Dear Shareholders,

Year 2006 was a year of recovery from the worst hit of year 2005. We still suffer losses this year, however, the situation in the Group has become better and more controllable. This year, we try to expand our market, reinforce our research and development (R&D), and control our costs. Therefore, we think the Group is well poised to operate efficiently in Year 2007. The Group welcomes the appointment of Mr. Hew Koon Chan as Lead Independent Non-executive Director to the Board on 16 October 2006. Mr. Hew is the Managing Director of Integer Capital Pte Ltd, a business advisory firm and he has 16 years experience with the Asian affiliate of Advent International Corporation, garnering extensive experience in private equity investments in South East Asia. He brings with him a wealth of experience which the Group will benefit from. On behalf of the Board, I would like to take this opportunity to thank Mr. Lim Hock Beng who stepped down as Independent Director on 15 September 2006. He has been with the Board since our listing in January 2004 and has contributed vastly to the Group’s growth. We wish him well in his new endeavors.

DIFFICULT BUT CHALLENGING YEAR

In 2006, group revenue reached S$77.5 million, which was 13.25% lower than FY 2005. The lower revenue was largely due to pricing pressure and lower order from our major customers as a result of continued slower automobile sales in United States, our key export market. Since the 1st quarter of 2006, staff costs increased by 29.63% as our recruitment exercise for more engineers for our subsidiary, Action Industries (M) Sdn Bhd and Action Asia (Shenzhen) Co. Ltd intensified in line with our aim to strengthen our R&D efforts. While staff costs have escalated, the Group reduced its other operating expenses, which fell by 17.68% as a result of the steps taken to implement cost control.
Despite a recording of lower revenue amidst a challenging year, the Group managed to reduce its net loss by 37.90% to S$2.8 million which includes the tax provision of S$979,000 on compensation from Jiading factory land expropriated by the Shanghai local authority. Other operating income was primarily attributable to the write back of impairment loss of S$2.2 million on the land owned by Action Shanghai which was expropriated by the Shanghai local authority. Apart from the compensation of financial loss, the Shanghai local authority will replace the land expropriated with a new plot of land, 180mu in Jiading, Shanghai. The Group’s trade receivables increased from S$13.8 million in 2005 to S$16.1 million as at December 31, 2006 due to customers withholding payment for returned goods pending rework. The receivable will decrease gradually after rework job is done. Cash balances remain healthy at S$26.2 million, while inventories at Group level had decreased from S$9.9 million to S$4.8 million at December 31, 2006.

LOOKING POSITIVELY AHEAD

To stay ahead of competition and to keep abreast with technological advancement and consumer trends, the Group will continue to invest in R&D in the new financial year in order to expand our product range to capitalize on new opportunities in mobile entertainment and other digital lifestyle products. The convergence of computing, communication and consumer is bringing music, programming, visual information and visual entertainment together to create new and exciting gadgets for the automotive industry. We will leverage on this trend to drive growth for the Group. Vehicle sales in North America are projected to hit 20 million units by 2010. Whilst the United States continues to be an important market for our Group, we aim to increase the revenue contributions from other established or emerging markets. We have established a Singapore trading hub - Action Singapore Pte Ltd, to advance South-East Asia, Middle East and Australian markets. All markets will be diligently served by representatives from Action Singapore with ample storage facilities and efficient after-sales services. The other brighter side is new orders were received from a world-renowned Electronics Brand for Portable DVD Players which will be produced in our Shenzhen plant. We also successfully penetrated into car manufacturers in India, a new market.

We have done a great job in cost control in Year 2006 and will continue to be stringent in this area. The new Shanghai factory will be built in 2007 and completed by early 2008. We will gradually shift our production lines from Malaysia to China which can further reduce our production cost to enhance our competitiveness in the market. The global economy is steadily getting back on its feet and the rapid spread of terrestrial digital broadcasting worldwide is expected to sharply boost demand for high-definition LCD TV products. Demand for LCD panels is likely to continue and as we are already well entrenched in the dynamic and growing audio and video industry, the Group will continue to build on the foundation of our growth to enhance shareholder value.

DIVIDENDS

To reward shareholders for their continued support for the Group, the Directors are recommending a first and final tax-exempt dividend of 0.2 cents per share.

ACKNOWLEDGEMENTS

On behalf of the Board of Directors, I would like to thank our business partners, customers, suppliers, and shareholders for their support this past year. I would also like to thank the management and employees for their continued contribution, commitment and dedication in growing the Group despite difficult and challenging market conditions. We look forward to your continued support in 2007.

Dato' Peng Chiun Ping

Chairman