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OF THE SECURITIES EXCHANGE ACT OF 1934
(Jurisdiction of incorporation or organization)
207 TIDING BOULEVARD, SECTION 2, TAIPEI 114, TAIWAN, R.O.C.
(Address of principal executive offices)
886-2- 2656-8000
Title of Each Class | Name of Each Exchange on Which Registered | |
Ordinary Shares | The NASDAQ Stock Market LLC |
None
None
Yesþ Noo
U.S. GAAPþ | International Financial Reporting Standards as issued by the International Accounting Standards Boardo | Othero |
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• | our business plan and strategies; | ||
• | our future business development and potential financial condition, results of operations and other projected financial information; | ||
• | our ability to manage current and potential future growth; | ||
• | expected continued acceptance of our revenue model; | ||
• | our plans for strategic partnerships, licenses and alliances; | ||
• | our acquisition and strategic investment strategy, and ability to successfully integrate any past, current, or future acquisitions into our operations; | ||
• | our ability to protect our intellectual property rights and the security of our customers’ information; | ||
• | expected continued acceptance of our online games and gaming software, including expected growth of the online games and online gaming industry, and consumer preferences for our products and services; | ||
• | the development of new online game and gaming software products in-house, our plans to license additional games from third parties, and the launch of these new games or gaming software systems, including the timing of any such development, licenses or launches; | ||
• | potential entry of new competitors in any of our business lines; | ||
• | changes in PRC laws and governmental regulation, and future enforcement of those laws and regulations, including laws and regulations relating to Internet usage, advertising over the Internet, Internet content providers, foreign investors in online business and distribution of dividends; | ||
• | expected growth in the number of Internet, online games, and gaming software users in the PRC and other areas of operation; | ||
• | changes or stability in certain regulatory environments in our places of operation, including our licensees’ operations or gaming licenses; | ||
• | the outcome of ongoing, or any future, litigation or arbitration; and |
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• | our corporate classification by various governmental entities. |
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(in thousands except for earnings/loss per share amounts)
2003 | 2004 | 2005 | 2006 | 2007 | ||||||||||||||||
US$ | US$ | US$ | US$ | US$ | ||||||||||||||||
STATEMENT OF OPERATIONS DATA: | ||||||||||||||||||||
OPERATING REVENUES | �� | |||||||||||||||||||
Gaming software and service revenues | 0 | 11,434 | 22,511 | 55,019 | 118,950 | |||||||||||||||
Online game and service revenues | 0 | 0 | 0 | 18,692 | 32,764 | |||||||||||||||
Internet access and service revenues | 19,396 | 21,303 | 21,589 | 20,537 | 15,147 | |||||||||||||||
Other revenues | 117 | 107 | 87 | 44 | 17 | |||||||||||||||
Total operating revenues | 19,513 | 32,844 | 44,187 | 94,292 | 166,878 | |||||||||||||||
OPERATING COSTS | ||||||||||||||||||||
Cost of gaming software and service revenues | 0 | (1,592 | ) | (3,327 | ) | (7,824 | ) | (16,201 | ) | |||||||||||
Cost of online game and service revenues | 0 | 0 | 0 | (3,667 | ) | (9,118 | ) | |||||||||||||
Cost of Internet access and service revenues | (15,093 | ) | (13,873 | ) | (13,568 | ) | (11,449 | ) | (10,002 | ) | ||||||||||
Cost of other revenues | (1,022 | ) | (644 | ) | (488 | ) | (391 | ) | (223 | ) | ||||||||||
Total operating costs | (16,115 | ) | (16,109 | ) | (17,383 | ) | (23,331 | ) | (35,544 | ) | ||||||||||
GROSS PROFIT | 3,398 | 16,735 | 26,804 | 70,961 | 131,334 | |||||||||||||||
OPERATING EXPENSES | ||||||||||||||||||||
Product development and engineering expenses | (1,211 | ) | (2,513 | ) | (3,562 | ) | (5,738 | ) | (7,911 | ) | ||||||||||
Selling and marketing expenses | (2,432 | ) | (6,310 | ) | (10,777 | ) | (30,123 | ) | (62,349 | ) | ||||||||||
General and administrative expenses | (5,162 | ) | (5,657 | ) | (7,892 | ) | (12,421 | ) | (22,240 | ) | ||||||||||
Bad debt expenses | (128 | ) | 220 | (207 | ) | (715 | ) | (743 | ) | |||||||||||
Impairment loss on property, plant and equipment | (1,557 | ) | 0 | 0 | 0 | 0 | ||||||||||||||
(10,490 | ) | (14,260 | ) | (22,438 | ) | (48,997 | ) | (93,243 | ) | |||||||||||
Income (loss) from operations | (7,092 | ) | 2,475 | 4,366 | 21,964 | 38,091 | ||||||||||||||
Income (loss) from continuing operations | (9,799 | ) | 1,253 | 6,490 | 30,784 | 38,890 | ||||||||||||||
Income (loss) from discontinued operations | (4,296 | ) | 429 | (154 | ) | 0 | 0 | |||||||||||||
Net income (loss) | (14,095 | ) | 1,682 | 6,336 | 30,784 | 38,890 | ||||||||||||||
Earnings (loss) per share (in dollars) | ||||||||||||||||||||
Basic: | ||||||||||||||||||||
Income (loss) from continuing operations | (0.20 | ) | 0.02 | 0.13 | 0.60 | 0.74 | ||||||||||||||
Income (loss) from discontinued operations | (0.08 | ) | 0.01 | 0 | 0 | 0 | ||||||||||||||
Net income (loss) | (0.28 | ) | 0.03 | 0.13 | 0.60 | 0.74 | ||||||||||||||
Diluted: | ||||||||||||||||||||
Income (loss) from continuing operations | (0.20 | ) | 0.02 | 0.12 | 0.51 | 0.65 | ||||||||||||||
Income (loss) from discontinued operations | (0.08 | ) | 0.01 | 0 | 0 | 0 | ||||||||||||||
Net income (loss) | (0.28 | ) | 0.03 | 0.12 | 0.51 | 0.65 | ||||||||||||||
(US dollars in thousands except for number of issued shares)
2003 | 2004 | 2005 | 2006 | 2007 | ||||||||||||||||
US$ | US$ | US$ | US$ | US$ | ||||||||||||||||
BALANCE SHEET DATA: | ||||||||||||||||||||
Total current assets | 77,709 | 67,726 | 70,204 | 64,176 | 115,417 | |||||||||||||||
Property, plant and equipment-net | 15,636 | 15,056 | 10,747 | 10,098 | 13,008 | |||||||||||||||
Goodwill | — | 29,607 | 29,243 | 55,817 | 85,149 | |||||||||||||||
Intangible assets-net | 6,199 | 8,372 | 2,704 | 23,067 | 26,060 | |||||||||||||||
Total assets | 119,792 | 125,977 | 113,519 | 182,619 | 283,865 | |||||||||||||||
Total shareholders’ equity | 90,363 | 95,971 | 100,648 | 134,087 | 180,665 | |||||||||||||||
Common shares, no par value, and additional paid-in capital | 239,004 | 287,657 | 287,920 | 289,495 | 296,793 |
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2003 | 2004 | 2005 | 2006 | 2007 | ||||||||||||||||
US$ | US$ | US$ | US$ | US$ | ||||||||||||||||
Number of issued shares (in thousands) | 50,154 | 50,154 | 50,344 | 51,495 | 53,700 | |||||||||||||||
Dividend declared per share (in dollars) | 0 | 0 | 0 | 0 | 0 |
C. | Reasons for the Offer and Use of Proceeds |
• | retain existing customers or attract new customers; | ||
• | license, develop, or acquire additional online games that are appealing to consumers; | ||
• | anticipate and adapt to changing consumer preferences; | ||
• | adapt to competitive market conditions; | ||
• | adapt to regulatory changes; | ||
• | respond to technological changes or resolve unexpected service interruptions in a timely manner; | ||
• | adequately and efficiently operate, upgrade and develop our transaction and service platforms; or |
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• | maintain adequate control of our expenses. |
• | significantly greater technological, financial, sales and marketing resources; | ||
• | larger customer bases and longer operating histories; | ||
• | greater name recognition; and | ||
• | more established relationships with distribution partners, advertisers, content and application providers and/or other strategic partners. |
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• | It may be difficult to assimilate the operations and personnel of an acquired business into our organization; | ||
• | Management, information, and accounting systems of an acquired business may be different from our current systems and need to be successfully integrated; | ||
• | Our management must devote its attention to assimilating acquired businesses, which diverts attention from other business concerns; | ||
• | Suppliers, vendors and/or distributors may renegotiate or cancel contracts with us following the acquisition of a business; | ||
• | We may enter markets in which we have limited prior experience. For example, in December 2006, we entered into a strategic alliance with Infocomm Asia Holdings Pte Ltd (“Infocomm Asia”), an online gaming operator and distributor operating primarily in the Southeast Asia region. In addition, in June 2007, we also acquired control of a majority of the voting rights over the shares of T2CN, an online casual sports game operator in China, a market in which we had limited prior experience; and | ||
• | We could lose some of our key employees or key employees of an acquired business. |
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• | Gaming software and service business: availability of Internet infrastructure, competition from existing and new competitors, the revenues, expenses and results of operations of our customer and major licensee, UIM, and the regulatory restrictions applicable to the Internet gaming industry. | ||
• | Online games business: existing and new competitors, the pace of rollout of new games and price competition in the industry, regulatory and other risks arising in connection with our China operations. | ||
• | Internet access service business: price competition in the Internet access business, the rate at which new customers subscribe to our services, subscriber turnover rates and the pace of rollout of our services. |
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• | the popularity of existing and new online games operated by us; | ||
• | the introduction of new online games, competing with or replacing our existing online games; | ||
• | general economic conditions, particularly economic conditions adversely affecting discretionary consumer spending; | ||
• | changes in customer tastes and preferences; | ||
• | the availability of other forms of entertainment; and | ||
• | critical reviews and public tastes and preferences, all of which change rapidly and cannot be predicted. |
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• | fund our operations; | ||
• | enhance and expand the range of products and services we offer; and | ||
• | respond to competitive pressures and perceived opportunities, such as investment, acquisition and international expansion activities. |
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• | Infrastructure Design: Architecture design of servers, routers, firewalls, network software and management tools required for an Internet property. | ||
• | Site Creation: Creation and branding of our client’s Internet property, customized to match our licensees’ unique identities and creative themes. |
• | Payment: Consultation for the design of timely collection and distribution of payments through a variety of channels and merchants. | ||
• | Billing: Consultation for the design of real-time and out-of-band transaction processing and order management. | ||
• | Risk Management: Consultation for design of tools and processes for fraud detection, prevention, and management. |
• | Infrastructure Consultation Support: Complete round-the-clock consultation support to help clients resolve infrastructure issues. | ||
• | Platform Technical Support: Consultation during periodic maintenance to update, patch, and fine-tune the system performance of our software solutions. |
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• | Design and development of custom entertainment modules and interfaces for our platform meeting client-specific requests. |
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• | Shareholder Voting Rights and Proxy Agreements. T2CN Information Technology (Shanghai) Co., Ltd. (“T2 Technology”), a wholly-owned subsidiary of T2CN incorporated in Shanghai, entered into shareholder voting rights and proxy agreements with the shareholders of T2 Entertainment and T2 Advertisement, pursuant to which each of these shareholders have irrevocably granted T2 Technology the power to exercise all of the voting rights of T2 Entertainment and T2 Advertisement. | ||
• | Exclusive Equity Transfer Call Agreements. T2 Technology entered into exclusive equity transfer call agreements with each of the shareholders of T2 Entertainment and T2 Advertisement, pursuant to which each of these shareholders has granted T2 Technology an irrevocable option to acquire all or part of the equity interests held by them in T2 Entertainment and T2 Advertisement, to the extent permitted by then-effective laws and regulations in the PRC. | ||
• | Exclusive Technical Service and Consultancy Agreements. T2 Technology entered into certain exclusive technical service and consultancy agreements with each of T2 Entertainment and T2 Advertisement, pursuant to which T2 Technology provides technical consulting and related information services for an initial term of eighteen years. Service fees paid to T2 Technology by T2 Entertainment and T2 Advertisement are eliminated in the consolidated financial statements. | ||
• | Equity Pledge Agreements. Each of the shareholders of T2 Entertainment and T2 Advertisement have pledged all of their respective equity interests in these companies as security for the full performance of their respective obligations under each of the agreements described above. |
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• | Physical distribution channels. Physical distribution channels include convenience chain stores, such as 7-11, and Internet cafés. At these locations, users may purchase pre-paid cards with varying amounts of credits to play FunTown’s and T2CN’s casual games. In addition, players may purchase game packs to play specific games on FunTown’s and T2CN’s platforms. | ||
• | Virtual distribution channels. Virtual distribution channels consist of various Web sites, including FunTown and T2CN’s official Web sites. Users of FunTown may also purchase game credits through online sites with their credit card, bill charges through their telecom carrier or web ATM. |
• | In-Game Events and Marketing. We organize in-game events for our users, which we believe encourages the development of virtual communities among our users and increases user interest in our games. Examples of in-game |
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events include special challenges or features introduced to the game environments for a scheduled period. In addition, we use in-game events to introduce users to new features of our games. We may also post announcements in the game environment to promote new features, other improvements to the games, and in-game events. We may conduct in-game marketing programs from time to time, including online contests for prizes. |
• | Cross-Marketing. We have cross-marketing relationships with popular consumer brands, technology companies and major telecom carriers. We believe that our cross-marketing relationships with certain well-known companies, including Coca-Cola, 7-11 and Microsoft Corporation (“Microsoft”), will increase the recognition of our online game brands. | ||
• | Open Beta Testing. Our open beta testing system tests both the operation of new games under open market conditions and introduces new games to users. During open beta testing, we do not charge users to play the new game. Open beta testing provides an initial user base and creates initial interest and word-of-mouth publicity to support the commercial launch of the game. | ||
• | Offline Events/Promotions. From time to time we distribute free game-related posters, promotional prepaid cards for beginners and game-related souvenirs at trade shows, selected Internet cafés and other locations. We may conduct events at popular venues to stage exhibitions, distribute software and game content-related merchandise, and interact directly with our user base. Furthermore, we may sponsor select media events, such as industry-related awards shows and TV shows, to promote our brand names and our games. | ||
• | TV Commercials.We use TV commercials to attract potential customers and to promote our games and brand. | ||
• | Marketing Research.We use various qualitative and quantitative market research methods to analyze our target market and to differentiate our product offerings from those of our competitors. | ||
• | Game Magazine Advertisements.We also advertise certain games in various game magazines. From time to time, we also collaborate with these magazines in various promotions, including giving away copies of certain games free of charge with each magazine sold. | ||
• | Direct Marketing.We use telemarketing and email correspondence to inform our users of new products, promotions and other product related services. |
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Number of Subscribers | ||||||||||||
Date | 2005 | 2006 | 2007 | |||||||||
31-Mar | 18,645 | 16,417 | 10,155 | |||||||||
30-Jun | 17,929 | 15,154 | 8,844 | |||||||||
30-Sep | 17,386 | 13,185 | 7,521 | |||||||||
31-Dec | 16,534 | 11,447 | 6,906 |
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• | the provision of key community services, including electronic mail, photo albums and personal Web hosting, to subscribers; | ||
• | the management of network performance; | ||
• | the replication of content and applications; and | ||
• | the provision of a cost-efficient infrastructure to cache data. |
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• | License. A Type II license is valid for ten years, and may be renewed six months before its expiration. The license is nontransferable. Hoshin GigaMedia’s license is due to expire in 2008. KBT’s license is due to expire in 2012. | ||
• | Tariff Regulation. Type II operators are required to announce their business regulations with respect to the terms for provision of services, including tariffs for major rates and charges. Any changes to the business regulations must be filed with the NCC before they become effective. Tariff information must include the types of services provided, terms and fee schedules for all service items, rights and obligations of customers, contract termination events and other matters affecting the right and obligations of customers, all to be included in the operator’s business plans. | ||
• | Change in Business. Under Taiwan’s Regulations Governing Type II Telecommunications Operators, any change of type or scope of business must be approved by the NCC. For change of the systems structure stated in the business plan, a report shall be filed with the NCC for recording within one month from the effective date of change of such system structure. In addition, Type II operators must report to the NCC and inform their customers in advance of any plan to suspend or terminate any of their businesses. | ||
• | Technical Standards. Special Type II operators are required to retain qualified senior telecommunications engineers to install and maintain telecommunications equipment. Any telecommunications equipment used by a Type II operator must also satisfy technical standards adopted by the NCC. |
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Place of | Our | |||||||||||
Year of | Incorporation | Percentage | ||||||||||
Entity | Incorporation | Operation | Holding | Principal Activities | ||||||||
Held by our Company | ||||||||||||
GigaMedia International Holdings Limited | 2004 | British Virgin Islands | 100% | Holding company | ||||||||
Hoshin GigaMedia Center Inc. | 1998 | Taiwan | 100% | Cable-based Internet access services and FunTown online games portal | ||||||||
Held by Hoshin GigaMedia Center Inc | ||||||||||||
Koos Broadband Telecom Co., Ltd. | 2001 | Taiwan | 100% | Broadband Internet access services targeting business clients | ||||||||
Held by GigaMedia International Holdings Limited | ||||||||||||
Cambridge Entertainment Software Limited | 2004 | British Virgin Islands | 100% | Holding company | ||||||||
FunTown World Limited | 2005 | British Virgin Islands | 100% | Holding company | ||||||||
GigaMedia Asia Limited | 2005 | British Virgin Islands | 100% | Holding company | ||||||||
GigaMedia Asia Pacific Limited | 2006 | British Virgin Islands | 100% | Holding company | ||||||||
GigaMedia Finance International Limited | 2000 | Cayman Islands | 100% | Holding company | ||||||||
GigaMedia Global Limited | 2004 | British Virgin Islands | 100% | Online game company | ||||||||
GigaMedia (HK) Limited | 2004 | Hong Kong | 100% | Holding company | ||||||||
Skyace Pacific Limited | 2006 | British Virgin Islands | 100% | Holding company | ||||||||
Centermax Limited | 2007 | British Virgin Islands | 100% | Holding company | ||||||||
GigaMedia Capital Limited | 2007 | British Virgin Islands | 100% | Holding company | ||||||||
GigaMedia Development Limited | 2007 | British Virgin Islands | 100% | Holding company | ||||||||
Giga Slam Dunk Corporation | 2007 | Malaysia | 100% | Holding company | ||||||||
Giga Wartime Corporation | 2007 | Malaysia | 100% | Online game company |
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Place of | Our | |||||||||||
Year of | Incorporation | Percentage | ||||||||||
Entity | Incorporation | Operation | Holding | Principal Activities | ||||||||
E-Sports International Corporation Limited | 2008 | Hong Kong | 100% | Online game company | ||||||||
GigaMedia SuperCup Holdings Limited | 2008 | British Virgin Islands | 100% | Online game company | ||||||||
Held by FunTown World Limited | ||||||||||||
FunTown Hong Kong Limited | 1999 | Hong Kong | 100% | Online games portal | ||||||||
Held by GigaMedia Asia Limited | ||||||||||||
GigaMedia China Limited | 2005 | British Virgin Islands | 100% | Holding company | ||||||||
Held by Skyace Pacific Limited | ||||||||||||
Dragongate Enterprises Limited | 2006 | British Virgin Islands | 70% | Online game developer and operator | ||||||||
Held by Cambridge Entertainment Software Limited | ||||||||||||
Cambridge Interactive Development Corporation | 1997 | U.S.A. | 100% | Software developer and application service provider | ||||||||
Cambridge Interactive Development Corporation (Quebec) Inc. | 2005 | Canada | 100% | Financial and management services | ||||||||
Cambridge Interactive Development Co., Ltd | 2008 | United Kingdom | 100% | Software support services | ||||||||
Internet Media Licensing Limited | 2005 | British Virgin Islands | 100% | Software developer and application service provider | ||||||||
Held by GigaMedia China Limited | ||||||||||||
T2CN Holding Limited | 2004 | British Virgin Islands | 65.68% | Online game developer and operator | ||||||||
Held by T2CN Holding Limited | ||||||||||||
J-Town Information Co., Ltd. | 2005 | Shanghai, PRC | 100% | Online game developer and technical service provider | ||||||||
T2CN Information Technology (Shanghai) Co., Ltd. | 2004 | Shanghai, PRC | 100% | Online game developer and technical service provider | ||||||||
Held by T2CN Information Technology (Shanghai) Co., Ltd. | ||||||||||||
Shanghai T2 Entertainment Co., Ltd. | 2004 | Shanghai, PRC | 100% controlled | Online game developer and operator | ||||||||
Shanghai T2 Advertisement Co., Ltd. | 2006 | Shanghai, PRC | 100% controlled | Advertising |
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• | Through our gaming software and service business, we develop and license online poker and casino gaming software solutions and application services, primarily targeting emerging continental European markets. As a software developer and support service provider, we offer software solutions for online gaming, which we license under software license and support service contracts. | ||
• | Our online game and service business operates a suite of play-for-fun online games, mainly targeting online game players in Asia. |
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• | Our legacy Internet access and service business, which provides Internet access and service with multiple delivery technologies to consumers and broadband services to corporate customers in Taiwan. |
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2005 | ||||
(in US$ thousands) | ||||
Revenues | $ | 37,907 | ||
Loss before tax and minority interest income | $ | (1,861 | ) | |
Income tax benefit | $ | (1 | ) | |
Minority interest loss | $ | (796 | ) | |
Loss from discontinued operations | $ | (154 | ) | |
2005 | ||||
(in US$ thousands) | ||||
Cash (including restricted cash) | $ | 3,098 | ||
Accounts receivable | 1,842 | |||
Inventory | 6,679 | |||
Other current assets | 683 | |||
Property and equipment | 1,666 | |||
Intangible assets | 4,689 | |||
Other assets | 1,553 | |||
Total Assets | $ | 20,210 | ||
Accounts payable | $ | 11,239 | ||
Other liabilities | 1,945 | |||
Total liabilities | $ | 13,184 | ||
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• | the development and regulation of these industries generally; | ||
• | our adaptation to technological change; | ||
• | changing consumer preferences; | ||
• | legal development affecting these industries, in particular the gaming software and service industry; and | ||
• | general economic conditions in the markets where we or our licensees operate. |
For the year ended December 31, | ||||||||||||||||||||||||
2005 | 2006 | 2007 | ||||||||||||||||||||||
% of | Amount | % of | Amount | % of | ||||||||||||||||||||
Amount in US$ | total | in US$ | total | in US$ | total | |||||||||||||||||||
thousands | revenues | thousands | revenues | thousands | revenues | |||||||||||||||||||
Particulars | ||||||||||||||||||||||||
OPERATING REVENUES | ||||||||||||||||||||||||
Gaming software and service revenues | 22,511 | 50.9 | 55,019 | 58.3 | 118,950 | 71.3 | ||||||||||||||||||
Online game and service revenues | — | — | 18,692 | 19.8 | 32,764 | 19.6 | ||||||||||||||||||
Internet access and service revenues | 21,589 | 48.9 | 20,537 | 21.8 | 15,147 | 9.1 | ||||||||||||||||||
Other revenues | 87 | 0.2 | 44 | 0.1 | 17 | 0.0 | ||||||||||||||||||
Total operating revenues | 44,187 | 100.0 | 94,292 | 100.0 | 166,878 | 100.0 | ||||||||||||||||||
OPERATING COSTS | ||||||||||||||||||||||||
Cost of gaming software and service revenues | 3,327 | 7.5 | 7,824 | 8.3 | 16,201 | 9.7 | ||||||||||||||||||
Cost of online game and service revenues | — | — | 3,667 | 3.9 | 9,118 | 5.5 | ||||||||||||||||||
Cost of Internet access and service revenues | 13,568 | 30.7 | 11,449 | 12.1 | 10,002 | 6.0 | ||||||||||||||||||
Cost of other revenues | 488 | 1.1 | 391 | 0.4 | 223 | 0.1 | ||||||||||||||||||
Total operating costs | 17,383 | 39.3 | 23,331 | 24.7 | 35,544 | 21.3 | ||||||||||||||||||
Gross profit | 26,804 | 60.7 | 70,961 | 75.3 | 131,334 | 78.7 | ||||||||||||||||||
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For the year ended December 31, | ||||||||||||||||||||||||
2005 | 2006 | 2007 | ||||||||||||||||||||||
% of | Amount | % of | Amount | % of | ||||||||||||||||||||
Amount in US$ | total | in US$ | total | in US$ | total | |||||||||||||||||||
thousands | revenues | thousands | revenues | thousands | revenues | |||||||||||||||||||
OPERATING EXPENSES | ||||||||||||||||||||||||
Product development and engineering expenses | 3,562 | 8.1 | 5,738 | 6.1 | 7,911 | 4.7 | ||||||||||||||||||
Selling and marketing expenses | 10,777 | 24.4 | 30,123 | 31.9 | 62,349 | 37.4 | ||||||||||||||||||
General and administrative expenses | 7,892 | 17.9 | 12,421 | 13.2 | 22,240 | 13.3 | ||||||||||||||||||
Bad debt expense | 207 | 0.4 | 715 | 0.8 | 743 | 0.5 | ||||||||||||||||||
Total operating expenses | 22,438 | 50.8 | 48,997 | 52.0 | 93,243 | 55.9 | ||||||||||||||||||
Income from operations | 4,366 | 9.9 | 21,964 | 23.3 | 38,091 | 22.8 | ||||||||||||||||||
NON-OPERATING INCOME (EXPENSES) | 2,710 | 6.1 | 10,690 | 11.3 | 2,483 | 1.5 | ||||||||||||||||||
INCOME TAX BENEFIT (EXPENSE) | (436 | ) | (1.0 | ) | (1,549 | ) | (1.6 | ) | (403 | ) | (0.2 | ) | ||||||||||||
MINORITY INTEREST | (150 | ) | (0.3 | ) | (321 | ) | (0.4 | ) | (1,281 | ) | (0.8 | ) | ||||||||||||
INCOME FROM CONTINUING OPERATIONS | 6,490 | 14.7 | 30,784 | 32.6 | 38,890 | 23.3 | ||||||||||||||||||
INCOME (LOSS) FROM DISCONTINUED OPERATIONS | (154 | ) | (0.4 | ) | — | — | — | — | ||||||||||||||||
NET INCOME | 6,336 | 14.3 | 30,784 | 32.6 | 38,890 | 23.3 | ||||||||||||||||||
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• | the rate at which we enter into strategic transactions; | ||
• | the rate at which we expand our operations and employee base; | ||
• | the timing of entry into new markets and new services offered; | ||
• | changes in revenues and cost splits with our business partners; | ||
• | the rate at which we invest in developing and licensing our products and upgrading and maintaining our network and future technologies; and | ||
• | the rate at which we grow and monetize our customer bases. |
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(in US$ thousands) | ||||||||
Maturity date of | As of | |||||||
Name | Interest rate range | Facility | December 31, 2007 | |||||
China Trust Commercial Bank | 1.865%~2.95% | Mar. 10, 2008 | $ | 12,334 | ||||
Taishin International Bank | 2.95%~3.39% | Sep. 30, 2008 | 7,709 | |||||
Taipei Fubon Commercial Bank | 3.902% | Jul. 26, 2008 | 6,167 | |||||
Far Eastern International Bank | 2.85%~3.17% | Feb. 7, 2008 | 3,084 | |||||
Waterland Financial Holdings | 2.738%~4.238% | Feb. 7, 2008 | 1,541 | |||||
Taching Bill Finance Limited | 3.758% | Oct. 28, 2008 | 1,541 | |||||
Union Bills Finance | 3.758% | Aug. 31, 2008 | 925 | |||||
$ | 33,301 | |||||||
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Payment Due by Period (in US dollars) | ||||||||||||||||||||
Within 1 year | 1-3 years | 3-5 years | >5 years | Total | ||||||||||||||||
1. Operating leases | 4,376,509 | 3,883,598 | 1,450,630 | — | 9,710,737 | |||||||||||||||
2. License fees | 6,900,000 | — | — | — | 6,900,000 | |||||||||||||||
3. Minimum guarantees against royalties | 4,700,000 | 16,100,000 | 3,000,000 | — | 23,800,000 | |||||||||||||||
Total contractual cash obligations | 15,976,509 | 19,983,598 | 4,450,630 | — | 40,410,737 | |||||||||||||||
4. Other liabilities-accrued pension liabilities | 38,980 | — | — | 396,378 | 435,358 | |||||||||||||||
5. Other long-term obligations | 0 | 360,516 | 46,762 | — | 407,278 | |||||||||||||||
6. FIN 48 liabilities | 61,274 | — | — | — | 61,274 | |||||||||||||||
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Year Appointed to | ||||||||
Name | Age | Position | Current Position | |||||
WU, Daniel Chuen-Tai | 60 | Chairman of the Board | 2003 | |||||
BAO, Gilbert | 44 | Independent Non-Executive Director | 2003 | |||||
DING, Michael Y.J. | 51 | Independent Non-Executive Director | 2003 | |||||
HSU, Emmet Yu-Jui | 45 | Independent Non-Executive Director | 2003 | |||||
HU ZEE, Nancy Jing-Ying | 49 | Independent Non-Executive Director | 2003 | |||||
LEE, Howe Yong | 52 | Independent Non-Executive Director | 2004 | |||||
LEE, Yichin | 47 | Independent Non-Executive Director | 2003 | |||||
WANG, Arthur M. | 47 | Chief Executive Officer and Director | 2003 | |||||
HUI, Thomas T. | 36 | President, Chief Operating Officer and Director | 2007/2005 | |||||
CAHILL, Robert J. | 42 | Head of Gaming Software and Service Business | 2004 | |||||
CHOU, Samuel | 47 | Chief Executive Officer of FunTown | 2007 | |||||
HUANG, Kenny Ching-Kun | 43 | Senior Vice President | 2004 | |||||
MAI, Falco | 46 | Executive Vice President and Chief Administrative Officer | 2001 | |||||
SHEA, Joseph | 42 | Executive Vice President and Chief Financial Officer of T2CN | 2004/2007 | |||||
TARN, Chen-Wen | 48 | Head of Internet Access and Service Business | 2003 |
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Number of Shares | ||||||||
Number of Common | Issuable upon | |||||||
Person | Shares | exercise of options | ||||||
WU, Daniel Chuen-Tai | * | * | ||||||
BAO, Gilbert T.C. | * | * | ||||||
DING, Michael Y.J. | * | * | ||||||
HSU, Emmet Yu-Jui | 0 | * | ||||||
HU ZEE, Nancy Jing-Ying | * | * | ||||||
LEE, Howe Yong | * | * | ||||||
LEE, Yichin | * | * | ||||||
WANG, Arthur M. | * | 2,399,000 | ||||||
HUI, Thomas T. | * | 1,400,000 | ||||||
CAHILL, Robert J. | * | 600,000 | ||||||
CHOU, Samuel | * | 0 | ||||||
HUANG, Kenny Ching-Kun | * | * | ||||||
MAI, Falco | * | * | ||||||
SHEA, Joseph | * | * | ||||||
TARN, Chen-Wen | * | * |
* | Less than 1 percent |
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Percentage of | ||||||||
Name of Owner | Shares Owned | Shares Owned | ||||||
Best Method Limited (1) | 10,799,999 | 20.01 | % | |||||
Criterion Capital Management, LLC | 8,319,357 | 15.4 | % | |||||
Directors and executive officers as a group (15 persons) | 268,495 | 0.5 | % |
(1) | Through Best Method Limited, Jeffrey Koo, Jr. and Andre Koo jointly have a beneficial ownership of 10,799,999 common shares of our Company. |
C. | Interests of Experts and Counsel |
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Common Shares | ||||||||
Year Ending December 31 | High | Low | ||||||
(in US$) | ||||||||
2003 | $ | 3.35 | $ | 0.66 | ||||
2004 | $ | 2.43 | $ | 0.70 | ||||
2005 | $ | 2.99 | $ | 1.30 | ||||
Common Shares | ||||||||
Year Ending December 31, 2006 | High | Low | ||||||
(in US$) | ||||||||
First quarter | $ | 6.01 | $ | 2.90 | ||||
Second quarter | $ | 10.39 | $ | 6.13 | ||||
Third quarter | $ | 12.38 | $ | 7.30 | ||||
Fourth quarter | $ | 11.06 | $ | 8.86 |
Common Shares | ||||||||
Year Ending December 31, 2007 | High | Low | ||||||
(in US$) | ||||||||
First quarter | $ | 14.34 | $ | 9.28 | ||||
Second quarter | $ | 15.97 | $ | 12.96 | ||||
Third quarter | $ | 16.76 | $ | 9.45 | ||||
Fourth quarter | $ | 24.61 | $ | 16.43 |
Common Shares | ||||||||
Year Ending December 31, 2008 | High | Low | ||||||
(in US$) | ||||||||
January | $ | 19.01 | $ | 14.87 | ||||
February | $ | 20.70 | $ | 18.21 | ||||
March | $ | 19.32 | $ | 14.24 | ||||
April | $ | 16.62 | $ | 14.82 | ||||
May | $ | 19.26 | $ | 15.85 | ||||
June (only through June 16, 2008) | $ | 17.31 | $ | 14.78 |
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• | He is prohibited from acting as a director by reason of any order made pursuant to the Singapore Companies Act; | ||
• | He ceases to be a director by virtue of any of the provisions of the Singapore Companies Act or the Articles of Association of our Company; | ||
• | He resigns from his office; | ||
• | He receives a bankruptcy order made against him; | ||
• | He has a receiving order made against him or suspends payment or compounds with this creditors generally; | ||
• | He is found to be a lunatic or of unsound mind; or | ||
• | He is removed by an ordinary resolution passed by our shareholders in accordance with the provisions of the Singapore Companies Act. |
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(i) | consolidate and divide all of Shares; | ||
(ii) | subject to the Singapore Companies Act, sub-divide some or all of Shares, provided always that in such sub-division, the proportion between the amount paid and the amount (if any) unpaid on each reduced Share shall be the same as it was in the case of the Share from which the reduced Share is derived; and | ||
(iii) | subject to the Singapore Companies Act and our Articles of Association, convert any class of Shares into any other class of Shares. |
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(a) | if the final acquisition price exceeded US$24 million but was less than or equal to US$36 million, the additional payment would be equal to 18 percent of US$24 million; | ||
(b) | if the final acquisition price exceeded US$36 million but was less than or equal to US$48 million, the additional payment would be equal to the sum of US$2.16 million and 16 percent of US$ 36 million; and | ||
(c) | if the final acquisition price exceeded US$48 million, the additional payment would be equal to the sum of US$4.08 million and 14 percent of US$48 million. |
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• | bank; | ||
• | broker-dealer; | ||
• | financial institution or insurance company; | ||
• | tax-exempt entity; | ||
• | person holding Shares as part of a straddle, hedge, conversion or other integrated investment; | ||
• | a person owning, actually or constructively, 10 percent or more of the combined voting power of all classes of our stock; or | ||
• | a person whose “functional currency” is not the U.S. dollar. |
• | individual who is a citizen or resident of the United States; | ||
• | corporation, or other entity treated as a corporation, created or organized under the laws of the United States or any political subdivision thereof; | ||
• | estate, the income of which is subject to U.S. federal income taxation regardless of its source; or | ||
• | trust if (1) it is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (2) it has otherwise elected to be treated as a U.S. person under the Internal Revenue Code. |
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• | excess distribution or gain would be allocated ratably over your holding period for the Shares; | ||
• | amount allocated to the current taxable year and any taxable year prior to the first taxable year in which we are classified as a PFIC (a “pre-PFIC year”) would be taxable as ordinary income; | ||
• | amount allocated to each prior taxable year, other than the current taxable year or a pre-PFIC year, would be subject to tax at the highest tax rate in effect applicable to you for that year; and | ||
• | interest charge generally applicable to underpayments of tax would be imposed on the tax attributable to each prior taxable year, other than the current taxable year or a pre-PFIC year. |
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• | a U.S. person; | ||
• | a foreign person 50 percent or more of whose gross income is effectively connected with a U.S. trade or business for a specified three-year period; | ||
• | a “controlled foreign corporation” for U.S. tax purposes; or | ||
• | a foreign partnership, if at any time during its tax year; | ||
• | one or more of its partners are U.S. holders (as defined in U.S. Treasury regulations) who in the aggregate hold more than 50 percent of the income or capital interest in the partnership; or | ||
• | such foreign partnership is engaged in a U.S. trade or business; |
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For the Years Ended December 31, | ||||||||
2006 | 2007 | |||||||
(in US$) | (in US$) | |||||||
Audit Fees | 492,922 | 1,036,738 | ||||||
Audit-Related Fees | 0 | 9,867 | ||||||
Tax Fees | 32,515 | 42,847 | ||||||
Other Fees | 0 | 0 |
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Page | ||||||||
(a | ) | Report of Independent Registered Public Accounting Firm | F-1 — F-2 | |||||
(b | ) | Consolidated Balance Sheets as of December 31, 2006 and 2007 | F-3 — F-4 | |||||
(c | ) | Consolidated Statements of Operations for the years ended December 31, 2005, | ||||||
2006 and 2007 | F-5 | |||||||
(d | ) | Consolidated Statements of Shareholders’ Equity for the years ended | ||||||
December 31, 2005, 2006 and 2007 | F-6 | |||||||
(e | ) | Consolidated Statements of Cash Flows for the years ended December 31, 2005, | ||||||
2006 and 2007 | F-7 — F-8 | |||||||
(f | ) | Notes to the Consolidated Financial Statements | F-9 — F-83 |
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EXHIBIT | INDEX | |||
1.1 | Memorandum of Association of our Company* | |||
1.2 | Articles of Association of our Company* | |||
1.3 | Amended Memorandum and Articles of Association of our Company********** | |||
4.1 | Microsoft Commercial Internet System License Agreement between Hoshin GigaMedia Center Inc., dated April 1, 1998** | |||
4.2 | License Agreement between Portal Information Network, Inc. and Hoshin GigaMedia Center Inc., dated May 23, 1998** | |||
4.3 | Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Prosperity CATV Inc., dated May 12, 1999 (including English summary)** | |||
4.4 | Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Everlasting Cable TV Co., dated June 16, 1999 (including English summary)** | |||
4.5 | Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Lee Kwan Cable TV Co., dated June 16, 1999 (including English summary)** | |||
4.6 | Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Wonderful Cable TV Co. Ltd., dated June 16, 1999 (including English summary)** | |||
4.7 | Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Powerful CATV Co. Ltd., dated May 14, 1999 (including English summary)** | |||
4.8 | Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Netwave Cable TV Inc., dated April 16, 1999 (including English summary)** | |||
4.9 | Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and New Visual Wave CATV Inc., dated August 18, 1999 (including English summary)** | |||
4.10 | Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Da Fung CATV Co. Ltd., dated July 6, 1999 (including English summary)** | |||
4.11 | Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Gaho Cable Co. Ltd., dated May 12, 1999 (including English summary)** | |||
4.12 | Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and TeleFirst Cable Communication Co. Ltd., dated May 19, 1999 (including English summary)** | |||
4.13 | Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Twinstar CATV Co. Ltd., dated April 16, 1999 (including English summary)** | |||
4.14 | Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Sun Crown CATV Co. Ltd., dated April 16, 1999 (including English summary)** | |||
4.15 | Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Shinyeongan CATV Co. Ltd., dated May 21, 1999 (including English summary)** |
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EXHIBIT | INDEX | |||
4.16 | Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Chung Lian Inc., dated April 16, 1999 (including English summary)** | |||
4.17 | Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Gang Du Cable TV Co. Ltd., dated April 16, 1999 (including English summary)** | |||
4.18 | Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Union Cable TV Co. Ltd., dated May 14, 1999 (including English summary)** | |||
4.19 | Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and North Taoyuan CATV Company, dated August 9, 1999 (including English summary)** | |||
4.20 | Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Top Cable TV System Co., dated November 1, 1999 (including English summary)** | |||
4.21 | Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Shin Ho Cable TV Co. Ltd., dated May 13, 1999 (including English summary)** | |||
4.22 | Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Shuang Shing Cable TV Co., dated June 16, 1999 (including English summary)** | |||
4.23 | Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Hai Sun Cable Broadcasting System Co. Ltd., dated August 9, 1999 (including English summary)** | |||
4.24 | Broadband Internet over Cable Service Agreement between Hoshin GigaMedia Center, Inc. and Tien Wai Tien CATV Co., Ltd., dated October 25, 1999 (including English summary)** | |||
4.25 | Registration Rights Agreement among GigaMedia Limited and Microsoft Corporation, dated November 23, 1999** | |||
4.26 | Shareholders’ Agreement among GigaMedia Limited and Microsoft Corporation, Koos Develop Corp., Kudos Fund, Best Method Limited, TCC International, Mr. Chester Koo, Mr. Leslie Koo, Mr. Kent Yen, Mr. Raymond Chang, Mr. Yichun Chang, Mr. Chris Tung and Mr. Michel Chu, dated November 23, 1999** | |||
4.27 | Business Co-Operation Agreement among Hoshin GigaMedia Center, Inc. and Microsoft Corporation, dated November 1, 1999** | |||
4.28 | Strategic Alliance Agreement among GigaMedia Limited, Hoshin GigaMedia Center Inc., and Gamania Digital Entertainment Co., LTD., dated March 1, 2001*** | |||
4.29 | Stock Purchase Agreement, dated as of March 17, 2004, by and among GigaMedia International Limited, GV Holding Company, and Alexander Saidakovsky, Alexander Ganelis and Daniil Utin****** | |||
4.30 | End-User License Agreement between Internet Media Licensing Limited and Ultra Internet Media, S.A., dated April 1, 2004******* | |||
4.31 | Purchase and Sale Agreement between Hoshin GigaMedia Center, Inc. and Webs-TV, Digital International Corporation, dated June 23, 2005******* | |||
4.32 | Put-Call Option Agreement between Hoshin GigaMedia Center, Inc. and JSDWAY Digital Technology Co. Ltd., dated December 21, 2005* | |||
4.33 | Assets Sale and Purchase Agreement among GigaMedia Limited, FunTown World Limited, Hoshin GigaMedia Center, Inc. and TWP Corporation, dated December 19, 2005* | |||
4.34 | Share Purchase Agreement between GigaMedia Limited and Nextbase International Limited, dated September 17, 2005* | |||
4.35 | Subscription Rights Agreement between Hoshin GigaMedia Center, Inc. Wretch Co., Ltd. and the shareholders of Wretch Co. Ltd, dated March 10, 2006* | |||
4.36 | Series A Preferred Share Purchase Agreement among T2CN Holding Limited, GigaMedia China Limited, and certain shareholders of T2CN, dated April 27, 2006* | |||
4.37 | Shareholders’ Agreement among T2CN Holding Limited and the Shareholders dated April 27, 2006* |
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EXHIBIT | INDEX | |||
4.38 | Strategic Partnership Agreement between T2CN Holding Limited and GigaMedia China Limited, dated April 27, 2006* | |||
4.39 | Assets Purchase and Sale Agreement between Hoshin GigaMedia Center, Inc. and Webs-TV Digital International Corporation, dated May 15, 2006* | |||
4.40 | Service Agreement between Hoshin GigaMedia Center, Inc. and Webs-TV Digital International Corporation, dated May 15, 2006* | |||
4.41 | Second Amendment to the End-User License Agreement between Internet Media Licensing Limited and Ultra Internet Media, S.A., dated March 1, 2006* | |||
4.42 | Amended and Restated Shareholders’ Agreement between T2CN Holding Ltd., certain shareholders of T2CN, GigaMedia China Limited, Marvel City Investments Limited, Patriot Capital Limited, TAE LLC and Ant Bridge No. 2 Venture Capital Secondary Investment Limited Partnership, dated November 25, 2006********** | |||
4.43 | Share Purchase Agreement between GigaMedia China Limited, Newmargin T2CN Investment Ltd. and Shanghai Newmargin Venture Capital Co., Ltd, dated January 1, 2007********** | |||
4.44 | Share Purchase Agreement between GigaMedia China Limited and Chengwei (China) Investment Company, Greg. Wei Gang Ye, and Jia Yi Wan, dated January 1, 2007********** | |||
4.45 | Share Purchase Agreement between GigaMedia China Limited and certain shareholders of T2CN, dated January 17, 2007********** | |||
4.46 | Share Purchase Agreement between GigaMedia China Limited, Shanghai Newmargin Venture Capital Co. Ltd. and Newmargin Happydigital Investment Partners Inc., dated January 1, 2007********** | |||
4.47 | Subscription Agreement between GigaMedia Asia Pacific Limited and Infocomm Asia Holdings Pte. Ltd., dated December 7, 2006********** | |||
4.48 | Termination Agreement between Hoshin GigaMedia Center Inc., Koos Broadband Telecom Co., Ltd, Wretch Co., Ltd and certain shareholders of Wretch Co., Ltd, dated December 12, 2006********** | |||
4.49 | License and Distribution Agreement between Dragongate Enterprises Limited and HanbitSoft Inc., dated December 13, 2006********** | |||
4.50 | Third Amendment to the End-User License Agreement between Internet Media Licensing Limited and Ultra Internet Media, S.A., dated March 1, 2007********** | |||
4.51 | Shareholders’ Agreement between GigaMedia Asia Pacific Limited, Management Capital International Ltd, Infocomm Investments Pte Ltd, Commerzbank Infocomm Segregated Portfolios, Global Star International Development Limited and Etherfast Pte Ltd, dated December 7, 2006********** | |||
4.52 | Shareholders’ Agreement, between GigaMedia Asia Pacific Limited, Bodhi China and India Investments LLC, Etherfast Pte Ltd, Global Star International Development Limited, Commerzbank Infocomm Segregated Portfolio, Infocomm Investments Pte Ltd, Management Capital International Ltd and Infocomm Asia, dated February 2, 2007********** | |||
4.53 | 2006 Equity Incentive Plan******** | |||
4.54 | 2007 Equity Incentive Plan********* | |||
4.55 | Exclusive Business Consultancy Service Agreement between T2 Technology and T2 Entertainment, dated November 15, 2006# | |||
4.56 | Supplemental Agreement to Exclusive Business Consultancy Service Agreement between T2 Technology and T2 Entertainment, dated April 1, 2007# | |||
4.57 | Exclusive Technical Service and Consultancy Agreement between T2 Entertainment and T2 Technology, dated November 15, 2006# | |||
4.58 | Supplemental Agreement to Exclusive Technical Service and Consultancy Agreement between T2 Entertainment and T2 Technology, dated April 1, 2007# | |||
4.59 | Agreement for Pledge of Shares in T2 Entertainment between Wang Chi, Lu Ning and T2 Technology, dated |
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EXHIBIT | INDEX | |||
February 9, 2007# | ||||
4.60 | Exclusive Call Option Agreement regarding T2 Entertainment between Wang Chi, Lu Ning, T2 Entertainment and T2 Technology, dated February 9, 2007# | |||
4.61 | Proxy Voting Agreement regarding T2 Entertainment between T2 Technology, T2 Entertainment, Wang Chi and Lu Ning, dated February 9, 2007# | |||
4.62 | Exclusive Business Consultancy Service Agreement between T2 Technology and T2 Advertisement, dated November 15, 2006# | |||
4.63 | Supplemental Agreement to Exclusive Business Consultancy Service Agreement between T2 Technology and T2 Advertisement, dated January 1, 2007# | |||
4.64 | Agreement for Pledge of Shares in T2 Advertisement between Chi Min, Chang Tao and T2 Technology, dated March 20, 2008# | |||
4.65 | Exclusive Call Option Agreement regarding T2 Advertisement between Chi Min, Chang Tao, T2 Advertisement and T2 Technology, dated March 20, 2008# | |||
4.66 | Proxy Voting Agreement regarding T2 Advertisement between T2 Technology, T2 Advertisement, Chi Min and Chang Tao, dated March 20, 2008# | |||
4.67 | Share Purchase Agreement between William Zhu and GigaMedia China Limited, dated June 3, 2007# | |||
4.68 | Share Purchase Agreement between Yu-Chia Lee and GigaMedia China Limited, dated June 6, 2007# | |||
4.69 | Share Purchase Agreement between Zheng Bin and GigaMedia China Limited, dated June 10, 2007# | |||
4.70 | Share Purchase Agreement between J&R Music LLC, Ya-Tsen Lin and GigaMedia China Limited, dated July 5, 2007# | |||
4.71 | Share Purchase Agreement between Kingland Overseas Development Inc. and GigaMedia China Limited, dated July 6, 2007# | |||
4.72 | Share Purchase Agreement between Wang Ji and GigaMedia China Limited, dated July 6, 2007# | |||
4.73 | Share Purchase Agreement between Marvel City Investments Limited and GigaMedia China Limited, dated May 26, 2008# | |||
8.1 | List of Subsidiaries* | |||
11.1 | Code of ethics adopted by the registrant on April 21, 2004, as amended on December 19, 2005* | |||
12.1 | Certification by our Chief Executive Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act# | |||
12.2 | Certification by our Chief Financial Officer pursuant to Rule13a-14(b) of the Securities Exchange Act# | |||
13.1 | Certification by our Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002# | |||
13.2 | Certification by our Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002# | |||
15.1 | Consent of GHP Horwath, P.C., Independent Registered Public Accounting Firm# |
* | Incorporated by reference from annual report on Form 20-F, file number 000-30540 filed with the Commission on June 28, 2006. | |
** | Incorporated by reference from our Registration Statement on Form F-1, file number 333-11416 filed with the Commission on February 2, 2000. | |
*** | Incorporated by reference from our annual report on Form 20-F, file number 000-30540 filed with the Commission on June 28, 2001. |
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****** | Incorporated by reference from our annual report on Form 20-F, file number 000-30540 filed with the Commission on June 30, 2004. | |
******* | Incorporated by reference from our annual report on Form 20-F, file number 000-30540 filed with the Commission on June 30, 2005. | |
******** | Incorporated by reference from our Registration Statement on Form S-8, file number 333-142963 filed with the Commission on May 15, 2007 | |
********* | Incorporated by reference from our Registration Statement on Form S-8, file number 333-148663 filed with the Commission on January 15, 2008 | |
********** | Incorporated by reference from our annual report on Form 20-F, file number 000-30540 filed with the Commission on June 29, 2007 | |
# | Filed herewith. | |
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GIGAMEDIA LIMITED | ||||
By: | /s/ Arthur Wang | |||
Arthur Wang | ||||
Chief Executive Officer Date: June 30, 2008 | ||||
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GigaMedia Limited
F-1
Table of Contents
May 9, 2008
F-2
Table of Contents
CONSOLIDATED BALANCE SHEETS
December 31, 2006 and 2007
(in thousands )
December 31 | ||||||||
2006 | 2007 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents (Note 8) | $ | 22,372 | $ | 68,563 | ||||
Marketable securities—current (Note 9) | 13,816 | 11,354 | ||||||
Notes and accounts receivable—net (Note 10) | 15,076 | 18,291 | ||||||
Prepaid expenses | 3,196 | 5,615 | ||||||
Restricted cash (Note 12) | 2,697 | 6,247 | ||||||
Other receivable | 6,268 | 2,561 | ||||||
Other current assets (Note 13) | 751 | 2,786 | ||||||
Total Current Assets | 64,176 | 115,417 | ||||||
Marketable securities—noncurrent (Note 11) | 25,000 | 21,018 | ||||||
Investments | — | 4,612 | ||||||
PROPERTY, PLANT AND EQUIPMENT | ||||||||
Land and building | 1,844 | 1,853 | ||||||
Information and communication equipment | 18,200 | 23,163 | ||||||
Office furniture and fixtures | 1,919 | 2,029 | ||||||
Leasehold improvements | 2,157 | 2,222 | ||||||
Other | 2,378 | 2,020 | ||||||
26,498 | 31,287 | |||||||
Less: Accumulated depreciation | (16,400 | ) | (18,279 | ) | ||||
10,098 | 13,008 | |||||||
GOODWILL (Notes 5 and 6) | 55,817 | 85,149 | ||||||
INTANGIBLE ASSETS—NET (Notes 5 and 7) | 23,067 | 26,060 | ||||||
OTHER ASSETS | ||||||||
Deferred assets | 217 | 334 | ||||||
Refundable deposits | 838 | 1,528 | ||||||
Prepaid licensing and royalty fees (Note 24) | 3,374 | 16,739 | ||||||
Other | 32 | — | ||||||
Total Other Assets | 4,461 | 18,601 | ||||||
TOTAL ASSETS | $ | 182,619 | $ | 283,865 | ||||
F-3
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CONSOLIDATED BALANCE SHEETS—(Continued)
December 31, 2006 and 2007
(in thousands )
December 31 | ||||||||
2006 | 2007 | |||||||
LIABILITIES & SHAREHOLDERS’ EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Short-term borrowings (Note 14) | $ | 12,853 | $ | 33,301 | ||||
Notes and accounts payable | 1,751 | 1,922 | ||||||
Accrued compensation | 3,458 | 5,750 | ||||||
Accrued expenses (Note 15) | 4,786 | 9,151 | ||||||
Player account balances | 9,527 | 27,136 | ||||||
Other current liabilities (Note 16) | 12,832 | 14,652 | ||||||
Total Current Liabilities | 45,207 | 91,912 | ||||||
OTHER LIABILITIES | ||||||||
Refundable deposits | 752 | 635 | ||||||
Accrued pension liabilities (Note 18) | 434 | 436 | ||||||
Other | 605 | 407 | ||||||
Total Other Liabilities | 1,791 | 1,478 | ||||||
Total Liabilities | 46,998 | 93,390 | ||||||
MINORITY INTERESTS | 1,534 | 9,810 | ||||||
COMMITMENTS AND CONTINGENCIES (Notes 24 and 25) | — | — | ||||||
SHAREHOLDERS’ EQUITY (Note 19) | ||||||||
Common shares, no par value, and additional paid-in capital; issued 51,495 thousand and 53,700 thousand shares on December 31, 2006 and 2007 | 289,495 | 296,793 | ||||||
Accumulated deficit | (128,439 | ) | (89,692 | ) | ||||
Accumulated other comprehensive loss | (26,969 | ) | (26,436 | ) | ||||
Total Shareholders’ Equity | 134,087 | 180,665 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 182,619 | $ | 283,865 | ||||
F-4
Table of Contents
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2005, 2006 and 2007
(in thousands except for earnings per share amounts)
2005 | 2006 | 2007 | ||||||||||
OPERATING REVENUES | ||||||||||||
Gaming software and service revenues | $ | 22,511 | $ | 55,019 | $ | 118,950 | ||||||
Online game and service revenues | — | 18,692 | 32,764 | |||||||||
Internet access and service revenues | 21,589 | 20,537 | 15,147 | |||||||||
Other revenues | 87 | 44 | 17 | |||||||||
Total | 44,187 | 94,292 | 166,878 | |||||||||
OPERATING COSTS | ||||||||||||
Cost of gaming software and service revenues | (3,327 | ) | (7,824 | ) | (16,201 | ) | ||||||
Cost of online game and service revenues | — | (3,667 | ) | (9,118 | ) | |||||||
Cost of Internet access and service revenues | (13,568 | ) | (11,449 | ) | (10,002 | ) | ||||||
Cost of other revenues | (488 | ) | (391 | ) | (223 | ) | ||||||
(17,383 | ) | (23,331 | ) | (35,544 | ) | |||||||
GROSS PROFIT | 26,804 | 70,961 | 131,334 | |||||||||
OPERATING EXPENSES | ||||||||||||
Product development and engineering expenses | (3,562 | ) | (5,738 | ) | (7,911 | ) | ||||||
Selling and marketing expenses | (10,777 | ) | (30,123 | ) | (62,349 | ) | ||||||
General and administrative expenses | (7,892 | ) | (12,421 | ) | (22,240 | ) | ||||||
Bad debt expenses | (207 | ) | (715 | ) | (743 | ) | ||||||
(22,438 | ) | (48,997 | ) | (93,243 | ) | |||||||
INCOME FROM OPERATIONS | 4,366 | 21,964 | 38,091 | |||||||||
NON-OPERATING INCOME (EXPENSES) | ||||||||||||
Interest income | 411 | 722 | 1,441 | |||||||||
Gains on sales of marketable securities | 850 | 2,189 | 205 | |||||||||
Interest expense | — | (582 | ) | (655 | ) | |||||||
Foreign exchange gain (loss) | 151 | (161 | ) | (675 | ) | |||||||
Gain (loss) on disposal of property, plant and equipment | 204 | (37 | ) | (134 | ) | |||||||
Gain on divestiture of business (Note 4) | — | 7,668 | — | |||||||||
Proportionate share of losses under the equity method | — | — | (369 | ) | ||||||||
Other (Note 21) | 1,094 | 891 | 2,670 | |||||||||
2,710 | 10,690 | 2,483 | ||||||||||
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND MINORITY INTEREST | 7,076 | 32,654 | 40,574 | |||||||||
INCOME TAX EXPENSES (Note 22) | (436 | ) | (1,549 | ) | (403 | ) | ||||||
INCOME FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST | 6,640 | 31,105 | 40,171 | |||||||||
MINORITY INTEREST | (150 | ) | (321 | ) | (1,281 | ) | ||||||
INCOME FROM CONTINUING OPERATIONS | 6,490 | 30,784 | 38,890 | |||||||||
LOSS FROM DISCONTINUED OPERATIONS—NET OF TAX | (154 | ) | — | — | ||||||||
NET INCOME | $ | 6,336 | $ | 30,784 | $ | 38,890 | ||||||
EARNINGS PER SHARE (Note 2) | ||||||||||||
Basic: | ||||||||||||
Income from continuing operations | $ | 0.13 | $ | 0.60 | $ | 0.74 | ||||||
Income from discontinued operations | — | — | — | |||||||||
Net income | $ | 0.13 | $ | 0.60 | $ | 0.74 | ||||||
Diluted: | ||||||||||||
Income from continuing operations | $ | 0.12 | $ | 0.51 | $ | 0.65 | ||||||
Income from discontinued operations | — | — | — | |||||||||
Net income | $ | 0.12 | $ | 0.51 | $ | 0.65 | ||||||
WEIGHTED AVERAGE SHARES USED TO COMPUTE EARNINGS PER SHARE (Note 2) | ||||||||||||
Basic | 50,312 | 50,921 | 52,876 | |||||||||
Diluted | 55,059 | 61,114 | 60,022 | |||||||||
F-5
Table of Contents
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the Years Ended December 31, 2005, 2006 and 2007
(in thousands)
Common shares | Accumulated other | |||||||||||||||||||
and additional paid-in capital | Accumulated | comprehensive | ||||||||||||||||||
Shares | Amount | deficit (Note 19) | income (loss) | Total | ||||||||||||||||
Balance as of January 1, 2005 | 50,154 | $ | 287,657 | ($165,559 | ) | ($26,127 | ) | $ | 95,971 | |||||||||||
Issuance of common shares for employee stock purchase plan | 190 | 263 | — | — | 263 | |||||||||||||||
Net income | — | — | 6,336 | — | 6,336 | |||||||||||||||
Components of other comprehensive income: | ||||||||||||||||||||
Net unrealized loss on marketable securities | — | — | — | (333 | ) | (333 | ) | |||||||||||||
Foreign currency translation adjustment | — | — | — | (1,589 | ) | (1,589 | ) | |||||||||||||
Total comprehensive income | — | — | — | — | 4,414 | |||||||||||||||
Balance as of December 31, 2005 | 50,344 | 287,920 | (159,223 | ) | (28,049 | ) | $ | 100,648 | ||||||||||||
Issuance of common shares from exercise of stock options | 1,151 | 1,265 | — | — | 1,265 | |||||||||||||||
Stock-based compensation | — | 310 | — | — | 310 | |||||||||||||||
Adjustment for initial application of FAS 158 | — | — | — | 235 | 235 | |||||||||||||||
Net income | — | — | 30,784 | — | 30,784 | |||||||||||||||
Components of other comprehensive income: | ||||||||||||||||||||
Net unrealized gain on marketable securities | — | — | — | 335 | 335 | |||||||||||||||
Foreign currency translation adjustment | — | — | — | 510 | 510 | |||||||||||||||
Total comprehensive income | — | — | — | — | 31,629 | |||||||||||||||
Balance as of December 31, 2006 | 51,495 | 289,495 | (128,439 | ) | (26,969 | ) | 134,087 | |||||||||||||
Issuance of common shares from exercise of stock options and RSUs | 1,979 | 2,733 | — | — | 2,733 | |||||||||||||||
Issuance of common shares for acquisition (Note 5) | 226 | 2,703 | — | — | 2,703 | |||||||||||||||
Stock-based compensation | — | 1,862 | — | — | 1,862 | |||||||||||||||
Adjustment for initial application of FIN 48 (Note 22) | — | — | (143 | ) | — | (143 | ) | |||||||||||||
Net income | — | — | 38,890 | — | 38,890 | |||||||||||||||
Components of other comprehensive income: | ||||||||||||||||||||
Net unrealized gain on marketable securities | — | — | — | 58 | 58 | |||||||||||||||
Defined benefit pension plan adjustment | — | — | — | (54 | ) | (54 | ) | |||||||||||||
Foreign currency translation adjustment | — | — | — | 529 | 529 | |||||||||||||||
Total comprehensive income | — | — | — | — | 39,423 | |||||||||||||||
Balance as of December 31, 2007 | 53,700 | $ | 296,793 | ($89,692 | ) | ($26,436 | ) | $ | 180,665 | |||||||||||
F-6
Table of Contents
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2005, 2006 and 2007
(in thousands)
2005 | 2006 | 2007 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
Net income | $ | 6,336 | $ | 30,784 | $ | 38,890 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation | 4,203 | 3,167 | 3,184 | |||||||||
Amortization | 2,202 | 2,876 | 3,214 | |||||||||
Stock-based compensation | — | 310 | 1,862 | |||||||||
Provision for bad debt expenses | 307 | 715 | 743 | |||||||||
Gain on divestiture of business | (911 | ) | (7,668 | ) | — | |||||||
Gain on sales of investment option rights | — | — | (498 | ) | ||||||||
Gain on cancellation of prefered share call options | — | — | (1,069 | ) | ||||||||
Loss (gain) on disposal of property, plant and equipment | (204 | ) | 37 | 134 | ||||||||
Gain on sale of marketable securities | (958 | ) | (2,189 | ) | (205 | ) | ||||||
Proportionate share of losses under the equity method | — | — | 369 | |||||||||
Interest income from premium of convertible notes | — | (140 | ) | — | ||||||||
Gain on early redemption of convertible notes | — | (625 | ) | — | ||||||||
Cash dividend to minority interest shareholders of variable interest entity | — | (100 | ) | (200 | ) | |||||||
Minority interests income (loss) | (646 | ) | 321 | 1,281 | ||||||||
Other | 504 | 63 | (86 | ) | ||||||||
Net changes in operating assets and liabilities, net of business acquisitions: | ||||||||||||
Notes and accounts receivable | (2,193 | ) | (5,723 | ) | (3,864 | ) | ||||||
Prepaid expenses | 185 | (2,422 | ) | (2,316 | ) | |||||||
Other receivables | (695 | ) | (62 | ) | 2,998 | |||||||
Other current assets | 28 | (376 | ) | 675 | ||||||||
Notes and accounts payable | (1,371 | ) | 69 | (327 | ) | |||||||
Accrued expenses | (1,177 | ) | 2,419 | 2,893 | ||||||||
Accrued compensation | (18 | ) | 2,264 | 1,991 | ||||||||
Player account balances | 1,446 | 7,440 | 17,609 | |||||||||
Other current liabilities | 1,217 | 254 | (1,259 | ) | ||||||||
Accrued pension liabilities | 62 | (150 | ) | (62 | ) | |||||||
Prepaid licensing and royalty fees | — | (3,374 | ) | (9,829 | ) | |||||||
Other | 3,205 | 1,553 | (165 | ) | ||||||||
Net cash provided by operating activities | 11,522 | 29,443 | 55,963 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Decrease (increase) in restricted cash | 176 | (2,697 | ) | (3,550 | ) | |||||||
Proceeds from disposal of marketable securities | 36,970 | 26,700 | 20,151 | |||||||||
Divestiture of business, net of cash transferred | 3,253 | 3,318 | 4,930 | |||||||||
Purchase of property, plant and equipment | (2,652 | ) | (2,716 | ) | (4,900 | ) | ||||||
Proceeds from disposal of property, plant and equipment | 949 | 8 | 46 | |||||||||
Proceeds from sales of investment option rights | — | — | 580 | |||||||||
Purchase of marketable securities | (20,184 | ) | (42,509 | ) | (26,552 | ) | ||||||
Purchase of investments | — | — | (1,827 | ) | ||||||||
Purchase of intangible assets | (1,005 | ) | (2,583 | ) | (4,642 | ) | ||||||
Acquisitions, net of cash acquired | — | (26,760 | ) | (13,983 | ) | |||||||
Increase in loan receivable | — | — | (2,500 | ) | ||||||||
Decrease (increase) in refundable deposits | 42 | (197 | ) | (610 | ) | |||||||
Decrease in other assets | (16 | ) | (82 | ) | — | |||||||
Increase in deferred assets | (331 | ) | (368 | ) | (314 | ) | ||||||
Net cash provided by (used in) investing activities | 17,202 | (47,886 | ) | (33,171 | ) | |||||||
F-7
Table of Contents
CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)
For the Years Ended December 31, 2005, 2006 and 2007
(in thousands)
2005 | 2006 | 2007 | ||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Proceeds from (repayment of) short-term borrowings | (284 | ) | 12,853 | 20,126 | ||||||||
Capital contribution received from minority shareholders | — | — | 30 | |||||||||
Redemption of convertible notes | — | (15,000 | ) | — | ||||||||
Increase (decrease) in refundable deposits | 268 | (80 | ) | (117 | ) | |||||||
Cash received from the exercise of stock options | — | 1,265 | 2,733 | |||||||||
Issuance of common shares for employee stock purchase plan | 263 | — | — | |||||||||
Net cash provided by (used in) financing activities | 247 | (962 | ) | 22,772 | ||||||||
Exchange difference | (473 | ) | 46 | 627 | ||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 28,498 | (19,359 | ) | 46,191 | ||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR | 13,233 | 41,731 | 22,372 | |||||||||
CASH AND CASH EQUIVALENTS AT END OF YEAR | $ | 41,731 | $ | 22,372 | $ | 68,563 | ||||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||||||
Interest paid during the year | $ | — | $ | 581 | $ | 621 | ||||||
Income tax paid during the year | $ | 323 | $ | 455 | $ | 827 | ||||||
NON-CASH FINANCING AND INVESTING ACTIVITIES: | ||||||||||||
Unrealized holding (loss) gain on available-for-sale securities | ($333 | ) | $ | 335 | $ | 58 | ||||||
Accrual for investing in marketable securities | — | — | $ | 2,204 | ||||||||
Issuance of common shares for acquisition | — | — | $ | 2,703 | ||||||||
Issuance of convertible notes as acquisition consideration | — | $ | 15,000 | — | ||||||||
Adjustment to acquisition purchase price | — | $ | 5,000 | — | ||||||||
Divestiture of business | — | $ | 4,966 | — | ||||||||
F-8
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
NOTE 1. | BUSINESS OVERVIEW, BASIS OF PRESENTATION, ANDSUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
F-9
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
F-10
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
F-11
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
F-12
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
F-13
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
F-14
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
F-15
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
F-16
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
F-17
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
F-18
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
Categories | Years | |
Buildings | 50 | |
Information and communication equipment | 2 to 5 | |
Office furniture and equipment | 3 to 5 | |
Leasehold improvements | 2 to 5 | |
Other | 3 to 5 |
F-19
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
F-20
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
F-21
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
(in US$ thousands, | Year Ended | |||
except per share figures) | December 31, | |||
2005 | ||||
Net income | ||||
As reported | $ | 6,336 | ||
Less: Stock compensation expense, net of related tax effects | (1,951 | ) | ||
Pro-forma | $ | 4,385 | ||
Earnings per share: | ||||
As reported — basic | $ | 0.13 | ||
As reported — diluted | 0.12 | |||
Pro-forma — basic | 0.09 | |||
Pro-forma — diluted | 0.08 |
F-22
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
F-23
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
F-24
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
F-25
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
F-26
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
F-27
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
F-28
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
(in US$ thousands, except per share figures) | For the years ended December 31, | |||||||||||
2005 | 2006 | 2007 | ||||||||||
Weighted average outstanding shares | ||||||||||||
Basic | 50,312 | 50,921 | 52,876 | |||||||||
Effect of dilutive securities | ||||||||||||
Employee share-based compensation | 4,747 | 7,509 | 7,146 | |||||||||
Convertible notes | — | 2,684 | — | |||||||||
Diluted | 55,059 | 61,114 | 60,022 | |||||||||
Earnings Per Share — Basic | ||||||||||||
Income from continuing operations | $ | 6,490 | $ | 30,784 | $ | 38,890 | ||||||
Loss from discontinued operations, net of taxes | (154 | ) | — | — | ||||||||
Net income | $ | 6,336 | $ | 30,784 | $ | 38,890 | ||||||
Earnings per share | ||||||||||||
Continuing operations | $ | 0.13 | $ | 0.60 | $ | 0.74 | ||||||
Discontinued operations | — | — | — | |||||||||
$ | 0.13 | $ | 0.60 | $ | 0.74 | |||||||
Earnings Per Share — Diluted | ||||||||||||
Income from continuing operations | $ | 6,490 | $ | 30,784 | $ | 38,890 | ||||||
Interest charges associated with convertible notes | — | 288 | — | |||||||||
Income from continuing operations after assumed conversion of convertible notes | 6,490 | 31,072 | 38,890 | |||||||||
Loss from discontinued operations, net of taxes | (154 | ) | — | — | ||||||||
Net income after assumed conversion of convertible notes and discontinued operations | $ | 6,336 | $ | 31,072 | $ | 38,890 | ||||||
Earnings per share | ||||||||||||
Continuing operations | $ | 0.12 | $ | 0.51 | $ | 0.65 | ||||||
Discontinued operations | — | — | — | |||||||||
$ | 0.12 | $ | 0.51 | $ | 0.65 | |||||||
F-29
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
F-30
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
F-31
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
(in US$ thousands) | 2005 | |||
Revenue | $ | 37,907 | ||
Loss before tax and minority interest income | $ | (1,861 | ) | |
Income tax benefit | $ | (1 | ) | |
Minority interest loss | $ | (796 | ) | |
Loss from discontinued operations | $ | (154 | ) | |
F-32
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
(in US$ thousands) | ||||
Cash (including restricted cash) | $ | 3,098 | ||
Accounts receivable | 1,842 | |||
Inventory | 6,679 | |||
Other current assets | 683 | |||
Property and equipment | 1,666 | |||
Intangible assets | 4,689 | |||
Other assets | 1,553 | |||
Total assets | $ | 20,210 | ||
Accounts payable | $ | 11,239 | ||
Other liabilities | 1,945 | |||
Total liabilities | $ | 13,184 | ||
F-33
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
F-34
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
F-35
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
Amortization life | ||||||
(in US$ thousands) | (in years) | Amount | ||||
Cash acquired | $ | 11,773 | ||||
Marketable securities / Investments | 3,724 | |||||
Other current assets | 5,892 | |||||
Fixed assets / non-current assets | 3,717 | |||||
Intangible assets | ||||||
Capitalized software cost | 3.5~5 | 2,974 | ||||
Goodwill | N/A | 29,354 | ||||
Total assets acquired | 57,434 | |||||
Current liabilities | 11,500 | |||||
Noncurrent liabilities | 1,050 | |||||
Minority interest | 6,171 | |||||
Total liabilities assumed | 18,721 | |||||
Total purchase price | $ | 38,713 | ||||
(in US$ thousands, | Year ended December 31 | |||||||
except per share figures) | 2006 | 2007 | ||||||
Unaudited | Unaudited | |||||||
Net revenue | $ | 105,629 | $ | 172,473 | ||||
Income from operations | 4,186 | 38,617 | ||||||
Net income | 21,009 | 38,980 | ||||||
Basic earnings per share | 0.41 | 0.74 | ||||||
Diluted earnings per share | 0.35 | 0.65 |
F-36
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
F-37
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
(in US$ thousands) | Amortization life (in years) | Original amount | Price adjustment | Total allocation | ||||||||||
Cash acquired | $ | 463 | $ | — | $ | 463 | ||||||||
Accounts receivable | 3,626 | — | 3,626 | |||||||||||
Other current assets | 106 | — | 106 | |||||||||||
Fixed assets / non-current assets | 628 | — | 628 | |||||||||||
Intangible assets | — | |||||||||||||
Trade name and trademark | N/A | 10,795 | — | 10,795 | ||||||||||
Customer relationships | 9 | 5,546 | — | 5,546 | ||||||||||
Completed technology | 7 | 2,301 | — | 2,301 | ||||||||||
Self-developed software | 5 | 1,534 | — | 1,534 | ||||||||||
Other | 5 | 73 | — | 73 | ||||||||||
Goodwill | N/A | 21,409 | 4,762 | 26,171 | ||||||||||
Total assets acquired | 46,481 | 4,762 | 51,243 | |||||||||||
Current liabilities | (3,501 | ) | — | (3,501 | ) | |||||||||
Noncurrent liabilities | (1 | ) | — | (1 | ) | |||||||||
Total liabilities assumed | (3,502 | ) | — | (3,502 | ) | |||||||||
Total purchase price | $ | 42,979 | $ | 4,762 | $ | 47,741 | ||||||||
F-38
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
(in US$ thousands, | Year ended | |||
except per share figures) | December 31 | |||
2005 | ||||
Unaudited | ||||
Net revenue | $ | 61,219 | ||
Income from operations | 8,949 | |||
Net income | 11,279 | |||
Basic earnings per share | 0.22 | |||
Diluted earnings per share | 0.20 |
Gaming software | Online game | |||||||||||
(in US$ thousands) | and service | and service | Total | |||||||||
Balance as of December 31, 2005 | $ | 29,243 | $ | — | $ | 29,243 | ||||||
Acquisition | — | 21,409 | 21,409 | |||||||||
Post-acquisition adjustment | — | 5,000 | 5,000 | |||||||||
Translation adjustment | — | 165 | 165 | |||||||||
Balance as of December 31, 2006 | 29,243 | 26,574 | 55,817 | |||||||||
Acquisition | — | 29,354 | 29,354 | |||||||||
Post-acquisition adjustment | — | (238 | ) | (238 | ) | |||||||
Translation adjustment | — | 216 | 216 | |||||||||
Balance as of December 31, 2007 | $ | 29,243 | $ | 55,906 | $ | 85,149 | ||||||
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
(in US$ thousands) | December 31, 2006 | |||||||||||
Gross carrying | Accumulated | |||||||||||
amount | amortization | Net | ||||||||||
Completed technology | $ | 3,619 | $ | (1,523 | ) | $ | 2,096 | |||||
Trade name | ||||||||||||
trademark and non-competition agreement | 11,841 | (307 | ) | 11,534 | ||||||||
Capitalized software cost | 6,333 | (1,910 | ) | 4,423 | ||||||||
Customer relationships | 5,589 | (621 | ) | 4,968 | ||||||||
Other | 66 | (20 | ) | 46 | ||||||||
Total | $ | 27,448 | $ | (4,381 | ) | $ | 23,067 | |||||
(in US$ thousands) | December 31, 2007 | |||||||||||
Gross carrying | Accumulated | |||||||||||
amount | amortization | Net | ||||||||||
Completed technology | $ | 3,631 | $ | (1,966 | ) | $ | 1,665 | |||||
Trade name | ||||||||||||
trademark and non-competition agreement | 11,898 | (423 | ) | 11,475 | ||||||||
Capitalized software cost | 12,222 | (3,711 | ) | 8,511 | ||||||||
Customer relationships | 5,618 | (1,249 | ) | 4,369 | ||||||||
Other | 66 | (26 | ) | 40 | ||||||||
Total | $ | 33,435 | $ | (7,375 | ) | $ | 26,060 | |||||
F-40
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
Amount | ||||
(in US$ thousands) | ||||
2008 | $ | 3,928 | ||
2009 | 3,827 | |||
2010 | 3,375 | |||
2011 | 1,512 | |||
2012 | 1,051 | |||
$ | 13,693 | |||
(in US$ thousands) | December 31, | |||||||
2006 | 2007 | |||||||
Checking and savings accounts | $ | 22,372 | $ | 60,809 | ||||
Time deposits | — | 7,754 | ||||||
Total | $ | 22,372 | $ | 68,563 | ||||
( in US$ thousands ) | December 31, | |||||||
2006 | 2007 | |||||||
Available-for-sale securities | ||||||||
Open-end funds | $ | 13,816 | $ | 11,354 | ||||
F-41
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
( in US$ thousands ) | December 31, | |||||||
2006 | 2007 | |||||||
Notes and accounts receivable | $ | 16,971 | $ | 19,653 | ||||
Less: Allowance for doubtful accounts | (1,895 | ) | (1,362 | ) | ||||
Net | $ | 15,076 | $ | 18,291 | ||||
F-42
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
( in US$ thousands ) | For the years ended December 31, | |||||||||||
2005 | 2006 | 2007 | ||||||||||
Allowance for doubtful accounts | ||||||||||||
Balance at beginning of year | $ | 2,050 | $ | 1,684 | $ | 1,895 | ||||||
Acquisition | — | 163 | — | |||||||||
Additions: Bad debt expenses | 203 | 715 | 743 | |||||||||
Less: Write-offs | — | (681 | ) | (1,279 | ) | |||||||
Divestiture — Music distribution business | (489 | ) | — | — | ||||||||
Translation adjustment | (80 | ) | 14 | 3 | ||||||||
Balance at end of year | $ | 1,684 | $ | 1,895 | $ | 1,362 | ||||||
( in US$ thousands ) | December 31, | |||||||||||||||
2006 | 2007 | |||||||||||||||
Percentage | Percentage | |||||||||||||||
held as | held as | |||||||||||||||
Amount | converted basis | Amount | converted basis | |||||||||||||
T2CN | $ | 15,000 | 13.41 | $ | — | — | ||||||||||
Infocomm Asia | 10,000 | 32.26 | 10,000 | 28.43 | ||||||||||||
Neostorm Holdings Limited (“Neostorm”) | — | — | 5,564 | 33.33 | ||||||||||||
XL GAMES Inc. (“XL”) | — | — | 5,454 | 14.55 | ||||||||||||
Total | $ | 25,000 | $ | 21,018 | ||||||||||||
F-43
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
( in US$ thousands ) | December 31, | |||||||
2006 | 2007 | |||||||
Restricted cash — current assets | ||||||||
Time deposit pledged to China Trust Commercial Bank and Taipei Fubon Commercial Bank as guarantees for bank loans | $ | 2,697 | $ | 6,247 | ||||
F-44
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
( in US$ thousands ) | Range of | December 31, | ||||||
Name | interest rate | Due Date | 2006 | |||||
China Trust Commercial Bank | 2.35%~2.45% | Mar. 10, 2007 | $ | 6,135 | ||||
China Trust Commercial Bank | 1.735%~1.865% | Mar. 10, 2007 | 2,117 | |||||
Taishin International Bank | 2.90%~2.95% | Sept. 30, 2007 | 4,601 | |||||
$ | 12,853 | |||||||
Range of | December 31, | |||||||
Name | interest rate | Due Date | 2007 | |||||
China Trust Commercial Bank | 1.865%~2.95% | Mar. 10, 2008 | $ | 12,334 | ||||
Taishin International Bank | 2.95%~3.39% | Sept. 30, 2008 | 7,709 | |||||
Taipei Fubon Commercial Bank | 3.902% | Jul. 26, 2008 | 6,167 | |||||
Far Eastern International Bank | 2.85%~3.17% | Feb. 7, 2008 | 3,084 | |||||
Waterland Financial Holdings | 2.738%~4.238% | Feb. 7, 2008 | 1,541 | |||||
Taching Bill Finance Limited | 3.758% | Oct. 28 ,2008 | 1,541 | |||||
Union Bills Finance | 3.758% | Aug. 31, 2008 | 925 | |||||
$ | 33,301 | |||||||
* | As of December 31, 2006 and 2007, the weighted-average interest rate on total short-term borrowings was 2.48% and 3.35%, respectively. |
F-45
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
(in US$ thousands) | December 31, | |||||||
2006 | 2007 | |||||||
Accrued commission | $ | 1,259 | $ | 2,892 | ||||
Accrued professional fee | 1,055 | 1,832 | ||||||
Accrued promotion expenses | — | 510 | ||||||
Other | 2,472 | 3,917 | ||||||
Total | $ | 4,786 | $ | 9,151 | ||||
(in US$ thousands) | December 31, | |||||||
2006 | 2007 | |||||||
Deferred revenue | $ | 3,222 | $ | 7,647 | ||||
Incentive payment for FunTown acquisition (See Note 5, “Acquisitions”) | 5,000 | — | ||||||
Accrual for investment in Neostorm | — | 2,204 | ||||||
Income tax payable and FIN 48 liabilities | 1,369 | 1,041 | ||||||
Other | 3,241 | 3,760 | ||||||
Total | $ | 12,832 | $ | 14,652 | ||||
F-46
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
F-47
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
(in US$ thousands) | ||||||||
Change in benefit obligation | 2006 | 2007 | ||||||
Benefit obligation at beginning of year | $ | 449 | $ | 541 | ||||
Service cost | 12 | 14 | ||||||
Interest cost | 16 | 15 | ||||||
Actuarial gain | 103 | 27 | ||||||
Curtailment | (42 | ) | — | |||||
Exchange diff. | 3 | 3 | ||||||
Benefit obligation at end of year | $ | 541 | $ | 600 | ||||
Change in plan assets | ||||||||
Fair value of plan assets at beginning of year | $ | 50 | $ | 135 | ||||
Actual return on plan assets | 2 | 3 | ||||||
Employer contribution | 83 | 66 | ||||||
Fair value of plan assets at end of year | $ | 135 | $ | 204 | ||||
Accumulated benefit obligation | $ | (443 | ) | $ | (497 | ) | ||
Funded status | $ | (406 | ) | $ | (396 | ) | ||
(in US$ thousands) | Pension Benefits | |||||||
2006 | 2007 | |||||||
Accrued benefit cost | $ | (406 | ) | $ | (396 | ) | ||
Accumulated other comprehensive income | ||||||||
Unrecognized transition obligation | $ | 79 | $ | 76 | ||||
Unrecognized net gain | (314 | ) | (257 | ) | ||||
Accumulated other comprehensive income | $ | (235 | ) | $ | (181 | ) | ||
F-48
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
(in US$ thousands) | 2005 | 2006 | 2007 | |||||||||
Service cost | $ | 88 | $ | 12 | $ | 14 | ||||||
Interest cost | 21 | 16 | 15 | |||||||||
Expected return on plan assets | — | (4 | ) | (5 | ) | |||||||
Amortization of transition obligation | 4 | 4 | 4 | |||||||||
Amortization of net (gain) loss | (20 | ) | (47 | ) | (29 | ) | ||||||
Net periodic benefit cost | $ | 93 | $ | (19 | ) | $ | (1 | ) | ||||
Curtailment loss (gain) | $ | — | $ | (42 | ) | $ | — | |||||
2005 | 2006 | 2007 | ||||||||||
Discount rate | 3.50 | % | 2.75 | % | 2.75 | % | ||||||
Rate of return on plan assets | 3.50 | % | 2.75 | % | 2.75 | % | ||||||
Rate of compensation increase | 1.00 | % | 1.00 | % | 1.00 | % |
F-49
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
F-50
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
(in US$ thousands) | ||||||||||||
Before | ||||||||||||
Application of | After Application | |||||||||||
At December 31, 2006: | FAS No. 158 | Adjustments* | of FAS No. 158 | |||||||||
Other assets | $ | 90 | $ | (58 | ) | $ | 32 | |||||
Total assets | 182,677 | (58 | ) | $ | 182,619 | |||||||
Accrued pension liabilities | 727 | (293 | ) | $ | 434 | |||||||
Total liabilities | 47,291 | (293 | ) | $ | 46,998 | |||||||
Accumulated other comprehensive loss | (27,204 | ) | 235 | $ | (26,969 | ) | ||||||
Total stockholders’ equity | 133,852 | 235 | $ | 134,087 | ||||||||
* | Adjustments are primarily comprised of previously unrecognized gains/(losses) and transition obligations. |
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
F-52
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
F-53
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
(in US$ thousands) | 2006 | 2007 | ||||||
Cost of Internet access and services revenues | $ | 20 | $ | 57 | ||||
Product development & engineering expenses | 127 | 258 | ||||||
Selling and marketing expenses | 67 | 144 | ||||||
General and administrative expenses | 96 | 1,403 | ||||||
Pre-tax stock-based compensation expense | 310 | 1,862 | ||||||
Income tax benefit | 60 | 249 | ||||||
Total stock-based compensation expense | $ | 250 | $ | 1,613 | ||||
F-54
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
F-55
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
F-56
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
Stock-Based | ||||||||||
compensation | Granted | Options’ exercise | RSUs’ grant date | |||||||
plan | awards | Vesting schedule | price | fair value | ||||||
2002 plan | 3,000,000 | immediately upon granting | $0.79 | — | ||||||
2004 plan | 7,368,185 | immediately upon granting to three years | $0.79 ~ $2.55 | — | ||||||
2006 plan | 950,443 | immediately upon granting to four years | $10.15 ~ $16.6 | $9.81 ~ $11.83 | ||||||
2007 plan | 515,000 | four years | $10.15 ~ $18.17 | — |
F-57
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
For the years ended December 31, | 2005 | 2006 | 2007 | |||
Option term (years) | 3.41 | — | 2.77 | |||
Volatility | 53.77% | — | 57.41%~58.80% | |||
Weighted-average volatility | 53.77% | — | 58.68% | |||
Risk-free interest rate | 3.68%~4.33% | — | 3.24%~4.56% | |||
Dividend yield | 0% | — | 0% | |||
Weighted-average fair value of option granted | $1.05 | — | $4.46 |
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
2005 | 2006 | 2007 | ||||||||||||||||||||||||||||||
Weighted- | Aggregate | |||||||||||||||||||||||||||||||
Weighted | No. of | Weighted | No. of | Weighted | No. of | Average | Intrinsic | |||||||||||||||||||||||||
Avg. | Shares | Avg. | Shares | Avg. | Shares | Remaining | Value | |||||||||||||||||||||||||
Exercise | (in | Exercise | (in | Exercise | (in | Contractual | (in | |||||||||||||||||||||||||
Price | thousands) | Price | thousands) | Price | thousands) | Term | thousands) | |||||||||||||||||||||||||
Balance at January 1, | $ | 2.00 | 8,844 | $ | 1.11 | 10,000 | $ | 1.11 | 8,789 | |||||||||||||||||||||||
Options granted | 2.49 | 1,905 | — | — | 10.78 | 1,145 | ||||||||||||||||||||||||||
Options exercised | — | — | 1.10 | (1,152 | ) | 1.43 | (1,911 | ) | ||||||||||||||||||||||||
Options Forfeited/canceled/expired | 15.13 | (749 | ) | 1.48 | (59 | ) | 2.47 | (111 | ) | |||||||||||||||||||||||
Balance at December 31, | $ | 1.11 | 10,000 | $ | 1.11 | 8,789 | $ | 2.42 | 7,912 | 6.94 | $ | 129,227 | ||||||||||||||||||||
Exercisable at December 31, | $ | 1.09 | 9,170 | $ | 1.08 | 8,318 | $ | 1.06 | 6,692 | 6.52 | $ | 118,406 | ||||||||||||||||||||
Vested and expected to vest at December 31, | $ | 1.11 | 8,783 | $ | 2.42 | 7,912 | 6.94 | $ | 129,227 | |||||||||||||||||||||||
F-59
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
Options outstanding | Options currently exercisable | |||||||||||
Weighted average | ||||||||||||
No. of Shares | remaining | No. of Shares | ||||||||||
Exercise price | (in thousands) | contractual life | Exercise price | (in thousands) | ||||||||
under $1 | 5,901 | 6.49 years | under $1 | 5,901 | ||||||||
$1~$10 | 866 | 6.49 years | $1~$10 | 730 | ||||||||
$10~$20 | 1,145 | 9.62 years | $10~$20 | 61 | ||||||||
7,912 | 6,692 | |||||||||||
Number of units | Weighted-average | |||||||
(in thousands) | grant date fair value | |||||||
Nonvested at December 31, 2006 | 107 | $ | 9.81 | |||||
Granted | 205 | $ | 10.55 | |||||
Vested | (74 | ) | $ | 10.45 | ||||
Forfeited | — | — | ||||||
Nonvested at December 31, 2007 | 238 | $ | 10.25 | |||||
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
For the years ended December 31, | 2005 | 2006 | 2007 | |||
Option term (years) | 6.80 | 5.63~6.41 | 5.44~6.02 | |||
Volatility | 60.45% | 47.39%~56.10% | 44.64%~46.96% | |||
Weighted-average volatility | 60.45% | 53.81% | 45.03% | |||
Risk-free interest rate | 4.43% | 4.54%~4.82% | 4.31%~4.68% | |||
Dividend yield | 0% | 0% | 0% | |||
Weighted-average fair value of option granted | $0.60 | $0.39 | $0.52 |
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
2007 | ||||||||||||||||
Weighted- | ||||||||||||||||
Average | ||||||||||||||||
Remaining | Aggregate | |||||||||||||||
Weighted Avg. | No. of Shares | Contractual | Intrinsic Value | |||||||||||||
Exercise Price | (in thousands) | Term | (in thousands) | |||||||||||||
Balance at June 1, | $ | 1.30 | 2,973 | |||||||||||||
Options granted | 1.00 | 501 | ||||||||||||||
Options | ||||||||||||||||
Forfeited/canceled/expired | 1.57 | (174 | ) | |||||||||||||
Balance at December 31, | $ | 1.24 | 3,300 | 8.71 | $ | 558 | ||||||||||
Exercisable at December 31, | $ | 1.20 | 937 | 8.52 | $ | 176 | ||||||||||
Vested and expected to vest at December 31, | $ | 1.24 | 3,016 | 8.70 | $ | 513 | ||||||||||
F-62
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
Options outstanding | Options currently exercisable | |||||||||||||||
Weighted average | ||||||||||||||||
Range of | No. of Shares | remaining | Weighted average | No. of Shares | ||||||||||||
exercise price | (in thousands) | contractual life | exercise price | (in thousands) | ||||||||||||
$1.00 | 1,995 | 8.71 years | $ | 1.00 | 628 | |||||||||||
$1.60 | 1,305 | 8.70 years | $ | 1.60 | 309 | |||||||||||
3,300 | 937 | |||||||||||||||
( in US$ thousands ) | For the years ended December 31, | |||||||||||
2005 | 2006 | 2007 | ||||||||||
Gain on cancellation of preferred share call options | $ | — | $ | — | $ | 1,069 | ||||||
Indemnification from termination of game licensing | — | — | 601 | |||||||||
Compensation from termination of investment option rights | — | — | 498 | |||||||||
Gain on early redemption of convertible notes | — | 625 | — | |||||||||
Other | 1,094 | 266 | 502 | |||||||||
$ | 1,094 | $ | 891 | $ | 2,670 | |||||||
( in US$ thousands ) | For the years ended December 31, | |||||||||||
2005 | 2006 | 2007 | ||||||||||
Income from continuing operations before income taxes | ||||||||||||
U.S. operations | $ | 516 | $ | 865 | $ | 489 | ||||||
Non-U.S. operations | 6,560 | 31,789 | 40,085 | |||||||||
Total income from continuing operations before income taxes | $ | 7,076 | $ | 32,654 | $ | 40,574 | ||||||
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
( in US$ thousands ) | For the years ended December 31, | |||||||||||
2005 | 2006 | 2007 | ||||||||||
U.S. operations | $ | 304 | $ | 366 | $ | 224 | ||||||
Non-U.S. operations | 132 | 1,183 | 179 | |||||||||
$ | 436 | $ | 1,549 | $ | 403 | |||||||
( in US$ thousands ) | For the years ended December 31, | |||||||||||
2005 | 2006 | 2007 | ||||||||||
U.S. federal | ||||||||||||
Current | $ | 233 | $ | 266 | $ | 281 | ||||||
Deferred | 17 | 8 | (111 | ) | ||||||||
250 | 274 | 170 | ||||||||||
U.S. state and local : | ||||||||||||
Current | 60 | 90 | 84 | |||||||||
Deferred | (6 | ) | 2 | (30 | ) | |||||||
54 | 92 | 54 | ||||||||||
Non-U.S. : | ||||||||||||
Current | 132 | 1,199 | 134 | |||||||||
Deferred | — | (16 | ) | 45 | ||||||||
132 | 1,183 | 179 | ||||||||||
Total income tax provisions | $ | 436 | $ | 1,549 | $ | 403 | ||||||
(in US$ thousands) | For the years ended December 31, | |||||||||||
2005 | 2006 | 2007 | ||||||||||
Federal statutory rate | 34.00 | % | 34.00 | % | 34.00 | % | ||||||
State and local — net of federal tax benefit | 6.91 | % | 6.78 | % | 6.27 | % | ||||||
Foreign tax differential | (32.96 | %) | (23.74 | %) | (35.24 | %) | ||||||
Loss carryforward utilized | (5.14 | %) | (12.84 | %) | (3.41 | %) | ||||||
Other | 3.35 | % | 0.54 | % | (0.63 | %) | ||||||
Effective rate | 6.16 | % | 4.74 | % | 0.99 | % | ||||||
F-64
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
(in US$ thousands) | December 31, | |||||||
2006 | 2007 | |||||||
Deferred tax assets: | ||||||||
Net operating loss carryforwards | $ | 3,082 | $ | 1,128 | ||||
Accrued expenses | — | 336 | ||||||
Allowance for doubtful accounts | 397 | 284 | ||||||
Pension expense | 162 | 145 | ||||||
Investment credits | 104 | 322 | ||||||
Property, plant & equipment | 272 | 201 | ||||||
Others | 30 | 596 | ||||||
4,047 | 3,012 | |||||||
Less: valuation allowance | (4,032 | ) | (3,012 | ) | ||||
Deferred tax assets — net | $ | 15 | $ | — | ||||
(in US$ thousands) | December 31, | |||||||
2006 | 2007 | |||||||
Deferred tax liabilities: | ||||||||
Depreciation and amortization | $ | (39 | ) | $ | — | |||
Others | 43 | (107 | ) | |||||
Deferred tax liabilities — net | $ | 4 | $ | (107 | ) | |||
(in US$ thousands) | For the years ended December 31, | |||||||||||
2005 | 2006 | 2007 | ||||||||||
Valuation allowance: | ||||||||||||
Balance at beginning of year | $ | 22,499 | $ | 10,396 | $ | 4,032 | ||||||
Additions: charged to (realization of) valuation allowance | (5,863 | ) | (6,443 | ) | (2,214 | ) | ||||||
Divestiture | (5,405 | ) | — | — | ||||||||
Acquisition | — | — | 1,197 | |||||||||
Exchange difference | (835 | ) | 79 | (3 | ) | |||||||
Balance at end of year | $ | 10,396 | $ | 4,032 | $ | 3,012 | ||||||
F-65
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
(in US$ thousands) | ||||||||
Year incurred | Amount | Expiring year | ||||||
2003 | $ | 3,481 | 2008 | |||||
2004 | 19 | 2009 | ||||||
2005 | 262 | 2010 | ||||||
2006 | 1,074 | 2011 | ||||||
2007 | 49 | 2012 | ||||||
Total | $ | 4,885 | ||||||
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
F-67
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
(in US$ thousands) | For the year ended | |||
December 31, | ||||
2007 | ||||
Balance at January 1, 2007 | $ | 209 | ||
Decrease due to settlement | (82 | ) | ||
Balance at December 31, 2007 | $ | 127 | ||
F-68
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
F-69
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
F-70
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
Amount | ||||
Year | (in US$ thousands) | |||
2008 | $ | 4,377 | ||
2009 | 2,083 | |||
2010 | 1,801 | |||
2011 | 998 | |||
2012 | 452 |
F-71
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
Minimum | ||||||||||||
guarantees against | ||||||||||||
License fees | future royalties | Total | ||||||||||
Payments made as of December 31, 2007 | $ | 8,600 | $ | 3,000 | $ | 11,600 | ||||||
Payments in 2008 and after: | ||||||||||||
Minimum required payments in 2008 | $ | 2,700 | $ | 1,000 | $ | 3,700 | ||||||
Contingent payments based on the agreements | 4,200 | 22,800 | 27,000 | |||||||||
$ | 6,900 | $ | 23,800 | $ | 30,700 | |||||||
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Internet | Gaming | |||||||||||
access and | software and | |||||||||||
(in US$ thousands) | service | service | Total | |||||||||
2005: | ||||||||||||
Segment profit or loss: | ||||||||||||
Net revenue from external customers | $ | 21,676 | $ | 22,511 | $ | 44,187 | ||||||
Income from operations | $ | 2,123 | $ | 5,957 | $ | 8,080 | ||||||
Interest income | $ | 5 | $ | 92 | $ | 97 | ||||||
Interest expense | $ | — | $ | — | $ | — | ||||||
Gains on sales of marketable securities | $ | 466 | $ | — | $ | 466 | ||||||
Foreign exchange gain (loss) | $ | (144 | ) | $ | 9 | $ | (135 | ) | ||||
Depreciation | $ | 3,651 | $ | 266 | $ | 3,917 | ||||||
Amortization, including intangible assets | $ | 413 | $ | 1,023 | $ | 1,436 | ||||||
Income tax expense | $ | 110 | $ | 325 | $ | 435 | ||||||
Segment assets: | ||||||||||||
Additions to property, plant and equipment | $ | 1,782 | $ | 474 | $ | 2,256 | ||||||
Additions to intangible assets | $ | — | $ | 1,005 | $ | 1,005 | ||||||
Additions to goodwill | $ | — | $ | — | $ | — | ||||||
Total assets | $ | 31,344 | $ | 45,413 | $ | 76,757 | ||||||
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
Internet | Gaming | Online | ||||||||||||||
access and | software and | game and | ||||||||||||||
(in US$ thousands) | service | service | service | Total | ||||||||||||
2006: | ||||||||||||||||
Segment profit or loss: | ||||||||||||||||
Net revenue from external customers | $ | 20,581 | $ | 55,019 | $ | 18,692 | $ | 94,292 | ||||||||
Income from operations | $ | 4,185 | $ | 16,772 | $ | 5,618 | $ | 26,575 | ||||||||
Share-based compensation | $ | 85 | $ | 82 | $ | 101 | $ | 268 | ||||||||
Gain on divestiture of business | $ | 7,668 | $ | — | $ | — | $ | 7,668 | ||||||||
Interest income | $ | 6 | $ | 212 | $ | 20 | $ | 238 | ||||||||
Interest expense | $ | 154 | $ | — | $ | 1 | $ | 155 | ||||||||
Gains on sales of marketable securities | $ | 2,119 | $ | — | $ | 4 | $ | 2,123 | ||||||||
Foreign exchange loss | $ | (39 | ) | $ | (27 | ) | $ | (1 | ) | $ | (67 | ) | ||||
Depreciation | $ | 2,400 | $ | 517 | $ | 250 | $ | 3,167 | ||||||||
Amortization, including intangible assets | $ | 145 | $ | 1,292 | $ | 1,423 | $ | 2,860 | ||||||||
Income tax expense | $ | 1,026 | $ | 415 | $ | 108 | $ | 1,549 | ||||||||
Segment assets: | ||||||||||||||||
Additions to property, plant and equipment | $ | 750 | $ | 1,701 | $ | 738 | $ | 3,189 | ||||||||
Additions to intangible assets | $ | — | $ | 1,172 | $ | 21,359 | $ | 22,531 | ||||||||
Additions to goodwill | $ | — | $ | — | $ | 26,409 | $ | 26,409 | ||||||||
Total assets | $ | 58,589 | $ | 56,850 | $ | 54,457 | $ | 169,896 | ||||||||
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
Internet | Gaming | Online | ||||||||||||||
access and | software and | game and | ||||||||||||||
(in US$ thousands) | service | service | service | Total | ||||||||||||
2007: | ||||||||||||||||
Segment profit or loss: | ||||||||||||||||
Net revenue from external customers | $ | 15,164 | $ | 118,950 | $ | 32,764 | $ | 166,878 | ||||||||
Income from operations | $ | 671 | $ | 37,703 | $ | 6,844 | $ | 45,218 | ||||||||
Share-based compensation | $ | 28 | $ | 548 | $ | 373 | $ | 949 | ||||||||
Interest income | $ | 7 | $ | 871 | $ | 194 | $ | 1,072 | ||||||||
Interest expense | $ | 108 | $ | 1 | $ | — | $ | 109 | ||||||||
Gains on sales of marketable securities | $ | 21 | $ | — | $ | (104 | ) | $ | (83 | ) | ||||||
Foreign exchange gain (loss) | $ | 4 | $ | (486 | ) | $ | (195 | ) | $ | (677 | ) | |||||
Proportionate share of losses under the equity method | $ | — | $ | — | $ | (369 | ) | $ | (369 | ) | ||||||
Depreciation | $ | 1,535 | $ | 1,060 | $ | 589 | $ | 3,184 | ||||||||
Amortization, including intangible assets | $ | 65 | $ | 1,271 | $ | 1,852 | $ | 3,188 | ||||||||
Income tax expense | $ | 2 | $ | 229 | $ | 172 | $ | 403 | ||||||||
Segment assets: | ||||||||||||||||
Equity investments | $ | — | $ | — | $ | 2,762 | $ | 2,762 | ||||||||
Additions to property, plant and equipment | $ | 1,392 | $ | 2,280 | $ | 2,575 | $ | 6,247 | ||||||||
Additions to intangible assets | $ | 39 | $ | 2,070 | $ | 3,575 | $ | 5,684 | ||||||||
Additions to goodwill | $ | — | $ | — | $ | 29,354 | $ | 29,354 | ||||||||
Total assets | $ | 70,780 | $ | 93,144 | $ | 92,597 | $ | 256,521 | ||||||||
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YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
(in US$ thousands) | 2005 | 2006 | 2007 | |||||||||
Income (loss) from operations: | ||||||||||||
Total segments | $ | 8,080 | $ | 26,575 | $ | 45,218 | ||||||
Adjustment* | (3,714 | ) | (4,611 | ) | (7,127 | ) | ||||||
Total GigaMedia consolidated | $ | 4,366 | $ | 21,964 | $ | 38,091 | ||||||
Share-based compensation | ||||||||||||
Total segments | $ | — | $ | 268 | $ | 949 | ||||||
Adjustment* | — | 42 | 913 | |||||||||
Total GigaMedia consolidated | $ | — | $ | 310 | $ | 1,862 | ||||||
Interest income: | ||||||||||||
Total segments | $ | 97 | $ | 238 | $ | 1,072 | ||||||
Adjustment* | 314 | 484 | 369 | |||||||||
Total GigaMedia consolidated | $ | 411 | $ | 722 | $ | 1,441 | ||||||
Interest expense: | ||||||||||||
Total segments | $ | — | $ | 155 | $ | 109 | ||||||
Adjustment* | — | 427 | 546 | |||||||||
Total GigaMedia consolidated | $ | — | $ | 582 | $ | 655 | ||||||
Gain on sales of marketable securities: | ||||||||||||
Total segments | $ | 466 | $ | 2,123 | $ | (83 | ) | |||||
Adjustments* | 384 | 66 | 288 | |||||||||
Total GigaMedia consolidated | $ | 850 | $ | 2,189 | $ | 205 | ||||||
Foreign exchange gain (loss): | ||||||||||||
Total segments | $ | (135 | ) | $ | (67 | ) | $ | (677 | ) | |||
Adjustments* | 286 | (94 | ) | 2 | ||||||||
Total GigaMedia consolidated | $ | 151 | $ | (161 | ) | $ | (675 | ) | ||||
Depreciation: | ||||||||||||
Total segments | $ | 3,917 | $ | 3,167 | $ | 3,184 | ||||||
Adjustments* | — | — | — | |||||||||
Total GigaMedia consolidated | $ | 3,917 | $ | 3,167 | $ | 3,184 | ||||||
Amortization: | ||||||||||||
Total segments | $ | 1,436 | $ | 2,860 | $ | 3,188 | ||||||
Adjustments* | — | 16 | 26 | |||||||||
Total GigaMedia consolidated | $ | 1,436 | $ | 2,876 | $ | 3,214 | ||||||
Income tax benefit (expense): | ||||||||||||
Total segments | $ | (435 | ) | $ | (1,549 | ) | $ | 403 | ||||
Adjustments* | (1 | ) | — | — | ||||||||
Total GigaMedia consolidated | $ | (436 | ) | $ | (1,549 | ) | $ | 403 | ||||
Total assets: | ||||||||||||
Total segments | $ | 76,757 | $ | 169,896 | $ | 256,521 | ||||||
Adjustment** | 36,762 | 12,723 | 27,344 | |||||||||
Total GigaMedia consolidated | $ | 113,519 | $ | 182,619 | $ | 283,865 | ||||||
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YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
* | Adjustment items include corporate and certain back-office costs and expenses not attributable to any specific segment. | |
** | Adjustment items include total corporate assets, the divested music distribution business segment and eliminations. |
(in US$ thousands) | ||||||||||||
Geographic region/country | 2005 | 2006 | 2007 | |||||||||
Canada | $ | 22,511 | $ | 55,019 | $ | 118,650 | ||||||
Taiwan | 21,676 | 37,435 | 33,552 | |||||||||
PRC | — | — | 8,883 | |||||||||
Hong Kong | — | 1,831 | 5,360 | |||||||||
Others | — | 7 | 433 | |||||||||
Total | $ | 44,187 | $ | 94,292 | $ | 166,878 | ||||||
(in US$ thousands) | December 31, | |||||||||||
Geographic region | 2005 | 2006 | 2007 | |||||||||
Taiwan | $ | 10,156 | $ | 8,241 | $ | 8,431 | ||||||
Canada | 364 | 1,143 | 2,053 | |||||||||
PRC | — | 51 | 1,334 | |||||||||
United States | 227 | 632 | 943 | |||||||||
Hong Kong | — | 31 | 247 | |||||||||
Total | $ | 10,747 | $ | 10,098 | $ | 13,008 | ||||||
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YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
a. | On January 18, 2008, GigaMedia entered into share purchase and shareholders’ agreements with Access China Holding Limited (“Access China”), an online game software developer in the PRC, to acquire preferred shares convertible into an approximately 30 percent holding in Access China’s common shares. |
b. | On January 28, 2008, we entered into a license and distribution agreement with Electronic Arts Inc. (“EA”), pursuant to which EA granted us an exclusive and non-transferable license for three years commencing from the first commercial release date to operate, host, maintain and market the multi-player online game titled “Warhammer Online” in Taiwan, Hong Kong and Macau. | |
Under the agreement, we are required to pay a recoupable advance which can be offset against future royalties. | ||
We have also agreed to provide certain external marketing resources and localization efforts for Warhammer Online in the form of online and live events, and other advertising and promotions via marketing activities. |
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