Online Game and Service Business.
 Granado Espada Hellgate: London Hellgate: London Hellgate: London
   46




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##### Table of Contents



Internet Access and Service Business
    Subsequent Events
  Investment in Access China
  Warhammer License and Distribution Agreement
 Warhammer Online Warhammer Online
 47




---



##### Table of Contents



Investment in SuperCup
  Additional Investment in T2CN
  Certain Significant Events Affecting Our Results of Operations for 2005, 2006 and 2007
 Divestiture  Music Distribution Business
    2005(in US$ thousands)Revenues
    
    $
    37,907Loss before tax and minority interest income
    
    $
    (1,861
    )Income tax benefit
    
    $
    (1
    )Minority interest loss
    
    $
    (796
    )Loss from discontinued operations
    
    $
    (154
    )
  2005(in US$ thousands)Cash (including restricted cash)
    
    $
    3,098Accounts receivable
    
    
    1,842Inventory
    
    
    6,679Other current assets
    
    
    683Property and equipment
    
    
    1,666Intangible assets
    
    
    4,689Other assets
    
    
    1,553Total Assets
    
    $
    20,210Accounts payable
    
    $
    11,239Other liabilities
    
    
    1,945Total liabilities
    
    $
    13,184
 48




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##### Table of Contents



Divestiture of our ADSL Business
   Consolidation of UIM, T2 Entertainment and T2 Advertisement under FIN 46(R)
      49




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##### Table of Contents



Acquisitions
 FunTown
  T2CN
   2006
  2007
     50




---



##### Table of Contents



2008
   Critical Accounting Policies
  Acquisitions
  Revenue Recognition
   51




---



##### Table of Contents



Gaming Software and Service Revenues
    Online Game and Service Revenues
     Internet Access and Service Revenues
  52




---



##### Table of Contents



Other Revenues
  Discontinued Operations
   Player Account Balances
  53




---



##### Table of Contents



Deferred Revenues
  Operating Costs
  Prepaid Licensing and Royalty Fees
    Allowance for Doubtful Accounts
   Marketable Securities
    54




---



##### Table of Contents



Investments
      Impairment of Intangible Assets, Goodwill and Long-Lived Assets
  55




---



##### Table of Contents



Income Taxes
   56




---



##### Table of Contents



Minority Interest
     Stock-Based Compensation
    Retirement Plan and Net Periodic Pension Cost
  57




---



##### Table of Contents



Recent Accounting Pronouncements
      Foreign Currency Translation
  Taxation
  58




---



##### Table of Contents



Discussion of Results of Operations
 Factors Affecting Our Performance
  Acquisitions and disposals.
 59




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##### Table of Contents



Development of gaming software and service and online games industries.
 
    
    the development and regulation of these industries generally;
    
    our adaptation to technological change;
    
    changing consumer preferences;
    
    legal development affecting these industries, in particular the gaming software and
service industry; and
    
    general economic conditions in the markets where we or our licensees operate.
 Competition.
   For the year ended December 31,2005
    
    2006
    
    2007% of
    
    Amount
    
    % of
    
    Amount
    
    % ofAmount in US$
    
    total
    
    in US$
    
    total
    
    in US$
    
    totalthousands
    
    revenues
    
    thousands
    
    revenues
    
    thousands
    
    revenuesParticularsOPERATING REVENUESGaming software and service revenues
    
    
    22,511
    
    
    
    50.9
    
    
    
    55,019
    
    
    
    58.3
    
    
    
    118,950
    
    
    
    71.3Online game and service revenues
    
    
    
    
    
    
    
    
    
    
    18,692
    
    
    
    19.8
    
    
    
    32,764
    
    
    
    19.6Internet access and service revenues
    
    
    21,589
    
    
    
    48.9
    
    
    
    20,537
    
    
    
    21.8
    
    
    
    15,147
    
    
    
    9.1Other revenues
    
    
    87
    
    
    
    0.2
    
    
    
    44
    
    
    
    0.1
    
    
    
    17
    
    
    
    0.0Total operating revenues
    
    
    44,187
    
    
    
    100.0
    
    
    
    94,292
    
    
    
    100.0
    
    
    
    166,878
    
    
    
    100.0OPERATING COSTSCost of gaming software and service
revenues
    
    
    3,327
    
    
    
    7.5
    
    
    
    7,824
    
    
    
    8.3
    
    
    
    16,201
    
    
    
    9.7Cost of online game and service revenues
    
    
    
    
    
    
    
    
    
    
    3,667
    
    
    
    3.9
    
    
    
    9,118
    
    
    
    5.5Cost of Internet access and service
revenues
    
    
    13,568
    
    
    
    30.7
    
    
    
    11,449
    
    
    
    12.1
    
    
    
    10,002
    
    
    
    6.0Cost of other revenues
    
    
    488
    
    
    
    1.1
    
    
    
    391
    
    
    
    0.4
    
    
    
    223
    
    
    
    0.1Total operating costs
    
    
    17,383
    
    
    
    39.3
    
    
    
    23,331
    
    
    
    24.7
    
    
    
    35,544
    
    
    
    21.3Gross profit
    
    
    26,804
    
    
    
    60.7
    
    
    
    70,961
    
    
    
    75.3
    
    
    
    131,334
    
    
    
    78.7
 60




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##### Table of Contents



For the year ended December 31,2005
    
    2006
    
    2007% of
    
    Amount
    
    % of
    
    Amount
    
    % ofAmount in US$
    
    total
    
    in US$
    
    total
    
    in US$
    
    totalthousands
    
    revenues
    
    thousands
    
    revenues
    
    thousands
    
    revenuesOPERATING EXPENSESProduct development and engineering
expenses
    
    
    3,562
    
    
    
    8.1
    
    
    
    5,738
    
    
    
    6.1
    
    
    
    7,911
    
    
    
    4.7Selling and marketing expenses
    
    
    10,777
    
    
    
    24.4
    
    
    
    30,123
    
    
    
    31.9
    
    
    
    62,349
    
    
    
    37.4General and administrative expenses
    
    
    7,892
    
    
    
    17.9
    
    
    
    12,421
    
    
    
    13.2
    
    
    
    22,240
    
    
    
    13.3Bad debt expense
    
    
    207
    
    
    
    0.4
    
    
    
    715
    
    
    
    0.8
    
    
    
    743
    
    
    
    0.5Total operating expenses
    
    
    22,438
    
    
    
    50.8
    
    
    
    48,997
    
    
    
    52.0
    
    
    
    93,243
    
    
    
    55.9Income from operations
    
    
    4,366
    
    
    
    9.9
    
    
    
    21,964
    
    
    
    23.3
    
    
    
    38,091
    
    
    
    22.8NON-OPERATING INCOME (EXPENSES)
    
    
    2,710
    
    
    
    6.1
    
    
    
    10,690
    
    
    
    11.3
    
    
    
    2,483
    
    
    
    1.5INCOME TAX BENEFIT (EXPENSE)
    
    
    (436
    )
    
    
    (1.0
    )
    
    
    (1,549
    )
    
    
    (1.6
    )
    
    
    (403
    )
    
    
    (0.2
    )MINORITY
INTEREST
    
    
    (150
    )
    
    
    (0.3
    )
    
    
    (321
    )
    
    
    (0.4
    )
    
    
    (1,281
    )
    
    
    (0.8
    )INCOME FROM CONTINUING OPERATIONS
    
    
    6,490
    
    
    
    14.7
    
    
    
    30,784
    
    
    
    32.6
    
    
    
    38,890
    
    
    
    23.3INCOME (LOSS) FROM DISCONTINUED
OPERATIONS
    
    
    (154
    )
    
    
    (0.4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NET INCOME
    
    
    6,336
    
    
    
    14.3
    
    
    
    30,784
    
    
    
    32.6
    
    
    
    38,890
    
    
    
    23.3
         61




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For the Years Ended December 31, 2007 and 2006
 Consolidated Results of Operations
           62




---



##### Table of Contents



Business Segment Results
 Gaming Software and Service Business
       Online Game and Service Business
     63




---



##### Table of Contents



Internet Access and Service Business
      For the Years Ended December 31, 2006 and 2005
 Consolidated Results Of Operations
    64




---



##### Table of Contents



Business
Segment Results
 Gaming Software and Service Business
       65




---



##### Table of Contents



Online Game and Service Business
   Internet Access and Service Business
        66




---



##### Table of Contents



B. Liquidity and Capital Resources
   
    
    the rate at which we enter into strategic transactions;
    
    the rate at which we expand our operations and employee base;
    
    the timing of entry into new markets and new services offered;
    
    changes in revenues and cost splits with our business partners;
    
    the rate at which we invest in developing and licensing our products and upgrading
and maintaining our network and future technologies; and
    
    the rate at which we grow and monetize our customer bases.
     67




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##### Table of Contents



Capital Expenditures
  Indebtedness
   (in US$ thousands)Maturity date of
    
    As ofName
    
    Interest rate range
    
    Facility
    
    December 31, 2007China Trust Commercial Bank
    
    1.865%~2.95%
    
    Mar. 10, 2008
    
    $
    12,334Taishin International Bank
    
    2.95%~3.39%
    
    Sep. 30, 2008
    
    
    7,709Taipei Fubon Commercial Bank
    
    3.902%
    
    Jul. 26, 2008
    
    
    6,167Far Eastern International Bank
    
    2.85%~3.17%
    
    Feb. 7, 2008
    
    
    3,084Waterland Financial Holdings
    
    2.738%~4.238%
    
    Feb. 7, 2008
    
    
    1,541Taching Bill Finance Limited
    
    3.758%
    
    Oct. 28, 2008
    
    
    1,541Union Bills Finance
    
    3.758%
    
    Aug. 31, 2008
    
    
    925$
    33,301
  Dividends From Our Subsidiaries
   68




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##### Table of Contents



C. Research, Development, Patents and Licenses, etc.
  D. Trend Information
  E. Off-Balance Sheet Arrangements
  F. Tabular Disclosure of Contractual Obligations
 Payment Due by Period (in US dollars)Within 1 year
    
    1-3 years
    
    3-5 years
    
    >5 years
    
    Total1. Operating leases
    
    
    4,376,509
    
    
    
    3,883,598
    
    
    
    1,450,630
    
    
    
    
    
    
    
    9,710,7372. License fees
    
    
    6,900,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,900,0003. Minimum guarantees against royalties
    
    
    4,700,000
    
    
    
    16,100,000
    
    
    
    3,000,000
    
    
    
    
    
    
    
    23,800,000Total contractual cash obligations
    
    
    15,976,509
    
    
    
    19,983,598
    
    
    
    4,450,630
    
    
    
    
    
    
    
    40,410,7374. Other liabilities-accrued pension
liabilities
    
    
    38,980
    
    
    
    
    
    
    
    
    
    
    
    396,378
    
    
    
    435,3585. Other long-term obligations
    
    
    0
    
    
    
    360,516
    
    
    
    46,762
    
    
    
    
    
    
    
    407,2786. FIN 48 liabilities
    
    
    61,274
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61,274
   69




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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 A. Directors and Senior Management
  Year Appointed toName
    
    Age
    
    Position
    
    Current PositionWU, Daniel Chuen-Tai
    
    60
    
    Chairman of the Board
    
    
    2003BAO, Gilbert
    
    44
    
    Independent Non-Executive Director
    
    
    2003DING, Michael Y.J.
    
    51
    
    Independent Non-Executive Director
    
    
    2003HSU, Emmet Yu-Jui
    
    45
    
    Independent Non-Executive Director
    
    
    2003HU ZEE, Nancy Jing-Ying
    
    49
    
    Independent Non-Executive Director
    
    
    2003LEE, Howe Yong
    
    52
    
    Independent Non-Executive Director
    
    
    2004LEE, Yichin
    
    47
    
    Independent Non-Executive Director
    
    
    2003WANG, Arthur M.
    
    47
    
    Chief Executive Officer and Director
    
    
    2003HUI, Thomas T.
    
    36
    
    President, Chief Operating Officer and Director
    
    
    2007/2005CAHILL, Robert J.
    
    42
    
    Head of Gaming Software and Service Business
    
    
    2004CHOU, Samuel
    
    47
    
    Chief Executive Officer of FunTown
    
    
    2007HUANG, Kenny Ching-Kun
    
    43
    
    Senior Vice President
    
    
    2004MAI, Falco
    
    46
    
    Executive Vice President and Chief Administrative Officer
    
    
    2001SHEA, Joseph
    
    42
    
    Executive Vice President and Chief
Financial Officer of T2CN
    
    
    2004/2007TARN, Chen-Wen
    
    48
    
    Head of Internet Access and Service Business
    
    
    2003
       70




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71




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##### Table of Contents



B. Compensation
  C. Board Practices
   D. Employees
  72




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##### Table of Contents



E. Share Ownership
 Share Ownership of Directors and Executive Officers
  Number of SharesNumber of Common
    
    Issuable uponPerson
    
    Shares
    
    exercise of optionsWU, Daniel Chuen-Tai
    
    
    *
    
    
    
    *BAO, Gilbert T.C.
    
    
    *
    
    
    
    *DING, Michael Y.J.
    
    
    *
    
    
    
    *HSU, Emmet Yu-Jui
    
    
    0
    
    
    
    *HU ZEE, Nancy Jing-Ying
    
    
    *
    
    
    
    *LEE, Howe Yong
    
    
    *
    
    
    
    *LEE, Yichin
    
    
    *
    
    
    
    *WANG, Arthur M.
    
    
    *
    
    
    
    2,399,000HUI, Thomas T.
    
    
    *
    
    
    
    1,400,000CAHILL, Robert J.
    
    
    *
    
    
    
    600,000CHOU, Samuel
    
    
    *
    
    
    
    0HUANG, Kenny Ching-Kun
    
    
    *
    
    
    
    *MAI, Falco
    
    
    *
    
    
    
    *SHEA, Joseph
    
    
    *
    
    
    
    *TARN, Chen-Wen
    
    
    *
    
    
    
    *
 
 *
    
    Less than 1 percent  Beneficial Ownership
  Employee Share Option Plans
 2002 Option Plan
   2004 Option Plan
  73




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##### Table of Contents



2006 Equity Incentive Plan
     74




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##### Table of Contents



2007 Equity Incentive Plan
      Options
    Employee Share Purchase Plan
  75




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##### Table of Contents



ITEM 7. MAJOR SHAREHOLDERS AND RELATED-PARTY TRANSACTIONS
 A. Major Shareholders
  Percentage ofName of Owner
    
    Shares Owned
    
    Shares OwnedBest Method Limited (1)
    
    
    10,799,999
    
    
    
    20.01
    %Criterion Capital Management, LLC
    
    
    8,319,357
    
    
    
    15.4
    %Directors and executive officers as a group (15 persons)
    
    
    268,495
    
    
    
    0.5
    %
 
 (1)
    
    Through Best Method Limited, Jeffrey Koo, Jr. and Andre Koo jointly have a beneficial
ownership of 10,799,999 common shares of our Company.   B. Related-Party Transactions
     C.
    
    Interests of Experts and Counsel
  76




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##### Table of Contents



ITEM 8. FINANCIAL INFORMATION
 A. Consolidated Statements and Other Financial Information
 Financial Statements
  Information on Legal or Arbitration Proceedings
 Class Action
        77




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Patent Litigation
   78




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Dividend Policy
  B. Significant Changes
  
 ITEM 9. THE OFFER AND LISTING
 A. Offer and listing details
  Common SharesYear Ending December 31
    
    High
    
    Low(in US$)2003
    
    $
    3.35
    
    
    $
    0.662004
    
    $
    2.43
    
    
    $
    0.702005
    
    $
    2.99
    
    
    $
    1.30
 Common SharesYear Ending December 31, 2006
    
    High
    
    Low(in US$)First quarter
    
    $
    6.01
    
    
    $
    2.90Second quarter
    
    $
    10.39
    
    
    $
    6.13Third quarter
    
    $
    12.38
    
    
    $
    7.30Fourth quarter
    
    $
    11.06
    
    
    $
    8.86
 Common SharesYear Ending December 31, 2007
    
    High
    
    Low(in US$)First quarter
    
    $
    14.34
    
    
    $
    9.28Second quarter
    
    $
    15.97
    
    
    $
    12.96Third quarter
    
    $
    16.76
    
    
    $
    9.45Fourth quarter
    
    $
    24.61
    
    
    $
    16.43
 Common SharesYear Ending December 31, 2008
    
    High
    
    Low(in US$)January
    
    $
    19.01
    
    
    $
    14.87February
    
    $
    20.70
    
    
    $
    18.21March
    
    $
    19.32
    
    
    $
    14.24April
    
    $
    16.62
    
    
    $
    14.82May
    
    $
    19.26
    
    
    $
    15.85June (only through June 16, 2008)
    
    $
    17.31
    
    
    $
    14.78
 79




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##### Table of Contents



B. Plan of Distribution
  C. Markets
     D. Selling Shareholders
  E. Dilution
  F. Expenses of the issue
  
 ITEM 10. ADDITIONAL INFORMATION
 A. Share Capital
  B. Memorandum and Articles of Association
   80




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DIRECTORS
  
    
    He is prohibited from acting as a director by reason of any order made pursuant to
the Singapore Companies Act;
    
    He ceases to be a director by virtue of any of the provisions of the Singapore
Companies Act or the Articles of Association of our Company;
    
    He resigns from his office;
    
    He receives a bankruptcy order made against him;
    
    He has a receiving order made against him or suspends payment or compounds with this
creditors generally;
    
    He is found to be a lunatic or of unsound mind; or
    
    He is removed by an ordinary resolution passed by our shareholders in accordance
with the provisions of the Singapore Companies Act.
     AUDIT COMMITTEE
  81




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##### Table of Contents



DIVIDENDS
   LIQUIDATION DISTRIBUTION
  SHAREHOLDERS MEETINGS
  VOTING RIGHTS
  SHARE CAPITAL
  82




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##### Table of Contents



(i)
    
    consolidate and divide all of Shares;(ii)
    
    subject to the Singapore Companies Act, sub-divide some or all of Shares,
provided always that in such sub-division, the proportion between the amount paid and
the amount (if any) unpaid on each reduced Share shall be the same as it was in the
case of the Share from which the reduced Share is derived; and(iii)
    
    subject to the Singapore Companies Act and our Articles of Association,
convert any class of Shares into any other class of Shares.
    MODIFICATION OF RIGHTS
  TRANSFER OF SHARES
  TAKEOVERS
  83




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##### Table of Contents



AMENDMENTS TO THE ARTICLES OF ASSOCIATION
  C. Material Contracts
  End-User License Agreement, dated April 1, 2004, between IMLL and UIM, as amended by the Second
Amendment to the End-User License Agreement, dated March 1, 2006 and the Third Amendment to the
End-User License Agreement, dated March 1, 2007.
   Purchase and Sale Agreement, dated June 23, 2005, between Hoshin GigaMedia and Webs-TV
  Series A Preferred Share Purchase Agreement, dated April 27, 2006, between GigaMedia China
Limited and T2CN and certain shareholders of T2CN
  Strategic Partnership Agreement, dated April 27, 2006, between T2CN and GigaMedia China
  84




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##### Table of Contents



Shareholders Agreement, dated April 27, 2006, between GigaMedia China, T2CN and certain
shareholders of T2CN, as amended and restated by the Amended and Restated Shareholders
Agreement dated November 25, 2006
  Service Agreement, dated May 15, 2006, between Hoshin GigaMedia and Webs-TV
  Subscription Agreement, dated December 7, 2006, between GigaMedia Asia Pacific Limited and
Infocomm Asia
  Termination Agreement, dated December 12, 2006, between Hoshin GigaMedia, KBT, Wretch and
certain shareholders of Wretch
  (a)
    
    if the final acquisition price exceeded US$24 million but was less than or equal to US$36
million, the additional payment would be equal to 18 percent of US$24 million;(b)
    
    if the final acquisition price exceeded US$36 million but was less than or
equal to US$48 million, the additional payment would be equal to the sum of US$2.16
million and 16 percent of US$ 36 million; and(c)
    
    if the final acquisition price exceeded US$48 million, the additional payment
would be equal to the sum of US$4.08 million and 14 percent of US$48 million.
  85




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##### Table of Contents



License and Distribution Agreement, dated December 13, 2006, between Dragongate Enterprises and
HanbitSoft Inc.
 Hellgate: London
 Share Purchase Agreements, between the Company and certain shareholders of T2CN, during 2007 and
2008
      Shareholders Agreement, dated December 7, 2006, as amended on February 2, 2007, between
GigaMedia Asia Pacific, Bodhi China and India LLC, Etherfast Pte Ltd, Global Star International
Development Limited, Commerzbank Infocomm Segregated Portfolio, Infocomm Investments Pte Ltd,
Management Capital International Ltd and Infocomm Asia
  T2CN AGREEMENTS WITH AFFILIATES
  86




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##### Table of Contents



Exclusive Technical Consulting Service Agreement, dated November 15, 2006 and amended April 1,
2007, between T2 Technology, a wholly-owned subsidiary of T2CN and T2 Entertainment
  Exclusive Commercial Consulting Service Agreement, dated November 15, 2006 and amended April 1,
2007, between T2 Technology and T2 Entertainment
  Exclusive Call Option Agreements, dated February 9, 2007, between T2 Technology and shareholders
of T2 Entertainment
  Equity Pledge Agreements, dated February 9, 2007, between T2 Technology and shareholders of T2
Entertainment
  Proxy Agreements, dated February 9, 2007, between T2 Technology and shareholders of T2
Entertainment
  Exclusive Commercial Consulting Service Agreement, dated November 15, 2006 and amended January
1, 2007, between T2 Technology and T2 Advertising
  Exclusive Call Option Agreements, dated November 15, 2006, between T2 Technology and
shareholders of T2 Advertising
  Equity Pledge Agreements, dated November 15, 2006, between T2 Technology and shareholders of T2
Advertising
  Proxy Agreements, dated November 15, 2006, between T2 Technology and shareholders of T2
Advertising
  87




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##### Table of Contents



D. Exchange Controls
  E. Taxation
 Singapore Tax Considerations
 Taxation of Dividends received by Singapore Resident Shareholders
          88




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##### Table of Contents



Gains on Disposal of Shares
  Stamp Duty
   Singapore Estate Duty
     Goods and Services Tax (GST)
    89




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##### Table of Contents



U.S. Federal Income Tax Considerations for U.S. Holders
  
    
    bank;
    
    broker-dealer;
    
    financial institution or insurance company;
    
    tax-exempt entity;
    
    person holding Shares as part of a straddle, hedge, conversion or other integrated
investment;
    
    a person owning, actually or constructively, 10 percent or more of the combined
voting power of all classes of our stock; or
    
    a person whose functional currency is not the U.S. dollar.
   
    
    individual who is a citizen or resident of the United States;
    
    corporation, or other entity treated as a corporation, created or organized under
the laws of the United States or any political subdivision thereof;
    
    estate, the income of which is subject to U.S. federal income taxation regardless of
its source; or
    
    trust if (1) it is subject to the primary supervision of a court within the United
States and one or more U.S. persons have the authority to control all substantial
decisions of the trust, or (2) it has otherwise elected to be treated as a U.S. person
under the Internal Revenue Code.
   90




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##### Table of Contents



Taxation of Dividends
    Sale or other disposition of Shares.
 Passive Foreign Investment Company Rules
  91




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##### Table of Contents




    
    excess distribution or gain would be allocated ratably over your holding period for
the Shares;
    
    amount allocated to the current taxable year and any taxable year prior to the first
taxable year in which we are classified as a PFIC (a pre-PFIC year) would be taxable
as ordinary income;
    
    amount allocated to each prior taxable year, other than the current taxable year or
a pre-PFIC year, would be subject to tax at the highest tax rate in effect applicable
to you for that year; and
    
    interest charge generally applicable to underpayments of tax would be imposed on the
tax attributable to each prior taxable year, other than the current taxable year or a
pre-PFIC year.
    Information Reporting and Backup Withholding
   92




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##### Table of Contents




    
    a U.S. person;
    
    a foreign person 50 percent or more of whose gross income is effectively connected
with a U.S. trade or business for a specified three-year period;
    
    a controlled foreign corporation for U.S. tax purposes; or
    
    a foreign partnership, if at any time during its tax year;
    
    one or more of its partners are U.S. holders (as defined in U.S. Treasury
regulations) who in the aggregate hold more than 50 percent of the income or capital
interest in the partnership; or
    
    such foreign partnership is engaged in a U.S. trade or business;
   F. Dividends and Paying Agents
  G. Statements by Experts
  H. Documents on Display
   I. Subsidiary Information
  93




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##### Table of Contents



ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Foreign Currency Exchange
    Interest Rate Sensitivity
  Other Market Risk
  
 ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
  
 PART II
 
 ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
  94




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##### Table of Contents



ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
  
 ITEM 15. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  Managements Annual Report on Internal Control Over Financial Reporting
    95




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##### Table of Contents



Changes in Internal Control Over Financial Reporting
  
 ITEM 16. [Reserved]
 
 ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
  
 ITEM 16B. CODE OF ETHICS
    
 ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  For the Years Ended December 31,2006
    
    2007(in US$)
    
    (in US$)Audit Fees
    
    
    492,922
    
    
    
    1,036,738Audit-Related Fees
    
    
    0
    
    
    
    9,867Tax Fees
    
    
    32,515
    
    
    
    42,847Other Fees
    
    
    0
    
    
    
    0
 96




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##### Table of Contents



A. Audit Fees
  B. Audit-Related Fees
  C. Tax Fees
  D. Other Fees
  E. Audit Committee Pre-Approval Policies and Procedures
   
 ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
  
 ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
  
 PART III
 
 ITEM 17. FINANCIAL STATEMENTS
  
 ITEM 18. FINANCIAL STATEMENTS
  Page(a
    )
    
    Report of Independent Registered Public Accounting Firm
    
    
    F-1  F-2(b
    )
    
    Consolidated Balance Sheets as of December 31, 2006 and 2007
    
    
    F-3  F-4(c
    )
    
    Consolidated Statements of Operations for the years ended December 31, 2005,2006 and 2007
    
    
    F-5(d
    )
    
    Consolidated Statements of Shareholders Equity for the years endedDecember 31, 2005, 2006 and 2007
    
    
    F-6(e
    )
    
    Consolidated Statements of Cash Flows for the years ended December 31, 2005,2006 and 2007
    
    
    F-7  F-8(f
    )
    
    Notes to the
Consolidated Financial Statements
    
    
    F-9  F-83
 97




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##### Table of Contents



ITEM 19. EXHIBITS
 EXHIBIT
    
    INDEX1.1
    
    
    Memorandum of Association of our Company*1.2
    
    
    Articles of Association of our Company*1.3
    
    

Amended Memorandum and Articles of Association of our Company**********4.1
    
    
    Microsoft Commercial Internet System License Agreement between Hoshin GigaMedia Center Inc., dated
April 1, 1998**4.2
    
    
    License Agreement between Portal Information Network, Inc. and Hoshin GigaMedia Center Inc., dated
May 23, 1998**4.3
    
    
    Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Prosperity
CATV Inc., dated May 12, 1999 (including English summary)**4.4
    
    
    Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Everlasting
Cable TV Co., dated June 16, 1999 (including English summary)**4.5
    
    
    Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Lee Kwan
Cable TV Co., dated June 16, 1999 (including English summary)**4.6
    
    
    Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Wonderful
Cable TV Co. Ltd., dated June 16, 1999 (including English summary)**4.7
    
    
    Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Powerful
CATV Co. Ltd., dated May 14, 1999 (including English summary)**4.8
    
    
    Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Netwave
Cable TV Inc., dated April 16, 1999 (including English summary)**4.9
    
    
    Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and New Visual
Wave CATV Inc., dated August 18, 1999 (including English summary)**4.10
    
    
    Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Da Fung CATV
Co. Ltd., dated July 6, 1999 (including English summary)**4.11
    
    
    Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Gaho Cable
Co. Ltd., dated May 12, 1999 (including English summary)**4.12
    
    
    Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and TeleFirst
Cable Communication Co. Ltd., dated May 19, 1999 (including English summary)**4.13
    
    
    Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Twinstar
CATV Co. Ltd., dated April 16, 1999 (including English summary)**4.14
    
    
    Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Sun Crown
CATV Co. Ltd., dated April 16, 1999 (including English summary)**4.15
    
    
    Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Shinyeongan
CATV Co. Ltd., dated May 21, 1999 (including English summary)**
 98




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##### Table of Contents



EXHIBIT
    
    INDEX4.16
    
    
    Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Chung Lian
Inc., dated April 16, 1999 (including English summary)**4.17
    
    
    Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Gang Du
Cable TV Co. Ltd., dated April 16, 1999 (including English summary)**4.18
    
    
    Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Union Cable
TV Co. Ltd., dated May 14, 1999 (including English summary)**4.19
    
    
    Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and North
Taoyuan CATV Company, dated August 9, 1999 (including English summary)**4.20
    
    
    Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Top Cable TV
System Co., dated November 1, 1999 (including English summary)**4.21
    
    
    Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Shin Ho
Cable TV Co. Ltd., dated May 13, 1999 (including English summary)**4.22
    
    
    Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Shuang Shing
Cable TV Co., dated June 16, 1999 (including English summary)**4.23
    
    
    Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Hai Sun
Cable Broadcasting System Co. Ltd., dated August 9, 1999 (including English summary)**4.24
    
    
    Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Tien Wai
Tien CATV Co., Ltd., dated October 25, 1999 (including English summary)**4.25
    
    
    Registration Rights Agreement among GigaMedia Limited and Microsoft Corporation, dated November 23,
1999**4.26
    
    
    Shareholders Agreement among GigaMedia Limited and Microsoft Corporation, Koos Develop Corp., Kudos
Fund, Best Method Limited, TCC International, Mr. Chester Koo, Mr. Leslie Koo, Mr. Kent Yen, Mr.
Raymond Chang, Mr. Yichun Chang, Mr. Chris Tung and Mr. Michel Chu, dated November 23, 1999**4.27
    
    
    Business Co-Operation Agreement among Hoshin GigaMedia Center, Inc. and Microsoft Corporation, dated
November 1, 1999**4.28
    
    
    Strategic Alliance Agreement among GigaMedia Limited, Hoshin GigaMedia Center Inc., and Gamania
Digital Entertainment Co., LTD., dated March 1, 2001***4.29
    
    
    Stock Purchase Agreement, dated as of March 17, 2004, by and among GigaMedia International Limited, GV
Holding Company, and Alexander Saidakovsky, Alexander Ganelis and Daniil Utin******4.30
    
    
    End-User License Agreement between Internet Media Licensing Limited and Ultra Internet Media, S.A.,
dated April 1, 2004*******4.31
    
    
    Purchase and Sale Agreement between Hoshin GigaMedia Center, Inc. and Webs-TV, Digital International
Corporation, dated June 23, 2005*******4.32
    
    
    Put-Call Option Agreement between Hoshin GigaMedia Center, Inc. and JSDWAY Digital Technology Co.
Ltd., dated December 21, 2005*4.33
    
    
    Assets Sale and Purchase Agreement among GigaMedia Limited, FunTown World Limited, Hoshin GigaMedia
Center, Inc. and TWP Corporation, dated December 19, 2005*4.34
    
    
    Share Purchase Agreement between GigaMedia Limited and Nextbase International Limited, dated
September 17, 2005*4.35
    
    
    Subscription Rights Agreement between Hoshin GigaMedia Center, Inc. Wretch Co., Ltd. and the
shareholders of Wretch Co. Ltd, dated March 10, 2006*4.36
    
    
    Series A Preferred Share Purchase Agreement among T2CN Holding Limited, GigaMedia China Limited, and
certain shareholders of T2CN, dated April 27, 2006*4.37
    
    
    Shareholders Agreement among T2CN Holding Limited and the Shareholders dated April 27, 2006*
 99




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##### Table of Contents



EXHIBIT
    
    INDEX4.38
    
    
    Strategic Partnership Agreement between T2CN Holding Limited and GigaMedia China Limited, dated
April 27, 2006*4.39
    
    
    Assets Purchase and Sale Agreement between Hoshin GigaMedia Center, Inc. and Webs-TV Digital
International Corporation, dated May 15, 2006*4.40
    
    
    Service Agreement between Hoshin GigaMedia Center, Inc. and Webs-TV Digital International Corporation,
dated May 15, 2006*4.41
    
    
    Second Amendment to the End-User License Agreement between Internet Media Licensing Limited and Ultra
Internet Media, S.A., dated March 1, 2006*4.42
    
    
    Amended and Restated Shareholders Agreement between T2CN Holding Ltd., certain shareholders of T2CN,
GigaMedia China Limited, Marvel City Investments Limited, Patriot Capital Limited, TAE LLC and Ant
Bridge No. 2 Venture Capital Secondary Investment Limited Partnership, dated November 25,
2006**********4.43
    
    
    Share Purchase Agreement between GigaMedia China Limited, Newmargin T2CN Investment Ltd. and Shanghai
Newmargin Venture Capital Co., Ltd, dated January 1,
2007**********4.44
    
    
    Share Purchase Agreement between GigaMedia China Limited and Chengwei (China) Investment Company,
Greg. Wei Gang Ye, and Jia Yi Wan, dated January 1,
2007**********4.45
    
    
    Share Purchase Agreement between GigaMedia China Limited and certain shareholders of T2CN, dated
January 17, 2007**********4.46
    
    
    Share Purchase Agreement between GigaMedia China Limited, Shanghai Newmargin Venture Capital Co. Ltd.
and Newmargin Happydigital Investment Partners Inc., dated
January 1, 2007**********4.47
    
    
    Subscription Agreement between GigaMedia Asia Pacific Limited and Infocomm Asia Holdings Pte. Ltd.,
dated December 7, 2006**********4.48
    
    
    Termination Agreement between Hoshin GigaMedia Center Inc., Koos Broadband Telecom Co., Ltd, Wretch
Co., Ltd and certain shareholders of Wretch Co., Ltd, dated
December 12, 2006**********4.49
    
    
    License and Distribution Agreement between Dragongate Enterprises Limited and HanbitSoft Inc., dated
December 13, 2006**********4.50
    
    
    Third Amendment to the End-User License Agreement between Internet Media Licensing Limited and Ultra
Internet Media, S.A., dated March 1, 2007**********4.51
    
    
    Shareholders Agreement between GigaMedia Asia Pacific Limited, Management Capital International Ltd,
Infocomm Investments Pte Ltd, Commerzbank Infocomm Segregated Portfolios, Global Star International
Development Limited and Etherfast Pte Ltd, dated December 7,
2006**********4.52
    
    
    Shareholders Agreement, between GigaMedia Asia Pacific Limited, Bodhi China and India Investments
LLC, Etherfast Pte Ltd, Global Star International Development Limited, Commerzbank Infocomm Segregated
Portfolio, Infocomm Investments Pte Ltd, Management Capital International Ltd and Infocomm Asia, dated
February 2, 2007**********4.53
    
    
    2006 Equity Incentive Plan********4.54
    
    

2007 Equity Incentive Plan*********4.55
    
    
    Exclusive Business Consultancy Service Agreement between T2 Technology and T2 Entertainment, dated
November 15, 2006#4.56
    
    
    Supplemental Agreement to Exclusive Business Consultancy Service Agreement between T2 Technology and
T2 Entertainment, dated April 1, 2007#4.57
    
    
    Exclusive Technical Service and Consultancy Agreement between T2 Entertainment and T2 Technology,
dated November 15, 2006#4.58
    
    
    Supplemental Agreement to Exclusive Technical Service and Consultancy Agreement between T2
Entertainment and T2 Technology, dated April 1, 2007#4.59
    
    

Agreement for Pledge of Shares in T2 Entertainment between Wang Chi, Lu Ning and T2 Technology, dated
 100




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##### Table of Contents



EXHIBIT
    
    INDEXFebruary 9, 2007#4.60
    
    
    Exclusive Call Option Agreement regarding T2 Entertainment between Wang Chi, Lu Ning, T2 Entertainment
and T2 Technology, dated February 9, 2007#4.61
    
    
    Proxy Voting Agreement regarding T2 Entertainment between T2 Technology, T2 Entertainment, Wang Chi
and Lu Ning, dated February 9, 2007#4.62
    
    
    Exclusive Business Consultancy Service Agreement between T2 Technology and T2 Advertisement, dated
November 15, 2006#4.63
    
    
    Supplemental Agreement to Exclusive Business Consultancy Service Agreement between T2 Technology and
T2 Advertisement, dated January 1, 2007#4.64
    
    
    Agreement for Pledge of Shares in T2 Advertisement between Chi Min, Chang Tao and T2 Technology, dated
March 20, 2008#4.65
    
    
    Exclusive Call Option Agreement regarding T2 Advertisement between Chi Min, Chang Tao, T2
Advertisement and T2 Technology, dated March 20, 2008#4.66
    
    
    Proxy Voting Agreement regarding T2 Advertisement between T2 Technology, T2 Advertisement, Chi Min and
Chang Tao, dated March 20, 2008#4.67
    
    
    Share Purchase Agreement between William Zhu and GigaMedia China Limited, dated June 3, 2007#4.68
    
    
    Share Purchase Agreement between Yu-Chia Lee and GigaMedia China Limited, dated June 6, 2007#4.69
    
    
    Share Purchase Agreement between Zheng Bin and GigaMedia China Limited, dated June 10, 2007#4.70
    
    
    Share Purchase Agreement between J&R Music LLC, Ya-Tsen Lin and GigaMedia China Limited, dated July 5,
2007#4.71
    
    
    Share Purchase Agreement between Kingland Overseas Development Inc. and GigaMedia China Limited, dated
July 6, 2007#4.72
    
    
    Share Purchase Agreement between Wang Ji and GigaMedia China Limited, dated July 6, 2007#4.73
    
    
    Share Purchase Agreement between Marvel City Investments Limited and GigaMedia China Limited, dated
May 26, 2008#8.1
    
    
    List of Subsidiaries*11.1
    
    
    Code of ethics adopted by the registrant on April 21, 2004, as amended on December 19, 2005*12.1
    
    
    Certification by our Chief Executive Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act#12.2
    
    
    Certification by our Chief Financial Officer pursuant to Rule13a-14(b) of the Securities Exchange Act#13.1
    
    
    Certification by our Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002#13.2
    
    
    Certification by our Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002#15.1
    
    
    Consent of GHP Horwath, P.C., Independent Registered Public Accounting Firm#
 
 *
    
    Incorporated by reference from annual report on Form 20-F, file number
000-30540 filed with the Commission on June 28, 2006.**
    
    Incorporated by reference from our Registration Statement on Form F-1, file
number 333-11416 filed with the Commission on February 2, 2000.***
    
    Incorporated by reference from our annual report on Form 20-F, file number
000-30540 filed with the Commission on June 28, 2001. 101




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##### Table of Contents



******
    
    Incorporated by reference from our annual report on Form 20-F, file number
000-30540 filed with the Commission on June 30, 2004.*******
    
    Incorporated by reference from our annual report on Form 20-F, file number
000-30540 filed with the Commission on June 30, 2005.********
    
    Incorporated by reference from our Registration Statement on Form S-8, file
number 333-142963 filed with the Commission on May 15, 2007*********
    
    Incorporated by reference from our Registration Statement on Form S-8, file
number 333-148663 filed with the Commission on January 15, 2008**********
    
    Incorporated by reference from our annual report on Form 20-F, file number
000-30540 filed with the Commission on June 29, 2007#
    
    Filed herewith. 102




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##### Table of Contents



SIGNATURE
  GIGAMEDIA LIMITEDBy:
    
    /s/ Arthur WangArthur WangChief Executive Officer
Date:   June 30, 2008 103




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
 Internal ControlIntegrated
Framework
    F-1




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##### Table of Contents



Consolidation of Variable Interest Entities
 Internal ControlIntegrated Framework
 Share-Based Payment
  
 F-2




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##### Table of Contents



GIGAMEDIA LIMITED
CONSOLIDATED BALANCE SHEETS
December 31, 2006 and 2007
 December 312006
    
    
    2007ASSETSCURRENT ASSETSCash and cash equivalents (Note 8)
    
    $
    22,372
    
    
    $
    68,563Marketable securitiescurrent (Note 9)
    
    
    13,816
    
    
    
    11,354Notes and accounts receivablenet (Note 10)
    
    
    15,076
    
    
    
    18,291Prepaid expenses
    
    
    3,196
    
    
    
    5,615Restricted cash (Note 12)
    
    
    2,697
    
    
    
    6,247Other receivable
    
    
    6,268
    
    
    
    2,561Other current assets (Note 13)
    
    
    751
    
    
    
    2,786Total Current Assets
    
    
    64,176
    
    
    
    115,417Marketable securitiesnoncurrent (Note 11)
    
    
    25,000
    
    
    
    21,018Investments
    
    
    
    
    
    
    4,612PROPERTY, PLANT AND EQUIPMENTLand and building
    
    
    1,844
    
    
    
    1,853Information and communication equipment
    
    
    18,200
    
    
    
    23,163Office furniture and fixtures
    
    
    1,919
    
    
    
    2,029Leasehold improvements
    
    
    2,157
    
    
    
    2,222Other
    
    
    2,378
    
    
    
    2,02026,498
    
    
    
    31,287Less: Accumulated depreciation
    
    
    (16,400
    )
    
    
    (18,279
    )10,098
    
    
    
    13,008GOODWILL (Notes 5 and 6)
    
    
    55,817
    
    
    
    85,149INTANGIBLE ASSETSNET (Notes 5 and 7)
    
    
    23,067
    
    
    
    26,060OTHER ASSETSDeferred assets
    
    
    217
    
    
    
    334Refundable deposits
    
    
    838
    
    
    
    1,528Prepaid licensing and royalty fees (Note 24)
    
    
    3,374
    
    
    
    16,739Other
    
    
    32
    
    
    
    Total Other Assets
    
    
    4,461
    
    
    
    18,601TOTAL ASSETS
    
    $
    182,619
    
    
    $
    283,865
  F-3




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##### Table of Contents



GIGAMEDIA LIMITED
CONSOLIDATED BALANCE SHEETS(Continued)
December 31, 2006 and 2007
 December 312006
    
    
    2007LIABILITIES & SHAREHOLDERS EQUITYCURRENT LIABILITIESShort-term borrowings (Note 14)
    
    $
    12,853
    
    
    $
    33,301Notes and accounts payable
    
    
    1,751
    
    
    
    1,922Accrued compensation
    
    
    3,458
    
    
    
    5,750Accrued expenses (Note 15)
    
    
    4,786
    
    
    
    9,151Player account balances
    
    
    9,527
    
    
    
    27,136Other current liabilities (Note 16)
    
    
    12,832
    
    
    
    14,652Total Current Liabilities
    
    
    45,207
    
    
    
    91,912OTHER LIABILITIESRefundable deposits
    
    
    752
    
    
    
    635Accrued pension liabilities (Note 18)
    
    
    434
    
    
    
    436Other
    
    
    605
    
    
    
    407Total Other Liabilities
    
    
    1,791
    
    
    
    1,478Total Liabilities
    
    
    46,998
    
    
    
    93,390MINORITY INTERESTS
    
    
    1,534
    
    
    
    9,810COMMITMENTS AND CONTINGENCIES (Notes 24 and 25)
    
    
    
    
    
    
    SHAREHOLDERS EQUITY (Note 19)Common shares, no par value, and additional paid-in capital;
issued 51,495 thousand and 53,700 thousand
shares on December 31, 2006 and 2007
    
    
    289,495
    
    
    
    296,793Accumulated deficit
    
    
    (128,439
    )
    
    
    (89,692
    )Accumulated other comprehensive loss
    
    
    (26,969
    )
    
    
    (26,436
    )Total Shareholders Equity
    
    
    134,087
    
    
    
    180,665TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    182,619
    
    
    $
    283,865
  F-4




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##### Table of Contents



GIGAMEDIA LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2005, 2006 and 2007
 2005
    
    
    2006
    
    
    2007OPERATING REVENUESGaming software and service revenues
    
    $
    22,511
    
    
    $
    55,019
    
    
    $
    118,950Online game and service revenues
    
    
    
    
    
    
    18,692
    
    
    
    32,764Internet access and service revenues
    
    
    21,589
    
    
    
    20,537
    
    
    
    15,147Other revenues
    
    
    87
    
    
    
    44
    
    
    
    17Total
    
    
    44,187
    
    
    
    94,292
    
    
    
    166,878OPERATING COSTSCost of gaming software and service revenues
    
    
    (3,327
    )
    
    
    (7,824
    )
    
    
    (16,201
    )Cost of online game and service revenues
    
    
    
    
    
    
    (3,667
    )
    
    
    (9,118
    )Cost of Internet access and service revenues
    
    
    (13,568
    )
    
    
    (11,449
    )
    
    
    (10,002
    )Cost of other revenues
    
    
    (488
    )
    
    
    (391
    )
    
    
    (223
    )(17,383
    )
    
    
    (23,331
    )
    
    
    (35,544
    )GROSS PROFIT
    
    
    26,804
    
    
    
    70,961
    
    
    
    131,334OPERATING EXPENSESProduct development and engineering expenses
    
    
    (3,562
    )
    
    
    (5,738
    )
    
    
    (7,911
    )Selling and marketing expenses
    
    
    (10,777
    )
    
    
    (30,123
    )
    
    
    (62,349
    )General and administrative expenses
    
    
    (7,892
    )
    
    
    (12,421
    )
    
    
    (22,240
    )Bad debt expenses
    
    
    (207
    )
    
    
    (715
    )
    
    
    (743
    )(22,438
    )
    
    
    (48,997
    )
    
    
    (93,243
    )INCOME FROM OPERATIONS
    
    
    4,366
    
    
    
    21,964
    
    
    
    38,091NON-OPERATING INCOME (EXPENSES)Interest income
    
    
    411
    
    
    
    722
    
    
    
    1,441Gains on sales of marketable securities
    
    
    850
    
    
    
    2,189
    
    
    
    205Interest expense
    
    
    
    
    
    
    (582
    )
    
    
    (655
    )Foreign exchange gain (loss)
    
    
    151
    
    
    
    (161
    )
    
    
    (675
    )Gain (loss) on disposal of property, plant and equipment
    
    
    204
    
    
    
    (37
    )
    
    
    (134
    )Gain on divestiture of business (Note 4)
    
    
    
    
    
    
    7,668
    
    
    
    Proportionate share of losses under the equity method
    
    
    
    
    
    
    
    
    
    
    (369
    )Other (Note 21)
    
    
    1,094
    
    
    
    891
    
    
    
    2,6702,710
    
    
    
    10,690
    
    
    
    2,483INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND
MINORITY INTEREST
    
    
    7,076
    
    
    
    32,654
    
    
    
    40,574INCOME TAX EXPENSES (Note 22)
    
    
    (436
    )
    
    
    (1,549
    )
    
    
    (403
    )INCOME FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST
    
    
    6,640
    
    
    
    31,105
    
    
    
    40,171MINORITY INTEREST
    
    
    (150
    )
    
    
    (321
    )
    
    
    (1,281
    )INCOME FROM CONTINUING OPERATIONS
    
    
    6,490
    
    
    
    30,784
    
    
    
    38,890LOSS FROM DISCONTINUED OPERATIONSNET OF TAX
    
    
    (154
    )
    
    
    
    
    
    
    NET INCOME
    
    $
    6,336
    
    
    $
    30,784
    
    
    $
    38,890EARNINGS PER SHARE (Note 2)Basic:Income from continuing operations
    
    $
    0.13
    
    
    $
    0.60
    
    
    $
    0.74Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    Net income
    
    $
    0.13
    
    
    $
    0.60
    
    
    $
    0.74Diluted:Income from continuing operations
    
    $
    0.12
    
    
    $
    0.51
    
    
    $
    0.65Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    Net income
    
    $
    0.12
    
    
    $
    0.51
    
    
    $
    0.65WEIGHTED AVERAGE SHARES USED TO COMPUTE
EARNINGS PER SHARE (Note 2)Basic
    
    
    50,312
    
    
    
    50,921
    
    
    
    52,876Diluted
    
    
    55,059
    
    
    
    61,114
    
    
    
    60,022
  F-5




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##### Table of Contents



GIGAMEDIA LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
For the Years Ended December 31, 2005, 2006 and 2007
 Common shares
    
    
    
    
    
    
    Accumulated otherand additional paid-in capital
    
    
    Accumulated
    
    
    comprehensiveShares
    
    
    Amount
    
    
    deficit (Note 19)
    
    
    income (loss)
    
    
    TotalBalance as of January 1, 2005
    
    
    50,154
    
    
    $
    287,657
    
    
    
    ($165,559
    )
    
    
    ($26,127
    )
    
    $
    95,971Issuance of common shares for employee stock purchase plan
    
    
    190
    
    
    
    263
    
    
    
    
    
    
    
    
    
    
    
    263Net income
    
    
    
    
    
    
    
    
    
    
    6,336
    
    
    
    
    
    
    
    6,336Components of other comprehensive income:Net unrealized loss on marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (333
    )
    
    
    (333
    )Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,589
    )
    
    
    (1,589
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,414Balance as of December 31, 2005
    
    
    50,344
    
    
    
    287,920
    
    
    
    (159,223
    )
    
    
    (28,049
    )
    
    $
    100,648Issuance of common shares from exercise of stock options
    
    
    1,151
    
    
    
    1,265
    
    
    
    
    
    
    
    
    
    
    
    1,265Stock-based compensation
    
    
    
    
    
    
    310
    
    
    
    
    
    
    
    
    
    
    
    310Adjustment for initial application of FAS 158
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    235
    
    
    
    235Net income
    
    
    
    
    
    
    
    
    
    
    30,784
    
    
    
    
    
    
    
    30,784Components of other comprehensive income:Net unrealized gain on marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    335
    
    
    
    335Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    510
    
    
    
    510Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,629Balance as of December 31, 2006
    
    
    51,495
    
    
    
    289,495
    
    
    
    (128,439
    )
    
    
    (26,969
    )
    
    
    134,087Issuance of common shares from exercise of stock options and RSUs
    
    
    1,979
    
    
    
    2,733
    
    
    
    
    
    
    
    
    
    
    
    2,733Issuance of common shares for acquisition (Note 5)
    
    
    226
    
    
    
    2,703
    
    
    
    
    
    
    
    
    
    
    
    2,703Stock-based compensation
    
    
    
    
    
    
    1,862
    
    
    
    
    
    
    
    
    
    
    
    1,862Adjustment for initial application of FIN 48 (Note 22)
    
    
    
    
    
    
    
    
    
    
    (143
    )
    
    
    
    
    
    
    (143
    )Net income
    
    
    
    
    
    
    
    
    
    
    38,890
    
    
    
    
    
    
    
    38,890Components of other comprehensive income:Net unrealized gain on marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58
    
    
    
    58Defined benefit pension plan adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (54
    )
    
    
    (54
    )Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    529
    
    
    
    529Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,423Balance as of December 31, 2007
    
    
    53,700
    
    
    $
    296,793
    
    
    
    ($89,692
    )
    
    
    ($26,436
    )
    
    $
    180,665
  F-6




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##### Table of Contents



GIGAMEDIA LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2005, 2006 and 2007
 2005
    
    2006
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    6,336
    
    
    $
    30,784
    
    
    $
    38,890Adjustments to reconcile net income to net cash provided
by operating activities:Depreciation
    
    
    4,203
    
    
    
    3,167
    
    
    
    3,184Amortization
    
    
    2,202
    
    
    
    2,876
    
    
    
    3,214Stock-based compensation
    
    
    
    
    
    
    310
    
    
    
    1,862Provision for bad debt expenses
    
    
    307
    
    
    
    715
    
    
    
    743Gain on divestiture of business
    
    
    (911
    )
    
    
    (7,668
    )
    
    
    Gain on sales of investment option rights
    
    
    
    
    
    
    
    
    
    
    (498
    )Gain on cancellation of prefered share call options
    
    
    
    
    
    
    
    
    
    
    (1,069
    )Loss (gain) on disposal of property, plant and equipment
    
    
    (204
    )
    
    
    37
    
    
    
    134Gain on sale of marketable securities
    
    
    (958
    )
    
    
    (2,189
    )
    
    
    (205
    )Proportionate share of losses under the equity method
    
    
    
    
    
    
    
    
    
    
    369Interest income from premium of convertible notes
    
    
    
    
    
    
    (140
    )
    
    
    Gain on early redemption of convertible notes
    
    
    
    
    
    
    (625
    )
    
    
    Cash dividend to minority interest shareholders of variable
interest entity
    
    
    
    
    
    
    (100
    )
    
    
    (200
    )Minority interests income (loss)
    
    
    (646
    )
    
    
    321
    
    
    
    1,281Other
    
    
    504
    
    
    
    63
    
    
    
    (86
    )Net changes in operating assets and liabilities, net of
business acquisitions:Notes and accounts receivable
    
    
    (2,193
    )
    
    
    (5,723
    )
    
    
    (3,864
    )Prepaid expenses
    
    
    185
    
    
    
    (2,422
    )
    
    
    (2,316
    )Other receivables
    
    
    (695
    )
    
    
    (62
    )
    
    
    2,998Other current assets
    
    
    28
    
    
    
    (376
    )
    
    
    675Notes and accounts payable
    
    
    (1,371
    )
    
    
    69
    
    
    
    (327
    )Accrued expenses
    
    
    (1,177
    )
    
    
    2,419
    
    
    
    2,893Accrued compensation
    
    
    (18
    )
    
    
    2,264
    
    
    
    1,991Player account balances
    
    
    1,446
    
    
    
    7,440
    
    
    
    17,609Other current liabilities
    
    
    1,217
    
    
    
    254
    
    
    
    (1,259
    )Accrued pension liabilities
    
    
    62
    
    
    
    (150
    )
    
    
    (62
    )Prepaid licensing and royalty fees
    
    
    
    
    
    
    (3,374
    )
    
    
    (9,829
    )Other
    
    
    3,205
    
    
    
    1,553
    
    
    
    (165
    )Net cash provided by operating activities
    
    
    11,522
    
    
    
    29,443
    
    
    
    55,963CASH FLOWS FROM INVESTING ACTIVITIES:Decrease (increase) in restricted cash
    
    
    176
    
    
    
    (2,697
    )
    
    
    (3,550
    )Proceeds from disposal of marketable securities
    
    
    36,970
    
    
    
    26,700
    
    
    
    20,151Divestiture of business, net of cash transferred
    
    
    3,253
    
    
    
    3,318
    
    
    
    4,930Purchase of property, plant and equipment
    
    
    (2,652
    )
    
    
    (2,716
    )
    
    
    (4,900
    )Proceeds from disposal of property, plant and equipment
    
    
    949
    
    
    
    8
    
    
    
    46Proceeds from sales of investment option rights
    
    
    
    
    
    
    
    
    
    
    580Purchase of marketable securities
    
    
    (20,184
    )
    
    
    (42,509
    )
    
    
    (26,552
    )Purchase of investments
    
    
    
    
    
    
    
    
    
    
    (1,827
    )Purchase of intangible assets
    
    
    (1,005
    )
    
    
    (2,583
    )
    
    
    (4,642
    )Acquisitions, net of cash acquired
    
    
    
    
    
    
    (26,760
    )
    
    
    (13,983
    )Increase in loan receivable
    
    
    
    
    
    
    
    
    
    
    (2,500
    )Decrease (increase) in refundable deposits
    
    
    42
    
    
    
    (197
    )
    
    
    (610
    )Decrease in other assets
    
    
    (16
    )
    
    
    (82
    )
    
    
    Increase in deferred assets
    
    
    (331
    )
    
    
    (368
    )
    
    
    (314
    )Net cash provided by (used in) investing activities
    
    
    17,202
    
    
    
    (47,886
    )
    
    
    (33,171
    )
  F-7




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##### Table of Contents



GIGAMEDIA LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS  (Continued)
For the Years Ended December 31, 2005, 2006 and 2007
 2005
    
    
    2006
    
    
    2007CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from (repayment of) short-term borrowings
    
    
    (284
    )
    
    
    12,853
    
    
    
    20,126Capital contribution received from minority shareholders
    
    
    
    
    
    
    
    
    
    
    30Redemption of convertible notes
    
    
    
    
    
    
    (15,000
    )
    
    
    Increase (decrease) in refundable deposits
    
    
    268
    
    
    
    (80
    )
    
    
    (117
    )Cash received from the exercise of stock options
    
    
    
    
    
    
    1,265
    
    
    
    2,733Issuance of common shares for employee stock purchase plan
    
    
    263
    
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    247
    
    
    
    (962
    )
    
    
    22,772Exchange difference
    
    
    (473
    )
    
    
    46
    
    
    
    627NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
    
    
    28,498
    
    
    
    (19,359
    )
    
    
    46,191CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR
    
    
    13,233
    
    
    
    41,731
    
    
    
    22,372CASH AND CASH EQUIVALENTS AT END OF YEAR
    
    $
    41,731
    
    
    $
    22,372
    
    
    $
    68,563SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:Interest paid during the year
    
    $
    
    
    
    $
    581
    
    
    $
    621Income tax paid during the year
    
    $
    323
    
    
    $
    455
    
    
    $
    827NON-CASH FINANCING AND INVESTING ACTIVITIES:Unrealized holding (loss) gain on available-for-sale securities
    
    
    ($333
    )
    
    $
    335
    
    
    $
    58Accrual for investing in marketable securities
    
    
    
    
    
    
    
    
    
    $
    2,204Issuance of common shares for acquisition
    
    
    
    
    
    
    
    
    
    $
    2,703Issuance of convertible notes as acquisition consideration
    
    
    
    
    
    $
    15,000
    
    
    
    Adjustment to acquisition purchase price
    
    
    
    
    
    $
    5,000
    
    
    
    Divestiture of business
    
    
    
    
    
    $
    4,966
    
    
    
    
  F-8




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##### Table of Contents



NOTE 1.
    
    BUSINESS OVERVIEW, BASIS OF PRESENTATION, AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
 (a) Business Overview
      (b) Basis of Presentation
  F-9




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##### Table of Contents



Principles of Consolidation
  Foreign Currency Translation
  (c) Summary of significant accounting policies
 Use of Estimates
  F-10




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##### Table of Contents



Revenue Recognition
 General
   Multiple-Element Arrangements
   Gaming Software and Service Revenues
   F-11




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##### Table of Contents



Online Game and Service Revenues
   F-12




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Internet Access and Service Revenues
   F-13




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F-14




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##### Table of Contents



Other Revenues
  Discontinued Operations
   Player Account Balances
  Deferred Revenues
  F-15




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Operating Costs
  Prepaid Licensing and Royalty Fees
    Fair Value of Financial Instruments
  F-16




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Cash Equivalents
  Marketable Securities
   Investments
  F-17




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Allowance for Doubtful Accounts
   F-18




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Property, Plant and Equipment
  Categories
    
    YearsBuildings
    
    50Information and communication equipment
    
    2 to 5Office furniture and equipment
    
    3 to 5Leasehold improvements
    
    2 to 5Other
    
    3 to 5
  Acquisitions
  Intangible Assets and Goodwill
   F-19




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Impairment of Intangible Assets, Goodwill and Long-Lived Assets
   Software Cost
  F-20




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##### Table of Contents



Product Development and Engineering
  Advertising
   Stock-Based Compensation
  F-21




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##### Table of Contents



(in US$ thousands,
    
    Year Endedexcept per share figures)
    
    December 31,2005Net incomeAs reported
    
    $
    6,336Less: Stock compensation expense,
net of related tax effects
    
    
    (1,951
    )Pro-forma
    
    $
    4,385Earnings per share:As reported  basic
    
    $
    0.13As reported  diluted
    
    
    0.12Pro-forma  basic
    
    
    0.09Pro-forma  diluted
    
    
    0.08
   F-22




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Retirement Plan and Net Periodic Pension Cost
  F-23




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Comprehensive Income (Loss)
  Accounting for Income Taxes
  F-24




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##### Table of Contents



Earnings Per Share
  F-25




---



##### Table of Contents



Minority Interest
     Reclassification
  F-26




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##### Table of Contents



Recent Accounting Pronouncements
     F-27




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F-28




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##### Table of Contents



NOTE 2. EARNINGS PER SHARE
 (in US$ thousands, except per share figures)
    
    For the years ended December 31,2005
    
    
    2006
    
    
    2007Weighted average outstanding sharesBasic
    
    
    50,312
    
    
    
    50,921
    
    
    
    52,876Effect of dilutive securitiesEmployee share-based compensation
    
    
    4,747
    
    
    
    7,509
    
    
    
    7,146Convertible notes
    
    
    
    
    
    
    2,684
    
    
    
    Diluted
    
    
    55,059
    
    
    
    61,114
    
    
    
    60,022Earnings Per Share  BasicIncome from continuing operations
    
    $
    6,490
    
    
    $
    30,784
    
    
    $
    38,890Loss from discontinued operations,
net of taxes
    
    
    (154
    )
    
    
    
    
    
    
    Net income
    
    $
    6,336
    
    
    $
    30,784
    
    
    $
    38,890Earnings per shareContinuing operations
    
    $
    0.13
    
    
    $
    0.60
    
    
    $
    0.74Discontinued operations
    
    
    
    
    
    
    
    
    
    
    $
    0.13
    
    
    $
    0.60
    
    
    $
    0.74Earnings Per Share  DilutedIncome from continuing operations
    
    $
    6,490
    
    
    $
    30,784
    
    
    $
    38,890Interest charges associated with convertible notes
    
    
    
    
    
    
    288
    
    
    
    Income from continuing operations after assumed
conversion of convertible notes
    
    
    6,490
    
    
    
    31,072
    
    
    
    38,890Loss from discontinued operations,
net of taxes
    
    
    (154
    )
    
    
    
    
    
    
    Net income after assumed conversion of convertible
notes and discontinued operations
    
    $
    6,336
    
    
    $
    31,072
    
    
    $
    38,890Earnings per shareContinuing operations
    
    $
    0.12
    
    
    $
    0.51
    
    
    $
    0.65Discontinued operations
    
    
    
    
    
    
    
    
    
    
    $
    0.12
    
    
    $
    0.51
    
    
    $
    0.65
 NOTE 3. VARIABLE-INTEREST ENTITIES
  F-29




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F-30




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Shareholder Voting Rights Proxy Agreements.
 Exclusive Equity Transfer Call Agreements.
 Exclusive Technical Service and Consultancy Agreement .
 Equity Pledge Agreements .
 F-31




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##### Table of Contents



NOTE 4. DIVESTITURES
 Divestiture  Music Distribution Business
   (in US$ thousands)
    
    2005Revenue
    
    $
    37,907Loss before tax and
minority interest income
    
    $
    (1,861
    )Income tax benefit
    
    $
    (1
    )Minority interest loss
    
    $
    (796
    )Loss from discontinued
operations
    
    $
    (154
    )
 F-32




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##### Table of Contents



(in US$ thousands)Cash (including restricted cash)
    
    $
    3,098Accounts receivable
    
    
    1,842Inventory
    
    
    6,679Other current assets
    
    
    683Property and equipment
    
    
    1,666Intangible assets
    
    
    4,689Other assets
    
    
    1,553Total assets
    
    $
    20,210Accounts payable
    
    $
    11,239Other liabilities
    
    
    1,945Total liabilities
    
    $
    13,184
 Divestiture  ADSL Business
   F-33




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##### Table of Contents



NOTE 5. ACQUISITIONS
 Acquisition  T2CN
   2006
  2007
   F-34




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F-35




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Amortization life(in US$ thousands)
    
    (in years)
    
    AmountCash acquired
    
    
    
    $
    11,773Marketable securities / Investments
    
    
    
    
    3,724Other current assets
    
    
    
    
    5,892Fixed assets / non-current assets
    
    
    
    
    3,717Intangible assetsCapitalized software cost
    
    3.5~5
    
    
    2,974Goodwill
    
    N/A
    
    
    29,354Total assets acquired
    
    
    
    
    57,434Current liabilities
    
    
    
    
    11,500Noncurrent liabilities
    
    
    
    
    1,050Minority interest
    
    
    
    
    6,171Total liabilities assumed
    
    
    
    
    18,721Total purchase price
    
    
    
    $
    38,713
  (in US$ thousands,
    
    Year ended December 31except per share figures)
    
    2006
    
    
    2007Unaudited
    
    
    UnauditedNet revenue
    
    $
    105,629
    
    
    $
    172,473Income from operations
    
    
    4,186
    
    
    
    38,617Net income
    
    
    21,009
    
    
    
    38,980Basic earnings per share
    
    
    0.41
    
    
    
    0.74Diluted earnings per share
    
    
    0.35
    
    
    
    0.65
  F-36




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##### Table of Contents



Acquisition  FunTown
    F-37




---



##### Table of Contents



(in US$ thousands)
    

Amortization
life(in years)
    

Originalamount
    
    

Priceadjustment
    
    

TotalallocationCash acquired
    
    
    
    $
    463
    
    
    $
    
    
    
    $
    463Accounts receivable
    
    
    
    
    3,626
    
    
    
    
    
    
    
    3,626Other current assets
    
    
    
    
    106
    
    
    
    
    
    
    
    106Fixed assets / non-current assets
    
    
    
    
    628
    
    
    
    
    
    
    
    628Intangible assets
    
    
    
    
    Trade name and trademark
    
    N/A
    
    
    10,795
    
    
    
    
    
    
    
    10,795Customer relationships
    
    9
    
    
    5,546
    
    
    
    
    
    
    
    5,546Completed technology
    
    7
    
    
    2,301
    
    
    
    
    
    
    
    2,301Self-developed software
    
    5
    
    
    1,534
    
    
    
    
    
    
    
    1,534Other
    
    5
    
    
    73
    
    
    
    
    
    
    
    73Goodwill
    
    N/A
    
    
    21,409
    
    
    
    4,762
    
    
    
    26,171Total assets acquired
    
    
    
    
    46,481
    
    
    
    4,762
    
    
    
    51,243Current liabilities
    
    
    
    
    (3,501
    )
    
    
    
    
    
    
    (3,501
    )Noncurrent liabilities
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )Total liabilities assumed
    
    
    
    
    (3,502
    )
    
    
    
    
    
    
    (3,502
    )Total purchase price
    
    
    
    $
    42,979
    
    
    $
    4,762
    
    
    $
    47,741
  F-38




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##### Table of Contents



(in US$ thousands,
    
    Year endedexcept per share figures)
    
    December 312005UnauditedNet revenue
    
    $
    61,219Income from operations
    
    
    8,949Net income
    
    
    11,279Basic earnings per share
    
    
    0.22Diluted earnings per share
    
    
    0.20
  NOTE 6 GOODWILL
 Gaming software
    
    
    Online game(in US$ thousands)
    
    and service
    
    
    and service
    
    
    TotalBalance as of December 31, 2005
    
    $
    29,243
    
    
    $
    
    
    
    $
    29,243Acquisition
    
    
    
    
    
    
    21,409
    
    
    
    21,409Post-acquisition adjustment
    
    
    
    
    
    
    5,000
    
    
    
    5,000Translation adjustment
    
    
    
    
    
    
    165
    
    
    
    165Balance as of December 31, 2006
    
    
    29,243
    
    
    
    26,574
    
    
    
    55,817Acquisition
    
    
    
    
    
    
    29,354
    
    
    
    29,354Post-acquisition adjustment
    
    
    
    
    
    
    (238
    )
    
    
    (238
    )Translation adjustment
    
    
    
    
    
    
    216
    
    
    
    216Balance as of December 31, 2007
    
    $
    29,243
    
    
    $
    55,906
    
    
    $
    85,149
   F-39




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##### Table of Contents



NOTE 7. INTANGIBLE ASSETS  NET
  (in US$ thousands)
    
    December 31, 2006Gross carrying
    
    
    Accumulatedamount
    
    
    amortization
    
    
    NetCompleted technology
    
    $
    3,619
    
    
    $
    (1,523
    )
    
    $
    2,096Trade nametrademark and non-competition agreement
    
    
    11,841
    
    
    
    (307
    )
    
    
    11,534Capitalized software cost
    
    
    6,333
    
    
    
    (1,910
    )
    
    
    4,423Customer relationships
    
    
    5,589
    
    
    
    (621
    )
    
    
    4,968Other
    
    
    66
    
    
    
    (20
    )
    
    
    46Total
    
    $
    27,448
    
    
    $
    (4,381
    )
    
    $
    23,067
 (in US$ thousands)
    
    December 31, 2007Gross carrying
    
    
    Accumulatedamount
    
    
    amortization
    
    
    NetCompleted technology
    
    $
    3,631
    
    
    $
    (1,966
    )
    
    $
    1,665Trade nametrademark and non-competition agreement
    
    
    11,898
    
    
    
    (423
    )
    
    
    11,475Capitalized software cost
    
    
    12,222
    
    
    
    (3,711
    )
    
    
    8,511Customer relationships
    
    
    5,618
    
    
    
    (1,249
    )
    
    
    4,369Other
    
    
    66
    
    
    
    (26
    )
    
    
    40Total
    
    $
    33,435
    
    
    $
    (7,375
    )
    
    $
    26,060
   F-40




---



##### Table of Contents



Amount(in US$ thousands)2008
    
    $
    3,9282009
    
    
    3,8272010
    
    
    3,3752011
    
    
    1,5122012
    
    
    1,051$
    13,693
 NOTE 8. CASH AND CASH EQUIVALENTS
 (in US$ thousands)
    
    December 31,2006
    
    
    2007Checking and savings accounts
    
    $
    22,372
    
    
    $
    60,809Time deposits
    
    
    
    
    
    
    7,754Total
    
    $
    22,372
    
    
    $
    68,563
 NOTE 9. MARKETABLE SECURITIES  CURRENT
 ( in US$ thousands )
    
    December 31,2006
    
    
    2007Available-for-sale securitiesOpen-end funds
    
    $
    13,816
    
    
    $
    11,354
  F-41




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##### Table of Contents



NOTE 10. NOTES AND ACCOUNTS RECEIVABLE  NET
 ( in US$ thousands )
    
    December 31,2006
    
    
    2007Notes and accounts receivable
    
    $
    16,971
    
    
    $
    19,653Less: Allowance for doubtful accounts
    
    
    (1,895
    )
    
    
    (1,362
    )Net
    
    $
    15,076
    
    
    $
    18,291
 F-42




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##### Table of Contents



( in US$ thousands )
    
    For the years ended December 31,2005
    
    
    2006
    
    
    2007Allowance for doubtful accountsBalance at beginning of year
    
    $
    2,050
    
    
    $
    1,684
    
    
    $
    1,895Acquisition
    
    
    
    
    
    
    163
    
    
    
    Additions: Bad debt expenses
    
    
    203
    
    
    
    715
    
    
    
    743Less: Write-offs
    
    
    
    
    
    
    (681
    )
    
    
    (1,279
    )Divestiture  Music distribution business
    
    
    (489
    )
    
    
    
    
    
    
    Translation adjustment
    
    
    (80
    )
    
    
    14
    
    
    
    3Balance at end of year
    
    $
    1,684
    
    
    $
    1,895
    
    
    $
    1,362
 NOTE 11. MARKETABLE SECURITIES  NONCURRENT
 ( in US$ thousands )
    
    December 31,2006
    
    
    2007Percentage
    
    
    
    
    
    
    Percentageheld as
    
    
    
    
    
    
    held asAmount
    
    
    converted basis
    
    
    Amount
    
    
    converted basisT2CN
    
    $
    15,000
    
    
    
    13.41
    
    
    $
    
    
    
    
    Infocomm Asia
    
    
    10,000
    
    
    
    32.26
    
    
    
    10,000
    
    
    
    28.43Neostorm Holdings Limited (Neostorm)
    
    
    
    
    
    
    
    
    
    
    5,564
    
    
    
    33.33XL GAMES Inc. (XL)
    
    
    
    
    
    
    
    
    
    
    5,454
    
    
    
    14.55Total
    
    $
    25,000
    
    
    
    
    
    
    $
    21,018
   F-43
    Table of Contents   
   NOTE 12. RESTRICTED CASH
  ( in US$ thousands )
    
    December 31,2006
    
    
    2007Restricted cash  current assetsTime deposit pledged to China Trust Commercial Bank and Taipei
Fubon Commercial Bank as guarantees for bank loans
    
    $
    2,697
    
    
    $
    6,247
 NOTE 13. OTHER CURRENT ASSETS
  F-44




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##### Table of Contents



NOTE 14. SHORT-TERM BORROWINGS
 ( in US$ thousands )
    
    Range of
    
    
    
    December 31,Name
    
    interest rate
    
    Due Date
    
    2006China Trust Commercial Bank
    
    2.35%~2.45%
    
    Mar. 10, 2007
    
    $
    6,135China Trust Commercial Bank
    
    1.735%~1.865%
    
    Mar. 10, 2007
    
    
    2,117Taishin International Bank
    
    2.90%~2.95%
    
    Sept. 30, 2007
    
    
    4,601$
    12,853
 Range of
    
    
    
    December 31,Name
    
    interest rate
    
    Due Date
    
    2007China Trust Commercial Bank
    
    1.865%~2.95%
    
    Mar. 10, 2008
    
    $
    12,334Taishin International Bank
    
    2.95%~3.39%
    
    Sept. 30, 2008
    
    
    7,709Taipei Fubon Commercial Bank
    
    3.902%
    
    Jul. 26, 2008
    
    
    6,167Far Eastern International Bank
    
    2.85%~3.17%
    
    Feb. 7, 2008
    
    
    3,084Waterland Financial Holdings
    
    2.738%~4.238%
    
    Feb. 7, 2008
    
    
    1,541Taching Bill Finance Limited
    
    3.758%
    
    Oct. 28 ,2008
    
    
    1,541Union Bills Finance
    
    3.758%
    
    Aug. 31, 2008
    
    
    925$
    33,301
 *
    
    As of December 31, 2006 and 2007, the weighted-average interest rate on total short-term
borrowings was 2.48% and 3.35%, respectively.
   F-45




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##### Table of Contents



NOTE 15. ACCRUED EXPENSES
 (in US$ thousands)
    
    December 31,2006
    
    
    2007Accrued commission
    
    $
    1,259
    
    
    $
    2,892Accrued professional fee
    
    
    1,055
    
    
    
    1,832Accrued promotion expenses
    
    
    
    
    
    
    510Other
    
    
    2,472
    
    
    
    3,917Total
    
    $
    4,786
    
    
    $
    9,151
 NOTE 16. OTHER CURRENT LIABILITIES
 (in US$ thousands)
    
    December 31,2006
    
    
    2007Deferred revenue
    
    $
    3,222
    
    
    $
    7,647Incentive payment for FunTown acquisition (See Note 5, Acquisitions)
    
    
    5,000
    
    
    
    Accrual for investment in Neostorm
    
    
    
    
    
    
    2,204Income tax payable and FIN 48 liabilities
    
    
    1,369
    
    
    
    1,041Other
    
    
    3,241
    
    
    
    3,760Total
    
    $
    12,832
    
    
    $
    14,652
 NOTE 17. CONVERTIBLE NOTES
  F-46




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NOTE 18. PENSION BENEFITS
  Defined Benefit Pension Plan
   F-47




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(in US$ thousands)Change in benefit obligation
    
    2006
    
    
    2007Benefit obligation at beginning of year
    
    $
    449
    
    
    $
    541Service cost
    
    
    12
    
    
    
    14Interest cost
    
    
    16
    
    
    
    15Actuarial gain
    
    
    103
    
    
    
    27Curtailment
    
    
    (42
    )
    
    
    Exchange diff.
    
    
    3
    
    
    
    3Benefit obligation at end of year
    
    $
    541
    
    
    $
    600Change in plan assetsFair value of plan assets at beginning of year
    
    $
    50
    
    
    $
    135Actual return on plan assets
    
    
    2
    
    
    
    3Employer contribution
    
    
    83
    
    
    
    66Fair value of plan assets at end of year
    
    $
    135
    
    
    $
    204Accumulated benefit obligation
    
    $
    (443
    )
    
    $
    (497
    )Funded status
    
    $
    (406
    )
    
    $
    (396
    )
  (in US$ thousands)
    
    Pension Benefits2006
    
    
    2007Accrued benefit cost
    
    $
    (406
    )
    
    $
    (396
    )Accumulated other comprehensive incomeUnrecognized transition obligation
    
    $
    79
    
    
    $
    76Unrecognized net gain
    
    
    (314
    )
    
    
    (257
    )Accumulated other comprehensive income
    
    $
    (235
    )
    
    $
    (181
    )
  F-48




---



##### Table of Contents



(in US$ thousands)
    
    2005
    
    
    2006
    
    
    2007Service cost
    
    $
    88
    
    
    $
    12
    
    
    $
    14Interest cost
    
    
    21
    
    
    
    16
    
    
    
    15Expected return on plan assets
    
    
    
    
    
    
    (4
    )
    
    
    (5
    )Amortization of transition obligation
    
    
    4
    
    
    
    4
    
    
    
    4Amortization of net (gain) loss
    
    
    (20
    )
    
    
    (47
    )
    
    
    (29
    )Net periodic benefit cost
    
    $
    93
    
    
    $
    (19
    )
    
    $
    (1
    )Curtailment loss (gain)
    
    $
    
    
    
    $
    (42
    )
    
    $
    
 Assumptions
  2005
    
    2006
    
    2007Discount rate
    
    
    3.50
    %
    
    
    2.75
    %
    
    
    2.75
    %Rate of return on plan assets
    
    
    3.50
    %
    
    
    2.75
    %
    
    
    2.75
    %Rate of compensation increase
    
    
    1.00
    %
    
    
    1.00
    %
    
    
    1.00
    %
  F-49




---



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F-50




---



##### Table of Contents



(in US$ thousands)BeforeApplication of
    
    
    
    
    
    
    After ApplicationAt December 31, 2006:
    
    FAS No. 158
    
    
    Adjustments*
    
    
    of FAS No. 158Other assets
    
    $
    90
    
    
    $
    (58
    )
    
    $
    32Total assets
    
    
    182,677
    
    
    
    (58
    )
    
    $
    182,619Accrued pension liabilities
    
    
    727
    
    
    
    (293
    )
    
    $
    434Total liabilities
    
    
    47,291
    
    
    
    (293
    )
    
    $
    46,998Accumulated other comprehensive loss
    
    
    (27,204
    )
    
    
    235
    
    
    $
    (26,969
    )Total stockholders equity
    
    
    133,852
    
    
    
    235
    
    
    $
    134,087


|  |  |                                                                                                          
|- |  | ---------------------------------------------------------------------------------------------------------
|* |  | Adjustments are primarily comprised of previously unrecognized gains/(losses) and transition obligations.

Defined Contribution Pension Plan




Taiwan




North America




F-51




---



##### Table of Contents












PRC




Hong Kong






F-52



---



##### Table of Contents



NOTE 19. SHAREHOLDERS EQUITY
    NOTE 20. SHARE-BASED COMPENSATION
  F-53




---



##### Table of Contents



(in US$ thousands)
    
    2006
    
    
    2007Cost of Internet access and services revenues
    
    $
    20
    
    
    $
    57Product development & engineering expenses
    
    
    127
    
    
    
    258Selling and marketing expenses
    
    
    67
    
    
    
    144General and administrative expenses
    
    
    96
    
    
    
    1,403Pre-tax stock-based compensation expense
    
    
    310
    
    
    
    1,862Income tax benefit
    
    
    60
    
    
    
    249Total stock-based compensation expense
    
    $
    250
    
    
    $
    1,613
 F-54




---



##### Table of Contents



GigaMedia
 (a) Overview of Stock-Based Compensation Plan
 2002 Employee Share Option Plan
  2004 Employee Share Purchase Plan
  F-55




---



##### Table of Contents



2004 Employee Share Option Plan
  2006 Equity Incentive Plan
  2007 Equity Incentive Plan
  F-56




---



##### Table of Contents



Stock-Basedcompensation
    
    
    Granted
    
    
    
    
    Options exercise
    
    RSUs grant dateplan
    
    awards
    
    Vesting schedule
    
    price
    
    fair value2002 plan
    
    
    3,000,000
    
    
    immediately upon granting
    
    $0.79
    
    2004 plan
    
    
    7,368,185
    
    
    immediately upon grantingto three years
    
    $0.79 ~ $2.55
    
    2006 plan
    
    
    950,443
    
    
    immediately upon grantingto four years
    
    $10.15 ~ $16.6
    
    $9.81 ~ $11.832007 plan
    
    
    515,000
    
    
    four years
    
    $10.15 ~ $18.17
    
    
  (b) Options
     F-57




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##### Table of Contents



For the years ended December 31,
    
    2005
    
    2006
    
    2007Option term (years)
    
    3.41
    
    
    
    2.77Volatility
    
    53.77%
    
    
    
    57.41%~58.80%Weighted-average volatility
    
    53.77%
    
    
    
    58.68%Risk-free interest rate
    
    3.68%~4.33%
    
    
    
    3.24%~4.56%Dividend yield
    
    0%
    
    
    
    0%Weighted-average fair value of option granted
    
    $1.05
    
    
    
    $4.46
  ,
   F-58




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##### Table of Contents



2005
    
    
    2006
    
    
    2007Weighted-
    
    
    AggregateWeighted
    
    
    No. of
    
    
    Weighted
    
    
    No. of
    
    
    Weighted
    
    
    No. of
    
    
    Average
    
    
    IntrinsicAvg.
    
    
    Shares
    
    
    Avg.
    
    
    Shares
    
    
    Avg.
    
    
    Shares
    
    
    Remaining
    
    
    ValueExercise
    
    
    (in
    
    
    Exercise
    
    
    (in
    
    
    Exercise
    
    
    (in
    
    
    Contractual
    
    
    (inPrice
    
    
    thousands)
    
    
    Price
    
    
    thousands)
    
    
    Price
    
    
    thousands)
    
    
    Term
    
    
    thousands)Balance at January 1,
    
    $
    2.00
    
    
    
    8,844
    
    
    $
    1.11
    
    
    
    10,000
    
    
    $
    1.11
    
    
    
    8,789Options granted
    
    
    2.49
    
    
    
    1,905
    
    
    
    
    
    
    
    
    
    
    
    10.78
    
    
    
    1,145Options exercised
    
    
    
    
    
    
    
    
    
    
    1.10
    
    
    
    (1,152
    )
    
    
    1.43
    
    
    
    (1,911
    )Options Forfeited/canceled/expired
    
    
    15.13
    
    
    
    (749
    )
    
    
    1.48
    
    
    
    (59
    )
    
    
    2.47
    
    
    
    (111
    )Balance at December 31,
    
    $
    1.11
    
    
    
    10,000
    
    
    $
    1.11
    
    
    
    8,789
    
    
    $
    2.42
    
    
    
    7,912
    
    
    
    6.94
    
    
    $
    129,227Exercisable at December 31,
    
    $
    1.09
    
    
    
    9,170
    
    
    $
    1.08
    
    
    
    8,318
    
    
    $
    1.06
    
    
    
    6,692
    
    
    
    6.52
    
    
    $
    118,406Vested and expected to vest at December 31,
    
    
    
    
    
    
    
    
    
    $
    1.11
    
    
    
    8,783
    
    
    $
    2.42
    
    
    
    7,912
    
    
    
    6.94
    
    
    $
    129,227
    F-59




---



##### Table of Contents



Options outstanding
    
    Options currently exercisableWeighted averageNo. of Shares
    
    remaining
    
    
    
    No. of SharesExercise price
    
    (in thousands)
    
    contractual life
    
    Exercise price
    
    (in thousands)under $1
    
    
    5,901
    
    
    6.49 years
    
    under $1
    
    
    5,901$1~$10
    
    
    866
    
    
    6.49 years
    
    $1~$10
    
    
    730$10~$20
    
    
    1,145
    
    
    9.62 years
    
    $10~$20
    
    
    617,912
    
    
    
    
    
    
    
    6,692
 (c) RSUs
  Number of units
    
    
    Weighted-average(in thousands)
    
    
    grant date fair valueNonvested at December 31, 2006
    
    
    107
    
    
    $
    9.81Granted
    
    
    205
    
    
    $
    10.55Vested
    
    
    (74
    )
    
    $
    10.45Forfeited
    
    
    
    
    
    
    Nonvested at December 31, 2007
    
    
    238
    
    
    $
    10.25
   F-60




---



##### Table of Contents



T2CN
 (a) Overview of Stock-Based Compensation Plan
   (b) Options
   For the years ended December 31,
    
    2005
    
    2006
    
    2007Option term (years)
    
    6.80
    
    5.63~6.41
    
    5.44~6.02Volatility
    
    60.45%
    
    47.39%~56.10%
    
    44.64%~46.96%Weighted-average volatility
    
    60.45%
    
    53.81%
    
    45.03%Risk-free interest rate
    
    4.43%
    
    4.54%~4.82%
    
    4.31%~4.68%Dividend yield
    
    0%
    
    0%
    
    0%Weighted-average fair value of option granted
    
    $0.60
    
    $0.39
    
    $0.52
  F-61




---



##### Table of Contents



2007Weighted-AverageRemaining
    
    
    AggregateWeighted Avg.
    
    
    No. of Shares
    
    
    Contractual
    
    
    Intrinsic ValueExercise Price
    
    
    (in thousands)
    
    
    Term
    
    
    (in thousands)Balance at June 1,
    
    $
    1.30
    
    
    
    2,973Options granted
    
    
    1.00
    
    
    
    501OptionsForfeited/canceled/expired
    
    
    1.57
    
    
    
    (174
    )Balance at December 31,
    
    $
    1.24
    
    
    
    3,300
    
    
    
    8.71
    
    
    $
    558Exercisable at December 31,
    
    $
    1.20
    
    
    
    937
    
    
    
    8.52
    
    
    $
    176Vested and expected to vest at December 31,
    
    $
    1.24
    
    
    
    3,016
    
    
    
    8.70
    
    
    $
    513
   F-62




---



##### Table of Contents



Options outstanding
    
    
    Options currently exercisableWeighted averageRange of
    
    No. of Shares
    
    
    remaining
    
    
    Weighted average
    
    
    No. of Sharesexercise price
    
    (in thousands)
    
    
    contractual life
    
    
    exercise price
    
    
    (in thousands)$1.00
    
    
    1,995
    
    
    8.71 years
    
    $
    1.00
    
    
    
    628$1.60
    
    
    1,305
    
    
    8.70 years
    
    $
    1.60
    
    
    
    3093,300
    
    
    
    
    
    
    
    
    
    
    
    937
 NOTE 21. OTHER NON-OPERATING INCOME
 ( in US$ thousands )
    
    For the years ended December 31,2005
    
    
    2006
    
    
    2007Gain on cancellation of preferred share call options
    
    $
    
    
    
    $
    
    
    
    $
    1,069Indemnification from termination of game licensing
    
    
    
    
    
    
    
    
    
    
    601Compensation
from termination of investment option rights
    
    
    
    
    
    
    
    
    
    
    498Gain on early redemption of convertible notes
    
    
    
    
    
    
    625
    
    
    
    Other
    
    
    1,094
    
    
    
    266
    
    
    
    502$
    1,094
    
    
    $
    891
    
    
    $
    2,670
 NOTE 22. INCOME TAXES
 ( in US$ thousands )
    
    For the years ended December 31,2005
    
    
    2006
    
    
    2007Income from continuing
operations before income taxesU.S. operations
    
    $
    516
    
    
    $
    865
    
    
    $
    489Non-U.S. operations
    
    
    6,560
    
    
    
    31,789
    
    
    
    40,085Total income from continuing
operations before income taxes
    
    $
    7,076
    
    
    $
    32,654
    
    
    $
    40,574
 F-63




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##### Table of Contents



( in US$ thousands )
    
    For the years ended December 31,2005
    
    
    2006
    
    
    2007U.S. operations
    
    $
    304
    
    
    $
    366
    
    
    $
    224Non-U.S. operations
    
    
    132
    
    
    
    1,183
    
    
    
    179$
    436
    
    
    $
    1,549
    
    
    $
    403
  ( in US$ thousands )
    
    For the years ended December 31,2005
    
    
    2006
    
    
    2007U.S. federalCurrent
    
    $
    233
    
    
    $
    266
    
    
    $
    281Deferred
    
    
    17
    
    
    
    8
    
    
    
    (111
    )250
    
    
    
    274
    
    
    
    170U.S. state and local :Current
    
    
    60
    
    
    
    90
    
    
    
    84Deferred
    
    
    (6
    )
    
    
    2
    
    
    
    (30
    )54
    
    
    
    92
    
    
    
    54Non-U.S. :Current
    
    
    132
    
    
    
    1,199
    
    
    
    134Deferred
    
    
    
    
    
    
    (16
    )
    
    
    45132
    
    
    
    1,183
    
    
    
    179Total income tax
provisions
    
    $
    436
    
    
    $
    1,549
    
    
    $
    403
  (in US$ thousands)
    
    For the years ended December 31,2005
    
    
    2006
    
    
    2007Federal statutory rate
    
    
    34.00
    %
    
    
    34.00
    %
    
    
    34.00
    %State and local  net of federal tax benefit
    
    
    6.91
    %
    
    
    6.78
    %
    
    
    6.27
    %Foreign tax differential
    
    
    (32.96
    %)
    
    
    (23.74
    %)
    
    
    (35.24
    %)Loss carryforward utilized
    
    
    (5.14
    %)
    
    
    (12.84
    %)
    
    
    (3.41
    %)Other
    
    
    3.35
    %
    
    
    0.54
    %
    
    
    (0.63
    %)Effective rate
    
    
    6.16
    %
    
    
    4.74
    %
    
    
    0.99
    %
 F-64




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##### Table of Contents



(in US$ thousands)
    
    December 31,2006
    
    
    2007Deferred tax assets:Net operating loss carryforwards
    
    $
    3,082
    
    
    $
    1,128Accrued expenses
    
    
    
    
    
    
    336Allowance for doubtful accounts
    
    
    397
    
    
    
    284Pension expense
    
    
    162
    
    
    
    145Investment credits
    
    
    104
    
    
    
    322Property, plant & equipment
    
    
    272
    
    
    
    201Others
    
    
    30
    
    
    
    5964,047
    
    
    
    3,012Less: valuation allowance
    
    
    (4,032
    )
    
    
    (3,012
    )Deferred tax assets  net
    
    $
    15
    
    
    $
    
 (in US$ thousands)
    
    December 31,2006
    
    
    2007Deferred tax liabilities:Depreciation and amortization
    
    $
    (39
    )
    
    $
    Others
    
    
    43
    
    
    
    (107
    )Deferred tax liabilities  net
    
    $
    4
    
    
    $
    (107
    )
 (in US$ thousands)
    
    For the years ended December 31,2005
    
    
    2006
    
    
    2007Valuation allowance:Balance at beginning of year
    
    $
    22,499
    
    
    $
    10,396
    
    
    $
    4,032Additions: charged to (realization of) valuation
allowance
    
    
    (5,863
    )
    
    
    (6,443
    )
    
    
    (2,214
    )Divestiture
    
    
    (5,405
    )
    
    
    
    
    
    
    Acquisition
    
    
    
    
    
    
    
    
    
    
    1,197Exchange difference
    
    
    (835
    )
    
    
    79
    
    
    
    (3
    )Balance at end of year
    
    $
    10,396
    
    
    $
    4,032
    
    
    $
    3,012
  F-65




---



##### Table of Contents



(in US$ thousands)Year incurred
    
    Amount
    
    
    Expiring year2003
    
    $
    3,481
    
    
    20082004
    
    
    19
    
    
    20092005
    
    
    262
    
    
    20102006
    
    
    1,074
    
    
    20112007
    
    
    49
    
    
    2012Total
    
    $
    4,885
   F-66




---



##### Table of Contents



FIN 48
  F-67




---



##### Table of Contents



(in US$ thousands)
    
    For the year endedDecember 31,2007Balance at January 1, 2007
    
    $
    209Decrease due to settlement
    
    
    (82
    )Balance at December 31, 2007
    
    $
    127
    F-68




---



##### Table of Contents



NOTE 23. RELATED-PARTY TRANSACTIONS
    F-69




---



##### Table of Contents



NOTE 24. COMMITMENTS AND CONTINGENCIES
 Commitments
 (a) Operating Leases
  F-70




---



##### Table of Contents



AmountYear
    
    (in US$ thousands)2008
    
    $
    4,3772009
    
    
    2,0832010
    
    
    1,8012011
    
    
    9982012
    
    
    452
  (b) Webs-TV Services Related Commitment
  (c) T2CN Put Option
  F-71




---



##### Table of Contents



(d) License Agreements
  Minimumguarantees againstLicense fees
    
    
    future royalties
    
    
    TotalPayments made as of December 31, 2007
    
    $
    8,600
    
    
    $
    3,000
    
    
    $
    11,600Payments in 2008 and after:Minimum required payments in 2008
    
    $
    2,700
    
    
    $
    1,000
    
    
    $
    3,700Contingent payments based on the agreements
    
    
    4,200
    
    
    
    22,800
    
    
    
    27,000$
    6,900
    
    
    $
    23,800
    
    
    $
    30,700
   F-72




---



##### Table of Contents



Contingencies
 (a) T2CN VIE
  (b) Other
  F-73




---



##### Table of Contents



NOTE 25. LITIGATION
     F-74




---



##### Table of Contents



F-75




---



##### Table of Contents



F-76




---



##### Table of Contents



NOTE 26. SEGMENT INFORMATION
 Segment data
     F-77




---



##### Table of Contents



Internet
    
    
    Gamingaccess and
    
    
    software and(in US$ thousands)
    
    service
    
    
    service
    
    
    Total2005:Segment profit or loss:Net revenue from external customers
    
    $
    21,676
    
    
    $
    22,511
    
    
    $
    44,187Income from operations
    
    $
    2,123
    
    
    $
    5,957
    
    
    $
    8,080Interest income
    
    $
    5
    
    
    $
    92
    
    
    $
    97Interest expense
    
    $
    
    
    
    $
    
    
    
    $
    Gains on sales of marketable securities
    
    $
    466
    
    
    $
    
    
    
    $
    466Foreign exchange gain (loss)
    
    $
    (144
    )
    
    $
    9
    
    
    $
    (135
    )Depreciation
    
    $
    3,651
    
    
    $
    266
    
    
    $
    3,917Amortization, including intangible assets
    
    $
    413
    
    
    $
    1,023
    
    
    $
    1,436Income tax expense
    
    $
    110
    
    
    $
    325
    
    
    $
    435Segment assets:Additions to property, plant and equipment
    
    $
    1,782
    
    
    $
    474
    
    
    $
    2,256Additions to intangible assets
    
    $
    
    
    
    $
    1,005
    
    
    $
    1,005Additions to goodwill
    
    $
    
    
    
    $
    
    
    
    $
    Total assets
    
    $
    31,344
    
    
    $
    45,413
    
    
    $
    76,757
  F-78




---



##### Table of Contents



Internet
    
    
    Gaming
    
    
    Onlineaccess and
    
    
    software and
    
    
    game and(in US$ thousands)
    
    service
    
    
    service
    
    
    service
    
    
    Total2006:Segment profit or loss:Net revenue from external customers
    
    $
    20,581
    
    
    $
    55,019
    
    
    $
    18,692
    
    
    $
    94,292Income from operations
    
    $
    4,185
    
    
    $
    16,772
    
    
    $
    5,618
    
    
    $
    26,575Share-based compensation
    
    $
    85
    
    
    $
    82
    
    
    $
    101
    
    
    $
    268Gain on divestiture of business
    
    $
    7,668
    
    
    $
    
    
    
    $
    
    
    
    $
    7,668Interest income
    
    $
    6
    
    
    $
    212
    
    
    $
    20
    
    
    $
    238Interest expense
    
    $
    154
    
    
    $
    
    
    
    $
    1
    
    
    $
    155Gains on sales of marketable securities
    
    $
    2,119
    
    
    $
    
    
    
    $
    4
    
    
    $
    2,123Foreign exchange loss
    
    $
    (39
    )
    
    $
    (27
    )
    
    $
    (1
    )
    
    $
    (67
    )Depreciation
    
    $
    2,400
    
    
    $
    517
    
    
    $
    250
    
    
    $
    3,167Amortization, including intangible assets
    
    $
    145
    
    
    $
    1,292
    
    
    $
    1,423
    
    
    $
    2,860Income tax expense
    
    $
    1,026
    
    
    $
    415
    
    
    $
    108
    
    
    $
    1,549Segment assets:Additions to property, plant and equipment
    
    $
    750
    
    
    $
    1,701
    
    
    $
    738
    
    
    $
    3,189Additions to intangible assets
    
    $
    
    
    
    $
    1,172
    
    
    $
    21,359
    
    
    $
    22,531Additions to goodwill
    
    $
    
    
    
    $
    
    
    
    $
    26,409
    
    
    $
    26,409Total assets
    
    $
    58,589
    
    
    $
    56,850
    
    
    $
    54,457
    
    
    $
    169,896
  F-79




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##### Table of Contents



Internet
    
    
    Gaming
    
    
    Onlineaccess and
    
    
    software and
    
    
    game and(in US$ thousands)
    
    service
    
    
    service
    
    
    service
    
    
    Total2007:Segment profit or loss:Net revenue from external customers
    
    $
    15,164
    
    
    $
    118,950
    
    
    $
    32,764
    
    
    $
    166,878Income from operations
    
    $
    671
    
    
    $
    37,703
    
    
    $
    6,844
    
    
    $
    45,218Share-based compensation
    
    $
    28
    
    
    $
    548
    
    
    $
    373
    
    
    $
    949Interest income
    
    $
    7
    
    
    $
    871
    
    
    $
    194
    
    
    $
    1,072Interest expense
    
    $
    108
    
    
    $
    1
    
    
    $
    
    
    
    $
    109Gains on sales of marketable securities
    
    $
    21
    
    
    $
    
    
    
    $
    (104
    )
    
    $
    (83
    )Foreign exchange gain (loss)
    
    $
    4
    
    
    $
    (486
    )
    
    $
    (195
    )
    
    $
    (677
    )Proportionate share of losses under the
equity method
    
    $
    
    
    
    $
    
    
    
    $
    (369
    )
    
    $
    (369
    )Depreciation
    
    $
    1,535
    
    
    $
    1,060
    
    
    $
    589
    
    
    $
    3,184Amortization, including intangible assets
    
    $
    65
    
    
    $
    1,271
    
    
    $
    1,852
    
    
    $
    3,188Income tax expense
    
    $
    2
    
    
    $
    229
    
    
    $
    172
    
    
    $
    403Segment assets:Equity investments
    
    $
    
    
    
    $
    
    
    
    $
    2,762
    
    
    $
    2,762Additions to property, plant and equipment
    
    $
    1,392
    
    
    $
    2,280
    
    
    $
    2,575
    
    
    $
    6,247Additions to intangible assets
    
    $
    39
    
    
    $
    2,070
    
    
    $
    3,575
    
    
    $
    5,684Additions to goodwill
    
    $
    
    
    
    $
    
    
    
    $
    29,354
    
    
    $
    29,354Total assets
    
    $
    70,780
    
    
    $
    93,144
    
    
    $
    92,597
    
    
    $
    256,521
  F-80




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##### Table of Contents



(in US$ thousands)
    
    2005
    
    
    2006
    
    
    2007Income (loss) from operations:Total segments
    
    $
    8,080
    
    
    $
    26,575
    
    
    $
    45,218Adjustment*
    
    
    (3,714
    )
    
    
    (4,611
    )
    
    
    (7,127
    )Total GigaMedia consolidated
    
    $
    4,366
    
    
    $
    21,964
    
    
    $
    38,091Share-based compensationTotal segments
    
    $
    
    
    
    $
    268
    
    
    $
    949Adjustment*
    
    
    
    
    
    
    42
    
    
    
    913Total GigaMedia consolidated
    
    $
    
    
    
    $
    310
    
    
    $
    1,862Interest income:Total segments
    
    $
    97
    
    
    $
    238
    
    
    $
    1,072Adjustment*
    
    
    314
    
    
    
    484
    
    
    
    369Total GigaMedia consolidated
    
    $
    411
    
    
    $
    722
    
    
    $
    1,441Interest expense:Total segments
    
    $
    
    
    
    $
    155
    
    
    $
    109Adjustment*
    
    
    
    
    
    
    427
    
    
    
    546Total GigaMedia consolidated
    
    $
    
    
    
    $
    582
    
    
    $
    655Gain on sales of marketable securities:Total segments
    
    $
    466
    
    
    $
    2,123
    
    
    $
    (83
    )Adjustments*
    
    
    384
    
    
    
    66
    
    
    
    288Total GigaMedia consolidated
    
    $
    850
    
    
    $
    2,189
    
    
    $
    205Foreign exchange gain (loss):Total segments
    
    $
    (135
    )
    
    $
    (67
    )
    
    $
    (677
    )Adjustments*
    
    
    286
    
    
    
    (94
    )
    
    
    2Total GigaMedia consolidated
    
    $
    151
    
    
    $
    (161
    )
    
    $
    (675
    )Depreciation:Total segments
    
    $
    3,917
    
    
    $
    3,167
    
    
    $
    3,184Adjustments*
    
    
    
    
    
    
    
    
    
    
    Total GigaMedia consolidated
    
    $
    3,917
    
    
    $
    3,167
    
    
    $
    3,184Amortization:Total segments
    
    $
    1,436
    
    
    $
    2,860
    
    
    $
    3,188Adjustments*
    
    
    
    
    
    
    16
    
    
    
    26Total GigaMedia consolidated
    
    $
    1,436
    
    
    $
    2,876
    
    
    $
    3,214Income tax benefit (expense):Total segments
    
    $
    (435
    )
    
    $
    (1,549
    )
    
    $
    403Adjustments*
    
    
    (1
    )
    
    
    
    
    
    
    Total GigaMedia consolidated
    
    $
    (436
    )
    
    $
    (1,549
    )
    
    $
    403Total assets:Total segments
    
    $
    76,757
    
    
    $
    169,896
    
    
    $
    256,521Adjustment**
    
    
    36,762
    
    
    
    12,723
    
    
    
    27,344Total GigaMedia consolidated
    
    $
    113,519
    
    
    $
    182,619
    
    
    $
    283,865
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##### Table of Contents



*
    
    Adjustment items include corporate and certain back-office costs and expenses
not attributable to any specific segment.**
    
    Adjustment items include total corporate assets, the divested music
distribution business segment and eliminations. Major Customers
  Geographic Information
  (in US$ thousands)Geographic region/country
    
    2005
    
    
    2006
    
    
    2007Canada
    
    $
    22,511
    
    
    $
    55,019
    
    
    $
    118,650Taiwan
    
    
    21,676
    
    
    
    37,435
    
    
    
    33,552PRC
    
    
    
    
    
    
    
    
    
    
    8,883Hong Kong
    
    
    
    
    
    
    1,831
    
    
    
    5,360Others
    
    
    
    
    
    
    7
    
    
    
    433Total
    
    $
    44,187
    
    
    $
    94,292
    
    
    $
    166,878
  (in US$ thousands)
    
    December 31,Geographic region
    
    2005
    
    
    2006
    
    
    2007Taiwan
    
    $
    10,156
    
    
    $
    8,241
    
    
    $
    8,431Canada
    
    
    364
    
    
    
    1,143
    
    
    
    2,053PRC
    
    
    
    
    
    
    51
    
    
    
    1,334United States
    
    
    227
    
    
    
    632
    
    
    
    943Hong Kong
    
    
    
    
    
    
    31
    
    
    
    247Total
    
    $
    10,747
    
    
    $
    10,098
    
    
    $
    13,008
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##### Table of Contents



Note 27. SUBSEQUENT EVENTS
 a.
    
    On January 18, 2008, GigaMedia entered into share purchase and shareholders agreements with
Access China Holding Limited (Access China), an online game software developer in the PRC,
to acquire preferred shares convertible into an approximately 30 percent holding in Access
Chinas common shares.
 b.
    
    On January 28, 2008, we entered into a license and distribution agreement with Electronic
Arts Inc. (EA), pursuant to which EA granted us an exclusive and non-transferable license
for three years commencing from the first commercial release date to operate, host, maintain
and market the multi-player online game titled Warhammer Online in Taiwan, Hong Kong and
Macau.Under the agreement, we are required to pay a recoupable advance which can be offset against
future royalties.We have also agreed to provide certain external marketing resources and localization efforts for
Warhammer Online in the form of online and live events, and other advertising and promotions via
marketing activities.
 F-83