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                                  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, 2002
                        Commission File Number: 000-30540

                                GIGAMEDIA LIMITED
             (Exact name of registrant as specified in its charter)

                              REPUBLIC OF SINGAPORE
                 (Jurisdiction of incorporation or organization)

                  122 TUNHUA NORTH ROAD, TAIPEI, TAIWAN, R.O.C.
                    (Address of principal executive offices)

               Registrant's telephone number, including area code
                                 886-2-8770-7966

         Securities registered or to be registered pursuant to Section 12(b) of
the Exchange Act: None

         Securities registered or to be registered pursuant to Section 12(g) of
the Exchange Act: Ordinary shares, par value NT$10 per share

         Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act: None

         Indicate the number of outstanding shares of each of the issuer's
classes of capital or common stock as of the close of the period covered by the
annual report: 50,154,000 ordinary shares, par value NT$10 per share.

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:

                                Yes [X]   No [ ]

    Indicate by check mark which financial statement item the Registrant has
                               elected to follow.

                            Item 17 [ ]   Item 18 [X]

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                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                                    PAGE
<S>                                                                                                                 <C>
PART I...........................................................................................................     1
   ITEM 1.     Identity of Directors, Senior Management and Advisers.............................................     1
   ITEM 2.     Offer Statistics and Expected Timetable...........................................................     1
   ITEM 3.     Key Information...................................................................................     1
   ITEM 4.     Information on the Company........................................................................    19
   ITEM 5.     Operating and Financial Review and Prospects......................................................    36
   ITEM 6.     Senior Management and Employees...................................................................    51
   ITEM 7.     Major Shareholders and Related Party Transactions.................................................    57
   ITEM 8.     Financial Information.............................................................................    60
   ITEM 9.     The Offer and Listing.............................................................................    63
   ITEM 10.    Additional Information............................................................................    64
   ITEM 11.    Quantitative and Qualitative Disclosures about Market Risk........................................    76
   ITEM 12.    Description of Securities Other than Equity Securities............................................    77
PART II..........................................................................................................    78
   ITEM 13.    Defaults, Dividend Arrearages and Delinquencies...................................................    78
   ITEM 14.    Material Modifications to the Rights of Securitiy Holders and Use of Proceeds.....................    78
   ITEM 15.    Controls and Procedures...........................................................................    78
   ITEM 16A.   Audit Committee Financial Expert..................................................................    78
   ITEM 16B.   Code of Ethics....................................................................................    78
   ITEM 16C.   Principal Accountant Fees and Services............................................................    78
PART III.........................................................................................................    79
   ITEM 17.    Financial Statements..............................................................................    79
   ITEM 18.    Financial Statements..............................................................................    79
   ITEM 19.    Exhibits..........................................................................................    80
SIGNATURES.......................................................................................................    84
CERTIFICATIONS ..................................................................................................    85
</TABLE>

<PAGE>

                              USE OF CERTAIN TERMS

         In this annual report, all references to (i) "we", "us", "our" or
"GigaMedia" are to GigaMedia Limited and, unless the context requires otherwise,
its subsidiaries, (ii) "Koos Group" are to a group of companies controlled by
members of the Koo family, (iii) "Shares" are to ordinary shares of our company,
par value NT$10, and (iv) "Hoshin Gigamedia" are to Hoshin Gigamedia Center
Inc., a company incorporated under the laws of Taiwan, Republic of China, or
ROC. All references in this annual report to "US dollar", "$" and "US$" are to
United States dollars, all references to "NT dollar" and "NT$" are to New Taiwan
dollars.

                 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

         This annual report contains forward-looking statements that involve
risks and uncertainties. These statements are generally indicated by the use of
forward-looking terminology such as "believe", "expect", "anticipate",
"estimate", "plan", "project", "may", "will" or other similar words. These
forward-looking statements are based on our own information and on information
from other sources we believe to be reliable. Our actual results may differ
materially from those expressed or implied by these forward-looking statements
as a result of risk factors and other factors noted throughout this annual
report. We undertake no obligation to release publicly any versions to any
forward-looking statements to reflect events or circumstances after the date of
this annual report or to reflect the occurrence of unanticipated event. Given
this level of uncertainty, you are advised not to place undue reliance on such
forward-looking statements.

                                     PART I

ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

         Not applicable.

ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE

         Not applicable.

ITEM 3.  KEY INFORMATION

EXCHANGE RATES

         In this annual report, we have translated certain New Taiwan dollar
amounts into U.S. dollars for the convenience of investors. All translations
from New Taiwan dollars to United States dollars were made (unless otherwise
indicated) on the basis of the noon buying rate in The City of New York, or the
Noon Buying Rate, of NT$34.70 = US$1.00 on December 31, 2002, which was the last
trading day in 2002. All amounts translated into United States dollars as
described above are provided solely for the convenience of the reader, and we
make no representation that the New Taiwan dollar or United States dollar
amounts referred to in this annual report could have been or could actually be
converted into United States dollars or New Taiwan dollars at that rate or at
any other particular rate, or at all. The following table sets forth the Noon
Buying Rates for New Taiwan dollars expressed in New Taiwan dollar per US$1.00
for the periods indicated below.

                                        1

<PAGE>

<TABLE>
<CAPTION>
                                     AVERAGE
  YEAR ENDED DECEMBER 31,       (OF MONTH-END RATES)           HIGH                  LOW            AT PERIOD-END
---------------------------     --------------------           ----                  ---            -------------
<S>                            <C>                     <C>                  <C>                    <C>
                                                       (of month-endrates)  (of month-endrates)
1998.......................            33.50                  34.39                32.20               32.27
1999.......................            32.28                  33.17                31.39               31.39
2000.......................            31.37                  33.17                30.48               33.17
2001.......................            33.91                  35.13                32.23               35.00
2002.......................            34.53                  35.11                33.46               34.70
</TABLE>

<TABLE>
<CAPTION>
         MONTH ENDED               AVERAGE RATES              HIGH                LOW           AT PERIOD-END
---------------------------      -----------------            ----                ---           -------------
<S>                              <C>                          <C>                 <C>           <C>
                                 (NT$ per US$1.00)
January 31, 2003...........            34.57                  34.76               34.40              34.61
February 28, 2003..........            34.73                  34.82               34.61              34.78
March 31, 2003.............            34.72                  34.80               34.58              34.75
April 30, 2003.............            34.82                  34.98               34.79              34.85
May 31, 2003...............            34.70                  34.85               34.60              34.71
June 30, 2003 .............            34.63                  34.70               34.52              34.61
July 2003 (through
July 11, 2003).............            34.41                  34.58               34.25              34.35
</TABLE>

A.       SELECTED FINANCIAL DATA

         The selected consolidated balance sheet data as of December 31, 2001
and 2002 and the selected consolidated statement of operations data for the
years ended December 31, 2000, 2001 and 2002 have been derived from our audited
consolidated financial statements included elsewhere in this annual report. The
selected consolidated balance sheet data as of December 31, 1998, 1999 and 2000,
and the selected consolidated statement of operations data for the years ended
December 31, 1998 and 1999 have been derived from our audited consolidated
financial statements, which are not included in this annual report. The
consolidated financial statements have been prepared and presented in accordance
with generally accepted accounting principles in the United States, or U.S.
GAAP. The selected consolidated financial data set forth below should be read in
conjunction with Item 5. "Operating and Financial Review and Prospects" and the
consolidated financial statements and the notes to those statements included
elsewhere in this annual report.

                                        2

<PAGE>

                         For the Years Ended December 31
                (in thousands except for loss per share amounts)

<TABLE>
<CAPTION>
                                       1998         1999         2000           2001                2002
                                       ----         ----         ----           ----       ----------------------
STATEMENT OF OPERATIONS                 NT$         NT$           NT$           NT$           NT$         US$
                                      -------     --------    ---------       ---------    ---------   ----------

DATA:
<S>                                   <C>         <C>         <C>             <C>          <C>         <C>
OPERATING REVENUES
Sales/rental/installation                 152       16,831      126,810           7,490    1,864,128       53,721
Access revenues                           277       19,661      155,035         389,801      638,916       18,413
Web development revenues                    -        1,429       28,978           7,190            -           -
Advertising and promotional revenues        -           71       26,762           5,039       32,801          945
Other revenues                          3,000            -        3,603           1,432       19,964          575
                                      -------     --------    ---------       ---------    ---------   ----------
 Total                                  3,429       37,992      341,188         410,952    2,555,809       73,654
                                      -------     --------    ---------       ---------    ---------   ----------
COSTS AND EXPENSES
Costs of sales/rental/installation        577       24,429      278,974         143,420    1,686,256       48,595
Operating costs                       120,788      238,113      987,331       1,636,820      634,872       18,296
Web development expenses                    -        1,150       23,182          12,233            -            -
Product development and engineering    11,568       20,939       56,625         106,458       64,444        1,857
Selling and marketing expenses         39,816       84,192      383,948         285,590      427,310       12,314
General and administrative expenses   572,823      328,440      235,934         215,663      211,944        6,108
Bad debt expenses                           -          892        1,686          40,250       32,167          927
Impairment loss on goodwill                 -            -            -               -      242,938        7,001
Impairment loss on intangible assets        -            -            -               -       80,627        2,324
Other costs                             2,145            -        3,881           1,203            -            -
                                      -------     --------    ---------       ---------    ---------   ----------
 Total                                747,717      698,155    1,971,561       2,441,637    3,380,558       97,422
                                      -------     --------    ---------       ---------    ---------   ----------
NET LOSS                              739,236      657,933    1,206,372       1,811,324      637,990       18,386
LOSS PER SHARE-BASIC AND              =======     ========    =========       =========    =========   ==========
DILUTED (IN DOLLARS) Net Loss           20.53        18.06        24.73           36.12        12.72         0.37
                                      =======     ========    =========       =========    =========   ==========
</TABLE>

<TABLE>
<CAPTION>
                                                                      December 31
                                      ---------------------------------------------------------------------------
                                       1998          1999        2000           2001                2002
                                       ----          ----        ----           ----       ----------------------
BALANCE SHEET DATA:                     NT$           NT$         NT$            NT$          NT$          US$
                                      -------     ---------   ---------       ---------    ---------   ----------
<S>                                   <C>         <C>         <C>             <C>          <C>         <C>
Total Current Assets                  237,609     1,170,428   8,066,547       6,132,875    2,877,715       82,931
Property, plant and equipment-net      56,734       170,981     535,090         705,570      738,938       21,295
Intangible assets-net                       -            -      948,004          12,631      242,012        6,974
Total assets                          340,883     2,869,142   9,710,398       8,062,552    4,696,038      135,333
Total shareholders' equity            297,498     1,514,433   9,357,436       7,845,126    3,619,877      104,319
</TABLE>

B.       CAPITALIZATION AND INDEBTEDNESS

         Not applicable.

C.       REASONS FOR THE OFFER AND USE OF PROCEEDS

         Not applicable.

                                       3

<PAGE>

D.       RISK FACTORS

             RISKS RELATING TO OUR FINANCIAL CONDITION AND BUSINESS

WE HAVE A LIMITED OPERATING HISTORY, WHICH MAY MAKE IT DIFFICULT FOR YOU TO
EVALUATE OUR BUSINESS

         We began offering our services in Taiwan in late 1998. Accordingly, we
have a limited operating history upon which you can evaluate our business. In
addition, our operating history in respect of offline music distribution is even
more limited since we only acquired our two music store chains in 2002. As an
early stage company in the new and rapidly evolving market for broadband
Internet access services, we face numerous risks and uncertainties. Some of
these risks relate to our ability to:

         -        deploy our services in a cost effective manner; and

         -        enter into additional agreements with cable partners to expand
                  our services to new markets.

         Our financial success will depend on the commercial acceptance and
profitability of our services. If we are unsuccessful in addressing these risks
or in executing our business strategy, our business and financial results will
suffer. If we encounter significant problems with our billing and collection
process, our business, financial condition and results of operations could be
materially and adversely affected.

WE MAY FAIL TO SUCCESSFULLY CONSOLIDATE THE TWO ACQUIRED MUSIC STORE CHAINS, AND
MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE THESE OFFLINE BUSINESSES WITH OUR
ONLINE BUSINESSES, WHICH MAY ADVERSELY AFFECT OUR BUSINESS AND OUR REVENUES

         In February and September of 2002, we finalized the acquisition of
Taiwan's two leading music store chains and are now in the process of
streamlining and consolidating their operations. As we had been focused on the
online businesses in the past, the offline business is relatively new for us in
many respects, including the business model, markets and management expertise.
We cannot assure you that our efforts to consolidate these chains will be
successful or that we will be able to successfully integrate our online
operations with our offline businesses, which may adversely affect our business
and our results of operations. In addition, the offline music business in Taiwan
has been negatively affected by piracy in recent years, which may continue to
harm this industry and adversely affect our offline music distribution business
and our revenues going forward.

WE HAVE A HISTORY OF LOSSES, AND AS WE PLAN TO EXPAND OUR BUSINESS, WE EXPECT TO
INCUR SUBSTANTIAL LOSSES AND EXPERIENCE SUBSTANTIAL NEGATIVE CASH FLOWS FROM
OPERATIONS AT LEAST THROUGH 2003

         We have never been profitable. We have incurred substantial costs to
create and introduce our broadband Internet access services, to operate these
services, and to grow our business. We incurred a net loss of approximately
NT$638 million (US$18.4 million) in 2002 and as of December 31, 2002, we
had an accumulated net loss of approximately NT$5.1 billion (US$145.7
million). Our limited operating history and market conditions make predicting
our results of operations, including operating expenses, difficult.

         We expect to incur substantial losses and experience substantial
negative cash flows from operations at least through 2003. The principal costs
of operating and potentially growing our business will include:

         -        substantial direct and indirect selling, marketing and
                  promotional costs;

         -        system operational expenses, including the cost of leasing our
                  Internet backbone;

         -        costs associated with the upgrading of equipment and software
                  in response to changes in technology;

                                        4

<PAGE>

         -        costs in connection with the acquisition and installation of
                  the equipment and software necessary to enable our cable
                  partners to offer our services;

         -        costs in connection with our efforts in streamlining the two
                  music store chains that we acquired in 2002 and in integrating
                  our offline business and online business; and

         -        costs in connection with any acquisitions, divestitures or
                  business alliances that we may engage in.

         In addition, after the adoption of a new accounting standard in 2002,
we are required to perform annual impairment tests of goodwill and other
intangible assets. As a result, we wrote off goodwill associated with the music
businesses we acquired in 2002 in the amount ofNT$242.9 million, which reduced
our profitability in 2002. Any similar write-off in the future may have a
negative impact on our financial results.

         If any of these costs or expenses is not accompanied by an increase in
revenues, then our business and financial results could be materially and
adversely affected.

WE MAY NEED TO LOWER PRODUCT PRICES IN OUR OFFLINE BUSINESS UNIT AND REDUCE
ACCESS FEES IN OUR ONLINE BUSINESS UNIT IN THE FUTURE TO REMAIN COMPETITIVE.
REVENUES FROM OTHER SOURCES MAY NOT BE SUFFICIENT TO COVER THE DECREASES IN
THESE REVENUES

         The overall recorded music market is declining in Taiwan and pricing
pressure is strong. We believe this situation will remain for the foreseeable
future and that we may need to lower our prices on recorded music compact discs,
or CDs, to remain competitive. In addition, with an increased number of
broadband Internet access service providers in Taiwan, we believe that pricing
pressure on access fees will remain intense. This pressure may require us to
lower our access fees from time to time in order to remain competitive. Revenues
from other sources of our operations and businesses may not be sufficient to
cover decreases in our CD sales revenues and access service revenues.

WE MAY NOT BE ABLE TO ATTRACT AND RETAIN SUBSCRIBERS OF OUR ONLINE BUSINESS
SERVICES AND, AS A RESULT, OUR REVENUES MAY DECLINE

         Our ability to increase the number of residential and commercial
subscribers of our online business services and our ability to retain these
subscribers will depend on a number of factors, many of which are beyond our
control. These factors include:

         -        the speed at which we are able to deploy our services,
                  particularly if we cannot obtain on a timely basis adequate
                  supplies of cable modems or necessary telecommunications
                  circuitry;

         -        the impact of our marketing efforts on new and existing
                  subscribers; and

         -        the willingness of cable operators to enter into or to
                  continue agreements with us.

         In addition, our service is currently priced at a premium to many other
dial up Internet access services and we charged subscribers higher access fees
after our cable partners upgraded their cable systems from one-way systems to
two-way systems. Many subscribers may not be willing to pay a premium for our
service. Because of these factors, our actual revenues or the rate at which we
will add new subscribers may differ from past increases or your expectations.

OUR RESULTS OF OPERATIONS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS, WHICH MAY
ADVERSELY AFFECT OUR BUSINESS AND FINANCIAL RESULTS

                                        5

<PAGE>

         Our revenues, expenses and results of operations have varied in the
past and may fluctuate significantly in the future due to a variety of factors,
many of which are beyond our control. These factors include:

         -        factors affecting our offline music distribution business:

                  -        seasonality of market demand for our offline music
                           products;

                  -        frequency of introduction of high-demand offline
                           music products;

                  -        amount of write-off as a result of impairment tests;

                  -        price competition in the music distribution industry;

                  -        our ability to enter into and maintain strategic
                           alliance with music label companies; and

                  -        economic conditions specific to the music
                           distribution industry, as well as general economic
                           and market conditions.

         -        factors affecting our online businesses:

                  -        the rate at which new customers subscribe to our
                           services;

                  -        changes in our operating expenses including, in
                           particular, personnel expenses;

                  -        price competition in the Internet and cable
                           industries;

                  -        capital expenditures and costs related to
                           infrastructure expansion;

                  -        the rate at which our cable partners convert their
                           systems from one-way to two-way cable systems;

                  -        subscriber turnover rates;

                  -        our ability to protect our systems from
                           telecommunications failures, power loss and
                           software-related system failures;

                  -        the introduction of new products or services by us or
                           our competitors;

                  -        the rate at which cable operators enter into
                           contracts with us to provide services for additional
                           cable systems;

                  -        the pace of the rollout of our service to our cable
                           partners;

                  -        our ability to enter into and maintain strategic
                           alliances with content providers; and

                  -        economic conditions specific to the Internet and
                           cable industries, as well as general economic and
                           market conditions.

         In addition, our operating expenses are based on our expectations of
the future demand for our services and are relatively fixed in the short term.
We may be unable to adjust spending quickly enough to offset any unexpected
demand shortfall. A shortfall in revenues in relation to our expenses could have
a material and adverse effect on our business and financial results.

                                        6

<PAGE>

WE ARE DEPENDENT ON OUR CABLE PARTNERS FOR DISTRIBUTION OF SOME OF OUR INTERNET
ACCESS SERVICES, AND WE MAY NOT BE ABLE TO ESTABLISH OR MAINTAIN GOOD
RELATIONSHIPS WITH THEM

         We deliver some of our broadband Internet access services to our
subscribers through our cable partners' cable systems, and our cable partners
share the revenue from our services that are derived from such subscribers.
Given the contractual and business relationships between our company and our
cable partners, our cable partners' interests may not always coincide with our
interests, and conflicts of interest concerning the split of revenues and other
matters exist between our company and our cable partners.

THE FAILURE OF OUR CABLE PARTNERS TO MAINTAIN THEIR OPERATING LICENSES CAN
INTERRUPT DELIVERY OF OUR ONLINE SERVICES

         Cable operators are subject to extensive regulations in Taiwan. In the
event that any of our cable partners fails to continue to comply with applicable
laws or regulations, it may be required to suspend or terminate its cable
television business, which would prevent us from servicing our subscribers
through its cable system.

THE BENEFITS OF OUR EXCLUSIVE AGREEMENTS WITH THE CABLE PARTNERS MAY BE
SUBSTANTIALLY DIMINISHED BY OPEN-ACCESS PROPOSALS, WHICH WOULD REQUIRE OUR
EXCLUSIVE CABLE PARTNERS TO GRANT OUR COMPETITORS ACCESS TO THEIR SYSTEMS

         We have entered into exclusive agreements with 19 out of 20 of our
cable partners to provide services through their cable systems. Under a
regulation in Taiwan, our cable partners must obtain leased-circuit licenses to
lease their circuits to us in order for us to provide two-way cable services. In
addition, any holder of leased-circuit licenses, including any of the cable
partners having exclusive relationships with us, may be required to grant our
competitors access to its cable system if it is deemed to be a dominant
leased-circuit operator. In that event:

         -        Internet and online service providers could potentially
                  provide services over these cable partners' cable systems that
                  compete with our services;

         -        our rights as the exclusive broadband Internet access provider
                  over these cable partners' systems could be lost; and

         -        our business, financial condition and results of operations
                  would likely be adversely affected.

WE RELY ON CONTENT PROVIDED BY THIRD PARTIES TO ATTRACT USERS, AND WE MAY NOT BE
ABLE TO ESTABLISH OR MAINTAIN RELATIONSHIPS WITH QUALIFIED PROVIDERS

         We do not create the content for our Web destination; we acquire it
from others. Most of our arrangements for the provision of content are not
exclusive and are short-term or may be terminated at the convenience of either
party. If these relationships terminate or our content providers are not able to
adequately perform their obligations, and we are not able to replace them, we
could lose our users and our ability to attract advertisers could be adversely
affected. This could have a material adverse effect on our results of
operations. In addition, we cannot assure you that our existing relationships
with our content providers will result in:

         -        sustained business partnerships;

         -        popular content offerings;

         -        significant traffic on our Web destination; or

         -        significant revenues for us, or that we will be able to enter
                  into relationships with additional content providers.

                                        7

<PAGE>

OUR INDUSTRIES FACE INTENSE COMPETITION, WHICH MAY ADVERSELY AFFECT OUR
REVENUES, PROFITABILITY AND PLANNED BUSINESS EXPANSION

         We face competition from many competitors, and we expect to face
competition from additional potential competitors, with:

         -        significantly greater technical, financial, sales and
                  marketing resources;

         -        larger customer bases, longer operating histories;

         -        greater name recognition; and

         -        more established relationships with music label companies,
                  cable partners, advertisers, content and application providers
                  and/or other strategic partners than we have.

COMPETITION IN THE MUSIC DISTRIBUTION BUSINESS. The music distribution business
in Taiwan is fragmented and consists of music store chains, including the two
music store chains we acquired in 2002, and many mid- to small-size music stores
and distribution channels. We also compete with music distribution channels that
employ modern technology, such as online download and streaming, which enjoy
lower inventory and distribution costs. In addition, the prevalent practice of
physical and virtual piracy in Taiwan presents a continuing threat to the growth
of the music distribution industry in Taiwan. Further, some of our competitors
have exclusive distribution arrangements with music label companies and the
operation of these arrangements prevent us from distributing certain popular
music products. Our principal competitors in this industry include Asia Record,
Guan Nan Record and Carrefour.

COMPETITION IN THE INTERNET ACCESS BUSINESS. Our competitors in the cable-based
Internet access market are companies that have developed their own cable-based
services and market those services to cable operators. Our principal competitors
in this category include Eastern Multimedia Group, SeedNet and Taiwan Broadband.
We also compete with other cable-based data service providers that are seeking
to contract with cable operators to bring their services into geographic areas
that are not covered by an exclusive relationship between our company and our
cable partners. Our competitors also include fixed-line service providers in
Taiwan that offer asymmetrical digital subscriber line, or ADSL, broadband
services, including Chunghwa Telecom's HiNet, the current market leader. In
addition, we face competition from other cable modem service providers for
partnerships with cable operators and from providers of other types of data and
Internet services for users.

         We also compete with other broadband technologies, including integrated
services digital network, wireless and satellite data services. In addition,
EraNet and AsiaCast have begun to offer satellite Internet access services in
Taiwan. We also compete with traditional narrowband Internet service providers,
which provide basic Internet access to residential and commercial users and
businesses, generally using existing telephone networks. While not offering the
advantages of broadband Internet access, these services are widely available and
less expensive. Moreover, competitors with high-speed telecommunications
technologies are offering diversified packages of telecommunications services,
including Internet access, and could bundle these services together, putting us
at a competitive disadvantage. Widespread commercial acceptance of any of these
competing technologies or competitors' products could significantly reduce the
potential customer base for our services, which could have a material adverse
effect on our business, financial condition and results of operations. See Item
4. " Information on the Company--B. Business Overview--Competition".

         Due to this intense competition, there may be a limited market
opportunity for our broadband access services. We cannot assure you that we will
be successful in achieving widespread acceptance of our services before our
competitors offer services similar to our current or prospective offerings,
which might preclude or delay purchasing decisions by potential subscribers.

                                        8

<PAGE>

COMPETITION IN THE CONTENT BUSINESS. The markets for Internet content are
extremely competitive and we expect that competition will intensify in the
future. We compete with content aggregators and portals. Our competition with
respect to user traffic, ease of use and functionality include:

         -        Chinese language-based Web portals and destinations such as
                  Yahoo!Kimo, China.com, Sina.com, Chinatimes, Yam, HiNet, and
                  Sohu;

         -        English language-based Web search and retrieval companies such
                  as Terra Lycos, Yahoo! and Microsoft Network; and

         -        retrieval services and products offered by companies such as
                  AltaVista, HotWired Venture's and Inktomi's HotBot, OpenText
                  and Openfind.

         In the future, we may encounter competition from Internet service
providers, Web site operators and Web browser software providers, such as
Netscape or Microsoft, that incorporate search and retrieval features into their
offerings. Our competitors may develop Web search and retrieval services that
are equal or superior to those we offer our users and may achieve greater market
acceptance than our offerings in the area of performance, ease of use and
functionality.

OUR CONTROLLING SHAREHOLDER HAS SIGNIFICANT INFLUENCE IN DETERMINING THE OUTCOME
OF ANY CORPORATE TRANSACTION OR OTHER MATTERS SUBMITTED TO THE SHAREHOLDERS FOR
APPROVAL, AND THEIR INTERESTS MAY CONFLICT WITH YOUR INTERESTS

         The Koos Group currently beneficially owns approximately 55.6% of our
outstanding shares. Accordingly, the Koos Group has significant influence in
determining the outcome of any corporate transaction or other matters submitted
to the shareholders for approval, including mergers, consolidations and the sale
of all or substantially all of our assets, and also the power to prevent or
cause a change in control. The interests of the Koos Group may differ from or
conflict with your interests.

ONE OF OUR DIRECTORS IS ALSO A DIRECTOR OF ONE OF OUR COMPETITORS, AND CONFLICT
OF INTERESTS MAY ARISE

         Taiwan Cement Corporation, a member of the Koos Group, has an
approximate 20% equity interest in AsiaCast, which provides broadband Internet
access services over satellites. Leslie Koo, one of our directors, is a director
of Taiwan Cement and AsiaCast. Under Singapore law, Leslie Koo, as a director of
our company, may not provide AsiaCast with non-public information of our
company. In addition, under Singapore law, he owes a fiduciary duty to our
company and is required to act in the best interest of our company.

OUR AGREEMENT TO USE MICROSOFT AS OUR DEFAULT PROVIDER OF TECHNOLOGY, PRODUCTS
AND APPLICATIONS MAY RESULT IN PRODUCT OR SERVICE DEVELOPMENT DELAYS OR PREVENT
US FROM FORMING STRATEGIC RELATIONSHIPS WITH OTHER COMPANIES

         We elected to enter into a Business Co-Operation Agreement with
Microsoft in November 1999. Under this agreement, we are required to use
Microsoft as our default provider of technology, products and applications,
provided that the relevant Microsoft technology, products or applications
satisfy general industry standards. We may seek alternative manufacturers or
vendors only if Microsoft fails to submit an acceptable proposal within 60 days
of our request and if Microsoft fails to deliver to us an acceptable alternative
solution within 60 days after we notify Microsoft of its failure to submit the
proposal. All of our purchases of technology, products or applications from
Microsoft are to be on commercially reasonable terms and conditions. We cannot
provide any assurance that technology, products or applications available from
Microsoft will always satisfy our product or service development requirements.
In addition, we may not always agree with Microsoft regarding the acceptability
of a particular proposal. Our obligations under the Business Co-Operation
Agreement may delay our ability to purchase products, technology or applications
from our desired providers for 120 days. Microsoft's rights as our default
provider may also deter other

                                        9

<PAGE>

leading content providers and market leaders in the Internet industry from
forming strategic relationships with us.

OUR RELATIONSHIP WITH OUR MAJOR SHAREHOLDERS MAY NOT BENEFIT US IN THE FUTURE,
AND THE EXPECTED BENEFITS TO BE DERIVED FROM OUR AFFILIATIONS WITH OUR MAJOR
SHAREHOLDERS MAY NEVER MATERIALIZE

         We have entered into alliances with several members of the Koos Group.
These alliances have enabled us to obtain services relating to our access and
content businesses. We expect to enter into additional alliances with members of
the Koos Group in the future as we expand our operations. However, we cannot
assure you that we will succeed in entering into such alliances or that the
alliances with the Koos Group's members will be beneficial to us.

         We have also entered into a strategic alliance with Microsoft, one of
our principal shareholders. This alliance is intended to give us access to the
latest Internet technologies and products, to distribute our content through
Microsoft Network and to provide us with significant co-development
opportunities with respect to Internet-based services and applications. We
cannot assure you that our alliance with Microsoft will be sustained or prove
beneficial for our business or results of operations. If Microsoft decides to
terminate its relationship with our company, we may not be able to obtain
equivalent technologies on terms acceptable to us.

OUR TRANSACTIONS WITH AFFILIATES MAY NOT BENEFIT US AND MAY HARM OUR COMPANY

         We have entered into several transactions with our affiliates. Our
policy is that transactions with affiliates are to be conducted on an
arm's-length basis and on terms substantially as favorable to us as with
non-affiliates. However, we cannot assure you that all our future transactions
with affiliates will be beneficial to us.

         12 out of our 20 cable partners are members of the Koos Group cable
television network, a member of the Koos Group, our controlling shareholder. We
cannot assure you that future transactions between our company and those related
cable partners will be on arm's-length terms, or that we could not have obtained
more favorable terms in negotiations with independent third parties. See Item 7.
"Major Shareholders and Related Party Transactions--Related Party Transactions".

WE MAY NOT BE ABLE TO DEVELOP THE GIGAMEDIA BRAND AND ATTRACT USERS TO USE OUR
SERVICES, WHICH MAY HARM OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

         Maintaining the GigaMedia brand is critical to our ability to expand
our user base and our revenues. We believe that the importance of brand
recognition will increase as the number of broadband Internet Web sites in
Taiwan grows. In order to attract and retain our users, we intend to
substantially increase our expenditures for creating and maintaining brand
loyalty. Our success in promoting and enhancing the GigaMedia brand will also
depend on our success in providing high-quality content, features and
functionality. If we fail to promote our brand successfully or if visitors to
our Web destination do not perceive our services to be of high quality, the
value of the GigaMedia brand could be diminished. This could have a material and
adverse effect on our business, financial condition and results of operations.

WE MAY NEED ADDITIONAL CAPITAL IN THE FUTURE AND IT MAY NOT BE AVAILABLE ON
ACCEPTABLE TERMS

         The development of our business may require significant additional
capital in the future to:

         -        fund our operations;

         -        finance the substantial investments in equipment and corporate
                  infrastructure needed for our growth;

         -        enhance and expand the range of products and services we
                  offer;

                                       10

<PAGE>

         -        enhance and expand our music distribution business; and

         -        respond to competitive pressures and perceived opportunities,
                  such as investment, acquisition and international expansion
                  activities.

         To date, our cash flow from operations has been insufficient to cover
our expenses and capital needs. For 2002, cash used in operating activities
totaled approximately NT$5,279 thousand (US$153 thousand). We cannot assure you
that additional financing will be available on terms favorable to us, if at all.
If adequate funds are not available on acceptable terms, we may be forced to
curtail or cease our operations. Moreover, even if we are able to continue our
operations, any failure to obtain additional financing could have a material and
adverse effect on our business, financial condition and results of operations
and we may need to delay the deployment of our services. See Item 5. "Operating
and Financial Review and Prospects -- B. Liquidity and Capital Resources".

IF WE FAIL TO MANAGE OUR GROWTH, OUR BUSINESS MIGHT BE HARMED

         To manage our growth, we must continue to:

         -        implement and improve our operational, financial and
                  management information systems and our operational facilities;

         -        enhance our distribution efficiency;

         -        hire, train and retain additional qualified personnel;

         -        expand and upgrade core technologies; and

         -        effectively manage our relationships with our subscribers,
                  suppliers and other third parties.

         Our growth could place a significant strain on our services and support
operations, sales and administrative personnel, and other resources. We could
also experience difficulties in meeting demand for our products and services.
Additionally, if we are unable to provide training and support for our products
and services, the implementation process will be longer and customer
satisfaction may be lower. We cannot assure you that our systems, procedures or
controls will be adequate to support our operations or that our management will
be capable of exploiting fully the market for our products and services. The
failure to manage our growth effectively could have a material adverse effect on
our business, financial condition and results of operations.

WE DEPEND ON OUR KEY PERSONNEL AND WE MAY HAVE DIFFICULTY ATTRACTING AND
RETAINING SKILLED EMPLOYEES

         Our future success depends on the continued service of our key
personnel. We do not carry key person insurance on most of our personnel. The
loss of the services of any of our executive officers or other key employees
could have a material adverse effect on our business, financial condition and
results of operations. Although we have employment contracts with our executive
officers and other senior officers, none of our key personnel is bound by a
non-competition agreement. Our future success also depends on our ability to
attract, retain and motivate highly skilled employees, particularly engineering
and technical personnel. Competition for qualified employees in our industry is
intense. We may not be able to retain our key employees or attract, assimilate
or retain other highly qualified employees in the future. From time to time we
have experienced, and we expect to continue to experience, difficulty in hiring
highly skilled employees.

WE MAY BE SUBJECT TO CLAIMS BASED ON THE CONTENT WE PROVIDE, INCLUDING COPYRIGHT
OR TRADEMARK INFRINGEMENT AND OTHER SIMILAR CLAIMS

                                       11

<PAGE>

         Part of our business involves supplying information to users over the
cable systems of our cable partners. Accordingly, we face the same types of
risks that apply to all businesses that publish or distribute information, such
as potential liability for copyright or trademark infringement and other similar
claims. A number of third parties have claimed that they hold patents covering
various forms of online transactions or online technologies. In addition, our
errors and omissions and liability insurance may not cover potential patent or
copyright infringement claims and may not adequately indemnify us for any
liability that may be imposed.

         In addition, we may be held liable for our content under law and
regulations covering the issues of national security, public safety, privacy and
defamation. The law in Taiwan requires that a telecommunications service
provider, including an Internet service provider like our company, take all
proper and necessary measures to safeguard the privacy of its users. The law in
Taiwan relating to information transmitted over the Internet generally places
liability for obscene or defamatory content or content in violation of public
order or national security on original authors and not the companies providing
Internet services, unless a company is involved in the preparation of the
information or provides a forum to display such information that it knows or has
reason to know to be obscene or defamatory or against public order or national
security. We, however, cannot assure you that the relevant law in Taiwan would
not be interpreted differently against our company or that any new law or
regulation that broadens our liabilities would not be implemented in the future.
In that event, our business, financial condition and results of operations could
be adversely affected.

WE MAY BE SUBJECT TO CLAIMS BASED ON PRODUCTS SOLD ON OUR NETWORK, INCLUDING
PRODUCT LIABILITY AND PERSONAL INJURY CLAIMS

         We have entered into arrangements to offer third-party products and
services on our network. These arrangements may subject us to additional claims,
including product liability or personal injury from the products and services,
even if we do not ourselves provide the products or services. These claims may
require us to incur significant expenses in their defense or satisfaction. While
our agreements with these parties often provide that we will be indemnified
against such liabilities, such indemnification may not be adequate.

         Our insurance policies do not cover potential product liability and
personal injury claims to which we are exposed or may not be adequate to
indemnify us for all liability that may be imposed. Any imposition of liability
that is not covered by insurance or is in excess of insurance coverage could
have a material adverse effect on our business, financial condition and results
of operations or could result in the imposition of criminal penalties. In
addition, the increased attention focused on liability issues as a result of
these lawsuits and legislative proposals could impact the overall growth of
Internet use.

                       RISKS RELATING TO OUR TECHNOLOGIES

OUR SUCCESS IN ATTRACTING AND RETAINING SUBSCRIBERS WILL DEPEND ON OUR ABILITY
TO INCREASE THE CAPACITY AND MAINTAIN THE SPEED OF OUR NETWORK, WHICH MAY VARY

         We face risks related to our ability to increase the transmission
capacity of our network to meet expected subscriber levels while maintaining
superior performance. While peak downstream data transmission speeds across the
cable infrastructure approach 10 Mbps in each 6 MHz channel, actual downstream
data transmission speeds are likely to be significantly slower, depending on a
variety of factors, including the type and location of content, Internet
traffic, the number of active subscribers on a given cable network node, the
number of 6 MHz channels allocated to our company by our cable partners, the
capabilities of the cable modems used and the service quality of the cable
partners' facilities. The actual data transmission speed that a subscriber
realizes also will depend on the subscriber's hardware, operating system and
software configurations. We cannot assure you that we will be able to achieve or
maintain a speed of data transmission sufficiently high to enable us to attract
and retain our planned number of subscribers, especially as the number of
subscribers grows. Because subscribers will share the available capacity on a
cable network node, we may underestimate the capacity we need to provide in
order to maintain peak transmission speeds. A perceived or actual failure to
achieve or maintain sufficiently high speed data transmission could

                                       12

<PAGE>

significantly reduce subscriber demand for our services and have a material
adverse effect on our business and financial condition.

WE DEPEND ON A DATA TRANSMISSION INFRASTRUCTURE LARGELY MAINTAINED BY THIRD
PARTIES OR SUBJECT TO DISRUPTION BY EVENTS OUTSIDE OUR CONTROL

         Our success will depend upon the capacity, reliability and security of
the infrastructure used to carry data between our subscribers and the Internet.
A significant portion of that infrastructure is owned by third parties.
Accordingly, we have no control over its quality and maintenance. For example,
we rely on our cable partners to maintain their cable infrastructures. We also
rely on other third parties to provide a connection from the cable
infrastructure to the Internet. For ADSL services, we rely on Chunghwa Telecom
to provide connections. Currently, we lease our telecommunications backbone from
Chunghwa Telecom and from KG Telecom to support the exchange of traffic between
our data servers, which are computers on a network that store information, the
cable infrastructure and the Internet.

         We are dependent on Hewlett-Packard Company for network management
software, Hewlett-Packard Company and Compaq Computer Corporation for systems
management software to operate regional data centers remotely and Microsoft
Corporation for advanced database management software, server and browser
software. Although we believe that there are alternative suppliers for each of
these equipment and technologies, it could take a significant period of time to
substitute their equipment and technologies. The loss of any of our
relationships with these suppliers could have a material adverse effect on our
business, financial condition and results of operations.

OUR OPERATIONS ARE VULNERABLE TO NATURAL DISASTERS AND OTHER EVENTS, WHICH CAN
INTERRUPT OUR SERVICES

         Our online business operations depend on our ability to avoid damages
from fires, earthquakes, floods, power losses, telecommunications failures,
network software flaws, transmission cable cuts and similar events. The
occurrence of any of these events could interrupt our services. For instance,
our operations were interrupted for approximately 30 hours by a flood in Taipei
in 2001. Critical services were restored within two days. In addition, in
Taichung, a city located in central Taiwan, our operations were interrupted for
approximately two weeks because of an earthquake in September 1999. We cannot
recover any of the damages we incurred during such interruption because we do
not carry any business interruption insurance. The failure of the Internet
backbone, our servers, or any other link in the delivery chain, whether from
operational disruption, natural disaster or otherwise, resulting in an
interruption in our operations could have a material adverse effect on our
business and financial results.

OUR ONLINE BUSINESS NETWORK MAY BE VULNERABLE TO SECURITY RISKS, WHICH MAY MAKE
OUR SERVICES LESS ATTRACTIVE AND RELIABLE

         Despite our implementation of industry-standard security measures, our
or our cable partners' networks or those of Chunghwa Telecom may be vulnerable
to unauthorized access, computer viruses and other disruptive problems. Internet
and online service providers in the past have experienced, and in the future may
experience, interruptions in service as a result of the accidental or
intentional actions of Internet users. Moreover, we have no control over the
security measures that our cable partners and subscribers adopt. Unauthorized
access could also potentially jeopardize the security of confidential
information stored in the computer systems maintained by us and our subscribers.
These events may result in liability to us or harm to our subscribers.
Eliminating computer viruses and alleviating other security problems may require
interruptions, delays or cessation of service to our subscribers, which could
have a material adverse effect on our business and financial results. In
addition, the threat of these and other security risks may deter potential
subscribers from purchasing our services, which could have a material adverse
effect on our business, financial condition and results of operations.

OUR ONLINE BUSINESS IS DEPENDENT ON LICENSED TECHNOLOGY, AND WE MAY BE UNABLE TO
OBTAIN OR MAINTAIN DESIRABLE LICENSED TECHNOLOGY

                                       13

<PAGE>

         With respect to our online business, we currently own and also license
technology from third parties. We have licensed a number of software from
Microsoft Corporation and Portal Information Network, Inc. for our service,
content publishing and billing operations. As we continue to introduce new
services that require new technology, we anticipate that we may need to license
additional third-party technology. We cannot provide any assurance that these
technology licenses will be available to us on commercially reasonable terms, if
at all. In addition, it is possible that in the course of using new technology,
we may inadvertently breach the technology rights of others and face liabilities
for such breach. Our inability to obtain any of these technology licenses or
inadvertent breach of others' technology rights could delay or compromise the
introduction of new services and could materially and adversely affect our
business and financial condition.

WE ARE EXPERIENCING BACKLOGS IN ESTABLISHING DIGITAL SUBSCRIBER LINE, OR DSL,
LEASED LINE SERVICES FOR POTENTIAL CUSTOMERS DUE TO LIMITED AVAILABILITY OF ADSL
SWITCH PORTS FROM CHUNGHWA TELECOM, WHICH MAY ADVERSELY AFFECT OUR BUSINESS AND
REVENUES

         Our DSL leased line service business is currently dependent on the
availability of ADSL switch ports offered by Chunghwa Telecom. These switched
ports allow subscribers to connect to the Internet via Chunghwa Telecom's
network. Due to high levels of current demand for such services, a significant
portion of our potential DSL customers are currently required to wait
approximately 7 days for Chunghwa Telecom to make these ports available before
they can begin subscribing to our DSL leased line service. If this delay causes
us to lose potential customers or inhibits our ability to attract new customers,
our DSL leased line business may suffer and our revenues may be adversely
affected.

                        RISKS RELATING TO OUR INDUSTRIES

THE INTERNET ACCESS SERVICE MARKET IS CHARACTERIZED BY RAPID TECHNOLOGICAL
CHANGES, AND OUR TECHNOLOGIES MAY NOT BE POPULAR AND MAY BECOME OBSOLETE

         The market for our Internet access services is characterized by rapid
technological advances, evolving industry standards, changes in user
requirements and frequent new service introductions and enhancements. For
example, a number of broadband technologies, such as ADSL services, have
demonstrated competing technological advantages against our broadband Internet
access services and may become more popular products with our subscribers in the
future. If technologies or standards applicable to our services become obsolete
or fail to gain widespread consumer acceptance, then our business and financial
results will be materially and adversely affected.

         We have acquired headend, cable modem and other related capital
equipment. The technology underlying that equipment is continuing to evolve. It
is possible that the equipment we acquire could become obsolete prior to the
time we would otherwise intend to replace it, which could have a material
adverse effect on our business, financial condition and results of operations.

THE INTERNET MARKET IN TAIWAN IS A DEVELOPING MARKET, AND SERVICES WE ARE
OFFERING OR INTEND TO OFFER MAY NOT BE WIDELY ACCEPTED IN TAIWAN, WHICH WOULD
ADVERSELY AFFECT OUR FUTURE REVENUES AND BUSINESS EXPANSION

         The market for Internet services in Taiwan is still under development.
Our future results of operations from access services will depend substantially
upon the increased use of the Internet in Taiwan for information, publication,
entertainment, distribution and commerce. Despite growing interest in the
commercial possibilities for the Internet, businesses and consumers in Taiwan
may be deterred from purchasing Internet access services for the following
reasons:

         -        inconsistent quality of service;

         -        lack of availability of cost-effective service;

                                       14

<PAGE>

         -        a limited number of local access points for corporate users;

         -        the need to deal with multiple and frequently incompatible
                  vendors; and

         -        a lack of tools to simplify Internet access and use.

         The adoption of the Internet for commerce and communications,
particularly by those individuals and enterprises that have historically relied
upon alternative means of commerce and communication, generally requires
understanding and acceptance of a new way of conducting business and exchanging
information.

         Critical issues concerning the commercial use of the Internet in Taiwan
such as security, reliability, cost, ease of deployment, administration and
quality of service may affect the adoption of the Internet to solve business
needs. For example, the cost of access may prevent many potential users in
Taiwan from using the Internet. In addition, consumers will have to be confident
that adequate security measures will prevent fraud and protect electronic sale
transactions conducted over the Internet.

THE TELECOMMUNICATIONS INFRASTRUCTURE IN TAIWAN, WHICH IS NOT AS WELL-DEVELOPED
AS IN THE UNITED STATES OR EUROPE, MAY LIMIT THE GROWTH OF THE INTERNET AND
ADVERSELY AFFECT OUR BUSINESS

         Access to the Internet requires a relatively advanced
telecommunications infrastructure. The telecommunications infrastructure in
Taiwan is not as well-developed as in the United States or Europe. The quality
and continued development of the telecommunications infrastructure in Taiwan
will have a substantial impact on our ability to deliver our services and on the
market acceptance of the Internet in Taiwan in general. If further improvements
to the telecommunications infrastructure are not made, the Internet will not
gain broad market acceptance in Taiwan. If access to the Internet in Taiwan does
not continue to grow or grows more slowly than we anticipate, our business,
financial condition and results of operations will be materially and adversely
affected.

                    POLITICAL, ECONOMIC AND REGULATORY RISKS

         OUR BUSINESS MAY BE HARMED, AND OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS MAY BE ADVERSELY AFFECTED, BY CHANGES IN GENERAL ECONOMIC AND
BUSINESS CONDITIONS RESULTING FROM THE TERRORIST ACTIVITIES, POLITICAL UNREST
AND MILITARY ACTIONS THAT TAKE PLACE OUTSIDE TAIWAN

         We are exposed to the risks of political unrest, war, acts of terrorism
and other instability, which can result in disruption to our business or the
business of our customers. The following recent events illustrate these risks:

         -        On September 11, 2001, terrorist attacks on the United States
                  caused significant loss of life and property damage and
                  disruptions in the U.S. market and in global markets.

         -        The recent announcement of withdrawal by North Korea from the
                  Nuclear Non-Proliferation Treaty and a series of steps taken
                  by North Korea to escalate the dispute with the United States,
                  including restarting a small reactor, test-firing short-range
                  missiles and threatening to test-fire a ballistic missile, has
                  raised international tensions.

         -        Diplomatic and financial responses to the war between Iraq and
                  the United States and its allies are still being formulated,
                  and any of such responses could materially and adversely
                  affect us in ways we cannot predict at this time.

         Occurrence of any similar activity in the future could result in
increased volatility in or damage to the global financial markets, which in turn
may adversely affect our business and results of operations.

                                       15

<PAGE>

THERE ARE ECONOMIC RISKS ASSOCIATED WITH DOING BUSINESS IN TAIWAN, PARTICULARLY
DUE TO THE TENSE RELATIONSHIP BETWEEN TAIWAN AND CHINA

         Our principal executive offices and our operations are located in
Taiwan and all of our net revenues are derived from customers in Taiwan. Taiwan,
as part of the Republic of China, has a unique international political status.
The People's Republic of China, or the PRC, asserts sovereignty over mainland
China and Taiwan and does not recognize the legitimacy of the Taiwan government.
Although significant economic and cultural relations have been established
during recent years between Taiwan and the PRC, the PRC government has indicated
that it may use military force to gain control over Taiwan if Taiwan declares
independence or if any foreign power interferes in Taiwan's affairs. Relations
between Taiwan and the PRC and other factors affecting the political or economic
conditions of Taiwan could also affect our business and the market price and the
liquidity of our shares.

WE MAY BECOME SUBJECT TO BURDENSOME GOVERNMENT REGULATIONS AND LEGAL
UNCERTAINTIES AFFECTING THE INTERNET, WHICH COULD INCREASE OUR COSTS OF DOING
BUSINESS AND PREVENT US FROM DELIVERING OUR PRODUCTS AND SERVICES OVER THE
INTERNET

         To date, governmental regulations in Taiwan have not materially
restricted use of the Internet. However, the legal and regulatory environment
that pertains to the Internet is uncertain and may change. Uncertainty and new
regulations could increase our costs of doing business and prevent us from
delivering our products and services over the Internet. The growth of the
Internet may also be significantly slowed by these regulations. This could delay
growth in demand for our network and limit the growth of our revenues.

         In addition to new laws and regulations being adopted, existing laws
may be applied to the Internet. New and existing laws may cover issues that
include:

         -        sales and other taxes;

         -        user privacy;

         -        pricing controls;

         -        characteristics and quality of products and services;

         -        consumer protection;

         -        antitrust and fair trade;

         -        cross-border commerce;

         -        libel and defamation;

         -        copyright, trademark and patent infringement;

         -        national security and public safety;

         -        pornography; and

         -        other claims based on the nature and content of Internet
                  materials.

WE MAY BE SUBJECT TO HEIGHTENED SCRUTINY BY TAIWAN'S FAIR TRADE COMMISSION DUE
TO OUR CONTROL OF OVER 50% OF THE RECORDED MUSIC DISTRIBUTION MARKET IN TAIWAN,
WHICH COULD RESULT IN NEW REGULATIONS THAT MAY NEGATIVELY IMPACT OUR RESULTS OF
OPERATION

                                       16

<PAGE>

         Since we hold a majority market share of Taiwan's recorded music
distribution market, we may be deemed a monopoly by Taiwan's Fair Trade
Commission. This could result in heightened scrutiny of our music distribution
operations and regulations. Any existing or new regulations that govern the
activities of a monopoly could restrict the scope of our music distribution
business, which could negatively impact our financial condition and results of
operations.

CURRENCY FLUCTUATIONS BETWEEN NEW TAIWAN DOLLARS AND U.S. DOLLARS COULD INCREASE
OUR COSTS RELATIVE TO OUR REVENUES, WHICH COULD ADVERSELY AFFECT OUR
PROFITABILITY

         Historically, all of our revenues and a majority of our expenses and
liabilities have been denominated in New Taiwan dollars, the currency of Taiwan.
We also generate expenses and liabilities in U.S. dollars. In the future, we may
also conduct business in additional foreign countries and generate revenues,
expenses and liabilities in other foreign currencies. As a result, we are
subject to the effects of exchange rate fluctuations with respect to any of
these currencies. We have not entered into agreements or purchase instruments to
hedge our exchange rate risks although we may do so in the future. If we do so
in the future, these agreements and instruments may not help us to hedge our
exchange rate risks.

ANY FUTURE OUTBREAK OF SEVERE ACUTE RESPIRATORY SYNDROME, OR SARS MAY MATERIALLY
AND ADVERSELY AFFECT OUR BUSINESS AND RESULTS OF OPERATIONS

         Since March 2003, several economies in Asia, including China, Hong
Kong, Singapore and Taiwan, have been affected by the outbreak of SARS, a highly
contagious form of atypical pneumonia. SARS has caused damage to the trade and
tourism industries as well as to the economies and financial markets of the
affected countries, including Taiwan. So far the SARS outbreak has not had a
significant negative impact on our operating results. Any economic downturn as a
result of any future SARS outbreak may have an adverse effect on consumer
confidence, and may in turn result in a decrease in the demand for our products
and services, which would adversely and materially affect our business and
results of operations.

                          RISKS RELATING TO OUR SHARES

WE BELIEVE THAT WE WERE A PASSIVE FOREIGN INVESTMENT COMPANY FOR THE TAXABLE
YEAR 2002 AND ARE LIKELY TO BE TREATED AS A PASSIVE FOREIGN INVESTMENT COMPANY
FOR THE TAXABLE YEAR 2003. AS A RESULT, YOU MAY BE SUBJECT TO MATERIALLY ADVERSE
TAX CONSEQUENCES WITH RESPECT TO OUR SHARES

         Based on the composition of our assets and the nature of our income, we
believe that for U.S. federal income tax purposes we were a passive foreign
investment company for the taxable year 2002 and are likely to be treated as a
passive foreign investment company for the taxable year 2003 unless the market
value of our shares increases significantly or we make substantial active
investments, or both, during the taxable year 2003. We have limited control over
the market value of our shares and do not currently have plans to make
significant active investments. If you are a U.S. person holding our shares,
because we are a passive foreign investment company, you will be subject to
special U.S. federal income tax rules that may have materially adverse tax
consequences and will require annual reporting. See Item 10. "Additional
Information - E. Taxation - United States Federal Income Tax Considerations For
U.S. Holders - Passive Foreign Investment Company Rules".

WE DEPEND ON DIVIDENDS FROM OUR SUBSIDIARY IN TAIWAN TO MEET OUR CASH NEEDS, AND
OUR SUBSIDIARY'S ABILITY TO DISTRIBUTE DIVIDENDS TO US MAY BE SUBJECT TO
RESTRICTIONS UNDER SINGAPORE AND TAIWAN LAWS

         We are a holding company, and our primary assets constitute our
ownership interests in our subsidiaries in Taiwan, including Hoshin Gigamedia,
Rose Records and Tachung Records. Accordingly, our primary internal sources of
funds to meet our cash needs is our share of the dividends, if any, paid by
these subsidiaries in Taiwan. The distribution of dividends from these
subsidiaries in Taiwan to us is subject to restrictions imposed by Taiwan and
Singapore corporate and tax regulations, which are more fully described in Item
5. "Operating and Financial Review and Prospects -- B. Liquidity and Capital
Resources -- Dividends from Our Subsidiaries in Taiwan". In addition, although
there are currently no foreign exchange

                                       17

<PAGE>

control regulations, which restrict the ability of our subsidiaries in Taiwan to
distribute dividends to us, the relevant regulations may be changed and the
ability of these subsidiaries to distribute dividends to us may be restricted in
the future.

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

         Our corporate affairs are governed by our memorandum and articles of
association and by the laws governing corporations incorporated in Singapore.
The rights of our shareholders and the responsibilities of members of our board
of directors under Singapore law are different from those applicable to a
corporation incorporated in the United States and, therefore, our shareholders
may have more difficulty protecting their interests in connection with actions
by the management, members of our board of directors or our controlling
shareholders than they would as shareholders of a corporation incorporated in
the United States.

THERE ARE ANTI-TAKEOVER PROVISIONS UNDER THE SINGAPORE COMPANIES ACT THAT MAY
DELAY, DETER OR PREVENT A FUTURE TAKEOVER OR CHANGE OF CONTROL OF OUR COMPANY,
WHICH MAY ADVERSELY AFFECT THE PRICE OF OUR SHARES

         There are provisions under the Singapore Companies Act (Chapter 50) and
the Singapore Code on Take-overs and Mergers that may delay, deter or prevent a
future takeover or change of control of our company. Anyone acquiring an
interest, either on his own or together with parties acting in concert with him,
in 25% or more of our voting shares must extend a takeover offer for the
remaining voting shares. A person holding between 25% and 50% of our voting
shares, either on his own or together with parties acting in concert with him,
must also make a takeover offer if that person acquires additional voting shares
in excess of 3% of the total number of voting shares in any 12-month period.
These provisions may discourage or prevent transactions that involve an actual
or threatened change of control of our company. This may harm you because a
transaction of that kind may allow you to sell your shares at a price above the
prevailing market price.

YOU MAY BE SUBJECT TO SINGAPORE TAXES

         You should consult your tax advisors concerning the overall tax
consequences of acquiring, owning or selling the shares. Singapore tax law may
differ from the tax laws of other jurisdictions, including the United States.

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<PAGE>

ITEM 4.  INFORMATION ON THE COMPANY

A.       HISTORY AND DEVELOPMENT OF OUR COMPANY

         Our legal and commercial name is GigaMedia Limited. We were
incorporated in Singapore in September 1999. Our principal executive offices are
located at 122 TunHua North Road, Taipei, Taiwan, and our telephone number is
(886) 2-8770-7966. Our website address is: www.giga.net.tw.

         We are a holding company and, prior to the finalization of our
acquisition of Taiwan's two leading music store chains in February and September
of 2002, respectively, all our operations were conducted primarily through our
wholly owned subsidiary, Hoshin Gigamedia Center Inc., or Hoshin Gigamedia.
Hoshin Gigamedia commenced operations in October 1997 and was incorporated in
October 1998 in Taiwan. Hoshin Gigamedia, as an unlisted Taiwanese company,
could not publicly offer its shares to investors outside of Taiwan. To enable us
to offer our shares to international investors, we were incorporated in
Singapore in September 1999 and acquired 100% of Hoshin Gigamedia in November
1999.

         We completed the initial public offering of our shares on February 24,
2000. Our shares trade on the Nasdaq National Market under the symbol "GIGM". We
are the first Internet company based in Taiwan to list on Nasdaq.

         In February and September of 2002, we finalized agreements to acquire
Rose Records (formerly described as Point Records Co., Ltd.) and Tachung Records
(formerly described as Music King Co., Ltd.), Taiwan's two largest music store
chains, respectively, with a view to expanding our business to offline
entertainment services.

B.       BUSINESS OVERVIEW

         We are a holding company and through several subsidiaries distribute
recorded music and provide broadband Internet access services and online
entertainment services in Taiwan. Our core offline music business is operated
through our subsidiary G-Music Limited, or G-Music, which controls Taiwan's two
largest music store chains. Our online broadband businesses are operated through
our subsidiary Hoshin GigaMedia, and Hoshin GigaMedia's subsidiary Koos
Broadband Telecom Limited, or KBT, which are focused on consumer and corporate
users, respectively.

         Prior to 2002, our primary business was to provide broadband Internet
access services in Taiwan. After we acquired Taiwan's two largest music store
chains, Rose Records and Tachung Records, in 2002, we became a diversified
provider of entertainment services and Internet access services in Taiwan. Our
online/offline business model provides us with multiple distribution channels.
We believe this business model will provide us deep customer relationships and
the ability to meet future market demand as technology drives new media and
entertainment industry change.

         Offline, we operate Taiwan's two largest music store chains, Rose
Records and Tachung Records, through our subsidiary G-Music. These two music
store chains together hold approximately 50% market share in recorded music
business in Taiwan. The two music store chains had consolidated revenues, post
acquisition, in 2002 of approximately NT$1.9 billion (US$54.5 million). We
intend to establish a dominant offline market position designed to leverage the
strength of GigaMedia's online business in new areas, generate improved revenue
growth and accelerate profitability.

         Online, we operate a leading broadband ISP via our subsidiary Hoshin
GigaMedia, which provides Internet access service and broadband content with
multiple delivery technologies. Our access products consist of premium cable
modem and ADSL offerings, giving us the ability to deliver superior broadband
connections island-wide. Our cable modem is a world-class platform capable of
offering broadband Internet access at speeds of up to 100 times faster than
traditional dial-up services. With 20 cable system partners, our cable modem
business passes more than 3.1 million Taiwan households, as well as 417,000
small and medium businesses. In addition, we offer interactive Chinese-language
multimedia Web sites through our Web destination http://www.gigigaga.com.

                                       19

<PAGE>

         In addition, another subsidiary of our company, Koos Broadband Telecom
Limited, or KBT, provides broadband service exclusively to corporate customers.

         Our strategic investors include the Koos Group, a major conglomerate in
Taiwan's manufacturing, finance, telecommunications, media, and cable
industries.

OUR PRODUCTS AND SERVICES

         We provide both offline and online products and services. Offline, we
sell primarily recorded music through Rose Records and Tachung Records, Taiwan's
two leading music distribution chains. Online, we provide two types of Internet
access services through our cable-based broadband network and ADSL devices,
respectively. In addition, we provide content and other online services through
our Web destination.

OFFLINE - MUSIC DISTRIBUTION SERVICES AND ENTERTAINMENT PRODUCTS

         In 2002, we acquired, through GigaMedia's approximately 58%-owned
subsidiary G-Music, 100% of Taiwan's two leading music store chains, Rose
Records and Tachung Records. Rose Records operates 35 stores located throughout
Taiwan, while Tachung Records operates 15 stores in Taiwan. Stores are evenly
distributed from north to south throughout Taiwan, with approximately 377 total
employees, including 335 store employees and 42 office employees. We plan to
open three additional stores within the next 3-6 months. Together, the two music
store chains hold a dominant market position and had combined sales, post
acquisition, of approximately NT$1.9 billion in 2002. Our strong market position
enables us to leverage relationships with large international music labels, and
we expect to be able to reduce our acquisition costs in 2003 on a per unit basis
because of this factor. Results of Rose Records and Tachung Records are
consolidated from the respective closing dates of each transaction.

         Our two music store chains currently sell mostly recorded music CDs. In
addition, our music store chains also offer audio cassette products, music video
(including VCD, DVD and pre-recorded videocassettes), video games and other
complementary products (including electronics, accessories, blank tapes and
CD-Rs). We carry approximately 148 different labels in the music stores. The
recorded music market and the traditional recorded music industry in which these
companies operate have experienced a period of relative decline from 1998
through 2002, primarily due to physical piracy, CD burning/ripping, and
peer-to-peer, or P2P, applications enabling illegal downloads. However, the
market is expected to recover as Taiwan entered the World Trade Organization on
January 1, 2002 and may take more aggressive actions against physical and
virtual piracy, which was estimated to account for over 50% of total music
consumption in Taiwan in 2001. Although total market revenue for recorded music
CDs in Taiwan declined from 1998 to 2002, the combined market share of these two
leading chains increased from an estimated 40% in 2001 to approximately 45% at
the time of acquisition in 2002, leaving the third largest player with less than
approximately 5% market share.

         In addition to revenues from CD sales, our music store chains also
receive marketing/sales promotional revenue from record companies. Record
companies typically allocate a portion of their album marketing budgets as
"marketing/sales promotional revenues" to music stores in return for prominent
in-store placement of CDs and posters. Rose Records and Tachung Records received
a total amount of NT$30.4 million of such revenues, post acquisition, in 2002.

         G-Music is seeking alliances within the entertainment industry,
including partnerships with online gaming companies and KTV companies, to
enhance channel effectiveness and diversify revenues by cross-selling high
margin gaming and KTV products in G-Music stores. We therefore expect to
diversify G-Music revenues going forward. We also expect G-Music to team up with
Videoland, a Koos Group media affiliate, as its media partner going forward.

         G-Music also plans to evaluate the possibility of entering the mainland
China market by seeking alliances with local partners.

                                       20

<PAGE>

ONLINE - INTERNET ACCESS SERVICES

         We provide Internet access services through cable modems and ADSL
devices.

         ACCESS SERVICES OFFERINGS

         CABLE MODEMS. We offer our cable modem-based broadband subscribers
Internet access at transmission speeds of up to 10 Mbps, compared to 56 Kbps for
standard dial-up access. Our cable modem-based broadband access services allow
subscribers to more efficiently use (1) bandwidth-intensive multimedia
applications, such as interactive games, high-quality audio and distance
learning, and (2) electronic commerce applications, such as retailing, financial
services and online software distribution.

         Our one-way cable Internet access services, with download at 1.5Mbps
and upload at 56Kbps, are available to Internet users on either a monthly flat
rate or a metered rate.

         Our premium two-way package, targeting heavy Internet users, has speeds
of up to 6 Mbps download and 256 Kbps upload. A mid-tier package features up to
1.5Mbps download. Our basic two-way package offers the "always-on" feature and
has up to 128Kbps of download transmission speed. The basic two-way package taps
into light to intermediary Internet users and is expected to increase our market
share in the two-way access market.

         ADSL. GigaMedia's ADSL services also offer different levels of
performance from 1.5Mbps download with 384 Kbps upload; to 768 Kbps download
with 128 Kbps upload; to 512Kbps download with 512Kbps upload; and 512 Kbps
download with 64 Kbps upload. The high performance of our products is designed
to better support file sharing, video and other broadband Internet applications.
We were the first and remain the only company in Taiwan to offer ADSL services
with a standard fixed IP feature, which enables users to build their own
multimedia Web sites, participate in online meetings, set up servers and utilize
voice-over-IP. As of December 31, 2002, we had 73,573 ADSL customers, as
compared to 59,018 ADSL customers as at December 31, 2001.

         MARKETS OF ACCESS SERVICES

         RESIDENTIAL ACCESS SERVICES. We receive access fees from residential
subscribers of our broadband Internet access services. As part of our revenue
sharing arrangements with our cable partners with respect to each subscriber's
monthly access fee, we keep NT$300 of the fee and generally 55% to 65% of any
amount in excess of NT$300. We recognize our access revenues net of payments to
our cable partners.

         Our 2-way cable broadband service packages are offered at NT$1,199 for
premium service; NT$850 for a mid-tier package; and NT$699 for basic service. We
also offer selected subscribers discounts on their monthly access fees and
quarterly payment options to further promote our access services. We recognize
our revenue from access fees net of split with cable partners and these
discounts. We expect to continue to offer periods of free services and discount
promotions in 2003.

         During 2002, we offered our broadband subscribers two types of
subscription packages for 1-way cable modem access (1) a flat rate at NT$599 per
month and (2) a metered rate at NT$299 for 30 free hours plus NT$0.25 per minute
passing the 30 hour mark, or a metered rate at NT$50 for 100 free minutes plus
NT$0.5 per minute passing the 100 minute mark. Going forward, our product mix
may change in response to market dynamics.

         As more fully described below, we offered seven ADSL service options in
2002, increasing from five service options in 2001, which from time to time have
been revised for promotion purposes, including providing subscribers periods of
free Internet access service. Unlike our cable access fees, our ADSL access
revenues are not shared.

                                       21

<PAGE>

         -    The first package (1.5Mbps download and 1 fixed IP) is priced at
              NT$1,598 per month, with users paying NT$699 to us and an NT$899
              circuit fee to Chunghwa Telecom.

         -    The second package (768Kbps download and 1 fixed IP) is priced at
              NT$1,199 per month, with users paying NT$399 to us and an NT$800
              circuit fee to Chunghwa Telecom.

         -    The third package (512Kbps download and 1 fixed IP) is priced at
              NT$894 per month, with users paying NT$299 to us and an NT$595
              circuit fee to Chunghwa Telecom.

         -    The fourth package (1.5Mbps download and 8 fixed IPs) is priced at
              NT$1,294 per month, with users paying NT$599 to us and an NT$695
              circuit fee to Chunghwa Telecom.

         -    The fifth package (1.5Mbps download and 8 fixed IPs) is priced at
              NT$7,299 per month, with users paying NT$6,400 to us and an NT$899
              circuit fee to Chunghwa Telecom.

         -    The sixth package (768Kbps download and 8 fixed IPs) is priced at
              NT$3,000 per month, with users paying NT$2,200 to us and an NT$800
              circuit fee to Chunghwa Telecom.

         -    The seventh package (512Kbps download ad 8 fixed IPs) is priced at
              NT$2,399 per month, with users paying NT$1,500 to us and an NT$899
              circuit fee to Chunghwa Telecom.

         The number of subscribers of our Internet access services declined
during 2002. The table below sets forth the number of our subscribers on the
dates specified. Despite the declines in our subscribers in 2002, our access
revenues increased by 64% for 2002 as compared to that for 2001, primarily due
to more subscribers using higher specification products. We do not expect to see
significant growth in our subscriber base going forward.

<TABLE>
<CAPTION>
-------------------------------------------------------------
  Date                   Number of Subscribers
-------------------------------------------------------------
              1999         2000          2001           2002
-------------------------------------------------------------
<S>         <C>           <C>          <C>            <C>
31-Mar         369        18,630        70,437        128,946
-------------------------------------------------------------
30-Jun         687        31,489        82,200        124,919
-------------------------------------------------------------
30-Sep       5,294        47,861        99,109        112,242
-------------------------------------------------------------
31-Dec      10,548        60,288       119,130        108,016
-------------------------------------------------------------
</TABLE>

         COMMERCIAL ACCESS SERVICES. Our subsidiary KBT also receives access
fees from subscribers of high-speed Internet access services. KBT delivers
dedicated and high speed Internet access to a select group of corporate
customers over fiber optical lines. The monthly fee for this type of access
service ranges from NT$25,000 to NT$200,000, depending on the level of
bandwidth, but the fee is generally discounted by between 25% and 50% versus the
incumbent fixed line carrier.

         CONTENT AND OTHER ONLINE SERVICES

         We believe that our Web destination is a leading broadband Web
destination in Taiwan in terms of content offerings. Our Web destination has
experienced rapid increases in the number of registered members and page views
since it was launched in April 1999.

         Our Web destination offers users a wide variety of rich, multimedia
Internet content in Chinese optimized for broadband access. Our Web destination
allows users to personalize across multiple online content channels using only
one unified log-in password, which enables the users to customize their own
viewing priority and preferences. Through our network, our Web destination
delivers to users textual data, near-CD-quality audio and high-quality digital
video. In addition, our Web destination provides users with a broad range of
community services and other online services.

         CONTENT SERVICES. In 2002, we reduced our Web destination offerings
from 11 channels in 2001 to 7 channels in 2002, with a view to enhancing
margins. Our Web destination currently offers content services through the
following hyper-linked interest-specific channels:

                                       22

<PAGE>

         -    GigaTV (http://www.gigatv.com.tw), a paid video-on-demand and live
              broadcasting channel with 300 Kbps and 800 Kbps films and TV
              programs.

         -    Magic (http://www.gigigaga.com/home/magic), a paid fortune-telling
              service, operating in cooperation with the top five content
              providers in the field in Taiwan.

         -    SMS (http://sms.gigigaga.com), a paid service to deliver short
              messages, and to download ring tones and pictures from Web site to
              mobile.

         -    Shopping (http://shopping.gigigaga.com), a paid shopping service
              operated in cooperation with the top nine online shopping Web
              sites in Taiwan.

         -    Broadband Theater (http://vod.gigigaga.com), a combination of free
              and paid video-on-demand and live broadcasting channel providing
              movie films, TV programs, animation and studio films.

         -    PoPo (http://popo.gigigaga.com), a free channel for posting and
              sharing members' texts, pictures, and audio and video contents
              with communication function.

         -    Gpaper (http://gpaper.gigigaga.com), a free publishing system to
              deliver text, pictures, audio/video original content from
              reporters.

         COMMUNITY SERVICES. To enable our users to enjoy a comprehensive online
experience, our Web destination also features extensive Web-based community
services, including free electronic mail, bulletin boards and video and text
integrated chat rooms. These community services are available to all users who
are registered members of our Web destination. The registration is free of
charge, conducted online and used by us to establish a user database.

         WEB DEVELOPMENT. We started to de-emphasize this aspect of our business
in 2001. We booked no revenue from our Web development business for 2002. Going
forward, we may occasionally design and develop Web sites for selected content
providers of our Web destination and charge these partners on a
project-by-project basis. We expect the Web development revenues going forward
will continue to be immaterial to our results of operations.

         ONLINE ADVERTISING. Our Web destination commenced selling online
advertising in September 1999. We outsource some of our advertising. We earn
revenues from displaying banner advertisements and broadband sponsorship
advertisements on our Web destination and content channels. We currently charge
between NT$100 to NT$300 for each 1,000 impressions generated and pay our
advertising agents approximately one third of our gross advertising revenues for
their services. For the banner advertisement, the average sell-through rate is
at NT$15-NT$20 Cost Per Million, or CPM. We began to de-emphasize this aspect of
our business in early 2001.

CABLE NETWORK UPGRADES

         Currently, our cable partners provide one-way and two-way cable access.
Based on our close relationships with our cable partners and our understanding
of their plans, we expect two-way homes passed to remain at 560,000 households
at the end of 2003. Our cable partners need to obtain additional licenses in
order for us to provide two-way cable services through their systems.

         We currently serve our broadband subscribers through one-way and
two-way cable systems. For one-way cable access, the subscriber pays its
telephone company for the telephone line supporting the upstream data sent from
the subscriber's personal computer to the Internet. We commenced two-way
Internet access services in mid-October of 2000 and as of December 31, 2002
provided two-way broadband cable services to 17,308 subscribers. Through two-way
cable systems, we provide subscribers with higher upstream transmission speeds
and "always on" Internet access capabilities, eliminating the time consuming
dial-up procedures. Additionally, unlike standard dial-up access, the high
bandwidth nature of cable in two-way cable systems will allow our subscribers to
maintain full use of their telephones and televisions while online. Another
advantage of two-way cable systems is that subscribers do not need to pay
telephone line charges to access the Internet.

OUR BROADBAND NETWORK

                                       23

<PAGE>

NETWORK STRATEGY

         Our network strategy is to provide a flexible, scalable design that
allows us to optimize performance to the subscribers while achieving operating
cost efficiencies.

         MOVING DATA CLOSER TO THE SUBSCRIBERS. A central strategy in our
network design is to move data closer to our subscribers to significantly reduce
service response time and backbone bandwidth requirements, which directly
translates into better subscriber experiences and cost efficiencies. To achieve
this, we have adopted a hierarchical, distributed network architecture with
proprietary caching and replication technologies to ensure that the information
a subscriber wants is always as close as possible within the network. By moving
data closer to our subscribers, we overcome the Internet network's duplicative
data transfer problem that generates redundant traffic flow, which adversely
affects network performance. For example, when a subscriber downloads a video
clip from a Web site, the subscriber must "pull" data across the Internet from
that Web site to the subscriber's Internet service provider and finally to the
subscriber's computer. If the subscriber's neighbor requests the same video clip
from that Web site, the neighbor must pull the same data across a similar path.
In contrast, because each Web site's Internet content is updated at a fixed time
interval, our practice is to transmit the content requested by subscribers in a
particular area over our high-speed backbone only once in that time interval and
retain it in that area, which is commonly known as "caching", where it can be
accessed by every subscriber within that area without re-transmission over the
backbone. In addition, we use our replicating technology, which duplicates
information to multiple data centers, to transmit video content and other types
of content that require high bandwidth to each of our regional data centers when
the Internet traffic is not busy. This not only moves data closer to our
subscribers but also better enables us to maintain bandwidth efficiency within
our network.

         END-TO-END NETWORK MANAGEMENT. We achieve end-to-end network management
through our proactive network quality, service and performance management
systems. This central management allows us to quickly and efficiently identify
and enhance network quality, service and performance and enhances our ability to
remedy network problems and eliminate performance bottlenecks before they
adversely affect our subscribers. Our end-to-end management covers our whole
network: the backbone and Internet connections, regional data centers, cable
headends, servers and other components of the network infrastructure that link
to the subscriber's home.

         SCALABILITY. Our network is designed to be scalable to handle
increasing numbers of subscribers without any adverse effects on performance or
requiring any costly system-wide expansion. As subscriber penetration increases,
our cable partners have multiple cost-effective alternatives to increase
capacity, including allocating additional 6MHz channels in existing nodes for
our service or reducing the number of subscribers sharing a given bandwidth by
installing additional nodes, with each node serving a smaller number of
subscribers over the same fiber-optic infrastructure. Each node installed by our
cable partners generally is capable of carrying up to 33 6MHz channels. We also
maintain an automated system that allocates users among all of our available
6MHz channels to achieve a load balance, which maximizes bandwidth utilization.
Our scalable data center design also allows us to quickly and cost effectively
install additional servers at our regional data centers and at our cable
partners' cable headends to enable us to serve a greater number of subscribers.

         NETWORK REDUNDANCY. Most aspects of our network are redundant to
protect service quality. For instance, it is our policy to maintain a number of
routers, which receive and transfer data in segments, servers, switches, which
select the paths or circuits to be used in the transmission of information,
cable headends and other network components that significantly exceeds the
number required to allow full usage of our network by our subscribers. Our core
network devices are configured in a redundant auto-recovery architecture such
that if any of our network device fails, our network will automatically adjust
itself around those failure points without affecting the user experience. The
backbones of KGEX, a subsidiary of KG Telecommunications, Chunghwa Telecom, and
Sparq, our backbone providers, also have redundant features. In addition, we
have established connections to international Internet backbones through a
direct trans-Pacific submarine cable STM-4 link and another shared link operated
by Asia NetCom, or ANC. The establishment of these direct links is intended to
ensure that our access to these backbones would not be disrupted even if our
existing links

                                       24

<PAGE>

fail. We also set up our second network operation center, or NOC2, in May 2000,
which we moved into a co-location facility of KGEX during 2001.

CABLE AND ADSL NETWORK COMPONENTS

         The primary components of our cable broadband network are our network
operations center, regional data centers, Internet backbone and Internet
connections, cable headends, subscriber connections and cable modems. We provide
cable broadband access by first connecting our subscribers through our cable
partners' hybrid fiber-coaxial networks to our cable headends. Each cable
headend is connected to one of our regional data centers via our own fiber ring
or high speed data-link leased from KGEX, Sparq or Chunghwa Telecom. The
regional data centers are linked via a leased synchronous digital hierarchy, or
SDH, network to our network operations center, where Internet traffic is routed
to various domestic and international networks.

         The primary components of our ADSL broadband access network are our
network operations center, regional data centers, Internet backbone and Internet
connections, Broadband Remote Access Servers, or BRAS, and a telecommunications
Asynchronous Transfer Mode, or ATM, network. We provide ADSL access by
connecting our subscribers through an ATM network, which is currently provided
by Chunghwa Telecom. Chunghwa Telecom provides ADSL modems to our subscribers,
connects them to Chunghwa Telecom's ATM network, and finally aggregates them in
DS3 or STM-1 telecom lines into our BRAS at our regional data centers. Each ATM
DS3 connection can aggregate up to 2,000 subscribers and up to 4,000 subscribers
for STM-1 connections. The regional data centers are linked via a dedicated
leased line to our network operations center, where Internet traffic is routed
to various domestic and international networks.

         NETWORK OPERATIONS CENTER. We provide centralized network management
through our network operations center, which represents the nerve center of our
whole network. Our center uses advanced proprietary network management tools and
systems to monitor the network infrastructure 24 hours a day, seven days a week,
enabling us to effectively address network problems before they adversely affect
our subscribers. Our network operations center monitors two real-time network
management systems: the fault management system and the traffic management
system. The fault management system monitors the performance of all components
and links of the network to ensure that they operate properly. When a fault is
detected, an alarm is set off in the center and engineers either correct the
problem from the center or dispatch maintenance staff to the site. The traffic
management system is a self-correcting system with pre-set re-routing
capabilities. If traffic is congested along a particular trunk line, the system
will automatically re-route the traffic by another route, thereby assuring
consistently high performance.

         REGIONAL DATA CENTERS. Our regional data centers are connected to our
network operations center through multiple high speed links in an SDH network.
These centers act as service hubs for defined geographic areas and:

         -        provide key community services, including electronic mail,
                  usenet news and personal Web hosting, to subscribers;

         -        manage network performance;

         -        replicate content and applications; and

         -        provide a cost-efficient infrastructure to cache data.

         To improve the speed of the local network and to balance demands on the
backbone facilities, we also utilize caching technologies in the regional data
centers. By employing high-performance caching servers that store frequently
accessed content locally, we are able to reduce the amount of data transmission
and corresponding transport costs by as much as 70%. In addition, local caching
servers can compile far more comprehensive usage data than is normally
attainable on the Internet, which facilitates our usage analysis,

                                       25

<PAGE>

network troubleshooting and performance tuning. We currently have regional data
centers in four geographic areas, covering the major urban areas in Taiwan.

         CABLE HEADENDS. We install servers, routers, cable routers, switches
and other network devices in each cable headend and connect each headend to one
of our regional data centers through our own high-capacity digital lines or high
speed data-link leased from KGEX, Sparq or Chunghwa Telecom. Our redundant
network architecture allows the equipment in the cable headends to function even
if some of the connections to the regional data centers are disrupted. Our major
suppliers of cable headend equipment include 3Com and Cisco.

         SUBSCRIBER CONNECTIONS. The last leg of our cable network connection is
from our cable headend to the subscriber over our cable partner's cable system.
Our cable partners' hybrid fiber-coaxial networks, containing multiple fiber
optic lines, transmit data from our cable headends out to cable nodes in each
neighborhood and then connect through traditional coaxial cable to our
subscribers' homes. Each of these nodes currently provides one-way service to
between 6,000 and 12,000 homes, and two-way service to approximately 500-1500
homes.

         CABLE MODEMS. A cable modem connects to cable television coaxial wiring
and attaches to the subscriber's personal computer via standard Ethernet
connections, which support data transfer rates of up to 10 Mbps. While peak data
transmission speed of a cable modem depends on the specific model and can
approach 10-38 Mbps downstream to the subscriber and up to 1.2 Mbps upstream,
the performance that subscribers actually experience is often constrained by the
capacity of their personal computers and the performance of the Web servers. We
currently use cable modems manufactured by 3Com, ASKEY and General Instruments,
which we either sell or rent to the subscribers.

         The North American cable industry has adopted a set of interface
specifications, known as "DOCSIS", for hardware and software to support
cable-based data delivery using cable modems. All of our systems use DOCSIS
compliant equipment. We expect that DOCSIS specifications will make lower cost
cable modems more readily available in the retail market in the future and have
seen a price drop of approximately 70% in cable modems since 2000. We expect
that these developments will:

         -        save us the cost of purchasing and installing cable modems for
                  subscribers;

         -        increase demand for our services; and

         -        lead to a loss of revenue from cable modem sales and rentals.

                                       26

<PAGE>

         DATA BACKBONE. Our high performance, dedicated and redundant backbone
network connects all of our regional data centers and the network operations
center using multiple DS-3/STM-1/STM-4 lines, which are dedicated phone
connections supporting data rates of about 45/155/622 Mbps, leased from KGEX,
Sparq, Chunghwa Telecom and our own high speed fiber optic lines. We have
designed a scalable network architecture that seeks to take advantage of the
existing high speed data backbone operated by KGEX, Sparq and Chunghwa Telecom.
Those backbone networks are fully redundant and fully meshed, and its SDH
infrastructure supports speeds of up to 622 Mbps. We have also deployed
redundant links among our regional data centers to ensure transmission
continuity. The diagram below illustrates our data backbone network.

[DATA BACKBONE NETWORK DIAGRAM]

         Ongoing privatization of the telecommunications market by Taiwan's
government has expanded the number of telecommunications operators. Including
Chunghwa Telecom, there are currently four fixed-line telecommunications
operators in Taiwan. We have switched a portion of our backbone networks from
Chunghwa Telecom to KGEX and Sparq for their better service capacity and lower
cost. It is our policy to continually monitor the usage pattern and adjust the
network architecture in order to optimize the user experience and service
economics.

         PEERING AND INTERNET CONNECTIONS. Peering relationships among Internet
service providers have become the most effective solutions to resolve the
problems of packet loss and latency resulting from the significant traffic
volume through Internet networks. We have peering arrangements with each of
Taiwan's major networks and Internet service providers, providing us with what
we believe to be the most comprehensive Internet connections in Taiwan.
According to Taiwan Network Information Center, or TWNIC, Gigamedia had the best
aggregate peering bandwidth among all commercial organizations in Taiwan as of
June 20, 2003. Our extensive peering arrangements have enabled us to route most
of our traffic over the less congested private peering links, through which we
passed most of our traffic in 2001 and 2002. This enhances the efficiency of our
network and allows us to provide better, faster access services to our
subscribers.

                                       27

<PAGE>

         Through our peering arrangements with several Internet service
providers and networks, we currently connect to Taiwan's Internet backbone from
our network operations center. We have installed direct Internet connections at
each of our regional data centers to minimize backbone traffic flow and to
provide Internet connection redundancies. We currently connect to the
international Internet backbones through a direct trans-Pacific submarine cable
link and a shared link operated by ANC. As the competition in the trans-Pacific
submarine cable segment provides better price economics, we are able to
significantly increase our bandwidth without incurring additional cost. In 2002,
we upgraded our infrastructure from one STM-1 connection to two STM-4
connections to provide faster connections.

INFORMATION SYSTEM

         We have established a versatile, real-time information system that
integrates service provisioning, customer management, billing, data gathering
and usage tracking functions. Our information system enables us to accomplish
the following:

         -        Enhance Customer Service. Our information system's customer
                  management feature allows subscribers to modify their personal
                  information, query their billing records and acquire
                  additional services online or by telephone, each on a
                  real-time basis. Our real-time, interactive customer services
                  enable us to quickly respond to our customers' needs and
                  requests, which helps us to attract new subscribers and
                  maintain our existing customers.

         -        Minimize Subscriber Acquisition Cost. Our information system
                  enables us to remotely assist new subscribers to speedily and
                  conveniently install cable modems at their homes or offices
                  without any engineers onsite, thereby reducing our cost.

         -        Offer a Broad Range of Services. Our information system is
                  capable of aggregating payments for a variety of services
                  provided by us or our partners through our Web destination,
                  including access, content, download and pay-per-view services.
                  This enables us to offer a wide variety of content and other
                  online services as well as bundled services to our subscribers
                  without reducing our ability to accurately and timely bill
                  subscribers for these services. Our information system's
                  ability to aggregate payments also minimizes the number of
                  bills our subscribers receive for access and online services,
                  which is more convenient for subscribers. Our scalable
                  information system allows us to quickly and efficiently
                  integrate data and information regarding any new services and
                  their users into our existing database.

         -        Expand Our Capacity Quickly and Efficiently. Our information
                  system consists of a series of multiple processing layers,
                  each layer being independent of the other. Under this
                  multi-layer architecture, when the increases in user,
                  subscriber or service data require an expansion of our
                  information system's capacity, we can quickly meet this
                  requirement by expanding the capacity of one layer without
                  affecting the other layers' performance. This structure also
                  reduces our need to conduct costly system-wide upgrades in
                  order to expand our information system's capacity.

         -        Maintain Efficiency in Our Network. Our information system
                  provides our network staff with extensive, real-time
                  information on each of our subscribers' Internet usage
                  patterns, which enables them to effectively estimate expected
                  network usage for any particular region at various times of a
                  day. With these estimates our network staff can better
                  optimize the use of our network's bandwidth capacity and
                  maintain its efficiency.

INTEGRATED CONTENT PLATFORM AND TECHNOLOGIES

         Our Web destination provides an integrated content platform,
complemented by comprehensive technological support, to our content providers.
We believe that our integrated platform and technological support enhance our
ability to attract leading international and local content companies to enter
into alliances with us.

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<PAGE>

CONTENT PLATFORM

         Our integrated content platform is comprised of modularized, or
separable, units. We have designed these modularized units so they can be easily
shared across Web sites yet tailored to the specific needs of each content
provider. This enables us to provide a wide range of application services to
content providers to minimize their efforts in developing and managing Web
sites. Our services include:

         -        user community services;

         -        membership management;

         -        personalization of content to users;

         -        real-time access control;

         -        usage tracking; and

         -        comprehensive billing services.

CONTENT TECHNOLOGIES

         We seek to provide content providers with advanced content publishing
technologies that enable them to fully utilize the benefits of our broadband
infrastructure and deliver sophisticated multimedia Internet content quickly to
users. Our proprietary content publishing technology infrastructure is comprised
of the following advanced technology building blocks:

         -        Multipoint Replication. This technology replicates content
                  provided by our partners for distribution to our various
                  regional data centers. This arrangement accelerates the
                  transmission access speed to our and our content partners'
                  co-branded Web sites. Utilizing our replication technology, we
                  can effectively manage and distribute multimedia content such
                  as textual data, video, audio and photographs over our
                  network.

         -        Multicasting. This technology enables transmission of
                  high-bandwidth content from one source to multiple receiving
                  points on an ongoing basis without occupying substantial
                  bandwidth, thereby maintaining network efficiency. Currently,
                  we use multicasting technology to continuously update headline
                  and financial audio news and event broadcasting as well as
                  animated or video-based advertisements provided by our content
                  partners.

         -        Automated Content Publishing System. Our automated content
                  publishing system includes three components: Web-based
                  editorial interface, content production and content
                  deployment. This automated system allows us to minimize
                  personnel costs while maintaining an effective and efficient
                  publishing process. Our Web-based editorial interface
                  automatically arranges the content provided by our content
                  providers into appropriate categories and format, which helps
                  our editors to create submission templates and approve
                  content. Content production submits all editor-approved
                  content to our servers to undergo automated testing and
                  qualification processes, including stress testing to examine
                  the impact of distributing the content on our network's
                  performance. Once the content has been tested and qualified,
                  it is deployed by content deployment to regional servers
                  located in our regional data centers.

SALES AND MARKETING

         OFFLINE-MUSIC DISTRIBUTION BUSINESS. We plan to minimize sales and
marketing costs going forward by utilizing strategic partners and limiting
initiatives to methods proven cost effective, such as newspaper advertisements.
Our sales and marketing force is made up of approximately 345 full-time staff.
We primarily use the following means to market our services:

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<PAGE>

         -        Store autograph signing events with music artists;

         -        Web-based banners;

         -        Internet newsletters; and

         -        special concert events.

We expect our sales and marketing efforts over the next 12 months to remain flat
or slightly decrease as a result of tighter expense controls and cross marketing
initiatives.

         ONLINE-ACCESS SERVICES. We plan to continue utilizing bundled marketing
with our strategic partners to minimize costs. Our sales force is made up of
approximately 14 full-time staff. We primarily use the following means to market
our services:

         -        television, magazine and newspaper advertisements;

         -        Web-based banners;

         -        Internet newsletters;

         -        inserts in cable television guides;

         -        participation in computer, technology and telecommunications
                  tradeshows;

         -        free trial promotions through waiving monthly access fees for
                  one or two months; and

         -        demonstration centers in computer superstores and other
                  locations.

         We expect our sales and marketing efforts over the next 12 months to
remain flat or slightly decrease as a result of tighter expense controls and
cross marketing initiatives.

PRODUCT DEVELOPMENT AND ENGINEERING

         Our product development and engineering efforts focus on design and
development of new technologies and products to increase the speed and
efficiency of our broadband network architecture and to facilitate the
development and distribution of broadband content and service applications.

         NETWORK

         Our product development and engineering efforts with respect to our
network focus on:

         -        enhancing transparent caching and replication techniques to
                  improve network performance and efficiency;

         -        enhancing our advanced network management capabilities to
                  identify and address network performance issues before they
                  adversely affect our subscribers; and

         -        developing virtual private network technology solutions to
                  enable secure and scalable end-to-end commercial
                  telecommunications services over our network.

         INFORMATION SYSTEM

         Our product development and engineering efforts with respect to our
information system focus on:

                                       30

<PAGE>

         -        enhancing our real-time billing system and our ability to
                  provide micro-payment, consolidated billing, electronic bill
                  presentment and collection services;

         -        deploying workflow automation systems to streamline business
                  processes; and

         -        integrating system and network data into an enterprise-wide
                  data warehouse to perform detailed analysis on user profiles.

         CONTENT INFRASTRUCTURE

         Our product development and engineering efforts with respect to our
content infrastructure focus on:

         -        developing a modularized content publishing platform to
                  facilitate development of broadband content;

         -        developing customized browsers, Internet applications and
                  tools that integrate our content offerings to enhance each
                  user's broadband experience;

         -        enhancing our automated publishing and content management
                  system to further simplify broadband content development and
                  distribution; and

         -        advancing multicasting technologies to provide efficient
                  transmission of content.

CUSTOMER SERVICE AND BILLING

         We provide our subscribers with a comprehensive range of customer
service, including assistance on cable modem installations, continuous
post-installation technical support and prompt responses to billing and service
requests.

         Our customer service department is divided into two groups: technical
support and general customer service. Our customer service department operates a
toll-free help desk with extended hours of operation to provide customer
service. Our subscribers may also contact us via electronic mail or through
accessing our interactive Web site. Our general customer service staff assist
subscribers with cable modem questions and problems, as well as basic computer
and software configuration questions and billing inquiries. Our technical
support group handles technical problems referred by the general customer
service staff.

         We typically prepare and mail the bill for our services, which we send
to the subscriber under our own name and logo on a monthly basis. We offer our
subscribers a wide variety of payment options, including automatic credit card
payments, direct debits from their bank accounts and post office saving
accounts, pre-payment or over-the-counter payment at postal offices. We also
seek to provide detailed information on the bills to enable our subscribers to
obtain all relevant information relating to their services in an
easy-to-understand manner.

INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

         While we regard our intellectual property and proprietary rights as
important, we believe that our future success is dependent primarily on the
innovative skills, technological expertise and management abilities of our
employees rather than on patent, copyright and trademark protection, and,
accordingly, we do not consider any particular intellectual property or
proprietary right to be material to our business.

COMPETITION

         MUSIC DISTRIBUTION BUSINESS. The music distribution business in Taiwan
is fragmented and consists of music store chains, including the two music store
chains we acquired in 2002, and many mid- to small-size music stores and
distribution channels. We also compete with music distribution channels that
employ modern

                                       31

<PAGE>

technology, such as online download and streaming, which enjoy lower inventory
and distribution costs. In addition, the prevalent practice of physical and
virtual piracy in Taiwan presents a continuing threat to the growth of the music
distribution industry in Taiwan. Further, some of our larger competitors have
exclusive distribution arrangements with music label companies and the operation
of these arrangements prevent us from distributing certain popular music
products. Our principal competitors in this industry include Asia Record, Guan
Nan Record and Carrefour.

         ACCESS SERVICE

         The Internet access service industry is highly competitive.

         We compete with other broadband technologies, including integrated
services digital networks, wireless and satellite data services. We believe that
our access services have both technological and cost advantages over these
alternative broadband means.

         We also compete with narrowband Internet service providers, which
provide basic Internet access to residential and commercial users, generally
using existing telephone networks. Chunghwa Telecom is our major competitor in
this market. Although these services are widely available and less expensive,
they fail to offer the various advantages of broadband access.

         In the cable-based Internet access market, we believe that our close
relationships with a large number of cable partners and our exclusive access to
a substantial portion of Taiwan's households and businesses provide us with a
competitive advantage. We also believe that we are one of the leading
cable-based broadband Internet access service providers in Taiwan in terms of
subscribers. Our competitors in this market include Eastern Multimedia Group,
SeedNet and Taiwan Broadband . In the ADSL access market, we compete with HiNet,
SeedNet, APOL and Sparq.

         Some of our major competitors, including Chunghwa Telecom, have
advantages over us in terms of financial and marketing resources, established
customer relationships, brand awareness, customer access and telecommunications
infrastructure. However, we believe that we have competitive advantages over
Chunghwa Telecom and other traditional narrowband access service providers in
terms of transmission speed and ease of access and use.

         We believe that we have competitive advantages over other broadband
access service providers in terms of:

         -        customer access;

         -        reliability of service; and

         -        customer support.

         CONTENT SERVICES

         The content service market is also very competitive.

         Our Web destination competes with various Internet content providers of
different categories of content services, including

         -        Chinese-language Web destinations and portals such as Yahoo!
                  Kimo, China.com, Sina.com, Chinatimes, Yam, HiNet, and Sohu;

         -        English language Web search and retrieval companies such as
                  Terra Lycos, Yahoo! and Microsoft Network; and

                                       32

<PAGE>

         -        retrieval services and products offered by companies such as
                  AltaVista, HotWired Venture's and Inktomi's HotBot, OpenText
                  and Openfind.

         A number of major traditional narrowband content providers, including
Yahoo!Kimo and Sina.com, have competitive advantages over us in terms of:

         -        brand awareness;

         -        user access; and

         -        financial and marketing resources.

         However, we believe that our Web destination's ability to provide a
wide variety of multimedia content optimized for broadband access and Taiwanese
users enhances our destination's competitiveness in Taiwan's content service
market. We also believe that our Web destination is a leading broadband Web
destination in Taiwan in terms of content offerings. Broadband content enables
us to increase subscribers.

REGULATIONS

TELECOMMUNICATIONS REGULATION IN TAIWAN

         The Ministry of Transportation and Communications and the Directorate
General of Telecommunications of Taiwan regulate Taiwan's telecommunications
industry primarily under the Telecommunications Law of Taiwan.

         The Telecommunications Law authorizes the Directorate General of
Telecommunications to regulate two types of telecommunications companies, Type I
operators and Type II operators. Type I operators, such as Chunghwa Telecom, are
enterprises that have established their own switching and transmission
facilities to provide telecommunications services. These facilities-based
services are similar to common carrier services or basic services in the United
States. Type II operators, such as Hoshin Gigamedia, comprise all
telecommunications operators other than Type I operators, including companies
which generate fees from providing Internet access, online information,
electronic mail and electronic commerce services.

         REGULATION OF TYPE II OPERATORS. Type II operators typically provide
telecommunications services to customers by using the telecommunications
facilities of Type I operators and are not permitted to engage in the buildup of
telecommunications facilities.

         - 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.

         - Tariff Regulation. Type II operators are required to establish
tariffs for major rates and charges. These tariffs and any changes must be filed
with the Directorate General of Telecommunications 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, some changes in business plans of a Type II
operator, including its systems plans, linkup plans with foreign value-added
network service providers and numbering plans for data or broadband
communications, must be approved by the Directorate General of
Telecommunications. In addition, Type II operators must report to the
Directorate General of Telecommunications and inform their customers in advance
of any plan to suspend or terminate any of their businesses.

         - Technical Standards. Type II operators are required to retain
qualified senior telecommunications engineers to install and maintain
telecommunications equipment. Any telecommunications equipment used

                                       33

<PAGE>

by a Type II operator must also satisfy technical standards adopted by the
Directorate General of Telecommunications.

         REGULATION OF TYPE I OPERATORS. Type I operators are more heavily
regulated than Type II operators, and the government of Taiwan has broad powers
to limit the number of operators and their business scope and markets. Under the
Telecommunications Law, Type I operators must satisfy required levels of capital
adequacy and, to ensure that they meet their facilities rollout obligations, are
subject to pre-licensing merit review of their business plans and tariff rates.
In addition, the Telecommunications Law prescribes that any adjustment to the
tariff rates of a Type I operator is subject to a price cap set according to the
coefficient of the annual fluctuations of the consumer product index promulgated
by the Directorate General of Budget, Account and Statistics under the Executive
Yuan of Taiwan.

         LIBERALIZATION OF TYPE I FIXED NETWORK LICENSING. The Directorate
General of Telecommunications has adopted Fixed Network Regulations to govern
the issuance of fixed network communication licenses. Type I fixed network
communications licenses are subdivided into comprehensive network, local
network, long distance network, international network and lease-circuit
licenses. These new regulations have been designed to grant additional
comprehensive network licenses to encourage competition with Chunghwa Telecom,
which is a state-owned company and currently the dominant fixed-line network
operator in Taiwan.

         CONTENT LIABILITY. In the event that the content sent, transmitted or
received via the Internet through an operator's system is found to be obscene,
defamatory or in violation of public order or national security, the relevant
operator would be liable for the content only if it knew or should have known
that the content is obscene, defamatory or in violation of public order or
national security. In addition, carriers must provide telecommunications
services on a fair and equal basis and may not refuse to receive or transmit
telecommunications information unless the content would endanger the national
security or offend against the public order of Taiwan.

CABLE REGULATION IN TAIWAN

         REGULATION ON SHAREHOLDING. Respectively in 2000 and 2001, the Cable
Television and Broadcast Law has been modified. Under the modified regulations,
the original regulation of "a single shareholder cannot own more than 10% of the
total issued shares of a cable operator", and "no shareholder and its related
parties may collectively own more than 20% of a cable operator's total issued
shares" has already been eliminated. Instead, the shares of a cable operator
directly or indirectly held by foreign shareholders cannot exceed sixty (60)
percent of all outstanding shares of the cable operator. Furthermore, foreign
shareholders who directly hold shares of a cable operator are limited to foreign
corporations and the total shares held by them cannot exceed twenty (20) percent
of all outstanding shares of the cable operator.

         OPERATING LICENSES. To obtain an operating license, a cable operator
must first apply for a rollout permit. After receiving this permit, the cable
operator generally has three years to complete the cable system rollout as set
forth in its permit application. Upon the satisfactory completion of the
rollout, the Government Information Office will issue an operating license to
the cable operator. If the cable operator has not received an operating license
before its rollout permit expires, its right to engage in the cable television
business will be terminated immediately.

         The term of an operating license is nine years. A review committee
established by the Government Information Office conducts periodic review of the
performance of each licensed cable operator on the basis of its business and
operating plans every three years. Following a review, a licensed cable operator
may be instructed by the Government Information Office to make requested
improvements in its business within a specified period. A failure to timely
comply with the instruction could result in revocation of the cable operator's
license.

         MARKET SHARE LIMITATIONS. Under the Cable Television and Broadcast Law,
the number of subscribers of all affiliated cable operators may not exceed
one-third of the total number of cable television

                                       34

<PAGE>

subscribers in Taiwan. In addition, the number of all affiliated cable operators
may not exceed one-third of the total number of all cable operators in Taiwan.

         COMPETITION. Under the Cable Television and Broadcast Law, the
Government Information Office is authorized to issue additional licenses in a
franchised area if it believes that the existing license holders in that area
are engaging in anti-competitive or unfair competition practices. In addition,
service fees charged by cable operators must be approved by local government
authorities on an annual basis.

         OPEN ACCESS REGULATION. Under the Fixed Network Regulation described
above, cable operators must obtain leased-circuit licenses issued by the
Directorate General of Telecommunications in order to lease their circuits to
companies that provide services through their cable systems. The Directorate
General of Telecommunications began to accept applications for these licenses
from cable operators in June 1999 but has not yet issued any leased-circuit
licenses to cable operators. As a condition to holding these licenses, any
licensed cable operator that is deemed to be a dominant leased-circuit carrier
may be required by the Directorate General of Telecommunications to allow all
parties to provide services, including Internet access services, through their
cable systems on substantially similar terms. Any imposition of this requirement
from the Directorate General of Telecommunications on the cable partners having
exclusive relationships with us will eliminate the benefits associated with our
exclusive rights.

C.       ORGANIZATION STRUCTURE

         We are a holding company incorporated in Singapore in September 1999.
Prior to 2002, our primary business was to provide broadband Internet access
services in Taiwan. After we acquired Taiwan's two largest music store chains,
Rose Records and Tachung Records in 2002, we became a diversified provider of
music products and Internet access services in Taiwan. The table below sets
forth for each of our principal subsidiaries, the name, year and country of
incorporation and our percentage holding and principal activities as of May 31,
2003:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
      Entity             Year of              Place of            Our Percentage Holding   Principal Activities
                      Incorporation   Incorporation/Operation
----------------------------------------------------------------------------------------------------------------
<S>                   <C>             <C>                         <C>                      <C>
Hoshin GigaMedia          1997                Taiwan                      100%             Cable based broadband
Center Inc.                                                                                and ADSL Internet
                                                                                           access services and
                                                                                           Internet content
                                                                                           services and other
                                                                                           online services
----------------------------------------------------------------------------------------------------------------
GigaMusic.com Ltd.        2001         Cayman Islands/Taiwan               95%             On-line music
                                                                                           distribution

----------------------------------------------------------------------------------------------------------------
G-Music Limited           2002         Cayman Islands/Taiwan               58%             Offline music
                                                                                           distribution

----------------------------------------------------------------------------------------------------------------
Koos Broadband            2001                Taiwan                     99.9%             Broadband Internet
Telecom Limited                                                                            access services
                                                                                           targeting business
                                                                                           clients

----------------------------------------------------------------------------------------------------------------
</TABLE>

D.       PROPERTY, PLANT AND EQUIPMENT

         Our principal executive office and operating office are located at 122
TunHua North Road, Taipei, Taiwan, where we lease approximately 21,000 square
feet. We also lease office and other space, as well as space for our servers, in
various other locations in Taiwan. In addition, we operate from G-Music offices
at 10F, No. 171, Chen-Kung Road, Sanchung City, in Taipei County where we lease
approximately 7,100 square feet. We believe our existing facilities are adequate
for current requirements and that additional space can be obtained on
commercially reasonable terms to meet future requirements.

                                       35

<PAGE>

ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS

A.       OPERATING RESULTS

         Unless stated otherwise, the discussion and analysis of our financial
condition and results of operations in this section apply to our financial
statements as prepared in accordance with U.S. GAAP. You should read the
following discussion of our financial condition and results of operations
together with the financial statements and the notes to these statements
included elsewhere in this annual report.

OVERVIEW

         We are a holding company and through several subsidiaries distribute
recorded music and provide broadband Internet access services and online
entertainment services in Taiwan. Our core offline music business is operated
through our subsidiary G-Music Limited, which controls Taiwan's two largest
music store chains. Prior to 2002, our primary business was to provide broadband
Internet access services in Taiwan. Since we did not acquire the two music store
chains until 2002, our historical financial results prior to year 2002 did not
reflect the financial results of either of these music store chains. Currently
we are streamlining the operations of the two music store chains. We may incur
additional costs in connection with our consolidation of these two music store
chains into our current operations, which costs may result in the requirement of
additional liquidity and/or negative impact on our financial condition and
results of operations. Our online broadband businesses are operated through our
subsidiary Hoshin GigaMedia, and Hoshin GigaMedia's subsidiary KBT, which are
focused on consumer and corporate users, respectively.

         Offline, we operate Taiwan's two largest music store chains, Rose
Records and Tachung Records, through our subsidiary G-Music. These businesses
were acquired in February and September of 2002, respectively, and together hold
approximately 50% current market share in Taiwan.

         Online, we operate a leading broadband ISP via our subsidiary Hoshin
GigaMedia, which provides Internet access service and broadband content with
multiple delivery technologies. Our access products consist of premium cable
modem and ADSL offerings, giving us the ability to deliver superior broadband
connections island-wide. Our cable modem is a world-class platform capable of
offering broadband Internet access at speeds of up to 100 times faster than
traditional dial-up services. With 20 cable system partners, our cable modem
business passes more than 3.1 million Taiwan households, as well as 417,000
small and medium businesses. In addition, we offer interactive Chinese-language
multimedia Web sites through our Web destination http://www.gigigaga.com.

         In addition, another subsidiary of our company, Koos Broadband Telecom
Limited, or KBT, provides broadband service exclusively to corporate customers.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

         The discussion and analysis of our financial condition and results of
operations are derived from our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States of America, or U.S. GAAP. The preparation of these financial
statements requires our company and our subsidiaries to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses, and the related disclosure of contingent assets and liabilities.
We continually evaluate our estimates and assumptions, which are based on
historical experience and other various factors that we believe are reasonable
under the circumstances. The results of these estimates and assumptions form the
basis for making judgments about the carrying values of certain assets and
liabilities. Our actual results could differ significantly from those estimates
under different assumptions and conditions. We believe that the following
discussions address the most critical accounting policies applicable to our
company, which are those that are most important to the portrayal of the
financial condition and results of operations of our company, and require
management's most difficult, subjective and complex judgments, often as a result
of the need to make estimates about the effect of matters that are inherently
uncertain.

                                       36

<PAGE>

ACQUISITION PRICE

         During 2002, we acquired Taiwan's two leading music store chains, Rose
Records and Tachung Records for approximately NT$638.9 million (NT$418.3 million
in cash, NT$88.0 million of which was not paid and recorded as other current
liabilities as of December 31, 2002, and NT$220.6 million in the form of shares
in G-Music). In the absence of a quoted market price for the shares of G-Music
issued as a portion of the consideration for the acquisitions of Rose Records
and Tachung Records, the acquisition price of these music store chains is
determined based on management's estimates for fair value of acquired net
assets, including goodwill and amortizable intangibles. The actual value of such
acquired net assets may differ significantly from management's estimates.

REVENUE RECOGNITION

         For 2002, our revenue was primarily generated from retail sales of
offline music merchandise comprised of prerecorded music (including compact
discs and audio cassettes), video (including DVD and prerecorded
videocassettes), video games and other complementary products (including
electronics, accessories, blank tapes and CD-Rs). Revenue from these retail
sales is recognized at the point of sale to the consumer, at which time payment
is tendered. There are no provisions for uncollectible amounts since payment is
received at the time of sale.

         In addition, we also record revenues from Internet access services, as
well as fee-based services, which mainly include subscription services for
videostreaming and paid email services. Such revenues are recognized in the
period in which the service is performed, if no significant company obligations
remain and collection of the receivables is reasonably assured. We contract with
third party content providers for certain services related to subscriptions
transmitted to our users and record the fees charged by the third parties as
cost of revenues.

MERCHANDISE INVENTORY AND RETURN COSTS

         Inventory is stated at the lower of cost or market value with cost
being determined by the weighted average cost method and market value being
determined by net realizable value. As with any retailer, economic conditions,
cyclical customer demand and changes in purchasing or distribution can affect
the carrying value of inventory. As circumstances warrant, we record the lower
of cost or market value, or LCM, as inventory adjustments. In some instances,
these adjustments can have a material effect on the financial results in an
annual or interim period. In order to determine such adjustments, we evaluate
the age, inventory turns and estimated fair value of merchandise inventory by
product category and record any adjustment if estimated market value is below
cost. Through merchandising and other initiatives, we attempt to take the steps
necessary to increase the sell-off of slower moving merchandise to eliminate or
lessen the effect of any LCM adjustments. We are entitled to return merchandise
purchased from major vendors for credit against other purchases from these
vendors within one month. These vendors often reduce the credit depending on the
type of merchandise being returned. We record actual and estimated merchandise
return charges in cost of sales.

         Inventories as of December 31, 2002 were mainly acquired through the
business combinations of Rose Records and Tachung Records, and were stated at
fair value at the acquisition dates. Therefore, no additional reserve is
considered necessary.

ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE

         Allowance for doubtful accounts receivable is provided based on
evaluations of collectibility, aging analyses of the accounts receivable and
management's judgment. A considerable amount of judgment is required in
assessing the ultimate realization of these receivables, including the current
credit-worthiness and the past collection history of each customer. If the
financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowance may be
recorded.

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<PAGE>

FIXED ASSETS AND DEPRECIATION

         Fixed assets are stated at cost. Major improvements and betterments to
existing facilities and equipment are capitalized. Expenditures for maintenance
and repairs that do not extend the life of the applicable asset are charged to
expense as incurred. Buildings are depreciated over a 50-year term. Fixtures and
equipment are depreciated using the straight-line method over their estimated
useful lives, which range from three to five years. Leasehold improvements are
amortized using the straight-line method over the shorter of their estimated
useful lives or the related lease term.

IMPAIRMENT OF LONG-LIVED ASSETS

         Fixed assets and other long-lived assets are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to undiscounted
future net cash flows expected to be generated by the asset over its remaining
useful life. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. The estimate of fair value is generally
based on quoted market prices or on the best available information, including
prices for similar assets and the results of using other valuation techniques.
During 2002, we recorded an asset impairment charge of NT$40.0 million against
our aggregate investment in an Internet company, which impairment had reduced
the carrying value of our investment to NT$58.5 million as of December 31, 2002.
We reviewed the underlying operating performance, and financial conditions of
this Internet company in assessing impairment, and concluded an asset impairment
charge is necessary to adjust the carrying value of this investment for an
other-than-temporary impairment.

         During 2002, we also recorded an asset impairment charge related to our
investment with EMI Music Asia in GigaMusic.com Limited. We invested NT$240.0
million in GigaMusic.com during 2001 and granted EMI Music Asia 5% of total
shares in exchange for certain information, rights and content. The total value
of the 5% shares granted to EMI amounted to NT$12.6 million and was recorded as
an intangible asset. In addition to the 5% ownership of GigaMusic.com Limited,
as of December 31, 2002 we paid EMI Music Asia fees of US$2.0 million. EMI Music
Asia has not provided the agreed upon products to GigaMusic.com Limited. The Web
site of GigaMusic.com has not been launched and no subscriber revenue has been
generated from the project. Therefore, the fair value of the intangible asset
and the US$2.0 million payment was considered negligible and we wrote down the
balance of these assets and recorded an impairment loss of NT$80.6 million in
2002.

         We have significant amortizable intangible assets arising from the
acquisitions of Rose Records and Tachung Records. The amortizable intangible
assets, including distribution channel and brand names, are amortized on a
straight-line basis over estimated useful lives ranging from five to fifteen
years. As of December 31, 2002, the balances of distribution channel and brand
names were NT$96.2 million and NT$145.8 million, respectively. In determining
the useful lives and recoverability of the intangibles, assumptions must be made
regarding estimated future cash flows and other factors to determine the fair
value of the assets, which may not represent the true fair value. If these
estimates or their related assumptions change in the future, there may be a
significant impact on our results of operations in the period of the change
incurred.

GOODWILL

         Goodwill represents the adjusted amount of the cost of acquisitions in
excess of fair value of net assets acquired in purchase transactions. Effective
January 1, 2002, we adopted Statement of Financial Accounting Standards (SFAS)
No. 142, "Goodwill and Other Intangible Assets". Under the provisions of SFAS
142, goodwill is no longer subject to amortization and, potential impairment of
goodwill and purchased intangible assets with indefinite useful lives will be
evaluated at least annually. We periodically evaluate the carrying amount of
goodwill to determine whether adjustments to these amounts are required based on
current events and circumstances. We perform an analysis of the recoverability
of goodwill using a cash flow approach consistent with the analysis of the
impairment of long-lived assets. We performed an

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impairment test of our goodwill and intangible assets as of December 31, 2002.
Due to the general market downturn and the operating performance of the acquired
businesses falling below our expectations, we recorded a goodwill impairment
loss of NT$242.9 million in the fourth quarter of 2002. The amount of the loss
was determined based on an independent appraiser's report as of December 31,
2002. As the value of goodwill and its impairment are determined based on a
number of assumptions and management's estimates, the change of assumptions and
circumstances in the future may have significant impact on our results of
operations in the period when a change occurred.

INCOME TAXES

         Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases, and tax loss carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Deferred tax assets are subject to valuation allowances based upon the
management's estimate of realizability. Due to uncertainty of realization, we
have provided 100% valuation allowance against deferred tax assets, except for
one subsidiary, KBT, where the realization was considered more than likely.
Actual results may differ significantly from management's estimate.

REVENUES

         In 2002, we generated our revenues primarily from:

         -    Sales/rental/installation (Offline Business). We generate our
              revenues primarily from sales of merchandise in our offline
              operations, comprised of prerecorded music (including compact
              discs and audio cassettes), video (including DVD and prerecorded
              videocassettes), video games and other complementary products
              (including electronics, accessories, blank tapes and CD-Rs).

         -    Sales/rental/installation (Online Business). We include under this
              line item sales from our online business, consisting of the
              following:

                  Modem sales/rental. We generate revenues from providing cable
                  modems to our Internet access services subscribers. To promote
                  our broadband Internet access services, we provide cable
                  modems to our subscribers for a refundable deposit of NT$3,000
                  for 1-way modems, and a deposit of NT$1,000 for 2-way modems.
                  We experienced a decrease of sales of cable modems in 2002 due
                  to decreased sales promotions and an increased emphasis on
                  rentals. Although the number of rentals in 2002 increased, the
                  rental fee declined due to market competition. We expect the
                  conditions to remain in the medium term and do not foresee
                  significant increases in revenues from modem sales and rentals
                  going forward. We also booked revenues under modems sales in
                  2002 from sales of our ADSL retail packs. We sell ADSL packs
                  via telemarketing, online promotions and select store sales.
                  We provide ADSL software to users, while Chunghwa Telecom
                  provides the telecommunications network and ADSL modems to
                  subscribers, connects customers to Chunghwa's transfer mode
                  network and aggregates the telephone lines into our servers.
                  Subscibers are billed by us depending on the package the
                  customer selects.

                  Modem Installation. We earn revenues from the one-time fees we
                  charge for the installation of cable modems at subscribers'
                  homes. For onsite installations, we generally charge a fee of
                  NT$1,000 per installation for 1-way service. There is no
                  installation charge for 2-way service. We generally pay our
                  cable partners NT$500 per installation and recognize our
                  revenues net of these payments. In August 1999, we started
                  charging our subscribers for maintenance services. Charges
                  currently range from NT$500 to NT$1,000 per maintenance visit,
                  plus repair costs, if any.

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<PAGE>

         -    Access fees. In our online business operations, we receive access
              fees from subscribers of our broadband Internet access services.
              As part of our revenue sharing arrangements with our cable
              partners with respect to each subscriber's monthly access fee, we
              keep NT$300 of the fee and generally 55% to 65% of any amount in
              excess of NT$300. We recognize our access revenues net of payments
              to our cable partners under the revenue sharing arrangements.

              Our 2-way cable broadband service packages are offered at NT$1,199
              for premium service; NT$850 for a mid-tier package; and NT$699 for
              basic service. We also have offered selected subscribers discounts
              on their monthly access fees and quarterly payment options to
              further promote our access services. We recognize our revenue from
              access fees net of split with cable partners and these discounts.
              We expect to continue to offer periods of free services and
              discount promotions in 2003.

              During 2002, we offered our broadband subscribers two types of
              subscription packages for 1-way cable modem access (1) a flat rate
              at NT$599 per month and (2) a metered rate at NT$299 for 30 free
              hours plus NT$0.25 per minute passing the 30 hour mark, or a
              metered rate at NT$50 for 100 free minutes plus NT$0.5 per minute
              passing the 100 minute mark. Going forward, our product mix will
              continue to change in response to market dynamics.

              As more fully described below, we also offered seven ADSL service
              options in 2002, increasing from five service options in 2001,
              which have from time to time been promoted with periods of
              discounted Internet access service for subscribers to our
              services. We receive 100% of our ADSL access service fees.
              Chunghwa Telecom receives 100% of ADSL service circuit fees.

              -    The first package (1.5Mbps download and 1 fixed IP) is priced
                   at NT$1,598 per month, with users paying NT$699 to us and an
                   NT$899 circuit fee to Chunghwa Telecom.

              -    The second package (768Kbps download and 1 fixed IP) is
                   priced at NT$1,199 per month, with users paying NT$399 to us
                   and an NT$800 circuit fee to Chunghwa Telecom.

              -    The third package (512Kbps download and 1 fixed IP) is priced
                   at NT$894 per month, with users paying NT$299 to us and an
                   NT$595 circuit fee to Chunghwa Telecom.

              -    The fourth package (1.5Mbps download and 8 fixed IPs) is
                   priced at NT$1,294 per month, with users paying NT$599 to us
                   and an NT$695 circuit fee to Chunghwa Telecom.

              -    The fifth package (1.5Mbps download and 8 fixed IPs) is
                   priced at NT$7,299 per month, with users paying NT$6,400 to
                   us and an NT$899 circuit fee to Chunghwa Telecom.

              -    The sixth package (768Kbps download and 8 fixed IPs) is
                   priced at NT$3,000 per month, with users paying NT$2,200 to
                   us and an NT$800 circuit fee to Chunghwa Telecom.

              -    The seventh package (512Kbps download and 8 fixed IPs) is
                   priced at NT$2,399 per month, with users paying NT$1,500 to
                   us and an NT$899 circuit fee to Chunghwa Telecom.

              Our subsidiary KBT also receives access fees from subscribers of
              high-speed Internet access services. KBT delivers dedicated and
              high speed Internet access to a selected group of corporate
              customers over fiber optical lines. The monthly fee for this type
              of access services ranges from NT$25,000 to NT$200,000, depending
              on the level of bandwidth, but the fee is generally discounted by
              between 25% and 50% versus the incumbent fixed line carrier.

         -    Web development. We started to de-emphasize this aspect of our
              business in 2001. We booked no revenue from our Web development
              business for 2002. Going forward, we may occasionally design and
              develop Web sites for selected content providers of our Web
              destination and charge these partners on a project-by-project
              basis. We expect the Web development revenues going forward will
              continue to be immaterial to our results of operations.

         -    Advertising and promotional revenue. In our offline music business
              unit, we receive marketing/sales promotional revenue from record
              companies for prominent in-store placement of CDs and posters in
              our store chains. In our online business unit, we earn revenues
              from displaying banner advertisements and broadband sponsorship
              advertisement on our Web destinations. For

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              banner advertisement, the average CPM is at NT$15-20 CPM. We have
              de-emphasized the online advertisement business since early 2001.

         -    Other. Other revenues are generated from subscription services
              with respect to our paid online content and special broadband
              projects. The revenues are expected to vary significantly from
              time to time.

COSTS AND EXPENSES

         During 2002, we incurred two accelerated expenses: one related to
goodwill from the acquisitions of Rose Records and Tachung Records and the other
related to amortization of our licensing payment to our partner EMI Music Asia.
These expenses were recorded under costs and expenses in 2002. Each expense is
listed as a separate line item in the Consolidated Statement of Operations
included elsewhere in this annual report.

         Expenses related to goodwill resulted from our adoption of SFAS No. 142
during 2002. In addition to discontinuing the practice of amortizing goodwill
against income, this new standard introduces more rigorous criteria for
determining the amount of goodwill that may be reflected as an asset on a
company's balance sheet. SFAS No. 142 requires companies to perform annual
impairment tests of goodwill and other intangible assets. Under the new
standard, reductions in the carrying value of goodwill resulting from the
application of the new criteria are reported as operating expense in the income
statement. Following an independent appraisal of our intangible assets, we wrote
off goodwill associated with our music businesses, Rose Records and Tachung
Records, that were acquired in 2002, recording an impairment loss of NT$242.9
million (US$7.0 million).

         In 2001, we and EMI Music Asia invested in GigaMusic to develop a paid
online music site. The value of shares of GigaMusic granted EMI in exchange for
certain rights and services was recorded as our intangible asset. As of December
31, 2002, we performed an impairment test of such intangible asset as well as
related payments. Due to the facts that EMI has not provided the agreed-upon
products to GigaMusic, the site has not been launched and no subscriber revenue
has been generated from the project, the fair value of the intangible asset
related to this investment, together with the US$2.0 million dollar payments by
us in connection with this investment, was considered negligible. As a result,
we wrote down the balance of these assets and recorded an impairment loss of
NT$80.6 million (US$2.3 million) in our operating results for 2002.

         Our costs and expenses consist of the following:

         -        COSTS OF SALES/RENTAL/INSTALLATION. Cost of sales/rental/
                  installation includes costs of goods sold in our offline music
                  stores. It also includes the cost of cable modems sold and/or
                  provided to our subscribers, as well as ADSL sales,
                  depreciation of cable modems leased to our subscribers and
                  costs incurred in connection with installing cable modems for
                  and providing maintenance services to our subscribers in our
                  online business unit. The cable modems rented to our
                  subscribers are depreciated over a term of three to five
                  years.

         -        OPERATING COSTS. Operating costs consist of direct costs
                  associated with the daily operation of our offline music
                  business unit. Operating costs also include telecommunications
                  expenses, including charges for domestic and international
                  Internet backbones and telecommunications circuitry; salaries
                  of operating and customer service staff; amortization of
                  technology license fees; depreciation and maintenance of
                  equipment other than cable modems; allocated cost of
                  facilities; and costs associated with content development and
                  acquisition. A large portion of our operating costs is
                  relatively fixed in the short term and we expect to be able to
                  decrease our costs and improve our operating margins.

         -        PRODUCT DEVELOPMENT AND ENGINEERING EXPENSES. Product
                  development and engineering expenses consist primarily of
                  salaries and related costs for network design and
                  optimization, information system development and customization
                  and content infrastructure enhancement;

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<PAGE>

                  fees to outside contractors and consultants; allocated cost of
                  facilities; and depreciation and maintenance on the equipment
                  used in our product development and engineering processes.

         -        SELLING AND MARKETING EXPENSES. Selling and marketing expenses
                  consist primarily of advertising and promotional expenses,
                  store operating costs, including salaries, commissions and
                  related personnel expenses and store rental, and costs
                  associated with the development of sales and marketing
                  materials, direct mail and telemarketing. We expect our
                  selling and marketing expenses to remain flat or slightly
                  decrease going forward as a result of tighter expense controls
                  and cross marketing initiatives.

         -        GENERAL AND ADMINISTRATIVE EXPENSES. General and
                  administrative expenses consist primarily of salaries for our
                  executive, administrative, finance and human resource
                  personnel; fees for professional services; share compensation
                  expenses and cost of computers to support our operations. We
                  recognize compensation associated with equity instruments
                  granted to employees and non-employees in accordance with
                  Accounting Principles Board Opinion No. 25, Accounting for
                  Stock Issued to Employees, (APB 25) and Statement of Financial
                  Accounting Standards No. 123, Accounting for Stock-Based
                  Compensation, (SFAS 123), respectively, over the vesting
                  period of the instrument. In addition, we incur expenses
                  associated with being a U.S. listed company, including costs
                  of directors' and officers' insurance, and increased legal and
                  accounting fees.

         -        BAD DEBT EXPENSE. Allowances for doubtful accounts receivable
                  consist of bad debt reserves for estimated losses resulting
                  from the inability of our customers to make required payments,
                  which is provided based on evaluations of collectibility,
                  aging analyses of the accounts receivable and management's
                  judgment. We record specific allowances for bad debts when we
                  become aware of a specific customer's inability to meet its
                  financial obligation to us, such as in the case of bankruptcy
                  filings or deterioration of financial position. In addition,
                  estimates are used in determining our allowances for all other
                  customers based on factors such as current trends, the length
                  of time the receivables are past due and historical collection
                  experience. If the financial condition of our customers were
                  to deteriorate, resulting in an impairment of their ability to
                  make payments, additional allowances may be required. In 2001,
                  we made bad debt allowances of 22.7% and 6.4% for accounts
                  receivable related to subscribers and non-subscribers,
                  respectively. In 2002, we made bad debt allowances of 40.7%
                  and 17.4% for accounts receivable related to subscribers and
                  non-subscribers, respectively.

DISCUSSIONS OF RESULTS OF OPERATIONS

For the Years Ended December 31, 2001 and 2002

CONSOLIDATED RESULTS OF OPERATIONS

         REVENUES. Total revenues for 2002 grew 522% to NT$2.6 billion (US$73.7
million) from NT$411.0 million in 2001, mainly due to the contributions of Rose
Records and Tachung Records music store chains that were acquired in 2002. For
2002, the offline music business contributed approximately NT$1.9 billion
(US$54.5 million) or 74% of our revenues. The Internet access services business
contributed approximately NT$638.9 million (US$18.4 million) or 25% of our
revenues, increased from NT$389.8 million for 2001.

         COSTS AND EXPENSES. Costs and expenses increased by 38% to NT$3.4
billion (US$97.4 million) in 2002 from NT$2.4 billion in 2001. The increase was
mainly due to (1) the cost of sales of NT$1.6 billion (US$47.0 million) in 2002
derived from the newly acquired off-line business in 2002; and (2) the recorded
impairment losses of NT$242.9 million (US$7.0 million) and NT$80.6 million
(US$2.3 million) on goodwill and intangibles, respectively, in 2002. This
increase was partially offset by the decreases in expenses in relation to share
compensation expenses and Microsoft's warrant, from NT$1.1 billion in 2001 to
NT$5.3 million (US$153 thousand) in 2002.

         OPERATING LOSS. Operating loss for 2002 decreased 59% to NT$824.7
million (US$23.8 million)

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<PAGE>

from NT$2.0 billion for 2001.

         NON-OPERATING INCOME. For 2002, non-operating income declined by 50% to
NT$108.7 million (US$3.1 million) from NT$219.2 million for 2001, due to a
write-off of our investment in Rock Internet Corporation and the recognition of
a loss resulting from the change of our percentage of ownership in G-Music from
100% to 58% as a result of the acquisitions of Rose Records and Tachung Records.

         NET LOSS. Net loss for 2002 declined by 65%, to NT$638.0 million
(US$18.4 million) from NT$1.8 billion for 2001.

BUSINESS SEGMENT RESULTS

OFFLINE SERVICES

         We acquired Rose Records and Tachung Records during 2002. We began to
consolidate the results of operations of Rose Records and Tachung Records from
the respective closing dates of the acquisitions. Since these businesses were
acquired during 2002, year over year comparisons of this business segment are
not available. The operating results of GigaMedia's offline music business, post
acquisition, were as follows:

         TOTAL REVENUES. Total revenues in 2002 were NT$1.9 billion (US$54.5
million), including retail sales of NT$1.9 billion (US$53.6 million) and
advertising and promotional revenues of NT$30.4 million (US$876.1 thousand).

         COSTS OF SALES. Cost of sales were NT$2.2 billion (US$63.4 million) in
2002.

         OPERATING MARGIN. Operating loss was NT$340.8 million (US$9.8 million)
in 2002.

         NET LOSS. Net loss in 2002 was NT$340.7 million (US$9.8 million).

ONLINE SERVICES

         ACCESS REVENUES. Total access revenues grew 64% from NT$389.8 million
for 2001 to NT$638.9 million (US$18.4 million) for 2002, primarily due to the
increase of access fees relating to the continuous rollout of ADSL services and
the growth of these subscribers, offset by a reduction in the number of 1-way
subscribers in 2002. The number of our broadband subscribers decreased from
119,130 as of December 31, 2001 to 108,016 as of December 31, 2002. As of
December 31, 2002, we had 17,135 1-way subscribers, 17,308 2-way subscribers,
and 73,573 ADSL subscribers. In the fourth quarter of 2002, the average access
fee per broadband subscriber per month (ARPU) for access services was around
NT$388 (US$11.18), as compared to NT$341 for 2001. ARPU for 1-way cable
services, 2-way cable services and ADSL services were NT$231, NT$618 and NT$363,
respectively, during the fourth quarter of 2002, as compared to NT$287, NT$589
and NT$312, respectively, for the same services during the fourth quarter of
2001.

Of the total access revenues recorded for 2002, consumer access revenues through
Hoshin GigaMedia were approximately NT$562.4 million (US$16.2 million), while
corporate access revenues through KBT were approximately NT$76.5 million (US$2.2
million).

         MODEM SALE/RENTAL/INSTALLATION REVENUES. Modem sale/rental/installation
revenues decreased 42% from NT$7.5 million for 2001 to NT$4.4 million (US$126
thousand) for 2002, resulting mostly from a decrease in sales of modems, which
was partially offset by an increase in modem rentals revenue resulting from an
increase in the number of rentals in 2002, but declining rental fees. We
terminated free rental promotions on one-way cable service and modem sales in
2001 to control costs and grow margins.

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         WEB DEVELOPMENT REVENUES. Web development revenues decreased from
NT$7.2 million for 2001 to nil for 2002, as we de-emphasized this aspect of our
business. We expect to record Web development revenues going forward on a
limited project-by-project basis in the future.

         ADVERTISING REVENUES. Advertising revenues decreased 52% from NT$5.0
million for 2001 to NT$2.4 million (US$69 thousand) for 2002 as we continued to
de-emphasize this aspect of our business in 2002.

         OPERATING COST. Operating costs decreased 61% in 2002 to NT$634.9
million (US$18.3 million) compared to NT$1.6 billion in 2001. There was a
decrease in share compensation expense from 2001 of NT$14.1 million to NT$740
thousand in 2002. During 2001, we incurred amortization of Microsoft's warrant
of NT$943.1 million, including an accelerated expense of approximately NT$428.7
million recognized during the fourth quarter in 2001 related to the remaining
amount of the warrant.

         COST OF MODEM SALES/RENTAL/INSTALLATION. Cost of modem
sales/rental/installation decreased 62% from NT$143.4 million for 2001 to
NT$54.6 million (US$1.6 million) for 2002, due to decreased sales and the use of
refurbished cable modems during 2002.

         WEB DEVELOPMENT EXPENSES. Web development expenses decreased from
NT$12.2 million for 2001 to nil for 2002, in line with our de-emphasis of this
aspect of our business.

         PRODUCT DEVELOPMENT AND ENGINEERING EXPENSES. Product development and
engineering expenses decreased 39% from NT$106.5 million for 2001 to NT$64.4
million (US$1.9 million) for 2002, primarily due to reduced costs relating to
workforce streamlining in 2002 and a de-emphasis on this aspect of our
operations.

         SELLING AND MARKETING EXPENSES. Selling and marketing expenses
decreased 50% from NT$285.6 million in 2001 to NT$141.5 million (US$4.1 million)
in 2002, primarily due to tightened expenditure controls during 2002 and a
decrease in share compensation expense from 2001 of NT$11.9 million to NT$52.4
thousand in 2002.

         GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses decreased 33% from NT$215.7 million for 2001 to NT$143.5 million
(US$4.1 million) in 2002, driven by reductions in our workforce and tight
expense controls in 2002 and a decrease in share compensation expense from 2001
of NT$91.4 million to NT$4.0 million in 2002.

         NET NON-OPERATING INCOME. For 2002, non-operating income declined 51%
from NT$219.2 million for 2001 to NT$108.5 million (US$3.1 million), primarily
due to a decrease in cash and investments in 2002, resulting in a lower asset
base. We recognized non-operating income as a result of the gain from disposal
of short-term investments of NT$62.8 million (US$1.8 million), derived primarily
from our sale of mutual fund beneficiary certificates and the gain from disposal
of long-term investments in Gamania and a UBS AG Jersey Bond amounting to
NT$51.8 million (US$1.5 million). We also recorded an impairment loss in 2002 in
the amount of NT$40.0 million related our long-term investment in Rock Internet
Corporation.

FOR THE YEARS ENDED DECEMBER 31, 2000 AND 2001

         ACCESS REVENUES. Total access revenues grew 151% from NT$155.0 million
for 2000 to NT$389.8 million for 2001, primarily related to the rollout of ADSL
services and the growth of these subscribers, as well as growth in the number of
2-way subscribers, offsetting a reduction in the number of 1-way subscribers in
2001. The number of our broadband subscribers increased from 60,288 as of
December 31, 2000 to 119,130 as of December 31, 2001. At year-end of 2001, we
had 42,834 1-way subscribers, 17,278 2-way subscribers, and 59,018 ADSL
subscribers. As of the fourth quarter of 2001, the average access fee per
broadband subscriber per month for access services was around NT$341. Of the
total access revenues recorded during 2001, consumer access revenues through
Hoshin GigaMedia were approximately NT$377.5 million, while corporate access
revenues through KBT were approximately NT$12.3 million.

         MODEM SALE/RENTAL/INSTALLATION REVENUES. Modem sale/rental/installation
revenues decreased 94% from NT$126.8 million for 2000 to NT$7.5 million for
2001, resulting mostly from termination of cable

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<PAGE>

modem subsidization. We terminated free rental promotions on one-way cable
service and modem sales in 2001, consistent with our efforts to control costs
and grow margins.

         WEB DEVELOPMENT REVENUES. Web development revenues decreased 75% from
NT$28.9 million for 2000 to NT$7.2 million for 2001, as we de-emphasized this
aspect of our business. We expect to record Web development revenues going
forward on a limited project-by-project basis.

         ADVERTISING REVENUES. Advertising revenues decreased 81% from NT$26.8
million for 2000 to NT$5.0 million for 2001. The decrease was primarily related
to the downturn in advertising markets and de-emphasis of this aspect of our
business in 2001. We do not expect advertising revenues to make a significant
contribution to our total revenues going forward.

         OTHER REVENUE. We recognized other revenues generated from special
broadband projects. Other revenues decreased 60% from NT$3.6 million for 2000 to
NT$1.4 million for 2001. Other revenues are expected to vary significantly from
time to time.

         OPERATING COST. Operating costs increased 66% in 2001 to NT$1.64
billion compared to NT$987.3 million in 2000, primarily related to three
factors: an 83% increase in the amortization of Microsoft's warrant; a 101%
increase in telecommunications expenses; and a 159% increase in depreciation of
network equipment. During 2001, we incurred amortization of Microsoft's warrant
of NT$943.1 million, including an accelerated expense of approximately NT$428.7
million recognized during the fourth quarter in 2001 related to the remaining
amount of the warrant. We incurred telecommunications expenses of NT$264.4
million to support the growth of our subscriber base. Depreciation of network
equipment other than cable modems also contributed to the increase of our
operating costs and other expenses for 2001, amounting to NT$87.9 million.
Offsetting these increases in operating costs, amortization of technology
license fees decreased 74% from NT$18.7 million in 2000 to NT$4.9 million in
2001 as the amortization period ended in the second quarter. In addition,
content department related expenses declined significantly during 2001 as a
result of our restructuring. There was a decrease in share compensation expense
from 2000 of NT$20.2 million to NT$14.1 million in 2001.

         COST OF MODEM SALE/RENTAL/INSTALLATION. Cost of modem
sales/rental/installation decreased 49% from NT$279.0 million in 2000 to
NT$143.4 million in 2001, due to decreased sales, use of refurbished cable
modems, and a decline in the price of cable modems of approximately 66% during
2001.

         WEB DEVELOPMENT EXPENSES. Web development expenses decreased 47% from
NT$23.2 million in 2000 to NT$12.2 million in 2001, in line with our suspension
of this aspect of our business. We incurred Web development expenses in
connection with our design and development of a Web site for one of our content
providers during the first quarter of 2001.

         PRODUCT DEVELOPMENT AND ENGINEERING EXPENSES. Product development and
engineering expenses increased 88% from NT$56.6 million in 2000 to NT$106.5
million in 2001, primarily due to share compensation expenses and an increase in
staff prior to our restructuring and workforce streamlining in April 2001.

         SELLING AND MARKETING EXPENSES. Selling and marketing expenses
decreased 26% from NT$383.9 million in 2000 to NT$285.6 million in 2001. We
achieved lower selling and marketing expenses and increased operating
efficiencies in 2001 in part by shifting sales and marketing expenses to
GigaMedia's strategic partners and utilizing a bundled marketing approach.
Advertising expenses decreased 58% to NT$135.8 million in 2001, resulting from
our de-emphasis of our advertising business, an increased focus on direct
marketing, and tight cost controls. There was a decrease in share compensation
expense from 2000 of NT$17.1 million to NT$11.9 million in 2001.

         GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses decreased 9% from NT$235.9 million in 2000 to NT$215.7 million in 2001.
There was a decrease in share compensation expense from 2000 of NT$145.5
million to NT$91.4 million in 2001.
                                       45

<PAGE>

         NET NON-OPERATING INCOME. Non-operating income declined 48% from
NT$424.0 million in 2000 to NT$219.2 million in 2001, resulting partially from
declining interest rates impacting our interest income. In addition, cash and
investments decreased, resulting in a lower asset base. We recognized
non-operating income in 2001 largely as a result of net interest income of
NT$32.5 million and gain from disposal of short-term investments of NT$201.8
million, derived primarily from our sale of mutual fund beneficiary
certificates. We recorded a loss of property, plant and equipment of NT$10.8
million in 2001 for improvements made during our occupancy of offices vacated
during 2001. Gain on disposal of long-term investment was NT$11.6 million
resulting from the sale of one of our equity investments. Net loss of equity
investees was NT$27.8 million during 2001, reflecting the write down of an
equity investment whose operations we had deemed impaired and the aforementioned
equity investment, which we liquidated during 2001.

B.       LIQUIDITY AND CAPITAL RESOURCES

         Our principal sources of liquidity consist of cash generated from our
operations, interest generated or derived from the investment instruments we
purchased with the proceeds of our initial public offering in 2000 and proceeds
generated from the disposal of our investments. We do not rely on borrowings,
including bank loans and commercial paper facilities, or off-balance sheet
activities to finance our operations, expansions and mergers and acquisitions.
Because we historically did not generate positive cash flows from our
operations, we have substantially relied on our cash management ability to
support our operations. In addition, we have in recent periods reduced our
workforce and engaged in corporate restructuring to reduce the capital
requirement of our operations. Our policy with respect to liquidity management
is to maintain sufficient cash and cash equivalents to fund operations, while
placing remaining funds in higher yield investment instruments. We also review
potential merger and acquisition opportunities on an ongoing basis, which may be
funded through cash or equity. We do not believe that any potential merger or
acquisition that we may be engaged in would alter our goal of preserving
sufficient cash and cash equivalents to fund future operations.

         Our future cash requirements will depend on a number of factors
including:

     -   the expansion and utilization of our music and artist catalog;

     -   the acquisition of licenses to sell/market products;

     -   the effective and efficient marketing and distribution of our products;

     -   the rate at which subscribers purchase our Internet access services and
         the pricing of such services;

     -   the rate at which we expand our operations and employee base;

     -   the level of marketing required to acquire new subscribers and cable
         partners;

     -   the rate at which we invest in upgrading and maintaining our network
         and future technologies;

     -   the timing of entry into new markets and new services offered;

     -   price competition in the Internet and cable industries; and

     -   changes in revenue splits with our cable partners.

Although operating conditions in 2002 were challenging, our financial condition
remained stable. As a result of our operating, investing and financing
activities during 2002, the amount of cash and cash equivalents we held
increased 56% from NT$794.3 million as of December 31, 2001 to NT$1.2 billion
(US$35.8 million) as of December 31, 2002. However, at December 31, 2002, cash
and cash equivalents, short-term investments and long-term investments totaled
NT$2.7 billion (US$78.9 million), down from NT$6.8 billion at December 31, 2001,
primarily due to cash distributions as the return of capital to shareholders and
the acquisitions of Rose Records and Tachung Records made in 2002.

         Operating activities. We had significant negative cash flows from
operating activities for 2001 and 2002. Cash used in operating activities for
2001 and 2002 was NT$712.3 million and NT$5.3 million (US$153 thousand),
respectively. For 2002, cash used in operating activities was primarily the
result of a net operating loss of NT$638.0 million (US$18.4 million), largely
offset by adjustment of non-cash items, gain

                                       46

<PAGE>

and loss for short-term investment and changes in working capital. Our net loss
in 2002 was adjusted for significant non-cash items, including, among others,
depreciation of NT$196.3 million (US$5.7 million), amortization of intangible
assets and deferred assets of NT$97.5 million (US$2.8 million), impairment loss
on a long-term investment of NT$40.0 million (US$1.2 million), impairment loss
on goodwill of NT$242.9 million (US$7.0 million) and impairment loss on
intangible assets of NT$80.6 million (US$2.3 million).

         Investing activities. In 2002, we redeemed short-term investments made
in the previous year to support our operations and capital expenditures. We also
continued to hold funds in long-term investment instruments and business related
securities, which are classified as long-term available-for-sale investments.

         During 2002, we acquired Taiwan's two leading music store chains, Rose
Records and Tachung Records for approximately NT$638.9 million (NT$418.3 million
in cash, NT$88.0 million of which was not paid and recorded as other current
liabilities as of December 31, 2002, and NT$220.6 million in the form of shares
in G-Music). This acquisition is included as an investment activity.

         During 2002, proceeds from disposal of short-term and long-term
investments amounted to NT$4.1 billion (US$118.2 million) and NT$428.8 million
(US$12.4 million), respectively.

         Financing activities. On February 17, 2000, we became the first
Taiwan-based Internet company to list on the Nasdaq stock market and raised
additional capital of approximately NT$7.8 billion.

         On January 17, 2002, our shareholders approved a return of capital in
the amount of US$2 for each ordinary share outstanding and established March 15,
2002 as the record date and March 29, 2002 as the distribution date. The total
amount of the return of capital was US$100.3 million, translated into NT$3.5
billion based on the exchange rate at the transaction date. We liquidated
short-term investments to support the cash distribution.

         Other. Set forth below are the aggregate amounts, as of December 31,
2002, of our future cash payment obligations under our existing contractual
obligations.

<TABLE>
<CAPTION>
                                                   Payments Due by Period (in NT$ thousands)
                                       ------------------------------------------------------------
Contractual Obligations                 Total       Less than 1 year      1-3 years   After 3 years
-----------------------                 -----       ----------------      ---------   -------------
<S>                                    <C>          <C>                   <C>         <C>
Short-term Loan                         93,000           93,000

Operating Lease                        580,414          234,650            313,525        32,239

Payable to Equipment Suppliers             441              441                  -            -
                                       ------------------------------------------------------------
Total Contractual Cash Obligations     673,855          328,091            313,525        32,239
                                       ============================================================
</TABLE>

<TABLE>
<CAPTION>
                                                 Amount of Commitment Expiration Per Period
                                                             (in NT$ thousands)
                                       ------------------------------------------------------------
Other Commercial Commitments            Total       Less than 1 year      1-3 years   After 3 years
----------------------------            -----       ----------------      ---------   -------------
<S>                                    <C>          <C>                   <C>         <C>
Standby Letters of Credit               34,891           34,891                -            -
                                       ------------------------------------------------------------
Total Other Commercial Commitme         34,891           34,891                0            0
                                       ============================================================
</TABLE>

                                       47

<PAGE>

OFF-BALANCE SHEET ARRANGEMENTS

         Historically, all of our revenues and receivables and a majority of our
operating expenses and payables are denominated in NT dollars, which is our
functional currency. As our expenses denominated in foreign currencies
historically have not been material, we have not used hedging transactions to
reduce our exposure to exchange rate fluctuations. We do not engage in any
non-derivative financial instruments for speculative purposes.

CAPITAL EXPENDITURES

         We typically finance our capital expenditures through cash holdings.
Our gross capital expenditures for equipment and software, furniture and
fixtures declined 12%, from NT$348.2 million in 2001 to NT$304.7 million (US$8.8
million) in 2002. The decline was primarily related to the continued execution
of stringent cost controls and a managed growth plan during 2002. Approximately
71% of our capital expenditures in 2002 were spent to upgrade both of the two
music store chains we acquired in 2002. Gross capital expenditures going forward
are expected to remain at a level sufficient to maintain quality service. We
expect our capital expenditures in 2003 to be flat. We may adjust the amount of
our capital expenditures upward or downward based on cash flow from operations,
the progress of our expansion plans, and market conditions. We believe that our
existing cash, cash equivalents, short-term investments and expected cash flow
from operations, will be sufficient to meet our capital expenditure, working
capital, cash obligations under our existing lease arrangements, and other
requirements through 2003.

DIVIDENDS FROM OUR SUBSIDIARIES IN TAIWAN

         Under existing laws of Taiwan, dividends, whether in cash or shares of
common stock, declared by our subsidiaries incorporated under Taiwan law,
including Hoshin GigaMedia, out of retained earnings and distributed to us are
subject to Taiwan withholding tax, currently at the rate of 20% for non-Taiwan
investors holding a Foreign Investment Approval granted by Taiwan's Ministry of
Economic Affairs, such as us, on the amount of any cash dividends or on the par
value of any share dividends.

FOREIGN CURRENCY EXCHANGE

         All of our revenues and receivables and a majority of our operating
expenses and payables are denominated in NT dollars, which is our functional
currency. The remaining operating expenses and payables, such as the cost of
cable modems and technology license fees, are primarily denominated in U.S.
dollars. As a result, our margins may be impacted by fluctuations of exchange
rate between the NT dollar and the U.S. dollar, exposing us to foreign currency
exchange risks. Because expenses denominated in foreign currencies historically
have not been material, we have not tried to reduce our exposure to exchange
rate fluctuations by using hedging transactions. However, we may choose so in
the future. We recognized a foreign exchange gain of NT$93.9 million (US$2.7
million) for 2002 and a foreign exchange gain of NT$13.9 million in 2001.

RECENT ACCOUNTING PRONOUNCEMENTS

         In June 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No.146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force Issue No.94-3, "Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." SFAS No.146 requires
that a liability for costs associated with an exit or disposal activity be
recognized and measured initially at fair value only when the liability is
incurred, rather than at the date of

                                       48

<PAGE>

commitment to an exit or disposal plan. SFAS No. 146 is effective for exit or
disposal activities that are initiated after December 31, 2002. We do not expect
that the adoption of SFAS No. 146 will have a material impact on our financial
position or results of operations, although SFAS 146 may impact the timing of
recognition of costs associated with future restructuring, exit or disposal
activities.

         In December 2002, the FASB issued SFAS No.148, "Accounting for
Stock-Based Compensation-Transition and Disclosure-An Amendment of FASB
Statement No.123." SFAS No.148 amends SFAS No.123, "Accounting for Stock-Based
Compensation," to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. SFAS No.148 amends the disclosure requirements of SFAS No.123 to
require prominent disclosures both in annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. We do not expect that the
adoption of SFAS No. 148 will have a material impact on our financial position
or our results of operations.

         In November 2002, the FASB issued Interpretation No. 45 (FIN No. 45),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN No. 45 elaborates on the
existing disclosure requirements for most guarantees, including loan guarantees.
It also clarifies that at the time a company issues a guarantee, the company
must recognize an initial liability for the fair value, or market value, of the
obligations it assumes under that guarantee. However, the provisions related to
recognizing a liability at inception of the guarantee for the fair value of the
guarantor's obligations does not apply to product warranties or to guarantees
accounted for as derivatives. The initial recognition and initial measurement
provisions apply on a prospective basis to guarantees issued or modified after
December 31, 2002. The disclosure requirements of FIN No. 45 are effective for
financial statements of interim or annual periods ending after December 15,
2002. We do not believe the adoption of FIN No. 45 will have a material impact
on our financial position or results of operations.

         In November 2002, the Emerging Issues Task Force reached a consensus on
Issue No. 00-21 EITF 00-21, "Revenue Arrangements with Multiple Deliverables."
EITF 00-21 provides guidance on how to account for arrangements that involve the
delivery or performance of multiple products, services and/or rights to use
assets. The provisions of EITF 00-21 will apply to revenue arrangements entered
into in fiscal periods beginning after June 15, 2003. We do not believe the
adoption of EITF 00-21 will have a material impact on its financial position or
results of operations.

         In January 2003, the FASB issued Interpretation No. 46 FIN No.46,
"Consolidation of Variable Interest Entities." Until this interpretation, a
company generally included another entity in its consolidated financial
statements only if it controlled the entity through voting interests. FIN No.46
requires a variable interest entity, as defined, to be consolidated by a company
if that company is subject to a majority of the risk of loss from the variable
interest entity's activities or entitled to receive a majority of the entity's
residual returns. We are currently evaluating the effect of adopting FIN No. 46
on our results of operations and financial position.

         On May 15, 2003, the FASB issued Statement No. 150 (SFAS No. 150),
"Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity". SFAS No. 150 establishes standards for how an issuer
classifies and measures certain financial instruments with characteristics of
both liabilities and equity. It requires that certain financial instruments be
presented as liabilities that were previously presented as equity or as
temporary equity. Such instruments include mandatory redeemable preferred and
common stocks and certain options and warrants. SFAS No. 150 is effective for
financial instruments entered into or modified after May 31, 2003 and is
generally effective at the beginning of the first interim period beginning after
June 15, 2003. We are currently evaluating whether SFAS No. 150 will impact our
consolidated financial position and results of operations when adopted.

                                       49

<PAGE>

INFLATION

         We do not believe that inflation in Taiwan, where all of our current
business is conducted, has had a material impact on our results of operations.

TAXATION

         At December 31, 2002, we had net operating loss carry forwards for tax
purposes of approximately NT$2.6 billion (US$75.1 million), which will expire at
various times through December 2007. At December 31, 2002, we had a deferred tax
asset of NT$682.9 million (US$19.7 million), relating principally to our net
operating loss. Our ability to realize the value of our deferred tax asset
depends on our future earnings, if any, the timing and amount of which are
uncertain. We have recorded a valuation allowance substantially for the entire
net deferred tax asset as a result of those uncertainties. We recorded an income
tax benefit of approximately NT$4.4 million (US$126 thousand) for 2002, which
was related to KBT, a subsidiary of our company.

C.       RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.

         While we regard our intellectual property and proprietary rights as
important, we believe that our future success is dependent primarily on the
innovative skills, technological expertise and management abilities of our
employees rather than on patent, copyright and trademark protection, and,
accordingly, we do not consider any particular intellectual property or
proprietary right to be material to our business.

D.       TREND INFORMATION

         Please see "- A. Operating Results - Overview" for a discussion of the
most recent trends in our operation costs and revenues since the end of 2002. In
addition, please refer to discussions included in this Item for a discussion of
known trends, uncertainties, demands, commitments or events that we believe are
reasonable likely to have a material effect on our net operating revenues,
income from continuing operations, profitability or capital resources, or that
would cause reported financial information not necessarily to be indicative of
future operating results or financial condition.

                                       50

<PAGE>

ITEM 6.  SENIOR MANAGEMENT AND EMPLOYEES

A.       DIRECTORS AND SENIOR MANAGEMENT

         The following table sets forth information with respect to all
directors and executive officers as of June 1, 2003.

BOARD OF DIRECTORS

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
      Name                 Age                      Position                 Year Appointed to Current Position
-----------------------------------------------------------------------------------------------------------------
<S>                        <C>                   <C>                         <C>
  Nelson Chang             51                       Chairman                                2002
-----------------------------------------------------------------------------------------------------------------
  Yuanchi Chao             53                       Director                                2002
-----------------------------------------------------------------------------------------------------------------
  David Chuang             33                       Director                                2003
-----------------------------------------------------------------------------------------------------------------
    Andre Koo              35                       Director                                1999
-----------------------------------------------------------------------------------------------------------------
 Jeffrey Koo, Jr           38                    Vice Chairman                              1999
-----------------------------------------------------------------------------------------------------------------
   Leslie Koo              48                       Director                                1999
-----------------------------------------------------------------------------------------------------------------
Richard Lin Yang           73                       Director                                2001
-----------------------------------------------------------------------------------------------------------------
</TABLE>

EXECUTIVE OFFICERS

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
    Name                 Age                      Position                 Year Appointed to Current Position
---------------------------------------------------------------------------------------------------------------
<S>                      <C>     <C>                                       <C>
Nelson Chang             51                       Chairman                                2001
---------------------------------------------------------------------------------------------------------------
Raymond Chang            32               Chief Executive Officer                         1999
---------------------------------------------------------------------------------------------------------------
 Wayne Chen              33          Vice President and General Counsel                   2001
---------------------------------------------------------------------------------------------------------------
 Michel Chu              33         Vice President and Chief Technology                   1999
                                                  Officer
---------------------------------------------------------------------------------------------------------------
Winston Hsia             38      Vice President and Chief Financial Officer               2001
---------------------------------------------------------------------------------------------------------------
 Joseph Shea             37            Vice President and Deputy CFO                      2002
---------------------------------------------------------------------------------------------------------------
  Falco Mi               41        Chief Administrative Officer and Vice                  2002
                                                 President
---------------------------------------------------------------------------------------------------------------
</TABLE>

         On March 21, 2003, we announced that our board of directors had
received a formal offer from our management group, which is referred to as the
Management Group in this annual report, comprised of seven senior officers of
our company, to purchase all shares of our company upon certain terms and
conditions. For detailed information of the proposed management buyout offer,
see Item 8. "Financial information - B. Significant changes". In connection with
the management buyout offer proposed by the Management Group, we announced on
June 5, 2003 that the chairman of our board of directors, Mr. Nelson Chang had
tendered his resignation as our chairman and as a director of our company. The
effectiveness of Mr. Chang's resignation is contingent upon the outcome of the
offer made by the Management Group. Mr. Chang's resignation will be effective
immediately following the earlier to occur of (a) the completion of the
management buyout offer proposed by the Management Group and (b) the rejection
of the offer by our board of directors or shareholders (assuming that in the
case of a rejection by our board of directors, the proposed management buyout
offer will be not submitted to our shareholders for their consideration) and
receipt by our board of directors of a formal notice from the Management Group
that no revised offer will be made in response to such rejection. As of
July 15, 2003, Mr. Chang remains chairman and a director of our company.

DIRECTORS

         NELSON CHANG is the chairman of GigaMedia and Hoshin GigaMedia. He is
also currently managing director and vice chairman of Chia Hsin Cement
Corporation, a listed company on the Taiwan

                                       51

<PAGE>

Stock Exchange, as well as the chief executive officer of KGI Securities Co.,
Ltd. in Taipei and KG Investments Asia Limited in Hong Kong. Mr. Chang is also
the chairman of Wyse Technology Inc. in Hsin Chu, Taiwan and China Network
Systems Co., Ltd. in Taipei. A well respected business leader with extensive
industry affiliations, Mr. Chang is also executive director of the Chinese
National Association of Industry and Commerce, CNAIC; vice chair of the Chinese
Taipei Pacific Economic Cooperation Council, PECC, as well as the ROC-USA
Economic Council; and chairman of the Chinese Taipei Member Committee of the
Pacific Basin Economic Council, PBEC. Mr. Chang received an MBA degree from New
York University in 1976.

         YUANCHI CHAO (1) is a director of our company. Mr. Chao currently
serves as chairman of Concord Asia Finance Limited, and is a director of each of
Touchstone Corporation, LC United Chemical Corporation and Analyst Technology
Company, Ltd. He also serves as supervisor of Walsin Lihwa Corporation and
Winbond Electronic Corporation. Mr. Chao's experience includes five years of
leadership at Dah An Commercial Bank and a three-year term with Occient
Corporation. He received his MBA degree from New York University.

         DAVID CHUANG (1) is a director of our company. Mr. Chuang brings to our
company significant expertise in securities law and mergers and acquisitions. He
has counseled clients in a number of high profile transactions and corporate
events. Among the notable transactions are: the International Commercial Bank of
China (ICBC) in its share swap with Mega Financial Holdco (Chiao Tung Bank),
Taipeibank in its share swap with Fubon Financial Holdco and United
Microelectronics Company's "five-into-one" reverse stock split transaction. Mr
Chuang currently serves as a partner at LCS & Partners in Taiwan. Prior to
joining LCS, Mr. Chuang was an attorney at the law firms of Jones Day and Tsar &
Tsai in Taiwan. Mr. Chuang also served as in-house counsel at Chung Sheng
Science & Technology Instititute in Taiwan. He received his undergraduate law
degree from Taiwan National University and an L.L.M. degree from Duke University
School of Law.

         ANDRE KOO is a director of our company. He is also currently the
managing director of Chailease Finance Co., Ltd. and the Chinatrust Hotel Ltd.,
both of which are members of the Koos Group. He is also the president of
My-Funding Corp. and chairman of China Life Insurance Company. Mr. Koo received
a B.A. degree and an MBA degree from New York University. He is a brother of
Jeffrey Koo, Jr. and a nephew of Leslie Koo.

         JEFFREY KOO, JR. is a director of our company. He is also currently the
chairman of Chinatrust Commercial Bank, the managing director of Crimson Capital
Management, Ltd. and the honorary vice chairman of J-Ho Real Estate Development
Co. From February 1993 to January 1995, Mr. Koo also served as the executive
vice president of Taiwan Fuji-Xerox Corp. Mr. Koo received a B.A. degree from
SooChow University in Taiwan and an MBA degree from the University of
Pennsylvania. He is the brother of Andre Koo and a nephew of Leslie Koo.

         LESLIE KOO is a director of our company. He is also currently the
president of Taiwan Cement Corporation, a leading cement manufacturer in Taiwan
and a member of the Koos Group, the chairman of China Synthetic Rubber
Corporation, also a member of the Koos Group, and the chairman of KG
Telecommunications. In addition, Mr. Koo is also serving as the chairman of the
Taiwan Britain Business Council, a director of the ROC-USA Business Council and
a director of the Sino-British Culture and Economy Association. Mr. Koo received
a B.A. degree from the University of Washington and an MBA degree from the
University of Pennsylvania. He is an uncle of Jeffrey Koo and Andre Koo.

         RICHARD LIN YANG (1) adds extensive business experience in the Greater
China region to GigaMedia's board. Mr. Yang currently serves as the
vice-chairman of Chongqing Da Dah Navigation Co. Ltd. of the

--------
(1) An independent director.

                                       52

<PAGE>

PRC; director of Chongqing Taipan Storage (Petroleum) Ltd., of the PRC, and
Taipan Storage (Petroleum) Pte. Ltd., of Singapore; and as managing director of
E-Hsiang Steamship Co. Ltd., of Taiwan. He has also been a non-executive
director of EC-Founder (Holdings) Co. Ltd., since 1995. Mr. Yang received his
bachelor's degree from the University of California at Los Angeles.

OFFICERS

         RAYMOND CHANG is chief executive officer and a co-founder of GigaMedia
as well as senior vice president of Hoshin GigaMedia. He is also currently a
special advisor to Chinatrust Commercial Bank. Prior to joining our company, Mr.
Chang worked at Koos Development Corp. as a special assistant to the chairman
and at McKinsey & Company. Mr. Chang received a B.A. degree in economics and
political science from New York University and an M.P.P.M degree from Yale
University. From 1996-1997, Mr. Chang also matriculated at the John F. Kennedy
School of Government of Harvard University.

         WAYNE CHEN is vice president and general counsel of GigaMedia. Prior to
joining our company, he was a senior associate at Simpson Thacher & Bartlett LLP
in both its New York and Hong Kong offices where he practiced corporate law. Mr.
Chen has conducted various equity and equity-linked corporate finance
transactions, as well as several mergers and acquisition transactions and
leveraged buy-out financings. He has executed various high yield offerings in
Asia and represented derivative and Asian-focused private equity funds. Mr. Chen
received his law degree from New York University School of Law and his B.A. in
chemistry from the University of Chicago.

         MICHEL CHU is chief technology officer and a vice president of our
company. He has extensive experience in Internet-related software development,
system engineering and project management. Mr. Chu is responsible for the
design, development and implementation of our company's broadband service
infrastructure. Mr. Chu received an M.S. degree in electrical engineering from
National Taiwan University.

         WINSTON HSIA is the chief financial officer of GigaMedia, as well as
the chief financial officer of China Network Systems Co., Ltd., the management
company of Koos Group cable entities. Mr. Hsia was formerly chief financial
officer and founder of an Internet capital formation business, 01 Inc., in
Korea. Prior to that, Mr. Hsia worked for seven years in the fixed income
industry, including terms at Peregrine Investment Holdings and Lehman Brothers
in Hong Kong. At Lehman Brothers, Mr. Hsia was responsible for fixed income
sales to Taiwanese financial institutions and regional central banks. He
received an MBA degree in finance from the Wharton School of Business at the
University of Pennsylvania in 1992 and his undergraduate degree from the
University of California at Berkeley in 1988.

         FALCO MI is chief administrative officer and a vice president of our
company. He is also currently a consultant at KGI Securities Co. Ltd in Taipei.
Prior to joining our company, Mr. Mi worked at KGI Securities Co. Ltd in Taipei
as a manager of the research department, the equity and sales - proprietary
trading department and the derivatives product department. Mr. Mi was also
senior vice president to the general management office, as well as the spokesman
from 1993-2001. Mr. Mi received a B.S. degree in electrical engineering from
National Taiwan University.

         JOSEPH SHEA is vice president and deputy chief financial officer of our
company. Prior to joining GigaMedia, Mr. Shea was an equity research analyst at
Lehman Brothers Asia Limited covering the Internet industry. Before he was at
Lehman Brothers, Mr. Shea was a manager at A.T. Kearney (Hong Kong) Limited
where he was responsible for project planning and engagement execution for
clients based in Asia and Europe. While working at A.T. Kearney, Mr. Shea led
several Internet related projects. Mr. Shea also held design engineer positions
in several major microprocessor design projects at Intel Corporation. Mr. Shea
received his MBA from the University of California at Berkeley. He also holds an
M.S. in Electrical Engineering from Columbia University as well as a BS in
Electrical Engineering from Carnegie-Mellon University.

B.       COMPENSATION

                                       53

<PAGE>

         For the year ended December 31, 2002, the aggregate compensation paid
by us to all of our executive officers was approximately NT$24,341 thousand
(US$701 thousand) and the aggregate compensation paid by us to all of our
directors was approximately NT$2,484 thousand (US$72 thousand).

C.       BOARD PRACTICE

         Neither we nor any of our subsidiaries has signed any service contract
with any of our directors in respect of provision of benefit upon termination of
employment.

         Each of our directors will remain in his office as a director until:

         -        he is prohibited from acting as a director by reason of any
                  order made pursuant to the Singapore Companies Act (Chapter
                  50);

         -        he resigns from his office;

         -        he receives a bankruptcy order made against him;

         -        he is found to be 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 (Chapter 50).

         Our board of directors has appointed an audit committee. The audit
committee currently consists of Messrs. Yuanchi Chao, David Chuang and Richard
Yang. Our audit committee will select and engage, on our behalf, the independent
public accountants to audit our annual financial statements, and will review and
approve the planned scope of our annual audit. This committee will also review
and approve the terms of proposed material transactions with related parties. In
accordance with our articles of association, all of the members of our audit
committee must be persons who qualify as "independent" directors for purposes of
the rules and regulations of Nasdaq.

D.       Employees

         As of May 31, 2003, the online business unit of GigaMedia employed 182
people, excluding part-time and temporary personal and consultants. Of the
total: 60 were employed in our broadband services group, including sales and
marketing and related services; 69 were employed in our operational services
group, including customer service; 26 were employed in our technology group; 17
were employed in our finance group; and 10 were employed in operations and
general and administration. In addition, our subsidiary KBT employed a total of
67 people. Our offline business unit employed a total of 377 people, including
335 store employees and 42 office employees.

         None of our employees is subject to any collective bargaining
arrangements, and we consider our relations with employees to be good.

E.       SHARE OWNERSHIP

SHARE OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS

         The tables below set forth information as to our directors', and
executive officers' share ownership in our company as of May 20, 2003.

                                       54

<PAGE>

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
                                          NUMBER OF
                        NUMBER OF      SHARES ISSUABLE
                         COMMON         UPON EXERCISE      EXERCISE PRICE
    DIRECTOR             SHARES          OF OPTIONS            (US$)              EXPIRATION DATE
-------------------------------------------------------------------------------------------------------
<S>                     <C>            <C>                 <C>                    <C>
   LESLIE KOO              (1)             100,000              24.3                   2005
-------------------------------------------------------------------------------------------------------
JEFFREY KOO, JR.           (1)             100,000              24.3                   2005
-------------------------------------------------------------------------------------------------------
    ANDRE KOO              (1)             100,000              24.3                   2005
-------------------------------------------------------------------------------------------------------
</TABLE>

-------------------
         (1) See discussions of beneficial ownership of this person in our
company in "--Beneficial Ownership" below.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
                                          NUMBER OF
                        NUMBER OF      SHARES ISSUABLE
   EXECUTIVE             COMMON         UPON EXERCISE      EXERCISE PRICE
    OFFICER              SHARES          OF OPTIONS            (US$)              EXPIRATION DATE
-----------------------------------------------------------------------------------------------------
<S>                     <C>            <C>                 <C>                    <C>
   MICHEL CHU             408,000            0                  N/A                    N/A
-----------------------------------------------------------------------------------------------------
  JOSEPH SHEA               0                0                  N/A                    N/A
-----------------------------------------------------------------------------------------------------
RAYMOND CHANG             275,000            0                  N/A                    N/A
-----------------------------------------------------------------------------------------------------
  WINSTON HSIA              0                0                  N/A                    N/A
-----------------------------------------------------------------------------------------------------
  WAYNE CHEN                0                0                  N/A                    N/A
-----------------------------------------------------------------------------------------------------
</TABLE>

BENEFICIAL OWNERSHIP

         As of May 20, 2003, Leslie Koo held beneficiary ownership of 13,145,313
common shares or approximately 26.21% of common shares of our company,
consisting of 4,616,389 common shares through legal entity Robustos Capital
Investments Ltd., 3,687,271 shares through legal entity JKK Inc., 3,257,143
shares through TCC International Limited and 1,584,510 common shares through
KGEX.com Co., Ltd., respectively.

         As of May 20, 2003, Jeffrey Koo and Angelo Koo jointly owned 14,742,856
common shares or approximately 29.40% of common shares of our company through
legal entities Best Method Inc., Golden Pacific Equities Ltd., and Kudos Fund.

         The above Koo's family directors beneficially own approximately
27,888,169 shares in our company, representing approximately 55.61% of our
outstanding shares. Our directors and executive officers as a group beneficially
own approximately 28,571,169 shares in our company, representing 56.97% of our
outstanding shares.

         Other than the above Koo family directors, no other director or
executive officer beneficially owns more than 1% of the outstanding shares of
our company.

EMPLOYEE SHARE OPTION PLANS

         During 2000, we adopted the 1999 Employee Share Option Plan, or the
1999 Plan. Pursuant to the

                                       55

<PAGE>

1999 Plan, up to two million common shares may be granted to employees of our
company. The 1999 Plan is administered by a committee designated by our board of
directors. The committee as plan administrator has complete discretion to
determine the exercise price for the option grants, which eligible individuals
are to receive option grants, the time or times when options grants are to be
made, the number of shares subject to grant and the maximum term for which any
granted option is exercisable. During 2000, options to purchase 1,111,440 shares
of our company's common stock were granted at an exercise price of US$24.3, a
10% discount to the initial public offering price of US$27, and options to
purchase 836,470 shares of our company's common stock were granted at an
exercise price of US$15, representing fair value at the date of grant. The
options expire on the date of termination of employment or five years from the
date of grant if not exercised. Also, the options are not transferable other
than on death, and are exercisable in three annual installments of 30%, 30%, and
40% commencing one year from the date of grant when the specific employees
complete one, two, or three years, respectively, of service with us. We grant
fixed awards with pro rata vesting, and computes compensation expenses along
with the vesting periods.

         Unearned compensation for outstanding options granted under the 1999
Plan as of December 31, 2001 and 2002 amounted to NT$5.3 million and nil. In
June 2001, we cancelled all outstanding stock options granted in 2000 under the
1999 Plan, resulting in the recognition of compensation expense in the amount of
NT$53.3 million for 2001. Total compensation expense recorded in 2001 for all
options amounted to NT$130.8 million which consists of amortization of options
outstanding during 2001, net of forfeitures. We recognized the amortization of
compensation expenses in 2002 in the amount of NT$5.3 million.

         During 2001, we adopted the 2001 Employee Share Option Plan, or the
2001 Plan, under which up to three million common shares may be granted to
employees of our company. There were no options granted under the 2001 Plan and
the 2001 Plan was cancelled in June 2002.

         During 2002, we adopted no employee share option plan.

SHARE INCENTIVE PROGRAM

         In order to provide appropriate equity incentives to our employees, in
October 1998 and the first half of 1999, Hoshin Gigamedia issued an aggregate of
4.679 million shares of Hoshin Gigamedia to some of our employees at no cost,
generally subject to a three-year vesting schedule. Following our acquisition of
100% of Hoshin Gigamedia, these shares of Hoshin Gigamedia were exchangeable for
4.679 million shares of our company, subject to the original vesting schedule.
We do not plan to issue shares to our employees in the future for compensation
purposes, other than shares issued upon the exercise of our employee share
options.

                                       56

<PAGE>

ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

         The following table sets forth information known to us with respect to
the ownership of our shares as of May 20, 2003 by (1) each shareholder known by
us to own more than 5% of our shares and (2) all directors and executive
officers as a group.

<TABLE>
<CAPTION>
                                                                         PERCENTAGE OF
                 NAME OF OWNER (1)                     SHARES OWNED       SHARES OWNED
------------------------------------------------       ------------      -------------
<S>                                                    <C>               <C>
Best Method Inc.(2).............................        10,799,999           21.53%
Robustos Capital Investments Ltd (2) ...........         4,616,389             9.2%
JKK Inc.(2) (3).................................         3,687,271             7.4%(3)
Batterymarch Financial Management Corp.                  3,039,000             6.1%
Kudos Fund(2)...................................         3,600,000             7.2%
TCC International Limited(2)....................         3,257,143             6.5%
Leslie Koo(4)...................................        13,145,313           26.21%
Jeffrey Koo and Angelo Koo(5)                           14,742,856            29.4%
Directors and executive officers as a group (13
persons) .......................................        28,571,169           56.97%
</TABLE>

---------------
(1)      As at May 20, 2003 Microsoft Corporation held 2.8% shares of our
         company, decreased from 8.2% as at March 15, 2002, and ceased to be a
         major shareholder of our company.

(2)      A member of the Koos Group. The Koos Group is controlled by members of
         the Koo family, which includes three of our directors: Jeffrey Koo,
         Jr., Leslie Koo and Andre Koo.

(3)      In December 2000, JKK Inc. transferred 1,584,510 shares to KGEX.com Co.
         Ltd., which decreased JKK ownership percentage from 25.2% to 22%. In
         February 2003, JKK transferred 4,616,389 shares to Robustos Capital
         Investments Ltd. In addition, JKK has pledged but not sold 3,687,271 of
         their remaining shares.

(4)      Leslie Koo owns these shares through several legal entities, consisting
         of 4,616,389 shares through Robustos Capital Investments Ltd.,
         3,687,271 shares through JKK Inc., 3,257,143 shares through TCC
         International Limited and 1,584,510 shares through KGEX.com Co., Ltd.

(5)      Jeffrey Koo and Angelo Koo jointly own 14,742,856 common shares of our
         company, consisting of 10,799,999 shares owned through Best Method
         Inc., 342,857 shares through Golden Pacific Equities Ltd., and
         3,600,000 shares through Kudos Fund.

         As of May 20, 2003, we had 50,154,000 ordinary shares outstanding, out
of which, 21,582,831 shares were listed on the Nasdaq and not held by our major
shareholders and directors or executive officers as disclosed above and in Item
6 "Senior Management and Employees - E. Share Ownership", representing 43.0% of
our total outstanding shares. As of May 20, 2003, the 21,582,831 shares listed
on the Nasdaq, were held by 21 record holders, including nominee holders, with
the registered address in the United States. None of our major shareholders have
different voting rights from those of other shareholders of us.

         There are no arrangements known to us, the operation of which may at a
subsequent date result in a change of control of our company.

                                       57

<PAGE>

RELATED PARTY TRANSACTIONS

         We from time to time have engaged in a variety of transactions with our
affiliates in the normal course of business. Our policy is that such
transactions have been conducted on terms as favourable to us as obtainable at
the time in a comparable arm's length transaction with a non-affiliate.

         KOOS GROUP CABLE OPERATORS

         For 2000, 2001, 2002 and as of June 24, 2003, 16, 16, 12 and 12 of our
cable partners, respectively, were members of the Koos Group cable television
network. As part of our revenue sharing arrangements with these partners, we
generally pay them (1) 35% to 45% of each subscriber's monthly access fee in
excess of NT$300 and (2) NT$500 per cable modem installation. These payments
totaled approximately NT$38.2 million, NT$45.6 million, and NT$48.0 million
(US$1.38 million) for 2000, 2001 and 2002, respectively. The term of our
agreements with these cable partners is generally nine years, and we have
generally been granted exclusive rights to use their cable systems to provide
Internet access services. In June 1999, we extended an NT$40 million cash
advance to two of our cable partners that are members of the Koos Group cable
television network. This advance was fully reimbursed in September 1999. We did
not earn any interest from this transaction.

         MICROSOFT

         Hoshin Gigamedia and Microsoft entered into a Business Co-Operation
Agreement in November 1999 pursuant to which:

         -        Microsoft agreed to include some of our content on a
                  narrowband version of the Microsoft Network to be developed
                  for Taiwan;

         -        the parties agreed to create a co-branded broadband version of
                  Microsoft Network for Taiwan;

         -        the parties agreed to jointly develop shopping channels to be
                  made available in Taiwan on the narrowband version of
                  Microsoft Network and the co-branded broadband version of
                  Microsoft Network;

         -        Hoshin Gigamedia agreed to accept Microsoft as its default
                  technology provider;

         -        the parties agreed to a number of access revenue sharing
                  arrangements, including (1) sharing revenues derived from
                  electronic commerce channels jointly developed and (2) paying
                  Microsoft 2% of our gross cable-based Internet access revenues
                  in consideration for our use of its licensed software; and

         -        Hoshin Gigamedia undertook to spend $1 million on advertising
                  services over a three-year period ending in November 2002.

         No products have been developed or are expected to be developed
pursuant to this agreement. This agreement terminates on the date upon which
Microsoft no longer holds a majority of our shares initially purchased pursuant
to the Share and Warrant Purchase Agreement dated as of October 27, 1999.

         Hoshin Gigamedia has also entered into a content license agreement with
MSNBC Interactive News, L.L.C., a subsidiary of Microsoft, pursuant to which
MSNBC has granted Hoshin Gigamedia a non-exclusive license to use and transmit a
selected portion of its news content.

         In November 1999, we issued a warrant to Microsoft in connection with
the purchase by Microsoft of 4 million of our shares for $35 million. The
warrant is exercisable for five years and initially entitles Microsoft to
purchase up to 10 million of our shares at $6.60 per share. Microsoft has not
exercised the warrant. For further information see note 5 of the Consolidated
Financial Statements.

                                       58

<PAGE>

         CHINATRUST COMMERCIAL BANK

         Pursuant to an arrangement between our wholly-owned subsidiary KBT and
Chinatrust Commercial Bank since September 2001, KBT charges Chinatrust
Commercial Bank a monthly leased line fee. This fee totaled approximately NT$886
thousand and NT$950 thousand (US$27.3 thousand) in 2001 and 2002, respectively.

GRAND PACIFIC SECURITIES INVESTMENT TRUST CO., LTD.

         We purchased beneficiary certificates of fixed-income open-end mutual
funds that are managed by the Grand Pacific Securities Investment Trust Co.,
Ltd., a member of the Koos Group. For 1999 and 2000, these purchases totaled
NT$100 million and NT$700 million, respectively. We did not pay any fees or
commissions to Grand Pacific in connection with these purchases. We sold all
beneficiary certificates in 2000 at a gain of NT$14,549 thousand and repurchased
additional beneficiary certificates. As of December 31, 2001, the Grand Pacific
Securities Investment Trust Co., Ltd. was no longer affiliated with the Koos
Group because the Koos Group disposed of all of their shares in Grand Pacific
Securities Investment Trust Co., Ltd. in 2001.

         RAYMOND CHANG

         During 2001, we provided our CEO, Raymond Chang, a two-year loan in
the amount of approximately NT$18.5 million at an annual interest rate of 4.45%.
On June 2, 2003, we agreed with Mr. Chang that the loan will be due by December
31, 2003 and that interest will continue to accrue at 4.45% per annum until full
payment is received. Mr. Chang began making payments against interest and
principal on June 2, 2003.

                                       59

<PAGE>

ITEM 8.  FINANCIAL INFORMATION

A.       CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

FINANCIAL STATEMENTS

         Please refer to Item 18 for a list of all financial statements as part
of this annual report on Form 20-F.

INFORMATION ON LEGAL OR ARBITRATION PROCEEDINGS

         We are currently a party to a legal proceeding related to our initial
public offering, as described below. As the proceeding relates to misconduct by
the underwriters and not GigaMedia, we do not expect that the ultimate outcome
of this legal proceeding will have a materially adverse effect on our financial
position or overall trends in results of our operations. However, if an
unfavorable ruling were to occur, there exists the possibility of a material
adverse impact on the results of operations.

         In December 2001, a class action lawsuit was filed against us and our
directors and some officers on behalf of purchasers of our common stock between
February 17, 2000 and December 6, 2000 inclusive. There are over 300 issuers who
are defendants in this class action.

         The complaint alleges that we violated Sections 11, 12(a)(2) and 15 of
the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of
1934 and Rule 10b-5 promulgated thereunder in connection with the initial public
offering of our stock or our IPO. The complaint further alleges that the
prospectus used for our IPO was materially false and misleading because it
failed to disclose, among other things (i) the underwriters had solicited and
received excessive and undisclosed commissions from certain investor in exchange
for which the underwriters allocated to those investors substantial portion of
the restricted number of our shares issued in connection with our IPO; and (ii)
the underwriters had entered into agreements with customers whereby the
underwriters agreed to allocate our shares to those customers in our IPO in
exchange for which the customer agreed to purchase additional GigaMedia shares
in the aftermarket at pre-determined prices.

         The plaintiffs claim damages in an unspecified amount, including class
damages and statutory compensation in an amount to be determined at trial,
including interest, costs and attorneys' fees. On or around April 19, 2002, the
plaintiffs filed amended complaints against us. On July 1, 2002, the underwriter
defendants filed their motion to dismiss the amended complaints. Subsequently,
on July 15, 2002, the issuer defendants filed their motion to dismiss the
amended complaints. The parties completed the briefing on the motions to
dismiss, and the court held oral argument on the motions to dismiss on November
1, 2002. On October 17, 2002, a settlement consideration was proposed that the
insurers, on behalf of the defendant directors and officers, shall severally pay
the sum of US$100 million for the benefits of the plaintiffs in the class
action. On February 19, 2003, the court issued an Opinion and Order on
defendants' motions to dismiss, which granted the motions in part and denied the
motions in part. As to our company, the Rule 10b-5 claims were dismissed without
prejudice while the Section 11 claims survived the motion.

         As the litigation is still at a very early stage, neither we nor our
attorney is able to assess the likelihood of an unfavorable outcome and can
determine as to the amount or range of potential loss, if any. However, we
intend to vigorously defend ourself against allegations. We have entered into an
insurance policy with American Insurance Group with US$10 million of liability
coverage. In addition, we have requested the underwriters of our IPO for
reimbursement for all cost, expenses, losses and/or damages incurred by us in
connection with such lawsuit. Accordingly, as of December 31, 2002, management
believes that the potential liability, if any, will be covered by the insurance
policy, and hence we have not recorded any provision related to these claims.

                                       60

<PAGE>

         Except for the above-referenced litigation, we are not aware that any
of our directors, any member of our senior managements or any of our affiliates
is a party to any current or pending legal proceedings the outcome of which is
expected to have a material adverse effect on us.

         In addition, G-Music was involved in an administrative proceeding
instituted by the Taiwan Fair Trade Commission with respect to G-Music's
acquisition of Rose Records and Tachung Records in 2002. The Fair Trade
Commission approved such acquisition but fined NT$3 million in total for
alledged violation by us of certain regulations during the process of the
acquisition. We paid and expensed the NT$3 million fine in 2002.

DIVIDEND POLICY

         We have never declared nor paid any dividends on our shares. We
anticipate that we will continue to retain any earnings for use in the operation
of our business and we do not intend to pay dividends in the foreseeable future.

B.       SIGNIFICANT CHANGES

         On March 21, 2003, we announced that our board of directors had
received a formal offer from our management group, or the Management Group,
comprised of seven senior officers of our company, to purchase all shares of our
company for US$1.20 per share.

         On June 12, 2003, the Management Group submitted an amended offer, or
the Amended Offer, to our board of directors. The Amended Offer was structured
as a scheme of arrangement under Singapore law whereby GigaMedia was expected to
return capital and cancel all outstanding shares of GigaMedia other than those
held by the Management Group, either directly or through a separate legal entity
formed by the Management Group. In addition, the Amended Offer increased the
purchase price from US$1.20 per share to US$1.30 per share.

         Terms of the Amended Offer are subject to the following conditions: (a)
the negotiation and execution of a definitive agreement and other related
agreements mutually acceptable in form and substance to GigaMedia and the
Management Group; (b) the scheme of arrangement being sanctioned and approved by
a court of competent jurisdiction in Singapore; (c) disclosure documents
complying with Rule 13e-3 of the U.S. Securities Exchange Act of 1934 being
filed and approved by the U.S. Securities and Exchange Commission; (d) the
receipt of an opinion from GigaMedia's independent financial advisor to the
effect that the transactions contemplated in the Amended Offer are fair to
GigaMedia's shareholders; (e) the receipt of all necessary consents from third
parties and the making of any necessary foreign or domestic governmental
filings, and the expiration of any specified waiting periods thereunder without
challenge; and (f) the Amended Offer being accepted by GigaMedia's shareholders
(i) holding not less than 75% of GigaMedia's outstanding shares, and (ii)
representing a majority in number of members present; in each case, present and
voting at a shareholders' meeting that is duly called and fulfills the quorum
requirements under Singapore law and GigaMedia's constituting documents to
ratify the transaction.

         As stated in our March 21, 2003 annoucement, GigaMedia's board of
directors had formed a special committee made up of four directors, including
Nelson Chang, chairman of GigaMedia, Yuanchi Chao, David Chuang and Richard Lin
Yang to review the offer made by the Management Group.

         The Amended Offer required that our board of directors respond, by the
end of the business day, Taipei, Taiwan time, on June 20, 2003, which date was
subsequently extended by the Management Group to July 14, 2003, to the
Management Group whether our board of directors agreed to continue discussions
with the Management Group. Under the proposal made by the Management Group as of
June 30, 2003, in the event that our board of directors did not revert by July
14, 2003, the Management Group was entitled to terminate all discussions on the
Amended Offer.

         The board of directors did not revert by July 14, 2003. Therefore, the
Management Group is entitled to terminate discussions on the Amended Offer.
However, our board of directors has not received a formal notice from the
Management Group whether the Management Group will terminate the discussion,
extend the deadline again or revise the terms of the offer.

         We cannot assure you that the management buyout offer will proceed on
terms and conditions set forth in such offer, or at all. We will make an
appropriate announcement in the event that GigaMedia enters

                                       61

<PAGE>

into any definitive agreement on the offer with the Management Group. In the
meantime, we urge you to exercise caution when dealing with Gigamedia shares and
you should not take any action that may be prejudicial to your interests in our
company.

         In addition, in connection with the management buyout offer made by the
Management Group, we announced on June 5, 2003 that the chairman of our board of
directors, Mr. Nelson Chang had tendered his resignation as our chairman and as
a director of our company. The effectiveness of Mr. Chang's resignation is
contingent upon the outcome of the offer made by the Management Group. Mr.
Chang's resignation will be effective immediately following the earlier to occur
of (a) the completion of the management buyout offer proposed by the Management
Group and (b) the rejection of the offer by our board of directors or
shareholders (assuming that in the case of a rejection by our board of
directors, the proposed management buyout offer will be not submitted to our
shareholders for their consideration) and receipt by our board of directors of a
formal notice from the Management Group that no revised offer will be made in
response to such rejection. Although the Management Group is entitled to
terminate discussions on the management buyout offer because our board of
directors did not revert to the Management Group by July 14, 2003, as of July
15, 2003 our board has not received a formal notice from the Management Group
that no revised offer will be made and Mr. Chang remains chairman and a
director of our company.











                                       62

<PAGE>

ITEM 9.  THE OFFER AND LISTING

MARKET PRICE INFORMATION FOR OUR SHARES

         Our shares have been listed and traded on the Nasdaq since February 24,
2000. The following table shows, for the periods indicated, the high and low
closing prices for the shares as quoted on the Nasdaq, as well as the total
trading volume and the average daily trading volume for such shares.

<TABLE>
<CAPTION>
                                                           Common Shares
                                ------------------------------------------------------------------------------------
                                 High            Low    Total Trading Volume            Average Daily Trading Volume
Year Ended December 31,          ----            ---    --------------------            ----------------------------
        2000                           (in US$)                 (in thousands shares)
--------------------------------------------------------------------------------------------------------------------
<S>                             <C>            <C>      <C>                             <C>
First quarter                   $ 90.80        $ 51.40        24,450                                815
--------------------------------------------------------------------------------------------------------------------
Second quarter                  $ 50.77        $ 11.92        16,454                                261
--------------------------------------------------------------------------------------------------------------------
Third quarter                   $ 12.88        $  7.08        12,768                                203
--------------------------------------------------------------------------------------------------------------------
Fourth quarter                   $ 8.50        $  2.70         9,610                                153
--------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                                           Common Shares
                                ------------------------------------------------------------------------------------
                                 High            Low    Total Trading Volume            Average Daily Trading Volume
Year Ended December 31,          ----            ---    --------------------            ----------------------------
        2001                           (in US$)                 (in thousands shares)
--------------------------------------------------------------------------------------------------------------------
<S>                             <C>            <C>      <C>                             <C>
First quarter                   $  4.05        $  2.53         1,710                                 86
--------------------------------------------------------------------------------------------------------------------
Second quarter                  $  2.84        $  1.13         5,656                                 94
--------------------------------------------------------------------------------------------------------------------
Third quarter                   $  1.42        $  0.67         7,546                                126
--------------------------------------------------------------------------------------------------------------------
Fourth quarter                  $  2.70        $  0.86         4,556                                 76
--------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                                           Common Shares
                                ------------------------------------------------------------------------------------
                                 High            Low    Total Trading Volume            Average Daily Trading Volume
Year Ended December 31,          ----            ---    --------------------            ----------------------------
        2002                           (in US$)                 (in thousands shares)
--------------------------------------------------------------------------------------------------------------------
<S>                              <C>            <C>      <C>                            <C>
First quarter                    0.56           0.45        28,046,529                            445,183
--------------------------------------------------------------------------------------------------------------------
Second quarter                   1.25           0.67         6,221,250                             98,750
--------------------------------------------------------------------------------------------------------------------
Third quarter                    1.30           0.63         4,967,104                             77,611
--------------------------------------------------------------------------------------------------------------------
Fourth quarter                   0.84           0.42         9,813,312                            153,333
--------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                                           Common Shares
                                ------------------------------------------------------------------------------------
                                 High            Low    Total Trading Volume            Average Daily Trading Volume
Year Ended December 31,          ----            ---    --------------------            ----------------------------
        2003                           (in US$)                 (in thousands shares)
--------------------------------------------------------------------------------------------------------------------
<S>                              <C>            <C>      <C>                             <C>
       January                   1.52           0.69         18,753,399                           893,019
--------------------------------------------------------------------------------------------------------------------
      February                   1.03           0.73          3,897,489                           205,131
--------------------------------------------------------------------------------------------------------------------
        March                    1.05           0.66          5,203,926                           247,806
--------------------------------------------------------------------------------------------------------------------
        April                    0.94           0.86          3,954,426                           188,306
--------------------------------------------------------------------------------------------------------------------
         May                     0.96           0.87          2,977,128                           141,768
--------------------------------------------------------------------------------------------------------------------
June (through June 24)           1.27           0.9          15,189,900                           893,524
--------------------------------------------------------------------------------------------------------------------
</TABLE>

Source: Yahoo!

                                       63

<PAGE>

ITEM 10.          ADDITIONAL INFORMATION

A.       SHARE CAPITAL

         Not applicable.

B.       MEMORANDUM AND ARTICLES OF ASSOCIATION

         Our current Memorandum and Articles of Association were adopted on
September 13, 1999.

         Under Clause 3 of our Memorandum of Association, we have the capacity
and the rights, powers and privileges of a natural person.

         The following is a summary of certain provisions of our Articles of
Association.

         DIRECTORS

         Each of our directors will remain in his office as a director until:

         - He is prohibited from acting as a director by reason of any order
         made pursuant to the Singapore Companies Act (Chapter 50);

         - He resigns from his office;

         - He receives a bankruptcy order made against him;

         - He is found to be 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 (Chapter
         50).

         Any significant related party transactions require prior approvals from
our audit committee which consists solely of independent directors. A director
of our company who is directly or indirectly interested in a transaction,
contract or arrangement with our company shall disclose the nature of his
interest at a meeting of the board of directors. A director shall not vote on a
transaction in which he has a material interest and that director shall not be
counted in the quorum present at the meeting for such transaction. However, a
director may vote and be counted in the quorum regarding a transaction in which
such director has a non-material interest. The question of materiality or the
question of the entitlement of any director to vote at a meeting may be resolved
by the interested director voluntarily abstaining from voting or by the chairman
of the meeting. Directors may vote on any proposals or arrangements concerning
the benefit of our employees which may relate to both directors and employees of
us, so long as any director does not have any privilege or advantage not
generally granted to the class of persons to which such benefit scheme relates.
In addition, any of our directors may vote on any contract for the purchase or
maintenance for any director or directors of our company of insurance against
liability. Our Board of Directors may exercise all the powers of our company to
borrow any sum of money, to give guarantees or indemnities, to mortgage or
charge our undertaking, property and uncalled capital, or to issue debentures or
other securities for any debt, liability or obligation of our company.

         The remuneration of the directors of our company is determined by our
compensation committee. The directors' remuneration shall be deemed to accrue
from day to day.

         Non-executive directors of our company are subject to retirement by
rotation.

         Our Directors are not required to hold any of our shares by way of
qualification. A Director who is not a shareholder of us is nevertheless
entitled to attend and speak at shareholders meetings.

                                       64

<PAGE>

         AUDIT COMMITTEE

         Our Audit Committee will select and engage, on our behalf, the
independent public accountants to audit our annual financial statements, and
will review and approve the planned scope of our annual audit. This committee
will also review and approve the terms of proposed material transactions with
related parties. In accordance with our articles of association, all of the
members of our Audit Committee must be persons who qualify as "independent"
directors for purposes of the rules and regulations of the Nasdaq.

         The Audit Committee is currently consisted of Messrs. Yuanchi Chao,
David Chuang and Richard Yang. We intend to fully comply with the requirements
of the U.S. Sarbanes-Oxley Act of 2002 and the rules of the U.S. Securities and
Exchange Commission thereunder and Nasdaq's requirements relating to audit
committees.

         DIVIDENDS

         Our Board of Directors may declare dividends by passing an ordinary
resolution at an Annual General Meeting. Our profits available for dividend and
determined to be distributed shall be applied to pay dividends to shareholders
according to their respective rights and priorities. Except for shares with
special rights as to dividends, all dividends shall be declared and paid
according to the amounts paid up or deemed paid up on shares.

         All dividends unclaimed for one year after having been declared may be
invested or otherwise made use of by our Board of Directors for the benefit of
us until claimed. If any dividend has not been claimed for six years after
becoming due for payment, our Board of Directors may forfeit such dividend.
After such forfeiture no shareholder or other person shall have the right to
claim such dividend, but our Board of Directors may determine to pay the whole
or part of such dividend to the shareholder or other person who could have
claimed that dividend immediately before it was forfeited. No dividend shall
bear interest against us.

         LIQUIDATION DISTRIBUTION

         In the case of winding up our company and in accordance with
requirements of laws, our shareholders may pass a special resolution to
authorize a liquidator to divide and distribute our assets to our shareholders
or, authorize the liquidator to vest the whole or part of our assets in trustees
upon such trusts for the benefit of the contributories so that no shareholder
will be compelled to accept shares or other securities on which there is any
liability.

         SHAREHOLDERS' MEETINGS

         We are required to hold an annual general meeting once in every
calendar year and not more than 15 months after the preceding annual general
meeting. The directors may convene an extraordinary general meeting whenever
they think fit, and they must do so upon the request in writing of shareholders
representing not less than 10% of our paid-up share capital. In addition, two or
more shareholders holding not less than 10% of our issued share capital may call
a meeting of our shareholders. Unless otherwise required by law or by our
articles of association, voting at general meetings is by ordinary resolution,
requiring an affirmative vote of a simple majority of those present and voting.
An ordinary resolution suffices, for example, in respect of appointments of
directors. A special resolution, requiring an affirmative vote of at least 75%
of those present and voting, is necessary for certain matters under the
Singapore Companies Act (Chapter 50), such as an alteration of our articles of
association. Subject to the Singapore Companies Act (Chapter 50), at least 21
days' advance written notice specifying the intention to propose a special
resolution must be given of every general meeting convened for the purpose of
passing a special resolution. Subject to the Singapore Companies Act (Chapter
50), at least 14 days' advance written notice must be given of every general
meeting convened for the purpose of passing an ordinary resolution.

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         VOTING RIGHTS

         Voting at any meeting of our shareholders is by a poll. On a poll every
shareholder who is present in person or by proxy has one vote for every share
held by him.

         SHARE CAPITAL

         We generally have the right by obtaining a general mandate at the
Annual General Meeting to repurchase not more than 10% of our own shares in
issue.

         Our Board of Directors may make a capital call on our shareholders with
respect to the amounts unpaid on their shares and the shareholders are required
to pay the call in one sum or by installment to the person at the time and place
as appointed by the Board of Directors. The Board of Directors may revoke a call
or postpone the time previously fixed for the call payment.

         We have the right, by ordinary resolution, to increase our capital by a
sum and the number of shares as the resolution prescribes.

         We may by ordinary resolution:

         (i)      consolidate and divide some or all of our share capital into
shares of a larger nominal value than our existing shares; upon such
consolidation, our Board of Directors may determine, as between the holders of
shares to be consolidated, which particular shares are to be consolidated into
each consolidated share, and may appoint a third party to sell any fractions of
shares resulting from such consolidation and distribute ratably the net proceeds
of such sale to the shareholders who would otherwise be entitled to a fraction
or fractions of shares;

         (ii)     subject to applicable law, sub-divide some or all of our
shares into shares of a smaller nominal value than is fixed by our Memorandum of
Association and determine that, as between the holders of the divided shares,
different rights or restrictions which we may apply to new shares may apply to
some of those divided shares; or

         (iii)    cancel any shares which have not been taken or agreed to be
taken by any person at the date of the passing of the resolution and reduce the
amount of our share capital by the amount of the shares so cancelled;

         We may also by special resolution reduce our share capital and any
capital redemption reserve fund and any share premium account in any manner as
authorized by law.

         We are not required to provide any sinking fund pursuant to our
Articles of Association. There was no provision discriminating against any
existing or prospective holder of shares as a result of such shareholder owning
a substantial number of our shares.

         There was no limitation on the rights of non-resident or foreign
shareholders to hold or exercise voting rights on the shares.

         MODIFICATION OF RIGHTS

         We may vary or abrogate any special rights attached to any class of our
shares, with the consent in writing of the holders of three-fourths in nominal
value of the issued shares of that class, or by a special resolution passed at a
separate meeting of holders of the shares of that class.

         TRANSFER OF SHARES

         Subject to our articles of association, shares are freely transferable
but our directors may decline to register any transfer of our shares on which we
have a lien. All of our outstanding shares have been fully paid. In addition,
our directors may refuse, at their discretion, to register or transfer shares to
a transferee of whom they do not approve. Shares may be transferred by a duly
signed instrument of transfer in the usual common

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form or in a form approved by our directors. Our directors may decline to
register any transfer of shares evidenced in certificated form unless, among
other things, it has been duly stamped and is presented for registration
together with the share certificate and other evidence of title as they may
require. We will replace worn-out, defaced, lost or destroyed certificates for
shares upon, among other things, the applicant furnishing evidence and indemnity
as the directors may require.

         TAKEOVERS

         The acquisition of shares of public companies is regulated by, inter
alia, the Singapore Companies Act (Chapter 50) and the Singapore Code on
Take-overs and Mergers. Any person, either on his own or together with parties
acting in concert with him, acquiring an interest in 25% or more of our voting
shares is obliged to extend a takeover offer for the remaining shares which
carry voting rights, in accordance with the provisions of the Singapore Code on
Take-overs and Mergers. "Parties acting in concert" will be presumed to include
related and associated companies, directors, including their relatives, pension
funds, discretionary funds and financial advisers in respect of shares held by
them and funds managed by them on a discretionary basis where the shareholdings
of the financial adviser and any of those funds total 10% or more of the equity
share capital of the acquiring party. The offer must be in cash or be
accompanied by a cash alternative at not less than the highest price, excluding
stamp duty and commission, paid by the offeror or parties acting in concert with
him for shares of that class within the preceding 12 months. A mandatory
takeover offer is also required to be made if a person holding between 25% and
50%, both inclusive, of the voting shares, either on his own or together with
parties acting in concert with him, acquires additional shares representing more
than 3% of the voting shares in any 12-month period.

C.      MATERIAL CONTRACTS

         The following are summaries of our material contracts entered into over
the past 2 years. However, these summaries may not contain all the information
important to you. For more complete information, you should read the entire
agreements, which have been included as exhibits to this annual report or
incorporated into this annual report by reference to our annual reports on Form
20-F (File No. 000-30540) filed with the Commission on June 28, 2001 and June
28, 2002.

ACQUISITION AGREEMENTS TO ACQUIRE ROSE RECORDS AND TACHUNG RECORDS, TAIWAN'S TWO
LEADING MUSIC STORE CHAINS, ENTERED INTO AS OF FEBRUARY 2002 WITH RESPECT TO
ROSE RECORDS AND SEPTEMBER 2002 WITH RESPECT TO TACHUNG RECORDS.

         We finalized agreements in February 2002 in the case of Rose Records
and in September 2002 in the case of Tachung Records to acquire through our
directly-owned subsidiary, G-Music Limited, all of the ownership interests of
Rose Records Co., Ltd. and Tachung Records Co., Ltd.

         The total purchase price was NT$638.9 million, consisting of NT$418.3
million in cash, NT$88.0 million of which was not paid and recorded as other
current liabilities as of December 31, 2002, and NT$220.6 million in the form of
shares in G-Music. The value of G-Music common stock was determined based on
management's estimate of the fair value of G-Music common stock in connection
with the acquisitions.

         The value of the net tangible assets and the amortizable intangible
assets of the companies acquired was NT$370.6 million at the acquisition dates.
We currently own approximately 58% of G-Music after the shares issued to the
selling shareholders of Rose Records and Tachung Records.

STRATEGIC ALLIANCE AGREEMENT ENTERED INTO AS OF MARCH 11, 2001 WITH GAMANIA
DIGITAL ENTERTAINMENT CO.

         Under the strategic alliance agreement, we agreed to cooperatively
provide broadband ISP service targeting Gamania's online game subscribers.
Gamania agreed to provide all products and services on a most favorable pricing
basis, and all new online games on a minimum one-month exclusive access basis.

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We retain the exclusive advertising rights to the co-branded site and share with
Gamania a commission of 10% monthly ISP access fee per related subscriber if
certain sales milestones are achieved.

COMMERCIAL AGREEMENT ENTERED IN TO AS OF APRIL 20, 2001 WITH ROCK INTERNET
CORPORATION, OR RIC

         Under the commercial agreement, we can obtain licensing of RIC Content,
on a preferential and most favored nation basis, for use on PC/Internet,
wireless and interactive television platforms and jointly promote service and
products by on-line and off-line advertising and promotional activities. We are
entitled to receive 3% of all gross revenue as a referral fee from RIC's
e-commerce sale and RIC shall receive 50% of advertising revenues generated from
the co-branded site. Under this agreement, RIC shall purchase an aggregate of
US$1.5 million of our services within 3 years of the signing date. Upon the
failure of RIC's performance, Rock Music Group, the major shareholder of RIC, is
obligated to assume the purchase obligation and other obligations of RIC.

STRATEGIC ALLIANCE AGREEMENT, ENTERED INTO AS OF MAY 14, 2001, AMONG US,
GIGAMUSIC.COM LIMITED, AND EMI MUSIC ASIA (A DIVISION OF EMI GROUP HONG KONG
LIMITED)

         In May 2001, we entered into a strategic alliance agreement with EMI to
jointly pursue business opportunities, develop an e-commerce marketplace for
music in Taiwan, and support the business of GigaMusic.com Limited, our
subsidiary. Under the strategic alliance agreement, GigaMusic.com Limited will
be responsible for the infrastructure, costs and implementation of all projects.
EMI's supporting responsibilities include providing access to EMI content and
EMI artists, access to EMI management expertise and industry know-how, and
certain additional technology, resources and funding support. EMI will be
granted a percentage of the outstanding share capital of GigaMusic.com Limited
on a fully diluted basis.

         Under the terms of the agreement, GigaMedia is required to make
non-recoupable payments to EMI in the amount of US$1,000,000 on March 1, 2001,
March 1, 2002 and March 1, 2003, respectively. EMI has not provided the
agreed-upon products to GigaMusic.Com. The Web site of GigaMusic.Com has not
been launched and no subscriber revenue has been generated from the project. We
made the US$1,000,000 payments due March 1, 2001 and March 1, 2002, and
terminated the agreement on March 1, 2002. We intend to:

         -        require a return of ownership interest in GigaMusic to us;

         -        forego our payment obligation of US$1,000,000 due March 1,
                  2003; and

         -        restructure the arrangement or demand a refund of the
                  US$2,000,000 paid.

         In April 2003 we were granted an injunction by Taipei District Court to
stop payment of the disputed US$1 million due March 1, 2003. We anticipate
arbitration to commence in January 2004.

D.      EXCHANGE CONTROLS

         There are currently no foreign exchange regulations which restrict the
export or import of our capital and the ability of Hoshin Gigamedia and G-Music
to distribute dividends to us. There are no limitations on the right of a
non-resident or foreign owner to hold or vote the shares imposed by Singapore
law or by our articles of association.

E.      TAXATION

SINGAPORE TAX CONSIDERATIONS

TAXATION OF DIVIDENDS RECEIVED BY SINGAPORE RESIDENT SHAREHOLDERS

         Dividends paid by us would be taxable in Singapore if they are received

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in Singapore or if they are considered, in the hands of a particular
shareholder, to be derived in Singapore (for example if they constitute the
income of a trade or business carried out in Singapore).

         Under the Singapore-Taiwan Tax Treaty, if a dividend is paid by a
company which is tax resident in Taiwan to a person who is tax resident in
Singapore, the tax on the dividend shall not exceed an amount which, together
with the corporate income tax on the profits of the company paying the dividends
constitutes 40% of that part of the taxable income out of which the dividends
are paid. The term "corporate income tax payable" shall be deemed to include the
corporate income tax that would have been paid but for the reduction or
exemption under the laws designed to promote economic development.

         If our shareholder, whether a company or an individual, receiving or
deriving such dividends is tax resident in Singapore, he would be entitled to
foreign tax credits under the Singapore-Taiwan Tax Treaty and, if the recipient
is a company which owns not less than 25% of our shares, the tax credit will
include underlying tax paid by us. Singapore foreign tax credit is limited to
the lower of the foreign tax suffered and the Singapore tax payable on the net
foreign income (after attributable and allowable expenses).

         In addition, the Singapore Minister for Finance announced during the
budget for the financial year 2003 on 28 February 2003 that certain foreign
dividends received by a Singapore resident period on or after 1 June 2003 will
be exempt from tax. The main conditions to be satisfied for such exemption (as
contained in a circular published by the Inland Revenue Authority of Singapore
on 21 May 2003) are that:

         (a)      the dividends are received from a jurisdiction with a headline
                  tax rate of at least 15%; and

         (b)      the dividends themselves, or the income from which they are
                  paid, have been subject to tax in the foreign jurisdiction.

         Under the current provisions of the Income Tax Act (Chapter 134 of
Singapore), the tax rate for corporate profits is 22% for the year of assessment
2003 (i.e. for the income earned in the financial year or other basis period
ended 2002). The marginal tax rate for individuals ranges from 0% to 22%,
depending on the amount of chargeable income. If our shareholders are
corporations, our shareholders will be regarded as being tax resident in
Singapore if the control and management of our shareholders' business is
exercised in Singapore. For example, if our shareholders' board of directors
meets and conducts the business of our shareholders' company in Singapore our
shareholders will be regarded as tax residents of Singapore. If our shareholders
are individuals, our shareholders will be regarded as being tax resident in
Singapore in a year of assessment if, in the preceding year, our shareholders
were physically present in Singapore or exercised an employment in Singapore
(other than as directors of a company) for 183 days or more or if our
shareholders had resided in Singapore.

GAINS ON DISPOSAL OF SHARES

         Singapore does not impose a tax on capital gains. However, there are no
specific laws or regulations which deal with the characterisation of capital
gains and hence, gains may be construed to be of an income nature and subject to
tax if they arise from activities which the Inland Revenue Authority of
Singapore regards as the carrying on of a trade or business in Singapore.

STAMP DUTY

         There is no stamp duty payable in respect of the issuance and holding
of shares. Where existing shares are acquired in Singapore, stamp duty is
payable on the instrument of transfer of the shares at the rate of S$2.00 for
every S$1,000 of the consideration for, or market value of, the shares,
whichever is higher. The stamp duty is borne by the purchaser unless there is an
agreement to the contrary. Where an instrument is executed outside Singapore, or
no instrument of transfer is executed, no stamp duty is payable on the
acquisition of existing shares. However, stamp duty would be payable if an
instrument of transfer which is executed outside Singapore is received in
Singapore.

         Under Singapore law, our directors may not register a transfer of

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shares unless the instrument of transfer has been duly stamped.

SINGAPORE ESTATE DUTY

         If our shareholders are individuals who are not domiciled in Singapore,
Singapore estate duty will be imposed on the value of immovable properties
situated in Singapore owned by such individual, subject to specific exemption
limits. Previously, movable assets of non-domiciles were also included. With
respect to deaths occurring on or after 1 January 2002, the movable property of
persons who are not domiciled in Singapore at the time of death are exempt from
estate duty. Therefore, an individual holder of shares who is not domiciled in
Singapore at the time of his or her death will not be subject to Singapore
estate duty on the value of our shares.

         If our shareholders are individuals who are domiciled in Singapore,
Singapore estate duty is imposed on the value of most immoveable property
situated in Singapore and on most movable property, wherever it may be situated,
subject to specific exemption limits. Accordingly, our shares held by an
individual domiciled in Singapore are subject to Singapore estate duty upon such
an individual's death. Singapore estate duty is payable to the extent that the
value of our shares aggregated with any other assets subject to Singapore estate
duty exceeds S$600,000. Unless other exemptions apply to the other assets, for
example, the separate exemption limit for residential properties, any excess
beyond S$600,000 will be taxed at 5% on the first S$12,000,000 of the
individual's Singapore chargeable assets and thereafter at 10%.

         Individuals should consult their own tax advisors regarding the
Singapore estate duty consequences of their ownership of our shares.

UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS FOR U.S. HOLDERS

         The following is a summary of the material United States federal income
tax consequences for beneficial owners of our shares that are U.S. holders and
non-residents of Singapore that hold the shares as capital assets and are not
vendors carrying on a trade in shares in Singapore. You are a U.S. holder under
the Internal Revenue Code if you are:

         -        a citizen or resident of the United States;

         -        a corporation or partnership created or organized in or under
                  the laws of the United States or any political subdivision
                  thereof;

         -        an estate the income of which is subject to United States
                  federal income taxation regardless of its source;

         -        a trust if (1) it is subject to the primary supervision of a
                  court within the United States and one or more United States
                  persons have the authority to control all substantial
                  decisions of the trust, or (2) it has a valid election in
                  effect under applicable United States Treasury regulations to
                  be treated as a United States person.

         This summary is based on current law, which is subject to change,
possibly on a retroactive basis. It is for general purposes only and you should
not consider it to be tax advice. This summary does not represent a detailed
description of all the United States federal income tax consequences to you in
light of your particular circumstances. In addition, it does not represent a
detailed description of the United States federal income tax consequences
applicable to you if you are subject to special treatment under the United
States federal income tax laws including if you are:

         -        a dealer in securities or currencies;

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         -        a trader in securities if you elect to use a mark-to-market
                  method of accounting for your securities holdings;

         -        a financial institution or an insurance company;

         -        a regulated investment company;

         -        a real estate investment company;

         -        a tax-exempt organization;

         -        a person liable for alternative minimum tax;

         -        a person holding shares as part of a hedging, integrated or
                  conversion transaction, constructive sale or straddle;

         -        a person owning, actually or constructively, 10% or more of
                  our voting stock; or

         -        a U.S. holder whose "functional currency" is not the United
                  States dollar.

         We cannot assure you that a later change in law will not alter
significantly the tax considerations that we describe in this summary.

         If a partnership holds our shares, the tax treatment of a partner will
generally depend upon the status of the partner and the activities of the
partnership. If you are a partner of a partnership holding our shares, you
should consult your tax advisors.

         You should consult your own tax advisor concerning the particular
United States federal income tax consequences to you of the ownership and
disposition of the shares, as well as the consequences to you arising under the
laws of any other taxing jurisdiction.

TAXATION OF DIVIDENDS

         Except as discussed below with respect to the passive foreign
investment company tax rules, the amount of distributions you receive on your
shares (other than certain pro rata distributions of shares or rights to
subscribe for shares) will generally be treated as dividend income to you if the
distributions are made from our current and accumulated earnings and profits as
calculated according to United States federal income tax principles. You will
include such dividends in your gross income as ordinary income on the day you
actually or constructively receive them. The amount of any distribution of
property other than cash will be the fair market value of such property on the
date it is distributed. You will not be entitled to claim a dividends received
deduction with respect to distributions you receive from us.

         With respect to U.S. holders who are individuals, certain dividends
received from a foreign corporation before January 1, 2009, on shares (or ADSs
backed by such shares) that are readily tradable on an established securities
market in the United States may be subject to reduced rates of taxation. Our
shares are listed on the Nasdaq Stock Market's National Market, which we believe
is an established securities market in the United States for purposes of these
rules. However, there can be no assurance that our shares will be readily
tradable in this or later years (or that we will have ADSs that are readily
tradable on an established securities market in any given year). Individuals
that do not meet a minimum holding period requirement during which they are not
protected from the risk of loss or that elect to treat the dividend income as
"investment income" pursuant to section 163(d)(4) of the Internal Revenue Code
will not be eligible for the reduced rates of taxation regardless of the trading
status of our shares or ADSs. U.S. holders who are individuals will not be
eligible for reduced rates of taxation on any dividends received from us prior
to January 1, 2009, if we are a passive foreign investment company (see
"--Passive Foreign Investment Company Rules" below) in the taxable year in which
such dividends are paid or in the preceding taxable year.

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You should consult your own tax advisors regarding the application of these
rules given your particular circumstances.

         The amount of any dividend paid in a currency other than the United
States dollar will equal the United States dollar value of the foreign currency
you receive, calculated by reference to the exchange rate in effect on the date
you actually or constructively receive the dividend regardless of whether the
foreign currency is actually converted into United States dollars. If you do not
convert the foreign currency you receive as a dividend on the date of receipt,
you will have a basis in such foreign currency equal to its United States dollar
value on the date of receipt. Any gain or loss you realize if you subsequently
sell or otherwise dispose of such foreign currency generally will be ordinary
income or loss from sources within the United States for foreign tax credit
limitation purposes.

Dividends we pay with respect to shares will generally constitute foreign source
income and generally will be considered "passive income" or, for certain
holders, "financial services income", which you generally are required to treat
separately from other types of income in computing your foreign tax credit
allowable under United States federal income tax laws. You will not be eligible
for a foreign tax credit for the underlying Singapore taxes on profits paid by
us with respect to such dividends.

PASSIVE FOREIGN INVESTMENT COMPANY RULES

         Based on the current and projected composition of our income and
valuation of our assets, including goodwill, we believe we were a passive
foreign investment company for the taxable year 2002, and absent significant
capital expenditures or a significant increase in our stock price this year, or
both, it is likely that we will remain a passive foreign investment company for
the taxable year 2003. We have limited control over the market value of our
shares and do not currently have plans to make significant active investments.
In addition, we believe that one or more of our subsidiaries were passive
foreign investment companies for the taxable year 2002 and will remain passive
foreign investment companies for the taxable year 2003. You will be treated as
an indirect shareholder of your proportionate interest in the shares of such
subsidiaries. Passive foreign investment company status is a factual
determination that is made annually. Provided we are a passive foreign
investment company for any taxable year during your holding period of our
shares, the passive foreign investment company tax rules discussed below
generally will apply in future years even if we cease to be a passive foreign
investment company in subsequent years. U.S. holders who are individuals will
not be eligible for reduced rates of taxation on any dividends received from us
prior to January 1, 2009, if we are a passive foreign investment company in the
taxable year in which such dividends are paid or in the preceding taxable year.

         In general, a company is considered a passive foreign investment
company for any taxable year if either:

         -        at least 75% of its gross income is passive income, or

         -        at least 50% of the value of its assets is attributable to
                  assets that produce or are held for the production of passive
                  income.

         The 50% of value test is based on the average of the market value of
our assets for each quarter during the taxable year. If we own at least 25%, by
market value, of another company's stock, we will be treated, for purposes of
the passive foreign investment company tax rules, as owning our proportionate
share of the assets and receiving our proportionate share of the income of that
company.

         As a U.S. holder of shares in a passive foreign investment company,
unless you make a mark-to-market election as discussed below, you will be
subject to passive foreign investment company tax rules that apply to:

         -        any "excess distributions" on your shares (generally, any
                  distributions received by you on the shares during a taxable
                  year that are greater than 125% of the average annual
                  distributions

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                  received by you in the three preceding taxable years, or if
                  shorter, your holding period for the shares) and

         -        any gain realized on the sale or other disposition of your
                  shares (including the pledging of your shares as security for
                  a loan).

         If, as we expect, one or more of our subsidiaries are treated as
passive foreign investment companies, a distribution from any of such
subsidiaries to us, a disposition of any of such subsidiaries by us, or a
transaction through which your indirect ownership of any of such subsidiaries is
decreased (including additional offerings of our shares) may be treated as a
distribution or disposition subject to the passive foreign investment company
tax rules even though you may not actually have received any cash associated
with such distribution, disposition, or transaction. If this were the case,
however, you would be entitled to increase your basis in the shares you directly
own to reflect the gain realized upon such distributions or dispositions.
Moreover, you would not be taxed when we distributed to you the income that you
already included in income for tax purposes.

         Under these passive foreign investment company tax rules,

         -        the excess distribution or gain will be allocated ratably over
                  your holding period for our shares,

         -        the amount allocated to the current taxable year, and any
                  taxable year prior to the first taxable year in which we were
                  a passive foreign investment company will be treated as
                  ordinary income, and

         -        the amount allocated to each other year will be subject to tax
                  at the highest tax rate in effect for your class of taxpayer
                  for that year and the interest charge generally applicable to
                  underpayments of tax will be imposed on the resulting tax
                  attributable to each such year.

         On the other hand, if our shares are regularly traded on a national
securities exchange, you may make an election to mark your shares to market,
which will result in tax consequences that differ from those discussed with
regard to the passive foreign investment company tax rules above. Our shares are
listed on the Nasdaq Stock Market's National Market which is a national
securities exchange for purposes of the mark-to-market election, although there
can be no assurance that our shares will be "regularly traded".

         If you make an effective mark-to-market election, each year you will
include in income as ordinary income (rather than capital gain) the excess, if
any, of the fair market value of your passive foreign investment company shares
at the end of the taxable year over your adjusted basis in the shares and will
be permitted to deduct as an ordinary loss the amount of the excess, if any, of
the adjusted basis of such shares over their fair market value at the end of the
taxable year, but only to the extent of the net amount previously included in
income as a result of the mark-to-market election. Your basis in the shares will
be adjusted to reflect any such income or loss amounts. Any gain or loss on the
sale of the shares will be ordinary income or loss, except that such loss will
be ordinary loss only to the extent of the previously included net
mark-to-market gain.

         If you make a mark-to-market election it will be effective for the
taxable year for which the election is made and all subsequent taxable years,
unless the shares are no longer regularly traded on a national securities
exchange or the Internal Revenue Service consents to the revocation of the
election.

         It is unclear how the mark-to-market rules apply to a passive foreign
investment company whose shares are "marketable stock," but that owns one or
more subsidiary passive foreign investment companies whose shares are not
"marketable stock." Thus, even if you have made a mark-to-market election, you
may be required to recognize taxable income with respect to our equity holdings
in any subsidiary passive foreign investment companies upon a distribution from
any of such subsidiaries to us, a disposition of any such subsidiaries by us, or
a transaction through which your indirect ownership of any such subsidiaries is
decreased (including additional offerings of our shares) even though you may not

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actually have received any cash associated with such taxable income. You are
urged to consult your own tax advisor as to the availability and desirability of
making such a mark-to-market election.

         Whether or not you make a mark-to-market election, any gain or loss
from the sale or other disposition of your shares generally will be United
States source income or loss for purposes of foreign tax credit limitations.

         A U.S. holder of shares in a passive foreign investment company can
sometimes avoid the passive foreign investment company tax rules described above
by electing to treat the company as a "qualified electing fund" under section
1295 of the Internal Revenue Code. This option is not available to you because
we do not intend to comply with the requirements necessary to permit you to make
this election.

         You must file United States Internal Revenue Service Form 8621 for
every year in which you hold shares in a passive foreign investment company.

INFORMATION REPORTING AND BACKUP WITHHOLDING

         In general, unless you are an exempt recipient such as a corporation
and demonstrate this when required, information reporting will apply to dividend
payments that we make to you paid within the United States (and in some cases,
outside of the United States). Additionally, if you fail to provide your
taxpayer identification number, or fail either to report in full dividend and
interest income or to make the necessary certifications, you will be subject to
backup withholding.

         In general, payment of the proceeds from the sale of shares to or
through a United States office of a broker is subject to both United States
backup withholding and information reporting unless you certify as to your
non-United States status under penalties of perjury or otherwise establish an
exemption. United States information reporting and backup withholding generally
will not apply to a payment made outside the United States of the proceeds of a
sale of shares through an office outside the United States of a non-United
States broker. However, United States information reporting requirements (but
not backup withholding) will apply to a payment made outside the United States
of the proceeds of a sale of shares through an office outside the United States
if the broker is:

         -        a United States person;

         -        a foreign person 50% or more of whose gross income is
                  effectively connected with a United States trade or business
                  for a specified three-year period;

         -        a "controlled foreign corporation" for United States 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% of the income or capital interest in the partnership; or

         -        such foreign partnership is engaged in a United States trade
                  or business;

unless the broker has documentary evidence in its files that you are a
non-United States person or you otherwise establish an exemption.

         Any amounts withheld under the backup withholding rules will be allowed
as a refund or a credit against your United States federal income tax liability,
provided you furnish the required information to the Internal Revenue Service.

INHERITANCE AND GIFT TAX

                                       74

<PAGE>

         As discussed in "-- Singapore Tax Considerations", Singapore estate
duty may be imposed on holders of shares. You should consult your own tax
advisor regarding the effect of such taxes on your particular situation.

F.      DIVIDENDS AND PAYING AGENTS

         Not applicable.

G.      STATEMENTS BY EXPERTS

         Not applicable.

H.      DOCUMENTS ON DISPLAY

         The U.S. Securities and Exchange Commission, or the SEC, allows us to
"incorporate by reference" the information we file with the SEC. This means that
we can disclose important information to you by referring you to another
document filed separately with the SEC. The information incorporated by
reference in this annual report is considered to be part of this annual report.
We therefore incorporate by reference in Item 19 of this annual report certain
exhibits, which we filed with the SEC before. You may read and copy this annual
report, including the exhibit(s) incorporated by reference in this annual
report, at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the SEC's regional offices in New York, New York
and Chicago, Illinois. You can also request copies of this annual report,
including the exhibit(s) incorporated by reference in this annual report, upon
payment of a duplicating fee, by writing information on the operation of the
SEC's Public Reference Room.

I.       SUBSIDIARY INFORMATION

         Not applicable.

                                       75

<PAGE>

ITEM 11.          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Market risk is the risk of loss related to adverse changes in market
prices, including interest rates and foreign exchange rates, of financial
instruments. We are exposed to various types of market risks, including changes
in interest rates and foreign currency exchange rates, in the normal course of
business.

FOREIGN CURRENCY EXCHANGE

         All of our revenues and receivables and a majority of our operating
expenses and payables are denominated in NT dollars, which is our functional
currency. The remaining operating expenses and payables, such as the cost of
cable modems and technology license fees, are primarily denominated in U.S.
dollars. As a result, our margins may be impacted by fluctuations of exchange
rate between NT dollar and U.S. dollar, exposing us to foreign currency exchange
risks. Because expenses denominated in foreign currencies historically have not
been material, we have not tried to reduce our exposure to exchange rate
fluctuations by using hedging transactions. However, we may choose to do so in
the future.

         As of December 31, 2002, we had bank deposits, restricted cash,
short-term investments and long-term investments denominated in US dollars of
US$16.4 million. As of December 31, 2002, we also had accounts payable
denominated in US dollars of US$98.7 thousand. We realized a foreign exchange
loss of NT$19.9 million in 2000, a foreign exchange gain of NT$5.2 million in
2001 and a foreign exchange gain of NT$131.9 million (US$3.8 million) in 2002
related to currency fluctuations. Unrealized foreign exchange gains were
NT$151.4 million in 2000 and NT$8.7 million in 2001, with an unrealized exchange
loss of NT$38.0 million (US$1.1 million) in 2002.

INTEREST RATE SENSITIVITY

         Our exposure to interest rates relates primarily to our short-term
investments and short-term loans. As of December 31, 2002, we had short-term
investments of NT$855.3 million (US$24.6 million). These short-term investments
consist predominantly of beneficiary certificates of open and fixed income
mutual funds. These investments are subject to interest rate risk in that the
value of their holdings in debt instruments will fall if market interest rates
increase. Declines in interest rates over time will, however, reduce our
interest income from our bank deposits. In addition, we have entered into
short-term loan agreements for the working capital needs of our offline
business. As of December 31, 2002, the balance of our short-term loans was
NT$93.0 million (US$2.7 million), bearing an interest rate of 6.25% per annum.
We have not entered into any interest rate swaps, caps or any hedge contracts to
modify our exposure to interest rate fluctuations. However, we do not expect
significant risk associated with the fluctuations of interest rate of short-term
loans due to their short-term maturity period.

OTHER MARKET RISK

         We are also exposed to other market risk, which is mainly derived from
our current investments in Gamania and other investee companies. Changes in the
stock price or the performance of these companies might have significant impact
on our financial positions or operating results.

                                       76

<PAGE>

ITEM 12.          DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

                  Not applicable.

                                       77

<PAGE>

                                     PART II

ITEM 13.          DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

                  None.

ITEM 14.          MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
                  USE OF PROCEEDS

                  Not applicable.

ITEM 15.          CONTROLS AND PROCEDURES

         Within 90 days prior to the date of this annual report, an evaluation
has been carried out under the supervision and with the participation of our
management, including Mr. Raymond Chang, our Chief Executive Officer, and Mr.
Winston Hsia, our Chief Financial Officer, of the effectiveness of the design
and operation of our disclosure controls and procedures. Based on that
evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures are effective in ensuring
that information required to be disclosed in this annual report is recorded,
processed, summarized and reported within the time period specified in the rules
and forms of the Securities and Exchange Commission.

         There have been no significant changes in our internal controls or in
other factors that could significantly affect the internal controls subsequent
to the date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

ITEM 16A.         AUDIT COMMITTEE FINANCIAL EXPERT

                  Not applicable.

ITEM 16B.         CODE OF ETHICS

                  Not applicable.

ITEM 16C.         PRINCIPAL ACCOUNTANT FEES AND SERVICES

                  Not applicable.

                                       78

<PAGE>

                                    PART III

ITEM 17.          FINANCIAL STATEMENTS

         We have elected to provide financial statements for fiscal year 2002
and the related information pursuant to Item 18.

ITEM 18.          FINANCIAL STATEMENTS

         Our consolidated financial statements and the report thereon by our
independent accountants listed below are attached hereto as follows:

<TABLE>
<CAPTION>
                                                                                       Page
                                                                                       ----
<S>                                                                                    <C>
(a)      Report of Independent Accountants.........................................     F-1

(b)      Consolidated Balance Sheets as of December 31, 2001 and 2002..............     F-2

(c)      Consolidated Statements of Operations for the years ended December 31,

         2000, 2001 and 2002.......................................................     F-4

(d)      Consolidated Statements of Shareholders' Equity for the years ended

         December 31, 2000, 2001 and 2002..........................................     F-5

(e)      Consolidated Statements of Cash Flows for the years ended December 31,

         2000, 2001 and 2002.......................................................     F-6

(f)      Notes to the Consolidated Financial Statements............................     F-7
</TABLE>

                                       79

<PAGE>

ITEM 19.          EXHIBITS

EXHIBITS INDEX

      1.1          Memorandum of Association of our company*

      1.2          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)*

                                       80

<PAGE>

      4.13         Broadband Internet over Cable Service Agreement between
                   Hoshin Gigamedia Center Inc. and Chun-Chien Cable Television
                   Co. Ltd., dated January 1, 2000 (including English summary)*

      4.14         Broadband Internet over Cable Service Agreement between
                   Hoshin Gigamedia Center Inc. and Twinstar CATV Co. Ltd.,
                   dated April 16, 1999 (including English summary)*

      4.15         Broadband Internet over Cable Service Agreement between
                   Hoshin Gigamedia Center Inc. and Sun Crown CATV Co. Ltd.,
                   dated April 16, 1999 (including English summary)*

      4.16         Broadband Internet over Cable Service Agreement between
                   Hoshin Gigamedia Center Inc. and Shinyeongan CATV Co. Ltd.,
                   dated May 21, 1999 (including English summary)*

      4.17         Broadband Internet over Cable Service Agreement between
                   Hoshin Gigamedia Center Inc. and Chung Lian Inc., dated April
                   16, 1999 (including English summary)*

      4.18         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)*

      4.19         Broadband Internet over Cable Service Agreement between
                   Hoshin Gigamedia Center Inc. and Union Cable TV Co. Ltd.,
                   dated May 14, 1999 (including English summary)*

      4.20         Broadband Internet over Cable Service Agreement between
                   Hoshin Gigamedia Center Inc. and North Taoyuan CATV Company,
                   dated August 9, 1999 (including English summary)*

      4.21         Broadband Internet over Cable Service Agreement between
                   Hoshin Gigamedia Center Inc. and Top Cable TV System Co.,
                   dated November 1, 1999 (including English summary)*

      4.22         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)*

      4.23         Broadband Internet over Cable Service Agreement between
                   Hoshin Gigamedia Center Inc. and Shuang Shing Cable TV Co.,
                   dated June 16, 1999 (including English summary)*

      4.24         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)*

      4.25         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)*

      4.26         Share and Warrant Purchase Agreement among GigaMedia Limited,
                   Hoshin Gigamedia Center Inc., Microsoft Corporation, Koos
                   Develop Corp., Chester Koo and Leslie Koo, dated October 27,
                   1999*

                                       81

<PAGE>

      4.27         Registration Rights Agreement among GigaMedia Limited and
                   Microsoft Corporation, dated November 23, 1999*

      4.28         Shareholders' Agreement among GigaMedia Limited, Microsoft
                   Corporation, Koos Develop Corp., Kudos Fund, Best Method
                   Inc., 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*

      4.29         Business Co-Operation Agreement among Hoshin Gigamedia Center
                   Inc. and Microsoft Corporation, dated November 1, 1999*

      4.30         Warrant, dated November 23, 1999, issued to Microsoft
                   Corporation*

      4.31         Strategic Alliance Agreement among GigaMedia Limited, Hoshin
                   Gigamedia Center Inc., and Gamania Digital Entertainment Co.,
                   LTD., dated March 1, 2001**

      4.32         Commercial Agreement among GigaMedia Limited, Hoshin
                   Gigamedia Center Inc., and Rock Internet Corporation, dated
                   April 20, 2001**

      4.33         Strategic Alliance Agreement among GigaMedia Limited,
                   GigaMusic.com Limited, and EMI Music Asia (a division of EMI
                   Group Hong Kong Limited), dated May 14, 2001+**

      4.34         Stock Purchase Agreement among Tachung Records and certain
                   shareholders of Rose Records, dated as of January 29, 2002***

      4.35         Stock Purchase Agreement among G-Music Limited and all
                   shareholders of Tachung Records, dated as of February 4,
                   2002***

      4.36         Amendment to Stock Purchase Agreement, dated as of April 4,
                   2002, to the Stock Purchase Agreement among Point Records
                   Co., Ltd. and certain shareholders of Point Records Co., Ltd,
                   dated as of January 29, 2002

      4.37         Amendment to Stock Purchase Agreement, dated as of September
                   20, 2002, to the Stock Purchase Agreement among Music King
                   Co., Ltd. and selling shareholders of Music King Co., Ltd.,
                   dated as of February 4, 2002

      8.1          List of Subsidiaries

      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

                                       82

<PAGE>

---------------------
*    Incorporated by reference from the Registration Statement on Form F-1,
     file number 333-11416 filed with the Securities and Exchange Commission
     on February 2, 2000.

**   Incorporated by reference from the annual report on Form 20-F, file
     number 000-30540 filed with the Securities and Exchange Commission on
     June 28, 2001.

***  Incorporated by reference from the annual report on Form 20-F, file
     number 000-30540 filed with the Securities and Exchange Commission on
     June 28, 2002.

+ Does not contain portions for which confidential treatment has been
requested.

                                       83

<PAGE>

                                   SIGNATURES

         The registrant certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report.

GIGAMEDIA LIMITED

By:   /s/ WINSTON HSIA

--------------------------
Winston Hsia
Chief Financial Officer

Date: July 15, 2003

                                       84

<PAGE>

                                 CERTIFICATIONS

I, Raymond Chang, certify that:

1.   I have reviewed this annual report on Form 20-F of GigaMedia Limited;

2.   Based on my knowledge, this annual report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this annual report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a.  designed such disclosure controls and procedures to ensure that
         material information relating to the registrant, including its
         consolidated subsidiaries, is made known to us by others within those
         entities, particularly during the period in which this annual report is
         being prepared;

     b.  evaluated the effectiveness of the registrant's disclosure controls and
         procedures as of a date within 90 days prior to the filing date of this
         annual report (the "Evaluation Date"); and

     c.  presented in this annual report our conclusions about the effectiveness
         of the disclosure controls and procedures based on our evaluation as of
         the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent function):

     a.  all significant deficiencies in the design or operation of internal
         controls which could adversely affect the registrant's ability to
         record, process, summarize and report financial data and have
         identified for the registrant's auditors any material weaknesses in
         internal controls; and

     b.  any fraud, whether or not material, that involves management or other
         employees who have a significant role in the registrant's internal
         controls; and

6.   The registrant's other certifying officers and I have indicated in this
     annual report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Date: July 15, 2003

                                                BY:     /s/ Raymond Chang
                                                    ------------------------
                                                        Raymond Chang
                                                    Chief Executive Officer

                                       85

<PAGE>

I, Winston Hsia, certify that:

1.   I have reviewed this annual report on Form 20-F of GigaMedia Limited;

2.   Based on my knowledge, this annual report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this annual report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a.  designed such disclosure controls and procedures to ensure that
         material information relating to the registrant, including its
         consolidated subsidiaries, is made known to us by others within those
         entities, particularly during the period in which this annual report is
         being prepared;

     b.  evaluated the effectiveness of the registrant's disclosure controls and
         procedures as of a date within 90 days prior to the filing date of this
         annual report (the "Evaluation Date"); and

     c.  presented in this annual report our conclusions about the effectiveness
         of the disclosure controls and procedures based on our evaluation as of
         the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent function):

     a.  all significant deficiencies in the design or operation of internal
         controls which could adversely affect the registrant's ability to
         record, process, summarize and report financial data and have
         identified for the registrant's auditors any material weaknesses in
         internal controls; and

     b.  any fraud, whether or not material, that involves management or other
         employees who have a significant role in the registrant's internal
         controls; and

6.   The registrant's other certifying officers and I have indicated in this
     annual report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Date: July 15, 2003

                                                By :       /s/ Winston Hsia
                                                     ------------------------
                                                           Winston Hsia
                                                      Chief Financial Officer

                                       86

<PAGE>

                                GIGAMEDIA LIMITED
                      CONSOLIDATED FINANCIAL STATEMENTS AND
                        REPORT OF INDEPENDENT ACCOUNTANTS
                     DECEMBER 31, 2001 AND 2002 AND FOR THE
                  YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002

<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS

To the board of directors and shareholders
   of GigaMedia Limited:

We have audited the accompanying consolidated balance sheet of GigaMedia Limited
and its subsidiaries as of December 31, 2002, and the related consolidated
statements of operations, of shareholders' equity and of cash flows for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements of the Company as of
December 31, 2001 and for each of the two years in the period ended December 31,
2001 were audited by other independent accountants whose report dated March 25,
2002 expressed an unqualified opinion on those statements.

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

In our opinion, the 2002 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of GigaMedia
Limited and its subsidiaries at December 31, 2002, and the results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.

PricewaterhouseCoopers
Taipei, Taiwan
April 24, 2003, except for Note 22, c.
as to which the date is May 1, 2003



                                      F-1

<PAGE>


                          INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Shareholders
of GigaMedia Limited

We have audited the accompanying consolidated balance sheet of GigaMedia Limited
as of December 31, 2001, and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the two years in the period
ended December 31, 2001. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of GigaMedia Limited
at December 31, 2001, and the consolidated results of their operations and their
cash flows for each of the two years in the period ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States of
America.






DIWAN, ERNST & YOUNG
CERTIFIED PUBLIC ACCOUNTANTS

Taipei, Taiwan, R. O. C.
March 25, 2002




                                      F-2
<PAGE>


                                GIGAMEDIA LIMITED
                           CONSOLIDATED BALANCE SHEETS
                           December 31, 2001 and 2002
                   (in thousands except for par value amount)

<TABLE>
<CAPTION>
                                                                                          December 31
                                                                          -------------------------------------------
                                                                              2001                   2002
                                                                          -----------      --------------------------
                             ASSETS                                           NT$             NT$             US$
----------------------------------------------------------------          -----------      ----------      ----------
                                                                                                           (Unaudited)
                                                                                                            (Note 1)
<S>                                                                       <C>              <C>             <C>
CURRENT ASSETS
  Cash and cash equivalents                                               $   794,346      $1,241,157      $ 35,768
  Short-term investments                                                    5,028,719         855,273        24,648
  Notes and accounts receivable (net of allowance for doubtful
    accounts of NT$26,728 and NT$54,056 as of December 31,
    2001 and 2002, respectively)                                              103,293         127,603         3,677
  Receivable from related parties                                               2,912           5,705           164
  Inventories-net                                                              52,499         360,216        10,381
  Prepaid expenses                                                             23,155          19,869           573
  Restricted cash                                                              40,950         100,414         2,894
  Note receivable from officer                                                      -          18,534           534
  Other current assets                                                         87,001         148,944         4,293
                                                                          -----------      ----------      --------
    Total Current Assets                                                    6,132,875       2,877,715        82,931
                                                                          -----------      ----------      --------

LONG-TERM INVESTMENTS                                                         994,898         641,088        18,475
                                                                          -----------      ----------      --------

PROPERTY, PLANT AND EQUIPMENT-NET

  Land                                                                         22,224          22,224           641
  Building                                                                     37,869          37,869         1,091
  Information, communication equipment and software                           564,181         720,691        20,769
  Modems rented                                                                69,102          80,553         2,321
  Office furniture and fixture                                                 76,275         106,191         3,060
  Transportation equipment                                                      6,697           7,793           225
  Leasehold improvements                                                       79,801         106,867         3,080
                                                                          -----------      ----------      --------
    Sub-total                                                                 856,149       1,082,188        31,187
  Less: Accumulated depreciation                                             (179,579)       (344,930)       (9,940)
  Construction in process                                                         429               -             -
  Prepayment for equipment                                                     28,571           1,680            48
                                                                          -----------      ----------      --------
    Net                                                                       705,570         738,938        21,295
                                                                          -----------      ----------      --------

GOODWILL                                                                            -          25,389           732
                                                                          -----------      ----------      --------

INTANGIBLE ASSETS-NET                                                          12,631         242,012         6,974
                                                                          -----------      ----------      --------
OTHER ASSETS
  Deferred assets                                                             107,808          87,353         2,517
  Refundable deposits-out                                                      22,005          82,960         2,391
  Restricted cash                                                              34,950               -             -
  Note receivable from officer                                                 18,534               -             -
  Others                                                                       33,281             583            17
                                                                          -----------      ----------      --------
    Total Other Assets                                                        216,578         170,896         4,925
                                                                          -----------      ----------      --------
TOTAL ASSETS                                                              $ 8,062,552      $4,696,038      $135,333
                                                                          ===========      ==========      ========
</TABLE>

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


                                       F-3

<PAGE>

                                GIGAMEDIA LIMITED
                     CONSOLIDATED BALANCE SHEETS-(Continued)
                           December 31, 2001 and 2002
                   (in thousands except for par value amount)

<TABLE>
<CAPTION>
                                                                                           December 31
                                                                          -------------------------------------------
                                                                              2001                   2002
                                                                          -----------      --------------------------
            LIABILITIES & SHAREHOLDERS' EQUITY                                 NT$             NT$            US$
----------------------------------------------------------                -----------      ----------     -----------
                                                                                                          (Unaudited)
                                                                                                            (Note 1)
CURRENT LIABILITIES
<S>                                                                       <C>             <C>             <C>
  Short-term loans                                                        $         -     $    93,000     $   2,680
  Notes and accounts payable                                                   69,772         470,646        13,563
  Payable to related parties                                                    3,780          20,511           591
  Accrued compensation                                                         44,984          44,610         1,286
  Accrued expenses                                                             41,177          53,150         1,532
  Other current liabilities                                                    15,421         118,395         3,412
                                                                          -----------     -----------     ---------
    Total Current Liabilities                                                 175,134         800,312        23,064
                                                                          -----------     -----------     ---------
OTHER LIABILITIES
  Refundable deposits                                                          20,057          23,622           681
  Accrued pension liabilities                                                   9,410          25,047           722
                                                                          -----------     -----------     ---------
    Total Other Liabilities                                                    29,467          48,669         1,403
                                                                          -----------     -----------     ---------
    Total Liabilities                                                         204,601         848,981        24,467
                                                                          -----------     -----------     ---------
MINORITY INTERESTS                                                             12,825         227,180         6,547
                                                                          -----------     -----------     ---------
COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY
  Common shares, NT$10 dollars par value; authorized 80,000
    shares; issued 50,154 shares on December 31, 2001 and
    2002                                                                      501,540         501,540        14,454
  Warrant outstanding                                                       1,543,270       1,543,270        44,475
  Additional paid-in capital                                               10,048,181       6,532,703       188,262
  Accumulated deficit                                                      (4,416,770)     (5,054,760)     (145,670)
  Accumulated other comprehensive income                                      168,905          97,124         2,798
                                                                          -----------     -----------     ---------
    Total Shareholders' Equity                                              7,845,126       3,619,877       104,319
                                                                          -----------     -----------     ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                $ 8,062,552     $ 4,696,038     $ 135,333
                                                                          ===========     ===========     =========
</TABLE>

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

                                       F-4
<PAGE>

                                GIGAMEDIA LIMITED
                      CONSOLIDATED STATEMENTS OF OPERATIONS
            For the Years Ended December 31, 2000, 2001 and 2002
                (in thousands except for loss per share amounts)

<TABLE>
<CAPTION>
                                                                2000            2001                    2002
                                                            ------------    ------------    ----------------------------
                                                                 NT$            NT$             NT$              US$
                                                            ------------    ------------    ------------    ------------
                                                                                                             (Unaudited)
                                                                                                              (Note 1)
<S>                                                         <C>             <C>             <C>             <C>
OPERATING REVENUES
  Sales/rental/installation                                  $   126,810     $     7,490     $ 1,864,128     $    53,721
  Access revenues                                                155,035         389,801         638,916          18,413
  Web development revenues                                        28,978           7,190               -               -
  Advertising and promotional revenues                            26,762           5,039          32,801             945
  Other revenues                                                   3,603           1,432          19,964             575
                                                            ------------    ------------    ------------    ------------
    Total                                                        341,188         410,952       2,555,809          73,654
                                                            ------------    ------------    ------------    ------------

COSTS AND EXPENSES
  Costs of sales/rental/installation                            (278,974)       (143,420)     (1,686,256)        (48,595)
  Operating costs                                               (987,331)     (1,636,820)       (634,872)        (18,296)
  Web development expenses                                       (23,182)        (12,233)              -               -
  Product development and engineering expenses                   (56,625)       (106,458)        (64,444)         (1,857)
  Selling and marketing expenses                                (383,948)       (285,590)       (427,310)        (12,314)
  General and administrative expenses                           (235,934)       (215,663)       (211,944)         (6,108)
  Bad debt expenses                                               (1,686)        (40,250)        (32,167)           (927)
  Impairment loss on goodwill                                          -               -        (242,938)         (7,001)
  Impairment loss on intangible assets                                 -               -         (80,627)         (2,324)
                                                                  (3,881)         (1,203)              -               -
                                                            ------------    ------------    ------------    ------------
    Total                                                     (1,971,561)     (2,441,637)     (3,380,558)        (97,422)
                                                            ------------    ------------    ------------    ------------

Loss from operations                                          (1,630,373)     (2,030,685)       (824,749)        (23,768)
                                                            ------------    ------------    ------------    ------------

NON-OPERATING INCOME (EXPENSES)
  Interest income                                                187,055          32,486          34,905           1,006
  Foreign exchange gains-net                                     131,557          13,868          93,941           2,707
  Gain on disposal of short-term investments                     114,577         201,826          62,787           1,810
  Gain on disposal of long-term investments                            -          11,639          51,791           1,493
  Impairment loss on long-term investments                             -               -         (40,000)         (1,153)
  Loss resulting from change of ownership percentage in a
    majority-owned subsidiary                                          -               -         (67,468)         (1,944)
  Interest expense                                                (4,114)         (1,085)         (1,392)            (40)
  Share of  loss of equity investees                             (13,801)        (27,837)              -               -
  Loss on disposal of property, plant and equipment                    -         (10,778)        (30,593)           (882)
  Others                                                           8,727            (957)          4,687             135
                                                            ------------    ------------    ------------    ------------
    Subtotal                                                     424,001         219,162         108,658           3,132
                                                            ------------    ------------    ------------    ------------

LOSS BEFORE INCOME TAXES AND MINORITY INTERESTS               (1,206,372)     (1,811,523)       (716,091)        (20,636)
INCOME TAX BENEFIT                                                     -             393           4,383             126
                                                            ------------    ------------    ------------    ------------
NET LOSS BEFORE MINORITY INTEREST                             (1,206,372)     (1,811,130)       (711,708)        (20,510)
MINORITY INTEREST (INCOME) LOSS                                        -            (194)         73,718           2,124
                                                            ------------    ------------    ------------    ------------
NET LOSS                                                    ($ 1,206,372)   ($ 1,811,324)   ($   637,990)   ($    18,386)
                                                            ============    ============    ============    ============
LOSS PER SHARE-BASIC AND DILUTED (IN DOLLARS)
  Net loss                                                  ($     24.73)   ($     36.12)   ($     12.72)   ($      0.37)
                                                            ============    ============    ============    ============
WEIGHTED AVERAGE SHARES USED TO COMPUTE
  NET LOSS PER SHAER
  Basic and diluted                                               48,791          50,154          50,154          50,154
                                                            ============    ============    ============    ============
</TABLE>

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

                                     F-5
<PAGE>

                                GIGAMEDIA LIMITED
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
              For the Years Ended December 31, 2000, 2001 and 2002
                                 (in thousands)

<TABLE>
<CAPTION>

                                                                      Issuance of common shares
                                                                      -------------------------     Warrant       Additional
                                                                        Shares         Amount     outstanding   paid-in capital
                                                                      ----------     ----------   -----------   ---------------
                                                                                        NT$           NT$             NT$
<S>                                                                   <C>            <C>          <C>           <C>
Balance as of January 1, 2000                                             40,000     $  360,000   $ 1,543,270   $     1,010,237
  Components of comprehensive loss:
      Net loss in 2000                                                         -              -             -                 -
      Unrealized gain on available-for-sale securities                         -              -             -                 -
      Total comprehensive loss
    Issuance of common shares                                             10,154        101,540             -         7,660,341
    Issuance of refundable shares                                              -         40,000             -         1,064,000
    Amortization of unearned compensation                                      -              -             -           182,776
                                                                      ----------     ----------   -----------   ---------------
Balance as of December 31, 2000                                           50,154        501,540     1,543,270         9,917,354
  Components of comprehensive loss:
      Net loss in 2001                                                         -              -             -                 -
      Reclassification adjustments for gains realized in operations            -              -             -                 -
      Unrealized gain on available-for-sale securities                         -              -             -                 -
      Total comprehensive loss
  Amortization of unearned compensation                                        -              -             -           130,827
                                                                      ----------     ----------   -----------   ---------------
Balance as of December 31, 2001                                           50,154        501,540     1,543,270        10,048,181
  Components of comprehensive loss:
      Net loss in 2002                                                         -              -             -                 -
      Reclassification adjustments for gains realized in operations
      Unrealized gain on available-for-sale securities                         -              -             -                 -
      Total comprehensive loss

  Capital returns                                                              -              -             -        (3,521,814)
  Refund of expenses from NASDAQ in relation to the initial
      public offering                                                          -              -             -             1,055
  Amortization of unearned compensation                                        -              -             -             5,281
                                                                      ----------     ----------   -----------   ---------------
  Balance as of December 31, 2002                                         50,154        501,540     1,543,270         6,532,703
                                                                      ==========     ==========   ===========   ===============
</TABLE>

<TABLE>
<CAPTION>

                                                                                      Accumulated other
                                                                       Accumulated      comprehensive
                                                                         deficit          income             Total
                                                                      ------------    -----------------    -------------
                                                                           NT$              NT$                NT$
<S>                                                                   <C>             <C>                  <C>
Balance as of January 1, 2000                                         ($ 1,399,074)   $               -    $   1,514,433
  Components of comprehensive loss:
      Net loss in 2000                                                  (1,206,372)                   -       (1,206,372)
      Unrealized gain on available-for-sale securities                           -                  717              717
                                                                                                           -------------
      Total comprehensive loss                                                                                (1,205,655)
                                                                                                           -------------
    Issuance of common shares                                                    -                    -        7,761,881
    Issuance of refundable shares                                                -                    -        1,104,000
    Amortization of unearned compensation                                        -                    -          182,776
                                                                      ------------    -----------------    -------------
Balance as of December 31, 2000                                         (2,605,446)                 717        9,357,435
  Components of comprehensive loss:
      Net loss in 2001                                                  (1,811,324)                   -       (1,811,324)
      Reclassification adjustments for gains realized in operations              -                 (717)            (717)
      Unrealized gain on available-for-sale securities                           -              168,905          168,905
                                                                                                           -------------
      Total comprehensive loss                                                                                (1,643,136)
  Amortization of unearned compensation                                          -                    -          130,827
                                                                      ------------    -----------------    -------------
Balance as of December 31, 2001                                         (4,416,770)             168,905        7,845,126
  Components of comprehensive loss:
      Net loss in 2002                                                    (637,990)                   -         (637,990)
      Reclassification adjustments for gains realized in operations                            (148,773)        (148,773)
      Unrealized gain on available-for-sale securities                           -               76,992           76,992
                                                                                                           -------------
      Total comprehensive loss                                                                                  (709,771)
                                                                                                           -------------
  Capital returns                                                                -                    -       (3,521,814)
  Refund of expenses from NASDAQ in relation to the initial
      public offering                                                            -                    -            1,055

  Amortization of unearned compensation                                          -                    -            5,281
                                                                      ------------    -----------------    -------------
  Balance as of December 31, 2002                                       (5,054,760)              97,124        3,619,877
                                                                      ============    =================    =============
</TABLE>

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

                                      F-6
<PAGE>

                                GIGAMEDIA LIMITED
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              For the Years Ended December 31, 2000, 2001 and 2002
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                         2000           2001                      2002
                                                                    --------------  --------------   ---------------------------
                                                                          NT$            NT$              NT$            US$
                                                                    --------------  --------------   -------------   -----------
                                                                                                                     (Unaudited)
                                                                                                                       (Note 1)
<S>                                                                 <C>             <C>              <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                            ($  1,206,372)  ($  1,811,324)   ($   637,990)   ($  18,386)
Adjustments to reconcile net loss to net cash used in operating
   activities:
  Depreciation                                                             55,595         127,978         196,346         5,658
  Amortization                                                            542,891       1,090,932          97,459         2,809
  Provision for bad debt expenses                                           1,686          40,250          32,167           927
  Provision for inventory loss                                              3,482          19,324          22,175           639
  Share of net loss of equity investees                                    13,801          27,837               -             -
  Loss on disposal of property, plant and equipment                             -          10,778          30,593           882
  Gain on disposal of short-term investments                             (114,577)       (201,826)        (62,787)       (1,810)
  Gain on disposal of long-term investments                                     -         (11,639)        (51,791)       (1,493)
  Share compensation expenses                                             182,776         130,827           5,281           152
  Minority interests income (loss)                                              -             194         (73,718)       (2,124)
  Impairment loss on goodwill                                                   -               -         242,938         7,001
  Impairment loss on intangible assets                                          -               -          80,627         2,324
  Impairment loss on long-term investments                                      -               -          40,000         1,153
  Loss resulting from change of ownership percentage in a
     majority-owned subsidiary                                                  -               -          67,468         1,944
  Net changes in operating assets and liabilities:
    Proceeds from disposal of short-term investments                          915               -               -             -
    Notes and accounts receivable                                         (58,040)        (76,842)        (35,142)       (1,013)
    Receivable from related parties                                       (17,715)         16,595          (2,793)          (80)
    Inventories                                                           (56,999)         37,228          35,226         1,015
    Prepaid expenses                                                      (23,735)          3,697           3,286            95
    Other current assets                                                  (46,411)        (31,275)        117,881         3,397
    Refundable modem deposits                                              (4,007)          1,342               -             -
    Notes and accounts payable                                            121,038         (17,265)       (115,577)       (3,331)
    Payable to related parties                                             (4,103)        (15,974)         16,731           482
    Accrued expenses                                                       61,066         (55,736)        (41,137)       (1,186)
    Accrued compensation                                                   30,815           3,410            (374)          (11)
    Other current liabilities                                              10,173            (253)         12,215           352
    Accrued pension liabilities                                             1,731           5,844          15,637           451
    Licenses payable                                                         (307)         (6,408)              -             -
                                                                     ------------    ------------     -----------     ---------
    Net cash used in operating activities                                (506,297)       (712,306)         (5,279)         (153)
                                                                     ------------    ------------     -----------     ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Decrease (increase) in restricted cash                                  109,900         (75,900)        (24,514)         (706)
  Increase in investments-purchase of investments                         (30,000)       (962,194)              -             -
  Proceeds from disposal of long-term investments                               -          22,500         428,806        12,358
  Purchase of property, plant and equipment                              (419,704)       (348,193)       (304,741)       (8,782)
  Proceeds from disposal of property, plant and equipment                       -             481         149,592         4,311
  Proceeds from disposal of short-term investments                      5,304,527      14,181,171       4,101,247       118,192
  Purchase of short-term investments                                  (12,298,190)    (11,763,672)              -             -
  Purchase of intangible assets                                                 -               -         (35,110)       (1,012)
  Acquistions, net of cash acquired                                             -               -        (311,987)       (8,991)
  (Increase) decrease in refundable deposits-out                          (16,363)          4,965         (60,955)       (1,757)
  Decrease (increase) in other assets                                      13,525         (33,295)         84,016         2,421
  Increase in note receivable from officer                                      -         (18,534)              -             -
  Increase in deferred assets                                            (104,882)       (155,636)        (61,290)       (1,767)
  Payable to equipment suppliers                                                -         (50,134)              -             -
                                                                     ------------    ------------     -----------     ---------
    Net cash (used in) provided by investing activities                (7,441,187)        801,559       3,965,064       114,267
                                                                     ------------    ------------     -----------     ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Increase in bank borrowing                                                    -               -           4,220           122
  Repayment of bank borrowing                                             (75,000)              -               -             -
  Proceeds from issuance of common shares                               7,761,881               -               -             -
  Increase in refundable deposits                                               -               -           3,565           103
  Decrease in lease obligations                                           (39,152)        (13,187)              -             -
  Capital returns                                                               -               -      (3,521,814)     (101,493)
  Refund of IPO expenses from NASDAQ                                            -               -           1,055            30
                                                                     ------------    ------------     -----------     ---------
    Net cash provided by (used in) financing activities                 7,647,729         (13,187)     (3,512,974)     (101,238)
                                                                     ------------    ------------     -----------     ---------
NET (DECREASE)/INCREASE IN CASH AND CASH
   EQUIVALENTS                                                           (299,755)         76,066         446,811        12,876
CASH AND CASH EQUIVALENTS AT BEGINNING OF
   YEAR                                                                 1,018,035         718,280         794,346        22,892
                                                                     ------------    ------------     -----------     ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR                             $    718,280    $    794,346     $ 1,241,157     $  35,768
                                                                     ============    ============     ===========     =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
   INFORMATION:
  Interest paid during the year                                      $      4,114    $      1,085     $     1,392     $      40
                                                                     ============    ============     ===========     =========
  Income tax paid during the year                                    $     16,124    $     16,979     $       882     $      25
                                                                     ============    ============     ===========     =========
NON-CASH FINANCING AND INVESTING ACTIVITIES:
  Issuance of shares of a consolidated subsidiary for business
     combinations                                                    $          -    $          -     $   220,606     $   6,358
                                                                     ============    ============     ===========     =========
  Acquisition costs in the form of payable as of year-end            $          -    $          -     $    88,000     $   2,536
                                                                     ============    ============     ===========     =========
  Unrealized holding gain on available-for-sale securities           $        717    $    168,188     $    76,992         2,219
                                                                     ============    ============     ===========     =========
  Intangible assets from investment activities                       $          -    $     12,631     $         -     $       -
                                                                     ============    ============     ===========     =========
</TABLE>

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

                                      F-7
<PAGE>

                                GIGAMEDIA LIMITED
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                     (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                         EXCEPT AS INDICATED OTHERWISE)


NOTE 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICES

THE COMPANY

GigaMedia Limited ("GigaMedia" or the "Company") was incorporated in Singapore
in September 1999. The Company was listed on Nasdaq Stock Market's National
Market ("NASDAQ") in New York, USA on February 17, 2000. The Company's principal
shareholders are members of the Koos Group, one of the conglomerates in Taiwan.

GigaMedia is a provider of on-line and off-line entertainment services and
products in Taiwan. On-line business segment includes broadband Internet access
services through multiple delivery technologies. The Company's access products
consist of premium cable modem and Asymmetric Digital Subscriber Line offerings.
The Company also provides Internet content services through the Web site,
www.gigigaga.com, which is a Chinese-language broadband Web destination.
Off-line business segment includes the sale of compact disc, video compact disc,
digital versatile disc, audio and video cassettes, and related accessories
through its 50 directly owned stores in Taiwan.

ACQUISITIONS OF ROSE RECORDS AND TACHUNG RECORDS

In February 2002, September 2002 and December 2002, the Company acquired all of
the outstanding stock of 17 companies, which owned 50 music chain stores under
the distribution system of Rose Records and Tachung Records, through its
directly-owned subsidiary, G-Music Limited ("G-Music"). Accordingly, the Company
has included the results of the acquirees from the respective acquisition dates
in its consolidated results of operations. See Note 3 for further discussion of
the Company's acquisition activities.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of GigaMedia and its
wholly-owned and controlled majority-owned subsidiaries. All significant
intercompany transactions and account balances have been eliminated.

                                      F-8
<PAGE>


                                GIGAMEDIA LIMITED
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                     (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                         EXCEPT AS INDICATED OTHERWISE)

CONVENIENCE TRANSLATION INTO US DOLLARS

The Company and its subsidiaries maintain their accounting records and prepare
their financial statements in New Taiwan ("NT") dollars. The United States
("US") dollar amounts disclosed in the 2002 financial statements are presented
solely for the convenience of the reader and were translated at the rate of
NT$34.70 to US$1.00, the U.S. Federal Reserve Bank of New York noon buying
exchange rate on December 31, 2002. Such translation amounts are unaudited and
should not be construed that the NT dollar amounts represent, or have been, or
could be, converted into US dollars at that or any other rate.

USE OF ESTIMATES

The preparation of financial statements in accordance with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in GigaMedia's financial
statements and accompanying notes. Actual results could differ from those
assumptions.

REVENUE RECOGNITION

General

The Company recognizes revenues in accordance with Securities and Exchange
Commission Staff Accounting Bulletin No. 101 ("SAB No. 101"), "Revenue
Recognition in Financial Statements." Revenue is recognized when persuasive
evidence of an arrangement exists, delivery occurs or services are rendered, the
sales price is fixed or determinable and collectibility is reasonably assured.
The following policies apply to the Company's major categories of revenue
transactions.

Sales/rental/installation

Sales/rental/installation consist of retail sales generated from the Company's
off-line business and sales, rental and installation of cable modem and other
related products generated from the Company's on-line business.

Retail sales are derived from the sales of entertainment merchandise to the
customers from the music chain stores. Revenue is recognized at the point of
sale to the consumer, at which time payment is tendered. There are no provisions
for uncollectible amounts since payment is

                                      F-9
<PAGE>


                                GIGAMEDIA LIMITED
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                     (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                         EXCEPT AS INDICATED OTHERWISE)

received at the time of sale. In addition, no provision for sales returns is
made as the Company does not grant the customers any right of return.

Revenues from the sale of cable modems and other related products and
installation are recognized upon delivery and successful completion of
installation. Cable modems can be rented for a flat rate on a monthly basis
until the customers petition to discontinue such service. Revenues from the
monthly rental of cable modems are recognized over the same period as the access
service is rendered. As part of the revenue sharing arrangements with cable
partners, installation revenue is recorded net of fees paid to cable partners.

Internet access cable modems and Asymmetric Digital Subscriber Line ("ADSL")
Internet access revenues are recognized in the period the services are rendered.
Revenues are recorded, net of discounts, either for a monthly flat rate (which
includes unlimited access) or on a charge-per-minute basis. Free months are
offered in connection with promotional discounts. Because these free months are
usually given at the beginning of a subscription period, no revenue is
recognized during the months the free access has been provided, as the
continuance of the customer is not assured. As part of the revenue sharing
arrangements with cable partners, access revenue is recorded net of fees paid to
cable partners.

The Company introduced premium ADSL service in the second quarter of 2001.
Chunghwa Telecom Co., Ltd. ("CHTC") provides the telecommunications network and
ADSL modems to subscribers, connects customers to CHTC's transfer mode network
and aggregates the telecom lines into the Company's servers. Each subscriber is
billed at a fixed fee, NT$595 dollars~NT$899 dollars per month billed by CHTC
and NT$299 dollars~NT$6,400 dollars per month billed by the Company, depending
on the package the customer subscribes. Revenue is recognized when the Company
bills the customer as services have been provided.

Web development

Web development revenues are derived from the design and development of Internet
websites and are recognized when work is performed.

                                      F-10
<PAGE>

                                GIGAMEDIA LIMITED
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                     (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                         EXCEPT AS INDICATED OTHERWISE)

Advertising, promotional and other revenues

Advertising revenues are derived from the sales of advertising services and
sponsorships in which the Company delivers advertisements for a fixed fee on the
Company's Web Sites and those of the advertising affiliates. Advertising revenue
is derived principally from short-term advertising contracts in which the
Company may guarantee a minimum number of impressions to advertisers over a
specific period of time for a fixed fee. Advertising revenues are recognized pro
rata over the contracted period, calculated based on the percentage of
impressions delivered over the total guaranteed impressions. In addition, the
Company also generates promotional revenues from its vendors of music products,
including in-store signage and in-store music-playing for the artists designated
by the vendors for a short period for each music album. Revenue is recognized
when services are provided.

Other revenue consists of subscription revenue and commission fees in connection
with services provided for the development of a broadband infrastructure for a
real estate project. Revenues are recognized when services are provided.

CASH EQUIVALENTS

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

FOREIGN CURRENCY TRANSACTIONS

The Company and its subsidiaries maintain their accounting records in New Taiwan
("NT") Dollars, the national currency of the Republic of China (the "ROC").
Transactions denominated in foreign currencies are recorded in NT dollars using
the exchange rates in effect at the date of transactions. Assets and liabilities
denominated in foreign currencies are translated into NT dollars using the
exchange rate in effect at the balance sheet date. Foreign exchange gains or
losses are included in non-operating income or expense.

                                      F-11
<PAGE>

                                GIGAMEDIA LIMITED
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                     (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                         EXCEPT AS INDICATED OTHERWISE)

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and accrued liabilities are carried at
cost, which approximates their fair value due to the short-term maturity of
these instruments.

INVESTMENTS

Investments principally consist of debt securities and equity securities of
public and privately-held securities.

Investments in debt securities and equity securities are classified as
available-for-sale investments. Accordingly, the investments are carried at fair
value and the unrealized gains and losses are recorded as accumulated other
comprehensive income in the stockholders' equity. Realized gains and losses,
measured against cost, are included in the current year's operations.

Equity investments in privately-held companies are generally carried at cost.
Equity investments in companies over which the Company has the ability to
exercise significant influence, but does not hold a controlling interest, are
accounted for under the equity method and the Company's proportionate share of
income or losses are recorded in non-operating income or expenses.

When an equity investee company issues additional shares at an amount over or
under the carrying value of the shares held by the Company and the Company's
ownership interest decreases as a result of not fully subscribing to the issue,
the resulting difference between the Company's investment balance and its
proportionate share of investee company's net equity is recorded in the current
year's operations.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

An allowance for doubtful accounts is provided based on the evaluation of
collectibility and aging analysis of notes receivable, accounts receivables and
other receivables.

INVENTORIES

Inventories are carried at the lower of cost or market value using the weighted
average cost

                                      F-12
<PAGE>

                                GIGAMEDIA LIMITED
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                     (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                         EXCEPT AS INDICATED OTHERWISE)

method, while net realizable value is used to determine the market
value. An allowance for loss on obsolescence and decline in market value is
provided, when necessary.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost less accumulated depreciation.
Depreciation is provided on the straight-line basis over the following useful
lives:

<TABLE>
<CAPTION>
<S>                                                                 <C>
Building......................................................          50 years

Information, communication equipment and software.............      3 to 5 years

Modems rented ................................................      3 to 5 years

Office furniture and equipment ...............................      3 to 5 years

Transportation equipment .....................................           5 years

Leasehold improvements........................................           5 years
</TABLE>

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

IMPAIRMENT OF LONG-LIVED ASSETS

Long-lived assets, such as property, plant and equipment, goodwill and purchased
intangible assets, are evaluated for impairment whenever events or changes in
circumstances indicate the carrying value of an asset may not be recoverable. An
impairment loss is recognized when estimated undiscounted future cash flows
expected to result from the use of the asset plus net proceeds expected from
disposition of the asset, if any, are less than the carrying value of the asset.
When an impairment is identified, the carrying amount of the asset is reduced to
its estimated fair value.

Effective January 1, 2002, in conjunction with the implementation of Statement
of Financial Accounting Standards ("SFAS") No. 142, all goodwill, including
goodwill related to acquisitions prior to July 1, 2001, will no longer be
amortized and potential impairment of goodwill and purchased intangible assets
with indefinite useful lives will be evaluated using the

                                      F-13
<PAGE>

                                GIGAMEDIA LIMITED
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                     (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                         EXCEPT AS INDICATED OTHERWISE)

specific guidance provided by SFAS No. 142. This impairment analysis will be
performed at least annually. Also effective January 1, 2002, potential
impairment of long-lived assets other than goodwill and purchased intangible
assets with indefinite useful lives will be evaluated using the guidance
provided by SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of an asset to undiscounted future net cash
flows expected to be generated by the asset over its remaining useful life. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. The estimate of fair value is generally based on
quoted market prices or on the best available information, including prices for
similar assets and the results of using other valuation techniques.

ADVERTISING

Advertising costs are expensed as incurred. Advertising costs incurred in 2000,
2001 and 2002 totaled NT$322,513, NT$135,831 and NT$48,701, respectively.

STOCK-BASED COMPENSATION

The Company measures compensation expense for its stock-based employee
compensation plan using the intrinsic value method. If the fair value based
method had been applied in measuring stock compensation expense, the pro forma
effect on net loss and net loss per share would have been as follows:

<TABLE>
<CAPTION>
                                                           Years Ended December 31,
                                                    -------------------------------------------
                                                       2000            2001           2002
                                                   -----------     ------------    -----------
                                                    NT$              NT$            NT$
<S>                                                 <C>             <C>             <C>
Net loss
  As reported                                       ($1,206,372)    ($1,811,324)    ($  637,990)
  Stock compensation expense                           (145,807)       (751,857)              -
                                                    -----------     ------------    -----------
  Pro forma                                         ($1,352,179)    ($2,563,181)    ($  637,990)
                                                    ===========     ===========     ===========
Net loss per share (in dollars):
  As reported-basic and diluted                     ($    24.73)    ($     36.12)   ($    12.72)
  Pro forma-basic and diluted                       ($    27.71)    ($     51.11)   ($    12.72)

</TABLE>

See Note 15-"Shareholders' Equity and Share Options" for the assumptions and
methodology used to determine the fair value of stock-based compensation.

                                      F-14
<PAGE>

                               GIGAMEDIA LIMITED
         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                    (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                        EXCEPT AS INDICATED OTHERWISE)

RETIREMENT PLAN

The Company's funded defined benefit pension plans covers substantially all of
the regular employees. The net pension cost is computed based on an actuarial
valuation and includes service cost, interest cost, expected return on plan
assets and amortization of net asset/obligation at transition, amortization of
prior service cost and amortization of pension gain or loss. The unrecognized
net assets or obligation at transition is amortized equally over 15 years. The
unrecognized prior service cost is amortized over the average remaining service
period of the participated employees expected to receive benefits under the
pension plan as of the date of amendment of the plan. The amortization of
unrecognized gain or loss is the excess of the beginning balance of unrecognized
gain or loss over 10% of the greater of the projected benefit obligation or the
market-related value of plan assets divided by the service period of active
employees expected to receive benefit under the plan.

COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) is defined as the change in equity of a company from
transactions and other events and circumstances excluding transactions resulting
from investments from owners and distributions to owners. Comprehensive income
(loss) is recorded as a component of shareholders' equity. The Company's
comprehensive income (loss) consists of net earnings or loss as well as
unrealized gains and losses on available-for-sales securities.

ACCOUNTING FOR INCOME TAXES

The Company has adopted SFAS No. 109, "Accounting for Income Taxes." Under SFAS
No. 109, the liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on the
differences between financial reporting and tax bases of assets and liabilities,
loss carryforwards and investment credits and are measured using the enacted tax
rate and laws that will be in effect when the differences are expected to
reverse. Valuation allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized.

LOSS PER SHARE

The Company computes loss per share in accordance with SFAS No. 128, "Earnings
per

                                      F-15
<PAGE>


                               GIGAMEDIA LIMITED
         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                    (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                        EXCEPT AS INDICATED OTHERWISE)

Share." Under the provisions of SFAS No. 128, basic net income or loss per share
is computed by dividing the net income or loss available to common shareholders
for the period by the weighted average number of common shares outstanding
during the period. Diluted net income or loss per share is computed by dividing
the net income or loss for the period by the weighted average number of common
shares and common share equivalents outstanding during the period. Common share
equivalents, composed of incremental common shares issuable upon the exercise of
stock options, are included in the computation of diluted net income or loss per
share to the extent such shares are dilutive.

MINORITY INTEREST

Minority interest represents the outside shareholders' 0.01% ownership of the
common stock of Koos Broadband Telecom Co., Ltd., 5% ownership of the common
stock of GigaMusic.com Limited and 41.42% of the common stock of G-Music
Limited.

RECLASSIFICATION

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

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2002, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 146 ("SFAS No. 146"), "Accounting for
Costs Associated with Exit or Disposal Activities." SFAS No. 146 addresses
financial accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146
requires that a liability for costs associated with an exit or disposal activity
be recognized and measured initially at fair value only when the liability is
incurred, rather than at the date of commitment to an exit or disposal plan.
SFAS No. 146 is effective for exit or disposal activities that are initiated
after December 31, 2002. The Company does not expect that the adoption of SFAS
No. 146 will have a material impact on the Company's financial position or
results of operations, although SFAS 146 may impact the timing of recognition of
costs associated with future restructuring, exit or disposal activities.

                                      F-16
<PAGE>
                               GIGAMEDIA LIMITED
         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                    (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                        EXCEPT AS INDICATED OTHERWISE)

In December 2002, the FASB issued Statement of Financial Accounting Standards
No.148 ("SFAS No. 148"), "Accounting for Stock-Based Compensation-Transition and
Disclosure-An Amendment of FASB Statement No. 123." SFAS No. 148 amends
Statement of Financial Accounting Standards No.123 ("SFAS No. 123"), "Accounting
for Stock-Based Compensation," to provide alternative methods of transition for
a voluntary change to the fair value based method of accounting for stock-based
employee compensation. SFAS No. 148 amends the disclosure requirements of SFAS
No. 123 to require prominent disclosures both in annual and interim financial
statements about the method of accounting for stock-based employee compensation
and the effect of the method used on reported results. The Company has included
the disclosures required by SFAS No. 148 in Note 1-"The Company and Summary of
Significant Accounting Policies" and Note 15-"Shareholders' Equity and Share
Options."

In November 2002, the FASB issued Interpretation No. 45 ("FIN No. 45")
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN No. 45 elaborates on the
existing disclosure requirements for most guarantees, including loan guarantees.
It also clarifies that at the time a company issues a guarantee, the company
must recognize an initial liability for the fair value, or market value, of the
obligations it assumes under that guarantee. However, the provisions related to
recognizing a liability at inception of the guarantee for the fair value of the
guarantor's obligations does not apply to product warranties or to guarantees
accounted for as derivatives. The initial recognition and initial measurement
provisions apply on a prospective basis to guarantees issued or modified after
December 31, 2002. The disclosure requirements of FIN No. 45 are effective for
financial statements of interim or annual periods ending after December 15,
2002. The Company does not believe the adoption of FIN No. 45 will have a
material impact on its financial position or results of operations.

In November 2002, the Emerging Issues Task Force reached a consensus on Issue
No. 00-21 ("EITF 00-21"), "Revenue Arrangements with Multiple Deliverables."
EITF 00-21 provides guidance on how to account for arrangements that involve the
delivery or performance of multiple products, services and/or rights to use
assets. The provisions of EITF 00-21 will apply to revenue arrangements entered
into in fiscal periods beginning after June 15, 2003. The Company does not
believe the adoption of EITF 00-21 will have a material impact on its financial
position or results of operations.

                                      F-17
<PAGE>



                                GIGAMEDIA LIMITED
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                     (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                         EXCEPT AS INDICATED OTHERWISE)

In January 2003, the FASB issued Interpretation No. 46 ("FIN No. 46")
"Consolidation of Variable Interest Entities." Until this interpretation, a
company generally included another entity in its consolidated financial
statements only if it controlled the entity through voting interests. FIN No. 46
requires a variable interest entity, as defined, to be consolidated by a company
if that company is subject to a majority of the risk of loss from the variable
interest entity's activities or entitled to receive a majority of the entity's
residual returns. Management is currently evaluating the effect of adopting FIN
No. 46 on its results of operations and financial position.

NOTE 2. LOSS PER SHARE

<TABLE>
<CAPTION>
                                                            For the years end December 31,
                                                     --------------------------------------------
                                                         2000            2001             2002
                                                     -----------      -----------     -----------
                                                                 (in thousand shares)
<S>                                                  <C>              <C>             <C>
Average outstanding shares, beginning of year             40,000           50,154          50,154
Add: Issuance of shares for cash in February 2000          8,791                -               -
                                                     -----------      -----------     -----------
Average outstanding shares, end of year                   48,791           50,154          50,154
                                                     ===========      ===========     ===========
Loss before income tax and minority interests        $(1,206,372)     $(1,811,523)    $  (716,091)
Minority interest (income) loss                                -             (194)         73,718
Income tax benefit                                             -              393           4,383
                                                     -----------      -----------     -----------
Net loss                                             $(1,206,372)     $(1,811,324)    $  (637,990)
                                                     ===========      ===========     ===========

Loss per share-basic and diluted (in dollars)        $    (24.73)     $    (36.12)    $    (12.72)
                                                     ===========      ===========     ===========
</TABLE>

For the years ended December 31, 2000, 2001 and 2002, diluted loss per share
included only weighted-average shares outstanding as the inclusion of additional
potential common stock equivalents would have been antidilutive since the
Company incurred a net loss for the respective years.

NOTE 3. ACQUISITIONS

In February 2002, September 2002 and December 2002, the Company acquired all of
the outstanding stock of 17 companies, which owned 50 music chain stores under
the distribution system of Rose Records and Tachung Records, through its
directly-owned subsidiary, G-Music. The acquisitions have gained the Company
meaningful presence in the off-line entertainment

                                      F-18
<PAGE>

                                GIGAMEDIA LIMITED
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                     (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                         EXCEPT AS INDICATED OTHERWISE)

market, enhanced the Company's bargain power with vendors, and are consistent
with the Company's strategy of building a diversified entertainment business.
These factors contributed to purchase prices in excess of fair market value of
the acquirees' net tangible assets and intangible assets acquired, and as a
result, the Company has recorded goodwill in connection with the transactions.

As the individual business combinations are considered immaterial to the
Company, but material in the aggregate, all information in relation to the
acquisitions is disclosed in aggregate.

The total purchase price of NT$638,904 consisted of NT$220,606 in G-Music Common
Stock, representing 6,550 thousand shares and NT$418,298 in cash consideration,
NT$88,000 of which was not paid and recorded as other current liabilities as of
December 31, 2002. The value of G-Music Common Stock was determined based on the
management's estimate of the fair value of G-Music Common Stock in connection
with the acquisitions.

Total purchase price has been allocated as follows:

<TABLE>
<CAPTION>
                                              NT$
                                          ---------
<S>                                       <C>
Cash acquired                             $  18,311
Inventories, net                            365,118
Property, plant and equipment, net          105,158
Other tangible assets acquired              285,364
Amortizable intangible assets:
  Brandnames                                150,875
  Distribution channel                      106,851
Goodwill                                    268,327
Short-term bank loans                       (88,780)

Notes and accounts payable                 (516,451)
Other tangible liabilities assumed          (55,869)
                                          ---------
  Total                                   $ 638,904
                                          =========
</TABLE>

Amortizable intangible assets acquired have estimated useful lives as follows:
brandnames - 15 years; distribution channel - five years. Goodwill of NT$268,327
represents the excess of the

                                      F-19
<PAGE>

                                GIGAMEDIA LIMITED
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                     (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                         EXCEPT AS INDICATED OTHERWISE)

purchase price over the fair value of the net tangible and intangible assets
acquired and is not deductible for tax purposes.

The results of operations of the acquirees have been included in the Company's
consolidated statements of operations since the completion of the acquisitions.
The following unaudited pro forma information presents a summary of the results
of operations of the Company as of December 31, 2001 and 2002 as if the
acquisitions occurred on January 1, 2001:

<TABLE>
<CAPTION>
                                                      For the years ended December 31,
                                                      --------------------------------
                                                          2001                2002
                                                      ------------        ------------
                                                              (Unaudited)
                                                           NT$                 NT$
<S>                                                   <C>                <C>
Net revenues                                           $ 3,606,979         $ 3,834,289
Loss from operations                                   $(2,221,609)        $  (854,184)
Net loss                                               $(1,876,740)        $  (650,607)
Net loss per share-basic and diluted (in dollars)      $    (37.42)        $    (12.97)

</TABLE>

The unaudited pro forma financial information is not intended to represent or to
be indicative of the consolidated results of operations or financial condition
of the Company that would have been reported had the acquisitions been completed
as of the dates presented, and should not be taken as representative of the
future consolidated results of operations or financial condition of the Company.

NOTE 4. GOODWILL

The changes in the carrying amount of goodwill for the year ended December 31,
2002 are as follows:

<TABLE>
<CAPTION>
                                    Total
                                  ---------
                                     NT$
<S>                               <C>
Balance as of January 1, 2002     $       -
Acquisitions                        268,327
Impairment                         (242,938)
                                  ---------
  Total                           $  25,389
                                  =========
</TABLE>

                                      F-20
<PAGE>

                                GIGAMEDIA LIMITED
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                     (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                         EXCEPT AS INDICATED OTHERWISE)

The Company performed an impairment test of its goodwill and intangible assets
as of December 31, 2002. Due to the general market downturn and the operating
performance of the acquired business fell below the Company's expectations, the
Company recorded a goodwill impairment loss of NT$242,938 in the fourth quarter
of 2002. The amount of loss was determined based on an independent appraiser's
report as of December 31, 2002. The fair value of the reporting unit giving rise
to the impairment loss was estimated using the expected present value of future
cash and income method.

NOTE 5. INTANGIBLE ASSETS - NET

The following table summarizes the Company's intangible assets, net:

<TABLE>
<CAPTION>
                                                    December 31, 2001
                                     ----------------------------------------------
                                     Gross carrying      Accumulated
                                         amount          amortization         Net
                                     --------------      ------------      --------
                                           NT$                NT$             NT$
<S>                                     <C>                <C>             <C>
EMI-content, licenses and others        $ 12,631           $     -         $ 12,631
                                        ========           =======         ========
</TABLE>

<TABLE>
<CAPTION>
                                                    December 31, 2002
                                     ----------------------------------------------
                                     Gross carrying      Accumulated
                                         amount          amortization         Net
                                     --------------      ------------      --------
                                           NT$                NT$             NT$
<S>                                    <C>               <C>                <C>
Brandnames                             $ 150,875         ($  5,029)         $ 145,846
Distribution channel                     106,851         (  10,685)            96,166
                                       ---------         ---------          ---------
                                       $ 257,726         ($ 15,714)           242,012
                                       =========         =========          =========
</TABLE>

a.   The Company recognized an intangible asset attributable to a Business
     Cooperation Agreement with Microsoft Corporation ("Microsoft") of
     approximately NT$1,543,270, equal to the fair value of a warrant issued to
     Microsoft to purchase up to 10 million shares of the Company's common
     stock. The exercise price was initially set at US$6.60 per share and may be
     adjusted as disclosed in the following paragraph. The fair value of the
     warrant was based on the Black-Scholes valuation model with the following
     assumptions: fair value per common share of US$8.75 dollars, expected
     volatility of 44%, dividend yield of 0, risk free interest rate of 6% and
     an expected life of five years. The intangible asset was being amortized
     over a three-year period using the straight-line method.


Upon the occurrence of certain events, including a special distribution to our
shareholders, the terms of the warrant give Microsoft the option to either
adjust the exercise price or demand a cash payment in lieu of such an
adjustment. As a result of a special distribution of $2.00 per share by the
company in 2002, the warrant gave Microsoft the right to either adjust the
exercise price downward to approximately $1.60 per share or to demand a cash
payment equal to the per share distribution multiplied by the number of shares
covered by the warrant. As of the date hereof, Microsoft has made no election.

                                      F-21
<PAGE>

                                GIGAMEDIA LIMITED
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                     (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                         EXCEPT AS INDICATED OTHERWISE)

Additionally, in accordance with the Business Cooperation Agreement, the Company
had the following transactions with Microsoft:

*    GigaMedia agreed to pay Microsoft 2% of gross revenues from the sale of
     cable-modem based access services;

*    GigaMedia agreed to spend US$1 million on advertising services over a
     three-year period ended in November 2002.

As of December 31, 2001, due to the following reasons, management determined
that the intangible asset derived from the Business Cooperation Agreement with
Microsoft was impaired:

(1)  No products defined in the agreement (e.g., co-branded broadband version or
     shopping channels) have been created or developed or are in development
     with Microsoft.

(2)  Compared to the carrying value of the intangible, the revenue generated
     from the agreement in 2001 is insignificant.

(3)  The market has undergone significant changes since the Company's IPO in
     February 2000, and Microsoft may not be interested in entering Taiwan's
     Internet market due to the current worldwide economic downturn.

(4)  The relationship with Microsoft may not benefit the Company in the future,
     and the expected benefits to be derived from Microsoft are not likely to
     materialize.

(5)  The economic life of the intangible has expired as no products are under
     development or are expected to be launched at any time in the future.

Accordingly, the carrying value of NT$428,686 was written off in 2001 and
recorded


                                      F-22
<PAGE>

                                GIGAMEDIA LIMITED
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                     (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                         EXCEPT AS INDICATED OTHERWISE)

     as operating cost in the statement of operations.

b.   The Company entered into a three-year license agreement with Microsoft
     Corporation on April 1, 1998 for technologies related to cable-based
     Internet broadband access. License fees under the agreement amounted to
     US$1,450 thousand dollars and were fully amortized in 2001 based on a
     three-year amortization period.

c.   The Company entered into a three-year license agreement with Portal
     Information Network, Inc. on May 1, 1998 for technologies related to
     billing and customer management of the Company's subscribers. License fees
     under the agreement amounted to US$300 thousand dollars and were fully
     amortized in 2001 based on a three-year amortization period.

d.   In 2001, GigaMedia entered into a three-year agreement with EMI Music Asia
     ("EMI"), a division of EMI Group Hong Kong Limited, to establish
     GigaMusic.Com Limited ("GigaMusic"), which is registered in the Cayman
     Islands. The Company invested NT$239,990 in GigaMusic during 2001. The
     Company holds 95% of total shares; EMI holds 5% of total shares in exchange
     for:

*    EMI providing access to EMI management expertise and industry know-how;

*    EMI providing content;

*    EMI granting licenses and rights (non-exclusive and non-transferable) to
     GigaMusic.Com to use EMI's licensed products and artists including
     streaming EMI's licensed samples (i.e. 30-music-length videos from newly
     released album), displaying EMI's licensed materials, previews of newly
     released licensed recordings, and promotional downloads of licensed
     recordings.

     In addition to the 5% ownership of GigaMusic, the Company paid EMI a
     one-time non-recoupable initiation fee equal to US$1,000,000 on June 30,
     2001 and the Company made two additional non-recoupable payments to EMI in
     the amount of US$1,000,000 on March 1, 2002 and March 1, 2003.

     The total value of the 5% shares granted to EMI amounted to NT$12,631 and
     was


                                      F-23
<PAGE>

                                GIGAMEDIA LIMITED
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                     (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                         EXCEPT AS INDICATED OTHERWISE)

     recorded as an intangible asset. In addition to the 5% ownership of
     GigaMusic, the Company paid EMI a non-recoupable fee of US$1,000 thousand
     dollars in June 2001 and March 2002, respectively, and recorded as other
     assets. The Company was required to pay an additional payment of US$1,000
     thousand dollars in March 2003 in accordance with the terms of the
     agreement. However, in March 2002, the Company sent a notice to EMI to
     terminate the agreement, including requiring EMI to return the ownership
     interest in GigaMusic and US$2,000 thousand dollars paid in June 2001 and
     March 2002 to the Company. In addition, the Company has obtained a
     preliminary injunction order from Taipei District Court on the additional
     US$1,000 thousand dollars scheduled to pay to EMI in March 2003. See Note
     22 - "Subsequent Events" for the legal actions the Company has taken
     subsequent to December 31, 2002.

     As of December 31, 2002, the Company performed an impairment test of the
     EMI intangible asset as well as the US$2,000 thousand dollars payments. Due
     to EMI has not provided the agreed-upon products to GigaMusic, the site has
     not been launched and no subscriber revenue has been generated from the
     project, the fair value of the intangible asset and the US$2,000 thousand
     dollars payments was considered negligible and the Company wrote down the
     balance of these assets and recorded an impairment loss of NT$80,627 in the
     current year's operation results.

e.   As a result of the acquisition transactions mentioned in Note 3, intangible
     assets, including brandnames and distribution channel, amounting to
     NT$257,726 were recorded by the Company. The intangible assets are both
     amortizable and have original estimated useful lives as follows:
     brandnames-15 years; distribution channel-five year. For the year ended
     December 31, 2002, the total amortization expenses were NT$15,714. As of
     December 31, 2002, the Company performed an impairment test based on an
     independent appraisal report and considered that the carrying amount of the
     intangible assets approximate their fair value. Accordingly, no impairment
     loss was recorded in 2002. As of December 31, 2002, based on the current
     amount of intangibles subject to amortization, the estimated amortization
     expense for each of the succeeding five years is as follows: 2003: $31,428;
     2004: $31,428; 2005: $31,428; 2006: $31,428; and 2007: $20,743.


                                      F-24
<PAGE>

                                GIGAMEDIA LIMITED
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                     (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                         EXCEPT AS INDICATED OTHERWISE)

NOTE 6. CASH AND CASH EQUIVALENT'S

<TABLE>
<CAPTION>
                                                  December 31,
                                          --------------------------
                                              2001            2002
                                          -----------     ----------
                                              NT$             NT$
<S>                                       <C>             <C>
Petty cash                                $       470     $   11,714
Checking and savings accounts                  92,969        283,859
Time deposits                                 700,907        945,584
                                          -----------     ----------
Total                                     $   794,346     $1,241,157
                                          ===========     ==========
</TABLE>


NOTE 7. SHORT-TERM INVESTMENTS

<TABLE>
<CAPTION>
                                                  December 31,
                                          --------------------------
                                              2001            2002
                                          -----------     ----------
                                              NT$             NT$
<S>                                       <C>             <C>
Available-for-sale securities:
  Debt securities due within one year     $         -     $   69,500
  Open-end funds                            3,524,943        785,773
  Goldtree investment funds                 1,503,776              -
                                          -----------     ----------
Total                                     $ 5,028,719     $  855,273
                                          ===========     ==========
</TABLE>

Short-term investments are classified as available-for-sale securities. As of
December 31, 2001 and 2002, the balances of unrealized gains for
available-for-sale securities were NT$136,201 and NT$1,214, respectively. During
2000, 2001 and 2002, realized gains from disposal of short-term investments
amounted to NT$114,577, NT$201,826 and NT$62,787, respectively.

NOTE 8. NOTES AND ACCOUNTS RECEIVABLE

<TABLE>
<CAPTION>
                                                  December 31,
                                          --------------------------
                                              2001            2002
                                          -----------    -----------
                                              NT$             NT$
<S>                                       <C>            <C>
Notes and accounts receivable             $   130,021    $   181,659
Less: Allowance for doubtful accounts         (26,728)       (54,056)
                                          -----------    -----------
Net                                       $   103,293    $   127,603
                                          ===========    ===========
</TABLE>


                                      F-25
<PAGE>


                                GIGAMEDIA LIMITED
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                     (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                         EXCEPT AS INDICATED OTHERWISE)


<TABLE>
<CAPTION>
                                     For the years ended December 31,
                                     ---------------------------------
                                       2000        2001         2002
                                     --------   ---------    ---------
                                        NT$        NT$           NT$
<S>                                  <C>        <C>          <C>
Allowance for doubtful accounts
Balance at beginning of year         $    892   $   2,578    $  26,728
Additions: Bad debt expenses            1,686      40,250       31,611
Less: Write-off                             -     (16,100)      (4,283)
                                     --------   ---------    ---------
Balance at end of year               $  2,578   $  26,728    $  54,056
                                     ========   =========    =========
</TABLE>

NOTE 9. INVENTORIES-NET

<TABLE>
<CAPTION>
                                                     December 31,
                                             -------------------------
                                                2001           2002
                                             ---------     -----------
                                                NT$            NT$
<S>                                          <C>           <C>
Cable modems                                 $  74,180     $    69,795
Merchandise                                      1,125         335,402
                                             ---------     -----------
Subtotal                                        75,305         405,197
Less: Allowance for inventory market value
        decline and obsolescence               (22,806)        (44,981)
                                             ---------     -----------
Net                                          $  52,499     $   360,216
                                             =========     ===========
</TABLE>

<TABLE>
<CAPTION>
                                     For the years ended December 31,
                                     ---------------------------------
Allowance for inventory market
  value decline and obsolescence       2000        2001         2002
                                     --------   ---------    ---------
                                        NT$        NT$           NT$
<S>                                  <C>        <C>          <C>
Balance at beginning of year         $      -   $   3,482    $  22,806
Additions: Charges for inventory
           market value decline
           and obsolete items           3,482      19,324       22,175
                                     --------   ---------    ---------
Balance at end of year               $  3,482   $  22,806    $  44,981
                                     ========   =========    =========
</TABLE>

Charges for inventory market value decline and obsolete items are a component of
operating costs.

NOTE 10. LONG-TERM INVESTMENTS


                                      F-26
<PAGE>


                                GIGAMEDIA LIMITED
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                     (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                         EXCEPT AS INDICATED OTHERWISE)

<TABLE>
<CAPTION>
                                                   December 31,
                                       -----------------------------------
                                             2001               2002
                                       ----------------   ----------------
                                          NT$       %        NT$       %
                                       --------   -----   --------   -----
<S>                                    <C>        <C>     <C>        <C>
Debt securities:
  UBS AG Jersey Bond ("UBS Bond")      $173,265      -    $      -      -
  Societe General Bond Fund
    ("SG Fund")                         353,833      -     370,365      -
                                       --------           --------
  Sub-total                             527,098            370,365
                                       --------           --------
Equity Securities:
  Gamania Digital Entertainment Co.,
    Ltd. ("Gamania")                   $369,280   9.92%   $212,203   3.25%
  Rock Internet Corporation ("RIC")      98,520   4.35%     58,520   4.35%
                                       --------           --------
  Sub-total                             467,800            270,723
                                       --------           --------
Total                                  $994,898           $641,088
                                       ========           ========
</TABLE>


In 2001, the Company purchased SG Fund and UBS Bond for NT$333,701 and
NT$160,693, respectively. These debt securities are classified as long-term
available-for-sale investments as management does not intend to sell these
securities for use in current operations. Accordingly, the Company revalued
these debt securities at fair market value at the balance sheet date and
recognized the unrealized gains as accumulated other comprehensive income. As of
December 31, 2001 and 2002, the balances of unrealized gains on these
investments were NT$32,704 and NT$36,665, respectively. For the year ended
December 31, 2002, the Company disposed UBS Bond with a gain of NT$444.

In 2001, the Company invested in Gamania for NT$369,280 at an average cost of
NT$70 dollars per share. The Company acquired 3,768 thousand shares at NT$90
dollars per share from certain shareholders of Gamania ("Offering Shareholders")
and 1,508 thousand shares at NT$20 dollars per share directly from Gamania.
During 2001 and 2002, the Company received stock dividends of 369 thousand
shares and 1,319 thousand shares, respectively. During 2002, the Company
disposed 3,457 thousand shares of Gamania at an average selling price of
approximately NT$77.43 dollars per share and recognized a disposal gain of
NT$51,347 in the current year's operations. The Company has no ability to
exercise significant influence over Gamania's operating and financial policies.
These equity securities are classified as long-term available-for-sale
investments as management does not


                                      F-27

<PAGE>

                                GIGAMEDIA LIMITED
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                     (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                         EXCEPT AS INDICATED OTHERWISE)

intend to sell these securities for use in current operations. Accordingly, the
Company revalued these equity securities at fair market value at the balance
sheet date and recognized the unrealized gain as accumulated other comprehensive
income. As Gamania went public in 2002, the Company adopted Gamania's quoted
market price as of December 31, 2002 to determine the fair value of this
investee. As of December 31, 2002, the balance of unrealized gain was NT$59,245.
As of December 31, 2001, Gamania was a privately-held company, and management
believed that the fair value of this investment approximated its cost.
Therefore, no unrealized gain or loss on this investment was recorded as of
December 31, 2001.

On April 30, 2001, the board of directors of Dynamix held a meeting and resolved
to dissolve Dynamix as of June 30, 2001. Therefore, during 2001 the Company
wrote off the value of its investment in the amount of NT$20,343,746. In
addition, at April 30, 2001, the Company had uncollected receivables from
Dynamix in the amount of NT$16,100,000 which were also written off in 2001.

The Company's equity in net losses of its partially owned equity affiliates in
2000, 2001 and 2002 was NT$13,801,459 and NT$27,837,259, and NT$0, respectively.

In 2001, the Company disposed of its long-term investment in Mediacoding by
selling its shares to RIC, the parent company of Mediacoding. Proceeds from the
sale were NT$22,500,000, the Company's original investment, and the carrying
value was NT$10,861,282. Therefore the Company recorded a gain on disposal of
long-term investment in the amount of NT$11,638,718. During 2001, the Company
recognized investment loss from Mediacoding in the amount of NT$7,493,513.

In 2001, the Company invested in RIC, which is a private company engaged in
providing on-line music services, for NT$98,520. The Company has no ability to
exercise significant influence over RIC's operating and financial policies. For
the year ended December 31, 2001, the value of the stock is not readily
determinable, therefore this investment is recorded at historical cost.
Management believed the fair value of this investment approximated the cost.
During the year ended December 31, 2002, due to the down trend of Internet
industry and the investee has incurred significant losses since incorporation,
management concluded that the impairment loss the Company had suffered was
other-than-temporary. Accordingly, the carrying value of the investment was
written off to its fair value, which was


                                      F-28
<PAGE>

                                GIGAMEDIA LIMITED
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                     (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                         EXCEPT AS INDICATED OTHERWISE)

approximately its net worth as (1) the investee is a private company and hence
there is no quoted market value to determine its fair value; (2) based on
management's evaluation, the carrying value of the assets and liabilities of the
investee company approximate its fair value. As a result, an impairment loss of
NT$40,000 was recognized in 2002 in accordance with SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets."

NOTE 11. DEFERRED ASSETS

<TABLE>
<CAPTION>
                                            December 31,
                                        -------------------
                                          2001       2002
                                        --------   --------
                                           NT$        NT$
<S>                                     <C>        <C>
Cable modems                            $ 38,440   $      5
Software, royalty and license fees        36,749     51,652
Network development cost                  32,619     23,819
Other                                          -     11,877
                                        --------   --------
Total                                   $107,808   $ 87,353
                                        ========   ========
</TABLE>

Deferred assets are stated at cost and amortized on a straight-line basis over
the following period: software, royalty and license fees-one to three years;
cable modems-15 months; network development cost-five years. The Company
provides cable modems on a free basis to its customers for subscribing to
Internet access lines for a period of 15 months. Network development cost is
comprised of costs to build the cable.

NOTE 12. RESTRICTED CASH

Restricted cash recorded in current assets and other assets as of December 31,
2001 and 2002 consist of the following:


                                      F-29
<PAGE>

                                GIGAMEDIA LIMITED
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                     (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                         EXCEPT AS INDICATED OTHERWISE)

<TABLE>
<CAPTION>
                                                          December 31,
                                                      -------------------
                                                        2001       2002
                                                      --------   --------
                                                         NT$        NT$
<S>                                                   <C>        <C>
Restricted cash-current assets
Time deposit pledged to ABN AMRO for standby
  letter of credit maturing on April 1, 2002          $ 34,950   $      -
Time deposit pledged to ABN AMRO for standby
  letter of credit maturing on April 1, 2003                 -     34,891
Time deposit pledged to CHTC for refundable deposit
  maturing on February 28, 2002                          6,000          -
Time deposit pledged to Hua Nan Commercial Bank as
  a guarantor for inventory purchases                        -     28,000
Time deposit pledged to Fubon Commercial Bank for
  short-term loans                                           -     37,523
                                                      --------   --------
Total                                                 $ 40,950   $100,414
                                                      ========   ========
</TABLE>

<TABLE>
<CAPTION>
                                                 December 31,
                                               ---------------
                                                2001     2002
                                               -------  ------
                                                 NT$      NT$
<S>                                            <C>      <C>
Restricted cash-other assets
Time deposit pledged to ABN AMRO for standby
  letter of credit maturing on April 1, 2003   $34,950  $    -
                                               =======  ======
</TABLE>

According to the agreement mentioned in Note 5, the Company paid EMI a one-time,
non-recoupable initiation fee equal to US$1,000,000 on June 30, 2001 and the
Company made an additional non-recoupable payment to EMI in the amount of
US$1,000,000 on March 1, 2002. The Company was required to pay an additional
payment of US$1,000 thousand dollars in March 2003 in accordance with the terms
of the agreement. However, in March 2002, the Company sent a notice to EMI to
terminate the agreement, including requiring EMI to return the ownership
interest in GigaMusic and US$2,000 thousand dollars paid in June 2001 and March
2002 to the Company. In addition, the Company has obtained a preliminary
injunction order from Taipei District Court on the additional US$1,000 thousand
dollars scheduled to pay to EMI in March 2003.


In 2001, the Company provided two unconditional and irrevocable standby letters
of credit issued by ABN AMRO BANK in the amount of US$1,000,000 each in favor of
EMI. These two standby letters of credit were guaranteed by two certificates of
deposit maturing on


                                      F-30
<PAGE>

                                GIGAMEDIA LIMITED
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                     (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                         EXCEPT AS INDICATED OTHERWISE)

April 1, 2002 and April 1, 2003, respectively. See Note 22 - "Subsequent Events"
for the legal actions the Company has taken subsequent to December 31, 2002.


NOTE 13. SHORT-TERM LOANS

<TABLE>
<CAPTION>
                                                            December 31,
                                                     --------------------------
   Nature                Pledged assets                 2001           2002
-------------        --------------------------      ----------     -----------
                                                         NT$            NT$
<S>                  <C>                             <C>            <C>
Secured loans        Time deposits (see Note 12)     $        -     $    93,000
                                                     ==========     ===========
Interest rate                                                 -            6.25%
                                                     ==========     ===========
</TABLE>


NOTE 14. PENSION BENEFITS

As all of the Company's employees are located in Taiwan, the Company has enacted
provisions for employees' retirement in accordance with the Labor Standards Law
of the Republic of China. The provisions state that employees are entitled to 2
base points for every year of service for the first 15 years and 1 base point
for every additional year of service up to a maximum of 45 base points. An
employee's pension obligation is computed based on years of service and average
salary or wages for the 6 months prior to approved retirement.

The following table set forth the actuarial assumptions of the Company's defined
benefit pension plan:

<TABLE>
<CAPTION>
                                          2000          2001      2002
                                          ----          ----      ----
<S>                                       <C>           <C>       <C>
Discount rate (weighted averages)         6.00%         4.25%     4.00%
Expected return on plan assets
  (weighted averages)                     6.00%         4.00%     3.25%
Rate of compensation increase
  (weighted averages)                     5.00%         4.50%     3.38%
</TABLE>

The following provides a reconciliation of projected benefit obligations and
funded status of the plan and the components of net periodic benefit cost
recognized.

                                      F-31

<PAGE>

                                GIGAMEDIA LIMITED
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                     (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                         EXCEPT AS INDICATED OTHERWISE)


<TABLE>
<CAPTION>
                                           2001           2002
                                         --------      ---------
                                            NT$           NT$
<S>                                      <C>           <C>
Vested benefit obligation                $      -      $       -
                                         ========      =========
Accumulated benefit obligation           $  3,738      $  14,346
                                         ========      =========
</TABLE>

<TABLE>
<CAPTION>
                                                                2001          2002
                                                             ---------     ---------
                                                                NT$           NT$
<S>                                                          <C>           <C>
Projected benefit obligation at January 1,                   $   3,567     $  11,079
Service cost                                                     5,191         6,834
Interest cost                                                      383           665
Benefit obligation arising from the acquistions                      -        15,445
Actuarial gain on projected benefit obligation                      -        (3,961)
Unrecognized loss                                                1,668             -
Amortization of loss                                               270             -
                                                             ---------     ---------
Projected benefit obligation at December 31,                 $  11,079     $  30,062
                                                             =========     =========
</TABLE>

<TABLE>
<CAPTION>
                                                                  December 31,
                                                             -----------------------
                                                                2001          2002
                                                             ---------     ---------
                                                                NT$           NT$
<S>                                                          <C>           <C>
Fair value of plan assets                                    $       -     $       -
Projected benefit obligation                                   (11,079)      (30,062)
                                                             ---------     ---------
Funded status                                                  (11,079)      (30,062)
Unrecognized transition obligations                                  -         2,231
Unrecognized prior service cost                                      -        12,900
Unrecognized loss (gain)                                         1,669        (2,356)
Additional liability                                                 -        (7,760)
                                                             ---------     ---------
Accrued pension liabilities                                   ($ 9,410)    ($ 25,047)
                                                             =========     =========
</TABLE>

Net periodic pension cost includes the following components:



                                      F-32
<PAGE>



                               GIGAMEDIA LIMITED
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                     (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                         EXCEPT AS INDICATED OTHERWISE)

<TABLE>
<CAPTION>
                                                  For the years ended December 31,
                                              --------------------------------------
                                                 2000           2001         2002
                                              ----------     ---------     ---------
                                                  NT$            NT$           NT$
<S>                                           <C>            <C>           <C>
Service cost                                  $    1,611     $   5,191     $   6,834
Interest cost                                        120           383           665
Amortization of unrecognized net
  transition obligation loss                           -           270           160
Amortization of unrecognized prior
  service cost                                         -             -           156
Amortization of unrecognized
  pension loss                                         -             -            77
                                              ----------     ---------     ---------
Net periodic pension cost                     $    1,731     $   5,844     $   7,892
                                              ==========     =========     =========
</TABLE>

NOTE 15. SHAREHOLDERS' EQUITY AND SHARE OPTIONS

As of December 31, 2002, the authorized capital of the Company was NT$800,000
represented by 80,000 thousand common shares with par value of NT$10 dollars per
share. As of December 31, 2002, 50,154 thousand common shares were issued and
outstanding.

On January 17, 2002, the Company's shareholders approved a return of capital in
the amount of US$2 dollars for each ordinary share outstanding on March 15,
2002. On March 29, 2002, the Company returned the capital to the shareholders in
an amount of US$100,308 thousand dollars translated into NT$3,521,814 based on
the exchange rate at the transaction date.

For the year ended December 31, 1999, 210 thousand shares of option were granted
and vested immediately at the option price of zero dollars. In addition, 2,819
thousand shares of option were granted which are exercisable at the option price
of zero dollars and, subject to termination of employment, expire three years
from the date of grant, are not transferable other than on death, and are
exercisable in three annual installments of 30%, 35% and 35% commencing one year
from the date of grant when the specific employees complete one, two, or three
years of services with Hoshin GigaMedia, the Company's wholly-owned subsidiary.

During 2000, The Company adopted the 1999 Employee Share Option Plan (the
"Plan"). Pursuant to the Plan, up to 2 million common shares may be granted to
employees of the


                                      F-33
<PAGE>

                               GIGAMEDIA LIMITED
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                     (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                         EXCEPT AS INDICATED OTHERWISE)

Company. The Plan is administered by a committee designated by the board of
directors. The committee as plan administrator has complete discretion to
determine the exercise price for the option grants, which eligible individuals
are to receive option grants, the time or times when options grants are to be
made, the number of shares subject to grant and the maximum term for which any
granted option is exercisable. During 2000, options to purchase 1,111 thousand
shares of the Company's common stock were granted at an exercise price of
US$24.3 dollars, a 10% discount to the initial public offering price (US$27
dollars), and options to purchase 837 thousand shares of the Company's common
stock were granted at an exercise price of US$15 dollars (fair value at the date
of grant). During 2001, 1,467 thousand shares of option granted in 2000 were
cancelled or forfeited by employees.

Unearned compensation for outstanding options as of December 31, 2001 and 2002
amounted to NT$5,281 and NT$0, respectively. During 2001, the Company
accelerated the amortization of share compensation expenses in relation to the
options granted in 2000. Total compensation expense recorded in 2000, 2001 and
2002 for all options amounted to NT$182,776, NT$130,827 and NT$5,281,
respectively, which consists of amortization of options outstanding during the
respective years, net of forfeitures. There were no options granted in 2001 or
2002.

Pro forma information regarding net income and earnings per share is required by
FASB No. 123, "Accounting for Stock-Based Compensation", and has been determined
as if the Company had accounted for its employee stock options under the fair
value method required by that Statement.

The fair value for these options was estimated at the date of grant using the
Black-Scholes option-pricing model based on the risk-free interest rate of 5.06%
to 6.2%, assuming no dividends and an option life of five years. Volatility of
the stock in a range of 41.34 to 58.77 has been reflected in the option pricing
calculation.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, this option valuation model requires the input of
highly subjective assumptions including the

                                      F-34
<PAGE>


                               GIGAMEDIA LIMITED
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                     (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                         EXCEPT AS INDICATED OTHERWISE)


expected stock price volatility.

For the purposes of SFAS No. 123's fair value method for pro forma disclosures,
the estimated fair value of the option is amortized to expense over the
option-vesting period. The Company's pro forma information is as follows:

<TABLE>
<CAPTION>
                                 For the years ended December 31,
                         --------------------------------------------
                             2000            2001             2002
                         ------------    ------------      ----------
                              NT$             NT$              NT$
<S>                      <C>             <C>               <C>
Net loss
  As reported            ($ 1,206,732)   ($ 1,811,324)     ($ 637,990)
  Pro forma              ($ 1,352,179)   ($ 2,563,181)     ($ 637,990)
Loss per share
  As reported            ($     24.73)   ($     36.12)     ($   12.72)
  Pro forma              ($     27.71)   ($     51.11)     ($   12.72)
</TABLE>

The status of the Company's stock option plan is summarized below.

<TABLE>
<CAPTION>
                                             Number of            Weighted average
                                               shares              exercise price
                                          ---------------         ----------------
                                          (in thousands)                 US$
<S>                                       <C>                     <C>
Outstanding at January 1, 2000                      2,694         $              -
  Granted                                           1,948                    20.31
                                          ---------------
Outstanding at December 31, 2000                    4,642                     8.52
  Cancelled                                        (1,457)                   19.31
  Forfeited                                           (18)                   20.31
                                          ---------------
Outstanding at December 31, 2001                    3,167                     3.54
  Expired                                          (2,694)                       -
                                          ---------------
Outstanding at December 31, 2002                      473                    23.50
                                          ===============
</TABLE>

The following table sets forth information about stock options outstanding at
December 31, 2002:



                                      F-35
<PAGE>


                               GIGAMEDIA LIMITED
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                     (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                         EXCEPT AS INDICATED OTHERWISE)


<TABLE>
<CAPTION>
                                                    Weighted
                             Number of              average            Weighted               Number of
                        Outstanding shares         remaining           average            exercisable share
Range of exercise              as of              contractual          exercise                 as of
      price              December 31, 2002            life              price             December 31, 2002
-----------------       ------------------        -----------          --------           -----------------
<S>                     <C>                       <C>                  <C>                <C>
     US$15.0                        40,930         2.09 years           US$15.0                      35,970
     US$24.3                       432,100         2.09 years           US$24.3                     312,100
                        ------------------                                                -----------------
                                   473,030                                                          348,070
                        ==================                                                =================
</TABLE>


NOTE 16. INCOME TAXES

The benefit for income taxes consists of the following:

<TABLE>
<CAPTION>
                                                 2000           2001         2002
                                              ----------     ---------     ---------
                                                  NT$            NT$           NT$
<S>                                           <C>            <C>           <C>
Income tax benefit computed at the
ROC statutory rate                              (185,739)     (210,914)     (149,068)
Non-deductible items                              31,936        20,829        26,707
Benefit from operating losses note
recorded                                         153,804       189,692       117,978
                                               ---------     ---------     ---------
Total benefit (expense) for income
taxes                                          $       -     $(    393)    $   4,383
                                               =========     =========     =========
</TABLE>

Significant components of the Company's deferred tax assets and liabilities
consist of the following:

                                      F-36

<PAGE>

                               GIGAMEDIA LIMITED
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                     (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                         EXCEPT AS INDICATED OTHERWISE)

<TABLE>
<CAPTION>
                                                        December 31,
                                                  -----------------------
                                                     2001         2002
                                                  ---------     ---------
                                                     NT$           NT$
                                                  ---------     ---------
<S>                                               <C>           <C>
Deferred tax assets:
Organization costs                                $   3,809     $   1,859
Net operating loss carryforwards                    462,033       651,854
Share of net loss of equity investee                  5,086             -
Unrealized foreign exchange loss
  (gain)                                              3,844        (2,807)
Valuation allowance for inventory                     4,964        11,245
Valuation allowance for notes and
  accounts receivable                                10,395        12,723
Pension expense                                       1,893         3,867
Investment credits                                        -         4,154
                                                  ---------     ---------
 Sub-total                                          492,024       682,895
Less: valuation allowance                          (491,631)     (678,119)
                                                  ---------     ---------
Deferred tax assets - net                         $     393     $   4,776
                                                  =========     =========
</TABLE>

<TABLE>
<CAPTION>
                                         For the years ended December 31,
                                      ------------------------------------
                                         2000          2001        2002
                                      ----------    ----------   ---------
                                          NT$          NT$          NT$
<S>                                   <C>           <C>          <C>
Valuation allowance:
Balance at beginning of year          $   74,610    $  259,713   $ 491,631
Additions: charged to valuation
  allowance                              185,103       231,918     186,488
                                      ----------    ----------   ---------
Balance at end of year                $  259,713    $  491,631   $ 678,119
                                      ==========    ==========   =========
</TABLE>

Due to a history of losses, the Company does not believe that sufficient
objective, positive evidence currently exists to conclude that realization of
deferred tax assets is more likely than not. As a result, the Company has
provided a valuation allowance covering substantially all of the deferred tax
assets. As of December 31, 2001 and 2002, the balances of deferred tax assets
were NT$393 and NT$4,776, respectively, which were related to one of the
Company's subsidiaries, because this subsidiary's management believed that the
realization of deferred tax assets was more than likely. The Company recorded
the deferred tax assets in the other current assets in the balance sheet.


                                      F-37
<PAGE>

                               GIGAMEDIA LIMITED
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                     (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                         EXCEPT AS INDICATED OTHERWISE)


As at December 31, 2002, the Company has net operating loss carryforwards of
approximately NT$2,607,416 Currently, the net operating loss can be carried
forward for five years. The expiring years are as follows:

<TABLE>
<CAPTION>
                            Amount
                         ------------
Occurred year                 NT$          Expiring year
-------------            ------------      -------------
<S>                      <C>               <C>
     1998                $     23,948           2003
     1999                     241,858           2004
     2000                     783,886           2005
     2001                     961,453           2006
     2002                     596,271           2007
                         ------------
     Total               $  2,607,416
                         ============
</TABLE>

NOTE 17.  RELATED PARTY TRANSACTIONS

A.  Related Parties and Relationships

    The Company is a member of the Koos Group, a conglomerate in Taiwan. In
    the normal course of business, the Company conducted certain
    transactions with the following companies and individuals affiliated
    with the Koos Group and individuals:


                                      F-38
<PAGE>

                                GIGAMEDIA LIMITED
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                     (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                         EXCEPT AS INDICATED OTHERWISE)

                            Names of related parties

Cycloria Incorporated ("Cycloria")
TeleFirst Cable Communication Co., Ltd. ("TeleFirst")
Everlasting CATV  Inc. ("Everlasting")
Wonderful CATV Co., Ltd. ("Wonderful")
Hoshin Home Center Co., Ltd. ("HHCC")
SunCrown CATV Co., Ltd. ("SunCrown")
Prosperity CATV Co., Ltd.
GaHo Cable Co., Ltd.
Twin Stars CATV Co., Ltd.
Liguan CATV Co., Ltd.
New Visual Wave Cable Communications ("New Visual Wave")
Chun-Chien CATV Co., Ltd. ("Chun-Chien")
GangDu CATV Co., Ltd. ("GangDu")
Ching Lian Incorporated ("Ching Lian")
China Trust Commercial Bank
Chailease Finance Co., Ltd. ("Chailease")
China Life Insurance Co., Ltd.
China Securities Co., Ltd.
KG Communication Co., Ltd.
Dynamix Media Technologies, Inc. ("Dynamix")
KGEx.Com
China Securities Co., Ltd.
Taiwan Fuji Xerox Co., Ltd.
China Network Systems Co., Ltd. ("China Network System")
Raymond Chang
Shu-Yun Huang

The Company had transactions with the following principal shareholder:

                            Names of related parties

Microsoft Corporation ("Micorsoft")

B.   Transactions with Related Parties

     a.   Sales to related parties:


                                      F-39
<PAGE>

                                GIGAMEDIA LIMITED
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                     (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                         EXCEPT AS INDICATED OTHERWISE)

<TABLE>
<CAPTION>
                                        For the years ended December 31,
                                       ---------------------------------
          Related Parties                2000          2001       2002
-----------------------------          --------      -------     -------
                                         NT$           NT$         NT$
<S>                                    <C>           <C>         <C>
Dynamix                                $ 26,143      $ 7,190     $     -
China Trust Commercial Bank               4,747        7,114      10,156
China Life Insurance Co. Ltd.             2,100        1,846       2,075
KG Communication Co.                      5,400            -           -
China Securities Co., Ltd.                1,080          960       6,881
KGEx.com                                      -            -       3,248
Others                                    2,331        1,120       2,712
                                       --------      -------     -------
Total                                  $ 41,801      $18,230     $25,072
                                       ========      =======     =======
</TABLE>

     b.   As part of revenue sharing arrangements with cable partners, payments
          to related parties for installation and access services are summarized
          as follows:

<TABLE>
<CAPTION>
                               For the years ended December 31,
                             ------------------------------------
      Related Parties           2000           2001        2002
-------------------------    ----------     ---------   ---------
                                 NT$           NT$         NT$
<S>                          <C>            <C>         <C>
Everlasting                  $    2,146     $   2,198   $   5,928
Wonderful                         2,045         2,661       4,060
GangDu                            2,391         3,333       3,933
ChingLain                         3,095         2,683       2,976
TeleFirst                         3,042         2,578       4,178
New Visual Wave                       -         2,416         290
KGEx.Com                              -        15,135      29,034
Others                            7,302         7,403      11,923
                             ----------     ---------   ---------
Total                        $   20,021      $ 38,407   $  62,322
                             ==========     =========   =========
</TABLE>

          Access and installation revenue was recorded net of these payments.

     c.   Purchases of property, plant and equipment from related parties are
          summarized as follows:

<TABLE>
<CAPTION>
                                      For the years ended December 31,
                                    ------------------------------------
          Related Parties              2000        2001         2002
-------------------------------     ----------   ---------    ----------
                                        NT$         NT$           NT$
<S>                                 <C>          <C>          <C>
China Network System                $        -   $   4,314    $        -
                                    ==========   =========    ==========
</TABLE>

     d.   The Company purchased beneficiary certificates managed by the Grand
          Pacific Securities Investment Trust Co., Ltd. for NT$700,000 in 2000.
          These beneficiary

                                      F-40

<PAGE>

                                GIGAMEDIA LIMITED
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                     (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                         EXCEPT AS INDICATED OTHERWISE)

          certificates were also sold in 2000 at a gain of NT$14,549. As of
          December 31, 2001, the Grand Pacific Securities Investment Trust Co.,
          Ltd. was no longer affiliated with the Koos Group because the Koos
          Group disposed of all of their shares of Grand Pacific Securities
          Investment Trust Co., Ltd.

     e.   The Company incurred sales commission expense of NT$7,307, NT$39,048
          and NT$2,493 for the years ended December 31, 2000, 2001 and 2002,
          respectively, with its cable partners.

     f.   The Company incurred expenses of NT$2,078 and NT$4,354 for the years
          ended December 31, 2001 and 2002, respectively, for consulting
          services provided by China Network System.

     g.   Receivables from related parties resulting from the above transactions
          are summarized as follows (non interest-bearing):

<TABLE>
<CAPTION>
                                      December 31,
                               -------------------------
      Related Parties             2001           2002
---------------------------    ----------     ----------
                                  NT$            NT$
<S>                            <C>            <C>
China Trust Commercial Bank    $      775     $    1,753
HHCC                                1,630              -
Others                                507          3,952
                               ----------     ----------
Total                          $    2,912     $    5,705
                               ==========     ==========
</TABLE>

     h.   Payables to related parties resulting from the above transactions are
          summarized as follows (non interest-bearing):

<TABLE>
<CAPTION>
                                             December 31,
                                     -------------------------
       Related Parties                  2001           2002
------------------------------       ----------     ----------
                                        NT$            NT$
<S>                                  <C>            <C>
China Life Insurance Co., Ltd.       $        -     $    9,677
TeleFirst                                   269              -
Everlasting                                 467          2,547
Wonderful                                   581              -
GangDu                                      254            337
SunCrown                                    216            478
KGEx.COM                                      -          5,536
Others                                    1,993          1,936
                                     ----------     ----------
Total                                $    3,780     $   20,511
                                     ==========     ==========
</TABLE>

     i.   Please refer to Note 5 for transactions with Microsoft.


                                      F-41

<PAGE>


                                GIGAMEDIA LIMITED
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                     (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                         EXCEPT AS INDICATED OTHERWISE)


     j.   As of December 31, 2001 and 2002, receivable due from the Company's
          CEO, Mr. Raymond Chang, in the amount of NT$18,534 was derived from a
          two-year loan agreement, bearing interest as 4.45% per annum, signed
          between Mr. Chang and the Company on May 1, 2001. As the loan is to be
          due within one year from the balance sheet date, as of December 31,
          2002, the total outstanding balance of NT$18,534 was accounted for as
          current assets.

     k.   As of December 31, 2002, the Company's indirectly-owned subsidiary,
          Tachung Records, had receivables of NT$88,000 from its former
          shareholders and the receivables were recorded as "other current
          assets" in the balance sheet. An executive officer of the Company's
          subsidiary, Shu-Yun Huang, was one of the debtors and, in accordance
          with the acquisition agreements with these former shareholders,
          Shu-Yun Huang was required to be responsible for collecting the
          receivables as of December 31, 2002. These receivables were fully
          collected subsequent to December 31, 2002.

     l.   The Company leases its office premises from China Life Insurance Co.,
          Ltd. under an operating lease that expires in 2005. The Company
          incurred rental expense of NT$3,491, NT$47,567 and NT$12,910 with
          China Life Insurance Co., Ltd. for the years ended December 31, 2000
          and 2001 and 2002, respectively.

     m.   Total deposits in bank with related parties are summarized as follows:

<TABLE>
<CAPTION>
                                           For the years ended December 31,
                                           --------------------------------
          Related Parties                    2001                   2002
          ---------------                    ----                   ----
                                              NT$                    NT$
<S>                                        <C>                    <C>
China Trust Commercial Bank-Total          $570,209               $683,746
                                           ========               ========
</TABLE>

NOTE 18.  FINANCIAL INSTRUMENTS

The carrying amount of the Company's cash and cash equivalents approximates
their fair value because of the short maturity of these instruments. The
carrying value of receivables and payables approximates their market values
based on their short-term maturities. The carrying value of the Company's
available-for-sale investments approximates market based on the quoted market
price or fair value of the securities at year-end. No cash dividends


                                      F-42
<PAGE>

                                GIGAMEDIA LIMITED
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                     (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                         EXCEPT AS INDICATED OTHERWISE)

were received during the three-year period ended December 31, 2002.

NOTE 19.  COMMITMENTS AND CONTINGENCIES

(a)  Operating Leases

     Future minimum payments under operating leases, including those with a
     related party as disclosed in Note 17, for the Company's office premises
     consisted of the following as of December 31, 2002:

<TABLE>
<CAPTION>
     year                       NT$
--------------           -----------------
<S>                      <C>
     2003                $         234,650
     2004                          169,964
     2005                           95,528
     2006                           48,033
2007 and after                      32,239
</TABLE>

     Rental expense for the above operating leases amounted to NT$39,791,
     NT$78,411 and NT$175,715 for the years ended December 31, 2000, 2001 and
     2002, respectively.

(b)  Contingencies

     In December 2001, a class action lawsuit was filed against the Company on
     behalf of purchasers of its common stock between February 17, 2000 and
     December 6, 2000 inclusive. There are over 300 issuers who are defendants
     in this class action.

     The complaint alleges that GigaMedia violated Sections 11, 12(a)(2) and 15
     of the Securities Exchange Act of 1933 and Section 10(b) of the Securities
     Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. In connection
     with the initial public offering of its stock (GigaMedia IPO), the
     complaint further alleges that the Prospectus was materially false and
     misleading because it failed to disclose, among other things (i) the
     Underwriters had solicited and received excessive and undisclosed
     commissions from certain investor in exchange for which the Underwriters
     allocated to those investors material portions of the restricted number of
     GigaMedia shares issued in connection with the GigaMedia IPO; and (ii) the
     Underwriters had entered into agreements with customers whereby the
     underwriters agreed to allocate GigaMedia shares to those customers in the
     GigaMedia IPO in exchange for which the customer


                                      F-43

<PAGE>


                                GIGAMEDIA LIMITED
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                     (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                         EXCEPT AS INDICATED OTHERWISE)

     agreed to purchase additional GigaMedia share in the aftermarket at
     pre-determined prices.

     The plaintiffs claim damages in an unspecified amount, including class
     damages and statutory compensation in an amount to be determined at trial,
     interest, costs and attorneys' fees. On or around April 19, 2002, the
     plaintiffs filed amended complaints against the Company. On July 1, 2002,
     the underwriter defendants filed their motion to dismiss the amended
     complaints. Subsequently, on July 15, 2002, the issuer defendants filed
     their motion to dismiss the amended complaints. The parties completed the
     briefing on the motions to dismiss, and the court held oral argument on the
     motions to dismiss on November 1, 2002. On October 17, 2002, a settlement
     consideration was proposed that the insurers, on behalf of the defendant
     directors and officers, shall severally pay the sum of US$100 million for
     the benefits of the Classes. On February 19, 2003, the court issued an
     Opinion and Order on defendants' motions to dismiss, which granted the
     motions in part and denied the motions in part. As to the Company, the Role
     10b-5 claims were dismissed without prejudice while the Section 11 claims
     survived the motion.

     As the litigation is still at a very early stage, neither the Company nor
     the Company's defendant attorney is able to assess the likelihood of an
     unfavorable outcome and can determine as to the amount or range of
     potential loss, if any. However, the Company intends to vigorously defend
     itself against allegations. The Company has entered into an insurance
     policy with American Insurance Group with US$10 million of liability
     coverage. In addition, the Company has requested the underwriters of the
     GigaMedia IPO for reimbursement for all cost, expenses, losses and/or
     damages incurred by the Company in connection with such lawsuit.
     Accordingly, as of December 31, 2002, management believes that the
     potential liability, if any, will be covered by the insurance policy, and
     hence the Company has not recorded any provision related to these claims.

20.  CONCENTRATION OF RISKS

Concentration of Credit Risk

The Company's on-line business provides Internet access and on-line content
services over

                                      F-44
<PAGE>


                                GIGAMEDIA LIMITED
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                     (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                         EXCEPT AS INDICATED OTHERWISE)

the Internet to customers located in various cities in Taiwan. The
Company requires a security deposit from those customers who lease cable modems
for potential damages to the cable modem as well as uncollected monthly charges
at termination, but generally does not perform credit evaluations of its
customers.

As the Company's off-line business requires cash or credit card payments at the
point of sale. Accordingly, the Company's exposure to credit risk of its
off-line business is considered remote.

None of the Company's customers accounted for over 10% of net operating revenues
in 2002 or the balance of notes and accounts receivable as of December 31, 2002.

Cash Risk

The Company maintains cash, cash equivalents and short-term and long-term
investments with various financial institutions, majority of which are located
in Taiwan. The Company's policy is designed to limit exposure to any one
institution. The Company performs periodic evaluations of the relative credit
standing of those financial institutions that are considered in the Company's
investment strategy. The Company has not sustained material credit losses from
instruments held in financial institutions.

Concentration of Exchange Rate Risk

The exchange rate risk of the Company's on-line business is mainly derived from
purchases of cable modems from internationally reputable vendors with US
dollar-denominated pricing and payments for professional fees and commission
expenses denominated in US dollars. Fluctuations in exchange rates between the
US dollar and the NT dollar will subject the Company to exchange rate risk.

The Company's off-line business purchases inventories from vendors in Taiwan.
The purchases are denominated in NT dollars. Hence, the Company does not have
exposure to exchange rate risk for off-line business.


                                      F-45
<PAGE>

                                GIGAMEDIA LIMITED
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                     (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                         EXCEPT AS INDICATED OTHERWISE)

All of the Company's operations are located in Taiwan and all of its sales are
denominated in NT dollars. Accordingly, the Company does net have exposure to
exchange rate risk from its sales transactions.

NOTE 21. SEGMENT INFORMATION

Segment data

Prior to 2002, the Company managed its business and measured results based on a
single Internet-related service industry segment. Due to the acquisitions of
Rose Records and Tachung Records, commencing from 2002, the Company has two
reportable segments: on-line entertainment segment and off-line entertainment
segment. On-line entertainment segment mainly derives it revenues from
Internet-related services, including (1) internet access, (2) sales, rental and
installation of cable modems, (3) web development, and (4) advertising and
others. Off-line entertainment segment mainly derived its revenues from the
sales of compact disc, video compact disc, digital versatile disc, audio and
video cassettes, and related accessories from its 50 directly-owned stores in
Taiwan.

The Company's management relies on an internal management reporting process that
provides revenue and segment information for making financial decisions and
allocating resources. The results are based on the Company's method of internal
reporting and are not necessarily in conformity with accounting principles
generally accepted in the United States of America. Management measures the
performance of each segment based on several metrics, including income or loss
from operations.

Financial information for each reportable segment was as follows as of and for
the year ended December 31, 2002:


                                      F-46
<PAGE>

                                GIGAMEDIA LIMITED
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                     (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                         EXCEPT AS INDICATED OTHERWISE)

<TABLE>
<CAPTION>
                                                  On-line Segment      Off-line Segment           Total
                                                  ---------------      ----------------      ----------------
                                                         NT$                  NT$                   NT$
<S>                                               <C>                  <C>                   <C>
2002:
SEGMENT PROFIT OR LOSS:
  Net revenue from external customers              $      665,656       $     1,890,153       $     2,555,809
                                                  ===============      ================      ================
  Loss from operations                            ($      455,595)     ($       340,839)     ($       796,434)
                                                  ===============      ================      ================
  Interest income                                  $       17,940       $         3,894       $        21,834
                                                  ===============      ================      ================
  Interest expenses                                $            -      ($         1,392)     ($         1,392)
                                                  ===============      ================      ================
  Depreciation                                    ($      166,373)     ($        29,973)     ($       196,346)
                                                  ===============      ================      ================
  Amortization, including intangible
    assets                                        ($       75,994)     ($        21,465)     ($        97,459)
                                                  ===============      ================      ================
  Income tax benefit                               $        4,383       $             -       $         4,383
                                                  ===============      ================      ================
  Impairment loss on goodwill and
    intangible assets                             ($       80,627)     ($       242,938)     ($       323,565)
                                                  ===============      ================      ================
SEGMENT ASSETS:

  Additions to property, plant and
     equipment, net                                $       89,060       $       215,681       $       304,741
                                                  ===============      ================      ================
  Additions to intangible assets                   $       35,110       $       257,726       $       292,836
                                                  ===============      ================      ================
  Additions to goodwill                            $            -       $       268,327       $       268,327
                                                  ===============      ================      ================
  Total assets                                     $    2,508,511       $     1,201,854       $     3,710,365
                                                  ===============      ================      ================
</TABLE>

For the years ended December 31, 2000 and 2001, the Company only has one
reportable segment. Accordingly, all assets, liabilities and operating results
of the Company were attributed to on-line entertainment segment.

The reconciliation of segment information to GigaMedia consolidated totals was
as follows for the year ended December 31, 2002:


                                      F-47
<PAGE>

                                GIGAMEDIA LIMITED
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                     (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                         EXCEPT AS INDICATED OTHERWISE)

<TABLE>
<CAPTION>
                                                                  2002
                                                             --------------
                                                                   NT$
<S>                                                          <C>
LOSS FROM OPERATIONS:
Total segments                                               ($     796,434)
Corporate and unallocated costs and expenses                        (28,315)
                                                             --------------
Total GigaMedia consolidated                                 ($     824,749)
                                                             ==============

INTEREST INCOME:

Total segments                                                $      21,834
Corporate and unallocated interest income                            13,071
                                                             --------------
Total GigaMedia consolidated                                  $      34,905
                                                             ==============

TOTAL ASSETS:

Total segments                                                $   3,710,365
Corporate and unallocated total assets                              985,673
                                                             --------------
Total GigaMedia consolidated                                  $   4,696,038
                                                             ==============
</TABLE>

Major Customers

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

Geographic Information

All of the Company's operations are located in Taiwan and its revenues are all
derived from customers located in Taiwan. Accordingly, the Company is not
applicable to disclose the geographic information in any period presented.

NOTE 22. SUBSEQUENT EVENTS

a. Management buyout proposal

On March 21, 2003, the Company's management group, comprised of all seven senior
officers of the Company, made an offer to the Company's board of directors to
purchase all of the shares of the Company for US$1.20 dollars per share.


                                      F-48
<PAGE>

                                GIGAMEDIA LIMITED
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                     (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                         EXCEPT AS INDICATED OTHERWISE)


The proposed management buy-out would be implemented pursuant to a scheme of
arrangement as provided under Singapore law and is contingent upon certain
conditions as specified in the offer letter, including the ability of the
management team to secure funding. GigaMedia's board of directors has formed a
special committee to review the offer made by GigaMedia management.

b. Litigation with EMI

On March 28, 2003, the Company commenced arbitration proceedings by submitting a
Notice of Arbitration to the Singapore International Arbitration Center (the
"SIAC") to resolve the disputes in connection with the strategic agreement
entered into by the Company, GigaMusic.com, and EMI. In the Notice of
Arbitration, the Company sought the following relief:

(a)  An order that EMI return to the Company a Share Certificate, issued by
     GigaMusic.com, representing 50,000 shares, or 5% ownership, of
     GigaMusic.com;

(b)  An order that EMI pay the Company the sum of US$2 million dollars;

(c)  An order that EMI be restrained from presenting the letter of credit of
     US$1 million dollars to ABN AMRO Bank N.V. Taipei, Taiwan and from
     withdrawing another US$1 million dollars and that EMI return this letter of
     credit to the Company;

(d)  An order that EMI pay the Company damages, which are to be assessed, for
     EMI's breach of contract;

(e)  An order that EMI pay the Company's legal costs and expenses of, and
     incidental to, the arbitration including but not limited to all fees paid
     and/or payable to the arbitrator and the SIAC; and

(f)  Any such further or other relief that the arbitrator should deem fit or
     just in the circumstances.

As the Company is still in the initial stage of the arbitration and EMI's
defence and counterclaim, if any, are unknown at this stage, the Company's
management cannot provide an accurate evaluation of the likelihood of a
favorable or unfavorable outcome. However, based on the information currently
available, management and the Company's attorney believe that the


                                      F-49
<PAGE>

                                GIGAMEDIA LIMITED
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                     (EXPRESSED IN THOUSANDS OF NT DOLLARS,
                         EXCEPT AS INDICATED OTHERWISE)

Company has a good stand for making the claim.

c. Notes receivable from officer

In accordance with the terms of the loan agreement entered into with the
Company's CEO as mentioned in Note 17, when the loan is due on May 1, 2003, upon
the request of the borrower and after engaging a new loan agreement, the loan
can be renewed for two year. However, in order to comply with related
regulations, the loan has not been renewed and, as a result, the Company has
commenced actions to seek prompt repayment of such loan from the borrower.


                                      F-50