UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 20-F
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
For the fiscal year ended December 31, 2023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission File Number: 000-30540
GIGAMEDIA LIMITED
(Exact name of registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)
REPUBLIC OF SINGAPORE
(Jurisdiction of incorporation or organization)
8 TH FLOOR, NO. 22, LANE 407, SECTION 2 TIDING BOULEVARD, TAIPEI 114-740, TAIWAN, R.O.C.
(Address of principal executive offices)
CHENG-MING HUANG, Chief Executive Officer
8 TH FLOOR, NO. 22, LANE 407, SECTION 2 TIDING BOULEVARD, TAIPEI 114-740, TAIWAN, R.O.C.
Tel: 886-2-2656-8000; Fax: 886-2-2656-8003
Securities registered or to be registered pursuant to Section 12(b) of the Exchange Act:
Title of Each Class
Ordinary Shares
Trading Symbol
GIGM
Name of Each Exchange on Which Registered
The Nasdaq Stock Market LLC
Securities registered or to be registered pursuant to Section 12(g) of the Exchange Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
11,052,235 ordinary shares
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
If this annual report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S–T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See the definitions of “large
accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
Large accelerated filer
Non-accelerated filer
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Accelerated filer
Emerging growth company
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If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards
Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of
an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that require a recovery analysis of incentive-based compensation received by any of the registrant’s
executive officers during the relevant recovery pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☒
International Financial Reporting Standards as issued by the International
Accounting Standards Board
☐
Other
☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. ☐ Item 17 ☐ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Auditor Firm Id:
1060
Auditor Name:
Deloitte & Touche
Auditor Location:
Taipei, Taiwan
TABLE OF CONTENTS
PART I ............................................................................................................................................................................................
ITEM 1.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 4A.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 8.
ITEM 9.
ITEM 10.
ITEM 11.
ITEM 12.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS ............................................
OFFER STATISTICS AND EXPECTED TIMETABLE ..............................................................................
KEY INFORMATION ...................................................................................................................................
INFORMATION ON THE COMPANY ........................................................................................................
UNRESOLVED STAFF COMMENTS .........................................................................................................
OPERATING AND FINANCIAL REVIEW AND PROSPECTS ................................................................
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES..................................................................
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS ................................................
FINANCIAL INFORMATION ......................................................................................................................
THE OFFER AND LISTING .........................................................................................................................
ADDITIONAL INFORMATION...................................................................................................................
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...............................
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES...............................................
PART II .........................................................................................................................................................................................
ITEM 13.
ITEM 14.
ITEM 15.
ITEM 16.
ITEM 16A.
ITEM 16B.
ITEM 16C.
ITEM 16D.
ITEM 16E.
ITEM 16F.
ITEM 16G.
ITEM 16H.
ITEM 16I.
ITEM 16J.
ITEM 16K.
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES ........................................................
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS ....................................................................................................................................................
CONTROLS AND PROCEDURES...............................................................................................................
RESERVED....................................................................................................................................................
AUDIT COMMITTEE FINANCIAL EXPERT.............................................................................................
CODE OF ETHICS.........................................................................................................................................
PRINCIPAL ACCOUNTANT FEES AND SERVICES ...............................................................................
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES ...............................
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS .........
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT................................................................
CORPORATE GOVERNANCE ....................................................................................................................
MINE SAFETY DISCLOSURE.....................................................................................................................
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS .............
INSIDER TRADING POLICIES ...................................................................................................................
CYBERSECURITY........................................................................................................................................
PART III ........................................................................................................................................................................................
ITEM 17.
ITEM 18.
ITEM 19.
FINANCIAL STATEMENTS ........................................................................................................................
FINANCIAL STATEMENTS ........................................................................................................................
EXHIBITS ......................................................................................................................................................
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i
CERTAIN TERMS AND CONVENTIONS
In this annual report, all references to
(i)
(ii)
(iii)
(iv)
(v)
“we,” “us,” “our,” “our Company” or “GigaMedia” are to GigaMedia Limited and, unless the context requires
otherwise, its subsidiaries, or where the context refers to any time prior to the incorporation of any of its subsidiaries,
the businesses which predecessors of the present subsidiaries were engaged in and which were subsequently assumed
by such subsidiaries;
“Shares” are to ordinary shares of our Company;
“FunTown” are to our digital entertainment service business operated through our two operating subsidiaries, Hoshin
GigaMedia and FunTown World Limited;
“GigaMedia Cloud” are to GigaMedia Cloud Services Co. Ltd., a wholly owned subsidiary incorporated under the
laws of Taiwan, Republic of China (“Taiwan” or “R.O.C.”);
“Hoshin GigaMedia” are to Hoshin GigaMedia Center Inc., a wholly owned subsidiary incorporated under the laws of
Taiwan; and
(vi)
“Aeolus” are to Aeolus Robotics Corporation, a private company incorporated in the Cayman Islands (“Cayman”).
For the purpose of this annual report only, geographical references to “China” and the “PRC” are to the People’s Republic
of China and do not include Taiwan, the Hong Kong Special Administrative Region (“Hong Kong”) or the Macau Special
Administrative Region (“Macau”). Except if the context otherwise requires, and for the purpose of this annual report only,
references to “Greater China” include the PRC, Taiwan, Hong Kong and Macau. References to “Korea” or “South Korea” are to
the Republic of Korea.
All references in this annual report to “U.S. dollar,” “$” or “US$” are to the legal currency of the United States; all
references to “NT dollar” or “NT$” are to the legal currency of Taiwan; all references to “RMB,” “Rmb” or “Renminbi” are to the
legal currency of the PRC; all references to “Hong Kong dollar” or “HK$” are to the legal currency of Hong Kong; all references
to “Korean won” or “KRW” are to the legal currency of the Republic of Korea and all references to “Singapore dollar” or “S$” are
to the legal currency of the Republic of Singapore.
The functional currency of each individual consolidated entity is determined based on the primary economic environment in
which the entity operates. While our Company’s consolidated financial statements are presented in U.S. dollars, a large portion of
our operations are conducted through subsidiaries located in Taiwan, and therefore adopt NT dollars as their functional currency.
Assets and liabilities reported in our consolidated balance sheets denominated in currencies other than U.S. dollars are translated
into U.S. dollars using year-end exchange rates. With respect to NT dollars, the year-end exchange rates used are 30.705, 30.71
and 27.68 to one U.S. dollar as of December 31, 2023, 2022 and 2021, respectively, which are each based on the middle rate
quoted by the Bank of Taiwan. Income and expense items reported in our consolidated statements of operations denominated in
currencies other than U.S. dollars are translated into U.S. dollars using average exchange rates. Certain other operating financial
information denominated in currencies other than U.S. dollars, not included in our consolidated financial statements and provided
in this annual report, are translated using average exchange rates.
We have approximated certain numbers in this annual report to their closest round numbers or a given number of decimal
places. Due to rounding, figures shown as totals in tables may not be arithmetic aggregations of the figures preceding them.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This annual report includes “forward-looking statements” within the meaning of, and intended to qualify for the safe harbor
from liability established by, the United States Private Securities Litigation Reform Act of 1995. These statements, which are not
statements of historical fact, may consist of or contain estimates, assumptions, projections and/or expectations regarding future
events, which may or may not occur. These statements involve known and unknown risks, uncertainties and other factors which
may cause our actual results, performance or achievements to be materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements. Some of the risks are listed under Item 3, “Key
Information — D. Risk Factors” and elsewhere in this annual report. In some cases, you can identify these forward-looking
statements by words such as “aim,” “anticipate,” “believe,” “consider,” “continue,” “estimate,” “expect,” “forecast,” “going
forward,” “intend,” “ought to,” “plan,” “potential,” “predict,” “project,” “propose,” “seek,” “can,” “could,” “may,” “might,”
“will,” “would,” “should,” “shall,” “is likely to” or similar expressions, including their negatives. These forward-looking
statements include, without limitation, statements relating to:
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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;
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our acquisitions and strategic investments, and our ability to successfully integrate any acquisitions into our
operations;
our ability to protect our intellectual property rights and the security of our customers’ information;
the launch of new digital entertainment services according to our timetable;
expected continued acceptance of our digital entertainment services, including expected growth of the digital
entertainment industry, and consumer preferences for our products and services;
the in-house development of new digital entertainment products;
our plans to license additional digital entertainment products from third parties, and the launch of these new products,
including the timing of any such development, licenses or launches, in various geographic markets;
our ability to maintain and strengthen our position as one of the largest online MahJong operators in Taiwan;
changes in the competitive environment in which we operate, including the potential entry of new competitors in any
of our business lines;
the outcome of ongoing, or any future, litigation or arbitration;
our corporate classification by various governmental entities;
fluctuations in foreign currency rates, in particular, any material appreciation of the NT dollar against the U.S. dollar,
and our ability to manage such risks;
the political stability of our local region; and
general local and global economic conditions and the impact of geopolitical tensions on such conditions.
These forward-looking statements are based on our own information and on information from other sources we believe to be
reliable. Our actual results may differ materially from those expressed or implied by these forward-looking statements as a result
of risk factors and other factors noted throughout this annual report, including those described under Item 3, “Key Information —
D. Risk Factors” and those detailed from time to time in other filings with the United States Securities and Exchange Commission
(the “SEC”). We do not guarantee that the transactions and events described in this annual report will happen as described or that
they will happen at all. We undertake no obligation to update or revise any forward-looking statements to reflect events or
circumstances after the date of this annual report or to reflect the occurrence of unanticipated events. Whether actual results will
conform to our expectations and predictions is subject to a number of risks and uncertainties, many of which are beyond our
control, and reflect future business decisions that are subject to change. Given this level of uncertainty, you are advised not to
place undue reliance on such forward-looking statements.
2
PART I
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
A.
[Reserved]
B.
Capitalization and Indebtedness
Not applicable.
C.
Reasons for the Offer and Use of Proceeds
Not applicable.
D.
Risk Factors
Risks Related to Our Business and Industry
We may not be successful in operating and improving our existing digital entertainment services to satisfy the
changing demands and preferences of consumers.
The level of demand and market acceptance of our existing digital entertainment services is subject to a high degree of
uncertainty. Our future operating results will depend on numerous factors, many of which are beyond our control. These factors
include:
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the popularity of existing and new digital entertainment services operated by us;
the introduction of new digital entertainment services by us or third parties, competing with or replacing our existing
services;
general economic conditions, particularly economic conditions adversely affecting discretionary consumer spending;
changes in our customer demands and preferences;
regulatory and other risks associated with our operations in Taiwan and Hong Kong;
the availability of other forms of amusement and entertainment; and
critical reviews and public tastes and preferences, all of which change rapidly and cannot be predicted.
Our ability to plan for product development and distribution and promotional activities will be significantly affected by how
well we anticipate and adapt to relatively rapid changes in consumer tastes and preferences. Currently, a substantial portion of our
digital entertainment services revenue is derived from revenues from PC-based online games including MahJong games and other
casual games offered in Taiwan and Hong Kong by FunTown and the licensed online games such as Tales Runner, a multi-player
sports game, and Yume100, a single player role-playing game. In recent years, revenues from our PC-based games have been
largely flat or declining, reflecting the overall shift in player preferences, and the lack of growth momentum in PC-based games.
This decline in the popularity of PC-based online games, and declines in the popularity of online games in general, is likely to
adversely affect our business, financial condition and results of operations. To maintain competitiveness of our digital
entertainment services, we must regularly invest in enhancing, improving, expanding or upgrading our services. If we fail to do so,
revenues generated from our existing services will likely decline.
3
As our services are currently accessed primarily through PC and, increasingly, mobile devices, successful
development of services for such devices will be imperative if we are to maintain or increase our revenues, and our
inability to do so may result in lower growth of or a decline in revenues.
Devices other than personal computers, such as mobile phones and tablets, are used increasingly to access the Internet. We
believe that, for our business to be successful, we will need to develop versions of our existing digital entertainment offerings, our
pipeline offerings and any future offerings that work well with such devices. Manufacturers of such devices may establish
restrictive conditions for developers of applications to be used on such devices, and as a result our offerings may not work well, or
at all, on such devices. As new devices are released or updated, we may encounter problems in developing versions of our
offerings for use on such devices and we may need to devote significant resources to the creation, support, and maintenance of
games for such devices. If we are unable to successfully expand the types of devices on which our existing and future offerings are
available, or if the versions of our offerings that we create for such devices do not function well or are not attractive to consumers,
our revenues may fail to grow and may decline.
The digital entertainment industry is characterized by rapid technological change, and failure to respond quickly
and effectively to new Internet technologies or standards may have a material adverse effect on our business.
The digital entertainment industry is evolving rapidly. Any new technologies or new standards may require increases in
expenditures for development and operations. In addition, we use internally developed software systems that support nearly all
aspects of our billing and payment transactions in our digital entertainment service business. All of our businesses may be
adversely affected if we are unable to upgrade our systems effectively to accommodate future traffic levels, to avoid obsolescence
or to successfully integrate any newly developed or acquired technology with our existing systems. Capacity constraints could
cause unanticipated system disruptions and slower responses, which could adversely affect data transmission and service
experience. These factors could, among other things, cause us to lose existing or potential users and existing or potential service
development partners.
In operating our digital entertainment service business, we may fail to launch new products according to our
timetable, and our new products may not be commercially successful.
In order for our digital entertainment service business strategy to succeed over time, we will need to license, acquire or
develop new digital entertainment products that can generate additional revenue and further diversify our revenue sources. A
number of factors, including technical difficulties, government approvals and licenses of intellectual property rights required for
launching new products, lack of sufficient development personnel and other resources, and adverse developments in our
relationship with the licensors of our new licensed products could result in delay in launching our new products. Therefore, we
cannot assure you that we will be able to meet our timetable for new launches.
There are many factors that may adversely affect the popularity of our new products. For example, we may fail to anticipate
and adapt to future technical trends and new business models, fail to satisfy consumer preferences and requirements, fail to
effectively plan and organize marketing and promotion activities, fail to effectively detect and prevent programming errors or
defects in the products, and fail to operate our new products at acceptable costs. We cannot assure you that our new products will
gain market acceptance and become commercially successful. If we are not able to license, develop or acquire additional digital
entertainment products that are commercially successful, our future revenues and profitability may decline.
Our digital entertainment service business faces intense competition, which may adversely affect our revenues,
profitability and planned business expansion.
The digital entertainment market is highly competitive. Online game operators in Taiwan and Hong Kong are currently our
primary competitors. Our major competitors in Taiwan and Hong Kong include Soft-World International Corporation (“Soft-
World”), International Games System, Co., Ltd. (“IGS”), UserJoy Technology Co., Ltd. (“UserJoy”) and GodGame Inc.
(“GodGame”). In addition, we compete for users against various offline amusement and entertainment, such as console games,
arcade games and handheld games, as well as various other forms of traditional or online entertainment.
We expect more digital entertainment service providers to enter the markets where we operate, and a wider range of digital
entertainment products to be introduced to these markets, given the relatively low entry barriers to the digital entertainment
industry and the increasing popularity of Internet-based businesses. Our competitors vary in size and include private and public
companies, many of which have greater financial, marketing and technical resources as well as name brand recognition than us.
We intend to continue to enhance our market position through providing competitive products and quality services that meet
market trends and users’ preferences, as well as strengthening sales effectiveness. As a result of the above, significant competition
may reduce the number of our users or the growth rate of our user base, reduce the average hours spent on our services, or cause
us to reduce usage fees. All of these competitive factors could have a material adverse effect on our business, financial condition
and results of operations.
4
Our results of operations are subject to significant fluctuations. We have incurred operating and net losses in past
years, and we may experience losses in the future.
Our revenues, expenses and results of operations have varied in the past and may fluctuate significantly in the future due to
a variety of factors, many of which are beyond our control. In 2023, 2022 and 2021, we incurred consolidated operating losses of
US$3.2 million, US$3.0 million and US$4.0 million as well as net losses of US$3.4 million, US$2.8 million and US$3.4 million,
respectively. Our future profitability will depend to a great extent upon the performance of our digital entertainment service
business, as well as certain non-operating aspects. The key factors affecting our businesses or profitability include:
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our ability to retain existing users;
attracting new users and maintaining user satisfaction;
the pace of rolling out new offerings or updating existing ones by us or our competitors;
the amount and timing of operating costs and capital expenditures relating to our business operations and expansion;
seasonal trends in Internet use;
price competition in the industry;
regulatory and other risks associated from our operations in Taiwan and Hong Kong;
interest rate regarding our time deposits; and
operational and financial prospects of our investees, specifically Aeolus.
In addition, our operating expenses are based on our expectations of the future demand for our services and are relatively
fixed in the short term. We may be unable to adjust spending quickly enough to offset any unexpected demand shortfall. A
decrease in revenues in relation to our expenses could have a material and adverse effect on our business, results of operations and
financial condition. You should not place undue reliance on year-to-year or quarter-to-quarter comparisons of our results of
operations as indicators of our future performance and we cannot assure you that we will not experience operating or net losses in
future periods.
Our business strategy, which contemplates growth through acquisitions and strategic investments, exposes us to
significant risks.
We have pursued and may continue to pursue growth through acquisitions and strategic investments. Any acquisition or
investment is subject to a number of risks. Such risks include the diversion of management time and resources, disruption of our
ongoing business, lack of familiarity with new markets, difficulties in supporting the acquired business, and dilution to existing
stockholders if our common stock is issued in consideration for an acquisition or investment, incurring or assuming indebtedness
or other liabilities in connection with an acquisition. For any business expansion into an industry that is very different from the
one in which we currently operate, we may face financial challenges and difficulties arising from a very different cost structure
and business model; we may also be exposed to a very different set of labor relations, technological, environmental, regulatory
and other non-market risks associated with any new industry we seek to enter.
We entered into multiple strategic alliances in the past and later recognized related impairment losses on investments and
goodwill. We may incur debts in the future upon an acquisition or suffer losses related to impairment of these investments. We
will continue to examine the merits, risks and feasibility of potential transactions, and expect to explore additional acquisition
opportunities in the future. Such examination and exploration efforts, and any related discussions with third parties, may or may
not lead to future acquisitions and investments. We may not be able to complete acquiring or investing transactions that we
initiate. Our ability to grow through such acquisitions and investments will depend on many factors, including the availability of
suitable acquisition candidates at an acceptable cost, our ability to reach agreement with acquisition candidates or investee
companies on commercially reasonable terms, the availability of financing to complete transactions and our ability to obtain any
required governmental approvals.
We also face challenges in integrating any acquired business. These challenges include eliminating redundant operations,
facilities and systems, coordinating management and personnel, retaining key employees, managing different corporate cultures,
maintaining the relationship with the suppliers, vendors and/or distributors of acquired businesses, and achieving cost reductions
and cross-selling opportunities. There can be no assurance that we will be able to successfully integrate all aspects of acquired
businesses. The process of integrating the acquired business may disrupt our business and divert our resources, including the
resources of our management. In addition, the benefits of an acquisition or investment transaction may take considerable time to
be fully realized and we cannot assure you that any particular acquisition or investment and the subsequent integration will
produce the intended benefits.
5
Further, our business could be adversely impacted by the performance of our investments in other entities. Our investments
may generate significant losses arising from factors that may be out of our control, such as economic downturns, geopolitical
tensions and macroeconomic volatility. We may incur impairment charges in respect of our equity investees and investments in
debt securities, which may affect our results of operations. With respect to equity method investees, if any, we may be required to
share a portion of such investees’ losses in accordance with U.S. GAAP. In each case, our results of operations may be adversely
impacted if our investments do not perform.
Our business could suffer if we do not successfully achieve and manage current growth and potential future growth.
We are pursuing a number of growth strategies. Some of these strategies relate to services, products or markets in which we
lack experience and expertise. Anticipated expansion of our operations will place a significant strain on our management,
operation systems and resources. In addition to training and managing our workforce, we will need to continue to develop and
improve our financial and management controls and our reporting systems and procedures, including those of acquired businesses.
We cannot assure you that we will be able to effectively manage the growth of our operations, and any failure to do so may limit
our future growth and materially and adversely affect our business, financial condition and results of operations.
Undetected programming errors or defects in our software, services and games and the proliferation of cheating
programs could materially and adversely affect our digital entertainment service business, financial condition and results
of operations.
Our digital entertainment services may contain undetected programming errors or other defects. These errors or other
defects could damage our reputation and subject us to liability. As to online games, parties unrelated to us may develop cheating
programs that enable users to acquire superior features for their game characters that they would not have otherwise. Furthermore,
certain cheating programs could cause the loss of a character’s superior features acquired by a user. The occurrence of undetected
errors or defects in our digital entertainment services, and our failure to discover and disable cheating programs affecting the
fairness of our service environment, could disrupt our operations, damage our reputation and ruin our users’ experiences. As a
result, such errors, defects and cheating programs could materially and adversely affect our business, financial condition and
results of operations. If such errors, defects and cheating programs occur in software, services and games we operate, our business
operations and, in turn, our business and financial condition, could be materially and adversely affected.
Increased energy costs, power outages, and limited availability of electrical resources may adversely affect our
operating results.
Our data centers are susceptible to increased costs of power and to electrical power outages. Our customer contracts do not
contain provisions that would allow us to pass on any increased costs of energy to our customers, which could affect our operating
margins. Any increases in the price of our services to recoup these costs could not be implemented until the end of a customer
contract term. Further, power requirements at our data centers are increasing as a result of the increasing power demands of
today’s servers. Increases in our power costs could impact our operating results and financial condition. Since we rely on third
parties to provide our data centers with power sufficient to meet our needs, our data centers could have a limited or inadequate
amount of electrical resources necessary to meet our customer requirements. We attempt to limit exposure to system downtime
due to power outages by using backup generators and power supplies. However, these protections may not limit our exposure to
power shortages or outages entirely. Any system downtime resulting from insufficient power resources or power outages could
damage our reputation and lead us to lose current and potential customers, which would harm our operating results and financial
condition.
We may need additional capital in the future, and it may not be available on acceptable terms.
The development of our business may require significant additional capital in the future to:
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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.
We cannot assure you that additional financing will be available on terms favorable to us, if at all. If adequate funds are not
available on acceptable terms, we may be forced to curtail or cease our operations. Moreover, even if we are able to continue our
operations, any failure to obtain additional financing could have a material and adverse effect on our business, financial condition
and results of operations, and we may need to delay the deployment of our services. See Item 5, “Operating and Financial Review
and Prospects — B. Liquidity and Capital Resources.”
6
Risks Related to Our Reliance on Third Parties
Dependence on network suppliers may adversely affect our operating results.
Our success depends in part upon the capacity, reliability, and performance of our network infrastructure, including the
capacity leased from our Internet bandwidth suppliers. We depend on these companies to provide uninterrupted and error-free
service through their telecommunications networks. We exercise little control over these providers, which increases our
vulnerability to problems with the services they provide. We have experienced and expect to continue to experience interruptions
or delays in network service. Any failure on our part or the part of our third-party suppliers to achieve or maintain high data
transmission capacity, reliability or performance could significantly reduce customer demand for our services and damage our
business. As our customer base grows and their usage of telecommunications capacity increases, we will be required to make
additional investments in our capacity to maintain adequate data transmission speeds, the availability of which may be limited or
the cost of which may be on terms unacceptable to us. If adequate capacity is not available to us as our customers’ usage
increases, our network may be unable to achieve or maintain sufficiently high data transmission capacity, reliability or
performance. In addition, our business would suffer if our network suppliers increased the prices for their services and we were
unable to pass along the increased costs to our customers.
We rely on Google Cloud for certain of our mobile-based digital entertainment services. Any disruption of or
interference with our use of the Google Cloud operation would negatively affect our operations and seriously harm our
business.
Google provides a distributed computing infrastructure platform for business operations, or what is commonly referred to as
a “cloud” computing service, and we currently rely on Google Cloud for certain of our mobile-based digital entertainment
services. Any significant disruption of or interference with our use of Google Cloud would negatively impact our operations and
our business would be seriously harmed. If our users are not able to access our products through Google Cloud or encounter
difficulties in doing so, we may lose users. The level of service provided by Google Cloud may also impact the usage of and our
users’ satisfaction with our products and could seriously harm our business and reputation. If Google Cloud experiences
interruptions in service regularly or for a prolonged basis, or other similar issues, our business would be seriously harmed. Hosting
costs will also increase as our user base and user engagement grows and may seriously harm our business if we are unable to grow
our revenues faster than the cost of utilizing the services of Google or similar providers.
In addition, Google may take actions beyond our control that could seriously harm our business, including:
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discontinuing or limiting our access to its Google Cloud platform;
increasing pricing terms;
terminating or seeking to terminate our contractual relationship altogether;
establishing more favorable relationships with one or more of our competitors; or
modifying or interpreting its terms of service or other policies in a manner that impacts our ability to run our business
and operations.
Google has broad discretion to change and interpret its terms of service and other policies with respect to us, and those
actions may be unfavorable to us. Google may also alter how we are able to process data on the Google Cloud platform. If Google
makes changes or interpretations that are unfavorable to us, our business would be seriously harmed.
Any failure to maintain a stable and efficient distribution and payment network could have a material and adverse
impact on our digital entertainment service business, financial condition and results of operations.
Our digital entertainment service business operation relies heavily on a multi-layer distribution and payment network
composed of third-party distributors for our sales to, and collection of payment from, our users. As we do not enter into long-term
agreements with any of our distributors, we cannot assure you that we will continue to maintain favorable relationships with them.
If we fail to maintain a stable and efficient distribution and payment network, our business, financial condition and results of
operations could be materially and adversely affected.
In addition, our ability to process electronic commerce transactions depends on bank processing and credit card systems. In
order to prepare for certain types of system problems, we have a formal disaster recovery plan. Nevertheless, any system failure,
including network, software or hardware failure, which causes a delay or interruption in our e-commerce services could have a
material adverse effect on our business, revenues, results of operations and financial condition.
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Risks Related to Intellectual Property
We may be subject to claims of intellectual property right infringement by third parties, which could subject us to
significant liabilities and other costs.
Our success depends largely on our ability to use and develop our technology and know-how without infringing upon the
intellectual property rights of third parties. There has been substantial litigation in the various segments of the technology, PC
application and mobile application markets, including with respect to the online content, electronics, and related industries
regarding intellectual property rights. From time to time, third parties may claim infringement by us of their intellectual property
rights. Our broad range of application of current technology and technology under development increases the likelihood that third
parties may claim infringement by us of their intellectual property rights. The validity and scope of claims relating to the
intellectual property may involve complex scientific, legal and factual questions and analysis, and tend to be uncertain. If third
parties assert copyright or patent infringement or violation of other intellectual property rights against us, we will have to defend
ourselves in legal or administrative proceedings, which can be costly and time consuming and may significantly divert the efforts
and resources of our technical and management personnel. An adverse determination in any such proceedings to which we may
become a party could subject us to significant liability to third parties, require us to seek licenses from third parties, or prevent us
from selling our products and services. The imposition of liabilities that are not covered by insurance, in excess of insurance
coverage or for which we are not indemnified by a content provider, could have a material adverse effect on our business, results
of operations and financial condition.
Certain technologies necessary for us to provide our services may, in fact, be patented by other parties either now or in the
future. If such technology were held under patent by another person, we would have to negotiate a license for the use of that
certain technology. We may not be able to negotiate such a license at a price that is acceptable. The existence of such patents, or
our inability to negotiate a license for any such technology on acceptable terms, could force us to cease using such technology and
offering products and services incorporating such technology. If we were found to be infringing on the intellectual property rights
of any third party in lawsuits or other claims and proceedings that may be asserted against us in the future, we could be subject to
liabilities for such infringement, which could be material. We could also be required to refrain from using, manufacturing or
selling certain products or using certain processes, either of which could have a material adverse effect on our business and
operating results. From time to time, we may receive in the future, notices of claims of infringement, misappropriation or misuse
of other parties’ proprietary rights. We cannot assure you that we will always prevail in these discussions and actions or that other
actions alleging infringement by us of third-party patents will not be asserted or prosecuted against us. Furthermore, lawsuits like
these may require significant time and expense to defend, may divert management’s attention away from other aspects of our
operations and, upon resolution, may have an adverse effect on our business, results of operations, financial condition and cash
flows.
We may need to incur significant expenses to protect our intellectual property rights, and if we are unable to
adequately protect our intellectual property rights, our competitive position could be harmed.
We regard our copyrights, service marks, trademarks, trade secrets, patents and other intellectual property as critical to our
success. We rely on a combination of copyright and trademark laws, trade secret protection, confidentiality and non-disclosure
agreements, and other contractual provisions to protect our proprietary software, trade secrets and similar intellectual property. We
have patents, copyrights and trademarks in certain jurisdictions and may apply for further trademark and copyright registrations
and additional patents, which may provide such protection in relevant jurisdictions. However, we cannot assure you that our
efforts will prove to be sufficient or that third parties will not infringe upon or misappropriate our proprietary rights. Unauthorized
use of the intellectual property, whether owned by or licensed to us, could adversely affect our business and reputation.
The validity, enforceability and scope of protection of intellectual property in Internet-related industries are evolving, and
therefore, uncertain. In particular, the laws and enforcement procedures of Taiwan and Hong Kong are uncertain or do not protect
intellectual property rights to the same extent as the laws and enforcement procedures of the United States do. We may have to
engage in litigation or other legal proceedings to enforce and protect our intellectual property rights, which could result in
substantial costs and diversion of our resources, and have a material adverse effect on our business, financial condition and results
of operations.
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Our future results of operations or the growth of our business may suffer if the licensors of our digital entertainment
services fall short of providing us sufficient and continual support for the operation of licensed games.
While we are focused on strengthening our ability to develop our own casual games, we have historically sourced, and may
in the future source, casual games, advanced casual games and other forms of digital entertainment services through licensing
from developers in various regions where digital entertainment development is relatively established. We depend on our licensors
to provide the necessary technical support for the operation of the licensed games as well as expansion packs and upgrades that
sustain continuing interest in the games. The licensors’ ability and willingness to continually provide us sufficient support is very
critical. Therefore, apart from the ability of our licensors’ continual development of the licensed games, we also need to maintain
stable and satisfactory working relationships with our licensors in order to ensure the steady operation of our licensed games and
our continued access to upgrades and new content of the games. Our ability to maintain satisfactory working relationships with
our licensors may also influence our access to license new products developed by the same or other licensors. If our licensors fall
short of providing us sufficient and continual support for the operation of licensed games, or if we are unable to maintain
satisfactory relationships with our licensors, our financial condition, results of operations, future profitability and growth prospects
may be materially and adversely affected.
Risks Related to Cybersecurity and Technology Infrastructure
Our digital entertainment service business depends on the reliability of the network infrastructure and related
services provided by ourselves and third parties, which is subject to physical, technological, security and other risks. We
could suffer a loss of revenue and increased costs, exposure to significant liability, reputational harm and other serious
negative consequences if we sustain damages, cyber-attacks or other data security breaches that disrupt our operations or
result in the dissemination of proprietary or confidential information about us or our customers or other third parties.
The development and operation of our online networks are subject to physical, technological, security and other risks which
may result in interruption in service or reduced capacity. These risks include physical damage, power loss, telecommunications
failure, capacity limitation, hardware or software failures or defects and breaches of physical and cybersecurity by computer
viruses, system break-ins or otherwise. An increase in the volume of usage of online services could strain the capacity of the
software and hardware employed to prevent and identify such failures, breaches and attacks, which could result in slower response
time or system failures. In particular, our industry has witnessed an increase in the number, intensity and sophistication of
cybersecurity incidents caused by hackers and other malicious actors such as foreign governments, criminals, hacktivists, terrorists
and insider threats. Hackers and other malicious actors may be able to penetrate our network security and misappropriate or
compromise our confidential, sensitive, personal or proprietary information, or that of third parties, and engage in the
unauthorized use or dissemination of such information. They may be able to create system disruptions, or cause shutdowns.
Hackers and other malicious actors may be able to develop and deploy viruses, worms, ransomware and other malicious software
programs that attack our products or otherwise exploit any security vulnerabilities of our systems. In addition, sophisticated
hardware and operating system software and applications that we procure from third parties may contain defects in design or
manufacture, including “bugs,” cybersecurity vulnerabilities and other problems that could unexpectedly interfere with the
operation or security of our systems.
We have a variety of backup servers at our primary site to deal with possible system failures. However, we do not have
redundant facilities in the event of an emergency. The occurrence of any of these events could result in interruptions, delays or
cessation in service to users of our online services, which could have a material adverse effect on our business and results of
operations. We may be required to expend significant capital or other resources to protect against the threat of security breaches
and attacks or to alleviate problems caused by such actions, including the following:
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expenses to rectify the consequences of the damage, security breach or cyber attack;
liability for stolen assets or leaked information;
costs of repairing damage to our systems;
lost revenue and income resulting from any system downtime caused by such breach or attack;
loss of competitive advantage if our proprietary information is obtained by competitors as a result of such breach or
attack;
increased costs of cyber security protection;
costs of incentives we may be required to offer to our customers or business partners to retain their business; and
damage to our reputation.
In addition, any compromise of security from a security breach or cyber attack could deter customers or business partners
from entering into transactions that involve providing confidential information to us. As a result, any compromise to the security
of our systems could have a material adverse effect on our business, reputation, financial condition, and operating results.
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Our network may be vulnerable to unauthorized access, computer viruses, denial of service and other disruptive problems.
For example, in recent years, we have detected and mitigated incidents of denial-of-service attacks against network providers that
affected latency of connections to our games. Such incidents, however, did not result in significant financial impact on our
operations and financial results. We have experienced in the past, and may experience in the future, security breaches or attacks.
There can be no assurance that any measures implemented will not be circumvented in the future.
The audit committee of the board of directors oversees our cyber risk management and periodically reviews summaries of
recent cybersecurity incidents, if any, and updates on the execution of our risk management program, as prepared by our
management team. If a material cybersecurity incident were to occur, our board of directors would be responsible for making a
prompt assessment of our countermeasures and mitigation actions. See Item 16K, “Cybersecurity” in this annual report.
Our business is also vulnerable to delays or interruptions due to our reliance on infrastructure and related services provided
by third parties. End-users of our offerings depend on Internet Service Providers (“ISPs”) and our system infrastructure for access
to the Internet games and services we offer. Some of these services have experienced service outages in the past and could
experience service outages, delays and other difficulties due to system failures, stability or interruption. For example, prior
earthquakes in Taiwan, Indonesia and Japan have caused damage to undersea fiber optic cables linking Malaysia, Singapore,
Australia, Japan, South Korea, China, the United States and Europe, causing disruptions in Internet traffic worldwide. We may
lose customers as a result of delays or interruption in service, including delays or interruptions relating to high volumes of traffic
or technological problems, which may prevent communication over the Internet and could materially adversely affect our
business, revenues, results of operations and financial condition.
We could be liable for breaches of security on our web site, fraudulent activities of our users, or the failure of third-
party vendors to deliver credit card transaction processing services.
A fundamental requirement for operating our Internet-based, international communications service and electronic billing of
our customers is the secure transmission of confidential information and media (such as customers’ credit card numbers and
expiration dates, personal information and billing addresses) over public networks. Although we have developed systems and
processes that are designed to protect consumer information and prevent fraudulent credit card transactions and other security
breaches and are not aware of any breaches of security on our websites having occurred, failure to mitigate such fraud or breaches
may expose us to litigation and possible liability for failing to secure confidential customer information and could harm our
reputation and ability to attract and retain customers, consequently adversely affect our operating results. The laws relating to the
liability of providers of online payment services are currently unsettled and certain jurisdictions may enact their own rules with
which we may not comply. We rely on third-party providers to process and guarantee payments made by our subscribers up to
certain limits, and we may be unable to prevent our customers from fraudulently receiving goods and services. Our risk of liability
will increase if a larger portion of our transactions involve fraudulent or disputed credit card transactions. Any costs we incur as a
result of fraudulent or disputed transactions could harm our business. In addition, the functionality of our current billing system
relies on certain third-party vendors delivering services. If these vendors are unable or unwilling to provide services, we will not
be able to charge for our services in a timely or scalable fashion, which could significantly decrease our revenue and have a
material adverse effect on our business, financial condition and operating results.
We may experience losses due to subscriber fraud and theft of service.
Subscribers may obtain access to our service without paying for service by unlawfully using our authorization codes or by
submitting fraudulent credit card information. To date, no material losses from unauthorized credit card transactions and theft of
service have occurred. We have implemented anti-fraud procedures in order to control losses relating to these practices, but these
procedures may not be adequate to effectively limit all of our exposure in the future from fraud. If our procedures are not
effective, consumer fraud and theft of service could significantly decrease our revenue and have a material adverse effect on our
business, financial condition and operating results.
Risks Related to Legal and Regulatory Compliance
We may face litigation risks and regulatory disputes in the course of our business.
In the ordinary course of our business, claims and disputes involving business partners, customers, regulatory authorities
and other parties may be brought against us and by us in connection with our business. Claims may be brought against us for
alleged defective or incomplete work, breaches of contractual obligations, infringement of intellectual property or otherwise. Such
claims can involve actual damages and liquidated damages and could be expensive to defend, even if we believe that they are
without merit. If found to be liable, we would have to incur a charge against earnings to the extent a reserve had not been
established for the matter in our accounts, or to the extent the claims were not sufficiently covered by our insurance. The defense
of such claims and any adverse ruling against us could have an adverse impact on our business, financial condition and results of
operations.
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On January 15, 2018, Ennoconn Corporation (“Ennoconn”) filed a complaint against one of our subsidiaries, GigaMedia
Cloud Services Co., Ltd. (“GigaMedia Cloud”), in the Taiwan Taipei District Court. The complaint alleged that GigaMedia Cloud
is obligated to pay Ennoconn NTD 79,477,648 (approximately $2,697,471) in connection with a transaction to purchase
taximeters in 2015. GigaMedia Cloud filed an answer to the complaint denying Ennoconn’s allegations for a lack of factual and
legal basis on March 1, 2018. On November 15, 2018, the Taiwan Taipei District Court determined that all of Ennoconn’s claims
were without merit and made a judgment denying the complaint. On January 3, 2019, Ennoconn filed an appeal demanding the
judgment entered by the District Court be reversed and amended. The civil court of the second instance, the Taiwan High Court,
ruled on January 8, 2020, that the decision of the Taiwan Taipei District Court should be partially modified and Ennoconn is
entitled to NTD 27,084,180 (approximately $882,077). GigaMedia Cloud filed another appeal with the Taiwan Supreme Court on
February 4, 2020. On May 5, 2021, the Taiwan Supreme Court revoked the previous ruling of the Taiwan High Court, and sent
the case back to the Taiwan High Court for a retrial. Under the Taiwan Supreme Court’s ruling, the appeal made by Ennoconn
should be reviewed by the Taiwan High Court by following the instructions of the Taiwan Supreme Court. On May 18, 2022, the
Taiwan High Court found such appeal meritless and made a civil judgment denying the complaint by Ennoconn. On June 15,
2022, Ennoconn filed an appeal and demanded that the Taiwan Supreme Court reverse this civil judgment and remand the case to
the Taiwan High Court. On February 22, 2023 the Taiwan Supreme Court revoked the previous ruling of the Taiwan High Court,
and sent the case back to the Taiwan High Court for a retrial. On October 30, 2023, the Taiwan High Court ruled such appeal
meritorious and Ennoconn has the right to claim compensation from GigaMedia Cloud. On November 16, 2023, GigaMedia
Cloud filed an appeal against the Taiwan High Court’s decision, and the appeal has been transferred to Taiwan Supreme Court on
January 2, 2024. On April 17, 2024, the Taiwan Supreme Court, in a written notice, denied GigaMedia’s appeal.
Our transactions with related parties may not benefit us and may harm our Company.
We have entered into several transactions with certain related parties in the past. We believe that we have conducted our
related-party transactions on an arm’s-length basis and on terms comparable to, or more favorable to us than, similar transactions
we would enter into with independent third parties. However, we cannot assure you that all our future transactions with related
parties will be beneficial to us. See Item 7, “Major Shareholders and Related Party Transactions” in this annual report.
Risks Related to Geopolitical and Macroeconomic Factors
Our results of operations and financial condition may be affected by political instability as well as the occurrence of
natural disasters and epidemics.
We operate our digital entertainment business in Taiwan, Hong Kong and Macau. Political unrest, war, acts of terrorism and
other instability, as well as natural disasters such as earthquakes and typhoons, which are common in Taiwan, can result in
disruption to our business. For example, the 2019 civil unrest in Hong Kong caused a few days of disruption to our Hong Kong
operations. Our business also could be adversely affected by the effects of regional or global epidemics or pandemics, as has
occurred with respect to influenza A virus subtypes, such as H1N1 and H5N1, SARS, and COVID-19. Any prolonged recurrence
of such adverse public health developments in the regions where we operate may have material adverse effects on our business
operations. These could include illness and loss of our management and key employees, or reduced productivity in an emergency
remote working plan due to part or all of our personnel being under voluntary or compulsory home quarantine requirements.
Natural disasters or outbreak of epidemics may result in a decrease in economic activities or temporary closure of many
businesses and disruption in our operations. In addition, other major natural disasters may also adversely affect our business by,
for example, causing disruptions of the Internet network or otherwise affecting access to our services.
There are economic risks associated with doing business in Taiwan, particularly due to the tense relationship
between Taiwan and the PRC.
Our principal executive office and a significant portion of our assets are located in Taiwan and a major portion of our
revenues of digital entertainment service business are derived from our operations in Taiwan. Taiwan, as part of the Republic of
China, has a unique international political status. The PRC asserts sovereignty over mainland China and Taiwan and does not
recognize the legitimacy of the Taiwan government. Concerns regarding relations between Taiwan and the PRC and the United
States and the PRC and other factors affecting the political or economic conditions of Taiwan could adversely affect our business
and results of operations, including as a result of foreign investors withdrawing regional investments, limitations to our ability to
access the capital markets, and other regional or global economic effects.
Game players’ spending on our games may be adversely affected by slower growth in the Greater China economy
and adverse conditions in the global economy.
We rely for our revenues on the spending of our game players, which in turn depends on the players’ level of disposable
income, perceived future earnings capabilities and willingness to spend. Economic slowdowns in Greater China, especially
Taiwan or Hong Kong, could in turn result in a reduction in spending by our game players.
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In addition, the global economy has experienced significant instability and there has been volatility in global financial and
credit markets in recent years. It is unclear how long such instability and volatility will continue, and how much adverse impact
such instability and volatility or any such downturn might have on the economies of Greater China and other jurisdictions where
we operate our games. Any such instability, volatility or adverse impact in Greater China or in overseas markets could cause our
game players to reduce their spending on our games and reduce our revenues.
Fluctuations in the exchange rates between the U.S. dollar and other currencies in which we conduct our business
could adversely affect our profitability.
The operations of our digital entertainment service business are conducted in NT dollars and Hong Kong dollars.
Accordingly, fluctuations in the exchange rates could have a positive or negative effect on our reported results. Generally, an
appreciation of NT dollars or Hong Kong dollars against U.S. dollars results in a foreign exchange loss for monetary assets
denominated in U.S. dollars, and a foreign exchange gain for monetary liabilities denominated in U.S. dollars. On the contrary, a
devaluation of NT dollars, or Hong Kong dollars against U.S. dollars results in a foreign exchange gain for monetary assets
denominated in U.S. dollars, and a foreign exchange loss for monetary liabilities denominated in U.S. dollars. Given the
constantly changing currency exposures and the substantial volatility of currency exchange rates, we cannot predict the effect of
exchange rate fluctuations upon future operating results. There can be no assurance that we will not experience currency losses in
the future, which could have a material adverse effect on our business, revenues, results of operations and financial condition.
Risks Related to Ownership of our Shares
Our Shares are listed on The Nasdaq Capital Market and if we fail to meet the standards for continued listing of our
Shares on Nasdaq, the Shares could be delisted from The Nasdaq Capital Market.
Our Shares are listed on The Nasdaq Capital Market. The Nasdaq Capital Market has several quantitative and qualitative
requirements companies must comply with to maintain listing, including a US$1.00 minimum bid price per share. If a company
trades for 30 consecutive business days below the US$1.00 minimum bid price requirement, Nasdaq will commence delisting
proceedings if compliance is not regained within a 180-day compliance period.
In the past we have failed to satisfy the US$1.00 minimum bid price requirement at times. Although we were able to regain
compliance with this requirement, there can be no assurance that we will maintain compliance and continue to meet all of the
requirements for continued Nasdaq listing. If we fail to comply again in the future, our Shares could still be delisted from Nasdaq,
which could have a material adverse effect on our stock prices and our standing with current and future investors.
The price of our Shares has been volatile historically and may continue to be volatile, which may make it difficult for
holders to resell our Shares when desired or at attractive prices.
The trading price of our Shares has been and may continue to be subject to wide fluctuations. In 2023, the closing prices of
our Shares on The Nasdaq Capital Market ranged from US$1.20 to US$1.57 per share, and the closing price on April 11, 2024
was US$1.2955. Our Share price may fluctuate in response to a number of events and factors. In addition, the financial markets in
general, and the market prices for Internet-related companies in particular, have experienced extreme volatility that often has been
unrelated to the operating performance of such companies. These broad market and industry fluctuations may adversely affect the
price of our Shares, regardless of our operating performance.
A substantial percentage of our outstanding Shares are beneficially owned by Mr. John-Lee Andre Koo, who
accordingly has considerable influence to the outcome of any corporate transaction or other matters submitted to our
shareholders for approval, and his interests may differ from yours.
As of March 31, 2024, Mr. John-Lee Andre Koo beneficially owned 19.54% of our outstanding Shares. Accordingly, he has
considerable influence over the outcome of any corporate transaction or other matters submitted to our shareholders for approval,
including but not limited to mergers, consolidations, and the power to prevent or cause a change in control. The interests of Mr.
Koo may differ from your interests.
The ability of our subsidiaries in Taiwan to distribute dividends to us may be subject to restrictions under the laws of
Taiwan.
We are a holding company, and some of our assets constitute our ownership interests in our subsidiaries in Taiwan,
including Hoshin GigaMedia, which owns the Taiwan-based operations of our digital entertainment service business.
Accordingly, part of our primary internal source of funds to meet our cash needs is our share of the dividends, if any, paid by our
subsidiaries, including those in Taiwan. The distribution of dividends to us from these subsidiaries in Taiwan is subject to
restrictions imposed by the applicable corporate and tax regulations in these countries, which are more fully described in Item 5,
“Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Dividends from Our Subsidiaries” in this
annual report. In addition, although there are currently no foreign exchange control regulations which restrict the ability of our
subsidiaries in Taiwan to distribute dividends to us, the relevant regulations may be changed and the ability of these subsidiaries
to distribute dividends to us may be restricted in the future.
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We are a Singapore company, and because the rights of shareholders under Singapore law differ from those under
U.S. law, you may have difficulty in protecting your shareholder rights or enforcing any judgment obtained in the U.S.
against us or our affiliates.
Our Company is incorporated under the laws of the Republic of Singapore. Our corporate affairs are governed by our
memorandum and articles of association (collectively, our “Constitution”) and by the applicable laws governing corporations
incorporated in Singapore. The rights of our shareholders and the responsibilities of members of our board of directors under
Singapore law are different from those applicable to a corporation incorporated in the United States and, therefore, our
shareholders may have more difficulty protecting their interests in connection with actions against us or our affiliates, including
our management or members of our board of directors, than they would as shareholders of a corporation incorporated in the
United States.
Many of our directors and senior management reside outside the United States. As a result, it may be difficult for investors
to effect service of process within the United States upon us or any of these persons or to enforce in the United States any
judgment obtained in the U.S. courts against us or any of these persons, including judgments based upon the civil liability
provisions of the U.S. federal securities laws or any state or territory of the United States. Judgments of the U.S. courts based
upon the civil liability provisions of the U.S. federal securities laws may not be enforceable in Singapore courts, and it is unclear
whether Singapore courts will enter judgments in original actions brought in Singapore courts based solely upon the civil liability
provisions of the U.S. federal securities laws.
Anti-takeover provisions under the Singapore Securities and Futures Act 2001 and the Singapore Code on Take-
overs and Mergers may delay, deter or prevent a future takeover or change of control of our Company, which could
adversely affect the price of our Shares.
The Singapore Code on Take-overs and Mergers (the “Code”), issued pursuant to Section 321 of the Singapore Securities
and Futures Act 2001 regulates the acquisition of ordinary shares of, inter alia, listed public companies and contains certain
provisions that may delay, deter or prevent a future takeover or change of control of our Company. Any person acquiring an
interest, either on his own or together with parties acting in concert with him, in 30% or more of the voting shares in our Company
must, except with the prior consent of the Singapore Securities Industry Council (the “SIC”), extend a takeover offer for the
remaining voting shares in our Company in accordance with the provisions of the Code. Likewise, any person holding between
30% and 50% of the voting shares in our Company, either on his own or together with parties acting in concert with him, must,
except with the prior consent of the SIC, make a takeover offer in accordance with the provisions of the Code if that person
together with parties acting in concert with him acquires additional voting shares in excess of one percent of the total number of
voting shares in any six-month period.
Under the Code, an offeror must treat all shareholders of the same class in an offeree company equally. A fundamental
requirement is that shareholders in the company subject to the takeover offer must be given sufficient information, advice and
time to consider and decide on the offer.
These provisions contained in the Code may discourage or prevent transactions that involve an actual or threatened change
of control of our Company. This may harm you because an acquisition bid may allow you to sell your Shares at a price above the
prevailing market price.
Our shareholders may be subject to Singapore taxes.
Singapore tax law may differ from the tax laws of other jurisdictions, including the United States. Gains from the sale of our
Shares by a person not tax resident in Singapore may be taxable in Singapore if such gains are part of the profits of any business
carried on in Singapore. For additional information, see Item 10, “Additional Information—E. Taxation—Singapore Tax
Consideration” in this annual report. You should consult your tax advisors concerning the overall tax consequences of acquiring,
owning or selling the Shares.
We may be deemed to be an investment company under the United States Investment Company Act of 1940, which
could have a significant negative impact on our results of operations.
We may be deemed to be an investment company under the United States Investment Company Act of 1940 (the “1940
Act”), and may suffer adverse consequences as a result. Generally, the 1940 Act provides that a company is an investment
company if the company (i) is, holds itself out as or proposes to be engaged primarily in the business of investing, reinvesting or
trading in securities or (ii) is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in
securities and owns or proposes to acquire “investment securities” having a value exceeding 40% of the value of its total assets
(exclusive of U.S. government securities or cash items) on an unconsolidated basis. Under the 1940 Act, investment securities
include, among other things, securities of non-majority owned businesses. However, a company that is primarily engaged, directly
or through wholly owned subsidiaries, in a business or businesses other than that of investing, reinvesting, owning, holding or
trading in securities is not an investment company.
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In the past, we disposed of our online gambling business and made several significant investments in online game
developers and operators. As a result of these transactions, we have a significant amount of cash and securities. Consequently,
there is a risk that we could be deemed to be an investment company because our investment securities may be deemed to
comprise more than 40% of our total assets (exclusive of U.S. government securities or cash items) on an unconsolidated basis
pending investment of disposal proceeds into our businesses.
However, based on our historical and current business activities, our intentions, the manner in which we hold ourselves out
to the public, the primary activities of our officers and directors and an analysis of our non-cash assets and income during 2023,
the first quarter of 2024 and in prior periods, we believe that we are not an investment company. Nevertheless, a part of the
determination of whether we are an investment company is based upon the composition and value of our non-cash assets, a
significant portion of which presently comprise our strategic investments. As a result, we could be deemed to be an investment
company.
We intend to continue to conduct our businesses and operations so as to avoid being required to register as an investment
company. We have sought opportunities to deploy our capital in a manner which would result in the Company acquiring majority
interests in entities or businesses that complement or enhance our remaining businesses or would otherwise assist the Company in
achieving our current corporate objectives. We have also limited, and intend to continue to limit, new strategic investments to
those opportunities which would present excellent opportunities to complement or enhance our remaining businesses or would
otherwise assist the Company in achieving our current corporate objectives. If, nevertheless, we were to be required to register as
an investment company, because we are a foreign company, the 1940 Act would prohibit us and any person deemed to be an
underwriter of our securities from offering for sale, selling or delivering after sale, in connection with a public offering, any
security issued by the Company in the United States. Additionally, we may be unable to continue operating as we currently do and
might need to acquire or sell assets that we would not otherwise acquire or sell in order to avoid being treated as an “investment
company” as defined under the 1940 Act. We may incur significant costs and management time in this regard, which could have a
significant negative impact on our results of operations.
We may be classified as a passive foreign investment company for U.S. federal income tax purposes. As a result, you
may be subject to materially adverse tax consequences with respect to Shares.
In light of our significant cash balances and portfolio of investment securities, we believe that it is likely that we were
classified as a passive foreign investment company, or PFIC, for the taxable year ended December 31, 2023, and we will likely be
a PFIC for our current taxable year ending December 31, 2024, unless our share value increases substantially and/or we invest a
substantial amount of the cash and other passive assets we hold in assets that produce or are held for the production of non-passive
income. In addition, it is possible that one or more of our subsidiaries may be or become classified as a PFIC for U.S. federal
income tax purposes. We generally will be classified as a PFIC for any taxable year in which 75% or more of our gross income
consists of certain types of “passive” income or 50% or more of the average quarterly value of our assets (as generally determined
on the basis of fair market value) during such year produce or are held for the production of passive income. For this purpose,
cash and other assets readily convertible into cash are generally classified as passive and goodwill and other unbooked intangibles
associated with active business activities may generally be classified as non-passive.
If we were to be classified as a PFIC in any taxable year during which a U.S. person (as defined in “E. Taxation—U.S. Tax
Considerations—Passive Foreign Investment Company”) holds our Shares, such U.S. person may incur significantly increased
United States income tax on gain recognized on the sale or other disposition of the Shares and on the receipt of distributions on
the Shares to the extent such gain or distribution is treated as an “excess distribution” under the U.S. federal income tax rules.
Furthermore, a U.S. person will generally be treated as holding an equity interest in a PFIC in the first taxable year of the U.S.
person’s holding period in which we become a PFIC and subsequent taxable years (“PFIC-Tainted Shares”) even if we cease to be
a PFIC in subsequent taxable years. Accordingly, a U.S. person, who acquires our Shares during the current taxable year or
subsequent taxable years, should, to the extent an election is available, consider making a “mark-to-market” election in the first
taxable year of such holder’s holding period to avoid owning PFIC-Tainted Shares. For more information, see the section entitled
“E. Taxation—U.S. Tax Considerations—Passive Foreign Investment Company”.
ITEM 4.
INFORMATION ON THE COMPANY
A. History and Development of Our Company
Our business was founded as Hoshin GigaMedia in Taiwan in October 1998. For the purpose of a public equity offering,
GigaMedia Limited was incorporated in Singapore in September 1999 as a company limited by shares. We acquired a 99.99%
equity interest in Hoshin GigaMedia in November 1999 and the remaining 0.01% in October 2002. In more recent years, we have
established additional subsidiaries inside and outside Taiwan to conduct parts of our operations. Please see Item 4.C,
“Organizational Structure” for our organizational chart.
In February 2000, we completed the initial public offering of our Shares. Our Shares are traded on The Nasdaq Capital
Market of The Nasdaq Stock Market under the symbol GIGM.
In January 2006, we acquired FunTown, a digital entertainment business operated in Taiwan and Hong Kong.
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Our Singapore company registration number is 199905474H. Our principal executive office is located at 8F, No. 22, Lane
407, Section 2, Tiding Boulevard, Taipei 114-740, Taiwan R.O.C., and our telephone number is 886-2-2656-8000. Our agent in
the U.S. is Computershare Limited and its office address is 480 Washington Blvd., Jersey City, New Jersey.
The SEC maintains an Internet site that contains reports and other information we filed electronically with the SEC. The
address of the SEC’s website is http:// www.sec.gov. Our website address is: http://www.gigamedia.com. Information contained
on our website is not incorporated herein by reference and does not constitute part of this annual report.
B.
Business Overview
We are a diversified provider of digital entertainment services in Taiwan, Hong Kong and Macau. We do not utilize
variable-interest entities in our operations.
We currently operate in the digital entertainment services, where we own 100% of and operate FunTown, a leading digital
entertainment portal in Taiwan and Hong Kong. FunTown is focused on the high-growth mobile and browser-based casual games
market in Asia.
Digital Entertainment Service Business
Overview
Our digital entertainment service business, FunTown, has a strong track record of developing and monetizing PC-based
casual games in Asia. FunTown also had one of the largest online social gaming platforms in Taiwan by revenue and still
maintains strong brand awareness, which we now leverage as we restructure our business and extend our offerings to mobile and
browser-based games in select areas and geographies.
We also publish and operate PC- and mobile-based games under licensing agreements, predominantly in the territories of
Taiwan, Hong Kong and Macau. Our understanding of local markets enables us to introduce foreign niche products by
concentrating marketing efforts on a specific and well-defined segment of the population.
Most of our digital entertainment products are operated or expected to be operated under the item-billing revenue model,
which we refer to as the Item-Billing model. Under the Item-Billing model, users are able to access the basic functions of a casual
online game for free. Players may choose to purchase in-game value-added services as well as in-game virtual items and premium
features to enhance the game experience. This allows players to utilize more functions, improve performance and skills, and
personalize the appearance of a game character. Game points are consumed as users purchase value-added services and in-game
items.
To complement our offerings and strengthen their appeal, we are focusing on building community-based online platforms
that cater to different social networking needs of our users and provide various channels to facilitate communications among them.
We intend to continue to grow and enhance our market position in the digital entertainment industry by increasing focus on
mobile and browser-based entertainment services. We expect to drive growth both organically and through accretive transactions.
Our Digital Entertainment Products
MahJong and Other Casual Games
MahJong is a traditional and highly popular Chinese tile-based game that is widely played in Taiwan, Hong Kong, the PRC,
Japan, South Korea and other regions throughout Asia. Similar to poker, MahJong involves skill, strategy and calculation, as well
as a certain degree of chance.
Through our FunTown-branded platform, we develop and offer various local versions of MahJong for players in Asia,
particularly in Taiwan and Hong Kong. To play our online MahJong games, players install software that can be downloaded free
of charge from our game websites. Players can compete with anyone on the FunTown network. Our MahJong games are designed
for players of all levels of skill and experience. To accommodate various needs of players, we offer different online MahJong
rooms based on skill levels or stakes. We believe our online MahJong game site is one of the most popular online MahJong
networks in Taiwan.
Players may play our online MahJong free of charge. While a player may win virtual currency in the game without paying,
an average player typically has to pay to continue playing on a regular basis or to establish a track record inside our online
MahJong community. Players may choose to purchase game points through various distribution channels, such as convenience
stores, payment processing terminals or online/mobile payment channels. Players may exchange purchased game points for virtual
currency and deposit into their virtual bank accounts. The virtual currency may be used to play MahJong and other games on the
FunTown game site or to purchase in-game virtual items, but cannot be redeemed for cash.
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Our PC-based MahJong offering has faced strong competition in recent years from the growth of mobile and browser-based
online games, driven by the popularity of social networks and high mobile device usage in our markets. We responded by
launching our MahJong game application which uses a web or browser-based technology with no download required. This
simplified user sign-in procedures and enabled tighter integration with social networking platforms by allowing users to log into
our game directly via their accounts at a given social networking platform.
We also offer various other casual card and table games through our FunTown-branded platform. These online games are
Internet-based and developed through computer simulation and adaptation of non-computer games, which are traditionally played
offline. The FunTown platform targets players in different regions, particularly Taiwan and Hong Kong.
Our offerings include many different online card games which are popular in various regions in Asia. Players can select
their desired table based on the level of skill or stakes. These games are designed with online multiplayer features that allow
players to compete against one another. We also offer chance-based games, including bingo, lotto, horse racing, Sic-Bo, slots and
other simple casual games.
Like online MahJong, players may play our other casual games for free. They may choose to purchase virtual currency to
play on a continuous and regular basis. Virtual currencies may be used to play all games on the FunTown game site or to purchase
virtual items, but cannot be redeemed for cash.
Our revenues generated from MahJong and other casual games were approximately US$1.1 million in 2023, decreased from
US$1.3 million in 2022 and US$1.5 million in 2021.
Role-Playing and Sports Games
In Taiwan and Hong Kong, we offer through our FunTown platform online games of various sub-genres besides MahJong
and other card or table games.
In June 2006, we launched the PC-based online sports game Tales Runner. Tales Runner is a PC-based multiplayer obstacle
running game in which players compete by running, jumping, dashing and using items. With its fairy-tale style and constantly
changing running tracks, Tales Runner has been a popular game in Hong Kong.
Our revenues generated from Tales Runner were approximately US$2.7 million in 2023, decreased from US$3.4 million in
2022, but higher than US$2.4 million in 2021. The falling back in revenues was mainly due to the lift of travel and social
restrictions that had been imposed during the COVID-19 pandemic, and the resultant effect that fewer people spent as much time
online than previously.
Traditionally, for our PC-based online games, players download and install client software from our websites. Our online
games are offered free-of-charge to all players. Players may purchase virtual items that enhance their characters’ performance and
game playing experience, or personalize their characters.
We have launched eleven mobile role-playing online games in past years. In particular, Yume100, which was launched at
the end of September 2015, outperformed other mobile role-playing games. Yume100 is a story-based game that primarily targets
female players in the age range of 15 to 35 years old. In the game, which has certain romantic elements, players assume game
characters and complete challenges. As of December 31, 2023, the accumulated sales revenues of Yume100 since its launch were
approximately US$12.8 million. Leveraging the operating experience of Yume100, in mid-December 2017, we launched Akaseka,
a similarly female-oriented game. Furthermore, we launched Shinobi Master New Link, a male-oriented game, in April 2019.
For our mobile games, players usually download the game software, or “app”, from third-party digital distribution
platforms, such as “Google Play” or the “Apple App Store.” Like our PC-based games, while our mobile games are offered free-
of-charge, players may purchase virtual items to progress more quickly in the game, to enhance their characters’ performance and
game playing experience, or to personalize their characters.
Sources of Our Offerings
In-house development of Casual Games and other offerings
We develop the casual games offered on our FunTown game platform, including online MahJong, card games, and other
simple casual games. Our in-house development enables us to have better control of the game features and allow for seamless
integration onto our FunTown platform. In order to support product development capabilities and develop our proprietary digital
entertainment offerings, we intend to expand our browser/mobile-based development capabilities.
We made a direct investment of more than $0.7 million during 2023 in developing our own offerings.
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Sources of Role-playing and Sports Games
Historically, we have sourced role-playing and sports games through licensing from developers in various regions where
game development is well established. As part of our long-term planning, we monitor markets in the United States, South Korea,
the PRC, Japan, Southeast Asia and Europe, and maintain communications with a number of leading game development studios to
identify and source new online games.
The cost of licensing games from developers generally consists of an upfront licensing fee, which we typically pay in
several installments, and ongoing licensing fees, or royalties, which are equal to a percentage of revenues generated from
operation of the game.
In preparing for the commercial launch of each new game, we cooperate with the game developer to localize the game to
make it suitable for the target markets where we plan to launch. Once the developer completes the localization and provides the
first-built version, we conduct closed beta testing of the game with a select group of users. During the test period, we identify and
eliminate any technical problems, assess how likely users will be to play the game regularly over a period of time (referred to as
user “stickiness”), and modify and add certain game features in order to increase user stickiness.
Following the commercial launch of a game, we regularly implement improvements and upgrades to our games.
FunTown Platform and Services
Our FunTown platform provides many digital entertainment services for users to enhance their playing and entertainment
experiences, facilitate information communication among them and support the development of a strong player community. These
services include:
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Player Clubs. FunTown offers online club services in its game community. FunTown players can also form their own
clubs, invite other players with similar interests or skill levels to join, and organize online and offline events for club
members. Player clubs complement the strong social features of online games by helping to maintain an online game
community.
Tournaments. FunTown provides various tournaments for its online MahJong players. After players join a club, they
can participate in biweekly online inter-club tournaments.
Avatars. To enhance players’ overall entertainment experience, FunTown offers many in-game virtual items which
may be purchased by players to customize their online personal graphic profiles, or avatars. Players use avatars to
create their own unique look while participating in the online community. The virtual items for avatars include facial
expressions, clothes and different accessories. These items are particularly popular with younger players, who
customize their avatars to establish unique identities and pursue distinct fashions in the online community.
Friends and Family Messenger and Online Chatting System. The FunTown platform has a unique function designed
for players’ personal contacts, which is similar to the contact list of instant message programs. This enables players to
see when their friends and family members are online and invite people in their personal network to play games
together.
Customer Services. FunTown provides support and services to its customers primarily through walk-in customer
service centers in Taipei and Hong Kong, via e-mail and through an in-game report system where players can inquire
and receive responses from FunTown.
Mobile Platforms. FunTown now provides a mobile platform for casual games, which works on both Google’s
Android and Apple’s iOS operating systems and allows data synchronization between the two systems.
Customer Platform. FunTown now provides a customer platform called Dream Village, which began as a community
space constructed for players of our female-oriented games. Now it not only runs an online shop for game-related
virtual goods and character merchandise, but is also capable of intermediating as a payment gateway for third-party
online and offline retailers.
Our Marketing
Our marketing strategy is to capitalize on our established brand names and utilize our diverse distribution networks to retain
our existing users and attract new users. We use various qualitative and quantitative market research methods to analyze our target
market and differentiate our product offerings from those of our competitors. We are engaged in a variety of traditional and online
marketing programs and promotional activities, including the following:
In-Game Events and Online Marketing
We organize in-game events for our users, which we believe encourages the development of online communication and
teamwork among our users and increases user interest in our games. Examples of in-game events include scheduled challenges or
competitions for prizes. In addition, we use in-game events to introduce and market new features of our games to our current
users.
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We advertise our brands and our digital entertainment products across a variety of online media, including traditional online
advertisements like YouTube, Google and Meta. We also collaborate with new media channels, including micro-blogging services
provided with websites and search engine services.
Offline Promotions and Advertisements
We advertise our brand names and our digital entertainment products across a variety of offline platforms, including
television and outdoor advertisements. From time to time we distribute game-related posters, promotional prepaid virtual points
for new users and souvenirs at trade shows and other locations. We conduct events at popular venues to stage exhibitions,
distribute software and game content-related merchandise, and interact directly with our users. For our role-playing games, we
also collaborate with book shops, coffee shops and similar businesses to host fan meetings, where we provide immersive customer
experience to promote and strengthen customers’ emotional connections with our role-playing games.
Our Distribution and Payment Channels
We sell game points for our digital entertainment services through various channels. Our distribution and payment channels
are described below.
Internet-Based Distribution Channels
Internet-based distribution channels consist of various websites, including the official website of FunTown. Users may
purchase game points through these websites with their credit cards or computer-based payment processing terminals.
We also use third-party digital distribution platforms, such as “Google Play” or the “Apple App Store,” to provide our
mobile game apps to users of various types of mobile devices.
Telecommunication Network Operators
We also distribute game points through cooperation with telecommunication network operators and their service providers.
Our cooperating operators and service providers charge fees to the purchasers’ phone bills, which are prepared and collected by
the network operators.
Payment Aggregators
We also work with established payment aggregators. These payment aggregators allow users to pay for a variety of products
and services, such as mobile phone calls and game points of different game operators, using their pre-paid scratch cards, vouchers
or codes printed on receipts.
Offline Physical Distribution Channels
Physical distribution channels mainly consist of convenience chain stores, where users may use interactive kiosk machines
to purchase pre-paid game points with varying amounts.
Our Operation Architecture
We have a scalable and modular operation architecture that enables us to support and expand our digital entertainment
offerings. The architecture consists of several key subsystems, including game services, a central user database, billing and
payment, online customer service, game telemetry and monitoring. FunTown has its own unified user account system, which
allows players to use a single account to access all FunTown games. Our billing and game management system supports various
billing models and deposit options, and accommodate in-house developed games and licensed games. Our customer service
system enables us to assist our players inside and outside the games. Our game telemetry and monitoring system allows us to track
our concurrent online users in real time and effectively identify and fix technical problems in our server network.
Technology Infrastructure
Due to the real-time interaction among thousands of users, the stable operation of our online games requires a significant
number of servers and a significant amount of connectivity bandwidth. We have developed an extensive technology infrastructure
that supports the operation of our online games. We seek to adapt our infrastructure promptly in response to changing
circumstances.
Our Customers
In Taiwan and Hong Kong, as of December 31, 2023, we had an aggregate of approximately 9.1 million unique registered
customers of our digital entertainment services, most of which were located in Taiwan. During the year ended December 31, 2023,
we recorded approximately 33,000 active paying users, with monthly average revenue per paying user ("ARPPU") ranging from
approximately $40 to $100 for different services.
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Competition
Our primary competitors in the digital entertainment business are online game operators based in Taiwan and Hong Kong.
Our major competitors in Taiwan include Soft-World, IGS, UserJoy and GodGame.
In addition, we compete for users against various offline entertainment products, such as console games, arcade games and
handheld games, as well as various other forms of traditional or online entertainment.
We expect more digital entertainment companies to enter into the markets where we operate, and a wider range of digital
entertainment products to be introduced to the market given the relatively low entry barriers to entry in the industry. Our
competitors vary in size and include private and public companies, many of which have greater financial, marketing and technical
resources as well as name recognition. We intend to continue to enhance our market position through providing competitive
products and quality services that meet market trends and users’ preferences, as well as strengthening sales effectiveness.
Seasonality
Our business experiences seasonality in the form of slower sales of FunTown’s digital entertainment business in the second
and fourth quarters. In recent years, our first and third quarters have been our strongest revenue periods due to the Chinese New
Year holidays, students’ winter and summer vacations, as well as anniversary promotion campaigns in the third quarter for one of
our popular games.
Regulation
Our business is subject to various laws and regulations in the jurisdictions we operate relating to the digital entertainment
industry, and is regulated by various government authorities.
Regulations Relating to Digital Entertainment
Taiwan
At present, there is no specific law in Taiwan governing digital entertainment services, nor are there any specific licensing
requirements imposed on Internet content providers in connection with offering online game services.
The Protection of Children and Youths Welfare and Rights Act
The rating of internet content is governed by Article 46 of the Protection of Children and Youths Welfare and Rights Act,
which requires that all internet platform providers adopt their own rules implementing “clear and practicable” protection measures
in accordance with the internet content supervisory institutions engaged by the National Communications Commission (the
“NCC”) and other relevant authorities to prevent youth and children from having access to harmful internet content. An internet
platform provider is required to restrict children and youths from having access to internet content upon the relevant authority’s
notification that such internet content may be harmful or that such internet platform provider failed to implement “clear and
practicable” protection measures.
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Computer Software Ratings
In July 2006, the Ministry of Economic Affairs announced the Computer Software Ratings pursuant to the Protection of
Children and Youths Welfare and Rights Act, which took effect in January 2007. These regulations were amended on May 29,
2012 and renamed the Game Software Rating Management Regulations, and were last amended on May 23, 2019. Matters related
to game software rating have been changed to the jurisdiction of the Ministry of Digital Development after August 27, 2022, they
are originally under the jurisdiction of the Ministry of Economic Affairs. The definition of “game software” and the rating system
have been significantly modified in the 2012 amendment. Game software means software that integrates digitalized text, sound,
visual effects, music, pictures, images or animation, which allows users to achieve certain goals of the game by operation of
electronic equipment such as computer, hand-held or wearable reality devices, but excluding software installed upon the
“electronic game arcade” as defined in the Electronic Game Arcade Business Regulation Act. Manufacturers, distributors, agents,
sellers, rental service operators, disseminators, exhibitors and download providers are responsible for the administration of ratings.
There are five ratings: (i) Restricted (allowed for ages 18 and above); (ii) Parental Guidance 15 (allowed for ages 15 and above);
(iii) Parental Guidance 12 (allowed for ages 12 and above); (iv) Parent Protection (allowed for ages 6 and above); and (v) General
Audience (suitable for all ages). According to the 2012 amendment, game software that uses virtual currency to play simulated
MahJong, poker, dice, steel ball, horse racing, roulette, slot machine and other games of similar nature, and the outcome of the
games may result in increase or decrease of the virtual currency, must be rated as Parental Protection. If the contents of such game
software meet the requirements under the rating criteria for Restricted, Parental Guidance 15 or Parental Guidance 12, such games
must be rated accordingly. Furthermore, according to the 2018 amendment, games adopting chess or puzzle as the main content
must be provided with warning statements showing that it may not be used for gambling or the engagement of any violation of
laws and regulations or other similar conducts. In addition, according to the 2019 amendment, “card and intelligence-beneficial
entertainment games” differ from the “chess games.” However, games shall be rated “PG 15” (age of 15 or above), if virtual game
tokens are used and increase or decrease when performing the games. If that is not the situation, the games shall be rated “PG 12”
(age of 12 or above). The rating must be indicated on the product package or next to the user’s guide, downloaded page,
homepage or link for the game. If the purchase of game points (cards), virtual game currencies or virtual treasures are used as
payment methods, the content and amount of payment, content or services that require additional payment, or other similar
warnings shall be also provided.
Online Game Regulations and Standard Contract Template
The Ministry of Economic Affairs and the Consumer Protection Commission, pursuant to the Consumer Protection Act,
announced the Regulations Mandatory and Prohibitory Provisions of Standard Contracts to Be Used for the Online Game
Services, and also published a standard contract template that sets out permitted terms and limitations with respect to online game
services offered in Taiwan. The regulations and the standard contract template were last amended in August 2022. Generally,
consumers should be given at least three days to review such contract. Amendments or changes to fees payable for services
offered must be publicly announced at least thirty days prior to such amendment and notification of such amendment was
provided to consumers. For lucky draw events in which consumers pay for opportunities to obtain goods or activities, the online
game operator is required to provide full disclosure of complete information, including by clarifying the content of lucky draw
events and potential awards. Furthermore, since January 1, 2023, in order to ensure that consumers can correctly identify and
monitor their own consumption, the online game operator must clearly specify the "probability" of the consumer obtaining the
goods or activities. When a consumer’s ID and/or password has been compromised, the online game operator must provide
assistance and information to him or her. Consumer game records must be maintained by each online game operator for a
minimum period of thirty days and shall be open to inspection by such consumers. Suspension periods for consumers who have
breached the terms of their online game contracts may not exceed seven days. The termination date of online game operation must
be publicly announced at least thirty days prior to such date, and notification must be provided to consumers. The online game
operator cannot limit the use period of purchasing the game points in the online game contract. Furthermore, the online game
operator cannot specify in the online game contract that it has the right to interpret the contract terms and conditions. Under the
Consumer Protection Act, an online game operator using the online game contract that violates the above mandatory or
prohibitory provisions and fails to take corrective actions ordered within the time limit prescribed by the competent authorities
shall be punished by an administrative fine of NT$30,000 to NT$300,000, unless the law provides otherwise. Moreover, if an
online game operator fails to take corrective actions within the time limit prescribed by the competent authorities, it shall be
punished for each violation by an administrative fine of NT$50,000 to NT$500,000.
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Personal Data Protection Act
On April 27, 2010, the Legislative Yuan passed a bill to amend the Computer-processed Personal Data Protection Act,
which was renamed as the Personal Data Protection Act. The Personal Data Protection Act was last amended on May 31, 2023.
Personal data includes the name, date of birth, I.D. card number, passport number, characteristics, fingerprints, marital status,
family, education, occupation, medical record, medical treatment, genetic information, sexual life, health examination, criminal
record, contact information, financial conditions, social activities and other information that may be used to identify a natural
person, both directly and indirectly. Whenever an entity collects personal data from any individual, it shall inform such individual
about (i) the name and identity of the collecting entity; (ii) the purpose of collection; (iii) how the collected personal data will be
used; (iv) his/her rights; and (v) the consequences of his/her failure to provide the required personal data. If personal data is not
provided by individuals, in addition to the information required to be disclosed as described above, the collecting entity shall
inform such individual of the source of the data before processing or using the data. Prior consent from the individual is required
for use of his/her personal data. These requirements shall be exempted if relevant personal data of the individual (i) is used for
public interests; or (ii) is available from the public domain and the interest to be protected is more important than the privacy of
such individual. Depending on the gravity of a violation, damages of NT$500 to NT$20,000 may be claimed against a person for
each violation of the Personal Data Protection Act even if the actual damage cannot be proved. If there is more than one victim in
a single violation, the maximum damages would be up to NT$200,000,000. However, if the interests involved therein exceed
NT$200,000,000, restrictions on maximum amount for damages to be claimed and on minimum amount for damages to be
claimed (NT$500 per person for each violation) shall not apply.
The Ministry of Digital Development, the central government authorities in charge of the digital and economic industry,
pursuant to the Article 27 of the Personal Data Protection Act, announced the Security and Maintenance Plan for the Protection of
Personal Data Files for Digital and Economic Industry on October 12, 2023. The purpose of the regulation is to ensure that non-
government agencies in possession of personal data files shall implement proper security measures to prevent the personal data
from being stolen, altered, damaged, destroyed or disclosed.
Hong Kong
Personal Data (Privacy) Ordinance
The Personal Data (Privacy) Ordinance (Cap. 486) came into effect in Hong Kong on December 20, 1996. A significant
amendment to this Ordinance took effect on October 1, 2012, and the latest amendment was on October 8, 2021. The Hong Kong
government has set up the Office of the Privacy Commissioner, which is an independent statutory body to oversee the
enforcement of the Ordinance. The objective of the Personal Data (Privacy) Ordinance is to protect the privacy rights of a person
in relation to personal data (Data Subject). Everyone who is responsible for handling data (Data User) should follow the Six Data
Protection Principles ("DPPs"), including: (i) Data Collection Principle; (ii) Accuracy & Retention Principle; (iii) Data Use
Principle; (iv) Data Security Principle; (v) Openness Principle; and (vi) Data Access & Correction Principle. Non-compliance
with DPPs does not itself constitute a criminal offence. However, the Commissioner may serve an Enforcement Notice to direct
the data user to remedy the contravention and/or instigate a prosecution action. Contravention of an enforcement notice is an
offense that could result in a maximum fine of HK$50,000 and imprisonment for two years. Moreover, the Ordinance also
criminalizes misuse or inappropriate use of personal data in direct marketing activities (Part VI A), non-compliance with Data
Access Request (section 19), or unauthorized disclosure of personal data obtained without data user's consent (section 64). An
individual who suffers damage, by reason of a contravention of the Ordinance in relation to his or her personal data may seek
compensation from the data user concerned. Following the passing of the Personal Data (Privacy) (Amendment) Bill 2021 (the
Amendment Bill) on September 29, 2021, the amended provisions of the Personal Data (Privacy) Ordinance, which target doxxing
acts, take effect on October 8, 2021. Most significantly, the amendments introduce changes that create offences to curb doxxing
acts, empower the Privacy Commissioner to carry out criminal investigations and to institute prosecution, and confer on the
Privacy Commissioner statutory powers to demand the cessation of doxxing contents.
Dividends from Our Subsidiaries
Under Singapore tax regulations, foreign-sourced dividend income used for capital expenditures, including investments, and
repayment of borrowings, is not deemed as remitted to Singapore and is therefore not taxable.
Listing and Offering
Under Nasdaq Rule 5210(c), as amended (“Rule 5210(c)”), all securities listed on Nasdaq must be eligible for a direct
registration program, or DRS, operated by a registered clearing agency, unless the foreign private issuer is prohibited from
complying by a law or regulation in its home country.
Our Company is incorporated under the laws of the Republic of Singapore and is subject to the provisions of the Companies
Act 1967 of Singapore (the “Companies Act”). Under the Companies Act, Singapore-incorporated companies are required to issue
physical share certificates to registered shareholders as prima facie evidence of a registered shareholder’s title to the shares and
there are no exceptions to or exemptions from this requirement that would enable us to amend our constitutional documents to
allow for the issue of non-certificated shares. Therefore, we are not able to comply with the DRS eligibility provisions of Rule
5210(c).
21
However, as a foreign private issuer, we are allowed under Nasdaq listing rules to follow our home country practice in lieu
of the requirements set out in Rule 5210(c). We rely on this accommodation for foreign private issuers for an exemption from
compliance with the DRS eligibility requirements under Rule 5210(c). We have informed The Nasdaq Stock Market about our
election to comply with the laws of Singapore in lieu of the DRS eligibility provisions of Rule 5210(c).
C. Organizational Structure
We were incorporated in Singapore as a company limited by shares on September 13, 1999. As of the date of this annual
report, our principal operating subsidiaries include Hoshin GigaMedia and FunTown World Limited. Hoshin GigaMedia, our
wholly owned subsidiary incorporated in Taiwan, operates our digital entertainment service business in Taiwan. FunTown World
Limited, our wholly owned subsidiary incorporated in the British Virgin Islands, operates our digital entertainment service
business in Hong Kong and Macau. We do not utilize variable-interest entities in our operations.
The following organization chart and table set forth our business structure and selected information for each of our principal
subsidiaries as of the date of this annual report:
* Includes our operating subsidiaries or companies holding material investments or contracts only. All subsidiaries are 100%
owned.
22
Entity
Held by our Company
GigaMedia International Holdings Limited
GIGM Corporation
Held by GigaMedia International Holdings Limited
GigaMedia Online Entertainment Corp.
GigaMedia (HK) Limited
GigaMedia (Cayman) Limited
Held by GigaMedia Online Entertainment Corp.
FunTown World Limited
GigaMedia Freestyle Holdings Limited
Held by FunTown World Limited
FunTown Hong Kong Limited
Held by GigaMedia (Cayman) Limited
Hoshin GigaMedia Center Inc.
GigaMedia Development Corporation
GigaMedia Cloud Services Co. Ltd.
Place of
Incorporation
Relationship
British Virgin Islands
Cayman Islands
Wholly owned subsidiary
Wholly owned subsidiary
Cayman Islands
Hong Kong
Cayman Islands
Wholly owned subsidiary
Wholly owned subsidiary
Wholly owned subsidiary
British Virgin Islands
British Virgin Islands
Wholly owned subsidiary
Wholly owned subsidiary
Hong Kong
Wholly owned subsidiary
Taiwan
Taiwan
Taiwan
Wholly owned subsidiary
Wholly owned subsidiary
Wholly owned subsidiary
23
D.
Property, Plant and Equipment
As of April 6, 2024, we leased approximately 28,000 square feet as office premises as our corporate head office in Taipei,
Taiwan and approximately 4,000 square feet as office premises for FunTown’s office in Hong Kong.
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Unless stated otherwise, the discussion and analysis of our financial condition and results of operations in this section apply
to our consolidated financial statements as prepared in accordance with U.S. GAAP. You should read the following discussion of
our financial condition and results of operations together with the consolidated financial statements and the notes to these
statements included elsewhere in this annual report.
A. Operating Results
The following selected consolidated balance sheet data as of December 31, 2023 and 2022 and the selected consolidated
statement of operations data for the years ended December 31, 2023, 2022 and 2021 have been derived from our audited
consolidated financial statements included in Item 18 in this annual report. The selected consolidated balance sheet data as of
December 31, 2021, 2020 and 2019, and the selected consolidated statement of operations data for the years ended December 31,
2020 and 2019 have been derived from our audited consolidated financial statements for the years ended December 31, 2020 and
2019, which are not included in this annual report. The consolidated financial statements have been prepared and presented in
accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. You should read the
following selected consolidated financial data in conjunction with the consolidated financial statements and the accompanying
notes to those statements included in this annual report.
For the Years Ended December 31,
(in thousands US$, except for per share data)
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
OPERATING REVENUES
Digital entertainment service revenues
COSTS OF REVENUES
Cost of digital entertainment service revenues
GROSS PROFIT
OPERATING EXPENSES
Product development and engineering expenses
Selling and marketing expenses
General and administrative expenses
Impairment loss on property, plant, and equipment
Impairment loss on intangible assets
Impairment loss on prepaid licensing and royalty fees
Other
Total operating expense
Loss from operations
Income tax benefit
Net income (loss) attributable to shareholders of GigaMedia
Earnings (loss) per share (in dollars):
Basic and diluted
2023
2022
2021
2020
2019
$
4,292
$
5,585
$
5,492
$
6,875
$
6,645
(1,846)
2,446
(2,335)
3,250
(2,584)
2,908
(2,956)
3,919
(729)
(1,623)
(3,242)
—
—
—
(7)
(5,601)
(3,155)
—
(3,399) $
(1,110)
(1,644)
(3,515)
—
—
—
(2)
(6,271)
(3,021)
—
(2,752) $
(1,449)
(1,729)
(3,697)
—
—
—
(7)
(6,882)
(3,974)
—
(3,425) $
(1,327)
(1,618)
(3,121)
—
—
—
(5)
(6,071)
(2,152)
—
(1,293) $
(3,064)
3,581
(1,186)
(1,995)
(3,182)
(109)
(15)
(85)
(24)
(6,596)
(3,015)
—
(1,659)
(0.31) $
(0.25) $
(0.31) $
(0.12) $
(0.15)
$
$
There were no dividends declared in 2023, 2022, 2021, 2020 and 2019.
24
As of December 31,
(in thousands US$, except for number of issued shares)
CONSOLIDATED BALANCE SHEET DATA:
Total current assets
Investment in securities - noncurrent
Property, plant and equipment-net
Intangible assets-net
Total assets
Total current liabilities
Total GigaMedia’s shareholders’ equity
Ordinary shares, no par value, and additional paid-in
capital
2023
2022
2021
2020
2019
$
$
$
39,207
5,777
111
13
46,497
2,464
43,538
$
47,826
2,371
103
19
52,136
2,637
48,606
42,582
10,322
88
12
55,518
3,216
50,852
$
46,525
10,000
22
4
57,023
2,923
54,097
58,893
—
—
—
59,222
3,584
55,544
308,752
308,752
308,752
308,752
308,751
Number of issued shares (in thousands)
11,052
11,052
11,052
11,052
11,052
Overview
We are a diversified provider of digital entertainment services. Our only segment and principal business is our digital
entertainment service business, which operates a portfolio of digital entertainment products, primarily targeting digital
entertainment service users across Asia. We operate our digital entertainment business in Taiwan, Hong Kong and Macau through
FunTown.
In 2023, we had total operating revenues of approximately US$4.3 million, which represents a decrease of approximately
US$1.3 million year-over-year. Our total costs and expenses also decreased by approximately US$1.2 million year-over-year to
US$7.4 million, largely in line with the decrease of the revenues, and primarily due to our efforts in curbing growth of
expenditures in the current inflationary environment. We incurred an operating loss of approximately US$3.2 million, which
represents a slight increase of loss of approximately US$0.1 million year-over-year. We recognized a non-operating loss of
approximately US$0.2 million, compared to income of approximately US$0.3 million in the prior year, primarily because of the
loss on changes in the fair value of a financial instrument, partly offset by increase in interest income and less loss on foreign
exchange. We did not recognize any significant income tax benefits or expenses in 2023 or 2022. We recognized a net loss of
approximately US$3.4 million, which represents an increase of loss of US$0.6 million year-over-year, primarily resulting from the
aforementioned factors.
Online game operators in Taiwan and Hong Kong are currently our primary competitors. Given the low barriers to entry in
the digital entertainment industry and the increasing popularity of Internet-based businesses, there are a large number of potential
competitors scattered throughout many different segments of the software and Internet industries. In addition to the
aforementioned competitors, traditional entertainment service providers and other entities, many of which have significant
financial resources and brand name recognition, may provide digital entertainment services in the future, and thus become our
competitors.
Faced with our known competitors, and most likely additional new competitors that may be established in the near future,
we will continue to improve on the principal competitive factors that we believe can differentiate our product offerings from those
offered by our competitors, including: brand, technology, financial stability and resources, proven track record, independent
oversight and transparency of business practices in our industry.
Certain Significant Events Affecting Our Results of Operations for 2023, 2022 and 2021
Purchase, Partial Conversion and Partial Extension of Convertible Note of Aeolus Robotics Corporation
On August 31, 2020, we entered into a convertible note purchase agreement to purchase a US$10,000,000 principal amount
convertible promissory note (the “Note”) issued by Aeolus Robotics Corporation (“Aeolus”), a global company primarily engaged
in designing, manufacturing, processing and sales of intellectual robotics.
The Note, which bears interest at a rate of 2% per annum, was due on August 30, 2022 but was extendable to August 30,
2023 at Aeolus’s option, and all or a portion of the principal amount under the Note was convertible at our option upon maturity,
upon prepayment, or when certain events occur, into ordinary shares of Aeolus at a price of US$3.00 per share, or into preferred
shares in Aeolus’s nearest next round equity financing where Aeolus issues further preferred shares, at a price equal to the
purchase price offered in such financing or with certain discount.
Effective December 30, 2021, we received 735,835 shares of the Series B preferred shares issued by Aeolus by converting
20% of the US$10,000,000 principal amount of the Note. The conversion was exercised in accordance with the right under the
Note at the conversion price of US$2.718 per share.
25
On July 29, 2022, Aeolus notified GigaMedia that it had decided to exercise its right of extension under the Note to extend
the original August 30, 2022 maturity date to August 30, 2023.
On August 31, 2023, we and Aeolus entered into an agreement to amend the Note. The amendment extends the maturity
date of the Note after the partial repayment of US$1,000,000 and the payment of accrued interest on the unpaid principal amount
of the Note due through August 30, 2023 in the amount of US$480,000 are made by Aeolus and the outstanding principal amount
becomes US$7,000,000 due thereunder. The US$1,480,000 payment by Aeolus was made on September 6, 2023
Pursuant to the amendment to the Note, the remaining principal amount of US$7,000,000 due thereunder will bear interest
at a rate of 4% per annum, shall be due on February 28, 2025 (such date to be extended, at Aeolus’s option, to February 28, 2026),
and all or a portion of the principal amount due thereunder may be converted upon maturity, upon prepayment or upon the
occurrence of certain specified events, upon Aeolus’s next round of equity financing, or upon Aeolus’s initial public offering, at
the lower of US$1.25 per share or 80% of the applicable offering price.
On August 15, 2023, we entered into an agreement to purchase a convertible promissory note, with principal amount of
US$105,346, issued by Aeolus, and on March 15, 2024, we entered into an agreement to purchase a convertible promissory note,
with principal amount of US$63,208, issued by Aeolus. These notes bear interest at a rate of 4.5% per annum and are convertible
at US$0.1 per share, while other terms and conditions are similar to the original Note.
Results of Operations
Factors Affecting Our Performance
We believe that competition is the principal factor affecting our results of operations.
Our digital entertainment service business operates in an extremely competitive industry. Our digital entertainment service
business is characterized by rapid technological change and we face significant and intense competition from entertainment
software design houses, application service providers and casual games operators.
We cannot assure you that we will be successful in establishing and maintaining quality of player experience, brand
awareness, reputation and access to distribution channels more successfully than our competitors. We also may be unable to adapt
to technological developments before our competitors. As a consequence, we may lose our existing customers and not expand our
client base, which would have a material adverse effect on our revenues and financial condition.
The table below presents, for the years indicated, information regarding our revenues, costs and expenses for our
consolidated operations.
OPERATING REVENUES
Digital entertainment service revenues
COSTS OF REVENUES
Cost of digital entertainment service revenues
Gross profit
OPERATING EXPENSES
Product development and engineering expenses
Selling and marketing expenses
General and administrative expenses
Other
Total operating expenses
Loss from operations
NON-OPERATING INCOME (EXPENSES), NET
LOSS BEFORE INCOME TAXES
INCOME TAX BENEFIT
NET LOSS ATTRIBUTABLE TO
SHAREHOLDERS
OF GIGAMEDIA
2023
For the Year Ended December 31,
2022
2021
Amount
in US$
thousands
% of
total
revenues
Amount
in US$
thousands
% of
total
revenues
Amount
in US$
thousands
% of
total
revenues
$
4,292
100.0
$
5,585
100.0 $
5,492
100.0
(1,846)
2,446
(729)
(1,623)
(3,242)
(7)
(5,601)
(3,155)
(244)
(3,399)
—
(43.0)
57.0
(17.0)
(37.8)
(75.5)
(0.2)
(130.5)
(73.5)
(5.7)
(79.2)
0.0
(2,335)
3,250
(1,110)
(1,644)
(3,515)
(2)
(6,271)
(3,021)
269
(2,752)
—
(41.8)
58.2
(2,584)
2,908
(19.9)
(29.4)
(63.0)
0.0
(112.3)
(54.1)
4.8
(49.3)
0.0
(1,449)
(1,729)
(3,697)
(7)
(6,882)
(3,974)
549
(3,425)
—
(47.1)
52.9
(26.4)
(31.5)
(67.3)
0.0
(125.3)
(72.4)
10.0
(62.4)
0.0
$ (3,399)
(79.2) $ (2,752)
(49.3) $ (3,425)
(62.4)
The key items included in our consolidated statements of operations are:
OPERATING REVENUES. Our operating revenues consist of revenues from our digital entertainment service business.
Digital entertainment service revenues are related to our digital entertainment business in Asia and are collected through the sale
of virtual points, pre-paid cards and game packs, and through licensing fee revenues. Revenues are collected in accordance with
contracts and through monthly payment or in advance payments with discounts, and are recognized when (or as) we satisfy the
related performance obligation.
26
COSTS OF REVENUES. Costs of revenues consist primarily of digital entertainment service processing costs, licensing
and royalty fees, bandwidth costs, production costs for prepaid cards and game packs, amortization of intangible assets, cost of
products, customer service department costs, operational department costs, depreciation, maintenance and other overhead
expenses directly attributable to the provision of our digital entertainment services.
OPERATING EXPENSES. Operating expenses include product development and engineering expenses, selling and
marketing expenses, general and administrative expenses, bad debt expenses and impairment losses on long-lived assets and
prepaid licensing and royalty fees.
NON-OPERATING INCOME (EXPENSES), NET. Non-operating income and expenses include interest income and
expenses, gain or loss on sales and fair value changes of investment in securities, and foreign exchange gain or loss.
INCOME TAX EXPENSES (BENEFIT). Taxes include current income tax in various jurisdictions in which our
subsidiaries operate and deferred tax expenses related to temporary tax assets or liabilities that arise due to the timing differences
between book profits and taxable profits that originate in one period and are capable of reversal in one or more subsequent
periods. Taxes are measured using the tax rates and laws that have been enacted or subsequently enacted as of the date of the
financial statements.
27
Year to Year Comparisons
Please refer to the Item 5 in our previously filed Annual Report on Form 20-F for the year ended December 31, 2022 for the
comparisons of our results of operations in fiscal years 2022 and 2021.
After conducting a comprehensive strategic business review, we concluded that:
•
•
Compared to our in-house offerings, the operations of licensed games bear an uncompetitive cost structure where
licensing costs and channel costs usually take a huge bite out of earnings, leaving little room for any marketing
strategies.
The operations of licensed games are inherently dependent on the licensors and it is therefore difficult for us to take
the initiative in driving changes. As a result, these games are often slow in responding to a fad, a market trend or even
a permanent change in customers’ preference.
Accordingly, in recent years we have been implementing a strategy of optimizing our product portfolio by trimming off or
terminating products or services that were below requirements, and selectively introducing licensed games. At the same time, we
continued consolidating substantial resources for developing our own offerings, into which direct investment was US$0.7 million,
US$1.1 million and US$1.4 million during 2023, 2022 and 2021, respectively.
In prior years, we also invested further to enhance our customer relationship management system, which will contribute to
our operations in building up relationships, saving marketing costs, and creating capacity for providing augmented products and
services. The cultivation of a loyal customer base will eventually further boost customer value and create revenues and profits.
Operating Revenues and Gross Margin
For the Year Ended December 31,
2023
2022
Operating revenues
Cost of revenues
Gross profit
Gross margin
Operating Revenues
Amount
in US$
thousands
4,292
$
(1,846)
2,446
$
57.0%
% Change
from 2022
(23.2)% $
(20.9)%
(24.7)% $
Amount
in US$
thousands
5,585
(2,335)
3,250
% Change
from 2021
1.7% $
(9.6)%
11.8% $
2021
Amount
in US$
thousands
5,492
(2,584)
2,908
58.2%
52.9%
Our operating revenue in 2023 decreased by 23.2% from 2022. Revenues from mobile games declined to US$0.4 million in
2023 from US$0.8 million in 2022, while revenues from a certain licensed sports game decreased by US$0.7 million, or 20.6%, to
US$2.7 million in 2023 from US$3.4 million in 2022. While our monthly ARPPU remained constant in 2022 and 2023 in each
year ranging from approximately $40 to $100 for different services, the decrease was mainly due to the lift of travel and social
restrictions that had been imposed during the COVID-19 pandemic, and the resultant effect that fewer people spent as much time
online than previously. Revenues from our legacy MahJong and casino games were US$1.1 million in 2023, down from US$1.3
million in 2022.
Gross Margin
Our gross margin fluctuates with players paying through different channels, changes in price and product mix, cost
improvement, and exchange rate, among other factors. Furthermore, our gross margins are negatively impacted in the year when
upfront fees or initial costs are amortized for a newly introduced licensed game.
Our gross profit was US$2.4 million in 2023 as compared to US$3.3 million in 2022. Gross profit margin was 57.0 % in
2023, generally consistent with gross profit margin of 58.2% in 2022.
28
Operating Expenses
For the Year Ended December 31,
2023
2022
Product development and engineering expenses
Selling and marketing expenses
General and administrative expenses
Bad debt expense
Total operating expenses
Percentage of operating revenues
Loss from operations
Operating margin
Amount
in US$
thousands
$
(729)
(1,623)
(3,242)
(7)
$ (5,601)
(130.5)%
$ (3,155)
(73.5)%
% Change
from 2022
Amount
in US$
thousands
% Change
from 2021
2021
Amount
in US$
thousands
(34.3)% $ (1,110)
(1,644)
(1.3)%
(3,515)
(7.8)%
(2)
250.0%
(10.7)% $ (6,271)
(23.4)% $ (1,449)
(1,729)
(4.9)%
(4.9)%
(3,697)
(7)
(71.4)%
(8.9)% $ (6,882)
(112.3)%
(125.3)%
4.4% $ (3,021)
(24.0)% $ (3,974)
(54.1)%
(72.4)%
Operating expenses decreased by US$0.7 million, or 10.7%, to US$5.6 million in 2023.
In 2023, our efforts to curb expenditure growth in the current inflationary environment resulted in the decrease in overall
operating expenses, except for bad debts.
Product Development and Engineering Expenses
Our product development and engineering expenses amounted to US$0.7 million in 2023, which comprised mainly
personnel related expenses. This amount was reduced from the amounts in 2022 and 2021 as we streamlined the workforce of our
development team. With a slimmer team in place for 2024, we plan to continue our exploration of digital entertainment to further
develop our own products and services.
Selling and Marketing Expenses
Selling and marketing expenses were US$1.6 million in 2023, largely comparable to that in 2022. While prices and wage
rates increased, we scaled back to control the expenditures.
General and Administrative Expenses
General and administrative expenses amounted to US$3.2 million in 2023, slightly decreased from US$3.5 million in 2022,
primarily due to our efforts in reducing expenditures in the current inflationary environment.
29
Non-Operating Income and Expenses
For the Year Ended December 31,
2023
2022
Amount
in US$
thousands
% Change
from 2022
Amount
in US$
thousands
% Change
from 2021
2021
Amount
in US$
thousands
Interest income from financial institutions
Interest income on securities
Gain on sales or repayment of investment - debt securities
Foreign exchange gain (loss), net
Changes in the fair value of investment in equity
securities recognized at fair value
Other non-operating income (expenses), net
Non-operating income (expenses), net
$
$
1,609
202
76
(34)
(2,110)
13
(244)
187.8% $
27.0%
N/A
(96.4)%
(615.9)%
(84.3)%
(190.7)% $
559
159
—
(941)
409
83
269
507.6% $
(0.6)%
(100.0)%
(871.3)%
N/A
66.0%
(51.0)% $
92
160
125
122
—
50
549
Non-operating loss, net was US$0.2 million in 2023 as compared to income of US$0.3 million in 2022 and income of
US$0.5 million in 2021. Non-operating loss, net in 2023 primarily included (1) changes in the fair value of investments in the
preferred shares of Aeolus, (2) interest income of US$1.8 million generated from bank deposits and accrued from the convertible
note of Aeolus, (3) foreign exchange loss of US$34 thousand, and (4) realized foreign currency exchange gain of US$76 thousand
arising from the partial repayment of the convertible note of Aeolus. Non-operating income, net in 2022 primarily included (1)
interest income of US$718 thousand generated from bank deposits and accrued from the convertible note of Aeolus, (2) gain of
US$409 thousand on changes in the fair value of the preferred shares of Aeolus, and (3) foreign exchange loss of US$941
thousand. In 2023, 2022 and 2021, the foreign exchange gain or loss were mainly arising from inter-company accounts between
our wholly-owned entities using different functional currencies. While the balances of the inter-company accounts were fully
eliminated in the consolidation, the foreign exchange gain or loss resulted remained in our consolidated statements of operations.
Income Tax Benefit
Loss before income taxes
Income tax benefit
Net loss attributable to shareholders
of GigaMedia
For the Year Ended December 31,
2023
2022
% Change
from 2022
Amount
in US$
thousands
% Change
from 2021
2021
Amount
in US$
thousands
23.5% $
N/A
(2,752)
—
(19.6)% $
N/A
(3,425)
—
Amount
in US$
thousands
$
(3,399)
—
$
(3,399)
23.5% $
(2,752)
(19.6)% $
(3,425)
In 2023 and 2022, no significant income tax benefits or expenses were incurred in our operations in respective tax
jurisdictions, and full allowance was provided against all deferred tax assets.
B.
Liquidity and Capital Resources
Our principal source of liquidity in the year ended December 31, 2023, was our cash on hand. Our cash and cash equivalents
are held primarily in U.S. dollars and NT dollars. Our policy with respect to liquidity management is to maintain sufficient cash
and cash equivalents to fund operations and strategic transactions, while placing remaining funds in higher yield investment
instruments. While we have zero bank borrowing as of December 31, 2023 and 2022, we have established strong relationships
with financial institutions and expect to be able to secure lines of credit to fulfill operating and strategic needs.
Our future cash requirements will depend on a number of factors including:
•
•
•
•
•
•
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.
30
The following table set forth the summary of our cash flows for the years indicated:
(in US$ thousands)
Net cash used in operating activities
Net cash provided by (used in) investing activities
Net cash used in financing activities
Exchange difference
Net decrease in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of
year
Cash, cash equivalents and restricted cash at end of year
$
$
For the Year Ended December, 31
2022
2021
2023
(1,193) $
837
—
32
(324)
(2,509) $
(70)
—
(75)
(2,654)
(4,135)
(17)
—
(89)
(4,241)
39,107
38,783 $
41,761
39,107 $
46,002
41,761
OPERATING ACTIVITIES. In 2023, our net cash used in operating activities was approximately US$1.2 million. We
collected US$4.0 million in cash from our customers, paid US$1.3 million for license fees, royalties and channel costs, and paid
approximately US$5.9 million to employees, suppliers and vendors. In 2022, our net cash used in operating activities was
approximately US$2.5 million. We collected US$6.5 million in cash from our customers, paid US$2.6 million for license fees,
royalties and channel costs, and paid approximately US$6.3 million to employees, suppliers and vendors. In 2021, our net cash
used in operating activities was approximately US$4.1 million. We collected US$5.4 million in cash from our customers, paid
US$1.9 million for license fees, royalties and channel costs, and paid approximately US$7.8 million to employees, suppliers and
vendors.
INVESTING ACTIVITIES. Our net cash provided by investing activities in 2023 was US$837 thousand, which was
primarily from partial repayment of the convertible note of Aeolus. Our net cash used in investing activities in 2022 and 2021 was
US$70 thousand and US$17 thousand, respectively, primarily used for the purchase of property, plant and equipment.
FINANCING ACTIVITIES. Our net cash flow in financing activities in 2023, 2022 and 2021 was nil.
We believe that our existing cash, cash equivalents and restricted cash, and our ability to obtain short-term borrowings will
be sufficient to meet our capital expenditure, debt, and operating cash obligations through 2024. We believe our working capital is
sufficient for our present requirements. We continue to seek and review potential merger and acquisition opportunities on an
ongoing basis, which may be funded through cash on our balance sheet, proceeds from sales of investments, bank borrowings or
equity offerings. We do not believe that any potential merger or acquisition that we may be engaged in would alter our goal of
preserving sufficient cash, cash equivalents and restricted cash to fund future operations.
Obligations and Capital Expenditures
As of December 31, 2023, we had the following contractual obligations:
Operating leases
Royalty fees
Total contractual cash obligations
Within
1 year
$
$
486
—
486
$
$
As of December 31,2023
Payment Due by Period (in US$ thousands)
3-5
years
>5
years
1-3
years
499
—
499
$
$
— $
—
— $
— $
—
— $
Total
985
—
985
Operating leases represent obligations under lease agreements with respect to certain office premises that we rent for
operation.
In addition, we have contractual obligations under various license agreements to pay the licensors license fees and minimum
guarantees against future royalties. There were no committed license fees and minimum guarantees against future royalties set
forth in our significant license agreements as of December 31, 2023. For a specific licensed game, we are committed to paying an
incentive fee of $20 thousand to the licensor for every $600 thousand in additional revenues generated from the game during the
agreement period and extended period through January 2026. Since the revenues from particular games are uncertain, the table
above only reflects incentive fee commitments that have been triggered by crossing the relevant revenue thresholds.
We typically finance our capital expenditures through cash holdings. Our gross capital expenditures in continuing
operations for equipment, furniture and fixtures, intangible assets and other deferred assets were US$58 thousand, US$70
thousand and US$93 thousand for 2023, 2022 and 2021, respectively. Capital expenditures during 2023 were primarily for
software and computer hardware equipment for our digital entertainment business and for general corporate use. Our capital
expenditure plans for 2024, which we expect to be primarily in software and computer hardware equipment, will aim to support
our lean growth initiatives in our digital entertainment service business. We believe our working capital is sufficient for our 2024
needs but we may adjust the amount of our capital expenditures upward or downward based on cash flow from operations, the
progress of our expansion plans, and market conditions.
31
Dividends from Our Subsidiaries
Under Singapore tax regulations, foreign-sourced dividend income used for capital expenditures, including investments, and
repayment of borrowings, is not deemed as remitted to Singapore and is therefore not taxable.
In accordance with R.O.C. law, an appropriation for legal reserve amounting to 10% of a company’s net profit is required
until the reserve equals the aggregate par value of such Taiwan company’s issued capital stock. In 2023, Hoshin GigaMedia
resolved to use all the legal reserves to offset its deficit. As of December 31, 2023, 2022 and 2021, the legal reserves of Hoshin
GigaMedia were approximately US$0, US$1.5 million and US$1.5 million, respectively. The reserve can only be used to offset a
deficit or be distributed as a dividend of up to 50% of the reserve balance when the reserve balance has reached 50% of the
aggregate paid-in capital of Hoshin GigaMedia.
C.
Research, Development, Patents and Licenses, etc.
We make investments in research and development to keep pace and remain competitive with technology advancements and
product development relating to our digital entertainment service business. For the years 2023, 2022 and 2021, we incurred
US$0.7 million, US$1.1 million and US$1.4 million, respectively, in research and development activities.
D.
Trend Information
In the digital entertainment industry, the entire global business landscape is changing. Driven by the popularity of mobile
phones and tablets and social networks, games are rapidly moving from PC-based formats to browser and mobile platforms. This
in turn is causing changes in game content, as casual browser and mobile games require “light” content. In our markets, Taiwan
and Hong Kong, the strongest demand is for casual browser/mobile games.
We are in the process of extending our products and services from a PC-based platform to browser/mobile platforms. We
have a strong offering of casual games including Asian card-based games and MahJong and a good track record of developing and
monetizing them, especially in the types of games that are most popular – casino games, such as poker, slots and MahJong. We
are now leveraging that expertise to transition our game portfolio from social casino games designed for PC usage to other genres
of digital entertainment for casual leisure and mobile play.
Please see Item 3, “Key Information — D. Risk Factors” and Item 5, “Operating and Financial Review and Prospects — A.
Operating Results — Certain Significant Events Affecting Our Results of Operations for 2023, 2022 and 2021” for a discussion of
the most recent trends in our operating costs and revenues since the end of 2022. In addition, please refer to discussions included
in this Item for a discussion of known trends, uncertainties, demands, commitments or events that we believe are reasonable likely
to have a material effect on our net operating revenues, income from continuing operations, profitability or capital resources, or
that would cause reported financial information not necessarily to be indicative of future operating results or financial condition.
E.
Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations are derived from our consolidated financial
statements, which have been prepared in accordance with accounting principles generally accepted in the U.S., or U.S. GAAP.
The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities as of the date of
the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. For a
discussion of our Company’s significant accounting policies, please refer to note 1 of our consolidated financial statements.
Critical accounting estimates are defined as those reflective of significant judgments, estimates and uncertainties, which
may result in materially different results under different assumptions and conditions. While our estimates and assumptions are
based on our knowledge of current events and actions we may undertake in the future, actual results may ultimately differ from
these estimates and assumptions. We believe that the following are our critical accounting estimates:
•
•
Revenue Recognition and Deferral
Valuation of Investment in Securities
Revenue Recognition and Deferral
Our digital entertainment product and service revenues are mainly generated through sale of virtual points and in-game
items, and those virtual goods purchased in our games can only be consumed in our games. Therefore, we regard the sale of a
virtual good as a service, where the related performance obligation is satisfied over time, and revenues are recognized by
measuring progress toward satisfying the performance obligation in a manner that best depicts the transfer of goods or services to
the customer. Accordingly, we recognize revenues from the sale of virtual goods over the period of time using the output method,
which is generally the estimated service period.
32
The virtual goods for our games may have different service periods. We use the weighted average number of days of a
player’s payment interval as the estimate for the service period of each game. We evaluate the appropriateness of such estimates
quarterly to see if they are in line with our observations in the operations. We believe this provides a reasonable depiction of the
transfer of services to our customers, as it is the best representation of the time period during which our customers play our games.
Determining the estimated service period is subjective and requires management’s judgment. Future usage patterns may differ
from historical ones, and therefore the estimated service period may change in the future. The estimated service periods for
players of our current games are generally less than 6 months.
Deferred revenues representing contract liabilities consist mainly of the advanced income related to our digital
entertainment business. Deferred revenue represents proceeds received relating to the sale of virtual points and in-game items that
are activated or charged to the respective user account by users, but which have not been consumed by the users or expired.
Deferred revenue is credited to profit or loss when the virtual points and in-game items are consumed or have expired.
For deferred revenues, some users may not exercise all of their contractual rights, and those unexercised rights are referred
to as breakage. We estimate and recognize the breakage amount as revenue when the likelihood of the customer exercising the
remaining rights becomes remote. We consider a variety of data points when determining the estimated breakage amount,
including the time when we ceased selling prepaid products for certain services and when such prepaid products were last used in
charging users’ accounts.
We have not made any material changes in the accounting methodology used to estimate the service period of the virtual
goods and the breakage amount as of December 31, 2023 and 2022. We do not believe there is a reasonable likelihood there will
be a material change in the estimates or assumptions used to calculate the deferral and recognition of revenues. However, if actual
results are not consistent with our estimates and assumptions used to calculate the deferral and recognition of revenues, we may be
exposed to risks of inappropriately early or late recognition of the related revenues.
A hypothetical 10% increase in the estimated service period of the virtual goods would result in a decrease of earnings by
$3 thousand, $5 thousand and $4 thousand for 2023, 2022 and 2021, respectively, while a hypothetical 10% decrease would result
in an increase of earnings by approximately $6 thousand, $11 thousand and $10 thousand for 2023, 2022 and 2021, respectively.
Valuation of Investment in Securities
Our Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of
unobservable inputs to the extent possible. We determine fair value of investment in securities based on assumptions that market
participants would use in pricing an asset or a liability in the principal or most advantageous market. When considering market
participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and
unobservable inputs, which are categorized in one of the following levels:
•
•
•
Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting
entity at the measurement date.
Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either
directly or indirectly, for substantially the full term of the asset or liability.
Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable
inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or
liability at measurement date.
Our Company generally determines or calculates the fair value of financial instruments using quoted market prices in active
markets when such information is available; otherwise we apply appropriate present value or other valuation techniques, such as
the income approach, incorporating adjusted available market discount rate information and our Company’s estimates for non-
performance and liquidity risk, or the market approach, where we derive the implied value of financial instruments for the target
company from a recent transaction involving the target company’s own securities. These techniques rely extensively on the use of
a number of assumptions, including the discount rate, credit spreads, and estimates of future cash flows. Please see note 4 to our
consolidated financial statements for additional information.
We have not made any material changes in the accounting methodology used to evaluate investment in securities as of
December 31, 2023 and 2022. We do not believe there is a reasonable likelihood there will be a material change in the estimates
or assumptions used to evaluate fair values of the securities. However, if actual results are not consistent with our estimates and
assumptions used to calculate estimated future cash flows, we may be exposed to impairment losses that could be material.
Please see note 4 to our consolidated financial statements for additional information.
33
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.
Directors and Senior Management
The following table sets forth information with respect to our directors and executive officers as of the date of this annual
report:
Name
HUANG, James Cheng-
Ming
HUANG, John Ping Chang
Age
LIU, Nick Chia-En
HONG, Chin Fock
(Damian)
LIN, Wan-Wan
TSAI, Chih-Hong
Position
Chairman of the Board, Chief Executive Officer, Chief Financial
Officer and Director
Chairman of the Compensation Committee of the Board and
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Chairman of the Audit Committee of the Board and Independent
Non-Executive Director
Independent Non-Executive Director
69
72
62
76
61
69
Year Appointed to
Current Position
2017(1)
2012/2011(2)
2011(3)
2013(4)
2023(5)
2023(6)
(1)
(2)
(3)
(4)
(5)
(6)
Mr. James Cheng-Ming HUANG was appointed as Chairman of the Board, Chief Executive Officer and Chief Financial Officer of our Company on May
5, 2017.
Mr. John Ping Chang HUANG was appointed as an Independent Non-Executive Director of the Board on January 31, 2011. He was also appointed as
Chairman of the Compensation Committee on November 26, 2012.
Mr. Nick Chia-En LIU was appointed as an Independent Non-Executive Director of the Board on March 15, 2011. He was also appointed as a member of
the Audit Committee on March 15, 2011.
Mr. Damian HONG was appointed as an Independent Non-Executive Director of the Board on October 31, 2013.
Ms. Wan-Wan LIN was appointed as an Independent Non-Executive Director of the Board, as well as Chairman of the Audit Committee and a member of
the Compensation Committee on November 20, 2023.
Mr. Chih-Hong TSAI was appointed as an Independent Non-Executive Director of the Board and a member of the Audit Committee on November 20,
2023.
Biographical information with respect to each of our directors and executive officers is set forth below.
Directors
JAMES CHENG-MING HUANG is the Chairman of the Board of Directors, Chief Executive Officer and Chief Financial
Officer of our Company. He has more than 30 years of experience in finance, investment and direct marketing. Mr. Huang also
serves as Chairman of Grand Pacific Investment & Development Co., Ltd. and Sung Cheng Investment Co., Ltd. He holds a
Master’s degree of Science in Management from MIT Sloan School of Management, U.S.
JOHN PING CHANG HUANG is an independent non-executive director of our Company. Mr. Huang has more than 30
years of experience in hospitality management and investment. He is the consultant of Global Hospitality Group Inc. Mr. Huang
holds a Bachelor of Arts degree from Soochow University and a degree of EMBA Program at National Taiwan University in
Taiwan.
NICK CHIA-EN LIU is an independent non-executive director of our Company. He was the managing director in Taiwan
for a U.S. based game development company. Mr. Liu holds an MBA degree from the Stern School of Business at NYU and a
Bachelor’s degree from the University of Southern California.
CHIN FOCK (DAMIAN) HONG is an independent non-executive director of our Company. He has more than 38 years of
experience in taxation and tax law. Mr. Hong began his career with the Inland Revenue Authority of Singapore before joining
KPMG and working with the firm in various capacities, including post-retirement, for more than two decades. He was also a tax
consultant to the law firm Allen & Gledhill in Singapore for 12 years. Mr. Hong served as an independent director of Chailease
Holding Co Ltd. and Riverstone Holdings Ltd until his retirement in 2020. In the same year he had also stepped down from being
a director of Binjaitree. He is a non-executive director of Prima Limited. Mr. Hong lectured on a part-time basis at the Singapore
Management University. He earned a Bachelor’s degree in Social Science at the University of Singapore and attended an
international tax program at Harvard Law School.
WAN-WAN LIN is a Certified Public Accountant both in the U.S.A. and in R.O.C. She served as the CEO at the accounting
firm KPMG in Taiwan, and has been teaching in the Accounting Departments of several public and private universities such as
National Taiwan University, National Chengchi University, Tunghai University and Tamkang University. Her areas of expertise
are in IFRS accounting and internal controls structure for global companies, as well as full experience of assisting companies in
becoming public companies in R.O.C. and serving as a consultant for companies pursuing initial public offerings, or IPOs. She
34
had served many well-known listed companies and been involved with many diverse industries. She holds a degree of EMBA
Program at National Taiwan University, a Master degree in Accounting from University of Illinois at Urbana Champaign, and a
Bachelor degree in Accounting from National Taiwan University.
CHIH-HONG TSAI is currently an adjunct professor at the Department of Finance, School of Management, National
Taiwan University. He also serves as a director of SinoPac Leasing Corp. Mr. Tsai had served as the senior executive in a number
of well-known leasing companies. He specializes in risk control management and has tremendous management experiences. He
holds Ph.D. in Finances, College of Management at National Taiwan University, and a Master Degree of Science in Management
from MIT Sloan School of Management, U.S.
Board Diversity
The table below provides certain information regarding the diversity of our board of directors.
Board Diversity Matrix (As of April 20, 2024)
Country of Principal Executive Offices:
Foreign Private Issuer
Disclosure Prohibited under Home Country Law
Total Number of Directors
Taiwan
Yes
No
6
Part I: Gender Identity
Directors
Part II: Demographic Background
Underrepresented Individual in Home Country Jurisdiction
LGBTQ+
Did Not Disclose Demographic Background
Family Relationships
Female
Male
Non-
Binary
Did Not
Disclose
Gender
1
5
0
0
0
0
0
There are no family relationships among any of our executive officers or directors.
B.
Compensation
Compensation of Directors and Executive Officers
For the year ended December 31, 2023, the aggregate cash compensation paid by us to our directors and executive officers
was approximately US$0.5 million. For information regarding pension and retirement benefits, see note 12 to our consolidated
financial statements.
As of December 31, 2023, the total outstanding number of share options granted to our directors and officers was 8,000. As
of December 31 2023, the total number of restricted stock units granted to our directors and officers was zero.
The following table summarizes, as of March 31, 2024, the outstanding options granted under our employee share option
plans and equity incentive plans to our directors and executive officers as a group.
Date of Grant
May 5, 2017
Total
Ordinary
Shares
Underlying
Outstanding
Options
4,000
4,000
Exercise
Price
($/Share)
2.90
Date of Expiration
May 5, 2027
All options granted to our directors and executive officers were granted pursuant to the option plans and the equity incentive
plans as described under “— Employee Share Option Plans and Equity Incentive Plans” below.
35
Employee Share Option Plans and Equity Incentive Plans
2004 Employee Share Option Plan
At the June 2004 Annual General Meeting, our shareholders approved the GigaMedia Limited 2004 Employee Share Option
Plan (the “2004 Plan”) under which up to 7,000,000 ordinary shares (1,400,000 shares after the 2015 reverse share split) of our
Company were reserved for issuance. All employees, officers, directors, advisors and consultants of our Company are eligible to
participate in the 2004 Plan. The 2004 Plan is administered by a committee designated by the board of directors. The committee as
plan administrator has complete discretion to determine the exercise price for the option grants, to determine which eligible
individuals are to receive option grants, the time or times when options grants are to be made and the number of shares subject to
grant vesting schedule. The maximum contractual term under the 2004 Plan is 10 years. Options will be forfeited upon
termination of employment, unless the relevant award agreement extends the exercisability of the outstanding options.
2006 Equity Incentive Plan
At the June 2006 Annual General Meeting, our shareholders approved the GigaMedia Limited 2006 Equity Incentive Plan
(the “2006 Plan”) under which up to 1,000,000 ordinary shares (200,000 shares after the 2015 reverse share split) of our Company
were reserved for issuance. The 2006 Plan is administered by a committee designated by the board of directors. The committee as
plan administrator has complete discretion to determine the grant of awards under the 2006 Plan. The maximum contractual term
under the 2006 Plan is 10 years. Options will be forfeited upon termination of employment, unless the relevant award agreement
extends the exercisability of the outstanding options. In the event that the employee’s employment with or service to our Company
is terminated prior to the lapsing of restrictions with respect to any portion of the RSUs, such portion of the RSUs shall become
forfeited.
2007 Equity Incentive Plan
At the June 2007 Annual General Meeting, our shareholders approved the GigaMedia Limited 2007 Equity Incentive Plan
(the “2007 Plan”) under which up to 2,000,000 ordinary shares (400,000 shares after the 2015 reverse share split) of our Company
were reserved for issuance. The 2007 Plan is administered by a committee designated by the board of directors. The committee as
plan administrator has complete discretion to determine the grant of awards under the 2007 Plan. The maximum contractual term
under the 2007 Plan is 10 years. Options will be forfeited upon termination of employment, unless the relevant award agreement
extends the exercisability of the outstanding options. In the event that the employee’s employment with or service to our Company
is terminated prior to the lapsing of restrictions with respect to any portion of the RSUs, such portion of the RSUs shall become
forfeited.
Employment of Executive Officers
Officers are selected by and serve at the discretion of our board of directors. No executive officer is entitled to any
severance benefits upon termination of his or her employment with our Company.
Compensation recovery policy
In October 2022, the SEC adopted rules, pursuant to Rule 10D-1 under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), requiring national securities exchanges and national securities associations, such as Nasdaq, to amend their
relevant listing standards no later than November 28, 2023 to require listed companies to adopt a written compensation recovery
(clawback) policy providing for the recovery, in the event of a required accounting restatement, of incentive-based compensation
received by the Chief Executive Officer and certain other “executive officers” as defined in Rule 10D-1(d) under the Exchange
Act that is wholly or partially contingent on the attainment of financial performance criteria based on reported financial
information that has been determined to be erroneous and has required restatement of the financial statements for accounting
purposes. On October 30, 2023, our Board of Directors adopted a written compensation recovery policy, or the Compensation
Recovery Policy. That policy is now in force with respect to the Chief Executive Officer and other executive officers, subject to
compliance with applicable local laws and is included as Exhibit 97.1 to this report for the year ended December 31, 2023.
C.
Board Practices
Our board of directors currently comprises five male directors and one female director, including five independent non-
executive members. Each of our directors is elected by our Company’s shareholders or appointed by the directors pursuant to the
Constitution and hold office until such director’s successor is elected and duly qualified or until such director’s earlier death,
bankruptcy, insanity, resignation or removal. During fiscal 2023, our board of directors met five times, and all members of the
board of directors participated in the meetings of the board of directors. No director is entitled to any severance benefits on
termination of his or her service. Our board of directors currently has a standing audit committee and compensation committee.
Each of these standing committees operates under a written charter adopted by our board of directors. During fiscal 2023, our
directors attended all meetings held by each committee on which such director was a member.
36
Our audit committee currently consists of Wan-Wan LIN, Nick Chia-En LIU and Chih-Hong TSAI. The principal duties
and responsibilities of our audit committee include: (1) overseeing and reporting on various auditing and accounting matters to our
board of directors, including the selection of our independent accountants, the scope of our annual audits, fees to be paid to the
independent accountants, the performance of our independent accountants and our accounting practices; (2) overseeing and
reporting on various risk management matters (including in respect of cybersecurity) to our board of directors; (3) considering and
approving or disapproving all related-party transactions; (4) reviewing the financial statements and reports and discussing the
statements and reports with our independent registered public accounting firm and management; (5) reviewing and pre-approving
the engagement of our independent registered public accounting firm to perform audit services and any permissible non-audit
services; (6) evaluating the performance of our independent registered public accounting firm and deciding whether to retain their
services; and (7) establishing procedures for the receipt, retention and treatment of complaints received by us regarding financial
controls, accounting or auditing matters. In accordance with our Constitution and our audit committee charter, all of the members
of our audit committee must be persons who qualify as independent directors under the standards set forth in Nasdaq Rules
5605(c)(2)(A)(i) and (ii) and each of them is able to read and understand fundamental financial statements. During fiscal 2023, our
audit committee met five times.
Our compensation committee currently consists of John Ping Chang HUANG and Wan-Wan LIN. The principal duties and
responsibilities of our compensation committee include: (1) reviewing and approving the goals and objectives relevant to the chief
executive officer’s and other executive officers’ compensation; (2) evaluating the performance of the chief executive officer and
other executive officers in light of those goals and objectives; (3) making recommendations to the Board with respect to non-
employee director compensation; and (4) making recommendations to the Board with respect to incentive-compensation plans and
equity-based plans. In accordance with our compensation committee charter, all of the members of the compensation committee
are qualified independent directors under the standards set forth in Nasdaq Rules 5605(c)(2)(A)(i) and (ii). During fiscal 2023, our
compensation committee met two times.
We do not have a separate nominations committee of the board of directors. In accordance with Nasdaq Rule 5605(e),
director nominees are recommended for the board's selection by the independent directors constituting a majority of the board's
independent directors in a vote in which only independent directors participate.
D.
Employees
The following table sets out a breakdown of the number of our full-time employees by function as of December 31, 2023,
2022 and 2021, respectively:
Function
Development
Operation
Customer Service
Administrative Support
2023
December 31
2022
2021
27
33
13
23
96
27
37
13
24
101
41
41
16
25
123
The following table sets out, as of the dates indicated, a breakdown of the number of our full-time employees by geographic
location:
Location
Taipei City, Taiwan
Hong Kong
2023
December 31
2022
2021
83
13
96
87
14
101
108
15
123
37
E.
Share Ownership
Share Ownership of Directors and Executive Officers
The table below sets forth information as to our directors’ and executive officers’ share ownership in our Company as of
March 31, 2024:
Person
HUANG, James Cheng-Ming
HUANG, John Ping Chang
LIU, Nick Chia-En
LIN, Charlotte Wan-Wan.
TSAI, John Chih-Hong
HONG, Chin Fock
Directors and executive officers as a group of 6
individuals
Number
of
Common
Shares
1,073,566
—
—
—
—
—
1,073,566
Number of Shares Issuable
upon exercise of options
*
*
*
*
*
*
4,000
*
Less than 1%
F.
Disclosure of Action to Recover Erroneously Awarded Compensation
Not applicable. The full text of our compensation recovery policy is filed as Exhibit 97.1 to this annual report.
38
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
The following table sets forth information known to us with respect to the ownership of our shares as of March 31, 2024 by
each shareholder known by us to own more than 5% of our shares:
Name of Owner
John-Lee Andre Koo(1)
James Cheng-Ming Huang(2)
Collin Hwang(3)
Jonathan Honig(4)
Shares Owned
Percentage of
Shares Owned
2,159,999
1,073,566
696,435
1,105,145
19.54%
9.71%
6.30%
9.99%
(1)
(2)
(3)
(4)
Based on a Schedule 13G/A filed with the SEC on August 14, 2017, John-Lee Andre Koo has beneficial ownership of 2,159,999 shares of our Company.
James Cheng-Ming Huang has beneficial ownership of 1,073,566 ordinary shares of our Company as of March 31, 2024.
Based on the Schedule 13G filed with the SEC on June 19, 2017, Collin Hwang has beneficial ownership of 696,435 shares of our Company.
Based on the Schedule 13G/A filed with the SEC on January 23, 2024, Jonathan Honig has beneficial ownership of 1,105,145 ordinary shares of our
Company as follows:
(a)
(b)
(c)
Includes (i) 5,145 shares held by Mr. Jonathan Honig (“Mr. Honig”) as UTMA custodian for Morgan Honig, (ii) 5,400 shares held by Mr. Honig as
UTMA custodian for Skylar Honig and (iii) 6,800 shares held by Mr. Honig as UTMA custodian for Jett Honig.
Includes (i) 22,000 shares held by Titan Multi-Strategy Fund, Inc. (“Titan”) (ii) 187,000 shares held by Titan Multi-Strategy Fund, Inc. Profit
Sharing Plan (the “Plan”); (iii) 17,225 shares held by Titan Multi-Strategy Fund 401k Roth FBO Jonathan Honig; (iv) 11,700 shares held by Titan
Multi-Strategy Fund 401k Roth FBO Elizabeth Honig; and (v) 130,500 held by Titan Multi-Strategy Fund I, Ltd (“TMSFL”). Mr. Honig is the
President of Titan Multi-Strategy Fund, Inc., which is the General Partner of TMSF, and Mr. Honig is trustee of the Plans, and in such capacities
has voting and dispositive power over the securities held by such entities.
Includes (i) 5,400 shares held by Elizabeth Honig, (ii) 80,000 shares held by Elizabeth Honig Lifetime Trust, (iii) 1,200 shares held by Elizabeth
Honig IRA TD Ameritrade Clearing, Custodian, (iv) 13,500 shares held by Elizabeth Honig as UTMA custodian for Jett Honig (v) 13,000 shares
held by Elizabeth Honig as UTMA Custodian for Skylar Honig and (vi) 12,800 shares held by Elizabeth Honig UTMA Custodian for Morgan
Honig. Elizabeth Honig and Mr. Honig are married, and Mr. Honig has voting and dipositive power of the securities held by the foregoing.
As of March 31, 2024, we had 11,052,235 Shares outstanding, of which 6,017,090 Shares representing 54.44% of our total
outstanding Shares were not held by our major shareholders as disclosed above. As of March 31, 2024, one shareholder of record
with a registered address in the United States, Cede & Co., nominee of The Depository Trust Company, held 8,733,747 shares.
The amounts and percentages of ordinary shares beneficially owned are reported on the basis of regulations of the SEC,
governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a
“beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the
voting of such security, or “investment power,” which includes the power to dispose of or to direct the disposition of such
security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial
ownership within 60 days. Under these rules, more than one person may be deemed a beneficial owner of securities as to which
such person has no economic interest. None of our major shareholders have voting rights different from those of our other
shareholders.
B.
Related Party Transactions
Since January 1, 2023 through March 31, 2024, we were not a party to any transaction with any related party that did not
arise in the ordinary course of business or that was material to us.
Stock Option Grants and Employee Share Purchase
See Item 6, “Directors, Senior Management and Employees — E. Share Ownership.”
C.
Interests of Experts and Counsel
Not applicable.
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ITEM 8.
FINANCIAL INFORMATION
A.
Consolidated Statements and Other Financial Information
Financial Statements
See pages beginning on page F-1 in this annual report.
Dividend Policy
We have neither declared nor paid any dividends on our Shares. We anticipate that we will continue to retain any earnings
for use in the operation of our business, and we do not intend to pay dividends in the foreseeable future. See Item 10, “Additional
Information — B. Memorandum and Articles of Association — Dividends” in this annual report.
B.
Significant Changes
Except as disclosed in this annual report, no significant change has occurred since the date of our consolidated financial
statements.
ITEM 9. THE OFFER AND LISTING
Our Shares have been listed and traded on The Nasdaq Capital Market of The Nasdaq Stock Market under the symbol
“GIGM” since February 18, 2000.
ITEM 10. ADDITIONAL INFORMATION
A.
Share Capital
Not Applicable.
B. Memorandum and Articles of Association
Our current amended and restated memorandum and articles of association (the “Constitution”), the full text of which was
filed as an exhibit to our annual report on Form 20-F with the SEC on April 30, 2014, were first adopted on our date of
incorporation and have been amended since that date. We incorporate by reference into this annual report the description of
certain significant provisions of our Constitution contained in our annual report for the year ended December 31, 2007 on Form
20-F, filed with the SEC on June 30, 2008.
There are no limitations imposed by Singapore law or by our Constitution on the right of a non-resident or foreign owner to
hold or vote the Shares.
C. Material Contracts
The following are summaries of our material contracts, other than contracts entered into in the ordinary course of business,
for the two years immediately preceding the date of this annual report. However, these summaries may not contain all the
information important to you. For more complete information, you should read the entire agreements, which have been included
as exhibits to this annual report.
On August 31, 2020, we entered into a convertible note purchase agreement to purchase a US$10,000,000 principal amount
convertible promissory note (the “Note”) issued by Aeolus, a global company primarily engaged in designing, manufacturing,
processing and sales of intellectual robotics. The Note, which bears interest at a rate of 2% per annum, was due on August 30,
2022 but was extendable to August 30, 2023 at Aeolus’s option, and all or a portion of the principal amount under the Note may
be convertible at GigaMedia’s option upon maturity, upon prepayment, or when certain events occur, into ordinary shares or
preferred shares of Aeolus at a price of US$3.00 per share, or into preferred shares in Aeolus’s nearest next round equity financing
where Aeolus issues further preferred shares, at a price equal to the purchase price offered in such financing or with certain
discount.
On November 3, 2021, Aeolus notified GigaMedia that it intended to issue series B preferred shares, par value US$0.0001
per share (“Series B Preferred Shares”), to certain new series B preferred shareholders for a subscription price of US$3.02 per
share (the “Next Round Financing”). The Next Round Financing constituted a Qualified Financing, as defined in the said Note.
GigaMedia exercised its conversion right in accordance with the Note with respect to US$2,000,000 of principal amount at the
conversion price of US$2.718 per share, effective December 30, 2021. After the conversion, the remaining outstanding principal
amount of the Note was US$8,000,000. GigaMedia received 735,835 Series B Preferred Shares.
On July 29, 2022, Aeolus notified GigaMedia that it had decided to exercise its right of extension under the Note to extend
the original August 30, 2022 maturity date to August 30, 2023.
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On August 31, 2023, we and Aeolus entered into an agreement to amend the Note. The amendment extends the maturity
date of the Note after the partial repayment of US$1,000,000 and the payment of accrued interest on the unpaid principal amount
of the Note due through August 30, 2023 in the amount of US$480,000 are made by Aeolus and the outstanding principal amount
becomes US$7,000,000 due thereunder. The US$1,480,000 payment by Aeolus was made on September 6, 2023.
Pursuant to the amendment to the Note, the remaining principal amount of US$7,000,000 due thereunder will bear interest
at a rate of 4% per annum, shall be due on February 28, 2025 (such date to be extended, at Aeolus’s option, to February 28, 2026),
and all or a portion of the principal amount due thereunder may be converted upon maturity, upon prepayment or upon the
occurrence of certain specified events, upon Aeolus’s next round of equity financing, or upon Aeolus’s initial public offering, at
the lower of US$1.25 per share or 80% of the applicable offering price.
On August 15, 2023, we entered into an agreement to purchase a convertible promissory note, with principal amount of
US$105,346, issued by Aeolus, and on March 15, 2024, we entered into an agreement to purchase a convertible promissory note,
with principal amount of US$63,208, issued by Aeolus. These notes bear interest at a rate of 4.5% per annum and are convertible
at US$0.1 per share, while other terms and conditions are similar to the original Note.
D.
Exchange Controls
Exchange Controls in the R.O.C.
The R.O.C. Foreign Exchange Control Statute and regulations provide that all foreign exchange transactions must be
executed by banks designated to handle such business by the Financial Supervisory Commission of the R.O.C. and by the Central
Bank of the Republic of China (Taiwan). Current regulations favor trade-related foreign exchange transactions. Consequently,
foreign currency earned from exports of merchandise and services may now be retained and used freely by exporters, and all
foreign currency needed for the importation of merchandise and services may be purchased freely from the designated foreign
exchange banks.
Trade aside, R.O.C. companies and resident individuals may, without foreign exchange approval, remit to and from the
R.O.C. foreign currency of up to US$50 million (or its equivalent) and US$5 million (or its equivalent), respectively, in each
calendar year. Furthermore, any remittance of foreign currency into the R.O.C. by a R.O.C. company or resident individual in a
year will be offset by the amount remitted out of R.O.C. by such company or individual (as applicable) within its annual quota and
will not use up its annual inward remittance quota to the extent of such offset. The above limits apply to remittances involving a
conversion of NT dollars to a foreign currency and vice versa. A requirement is also imposed on all enterprises to register
medium- and long-term foreign debt with the Central Bank of the Republic of China (Taiwan).
In addition, foreign persons may, subject to certain requirements, but without foreign exchange approval of the Central
Bank of the Republic of China (Taiwan), remit outside and into the R.O.C. foreign currencies of up to US$100,000 (or its
equivalent) for each remittance. The above limit applies to remittances involving a conversion of NT dollars to a foreign currency
and vice versa. The above limit does not, however, apply to the conversion of NT dollars into other currencies, including U.S.
dollars, in respect of the proceeds of sale of any underlying shares withdrawn from a depositary receipt facility.
E.
Taxation
Singapore Tax Considerations
Taxation of Dividends Received by Singapore Resident Shareholders
On the basis that we are not tax resident in Singapore, dividends paid by us would be taxable in Singapore if they are
received in Singapore or if they are considered, in the hands of a particular shareholder, to be derived in Singapore (for example if
they constitute the income of a trade or business carried out in Singapore).
Foreign-sourced dividends received on or after June 1, 2003 by any person, not being an individual, resident in Singapore,
or on or after January 1, 2004 by any individual resident in Singapore through a partnership in Singapore will be exempt from tax
if certain conditions are met. The main conditions to be satisfied for such exemption are that:
•
•
the income is subject to tax of a similar character to income tax (by whatever name called) under the law of the
territory from which the income is received; and
at the time the income is received in Singapore by the person resident in Singapore, the highest rate of tax of a similar
character to income tax (by whatever name called) levied under the law of the territory from which the income is
received on any gains or profits from any trade or business carried on by any company in that territory at that time is
not less than 15%.
The normal tax rate for corporate profits in Singapore is 17%, with a certain amount of normal chargeable income exempt
from tax. Resident individuals deriving chargeable income above certain amount are subject to tax at progressive rates ranging
from 2% to 22% with effect from Year of Assessment 2017 (income year 2016) to 2023 (income year 2022). From Year of
Assessment 2024 (income year 2023) onwards, the tax on income of resident individuals will range from 2% to 24%.
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If our shareholders are corporations, our shareholders will be regarded as being tax resident in Singapore if the control and
management of our shareholders’ business is exercised in Singapore. For example, if the board of directors of a company meets
and conducts the business of such company in Singapore, such company would generally be regarded as tax resident in Singapore.
An individual will be regarded as being a tax resident in Singapore in a year of assessment if, in the preceding year, he was
physically present in Singapore or exercised an employment in Singapore (other than as director of a company) for 183 days or
more, or if he ordinarily resides in Singapore.
All foreign-sourced income received or deemed received in Singapore by tax resident individuals (except for income
received or deemed received through a partnership in Singapore) on or after January 1, 2004 will be exempt from taxation.
Gains on Disposal of Shares
Singapore does not impose taxes on capital gains. However, there are no specific laws or regulations that concern the
characterization of capital gains and hence, gains on disposal of shares may be construed to be income in nature and subject to
Singapore income taxation if they arise from or are otherwise connected with the activities which the Inland Revenue Authority of
Singapore regards as the carrying on of a trade or business in Singapore. You should consult your tax advisors concerning the
Singapore tax consequences of acquiring, owning, selling or otherwise disposing the Shares.
Stamp Duty
There is no stamp duty payable in respect of the issuance and holding of our Shares. Where existing shares are acquired in
Singapore, stamp duty is payable on the instrument of transfer (including electronic documents) of the shares at the rate of S$2.00
for every S$1,000 or any part thereof, of the consideration for or market value of the Shares, whichever is higher. The stamp duty
is borne by the purchaser unless there is an agreement to the contrary.
Where an instrument is executed outside Singapore (and not received in Singapore), or no instrument of transfer is executed,
no stamp duty is payable on the acquisition of existing Shares. However, stamp duty would be payable if an instrument of transfer
which is executed outside Singapore is received in Singapore. An electronic instrument that is executed outside Singapore is
considered received in Singapore if (a) it is retrieved or accessed by a person in Singapore; (b) an electronic copy of it is stored on
a device (including a computer) and brought into Singapore; or (c) an electronic copy of it is stored on a computer in Singapore.
Under Singapore law, our directors may not register a transfer of our Shares unless the instrument of transfer has been duly
stamped.
Singapore Estate Duty
Estate duty has been abolished for deaths occurring on or after February 15, 2008.
You should consult your tax advisors regarding the non-Singapore estate duty consequences of your ownership of our
Shares.
Goods and Services Tax (“GST”)
The sale of our Shares by an investor belonging in Singapore to another person belonging in Singapore is an exempt supply
not subject to GST. Any GST directly or indirectly incurred by the investor in respect of this exempt supply would be a cost to the
investor.
Where our Shares are sold by a GST-registered investor to a person belonging outside Singapore and that person is outside
Singapore when the sale is executed, the sale should generally be considered as a taxable supply subject to GST at zero-rate. Any
GST incurred by the investor in the making of such a supply, if the same is a supply in the course of or furtherance of a business,
may be fully recoverable from the Comptroller of GST.
Services such as brokerage, handling and clearing services rendered by a GST-registered person to an investor belonging in
Singapore in connection with the investor’s purchase, sale or holding of our Shares will be subject to GST at the rate of 8% from
January 1, 2023 to December 31, 2023 (9% from January 1, 2024 onwards). Similar services rendered to an investor belonging
outside Singapore should generally be subject to GST at zero-rate.
42
U.S. Tax Considerations
U.S. Federal Income Tax Considerations for U.S. Persons
The following is a discussion of certain U.S. federal income tax considerations for U.S. persons (as defined below) that are
investors in Shares. This discussion applies only to U.S. persons that will acquire and hold the Shares as “capital assets”
(generally, property held for investment). This discussion is for general information only and does not address all of the tax
considerations that may be relevant to you in light of your particular circumstances or if you are subject to special treatment under
the U.S. federal income tax laws, including if you are a:
•
•
•
•
•
•
•
•
•
•
•
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 real estate investment trust or regulated investment company;
an individual retirement or other tax deferred account;
person owning (actually or constructively, as determined under U.S. federal income tax law), 10% or more of the
combined voting power of all classes of our stock entitled to vote, or 10% or more of the total value of all classes of
our stock;
person whose “functional currency” is not the U.S. dollar;
an entity which is classified for U.S. federal income tax purposes as a “partnership” or an owner of such equity
interests in such an entity; or
trader in securities that has elected the mark-to-market method of accounting for securities.
This discussion does not address any U.S. state, local or non-United States tax considerations, or any U.S. federal estate, gift
or alternative minimum tax considerations.
As used in this discussion, the term “U.S. person” means:
•
•
•
•
an individual who is a citizen or resident (as determined under U.S. federal income tax laws) of the United States;
an entity which is treated as a corporation for U.S. federal income tax purposes, created in or organized under the laws
of the United States, any state thereof or the District of Columbia;
an estate, the income of which is includible in gross income for U.S. federal income tax purposes regardless of its
source; or
an arrangement which is treated for U.S. federal income tax purposes as a 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 of 1986, as amended (the “Internal Revenue Code”).
If an entity treated as a partnership for U.S. federal income tax purposes holds Shares, the tax treatment of a holder of equity
interests in such entity will generally depend upon the status of such holder and the activities of such entity. If you are a holder of
equity interests in an entity which is treated as a partnership for U.S. federal tax purposes, and such entity holds Shares, you are
urged to consult your tax advisor as to the particular U.S. federal income tax consequences of an investment in the Shares that are
applicable to you.
This section is based on the Internal Revenue Code, existing and proposed income tax regulations issued under the Internal
Revenue Code, legislative history, and judicial and administrative interpretations thereof, all as of the date of this annual report.
All of the foregoing are subject to change at any time, and any change could be retroactive and could affect the accuracy of this
discussion. In addition, the application and interpretation of certain aspects of the passive foreign investment company (“PFIC”)
rules, referred to below, require the issuance of regulations which in many instances have not been promulgated and which may
have retroactive effect. There can be no assurance that any of these regulations will be enacted or promulgated, and if so, the form
they will take or the effect that they may have on this discussion. This discussion is not binding on the U.S. Internal Revenue
Service (“IRS”) or the courts. No ruling has been or will be sought from the IRS with respect to the positions and issues discussed
herein, and there can be no assurance that the IRS or a court will not take a different position concerning the U.S. federal income
tax consequences of an investment in the Shares or that any such position would not be sustained.
43
You are urged to consult your tax advisor concerning the particular U.S. federal, state, local and non-United States income
and other tax considerations regarding the ownership and disposition of the Shares, including the application of the passive
foreign investment company rules discussed below. Investors should carefully review the discussion below under “—Passive
Foreign Investment Company.”
Passive Foreign Investment Company
Due to the price of our Shares during 2023 and the composition of our assets (in particular, the retention of a large amount
of cash), we believe that it is likely that we were classified as a PFIC, for United States federal income tax purposes, for the
taxable year ended December 31, 2023, and that we will likely be a PFIC for our current taxable year ending December 31, 2024,
unless our share value increases substantially and/or we invest a substantial amount of the cash and other passive assets we hold in
assets that produce or are held for the production of non-passive income. In general, we will be classified as a PFIC for any
taxable year if either (i) 75% or more of our gross income for such year is passive income or (ii) 50% or more of the average
quarterly value of our assets (as generally determined on the basis of fair market value) produce or are held for the production of
passive income. For this purpose, cash and assets readily convertible into cash are generally classified as passive and goodwill and
other unbooked intangibles associated with active business activities may generally be classified as non-passive. We will be
treated as owning a proportionate share of the assets and earning a proportionate share of the income of any other corporation
more than 25% (by value) of whose stock is owned, directly or indirectly, by us.
If we are classified as a PFIC for any taxable year during which you hold Shares, and unless you make a mark-to-market
election (as described below), you will generally be subject to special tax rules that have a penalizing effect, regardless of whether
we remain a PFIC, on (i) any excess distribution that we make to you (which generally means any distribution received by you in
a taxable year that is greater than 125% of the average annual distributions received by you in the three preceding taxable years or
your holding period for the Shares, if shorter), and (ii) any gain realized on the sale or other disposition, including a pledge, of our
Shares. Under the PFIC rules:
•
•
•
•
such excess distribution or gain will be allocated ratably over your holding period for the Shares;
such 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”) will be taxable as ordinary income;
such amount allocated to each prior taxable year, other than a pre-PFIC year, will be subject to tax at the highest tax
rate in effect applicable to you for that year; and
an interest charge generally applicable to underpayments of tax will be imposed on the tax attributable to each prior
taxable year, other than the current taxable year or a pre-PFIC year.
As an alternative to the foregoing rules, a holder of “marketable stock” in a PFIC may make a mark-to-market election,
provided that the Shares are “regularly traded” on a “qualified exchange”. Based on the current level of trading activity of our
Shares on The Nasdaq Capital Market, no assurance can be given that the Shares qualify, or will qualify, as being regularly
tradable on a qualified exchange in the United States. If you make this election, you will generally (i) include in gross income as
ordinary income for each taxable year the excess, if any, of the fair market value of your Shares at the end of the taxable year over
the adjusted tax basis of the Shares and (ii) deduct as an ordinary loss the excess, if any, of the adjusted tax basis of the Shares
over the fair market value of the Shares at the end of the taxable year, but only to the extent of the amount previously included in
income as a result of the mark-to-market election. Your adjusted tax basis in the Shares would be adjusted to reflect any income or
loss resulting from the mark-to-market election. If you make a mark-to-market election in respect of a corporation classified as a
PFIC and such corporation ceases to be classified as a PFIC, you will generally not be required to take into account the gain or
loss described above during any period that such corporation is not classified as a PFIC. If you make a mark-to-market election,
any gain you recognize upon the sale or other disposition of Shares will be treated as ordinary income and any loss will be treated
as ordinary loss, but such loss will only be treated as ordinary to the extent of the net amount previously included in income as a
result of the mark-to-market election. If a U.S. person makes a mark-to-market election, the tax rules that apply to distributions by
corporations which are not PFICs would apply to distributions, except that the reduced tax rate applicable to qualified dividend
income (as discussed below in “ –Dividends”) would not apply.
Furthermore, a U.S. person will generally be treated as holding an equity interest in a PFIC in the first taxable year of the
U.S. person’s holding period in which we become a PFIC and subsequent taxable years even if we cease to be a PFIC in
subsequent taxable years. In the case of a U.S. person who has held Shares during any taxable year in which we are classified as
PFIC and continues to hold such Shares (or any portion thereof), and who is considering making a mark-to-market election,
special tax rules may apply relating to purging the PFIC taint of such Shares.
Because a mark-to-market election cannot be made for any lower-tier PFICs that we may own, a U.S. person may continue
to be subject to the PFIC rules with respect to such U.S. person’s indirect interest in any investment held by us that is treated as an
equity interest in a PFIC for United States federal income tax purposes.
44
We do not intend to provide U.S. persons with the information necessary to permit U.S. persons to make qualified electing
fund elections (a “QEF election”), which, if available, would result in tax treatment different from (and generally less adverse
than) the general tax treatment for PFICs described above. Please consult your U.S. tax advisor regarding the requirements and
consequences to you of making such a QEF election with respect to your Shares.
Each U.S. person who holds an interest in a PFIC is required to file an annual report containing such information as the U.S.
Treasury may require. In addition, if a U.S. person holds Shares in any year in which we are a PFIC, such holder will be required
to file Internal Revenue Service Form 8621 regarding distributions received on the Shares, any gain realized on the disposition of
the Shares, and any “reportable election.” You are urged to consult your tax advisor regarding the application of the PFIC rules,
including the possibility and advisability of making a mark-to-market election or, where applicable, making purging elections with
respect to PFIC Tainted Shares.
Taxation of Dividends
The following description of the taxation of dividends is subject to the discussion above with respect to the passive foreign
investment company tax rules. The amount of distributions you receive on your Shares (other than certain pro rata distributions of
our Shares or rights to subscribe for Shares) will generally be reported as dividend income to you if the distributions are made
from our current or accumulated earnings and profits as calculated according to U.S. federal income tax principles. Because we do
not intend to determine our earnings and profits on the basis of U.S. federal income tax principles, any distribution paid will
generally be reported as a “dividend” for U.S. federal income tax purposes. You will include such dividends in your gross income
as ordinary income on the day you actually or constructively receive them. The amount of any distribution of property other than
cash will be the fair market value of such property on the date it is distributed. A non-corporate recipient of dividend income will
generally be subject to tax on dividend income from a “qualified foreign corporation” at a reduced United States federal tax rate
rather than the marginal tax rates generally applicable to ordinary income, so long as certain holding period requirements are met.
A non-U.S. corporation generally will be considered to be a qualified foreign corporation (i) if it is eligible for the benefits of a
comprehensive tax treaty with the United States which the Secretary of Treasury of the United States determines is satisfactory for
purposes of this provision and which includes an exchange of information program or with respect to any dividend it pays on
stock which is readily tradable on an established securities market in the United States and (ii) the corporation is not a PFIC and is
not treated as a PFIC with respect to you for the taxable year in which the dividend was paid and the preceding taxable year. There
is currently no tax treaty in effect between the United States and Singapore. Although the Shares are currently tradable on The
Nasdaq Capital Market, which is an established securities market in the United States, no assurance can be given that the Shares
will continue to be readily tradable on an established securities market in the United States. U.S. corporate holders will generally
not be eligible for the dividends received deduction allowed to corporations unless the U.S. corporation holds stock representing at
least 10% of the total voting power or the total value of all of our stock, in which case the U.S. corporation may be entitled to a
100% deduction for dividends we pay. As noted above, we believe that it is likely that we were classified as a PFIC for the taxable
year ended December 31, 2023, and that we will likely be a PFIC for our current taxable year ending December 31, 2024.
The amount of any distribution paid in a currency other than the U.S. dollar will equal the U.S. dollar value of the foreign
currency you receive, calculated by reference to the exchange rate in effect on the date you actually or constructively receive the
distribution, regardless of whether the foreign currency is actually converted into U.S. dollars. If you do not convert the foreign
currency you receive as a dividend on the date of receipt, you will have a basis in such foreign currency equal to its U.S. dollar
value on the date of receipt. Any gain or loss you realize when you subsequently sell or otherwise dispose of such foreign
currency generally will be ordinary income or loss from sources within the United States for U.S. foreign tax credit limitation
purposes.
Dividends on Shares will generally be treated as foreign source income for U.S. foreign tax credit purposes and generally
will constitute passive category income or, in certain cases, general category income or foreign branch income. A U.S. person may
be eligible, subject to a number of complex limitations, including those set forth in the U.S. Treasury regulations issued on
December 28, 2021, which apply to foreign taxes paid or accrued in taxable years beginning on or after December 28, 2021 (the
“Final FTC Treasury Regulations”), to claim a foreign tax credit in respect of any foreign withholding taxes imposed on dividends
received on Shares. The Final FTC Treasury Regulations impose additional requirements for foreign taxes to be eligible for a
foreign tax credit. However, the IRS has indicated that taxpayers may defer the application of many of these additional
requirements until further notice. A U.S. person who does not elect to claim a foreign tax credit for foreign tax withheld may
instead claim a deduction for U.S. federal income tax purposes, in respect of such withholding, but only for a year in which such
holder elects to do so for all creditable foreign income taxes. The rules governing U.S. foreign tax credits, including under the
Final FTC Treasury Regulations, are complex. Accordingly, you are urged to consult your tax advisor regarding the availability of
a U.S. foreign tax credit under your particular circumstances.
45
Sale or Other Disposition of Shares
Except as discussed above with respect to the passive foreign investment company tax rules, a U.S. person generally will
recognize capital gain or loss for U.S. federal income tax purposes upon a sale or other disposition of Shares in an amount equal to
the difference between the amount realized from the sale or disposition and the holder’s adjusted tax basis in the Shares. Such gain
or loss generally will be long-term (taxable at a reduced rate for individuals) if, on the date of sale or disposition, the Shares were
held by the holder for more than one year and will generally be treated as gain or loss from U.S. sources for foreign tax credit
purposes. The deductibility of a capital loss may be subject to limitations. You are urged to consult your tax advisor regarding the
consequences if a foreign withholding tax is imposed on a disposition of Shares, including the availability of the foreign tax credit
under your particular circumstances.
Information with Respect to Foreign Financial Assets
U.S. persons that are individuals (and, to the extent provided in regulations, certain entities) that own “specified foreign
financial assets,” including possibly the Shares, with an aggregate value in excess of $50,000 are generally required to file IRS
Form 8938 with information regarding such assets. Depending on the circumstances, higher threshold amounts may apply.
Specified foreign financial assets include any financial accounts maintained by foreign financial institutions, as well as any of the
following, but only if they are not held in accounts maintained by financial institutions: (i) stocks and securities issued by non-
U.S. persons, (ii) financial instruments and contracts held for investment that have non-U.S. issuers or counterparties and (iii)
interests in non-U.S. entities. If a U.S. person is subject to this information reporting regime, the failure to timely file IRS Form
8938 may subject the U.S. holder to penalties. In addition to these requirements, U.S. persons may be required to annually file
FinCEN Report 114, Report of Foreign Bank and Financial Accounts with the U.S. Department of Treasury. You are thus
encouraged to consult your U.S. tax advisors with respect to these and other reporting requirements that may apply to the
acquisition of the Shares.
Backup Withholding and Information Reporting
U.S. persons may be subject to information reporting to the Internal Revenue Service with respect to dividends on and
proceeds from the sale or other disposition of our Shares. Dividend payments with respect to our Shares and proceeds from the
sale or other disposition of our Shares are not generally subject to United States backup withholding (provided that certain
certification requirements are satisfied). You are advised to consult your tax advisor regarding the application of the United States
information reporting and backup withholding rules to your particular circumstances.
Individuals who are U.S. person, and who hold “specified foreign financial assets”, including stock of a non-U.S.
corporation that is not held in an account maintained by a U.S. “financial institution”, whose aggregate value exceeds US$50,000
during the tax year, may be required to attach to their tax returns for the year certain specified information. An individual who
fails to timely furnish the required information may be subject to a penalty. Each U.S. person who is an individual is advised to
consult its tax advisor regarding its reporting obligations under this legislation.
F.
Dividends and Paying Agents
Not applicable.
G.
Statements by Experts
Not applicable.
H. Documents on Display
The SEC allows us to “incorporate by reference” the information we file with the SEC. This means that we can disclose
important information to you by referring you to another document filed separately with the SEC. The information incorporated
by reference in this annual report is considered to be part of this annual report. We therefore incorporate by reference in Item 19 of
this annual report certain exhibits, which we filed with the SEC in prior filings. You may read and copy this annual report,
including the exhibits incorporated by reference in this annual report, at the public reference room maintained by the SEC at 100 F
Street, N.E., Washington, D.C. 20549. You can request copies of these documents upon payment of a duplicating fee, by writing
to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms.
Additional information may also be obtained over the Internet at the SEC’s website at www.sec.gov.
You may also request a copy of our SEC filings, at no cost, upon written request to our investor relations department at 8th
Floor, No. 22, Lane 407, Section 2, Tiding Boulevard, Taipei 114-740, Taiwan R.O.C., or by e-mail to: IR@Gigamedia.com.tw.
A copy of each report submitted in accordance with applicable U.S. law is also available for public review at our principal
executive office.
46
As a foreign private issuer, we are exempt under the Securities Exchange Act from, among other things, the rules
prescribing the furnishing and content of proxy statements, and our executive officers, directors and principal shareholders are
exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Securities Exchange Act. In
addition, we will not be required under the Securities Exchange Act to file periodic reports and financial statements with the SEC
as frequently or as promptly as U.S. companies whose securities are registered under the Securities Exchange Act.
I.
Subsidiary Information
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss related to adverse changes in market prices, including interest rates and foreign exchange
rates, of financial instruments. We are exposed to various types of market risks in the normal course of business, including
changes in interest rates and foreign currency exchange rates.
There may be material limitations that cause the information disclosed below not to fully reflect the net market risk
exposures of our Company. The limitations include financial instruments that we may utilize in the future, and transactions we
may enter into for managing risks, that have not yet been determined. The limitations may also include mismatches in our
positions, and other features of the instruments, positions and transactions that are mentioned below.
Foreign Currency Risk
Our subsidiaries conduct most of their business transactions in their own measurement currencies; therefore, the foreign
currency risks derived from operations are not significant. However, we hold some assets or liabilities in foreign currencies other
than measurement currency and the value of these assets and liabilities are subject to foreign currency risks resulting from
fluctuations in exchange rates between the foreign-denominated currency and the measurement currency. We have not used
hedging transactions to reduce our exposure to exchange rate fluctuations; however, we may choose to do so in the future. For
more information on foreign currency translations for our financial reporting purposes, see note 1(c) to our audited consolidated
financial statements beginning on page F-1 in this annual report.
As of December 31, 2023, we had bank deposits of approximately US$1.2 million and financial instruments, net, of US$4.7
million denominated in foreign currencies other than measurement currencies of the entities holding such assets. These assets are
subject to foreign currency exchange risk. We also had certain inter-company accounts between our wholly-owned entities using
different functional currencies. While the balances of the inter-company accounts, totaled at approximately US$22.7 million as of
the end of 2023, were fully eliminated in the consolidation, the foreign exchange gain or loss resulted remained in our
consolidated statements of operations. We recognized a realized foreign exchange loss of approximately US$160 thousand and
unrealized foreign exchange gain of approximately US$126 thousand in the year ended December 31, 2023.
Based on the sensitivity analysis of our exposure to foreign currency exchange rate risk related our bank deposits and
investment - debt and equity securities which were denominated in a foreign currency other than functional currencies of the
entities holding such assets, a hypothetical 10% change in the exchange rate between the U.S. dollar and the underlying currencies
of those instruments subject to foreign currency exchange rate risk would result in a change of 0.81% in our total equity as of
December 31, 2023.
From January 1, 2023 to April 11, 2024, while the Hong Kong dollar to U.S. dollar exchange rate fluctuated moderately
0.8%, the NT dollar to U.S. dollar exchange rate fluctuated approximately 9%, mainly due to the great volatility in global financial
markets resulted by the ongoing Russia-Ukraine War as well as global central banks' interest rate hikes. Nonetheless, we maintain
the bulk of our financial assets in U.S. dollar-denominated assets to limit the foreign currency risk we are exposed to.
Interest Rate Risk
Our exposure to interest rates related primarily to our short-term loans from various banks. As of December 31, 2023 and
2022, we did not have outstanding bank loans.
Other Market Risks
We are also exposed to other market risks, which are mainly derived from our investments. We have investments of
minority stake equity and debt instruments in Aeolus Robotics Corporation, a privately held company. These investments are
recorded in fair values. As of December 31, 2023, the aggregate carrying value of investments on our balance sheet was $5.8
million. We monitor these investments for impairment and make appropriate reductions in carrying value. We made a decrease in
the fair value of the investments by totally $3.7 million (in which $2.1 million were included in earnings) for the year ended on
December 31, 2023. There were no impairment losses for the years ended on December 31, 2022 and 2021.
47
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
A. Material Modification to the Instruments Defining the Rights of Security Holders
None.
B. Material Modification to the Rights of Registered Securities by Issuing or Modifying or any Other Class of Securities
None.
C. Withdrawal or Substitution of a Material Amount of the Assets Securing any Registered Securities
Not applicable.
D.
Change of Trustees or Paying Agents for any Registered Securities
None.
E.
Use of Proceeds
Not applicable.
ITEM 15. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the
effectiveness of our disclosure controls and procedures (as defined by Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act) as of December 31, 2023. There are inherent limitations to the effectiveness of any system of disclosure controls
and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures.
Accordingly, in designing and evaluating the disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only reasonable, rather than absolute, assurance of achieving
the desired control objectives, and management was required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
Based upon that evaluation, and taking into account the foregoing, our Chief Executive Officer and Chief Financial Officer
have concluded that, as of December 31, 2023, our disclosure controls and procedures were effective in providing reasonable
assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act was
recorded, processed, summarized and reported on a timely basis, and these controls and procedures were effective in ensuring that
information required to be disclosed by us in the reports that we file or submit under the Exchange Act was accumulated and
communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined
by Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles in the United States (“US GAAP”). Our internal control
over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with US GAAP and that receipts
and expenditures are being made only in accordance with authorizations of our management and directors and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements.
Also, projections of any evaluation of the effectiveness of internal control to future periods are subject to the risk that controls
may become inadequate because of changes in conditions, and that the degree of compliance with the policies or procedures may
deteriorate.
48
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023.
In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO 2013”) in Internal Control - Integrated Frameworks. Based on our assessment using those criteria, our
management has concluded that our internal control over financial reporting as of December 31, 2023 was effective.
Attestation Report of the Independent Registered Public Accounting Firm
This annual report does not include an attestation report of our registered public accounting firm regarding internal control
over financial reporting, as we are a non-accelerated filer exempted from section 404(b) of the Sarbanes-Oxley Act.
Changes in Internal Control Over Financial Reporting
During the year ended December 31, 2023, there were no changes in our internal control over financial reporting that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 16. RESERVED
ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT
Our board of directors has determined that Ms. Wan-Wan LIN, an independent director and member of our audit committee,
is the audit committee financial expert.
ITEM 16B.CODE OF ETHICS
We have adopted a code of ethics, as defined in Item 16B of Form 20-F. Our code of ethics applies to our Chief Executive
Officer, Chief Financial Officer and persons performing similar functions, as well as to our directors, other officers, employees
and consultants. The full text of our code of ethics is available on our website, www.gigamedia.com. If we amend any provisions
of our code of ethics, we will disclose such amendment on our website at the same address. If we make any waivers of any
provisions of our code of ethics, we will disclose any such waivers within four business days either by distributing a press release
or including disclosure in a Form 6-K. We will also provide any person without charge a copy of our code of ethics upon written
request to our investor relations department at 8th Floor, No. 22, Lane 407, Section 2, Tiding Boulevard, Taipei 114-740, Taiwan
R.O.C., or by e-mail to: IR@Gigamedia.com.tw.
On December 19, 2005, our board of directors adopted an anti-fraud policy for the purpose of preventing fraud schemes,
including fraudulent financial reporting misappropriation of assets, any fraud committed by senior management, and information
technology fraud. The anti-fraud policy was also amended on February 13, 2009. According to our anti-fraud policy, our audit
committee is responsible for monitoring the implementation of our anti-fraud policy and procedures, and an anti-fraud taskforce is
assigned by our audit committee to be responsible for the anti-fraud hotline management, risk assessment, complaint investigation
and resolution, and reporting to our Chief Executive Officer, Chief Financial Officer and audit committee.
On May 10, 2006, our audit committee adopted a whistleblower program pursuant to our anti-fraud policy. The
whistleblower program enables all employees to know how and when to use the whistleblower hotline and communicate or report,
on a confidential or anonymous basis, without fear of retribution, concerns related to wrongdoings or violations, and ensures that
all reported incidents are properly investigated.
On April 30, 2010, our board of directors adopted a non-competition provision under which all of our employees,
consultants, officers and directors may not participate, invest, license, employ or being employed, or cooperate with any company
or entity engaged in a line of business which may be competitive with the business of the Company within three months after
termination of their employment of the Company, except in cases where the local law or the contract states otherwise. An
amended non-solicitation provision was also adopted, under which all our employees, consultants, officers and directors may not,
during their employment or within twelve months after termination of the employment, directly or indirectly, solicit, entice, or
attempt to approach, solicit or entice any of the other employees of the Company or its affiliates to terminate the employment.
ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table summarizes the aggregate fees billed to us by Deloitte & Touche (PCAOB ID No. 1060) for the fiscal
years ended December 31, 2023 and 2022, respectively.
For the Years Ended December 31
Audit Fees
Audit-Related Fees
Tax Fees
All Other Fees
2023
(in US$)
2022
(in US$)
$
265,000 $
0
7,000
0
265,000
0
7,000
0
49
A.
Audit Fees
Audit fees consist of fees billed for the annual audit of our consolidated financial statements. Audit fees also include fees for
services that are normally provided by the independent registered public accounting firm in connection with statutory and
regulatory filings or engagements.
B.
Tax Fees
Tax fees include fees billed for tax compliance services.
C.
Audit Committee Pre-Approval Policies and Procedures
In May 2005, we adopted our audit committee charter. Consistent with the SEC’s policies regarding auditor independence,
our audit committee is directly responsible for the appointment, compensation, retention and oversight of the work of auditors
engaged to provide us with audit, review or attest services. Our audit committee has sole discretion to review and pre-approve the
appointment of auditors, subject to the appointment, replacement or removal from office of our independent public accountants as
approved by our shareholders at our Annual General Meeting, and to set their fees for the performance of audit and non-prohibited
non-audit services in accordance with the Sarbanes-Oxley Act of 2002 and the SEC rules and regulations promulgated thereunder.
The appointment of our independent registered public accounting firm, Deloitte & Touche, as well as the scope of each
audit, audit-related or non-prohibited, as well as any non-audit services provided pursuant to such appointment, and our auditors’
fees for all such services, were approved by our audit committee.
ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not applicable.
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 16G.
CORPORATE GOVERNANCE
Summary of Significant Differences in Corporate Governance Practices
Our Shares are currently listed on The Nasdaq Capital Market of The Nasdaq Stock Market and, for so long as our securities
continue to be listed, we will remain subject to the rules and regulations established by Nasdaq as being applicable to listed
companies. Under Nasdaq Rule 5615(a)(3), a foreign private issuer such as our Company may follow its home country practice in
lieu of the requirements of the Nasdaq Rule 5600 Series, with certain exceptions, provided that it discloses each requirement that
it does not follow and describes the home country practice followed in lieu of such requirements. In addition, Nasdaq has
amended its Rule 5615(a)(3) to permit foreign private issuers to follow certain home country corporate governance practices
without the need to seek an individual exemption from Nasdaq. However, a foreign private issuer must disclose in its annual
report filed with the SEC each requirement it does not follow and the alternative home country practice it does follow.
We are incorporated under the laws of Singapore. We currently comply with the specifically mandated provisions of Nasdaq
Rule 5615(a)(3). We are currently exempt from the DRS eligibility provisions of Nasdaq Rule 5255(c) as we are not allowed to
issue of non-certificated securities under Singapore law. See Item 9, “The Offer and Listing” in this annual report. We have
elected to voluntarily comply with other requirements of Nasdaq Rule 5600 Series in all material aspects, notwithstanding that our
home country does not mandate compliance; although we may in the future determine to cease voluntary compliance with those
provisions of Nasdaq Rule 5600 Series.
ITEM 16H.
MINE SAFETY DISCLOSURE
Not applicable.
ITEM 16I.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
ITEM 16J. INSIDER TRADING POLICIES
Not applicable.
50
ITEM 16K. CYBERSECURITY
The audit committee of the board of directors receives, reviews and discusses the periodic reports regarding the company's
information technology and security matters, which include cybersecurity incidents, assessments of new and emerging
cybersecurity risks and threats, and proposed improvement measures.
We have cybersecurity processes and guidelines designed to mitigate the risks of a security breach or cyber-attack. These
guidelines define the information security and cover measures of employee responsibility, information security coordination, data
governance and classification, access controls and identity management, system & network security, operations & availability,
system & network monitoring, asset inventory and device management, data center security management and business continuity
and disaster recovery.
We have also established guidelines describing the procedures for reporting and responding to cybersecurity incidents. The
guidelines define and classify cybersecurity incidents, specify the division of responsibilities, and designates incident reporting
flows in accordance with the materiality level of the incidents. Once an incident is detected, identified and reported, a team led by
responsible manager (for a less severe incident) or IT division head (for a material incident) will be assembled for responding to
the incident. The team will comprise personnel for information gathering and planning, damaging controlling, recovering and
evidence tracing and preserving, as well as for public communication and administrative, legal and financial supporting. Besides
the responding measures, the team will also perform analyses for incident cause as well as the actions and recommendations in
order to prevent or mitigate similar incidents in the future. Follow-up meetings or periodic review will be in place to evaluate the
result of these actions and recommendations.
We have implemented real-time monitoring mechanisms for the cloud services. In case of any material incidents, relevant
IT personnel will be notified promptly via email, and corresponding procedures will be followed in accordance with the company
policies designed to minimize operational impacts. Additionally, we regularly obtain Service Organization Controls (SOC) reports
from our third-party service providers to assess the effectiveness of their control measures.
The head of IT division is responsible for assessing and managing the cybersecurity risk and reporting on cybersecurity
matters to the audit committee of the board of directors. Our head of IT division obtained his master degree in Graduate Institute
of Computer Science, National Tsing Hua University and has over 20 years of experience working in information technology.
Other professionals in our IT division also have cybersecurity experiences or certifications. Our IT division regularly assesses
potential threats and takes a comprehensive view of cybersecurity risks. We have not engaged any third-party service provider to
assist on risk assessment processes.
As of the date of this annual report, we do not believe that any past cybersecurity incidents have had, or are reasonably
likely to have had, a material adverse effect on the Company’s business, operations or financial condition. See “Risk Factors—
Risks Related to Cybersecurity and Technology Infrastructure.”
51
PART III
ITEM 17. FINANCIAL STATEMENTS
See Item 18.
ITEM 18. FINANCIAL STATEMENTS
Our consolidated financial statements and the reports thereon by our independent registered public accounting firms listed
below are attached hereto as follows:
(a) Report of Independent Registered Public Accounting Firm ......................................................................................
(b) Consolidated Balance Sheets as of December 31, 2023 and 2022.............................................................................
(c) Consolidated Statements of Operations for the years ended December 31, 2023, 2022 and 2021............................
(d) Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2023, 2022 and
2021.............................................................................................................................................................................
(e) Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2023, 2022 and
2021.............................................................................................................................................................................
(f) Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021 ...........................
(g) Notes to the consolidated financial statements ..........................................................................................................
Page
F-2
F-4
F-6
F-7
F-8
F-9
F-11
52
ITEM 19. EXHIBITS
EXHIBIT
1.1
Amended Memorandum and Articles of Association of our Company, incorporated by reference to Exhibit 1.1 to our
annual report for the year 2013 on Form 20-F filed with the SEC on April 30, 2014
INDEX
2.1*
Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act
4.1
Convertible Note Purchase Agreement between GigaMedia Limited and Aeolus Robotics Corporation, dated August
31, 2020, incorporated by reference to Exhibit 1.1 to our annual report for the year 2020 on Form 20-F filed with the
SEC on April 29, 2021
4.1(a)
Convertible Promissory Note of Aeolus Robotics Corporation, dated August 31, 2020 (included in Exhibit 4.1)
4.1(b)* Amendment to Convertible Note Purchase Agreement between GigaMedia Limited and Aeolus Robotics
Corporation, dated August 31, 2023
4.2*
Convertible Note Purchase Agreement between GigaMedia Limited and Aeolus Robotics Corporation, dated August
15, 2023
4.2(a)
Convertible Promissory Note of Aeolus Robotics Corporation, dated August 15, 2023 (included in Exhibit 4.2)
4.3*
Convertible Note Purchase Agreement between GigaMedia Limited and Aeolus Robotics Corporation, dated March
15, 2024
4.3(a)
Convertible Promissory Note of Aeolus Robotics Corporation, dated March 27, 2024 (included in Exhibit 4.3)
8.1*
11.1*
12.1*
12.2*
13.1*
13.2*
15.1*
97.1*
List of Subsidiaries
Code of Ethics, as last amended by the board of directors on March 25,2024
Certification by our Chief Executive Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act
Certification by our Chief Financial Officer pursuant to Rule13a-14(b) of the Securities Exchange Act
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
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
Consent of Deloitte & Touche, Independent Registered Public Accounting Firm
Compensation Recovery Policy
101.INS*
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File as its XBRL
tags are embedded within the Inline XBRL document
101.SCH*
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents
104*
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*
Filed herewith
53
SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and
authorized the undersigned to sign this annual report on its behalf.
GIGAMEDIA LIMITED
By: /s/ HUANG, CHENG-MING
HUANG, CHENG-MING
Chief Executive Officer
Date: April 29, 2024
54
GIGAMEDIA LIMITED AND SUBSIDIARIES
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm ..........................................................................................................
Consolidated balance sheets as of December 31, 2023 and 2022 ..................................................................................................
Consolidated statements of operations for the years ended December 31, 2023, 2022 and 2021..................................................
Consolidated statements of comprehensive income (loss) for the years ended December 31, 2023, 2022 and 2021 ...................
Consolidated statements of changes in shareholders’ equity for the years ended December 31, 2023, 2022 and 2021................
Consolidated statements of cash flows for the years ended December 31, 2023, 2022 and 2021 .................................................
Page
F-3
F-4
F-6
F-7
F-8
F-9
Notes to consolidated financial statements.....................................................................................................................................
F-11
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
GigaMedia Limited
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of GigaMedia Limited and subsidiaries (the “Company”)
as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive income (loss),
shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related
notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and
2022, and the result of its operations and its cash flows for each of the three years in the period ended December 31, 2023,
in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated
financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to
accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of critical audit matter does not alter in any way our
opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit
matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Fair Value - Level 3 Assets - Refer to Note 4 to the Consolidated Financial Statements
Critical Audit Matter Description
F-2
The Company holds investment in securities amounted to $5,777 thousand issued by a private company. The fair value of
the investments is based on complex valuation methods with unobservable inputs, therefore, classified as Level 3.
Unlike the valuation of assets with readily observable market prices, therefore, more easily independently corroborated,
the valuation of financial instruments classified as Level 3 is inherently subjective, and often involves the use of complex
proprietary methods and unobservable inputs.
We identified the valuation of the Level 3 assets as a critical audit matter because of the complex valuation methods and
unobservable inputs, including the discount rate, discount of lack of marketability and volatility management uses to
estimate the fair value. This requires a high degree of auditor’s professional judgment and an increased extent of effort,
including the involvement of our fair value specialists, when evaluating the methods and related inputs.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures included the following, among others:
We obtained an understanding and evaluated the design and implementation of controls over management’s
valuation of the Level 3 assets, including controls over the Company’s valuation methods and significant unobservable
inputs.
With the assistance of our fair value specialists, (1) we evaluated the appropriateness of the valuation
methodologies and techniques used in determining the fair value of the Level 3 asset;(2)we tested the underlying data
used in the methods calculations and the mathematical accuracy of the calculation; (3)we evaluated the appropriateness of
the judgements and estimates of the key inputs used in determining the fair value of the Level 3 assets including but not
limited to the discount rate, discount of lack of marketability and volatility.
/s/Deloitte & Touche
Taipei, Taiwan
Republic of China
April 29, 2024
We have served as the Company’s auditor since 2017.
F-3
GIGAMEDIA LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2023 AND 2022
(in thousands of US dollars)
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Note 5)
Investment in securities - current (Note 8)
Accounts receivable - net (Note 6)
Prepaid expenses
Restricted cash (Note 5)
Other current assets (Note 7)
Total Current Assets
INVESTMENT IN SECURITIES - NONCURRENT (Note 8)
PROPERTY, PLANT AND EQUIPMENT, NET (Note 18)
INTANGIBLE ASSETS - NET (Note 18)
OTHER ASSETS
Refundable deposits
Prepaid licensing and royalty fees (Note 3)
Right-of-use assets (Note 9 and 18)
Other (Note 12)
TOTAL ASSETS
December 31
2023
2022
38,470
—
227
54
313
143
39,207
5,777
111
13
193
24
944
228
46,497
$
$
38,794
7,950
199
60
313
510
47,826
2,371
103
19
192
177
1,306
142
52,136
$
$
F-4
GIGAMEDIA LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - (Continued)
DECEMBER 31, 2023 AND 2022
(in thousands of US dollars, except share data)
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable
Accrued expenses (Note 10)
Deferred revenue (Note 11)
Other current liabilities (Notes 9 and 17)
Total Current Liabilities
NONCURRENT LIABILITIES
Lease liabilities (Note 9)
Total Liabilities
COMMITMENTS AND CONTINGENCIES (Note 17)
SHAREHOLDERS' EQUITY (Note 13)
Ordinary shares, no par value, and additional paid-in capital; issued
and outstanding 11,052 thousand shares in 2023 and 2022
Accumulated deficit
Accumulated other comprehensive loss (Note 14)
Total GigaMedia Shareholders’ Equity
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
December 31
2023
2022
44
1,182
573
665
2,464
495
2,959
—
308,752
(241,830)
(23,384)
43,538
46,497
$
$
53
1,151
817
616
2,637
893
3,530
—
308,752
(238,431)
(21,715)
48,606
52,136
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-5
GIGAMEDIA LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021
(in thousands of US dollars, except for earnings per share amounts)
OPERATING REVENUES
Digital entertainment service revenues (Note 18)
$
4,292
$
5,585
$
2023
2022
2021
COSTS OF REVENUES
Cost of digital entertainment service revenues
GROSS PROFIT
OPERATING EXPENSES
Product development and engineering expenses
Selling and marketing expenses
General and administrative expenses
Bad debt expense (Note 6)
LOSS FROM OPERATIONS
NON-OPERATING INCOME (EXPENSES)
Interest income from financial institutions
Interest income on securities (Note 17)
Gain on disposal or repayment of investment in securities (Note 8)
Foreign exchange gain (loss), net
Changes in the fair value of investment in equity securities recognized at fair value
(Note 4)
Other
LOSS BEFORE INCOME TAXES
INCOME TAX EXPENSE (Note 16)
NET LOSS ATTRIBUTABLE TO SHAREHOLDERS OF GIGAMEDIA
LOSS PER SHARE ATTRIBUTABLE TO GIGAMEDIA
Basic and Diluted:
WEIGHTED AVERAGE SHARES USED TO COMPUTE LOSS PER SHARE
ATTRIBUTABLE TO GIGAMEDIA SHAREHOLDERS (Note 2)
$
$
Basic
Diluted
(1,846)
2,446
(729)
(1,623)
(3,242)
(7)
(5,601)
(3,155)
1,609
202
76
(34)
(2,110)
13
(244)
(3,399)
—
(3,399)
(0.31)
11,052
11,052
$
$
(2,335)
3,250
(1,110)
(1,644)
(3,515)
(2)
(6,271)
(3,021)
559
159
—
(941)
409
83
269
(2,752)
—
(2,752)
(0.25)
11,052
11,052
$
$
The accompanying notes are an integral part of these consolidated financial statements.
5,492
(2,584)
2,908
(1,449)
(1,729)
(3,697)
(7)
(6,882)
(3,974)
92
160
125
122
—
50
549
(3,425)
—
(3,425)
(0.31)
11,052
11,052
F-6
GIGAMEDIA LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021
(in thousands of US dollars)
NET LOSS
OTHER COMPREHENSIVE INCOME (LOSS) - NET OF TAX:
Defined benefit pension plan adjustment
Foreign currency translation adjustment
Unrealized holding gain (loss) on investment in securities
Reclassification adjustment for loss included in net income
Other
2023
2022
2021
$
(3,399) $
(2,752) $
(3,425)
(11)
(129)
(1,453)
(76)
—
(1,669)
76
(190)
620
—
—
506
14
203
(124)
97
(10)
180
COMPREHENSIVE LOSS ATTRIBUTABLE TO GIGAMEDIA
SHAREHOLDERS
$
(5,068) $
(2,246) $
(3,245)
The accompanying notes are an integral part of these consolidated financial statements.
F-7
GIGAMEDIA LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021
(in thousands of US dollars and shares)
Ordinary shares and
additional paid-in capital
Shares
GIGAMEDIA SHAREHOLDERS
Accumulated
deficit
(Note 13)
Amount
Accumulated other
comprehensive loss
(Note 14)
Total
Balance as of January 1, 2021
Net loss
Other comprehensive income
Balance as of December 31, 2021
Net loss
Other comprehensive loss
Balance as of December 31, 2022
Net loss
Other comprehensive loss
Balance as of December 31, 2023
11,052
—
—
11,052
—
—
11,052
—
—
11,052
$
$
308,752
—
—
308,752
—
—
308,752
—
—
308,752
$
$
(232,254) $
(3,425)
—
(235,679)
(2,752)
—
(238,431)
(3,399)
—
(241,830) $
(22,401) $
—
180
(22,221)
—
506
(21,715)
—
(1,669)
(23,384) $
54,097
(3,425)
180
50,852
(2,752)
506
48,606
(3,399)
(1,669)
43,538
The accompanying notes are an integral part of these consolidated financial statements.
F-8
GIGAMEDIA LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021
(in thousands of US dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Depreciation
Amortization
Bad debt expense
Gain on disposal of investment in securities
Changes in the fair value of investment in equity securities recognized at
fair value
Unrealized foreign exchange (gain) loss
Other
Net changes in:
Accounts receivable
Prepaid expenses
Prepaid licensing and royalty fees
Prepaid pension assets
Other assets
Accounts payable
Accrued expenses
Other liabilities
Net cash used in operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment in securities
Purchases of property, plant and equipment
Increase in intangible assets
Proceeds from disposal of investment in securities
Increase in refundable deposits
Net cash provided by (used in) investing activities
2023
2022
2021
$
(3,399) $
(2,752) $
(3,425)
43
12
7
(76)
2,110
(85)
—
(35)
7
152
9
272
(9)
31
(232)
(1,193)
(105)
(52)
(6)
1,000
—
837
24
9
2
—
(409)
1,022
3
64
341
(142)
(59)
(141)
(66)
(284)
(121)
(2,509)
—
(52)
(18)
—
—
(70)
11
9
7
(125)
—
—
—
3
(313)
96
(16)
(151)
47
(80)
(198)
(4,135)
—
(76)
(17)
80
(4)
(17)
F-9
GIGAMEDIA LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021
(in thousands of US dollars)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net cash used in financing activities
Net foreign currency exchange differences on cash, cash equivalents
and restricted cash
NET DECREASE IN CASH, CASH EQUIVALENTS AND
RESTRICTED CASH
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT
BEGINNING OF YEAR
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END
OF YEAR
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the year
Income tax refunded during the year
2023
2022
2021
—
32
(324)
39,107
—
(75)
(2,654)
41,761
—
(89)
(4,241)
46,002
$
$
$
38,783
$
39,107
$
41,761
— $
— $
— $
— $
—
(2)
The accompanying notes are an integral part of these consolidated financial statements.
F-10
GIGAMEDIA LIMITED AND SUBSIDIARIES
Notes To Consolidated Financial Statements
December 31, 2023, 2022 and 2021
NOTE 1. Principal Activities, Basis of Presentation, and Summary of Significant Accounting Policies
(a) Principal Activities
GigaMedia Limited (referred to hereinafter as GigaMedia, our Company, we, us, or our) is a diversified provider of digital
entertainment services, with a headquarters in Taipei, Taiwan.
Our digital entertainment service business operates a suite of play-for-fun digital entertainment services, mainly targeting online and
mobile-device users across Asia.
(b) Basis of Presentation
The accompanying consolidated financial statements of our Company have been prepared in accordance with accounting principles
generally accepted in the United States of America (“U.S. GAAP”).
(c) Summary of significant accounting policies
Principles of Consolidation
The consolidated financial statements include the accounts of GigaMedia and its subsidiaries after elimination of all inter-company
accounts and transactions.
Foreign Currency Transactions
The functional currency of each individual consolidated entity is determined based on the primary economic environment in which the
entity operates. Foreign currency transactions denominated in currencies other than the functional currencies are translated into the
functional currency using the exchange rate prevailing on the transactions dates. At year-end, the balances of foreign currency
monetary assets and liabilities are recorded based on prevailing exchange rates and any resulting gains or losses are included in other
income and expenses. For the Investments in debt securities that are classified as either trading or available for sale that is
denominated in a foreign currency, see Note 1(c), Summary of significant accounting policies - Investment in Securities, for additional
information.
Translation of Foreign Currency Financial Statements
The reporting currency of our Company is the U.S. dollars. The functional currency of some of our Company’s subsidiaries is the
local currency of the respective entity. Accordingly, the financial statements of the foreign subsidiaries were translated into U.S.
dollars at the following exchange rates: assets and liabilities — current rate on the balance sheet date; shareholders’ equity —
historical rates; income and expenses — average rate during the period. Cumulative translation adjustments resulting from this process
are charged or credited to other comprehensive income.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of
the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Management
bases its estimates on historical experience and on assumptions that it believes are reasonable. Management assesses these estimates
on a regular basis; however, actual results could differ from those estimates. Items subject to such estimates and assumptions include
but not limit to the deferral and breakage of revenues; the fair value of unquoted debt and equity securities, the useful lives of
property, plant and equipment and right-of-use assets; allowances for doubtful accounts; the valuation of deferred tax assets, long-
lived assets, investments and share-based compensation; and accrued pension liabilities (prepaid pension assets), income tax
uncertainties and other contingencies. We believe the critical accounting policies listed below affect management’s judgments and
estimates used in the preparation of the consolidated financial statements.
F-11
Revenue Recognition and Deferral
General
Our recognition of revenue from contracts with customers is in accordance with the five-step revenue recognition model: (1) identify
the contract with a customer; (2) identify the performance obligation in the contract; (3) determine the transaction price; (4) allocate
the transaction price to each performance obligation; and (5) recognize revenue when or as we satisfy a performance obligation.
Sales taxes assessed by governmental authorities on our revenue transactions are presented on a net basis of digital entertainment
service revenues in our consolidated financial statements.
In addition to the aforementioned general policies, the following are the specific revenue recognition policies for revenue from
contracts with customers.
Digital Entertainment Product and Service Revenues
Digital entertainment product and service revenues are mainly generated through sale of virtual points and in-game items, and those
virtual goods purchased in our games can only be consumed in our games. Therefore, we regard the sale of a virtual good as a service,
where the related performance obligation is satisfied over time, and revenues are recognized by measuring progress toward satisfying
the performance obligation in a manner that best depicts the transfer of goods or services to the customer. Accordingly, we recognize
revenues from the sale of virtual goods over the period of time using the output method, which is generally the estimated service
period.
Digital entertainment product and service revenues are generated through the sale of virtual points, prepaid cards and game packs via
various third-party storefronts, distributors and payment channels, including but not limited to the “Google Play Store,” the “Apple
App Store,” convenience stores, telecom service providers and other payment service providers. Proceeds from sales of prepaid cards
and game packs, net of sales discounts, and virtual points are deferred when received, and revenue is recognized upon the actual usage
of the playing time or in-game virtual items by the end-users, or over the estimated useful life of virtual items, when the game is
terminated and the period of refund claim for any sold virtual items is ended in accordance with our published policy, or when the
likelihood of the customer exercising the remaining rights becomes remote. (Please see “Deferred Revenues and Breakage” below for
more discussion of accounting treatments of the unexercised rights.)
Estimated Service Period
The virtual goods for our games may have different service periods. We use the weighted average number of days of a player’s
payment interval as the estimate for the service period of each game. We evaluate the appropriateness of such estimates quarterly to
see if they are in line with our observations in the operations. We believe this provides a reasonable depiction of the transfer of
services to our customers, as it is the best representation of the time period during which our customers play our games. Determining
the estimated service period is subjective and requires management’s judgment. Future usage patterns may differ from historical ones
and therefore, the estimated service period may change in the future. The estimated service periods for players of our current games
are generally less than 6 months.
Principal Agent Considerations
For the revenues generated from our digital entertainment offerings which are licensed to us for using, marketing, distributing, selling
and publishing, and for the sales of our products and services via third-party storefronts and other channels, we evaluate to determine
whether our revenues should be reported on a gross or net basis. Key indicators that we evaluate in determining whether we are the
principal in the sale (gross reporting) or an agent (net reporting) include, but are not limited to:
•
•
which party is primarily responsible for fulfilling the promise to provide the specified good or service; and
which party has discretion in establishing the price for the specified good or service.
Based on our evaluation of various indicators, we report revenues on a gross basis for games that we publish and operate, as we are,
and we present ourselves as, responsible for fulfilling the promise of delivering the virtual goods in the game and maintaining the
game environment for customers’ consumption of such virtual goods. We have the discretion in establishing the price for those virtual
goods, including the power to decide the range and extent of price discount or quantity discount, while the licensors or the third-party
channels charge a fixed percentage of fees for such sales. And any loss on the receivables has to be absorbed by us and not the third-
party channels.
F-12
Deferred Revenues and Breakage
Deferred revenues representing contract liabilities consist mainly of the advanced income related to our digital entertainment business.
Deferred revenue represents proceeds received relating to the sale of virtual points and in-game items that are activated or charged to
the respective user account by users, but which have not been consumed by the users or expired. Deferred revenue is credited to profit
or loss when the virtual points and in-game items are consumed or have expired. Pursuant to relevant requirements in Taiwan, as of
December 31, 2023 and 2022, cash totaling $313 thousand and $313 thousand, respectively, had been deposited in escrow accounts in
banks mainly as a performance bond for the users’ prepayments and virtual points, and is included within restricted cash in the
consolidated balance sheets.
For deferred revenues, some users may not exercise all of their contractual rights, and those unexercised rights are referred to as
breakage. We estimate and recognize the breakage amount as revenue when the likelihood of the customer exercising the remaining
rights becomes remote. We consider a variety of data points when determining the estimated breakage amount, including the time
when we ceased selling prepaid products for certain services and when such prepaid products were last used in charging users’
accounts.
Prepaid Licensing and Royalty Fees
Our Company, through our subsidiaries, routinely enters into agreements with licensors to acquire licenses for using, marketing,
distributing, selling and publishing digital entertainment offerings.
Prepaid licensing fees paid to licensors are amortized on a straight-line basis over the shorter of the estimated useful economic life of
the relevant product and service or license period, which is usually within one to two years.
Prepaid royalty fees and related costs are initially deferred when paid to licensors and amortized as operating costs based on certain
percentages of revenues generated by the licensee from operating the related digital entertainment product and service in the specific
country or region over the contract period.
Fair Value Measurements
Our Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to
the extent possible. We determine fair value based on assumptions that market participants would use in pricing an asset or a liability
in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the
following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the
following levels:
•
•
•
Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting
entity at the measurement date.
Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either
directly or indirectly, for substantially the full term of the asset or liability.
Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs
are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at
measurement date.
Our Company generally determines or calculates the fair value of financial instruments using quoted market prices in active markets
when such information is available; otherwise we apply appropriate present value or other valuation techniques, such as the income
approach, incorporating adjusted available market discount rate information and our Company’s estimates for non-performance and
liquidity risk, or the market approach, where we derive the implied value of financial instruments for the target company from a recent
transaction involving the target company’s own securities. These techniques rely extensively on the use of a number of assumptions,
including the discount rate, credit spreads, and estimates of future cash flows. (Please see Note 4, “Fair Value Measurements”, for
additional information.)
Cash Equivalents, Restricted Cash and Presentation of Statements of Cash Flows
Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and so near to their
maturity that they present relatively insignificant risk from changes in interest rates. Commercial paper, negotiable certificates of
deposit, time deposits and bank acceptances with original maturities of three months or less are considered to be cash equivalents.
F-13
Our consolidated statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts
generally described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash and restricted cash
equivalents are included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts
shown on the consolidated statement of cash flows.
Investment in Securities
Debt securities
Debt securities for which we have the positive intent and ability to hold to maturity are classified as held-to-maturity and are carried at
amortized cost. Debt securities held primarily for the purpose of selling in the near term are classified as trading securities and are
reported at fair value, with unrealized gains and losses included in income.
Debt securities not classified as held-to-maturity or trading are classified as available-for-sale and are reported at fair value with
unrealized gains and losses, net of income taxes, as a separate component of other comprehensive income. When a trading or
available-for-sale security is denominated in a foreign currency, changes in the exchange rate between the foreign currency and an
entity’s functional currency affect the security’s fair value. Therefore, under ASC 320, Investments—Debt Securities, the trading or
available-for-sale security must be remeasured from the foreign currency to the functional currency as of each reporting date by using
the current exchange rate to determine the fair value of the security. The entire change in the security’s fair value (including the
portion related to a change in the exchange rates) is classified in accordance with ASC 320.
Losses on debt security transactions and declines in value that are determined to be the result of credit losses, if any, are reported in
the consolidated statements of operations. In evaluating credit losses on the debt securities, management first considers whether the
fair value is less than amortized cost. An impairment exists if the fair value of the investment is less than its amortized cost basis.
Secondly, the intent or requirement to sell the securities is analyzed. If we intend to sell the debt security, or more likely than not will
be required to sell the security before recovery of its amortized cost basis, any allowance for credit losses shall be written off and the
amortized cost basis shall be written down to the debt security’s fair value at the reporting date, with any incremental impairment
reported in the consolidated statements of operations. Subsequently, it shall be determined whether the decline in fair value below the
amortized cost basis has resulted from a credit loss, considering comprehensive factors including but not limited to changes in industry
or area, in technology or changes that indicate likely or realized failure of the issue of the security to make scheduled interest or
principal payments. Unrealized gains on credit-related recoveries are reported in the consolidated statements of operations.
Equity securities
Equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the
investee) are to be measured at fair value with changes in fair value recognized in net income.
Receivables
Accounts receivable are recorded at the invoiced amount and do not bear interest. Amounts collected on accounts receivable are
included in net cash provided by operating activities in the consolidated statements of cash flows. Our Company maintains an
allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required
allowance, management adopts a current expected credit loss model based on expected losses. The measurement of expected losses is
based on relevant information about past events, including historical losses adjusted to take into account the amount of receivables in
dispute, and the current receivables aging and current payment patterns, as well as reasonable and supportable forecasts that affect the
collectibility of reported amounts. Account balances are charged off against the allowance after all means of collection have been
exhausted and the potential for recovery is considered remote.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is recorded on a
straight-line basis over useful lives that correspond to categories as follows:
Categories
Information and communication equipment
Office furniture and equipment
Leasehold improvements
F-14
Years
2 to 5
3 to 6
Shorter of 5 or lease
term
Leasehold improvements are amortized over the shorter of the term of the lease or the economic useful life of the assets.
Improvements and replacements are capitalized and depreciated over their estimated useful lives, while ordinary repairs and
maintenance are expensed as incurred.
Software Cost
We capitalize certain costs incurred to purchase computer software. These capitalized costs are amortized on a straight-line basis over
the shorter of the useful economic life of the software or its contractual license period, which is typically one to three years.
Impairment of Long-Lived Assets
Long-lived assets other than goodwill not being amortized are reviewed for impairment at least annually or whenever events or
changes in circumstances indicate that the carrying value of an asset might not be recoverable from its related future undiscounted
cash flows. If such assets are considered to be impaired, the impairment to be recognized is measured by the extent to which the
carrying amount of the assets exceeds the estimated fair value of the assets. Fair value is determined through various valuation
techniques, including discounted cash flow models, quoted market values and third-party independent appraisals, as considered
necessary. When impairment is identified, the carrying amount of the asset is reduced to its estimated fair value, and is recognized as a
loss from operations. (Please see Note 4, “Fair Value Measurements”, for additional information.)
Product Development and Engineering
Product development and engineering expenses primarily consist of research compensation, depreciation and amortization, and are
expensed as incurred.
Advertising
Costs of broadcast advertising are recorded as expenses as advertising airtime is used. Other advertising expenditures are expensed as
incurred.
Advertising expenses incurred in 2023, 2022 and 2021 totaled $0.2 million, $0.2 million and $0.2 million, respectively and were
included in selling and marketing expenses.
Leases
General
We determine if an arrangement is or contains a lease at contract inception. In certain situations, judgment may be required in
determining if a contract contains a lease. For these arrangements, there is judgment in evaluating if the arrangement provides us with
an asset that is physically distinct, or that represents substantially all of the capacity of the asset, and if we have the right to direct the
use of the asset. Lease assets and liabilities are recognized based on the present value of future lease payments over the lease term at
the commencement date. Included in the lease liability are future lease payments that are fixed, in-substance fixed, or are payments
based on an index or rate known at the commencement date of the lease. Variable lease payments are recognized as lease expenses as
incurred, and generally relate to variable payments made based on the level of services provided by the lessor of our leases. The
operating lease right-of-use (“ROU”) asset also includes any lease payments made prior to commencement, initial direct costs
incurred, and lease incentives received. As most of our leases do not provide an implicit rate, we generally use our incremental
borrowing rate in determining the present value of future payments. The incremental borrowing rate represents the rate required to
borrow funds over a similar term to purchase the leased asset, and is based on the information available at the commencement date of
the lease. For leased assets with similar lease terms and asset type we applied a portfolio approach in determining a single incremental
borrowing rate to apply to the leased assets.
In determining our lease liability, the lease term includes options to extend or terminate the lease when it is reasonably certain that we
will exercise such option. Leases with an initial term of 12 months or less are not recorded on the balance sheet, and we recognize
lease expense for these leases on a straight-line basis over the lease term.
F-15
Subsequently, lease liabilities are measured at amortized cost using the effective interest method, with interest expense recognized
over the lease terms. When there is a change in a lease term, a change in future lease payments resulting from a change in an index or
a rate used to determine those payments, or a change in the assessment of an option to purchase an underlying asset, our Company
remeasures the lease liabilities with a corresponding adjustment to the ROU assets.
Operating lease ROU assets are presented in “Other assets” and operating lease liabilities are presented in “Other current liabilities”
and “Lease liabilities” on our consolidated balance sheets.
Retirement Plan and Net Periodic Pension Cost
Under our defined benefit pension plan, net periodic pension cost, which includes service cost, interest cost, expected return on plan
assets, amortization of unrecognized net transition obligation and gains or losses on plan assets, is recognized based on an actuarial
valuation report. We recognize the funded status of pension plans and non-pension post-retirement benefit plans (retirement-related
benefit plans) as an asset or a liability in the consolidated balance sheets.
Under our defined contribution pension plans, net periodic pension cost is recognized as incurred.
Government Assistance
Government subsidies received by our Company for employment support are recognized as non-operating income. If we have an
obligation to repay any of the funds provided by government plus any penalties due to breach of the terms and conditions of the
subsidy scheme, we estimate that obligation and recognize the amount as non-operating loss and a liability.
In 2022, a Hong Kong subsidiary of ours received subsidies from the first and the second tranches of Employment Support Scheme of
the Hong Kong Government as a relief from the COVID-19 pandemic. The scheme provided time-limited financial support to
employers to retain their employees who may otherwise be made redundant. Employers who participated in the scheme must provide
an undertaking not to implement redundancy during the subsidy period and to spend all the wage subsidies on paying wages to their
employees. The scheme was not effected in 2023 and 2021.
For the years ended December 31, 2023, 2022 and 2021, the amounts of government subsidies were $0, $44 thousand and $0,
respectively.
Income Taxes
The asset and liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are
determined based on the differences between financial reporting and tax bases of assets and liabilities. Deferred tax assets and
liabilities, which are classified as noncurrent on the consolidated balance sheets, are measured using the enacted tax rate and laws that
will be in effect when the related temporary differences are expected to reverse. A valuation allowance is established when necessary
to reduce deferred tax assets to the amount that more-likely-than-not will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the periods in which those temporary differences and loss
carryforwards become deductible.
In addition, we recognize the financial statement impact of a tax position when it is more-likely-than-not that the position will be
sustained upon examination. If the tax position meets the more-likely-than-not recognition threshold, the tax effect is measured at the
largest amount that is greater than a 50% likelihood of being realized upon settlement. Interest and penalties on an underpayment of
income taxes are reflected as income tax expense in the consolidated financial statements.
Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing the net income (loss) attributable to ordinary shareholders for the period by the
weighted average number of ordinary shares outstanding during the period. Diluted earnings (loss) per share is computed by dividing
the net earnings (loss) for the period by the weighted average number of ordinary shares and potential ordinary shares outstanding
during the period. Potential ordinary shares, composed of incremental ordinary shares issuable upon the exercise of options in all
periods, are included in the computation of diluted earnings (loss) per share to the extent such shares are dilutive. Diluted earnings
(loss) per share also takes into consideration the effect of dilutive securities issued by subsidiaries. In a period in which a loss is
incurred, only the weighted average number of ordinary shares issued and outstanding is used to compute the diluted loss per share, as
the inclusion of potential ordinary shares would be anti-dilutive. Therefore, for the years ended December 31, 2023, 2022 and 2021,
basic and diluted loss per share were $0.31, $0.25 and $0.31, respectively.
F-16
Segment Reporting
Our segment reporting is mainly based on lines of business. We use the management approach in determining reportable operating
segments. The management approach considers the internal organization and reporting used by our Company’s chief operating
decision maker for making operating decisions, allocating resources and assessing performance as the source for determining our
operating segments. Our Company’s chief operating decision maker (“CODM”) has been identified as the Chief Executive Officer.
Segment profit and loss is determined on a basis that is consistent with how our Company reports operating loss in its consolidated
statements of operations. Our Company does not report segment asset information to the CODM. Consequently, no asset information
by segment is presented. Because we operate only one segment, there are no intersegment transactions.
(d) Recently Adopted Accounting Pronouncements
In July 2023, the Financial Accounting Standards Board ("FASB") issued an accounting standard update ("ASU"), ASU 2023-
03, Presentation of Financial Statements (Topic 205), Income Statement—Reporting Comprehensive Income (Topic 220),
Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation—Stock Compensation (Topic 718):
Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022
EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revision of Regulation S-X: Income
or Loss Applicable to Common Stock (SEC Update). This ASU amends or supersedes various SEC paragraphs within the codification
to conform to past announcements and guidance issued by the SEC. The adoption of this amendment did not have a material impact
on our Company’s results of operations, financial position, cash flows or financial statement disclosures.
(e) Recent Accounting Pronouncements Not Yet Adopted
In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s
Disclosure Update and Simplification Initiative, to amend certain disclosure and presentation requirements for a variety of topics
within the ASC. These amendments align the requirements in the ASC to the removal of certain disclosure requirements set out in
Regulation S-X and Regulation S-K, announced by the SEC. The effective date for each amended topic in the ASC is either the date
on which the SEC’s removal of the related disclosure requirement from Regulation S-X or Regulation S-K becomes effective, or on
June 30, 2027, if the SEC has not removed the requirements by that date. Early adoption is prohibited. The adoption of this
amendment is not expected to have a material impact on our Company’s financial position, results of operations, cash flows or
financial statement disclosures.
Income tax
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which
requires a public business entity to disclose specific categories in its annual effective tax rate reconciliation and disaggregated
information about significant reconciling items by jurisdiction and by nature. The ASU also requires entities to disclose their income
tax payments (net of refunds received) to international, federal, and state and local jurisdictions in which income taxes paid (net of
refunds received) is equal to or greater than 5 percent of total income taxes paid (net of refunds received). The guidance makes several
other changes to income tax disclosure requirements. This guidance is effective for fiscal years beginning after December 15, 2024
and requires prospective application with the option to apply it retrospectively. Early adoption is permitted. The adoption of this
amendment is not expected to have a material impact on our Company’s financial position, results of operations, cash flows or
financial statement disclosures.
Segment Reporting
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment
Disclosures, which updates reportable segment disclosure requirements primarily through enhanced disclosures about significant
segment expenses. The amendments in the ASU:
•
•
Require that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly
provided to the CODM and included within each reported measure of segment profit or loss (collectively referred to as the
“significant expense principle”).
Require that a public entity disclose, on an annual and interim basis, an amount for other segment items by reportable
segment and a description of its composition. The other segment items category is the difference between segment
F-17
revenue less the segment expenses disclosed under the significant expense principle and each reported measure of
segment profit or loss.
•
•
•
•
Require that a public entity provide all annual disclosures about a reportable segment’s profit or loss and assets currently
required by Topic 280 in interim periods.
Clarify that if the CODM uses more than one measure of a segment’s profit or loss in assessing segment performance and
deciding how to allocate resources, a public entity may report one or more of those additional measures of segment profit.
However, at least one of the reported segment profit or loss measures (or the single reported measure, if only one is
disclosed) should be the measure that is most consistent with the measurement principles used in measuring the
corresponding amounts in the public entity’s consolidated financial 3 statements. In other words, in addition to the
measure that is most consistent with the measurement principles under U.S. GAAP, a public entity is not precluded from
reporting additional measures of a segment’s profit or loss that are used by the CODM in assessing segment performance
and deciding how to allocate resources.
Require that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the
reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources.
Require that a public entity that has a single reportable segment provide all the disclosures required by the amendments in
this Update and all existing segment disclosures in Topic 280.
The amendments are effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years
beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied retrospectively to all prior
periods presented in the financial statements. The adoption of this ASU is not expected to have a material impact on our Company’s
financial position, results of operations, cash flows or financial statement disclosures.
NOTE 2. EARNINGS (LOSS) PER SHARE
The following table provides a reconciliation of the denominators of the basic and diluted per share computations:
(in thousand shares)
Weighted average number of outstanding shares
Basic
Effect of dilutive securities
Employee share-based compensation
Diluted
2023
2022
2021
11,052
11,052
11,052
—
11,052
—
11,052
—
11,052
Certain outstanding options were excluded from the computation of diluted EPS since their effect would have been anti-dilutive. The
antidilutive stock options excluded and their associated exercise prices per share were 29 thousand shares at the range of $2.90 to
$7.15 as of December 31, 2023, 33 thousand shares at $2.90 to $7.15 as of December 31, 2022, and 37 thousand shares at $2.90 to
$7.15 as of December 31, 2021. There were no antidilutive Restricted Stock Units (“RSUs”) as of December 31, 2023, 2022, and
2021.
NOTE 3. PREPAID LICENSING AND ROYALTY FEES
The following table summarizes changes to our Company’s prepaid licensing and royalty fees:
(in US$ thousands)
Balance at beginning of year
Addition
Amortization and usage
Impairment charges
Balance at end of year
2023
2022
2021
$
$
177
36
(189)
—
24
$
$
35
369
(227)
—
177
$
$
130
98
(193)
—
35
F-18
NOTE 4. FAIR VALUE MEASUREMENTS
The following table presents the carrying amounts and estimated fair values of our Company’s financial instruments at December 31,
2023 and 2022.
(in US$ thousands)
Financial assets
Cash and cash equivalents
Accounts receivable
Restricted cash
Refundable deposits
Investment in securities - current
Investment in securities - noncurrent
Financial liabilities
Accounts payable
Accrued expenses
Lease liabilities - current and noncurrent
2023
Carrying
amount
Fair value
2022
Carrying
amount
Fair value
$
$
38,470
227
313
193
—
5,777
44
1,182
970
$
38,470
227
313
193
—
5,777
44
1,182
970
$
38,794
199
313
192
7,950
2,371
53
1,151
1,333
38,794
199
313
192
7,950
2,371
53
1,151
1,333
The carrying amounts shown in the table are included in the consolidated balance sheets under the indicated captions.
The fair values of the financial instruments shown in the above table as of December 31, 2023 and 2022 represent the amounts that
would be received to sell those assets or that would be paid to transfer those liabilities in an arm’s length transaction between market
participants at that date. Those fair value measurements maximize the use of observable inputs. In situations where there is little
market activity for the asset or liability at the measurement date, the fair value measurement reflects our Company’s own judgments
about the assumptions that market participants would use in pricing the asset or liability. Those judgments are developed by us based
on the best information available in the circumstances, including expected cash flows and appropriately risk-adjusted discount rates,
available observable and unobservable inputs.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments:
•
•
•
•
Cash and cash equivalents, accounts receivable, restricted cash, accounts payable, accrued expenses: The carrying
amounts, at face value or cost plus accrued interest, approximate fair value because of the short maturity of these
instruments.
Refundable deposits: Measurement of refundable deposits with no fixed maturities is based on carrying amounts.
Investment in securities – current and noncurrent: Valuation techniques are applied for measurement of debt and equity
securities.
Lease liabilities: Measured at discounted amounts of lease payments.
Assets and Liabilities that are Measured at Fair Value on a Recurring Basis
Our Company has segregated all financial assets and liabilities that are measured at fair value on a recurring basis (at least annually)
into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement
date in the table below.
Assets and liabilities measured at fair value on a recurring basis are summarized as below:
(in US$ thousands)
Fair Value Measurement Using
Assets
Restricted cash - time deposits
Investment in securities - noncurrent
Level 1
Level 2
Level 3
At December 31,
2023
$
$
— $
—
— $
313
—
313
$
$
— $
5,777
5,777
$
313
5,777
6,090
F-19
(in US$ thousands)
Assets
Restricted cash - time deposits
Investment in securities - current
Investment in securities - noncurrent
Fair Value Measurement Using
Level 1
Level 2
Level 3
At December 31,
2022
$
$
— $
—
—
— $
313
—
—
313
$
$
— $
7,950
2,371
10,321
$
313
7,950
2,371
10,634
Our Company’s accounting policy is to recognize transfers between levels of the fair value hierarchy on the date of the event or
change in circumstances that caused the transfer. There were no transfers into or out of Level 3 for the years ended December 31,
2023 and 2022.
Level 2 measurements:
Cash equivalents – time deposits and restricted cash – time deposits are interest-earning deposits in banks, and the cash flows are
estimated based on the terms of the contracts and discounted using the market interest rates applicable to the maturity of the contracts,
which are adjusted to reflect credit risks on counterparties. As the inputs into the valuation techniques are readily observable, these
deposits are classified in Level 2 of the fair value hierarchy.
Level 3 measurements:
For assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during 2023 and 2022, a
reconciliation of the beginning and ending balances are presented as follows:
(in US$ thousands)
Balance at beginning of year
Purchase
Disposal or repayment
Total gains or (losses) (realized/unrealized)
included in earnings
included in other comprehensive income - unrealized gain (loss) on security
included in other comprehensive income - foreign currency items
Balance at end of year
The amount of total gains or (losses) for the period
included in earnings attributable to the change in
unrealized gains or losses relating to assets still held at
the reporting date.
(in US$ thousands)
Balance at beginning of year
Purchase
Disposal
Total gains or (losses) (realized/unrealized)
included in earnings
included in other comprehensive income - unrealized gain (loss) on security
included in other comprehensive income - foreign currency items
Balance at end of year
The amount of total gains or (losses) for the period
included in earnings attributable to the change in
unrealized gains or losses relating to assets still held at
the reporting date.
2023
Investment in debt
securities
Investment in equity
securities
7,950
105
(1,000)
—
(1,453)
(54)
5,548
$
$
2,371
—
—
(2,110)
—
(32)
229
— $
(2,110)
2022
Investment in debt
securities
Investment in equity
securities
8,132
—
—
—
620
(802)
7,950
$
$
2,190
—
—
409
—
(228)
2,371
— $
409
$
$
$
$
$
$
F-20
The significant unobservable inputs used in the fair value measurements categorized within Level 3 of the fair value hierarchy,
together with a quantitative sensitivity analysis as of December 31, 2023 and 2022 are shown below:
Investment in securities - Level 3 financial assets
Sensitivity of the Input to Fair Value
Calculation
Date
December
31, 2023
December
31, 2022
Valuation
Technique
The discounted
cash flow
analysis to
estimate the
enterprise value,
and then the
option pricing
method to
allocate equity
value among
various classes of
stakeholders.
The discounted
cash flow
analysis to
estimate the
enterprise value,
and then the
option pricing
method to
allocate equity
value among
various classes
of stakeholders.
Significant
Unobservable
Inputs
Discount rate
for future
cash flows
Discount for
lack of
marketability
(“DLOM”)
Changes of Fair Value (in US$ thousands)
Rate for debt
investment
Rate for equity
investment
If the Rate of Input
changes by -1%
If the Rate of Input
changes by +1%
38.5%
38.5%
Debt securities: +$90
Equity securities: +$67
Debt securities: -$121
Equity securities: -$58
12%
From12.0% to
30.0% for
different
scenarios
Debt securities: +$63
Equity securities: +$4
Debt securities: -$63
Equity securities: -$3
Volatility
29%
29%
Debt securities: +$22
Equity securities: +$3
Debt securities: -$86
Equity securities: -$2
Discount rate
for future
cash flows
38.5%
38.5%
Discount for
lack of
marketability
(“DLOM”)
From 4.0%
to 12.0% for
different
scenarios
From 6.0% to
12.0% for
different
scenarios
Volatility
From 28% to
31.0% for
different
scenarios
From 28% to
31.0% for
different
scenarios
Debt securities: +$372
Equity securities: +$175
Debt securities: -$262
Equity securities: -
$170
Debt securities: +$93
Equity securities: +$26
Debt securities: -$93
Equity securities: -$25
Debt securities: +$23
Equity securities: +$16
Debt securities: +$24
Equity securities: -$10
When estimating the value of the early stage enterprise, in the absence of observable market prices or a recent financing transaction,
we obtained sufficient financial and operational information from the issuer’s company, using the income approach as our primary
method, which reflects the close relationship between the future cash generating ability of the issuer’s company and respective
enterprise value. As the issuer’s company was still at its early stage of development with limited historical track record, market
multiples were conducted for supplementary reference only.
The derived enterprise value was then served as a reasonable basis for the subsequent equity value allocation exercise to estimate the
portion assignable to the issuer’s convertible note and respective share categories as of the measurement date by applying a hybrid
method of Probability Weighted Expected Return Method (“PWERM”) and Option Pricing Method (“OPM”). Such hybrid method
estimates the probability weighted value across multiple scenarios, using OPM to estimate the allocation of value within one or more
of those scenarios.
Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis
Assets and liabilities measured at fair value on a nonrecurring basis include measuring impairment when required for long-lived
assets. For GigaMedia, long-lived assets measured at fair value on a nonrecurring basis include property, plant, and equipment,
intangible assets, operating lease ROU assets, and prepaid licensing and royalty fees.
No assets and liabilities measured at fair value on a nonrecurring basis were determined to be impaired as of December 31, 2023 and
2022.
F-21
NOTE 5. CASH, CASH EQUIVALENTS AND RESTRICTED CASH
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance
sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows as of December 31, 2023 and
2022.
(in US$ thousands)
Cash and savings accounts
Time deposits
Cash and cash equivalents reported on the consolidated
balance sheets
Cash restricted as performance bond
Total cash, cash equivalents and restricted cash reported
on the consolidated statements of cash flows
December 31
2023
2022
$
38,470 $
—
38,470
313
38,794
—
38,794
313
$
38,783 $
39,107
As of December 31, 2023 and 2022, cash amounting to $313 thousand and $313 thousand, respectively, has been deposited in escrow
accounts in banks mainly as a performance bond for our players’ game points. These deposits are restricted and are included in
restricted cash in the consolidated balance sheets.
We maintain cash and cash equivalents, as well as restricted cash, in bank accounts with major financial institutions with high credit
ratings located in the following jurisdictions:
(in US$ thousands)
Taiwan
Hong Kong
China
NOTE 6. ACCOUNTS RECEIVABLE – NET
Accounts receivable consist of the following:
(in US$ thousands)
Accounts receivable
Less: Allowance for doubtful accounts
December 31
2023
2022
38,289 $
494
—
38,783 $
38,352
739
16
39,107
December 31
2023
2022
229 $
(2)
227 $
200
(1)
199
$
$
$
$
The following is a summary of the changes in our Company’s allowance for doubtful accounts during the years ended December 31,
2023, 2022 and 2021:
(in US$ thousands)
Balance at beginning of year
Additions: Bad debt expense
Less: Write-off
Translation adjustment
Balance at end of year
NOTE 7. OTHER CURRENT ASSETS
Other current assets consist of the following:
2023
2022
2021
$
$
1 $
7
(6)
—
2 $
2 $
2
(3)
—
1 $
1
7
(6)
—
2
(in US$ thousands)
Loans receivable - current
Less: Allowance for loans receivable - current
Other receivable
Other
F-22
December 31
2023
2022
$
$
24 $
(24)
2
141
143 $
29
(29)
374
136
510
The following is a reconciliation of changes in our Company’s allowance for loans receivable - current during the years ended
December 31, 2023, 2022 and 2021:
(in US$ thousands)
Balance at beginning of year
Reversal for collection of bad debt
Translation adjustment
Balance at end of year
2023
2022
2021
$
$
29
(5)
—
24
$
$
33
—
(4)
29
$
$
32
—
1
33
NOTE 8. INVESTMENT IN SECURITIES
Investment in securities – current and noncurrent consist of the following:
(in US$ thousands)
Debt securities, classified as available-for-sale
Equity securities
December 31
2023
2022
5,548
229
5,777
$
$
7,950
2,371
10,321
$
$
Our Company’s investment in securities - current and noncurrent are invested in convertible promissory notes and preferred shares.
During 2023, we recognized a realized exchange gain of $76 thousand arising from the partial repayment of the aforementioned
promissory note. During 2021, we recognized gains of $125 thousand on disposal of investment in securities, consisting of a gain of
$79 thousand on the disposal of an equity security that have been fully impaired years ago, and a gain of $46 thousand on the deemed
disposal arising from the partial conversion of the aforementioned promissory note into the preferred shares. Certain of our investment
in securities, though denominated in US dollars, are held by an entity of ours whose functional currency is not US dollars, resulting to
unrealized exchange gain or loss accounted for as other comprehensive income or loss, and corresponding translation adjustment
accordingly.
The promissory notes are purchased under different agreements, and are convertible into common or preferred shares at certain
different prices, subject to applicable adjustments. Upon conditions outlined in the agreements, the convertible promissory notes may
be automatically converted or become redeemable. See Note 17, “Commitments and Contingencies, (c) Investment Agreements”, for
additional information.
We assessed the estimated fair values of these investments as of December 31, 2023. See Note 4 “Fair Value Measurements” for
additional information.
F-23
NOTE 9. LEASE ARRANGEMENTS
We rent certain office premises and automobile for operation use under lease agreements that expire at various dates through 2026.
Right-of-use assets
Right-of-use assets consist of the following:
(in US$ thousands)
Carrying amount:
Office premise
December 31
2023
2022
$
944
$
1,306
The following tables summarize changes to our Company’s right-of use assets during 2023 and 2022:
(in US$ thousands)
Cost
Balance at January 1
Additions
Exchange differences
Balance at December 31
Balance at January 1
Depreciation
Exchange differences
Balance at December 31
Balance at January 1
Balance at December 31
Lease liabilities
(in US$ thousands)
Carrying amount:
Current portion (classified under other current liabilities)
Noncurrent portion
2023
2022
2,165
116
—
2,281
$
$
Accumulated depreciation
2023
2022
859
472
6
1,337
$
$
2,390
—
(225)
2,165
419
489
(49)
859
Carrying amounts
2023
2022
1,306
944
$
$
1,971
1,306
December 31
2023
2022
475
495
970
$
$
440
893
1,333
$
$
$
$
$
$
$
$
Discount rates for the existing lease liabilities ranged from 1.44% to 3.6% as of December 31, 2023, and from 1.44% to 2.88% as of
December 31, 2022.
Material terms of right-of-use assets
We lease office premises and automobile for operational use with lease terms of 2 to 5 years. We do not have purchase options to
acquire the leasehold office premises at the end of the lease terms.
F-24
Supplemental information
Supplemental disclosures of cash flow and noncash information consist of the following:
(in US$ thousands)
Cash paid for operating leases
Lease liabilities arising from obtaining right-of-use assets
Weighted-average remaining lease term
Weighted-average discount rate
For the Year ended December 31
2022
2023
$
$
491
116
$
$
502
—
As of December 31
2023
2.04 years
1.60%
2022
3.03 years
1.50%
Operating lease expenses were $495 thousand and $520 thousand during the years ended December 31, 2023 and 2022, respectively.
The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the operating
lease liabilities recorded on the consolidated balance sheet as of December 31, 2023:
(in US$ thousands)
Year
2024
2025
2026
Total minimum lease payments
Less: amount of lease payments representing interest
Present value of future minimum lease payments
Less: current obligation under leases
Non-current lease obligations
NOTE 10. ACCRUED EXPENSES
Accrued expenses consist of the following:
(in US$ thousands)
Accrued professional fees
Accrued compensation
Accrued royalties
Accrued advertising expenses
Accrued director compensation and liability insurance
Other
NOTE 11. DEFERRED REVENUE
Deferred revenue consists of the following:
(in US$ thousands)
Unused virtual points
Unamortized virtual items
Advances for pre-order items
F-25
Operating Leases
$
$
December 31
2023
2022
356
423
45
2
100
256
1,182
$
$
December 31
2023
2022
481
75
17
573
$
$
$
$
$
$
486
430
69
985
(15)
970
(475)
495
393
201
122
21
107
307
1,151
700
95
22
817
The breakage amounts recognized as revenue during the years ended December 31, 2023, 2022 and 2021 were $228 thousand, $20
thousand and $62 thousand, respectively.
NOTE 12. PENSION BENEFITS
Our Company and our subsidiaries have defined benefit and defined contribution pension plans that cover substantially all of our
employees.
Defined Benefit Pension Plan
We have a defined benefit pension plan in accordance with the Labor Standards Law of the Republic of China (R.O.C.) for our
employees located in Taiwan, covering substantially all full-time employees for services provided prior to July 1, 2005, and
employees who have elected to remain in the defined benefit pension plan subsequent to the enactment of the Labor Pension Act on
July 1, 2005. Under the defined benefit pension plan, employees are entitled to a lump sum retirement benefit upon retirement
equivalent to the aggregate of 2 months’ pensionable salary for each of the first 15 years of service and 1 month’s pensionable salary
for each year of service thereafter subject to a maximum of 45 months’ pensionable salary. The pensionable salary is the monthly
average salary or wage of the final six months prior to approved retirement.
We use December 31 as the measurement date for our defined benefit pension plan. As of December 31, 2023 and 2022, the
accumulated benefit obligation amounted to $266 thousand and $247 thousand, respectively, and the funded status of prepaid pension
assets amounted to $134 thousand and $142 thousand, respectively. The fair value of plan assets amounted to $473 thousand and $463
thousand as of December 31, 2023 and 2022, respectively. The accumulated other comprehensive income amounted to $15 thousand
and $4 thousand as of December 31, 2023 and 2022, respectively. The net periodic benefit cost for 2023, 2022 and 2021 amounted to
($2) thousand, $1 thousand and $3 thousand, respectively.
The following table sets forth the plan’s benefit obligations, fair value of plan assets, and funded status at December 31, 2023 and
2022:
(in US$ thousands)
Benefit obligation
Fair value of plan assets
Amounts recognized in the balance sheet consist of:
Noncurrent liabilities (assets)
Accumulated other comprehensive income
Net amount recognized
Amounts recognized in accumulated comprehensive income
(loss) consist of:
Unrecognized net gain (loss)
December 31
2023
2022
339 $
473
(134) $
(134) $
—
(134) $
321
463
(142)
(142)
—
(142)
(15) $
(4)
$
$
$
$
$
For the years ended December 31, 2023, 2022 and 2021, the net period pension cost consisted of the following:
(in US$ thousands)
Service cost
Interest cost
Expected return on plan assets
Amortization of net loss
Curtailment gain
2023
December 31
2022
2021
$
$
— $
6
(8)
—
—
(2) $
— $
2
(3)
2
—
1 $
—
3
(3)
3
—
3
Weighted average assumptions used to determine benefit obligations for 2023 and 2022 were as follows:
Discount rate
Rate of compensation increase
December 31
2023
2022
1.625%
2.00%
1.750%
2.00%
F-26
Weighted average assumptions used to determine net periodic benefit cost for end of fiscal year were as follows:
Discount rate
Rate of return on plan assets
Rate of compensation increase
2023
2022
1.750%
1.750%
2.00%
0.750%
0.750%
2.00%
Management determines the discount rate and rate of return on plan assets based on the yields of fifteen year ROC central government
bonds which is in line with the respective employees remaining service period and the historical rate of return on the above mentioned
Fund mandated by the ROC Labor Standard Law.
We have contributed an amount equal to 2% of the salaries and wages paid to all qualified employees located in Taiwan to a pension
fund (the “Fund”). The Fund is administered by a pension fund monitoring committee (the “Committee”) and deposited in the
Committee’s name in the Bank of Taiwan. Our Company makes pension payments from our account in the Fund unless the Fund is
insufficient, in which case we make payments from internal funds as payments become due. We seek to maintain a normal, highly
liquid working capital balance to ensure payments are made timely.
We expect to make a contribution of $0 thousand to the Fund in 2024. We expect to make future benefit payments of $10 thousand to
employees from 2024 to 2028 and $75 thousand from 2029 to 2033.
Defined Contribution Pension Plans
We have provided defined contribution plans for employees located in Taiwan and Hong Kong. Contributions to the plans are
expensed as incurred.
Taiwan
Pursuant to the new “Labor Pension Act” enacted on July 1, 2005, our Company has a defined contribution pension plan for our
employees located in Taiwan. For eligible employees who elect to participate in the defined contribution pension plan, we contribute
no less than 6% of an employee’s monthly salary and wage and up to the maximum amount of NT$9 thousand (approximately $293),
to each of the eligible employees’ individual pension accounts at the Bureau of Labor Insurance each month. Pension payments to
employees are made either by monthly installments or in a lump sum from the accumulated contributions and earnings in employees’
individual accounts.
Hong Kong
According to the relevant Hong Kong regulations, we provide a contribution plan for the eligible employees in Hong Kong. We must
contribute at least 5% of the employees’ total salaries. For this purpose, the monthly relevant contribution to their individual
contribution accounts is subject to a cap of HK$1.5 thousand (approximately $192). After the termination of employment, the benefits
still belong to the employees in any circumstances.
The total amount of defined contribution pension expenses pursuant to our defined contribution plans for the years ended December
31, 2023, 2022 and 2021 were $163 thousand, $167 thousand, and $193 thousand, respectively, which are included in operating
expenses.
NOTE 13. SHAREHOLDERS’ EQUITY
In accordance with Singapore law, the holders of ordinary shares that do not have par value, are entitled to receive dividends as
declared from time to time and are entitled to one vote per share at the general meeting of our Company. All Shares rank equally with
regard to our Company’s residual assets. In addition, we are not required to have a number of authorized ordinary shares to be issued.
F-27
Unrealized
gain (loss) on
securities
Pension and
post retirement
benefit plans
NOTE 14. ACCUMULATED OTHER COMPREHENSIVE LOSS
The accumulated balances for each component of other comprehensive income (loss) are as follows:
(in US$ thousands)
Balance as of January 1, 2021
Foreign currency translation adjustment
Pension and post retirement benefit adjustment
Unrealized holding loss arising during period
Reclassification adjustment for loss included in net income
Other
Balance as of December 31, 2021
Foreign currency translation adjustment
Pension and post retirement benefit adjustment
Unrealized holding loss arising during period
Balance as of December 31, 2022
Foreign currency translation adjustment
Pension and post retirement benefit adjustment
Unrealized holding loss arising during period
Reclassification adjustments for loss included in net income
Balance as of December 31, 2023
Foreign
currency items
$
(21,956) $
203
—
—
—
—
(21,753)
(190)
—
—
(21,943)
(144)
—
—
$
(22,087) $
(351) $
—
—
(124)
97
(10)
(388)
—
—
620
232
15
—
(1,453)
(76)
(1,282) $
Accumulated
other
comprehensive
loss
(22,401)
203
14
(124)
97
(10)
(22,221)
(190)
76
620
(21,715)
(129)
(11)
(1,453)
(76)
(23,384)
(94) $
—
14
—
—
—
(80)
—
76
—
(4)
—
(11)
—
(15) $
There were no significant tax effects allocated to each component of other comprehensive income for the years ended December 31,
2023, 2022 and 2021.
NOTE 15. SHARE-BASED COMPENSATION
During 2023, 2022 and 2021, no stock-based compensation expenses were incurred and recognized.
There were no capitalized stock-based compensation costs at December 31, 2023 and 2022. There was no recognized stock-based
compensation tax benefit for the years ended December 31, 2023, 2022 and 2021, as our Company recognized a full valuation
allowance on net deferred tax assets as of December 31, 2023 and 2022.
(a) Overview of Stock-Based Compensation Plans
Summarized below are the stock-based compensation plans pursuant to which awards have been granted as of December 31, 2023.
2004 Employee Share Option Plan
At the June 2004 annual general meeting of shareholders, the shareholders of our Company approved the GigaMedia Limited 2004
Employee Share Option Plan (the “2004 Plan”) under which up to 1.4 million ordinary shares of our Company have been reserved for
issuance. All employees, officers, directors, supervisors, advisors, and consultants of our Company are eligible to participate in the
2004 Plan. The 2004 Plan is administered by a committee designated by the board of directors. The committee as plan administrator
has complete discretion to determine the exercise price for the option grants, the eligible individuals who are to receive option grants,
the time or times when options grants are to be made, the number of shares subject to grant and the vesting schedule. The maximum
contractual term for the options under the 2004 Plan is 10 years.
2006 Equity Incentive Plan
At the June 2006 annual general meeting of shareholders, the shareholders of our Company approved the GigaMedia Limited 2006
Equity Incentive Plan (the “2006 Plan”) under which up to 200 thousand ordinary shares of our Company have been reserved for
issuance. The 2006 Plan is administered by a committee designated by the board of directors. The committee as plan administrator has
complete discretion to determine the grant of awards under the 2006 Plan. The maximum contractual term for the options under the
2006 Plan is 10 years.
F-28
2007 Equity Incentive Plan
At the June 2007 annual general meeting of shareholders, the shareholders of our Company approved the GigaMedia Limited 2007
Equity Incentive Plan (the “2007 Plan”) under which up to 400 thousand ordinary shares of our Company have been reserved for
issuance. The 2007 Plan is administered by a committee designated by the board of directors. The committee as plan administrator has
complete discretion to determine the grant of awards under the 2007 Plan. The maximum contractual term for the options under the
2007 Plan is 10 years.
Summarized below are the general terms of our stock-based compensation plans, for which awards have been granted as of December
31, 2023.
Stock-Based compensation
plan
2004 plan
2006 Plan
2007 Plan
Granted awards
1,575,037 (1)
256,716 (2)
675,057 (3)
Vesting schedule
immediately upon granting to four years
immediately upon granting to four years
immediately upon granting to four years
Options’ exercise
price
$3.95~$12.75
$3.85~$83
$2.90~$90.85
RSUs’ grant date
fair value
—
$14.55~$80.05
$12.35~$76.75
(1)
(2)
(3)
The granted awards, net of forfeited or canceled options, were within reserved shares of 1,400 thousand ordinary shares.
The granted awards, net of forfeited or canceled options or shares, were within reserved shares of 200 thousand ordinary shares.
The granted awards, net of forfeited or canceled options or shares, were within reserved shares of 400 thousand ordinary shares.
Options and RSUs generally vest over the schedule described above. Certain RSUs provide for accelerated vesting if there is a change
in control. All options and RSUs are expected to be settled by issuing new shares.
(b) Options
In 2023, 2022 and 2021, no options were exercised for each year.
Our Company uses the Black-Scholes option-pricing model to estimate the fair value of stock options granted to employees on the
grant date. No options were granted to employees during 2023, 2022 and 2021.
Option transactions during the last three years are summarized as follows:
Balance at January 1
Options granted
Options exercised
Options Forfeited / canceled /
expired
Balance at December 31
Exercisable at December 31
Vested and expected to vest at
December 31
Weighted
Avg.
Exercise
Price
$
$
$
$
6.38
—
—
5.05
6.56
6.56
6.56
No. of
Shares
(in thousands)
33
—
—
(4)
29
29
29
0.67
0.67
0.67
$
$
$
2023
Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
(in thousands)
Weighted
Avg.
Exercise
Price
2022
2021
No. of
Shares
(in thousands)
37
—
—
(4)
33
33
33
Weighted
Avg.
Exercise
Price
$
$
$
$
6.16
—
—
6.25
6.13
6.13
6.13
No. of
Shares
(in thousands)
49
—
—
(12)
37
37
37
$
— $
— $
6.13
—
—
4.05
6.38
6.38
— $
6.38
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between GigaMedia’s
closing stock price on the last trading day of 2023 and the exercise price of an option, multiplied by the number of in-the-money
options) that would have been received by the option holders had they exercised their options on December 31, 2023. This amount
changes based on the fair market value of GigaMedia’s stock.
As of December 31, 2023, there was no unrecognized compensation cost related to non-vested options.
F-29
The following table sets forth information about stock options outstanding at December 31, 2023:
Options outstanding
Option currently exercisable
Exercise price
Under $5
$5~$50
$50~$100
Weighted
average
remaining
contractual life
3.35 years
0.24 years
Exercise price
Under $5
$5~$50
$50~$100
No. of Shares
(in thousands)
4
25
—
29
No. of Shares
(in thousands)
4
25
—
29
NOTE 16. INCOME TAXES
Income (loss) before income taxes by geographic location is as follows:
(in US$ thousands )
Taiwan operations
Non-Taiwan operations
2023
2022
2021
$
$
(1,726) $
(1,673)
(3,399) $
(1,588) $
(1,164)
(2,752) $
(1,989)
(1,436)
(3,425)
The components of income tax benefit (expense) by taxing jurisdiction are as follows:
( in US$ thousands )
Taiwan:
Current
Deferred
Non-Taiwan:
Current
Deferred
Total current income tax benefit (expense)
Total deferred income tax benefit
Total income tax benefit
Our ultimate parent company is based in Singapore.
2023
2022
2021
$
$
$
$
$
$
$
— $
—
— $
— $
—
— $
— $
— $
— $
— $
—
— $
— $
—
— $
— $
— $
— $
—
—
—
—
—
—
—
—
—
A reconciliation of our effective tax rate related to the statutory tax rate in Taiwan, where our major operations are based, is as
follows:
2023
2022
2021
Taiwan statutory rate, including taxes on income and
retained earnings
Foreign tax differential
Expiration of net operating loss carryforwards
Net operating loss carryforwards not utilized due to dissolution of
subsidiaries
Other non-deductible expenses
Change in deferred tax assets and valuation allowance
Loss on investment in subsidiaries dissolved
Other
Effective rate
24.00%
0.75%
(27.71)%
—
(12.84)%
15.79%
—
0.01%
—
24.00%
(3.03)%
(20.18)%
(42.73)%
(9.79)%
24.94%
26.62%
0.17%
—
24.00%
(5.75)%
(6.47)%
—
(1.65)%
(10.32)%
—
0.19%
—
F-30
The significant components of our deferred tax assets consist of the following:
(in US$ thousands)
Net operating loss carryforwards
Share-based compensation
Investments
Lease right-of-use assets
Other
Less: valuation allowance
Deferred tax assets - net
December 31
2023
2022
$
$
10,630 $
292
131
6
5
11,064
(11,064)
— $
11,385
292
131
6
66
11,880
(11,880)
—
A reconciliation of the beginning and ending amounts of our valuation allowance on deferred tax assets for the years ended December
31, 2023, 2022 and 2021 are as follows:
(in US$ thousands)
Balance at beginning of year
Subsequent reversal and utilization of valuation allowance
Changes to valuation allowance
Expirations
Exchange differences
Balance at end of year
2023
2022
2021
$
$
11,880
(263)
405
(942)
(16)
11,064
$
$
13,607
(94)
1,158
(1,731)
(1,060)
11,880
$
$
13,046
(81)
575
(221)
288
13,607
Under ROC Income Tax Act, the tax loss carryforward in the preceding ten years would be deducted from income tax for Taiwan
operations.
As of December 31, 2023, we had net operating loss carryforwards available to offset future taxable income, shown below by major
jurisdictions:
Jurisdiction
Hong Kong
Taiwan
Unrecognized Tax Benefits
Amount
15,521
33,414
48,935
$
$
Expiring year
indefinite
2024~2033
As of December 31, 2023, 2022 and 2021, there were no unrecognized tax benefits that if recognized would affect the effective tax
rate.
There were no interest and penalties related to income tax liabilities recognized for the years ended December 31, 2023, 2022 and
2021.
Our major tax paying components are all located in Taiwan. As of December 31, 2023, the income tax filings in Taiwan have been
examined for the years through 2021.
NOTE 17. COMMITMENTS AND CONTINGENCIES
Commitments
(a) Operating Leases
We rent certain office premises and automobile for operation use under lease agreements that expire at various dates through 2026.
Please refer to Note 9 for more information of our lease arrangements.
F-31
(b) License Agreements
We have contractual obligations under various license agreements to pay the licensors license fees and minimum guarantees against
future royalties. There were no committed license fees and minimum guarantees against future royalties set forth in our significant
license agreements as of December 31, 2023.
For a specific licensed game, we were required to pay an incentive fee of $20 thousand to the licensor for every $600 thousand
additional revenues generated from the game during the agreement period from January 2022 to January 2024. In January 2024, we
entered an extension and amendment agreement to extend the term and modified certain provisions. The extension term commenced
on January 27, 2024 and expires on January 26, 2026, and the incentive fee remains $20 thousand for every $600 thousand additional
revenues generated during the extension term.
(c) Investment Agreements
On August 31, 2020, we entered into a convertible note purchase agreement to purchase a US$10,000,000 principal amount
convertible promissory note (the “Note”) issued by Aeolus Robotics Corporation (“Aeolus”), a global company primarily engaged in
designing, manufacturing, processing and sales of intellectual robotics. The Note, which bears interest at a rate of 2% per annum, was
due on August 30, 2022 but was extendable to August 30, 2023 at Aeolus’s option, and all or a portion of the principal amount under
the Note was convertible at GigaMedia’s option upon maturity, upon prepayment, or when certain events occur, into ordinary shares
or preferred shares of Aeolus at a price of US$3.00 per share, or into preferred shares in Aeolus’s nearest next round equity financing
where Aeolus issues further preferred shares. GigaMedia may elect to convert all or any part of the principal amount of the Note into
the preferred shares to be issued at the Qualified Financing, among which (1) 20% of such outstanding principal amount shall be
converted at a conversion price equal to 90% of the purchase price offered to the investors in such qualified financing, and (2) 80% of
such outstanding principal amount shall converted at a conversion price equal to 100% of the purchase price offered to the investors in
such qualified financing. In the event that any portion of the principal amount is converted into the ordinary or preferred shares, all the
interest accrued but unpaid on such portion of principal amount shall be waived. Assuming full conversion of the Note into ordinary
shares and the exercise or conversion of all other Aeolus rights, options and convertible securities outstanding as of August 31, 2020,
we would beneficially own 3,333,333 shares representing approximately 4.62% of the total ordinary shares of Aeolus as of August 31,
2020.
In November 2021, Aeolus notified GigaMedia that it intended to issue series B preferred shares, par value of US$0.0001 per share
(the “Series B Preferred Shares”), to certain new series B preferred shareholders for a subscription price of US$3.02 per share (the
“Next Round Financing”). The Next Round Financing constituted a Qualified Financing as defined in the said Note. GigaMedia
exercised its conversion right in accordance with the Note with respect to US$2,000,000 of principal amount at the conversion price of
US$2.718 per share, effective December 30, 2021. GigaMedia received 735,835 Series B Preferred Shares.
After the conversion, the outstanding principal amount under the note was US$8,000,000, and GigaMedia’s right to elect to convert
the remaining amount upon maturity, upon prepayment, or when certain events occur, into ordinary shares of Aeolus at a price of
US$3.00 per share, is not affected.
On July 29, 2022, Aeolus notified GigaMedia that it had decided to exercise its right of extension under the Note to extend the original
August 30, 2022 maturity date to August 30, 2023.
On August 31, 2023, GigaMedia and Aeolus entered into an agreement to amend the Note. The amendment extends the maturity date
of the Note after the partial repayment of US$1,000,000 and the payment of accrued interest on the unpaid principal amount of the
Note due through August 30, 2023 in the amount of US$480,000 are made by Aeolus and the outstanding principal amount becomes
US$7,000,000 due thereunder. The US$1,480,000 payment by Aeolus was made on September 6, 2023.
Pursuant to the amendment to the Note, the remaining principal amount of US$7,000,000 due thereunder will bear interest at a rate of
4% per annum, shall be due on February 28, 2025 (such date to be extended, at Aeolus’s option, to February 28, 2026), and all or a
portion of the principal amount due thereunder may be converted upon maturity, upon prepayment or upon the occurrence of certain
specified events, upon Aeolus’s next round of equity financing, or upon Aeolus’s initial public offering, at the lower of US$1.25 per
share or 80% of the applicable offering price.
F-32
On August 15, 2023, we entered into an agreement to purchase a convertible promissory note, with principal amount of US$105,346,
issued by Aeolus, and on March 15, 2024, we entered into an agreement to purchase a convertible promissory note, with principal
amount of US$63,208, issued by Aeolus. These notes bear interest at a rate of 4.5% per annum and are convertible at US$0.1 per
share, while other terms and conditions are similar to the original Note.
Contingencies
We are subject to legal proceedings and claims that arise in the normal course of business.
On January 15, 2018, Ennoconn Corporation (“Ennoconn”) filed a complaint against one of our subsidiaries, GigaMedia Cloud
Services Co., Ltd. (“GigaMedia Cloud”) in the Taiwan Taipei District Court. The complaint alleged that GigaMedia Cloud is
obligated to pay Ennoconn NTD 79,477,648 (approximately $2,588,005) in connection with a transaction to purchase taximeters in
2015. GigaMedia Cloud filed an answer to the complaint denying Ennoconn’s allegations in the lack of factual and legal basis on
March 1, 2018. On November 15, 2018, the Taiwan Taipei District Court determined that all of Ennoconn’s claims were without merit
and made a judgment denying the complaint. On January 3, 2019, Ennoconn filed an appeal demanding the judgment which was
entered in the District Court, to be reversed and amended. The civil court of the second instance, the Taiwan High Court, has
conducted the session of the preparatory proceedings for several times during 2019. As a result, the Taiwan High Court ruled on
January 8, 2020, that the decision of the Taiwan Taipei District Court should be partially modified and Ennoconn is entitled to NTD
27,084,180 (approximately $882,077). GigaMedia Cloud has filed another appeal with the Taiwan Supreme Court on February 4,
2020. On May 5, 2021, the Taiwan Supreme Court revoked the previous ruling of the Taiwan High Court, and sent the case back to
the Taiwan High Court for a retrial. Under the Taiwan Supreme Court’s ruling, the appeal made by Ennoconn should be reviewed by
the Taiwan High Court by following the instructions of the Taiwan Supreme Court. On May 18, 2022, the Taiwan High Court found
such appeal meritless and made a civil judgment denying the complaint by Ennoconn. On June 15, 2022, Ennoconn filed an appeal
and demanded that the Taiwan Supreme Court reverse this civil judgment and remand the case to the Taiwan High Court. On February
22, 2023, the Taiwan Supreme Court revoked the previous ruling of the Taiwan High Court, and sent the case back to the Taiwan
High Court for a retrial. On October 30, 2023, the Taiwan High Court ruled such appeal meritorious and Ennoconn has the right to
claim compensation from GigaMedia Cloud. On November 16, 2023, GigaMedia Cloud filed an appeal against the Taiwan High
Court’s decision, and the appeal has been transferred to Taiwan Supreme Court on January 2, 2024. On April 17, 2024, the Taiwan
Supreme Court, in a written notice, denied GigaMedia’s appeal.
GigaMedia Cloud accrued its best estimate for the ultimate resolution of this claim. On the other hand, pursuant to Taiwan’s Company
Act, the shareholder of GigaMedia Cloud is limitedly liable for GigaMedia Cloud in an amount equal to the total value of shares
subscribed. Therefore, we believe that the immediate parent company, the intermediate parent companies, as well as GigaMedia, the
ultimate parent company, individually or collectively do not have obligations to absorb GigaMedia Cloud’s loss exceeding GigaMedia
Cloud’s net worth and accordingly, it will not have a material adverse impact on our financial condition, results of operations or cash
flows.
NOTE 18. SEGMENT, PRODUCT, GEOGRAPHIC AND OTHER INFORMATION
Segment Information
We have only one segment, the digital entertainment business segment, which operates a portfolio of digital entertainment products,
primarily targeting digital entertainment service users across Asia.
Our Company uses the loss from operations as the measurement for the basis of performance assessment. The basis for such
measurement is the same as that for the preparation of consolidated financial statements. Please refer to the consolidated statements of
operations and comprehensive income (loss) for the related segment revenue and operating results.
Major Product Lines
Revenues from our Company’s major product lines are summarized as follows:
(in US$ thousands)
MahJong and casino casual games
PC-based online sports games
Mobile role playing games
Other games and game related revenues
$
$
F-33
2023
2022
2021
1,070
2,696
464
62
4,292
$
$
1,308
3,395
801
81
5,585
$
$
1,493
2,376
1,522
101
5,492
Major Customers
No single customer represented 10% or more of GigaMedia’s consolidated total net revenues in any period presented.
Geographic Information
Revenues by geographic area are attributed by country of the operating entity location. Revenue from by geographic region is as
follows:
(in US$ thousands)
Geographic region / country
Taiwan
Hong Kong
2023
2022
2021
$
$
1,785
2,507
4,292
$
$
2,427
3,158
5,585
$
$
3,050
2,442
5,492
Geographic information for property, plant and equipment, intangible assets and operating lease right-of-use assets are as follows:
(in US$ thousands)
December 31, 2023
December 31, 2022
Geographic region / country
Taiwan
Hong Kong
Property, plant
and equipment,
net
Intangible
assets, net
Operating lease
right-of-use
assets, net
Property, plant
and equipment,
net
Intangible
assets, net
Operating lease
right-of-use
assets, net
$
$
111
—
111
$
$
13
—
13
$
$
869
75
944
$
$
103
—
103
$
$
19
—
19
$
$
1,289
17
1,306
NOTE 19. SUBSEQUENT EVENT
There have been no events that have occurred subsequent to December 31, 2023, and through the date that the consolidated financial
statements are issued that would require adjustment to or disclosure except as already disclosed in the consolidated financial
statements.
F-34
Exhibit 2.1
Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act
Description of Ordinary Shares
GigaMedia Limited (the “Company,” “we,” “us” and “our”) is incorporated under the laws of the Republic of
Singapore and our affairs are governed by our memorandum and articles of association (collectively, our
“Constitution”) and by the applicable laws governing corporations incorporated in Singapore.
As of December 31, 2023, we had the following series of securities registered pursuant to Section 12 of the
Exchange Act:
Title of each class
Ordinary Shares
Trading Symbol(s)
GIGM
Name of each exchange on which
registered
The Nasdaq Stock Market LLC
As of December 31, 2023, we had 11,052,235 ordinary shares (the “Shares”) issued and outstanding. Our Shares
have no par value.
Preemptive Rights
Our shareholders do not have preemptive purchase rights.
Transfer of Ordinary Shares
Subject to our Constitution, Shares are freely transferable but our directors may, in their absolute discretion,
decline to register any transfer of Shares on which we have a lien. All of our outstanding Shares have been fully paid.
In addition, our directors may refuse, at their discretion, to register or transfer Shares to a transferee of whom they do
not approve. Shares may be transferred by a duly signed instrument of transfer in the usual common form or in a form
approved by our directors. Our directors may decline to register any transfer of Shares evidenced in certificated form
unless, among other things, it has been duly stamped and is presented for registration together with the certificate of
payment of stamp duty (if any), the Share certificates to which the transfer relates and other evidence of title as they
may require. We will replace worn-out or defaced Share certificates upon production thereof to the directors and upon
payment of such fee as specified in our Constitution. We will replace lost, destroyed or stolen Share certificates upon,
among other things, the applicant furnishing evidence and such indemnity as the directors may require.
Limitations and Qualifications on the Rights of the Securities
The rights evidenced by the Shares are not materially limited or qualified by the rights evidenced by any other
class of securities or by the provisions of any contract or other documents.
Rights of Other Types of Securities
Not applicable.
Rights of Ordinary Shares
Dividends
Our Company may by an ordinary resolution declare dividend, but no dividend shall be payable except out of
the profits of our Company or in excess of the amount recommended by the directors. Our profits available for dividend
and determined to be distributed shall be applied to pay dividends to shareholders according to their respective rights
and priorities. Except for Shares with special rights as to dividends, all dividends shall be declared and paid according
to the amounts paid up on Shares.
All dividends unclaimed after having been declared may be invested or otherwise made use of by our board of
directors for the benefit of our Company. If any dividend has not been claimed for six years from the date of
declaration, such dividend may be forfeited and shall revert to our Company. However, the directors may at any time
thereafter at their absolute discretion annul any such forfeiture and pay the dividend so forfeited to the person entitled
thereto prior to the forfeiture. No dividend shall bear interest against our Company.
Shareholders’ Meetings
We are required to hold an annual general meeting after the end of each financial year within 6 months. The
directors may convene an extraordinary general meeting whenever they think fit, and they must do so upon the request
in writing of shareholders representing not less than 10 percent of the voting rights of our Company. In addition, two
or more shareholders holding not less than 10 percent of the total number of issued Shares (excluding treasury shares)
may call a meeting of our shareholders. Unless otherwise required by law or by our Constitution, voting at general
meetings is by ordinary resolution, requiring an affirmative vote of a simple majority of those present and voting. An
ordinary resolution suffices, for example, in respect of appointments of directors. A special resolution, requiring an
affirmative vote of at least 75 percent of those present and voting, is necessary for certain matters under the Singapore
Companies Act, such as an alteration of our Constitution. Subject to the Singapore Companies Act, at least 21 days’
advance written notice specifying the intention to propose a special resolution must be given of every general meeting
convened for the purpose of passing a special resolution. Subject to the Singapore Companies Act, at least 14 days’
advance written notice must be given of every general meeting convened for the purpose of passing an ordinary
resolution.
Voting Rights
Voting at any meeting of our shareholders is by a poll. On a poll every shareholder who is present in person or
by proxy has one vote for every Share held by him.
Liquidation Distribution
In the case of a winding up of our Company and in accordance with applicable laws, our shareholders may pass
a special resolution to authorize a liquidator to divide and distribute our assets to our shareholders, or authorize the
liquidator to vest the whole or part of our assets in trustees upon such trusts for the benefit of our shareholders but so
that no shareholder will be compelled to accept Shares or other securities on which there is any liability.
Share Capital
We generally have the right by obtaining a general mandate at the annual general meeting to repurchase not
more than 20 percent of our own Shares in issue.
Our board of directors may make a capital call on our shareholders with respect to the amounts unpaid on their
Shares and the shareholders are required to pay the amount called at the time(s) and place(s) as appointed by the board
of directors. The board of directors may revoke a call or postpone the time previously fixed for the call payment.
We may by ordinary resolution:
(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 Constitution, convert any class of Shares into any other
class of Shares.
We may also by special resolution reduce our share capital or any undistributable reserve in any manner as
authorized by law.
Sinking Fund
We are not required to provide any sinking fund pursuant to our Constitution.
Ownership of a Substantial Number of Shares
Our Constitution contains no provision discriminating against any existing or prospective holder of Shares as a
result of such shareholder owning a substantial number of Shares.
Change in Rights of Shares
We may vary or abrogate any special rights attached to any class of Shares by a special resolution passed at a
separate meeting of holders of the Shares of that class or, where the necessary majority for such special resolution is
not obtained at the meeting, with the consent in writing of the holders of three-fourths of the issued Shares of that
class within two months of such meeting.
Limitations on the Rights to Own Securities
There are no limitations imposed by Singapore law or by our Constitution on the right of a non-resident or
foreign owner to hold or vote the Shares.
Anti-Takeover Provisions
The acquisition of shares or general shares of public companies is regulated by the Singapore Securities and
Futures Act 2001 and the Singapore Code on Take-overs and Mergers. Any person, either on his own or together with
persons acting in concert with him, acquiring an interest in 30 percent or more of our voting Shares is obliged to
extend a takeover offer for the remaining Shares which carry voting rights, in accordance with the provisions of the
Singapore Code on Take-overs and Mergers. Unless the contrary is established, “persons acting in concert” are
presumed to include a company and its related and associated companies and a person who has provided financial
assistance (other than a bank in the ordinary course of business) to such company or any of its related and associated
companies for the purchase of voting rights, a company and its directors, including their close relatives and related
trusts, a company and its pension funds and employee share schemes, a person and any investment company, unit trust
or other fund whose investment such person manages on a discretionary basis and a financial advisor and its client in
respect of shares held by the financial advisor and all the funds managed by the financial advisor on a discretionary
basis where the shareholdings of the financial advisor and any of those funds in the client total 10 percent or more of
the client’s equity share capital. The offer must be in cash or be accompanied by a cash alternative at not less than the
highest price, excluding stamp duty and dealing costs, paid by the offeror or persons acting in concert with him for
shares of that class within the preceding six months. A mandatory takeover offer is also required to be made if a person
holding between 30 percent and 50 percent, both inclusive, of the voting shares, or any person acting in concert with
him, acquires additional shares representing more than 1 percent of the voting shares in any six-month period.
Disclosure of Shareholder Ownership
There are no provisions in our bylaws that govern the ownership threshold above which shareholder ownership
must be disclosed.
Differences in Corporate Law
We are incorporated under the laws of Singapore. The following discussion summarizes material differences
between the rights of holders of our ordinary Shares and the rights of holders of the common stock of a typical
corporation incorporated under the laws of the state of Delaware which result from differences in governing documents
and the laws of Singapore and Delaware.
This discussion does not purport to be a complete statement of the rights of holders of our ordinary Shares under
applicable law in Singapore and our Constitution or the rights of holders of the common stock of a typical corporation
under applicable Delaware law and a typical certificate of incorporation and bylaws. This discussion is qualified by
reference to the applicable laws in effect in Singapore and Delaware, from time to time.
Delaware
Singapore
Board of Directors
A typical certificate of incorporation and bylaws would
provide that the number of directors on the board of
directors will be fixed from time to time by a vote of the
majority of the authorized directors. Under Delaware
law, a board of directors can be divided into classes and
cumulative voting in the election of directors is only
permitted if expressly authorized in a corporation’s
certificate of incorporation.
The constitution of companies will typically state the
minimum and maximum number of directors as well as
provide that the number of directors may be increased or
reduced by shareholders via ordinary resolution passed at
a general meeting, provided that the number of directors
following such increase or reduction is within the
maximum and minimum number of directors provided in
the constitution and the Singapore Companies Act,
respectively. Our Constitution provides
the
minimum number of directors is two and the maximum
number is 15 unless otherwise determined by a general
meeting.
that,
Limitation on Personal Liability of Directors
A typical certificate of incorporation provides for the
elimination of personal monetary liability of directors for
breach of fiduciary duties as directors to the fullest extent
permissible under the laws of Delaware, except for
liability (i) for any breach of a director’s loyalty to the
corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law (relating to the
liability of directors for unlawful payment of a dividend
or an unlawful stock purchase or redemption) or (iv) for
any transaction from which the director derived an
improper personal benefit. A typical certificate of
incorporation would also provide that if the Delaware
General Corporation Law is amended so as to allow
further elimination of, or limitations on, director liability,
then the liability of directors will be eliminated or limited
to the fullest extent permitted by the Delaware General
Corporation Law as so amended.
Pursuant to the Singapore Companies Act, any provision
(whether in the constitution, contract or otherwise)
purporting to exempt a director (to any extent) from any
liability attaching in connection with any negligence,
default, breach of duty or breach of trust in relation to the
Company will be void except as permitted under the
Singapore Companies Act. Nevertheless, a director can
be released by the shareholders of the Company for
breaches of duty to the Company, except in the case of
fraud, illegality, insolvency and oppression or disregard
of minority interests.
Our Constitution currently provides that, subject to the
provisions of the Singapore Companies Act, every
director, auditor, secretary or other officer of the
Company shall be entitled to be indemnified by the
Company against all costs, charges, losses, expenses and
liabilities incurred by him in the execution and discharge
of his duties or in relation thereto and in particular and
without prejudice to the generality of the foregoing no
director, manager, secretary or other officer of the
to
through
the Company
Company shall be liable for the acts, receipts, neglects or
defaults of any other director or officer or for joining in
any receipt or other act for conformity or for any loss or
expense happening
the
insufficiency or deficiency of title to any property
acquired by order of the directors for or on behalf of the
Company or for the insufficiency or deficiency of any
security in or upon which any of the moneys of the
Company shall be invested or for any loss or damage
arising from the bankruptcy insolvency or tortious act of
any person with whom any moneys, securities or effects
shall be deposited or left or for any other loss, damage or
misfortune whatever which shall happen in the execution
of the duties of his office or in relation thereto unless the
same shall happen through his own negligence, wilful
default, breach of duty or breach of trust.
Interested Shareholders
There are no comparable provisions in Singapore with
respect to public companies which are not listed on the
Singapore Exchange Securities Trading Limited.
that
Section 203 of the Delaware General Corporation Law
generally prohibits a Delaware corporation from
engaging in specified corporate transactions (such as
mergers, stock and asset sales, and loans) with an
“interested stockholder” for three years following the
time
interested
the stockholder becomes an
to specified exceptions, an
stockholder. Subject
“interested stockholder” is a person or group that owns
15% or more of the corporation’s outstanding voting
stock (including any rights to acquire stock pursuant to
an option, warrant, agreement, arrangement or
understanding, or upon the exercise of conversion or
exchange rights, and stock with respect to which the
person has voting rights only), or is an affiliate or
associate of the corporation and was the owner of 15%
or more of the voting stock at any time within the
previous three years.
A Delaware corporation may elect to “opt out” of, and
not be governed by, Section 203 through a provision in
either its original certificate of incorporation, or an
amendment to its original certificate or bylaws that was
approved by majority stockholder vote. With a limited
exception, this amendment would not become effective
until 12 months following its adoption.
Removal of Directors
A typical certificate of incorporation and bylaws provide
that, subject to the rights of holders of any preferred
stock, directors may be removed at any time by the
affirmative vote of the holders of at least a majority, or
in some instances a supermajority, of the voting power of
all of the then outstanding shares entitled to vote
generally in the election of directors, voting together as a
single class. A certificate of incorporation could also
provide that such a right is only exercisable when a
director is being removed for cause (removal of a director
only for cause is the default rule in the case of a classified
board).
According to the Singapore Companies Act, directors of
a public company may be removed before expiration of
their term of office with or without cause by ordinary
resolution (i.e., a resolution which is passed by a simple
majority of those shareholders present and voting in
person or by proxy). The Company may by ordinary
resolution remove any director before the expiration of
his period of office, notwithstanding anything in our
Constitution or in any agreement between the Company
and such director.
Notice of the intention to move such a resolution has to
be given to the company not less than 28 days before the
meeting at which it is moved. The company shall then
give notice of such resolution to its shareholders at the
same time and in the same manner as it gives notice of
the meeting, and not less than 14 days before the meeting.
Where any director removed in this manner was
appointed to represent the interests of any particular class
of shareholders or debenture holders, the resolution to
remove such director will not take effect until such
director’s successor has been appointed.
Filling Vacancies on the Board of Directors
A typical certificate of incorporation and bylaws provide
that, subject to the rights of the holders of any preferred
stock, any vacancy, whether arising through death,
resignation, retirement, disqualification, removal, an
increase in the number of directors or any other reason,
may be filled by a majority vote of the remaining
directors, even if such directors remaining in office
constitute less than a quorum, or by the sole remaining
director. Any newly elected director usually holds office
for the remainder of the full term expiring at the annual
meeting of stockholders at which the term of the class of
directors to which the newly elected director has been
elected expires.
The constitution of a Singapore company typically
provides that the directors have the power to appoint any
person to be a director, either to fill a vacancy or as an
addition to the existing directors, but so that the total
number of directors will not at any time exceed the
maximum number fixed in the constitution. Any newly
elected director shall hold office until the next following
annual general meeting, where such director will then be
eligible for re-election.
Our Constitution provides that the directors shall have
power at any time and from time to time to appoint any
person to be a director either to fill a casual vacancy or
as an additional director but so that the total number of
directors shall not at any time exceed the maximum
number fixed by or in accordance with the Constitution.
Amendment of Governing Documents
the
The Singapore Companies Act provides
constitution of a company may be altered by a special
resolution passed at a general meeting of shareholders.
The board of directors has no right to amend the
constitution.
that
Under the Delaware General Corporation Law,
amendments to a corporation’s certificate of
incorporation require the approval of stockholders
holding a majority of the outstanding shares entitled to
vote on the amendment. If a class vote on the
amendment is required by the Delaware General
Corporation Law, a majority of the outstanding stock of
the class is required, unless a greater proportion is
specified in the certificate of incorporation or by other
provisions of the Delaware General Corporation Law.
Under the Delaware General Corporation Law, the
board of directors may amend bylaws if so authorized in
the charter. The stockholders of a Delaware corporation
also have the power to amend bylaws.
Meetings of Shareholders
Annual and Special Meetings
Unless directors are elected by written consent, an
annual meeting is required to be held for the election of
directors. If there is a failure to hold an annual meeting
or to take action by written consent and no date has
been designated for an annual meeting for a period of
13 months after the last annual meeting, stockholders or
any director may petition the Delaware Court of
Chancery to convene a stockholder meeting.
Typical bylaws provide that annual meetings of
stockholders are to be held on a date and at a time fixed
by the board of directors. Under the Delaware General
Corporation Law, a special meeting of stockholders
may be called by the board of directors or by any other
person authorized to do so in the certificate of
incorporation or the bylaws.
Quorum Requirements
Under the Delaware General Corporation Law, a
corporation’s certificate of incorporation or bylaws can
specify the number of shares which constitute the
quorum required to conduct business at a meeting,
provided that in no event shall a quorum consist of less
than one-third of the shares entitled to vote at a meeting.
Annual General Meetings
All companies are required to hold an annual general
meeting within a fixed period after the end of each
financial year. We are required to hold an annual general
meeting within six months after the end of each financial
year.
Extraordinary General Meetings
Any general meeting other than the annual general
meeting is called an “extraordinary general meeting.”
In addition, the constitution usually also provides that
general meetings may be convened in accordance with
the directors.
the Singapore Companies Act by
Notwithstanding anything
the
directors are required to convene a general meeting if
required to do so by requisition (i.e., written notice to
directors requiring that a meeting be called) by
shareholder(s) as provided in Section 176 of the
Singapore Companies Act.
the constitution,
in
Our Constitution provides that the directors may,
whenever they think fit, convene an extraordinary
general meeting.
Quorum Requirements
Our Constitution provides that at least two members
entitled to vote holding not less than 33 and 1/3 percent
of our issued and fully paid-up Shares, present in person
or by proxy at a meeting, shall be a quorum. If within 30
minutes from the time appointed for a general meeting
(or such longer interval as the chairman of the meeting
may think fit to allow) a quorum is not present, the
meeting, if convened on the requisition of members, shall
be dissolved. In any other case it shall stand adjourned to
the same day in the next week (or if that day is a public
holiday then to the next business day following that
public holiday) at the same time and place or such other
day, time or place as the directors may by not less than
ten days’ notice appoint. At the adjourned meeting any
one or more members present in person or by proxy shall
be a quorum.
Indemnification of Officers, Directors and Employers
Under the Delaware General Corporation Law, subject
to specified limitations in the case of derivative suits
brought by a corporation’s stockholders in its name, a
corporation may indemnify any person who is made a
party to any third-party action, suit or proceeding on
account of being a director, officer, employee or agent
of the corporation (or was serving at the request of the
corporation in such capacity for another corporation,
partnership, joint venture, trust or other enterprise)
against expenses, including attorney’s fees, judgments,
fines and amounts paid in settlement actually and
reasonably incurred by him or her in connection with
the action, suit or proceeding through, among other
things, a majority vote of a quorum consisting of
directors who were not parties to the suit or proceeding,
if the person:
• acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to
the best interests of the corporation or, in some
circumstances, at least not opposed to its best
interests; and
• in a criminal proceeding, had no reasonable cause to
believe his or her conduct was unlawful.
Delaware corporate law permits indemnification by a
corporation under similar circumstances for expenses
(including attorneys’ fees) actually and reasonably
incurred by such persons in connection with the defense
or settlement of a derivative action or suit, except that
no indemnification may be made in respect of any
claim, issue or matter as to which the person is
adjudged to be liable to the corporation unless the
Delaware Court of Chancery or the court in which the
action or suit was brought determines upon application
that the person is fairly and reasonably entitled to
indemnity for the expenses which the court deems to be
proper.
To the extent a director, officer, employee or agent is
successful in the defense of such an action, suit or
proceeding, the corporation is required by Delaware
corporate law to indemnify such person for expenses
(including attorneys’ fees) actually and reasonably
incurred thereby. Expenses (including attorneys’ fees)
incurred by such persons in defending any action, suit
or proceeding may be paid in advance of the final
disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of that person
to repay the amount if it is ultimately determined that
that person is not entitled to be so indemnified.
Any provision that purports to exempt an officer of a
company (to any extent) that would otherwise attach to
him in connection with any negligence, default, breach
of duty or breach of trust in relation to the company is
void.
However, the Singapore Companies Act specifically
provides that the Company is allowed to:
• purchase and maintain for any officer insurance
against any liability attaching to such officer in
respect of any negligence, default, breach of duty or
breach of trust in relation to the Company;
• indemnify any officer against liability incurred by a
director to a person other than the Company except
when the indemnity is against (i) any liability of the
officer to pay a fine in criminal proceedings or a sum
payable to a regulatory authority by way of a penalty
in respect of non-compliance with any requirement of
a regulatory nature (however arising); or (ii) any
liability incurred by the officer (1) in defending
criminal proceedings in which he is convicted, (2) in
defending civil proceedings brought by the Company
or a related company of the Company in which
judgment is given against him, or (3) in connection
with an application for relief under Sections 76A(13)
or 391 of the Singapore Companies Act in which the
court refuses to grant him relief;
• indemnify any auditor against any liability incurred or
to be incurred by such auditor in defending any
proceedings (whether civil or criminal) in which
judgment is given in such auditor’s favor or in which
such auditor is acquitted; or
• indemnify any auditor against any liability incurred
by such auditor in connection with any application
under Sections 76A(13) or 391 of the Singapore
Companies Act in which relief is granted to such
auditor by a court.
In cases where, inter alia, an officer is sued by the
Company, the Singapore Companies Act gives the court
the power to relieve directors either wholly or partially
from the consequences of their negligence, default,
breach of duty or breach of trust. However, Singapore
case law has indicated that such relief will not be granted
to a director who has benefited as a result of his or her
breach of trust. In order for relief to be obtained, it must
be shown that (i) the director acted reasonably; (ii) the
director acted honestly; and (iii) it is fair, having regard
to all the circumstances of the case including those
connected with such director’s appointment, to excuse
the director.
Our Constitution provides that, subject to the provisions
of the Singapore Companies Act, every director, auditor,
secretary or other officer of the Company shall be entitled
to be indemnified by the Company against all costs,
charges, losses, expenses and liabilities incurred by him
in the execution and discharge of his duties or in relation
thereto and in particular and without prejudice to the
generality of the foregoing no director, manager,
secretary or other officer of the Company shall be liable
for the acts, receipts, neglects or defaults of any other
director or officer or for joining in any receipt or other
act for conformity or for any loss or expense happening
to the Company through the insufficiency or deficiency
of title to any property acquired by order of the directors
for or on behalf of the Company or for the insufficiency
or deficiency of any security in or upon which any of the
moneys of the Company shall be invested or for any loss
or damage arising from the bankruptcy insolvency or
tortious act of any person with whom any moneys,
securities or effects shall be deposited or left or for any
other loss, damage or misfortune whatever which shall
happen in the execution of the duties of his office or in
relation thereto unless the same shall happen through his
own negligence, wilful default, breach of duty or breach
of trust.
Shareholder Approval of Business Combinations
Generally, under the Delaware General Corporation
Law, completion of a merger, consolidation, or the sale,
lease or exchange of substantially all of a corporation’s
assets or dissolution requires approval by the board of
directors and by a majority (unless the certificate of
incorporation
requires a higher percentage) of
outstanding stock of the corporation entitled to vote.
The Delaware General Corporation Law also requires a
special vote of stockholders in connection with a
business combination with an “interested stockholder” as
defined in section 203 of the Delaware General
Corporation Law. For further information on such
provisions, see “-Interested Shareholders” above.
The Singapore Companies Act mandates that specified
corporate actions require approval by the shareholders in
a general meeting, notably:
in
• notwithstanding anything
the Company’s
constitution, directors are not permitted to carry into
effect any proposals for disposing of the whole or
the Company’s
substantially
undertaking or property unless those proposals have
been approved by shareholders in a general meeting;
the whole of
• subject to the constitution of each amalgamating
company, an amalgamation proposal must be
approved by the shareholders of each amalgamating
company via special resolution at a general meeting;
and
in
• notwithstanding anything
the Company’s
constitution, the directors may not, without the prior
approval of shareholders, issue shares, including
shares being issued in connection with corporate
actions.
Shareholder Action Without a Meeting
Under the Delaware General Corporation Law, unless
otherwise provided in a corporation’s certificate of
incorporation, any action that may be taken at a meeting
of stockholders may be taken without a meeting,
without prior notice and without a vote if the holders of
outstanding stock, having not less than the minimum
number of votes that would be necessary to authorize
such action, consent in writing. A corporation’s
certificate of incorporation may elect to prohibit such
action.
There are no equivalent provisions under the Singapore
Companies Act in respect of passing shareholders’
resolutions by written means that apply to public
companies listed on a securities exchange.
Shareholder Suits
Under the Delaware General Corporation Law, a
stockholder may bring a derivative action on behalf of
the corporation to enforce the rights of the corporation.
A person may institute and maintain such a suit only if
such person was a stockholder at the time of the
transaction which is the subject of the suit or his or her
shares thereafter devolved upon him or her by operation
of law. Additionally, under Delaware case law, the
plaintiff generally must be a stockholder not only at the
time of the transaction which is the subject of the suit,
but also through the duration of the derivative suit.
Delaware law also requires that the derivative plaintiff
make a demand on the directors of the corporation to
assert the corporate claim before the suit may be
prosecuted by the derivative plaintiff, unless such
demand would be futile.
An individual also may commence a class action suit on
behalf of himself or herself and other similarly situated
stockholders where the requirements for maintaining a
class action under the Delaware law have been met.
Personal remedies in cases of oppression of justice
A shareholder may apply to the court for an order under
the Singapore Companies Act to remedy situations where
(i) the company’s affairs are being conducted or other
powers of the company’s directors are being exercised in
a manner oppressive to, or in disregard of the interests of
one or more of the shareholders or holders of debentures
of the company, including the applicant; or (ii) the
company has done an act, or threatens to do an act, or the
shareholders or holders of debentures have passed some
resolution, which unfairly discriminates against, or is
otherwise prejudicial to, one or more of the company’s
shareholders or holders of debentures, including the
applicant.
Singapore courts have wide discretion as to the relief they
may grant under such application, including, inter alia,
directing or prohibiting any act or canceling or varying
any transaction or resolution, providing that the company
be wound up or authorizing civil proceedings to be
brought in the name of or on behalf of the company by
such person or persons and on such terms as the court
directs.
Derivative actions
The Singapore Companies Act has a provision which
registered
provides a mechanism enabling any
shareholder to apply to the court for leave to bring a
derivative action on behalf of the Company. In addition
to registered shareholders, courts are given the discretion
to allow such persons as they deem proper to apply as
well (e.g., beneficial owners of shares or individual
directors).
It should be noted that this provision of the Singapore
Companies Act
is primarily used by minority
shareholders to bring an action in the name and on behalf
of the Company or intervene in an action to which the
Company is a party for the purpose of prosecuting,
defending or discontinuing the action on behalf of the
Company.
Class actions
The concept of class action suits, which allows individual
shareholders to bring an action seeking to represent the
class or classes of shareholders, generally does not exist
in Singapore. However, it is possible as a matter of
procedure for a number of shareholders to lead an action
and establish liability on behalf of themselves and other
shareholders who join in or who are made parties to the
action.
Further, there are certain circumstances in which
shareholders may file and prove their claims for
compensation in the event that the Company has been
convicted of a criminal offense or has a court order for
the payment of a civil penalty made against it.
Dividends or Other Distributions; Repurchases and Redemptions
The Delaware General Corporation Law permits a
corporation to declare and pay dividends out of
statutory surplus or, if there is no surplus, out of net
profits for the fiscal year in which the dividend is
declared and/or for the preceding fiscal year as long as
the amount of capital of the corporation following the
declaration and payment of the dividend is not less than
the aggregate amount of the capital represented by the
issued and outstanding stock of all classes having a
preference upon the distribution of assets.
Under the Delaware General Corporation Law, any
corporation may purchase or redeem its own shares,
except that generally it may not purchase or redeem
these shares if the capital of the corporation is impaired
at the time or would become impaired as a result of the
redemption. A corporation may, however, purchase or
redeem out of capital shares that are entitled upon any
distribution of its assets to a preference over another
class or series of its shares if the shares are to be retired
and the capital reduced.
The Singapore Companies Act provides
that no
dividends can be paid to shareholders except out of
profits.
The Singapore Companies Act does not provide a
definition on when profits are deemed to be available for
the purpose of paying dividends and this is accordingly
governed by case law. Our Company may by an ordinary
resolution declare dividend, but no dividend shall be
payable except out of the profits of our Company or in
excess of the amount recommended by the directors.
Acquisition of a company’s own shares
The Singapore Companies Act generally prohibits a
company from acquiring its own shares subject to certain
exceptions. Any contract or transaction by which a
company acquires or transfers its own shares is void,
subject to the exceptions described below.
However, provided that it is expressly permitted to do so
by its constitution and subject to the special conditions of
each permitted acquisition contained in the Singapore
Companies Act, the Company may:
• redeem redeemable preference shares (the redemption
of these shares will not reduce the capital of the
Company) on such terms and in such manner as is
provided by our Constitution. Preference shares may
be redeemed out of capital if all the directors make a
solvency statement in relation to such redemption in
accordance with the Singapore Companies Act;
• whether listed (on an approved exchange in Singapore
or any securities exchange outside Singapore) or not,
make an off-market purchase of its own shares in
accordance with an equal access scheme authorized
in advance at a general meeting;
• whether listed on a securities exchange (in Singapore
or outside Singapore) or not, make a selective off-
market purchase of its own shares in accordance
with an agreement authorized in advance at a
general meeting by a special resolution where
persons whose shares are to be acquired and their
associated persons have abstained from voting; and
• whether listed (on an approved exchange in Singapore
or any securities exchange outside Singapore) or
not, make an acquisition of its own shares under a
contingent purchase contract which has been
authorized in advance at a general meeting by a
special resolution.
The Company may also purchase its own shares by an
order of a Singapore court.
The total number of ordinary shares that may be acquired
by the Company in a relevant period may not exceed 20%
of the total number of ordinary shares in that class as of
the date of the resolution pursuant to the relevant share
repurchase provisions under the Singapore Companies
Act. Where, however, the Company has reduced its share
capital by a special resolution or a Singapore court made
an order to such effect, the total number of ordinary
shares shall be taken to be the total number of ordinary
shares in that class as altered by the special resolution or
the order of the court. Payment must be made out of the
Company’s distributable profits or capital, provided that
the Company is solvent. Such payment may include any
expenses (including brokerage or commission) incurred
directly in the purchase or acquisition by the Company
of its ordinary shares.
Financial assistance for the acquisition of shares
The Company may not give financial assistance to any
person whether directly or indirectly for the purpose of:
• the acquisition or proposed acquisition of shares in the
Company or units of such shares; or
• the acquisition or proposed acquisition of shares in its
holding company or ultimate holding company, as the
case may be, or units of such shares.
Financial assistance may take the form of a loan, the
giving of a guarantee, the provision of security, the
release of an obligation, the release of a debt or
otherwise.
However, it should be noted that the Company may
provide financial assistance for the acquisition of its
shares or shares in its holding company if it complies
with the requirements (including, where applicable,
approval by the board of directors or by the passing of a
special resolution by its shareholders) set out in the
Singapore Companies Act. Our Constitution provides
that subject to the provisions of the Singapore Companies
Act, we may purchase or otherwise acquire our own
Shares upon such terms and subject to such conditions as
we may deem fit. These Shares may be held as treasury
shares or cancelled as provided in the Singapore
Companies Act or dealt with in such manner as may be
permitted under the Singapore Companies Act. On
cancellation of the shares, the rights and privileges
attached to those shares will expire.
Transactions with Officers and Directors
Under the Delaware General Corporation Law, some
contracts or transactions in which one or more of a
corporation’s directors has an interest are not void or
voidable because of such interest provided that some
conditions, such as obtaining the required approval and
fulfilling the requirements of good faith and full
disclosure, are met. Under the Delaware General
Corporation Law, either (a) the stockholders or the
board of directors must approve in good faith any such
contract or transaction after full disclosure of the
material facts or (b) the contract or transaction must
have been “fair” as to the corporation at the time it was
approved. If board approval is sought, the contract or
transaction must be approved in good faith by a
majority of disinterested directors after full disclosure
of material facts, even though less than a majority of a
quorum.
Under the Singapore Companies Act, the chief executive
officer and directors are not prohibited from dealing with
the Company, but where they have an interest in a
transaction with the Company, that interest must be
disclosed to the board of directors. In particular, the chief
executive officer and every director who is in any way,
whether directly or indirectly, interested in a transaction
or proposed transaction with the Company must, as soon
as practicable after the relevant facts have come to such
officer or director’s knowledge, declare the nature of
such officer or director’s interest at a board of directors’
meeting or send a written notice to the Company
containing details on the nature, character and extent of
his interest in the transaction or proposed transaction
with the Company.
In addition, a director or chief executive officer who
holds any office or possesses any property which,
directly or indirectly, duties or interests might be created
in conflict with such officer’s duties or interests as
director or chief executive officer, is required to declare
the fact and the nature, character and extent of the
conflict at a meeting of directors or send a written notice
to the Company containing details on the nature,
character and extent of the conflict.
The Singapore Companies Act extends the scope of this
statutory duty of a director or chief executive officer to
disclose any interests by pronouncing that an interest of
a member of the director’s or, as the case may be, the
chief executive officer’s family (including spouse, son,
adopted son, step-son, daughter, adopted daughter and
step-daughter) will be treated as an interest of the
director.
There is however no requirement for disclosure where
the interest of the director or chief executive officer (as
the case may be) consists only of being a member or
creditor of a corporation which is interested in the
proposed transaction with the Company if the interest
may properly be regarded as immaterial. Where the
proposed transaction relates to any loan to the Company,
no disclosure need be made where the director or chief
executive officer has only guaranteed or joined in
guaranteeing the repayment of such loan, unless the
constitution provides otherwise.
Further, where the proposed transaction is to be made
with or for the benefit of a related corporation (i.e. the
holding company, subsidiary or subsidiary of a common
holding company) no disclosure need be made of the fact
that the director or chief executive officer is also a
director or chief executive officer of that corporation,
unless the constitution provides otherwise.
Subject to specified exceptions, including a loan to a
director for expenditure in defending criminal or civil
proceedings, etc. or in connection with an investigation,
or an action proposed to be taken by a regulatory
authority in connection with any alleged negligence,
default, breach of duty or breach of trust by him in
relation to the Company, the Singapore Companies Act
prohibits the Company from: (i) making a loan or quasi-
loan to its directors or to directors of a related corporation
(each, a “relevant director”); (ii) giving a guarantee or
security in connection with a loan or quasi-loan made to
a relevant director by any other person; (iii) entering into
a credit transaction as creditor for the benefit of a relevant
director; (iv) giving a guarantee or security in connection
with such credit transaction entered into by any person
for the benefit of a relevant director; (v) taking part in an
arrangement where another person enters into any of the
transactions in (i) to (iv) above or (vi) below and such
person obtains a benefit from the Company or a related
corporation; or (vi) arranging for the assignment to the
Company or assumption by the Company of any rights,
obligations or liabilities under a transaction in (i) to (v)
above. The Company is also prohibited from entering
into the transactions in (i) to (vi) above with or for the
benefit of a relevant director’s spouse or children
(whether adopted or naturally or step-children).
Dissenters’ Rights
Under the Delaware General Corporation Law, a
stockholder of a corporation participating in some types
of major corporate transactions may, under varying
circumstances, be entitled to appraisal rights pursuant to
which the stockholder may receive cash in the amount of
the fair market value of his or her shares in lieu of the
consideration he or she would otherwise receive in the
transaction.
There are no equivalent provisions under the Singapore
Companies Act.
Cumulative Voting
Under the Delaware General Corporation Law, a
corporation may adopt in its bylaws that its directors
shall be elected by cumulative voting. When directors are
elected by cumulative voting, a stockholder has the
number of votes equal to the number of shares held by
the number of directors
such stockholder
nominated for election. The stockholder may cast all of
such votes for one director or among the directors in any
proportion.
times
There is no equivalent provision under the Singapore
Companies Act in respect of companies incorporated in
Singapore.
Anti-Takeover Measures
Under the Delaware General Corporation Law, the
certificate of incorporation of a corporation may give
the board the right to issue new classes of preferred
stock with voting, conversion, dividend distribution,
and other rights to be determined by the board at the
time of issuance, which could prevent a takeover
attempt and thereby preclude shareholders from
realizing a potential premium over the market value of
their shares
In addition, Delaware law does not prohibit a
corporation from adopting a stockholder rights plan, or
“poison pill,” which could prevent a takeover attempt
and also preclude shareholders from realizing a
potential premium over the market value of their shares.
The constitution of a Singapore company typically
provides that the company may allot and issue new
shares of a different class with preferential, deferred,
qualified or other special rights as its board of directors
may determine with the prior approval of the company’s
shareholders in a general meeting.
Singapore law does not generally prohibit a corporation
from adopting “poison pill” arrangements which could
takeover attempt and also preclude
prevent a
shareholders from realizing a potential premium over the
market value of their shares. However, under the
Singapore Code on Take-overs and Mergers, if, in the
course of an offer, or even before the date of the offer
announcement, the board of the offeree company has
reason to believe that a bona fide offer is imminent, the
board must not, except pursuant to a contract entered into
earlier, take any action, without the approval of
shareholders at a general meeting, on the affairs of the
offeree company that could effectively result in any bona
fide offer being frustrated or the shareholders being
denied an opportunity to decide on its merits.
Changes in Capital
There are no conditions imposed by the Constitution governing changes in the capital, where such conditions
are more stringent than is required by law.
Debt Securities
Not applicable.
Warrants and Rights
Not applicable.
Other Securities
Not applicable.
Description of American Depositary Shares
Not applicable.
CONVERTIBLE NOTE PURCHASE AGREEMENT
Exhibit 4.2
This Convertible Note Purchase Agreement (the “Agreement”) is made as of August 15,
2023, by and between:
Aeolus Robotics Corporation, a company duly organized and validly existing under the
1.
laws of the Cayman Islands (the “Company”); and
GigaMedia Limited, a company duly organized and validly existing under the laws of
2.
Singapore (the “Purchaser”).
Each of the Company and the Purchaser is hereinafter referred to individually a “Party”
and collectively, the “Parties”.
WITNESSETH
WHEREAS, the Company desires to issue, sell and deliver to the Purchaser, and the
Purchaser desires to purchase from the Company, the Note (as defined below) pursuant to the
terms and subject to the conditions of this Agreement;
WHEREAS, the Parties desire to enter into this Agreement on the terms and conditions
hereof.
NOW, THEREFORE, in consideration of the foregoing and the mutual representations,
warranties, covenants and agreements set forth herein, as well as other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto,
intending to be legally bound, agree as follows:
1.
Purchase and Sale of Note.
AGREEMENT
(a)
Sale and Issuance of Note. Subject to the terms and conditions of this
Agreement, the Purchaser agrees to purchase at the Closing (as defined below) and the Company
agrees to sell and issue to the Purchaser to a convertible promissory note, which is in the form
attached as Exhibit A hereto (the “Note”), in the principal amount of one hundred five thousand
three hundred forty-six U.S. dollars (US$105,346) (the “Principal Amount”). The purchase price
of the Note shall be equal to 100% of the Principal Amount of such Note (the “Purchase Price”).
The terms and conditions of the Note, including but not limited to, the interest, repayment,
conversion and others, are stipulated in the Note.
2.
Closing; Delivery.
(a)
The purchase and sale of the Note shall take place as soon as practicable
and in no event later than August 15, 2023 (or such other date agreed by the Parties) at the place
mutually agreed upon by the Company and the Purchaser (which time and place are designated as
the “Closing”).
1
(b)
At the Closing:
the Purchaser’s physical viewing.
(1)
The Company shall first present the original duly executed Note for
transfer to the following bank account designated by the Company:
(2)
The Purchaser shall then pay the Purchase Price of the Note by wire
Bank: HSBC Hong Kong
Bank Address: 1 Queen’s Road, Central, Hong Kong
SWIFT Code: HSBCHKHHHKH
Account number: 741-078976-838
Account name: AEOLUS ROBOTICS CORPORATION
The Purchaser shall then deliver to the Company a copy of the bank
wire remittance or exchange memo against delivery by the Company to the Purchaser the original
duly executed Note.
(3)
receipt of the Purchase Price at the bank account set forth above.
(4)
The Closing shall be deemed consummated upon the Company’s
3.
Representations and Warranties of the Company. The representations and
warranties made by the Company to the Purchaser are listed in Exhibit B hereto.
4.
Representations and Warranties of the Purchaser. The Purchaser hereby
represents and warrants to the Company as follows:
(a)
Organization. The Purchaser is duly organized, validly existing and in
good standing (or equivalent status in the relevant jurisdiction) under, and by virtue of, the laws
of the place of its incorporation.
(b)
Authorization.
The execution, delivery and performance of this
Agreement and/or relevant transaction documents and the consummation of the transactions
contemplated thereby by the Purchaser have been duly authorized by all necessary action on the
part of the Purchaser. The Purchaser has all requisite power, authority and capacity to enter into
this Agreement and to perform its obligations under this Agreement, and this Agreement has been
duly authorized, executed and delivered by the Purchaser. This Agreement, when executed and
delivered by the Purchaser, will constitute valid and legally binding obligations of the Purchaser,
subject, as to enforcement of remedies, to applicable bankruptcy, insolvency, moratorium,
reorganization and similar laws affecting creditors’ rights generally and to general equitable
principles.
(c)
Consent and Approvals. Except for those consents and approvals
disclosed in writing to the Company before the Closing, which has been obtained or to be obtained,
no consent, license, approval, order or authorization of, or registration, filing or declaration with,
any governmental authority or the securities exchange on which the Purchaser is listed is required
to be obtained or made, and no consent of any third party is required to be obtained, by the
2
Purchaser in connection with the execution, delivery or performance of this Agreement, or the
consummation of any transactions contemplated hereby. The execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby will not (i) result
in a violation of any organizational document of the Purchaser, (ii) conflict with, constitute a
default (or an event which, with notice or lapse of time or both, would become a default) under, or
give rise to another person’s right to terminate or cancel, any material agreement, indenture or
instrument to which the Purchaser is a party or (iii) result in a violation of any applicable law, rule,
regulation, order, judgment or decree.
(d)
No Public Market. The Purchaser is acquiring the Note and, in the event
the Note is converted into equity securities of the Company (the “Conversion Shares”) pursuant
to its terms, the Purchaser understands that no public market now exists for the Note and
Conversion Shares.
(e)
Purchase for Own Account. The Note and the Conversion Shares (if
issued) will be acquired for the Purchaser’s own account, not as a nominee or agent, and not with
a view to or in connection with the sale or distribution of any part thereof, and that the Purchaser
has no present intention of selling, granting any participation in, or otherwise distributing the same.
By executing this Agreement, the Purchaser further represents that the Purchaser does not
presently have any contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with respect to the Note and/or
any of the Conversion Shares.
(f)
Accredited and Sophisticated Investor. The Purchaser is an accredited
investor as defined in applicable securities laws of the Unites States of America (“the U.S.”). The
Purchaser recognizes that the Company is in its early stages that is not yet, and may never be,
profitable, and that an investment in the Company is speculative and involves a high degree of
risk. The Purchaser acknowledges that it is able to fend for itself, can bear the economic risk of its
investment, and has such knowledge and experience in financial and business matters that the
Purchaser is capable of evaluating the merits and risks of the prospective investment in the
Company. The Purchaser has experience in making investment decisions of this type.
(g)
Restrictions. The Purchaser understands that the Note and the Conversion
Shares (if issued) are being offered and sold in reliance on specific exemptions from the
registration requirements of relevant laws and that the Company is relying upon the truth and
accuracy of the representations, warranties, agreements, acknowledgements and understandings
set forth herein in order to determine the applicability of such exemptions and the suitability of the
Purchaser to acquire the Note and the Conversion Shares (if issued).
(h)
No Brokers or Finders. No person has or will have, as a result of the
transactions contemplated by this Agreement and the Note, any right, interest or claim against or
upon the Purchaser for any commission, fee or other compensation as a finder or broker.
5.
Conditions of the Purchaser’s Obligations to the Closing. The obligation of the
Purchaser to consummate the Closing is subject to the fulfillment, on or before the Closing, of
each of the following conditions, unless otherwise waived in writing by the Purchaser to the extent
permitted by applicable laws:
3
(a)
Due Diligence. The result of due diligence investigation performed by the
Purchaser on the Company is reasonably satisfactory to the Purchaser.
(b)
Representations and Warranties; Performance of Obligations. The
representations and warranties of the Company contained in Section 3 and as set out on Exhibit B
shall be true and accurate on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of the Closing (except in the
case of any representation and warranty which by its terms is made only as of a date specified
therein, which shall be true and accurate only as of such date). The Company shall have performed
all obligations and conditions herein required to be performed or observed by it on or prior to the
Closing.
(c)
Authorization. All required internal approvals and authorization of the
Company, and all required waivers (if any), for the issuance of and subscription to the Note have
been duly obtained and remain effective as of the Closing, including the written consent of the
Majority of Series A Preferred and Series B Preferred Shareholders of the Company. The written
consent of the Majority of Series A Preferred and Series B Preferred Shareholders shall also set
forth the approval of excluding the Note from the New Securities (as defined in the Company’s
Seventh Amended and Restated Memorandum and Articles of Association).
(d)
Qualifications. All authorizations, filings, consents, approvals or permits,
if any, of any applicable jurisdiction that are required in connection with the lawful issuance and
sale of the Note pursuant to this Agreement have been duly obtained on or prior to the Closing and
remain effective as of the Closing.
(e)
Corporate Documents. The Company shall have delivered to the
Purchaser: (i) the Company’s Memorandum and Articles of Association as in effect at the time of
the Closing, (ii) the Company’s bylaws as in effect at the time of the Closing, and (iii) resolutions
approved by the Company’s board of directors authorizing the transactions contemplated hereby.
(f)
Second Amended and Restated Shareholders Agreement. The Second
Amended and Restated Shareholders Agreement substantially in the form attached hereto as
EXHIBIT C shall have been executed and delivered by the parties thereto.
6.
Conditions of the Company’s Obligations to the Closing. The obligations of the
Company to consummate the Closing are subject to the fulfillment, on or before the Closing, of
each of the following conditions, unless otherwise waived in writing by the Company to the extent
permitted by applicable laws:
(a)
Representations and Warranties. The representations and warranties of
the Purchaser contained in Section 4 shall be true and accurate on and as of the Closing with the
same effect as though such representations and warranties had been made on and as of the Closing
(except in the case of any representation and warranty which by its terms is made only as of a date
specified therein, which shall be true and accurate only as of such date).
(b)
Authorization. All required internal approvals and authorization of the
Purchaser for the issuance of and subscription to the Note are duly obtained.
4
(c)
Qualifications. All authorizations, filings, consents, approvals or permits,
if any, of any applicable jurisdiction that are required in connection with the lawful issuance and
sale of the Note pursuant to this Agreement shall be obtained and effective as of the Closing.
7.
Certain Covenants. The Company undertake and agree to honor and perform the
following covenants so long as any indebtedness under this Note remains outstanding unless the
Purchaser have otherwise agreed in writing:
(a)
Information Rights.
(i)
The Company shall maintain consolidated financial statements
which present fairly the financial condition of the Company at the date or dates therein indicated
and the results of operations for the period or periods therein specified, prepared in accordance
with International Financial Reporting Standards(IFRS) (國際財務報導準則) applied on a
consistent basis and shall set aside on its books all such proper accruals and reserves as shall be
required.
(ii)
The Company shall deliver to the Purchaser:
within one hundred and fifty (150) days after the end of each fiscal
year, audited (by an independent internationally recognized accounting firm) annual consolidated
financial statements of the Company for such fiscal year; and
(1)
unaudited quarterly consolidated financial statements of the Company for such quarter.
(2)
within forty-five (45) days after the end of each calendar quarter,
(b)
Use of Proceeds. The Company agrees to use the Purchase Price received
from selling the Note hereunder exclusively as working capital for the business operations of the
Company.
(c)
Compliance with Law. The Company shall preserve and keep in full force
and effect its existence as a corporation in good standing under the laws of the jurisdiction of its
incorporation, except in the event of a group reorganization (“Group Reorganization”).
8.
Miscellaneous.
(a)
Fees and Expenses. The Parties shall each bear its own fees and expenses,
including, without limitations, the legal fees, due diligence cost and other expenses in connection
with the transactions under this Agreement.
(b)
Confidentiality. Each Party undertakes to the other Parties that it shall treat
as strictly confidential the existence and content of this Agreement and all information received or
obtained by it or its directors, officers, employees, agents or advisers relating to this Agreement,
the negotiations leading up to this Agreement or the subject matter of this Agreement, and that it
shall not at any time hereafter make use of or disclose or divulge to any person any such
information and shall use their reasonable endeavors to prevent the publication or disclosure of
any such information; provided, however, the foregoing restrictions shall not apply to any
5
disclosure which, pursuant to relevant laws and rules, any governmental authority or securities
exchange on which the Party’s securities are listed or traded requires a Party to make.
(c)
Transferability. Except as otherwise expressly provided in this Agreement
or the Note, and except in the event of Group Reorganization, neither the Company nor the
Purchaser may transfer or assign any part of this Agreement or its rights or obligations hereunder
to a third party without the prior written consent of the other Party, provided, that the Company
shall give a written notice to the Purchaser prior to the consummation of any Group
Reorganization.
(d)
Successors and Assigns. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the respective successors,
heirs, executors, administrators and permitted assigns of the Parties.
(e)
Survival. The representations, warranties, covenants and agreements made
herein shall survive the term of the Note, provided that such survival period shall in no event be
longer than three (3) years after the Closing.
(f)
Governing Law; Dispute Resolutions. This Agreement shall be governed
by and construed in accordance with the laws of the Republic of China (“Taiwan”) without regard
to principles of conflicts of law thereunder. Any unresolved controversy or claim arising out of or
relating to this Agreement, or the Note shall be submitted to the exclusive jurisdiction of Taipei
District Court, Taiwan for the first instance. The non-prevailing Party shall pay all costs and
expenses incurred by the prevailing Party, including, without limitation, all reasonable attorneys’
fees.
(g)
Counterparts. This Agreement shall be executed in one or more
counterparts, all of which shall be considered one and the same agreement and each of which shall
be deemed an original.
(h)
Notices. All notices and other communications provided for herein shall be
in writing and shall be deemed to have been duly given if delivered personally or sent by registered
or certified mail, return receipt requested, postage prepaid, and addressed as follows:
if to the Company:
Address:
9-1th Floor, No 168, Ruiguang Road,
Neihu District, Taipei 114
Taiwan
Attention: Aaron Chao / Yating Yang
if to the Purchaser:
Address:
Attention:
8th Floor, No.22, Lane 407, Section 2, Tiding Boulevard Neihu District,
Taipei 114.
Jack Wang
6
(i)
written agreement of the Parties.
Amendments. Any term of this Agreement may be amended only with the
(j)
Severability. If any provision of this Agreement is found to be invalid or
unenforceable, then such provision shall be construed, to the extent feasible, so as to render the
provision enforceable and to provide for the consummation of the transactions contemplated
hereby on substantially the same terms as originally set forth herein, and if no feasible
interpretation would save such provision, it shall be severed from the remainder of this Agreement,
which shall remain in full force and effect unless the severed provision is essential to the rights or
benefits intended by the Parties.
[Signature Page Follows]
7
The Parties have executed this Convertible Note Purchase Agreement as of the date first
written above.
Company:
Aeolus Robotics Corporation
By: /s/ Tsong Jung Lee
Name: Tsong Jung Lee
Title: DIRECTOR
[Signature Page to Convertible Note Purchase Agreement]
The Parties have executed this Convertible Note Purchase Agreement as of the date first
written above.
PURCHASER:
GigaMedia Limited
By: /s/ HUANG, CHENG-MING
Name: HUANG, CHENG-MING
Title: Chief Executive Officer
[Signature Page to Convertible Note Purchase Agreement]
EXHIBIT A
FORM OF CONVERTIBLE PROMISSORY NOTE
THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE
HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF ANY OTHER
STATE OR JURISDICTION. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS
ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR
RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE
SECURITIES LAWS OF ANY OTHER STATE OR JURISDICTION, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. THIS NOTE HAS NOT BEEN AND
WILL NOT BE OFFERED OR SOLD OR OTHERWISE TRANSFERRED, DIRECTLY OR
INDIRECTLY TO MEMBERS OF THE PUBLIC IN THE CAYMAN ISLANDS. THE
ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM
AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY
PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND THE
SECURITIES LAWS OF ANY OTHER STATE OR JURISDICTION.
AEOLUS ROBOTICS CORPORATION
CONVERTIBLE PROMISSORY NOTE
US$105,346 August 15, 2023
FOR VALUE RECEIVED, Aeolus Robotics Corporation, a Cayman Islands
company (the “Company”) unconditionally promises to pay to the order of GigaMedia Limited,
a Singapore company (the “Holder”), the principal sum of one hundred five thousand three
hundred forty-six U.S. dollars (US$105,346) (the “Principal Amount”), or such lesser amount
as shall then equal the outstanding principal amount hereunder, together with the Interest (as
defined below) from the date of this convertible note (the “Note”) on the unpaid principal
balance until the Principal Amount is paid in accordance with Section 3 hereof (or converted,
as provided in Section 4 hereof).
This Note is issued pursuant to that certain Convertible Note Purchase Agreement dated
August 15, 2023 (the “Purchase Agreement”) by and between the Company and the Holder,
and the resolutions of the board of directors and shareholders of the Company passed on or
about the same date, and is subject to the provisions thereof. Any capitalized term used but not
defined herein shall have such meaning ascribed to them in the Purchase Agreement.
The following is a statement of the rights of the Holder and the conditions to which this
Note is subject, and to which the Holder, by the acceptance of this Note, agrees:
1.
Interest. Subject to Section 4 hereof, the interest (the “Interest”) shall accrue
from the date of the Note on the unpaid Principal Amount at a rate of four point five percent
(4.5%) on an annual non-compound basis, computed on the basis of actual calendar days
elapsed and a year of 365 days, subject to the terms and conditions of this Note.
A-1
2.
Maturity and Extension. The Principal Amount plus all accrued and unpaid
Interest thereon shall be due and payable on the day which is twenty-four (24) months from the
date hereof (the “Original Maturity Date”), except and to the extent all or a portion of this Note
shall have been previously repaid, redeemed or converted pursuant to Sections 3 and 4 hereof.
The Original Maturity Date may be extended for an additional twelve (12) months by the
Company at its sole discretion by giving written notice to the Holder at least thirty (30) days
prior to the Original Maturity Date (the last day of such extended period of the Note is referred
to as the “Extended Maturity Date.”) (The Extended Maturity Date together with the Original
Maturity Date shall be collectively referred to as the “Maturity Date.”)
3.
Repayments.
(a)
Form of Payment. All payments of Principal Amount and Interest (other
than payment by way of conversion) shall be made in U.S. dollars to the Holder and be remitted
to the bank account specified by Holder in a written notice delivered to the Company.
(b)
Repayment. Except for the portion of the Principal Amount which has
been converted into Conversion Shares (as defined below), the total outstanding Principal
Amount of the Note plus all accrued and unpaid Interest thereon shall be due and payable upon
the date that is the earlier of: (i) the Maturity Date; or (ii) upon the occurrence of an Event of
Default (as defined below)., or (iii) upon the occurrence of a Deemed Liquidation Event (as
defined in the Company’s Seventh Amended and Restated Memorandum and Articles of
Association).
(c)
Prepayment. Subject to providing a prior written notice to the Holder
(the “Prepayment Notice”) of at least sixty (60) days (the “Prepayment Notice Period”) and
the Holder’s right to convert this Note as prescribed in Section 4 hereof, the Company may
redeem all or a portion of this Note at any time before the Maturity Date, upon the payment of
the all or a portion of outstanding Principal Amount and Interest under the Note.
4.
Conversion Rights. Subject to the terms and conditions of the Notes, all or a
portion of the Principal Amount under the Note may be convertible into, where applicable and
as further detailed herein, ordinary shares (the “Ordinary Shares”) of the Company, which shall
be fully paid and nonassessable, and shall have the same characters, rights and privileges of
ordinary shares as provided in the Amended and Restated Memorandum and Articles of
Association of the Company (the converted Ordinary Shares is referred to as “Conversion
Shares”). For the avoidance of doubt, in the event that any portion of the Principal Amount is
converted into the Conversion Shares, all the Interest accrued but unpaid on such portion of
Principal Amount shall be waived.
(a)
Automatic Conversion. This Note shall automatically be converted into
Ordinary Shares at the conversion price of zero point one U.S. dollars (US$0.1) per share (the
“Conversion Price”) upon the date of filing formal application of a Qualified IPO (as defined
in the Company’s Seventh Amended and Restated Memorandum and Articles of Association)
or an earlier date as reasonably requested by the lead underwriter(s) of such Qualified IPO,
which occurs on or before the Maturity Date.
(b)
Optional Conversion.
(i) Option upon Prepayment. At any time before the Maturity Date, if the
Holder receives a Prepayment Notice from the Company, at the Holder’s option and discretion,
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all or a portion of the outstanding Principal Amount under this Note may be converted into
Ordinary Shares at the Conversion Price, provided that the Holder shall give prior written notice
to the Company before the end of the Prepayment Notice Period, and that such amount to be
converted by the Holder shall be no greater than the prepayment amount specified in the
Prepayment Notice.
(ii) Option upon Deemed Liquidation Event. At any time before the
Maturity Date, the Company shall give the Holder a written notice within seven (7) days after
the board of directors of the Company resolves to enter into any Deemed Liquidation Event,
and at the Holder’s option and discretion, all or a portion of the outstanding Principal Amount
under this Note may be converted into Ordinary Shares at the Conversion Price, provided that
(a) a written notice is given to the Company by the Holder within twenty-one (21) days after it
receives said notice from the Company of such Deemed Liquidation Event, and (b) the
conversion shall take place on or immediately before the closing of such Deemed Liquidation
Event.
(iii) Option upon Maturity. On the Original Maturity Date or, if the Original
Maturity Date is extended by the Company pursuant to Section 2 hereof, on the Extended
Maturity Date, at the Holder’s option and discretion, if the Note remains outstanding, all or a
portion of the outstanding Principal Amount under the Note may be converted into Ordinary
Shares at the Conversion Price, provided that a prior written notice of at least thirty (30) days
is given to the Company by the Holder.
(c)
Conversion Price Adjustment. If the Company, at any time while this
Note is outstanding: (A) pays a dividend or otherwise makes a distribution in shares of the
Company or any securities of any Group Company which entitle the holder thereof to acquire
the shares of the Company; or (B) conducts a share split, reverse share split or similar event,
then the Conversion Price shall be appropriately adjusted.
(d)
Conversion Process. If the Holder decides to exercise the conversion
rights hereunder, the Holder shall send a written conversion request notice to the Company
during the applicable notice period pursuant to Section 4(b) hereof. The Company shall take
all necessary and appropriate actions as promptly as possible to convert the applicable portion
of the outstanding Principal Amount owing under this Note into the Conversion Shares. Upon
such conversion, the Holder shall surrender this Note to the Company.
(e)
Issuance of Certificates. As soon as is reasonably practicable after a
conversion has been effected, the Company shall deliver to Holder a certificate or certificates
representing the number of the Conversion Shares (excluding any fractional share) issuable by
reason of such conversion.
(f)
Issuance Costs. The issuance of certificate(s) for shares of capital stock
issuable upon conversion of this Note shall be made without charge to the Holder for any
issuance tax in respect thereof or other cost incurred by the Company in connection with such
conversion and the related issuance of such shares of capital stock. Upon conversion of this
Note, the Company shall take all such actions as are necessary in order to ensure that the capital
stock issuable with respect to such conversion shall be validly issued, fully paid and
nonassessable.
No Fractional Shares. If any fractional share of capital stock would,
except for the provisions hereof, be deliverable upon conversion of this Note, the Company, in
(g)
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lieu of delivering such fractional share, shall pay an amount equal to the value of such fractional
share, as determined by the per share conversion price used to effect such conversion.
(h)
Documents. The conversions under this Section 4 shall be made in
accordance with the terms and conditions set forth in the share subscription agreement and other
documents in relation to the subscription (the “Conversion Documents”), including but without
limitations to the shareholders’ agreement and the amended and restated memorandum and
articles of association of the Company to be provided by the Company upon the conversion,
where applicable. In connection with the conversions under this Section 4, the Holder agrees
to execute and deliver to the Company any Conversion Documents reasonably requested by the
Company.
(i)
Compliance with Laws and Regulations. The Company shall take all
such actions as may be necessary to assure that all Conversion Shares issued upon conversion
pursuant hereto may be so issued without violation of any applicable law or governmental
regulation or any requirement of any domestic securities exchange upon which such shares of
capital stock may be listed.
(j)
Termination of Rights. All rights with respect to this Note shall
terminate upon the valid issuance of the Conversion Shares credited as paid up in full upon the
conversions pursuant to this Section 4, whether or not this Note has been surrendered and
whether or not all share subscription, shareholders’ agreement, or other agreements have been
executed and delivered by the Holder to the Company.
(k)
Conditions to Conversion. The conversion of the Note pursuant to this
Section 4 shall be subject to both the Company and the Holder obtaining all permits,
authorizations, approvals or consents of, notice to or registration with any governmental
authority or regulatory body or other person in relation to transactions contemplated under or
as required by the Note and applicable laws. Each Party agrees to provide necessary assistance
to the other Party for it to obtain from the relevant governmental and regulatory authority the
approvals required to convert the Note into the Conversion Shares at the other Party’s
reasonable request. In the event that the approvals cannot be obtained, the Holder may assign
the Note and its rights and obligations hereunder to a third party acceptable to and agreed by
the Company, provided that the Company may not unreasonably withhold its consent.
5.
Default.
(a)
Events of Default. For purposes of this Note, any of the following events
which shall occur shall constitute an “Event of Default”:
(i) the default by the Company in the payment of the aggregate Principal
Amount and Interest when due and payable and such failure continues for a period of five (5)
days;
(ii) a material breach by the Company of its representations, warranties,
obligations or covenants contained in the Purchase Agreement or a material breach by Company
of the terms of this Note, which if capable of remedy has not been remedied within ten (10)
days of written notice to the Company of such breach;
Restated Memorandum and Articles of Association); or
(iii) a Liquidation Event (as defined in the Company’s Seventh Amended and
A-4
(iv) the commencement of the bankruptcy proceedings against the Company.
(b)
Consequences of Events of Default. If any Event of Default occurs
before Maturity Date for any reason, whether voluntary or involuntary, and be continuing, the
Company shall notify Holder in writing within five (5) days after learning of an Event of
Default. Upon the occurrence or existence of any Event of Default and at any time thereafter,
all outstanding Principal Amount and Interest will become immediately due and payable by the
Company to the Holder.
6.
Excessive Interest. Notwithstanding any other provision herein to the contrary,
this Note is hereby expressly limited so that the interest rate charged hereunder shall at no time
exceed the maximum rate permitted by applicable law. If, for any circumstance whatsoever,
the interest rate charged exceeds the maximum rate permitted by applicable law, the interest
rate shall be reduced to the maximum rate permitted, and if the Holder shall have received an
amount that would cause the interest rate charged to be in excess of the maximum rate permitted,
such amount that would be excessive interest shall be applied to the reduction of the Principal
Amount owing hereunder, or if such excessive interest exceeds the unpaid balance of the
Principal Amount, such excess shall be refunded to the Company.
7.
Priority. The Note shall rank pari passu, without preference or priority of any
kind over, with all other present and future unsubordinated and unsecured senior indebtedness
of the Company.
8.
Amendment and Waiver. Any term of this Note may be amended and the
observance of any term of this Note may be waived (either generally or in a particular instance
and either retroactively or prospectively), only by the written agreement of the Company and
the Holder.
9.
Notices. All notices, requests, waivers and other communications made
pursuant to this Note shall be deemed to have been duly given if delivered personally or sent by
registered or certified mail, return receipt requested, postage prepaid, and addressed as follows:
if to the Company:
Address:
9-1th Floor, No 168, Ruiguang Road,
Neihu District, Taipei 114
Taiwan
Attention: Aaron Chao / Yating Yang
if to the Purchaser:
Address: 8th Floor, No.22, Lane 407, Section 2, Tiding Boulevard Neihu District,
Taipei 114.
Attention: Jack Wang
10.
Severability. If one or more provisions of this Note are held to be unenforceable
under applicable law, such provision shall be excluded from this Note and the balance of the
Note shall be interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
A-5
11.
Transferability. Unless otherwise agreed by the Company in writing, except as
expressly permitted pursuant to Section 4(k), the Holder may not sell, transfer, assign, dispose
of, realize, create any encumbrance over any part of the Note or enter into any agreement that
will directly or indirectly constitute or be deemed as selling, transferring, assigning, disposing
of, realizing, or creating any encumbrance over any part of the Note.
12.
Governing Law; Dispute Resolutions. This Note is to be construed in
accordance with and governed by the laws of the Republic of China. Any unresolved
controversy or claim arising out of or relating to this Agreement or the Note shall be submitted
to the exclusive jurisdiction of Taipei District Court, Taiwan for the first instance. The non-
prevailing Party shall pay all costs and expenses incurred by the prevailing Party, including,
without limitation, all reasonable attorneys’ fees.
13.
14.
Time of Essence. Time is of the essence of this Note.
Purchase Agreement. This Note incorporates by reference all the terms of the
Purchase Agreement.
[Signature page follows]
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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as
of the date first above written.
Company:
Aeolus Robotics Corporation
By: /s/ Tsong Jung Lee
Name: Tsong Jung Lee
Title: DIRECTOR
[SIGNATURE PAGE TO CONVERTIBLE PROMISSORY NOTE]
A-7
EXHIBIT B
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents, warrants and covenants to the Purchaser as of the date hereof
and as of the Closing, where applicable, as set forth below.
1.
Corporate Power. The Company presently has, and as of the Closing will have,
full legal right, power and capacity and all necessary consents, approvals and authorizations,
whether corporate, shareholder, governmental or otherwise, as may be required to execute and
deliver this Agreement, the Note and other documents in relation to the transactions
contemplated hereunder (the “Transaction Documents”), and the Seventh Amended
Memorandum and Articles of Association of the Company (the “Company Articles”), to issue
and sell the Note to the Purchaser pursuant to the Agreement and the Note in the manner
contemplated hereby and to carry out the provisions of the Transaction Documents and the
Company Articles.
2.
Organization, Good Standing and Qualification. Each of the Company and its
subsidiaries (each a “Group Company” and collectively, the “Group Companies”) is duly
incorporated, validly existing and in good standing (or has equivalent status in the relevant
jurisdiction) under the laws of the place of its incorporation. Each of the Group Companies and
is qualified and is authorized to do business as a foreign corporation in all jurisdictions where
the failure to be so qualified and/or authorized would have a material adverse effect on the
business, the assets, liabilities, financial condition, operation or prospects of such Group
Company (“Material Adverse Effect”).
(i) Each Group Company has all requisite corporate power and authority to own
and operate its properties and assets.
(ii) Each Group Company has kept all of its corporate records updated, accurate and
complete, and has made all necessary filings on time in compliance with the respective laws of
the country of its incorporation.
(iii) None of the Group Companies is in liquidation or in insolvency reorganization,
or has taken any steps to enter into liquidation, insolvency reorganization, or suspend its
business; no application has been made for liquidating or reorganizing any of the Group
Companies or to suspend its business and there are no grounds on which an application could
be based for liquidation or insolvency reorganization of the same or suspension of its business.
(iv) The Company has provided to the Purchaser certified true copies of each Group
Company’s (where applicable) memorandum of association and articles of association or other
constitutional documents, register of members, and the register of directors (collectively the
“Fundamental Documents”). To the knowledge of the Company, the copies of the
Fundamental Documents are true, correct, complete and not misleading, and they have not been
amended throughout the Closing. To the knowledge of the Company, each Group Company
has complied with its Fundamental Documents in all respects, and none of its activities,
agreements, commitments or rights is ultra vires or unauthorized.
(v) No Group Company has any bank loans. For the purpose of this Agreement,
“bank loans” shall mean the loans owed by a Group Company to banks with mortgages and/or
pledges on the assets owned by the Group Company.
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3.
Capitalization. Immediately prior to the Closing, the authorized share capital of
the Company is US$56,410.00 divided into 564,100,000 shares of US$0.0001 par value each
comprising: (i) US$46,090.00 divided into 460,900,000 Ordinary Shares (as defined in the
Company’s Articles) and of US$0.0001 par value each (including up to 13,047,385 shares for
certain employee share options under the employee share option plan adopted by the board of
directors of the Company), (ii) US$5,910.00 divided into 59,100,000 Series A Preferred Shares
(as defined in the Company’s Articles) of US$0.0001 par value each, and (iii) US$160.00
divided into 1,600,000 Series A-NDC Preferred Shares (as defined in the Company’s Articles)
of US$0.0001 par value each, and (iv) US$4,250.00 divided into 42,500,000 Series B Preferred
Shares of US$0.0001 par value each.
4.
Enforceability. The Transaction Documents, when executed and delivered by
the Company, shall be duly and validly executed and delivered by the Company and shall be
the Company’ legally binding obligations enforceable against the Company in accordance with
their terms, except to the extent that such enforcement may be limited by bankruptcy,
insolvency or similar laws now or hereafter in effect relating to creditors’ rights and remedies
generally, and as enforcement may be limited by equitable principles of general applicability.
All corporate action on the part of the Company, its officers, directors and shareholders
necessary for the authorization, execution and delivery of the Transaction Documents, the
adoption of the Company Articles, the performance of all obligations of the Company hereunder
and thereunder at the Closing and the authorization, sale, issuance and delivery of the
Conversion Shares pursuant to the Agreement, the Note and the Company Articles and
applicable laws has been taken or shall be taken prior to the Closing or relevant applicable
conversion.
5.
Offering. Provided that the representations and warranties made by the
Purchaser herein are complete, true and accurate, then the offer, issuance, sale and conversion
(as applicable) of the Note and the Conversion Shares pursuant to this Agreement is exempt
from the registration requirements of the Securities and Exchange Act, and will have been
registered or qualified (or are exempt from registration and qualification) under the registration,
permit or qualification requirements of all applicable securities laws.
6.
Intellectual Property Rights.
(i) The copyrights, patents, trademarks, licenses, trade secrets, mask works, service
names, trade names, designs, know-how or other proprietary rights (whether registered or not)
and all pending applications therefor (the “Intellectual Properties”) that are required or likely
to be required by or useful or likely to be useful to the Group Companies’ business and
operations, as now conducted or presently proposed to be conducted, are (a) legally and
beneficially vested in the Group Companies and without any infringement of the rights of
others, (b) valid and enforceable, (c) not being infringed or attached or opposed by any person,
and (d) not subject to any license or authority of any other person.
(ii) The products and services dealt with by the Group Companies do not use or
embody any Intellectual Property other than (a) those belonging to the Group Companies above,
or (b) those in respect of which licenses have been obtained on commercially usual terms and
are currently in force. In addition, none of the products and services infringes the right of any
third party’s Intellectual Properties, and to the knowledge of the Company, no claims have been
made and no applications for such claims are pending.
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(iii) The Group Companies have taken all necessary and appropriate security
measures to protect the secrecy, confidentiality and value of the Group Companies’ Intellectual
Properties.
(iv) None of the Group Companies has utilized or proposes to utilize any Intellectual
Property of any of their employees (or people it currently intends to hire) made prior to his or
her employment by such Group Company except for such Intellectual Property that has been
assigned or licensed to the Group Company.
(v) There are no outstanding options, licenses, agreements or rights of any kind
granted by any Group Company relating to any Group Company’s Intellectual Properties, nor
is any Group Company bound by or a party to any options, licenses, agreements or rights of any
kind with respect to the Intellectual Properties of any other person.
7.
Compliance with Other Instruments. To the knowledge of the Company, each
Group Company is not in violation or default of any term of the Company Articles, the
Fundamental Documents, bylaws, or any other constitutional documents of such Group
Company, except for immaterial noncompliance that in the aggregate are not material to the
Group Companies taken as a whole. None of the Group Companies is in violation of any
provision of any mortgage, indenture, agreement, instrument or contract to which such Group
Company is a party or by which it or its assets are bound or of any judgment, decree, order or
writ. The execution, delivery, and performance of and compliance with the Transaction
Documents, the Company Articles and the issuance, sale and conversion (as applicable) of the
Note and the Conversion Shares pursuant to the Transaction Documents and the Company
Articles, will not, with or without the passage of time or giving of notice, result in any such
violation, or be in conflict with or constitute a default under any such term, or result in the
creation of any mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Group Companies or the suspension, revocation, impairment, forfeiture or
nonrenewal of any permit, license, authorization or approval applicable to any Group Company,
its business or operations or any of its assets or properties.
8.
Agreements.
(i) There are no agreements, understandings, instruments, contracts, proposed
transactions or judgments or orders, in each case, to which any Group Company is a party or by
which it is bound which (a) may involve obligations (contingent or otherwise) of, or payments
by, any Group Company in excess of US$1,000,000, (b) which are otherwise material and not
entered into in the ordinary course of business, (c) are not cancelable by such Group Company
without penalty on less than ninety (90)-day notice and are not entered into in any Group
Company’s ordinary course of business, (d) which contain covenants directly or explicitly
limiting the freedom of any Group Company to compete in any line of business or with any
person, or (e) contain provisions restricting or affecting the indemnification by any Group
Company with respect to infringements of proprietary rights (other than indemnification
obligations arising from purchase or sale agreements entered into in the ordinary course of
business).
(ii) All of the contracts, agreements and instruments to which any Group Company
is a party, are valid, binding and in full force and effect and constitute legal, valid and binding
obligations of such Group Company, as the case may be, and of the other parties, and are
enforceable subject to laws of general application relating to bankruptcy, insolvency and the
relief of debtors and rules of law governing specific performance, injunctive relief or other
C-3
equitable remedies. None of the Group Companies, nor any other party is in material default in
complying with any provision of any such contract, agreement or instrument, and no condition
of facts exist which, with notice, lapse of time or both, would constitute a default thereunder on
the part of the Group Companies. The Company has no knowledge of any notice or threat to
terminate any such contracts, agreements or instruments.
(iii) No Group Company is a party to any material written or oral contract which is
not made in the ordinary course of business and on arm’s length terms.
9.
Compliance with Laws. The Group Companies are not in violation of any
applicable statute, rule, regulation, order or restriction of any domestic or foreign government
or any instrumentality or agency thereof in respect of the conduct of their business or the
ownership of their properties, except as would not have a Material Adverse Effect. No permits
are required to be obtained and no registrations or declarations are required to be filed in
connection with the execution and delivery of the Transaction Documents and the issuance of
the Note or the Conversion Shares, except such as have been duly and validly obtained or filed,
or with respect to any filings that must be made after Closing, as will be filed in a timely manner.
The Group Companies have all franchises, permits, licenses and any similar authority necessary
for the conduct of their business as now being conducted by them (“Permits”), the lack of which
could have a Material Adverse Effect, and all such Permits are valid and in full force and effect.
No Permit is subject to termination as a result of the execution of the Transaction Documents
or consummation of the transactions contemplated therein.
10.
Litigation. There is no claim, action, suit, proceeding, arbitration, complaint,
charge or investigation pending or, to the knowledge of the Company, currently threatened (i)
against any Group Company, or any officer or director of any Group Company; or (ii) that
questions the validity of the Transaction Documents or the right of any Group Company to enter
into the Transaction Documents, or to consummate the transactions contemplated hereunder; or
(iii) that might result, either individually or in the aggregate, in a Material Adverse Effect,
financially or otherwise, or any change in the current equity ownership of any Group Company.
The Company is not aware of any basis for the foregoing. To the knowledge of the Company,
none of the Group Companies is a party or is named as subject to the provisions of any order,
writ, injunction, judgment or decree of any court or governmental authority. To the knowledge
of the Company, there is no action, suit, proceeding or investigation by any Group Companies
currently pending or which any Group Company intends to initiate.
11.
Financial Statements. The Company has delivered to the Purchaser (i) an
unaudited consolidated balance sheet and profit and loss sheet of the Company for the financial
year ended December 31, 2022and (ii) an unaudited consolidated balance sheet and profit and
loss sheet of the Company as of May 31, 2023 (collectively, the “Financial Statements”). Such
Financial Statements: (a) are in accordance with the books and records of each Group Company,
which are complete and correct and have been maintained in accordance with reasonable
business practices for companies similar to each Group Company, respectively; (b) are true,
correct and complete and present fairly the financial condition of the Group Companies at the
date or dates therein indicated and the results of operations for the period or periods therein
specified, respectively, and (c) have been prepared in accordance with International Financial
Reporting Standards(IFRS) (國際財務報導準則) applied on a consistent basis. Since May 31,
2023, there has been no change in the assets, liabilities, financial condition or operations of the
Group Companies from that reflected in the Financial Statements, except for NT$60,000,000
provided by the National Development Fund in exchange of 1,600,000 Series A-NDC Preferred
Shares and changes arising out of the ordinary course of business which, either in any case or
C-4
in the aggregate, have not been adverse in any respect. Full provision or reserve has been made
in the Financial Statements for all Taxation (deferred or otherwise) liable to be assessed on the
Group Companies and all Taxation which has been assessed has been fully paid. Each Group
Company has paid all the necessary Taxation in compliance with any law, rule, regulation or
government policy to which it is subject. For the purpose of this Agreement, “Taxation”
includes all form of taxation in the Cayman Islands, Hong Kong, the US, the Republic of China
or elsewhere in the world, past, present and future (including, without limitation, gift tax,
securities transaction tax, capital gains tax, income tax, estate duty, stamp duty, goods and
services tax, customs and other import or export duties) and all other statutory, governmental
or state impositions, duties and levies and all penalties, charges, costs and interest relating to
any notice, demand, assessment, letter or other document issued or action taken by any revenue
or taxation authority or other statutory or governmental authority, body or official whosoever
whereby the Group Company is or may be placed or sought to be placed under a liability to
make a payment or deprived of any relief, allowance, credit or repayment otherwise available.
12.
Employment Matters. To the knowledge of the Company, none of the Group
Companies’ employees is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would materially interfere with such employee’s ability
to promote the interest of the Group Companies or that would conflict with the Group
Companies’ business. The Group Companies are not delinquent in payments to any of their
employees, consultants, or independent contractors for any wages, salaries, commissions,
bonuses, or other direct compensation for any service performed by them as of the Closing or
amounts required to be reimbursed to such employees, consultants or independent contractors,
in all material respects. The Group Companies have complied in all material respects with all
applicable equal employment opportunity laws and with other laws related to employment,
including those related to pensions, wages, hours, worker classification and collective
bargaining. No Group Company has any collective bargaining agreements with any of its
employees. The existing employment contracts with each of the employees of each Group
Company impose non-disclosure obligations on the employees to maintain the confidentiality
of the confidential and/or proprietary information of the Group Company. Neither any Group
Company nor any of its shareholders, employees or directors has solicited any employee to
leave his or her previous employment in breach of any applicable laws or which may give rise
to any tortious, contractual or criminal liability.
13.
Material Adverse Effects. No other event or circumstance is outstanding which
constitutes a default or termination right under any other agreement or instrument which is
binding on the Group Companies or to which the Group Companies’ assets are subject which
might have a Material Adverse Effect.
14.
No Brokers or Finders. No person has or will have, as a result of the transactions
contemplated by the Transaction Documents, any right, interest or claim against or upon any
Group Company for any commission, fee or other compensation as a finder or broker.
15.
Corrupt Business Practices. The Group Companies, their respective directors,
employees, agents and their consultants and each other person acting for, or on behalf of, the
Group Companies, has complied with Part 2, Chapter Four of the R.O.C. Criminal Code, the
R.O.C. Statute of Punishment of Corruption, the Bribery Act of the United Kingdom of Great
Britain and Northern Ireland, the U.S. Foreign Corrupt Practices Act of 1977, and any other law
(broadly defined) intended to prevent or deter bribery or corrupt business practices, to the extent
such laws are applicable to them (collectively the “Anticorruption Laws”). The Group
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Companies are not under investigation with respect to, and have not been given notice of, any
violation of any Anticorruption Laws applicable to the business of the Group Companies, as
presently conducted or as has been conducted. Neither the Group Companies nor any officer,
director, supervisor, agent or employee purporting to act on behalf of the Group Companies or
any other related party has at any time, directly or indirectly:
(i) made, provided or paid any unlawful contributions, gifts, entertainment or other
unlawful expenses to any candidate for political office, or failed to disclose fully any such
contributions in violation of any applicable laws;
(ii) made any payment to any local, state, federal or any other type of governmental
officer or official, or other person charged with similar public or quasi-public duties, other than
payments required or allowed by applicable Anticorruption Laws;
(iii) made any payment to any agent, employee, officer or director of any entity with
which any Group Company or any other related party does business for the purpose of
influencing such agent, employee, officer, supervisor or director to do business with the Group
Companies;
(iv) engaged in any transactions, maintained any bank account or used any corporate
funds, except for transactions, bank accounts and funds which have been and are reflected in
the normally maintained books and records of the Group Companies;
(v) violated any provision of the Anticorruption Laws; or
(vi) made any payment in the nature of criminal bribery or any other unlawful
payment.
16.
Title to Properties and Assets. Each Group Company has good and marketable
title to, and legally and beneficially owns or has valid leasehold interests or rights to use, all its
property and assets, free and clear of all mortgages, liens, loans and encumbrances, except for
liens for Taxation, assessments or other governmental charges or levies not yet due, and
statutory liens for landlords, carriers, warehousemen, mechanics and other liens imposed by
law created in the ordinary course of business of the Group Company consistent with past
practices for amounts not yet due.
17.
No Contingent Liabilities. No Group Company has given any guarantee,
indemnity or suretyship for principal amounts recoverable exceeding that stated in the last
audited accounts (if any) of such Group Company.
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EXHIBIT C
SECOND AMENDED AND RESTATED
SHAREHOLDERS AGREEMENT
CONVERTIBLE NOTE PURCHASE AGREEMENT
Exhibit 4.3
This Convertible Note Purchase Agreement (the “Agreement”) is made as of March 15th,
2024, by and between:
Aeolus Robotics Corporation, a company duly organized and validly existing under the
1.
laws of the Cayman Islands (the “Company”); and
GigaMedia Limited, a company duly organized and validly existing under the laws of
2.
Singapore (the “Purchaser”).
Each of the Company and the Purchaser is hereinafter referred to individually a “Party”
and collectively, the “Parties”.
WITNESSETH
WHEREAS, the Company desires to issue, sell and deliver to the Purchaser, and the
Purchaser desires to purchase from the Company, the Note (as defined below) pursuant to the
terms and subject to the conditions of this Agreement;
WHEREAS, the Parties desire to enter into this Agreement on the terms and conditions
hereof.
NOW, THEREFORE, in consideration of the foregoing and the mutual representations,
warranties, covenants and agreements set forth herein, as well as other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto,
intending to be legally bound, agree as follows:
1.
Purchase and Sale of Note.
AGREEMENT
(a)
Sale and Issuance of Note. Subject to the terms and conditions of this
Agreement, the Purchaser agrees to purchase at the Closing (as defined below) and the Company
agrees to sell and issue to the Purchaser to a convertible promissory note, which is in the form
attached as Exhibit A-1, Exhibit A-2 and Exhibit A-3 hereto (each of the Exhibit A hereto is
individually, a “Note” and collectively, the “Notes”), in the total principal amount of Sixty-Three
Thousand, Two Hundred and Eight U.S. dollars (US$63,208) (the “Total Principal Amount”).
The purchase price of the Note shall be equal to 100% of the Principal Amount of such Note (the
“Purchase Price”). The terms and conditions of the Note, including but not limited to, the interest,
repayment, conversion, and others, are stipulated in the Note. The Purchaser hereby agrees that
the principal amount shall be subscribed in three installments (refer to article1.(b) Closing
Delivery). Additionally, the Purchaser acknowledges that should the Company possess sufficient
funds and duly notify the Purchaser prior to each closing, the Company shall abstain from issuing
any further unissued NOTES. Consequently, the Purchaser shall not be obliged to complete the
remittance, and hereby consents to this arrangement.
1
(b)
Closing; Delivery.
(b.1) 1st Closing: The purchase and sale of the Note shall take place as soon
as practicable and in no event later than March 30, 2024 (or such other date
agreed by the Parties) at the place mutually agreed upon by the Company
and the Purchaser (which time and place are designated as the “Closing”).
(b.2) 2nd Closing : The purchase and sale of the Note shall take place as soon
as practicable and in no event later than June 30, 2024 (or such other date
agreed by the Parties) at the place mutually agreed upon by the Company
and the Purchaser (which time and place are designated as the “Closing”).
(b.3) 3rd Closing: The purchase and sale of the Note shall take place as soon
as practicable and in no event later than September 30, 2024 (or such other
date agreed by the Parties) at the place mutually agreed upon by the
Company and the Purchaser (which time and place are designated as the
“Closing”).
(c)
At the Closing:
(c.1) The Company shall first present the original duly executed Note for
the Purchaser’s physical viewing.
(c.2) The Purchaser shall then pay the Purchase Price of the Note by wire
transfer to the following bank account designated by the Company:
Bank: HSBC Hong Kong
Bank Address: 1 Queen’s Road, Central, Hong Kong
SWIFT Code: HSBCHKHHHKH
Account number: 741-078976-838
Account name: AEOLUS ROBOTICS CORPORATION
(c.3) The Purchaser shall then deliver to the Company a copy of the bank
wire remittance or exchange memo against delivery by the Company to the
Purchaser the original duly executed Note.
(c.4) The Closing shall be deemed consummated upon the Company’s
receipt of the Purchase Price at the bank account set forth above.
2.
Representations and Warranties of the Company. The representations and
warranties made by the Company to the Purchaser are listed in Exhibit B hereto.
3.
Representations and Warranties of the Purchaser. The Purchaser hereby
represents and warrants to the Company as follows:
2
(a)
Organization. The Purchaser is duly organized, validly existing and in
good standing (or equivalent status in the relevant jurisdiction) under, and by virtue of, the laws
of the place of its incorporation.
(b)
Authorization.
The execution, delivery and performance of this
Agreement and/or relevant transaction documents and the consummation of the transactions
contemplated thereby by the Purchaser have been duly authorized by all necessary action on the
part of the Purchaser. The Purchaser has all requisite power, authority and capacity to enter into
this Agreement and to perform its obligations under this Agreement, and this Agreement has been
duly authorized, executed and delivered by the Purchaser. This Agreement, when executed and
delivered by the Purchaser, will constitute valid and legally binding obligations of the Purchaser,
subject, as to enforcement of remedies, to applicable bankruptcy, insolvency, moratorium,
reorganization and similar laws affecting creditors’ rights generally and to general equitable
principles.
(c)
Consent and Approvals. Except for those consents and approvals
disclosed in writing to the Company before the Closing, which has been obtained or to be obtained,
no consent, license, approval, order or authorization of, or registration, filing or declaration with,
any governmental authority or the securities exchange on which the Purchaser is listed is required
to be obtained or made, and no consent of any third party is required to be obtained, by the
Purchaser in connection with the execution, delivery or performance of this Agreement, or the
consummation of any transactions contemplated hereby. The execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby will not (i) result
in a violation of any organizational document of the Purchaser, (ii) conflict with, constitute a
default (or an event which, with notice or lapse of time or both, would become a default) under, or
give rise to another person’s right to terminate or cancel, any material agreement, indenture or
instrument to which the Purchaser is a party or (iii) result in a violation of any applicable law, rule,
regulation, order, judgment or decree.
(d)
No Public Market. The Purchaser is acquiring the Note and, in the event
the Note is converted into equity securities of the Company (the “Conversion Shares”) pursuant
to its terms, the Purchaser understands that no public market now exists for the Note and
Conversion Shares.
(e)
Purchase for Own Account. The Note and the Conversion Shares (if
issued) will be acquired for the Purchaser’s own account, not as a nominee or agent, and not with
a view to or in connection with the sale or distribution of any part thereof, and that the Purchaser
has no present intention of selling, granting any participation in, or otherwise distributing the same.
By executing this Agreement, the Purchaser further represents that the Purchaser does not
presently have any contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with respect to the Note and/or
any of the Conversion Shares.
(f)
Accredited and Sophisticated Investor. The Purchaser recognizes that the
Company is in its early stages that is not yet, and may never be, profitable, and that an investment
in the Company is speculative and involves a high degree of risk. The Purchaser acknowledges
that it is able to fend for itself, can bear the economic risk of its investment, and has such
3
knowledge and experience in financial and business matters that the Purchaser is capable of
evaluating the merits and risks of the prospective investment in the Company. The Purchaser has
experience in making investment decisions of this type.
(g)
Restrictions. The Purchaser understands that the Note and the Conversion
Shares (if issued) are being offered and sold in reliance on specific exemptions from the
registration requirements of relevant laws and that the Company is relying upon the truth and
accuracy of the representations, warranties, agreements, acknowledgements and understandings
set forth herein in order to determine the applicability of such exemptions and the suitability of the
Purchaser to acquire the Note and the Conversion Shares (if issued).
(h)
No Brokers or Finders. No person has or will have, as a result of the
transactions contemplated by this Agreement and the Note, any right, interest or claim against or
upon the Purchaser for any commission, fee or other compensation as a finder or broker.
4.
Conditions of the Purchaser’s Obligations to the Closing. The obligation of the
Purchaser to consummate the Closing is subject to the fulfillment, on or before the Closing, of
each of the following conditions, unless otherwise waived in writing by the Purchaser to the extent
permitted by applicable laws:
(a)
Due Diligence. The result of due diligence investigation performed by the
Purchaser on the Company is reasonably satisfactory to the Purchaser.
(b)
Representations and Warranties; Performance of Obligations. The
representations and warranties of the Company contained in Section 3 and as set out on Exhibit B
shall be true and accurate on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of the Closing (except in the
case of any representation and warranty which by its terms is made only as of a date specified
therein, which shall be true and accurate only as of such date). The Company shall have performed
all obligations and conditions herein required to be performed or observed by it on or prior to the
Closing.
(c)
Authorization. All required internal approvals and authorization of the
Company, and all required waivers (if any), for the issuance of and subscription to the Note have
been duly obtained and remain effective as of the Closing, including the written consent of the
Majority of Series A Preferred and Series B Preferred Shareholders of the Company. The written
consent of the Majority of Series A Preferred and Series B Preferred Shareholders shall also set
forth the approval of excluding the Note from the New Securities (as defined in the Company’s
Seventh Amended and Restated Memorandum and Articles of Association).
(d)
Qualifications. All authorizations, filings, consents, approvals or permits,
if any, of any applicable jurisdiction that are required in connection with the lawful issuance and
sale of the Note pursuant to this Agreement have been duly obtained on or prior to the Closing and
remain effective as of the Closing.
Corporate Documents. The Company shall have delivered to the
Purchaser: (i) the Company’s Memorandum and Articles of Association as in effect at the time of
(e)
4
the Closing, (ii) the Company’s bylaws as in effect at the time of the Closing, and (iii) resolutions
approved by the Company’s board of directors authorizing the transactions contemplated hereby.
(f)
Second Amended and Restated Shareholders Agreement. The Second
Amended and Restated Shareholders Agreement substantially in the form attached hereto as
EXHIBIT C shall have been executed and delivered by the parties thereto.
5.
Conditions of the Company’s Obligations to the Closing. The obligations of the
Company to consummate the Closing are subject to the fulfillment, on or before the Closing, of
each of the following conditions, unless otherwise waived in writing by the Company to the extent
permitted by applicable laws:
(a)
Representations and Warranties. The representations and warranties of
the Purchaser contained in Section 4 shall be true and accurate on and as of the Closing with the
same effect as though such representations and warranties had been made on and as of the Closing
(except in the case of any representation and warranty which by its terms is made only as of a date
specified therein, which shall be true and accurate only as of such date).
(b)
Authorization. All required internal approvals and authorization of the
Purchaser for the issuance of and subscription to the Note are duly obtained.
(c)
Qualifications. All authorizations, filings, consents, approvals or permits,
if any, of any applicable jurisdiction that are required in connection with the lawful issuance and
sale of the Note pursuant to this Agreement shall be obtained and effective as of the Closing.
6.
Certain Covenants. The Company undertake and agree to honor and perform the
following covenants so long as any indebtedness under this Note remains outstanding unless the
Purchaser have otherwise agreed in writing:
(a)
Information Rights.
(i)
The Company shall maintain consolidated financial statements
which present fairly the financial condition of the Company at the date or dates therein indicated
and the results of operations for the period or periods therein specified, prepared in accordance
with International Financial Reporting Standards(IFRS) (國際財務報導準則) applied on a
consistent basis and shall set aside on its books all such proper accruals and reserves as shall be
required.
(ii)
The Company shall deliver to the Purchaser:
within one hundred and fifty (150) days after the end of each fiscal
year, audited (by an independent internationally recognized accounting firm) annual consolidated
financial statements of the Company for such fiscal year; and
(1)
unaudited quarterly consolidated financial statements of the Company for such quarter.
(2)
within forty-five (45) days after the end of each calendar quarter,
5
(b)
Use of Proceeds. The Company agrees to use the Purchase Price received
from selling the Note hereunder exclusively as working capital for the business operations of the
Company.
(c)
Compliance with Law. The Company shall preserve and keep in full force
and effect its existence as a corporation in good standing under the laws of the jurisdiction of its
incorporation, except in the event of a group reorganization (“Group Reorganization”).
7.
Miscellaneous.
(a)
Fees and Expenses. The Parties shall each bear its own fees and expenses,
including, without limitations, the legal fees, due diligence cost and other expenses in connection
with the transactions under this Agreement.
(b)
Confidentiality. Each Party undertakes to the other Parties that it shall treat
as strictly confidential the existence and content of this Agreement and all information received or
obtained by it or its directors, officers, employees, agents or advisers relating to this Agreement,
the negotiations leading up to this Agreement or the subject matter of this Agreement, and that it
shall not at any time hereafter make use of or disclose or divulge to any person any such
information and shall use their reasonable endeavors to prevent the publication or disclosure of
any such information; provided, however, the foregoing restrictions shall not apply to any
disclosure which, pursuant to relevant laws and rules, any governmental authority or securities
exchange on which the Party’s securities are listed or traded requires a Party to make.
(c)
Transferability. Except as otherwise expressly provided in this Agreement
or the Note, and except in the event of Group Reorganization, neither the Company nor the
Purchaser may transfer or assign any part of this Agreement or its rights or obligations hereunder
to a third party without the prior written consent of the other Party, provided, that the Company
shall give a written notice to the Purchaser prior to the consummation of any Group
Reorganization.
(d)
Successors and Assigns. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the respective successors,
heirs, executors, administrators and permitted assigns of the Parties.
(e)
Survival. The representations, warranties, covenants and agreements made
herein shall survive the term of the Note, provided that such survival period shall in no event be
longer than three (3) years after the Closing.
(f)
Governing Law; Dispute Resolutions. This Agreement shall be governed
by and construed in accordance with the laws of the Republic of China (“Taiwan”) without regard
to principles of conflicts of law thereunder. Any unresolved controversy or claim arising out of or
relating to this Agreement, or the Note shall be submitted to the exclusive jurisdiction of Taipei
District Court, Taiwan for the first instance. The non-prevailing Party shall pay all costs and
expenses incurred by the prevailing Party, including, without limitation, all reasonable attorneys’
fees.
6
(g)
Counterparts. This Agreement shall be executed in one or more
counterparts, all of which shall be considered one and the same agreement and each of which shall
be deemed an original.
(h)
Notices. All notices and other communications provided for herein shall be
in writing and shall be deemed to have been duly given if delivered personally or sent by registered
or certified mail, return receipt requested, postage prepaid, and addressed as follows:
if to the Company:
Address:
9-1th Floor, No 168, Ruiguang Road,
Neihu District, Taipei 114
Taiwan
Attention: Aaron Chao / Yating Yang
if to the Purchaser:
Address: 8th Floor, No.22, Lane 407, Section 2,
Tiding Boulevard Neihu District, Taipei 114.
Taiwan
Attention: Jack Wang
(i)
written agreement of the Parties.
Amendments. Any term of this Agreement may be amended only with the
(j)
Severability. If any provision of this Agreement is found to be invalid or
unenforceable, then such provision shall be construed, to the extent feasible, so as to render the
provision enforceable and to provide for the consummation of the transactions contemplated
hereby on substantially the same terms as originally set forth herein, and if no feasible
interpretation would save such provision, it shall be severed from the remainder of this Agreement,
which shall remain in full force and effect unless the severed provision is essential to the rights or
benefits intended by the Parties.
[Signature Page Follows]
7
The Parties have executed this Convertible Note Purchase Agreement as of the date first
written above.
Company:
Aeolus Robotics Corporation
By: /s/ Tsong Jung Lee
Name: Tsong Jung Lee
Title: DIRECTOR
[Signature Page to Convertible Note Purchase Agreement]
The Parties have executed this Convertible Note Purchase Agreement as of the date first
written above.
PURCHASER:
GigaMedia Limited
By: /s/ HUANG, CHENG-MING
Name: HUANG, CHENG-MING
Title: Chief Executive Officer
[Signature Page to Convertible Note Purchase Agreement]
EXHIBIT A-1
FORM OF CONVERTIBLE PROMISSORY NOTE
THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE
HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF ANY OTHER
STATE OR JURISDICTION. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS
ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR
RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE
SECURITIES LAWS OF ANY OTHER STATE OR JURISDICTION, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. THIS NOTE HAS NOT BEEN AND
WILL NOT BE OFFERED OR SOLD OR OTHERWISE TRANSFERRED, DIRECTLY OR
INDIRECTLY TO MEMBERS OF THE PUBLIC IN THE CAYMAN ISLANDS. THE
ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM
AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY
PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND THE
SECURITIES LAWS OF ANY OTHER STATE OR JURISDICTION.
AEOLUS ROBOTICS CORPORATION
CONVERTIBLE PROMISSORY NOTE
US$21,069 March 27, 2024
FOR VALUE RECEIVED, Aeolus Robotics Corporation, a Cayman Islands
company (the “Company”) unconditionally promises to pay to the order of GigaMedia Limited,
a Singapore company (the “Holder”), the principal of Twenty-One Thousand and Sixty-Nine
U.S. dollars (US$21,069) (the “Principal Amount”), or such lesser amount as shall then equal
the outstanding principal amount hereunder, together with the Interest (as defined below) from
the date of this convertible note (the “Note”) on the unpaid principal balance until the Principal
Amount is paid in accordance with Section 3 hereof (or converted, as provided in Section 4
hereof).
This Note is issued pursuant to that certain Convertible Note Purchase Agreement dated
March 15th, 2024 (the “Purchase Agreement”) by and between the Company and the Holder,
and the resolutions of the board of directors and shareholders of the Company passed on or
about the same date, and is subject to the provisions thereof. Any capitalized term used but not
defined herein shall have such meaning ascribed to them in the Purchase Agreement.
The following is a statement of the rights of the Holder and the conditions to which this
Note is subject, and to which the Holder, by the acceptance of this Note, agrees:
1.
Interest. Subject to Section 4 hereof, the interest (the “Interest”) shall accrue
from the date of the Note on the unpaid Principal Amount at a rate of four point five percent
(4.5%) on an annual non-compound basis, computed on the basis of actual calendar days
elapsed and a year of 365 days, subject to the terms and conditions of this Note.
A-1
2.
Maturity and Extension. The Principal Amount plus all accrued and unpaid
Interest thereon shall be due and payable on the day which is twenty-four (24) months from the
date hereof (the “Original Maturity Date”), except and to the extent all or a portion of this Note
shall have been previously repaid, redeemed or converted pursuant to Sections 3 and 4 hereof.
The Original Maturity Date may be extended for an additional twelve (12) months by the
Company at its sole discretion by giving written notice to the Holder at least thirty (30) days
prior to the Original Maturity Date (the last day of such extended period of the Note is referred
to as the “Extended Maturity Date.”) (The Extended Maturity Date together with the Original
Maturity Date shall be collectively referred to as the “Maturity Date.”)
3.
Repayments.
(a)
Form of Payment. All payments of Principal Amount and Interest (other
than payment by way of conversion) shall be made in U.S. dollars to the Holder and be remitted
to the bank account specified by Holder in a written notice delivered to the Company.
(b)
Repayment. Except for the portion of the Principal Amount which has
been converted into Conversion Shares (as defined below), the total outstanding Principal
Amount of the Note plus all accrued and unpaid Interest thereon shall be due and payable upon
the date that is the earlier of: (i) the Maturity Date; or (ii) upon the occurrence of an Event of
Default (as defined below)., or (iii) upon the occurrence of a Deemed Liquidation Event (as
defined in the Company’s Seventh Amended and Restated Memorandum and Articles of
Association).
(c)
Prepayment. Subject to providing a prior written notice to the Holder
(the “Prepayment Notice”) of at least sixty (60) days (the “Prepayment Notice Period”) and
the Holder’s right to convert this Note as prescribed in Section 4 hereof, the Company may
redeem all or a portion of this Note at any time before the Maturity Date, upon the payment of
the all or a portion of outstanding Principal Amount and Interest under the Note.
4.
Conversion Rights. Subject to the terms and conditions of the Notes, all or a
portion of the Principal Amount under the Note may be convertible into, where applicable and
as further detailed herein, ordinary shares (the “Ordinary Shares”) of the Company, which shall
be fully paid and nonassessable, and shall have the same characters, rights and privileges of
ordinary shares or the preferred shares as provided in the Amended and Restated Memorandum
and Articles of Association of the Company (the converted Ordinary Shares and/or Preferred
Shares are referred to as “Conversion Shares”). For the avoidance of doubt, in the event that
any portion of the Principal Amount is converted into the Conversion Shares, all the Interest
accrued but unpaid on such portion of Principal Amount shall be waived.
(a)
Automatic Conversion. This Note shall automatically be converted into
Ordinary Shares at the conversion price of zero point one U.S. dollars (US$0.1) per share (the
“Conversion Price”) upon the date of filing formal application of a Qualified IPO (as defined
in the Company’s Seventh Amended and Restated Memorandum and Articles of Association)
or an earlier date as reasonably requested by the lead underwriter(s) of such Qualified IPO,
which occurs on or before the Maturity Date.
(b)
Optional Conversion.
(i) Option upon Prepayment. At any time before the Maturity Date, if the
Holder receives a Prepayment Notice from the Company, at the Holder’s option and discretion,
A-2
all or a portion of the outstanding Principal Amount under this Note may be converted into
Ordinary Shares at the Conversion Price, provided that the Holder shall give prior written notice
to the Company before the end of the Prepayment Notice Period, and that such amount to be
converted by the Holder shall be no greater than the prepayment amount specified in the
Prepayment Notice.
(ii) Option upon Deemed Liquidation Event. At any time before the
Maturity Date, the Company shall give the Holder a written notice within seven (7) days after
the board of directors of the Company resolves to enter into any Deemed Liquidation Event,
and at the Holder’s option and discretion, all or a portion of the outstanding Principal Amount
under this Note may be converted into Ordinary Shares at the Conversion Price, provided that
(a) a written notice is given to the Company by the Holder within twenty-one (21) days after it
receives said notice from the Company of such Deemed Liquidation Event, and (b) the
conversion shall take place on or immediately before the closing of such Deemed Liquidation
Event.
(iii) Option upon Maturity. On the Original Maturity Date or, if the Original
Maturity Date is extended by the Company pursuant to Section 2 hereof, on the Extended
Maturity Date, at the Holder’s option and discretion, if the Note remains outstanding, all or a
portion of the outstanding Principal Amount under the Note may be converted into Ordinary
Shares at the Conversion Price, provided that a prior written notice of at least thirty (30) days
is given to the Company by the Holder.
(c)
Conversion Price Adjustment. If the Company, at any time while this
Note is outstanding: (A) pays a dividend or otherwise makes a distribution in shares of the
Company or any securities of any Group Company which entitle the holder thereof to acquire
the shares of the Company; or (B) conducts a share split, reverse share split or similar event,
then the Conversion Price shall be appropriately adjusted.
(d)
Conversion Process. If the Holder decides to exercise the conversion
rights hereunder, the Holder shall send a written conversion request notice to the Company
during the applicable notice period pursuant to Section 4(b) hereof. The Company shall take
all necessary and appropriate actions as promptly as possible to convert the applicable portion
of the outstanding Principal Amount owing under this Note into the Conversion Shares. Upon
such conversion, the Holder shall surrender this Note to the Company.
(e)
Issuance of Certificates. As soon as is reasonably practicable after a
conversion has been effected, the Company shall deliver to Holder a certificate or certificates
representing the number of the Conversion Shares (excluding any fractional share) issuable by
reason of such conversion.
(f)
Issuance Costs. The issuance of certificate(s) for shares of capital stock
issuable upon conversion of this Note shall be made without charge to the Holder for any
issuance tax in respect thereof or other cost incurred by the Company in connection with such
conversion and the related issuance of such shares of capital stock. Upon conversion of this
Note, the Company shall take all such actions as are necessary in order to ensure that the capital
stock issuable with respect to such conversion shall be validly issued, fully paid and
nonassessable.
No Fractional Shares. If any fractional share of capital stock would,
except for the provisions hereof, be deliverable upon conversion of this Note, the Company, in
(g)
A-3
lieu of delivering such fractional share, shall pay an amount equal to the value of such fractional
share, as determined by the per share conversion price used to effect such conversion.
(h)
Documents. The conversions under this Section 4 shall be made in
accordance with the terms and conditions set forth in the share subscription agreement and other
documents in relation to the subscription (the “Conversion Documents”), including but without
limitations to the shareholders’ agreement and the amended and restated memorandum and
articles of association of the Company to be provided by the Company upon the conversion,
where applicable. In connection with the conversions under this Section 4, the Holder agrees
to execute and deliver to the Company any Conversion Documents reasonably requested by the
Company.
(i)
Compliance with Laws and Regulations. The Company shall take all
such actions as may be necessary to assure that all Conversion Shares issued upon conversion
pursuant hereto may be so issued without violation of any applicable law or governmental
regulation or any requirement of any domestic securities exchange upon which such shares of
capital stock may be listed.
(j)
Termination of Rights. All rights with respect to this Note shall
terminate upon the valid issuance of the Conversion Shares credited as paid up in full upon the
conversions pursuant to this Section 4, whether or not this Note has been surrendered and
whether or not all share subscription, shareholders’ agreement, or other agreements have been
executed and delivered by the Holder to the Company.
(k)
Conditions to Conversion. The conversion of the Note pursuant to this
Section 4 shall be subject to both the Company and the Holder obtaining all permits,
authorizations, approvals or consents of, notice to or registration with any governmental
authority or regulatory body or other person in relation to transactions contemplated under or
as required by the Note and applicable laws. Each Party agrees to provide necessary assistance
to the other Party for it to obtain from the relevant governmental and regulatory authority the
approvals required to convert the Note into the Conversion Shares at the other Party’s
reasonable request. In the event that the approvals cannot be obtained, the Holder may assign
the Note and its rights and obligations hereunder to a third party acceptable to and agreed by
the Company, provided that the Company may not unreasonably withhold its consent.
5.
Default.
(a)
Events of Default. For purposes of this Note, any of the following events
which shall occur shall constitute an “Event of Default”:
(i) the default by the Company in the payment of the aggregate Principal
Amount and Interest when due and payable and such failure continues for a period of five (5)
days;
(ii) a material breach by the Company of its representations, warranties,
obligations or covenants contained in the Purchase Agreement or a material breach by Company
of the terms of this Note, which if capable of remedy has not been remedied within ten (10)
days of written notice to the Company of such breach;
Restated Memorandum and Articles of Association); or
(iii) a Liquidation Event (as defined in the Company’s Seventh Amended and
A-4
(iv) the commencement of the bankruptcy proceedings against the Company.
(b)
Consequences of Events of Default. If any Event of Default occurs
before Maturity Date for any reason, whether voluntary or involuntary, and be continuing, the
Company shall notify Holder in writing within five (5) days after learning of an Event of
Default. Upon the occurrence or existence of any Event of Default and at any time thereafter,
all outstanding Principal Amount and Interest will become immediately due and payable by the
Company to the Holder.
6.
Excessive Interest. Notwithstanding any other provision herein to the contrary,
this Note is hereby expressly limited so that the interest rate charged hereunder shall at no time
exceed the maximum rate permitted by applicable law. If, for any circumstance whatsoever,
the interest rate charged exceeds the maximum rate permitted by applicable law, the interest
rate shall be reduced to the maximum rate permitted, and if the Holder shall have received an
amount that would cause the interest rate charged to be in excess of the maximum rate permitted,
such amount that would be excessive interest shall be applied to the reduction of the Principal
Amount owing hereunder, or if such excessive interest exceeds the unpaid balance of the
Principal Amount, such excess shall be refunded to the Company.
7.
Priority. The Note shall rank pari passu, without preference or priority of any
kind over, with all other present and future unsubordinated and unsecured senior indebtedness
of the Company.
8.
Amendment and Waiver. Any term of this Note may be amended and the
observance of any term of this Note may be waived (either generally or in a particular instance
and either retroactively or prospectively), only by the written agreement of the Company and
the Holder.
9.
Notices. All notices, requests, waivers and other communications made
pursuant to this Note shall be deemed to have been duly given if delivered personally or sent by
registered or certified mail, return receipt requested, postage prepaid, and addressed as follows:
if to the Company:
Address:
9-1th Floor, No 168, Ruiguang Road,
Neihu District, Taipei 114
Taiwan
Attention: Aaron Chao / Yating Yang
if to the Purchaser:
Address: 8th Floor, No.22, Lane 407, Section 2,
Tiding Boulevard Neihu District, Taipei 114.
Taiwan
Attention: Jack Wang
10.
Severability. If one or more provisions of this Note are held to be unenforceable
under applicable law, such provision shall be excluded from this Note and the balance of the
Note shall be interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
A-5
11.
Transferability. Unless otherwise agreed by the Company in writing, except as
expressly permitted pursuant to Section 4(k), the Holder may not sell, transfer, assign, dispose
of, realize, create any encumbrance over any part of the Note or enter into any agreement that
will directly or indirectly constitute or be deemed as selling, transferring, assigning, disposing
of, realizing, or creating any encumbrance over any part of the Note.
12.
Governing Law; Dispute Resolutions. This Note is to be construed in
accordance with and governed by the laws of the Republic of China. Any unresolved
controversy or claim arising out of or relating to this Agreement or the Note shall be submitted
to the exclusive jurisdiction of Taipei District Court, Taiwan for the first instance. The non-
prevailing Party shall pay all costs and expenses incurred by the prevailing Party, including,
without limitation, all reasonable attorneys’ fees.
13.
14.
Time of Essence. Time is of the essence of this Note.
Purchase Agreement. This Note incorporates by reference all the terms of the
Purchase Agreement.
[Signature page follows]
A-6
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as
of the date first above written.
Company:
Aeolus Robotics Corporation
By: /s/ Tsong Jung Lee
Name: Tsong Jung Lee
Title: DIRECTOR
[SIGNATURE PAGE TO CONVERTIBLE PROMISSORY NOTE]
A-7
EXHIBIT B
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents, warrants and covenants to the Purchaser as of the date hereof
and as of the Closing, where applicable, as set forth below.
1.
Corporate Power. The Company presently has, and as of the Closing will have,
full legal right, power and capacity and all necessary consents, approvals and authorizations,
whether corporate, shareholder, governmental or otherwise, as may be required to execute and
deliver this Agreement, the Note and other documents in relation to the transactions
contemplated hereunder (the “Transaction Documents”), and the Seventh Amended
Memorandum and Articles of Association of the Company (the “Company Articles”), to issue
and sell the Note to the Purchaser pursuant to the Agreement and the Note in the manner
contemplated hereby and to carry out the provisions of the Transaction Documents and the
Company Articles.
2.
Organization, Good Standing and Qualification. Each of the Company and its
subsidiaries (each a “Group Company” and collectively, the “Group Companies”) is duly
incorporated, validly existing and in good standing (or has equivalent status in the relevant
jurisdiction) under the laws of the place of its incorporation. Each of the Group Companies and
is qualified and is authorized to do business as a foreign corporation in all jurisdictions where
the failure to be so qualified and/or authorized would have a material adverse effect on the
business, the assets, liabilities, financial condition, operation or prospects of such Group
Company (“Material Adverse Effect”).
(i) Each Group Company has all requisite corporate power and authority to own
and operate its properties and assets.
(ii) Each Group Company has kept all of its corporate records updated, accurate and
complete, and has made all necessary filings on time in compliance with the respective laws of
the country of its incorporation.
(iii) None of the Group Companies is in liquidation or in insolvency reorganization,
or has taken any steps to enter into liquidation, insolvency reorganization, or suspend its
business; no application has been made for liquidating or reorganizing any of the Group
Companies or to suspend its business and there are no grounds on which an application could
be based for liquidation or insolvency reorganization of the same or suspension of its business.
(iv) The Company has provided to the Purchaser certified true copies of each Group
Company’s (where applicable) memorandum of association and articles of association or other
constitutional documents, register of members, and the register of directors (collectively the
“Fundamental Documents”). To the knowledge of the Company, the copies of the
Fundamental Documents are true, correct, complete and not misleading, and they have not been
amended throughout the Closing. To the knowledge of the Company, each Group Company
has complied with its Fundamental Documents in all respects, and none of its activities,
agreements, commitments or rights is ultra vires or unauthorized.
(v) No Group Company has any bank loans. For the purpose of this Agreement,
“bank loans” shall mean the loans owed by a Group Company to banks with mortgages and/or
pledges on the assets owned by the Group Company.
B-1
3.
Capitalization. Immediately prior to the Closing, the authorized share capital of
the Company is US$56,410.00 divided into 564,100,000 shares of US$0.0001 par value each
comprising: (i) US$46,090.00 divided into 460,900,000 Ordinary Shares (as defined in the
Company’s Articles) and of US$0.0001 par value each (including up to 13,047,385 shares for
certain employee share options under the employee share option plan adopted by the board of
directors of the Company), (ii) US$5,910.00 divided into 59,100,000 Series A Preferred Shares
(as defined in the Company’s Articles) of US$0.0001 par value each, and (iii) US$160.00
divided into 1,600,000 Series A-NDC Preferred Shares (as defined in the Company’s Articles)
of US$0.0001 par value each, and (iv) US$4,250.00 divided into 42,500,000 Series B Preferred
Shares of US$0.0001 par value each.
4.
Enforceability. The Transaction Documents, when executed and delivered by
the Company, shall be duly and validly executed and delivered by the Company and shall be
the Company’ legally binding obligations enforceable against the Company in accordance with
their terms, except to the extent that such enforcement may be limited by bankruptcy,
insolvency or similar laws now or hereafter in effect relating to creditors’ rights and remedies
generally, and as enforcement may be limited by equitable principles of general applicability.
All corporate action on the part of the Company, its officers, directors and shareholders
necessary for the authorization, execution and delivery of the Transaction Documents, the
adoption of the Company Articles, the performance of all obligations of the Company hereunder
and thereunder at the Closing and the authorization, sale, issuance and delivery of the
Conversion Shares pursuant to the Agreement, the Note and the Company Articles and
applicable laws has been taken or shall be taken prior to the Closing or relevant applicable
conversion.
5.
Offering. Provided that the representations and warranties made by the
Purchaser herein are complete, true and accurate, then the offer, issuance, sale and conversion
(as applicable) of the Note and the Conversion Shares pursuant to this Agreement is exempt
from the registration requirements of the Securities and Exchange Act, and will have been
registered or qualified (or are exempt from registration and qualification) under the registration,
permit or qualification requirements of all applicable securities laws.
6.
Intellectual Property Rights.
(i) The copyrights, patents, trademarks, licenses, trade secrets, mask works, service
names, trade names, designs, know-how or other proprietary rights (whether registered or not)
and all pending applications therefor (the “Intellectual Properties”) that are required or likely
to be required by or useful or likely to be useful to the Group Companies’ business and
operations, as now conducted or presently proposed to be conducted, are (a) legally and
beneficially vested in the Group Companies and without any infringement of the rights of
others, (b) valid and enforceable, (c) not being infringed or attached or opposed by any person,
and (d) not subject to any license or authority of any other person.
(ii) The products and services dealt with by the Group Companies do not use or
embody any Intellectual Property other than (a) those belonging to the Group Companies above,
or (b) those in respect of which licenses have been obtained on commercially usual terms and
are currently in force. In addition, none of the products and services infringes the right of any
third party’s Intellectual Properties, and to the knowledge of the Company, no claims have been
made and no applications for such claims are pending.
B-2
(iii) The Group Companies have taken all necessary and appropriate security
measures to protect the secrecy, confidentiality and value of the Group Companies’ Intellectual
Properties.
(iv) None of the Group Companies has utilized or proposes to utilize any Intellectual
Property of any of their employees (or people it currently intends to hire) made prior to his or
her employment by such Group Company except for such Intellectual Property that has been
assigned or licensed to the Group Company.
(v) There are no outstanding options, licenses, agreements or rights of any kind
granted by any Group Company relating to any Group Company’s Intellectual Properties, nor
is any Group Company bound by or a party to any options, licenses, agreements or rights of any
kind with respect to the Intellectual Properties of any other person.
7.
Compliance with Other Instruments. To the knowledge of the Company, each
Group Company is not in violation or default of any term of the Company Articles, the
Fundamental Documents, bylaws, or any other constitutional documents of such Group
Company, except for immaterial noncompliance that in the aggregate are not material to the
Group Companies taken as a whole. None of the Group Companies is in violation of any
provision of any mortgage, indenture, agreement, instrument or contract to which such Group
Company is a party or by which it or its assets are bound or of any judgment, decree, order or
writ. The execution, delivery, and performance of and compliance with the Transaction
Documents, the Company Articles and the issuance, sale and conversion (as applicable) of the
Note and the Conversion Shares pursuant to the Transaction Documents and the Company
Articles, will not, with or without the passage of time or giving of notice, result in any such
violation, or be in conflict with or constitute a default under any such term, or result in the
creation of any mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Group Companies or the suspension, revocation, impairment, forfeiture or
nonrenewal of any permit, license, authorization or approval applicable to any Group Company,
its business or operations or any of its assets or properties.
8.
Agreements.
(i) There are no agreements, understandings, instruments, contracts, proposed
transactions or judgments or orders, in each case, to which any Group Company is a party or by
which it is bound which (a) may involve obligations (contingent or otherwise) of, or payments
by, any Group Company in excess of US$1,000,000, (b) which are otherwise material and not
entered into in the ordinary course of business, (c) are not cancelable by such Group Company
without penalty on less than ninety (90)-day notice and are not entered into in any Group
Company’s ordinary course of business, (d) which contain covenants directly or explicitly
limiting the freedom of any Group Company to compete in any line of business or with any
person, or (e) contain provisions restricting or affecting the indemnification by any Group
Company with respect to infringements of proprietary rights (other than indemnification
obligations arising from purchase or sale agreements entered into in the ordinary course of
business).
(ii) All of the contracts, agreements and instruments to which any Group Company
is a party, are valid, binding and in full force and effect and constitute legal, valid and binding
obligations of such Group Company, as the case may be, and of the other parties, and are
enforceable subject to laws of general application relating to bankruptcy, insolvency and the
relief of debtors and rules of law governing specific performance, injunctive relief or other
B-3
equitable remedies. None of the Group Companies, nor any other party is in material default in
complying with any provision of any such contract, agreement or instrument, and no condition
of facts exist which, with notice, lapse of time or both, would constitute a default thereunder on
the part of the Group Companies. The Company has no knowledge of any notice or threat to
terminate any such contracts, agreements or instruments.
(iii) No Group Company is a party to any material written or oral contract which is
not made in the ordinary course of business and on arm’s length terms.
9.
Compliance with Laws. The Group Companies are not in violation of any
applicable statute, rule, regulation, order or restriction of any domestic or foreign government
or any instrumentality or agency thereof in respect of the conduct of their business or the
ownership of their properties, except as would not have a Material Adverse Effect. No permits
are required to be obtained and no registrations or declarations are required to be filed in
connection with the execution and delivery of the Transaction Documents and the issuance of
the Note or the Conversion Shares, except such as have been duly and validly obtained or filed,
or with respect to any filings that must be made after Closing, as will be filed in a timely manner.
The Group Companies have all franchises, permits, licenses and any similar authority necessary
for the conduct of their business as now being conducted by them (“Permits”), the lack of which
could have a Material Adverse Effect, and all such Permits are valid and in full force and effect.
No Permit is subject to termination as a result of the execution of the Transaction Documents
or consummation of the transactions contemplated therein.
10.
Litigation. There is no claim, action, suit, proceeding, arbitration, complaint,
charge or investigation pending or, to the knowledge of the Company, currently threatened (i)
against any Group Company, or any officer or director of any Group Company; or (ii) that
questions the validity of the Transaction Documents or the right of any Group Company to enter
into the Transaction Documents, or to consummate the transactions contemplated hereunder; or
(iii) that might result, either individually or in the aggregate, in a Material Adverse Effect,
financially or otherwise, or any change in the current equity ownership of any Group Company.
The Company is not aware of any basis for the foregoing. To the knowledge of the Company,
none of the Group Companies is a party or is named as subject to the provisions of any order,
writ, injunction, judgment or decree of any court or governmental authority. To the knowledge
of the Company, there is no action, suit, proceeding or investigation by any Group Companies
currently pending or which any Group Company intends to initiate.
11.
Financial Statements. The Company has delivered to the Purchaser (i) an
unaudited consolidated balance sheet and profit and loss sheet of the Company for the financial
year ended December 31, 2023 and (ii) an unaudited consolidated balance sheet and profit and
loss sheet of the Company as of January 31, 2024 (collectively, the “Financial Statements”).
Such Financial Statements: (a) are in accordance with the books and records of each Group
Company, which are complete and correct and have been maintained in accordance with
reasonable business practices for companies similar to each Group Company, respectively; (b)
are true, correct and complete and present fairly the financial condition of the Group Companies
at the date or dates therein indicated and the results of operations for the period or periods
therein specified, respectively, and (c) have been prepared in accordance with International
Financial Reporting Standards(IFRS) (國際財務報導準則) applied on a consistent basis. Since
January 31, 2024, there has been no change in the assets, liabilities, financial condition or
operations of the Group Companies from that reflected in the Financial Statements. Full
provision or reserve has been made in the Financial Statements for all Taxation (deferred or
otherwise) liable to be assessed on the Group Companies and all Taxation which has been
B-4
assessed has been fully paid. Each Group Company has paid all the necessary Taxation in
compliance with any law, rule, regulation or government policy to which it is subject. For the
purpose of this Agreement, “Taxation” includes all form of taxation in the Cayman Islands,
Hong Kong, the US, the Republic of China or elsewhere in the world, past, present and future
(including, without limitation, gift tax, securities transaction tax, capital gains tax, income tax,
estate duty, stamp duty, goods and services tax, customs and other import or export duties) and
all other statutory, governmental or state impositions, duties and levies and all penalties,
charges, costs and interest relating to any notice, demand, assessment, letter or other document
issued or action taken by any revenue or taxation authority or other statutory or governmental
authority, body or official whosoever whereby the Group Company is or may be placed or
sought to be placed under a liability to make a payment or deprived of any relief, allowance,
credit or repayment otherwise available.
12.
Employment Matters. To the knowledge of the Company, none of the Group
Companies’ employees is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would materially interfere with such employee’s ability
to promote the interest of the Group Companies or that would conflict with the Group
Companies’ business. The Group Companies are not delinquent in payments to any of their
employees, consultants, or independent contractors for any wages, salaries, commissions,
bonuses, or other direct compensation for any service performed by them as of the Closing or
amounts required to be reimbursed to such employees, consultants or independent contractors,
in all material respects. The Group Companies have complied in all material respects with all
applicable equal employment opportunity laws and with other laws related to employment,
including those related to pensions, wages, hours, worker classification and collective
bargaining. No Group Company has any collective bargaining agreements with any of its
employees. The existing employment contracts with each of the employees of each Group
Company impose non-disclosure obligations on the employees to maintain the confidentiality
of the confidential and/or proprietary information of the Group Company. Neither any Group
Company nor any of its shareholders, employees or directors has solicited any employee to
leave his or her previous employment in breach of any applicable laws or which may give rise
to any tortious, contractual or criminal liability.
13.
Material Adverse Effects. No other event or circumstance is outstanding which
constitutes a default or termination right under any other agreement or instrument which is
binding on the Group Companies or to which the Group Companies’ assets are subject which
might have a Material Adverse Effect.
14.
No Brokers or Finders. No person has or will have, as a result of the transactions
contemplated by the Transaction Documents, any right, interest or claim against or upon any
Group Company for any commission, fee or other compensation as a finder or broker.
15.
Corrupt Business Practices. The Group Companies, their respective directors,
employees, agents and their consultants and each other person acting for, or on behalf of, the
Group Companies, has complied with Part 2, Chapter Four of the R.O.C. Criminal Code, the
R.O.C. Statute of Punishment of Corruption, the Bribery Act of the United Kingdom of Great
Britain and Northern Ireland, the U.S. Foreign Corrupt Practices Act of 1977, and any other law
(broadly defined) intended to prevent or deter bribery or corrupt business practices, to the extent
such laws are applicable to them (collectively the “Anticorruption Laws”). The Group
Companies are not under investigation with respect to, and have not been given notice of, any
violation of any Anticorruption Laws applicable to the business of the Group Companies, as
B-5
presently conducted or as has been conducted. Neither the Group Companies nor any officer,
director, supervisor, agent or employee purporting to act on behalf of the Group Companies or
any other related party has at any time, directly or indirectly:
(i) made, provided or paid any unlawful contributions, gifts, entertainment or other
unlawful expenses to any candidate for political office, or failed to disclose fully any such
contributions in violation of any applicable laws;
(ii) made any payment to any local, state, federal or any other type of governmental
officer or official, or other person charged with similar public or quasi-public duties, other than
payments required or allowed by applicable Anticorruption Laws;
(iii) made any payment to any agent, employee, officer or director of any entity with
which any Group Company or any other related party does business for the purpose of
influencing such agent, employee, officer, supervisor or director to do business with the Group
Companies;
(iv) engaged in any transactions, maintained any bank account or used any corporate
funds, except for transactions, bank accounts and funds which have been and are reflected in
the normally maintained books and records of the Group Companies;
(v) violated any provision of the Anticorruption Laws; or
(vi) made any payment in the nature of criminal bribery or any other unlawful
payment.
16.
Title to Properties and Assets. Each Group Company has good and marketable
title to, and legally and beneficially owns or has valid leasehold interests or rights to use, all its
property and assets, free and clear of all mortgages, liens, loans and encumbrances, except for
liens for Taxation, assessments or other governmental charges or levies not yet due, and
statutory liens for landlords, carriers, warehousemen, mechanics and other liens imposed by
law created in the ordinary course of business of the Group Company consistent with past
practices for amounts not yet due.
17.
No Contingent Liabilities. No Group Company has given any guarantee,
indemnity or suretyship for principal amounts recoverable exceeding that stated in the last
audited accounts (if any) of such Group Company.
B-6
EXHIBIT C
SECOND AMENDED AND RESTATED
SHAREHOLDERS AGREEMENT
AMENDMENT TO
FORM OF CONVERTIBLE PROMISSORY NOTE
Exhibit 4.1(b)
This AMENDMENT TO FORM OF CONVERTIBLE PROMISSORY NOTE
(the “Amended Note”) is made and entered into as of August 31, 2023, by and among:
1. Aeolus Robotics Corporation, a company duly organized and validly existing
under the laws of the Cayman Islands (the “Company”); and
2. GigaMedia Limited, a company duly organized and validly existing under the
laws of Singapore (the “Holder”).
Each of the Company and the Holder is hereinafter referred to individually a
“Party” and collectively, the “Parties”.
WITNESSETH
WHEREAS, the Company and the Holder entered into the Convertible Note
Purchase Agreement effective as of August 31, 2020 (the “Agreement”), which is the
Company issued a Form of Convertible Promissory Note (the “Note”) dated August 31,
2020 to the Holder, in the principal amount of ten million U.S. dollars
(US$10,000,000.00) (the “Principal Amount”).
WHEREAS, the Company and the Holder entered into the SERIES B
PREFERRED SHARES PURCHASE AGREEMENT on October 22, 2021, which is
the Holder has exercised its right of conversion under the Note in the amount of
US$2,000,000.00 into 735,835 shares of the Series B Preferred Shares of the Company
(the “Conversion”) at the convention of US$2.718 per share effective December 30,
2021. After the Conversion, the outstanding Principal Amount under the Note is
US$8,000,000.00.
WHEREAS, the Parties agree that the Closing of the Agreement shall be
revised to the date of execution of this Amended Note by all Parties, and desire to
amend the Note to extend the Maturity Date and make the further amendments as set
forth in this Amended Note.
NOW, THEREFORE, in consideration of the mutual premises and covenants
hereinafter set forth, the Parties hereto agree as follows:
1. Principal Reduction Payment.
The Company shall make payment for the portion of outstanding
Principal Amount on the Note in the amount of US$1,000,000.00 within three (3)
business days after the execution of this Amended Note by all Parties.
2. Approval.
This Amended Note is conditioned on the payment by the Company to
the account of the Holder of (i) accrued and unpaid interest on the unpaid Principal
Amount of the Note due through August 30, 2023 in the amount of US$480,000.00 (the
“Accrued Interest”) within three (3) business days after the execution of this Amended
Note by all Parties, and (ii) the Principal Reduction Payment in the amount of
US$1,000,000.00.
3. Amendments to the Note.
(a) The Section 1 of the Note is hereby deleted in its entirety and
replaced with the following new Section 1:
“1. Interest. Subject to Section 4 hereof, the interest (the
“Interest”) shall accrue from the date of execution of this
Amended Note by all Parties on the unpaid Principal Amount at
a rate of four percent (4%) on an annual non-compound basis,
computed on the basis of actual calendar days elapsed and a year
of 365 days, subject to the terms and conditions of this Note.”
(b) The Section 2 of the Note is hereby deleted in its entirety and
replaced with the following new Section 2
“2. Maturity and Extension. The outstanding Principal
Amount plus all accrued and unpaid Interest thereon shall be due
and payable on the day which is eighteen (18) months from the
date of execution of this Amended Note by all Parties (the
“Original Maturity Date”), except and to the extent all or a
portion of this Amended Note shall have been previously repaid,
redeemed or converted pursuant to Section 3 and 4 hereof. The
Original Maturity Date may be extended for an additional twelve
(12) months by the Company at its sole discretion by giving
written notice to the Holder at least thirty (30) days prior to the
Original Maturity Date (the last day of such extended period of
the Amended Note is referred to as the “Extended Maturity
Date.”) (The Extended Maturity Date together with the Original
Maturity Date shall be collectively referred to as the “Maturity
Date”).”
(c) The Section 4.(a) of the Note is hereby deleted in its entirety and
replaced with the following new Section 4.(a):
“4.(a) Automatic Conversion. Upon the date of filing formal
application of a Qualified IPO (as defined in the Company’s
Seventh Amended and Restated Memorandum and Articles of
Association) or an earlier date as reasonably requested by the
lead underwriter(s) of such Qualified IPO, which occurs on or
before the Maturity Date, this Amended Note shall automatically
be converted into Ordinary Shares at a conversion price at the
lower of (i) one dollar and a quarter U.S. dollars (US$1.25) per
share (the “Conversion Price”), or (ii) equal to eighty percent
(80%) of the initial public offering price per share.”
(d) The Section 4.(b)(i) of the Note is hereby deleted in its entirety and
replaced with the following new Section 4.(b)(i):
“4.(b)(i) Qualified Financing. Except and to the extent prepaid
or converted earlier pursuant to Section 3 or 4 hereof, in the
nearest next round equity financing on or before the Maturity
Date where the Company contemplates to issue and sell any
preferred shares of the Company to any third party (the
“Qualified Financing”; for the avoidance of doubt, the
Qualified Financing shall in no event include the Company’s
issuance and sale of further Series A Preferred Shares, Series B
Financing and A-NDC Preferred Shares), at the option and
discretion of the Holder, the Holder may elect to convert all or
any part of the outstanding Principal Amount of this Amended
Note into the preferred shares to be issued at such Qualified
Financing (the “Preferred Shares”), among which (i) fifty
percent (50%) of such outstanding Principal Amount shall be
converted at a conversion price equal to sixty percent (60%) of
the purchase price offered to the investors in such Qualified
Financing or the Conversion Price (US$1.25), whichever is
lower, and (ii) fifty percent (50%) of such outstanding Principal
Amount shall be converted at a conversion price equal to one
hundred percent (100%) of the purchase price offered to the
investors in such Qualified Financing or the Conversion Price
(US$1.25), whichever is lower.”
(e) The Section 5.(a)(i) of the Note is hereby deleted in its entirety and
replaced with the following new Section 5.(a)(i):
“5.(a)(i) the default by the Company in the payment of the
aggregate outstanding Principal Amount and Interest when due
and payable and such failure continues for a period of five (5)
days;”
4. Effectiveness of Amendments.
The amendments in this Amended Note shall become effective
immediately and without further action at the time (the “Effective Time”) of payment
by the Company of the Principal Reduction Payment and Accrued Interest.
5. Affirmation of the Note.
The Company and the Holder each acknowledge and affirm that the
Amended Note, as hereby amended, is hereby ratified and confirmed in all respects;
and all terms, conditions, and provisions of the Agreement and the Note, except as
amended by this Amended Note, shall remain unmodified and in full force and effect.
6. Headings.
The headings of various sections of this Amended Note are for reference
only and shall not be deemed to be a part of this Amended Note.
[Signature page follows]
IN WITNESS WHEREOF, the Parties hereto have caused this AMENDMENT
TO FORM OF CONVERTIBLE PROMISSORY NOTE to be duly executed as of the
date first above written.
Company:
Aeolus Robotics Corporation
By: /s/ Tsong Jung Lee
Name: Tsong Jung Lee
Title: DIRECTOR
Holder:
GigaMedia Limited
By: /s/ HUANG, CHENG-MING
Name: HUANG, CHENG-MING
Title: Chief Executive Officer
[Signature Page to Amendment to Form of Convertible Promissory Note]
Exhibit 8.1
List of Subsidiaries
Subsidiary
Hoshin GigaMedia Center Inc. ......................................................................................
GigaMedia (HK) Limited ..............................................................................................
GigaMedia International Holdings Limited...................................................................
GIGM Corporation ........................................................................................................
FunTown World Limited...............................................................................................
GigaMedia Online Entertainment Corp.........................................................................
FunTown Hong Kong Limited ......................................................................................
GigaMedia Freestyle Holdings Limited ........................................................................
GigaMedia Cloud Services Co. Ltd...............................................................................
GigaMedia Development Corporation ..........................................................................
GigaMedia (Cayman) Ltd..............................................................................................
Year of Incorporation Jurisdiction of Incorporation
1998
2004
2004
2021
2005
2009
1999
2009
2011
2013
2015
Taiwan
Hong Kong
British Virgin Islands
Cayman Islands
British Virgin Islands
Cayman Islands
Hong Kong
British Virgin Islands
Taiwan
Taiwan
Cayman Islands
Exhibit 11.1
GIGAMEDIA LIMITED
CODE OF BUSINESS CONDUCT AND ETHICS
_________________________
Fourth Amendment on March 25, 2024
Third Amendment on March 18, 2013
Second Amendment on April 30, 2010
First Amendment on December 19, 2005
Adopted as of April 21, 2004
1
Dear Colleagues:
The good name and reputation of GigaMedia Limited (the "Company") are a
result of the dedication and hard work of all of us. Together, we are responsible for preserving
and enhancing this reputation, a task that is fundamental to our continued well-being. Our goal
is not just to comply with the laws and regulations that apply to our business; we also strive to
abide by the highest principles of business conduct and ethics.
We set forth in the succeeding pages the Company's Code of Business Conduct
and Ethics (the "Code"). The purpose of the Code is to reinforce and enhance the Company's
commitment to an ethical way of doing business. The contents of the Code are not new,
however. The policies set forth here are part of the Company's long-standing tradition of high
ethical standards.
All employees, consultants, officers and directors are expected to comply with
the policies set forth in this Code. As a Singapore company, it goes without saying that we must
comply with Singapore law. In addition, you must abide by applicable law in the country where
you are located. In some instances, there may be a conflict between the applicable laws of two
or more countries. If you encounter such a conflict, or if a local law conflicts with a policy set
forth in this Code, you should consult with the General Counsel to determine the appropriate
course of action.
Read the Code carefully and make sure that you understand it and the
consequences of non-compliance. If you have any questions, speak to your supervisor,
supervisor of the Legal Division or any of the other resources identified in this booklet. The
Code cannot and is not intended to cover every applicable law or provide answers to all
questions that might arise; for that we must ultimately rely on each person's good sense of what
is right, including a sense of when it is proper to seek guidance from others on the appropriate
course of conduct.
We at the Company are committed to providing the best and most competitive
products and services to our customers and clients. Adherence to the policies set forth in the
Code will help us achieve this goal.
Sincerely,
Chairman
Table of Contents
Page
PUTTING THE CODE OF BUSINESS CONDUCT AND ETHICS TO WORK................................. 1
About the Code of Business Conduct and Ethics............................................................................... 1
Meeting Our Shared Obligations .............................................................................................................. 1
RESPONSIBILITY TO OUR ORGANIZATION........................................................................................... 1
Conflicts of Interest ....................................................................................................................................... 1
Improper Personal Benefits from the Company........................................................................... 1
Financial Interests in Other Businesses ......................................................................................... 2
Business Arrangements with the Company .................................................................................. 2
Outside Employment or Activities with a Competitor.................................................................. 2
Outside Employment with a Customer or Supplier ..................................................................... 2
Non-Competition
Non-Solicitation
Corporate Opportunities
Charitable, Government and Other Outside Activities ............................................................... 3
Family Members Working in the Industry....................................................................................... 3
Protection and Proper Use of Company Assets.................................................................................. 3
Company Books and Records
Record Retention........................................................................................................................................... 4
Confidential Information
Insider Trading
Trademarks, Copyrights and Other Intellectual Property ................................................................. 6
Trademarks .............................................................................................................................................. 6
Copyright Compliance .......................................................................................................................... 6
Intellectual Property Rights of Others
2
3
3
5
6
7
4
Computer and Communication Resources........................................................................................... 7
Responding to Inquiries from the Press and Others
8
FAIR DEALING ..................................................................................................................................................... 8
Antitrust Laws ................................................................................................................................................. 8
Conspiracies and Collaborations Among Competitors ..................................................................... 8
Distribution Issues......................................................................................................................................... 9
Penalties
10
Gathering Information About the Company's Competitors .............................................................. 10
RESPONSIBILITY TO OUR PEOPLE........................................................................................................... 10
Respecting One Another............................................................................................................................. 10
Privacy
11
Equal Employment Opportunity and Nondiscrimination ................................................................... 11
Sexual and Other Forms of Harassment ............................................................................................... 11
12
Other Forms of Harassment
Reporting Responsibilities and Procedures .................................................................................. 12
13
Weapons and Workplace Violence
13
Drugs and Alcohol.................................................................................................................................. 13
INTERACTING WITH GOVERNMENT ......................................................................................................... 13
Prohibition on Gifts to Government Officials and Employees......................................................... 13
Political Contributions and Activities ....................................................................................................... 13
14
Bribery of Foreign Officials ......................................................................................................................... 14
IMPLEMENTATION OF THE CODE.............................................................................................................. 14
Safety in the Workplace
Lobbying Activities
i
Seeking Guidance......................................................................................................................................... 14
Reporting Violations
15
Investigations of Suspected Violations................................................................................................... 15
Reports Regarding Accounting Issues ................................................................................................... 15
Treatment of Complaints and Retention of Records Regarding Accounting Issues
16
Discipline for Violations
A Framework for Approaching Questions and Problems
16
Waivers of the Code ..................................................................................................................................... 16
No Rights Created......................................................................................................................................... 16
15
ii
PUTTING THE CODE OF BUSINESS CONDUCT AND ETHICS TO WORK
About the Code of Business Conduct and Ethics
We at the Company are committed to the highest standards of business conduct in our
relationships with each other and with our customers and clients, suppliers, shareholders and
others. This requires that we conduct our business in accordance with all applicable laws and
regulations and in accordance with the highest standards of business ethics. The Company's
Code of Business Conduct and Ethics helps each of us in this endeavor by providing a
statement of the fundamental principles and key policies and procedures that govern the
conduct of our business.
Our business depends on the reputation of the Company and its employees for integrity and
principled business conduct. Thus, in many instances, the policies referenced in this Code go
beyond the requirements of the law.
The Code is a statement of policies for individual and business conduct and does not, in any
way, constitute an employment contract or an assurance of continued employment. As
employees of the Company, we are employed at-will except when we are covered by an
express, written employment agreement. This means that you may choose to resign your
employment at any time, for any reason or for no reason at all. The Company may choose to
terminate your employment at any time, for any reason permitted under the laws in the country
where you are employed.
Meeting Our Shared Obligations
Each of us is responsible for knowing and understanding the policies and guidelines contained
in the following pages. If you have questions, ask them; if you have ethical concerns, raise
them. Supervisor of the Legal Division, who is responsible for overseeing and monitoring
compliance with this Code, and the other company resources set forth in this Code are available
to answer your questions and provide guidance and for you to report suspected misconduct.
Our conduct should reflect the Company's values, demonstrate ethical leadership, and promote
a work environment that upholds the Company's reputation for integrity, ethical conduct and
trust.
RESPONSIBILITY TO OUR ORGANIZATION
We are all expected to dedicate our best efforts to advancing the Company's interests and to
make decisions that affect the Company using objective and independent standards.
Conflicts of Interest
A conflict of interest occurs when your private interests interfere in any way, or even appear to
interfere, with the interests of the Company as a whole. A conflict situation can arise when you
take actions or have interests that make it difficult for you to perform your company work
objectively and effectively. Your obligation to conduct the Company's business in an honest
and ethical manner includes the ethical handling of actual or apparent conflicts of interest
between personal and business relationships, including full disclosure of such conflicts.
Although we cannot list every conceivable conflict, following are some common examples that
illustrate actual or apparent conflicts of interest that should be avoided:
1
Improper Personal Benefits from the Company
Conflicts of interest arise when an employee, officer or director, or a member of his or her
family, receives improper personal benefits as a result of his or her position in the Company.
You may not accept any benefits from the Company that have not been authorized and
approved pursuant to Company policy and procedure, including any Company loans or
guarantees of your personal obligations. The Company will not make any personal loans to, nor
guarantee the personal obligations of, directors and executive officers.
Financial Interests in Other Businesses
You may not own an interest in a company that competes with the Company. You may not own
an interest in a company that does business with the Company (such as a Company customer
or supplier) without the prior written approval of the supervisor of the Legal Division. Executive
officers and members of the Board must obtain the written approval of the Audit Committee of
the Board of Directors before making any such investment. However, it is not typically
considered a conflict of interest (and therefore, prior approval is not required) to make
investments of no more than one percent (1%) of the outstanding equity securities of
competitors, customers or suppliers that are public companies (in other words, companies with
stock listed on a national or international securities exchange), so long as the interest is not so
significant that it would affect your decisions on behalf of the Company.
Business Arrangements with the Company
Without prior written approval from the supervisor of the Legal Division you may not participate
in a joint venture, partnership or other business arrangement with the Company. Executive
officers and members of the Board must obtain the prior written approval of the chairman of the
Audit Committee of the Board of Directors and otherwise be in compliance with the Company's
memorandum and articles of association before participating in such an arrangement.
Outside Employment or Activities with a Competitor
Simultaneous employment with or serving as a director of a competitor of the Company is
strictly prohibited, as is any activity that is intended to or that you should reasonably expect to
advance a competitor’s interests. You may not market products or services in competition with
the Company's current or potential business activities. It is your responsibility to consult with the
supervisor of the Legal Division to determine whether a planned activity will compete with any of
the Company's business activities before you pursue the activity in question.
Outside Employment with a Customer or Supplier
Without prior written approval from the supervisor of the Legal Division, you may not be a
customer or client or be employed by, serve as a director of, or represent a customer of the
Company. Similarly, without prior written approval from the supervisor of the Legal Division, you
may not be a supplier or be employed by, serve as a director of, or represent a supplier to the
Company. Executive officers and members of the Board must obtain the prior written approval
of the Chairman of the Audit Committee of the Board of Directors and otherwise be in
compliance with the Company's memorandum and articles of association before participating in
such an arrangement.
2
Non-Competition
You may not participate, invest, license, employ or being employed, or corporate with any
company or entity engaged in a line of business which may be competitive with the business of
the Company within three months after termination of your employment of the Company, except
the local law or the contract stated otherwise. The Company may take legal actions against you
in the event of the mentioned is being violated.
Non-Solicitation
You may not, during your employment or within twelve months after termination of the
employment, directly or indirectly, solicit, entice, or attempt to approach, solicit or entice any of
the other employees of the Company or its affiliates to terminate the employment.
Corporate Opportunities
We each owe a duty to the Company to advance its legitimate interests when the opportunity to
do so arises. If you learn of a business or investment opportunity through the use of corporate
property or information or your position at the Company, such as from a competitor or actual or
potential customer, supplier or business associate of the Company, you may not participate in
the opportunity or make the investment without the prior written approval of the supervisor of the
Legal Division. Such an opportunity should be considered an investment opportunity for the
Company in the first instance. You may not use corporate property or information or your
position at the Company for improper personal gain, and you may not compete with the
Company.
Charitable, Government and Other Outside Activities
The Company encourages all employees to participate in projects and causes that further the
welfare of our local communities. However, you must obtain the prior written approval of the
supervisor of the Legal Division before serving as a director or trustee of any charitable, not-for-
profit, for-profit, or other entity or before running for election or seeking appointment to any
government-related position. Executive officers and members of the Board must obtain the
prior written approval of the Audit Committee of the Board of Directors.
Family Members Working in the Industry
You may find yourself in a situation where your spouse or significant other, your children,
parents, or in-laws, or someone else with whom you have a familial relationship is a competitor,
supplier or customer of the Company or is employed by one. Such situations are not prohibited,
but they call for extra sensitivity to security, confidentiality and conflicts of interest. You must
disclose any such situation to the supervisor of the Legal Division to assess the nature and
extent of any concern and how it can be resolved. In some instances, any risk to the
Company's interests is sufficiently remote that the supervisor of the Legal Division may only
remind you to guard against inadvertently disclosing the Company's confidential information and
not to be involved in decisions on behalf of the Company that involve the other company.
Protection and Proper Use of Company Assets
We each have a duty to protect the Company's assets and ensure their efficient use. Theft,
carelessness and waste have a direct impact on the Company's profitability. We should take
3
measures to prevent damage to and theft or misuse of Company property. Any suspected
incidents of fraud or theft should be immediately reported to our Administration Department for
investigation.
When you leave the Company, all Company property must be returned to the Company. Except
as specifically authorized by the Company, Company assets, including Company time,
equipment, materials, resources and proprietary information, must be used for legitimate
business purposes only, though incidental personal use (such as, for example, of Company
electronic mail and telephones) may be permitted. However, you should be aware that even
personal messages on the Company's computer and telephone systems are Company property,
and you should therefore have no expectation of personal privacy in connection with your use of
these resources.
Company Books and Records
It is Company policy to make full, fair, accurate, timely and understandable disclosure in
compliance with all applicable laws and regulations in all reports and documents that the
Company files with, or submits to, the U.S. Securities and Exchange Commission, any
regulatory authority in Singapore, including but not limited to the Singapore Registry of
Companies and Businesses and in all other public communications made by the Company.
You must complete all Company documents accurately, truthfully, and in a timely manner,
including all travel and expense reports. When using business expense accounts, you must
document and record all information accurately. If you are not sure whether a certain expense
is legitimate, ask your supervisor or the appropriate financial officer.
When applicable, documents must be properly authorized. You must record the Company's
financial activities in compliance with all applicable laws and accounting practices and the
Company's system of internal controls. The making of false or misleading entries, records or
documentation is strictly prohibited. You must never create a false or misleading report or make
a payment or establish an account on behalf of the Company with the understanding that any
part of the payment or account is to be used for a purpose other than as described by the
supporting documents.
Business records and communications often become public, and we should avoid exaggeration,
derogatory remarks, guesswork, or inappropriate characterizations of people and companies
that can be misunderstood. This applies to e-mail, internal memos, formal reports and all other
business communications.
Record Retention
In the course of its business, the Company produces and receives large numbers of records.
Numerous laws require the retention of certain Company records for various periods of time.
The Company is committed to compliance with all applicable laws and regulations relating to the
preservation of records. Under no circumstances are Company records to be destroyed
selectively or to be maintained outside Company premises or designated storage facilities.
If you learn of a subpoena or a pending or contemplated litigation or government investigation,
you should immediately contact the supervisor of the Legal Division. You must retain and
preserve ALL records that may be responsive to the subpoena or relevant to the litigation or that
may pertain to the investigation until you are advised by the supervisor of the Legal Division as
to how to proceed. You must not destroy any such records in your possession or control. You
4
must also affirmatively preserve from destruction all relevant records that without intervention
would automatically be destroyed or erased (such as e-mails and voicemail messages).
Destruction of such records, even if inadvertent, could seriously prejudice the Company. If you
have any questions regarding whether a particular record pertains to a pending or contemplated
investigation or litigation or may be responsive to a subpoena or regarding how to preserve
particular types of records, you should preserve the records in question and ask the supervisor
of the Legal Division for advice.
Confidential Information
All employees may learn, to a greater or lesser degree, facts about the Company's business,
plans, operations or "secrets of success" that are not known to the general public or to
competitors. The advantages we derive from information we consider proprietary or sensitive is
critical to the success of the Company. Sensitive information such as customer data, the terms
offered or prices charged to particular customers, marketing or strategic plans or design,
product specifications and production processes and techniques are examples of the
Company's confidential information or trade secrets. Confidential information includes all non-
public information that might be of use to competitors, or harmful to the Company or its
customers, if disclosed. During the course of performing your responsibilities, you may obtain
information concerning possible transactions with other companies or receive confidential
information concerning other companies, such as our customers, which the Company may be
under an obligation to maintain as confidential.
You must maintain the confidentiality of information entrusted to you by the Company or its
customers, except when disclosure is authorized or legally mandated. Employees who possess
or have access to confidential information or trade secrets must:
Not use the information for their own benefit or the benefit of persons inside or
outside the Company.
Carefully guard against disclosure of that information to people outside the
Company. For example, you should not discuss such matters with family
members or business or social acquaintances or in places where the information
may be overheard, such as taxis, public transportation, elevators or restaurants.
Not disclose confidential information to another Company employee unless the
employee needs the information to carry out business responsibilities.
Confidentiality Agreements are commonly used when the Company needs to disclose
confidential information to suppliers, consultants, joint venture participants, or others. A
Confidentiality Agreement puts the person receiving confidential information on notice that he or
she must maintain the secrecy of such information. If, in doing business with persons not
employed by the Company, you foresee that you may need to disclose confidential information,
you should call the supervisor of the Legal Division and discuss the utility of entering into a
Confidentiality Agreement.
Your obligation to treat information as confidential does not end when you leave the Company.
Upon the termination of your employment, you must return everything that belongs to the
Company, including all documents and other materials containing Company and customer
confidential information. You must not disclose confidential information to a new employer or to
others after ceasing to be a Company employee.
5
You may not disclose your previous employer's confidential information to the Company. Of
course, you may use general skills and knowledge acquired during your previous employment.
Insider Trading
You are prohibited by Company policy and the law from buying or selling securities of the
Company at a time when in possession of "material non-public information." This conduct is
known as "insider trading." Passing such information on to someone who may buy or sell
securities – known as "tipping" – is also illegal. The prohibition applies to Company securities
and to securities of other companies if you learn material non-public information about other
companies, such as the Company’s customers, in the course of your duties for the Company.
Information is "material" if (a) there is a substantial likelihood that a reasonable investor would
find the information "important" in determining whether to trade in a security; (b) the information
would, or would be likely to, influence persons who commonly invest in securities in deciding
whether or not to subscribe for, buy or sell securities; or (c) the information, if made public, likely
would affect the market price of a company's securities. Examples of types of material
information include unannounced dividends, earnings, financial results, new or lost contracts or
products, sales results, important personnel changes, business plans, possible mergers,
acquisitions, divestitures or joint ventures, important litigation developments, and important
regulatory, judicial or legislative actions. Information may be material even if it relates to future,
speculative or contingent events and even if it is significant only when considered in
combination with publicly available information.
Information is considered to be non-public unless it has been adequately disclosed to the public,
which means that the information must be publicly disclosed, and adequate time must have
passed for the securities markets to digest the information. Examples of adequate disclosure
include public filings with securities regulatory authorities and the issuance of press releases,
and may also include meetings with members of the press and the public. A delay of one or two
business days is generally considered a sufficient period for routine information to be absorbed
by the market. Nevertheless, a longer period of delay might be considered appropriate in more
complex disclosures.
Do not disclose material non-public information to anyone, including co-workers, unless the
person receiving the information has a legitimate need to know the information for purposes of
carrying out the Company's business. If you leave the Company, you must maintain the
confidentiality of such information until it has been adequately disclosed to the public by the
Company.
For additional information on trading in the Company's securities you should contact the
supervisor of the Legal Division.
Trademarks, Copyrights and Other Intellectual Property
Trademarks
Our logos and the name GigaMedia Limited are examples of Company trademarks. You must
always properly use our trademarks and advise your supervisor or the supervisor of the Legal
Division of infringements by others. Similarly, the trademarks of third parties must be used
properly.
6
Copyright Compliance
Works of authorship such as books, articles, drawings, computer software and other such
materials may be covered by copyright laws. It is a violation of those laws and of the
Company's policies to make unauthorized copies of or derivative works based upon copyrighted
materials. The absence of a copyright notice does not necessarily mean that the materials are
not copyrighted.
The Company licenses the use of much of its computer software from outside companies. In
most instances, this computer software is protected by copyright. You may not make, acquire
or use unauthorized copies of computer software. Any questions concerning copyright laws
should be directed to the supervisor of the Legal Division.
Intellectual Property Rights of Others
It is Company policy not to infringe upon the intellectual property rights of others. When using
the name, trademarks, logos or printed materials of another company, including any such uses
on the Company's websites, you must do so properly and in accordance with applicable law.
Computer and Communication Resources
The Company's computer and communication resources, including computers, voicemail and e-
mail, provide substantial benefits, but they also present significant security and liability risks to
you and the Company. It is extremely important that you take all necessary measures to secure
your computer and any computer or voicemail passwords. All sensitive, confidential or
restricted electronic information must be password protected, and, if sent across the Internet,
must be protected by Company-approved encryption software. If you have any reason to
believe that your password or the security of a Company computer or communication resource
has in any manner been compromised, you must change your password immediately and report
the incident to the Information System Department or the Administration Department.
When you are using Company resources to send e-mail, voicemail or to access Internet
services, you are acting as a representative of the Company. Any improper use of these
resources may reflect poorly on the Company, damage its reputation, and expose you and the
Company to legal liability.
All the computing resources used to provide computing and network connections throughout the
organization are the property of the Company and are intended for use by the Company
employees to conduct the Company's business. To the extent permitted by applicable law, all
e-mail, voicemail and personal files stored on Company computers are Company property. You
should therefore have no expectation of personal privacy in connection with these resources.
The Company may, from time to time and at its sole discretion, review any files stored or
transmitted on its computer and communication resources, including e-mail messages, for
compliance with Company policy. Incidental and occasional personal use of electronic mail and
telephones is permitted, but such use should be minimized and the length of the messages
should be kept as short as possible, as these messages cost the Company in both productive
time and money. As stated previously, even personal messages on the Company's e-mail and
voicemail systems are Company property.
You should not use Company resources in a way that may be disruptive or offensive to others
or unlawful. At all times when sending e-mail or transmitting any other message or file, you
7
should not transmit comments, language, images or other files that you would be embarrassed
to have read by any person. Remember that your "private" e-mail messages are easily
forwarded to a wide audience. In addition, do not use these resources in a wasteful manner.
Unnecessarily transmitting messages and other files wastes not only computer resources, but
also the time and effort of each employee having to sort and read through his or her own e-mail.
Use of computer and communication resources must be consistent with all other Company
policies, including those relating to harassment, privacy, copyright, trademark, trade secret and
other intellectual property considerations.
Responding to Inquiries from the Press and Others
Company employees who are not official Company spokespersons may not speak with the
press, securities analysts, other members of the financial community, shareholders or groups or
organizations as a Company representative or about Company business unless specifically
authorized to do so. Requests for financial or other information about the Company from the
media, the press, the financial community, shareholders or the public should be referred to the
Investor Relations Department. Requests for information from regulators or the government
should also be referred to the supervisor of the Legal Division. You should then report any such
contact to one of them.
FAIR DEALING
The Company depends on its reputation for quality, service and integrity. The way we deal with
our customers, competitors and suppliers molds our reputation, builds long-term trust and
ultimately determines our success. We must never take unfair advantage of others through
manipulation, concealment, abuse of privileged information, misrepresentation of material facts
or any other unfair dealing practice.
Antitrust Laws
While the Company competes vigorously in all of its business activities, its efforts in the
marketplace must be conducted in accordance with the letter and spirit of applicable antitrust
and competition laws. While it is impossible to describe antitrust and competition laws fully in
any code of business conduct, this Code will give you an overview of the types of conduct that
are particularly likely to raise antitrust concerns.
Conspiracies and Collaborations Among Competitors
One of the primary goals of the antitrust laws is to promote and preserve each competitor's
independence when making decisions on price, output, and other competitively sensitive
factors. Some of the most serious antitrust offenses are agreements between competitors that
limit independent judgment and restrain trade, such as agreements to fix prices, restrict output
or control the quality of products, or to divide a market for customers, territories, products or
purchases. You should not agree with any competitor on any of these topics, as these
agreements are virtually always unlawful.
Unlawful agreements need not take the form of a written contract or even express commitments
or mutual assurances. Courts can -- and do -- infer agreements based on "loose talk," informal
discussions, or the mere exchange between competitors of information from which pricing or
other collusion could result. Any communication with a competitor's representative, no matter
how innocuous it may seem at the time, may later be subject to legal scrutiny and form the basis
8
for accusations of improper or illegal conduct. You should take care to avoid involving yourself
in situations from which an unlawful agreement could be inferred.
By bringing competitors together, trade associations and standard-setting organizations can
raise antitrust concerns, even though such groups serve many legitimate goals. The exchange
of sensitive information with competitors regarding topics such as prices, profit margins, output
levels, or billing or advertising practices can potentially violate antitrust and competition laws, as
can creating a standard with the purpose and effect of harming competition. You must notify the
Legal Department before joining any trade associations or standard-setting organizations.
Further, if you are attending a meeting at which potentially competitively sensitive topics are
discussed without oversight by an antitrust lawyer, you should object, leave the meeting, and
notify the Legal Department immediately.
Joint ventures with competitors are not illegal under applicable antitrust and competition laws.
However, like trade associations, joint ventures present potential antitrust concerns. The Legal
Department should therefore be consulted before negotiating or entering into such a venture.
Distribution Issues
Relationships with customers and suppliers can also be subject to a number of antitrust
prohibitions if these relationships harm competition. For example, it can be illegal for a
company to affect competition by agreeing with a supplier to limit that supplier's sales to any of
the company's competitors. Collective refusals to deal with a competitor, supplier or customer
may be unlawful as well. While a company generally is allowed to decide independently that it
does not wish to buy from or sell to a particular person, when such a decision is reached jointly
with others, it may be unlawful, regardless of whether it seems commercially reasonable.
Finally, it is always unlawful to restrict a customer's re-selling activity through minimum resale
price maintenance (for example, by prohibiting discounts).
Other activities that can raise antitrust concerns are:
discriminating in terms and services offered to customers where a company
treats one customer or group of customers differently than another;
exclusive dealing agreements where a company requires a customer to buy from
or a supplier to sell to only that company;
tying arrangements where a customer or supplier is required, as a condition of
purchasing one product, to also purchase a second, distinct product;
"bundled discounts," in which discount or rebate programs link the level of
discounts available on one product to purchases of separate but related products
(for example, pencils linked to other office supplies); and
"predatory pricing," where a company offers a discount that results in the sales
price of a product being below the product's cost (the definition of cost varies
depending on the court), with the intention of sustaining that price long enough to
drive competitors out of the market.
9
Because these activities are prohibited under many circumstances, you should consult the
supervisor of the Legal Division before implementing any of them.
Penalties
Failure to comply with antitrust laws in the relevant jurisdictions could result in jail terms for
individuals and large criminal fines and other monetary penalties for both the Company and
individuals. In addition, private parties may bring civil suits in the relevant jurisdictions to
recover three times their actual damages, plus attorney's fees and court costs.
The antitrust laws are extremely complex. Because antitrust lawsuits can be very costly, even
when a company has not violated the antitrust laws and is cleared in the end, it is important to
consult with the Legal Department before engaging in any conduct that even appears to create
the basis for an allegation of wrongdoing. It is far easier to structure your conduct to avoid
erroneous impressions than to have to explain your conduct in the future when an antitrust
investigation or action is in progress. For that reason, when in doubt, consult the Legal
Department with your concerns.
Gathering Information About the Company's Competitors
It is entirely proper for us to gather information about our marketplace, including information
about our competitors and their products and services. However, there are limits to the ways
that information should be acquired and used, especially information about competitors. In
gathering competitive information, you should abide by the following guidelines:
We may gather information about our competitors from sources such as
published articles, advertisements, brochures, other non-proprietary materials,
surveys by consultants and conversations with our customers, as long as those
conversations are not likely to suggest that we are attempting to (a) conspire with
our competitors, using the customer as a messenger, or (b) gather information in
breach of a customer's nondisclosure agreement with a competitor or through
other wrongful means. You should be able to identify the source of any
information about competitors.
We must never attempt to acquire a competitor's trade secrets or other
proprietary information through unlawful means, such as theft, spying, bribery or
breach of a competitor's nondisclosure agreement.
If there is any indication that information that you obtain was not lawfully received
by the party in possession, you should refuse to accept it. If you receive any
competitive information anonymously or that is marked confidential, you should
not review it and should contact the supervisor of the Legal Division immediately.
The improper gathering or use of competitive information could subject you and the Company to
criminal and civil liability. When in doubt as to whether a source of information is proper, you
should contact the supervisor of the Legal Division.
10
RESPONSIBILITY TO OUR PEOPLE
Respecting One Another
The way we treat each other and our work environment affects the way we do our jobs. All
employees want and deserve a work place where they are respected and appreciated.
Everyone who works for the Company must contribute to the creation and maintenance of such
an environment, and supervisors and managers have a special responsibility to foster a
workplace that supports honesty, integrity, respect and trust.
Privacy
We respect the privacy and dignity of all individuals. The Company collects and maintains
personal information that relates to your employment, including medical and benefit information.
Special care is taken to limit access to personal information to Company personnel with a need
to know such information for a legitimate purpose. Employees and officers who are responsible
for maintaining personal information and those who are provided access to such information
must not disclose private information in violation of any applicable law or in violation of the
Company's policies.
Employees should not search for or retrieve items from another employee's workspace without
prior approval of that employee or management. Similarly, you should not use communication
or information systems to obtain access to information directed to or created by others without
the prior approval of management, unless such access is part of your job function and
responsibilities at the Company.
Personal items, messages, or information that you consider to be private should not be placed
or kept in telephone systems, computer or electronic mail systems, office systems, offices, work
spaces, desks, credenzas, or file cabinets. The Company reserves all rights, to the fullest
extent permitted by law, to inspect such systems and areas and to retrieve information or
property from them when deemed appropriate in the judgment of management.
Equal Employment Opportunity and Non-discrimination
The diversity of the Company's employees is a tremendous asset. The Company is an equal
opportunity employer in hiring and promoting practices, benefits and wages. We will not tolerate
discrimination against any person on the basis of race, religion, color, gender, age, marital
status, national origin, sexual orientation, citizenship, disabled veteran status or disability (where
the applicant or employee is qualified to perform the essential functions of the job with or without
reasonable accommodation), or any other basis prohibited by law in recruiting, hiring,
placement, promotion, or any other condition of employment.
You must treat all Company people, customers and clients, suppliers and others with respect
and dignity.
Sexual and Other Forms of Harassment
Company policy strictly prohibits any form of harassment in the workplace, including sexual
harassment. The Company will take prompt and appropriate action to prevent and, where
necessary, discipline behavior that violates this policy.
11
Sexual harassment consists of unwelcome sexual advances, requests for sexual favors and
other verbal or physical conduct of a sexual nature when:
submission to such conduct is made a term or condition of employment;
submission to or rejection of such conduct is used as a basis for employment decisions;
or
such conduct has the purpose or effect of unreasonably interfering with an individual's
work performance or creating an intimidating, offensive or hostile work environment.
Forms of sexual harassment include, but are not limited to, the following:
verbal harassment, such as unwelcome comments, jokes, or slurs of a sexual nature;
physical harassment, such as unnecessary or offensive touching, or impeding or
blocking movement; and
visual harassment, such as derogatory or offensive posters, cards, cartoons, graffiti,
drawings or gestures.
Other Forms of Harassment
Harassment on the basis of other characteristics is also strictly prohibited. Under this policy,
harassment is verbal or physical conduct that degrades or shows hostility or hatred toward an
individual because of his or her race, color, national origin, citizenship, religion, sexual
orientation, marital status, age, mental or physical handicap or disability, veteran status or any
other characteristic protected by law, which
has the purpose or effect of creating an intimidating, hostile, or offensive work
environment;
has the purpose or effect of unreasonably interfering with an individual's work
performance; or
otherwise adversely affects an individual's employment.
Harassing conduct includes, but is not limited to, the following: epithets; slurs; negative
stereotyping; threatening, intimidating or hostile acts; and written or graphic material that
ridicules or shows hostility or aversion to an individual or group and that is posted on Company
premises or circulated in the workplace.
Reporting Responsibilities and Procedures
If you believe that you have been subjected to harassment of any kind, you should promptly
report the incident to your supervisor, the harasser's supervisor, or the supervisor of Human
Resources Department. If you feel comfortable doing so, you may also wish to confront the
offender and state that the conduct is unacceptable and must stop. Complaints of harassment,
abuse or discrimination will be investigated promptly and thoroughly and will be kept confidential
to the extent possible. The Company will not in any way retaliate against any employee for
making a good faith complaint or report of harassment or participating in the investigation of
such a complaint or report.
The Company encourages the prompt reporting of all incidents of harassment, regardless of
who the offender may be, or the offender's relationship to the Company. This procedure should
also be followed if you believe that a non-employee with whom you are required or expected to
12
work has engaged in prohibited conduct. Supervisors must promptly report all complaints of
harassment to the supervisor of Human Resources Department.
Any employee who is found to be responsible for harassment, or for retaliating against any
individual for reporting a claim of harassment or cooperating in an investigation, will be subject
to disciplinary action, up to and including discharge.
Remember that, regardless of legal definitions, the Company expects employees to interact with
each other in a professional and respectful manner.
Safety in the Workplace
Safety and security are of primary importance. You are responsible for maintaining our facilities
free from recognized hazards and obeying all Company safety rules. Working conditions should
be maintained in a clean and orderly state to encourage efficient operations and promote good
safety practices.
Weapons and Workplace Violence
No employee may bring firearms, explosives, incendiary devices or any other weapons into the
workplace or any work-related setting, regardless of whether or not employees are licensed to
carry such weapons. Similarly, the Company will not tolerate any level of violence in the
workplace or in any work-related setting. Violations of this policy must be referred to your
supervisor and the Director of the Administration Department immediately. Threats or assaults
that require immediate attention should be reported to the police.
Drugs and Alcohol
The Company intends to maintain a drug-free work environment. Except at approved Company
functions, you may not use, possess or be under the influence of alcohol on Company
premises.
You cannot use, sell, attempt to use or sell, purchase, possess or be under the influence of any
illegal drug on Company premises or while performing Company business on or off the
premises.
INTERACTING WITH GOVERNMENT
Prohibition on Gifts to Government Officials and Employees
The various branches and levels of government in all countries have different laws restricting
gifts, including meals, entertainment, transportation and lodging, that may be provided to
government officials and government employees. You are prohibited from providing gifts, meals
or anything of value to government officials or employees or members of their families without
prior written approval from the supervisor of the Legal Division.
Political Contributions and Activities
Laws of certain jurisdictions prohibit the use of Company funds, assets, services, or facilities on
behalf of a political party or candidate. Payments of corporate funds to any political party,
13
candidate or campaign may be made only if permitted under applicable law and approved in
writing and in advance by the supervisor of the Legal Division.
Your work time may be considered the equivalent of a contribution by the Company. Therefore,
unless required by applicable law, you will not be paid by the Company for any time spent
running for public office, serving as an elected official, or campaigning for a political candidate.
Nor will the Company compensate or reimburse you, in any form, for a political contribution that
you intend to make or have made.
You must notify the supervisor of the Legal Division before running for election or seeking
appointment to any government-related position. Executive officers and members of the Board
of Directors must notify the Chairman of the Audit Committee of the Board before running for
election or seeking appointment to any government-related position.
Lobbying Activities
Laws of some jurisdictions require registration and reporting by anyone who engages in a
lobbying activity. Generally, lobbying includes: (1) communicating with any member or
employee of a legislative branch of government for the purpose of influencing legislation; (2)
communicating with certain government officials for the purpose of influencing government
action; or (3) engaging in research or other activities to support or prepare for such
communication.
So that the Company may comply with lobbying laws, you must notify the supervisor of the
Legal Division before engaging in any activity on behalf of the Company that might be
considered "lobbying" as described above.
Bribery of Foreign Officials
Company policy, the U.S. Foreign Corrupt Practices Act (the "FCPA"), and the laws of many
other countries (including but not limited to the Prevention of Corruption Act, Chapter 24 of
Singapore) prohibit the Company and its officers, employees and agents from giving or offering
to give money or anything of value to a foreign official, a foreign political party, a party official or
a candidate for political office in order to influence official acts or decisions of that person or
entity, to obtain or retain business, or to secure any improper advantage. A foreign official is an
officer or employee of a government or any department, agency, or instrumentality thereof, or of
certain international agencies, such as the World Bank or the United Nations, or any person
acting in an official capacity on behalf of one of those entities. Officials of government-owned
corporations are considered to be foreign officials.
Payments need not be in cash to be illegal. The FCPA prohibits giving or offering to give
"anything of value." Over the years, many non-cash items have been the basis of bribery
prosecutions, including travel expenses, golf outings, automobiles, and loans with favorable
interest rates or repayment terms. Indirect payments made through agents, contractors, or
other third parties are also prohibited. Employees may not avoid liability by "turning a blind eye"
when circumstances indicate a potential violation of the FCPA.
The FCPA does allow for certain permissible payments to foreign officials. Specifically, the law
permits "facilitating" payments, which are payments of small value to effect routine government
actions such as obtaining permits, licenses, visas, mail, utilities hook-ups and the like.
However, determining what is a permissible "facilitating" payment involves difficult legal
14
judgments. Therefore, employees must obtain permission from the supervisor of the Legal
Division before making any payment or gift thought to be exempt from the FCPA.
IMPLEMENTATION OF THE CODE
Copies of this Code are available from the supervisor of Human Resources Department or the
supervisor of the Legal Division. The Code is available in print to any shareholder who requests
it. The Code can also be found on the Company website at
http://www.gigamedia.com/code.htm. A statement of compliance with the Code must be signed
by all employees, officers, directors and consultants.
Seeking Guidance
This Code cannot provide definitive answers to all questions. If you have questions regarding
any of the policies discussed in this Code or if you are in doubt about the best course of action
in a particular situation, you should seek guidance from your supervisor, the supervisor of the
Legal Division or the other resources identified in this Code.
Reporting Violations
If you know of or suspect a violation of applicable laws or regulations, the Code, or the
Company's related policies, you must immediately report that information to your supervisor, the
supervisor of the Legal Division, the Taskforce, or, in the circumstances described below, the
Audit Committee of the Board. No one will be subject to retaliation because of a good faith
report of suspected misconduct. If any fraud is involved in the reported violation, supervisors
should report to the Taskforce in accordance with the Antifraud Policy.
Investigations of Suspected Violations
All reported violations will be promptly investigated and treated confidentially to the greatest
extent reasonably possible, given the need to conduct an investigation. It is imperative that
reporting persons not conduct their own preliminary investigations. Investigations of alleged
violations may involve complex legal issues, and acting on your own may compromise the
integrity of an investigation and adversely affect both you and the Company. You are expected
to cooperate in internal investigations of suspected misconduct.
Reports Regarding Accounting Issues
The Company is committed to compliance with applicable securities and other laws, rules, and
regulations, accounting standards and internal accounting controls. You are expected to report
any complaints or concerns regarding accounting, internal accounting controls and auditing
matters (“Accounting Issues”) promptly. Reports may be made in writing to either the Taskforce
at antifraud@gigamedia.com.tw, or to the Audit Committee of the Board at
audit_committee@gigamedia.com.tw. Reports may be made anonymously. Reports will be
treated confidentially to the extent reasonably possible given the need to conduct an
investigation. No one will be subject to retaliation because of a good faith report of a complaint
or concern regarding Accounting Issues.
Treatment of Complaints and Retention of Records Regarding Accounting Issues
15
Reports of concerns or complaints regarding Accounting Issues will be investigated in
accordance with Antifraud Policy. The Taskforce will forward, as appropriate, complaints and
concerns regarding Accounting Issues to the Audit Committee, and if appropriate, to the Chief
Financial Officer. The Taskforce will retain copies of all reports, investigative reports,
summaries of reports and other documents relating to complaints and concerns regarding
Accounting Issues in accordance with the Company's records retention policy.
Discipline for Violations
The Company intends to use every reasonable effort to prevent the occurrence of conduct not in
compliance with its Code and to halt any such conduct that may occur as soon as reasonably
possible after its discovery. Subject to applicable laws and agreements, Company personnel
who violate this Code and other Company policies and procedures may be subject to
disciplinary actions, up to and including discharge. In addition, disciplinary measures, up to and
including discharge, may be taken against anyone who directs or approves infractions or has
knowledge of them and does not promptly report and correct them in accordance with Company
policies.
A Framework for Approaching Questions and Problems
Everyone must work to ensure prompt and consistent action against violations of this Code.
However, in some situations it is difficult to know right from wrong. Since it is impossible to
anticipate every situation that will arise, it is important to have a way to approach a new
question or problem. These are the steps to keep in mind:
Make sure you have all the facts. In order to reach the right solutions, we must be as
fully informed as possible.
Ask yourself: What specifically am I being asked to do? Does it seem unethical or
improper? This will enable you to focus on the specific question you are faced with,
and the alternatives you have. Use your independent good judgment and common
sense; if something seems unethical or improper, it probably is.
Clarify your responsibility and role. In most situations, there is shared responsibility.
Are your colleagues informed? It may help to get others involved and discuss the
problem.
Discuss the problem with your supervisor. This is the basic guidance for all
situations. In many cases, your supervisor will be more knowledgeable about the
question, and will appreciate being brought into the decision-making process.
Remember that it is your supervisor’s responsibility to help solve problems.
Seek help from Company resources. In the rare case where it may not be appropriate to
discuss an issue with your supervisor, or where you do not feel comfortable approaching your
supervisor with your question, contact the supervisor of the Legal Division or the Audit
Committee by email at audit_committee@gigamedia.com.tw.
Waivers of the Code
Waivers of the Code for directors and executive officers may be made only by the Board of
Directors or the Audit Committee of the Board. The Company is required to disclose any such
waivers within four business days either by distributing a press release or including disclosure in
a Form 6-K in its U.S. securities filings.
16
No Rights Created
This Code is a statement of the fundamental principles and key policies and procedures that
govern the conduct of the Company's business. It is not intended to and does not create any
rights in any employee, officer, customer, supplier, competitor, shareholder or any other person
or entity.
17
ACKNOWLEDGMENT FORM
I have received and read the Company's Code of Business Conduct and Ethics (”Code”), and I
understand its contents. I agree to comply fully with the standards, policies and procedures
contained in the Code and the Company's related policies and procedures. I understand that I
have an obligation to report to the supervisor of the Legal Division any suspected violations of
the Code that I am aware of. I acknowledge that the Code is a statement of policies for
business conduct and does not, in any way, constitute an employment contract or an assurance
of continued employment.
Printed Name
Signature
Date
18
Exhibit 12.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14 OR 15d-14 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
1.
2.
3.
4.
I, Cheng-Ming Huang, Chief Executive Officer of GigaMedia Limited, certify that:
I have reviewed this annual report on Form 20-F of GigaMedia Limited;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods
presented in this report;
The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the
period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s
internal control over financial reporting; and
5.
The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
company’s internal control over financial reporting.
Date: April 29, 2024
By:
/s/ HUANG, CHENG-MING
Name: HUANG, CHENG-MING
Title: Chief Executive Officer
Exhibit 12.2
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a-14 OR 15d-14 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Cheng-Ming Huang, Chief Financial Officer of GigaMedia Limited, certify that:
1. I have reviewed this annual report on Form 20-F of GigaMedia Limited;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in
this report;
4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the
period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s
internal control over financial reporting; and
5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
company’s internal control over financial reporting.
Date: April 29, 2024
By:
/s/ HUANG, CHENG-MING
Name: HUANG, CHENG-MING
Title: Chief Financial Officer
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 13.1
In connection with the annual report of GigaMedia Limited (the “Company”) on Form 20-F for the year ended December 31,
2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Cheng-Ming Huang, Chief
Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002, that to my knowledge:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act
of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: April 29, 2024
By:
/s/ HUANG, CHENG-MING
HUANG, CHENG-MING
Chief Executive Officer
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 13.2
In connection with the annual report of GigaMedia Limited (the “Company”) on Form 20-F for the year ended December 31,
2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Cheng-Ming Huang, Chief Financial
Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that to my knowledge:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act
of 1934, and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: April 29, 2024
By:
/s/ HUANG, CHENG-MING
HUANG, CHENG-MING
Chief Financial Officer
Consent of Independent Registered Public Accounting Firm
Exhibit 15.1
We consent to the incorporation by reference in Registration Statement No. 333-148663, 333-142963, 333-
119616, 333-168123 and 333-160535 on Form S-8 of our report dated April 29, 2024, relating to the financial
statements of GigaMedia Limited, appearing in this Annual Report on Form 20-F for the year ended December
31, 2023.
/s/Deloitte & Touche
Taipei, Taiwan
Republic of China
April 29, 2024
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Exhibit 97.1
Table of Contents
1. Purpose
2. Definitions
3. Recovery Requirement and Recovery Period
4. Amount Subject to Recovery
5. Procedure of Recovery
6. Exceptions to Recovery
7. Prohibition against indemnification
8. Disclosure
9. Effectiveness
THIS INFORMATION IS PROPRIETARY TO GIGAMEDIA AND SHALL NOT BE REPRODUCED OR COPIED WITHOUT WRITTEN
PERMISSION FROM GIGAMEDIA LIMITED
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Version
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Summary of Context Revised Date
I
Original Version
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THIS INFORMATION IS PROPRIETARY TO GIGAMEDIA AND SHALL NOT BE REPRODUCED OR COPIED WITHOUT WRITTEN
PERMISSION FROM GIGAMEDIA LIMITED
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The Compensation Recovery Policy (the “Policy”) is subject to the then-effective Rule
5608 of The Nasdaq Stock Market LLC Rules and the rules and regulations of the U.S.
Securities and Exchange Commission (“SEC”).
1. Purpose
GigaMedia Limited (the “Company”) has adopted the Policy which provides for the
recovery of excess incentive-based compensation earned by current or former
Executive officers in the event of an accounting restatement due to the material
noncompliance of the Company with any financial reporting requirement under the
securities laws (“Accounting Restatement”).
2. Definitions
Unless the context otherwise requires, the following definitions apply for purpose of this
Policy:
“Executive Officer” means the Company’s president, chief executive officer, chief
financial officer, principal accounting officer (or if there is no such accounting officer,
the controller), any vice-president of the Company in charge of a principal business
unit, division, or function, or any other officer or person who performs a policy-making
function for the Company. Executive Officers of the Company’s parent(s) or
subsidiaries are deemed executive officers of the Company if they perform such policy
making functions for the Company. Identification of an executive officer for purposes of
this Policy would include at a minimum executive officers identified pursuant to 17 CFR
229.401(b) of Code of Federal Regulations, as determined by the Compensation
Committee of the Board of Director (the “Compensation Committee”)
“Financial Reporting Measures” means measures that are determined and presented
in accordance with the accounting principles used in preparing the Company’s financial
statements, and any measures that are derived wholly or in part from such measures.
Stock price and total shareholder return are also financial reporting measures. A
financial reporting measure need not be presented within the financial statements or
included in a filing with the Commission.
“Incentive-Based Compensation” means any compensation that is granted, earned
or vested based wholly or in part upon the attainment of a Financial Reporting Measure.
3. Recovery Requirement and Recovery Period
The Company shall recover reasonably prompt the amount of erroneously awarded
Incentive-Based Compensation in the event that the Company is required to prepare
an Accounting Restatement.
THIS INFORMATION IS PROPRIETARY TO GIGAMEDIA AND SHALL NOT BE REPRODUCED OR COPIED WITHOUT WRITTEN
PERMISSION FROM GIGAMEDIA LIMITED
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3.1 Covered Executive Officers and Recovery Period. This Policy applies to all
Incentive-Based Compensation received by each Executive Officer:
A. After beginning service as an Executive Officer;
B. Who served as an Executive Officer at any time during the performance
period for that Incentive-Based Compensation;
C. While the Company has a class of securities listed on a national securities
exchange or a national securities association; and
D. During the three completed fiscal years immediately preceding the date that
the Company is required to prepare an Accounting Restatement. In addition
to these last three completed fiscal years, the Policy applies to any transition
period (that results from a change in the Company’s fiscal year) within or
immediately following those three completed fiscal years. However, a
transition period between the last day of the Company’s previous fiscal year
end and the first day of its new fiscal year that comprises a period of nine to
twelve months would be deemed a completed fiscal year.
3.2 Determining Recovery Period. For purposes of determining the relevant recovery
period, the date of the Company is required to prepare an Accounting Restatement
is the earlier to occur of:
A. The date the Company’s board of directors, a committee of the board of
directors, or the executive officers of the Company authorized to take such
action if board action is not required, concludes, or reasonably should have
concluded, that the Company is required to prepare an Accounting
Restatement; or
B. The date a court, regulator, or other legally authorized body directs the
Company to prepare an Accounting Restatement.
4. Amount Subject to Recovery
4.1 The amount of the Incentive-Based Compensation that must be subject to the
Policy is the amount of incentive-based compensation that paid to the Executive
Officer based on the erroneous data over the Incentive-Based Compensation that
would have been paid to the Executive Officer had it been based on the restated
results (“Erroneously Awarded Compensation”).
4.2 For the Incentive-based compensation based on stock price or total shareholder
return, where the Erroneously Awarded Compensation is not subject to
THIS INFORMATION IS PROPRIETARY TO GIGAMEDIA AND SHALL NOT BE REPRODUCED OR COPIED WITHOUT WRITTEN
PERMISSION FROM GIGAMEDIA LIMITED
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mathematical recalculation directly from the Accounting Restatement, the
Erroneously Awarded Compensation must be based on a reasonable estimate of
the effect of the Accounting Restatement on the stock price or total shareholder
return upon which the Incentive-Based Compensation was received; and the
Company must maintain documentation of the determination of that reasonable
estimate and provide such documentation to Nasdaq.
5. Procedure of Recovery
In the event that the Company is required to recover the Erroneously Awarded
Compensation pursuant to this Policy, the Human Resource Division of the Company
shall promptly inform the Compensation Committee and then submit the recovery
proposal with supporting documents to the Compensation Committee meeting for the
approval by the Compensation Committee
The Compensation Committee shall determine the amount and method for recouping
of Erroneously Awarded Compensation hereunder which may include, without
limitation:
A. Requiring reimbursement of cash Incentive Compensation previously paid;
B. Offsetting the recouped amount from any compensation otherwise owed by
the Company to the Executive Officer, except to the extent such offset is
prohibited by law;
C. Cancelling outstanding vested or unvested equity awards; and/or
D. Taking any other remedial and recovery action permitted by law
6. Exceptions to Recovery
The Company shall recover Erroneously Awarded Compensation in compliance with
this Policy except to the extent that the conditions set out below are met and the
Compensation Committee has made a determination that recovery would be
impracticable.
A. Direct expense exceeds the amount to be covered: The direct expense
paid to a third party to assist in enforcing the policy would exceed the amount
THIS INFORMATION IS PROPRIETARY TO GIGAMEDIA AND SHALL NOT BE REPRODUCED OR COPIED WITHOUT WRITTEN
PERMISSION FROM GIGAMEDIA LIMITED
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to be recovered. Before concluding that it would be impracticable to recover
Erroneously Awarded Compensation based on expense of enforcement, the
Company must make a reasonable attempt to recover such Erroneously
Awarded Compensation, document such reasonable attempt(s) to recover,
and provide that documentation to Nasdaq.
B. Recovery would violate home country law: Recovery would violate home
country law where that law was adopted prior to November 28, 2022. Before
concluding that it would be impracticable to recover the Erroneously Awarded
Compensation based on violation of home country law, the Company must
obtain an opinion of home country counsel, acceptable to Nasdaq, that
recovery would result in such a violation, and must provide such opinion to
Nasdaq
C. Recovery from certain tax-qualified Retire plan: Recovery would likely cause
an otherwise tax-qualified retirement plan, under which benefits are broadly
available to employees of the registrant, to fail to meet the requirements of 26
U.S.C. 401(a)(13) or 26 U.S.C. 411(a) and regulations thereunder.
7. Prohibition against indemnification
The Company is prohibited from indemnifying any executive officer or former
executive officer against the loss of Erroneously Awarded Compensation
8. Disclosure
The Company shall file all disclosures with respect to recovery under the Policy in
accordance with the requirements of the U.S. Federal securities laws, including the
disclosure required by the applicable Commission filings.
9. Effectiveness
The Policy is effective on and after Oct 2, 2023.
The Policy shall be approved by the Board of Director of the Company. Any
amendment hereof is subject to the same procedure.
THIS INFORMATION IS PROPRIETARY TO GIGAMEDIA AND SHALL NOT BE REPRODUCED OR COPIED WITHOUT WRITTEN
PERMISSION FROM GIGAMEDIA LIMITED