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Exhibit 99.2

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

The accompanying notes are an integral parts of these interim financial statements.

 

 

 

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1.	General  information

 

Terasquare Co., Ltd (“The Company”) was incorporated on December, 2010 under the laws of the Republic of Korea to design and sell semiconductors.

 

The Company’s business is made up of industry leading 100Gbps+ datacom solutions for Ethernet, Fiber Channel, and Infiniband Data Center connectivity.

 

As of June 30, 2015, the Company’s common stockholders are as follows:

 

 

2.	Summary of significant accounting policies

 

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the year presented, unless otherwise stated.

 

 

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

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amount of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to allowances for doubtful accounts, valuation of long-lived assets, including property and equipment and identified intangible assets, valuation of deferred taxes and contingencies. The Company bases its estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumption that are believed to be reasonable under the circumstances, when these carrying values are not readily available from other sources. Actual results could differ from these estimates.

 

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2.2  Revenue recognition

 

Revenue from sales of optical drivers and receivers, multi-chip modules (MCMs), ASICs and other products is recognized when persuasive evidence of a sales arrangement exists, transfer of title occurs, the sales price is fixed or determinable and collection of the resulting receivable is reasonably assured. Revenue for product shipments is recognized upon delivery of the product to the customer. Provisions are made for sales returns and warranties at the time revenue is recorded.

 

2.3 Cash and cash equivalents

 

Cash and cash equivalents comprise cash on hand, demand deposits, and short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. The Company considers investments with maturities of three months or less on acquisition date to be cash and cash equivalents.

 

2.4 Restricted cash

 

Restricted cash as of June 30, 2015 was KRW 265,979 thousand which is primarily subject to withdrawal restrictions to government-sponsored research and development projects and other activities.

 

2.5 Financial instruments

 

Financial instruments, such as time deposits and restricted bank deposits, which are traded by financial institutions and are held for short-term cash management purposes or which will mature within one year, are accounted for as short-term financial instruments. Financial instruments other than cash equivalents and short-term financial instruments are recorded as long-term financial instruments.

 

2.6 Allowance for doubtful accounts

 

The Company provides an allowance for doubtful accounts in consideration of estimated total losses that may arise from the non-collection of its receivables. The estimate of losses, if any, is based on a review of the aging and current status of the outstanding receivables.

 

2.7 Property and equipment, net

 

Property and equipment are recorded at cost and depreciation using the declining balance method over their estimated useful lives, 5 years. Repairs and maintenance costs are charged to expenses as incurred.

 

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2.9 Research and development expense

 

Research and development expenses are expensed as incurred. Research and development expense consists primarily of salaries and related expenses for research and development personnel, consulting and engineering design, non-capitalized tools and equipment, engineering related semiconductor masks, depreciation for equipment, engineering expenses paid to outside technology development suppliers.

 

2.10 Defined contribution plan

 

The Company introduced a contribution pension plan, where the Company pays fixed contributions to each employee, who selected the plan, every year. The Company has no further payment obligations once the contributions have been paid. The contributions are recognized as employee benefit expense when they are due.

 

2.11 Foreign currency

 

Transactions involving foreign currencies are recorded in the Company’s accounts at the exchange rates prevailing at the time the transactions are made. Monetary assets and liabilities denominated in foreign currencies are translated into Korean won at the appropriate exchange rates on the balance sheet dates. The resulting unrealized foreign currency translation gains (losses) are credited (charged) to current operations.

 

2.12 Current and deferred tax

 

The provision for income taxes is determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from differences between the financial and tax basis of the Company’s assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.

 

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The Company must assess the likelihood that the Company’s deferred tax assets will be recovered from future taxable income, and to the extent the Company believes that recovery is not likely, the Company establishes a valuation allowance. Management judgment is required in determining the Company’s provision for income taxes, deferred tax assets and liabilities, and any valuation allowance recorded against the net deferred tax assets. The Company recorded a full valuation allowance as of June 30, 2015 and December 31, 2014. Based on the available evidence, the Company believes it is more likely than not that it will not be able to utilize its deferred tax assets in the future. The Company intends to maintain valuation allowances until sufficient evidence exists to support the reversal of such valuation allowances. The Company makes estimates and judgments about its future taxable income that are based on assumptions that are consistent with its plans. Should the actual amounts differ from the Company’s estimates, the carrying value of the Company’s deferred tax assets could be materially impacted.

 

The Company recognizes in the financial statements the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. The Company does not believe there are any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within 12 months of the reporting date.

 

2.13 Government grants

 

Government grants are recognized where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is recognised as income on a systematic basis over the periods that the related costs, for which it is intended to compensate, are expensed. When the grant relates to an asset, it is recognised as income in equal amounts over the expected useful life of the related asset.

 

When the Company receives grants of non-monetary assets, the asset and the grant are recorded at nominal amounts and released to profit or loss over the expected useful life in a pattern of consumption of the benefit of the underlying asset by equal annual instalments.

 

3.	Cash and cash equivalents

 

Details of cash and cash equivalents as of June 30, 2015 and December 31, 2014 are as follows:

 

 

Restricted cash as of June 30, 2015 was KRW 265,979 thousand which is primarily subject to withdrawal restrictions to government-sponsored research and development projects and other activities.

 

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4.	Short-term financial instruments

 

Details of short-term financial instruments as of June 30, 2015 and December 31, 2014 are as follows:

 

 

5.	Property and equipment, net

 

Property and equipment, net as of June  30, 2015 and December 31, 2014  consisted of following:

 

Depreciation expense related to property and equipment was KRW 9,762 thousand and KRW 15,702 thousand for the six months ended June 30, 2015 and 2014, respectively.

 

6.	Other non-current assets

 

Details of other non-current assets as of June 30, 2015 and December 31, 2014 are as follows:

 

 

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7.	Borrowings

 

Details of borrowings as of June 30, 2015 and December 31, 2014 are as follows:

 

8.	Convertible bonds

 

The Company issued convertible bond on June 19, 2015. Details of convertible bond as of June 30, 2015 and December 31, 2014 are as follows:

 

 

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Conversion feature for 1st privately placed convertible bonds is as follows:

 

9.	Redeemable convertible preferred stock

 

The Company’s Series A preferred stock and Series B, B-1 preferred stocks are redeemable preferred stock that is convertible into a common stock.  As of June 30, 2015 and December 31, 2014, redeemable convertible preferred stocks are as follows:

 

 

The details of redeemable convertible preferred stock are as follows:

 

 

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10.	Capital Stock

 

The Company’s common stock as of June 30, 2015 and December 31, 2014 are as follows:

 

		2015				2014
Authorized stocks		10,000,000 shares				10,000,000 shares
Par value			100				100
Issued stocks		3,999,975 shares				3,999,975 shares
Common stock			399,997,500				399,997,500

 

11.	Research and development expenses

 

Research and development expenses for the six months ended June 30, 2015 and 2014 are as follows:

 

 

12.	Selling, general and administrative expenses

 

Selling, general and administrative expenses for the six months ended June 30, 2015 and 2014 are as follows:

 

 

13.	Subsequent events

 

On September 30, 2015, GigOptix, Inc. completed its acquisition of all of the outstanding common shares and redeemable convertible preferred shares of the Company from the four former stockholders of the Company.

 

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