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

OR

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2008

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

Commission file number: 333-129208

 Actions Semiconductor Co., Ltd.

(Exact name of Registrant as specified in its charter)

N/A

(Translation of Registrant’s name into English)

Cayman Islands

(Jurisdiction of incorporation or organization)

15-1, No. 1, HIT Road

Tangjia. Zhuhai, Guangdong, 519085

The People’s Republic of China

(Address of principal executive offices)  

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of each class	Name of quotation system on which registered
American Depositary Shares, each representing Six Ordinary Shares, par value US$0.000001 per share	Nasdaq—Global Market System
Ordinary Shares, par value US$0.000001 per share	Nasdaq—Global Market System*

Securities registered or to be registered pursuant to Section 12(g) of the 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. Ordinary Shares 516,000,000

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨ Yes x No

If this 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 x 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. x Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.:

Large accelerated filer¨             Accelerated filer x             Non-accelerated filer¨

Indicate by check mark which financial statement item the registrant has elected to follow. ¨Item 17 xItem 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 x No

*  Not for trading purposes, but only in connection with the registration of American Depositary Shares pursuant to the requirements of the Securities and Exchange Commission.

TABLE OF CONTENTS

CERTAIN DEFINED TERMS				3
FORWARD-LOOKING STATEMENTS				3
PART I				4
	ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS			4
	ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE			4
	ITEM 3. KEY INFORMATION			4
		A.	Selected Financial Data	4
		B.	Capitalization and Indebtedness	6
		C.	Reasons for the Offer and Use of Proceeds	6
		D.	Risk Factors	6
	ITEM 4. INFORMATION ON THE COMPANY			23
		A.	History and Development of the Company	23
		B.	Business Overview	24
		C.	Organizational Structure	34
		D.	Property, Plant and Equipment	35
	ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS			35
		A.	Operating Results	35
		B.	Liquidity and Capital Resources	42
		C.	Research and Development, Patents and Licenses, etc.	46
		D.	Trend Information	48
		E.	Off-balance Sheet Arrangements	49
		F.	Tabular Disclosure of Contractual Obligations	49
	ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES			49
		A.	Directors and Senior Management	49
		B.	Compensation	50
		C.	Board Practices	53
		D.	Employees	53
		E.	Share ownership	54
	ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS			54
		A.	Major Shareholders	54
		B.	Related Party Transactions	54
		C.	Interests of Experts and Counsel	56
	ITEM 8. FINANCIAL INFORMATION			56
		A.	Consolidated Statements and Other Financial Information	56
		B.	Significant Changes	57
	ITEM 9. THE OFFER AND LISTING			57
		A.	Offer and Listing Details	57
		B.	Plan of Distribution	58
		C.	Markets	58
		D.	Selling Shareholders	58
		E.	Dilution	58
		F.	Expense of the Issue	58
	ITEM 10. ADDITIONAL INFORMATION			58
		A.	Share Capital	58
		B.	Memorandum and Articles of Association	58
		C.	Material Contracts	67
		D.	Exchange Controls	67

1

		E.	Taxation	68
		F.	Dividends and paying agents	71
		G.	Statement by experts	71
		H.	Documents on display	71
		I.	Subsidiary Information	72
	ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			72
	ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES			72
PART II				72
	ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES			72
	ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS			72
	ITEM 15. CONTROLS AND PROCEDURES			72
	ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT			73
	ITEM 16B. CODE OF ETHICS			73
	ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES			73
	ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES			74
	ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS			74
	ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT			75
	ITEM 16G. CORPORATE GOVERNANCE			75
PART III				75
	ITEM 17. FINANCIAL STATEMENTS			75
	ITEM 18. FINANCIAL STATEMENTS			75
	ITEM 19. EXHIBITS			75

2

CERTAIN DEFINED TERMS

References to “China” or “PRC” or “Mainland China” herein are references to the People’s Republic of China and references to “Hong Kong” are references to the Hong Kong Special Administrative Region of the PRC. References to “United States” or “U.S.” are to the United States of America. All references to the “Government” herein are references to the government of the People’s Republic of China.

All references herein to “we,” “us,” “our,” “Actions” and the “Company” are references to Actions Semiconductor Co., Ltd. and, unless the context otherwise requires, all such references include our subsidiaries.

References in this annual report to “U.S. dollars,” “$” and “US$” are to United States dollars, the lawful currency of the United States and references herein to “RMB” are to Renminbi, the lawful currency of the People’s Republic of China. Certain figures (including percentages) have been rounded for convenience, and therefore indicated and actual sums, quotients, percentages and ratios may differ. Unless otherwise indicated, our financial information has been presented in United States dollars in accordance with U.S. GAAP, and is presented on a consolidated basis.

Solely for the convenience of the reader, certain Renminbi amounts have been translated into U.S. dollars at specified rates. Unless otherwise noted, all translations from Renminbi to U.S. dollars and from U.S. dollars to Renminbi were made based on the noon buying rate in the City of New York for cable transfers in Renminbi per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York at each specified date. As of December 31, 2008 and April 10, 2009, the noon buying rate for one U.S. dollar was RMB 6.8225 and RMB 6.8333, respectively. The table below indicated the highest and lowest exchange rates from Renminbi to U.S. dollars for the each period. We make no representation that the Renminbi or U.S. dollar amounts referred to herein could have been or could be converted to U.S. dollars or Renminbi, as the case may be, at any particular rate.

Per U.S. dollar	High		Low
2006	RMB	7.8041	RMB	8.0702
2007		7.2946		7.8127
2008		6.7800		7.2946
First Quarter		7.0105		7.2946
Second Quarter		6.8591		7.0185
Third Quarter		6.7800		6.8705
Fourth Quarter		6.8171		6.8842
October		6.8171		6.8521
November		6.8220		6.8373
December		6.8225		6.8842
2009
First Quarter		6.8225		6.8470
January		6.8225		6.8403
February		6.8241		6.8470
March		6.8240		6.8438
April (through April 10, 2009)	6.8333		6.8361

FORWARD-LOOKING STATEMENTS

Certain statements contained in this Form 20-F, including those statements contained under the captions “Item 4—Information on the Company” and “Item 5—Operating and Financial Review and Prospects” that are not statements of historical fact, are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements can be generally identified by the use of terms such as “may,” “will,” “could,” “would,” “plans,” “intends,” “believes,” “expects,” “projects,” “estimates” or “anticipates”, the negatives of such terms, or comparable terms. In addition to the statements contained in this Form 20-F, we (or our directors or executive officers authorized to speak on our behalf) from time to time may make forward-looking statements, orally or in writing, regarding Actions (including its subsidiaries) and its business, including in press releases, oral presentations, filings under the Securities Act, the Exchange Act or securities laws of other countries, and filings with Nasdaq, or other stock exchanges.

3

Such forward-looking statements represent our judgment or expectations regarding the future, and are subject to risks and uncertainties that may cause actual events and our future results to be materially different than expected by us or indicated by such statements. Such risks and uncertainties include in particular (but are not limited to) the risks and uncertainties related to: the risk that we may not be able to develop and successfully market new products; the risk that consumer preferences will shift away from the products manufactured by our customers; the risk that our rights to intellectual property used in our products may be challenged by our competitors; the risk that we will not be able to develop and implement additional operational and financial systems to manage our operations as they expand; intensifying competition in the market in which we operate; the outcome of legal proceedings in which we are currently engaged; the risk that we may be unable to retain or attract key personnel; governmental uncertainties; and the risk that our various relationships with our distributor and contract manufacturer customers will change in a way that adversely affects our business.

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.  Selected Financial Data

The selected consolidated financial data presented below as of and for the years ended December 31, 2004, 2005, 2006, 2007 and 2008 have been prepared in accordance with U.S. GAAP and are derived from our audited consolidated financial statements included elsewhere in this document. The historical results are not necessarily indicative of results to be expected in any future period. All amounts below are in U.S. dollars, except number of shares data.

INCOME STATEMENT

	For the year ended December 31,
	2004			2005			2006			2007			2008
	(thousands, except per share data)
Revenues:
System-on-a-chip products	US$	55,236		US$	149,369		US$	170,129		US$	116,320		US$	94,916
Semiconductor product testing services		2,021			253			99			308			214
Total revenues		57,257			149,622			170,228			116,628			95,130
Cost of revenues:
System-on-a-chip products		(25,565	)		(60,518	)		(75,853	)		(56,687	)		(47,248	)
Semiconductor product testing services		(1,575	)		(68	)		(58	)		(231	)		(177	)
Total cost of revenues		(27,140	)		(60,586	)		(75,911	)		(56,918	)		(47,425	)
Gross profit		30,117			89,036			94,317			59,710			47,705
Other operating income		128			1,122			1,634			392			797
Operating expenses:
Research and development		(2,400	)		(7,825	)		(9,773	)		(12,381	)		(19,477	)
General and administrative		(769	)		(8,968	)		(8,663	)		(10,485	)		(10,399	)
Selling and marketing		(594	)		(1,375	)		(1,626	)		(1,880	)		(1,694	)
Total operating expenses		(3,763	)		(18,168	)		(20,062	)		(24,746	)		(31,570	)
Income from operations		26,482			71,990			75,889			35,356			16,932
Other income		—			—			—			11,570			1,213
Dividend income		—			—			—			—			20
Fair value change in trading securities		—			—			—			—			92
Interest income		28			1,148			4,876			7,162			11,912
Interest expenses		—			(77	)		(160	)		(82	)		(4	)
Income before income taxes, equity in net loss of an equity method investee and minority interests		26,510			73,061			80,605			54,006			30,165
Income taxes (expense) credit		(25	)		526			(5,984	)		(2,202	)		(3,632	)
Equity in net loss of an equity method investee		—			—			(156	)		(383	)		(576	)
Minority Interests		—			18			96			220			166
Net income	US$	26,485		US$	73,605		US$	74,561		US$	51,641		US$	26,123

4

	For the year ended December 31,
	2004		2005		2006		2007		2008
Net income per share:
Basic and diluted	US$	0.055	US$	0.152	US$	0.144	US$	0.101	US$	0.052
Net income per ADS:
Basic and diluted	US$	0.331	US$	0.914	US$	0.867	US$	0.603	US$	0.312
Dividend declared per share		—	US$	0.041		—		—		—
Weighted-average shares used in computation:
Basic and diluted		480,000,000		483,000,000		516,000,000		513,588,069		501,763,805

CASH FLOW  

	For the year ended December 31,
	2004			2005			2006			2007			2008
	(thousands)
Cash provided by (used in):
Operating activities	US$	29,694		US$	77,140		US$	76,774		US$	46,816		US$	9,930
Investing activities		(997	)		(28,567	)		(48,188	)		(111,147	)		(30,683	)
Financing activities		877			27,128			(1,917	)		(4,411	)		(8,423	)

5

BALANCE SHEET

	At December 31,
	2004		2005		2006		2007		2008
	(thousands)
Cash and cash equivalents	US$	32,013	US$	108,896	US$	137,778	US$	72,054	US$	45,435
Time deposits		—		23,172		45,713		2,613		61
Restricted cash		—		2,478		—		1,782		440
Marketable securities		—		—		20,531		165,317		201,151
Trading securities		—		—		—		—		19,299
Accounts receivable, net		3,529		8,025		3,667		5,103		2,435
Amount due from a related party		—		—		2,192		943		1,497
Notes receivable		1,825		1,722		2,154		372		74
Inventories		5,018		7,023		6,280		12,542		8,720
Prepaid expenses and other current assets		1,328		1,973		6,413		2,479		1,532
Amount due from an equity method investee		—		—		133		—		—
Deferred tax assets		—		528		662		739		686
Income tax recoverable		—		11		—		—		—
Total current assets		43,713		153,828		225,523		263,944		281,330
Investment in an equity method investee		—		500		1,469		1,719		4,142
Other investments ($82 and $196 carried at fair value as of Decemeber 31, 2007 and 2008, respectively)		—		—		—		5,479		7,044
Rental deposits		24		11		52		79		39
Property, plant and equipment, net		1,411		2,360		5,309		6,436		7,144
Land use right		—		—		1,440		1,509		1,580
Acquired intangible assets, net		14		1,889		3,787		5,849		4,197
Deposit paid for acquisition of property, plant and equipment		—		—		91		27		403
Deferred tax assets		—		—		—		—		206
Total assets	US$	45,162	US$	158,588	US$	237,671	US$	285,042	US$	306,085
Total current liabilities		13,900		27,307		28,165		24,921		14,915
Other liabilities		145		124		—		686		249
Deferred tax liabilities		—		—		—		—		1,750
Total liabilities		14,045		27,431		28,165		25,607		16,914
Minority interests		—		582		486		204		35
Total shareholders’ equity		31,117		130,575		209,020		259,231		289,136
Total liabilities & shareholders’ equity	$	45,162	$	158,588	$	237,671	$	285,042	$	306,085

B.  Capitalization and Indebtedness

Not applicable.

C.  Reasons for the Offer and Use of Proceeds

Not applicable.

D.  Risk Factors

We wish to caution the readers that the following important factors, and those important factors described in other reports submitted to, or filed with, the Securities and Exchange Commission, among other factors, could affect our actual results and could cause our actual results to differ materially from those expressed in any forward-looking statements made by us or on our behalf. In particular, as we are a non-U.S. company, there are risks associated with investing in American Depository Shares (“ADSs”)  that are not typical with investments in shares of U.S. companies. If any of the following risks actually occurs, our business, financial condition and results of operations would likely suffer. In such case, the trading price of our ADSs could decline, and you could lose all or part of your investment.

6

Risks Related to Our Company

Recent worldwide economic downturn and crisis in the financial industry have adversely affected the demand for our products, which directly impacts our business and results of operations.

The recent systemic economic and financial crisis that has been affecting global business, banking and financial sectors has also been affecting the consumer electronic market. Our customers have altered and may continue to alter their purchasing activities in response to lack of credit, economic uncertainty and concern about the stability of markets in general, and have reduced or delayed purchases of our products and services. There could also be a number of knock-on effects from such turmoil on our business, including continued decreases in orders from our customers; insolvency of key suppliers resulting in product delays; inability of customers to obtain credit to finance purchases of our products and/or customer insolvencies; and counterparty failures negatively impacting our treasury operations. Current uncertainty in global economic conditions also poses a risk to the overall economy that could impact our ability to manage commercial relationships with our customers, suppliers and creditors. Revenues for our System-on-a-Chip (“SoC”) products have decreased by US$53.8 million, or 31.6%, from US$170.1 million in 2006 to US$116.3 million in 2007, and further decreased by US$ 21.4 million, or 18.4%, to US$94.9 million in 2008 compared to 2007.

Our customers are facing challenges in the current economic downturn. If they cannot perform their obligations to us, our financial results could suffer.

As economic conditions deteriorate, certain of our customers may face liquidity concerns and may delay or be unable to satisfy their payment obligations. We may face increased payment and performance risk in the current economic downturn from our customers. In order to promote sales, we may be required to provide extended payment terms, financing arrangements or other modified sale terms for some customers, which will increase our sales expenses and further increase our exposure to customer credit risk, all in an environment of downward pressure on average selling prices. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, more allowance for doubtful accounts may be required. Furthermore, if any of our customers become insolvent or commence bankruptcy or similar proceedings, our receivables from such customers may become uncollectible, which may lead to additional bad debt expense for us and may adversely affect our results of operations and cash flows. 

We derive almost all of our revenues from our SoCs for portable media players, and we cannot be sure that sales of these products will not decline further.

We derive almost all of our revenues from sales of our SoCs for portable media players. In 2007, the average selling price of our SoCs declined by approximately 28.8% and our units shipped decreased by 3.2% compared to 2006. In 2008, the average selling price of our SoCs declined by approximately 15.5% and our units shipped also decreased by 3.4% compared to 2007. We cannot be sure that our SoCs will continue to be successful in the markets in which we compete, or that portable media players will continue to remain popular with retail customers. Our future success depends on our ability to develop successful new products in a timely and cost-effective manner. We are required to continually evaluate expenditures for planned product developments and choose among alternatives based upon our expectations of future market trends, which are difficult to predict. For example, if market demand shifts rapidly toward portable, multifunctional electronic products such as mobile phones with add-on portable media player functionality and away from stand-alone portable media players, our sales of our SoCs for portable media players may decline. The migration and adoption of 3G mobile phone networks may also cause the embedding of portable media player functionality into mobile phones to grow in popularity as 3G technology allows audio, image and video files to be readily downloaded to mobile phones. We may not be able to compete with SoC providers that target mobile phone manufacturers by combining mobile phone and portable media player functionality into one SoC. We may not be able to timely develop and introduce new or enhanced products in a timely and cost-effective manner, keep pace with market trends, or be sure that our products will generate significant revenues. The development of our SoCs and total solutions is highly complex, and successful product development and market acceptance of our products depend on a number of factors, including:

• our accurate prediction of the changing requirements of our customers;

• our timely completion and introduction of new designs;

7

• the availability of third-party manufacturing, assembly, and testing capacity;

• the ability of our contract foundries to achieve high manufacturing yields for our products;

• the quality, price, performance, power efficiency and size of our products relative to our competitors;

• our management of our sales channels;

• our customer service capabilities and responsiveness;

• the success of our relationships with existing and potential customers; and

• changes in industry standards.

The selling prices of our products tend to decline over time, and if we are unable to develop successful new products in a timely manner, our operating results and competitive position could be harmed.

As is typical in the semiconductor industry, the selling prices of our products tend to decline significantly over the life of the product. If we are unable to offset reductions in the selling prices of our products by introducing new products at higher prices or by reducing our costs, our revenues, gross margins and operating results will be adversely affected. We must continuously develop new SoCs or other products and enhancements for existing SoCs to keep pace with evolving industry standards and rapidly changing customer requirements. We may not have the financial resources necessary to fund future innovation. Even if we have sufficient financial resources, if our future innovation produces technology that is behind that of our competitors, we may lose customers. Similarly, if our new products are ahead of the then-current technological standards in our industry, our customers may be unwilling to invest in developing consumer electronics products that can utilize our products, or purchase our SoCs, until the consumer electronics market is ready to accept them. Further, we may be required to develop products that utilize technologies with which our engineers are not familiar. Our efforts to develop in-house capability to work with these technologies or to acquire such expertise through acquisitions or investments in businesses may not be successful. If we are unable to successfully define, develop and introduce competitive new SoCs or other products, we may not be able to compete successfully. In addition, if we, or our customers, are unable to manage product transitions, our business and results of operations would be negatively affected.

Our failure to manage adequately our growth and expansion could result in deterioration in our results of operations and financial condition.

We have grown rapidly since establishing our operations in December 2001. This expansion presented, and our anticipated growth in the future may continue to present, a significant challenge to our management and administrative systems and resources and, as a result, to our results of operations and financial condition. Our future success will depend on, among other things, our ability to:

• effectively maintain and service our existing customer relationships while developing new value-added distributor, contract manufacturer and brand owner customers;

• continue training, motivating and retaining our existing employees and attract and integrate new technical, engineering and sales and marketing employees;

• identify and attract new management personnel to our company as we continue to expand;

• protect our intellectual property effectively;

• integrate new businesses, technologies, services and products that we acquire by way of acquisitions or investments into our operations;

• effectively manage our capital expenditures and working capital requirements;

8

• maintain and further improve our operational, financial, accounting and other internal systems and controls; and

• maintain adequate controls and procedures to ensure that our periodic public disclosure under applicable laws, including U.S. securities laws, is complete and accurate.

Any failure to achieve and maintain effective internal controls could have a material adverse effect on our business, results of operations and the market price of our ADSs.

We are subject to reporting obligations under the United States securities laws. The Securities and Exchange Commission, or the SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, adopted rules requiring every public company to include a management report on such company’s internal controls over financial reporting in its annual report, which contains management’s assessment of the effectiveness of the company’s internal controls over financial reporting. In addition, an independent registered public accounting firm must attest to and report on the effectiveness of the company’s internal controls over financial reporting.

Our management and independent registered public accounting firm have concluded that our internal controls as of December 31, 2008 are effective. However, we cannot assure you that in the future we or our independent registered public accounting firm will not identify material weaknesses during the Section 404 of the Sarbanes-Oxley Act audit process or for other reasons. In addition, because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. As a result, if we fail to maintain effective internal controls over financial reporting or should we be unable to prevent or detect material misstatements due to error or fraud on a timely basis, investors could lose confidence in the reliability of our financial statements, which in turn could harm our business, results of operations and negatively impact the market price of our ADSs, and harm our reputation. Furthermore, we have incurred and expect to continue to incur considerable costs and to use significant management time and other resources in an effort to comply with Section 404 and other requirements of the Sarbanes-Oxley Act.

Because of the lengthy product development periods for our products and the headcount driven nature of a significant portion of our expenses, we may incur substantial expenses before we earn associated revenues and may not ultimately achieve our forecasted sales for our products.

It can take nine to 18 months for us to design, develop and commence production of our products, and commercial production of consumer end-products that use our SoCs can take an additional two to six months. Product development cycles for our products are lengthy for a number of reasons:

• our customers usually complete an in-depth technical evaluation of our products before they place a purchase order;

• the commercial adoption of our products by value-added distributors, contract manufacturers and brand owners is typically limited during the initial release of their new products while they evaluate product performance and consumer demand;

• new product introductions often center around key trade shows and failure to deliver a product prior to such an event can seriously delay or cancel introduction of a product; and

• the development and commercial introduction of products incorporating new technology frequently are delayed or canceled.

Because most of our expenses are associated with our headcounts by nature or incurred in advance of anticipated sales, we may not be able to decrease our expenses in a timely manner to offset any shortfall in sales. We are currently expanding our staffing and increasing our expenditures to support future growth, which may increase our cost of revenues and operating expenses. If our growth does not materialize, our operating results would be adversely impacted.

As a result of the time it takes to begin commercial production and sales of a new product, and the fact that a significant portion of our operating expenses are driven primarily by the personnel compensation or incurred in advance of anticipated sales, we may incur substantial expenses in developing new products before we earn associated revenues. For example, we incurred significant development expenses in late 2004 and early 2005 in connection with our ATJ2097 series SoCs, while we were not able to introduce this product to the market until June 2005.Similarly, we incurred significant development expenses in 2005, 2006 and 2007 in connection with the development of our new Series 13 SoCs, and we were not able to rollout these products smoothly due to the complexity of integrating firmware on the complicated MIPS structure. In addition, as the markets for the end products that incorporate our products are rapidly evolving and subject to changing consumer preferences, the products we design may not be in demand by our customers at the time we complete our product development process. As a result, the total sales volume of Series 13 SoCs in 2008 was only 2.4 million units. This could cause us to miss the sales targets we set for these products when we commence development activities and we may not be able to decrease our operating expenses in a timely manner to offset such short-fall in sales, which would adversely affect our results of operations.

9

We currently rely on one third-party contractor to manufacture almost all of our SoC products; any event that prevents this foundry from producing our products, or our failure to successfully manage our relationship with this foundry, could damage our relationships with our customers, decrease our sales, and limit our growth.

We do not own or operate a semiconductor fabrication facility. Instead we rely on third-parties to manufacture our semiconductors. Presently, He Jian Technology Company, or He Jian, manufactures almost all of our semiconductors. As a result, if He Jian were to experience any catastrophic or other event that caused it to be unable to conduct manufacturing operations, or otherwise choose to discontinue manufacturing our products, it could have a significant adverse impact on our ability to sell our products. While we have in the past utilized, and continue to maintain relationships with, other contract foundries to have access to alternative manufacturing capabilities, we cannot be sure that these other contract foundries would be willing or have the capacity to produce our products. Even if such other foundries were willing to produce semiconductors for us, they may be unable to provide us with the same committed capacity, or be able to manufacture our semiconductors with the same yield rate, as we currently have with He Jian. As a result, we depend significantly on maintaining a strong relationship with He Jian, and He Jian’s continued ability to manufacture our semiconductor products, to maintain our revenues and customer relationships.

We provide He Jian with monthly rolling forecasts of our production requirements; however, the ability of He Jian to provide silicon wafers to us is limited by He Jian’s available capacity. Moreover, the price of our silicon wafers fluctuates based on changes in available industry capacity. We do not have a long term supply contract with He Jian or any other contract foundry. Therefore, He Jian could choose to prioritize capacity for other customers, reduce or eliminate deliveries to us on short notice or increase the prices they charge us. Accordingly, we cannot be certain that He Jian or any other contract foundry will allocate sufficient capacity to satisfy our requirements. If we are unable to obtain foundry capacity as required, we may experience delays in our ability to deliver our products, which would harm our relationships with our existing customers and result in decreased sales. There are additional risks associated with our reliance on third-party contractors, including:

• their inability to increase production and achieve acceptable yields on a timely basis;

• reduced control over delivery schedules and product quality;

• increased exposure to potential misappropriation of our intellectual property;

• limited warranties on wafers or products supplied to us;

• shortages of materials that foundries use to manufacture our products;

• labor shortages or labor strikes; and

• actions taken by our third-party contractors that breach our agreements.

We may experience difficulties in transitioning to smaller process geometry technologies or in achieving higher levels of design integration, which may result in reduced manufacturing yields, delays in product deliveries and increased expenses.

In 2008, we successfully completed the migration from 0.18 micron to 0.162 micron. We are currently further transitioning our SoCs for portable media players from 0.162 micron to 0.13 micron processing technology in order to continue to satisfy our customers’ demands and to maintain our competitiveness.This transition requires us to redesign some products and integrated circuit designs that we use in multiple products, and will require our contract foundries to modify the manufacturing processes they use to produce our products. In addition, we will incur significant engineering costs and the attention of our engineering personnel will be diverted from other product development efforts during this transition. In the past, we have experienced some difficulties in shifting to smaller process geometry technologies or new manufacturing processes, which resulted in periods of reduced manufacturing yields, delays in product deliveries and increased expenses. We may face similar difficulties, delays and expenses as we continue to transition our products to smaller micron process geometry.

10

In addition, we will depend on our contract foundries to transition to smaller process geometries successfully. Our contract foundries may not be able to effectively manage this transition. If our contract foundries or we experience significant delays in this transition or fail to efficiently implement this transition, we could experience reduced manufacturing yields, delays in product deliveries and increased expenses, all of which could harm our relationships with our customers and our results of operations. As smaller process geometries become more prevalent, we expect to continue to integrate greater levels of functionality, as well as customer and third-party intellectual property, into our products. However, we may not be able to achieve higher levels of design integration or deliver new integrated products on a timely basis, or at all. Further, we cannot be sure that integrating greater functionality into an SoC will result in a corresponding increase in selling price.

Because our customers are able to change or cancel orders on relatively short notice, we could unexpectedly lose anticipated sales.

The lengthy product development periods for our products make forecasting the volume and timing of orders difficult. In addition, the delays inherent in lengthy product development periods raise additional risks that customers may cancel or change their orders. Because industry practice allows contract manufacturers and brand owners to reschedule or cancel orders on relatively short notice, backlog and customer forecasts are not always good indicators of our future sales. If customers reduce or cancel their orders, it could result in the loss of anticipated sales without allowing us sufficient time to reduce our inventory and operating expenses. Further, because our sales are made by means of standard purchase orders rather than long term contracts, our customers may not continue to purchase our products at current levels, or at all.

We depend on a few key customers for a substantial majority of our sales and the loss of, or a significant reduction in orders from, any of them would likely significantly reduce our revenues.

In 2006, 2007 and 2008, sales to our top five customers accounted for approximately 64%, 59% and 69% of our revenues, respectively. Our operating results in the foreseeable future will likely continue to depend on sales to a relatively small number of customers, as well as the ability of these customers to sell products that use our SoCs and solution development kits. Our revenues would likely decline if one or more of these customers were to significantly reduce, delay or cancel their orders for any reason. In addition, any difficulty in collecting outstanding amounts due from our customers, particularly customers who place large orders, would harm our financial performance.

Many of our key customers are value-added distributors, who integrate our products into a system platform and sell that system platform to contract manufacturers. We also sell some of our products directly to contract manufacturers. Growth in our business will depend on our ability to maintain and expand our relationships with both value-added distributor customers and contract manufacturer customers. However, some of our value-added distributor customers may also carry and sell product lines that are competitive with ours. As these customers are not required to maintain a specified minimum level of purchases from us, we cannot be sure that they will prioritize selling our products. As we continue to expand our sales capabilities, we will also need to manage the potential conflicts that may arise between us and our value-added distributor customers. Further, we rely on our customers to accurately and timely report to us their sales of our products and to provide certain engineering support services to the brand owners who market and distribute the end products to consumers. Our inability to obtain accurate and timely reports and to successfully manage these relationships would adversely affect our business and financial results.

If our products are not manufactured with satisfactory yields or quality, our sales could decrease, and our relationships with our customers and our reputation may be harmed.

Minor deviations in the semiconductor manufacturing process can cause substantial decreases in yields, and in some cases, cause production to be suspended. We establish a minimum yield with our foundries at the time our products are qualified. If actual yield at the foundry is below the minimum, the foundry incurs the cost of the wafers, and if actual yield is above the minimum, we incur the cost. However, the fact that a contract foundry is achieving minimum yields on a product does not mean that the yield is sufficient to allow us to maintain or increase our profits on that product. Further, even though if a contract foundry is responsible for yield losses we incur on a particular shipment of SoCs, these yield losses could cause us to delay shipments to our customers and damage our relationship with them.

The manufacturing yields for our new products tend to be lower initially and increase as the contract foundry achieves full production. For example, it took us nine months to increase the yield of our Series 8 SoCs from 67% to 90%, it took us only one full month to increase the yield of our ACU 75 series SoCs from 68% to 87%, but again it took us seven months to increase the yield of our Series 13 products from 69% to 85%.Our product pricing is based on the assumption that increases in manufacturing yields will continue, even with the increasing complexity of our semiconductors. However, we may experience fluctuations in the manufacturing yield in some cases and thus may be unable to sustain as high and improving yield level as we expected. Furthermore, shorter product life cycles require us to develop new products faster and require our contract foundry to manufacture these products in shorter periods of time. In some cases, these shorter manufacturing periods may not reach the high volume manufacturing periods conducive to higher manufacturing yields and declining costs. If our contract foundry fails to deliver fabricated silicon wafers of satisfactory quality in the volume and at the price required, we may be unable to meet our customers’ demand for our products or to sell those products at an acceptable profit margin, which would adversely affect our sales and margins and damage our customer relationships.

11

Our products are complex and may require modifications to resolve undetected errors or failures in our hardware and software, which could lead to an increase in our costs, a loss of customers or a delay in market acceptance of our products.

 Our SoCs and total solutions are complex and may contain undetected hardware and software errors or failures when first introduced or as new versions are released. These errors could cause us to incur significant re-engineering costs, divert the attention of our engineering personnel from product development efforts and harm both our customer relations and business reputation. If we deliver products with errors, defects or bugs, our credibility and the market acceptance and sales of our products could be harmed. For example, we experienced a delay in the introduction of our ATJ225X series SoCs, due to the need to revise a part of our design to improve the electrostatic discharge (ESD) protection capability, whichcould have caused a low production yield rate during our customers’ manufacture process if not fixed. We provide warranties for product defects under which we must collect and replace defective goods upon receipt of notice from our customers. Increased claims under these warranties would increase our costs and adversely affect our profitability. Defects could also lead to liability as a result of lawsuits against us or against our customers.

Our products are manufactured among several sites throughout China. Failure to deliver the work-in-process in time from one site to another may lead to higher operation costs, decrease in sales and unfavorable reputation and customer services.

Our principle operation center and our third-party manufacturing partners such as foundry service providers, testing houses and packing subcontractors are all located throughout China. The distance between two manufacturing sites is significant and the delivery of raw material, work-in-process, and finished goods relies on the land-carriage and air-express, which are restricted by the weather and transportation conditions. Any delay in delivery could have a negative effect on our operations and may lead to higher cost of operation, decreases in sales, reputational damages and hurt our relationships with our customers.

Our principal contract foundry, other subcontractors and many of our customers are located in the Pacific Rim, an area subject to significant risk of snowstorms, earthquakes, typhoons, and adverse consequences related to the outbreak of SARS (Severe Acute Respiratory Syndrome), avian influenza and other public health concerns.

The principal contract foundry that manufactures our products and all of the principal subcontractors that assemble, package, and test our products are located in either China, Hong Kong, or Taiwan. Many of our customers are also located in these areas. The risk of snowstorms, earthquakes, typhoons and other natural disasters in these Pacific Rim locations is significant. The occurrence of an earthquake or other natural disaster near our principal contract foundry or subcontractors could result in damage, power outages and other disruptions that impair their production and assembly capacity. Any disruption resulting from such events could cause significant delays in the production or shipment of our products until we are able to shift our manufacturing, assembling, packaging or production testing from the affected contractor to another third-party vendor. For example, in January and February of 2008, China’s worst snowstorm in more than half a century had a significant adverse impact on the transportation and the economy of China, where airports were closed, overland transport systems were paralyzed and the crash of the electric grid blacked out several cities. In May 2008, a major earthquake occurred with its epicenter in Sichuan, China. The earthquake caused over 69,000 known deaths and an estimated property damage in excess of US$20 billion. Also, the 2003 outbreak of SARS curtailed travel to and from certain countries (primarily in the Asia-Pacific region) and limited travel and consumer activities within those countries, which had a significant adverse effect on the economies of many countries in this region. In addition, since 1997, certain Asian countries, including China, have, from time to time, encountered incidents of avian influenza that resulted in several confirmed human cases and deaths. Any future outbreaks of SARS, avian influenza or other public health concerns could exert a significant negative impact on the economy in China and the Asia-Pacific region.

We may experience significant period-to-period quarterly and annual fluctuations in our revenues and operating results, which may result in volatility in our stock price.

The industry in which we operate is highly cyclical and is currently experiencing an unprecedented downturn which has negatively impacted our business. Currently, this industry is experiencing a dramatic and unprecedented decline in demand for semiconductor devices due to the worldwide economic downturn. The unprecedented nature of the current global financial crisis and economic downturn may result in changes in the semiconductor industry and the manner in which we must conduct our business, in ways that cannot now be predicted.

We may also in the future experience significant period-to-period fluctuations in our revenues and operating results. It is possible that our revenues and operating results in some quarters may be below market expectations, which would cause the value of our ordinary shares and ADSs to decline. Our quarterly and annual operating results are affected by a number of factors, including:

12

• the unpredictable timing and volume of purchase orders and cancellations from our customers;

• the rate of acceptance of our products by our customers;

• the rate of growth of the market for portable media players and our SoCs;

• fluctuation and seasonality in demand for consumer electronics products;

• increases in prices charged by contract foundries and other third-party subcontractors;

• the availability of third-party foundry capacity;

• the availability and pricing of other components used in our customers’ products, including NAND Flash and TFT-LCD panel;

• fluctuations in our contract foundry’s manufacturing yields;

• the difficulty of forecasting and managing our inventory and production levels;

• our ability to successfully develop, introduce and sell new or enhanced products;

• additions or departures of key personnel;

• our involvement in litigation;

• natural disasters, particularly earthquakes, snowstorms or disease outbreaks affecting countries in which we conduct our business or in which our products are manufactured, assembled, or tested; and

• the evolution of industry standards and introduction of new products by our competitors.

Any variation in our period-to-period performance may cause our stock price to fluctuate.

Because the markets in which we compete are highly competitive and many of our competitors have greater resources than us, we cannot be certain that our products will compete successfully and we may lose or be unable to gain market share.

We face competition from a relatively large number of competitors in China and internationally. In the portable media player market, our principal competitors include ALi, Anyka, Buildwin, Freescale, Grain Media, Rockchips, Samsung, Silicon Motion, Sino Wealth, Sunplus and Telechips. As we diversify and expand our product categories, we may also face competition from other semiconductor companies and manufacturers of consumer electronics and mobile devices. We expect to face increased competition in the future from our current and emerging competitors. In addition, some of our customers have developed and other customers could develop technology or products internally that could replace their need for our products or otherwise reduce demand for our products. Our customers may also enter into strategic relationships with or acquire existing semiconductor design houses.

The consumer electronics market, which is the principal end market for our SoCs, has historically been subject to intense price competition. In many cases, low cost, high volume producers have entered markets and driven down profit margins. If a low cost, high volume producer should develop products that are competitive with our products, our sales and profit margins would suffer.

Some of our potential competitors may have longer operating histories, greater name recognition, access to larger customer bases and significantly greater financial, sales and marketing, manufacturing, distribution, technical and other resources than us. As a result, they may be able to respond more quickly to changing customer demands or to devote greater resources to the development, promotion and sales of their products than we can. Our current and potential competitors may develop and introduce new products that will be priced lower, provide superior performance or achieve greater market acceptance than our products. In addition, in the event of a manufacturing capacity shortage, these competitors may be able to obtain capacity when we are unable to do so. Furthermore, our current or potential competitors have established, or may establish, financial and strategic relationships among themselves or with existing or potential customers or other third-parties to increase the ability of their products to address the needs of our prospective customers. Accordingly, it is possible that new competitors or alliances among competitors could emerge and rapidly acquire significant market share, which would harm our business. If we fail to compete successfully, our business will suffer and we may lose or be unable to gain market share.

13

Our business may be severely disrupted if we lose the services of our key executives and employees or fail to add new senior and mid-level managers to our management.

Our future success is heavily dependent upon the continued service of our board of directors and key executives. Our future success is also dependent upon our ability to attract and retain qualified senior and mid-level managers to our management team. If one or more of our key executives and employees are unable or unwilling to continue in their present positions, we may not be able to easily replace them, and our business may be severely disrupted. In addition, if any of these key executives or employees joins a competitor or forms a competing company, we could lose customers and suppliers and incur additional expenses to recruit and train personnel. We do not maintain life insurance for any of our key executives.

We also rely on a number of key technology staff for the operation of our company. Given the competitive nature of our industry, the risk of key technology staff leaving our company is high and losses of significant numbers of technology staff could disrupt our operations. Our inability to retain and attract qualified technical personnel in the future, or delays in hiring additional such personnel, could make it difficult to meet key objectives, such as timely and effective product introductions.

We may not be able to successfully execute future acquisitions or investments or manage or effectively integrate any acquired business, technologies or teams.

We seek to acquire or invest in businesses that are complementary to ours. This may require a significant commitment of management time, capital investment and other management resources. We cannot assure you that we will be successful in identifying and negotiating acquisitions or investments on terms favorable to us. If we are unable to execute, manage or integrate our acquisitions and investments effectively, our growth, operating results and financial condition may be materially and adversely affected.

We have limited business insurance coverage and may be subject to losses that might not be covered by existing insurance coverage.

The insurance industry in China is still at an early stage of development. Insurance companies in China offer limited business insurance products. As a result, we do not have business liability or disruption insurance coverage for our operations. Any business disruption, litigation or natural disaster might result in substantial costs and diversion of resources.

We believe we are a “passive foreign investment company” (“PFIC”), for U.S. federal income tax purposes, for calendar year 2008 and in future years. Assuming the Company is treated as a PFIC, U.S. investors in the ADSs will be subject to certain adverse U.S. federal income tax rules.

We believe we are a PFIC, as that term is defined in Section 1297 of the U.S. Internal Revenue Code of 1986, as amended, for calendar year 2008 and believe we will be a PFIC in the foreseeable future. Consequently, this classification may result in adverse tax consequences, for U.S. holders. See the discussion about taxation in Item 10 of this Annual Report. U.S. shareholders and prospective holders of our ADSs are encouraged to consult their own tax advisers.

Risks Related to Intellectual Property

We or our customers may be exposed to infringement claims on intellectual property rights by third-parties.

Third-parties, including our competitors, may in the future make claims or initiate litigation that assert patent, copyright, trademark and other intellectual property rights in technologies, related standards and product names that are relevant to us. As we continue to expand our operations and the number of products we manufacture, the risk of such claims may increase. In addition to making claims against us, third-parties may make claims against our customers that incorporate our SoCs into their products. Such actions could adversely affect our relationships with such customers and hurt our sales. The large number of patents in the semiconductor industry, the confidential treatment of some pending patent applications and the rapid rate of issuance of new patents make it neither economically feasible nor possible to determine conclusively in advance whether a product, any of its components, its method of manufacture or use, or its ornamental design, currently infringes or will in the future infringe upon the patent rights of others. Parties making infringement claims may be able to obtain an injunction that could prevent us from selling our products or using technology that contains the allegedly infringing intellectual property, which could have a material negative effect on our business. Third-parties making infringement claims may also be able to bring an action before the ITC that could result in an order stopping the importation into the United States of our products or bring similar actions in other parts of the world. Further, in addition to claims that may be made directly against us, we may be named in infringement actions made against our manufacturers, suppliers or customers. Some of our customer contracts provide that we indemnify the customer against claims of infringement based on our products. Regardless of the merit of these claims, they can be time-consuming, and result in costly litigation and divert the attention of our technical and management personnel.

14

To resolve any claim made against us, we may be required to develop alternative non-infringing technology or obtain a license for the relevant intellectual property, each of which could be costly and time consuming. Licenses may not be available to us on commercially reasonable terms and conditions, or at all. We might also be required to cease using the trademark or trademarks under which our products were being marketed and sold. If any infringement or other intellectual property-based claim made against us by any third-party is successful, or if we fail to develop non-infringing technology or license the proprietary rights on commercially reasonable terms and conditions, our business, financial condition and results of operations could be materially and adversely affected.

We rely upon third-party licensed technology to develop our products. If licenses of third-party technology do not continue to be available to us or become very expensive, our ability to develop and introduce new products could be negatively impacted.

We integrate third-party software or other licensed technology into almost all of our products. From time to time, we may be required to license additional technology from third-parties to develop new products or product enhancements. However, these third-party licenses may not be available to us on commercially reasonable terms or at all. Further, some of our existing licenses can be terminated without cause by the licensor. Our inability to maintain existing licenses on reasonable terms, or obtain additional licenses necessary to develop new products and product enhancements, could require us to obtain substitute technology at a greater cost or of lower quality or performance standards or delay product development. Any of these results may limit our ability to develop new products that utilize the latest technologies, which could harm our business, financial condition and results of operations.

Our products are designed for use in devices manufactured by our customers that comply with international standards. These international standards are often covered by patents or copyrights held by third-parties, which may include our competitors. Before we design our products, we discuss with our customers the proprietary technologies that we must incorporate into our SoCs and the international standards that our SoCs must meet to function in the targeted portable media player products. We then obtain licenses required to incorporate each of those proprietary technologies into SoCs that meet these standards. The combined costs of identifying and obtaining licenses from all holders of patents and copyrights essential to such international standards could be high and could reduce our profitability or increase our losses. The cost of not obtaining such licenses could also be high if a holder of such patent or copyrights brings a claim for patent or copyright infringement. Any claims for indemnification that may be made could have a material adverse effect on our business, financial condition and results of operations.

Our rights to the intellectual property we develop may be difficult to enforce.

We generally rely on patent, copyright, trademark, trade secret and other intellectual property laws to establish and protect the proprietary rights in our know-how, technology, products, and product names. As of December 31, 2008, we hold 23 issued patents and have 82 patent applications pending in the mainland of China and we have three pending patent applications under the Patent Cooperation Treaty, or PCT. We also have 11 proprietary rights granted for layout-design of integrated circuits, eight registered trademarks and 29 trademark applications pending in the mainland of China. In addition, we also hold four registered trademarks in Hong Kong, four registered trademarks in Taiwan, two registered trademarks in the United States, one registered trademark in the European Union and one registered trademark in India. We also have an aggregate of 27 trademark applications pending in Hong Kong, Taiwan, the United States, European Union, Russia, Korea, Japan, Canada, Brazil, India and Singapore. The applications may not be granted, or if granted, may be challenged, invalidated, or circumvented by others. Further, we cannot be sure that any rights granted under patents, trademarks, copyrights or proprietary rights that are issued or registered will be sufficient to protect our technology or will in fact provide competitive advantages to us. If we are unable to protect the key intellectual properties that we develop and use in our products, our ability to compete effectively may be diminished.

Our success also depends on our other rights in proprietary technology. We rely on a combination of copyright, trade secret, trademark and contractual protection to establish and protect our proprietary rights that are not protected by patents, and we also typically enter into confidentiality agreements with our employees and consultants. We require our customers to enter into confidentiality and nondisclosure agreements before we disclose any sensitive aspect of our platforms, technology or business plans. Despite our efforts to protect our proprietary rights through confidentiality and licensing agreements, unauthorized parties may attempt to copy or otherwise obtain and use our platforms or technology. It is difficult to monitor unauthorized use of technology, particularly in China and other developing countries. In addition, our competitors may independently develop technology similar to ours. Our precautions may not prevent misappropriation or infringement of our intellectual property.

15

From time to time, we may have to resort to litigation to enforce our intellectual property rights, which could result in substantial costs and diversion of our resources. Even where we take such actions, we cannot assure you that we will be successful or that our rights will be protected. Further, our headquarters, manufacturing operations and the principal market of most of our products are located in China. Our efforts to protect our proprietary rights could be ineffective in China where the laws may not protect proprietary rights as effectively as the laws do in other countries such as the United States.

Our intellectual property indemnification practices may adversely impact our business.

From time to time, we may be required to indemnify our customers for certain costs and damages of patent and copyright infringement in circumstances where our product is the factor creating the customer’s infringement exposure. This practice may subject us to significant indemnification claims by our customers and may adversely impact our business. 

Risks Related to our Industry

Demand for our products is highly dependent on the consumer electronics market, which is characterized by short product life cycles and subject to risks related to product transitions and supply of other components.

We derive almost all of our revenues from a limited number of products that are used in consumer electronic devices. The consumer electronics market is characterized by intense competition, rapidly changing technology, and continuously evolving consumer preferences. These factors result in the frequent introduction of new products, short product life cycles and significant price competition. The dynamic nature of this market limits our, as well as our customers’ , ability to accurately forecast quarterly and annual sales. If we or our customers are unable to manage product transitions, our business and results of operations could be negatively affected. In addition, we are subject to the risk of supply problems for other components, such as flash memory, that our customers require for manufacturing the consumer end product. For example, if our customers are unable to obtain sufficient supplies of other key components in their portable media players, the sales of our products that are also used in such devices would be adversely affected. A decrease in demand for consumer electronics will also decrease demand for our products, which will adversely affect our business and results of operations.

The availability of digital media content may affect demand for our products.

The demand for portable media players may be adversely impacted by the enforcement of limits on file sharing and downloadable media content. The major record labels are pursuing ways to curb consumer downloading of music from the Internet without paying any fees or royalties to the owners of that music. In particular, the Recording Industry Association of America, a recording industry trade group, has sued numerous individuals for distributing copyrighted songs over the Internet. Most recently, the U.S. Supreme Court ruled that distributors of software for sharing music and video files may be held responsible for theft if their intent was to encourage users to illegally trade copyrighted files. This may cause websites offering such software to cease operating. If the record labels, other music or video producers, or other parties are successful in limiting the ability of consumers to obtain free music or videos on the Internet, the demand for consumer electronic devices such as portable media players that use our products may decline, which in turn could harm our business, financial condition and results of operations.

We are subject to the highly cyclical nature of the semiconductor industry.

The semiconductor industry is highly cyclical. The industry has experienced significant downturns, often in connection with, or in anticipation of, maturing product life cycles (of both semiconductor companies’ and their customers’ products) and declines in general economic conditions. These downturns have been characterized by production overcapacity, high inventory levels and accelerated erosion of average selling price. Currently, the semiconductor industry is experiencing a dramatic and unprecedented decline in demand for semiconductor devices due to the worldwide economic downturn. The unprecedented nature of the current global financial crisis and economic downturn may result in changes in the semiconductor industry and the manner in which we must conduct our business, in ways that cannot now be predicted. If the global economic crisis continues unabated, we anticipate our results of operations may be materially and adversely affected for a prolonged period of time. From time to time, the semiconductor industry also has experienced periods of increased demand and production capacity constraints. We may experience substantial changes in future operating results due to semiconductor industry conditions, general economic conditions and other factors.

The industry standards supported by our products are continually evolving, and our success depends on our ability to adapt our products to meet these changing industry standards.

Our ability to compete in the future will depend on our ability to ensure that our products comply with changing industry standards. The emergence of new industry standards could render our products incompatible with products developed by our customers. As a result, we could be required to invest significant time and effort and to incur significant expense to redesign our products to ensure compliance with relevant standards. If our products do not comply with prevailing industry standards for a significant period of time, we could miss opportunities to achieve crucial product introductions. We may invest substantial effort and expense in developing or using new technologies or in developing new products or product enhancements, but such effort and expense may not result in market acceptance of our products.

16

Risks Related to Doing Business in China

Taiwan regulations and recent changes in the policies of the Investment Commission in Taiwan relating to the involvement of Taiwanese persons in companies that have direct and indirect investments in the PRC may limit our ability to retain certain employees and members of our management.

Pursuant to various Taiwan regulations promulgated by Taiwan’s Ministry of Economic Affairs, Investment Commission, or IC, no Taiwanese person or entity established under the laws of Taiwan, which we refer to as Taiwanese Persons, may invest, directly or indirectly, in a PRC entity unless the investment complies with certain regulations and policies relating to restrictions on investment and participation in investments in PRC companies, which we refer to as the PRC Investment Regulations, and is approved by the IC, or, in limited circumstances, a report to the IC has been filed. Furthermore, the IC has prohibited investments by Taiwanese Persons in certain industries in the PRC, including the semiconductor design industry and certain sectors of the semiconductor manufacturing industry. Under the PRC Investment Regulations, if (a) a Taiwanese Person invests in a non-Taiwan entity, or NTE, that invests in a PRC entity, and (b) such Taiwanese Person has “control and influence” over the NTE, that Taiwanese Person will be deemed to have made an indirect investment in the PRC and must abide by the PRC Investment Regulations. According to a press release issued by the IC on June 14, 2005, a Taiwanese Person will be deemed to have control and influence over the NTE if (i) that Taiwanese Person holds more than 5% of the equity of the NTE or is the largest shareholder of the NTE; (ii) the investment amount made by that Taiwanese Person in the NTE is over US$200,000; or (iii) that Taiwanese Person acts as a director, supervisory director or president of the NTE. Taiwanese Persons who violate these regulations and policies may be subject to both civil and even criminal sanctions in Taiwan.

Certain of our employees and management are Taiwanese Persons. The Taiwan government may interpret its current regulations and policies, or the Taiwan government may change or amend its regulations and policies in this area, such that it considers one or more of our employees and management as having inappropriate control and influence. Such employee or manager, including our chief executive officer, could be required to leave the company or be subject to sanctions by the Taiwan Government.

A slowdown in the growth of the Chinese economy may slow down our growth and profitability. 

Our business is primarily dependent upon the economy and the business environment in China. In particular, our growth strategy is based upon the assumption that demand in China for portable media players will continue to grow with the Chinese economy. However, the growth of the Chinese economy has been uneven across geographic regions and economic sectors. Several years ago, the Chinese economy also experienced deflation, which may reoccur in the foreseeable future. There can be no assurance that growth of the Chinese economy will be steady, uniform or that any slowdown will not have a negative effect on our business.

China’s legal system is characterized by uncertainty that could negatively impact our business and results of operations.

The Chinese legal system is a civil law system based on written statutes. Unlike common law systems, it is a system in which decided legal cases have little value as precedent. Beginning in 1979, the PRC government promulgated a comprehensive system of laws and regulations governing economic matters, which has had the overall effect of significantly enhancing the protections afforded to foreign invested enterprises in China. However, these laws, regulations and legal requirements are relatively new and are evolving rapidly, and their interpretation and enforcement involve uncertainties. These uncertainties could limit the legal protections available to foreign investors. In addition, enforcement of existing laws, or contracts based on existing law, may be uncertain and sporadic, and it may be difficult to obtain swift and equitable enforcement or to obtain enforcement of a judgment by a court of another jurisdiction. The relative inexperience of China’s judiciary in many cases creates additional uncertainty as to the outcome of any litigation. Furthermore, interpretation of statutes and regulations may be subject to new government policies reflecting domestic political changes.

Our activities in China will be subject to administrative review and approval by various national and local agencies of the PRC government. Because of the changes occurring in China’s legal and regulatory structure, we may not be able to secure the requisite governmental approval for our activities. Failure to obtain the requisite governmental approval for any of our activities could adversely affect our business and results of operations.

17

Any recurrence of SARS or another widespread public health problem, such as the emergence of an avian influenza, could negatively impact our business and results of operations.

A renewed outbreak of SARS, avian influenza or another widespread public health problem in China and Hong Kong, where substantially all of our revenue is derived and where our operations are located, could have a negative effect on our operations. Our operations may be impacted by a number of health-related factors, including the following:

•  quarantines or closures of some of our offices which would severely disrupt our operations;

•  the sickness or death of our key officers and employees; and

•  a general slowdown in the Chinese economy.

Any of the foregoing events or other unforeseen consequences of public health problems could adversely affect our business and results of operations.

Changes in China’s political and economic policies could negatively impact our business.

Substantially all of our business operations are conducted in China. Accordingly, our results of operations, financial condition and prospects are subject in a significant degree to the economic, political and legal developments in China. China’s economy has historically been a planned economy subject to governmental plans and quotas and has, in certain aspects, been transitioning to a more market-oriented economy. Although we believe that the economic reform and the macroeconomic measures adopted by the PRC government have had a positive effect on the economic development of China, we cannot predict the future direction of these economic reforms or the effects these measures may have on our business, financial position or results of operations. In addition, the Chinese economy differs from the economies of most countries belonging to the Organization for Economic Cooperation and Development, or OECD. These differences include:

• economic structure;

• level of government involvement in the economy;

• level of development;

• level of capital reinvestment;

• control of foreign exchange;

• methods of allocating resources; and

• balance of payments position.

As a result of these differences, our business may not develop in the same way or at the same rate as might be expected if the Chinese economy were similar to those of the OECD member countries.

Restrictions on foreign currency exchange may limit our ability to receive and use our revenues effectively.

Any future restrictions on currency exchanges may limit our ability to use revenues generated in Renminbi to fund our business activities outside China or to make dividend or other payments in U.S. dollars or other foreign currencies. Although the PRC government introduced regulations in 1996 to allow greater convertibility of the Renminbi for current account transactions, significant restrictions still remain, including primarily the restriction that foreign invested enterprises may only buy, sell and/or remit foreign currencies at those banks authorized to conduct foreign exchange business after providing valid commercial documents. In addition, remittance of foreign currencies abroad and conversion of Renminbi for capital account items, including direct investment and loans, is subject to governmental approval in China, and companies are required to open and maintain separate foreign exchange accounts for capital account items. We cannot be certain that the Chinese regulatory authorities will not impose more stringent restrictions on the convertibility of the Renminbi, especially with respect to foreign exchange transactions.

Changes in the preferential tax treatments we currently enjoy in the PRC may have an adverse impact on our results of operations.

On March 16, 2007, the National People’s Congress passed a new Enterprise Income Tax Law. The new PRC Enterprise Income Tax Law, effective January 1, 2008, imposes a single uniform income tax rate of 25% for most domestic enterprises and foreign-invested enterprises. It contemplates various transition periods and measures for existing preferential tax policies, including among others, a grace period for as long as five years for foreign-invested enterprises which are currently entitled to a lower income tax rate, and continued implementation of preferential tax treatment with a fixed term until the expiration of such fixed term.

18

Each of our principal and major PRC subsidiaries, Actions Semiconductor (Zhuhai) and Artek Microelectronics (Shenzhen), respectively, is a foreign invested enterprise operating in a designated economic zone. Actions Semiconductor (Zhuhai) benefited from a 7.5% preferential enterprise income tax rate for the year ended December 31, 2007, and 9.0% for the year ended December 31, 2008. Artek Microelectronics (Shenzhen) is exempted from income tax duty for the years ended December 31, 2007 and 2008. We expect that our overall tax payment will increase in 2009 and will further increase following the expiry of the above preferential tax treatment in December 2011.

We may be deemed a Chinese resident enterprise under the new PRC Enterprise Income Tax Law and be subject to the PRC taxation on our worldwide income.

Under the new PRC Enterprise Income Tax Law, effective January 1, 2008, if any enterprise incorporated outside the PRC has its “de facto management body” located within the PRC, such enterprise may be recognized as a PRC tax resident enterprise and be subject to the unified enterprise income tax rate of 25%. On December 6, 2007, the Implementation Rules of the Enterprise Income Tax Law were promulgated. It defined the “de facto management body” as an organization actually managing and controlling an enterprise’s production, operation, personnel, finance and assets. We cannot rule out the possibility that we and/or certain of our subsidiaries that are not incorporated in the PRC may be considered as PRC tax resident enterprises by the PRC taxation authorities in the future. According to the new Enterprise Income Tax Law, dividends received by a PRC tax resident enterprise from another PRC tax resident are exempted from Enterprise Income Tax except for the dividends derived from publicly issued and traded shares of a resident enterprise that are held for less than 12 consecutive months. However, given the short history of the new Enterprise Income Tax Law, it remains unclear how the resident enterprise provision will be implemented in practice with respect to overseas holding companies and whether we, Actions Semiconductor Co., Ltd., and/or our overseas holding companies will be treated as PRC tax resident enterprises or, if so, whether dividends declared and paid by our subsidiaries in the PRC to our overseas holding companies and by our overseas holding companies to us will be exempted from Enterprise Income Tax. Our financial condition may be materially and adversely affected if such dividends are subject to enterprise income tax.

Dividends payable by us to our foreign investors and gain on the sale of our Shares may become subject to withholding taxes under PRC tax laws.

Under the new PRC Enterprise Income Tax Law and implementation regulations issued by the State Council, PRC income tax at the rate of 10% is applicable to dividends payable to investors that are “non-resident enterprises” (and that do not have an establishment or place of business in the PRC, or that have such establishment or place of business but the relevant income is not effectively connected with the establishment or place of business) to the extent such dividends have their source within the PRC. Under PRC Individual Income Tax Law, individuals are generally liable for a 20% Individual Income Tax on dividend income. Such Individual Income Tax should apply to dividends received by a non-resident individual from a PRC resident enterprise. A reduced tax rate on dividends may be applicable for non-resident enterprise investors and nonresident individual investors under applicable tax treaty or tax arrangement between PRC and the investor’s resident country or region. Similarly, any gain realized on the transfer of shares by non-resident enterprise and individual investors is also subject to a 10% PRC Enterprise Income Tax and a 20% Individual Income Tax, respectively, if such gain is regarded as income derived from sources within the PRC unless otherwise exempted under PRC domestic regulations and applicable tax treaties or tax arrangements. If we are considered as a PRC “resident enterprise”, the dividends we pay with respect to our ADSs, or the gain you may realize from the transfer of our ADSs, could be treated as income derived from sources within the PRC and be subject to PRC tax. If we are required under the new PRC Enterprise Income Tax Law to withhold PRC income tax on our dividends payable to our non PRC resident shareholders, or if you are required to pay PRC income tax on the transfer of your ADSs, the value of your investment in our ADSs may be materially and adversely affected.

We rely principally on dividends paid by our subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to pay dividends to us could have a material adverse effect on our ability to conduct our business.

We are a holding company and rely principally on dividends paid by our subsidiaries for cash requirements, including the funds necessary to service any debt we may incur. If any of our subsidiaries incurs debt in its own name in the future, the instruments governing the debt may restrict dividends or other distributions on its equity interest to us.

19

Furthermore, applicable PRC laws, rules and regulations permit payment of dividends by our combined PRC entities only out of their retained earnings, if any, determined in accordance with PRC accounting standards. Our PRC subsidiaries are required to set aside a certain percentage of their after-tax profit based on PRC accounting standards each year to their reserve fund in accordance with the requirements of relevant laws and provisions in their respective articles of associations. As a result, our PRC subsidiaries may be restricted in their ability to transfer a portion of their net income to us whether in the form of dividends, loans or advances. Any limitation on the ability of our subsidiaries to pay dividends to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our businesses, pay dividends or otherwise fund and conduct our business.

Fluctuations in the value of the Renminbi could negatively impact our results of operations.

Our reporting currency is the U.S. dollar and virtually all of our sales are denominated in U.S. dollars. Our operating expenses and substantially all of our assets and liabilities are denominated in Renminbi. As a result, we are exposed to foreign exchange risk, and our results of operations may be negatively impacted by fluctuations in the exchange rate between the U.S. dollar and Renminbi. Due to the potential substantial volatility of currency exchange rates caused by the unprecedented turmoil in the global financial market, we cannot predict the effect of exchange rate fluctuations upon our financial statements and future operating results. Generally, if the Renminbi appreciates against the U.S. dollar, our operating expenses will increase and, as a consequence, our operating margins and net income will likely decline. However, this effect may partially offset by the fact that we also incur substantial expenses and liabilities in foreign currencies. We believe that the potential loss that would result from an increase or decrease in the exchange rate may have an adverse impact on us.

The value of the Renminbi is subject to changes in China’s governmental policies and to international economic and political developments. Since January 1, 1994, the PRC government has used a unitary managed floating rate system. Under this system, the People’s Bank of China, or PBOC, publishes a daily base exchange rate with reference primarily to the supply and demand of Renminbi against U.S. dollar and other foreign currencies in the market during the previous day. Authorized banks and financial institutions are allowed to quote buy and sell rates for Renminbi within a specified band around the central bank’s daily exchange rate. However, since July 2005 the Renminbi is no longer pegged solely to the U.S. dollar. Instead, it is reported to be pegged against a basket of currencies, determined by the People’s Bank of China, against which it can rise or fall by as much as 0.3% each day. This volatility range was further expanded by the People’s Bank of China by 0.5% each day since May 21, 2007. The Renminbi may appreciate or depreciate significantly in value against the U.S. dollar in the long term, depending on the fluctuation of the basket of currencies against which it is currently valued or it may be permitted to enter into a full float, which may also result in a significant appreciation or depreciation of the Renminbi against the U.S. dollar.

As we rely entirely on dividends paid to us by Actions Semiconductor (Zhuhai) and Artek Microelectronics (Shenzhen), any significant devaluation of the Renminbi may have a material adverse effect on our revenues in U.S. dollars and our financial condition.

Reduction in interest rates will result in a decrease in our interest income.

Our exposure to market risk for changes in interest rates relates primarily to the interest income generated by our cash deposits in banks and other financial institutions. In 2006, 2007 and 2008, the rate of return on cash deposit was 2.9%, 3.2% and 4.7%, respectively. However, in light of the current global economic crisis, interest rates for cash deposits may be reduced in the future. For example, China’s central bank cut interest rates several times since 2008. As of December 31, 2007 and 2008, the one-year Renminbi deposit rate was 4.14% and 2.25% in China. If global economic and market conditions remain uncertain or deteriorate further, decreased interest rate might adversely affect out interest income and further impact our net income.

We have not used derivative financial instruments in our investment portfolio to hedge interest rate risks or otherwise. Interest-earning instruments carry a degree of interest rate risk. However, historically we have not been exposed to material risks due to changes in interest rates. Our future interest income may fluctuate in line with the changes in interest rates.

The global economic downturn may cause a decrease in the value of our assets, resulting in a decrease in shareholder’s equity.

As of December 31, 2008, we had properties, intangible assets, long-term investments and inventories of US$ 8.7 million, US$ 4.2 million, US$ 11.2 million and US$ 8.7 million, respectively. The global economic downturn may have a great impact on the value of our assets and the value of our properties and intangible assets may decrease. We may also experience a decrease in our long-term investments due to the loss of profits of our subsidiaries. In addition, the demand for our products may decline sharply in an economic downturn, but our ability to reduce inventories quickly is limited by delays associated with order cancellations, the lag between production and delivery of our products, and reducing deliveries from our supplier pipeline. During an extended downturn, a portion of our inventory may have to be written down as excess or obsolete if it is not sold in a timely manner. Therefore, the value of our total assets may decrease, which will adversely affect shareholder’s equity.

20

Risks Related to Our Corporate Structure

We are a Cayman Islands company and, because judicial precedent regarding the rights of shareholders is more limited under Cayman Islands law than under U.S. law, you may have less protection of your shareholder rights than you would under U.S. law.

Our corporate affairs are governed by our memorandum and articles of association, the Cayman Islands Companies Law and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, the rights of minority shareholders to institute actions, and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, the latter of which has persuasive, but not binding, authority on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States. In addition, some U.S. states, such as Delaware, have more developed and judicially interpreted bodies of corporate law than the Cayman Islands.

As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of our board of directors or controlling shareholders than they would as public shareholders of a U.S. company.

We may incur significant costs to avoid being considered an investment company under the Investment Company Act of 1940.

Generally, the Investment Company Act of 1940, or the 1940 Act, provides that a company is not an investment company and is not required to register under the 1940 Act as an investment company if the company is primarily engaged, directly or through a wholly-owned subsidiary or subsidiaries, in a business or businesses other than that of investing, reinvesting, owning, holding or trading in securities or has investment securities that comprise less than 40% of its total assets (exclusive of U.S. government securities or cash items) on an unconsolidated basis.

We are a fabless semiconductor company that engages primarily in the businesses of designing, developing and marketing integrated platform systems, including SoCs, firmware, software development tools and reference designs, for manufacturers of portable multimedia players. Also, based on the primary activities of our officers and directors and an analysis of our income during 2008, we do not believe we will be considered an investment company. Nevertheless, a part of the determination of whether we will be an investment company will be based upon the composition and value of our assets, a significant portion of which are time deposits, restricted cash in the form of loan guarantees and marketable securities that are subject to change, particularly when market conditions are volatile. As a result, we could inadvertently become an investment company.

If we were to become subject to the requirements of the 1940 Act, our operations and results would be negatively impacted in a significant manner, including among other possible effects, our inability to borrow money or raise capital through the offer and sale of our securities in the United States. We could also be subject to administrative or legal proceedings and, among other things, contracts to which we are a party might be rendered unenforceable or subject to rescission. Additionally, we would 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 becoming an "investment company" as defined under the 1940 Act. We may incur significant costs and management time to avoid being considered an investment company under the Investment Company Act of 1940, as amended.

Your ability to bring an action against us or against our directors and officers, or to enforce a judgment against us or them, will be limited because we are incorporated in the Cayman Islands, because we conduct substantially all of our operations in China and because the majority of our directors and officers reside outside of the United States.

We are incorporated in the Cayman Islands, and we conduct substantially all of our operations in China through Actions Semiconductor (Zhuhai). Most of our directors and officers reside, and substantially all of the assets of those persons are located, outside the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands or China may render you unable to enforce a judgment against our assets or the assets of our directors and officers.

21

The price of our ADSs has been volatile and may continue to be volatile, which may make it difficult for holders to resell the ADSs when desired or at attractive prices.

The trading price of our ADSs has been and may continue to be subject to wide fluctuations. Since our ADSs became listed in November 2005, the closing price of our ADSs on the Nasdaq Global Market has ranged from US$12.24 to US$1.35 per ADS and the last reported sale price on April 16, 2009 was US$1.70. Our ADSs price may fluctuate in response to a number of events and factors. The financial markets in general, and the market prices for many PRC companies in particular, have experienced volatility that often has been unrelated to the operating performance of such companies.

In addition to market and industry factors, the price and trading volume for our ADSs may be highly volatile for specific business reasons, including those discussed in this Risk Factors section. Any of these factors may result in large and sudden changes in the volume and price at which our ADSs will be traded. We cannot give any assurance that these factors will not occur in the future.

Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings.

We may from time to time distribute rights to holders of our ordinary shares, including rights to acquire our securities. We cannot offer to holders of our ADSs those rights unless the securities to which the rights relate are either registered under the U.S. Securities Act of 1933, which we refer to in this document as the Securities Act, or exempt from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, you may be unable to participate in our rights offerings and may experience dilution in your holdings. The depositary may allow rights that are not distributed or sold to lapse. In that case, you will receive no value for them.

Holders of ADSs may not be able to exercise the rights of shareholders, including the right to vote as a shareholder.

As a holder of our ADSs, you will not be recorded as a shareholder on the share register of the Company. Only registered holders of our ordinary shares are entitled as a matter of Cayman Islands law to exercise the rights of shareholders including voting their shares and receiving dividends and distributions. The depositary or its custodian will be the registered holder of all the ordinary shares represented by the ADSs and, thus, will be the only party entitled to exercise the rights of a shareholder with respect to those ordinary shares held by them. You will not be able to exercise the rights of a shareholder, including the right to vote, unless you withdraw our ordinary shares underlying the ADSs you hold. However, you may not be able to withdraw ordinary shares in time to be able to exercise your rights. For example, you may not know about shareholder meetings enough in advance to withdraw those ordinary shares. If we ask for your instructions, the depositary will notify you of an upcoming vote and arrange to deliver our voting materials to you. You may not receive the voting materials in time to ensure that you can instruct the depositary to vote your ordinary shares. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that you may not be able to exercise your right to vote, and there may be little you can do if the ordinary shares underlying your ADSs are not voted as you requested.

Except in limited circumstances, the depositary for our ADSs, in the case of poll voting will give us a discretionary proxy to vote our ordinary shares underlying your ADSs if you do not vote at shareholders’ meetings, which could adversely affect your interests.

Under the deposit agreement for the ADSs, the depositary, in the case of poll voting will give us a discretionary proxy to vote our ordinary shares underlying your ADSs at shareholders’ meetings if you do not vote, unless we notify the depositary that:

• we do not wish to receive a discretionary proxy;

• we think there is substantial shareholder opposition to the particular proposal; or

• we think the particular proposal would have a material adverse impact on our shareholders.

The effect of this discretionary proxy is that you cannot prevent our ordinary shares underlying your ADSs from being voted, absent the situations described above, and it may make it more difficult for shareholders to influence the management of our company. Holders of our ordinary shares are not subject to this discretionary proxy.

You may not receive dividends or other distributions on our ordinary shares or any value for them if it is illegal or impractical to make them available to you.

The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian for our ADSs receives on our ordinary shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of our ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. We have no obligation to take any other action to permit the distribution of our ADSs, ordinary shares, rights or anything else to holders of our ADSs. This means that you may not receive the distributions we make on our ordinary shares or any value for them if it is illegal or impractical for us or the depositary to make them available to you. These restrictions may have a material adverse effect on the value of your ADSs.

22

You may be subject to limitations on transfer of your ADSs.

Your ADSs represented by ADRs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may refuse to deliver, transfer or register transfers of our ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary thinks it is advisable to do so because of any requirement of law or any government or governmental body, or under any provision of the deposit agreement, or for any other reason.

You may be subject to limitations on transfers of our ordinary shares.

Our ordinary shares are transferable subject to restrictions in our articles of association. However, our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share without assigning any reasons therefor. In addition, the registration of transfers may be suspended as our board of directors may determine, for up to 45 days in any year.

ITEM 4. INFORMATION ON THE COMPANY

A.  History and Development of the Company

We, Actions Semiconductor Co., Ltd., are an exempted company incorporated under the Companies Law (2007 Revision) of the Cayman Islands on July 27, 2005 for the purpose of becoming the sole shareholder of Actions Semiconductor Co., Ltd., a “category 2” global business company incorporated in the Republic of Mauritius, which we refer to as Actions Semiconductor (Mauritius). A category 2 global business license is issued by the Financial Services Commission of Mauritius to a private company carrying on a qualified global business in a currency other than the Mauritian currency with persons who are resident outside of Mauritius. A preferential tax regime is applicable in Mauritius to a company holding a category 2 global business license. In August 2005, we issued 480 million shares to shareholders of Actions Semiconductor (Mauritius) in consideration for 100% of its share capital. By incorporating our company in the Cayman Islands, we believe that we may have additional flexibility to pursue future business opportunities or financing alternatives.

Actions Semiconductor (Mauritius) was initially organized on November 16, 2001 as Cristo Capital Inc. to become the holding company of the semiconductor design operations we established in Zhuhai, China. Cristo Capital Inc. changed its name to Actions Semiconductor Co., Ltd. on July 8, 2005. Actions Semiconductor (Mauritius) is the 100% shareholder of Actions Semiconductor Co., Ltd., a subsidiary incorporated on December 28, 2001 in Zhuhai, China, which we refer to as Actions Semiconductor (Zhuhai). We conduct substantially all of our operations through Actions Semiconductor (Zhuhai) until Artek Microelectronics (Shenzhen), another wholly owned subsidiary in China with focus on the design, manufacturing, and marketing of SoCs for portable media players, was established on March 14, 2006.

As our scale of operations and revenues increased, we determined that it would be advantageous to establish a Hong Kong company through which to conduct some of our sales and customer service activities. In January 2004, Actions Semiconductor (Mauritius) acquired for consideration of HK$1.00, Actions Technology (HK) Company Limited, or Actions Technology (HK), a trading company with limited ongoing operations incorporated in Hong Kong, through which we set up a sales and customer support center in Hong Kong. By making sales through our sales center in Hong Kong, we are able to utilize Hong Kong’s well developed and efficient customs and receiving and delivery infrastructure. In addition, certain of our customers may be able to conduct global tax planning by making purchases through our Hong Kong subsidiary.

On November 17, 2005, we established a subsidiary in the British Virgin Islands, Actions Microelectronics Co., Ltd., or Actions Microelectronics (BVI), which serves as a holding company of our research and development center. On December 19, 2005, Actions Microelectronics (BVI) established a subsidiary in Beijing, China, Beijing Actions North Microelectronic Co., Ltd., or Beijing Actions, which serves as our research and development center for imaging and video technology. On February 13, 2006, Beijing Actions North Microelectronic Co., Ltd. changed its English name into Actions Microelectronics Co., Ltd., which we continue to refer to as Beijing Actions. On December 28, 2005, we established a subsidiary in the British Virgin Islands, Artek Microelectronics Co., Ltd., or Artek Microelectronics (BVI), which serves as a holding company for other subsidiaries we may establish in China in the future. On January 16, 2006, Artek Microelectronics (BVI) established a subsidiary in Hong Kong, Artek Microelectronics Co., Ltd., or Artek Microelectronics (HK), which serves as our second sales and customer support center in Hong Kong.

23

On February 10, 2006, we established a subsidiary in the British Virgin Islands, Actions Capital Investment, Inc., or Actions Capital, through which we may invest in or acquire technologies or companies complimentary to our current operations. On March 14, 2006, Artek Microelectronics (BVI) established a subsidiary in Shenzhen, China, Artek Microelectronics Co., Ltd., or Artek Microelectronics (Shenzhen), which serves as a part of our sales office and houses our technology service center. On November 6, 2006, we established a subsidiary in Shanghai, China, Actions Investment Consulting (Shanghai) Co., Ltd., or Actions Investment Consulting, which serves as one of our management service center. On March 27, 2008, Actions Semiconductor (Zhuhai) established a subsidiary in Shanghai, China, Shanghai Actions Semiconductor Co., Ltd., or Shanghai Actions, which serves as our research and development center in Eastern China. On January 19, 2009, Actions Capital established a subsidiary in Republic of Malaysia, Actions Capital Investment (Malaysia) Inc., or Actions Capital Malaysia, which serves as a tax-effective investment vehicle of Actions Capital.

According to the new PRC Enterprise Income Tax Law and its implementation regulations, effective on January 1, 2008, for any dividends paid from PRC resident enterprises to nonresident enterprises, a general 10% withholding income tax will be charged by the PRC tax authorities. Hong Kong and Mauritius holding companies, if qualified as Hong Kong and Mauritius tax residents, are subject to 5% preferred tax rate. We determined that it is advantageous for us to adjust our investment structure to use Hong Kong companies to hold our interests in our PRC subsidiaries. On August 17, 2007 and September 6, 2007, we established two subsidiaries in Hong Kong, Actions Microelectronics Co., Ltd., or Actions Microelectronics (HK), and Actions Enterprises (HK) Co., Ltd., or Actions Enterprises (HK), respectively, which serve as the holding companies of our PRC subsidiaries. We wound up two BVI holding companies, Actions Microelectronics (BVI) and Artek Microelectronics (BVI), on December 1, 2007 and 2008, respectively.

Our principal executive offices are located at 15-1, No. 1, HIT Road, Tangjia, Zhuhai, Guangdong, 519085, the People’s Republic of China, and our telephone number is (86-756) 339-2353. Our Internet address is www.actions-semi.com. The information on our web site is not a part of this document.

B.           Business Overview

We are a fabless semiconductor company that designs, develops and markets integrated platform solutions, including SoCs, firmware, software development tools and reference designs, for manufacturers of portable media players. We provide integrated platform solutions to portable media player manufacturers, brand owners and value-added distributors that enable them to accelerate the time-to-market for their products. Our integrated platform solutions incorporate the following features that enable our customers to rapidly bring portable media players to market with a minimum level of technology investment:

• Our integrated platform solutions, which comprise SoCs, firmware, software development tools and reference designs, obviate the need for our customers to invest in costly and time-consuming internal firmware and software development for their products, or to source them from multiple suppliers.

• Our network of third-party value-added distributors and applications developers enable our customers to quickly introduce products with differentiated features and to cost-effectively customize our solutions.

• Our mixed-signal design capabilities allow us to integrate analog and digital components using a compact system architecture in our portable media player SoCs, and enable our customers to reduce their overall costs and produce smaller, more power-efficient portable products.

• Our proximity to the China-based manufacturers of portable media players and presence in the rapidly evolving China market for portable media players enable us to better identify market trends and align our product development efforts with these market trends.

We believe that our integrated platform solution approach provides a high level of value for our customers and creates a successful business model for us. We seek to extend our market leadership in SoC products and platform solutions for the development of portable media players through investing in technology leadership, extending our network of independent software developers and value-added distributors, incorporating high-end features into products for the mass-market, and improving the functionality-to-price ratio of our products.

Industry Background

Portable media players are battery-powered, portable consumer electronic devices that capture, store and play digital media files such as compressed audio, image and video files. Portable media players are featured with a wide range of industry audio compression technologies, the most popular of which include AAC, APE, FLAC, MP3, Ogg Vorbis and WMA, and video compression technologies such as AMV, FLV, H.264, MPEG2/4, RMVB, WMV and XviD. 

24

Portable media players have in recent years emerged as one of the most popular consumer electronics products, with dedicated audio players and integrated digital audio/video players currently being the two most popular products in this category. We believe that several factors will continue to drive the growth in demand for portable media players:

• Transition from traditional consumer electronic devices to digital.      Digital portable media players have several advantages over traditional devices, such as CD and cassette tape players, including reduced size, greater capacity and longer battery life, and are in the early stages of replacing such traditional devices;

• Proliferation of digital media content.    The availability and adoption of digital media content continue to grow rapidly driven by the increasing penetration of broadband Internet and growing acceptance of digital media distribution channels on the Internet such as Apple iTunes, Yahoo, MusicMatch and Napster;

• Demand growth in emerging markets.    High economic growth in emerging economies such as China, India, Russia and Brazil has resulted in increased per capita disposable income, which has stimulated strong demand for consumer electronics products such as portable media players;

• Advancing functionality.    Beginning with dedicated audio players, digital portable media devices have increasingly integrated video functionality, and we expect additional features such as advanced video game, image and video capture, digital audio and video broadcast reception, and wireless connectivity, to be adopted over time;

• Embedding of portable media player functions in new products.The expansion of entry-level portable media capability—based on solutions such as ours that achieve highly attractive price points—into high-volume embedded markets, such as fashion accessories, toys and audio visual products, is expected to further increase demand; and

• Decline in cost of commodity components.    As prices of commodity components such as memory and display used in portable media players continue to decline, consumers are able to purchase products with superior memory capacity and resolutions at an equivalent or lower price, which stimulates the growth in the overall market.

Portable Media Player Design and Manufacturing Value Chain

The functionality of portable media players is largely determined by the SoC controller. The SoC and memory components constitute a significant portion of a portable media player’s total cost. Portable media players’ small size and cost considerations usually require the use of a highly integrated mixed-signal SoC that incorporates standard digital components such as a processor, embedded memory and peripheral connections as well as analog components including codec, power management and audio signal amplifiers.

The portable media player industry, like many other segments of the consumer electronics industry, is increasingly centered in China. Portable media players manufactured by China-based manufacturers are often rebranded and sold across the world by importers, retailers, and consumer electronics companies. China’s low cost design and manufacturing capabilities are an increasingly important competitive advantage, as consumers increasingly demand more functionality at a lower price in each successive generation of portable media players. Contract manufacturers and brand owners also increasingly rely on SoC platform providers and value-added distributors to provide integrated platform solutions that enable them to accelerate their products’ time-to-market. The following chart illustrates the typical portable media player design and manufacturing value chain:

In order to differentiate their products, brand owners of portable media players must equip their products with unique designs and features. Often, brand owners and contract manufacturers lack comprehensive in-house design capabilities required to address the market trend towards increased functionality and short product life cycles. Since it is generally time-consuming and cost-prohibitive to create an entirely new system for each new function added, brand owners rely on value-added distributors to work closely with an integrated platform provider to not only provide the required features and functions but also provide total, integrated solutions that deliver the correct combination of features, cost, processing speed and power consumption. Only a few integrated platform providers, such as us, have the capability to provide total solutions directly to the contract manufacturers and brand owners based on a standard reference design.

25

Products and Technology

We provide a variety of solutions along the portable media player design and manufacturing value chain. For most of our value-added distributor customers and certain more sophisticated contract manufacturer and brand owner customers, we provide our SoCs and solution development kits, or SDKs. For less sophisticated customers, we provide our total solutions that consist of our SoCs, SDKs as well as reference designs that include detailed specifications of other required components and references to the providers of those components, which together allow these customers to assemble a complete portable media player.

Our capability to provide total solutions is the result of our detailed knowledge of the manufacturing technology along the different points of the design and manufacturing value chain. By applying that knowledge, we can mix, match and combine our solutions to fit the diverse needs of our customer base.

System-on-a-Chip (SoC)

Our SoCs are integrated circuits that incorporate a digital signal processor, a micro controller unit, embedded memory, codec, a power management unit and other components. Our SoCs are designed to be utilized for portable media players with upgradeable firmware. SoCs for portable media players must address a range of requirements, including high performance, low cost, high levels of system integration and low power consumption. We utilize a compact system architecture that incorporates an optimized algorithm with an embedded task management system in order to maximize the cost efficiency of our SoCs and solutions. Further, this architecture reduces the size of our SoCs and improves our SoCs’ power efficiency and functionality.

Our SoCs are manufactured using industry-standard, mixed-mode, complementary metal-oxide semiconductor, or CMOS, processes and are designed to help our customers lower the number of components required to manufacture their finished products and reduce their overall cost. Our multi-voltage SoC design results in lower noise and lower power consumption and supports audio encoders, digital rights management, USB and bluetooth connectivity and audio post-processing effects, such as equalization and stereo expansion. Our SoC products also include on-chip memory, controllers for color liquid crystal display, and analog components, including digital-to-analog converters, phase lock loops and USB transceivers.

The following table summarizes the key features of our SoCs based on our current series six, series nine, series eleven and series thirteen platforms and their derivatives:

Device	Introduction Date	Addressable Market	Available Functions	Supplementary Functions	Display	Battery life	Storage Media
Six Series:
ATJ2063	December 2006	Portable Media and Embedded Market	•       Audio Decode MP3, WMA OGG	•       USB 2.0 High Speed •       Data Storage •       Data Encryption •       Auto Run	•       LED/LCM Color Display Controller •       External Segment LCD Driver	20 hrs	•       NAND Flash (SLC/MLC)
Nine Series:
ATJ2097	June 2005	Portable Media	•       MP3, WMA, OGG, APE DRM 10 •       FM Radio •       Voice Recording •       Video Play-AMV •       Picture Browse •       MP3 Encoding	•       USB 2.0 High Speed •       Data Storage •       Dictionary •       Translator •       Data Encryption •       Auto Run	•       2.2’QCIF OLED / TFT / CSTN Color Display Controller •       Internal Segment LCD Driver	20 hrs	•       NAND Flash (SLC/MLC)
ATJ2091	June 2006	Portable Media	•       MP3, WMA, OGG, DRM 10 •       FM Radio •       Voice Recording	•       USB 2.0 High Speed •       Data Storage •       Dictionary •       Translator •       Data Encryption •       Auto Run	•       OLED / STN Display Controller •       External Segment LCD Driver •       LED	20 hrs	•       NAND Flash  (SLC/MLC)
ATJ2093	July 2006	Portable Multi-media	•       MP3, WMA, OGG •       DRM 10 •       FM Radio •       Voice Recording •       Video Play-AMV •       Picture Browse •       MP3 Encoding •       SRS WOW/SRS WOW HD	•       USB 2.0 High Speed •       Data storage •       Dictionary •       Data Encryption •       Auto Run	•       1.5’-2.0’ OLED / TFT/CSTN Color Display •       LCM/Segment LCD LED Display	20 hrs	•       NAND Flash (SLC/MLC)

26

ACU75 Series:
ACU7502/7512	July 2006	Portable Multi-media	•       MP3, WMA, OGG •       DRM 10 •       Voice Recording •       Picture Browse •       SRS WOW	•       USB 2.0 High Speed •       Data Storage •       Data Encryption •       Auto Run	•       OLED Display •       LCM/Segment LCD	20 hrs	•       NAND Flash (SLC/MLC)
ACU7503/7513	July 2006	Portable Multi-media	•       MP3, WMA, OGG •       FM •       Voice Recording •       Picture Browse •       SRS WOW	•       USB 2.0 High Speed •       Data Storage •       Data Encryption •       Auto Run	•       OLED Display •       LCM/Segment LCD	20hrs	•       NAND Flash (SLC/MLC)
ACU7 505/7515	July 2006	Portable Multi-media	•       MP3, WMA, OGG •       DRM 10 •       FM Radio •       Voice Recording •       Video Play-AMV •       Picture Browse •       MP3 Encoding •       SRS WOW/SRS WOW HD	•       USB 2.0 High Speed •       Data Storage •       Data Encryption •       Auto Run	•       1’ -2.0’ OLED / TFT/CSTN Color Display •       LCM/Segment LCD LED Display	20hrs	•       NAND Flash (SLC/MLC)
Eleven Series:
ATJ2110	June 2008	Portable Multi-media	•       Audio Decode MP3, WMA OGG, APE •       SRS WOW/ WOW HD	•       USB 2.0 High Speed •       Data Storage •       Data Encryption •       Auto Run	•       LED/Mono LCM Display Controller •       External Segment LCD Driver	20hrs	•       NAND Flash (SLC/MLC 50nm)
ATJ2111	April 2008	Portable Multi-media	•       MP3, WMA, OGG, APE •       DRM 10 •       FM Radio •       Voice Recording •       SRS WOW/ WOW HD	•       USB 2.0 High Speed •       Data Storage •       Data Encryption •       Auto Run	•       LED/Mono LCM Display Controller •       External Segment LCD Driver	20hrs	•       NAND Flash (SLC/MLC 50nm)
ATJ2113	May 2008	Portable Multi-media	•       MP3, WMA, OGG, APE •       DRM 10 •       FM Radio •       Voice Recording •       SRS WOW/ WOW HD •       Picture Browse	•       USB 2.0 High Speed •       Data Storage •       Data Encryption •       Auto Run	•       LED/Mono LCM Display Controller •       External Segment LCD Driver	20hrs	•       NAND Flash (SLC/MLC 50nm) •       SD/MMC/MS Card
ATJ2115	March 2008	Portable Multi-media	•       MP3, WMA, OGG, APE •       DRM 10 •       FM Radio •       Voice Recording •       SRS WOW/ WOW HD •       Picture Browse •       AMV/AVI Video	•       USB 2.0 High Speed •       Data Storage •       Data Encryption •       Auto Run	•       1.5’-2.2’QCIF+ OLED / TFT / CSTN Color Display Controller	20hrs	•       NAND Flash (SLC/MLC 50nm) •       SD/MMC/MS Card
AK10 Series:
AK1011	April 2007	Portable Multi-media	•       MP3, WMA	•       USB 2.0 High Speed •       Data Storage •       Data Encryption •       Auto Run	•       No Display •       LED Display	20hr	•       NAND Flash (SLC/MLC 50nm)
AK1025	April 2007	Portable Multi-media	•       MP3, WMA, OGG •       DRM 10 •       FM Radio •       Voice Recording •       Video Play-AMV •       Picture Browse •       MP3 Encoding •       SRS WOW/SRS WOW HD	•       USB 2.0 High Speed •       Data Storage •       Data Encryption •       Auto Run	•       1.5’-2.0’ OLED / TFT/CSTN Color Display •       LCM/Segment LCD LED Display	20hr	•       NAND Flash (SLC/MLC 50nm)
AK 20 Series:
AK2011	June 2008	Portable Multi-media	•       MP3, WMA	•       USB 2.0 High Speed •       Data Storage •       Data Encryption •       Auto Run	•       No Display •       LED Display	20-30hrs	•       NAND Flash (SLC/MLC 50nm)
AK2025	May 2008	Portable Multi-media	•       MP3, WMA, OGG, APE •       DRM 10 •       FM Radio •       Voice Recording •       Video Play-AMV, AVI •       Picture Browse •       MP3 Encoding •       SRS WOW/SRS WOW HD	•       USB 2.0 High Speed •       Data Storage •       Data Encryption •       Auto Run	•       1.5’-2.0’ OLED / TFT/CSTN Color Display •       LCM/Segment LCD LED Display	20hrs	•       NAND Flash (SLC/MLC 50nm)

27

Thirteen Series
ATJ2135	January 2007	Portable Multi-Media Digital Video	•        MP3, WMA, DRM, WMA, ASF, OGG, APE, FLAC, WAV, AAC •        DRM 10, MTP •        FM Radio •        Voice/FM/ Line in Recording, MP3, WAV, ACT •        Video Play QVGA @30frame-XVID, WMV, FLV, 3GP, RM/RMVB •        Picture Browse: JPEG, BMP, GIF, PNG, TIFF •        MP3 Encoding •        SD/MMC/SDHC Card •        SRS WOW+SRS WOW HD+Turbass+          User mode •        TXT •        Multi Task on uCOS, Linux •        USB Slave 2.0	•       MJPEG, MPEG2 etc •       GAME, Flash, JAVA •       Touch Panel	•       2.0~3.5 QVGA TFT Color Display	•   At 550 mAh li BAT •   Video 5h •   Music (LCD On) 9.0h •   Music (LCD Off) 15h	•       NAND Flash (SLC/MLC) •       SD/MMC •       NOR Flash •       HDD
ATJ2137	January 2008	Portable Multi-Media Digital Video Low End DC/DV Learning Machine Handheld Game Player	•        MP3, WMA, DRM, WMA, ASF, OGG, APE, FLAC, WAV, AAC •        DRM 10, MTP •        FM Radio •        Voice/FM/ Line in Recording, MP3, WAV, ACT •        Video Play QVGA @30frame-XVID, WMV, FLV, 3GP, RM/RMVB •        Picture Browse: JPEG, BMP, GIF, PNG, TIFF •        MP3 Encoding Camera: JPEG Encoding up to 5M Pixcels •        Video Recorder: AVI (Xvid QVGA 24fps) •        AVOUT: PAL/NTSC •        Game: 8bit NES, 16bit GB/GBC, SFC Flash Game •        SD/MMC/SDHC Card •        SRS WOW+SRS WOW HD+Turbass+          User Mode •        TXT •        Multi Task on uCOS, Linux •        USB Slave 2.0	•      MJPEG, MPEG2 etc •      GAME, JAVA •      Touch Panel •      USB-OTG	•       2.0~4.3 QVGA WQVGA TFT Color Display	•   At 550 mAh li BAT •   Video 5h •   Music (LCD On) 9.0h •   Music (LCD Off) 15h	•       NAND Flash (SLC/MLC) •      SD/MMC •      NOR Flash •      HDD

(1) Using a single AA battery, media playback at medium volume level.

Solution Development Kits

Our solution development kits, or SDKs, include the embedded firmware code, software tools and documentation necessary to utilize our SoCs in portable media players. Our firmware utilizes an embedded structure design with standard interface that allows our customers to pick and choose functionalities and add new device drivers, which in turn lowers the complexity they face in developing their new products and accelerates the time-to-market for their products. Our manufacturing software tools also allow our customers to quickly mass produce their products based on our turnkey process. The principal features of our SDKs include the capability to:

28

• enable high-quality audio, image and video playback and encoding through optimized implementation of digital media compression and decompression functions;

• support a range of file types, audio, images, text and video through a flexible format management system;

• support firmware upgrades that would allow the addition of new features;

• incorporate a standard library function such as digital music file decoder, voice recorder, file system management and data storage functions;

• actively scale the processor speed depending on required function at the time, resulting in lower power consumption; and

• reduce the required data movement and associated power drain through advanced memory allocation techniques.

Reference Designs

Our total solutions include our SoCs, SDKs and reference designs that include detailed specifications of other required components and references to the providers of those components, which, together, allow those customers to assemble a complete portable media player. Our total solutions enable our customers to minimize the time and effort associated with design, development and production of new products.

Customers and Sales

We sell our products in China and world-wide through distribution arrangements and through our direct sales force to value-added distributors, contract manufacturers and brand owners. Though the substantial majority of our sales are made directly to value-added distributors, we consider all members of the portable media player design and manufacturing chain, including the brand owners and contract manufacturers, to be important customers as they may also be involved in the system design and the selection of the integrated platform provider. Brand owners and contract manufacturers often lack the comprehensive in-house design capabilities required to address the market need for increased functionality and the industry trend towards shorter product life cycles. As a result, they generally depend on value-added distributors and integrated platform providers like us to provide total solutions.

We do not typically enter into long-term contracts with our customers. Most of our value-added distributor customers provide us with a three-month non-binding rolling forecast each month and typically place purchase orders one month before expected delivery, although such purchase orders are still subject to adjustments or cancellations by that customer. Our customers are generally invoiced at the time of delivery. We also provide limited credit terms for our key customers.

In 2007, our top five customers included Power Radio, GMI Technology, Uppo Company Limited, or formerly known as Prescope Technology, Sino-Mos Electronics and Steed Digital Technology, all of which are value-added distributors and collectively accounted for approximately 59% of our revenues. Our most significant customers in 2008 included GMI Technology, Uppo Company Limited, Sino-Mos Electronic, Power Radio and Junjia Digital Technology, all of which are also value-added distributors and collectively accounted for approximately 69% of our revenues, respectively. In 2007 and 2008, sales directly to brand owners accounted for approximately 11% and 17% of our SoCs sold, respectively, however, many of our products sold to value-added distributors are incorporated in branded products.

Our sales to the customers in PRC accounted for approximately 9%, 22% and 23% in 2006, 2007 and 2008, respectively. Export sales to our customers in Hong Kong accounted for approximately 76%, 68% and 77% of our revenues in 2006, 2007 and 2008. Export sales to our customers Taiwan accounted for approximately 14% and 9% in 2006 and 2007, respectively. We do not have any export sales in Taiwan in 2008. We anticipate that a significant majority of our revenue will continue to be represented by sales to customers in Hong Kong and PRC.

29

Marketing

Our marketing group focuses its efforts on product strategy, new product introduction, demand assessment and competitive analysis. Our marketing group works closely with our value-added distributor and contract manufacturer customers to better align our product development efforts with the requirements of the brand owner. We also hold product introduction seminars with our value-added distributor, contract manufacturer and brand owner customers whenever we have a major breakthrough in product development. Our marketing group monitors our sales and the inventory levels of our customers to allocate our shipments. In addition, our marketing group collaborates with our customers in product development strategies and strategic marketing. We have been able to leverage our position at the beginning of the portable media player design and manufacturing value chain to organize group purchases and negotiate volume discounts for our downstream customers who require other portable media player components, such as flash memory, LCD or OLED displays, to build their end-products. Our marketing group also coordinates our product development activities, product launches and ongoing demand and supply planning with our research and development department as well as with our brand owner customers.

As of December 31, 2008, we had a total of 23 direct sales and marketing employees, most of whom have a background in engineering, which enables them to better communicate with our customers and work with them in designing portable media players to meet their changing demands.

Technology Service Center

We have created a technology service center to quickly customize our platform and total solutions based on our customers’ needs, including changes in specifications of a current product or requests to add new product features. The field application engineers at our technology service center assist our customers with pre-sale consultation, jointly design product specifications, develop system solutions and monitor and assist the manufacturing process in cooperation with value-added distributors, contract manufacturers and brand owners. They also provide after sale services when mass production commences. We believe that our geographical proximity to our customers who, for the most part, have operations located in the Pearl River Delta region in southern China allows us to respond to their needs in a shorter period of time and accelerate their product time-to-market. At the same time, timely feedback from our customers allows us to identify market trends and demands ahead of our competitors. As of December 31, 2008, our technology service center employed 85 field application engineers, 76 of whom were located in Zhuhai and nine of whom were located in Shenzhen. We plan to increase the number of our application engineers as we continue to grow our business.

Information Technology

We believe that we have a well developed information technology infrastructure. Our information technology system is based on Information Technology Infrastructure Library, or ITIL. As one of the most widely accepted approaches to information technology service management, ITIL provides a cohesive set of international best practices, drawn from public and private sector companies. It is supported by a comprehensive qualifications scheme, accredited training organizations, and implementation and assessment tools.

We have also implemented an Oracle Enterprise Resource Planning (ERP) system on January 1, 2008, so that we can successfully data mine critical design and marketing information from our customers’ orders, our own research and development efforts and product delivery status. We use control objectives for information and related technology, or COBIT, as guidance and framework for our information technology governance. We believe our well developed information technology system is one of the key factors in allowing us to identify market trends and demands ahead of our competitors.

Manufacturing

Our SoCs are manufactured by third-party foundries that process silicon wafers and produce the SoCs. Presently, He Jian Technology Company manufactures almost all of our semiconductors. He Jian currently fabricates our devices using mature and stable 0.162 micron CMOS process technology. We also maintain relationships with other contract foundries to help ensure we have alternative manufacturing capabilities.

We manage much of our manufacturing logistics internally, including pre-production hardware testing, test program development, characterization and qualification testing, production scheduling, capacity planning, work-in-progress tracking, yield management, shipping logistics, supplier management and quality support functions, such as failure analysis.

Our SoCs are designed to use low-cost, industry standard packages and to be tested with widely available automatic testing equipment. Following processing, silicon wafers that are manufactured for our SoCs are either tested by us internally or by third-party testing houses such as Siliconware Technology, Tian Shui Hua Tian Technology and King Long Technology. Thereafter, these wafers are shipped to third-party packaging subcontractors such as Tian Shui Hua Tian Technology, Siliconware Technology, Nantong Fujitsu Microelectronics and Wuxi China Resources Micro-Assembly Technology, where they are sliced into individual die, and assembled into finished semiconductor packages and tested on site or returned to us for final product testing.

30

We manufacture or purchase the testing equipment we use under strict cost-efficiency criteria. We enter into contracts with third-party testing houses whenever our production volume outpaces our testing capacity. We also develop and control almost all product testing programs used by us internally and by the testing and packaging subcontractors. These testing programs are developed based on our product specifications, thereby maintaining our ownership of the functional and parametric performance of our semiconductors. By conducting many of the testing programs internally, we are able to maintain a fabless business model, yet also gain first hand knowledge of the manufacturing process. We conducted approximately 89%, 98% and 100% of the testing of our silicon wafers internally in 2006, 2007 and 2008, respectively, and approximately 80%, 96% and 98% of the testing of our final SoC products internally in 2006, 2007 and 2008, respectively. We intend to continue to invest in additional testing equipment to expand our internal testing capacity.

Quality and Reliability Assurance

We have designed and implemented a quality management system that provides the framework for continual improvement of our products, processes and customer service. We apply established design rules and practices for CMOS devices through standard design, layout and testing processes. We also rely on in-depth simulation studies and practical application testing to validate and verify our SoCs. We strive to achieve best-in-class quality and reliability performance on all of our products through a systematic approach that emphasizes quality at every phase of product development and manufacturing. From initial design conception to fabrication, testing, and assembly, we strive to assure quality by fabrication and assembly process monitoring, materials inspections, wafer level reliability, testing, new product qualification testing, reliability monitoring of finished products. We emphasize a strong supplier quality management practice in which the independent suppliers that are used by our manufacturing logistics partners are pre-qualified by our operations and quality teams. We also require that the independent suppliers used by our manufacturing logistics partners have a quality management system, are certified to the ISO9000 standard and have an environmental management system certified to the ISO14000 standard. To ensure consistent product quality, reliability and yield, we work together with our contract manufacturers to closely monitor the production cycle by reviewing manufacturing process data from each wafer foundry, testing house and assembly subcontractor.

Competition

The market for SoCs for portable media players is competitive and rapidly evolving. Increased competition may result in industry-wide price reductions or reduced margins. In particular, we face competition from SoC platform providers such as ALi, Anyka, Buildwin, Freescale, Grain Media, Rockchips, Samsung, Silicon Motion, Sino Wealth, Sunplus and Telechips. As we diversify and expand our product categories, we may also face competition from other semiconductor companies and manufacturers of consumer electronics and mobile devices. Many of these companies have significantly greater financial, technical, manufacturing, marketing, sales and other resources than us. These companies may offer high-level performance semiconductors for certain segments of the consumer electronics market that may include portable media player functionality in addition to other functions. We may also face competition from some of our customers who may develop products or technologies internally that are competitive with our SoCs, or who may enter into strategic relationships with or acquire existing semiconductor providers. In addition, some of our competitors manufacture SoCs using smaller process geometries than we use in our production process, and produce products that offer functions that are different than the functions of our SoCs. However, we believe that our semiconductor chip architecture allows our SoCs to offer very competitive performance compared with chips produced by our competitors. Further, we believe that the location of our facilities in China provides us with access to lower cost research and development and other engineering personnel, and provides significant benefits to our overall cost structure. This in turn allows us to produce SoCs that combine functionality with aggressive pricing, or high functionality-to-price ratios.

As portable media players become a mass produced consumer item, consumers become more sensitive to the design, size, functionality and price of the devices they purchase. In turn, brand owners have responded by quickly introducing more models with varying price, functions and features, such as embedding portable media player functionality of audio and video into mobile phones, global positioning systems (GPS), mobile digital TVs, digital photo frames, gaming devices, MPEG readers,  eyewear, watches, bluetooth earphones or other fashion or gift, toys and other items. As a result, we believe that the key competition for SoC platform providers like us will be in the design and manufacturing technology. To be successful, we must compete on the basis of:

• ability to deliver integrated platforms solutions that support a wide variety of industry standards;

• design flexibility that allows customers to differentiate their products;

• strong customer support that decreases the length of product design cycles and accelerates product time-to-market;

31

• power efficiency that offsets the increased power requirements of color displays and graphic processing;

• competitive pricing; and

• intellectual property position and know-how.

We believe we are well positioned to compete in the design and manufacturing technology areas against our competitors because of our ability to provide total solutions to our customers that allow them to quickly roll-out new and differentiated products while reducing the overall system cost and size.

Regulations

This section sets forth a summary of the most significant regulations or requirements that affect our business activities in China or our shareholders’ rights to receive dividends and other distributions from us.

Foreign Investment

Pursuant to the Foreign Investment Industrial Guidance Catalogue (the “Guidance Catalogue”) amended on October 31, 2007 and effective as of December 1, 2007 by the Ministry of Commerce and the State Development and Reform Commission (the “SDRC”), integrated circuit design and software development and production are classified as industrial sectors in which foreign investments are encouraged. The Guidance Catalogue does not exert any limitation of foreign ownership in the businesses of integrated circuit design and software development and production currently conducted by Actions Semiconductor (Zhuhai) and our other subsidiaries within PRC.

 Integrated Circuit Design and Software Development

Pursuant to the Several Policies on Encouragement of Development of Software and Integrated Circuit Industries promulgated by the State Council on July 25, 2000 and effective as of the same date (the “Encouragement Policies”), certified integrated circuit design enterprises are treated in the same manner as certified software enterprises and therefore enjoy various incentive polices available to the software enterprises under the Encouragement Policies, such as incentive policies relating to investment and financing, taxation, industrial technologies, exports, income distribution and protection of intellectual property rights. For example, certified integrated circuit design enterprises are exempt from tariffs on their imported manufacturing equipment for self-use.

Certification of integrated circuit design enterprises and products is governed by the Administration Measures on Certification of Integrated Circuit Design Enterprises and Products (the “IC Design Certification Measures”) issued by the Ministry of Industry and Information Technology (the “MIIT”, which was formally called Ministry of Information and Industry, or MII, prior to June 29, 2008.) and the State Administration of Taxation (the “SAT”) on March 7, 2002 and effective as of the same date. Pursuant to the IC Design Certification Measures, integrated circuit products are defined as integrated circuit design software and circuits (including products designed by Chinese companies that cannot be produced in China and should be processed by foreign companies) and integrated circuit design enterprises are defined as independent legal person entities established in China engaged in the design of integrated circuit products (including development of integrated circuit software). Pursuant to a joint notice regarding adjustment of administration of certification of integrated circuit design enterprises and products issued by the MIIT and the SAT effective as of July 1, 2004, applications for such certification are subject to preliminary review by certification organizations duly authorized by the MIIT. Final verification and approval must be given by the MIIT in accordance with the procedures and requirements set forth in the IC Design Certification Measures, and a copy of such approvals must be provided to the SAT. Actions Semiconductor (Zhuhai) has been certified as an integrated circuit design enterprise from 2005 to 2008, and is subject to passing inspection annually.

Certification of software enterprises is governed by the Tentative Standards and Administrative Measures on Certification of Software Enterprises (the “Software Certification Measures”) issued by the MIIT, the Ministry of Education, the Ministry of Science and Technologies and the SAT on October 16, 2000 and effective as of the same date. Pursuant to the Software Certification Measures, software products are defined as software embedded in computer software, information systems or equipment provided to users or computer software provided in conjunction with the provision of computer information system integration or application services or other technical services. The MIIT is responsible for the nationwide administration of such certification, and relevant software industrial associations or other associations authorized by the MIIT are the certification organizations of software enterprises.

32

Intellectual Property Rights

China has adopted comprehensive legislation governing intellectual property rights, including trademarks, patents, copyrights and other intellectual property rights. China has adhered to the main international conventions on intellectual property rights and became a member of the Agreement on Trade Related Aspects of Intellectual Property Rights upon its accession to WTO in December 2001.

Integrated circuit diagram designs are specifically protected under the Protection Regulations for Integrated Circuit Diagram Design promulgated by the State Council on April 2, 2001 and effective as of October 1, 2001 and its Implementation Rules issued by the State Intellectual Property Office (the “SIPO”) on September 18, 2001 and effective as of October 1, 2001. Integrated circuit diagram designs are entitled to proprietary rights for a ten-year period upon registration with the SIPO.

Registered trademarks are protected under the Trademark Law amended by the Standing Committee of National People’s Congress (the “SCNPC”) on October 27, 2001 and effective as of December 1, 2001. Trademarks can be registered with the Trademark Office for renewable ten-year periods.

Registered patents are protected under the Patent Law amended by SCNPC on August 25, 2000 and effective as of July 1, 2001. Under the Patent Law, Patents are divided into three categories, specifically inventions, utility models and exterior designs, which can be registered with the Patent Office. The protection period for inventions is 20 years, and the protection periods for utility models and exterior designs are 10 years. On December 27, 2008, the SCNPC has passed the “Decisions on Amending the ‘Patent Law of the People’s Republic of China’” and announced that the amended Patent Law shall take effect from October 1，2009.

The SCNPC amended the Copyright Law on October 27, 2001 and effective as of the same date, pursuant to which certain engineering and product designs and software are eligible for copyright protection. In addition, copyrights for computer software are specifically protected under the Protection Regulations issued by the State Council on December 20, 2001 and effective as of January 1, 2002. There is also a voluntary registration system for computer software copyrights, which is administered by the China Copyright Protection Center. 

Taxation in the PRC

On January 1, 2008, the Foreign-funded Enterprise and Foreign Enterprise Income Tax Law of the PRC was abolished, and the PRC Enterprise Income Tax Law, promulgated on March 16, 2007, became effective. Pursuant to the PRC Enterprise Income Tax Law, the income tax rate for both domestic-funded enterprises and foreign-funded enterprises is 25%.

Foreign Currency Exchange

Pursuant to the Administrative Regulations on Foreign Exchange amended by the State Council on August 5, 2008 and effective as of the same date and various further regulations issued by the Sate Administration of Foreign exchange (the “SAFE”), Renminbi can be freely converted into foreign currency and remitted out of China through a designated foreign exchange bank for current account transactions, such as payment for purchase of goods and services. However, all income and payments in foreign currency must be based on the true and legal transactions, which transactions will be examined by the responsible bank. For capital account transactions, such as equity investments and loans, conversion of foreign currency into Renminbi, or Renminbi into foreign currency, and remittance thereof into or out of China requires approval or registration by SAFE or its local office.

Within China, unless otherwise approved, all payments must be made in Renminbi. Pursuant to the new amended regulation, Chinese companies may repatriate foreign currency payments received from abroad into China or retain them abroad , the conditions and terms thereof shall be provided by SAFE, in accordance with the balance of payments and the need of foreign currency administration. Foreign invested enterprises, such as Actions Semiconductor (Zhuhai), are allowed to retain foreign currency in accounts with designated foreign exchange banks, subject to a maximum amount set by SAFE.

SAFE Regulations on Employee Stock Options

On March 28, 2007, SAFE promulgated the Application Procedure of Foreign Exchange Administration for Domestic Individuals Participating in Employee Stock Holding Plan or Stock Option Plan of Overseas Listed Company, or the Stock Option Rule. The purpose of the Stock Option Rule is to regulate foreign exchange administration of PRC domestic individuals who participate in employee stock holding plans and stock option plans of overseas listed companies. According to the Stock Option Rule, if a PRC domestic individual participates in any employee stock holding plan or stock option plan of an overseas listed company, a PRC domestic agent or the PRC subsidiary of such overseas listed company shall, among others things, file, on behalf of such individual, an application with SAFE to obtain approval for an annual allowance with respect to the purchase of foreign exchange in connection with stock holding or stock option exercises as PRC domestic individuals may not directly use overseas funds to purchase stock or exercise stock options. Concurrent with the filing of such application with SAFE, the PRC subsidiary shall obtain approval from SAFE to open a special foreign exchange account at a PRC domestic bank to hold the funds required in connection with the stock purchase or option exercise, any returned principal or profits upon sales of stock, any dividends issued upon the stock and any other income or expenditures approved by SAFE. The PRC subsidiary also is required to obtain approval from SAFE to open an overseas special foreign exchange account at an overseas trust bank to hold overseas funds used in connection with any stock purchase.

33

All proceeds obtained by PRC domestic individuals from sales of stock shall be fully remitted back to China after relevant overseas expenses are deducted. The foreign exchange proceeds from these sales can be converted into RMB or transferred to such individuals’ foreign exchange savings account after the proceeds have been remitted back to the special foreign exchange account opened at the PRC domestic bank. If the stock option is exercised in a cashless exercise, the PRC domestic individuals are required to remit the proceeds to the special foreign exchange account.

Although the Stock Option Rule was promulgated recently and many issues require further interpretation, we and our PRC employees who have been granted stock options became subject to the Stock Option Rule commencing from the date on which we became an overseas listed company. If we or our PRC employees fail to comply with the Stock Option Rule, we and/or our PRC employees may face sanctions imposed by foreign exchange authority or any other PRC government authorities.

In addition, the General Administration of Taxation recently has issued a few circulars concerning employee stock options. Under these circulars, our employees working in China who exercise stock options will be subject to PRC individual income tax. Our PRC subsidiaries have obligations to file documents related to employee stock options with relevant tax authorities and withhold individual income taxes of those employees who exercise their stock options. If our employees fail to pay and we fail to withhold their income taxes, we may face sanctions imposed by tax authorities or any other PRC government authorities.

Dividend Distribution

The principal regulations governing distribution of dividends by wholly foreign owned enterprises include the Wholly Foreign-owned Enterprise Law amended by SCNPC on October 31, 2000 and effective as of the same date, and its Implementing Rules amended by the State Council on April 12, 2001 and effective as of the same date.

Under these regulations, a foreign invested enterprise in China may pay dividends only out of its accumulated distributable profits, if any, determined in accordance with its articles of association, and the accounting standards and regulations in China. In particular, each of our principle PRC subsidiaries, Actions Semiconductor (Zhuhai) and Artek Microelectronics (Shenzhen), as wholly foreign owned enterprises, is required to provide for a reserve fund and a staff and workers’ bonus fund, and to set aside at least 10% (up to an aggregate amount equal to half of its registered capital) of its after-tax profits each year.

 C.         Organizational Structure

The following chart indicates the equity ownership structure and jurisdiction of incorporation of each of our subsidiaries as of March 31, 2009.

34

D.          Property, Plant and Equipment

Our corporate headquarters are located in 15-1, No. 1, HIT Road, TangJia, Zhuhai, Guangdong, 519085, the People’s Republic of China, where we occupy approximately 80,044 square feet under three separate leases from Zhuhai New Economic Resource Development Port Co., Ltd., all of these leases will expire on November 30, 2009. All of our semiconductor design operations are conducted at our corporate headquarters, including our semiconductor testing operations, and all of our testing equipment are located there. We entered into a Land Use Right Grant Agreement on December 21, 2005 with the Bureau of Land Resources, Zhuhai for 564,298 square feet of land on which to set up our new corporate headquarters. We have begun to construct our new headquarters in the June of 2008.

In Hong Kong, we lease approximately 1,303 square feet under a lease that expires on March 31, 2011, which serves as our export trade office. In addition, we lease a warehouse of approximately 596 square feet under a lease that expires on June 30, 2009. As we have decided to terminate this lease upon its expiration, we have leased another warehouse approximate 758 square feet under a two years’ lease that expires on December 21, 2010.

In Beijing, we lease approximately 11,194 square feet under a lease that expires on December 31, 2009, which serves as our research and development center for imaging and video technology.

In Shenzhen, we lease appropriately 22,010 square feet under two leases that expire on February 28, 2011 and April 21, 2013, respectively, which serve as a part of our sales office and houses our technology service center.

In Shanghai, we lease approximately 12,888 square feet under three lease contracts that expire on March 7, 2010, March 7, 2010 and March 15, 2012, respectively, which serve as one of our research and development centers and management service center.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

A.         Operating Results

Overview

We are a fabless semiconductor company that designs, develops and markets integrated platform solutions, including SoCs, firmware, software development tools and reference designs, for manufacturers of portable media players. We provide integrated platform solutions to portable media player manufacturers, brand owners and value-added distributors that enable them to accelerate the time-to-market for their products. We believe that our integrated platform solution approach provides a high level of value for our customers and creates a successful business model for us. We seek to extend our market leadership in SoC products and platform solutions for the development of portable media players through investing in technology leadership, extending our network of independent software developers and value-added distributors, incorporating high-end features into products for the mass-market, and improving the functionality-to-price ratio of our products.

35

Financial Operations Overview

The following describes key components of our statements of operations:

Revenues

We generate revenues primarily from sales of SoCs for portable media players. We generally sell our SoCs together with solution development kits, or SDKs, or together with SDKs and reference designs, which we sometimes refer to as our total solutions. The prices at which we sell our SoCs are generally not affected by whether we include SDKs or reference designs.

We previously generated limited revenues from sales of SoCs for energy metering products and for remote control toy cars. We licensed our technology in SoCs for remote control toys cars to a third-party in February 2005, and licensed our technology in SoCs for energy metering in May 2006 to Hi-Trend Investment Holding Co., Ltd (“Hi-Trend”), which had ever been an affiliate of ours from March 2006 until November 2007, when we ceased to exercise a significant influence on it. In December 2007, Hi-Trend also increased its issued capital when its other share holders increased their equity holding by US$1 million. As a result, our equity holding in Hi-Trend decreased from 18% to 15%. In June 2008, we sold another 5% of our holding in Hi-Trend’s equity to its other share holders. As of December 31, 2008, we owned approximately 10% of Hi-Trend’s equity. We have also generated limited revenues in providing semiconductor product testing services at times when we had excess capacity in our semiconductor testing operations.

Revenues from our SoCs for portable media players are affected by the volume of units shipped and the average selling price, which are in turn influenced by our product mix and selling prices for individual products. Our selling prices are principally determined by our products’ features and functionality, and by market conditions. As our SoCs for portable media players mature in the market, their selling prices tend to decline over time. We have been able to limit the decline in our average selling prices by introducing new products with additional features and functions with higher initial selling prices. In 2006, 2007 and 2008, sales of SoCs for portable media players accounted for approximately 99.2%, 99.7% and 99.8% of our total revenues, respectively.

Cost of Revenues

Our cost of revenues comprise of costs for our SoC products and have historically also included costs for semiconductor product testing services, which consist of depreciation expenses for product testing equipment and costs associated with operating this equipment.

SoCs:Cost of revenues for our SoC products primarily consists of our wafer prices, external testing and packaging fees, royalty payment, and personnel and occupancy expenses associated with our operations. In addition, we include inventory handling costs, inventory write-downs and transportation costs in our cost of revenues. The inventory write-downs have been immaterial to date. There can be no assurance, however, that a decrease in the average selling price of our products in the future would not require us to make write-downs in future periods.

In general, our per unit costs, including wafer prices and external testing and packaging fees, declined for the majority of our SoC products beginning from the second quarter of 2004 through the second quarter of 2006 as we increased the volume of our orders, In 2007 and 2008, our per unit costs declined further due to continuous improvement of design and decrease of wafer price, notwithstanding that the volume of order decreased in 2007 and 2008.

Wafer Pricing:We outsource the manufacturing of our SoC products to contract foundries. Wafer prices, which include both the purchase of silicon wafers and the foundries’ processing charges, are the largest component of our cost of revenues. We expect that wafer prices will continue to comprise the largest portion of our costs of revenues for the foreseeable future.

Royalty Payments:We have entered into licensing agreements with respect to third-party technologies that we use in our products. We generally pay licensing fees at the time we enter into the licensing agreement with the technology licensor. In addition, we pay royalty fees to the technology licensors based on percentage of net revenue of chip pursuant to the licensed technologies, which percentage royalty rate varies depending upon the tiers of cumulative unit volume of all licensee chips shipped, however, royalty paid for each unit of licensee chip shall no event be less than the royalty “floor” for the volume tiers aforementioned.

External Testing and Packaging: We test the silicon wafers used in the production of our SoCs internally or outsource testing operations to third-party testing houses. We manufacture or purchase the testing equipment we use under strict cost-efficiency criteria. We enter into contracts with third-party testing houses whenever our production volume exceeds our testing capacity. After testing, we employ third-party subcontractors to slice wafers into individual die and to assemble and package the die into finished semiconductor packages, which processes are collectively referred to as “packaging”.

36

Gross Profit

As the industry in which we compete is characterized by intense competition, integrated platform providers, including our company, must continuously invest in research and development to update and improve product features and functions. As a result, selling prices for products with less advanced features and functions generally decline over time as newer products are introduced. This aspect of the portable media player market means that in order to maintain our competitiveness and overall gross profit margin, we are required to continue to develop and offer products with improved features and additional functionality. We expect that our overall gross profit, as a percentage of revenues, may fluctuate from period to period as a result of shifts in product mix, changes in demand by consumers, changes in our pricing policies and those of our competitors, and new product introductions by us and our competitors.

Other Operating Income

Our other operating income has principally comprised of royalty income, subsidies and miscellaneous items. Royalty income consists of licensing fees we receive from licensing our technology in SoCs for remote control toy cars and energy metering. Subsidies include rent subsidy provided by the Zhuhai municipal government for our headquarters and research facilities, and project awards we have received for having undertaken research projects that advance areas of technology favored by the PRC government.

Operating Expenses

Our operating expenses include research and development expenses, selling and marketing expenses and general and administrative expenses.

Research and development expenses:Research and development expenses consist primarily of engineering expenses, costs associated with our electronic design automation software, depreciation on research and development equipment, and the cost of parts and materials for prototypes, as well as salaries, employee benefits and related expenses of employees engaged in research, design and development activities, including certain employees staffing our technology service center. We allocate the salaries, employee benefits and expenses attributable to field application engineers employed in our technology service center to research and development expenses, as the primary duty of these engineers is to provide customization services to our customers as a part of our integrated platform solutions. Such services are provided to our customers free of charge and prior to our receipt of purchase orders. As such, customers are under no obligation to reimburse us for costs incurred during this process or to actually purchase products from us. We expense all research and development costs as they are incurred.

Research and development expenses comprised 48.7%, 50.0% and 61.7 % of our operating expenses in 2006, 2007 and 2008, respectively. We believe that continued investment in research and development is critical to our ability to meet the changing requirements of our customers and to our overall long-term success. Accordingly, we expect that our research and development expenses will continue to grow both on an aggregate basis and as a percentage of our revenues as we employ additional research and development personnel, and as we seek to introduce more products and the life cycles of our products shorten.

General and administrative expenses: Our general and administrative expenses consist primarily of salaries, employee benefits, and related expenses for human resources, finance personnel and senior management. General and administrative expenses comprised 43.2%, 42.4% and 32.9% of our operating expenses in 2006, 2007 and 2008. We expect our general and administrative expenses to increase in the future as we hire additional experienced management personnel to further expand our business, and as we incur additional professional service fees, such as legal and accounting fees, in connection with our obligations as a public company.

Sales and marketing expenses:Our sales and marketing expenses consist primarily of salaries, employee benefits and related expenses for our sales and marketing department. They also include the direct costs attributable to our sales and marketing activities, such as travel, entertainment and advertising expenses. Sales and marketing expenses comprised 8.1%, 7.6% and 5.4% of our operating expenses in 2006, 2007 and 2008. We intend to expand our sales and support network to better serve our customer base. As a result, we expect our sales and marketing expenses to increase in the future.

Interest income

We earn interest income from our demand deposit accounts and marketable securities as a part of our cash management.

Other income

Our other income excluded from income from operations principally comprised of income related to tax refund and certain foreign exchange gain or loss.

37

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our most critical policies include: (a) revenue recognition; (b) allowance for doubtful accounts; (c) write-down for obsolete inventories, (d) provision for litigation claims, (e) stock-based compensation expense, (f) allowance against deferred tax asset and (g) impairment of long-lived asset. The following is a discussion of our most critical policies, as well as the estimates and judgments involved.

Revenue Recognition. Our revenues are primarily derived from the sale of SoC products that we design and develop at our own expense. We recognize revenue based on firm customer orders with fixed terms and conditions, including the selling price net of discount and commissions, if any. We recognize revenue when delivery has occurred and collectibility is determined to be reasonably assured. We also provide semiconductor product testing, and revenue is recognized when the services are rendered. We do not provide our customers with price protection and only provide the right of return for defective goods in connection with our warranty policy. To date, the costs of our warranty policy have been insignificant.

Allowance for Doubtful Accounts. We conduct credit evaluations of customers and analyze the payment history of customer accounts, including recent customer purchases. In circumstances where we are aware of a specific customer’s inability to meet its financial obligations to us, we will record an allowance against amounts due to reduce the net recognized receivable to the amount we reasonably believe will be collected. We recorded allowance for doubtful accounts in the amount of US$0, US$0.3 and US$0.5 million for the years ended December 31, 2006, 2007 and 2008, respectively. As our business grows, we expect our accounts receivable balance to increase. If the financial condition of our customers deteriorates, we may recognize allowance on such uncollectible accounts receivable, which would adversely impact our future operating results.

Write-down for Obsolete Inventories. We value our inventory at the lower of the actual costs of our inventory or its current estimated market value based on the selling prices of our SoCs. We record inventory provisions for estimated obsolescence or unmarketable inventories based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-down may be required.

Provision for Litigation Claims. We have been subject to legal proceedings and claims with respect to matters such as patents as identified in “Business—Legal Proceedings” in this document. Our success and future revenue growth will depend, in part, on our ability to protect our intellectual property.

It is possible that other companies might pursue litigation with respect to any claims such companies purport to have against us. The results of any litigation are inherently uncertain. In the event of an adverse result in any litigation with respect to intellectual property rights relevant to our products that could arise in the future, we could be required to obtain licenses to use the infringed technology, pay substantial damages under applicable law, cease the use and sale of infringing products or expend significant resources to develop non-infringing technology. Litigation frequently involves substantial expenditures and can require significant management attention, even if we ultimately prevail.

Periodically, we review the status of each significant matter, if any, and assess our potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be estimated, we accrue a liability for the estimated loss. If we estimate that loss will be within a range, and no amount within the range is considered a better estimate than any other amount, we would record the minimum estimated liability.

Stock-based compensation expense .We approved our stock-based compensation plan on May 21, 2008 and granted 8,000,000 options to purchase our ordinary shares to employees at exercise prices US $3.30 per share in exchange for their continuous employment of 4 years after the grant date. In accordance with the provisions of SFAS No. 123(R), we accounted for share-based compensation for employee based on the grant-date fair value of the award determined options using the Black-Scholes option pricing model. That cost will be recognized over the period during which our employees are required to provide service in exchange for the award, which is typically four years. If factors change and we employ different assumption for estimating stock-based compensation expense in future periods or if we decide to use a different valuation model, our stock-based compensation in future periods may differ significantly and could materially affect operating results.

Allowance against Deferred Tax Asset. We record valuation allowance against deferred tax asset based on taxable income in the future. A deferred tax asset is recognized for temporary differences that will result in deductible amounts in future years and for carry forwards. If, based on the weight of available evidence, it is more likely than not that some portion or all of deferred tax asset will not be realized, we will record a valuation allowance to reduce the net deferred tax asset to the amount that we reasonably believe will be realized.  

38

Impairment of Long-lived Assets. The valuation of the long-lived assets is tested whenever events or changes in circumstance indicate that the carrying amounts may not be recoverable. Impairment assessment has been made on the comparison of the undiscounted future cash flows generated by long-lived assets and their current carrying amounts, and no impairment loss has been recognised. If the future economic situation deteriorates and actual cash flows generated from long-lived assets are less than the projected cash flows, impairment loss will be recognised and would adversely impact our future operating results.

Inflation

Inflation in China has not had a material impact on our results of operations in recent years. According to the National Bureau of Statistics of China, China’s overall inflation rate, as represented by changes in the Consumer Price Index, was approximately 1.5% in 2006, 4.8% in 2007 and 5.9% in 2008.

Results of Operations

The following tables set forth selected results of operations data derived from our consolidated financial statements, expressed in thousands of U.S. dollars and as a percentage of revenues, for the periods indicated. Our historical results of operations are not necessarily indicative of the results for any future period.

	For the year ended December 31,
	2006			%			2007			%			2008			%
	(thousands)						(thousands)						(thousands)
Revenues:
System-on-a-chip products	US$	170,129			99.9	%	US$	116,320			99.7	%	US$	94,916			99.8	%
Semiconductor product testing services		99			0.1	%		308			0.3	%		214			0.2	%
Total revenues		170,228			100.0	%		116,628			100 .0	%		95,130			100 .0	%
Cost of revenues:
System-on-a-chip products		(75,853	)		-44.6	%		(56,687	)		-48.6	%		(47,248	)		-49.7	%
Semiconductor product testing services		(58	)		0.0	%		(231	)		-0.2	%		(177	)		-0.2	%
Total cost of revenues		(75,911	)		-44.6	%		(56,918	)		-48.8	%		(47,425	)		-49.9	%
Gross profit		94,317			55.4	%		59,710			51.2	%		47,705			50.1	%
Other operating income		1,634			1.0	%		392			0.3	%		797			0.8	%
Operating expenses:
Research and development		(9,773	)		-5.7	%		(12,381	)		-10.6	%		(19,477	)		-20.5	%
General and administrative		(8,663	)		-5.1	%		(10,485	)		-9 .0	%		(10,399	)		-10.9	%
Selling and marketing		(1,626	)		-1.0	%		(1,880	)		-1.6	%		(1,694	)		-1.8	%
Total operating expenses		(20,062	)		-11.8	%		(24,746	)		-21.2	%		(31,570	)		-33.2	%
Income from operations		75,889			44.6	%		35,356			30.3	%		16,932			17.7	%
Other income		—			—			11,570			9.9	%		1,213			1.3	%
Dividend income		—			—			—			—			20			0.1	%
Fair value change in trading securities		—			—			—			—			92			0.1	%
Interest income		4,876			2.9	%		7,162			6.1	%		11,912			12.5	%
Interest expenses		(160	)		-0.1	%		(82	)		-0.1	%		(4	)		-0.1	%
Income before income taxes, equity in net loss of an equity method investee and minority interests		80,605			47.4	%		54,006			46.2	%		30,165			31.6	%
Income taxes expense		(5,984	)		-3.5	%		(2,202	)		-1.9	%		(3,632	)		-3.8	%
Equity in net loss of an equity method investee		(156	)		-0.1	%		(383	)		-0.3	%		(576	)		-0.6	%
Minority Interests		96			0.1	%		220			0.2	%		166			0.2	%
Net income	US$	74,561			43.9	%	US$	51,641			44.3	%	US$	26,123			27.4	%

39

Year ended December 31, 2008 and 2007

Revenues. Revenues decreased by US$21.5 million, or 18.4%, from US$116.6 million in 2007 to US$95.1 million in 2008. The decrease was due primarily to a 15.5% decline in the average selling price of our SoCs for portable media players in 2008 compared to 2007 as well as a 3.4% decrease in units shipped compared to last year. The decline in average selling price was primarily the result of our strategy to reduce prices on certain products from time to time in order to maintain our sales volume and market share as well as the product mix adjustment as the low-end products accounted for larger portion of our total units shipments in 2008. The decrease in units shipped was mainly due to the drop of market demand after the global financial crisis started in 2008.

Revenues resulted from providing semiconductor products testing services comprised of 0.3% and 0.2% of our total revenue in 2007 and 2008, respectively.

Cost of Revenues. Cost of revenues decreased by US$9.5 million, or 16.7%, from US$56.9 million in 2007 to US$47.4 million in 2008, primarily due to a decrease in average unit cost resulted from our cost reduction measures, including continuous design improvement to migrate into smaller processing geometries and decreases in wafer pricing, notwithstanding that the volume of order decreased in 2007 and 2008. The decrease in units shipped of our SoC products also caused a drop in the costs of revenue in proportion thereto.

Gross Profit. As a result of the decrease in sales of our SoC products, our gross profit decreased by US$12.0 million, or 20.1%, from US$59.7 million in 2007 to US$47.7 million in 2008. Our gross profit margin was 50.1% in 2008, compared to 51.2% in 2007. The decrease in gross profit margin was due to the decline in average selling price which was larger than the reduction in average unit cost.

Other Operating Income. Other operating income increased by US$0.4 million, or 100.0%, from US$0.4 million in 2007 to US$0.8 million in 2008. In 2008, we recognized a US$0.6 million advance subsidy from local authorities of Zhuhai, China. Comparatively, in 2007, we recognized royalty payment of US$0.3 million from licensing our technology in the energy metering SoCs to our affiliate Hi-Trend Investment Holding Co., Ltd., which completed its license royalty payment plan to us in April 2007.

Operating Expenses. Total operating expenses increased by US$6.9 million, or 27.9%, from US$24.7 million in 2007 to US$31.6 million in 2008.

•           Research and development. Research and development expenses increased by US$7.1 million, or 57.3%, from US$12.4 million in 2007 to US$19.5 million in 2008, due primarily to US$2.6 million increase in intangible assets amortization associated with the acquired technologies, US$2.3 million increase in the compensation and welfare expenses resulted from an increase in number of the research and development personnel, US$1.4 million increase in the stock option expenses, and an increase in costs associated with new research and development projects, totaled US$0.8 million, including, among others, mask costs, verification expenses and depreciation of equipment.

•           General and administrative expenses. General and administrative expenses decreased by US$0.1 million, or 1.0%, from US$10.5 million in 2007 to US$10.4 million in 2008, due primarily to a decrease of US$0.9 million in foreign currency exchange loss. The decrease was partially offset by an increase of US$0.7 million stock option expenses.

•           Selling and marketing expenses. Selling and marketing expenses decreased by US$0.2 million, or 10.5%, from US$1.9 million in 2007 to US$1.7 million in 2008, due primarily to a decrease of US$0.2 million in advertisements expenses. 

Income from Operations. As a result of the foregoing, our income from operations decreased by US$18.5 million, or 52.3%, from US$35.4 million in 2007 to US$16.9 million in 2008.

40

Interest Income. The amount of our cash, cash equivalents and time deposits decreased to US$45.5 million as of December 31, 2008, compared to US$74.7 million as of December 31, 2007. While the balance has decreased, the value of marketable securities has increased to US$201.2 million as of December 31, 2008 compared to US$165.3 million as of December 31, 2007. As we had generally higher levels of cash and we had recorded higher yield due to more active cash management, our interest income increased by US$4.7 million, or 65.3%, from US$7.2 million in 2007 to US$11.9 million in 2008.

Other Income (non-operating). Other income excluded from income from operations decreased to US$1.2 million from US$11.6 million in 2007 due primarily to a decrease of tax refund of approximately US$5.9 million received from Zhuhai municipal government. In addition, our foreign exchange gain was US$4.5 million lower in 2008 compared to 2007.

Year ended December 31, 2007 and 2006

Revenues. Revenues decreased by US$53.6 million, or 31.5%, from US$170.2 million in 2006 to US$116.6 million in 2007. The decrease was due primarily to a 28.8% decline in the average selling price of our SoCs for portable media players in 2007 compared to 2006 as well as a slight 3.2% decrease in units shipped compared to last year. The decline in average selling price was primarily the result of our strategy to reduce prices on certain products from time to time in order to maintain our sales volume and market share as well as the product mix adjustment as the low-end products accounted for larger portion of our total units shipments in 2007.

Revenues resulted from providing semiconductor products testing services comprised of 0.1% and 0.3% of our total revenue in 2006 and 2007, respectively.

Cost of Revenues. Cost of revenues decreased by US$19.0 million, or 25.0%, from US$75.9 million in 2006 to US$56.9 million in 2007, primarily due to a decrease in average unit cost resulted from our cost reduction measures, including wafer pricing and process migration from 0.18 micron to 0.162 micron. The decrease in units shipped of our SoC products also caused a drop in costs of revenue in proportion thereto.

Gross Profit. As a result of the decrease in sales of our SoC products, our gross profit decreased by US$34.6 million, or 36.7%, from US$94.3 million in 2006 to US$59.7 million in 2007. Our gross profit margin was 51.2% in 2007, compared to 55.4% in 2006. The decrease in gross profit margin was due to the decline in average selling price which was larger than the decline in average unit cost.

Other Operating Income. Other operating income decreased by US$1.2 million, or 75.0%, from US$1.6 million in 2006 to US$0.4 million in 2007. In 2007, our other operating income relates to royalty income from licensing fee. In 2007, we recognized royalty payment of $0.3 million from licensing our technology in the energy metering SoCs to our affiliate Hi-Trend Investment Holding Co., Ltd., which completed its license royalty payment plan to us in April 2007. In 2006, we recognized a US$0.5 million license fee and a US$0.7 million royalty payment from Hi-Trend Investment Holding Co., Ltd.

Operating Expenses. Total operating expenses increased by US$4.7 million, or 23.3%, from US$20.1 million in 2006 to US$24.7 million in 2007.

•           Research and development. Research and development expenses increased by US$2.6 million, or 26.7%, from US$9.8 million in 2006 to US$12.4 million in 2007, due primarily to US$1.3 million increase in intangible assets amortization associated with the acquired development tools and software, US$0.5 million increase in the compensation and welfare expenses resulted from an increase in number of the research and development personnel, and an increase in costs associated with new research and development projects, totaled US$0.5 million, including mask costs, verification expenses, depreciation of equipments, etc.

•           General and administrative expenses. General and administrative expenses increased by US$1.8 million, or 21.0%, from US$8.7 million in 2006 to US$10.5 million in 2007, due primarily to an increase of US$1.4 million compensation and welfare expenses resulted from an increase in number of personnel, an increase of US$0.4 million claim payments associated with our employment dispute with one of our former employees, US$0.6 million in foreign currency exchange loss, and US$0.3 million in allowance for doubtful accounts. The increase was partially offset by a decrease of US$1.1 million in payment of consultancy and legal fees as we settled all of our disputes with SigmaTel.

•           Selling and marketing expenses. Selling and marketing expenses increased by US$0.3 million, or 15.6%, from US$1.6 million in 2006 to US$1.9 million in 2007, due primarily to the US$0.2 million sponsor fee for a concert held in Shenzhen in December 2007 jointly by us and our partner Muzgame.com, a music content internet company.

Income from Operations. As a result of the foregoing, our income from operations decreased by US$40.5 million, or 53.4%, from US$75.9 million in 2006 to US$35.4 million in 2007.

41

Interest Income. The amount of our cash, cash equivalents and time deposits decreased to US$74.7 million as of December 31, 2007, compared to US$183.5 million as of December 31, 2006. While the balance has decreased, the value of marketable securities has increased to US$165.3 million as of December 31, 2007 compared to US$20.5 million as of December 31, 2006. As we had generally higher levels of cash position and we had recorded higher yield due to more active cash management, our interest income increased by US$2.3 million, or 46.9%, from US$4.9 million in 2006 to US$7.2 million in 2007.

Other Income (non-operating). Other income excluded from income from operations increased to US$11.6 million from Nil in 2006 due primarily to an increase of tax refund of approximately US$5.9 million received from Zhuhai municipal government, and an increase of US$5.6 million foreign currency exchange rate gain. 

B.            Liquidity and Capital Resources

The following table sets forth the summary of our cash flows for the periods indicated:

	For the year ended December 31,
	2006			2007			2008
	(thousands)
Net cash provided by operating activities	US$	76,774		US$	46,816		US$	9,930
Net cash used in investing activities		(48,188	)		(111,147	)		(30,683	)
Net cash used in financing activities		(1,917	)		(4,411	)		(8,423	)
Net increase in cash and cash equivalents		26,669			(68,742	)		(29,176	)
Cash and cash equivalents, beginning of year		108,896			137,778			72,054
Effect of exchange rate changes on cash		2,213			3,018			2,557
Cash and cash equivalents, end of year	US$	137,778		US$	72,054		US$	45,435

On December 31, 2008, we had US$266.4 million of cash, cash equivalents, restricted cash, time deposits, marketable securities and trending securities. We began to generate significant cash flow from operations beginning in the second half of 2004. As a result of our initial public offering in November 2005, we generated additional cash in the amount of US$44.6 million. In the future, we anticipate that our primary sources of liquidity will be cash provided by operations, and the proceeds of capital markets transactions, if any.

Operating Activities

In 2008, net cash provided by operating activities amounted to US$9.9 million. We generated net income during this period of US$26.1 million. We recorded a decrease in accounts payable of US$9.0 million due to less purchase near the end of 2008, a decrease of accrued expenses and other current liabilities of US$5.5 million due principally to the decrease in accrued staff bonus, an increase in trading securities of US$19.3 million for purchase of bond fund, which was partially offset by the depreciation and amortization of US$2.1 million, the amortization of acquired intangible assets of US$3.2 million, an increase in stock options expenses of US$2.3 million, an increase in deferred tax of US$2.1 million, and a decrease in inventory of US$3.6 million as a result of an inventory level adjustment in light of the current economic circumstances, a decrease in accounts receivable of US$2.2 million due to the lower sales in December 2008, a decrease in notes receivable of US$0.3 million, a decrease in prepaid expenses and other current assets of US$1.6 million.

In 2007, net cash provided by operating activities amounted to US$46.8 million. We generated net income during this period of US$51.6 million. We recorded a decrease in accounts payable of US$4.0 million due to less purchase near the end of 2007, a decrease in income tax payable of US$1.6 million due to less taxable income, and decrease of accrued expenses and other current liabilities of US$3.8 million mainly due to the foreign exchange gain, an increase in inventory of US$6.2 million due to slower sales than expected, and an decrease in accounts receivable of US$0.5 million, which was partially offset by the depreciation and amortization of US$1.6 million, the amortization of acquired intangible assets of US$2.3 million, a decrease in notes receivable of US$1.8 million, and a decrease in prepaid expenses and other current assets of US$4.3 million due to more VAT refund received in 2007.

In 2006, net cash provided by operating activities amounted to US$76.8 million. We generated net income during this period of US$74.6 million. We recorded an increase in accounts payable of US$2.2 million, an increase in income tax payable of US$2.3 million, an increase in depreciation and amortization of US$1.0 million, an increase in amortization of acquired intangible assets of US$1.0 million, and a decrease in accounts receivable of US$0.04 million, which was partially offset by a decrease in accrued expenses and other current liabilities of US$2.7 million relating to unpaid legal fees and accrued bonuses, and an increase in prepaid expenses and other current assets of US$4.0 million.

42

Investing Activities

In 2008, net cash used in investing activities was US$30.7 million. We recorded an increase in the value of marketable securities of US$25.6 million, an increase in other investments of US$2.2 million, an increase in equity method investee of US$3.0 million, an increase in purchase of intangible assets of US$1.2 million, an increase in purchase of equipments of US$2.4 million, an increase in deposit paid for acquisition of equipments of US$0.4 million. These increases were offset by a decrease of US$1.4 million in restricted cash, reflecting the maturity of a time deposit placed into an account with the Agriculture Bank of China as collateral for the net short-term loan, and a decrease in time deposits with maturities between three and six months, which provided cash amounted to US$2.7 million for our activities.

The increase in marketable securities in 2008 was mainly in money market deposits and trust financial products issued by the PRC commercial banks and financial institution with maturities between three and twelve months. In addition, the increase in long-term financial investments in 2008 consisted of strategic investments of US$3.0 million in Mavrix Technology Inc., a fabless semiconductor company developing SoC solutions for the emerging Mobile Digital TV market, which became our equity method investee in 2008, and an increase in other investments of US$ 3.0 million in Actar Limited, a value added service provider that bridges entertainment with technology, and US$0.1 million in Unitech Electronics Co., Ltd, a manufacturer and designer of automatic identification and data collection products, decrease in the other investments of US$ 1.0 million in Bizlink Holdings Inc, a manufacturer of interconnectivity solutions such as cable, wire and connector. and US$0.5 million in Hi-Trend Limited.

In 2007, net cash used in investing activities was US$111.2 million. We recorded an increase in marketable securities of US$141.1 million, an increase in other investments of US$3.8 million, an increase in long investments of US$2.3 million, an increase in purchase of intangible assets of US$4.2 million, an increase in purchase of equipments of US$2.6 million, and an increase of US$1.6 million in restricted cash, reflecting a time deposit placed into an account with the Agriculture Bank of China as collateral for the net short-term loan. This was offset by a decrease in time deposits with maturities between three and six months, which provided cash amounted to US$44.4 million for our activities.

The increase in the value of marketable securities in 2007 was mainly money market deposits and trust financial products issued by the PRC commercial banks and financial institution with maturities between three and twelve months. In addition, the increase in other investments in 2007 consisted of strategic investments of US$2.3 million in Mavrix Technology Inc., a fabless semiconductor company developing SoC solutions for the emerging Mobile Digital TV market, and long-term financial investments of US$ 2.8 million in AMC Holdings Limited, a PCB manufacturer, US$1.0 million in Bizlink Holdings Inc., and US$0.1 million in Unitech Electronics Co., Ltd.

Net cash used in investing activities was US$48.2 million in 2006. Net cash used in investing activities in 2006 consisted principally of an increase of US$21.5 million in time deposits, an increase of US$20.5 million in marketable securities, which reflects a short-term interest rate contract linked to the Yen-Dollar exchange rate with Citibank, amounting to US$2.6 million, and structured deposits in the amount of US$17.9 million at Bank of Communications.

Financing Activities

Net cash used in financing activities was US$8.4 million in 2008, consisting of a decrease in short term bank loans of US$1.6 million, an increase in a new loan borrowed from a minority shareholder of Beijing Actions by Beijing Actions in the amount of US$1.5 million for its working capital requirements and payment for repurchase program in the amount of US$9.4 million.

Net cash used in financing activities was US$4.4 million in 2007, consisting of an increase in short term bank loans of US$1.4 million and payment for the repurchase of ADSs pursuant to our share repurchase program in the amount of US$6.7 million.

Net cash used in financing activities was US$1.9 million in 2006, consisting principally of a short-term loan in the amount of US$5.3 million, which was more than offset by repayment of short-term bank loans in the amount of $7.7 million.

As of December 31, 2008, we had no short-term loan from banks, but have a loan from a minority shareholder in the amount of approximately US$1.5 million. 

Capital Expenditures 

We made capital expenditures of US$8.8 million, US$12.9 million and US$8.8 million in 2006, 2007 and 2008, respectively. Our capital expenditures in 2008 consisted principally of US$2.4 million for the purchase of property, plant and equipment, US$1.2 million for the acquisition of intangible assets, US$3.0 million for long-term equity investments and US$2.2 million for other investments.

43

We plan to construct new corporate headquarters in Zhuhai in response to our anticipated growth, and may also establish offices in other cities in China, such as Shanghai, to better serve our existing and future customers in those areas. We anticipate continuing to invest in improving and upgrading our technology infrastructure, including acquiring additional engineering tools, software and other intangible assets. We also plan to continue to invest in additional testing equipment to expand our internal testing capacity, or make long-term investments in companies or technologies consistent with our business objectives. Accordingly, we expect to make additional capital expenditures totaling approximately US$29.8 million in 2009 in connection with such efforts.

Capital Requirements 

Our capital requirements depend on numerous factors, including:

• market acceptance of our products;

• our expenditures on our planned new headquarters in Zhuhai and other sites;

• our expenditures on research and development activities;

• our expenditures on workstations, testing equipment, licenses and royalty payments and electronic design automation tools;

• the resources we devote to marketing, selling and supporting our products;

• the payment terms we negotiate with our customers;

• market prices for our products; and

• other working capital requirements.

We expect to devote substantial capital resources to support our research and development efforts, hire and expand our sales and marketing resources, and for other corporate activities. We believe that our current cash and cash equivalents, cash flow from operations, bank loans and the proceeds from the sale of our equity and marketable securities will be sufficient to meet our anticipated cash needs, including our cash needs for working capital and capital expenditures, for at least the next 12 months, and do not anticipate that we will require additional bank loans or proceeds from equity offerings during such period. We may, however, require additional cash resources due to changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue.

Restricted Net Assets

Relevant PRC laws and regulations permit payments of dividends by our PRC subsidiaries only out of its retained earnings, if any, as determined in accordance with PRC regulations and accounting standards. For example, our principle subsidiaries, Actions Semiconductor (Zhuhai) and Artek Microelectronics (Shenzhen), as wholly foreign owned enterprises, are required to set aside at least 10% (up to an aggregate amount equal to half of its registered capital) of its after-tax profits each year as a statuary reserve fund and to provide for a staff and workers’ bonus fund at the discretion of its board of directors. Retained earnings calculated under PRC regulations and accounting standards may differ from retained earnings calculated in accordance with U.S. GAAP. As a result of these and other restrictions under PRC laws and regulations, Actions Semiconductor (Zhuhai) and Artek Microelectronics (Shenzhen) are restricted in their ability to transfer a portion of their net assets to us in the form of dividends, loans or advances, which restricted portion amounted to approximately US$5.2 million, or 2.5%, and US$9.4million, or 3.6% of our total consolidated net assets, as of December 31, 2006 and 2007, respectively.

As of December 31, 2008, the restricted net assts associated with the statutory reserves of Actions Semiconductor (Zhuhai) and Artek Microelectronics (Shenzhen) totaled approximately US$12.1 million, or 4.2% of our total consolidated net assets. In addition to those reserves, the registered capital of the Company’s PRC subsidiaries is also restricted. In December 2007, Actions Semiconductor (Mauritius) re-invested the undistributed earnings of approximately US$80.2 million, or 27.8% of our total consolidated net assets from our subsidiary Actions Semiconductor (Zhuhai) back into Actions Semiconductor (Zhuhai) by way of a capital injection. As of December 31, 2008, the total amount of the registered capital and reserves amounted to US$115.3 million, or 39.9% of our total consolidated net assets as of December 31, 2008.

44

Taxation

We are a tax exempted company incorporated in Cayman Islands and are not subject to taxation under the current Cayman Islands law. Our net income is primarily derived from Actions Semiconductor (Zhuhai) and Artek Microelectronics (Shenzhen). Prior to January 1, 2008, foreign invested enterprises in the PRC are generally subject to a 30% Foreign Enterprise Income Tax, or FEIT, and a 3% local income tax. However, Actions Semiconductor (Zhuhai) was established in the Zhuhai Special Economic Zone of China as a foreign invested enterprise and principally conducts its business operations in this zone. And Artek Microelectronics (Shenzhen) was established in the Shenzhen Special Economic Zone of China as a foreign investment enterprise and principally conducts its business operations in that zone. Therefore, each of them was subject to the reduced FEIT rate of 15% and was exempt from FEIT for its first two years of profitable operations after offsetting prior years’ tax losses, and will be entitled to a 50% reduction in its FEIT for the following three years as approved by the tax authorities in accordance with the China Income Tax Law for Enterprises with Foreign Investment and Foreign Enterprises and its Implementation Rules issued in 1991. According to the Rules on Exemption or Reduction of Local Income Tax for Foreign Investment Enterprises promulgated by People’s Government of Guangdong Province effective on January 1, 1992, during such five-year preferential tax treatment period, Actions Semiconductor (Zhuhai) and Artek Microelectronic (Shenzhen) are also exempt from the 3% local income tax.

As a result of such preferential tax treatment, Actions Semiconductor (Zhuhai) was exempt from FEIT in the years ended December 31, 2004 and 2005, which were the first two years Actions Semiconductor (Zhuhai) achieved profitable operations after offsetting prior years’ tax losses. Actions Semiconductor (Zhuhai) also benefited from a 50% reduction in FEIT, which were 7.5% during each of the years ending December 31, 2006 and 2007, and 9% for the year ended December 31, 2008. The FEIT of Actions Semiconductor (Zhuhai) is expected to be 15% for the year ending December 31, 2009. Artek Microelectronics (Shenzhen) was exempt from FEIT in the years ended December 31, 2007 and 2008, which were the first two years Artek Microelectronics (Shenzhen) achieved profitable operations after offsetting prior years’ tax losses. Furthermore, Artek Microelectronics (Shenzhen) is expected to benefit from a 50% reduction of EIT rate, during each of three years ending December 31, 2009, 2010 and 2011, therefore the corresponding EIT rate will be 10%, 11% and 12% respectively.

On March 16, 2007, the National People’s Congress passed a new Enterprise Income Tax Law. The new PRC Enterprise Income Tax Law, effective January 1, 2008, imposes a single uniform EIT rate of 25% for most foreign-invested enterprises while permitting certain certified high technology companies may be taxed at a reduced tax rate of 15%. The new PRC Enterprise Income Tax law also contemplates various transition periods and measures for existing preferential tax policies, including among others, a grace period for as long as five years for foreign-invested enterprises which are currently entitled to a lower income tax rate, and continued implementation of preferential tax treatment with a fixed term until the expiration of such fixed term. Under the grace period the enterprises that were granted the preferential tax treatment may adjust its tax rate into 25% gradually within the next five years at the rate of 18%, 20%, 22%, 24% and 25% from 2008 to 2012, respectively.

Under this formulation, Actions Semiconductor (Zhuhai) enjoyed an income tax rate of 9% for the year ended December 31, 2008, which was the last year of its preferential tax treatment where it may benefit from a 50% reduction of EIT. Further, Actions Semiconductor (Zhuhai) was certified as a “High-Tech Enterprise” in 2006 and 2008, respectively, and is entitled to benefit from the reduced tax rate of 15% starting from the fiscal year of 2009.

Artek Microelectronics (Shenzhen) was exempt from FEIT in the years ended December 31, 2007 and 2008, which was the first two years Artek Microelectronics (Shenzhen) achieved profitable operations after offsetting prior years’ tax losses. From 2009 to 2011, Artek Microelectronics (Shenzhen) is expected to benefit from a 50% reduction of EIT, as a result of which its applicable income tax rate could be 10%, 11% and 12% for the years ended December 31, 2009, 2010 and 2011, respectively. Further, Artek Microelectronics (Shenzhen) was certified as a “Hi-Tech Enterprise” in 2007. If Artek Microelectronics (Shenzhen) can continue to obtain its Hi-Tech Enterprise certification every two year since 2007, it may be able to benefit from the reduced rate of 15% starting from the year 2012.

In December 2007, we received a tax refund of US$5.9 million from the Zhuhai Municipal Bureau of Tax. This refund was received as Actions Semiconductor (Mauritius) reinvested the undistributed earnings of approximately US$80.2 million back into Actions Semiconductor (Zhuhai).

Our PRC entities, all PRC tax residents, are required by 2008 new PRC Income Tax Law to withhold income tax when and if undistributed earnings are declared to be paid as dividends commencing on January 1, 2008 to the extent those dividends are paid out of profits that arose on or after January 1, 2008. The tax provision includes $1,738 of income tax expense for the 5% dividend withholding tax on the balance of distributable profits that arose on or after January 1, 2008 within its PRC subsidiaries as of December 31, 2008.

45

Pursuant to the Interim Regulations on Value-added Tax and its Implementation Rules issued in 1993, all entities and individuals that are engaged in the sale of goods, the provision of repairs and replacement services and the importation of goods in China are generally required to pay value-added tax, or VAT, at a rate of 17% of the gross sales proceeds received. We received a full rebate of the VAT on most of our export sales since the establishment of Actions Semiconductor (Zhuhai) through December 31, 2003. Due to changes in PRC regulations, from January 1, 2004 through October 31, 2004 we received a rebate of approximately 76% of our VAT payments. Beginning November 1, 2004 we resumed receiving a full rebate on our VAT payments. As most of our sales consist of exports, historically we have not incurred significant VAT expense.

We have historically had minimal taxable income in jurisdictions other than China.

Reconciliation between the benefits for FEIT computed by applying the China tax rate to profit before income taxes is as follows:

	Year ended December 31,
	2006			2007			2008
	(thousands)
PRC enterprise income tax rate		15	%		15	%		18	%
Tax provision at reduced PRC enterprise income tax rate	$	12,091		$	8,101		$	5,430
Expenses not deductible for tax purposes		477			764			1,091
Share-based compensation not deductible for tax purposes		—			—			413
Income not taxable for tax purposes		(519	)		(2,393	)		(431	)
Net change in valuation allowance		233			134			570
Effect of tax exemption and preferential income tax rates granted to PRC subsidiaries		(6,206	)		(4,284	)		(5,036	)
Effect of the different income tax rate in other jurisdictions		(111	)		(121	)		(138	)
Effect of withholding tax on undistributed earnings		—			—			1,738
Others		19			1		(5		)
	$	5,984			2,202			3,632

 C.         Research and Development, Patents and Licenses, etc.

Research and Development

We devote a substantial portion of our resources to the development of our SoCs and our ability to provide SDKs and reference designs. We make continuous investment in our design technologies to improve design, fabrication and verification of our products. As of December 31, 2008, we had 389 research and development engineers who work closely with value-added distributors, contract manufacturers and brand owners in adding new features and functions to our existing products or developing new products.

Our mixed-signal integration expertise enables us to reduce the size and cost of our SoC products. For example, we incorporate standard digital components in these products, including a processor, embedded memory, certain peripheral connections such as a universal serial bus, TV encoder, and analog components, such as analog-to-digital and digital-to-analog converters, audio signal power amplifiers, low dropout regulators (LDOs)and DC-DC regulators. Because we are able to integrate several analog and digital components on the same integrated circuit, our customers can avoid significant design challenges when they use our SoCs.

Our research and development efforts during 2007 and 2008 focused principally on increasing the solutions and applications of our eleven series and thirteen series products to enhance their appeal to our customers, and on the development and production of our newest ATJ203X series and ATJ225X series products. In addition to pursuing these efforts, we are currently focusing our research and development efforts on gaining know-how and intellectual property in the areas of advanced audio and video technology. Our continuing goal for our research and development efforts is to develop and integrate increasing functionality into our SoCs and integrated platform solutions products while maintaining our competitive pricing structure. Also, we will continue to focus on developing the low power consumption technology and the technology to enhance the quality of sound, image and video. High definition multi-format video decoder is another key technology we’ll focus on in the coming year.

46

We have a stable core team of engineers that have detailed knowledge of our proprietary architecture, algorithms, integrated circuit designs, firmware and software engineering, as well as system-level knowledge of our customer’s manufacturing processes. Our ability to adapt to changing customer requirements and evolving industry standards through the development of new and enhanced products is a significant factor in maintaining our competitive position and our prospects for growth.

Intellectual Property

As of December 31, 2008, we hold 23 issued patents and have 82 patent applications pending in the mainland of China, and we have three pending patent applications under the Patent Cooperation Treaty, or PCT. We also have 11 proprietary rights granted for layout-design of integrated circuits, eight registered trademarks and 29 trademark applications pending in the mainland of China. In addition, we also hold four registered trademarks in Hong Kong, four registered trademarks in Taiwan, two registered trademarks in the United States, one registered trademark in the European Union and one registered trademark in India. We also have an aggregate of 27 trademark applications pending in Hong Kong, Taiwan, the United States, European Union, Russia, Korea, Japan, Canada, Brazil, India and Singapore.

Although we file patents to protect our inventions, our revenue is not dependent on any particular patent. We do not believe the expiration or loss of any particular patent would materially harm our business. We do not know if our patent applications or any future patent application will result in a patent being issued with the scope of the protection we seek, if at all, or whether any patents we may receive will be challenged, invalidated or declared unenforceable. We intend to continue to assess appropriate occasions for seeking patent protection for those aspects of our technology that we believe provide significant competitive advantages.

We have established an intellectual property rights, or IPR, department which serves our entire organization and undertakes patent application, trademark registration, IC layout design, software copyright registration, and related legal affairs. As of December 31, 2008, we had eight in house intellectual property engineers who work closely with all departments including marketing, research and development and have extensive connection with external law firms and IP offices.

Our products are designed for use in devices manufactured by our customers that comply with international standards. These international standards are often covered by patents or copyrights held by third parties. We have entered into various licensing agreements with major technology companies, including MIPS Technologies, Inc., Microsoft Corporation, SRS Labs, Inc., Samsung Electronics, Cambridge Silicon Radio, Dolphin Integration and Real Networks. We integrate third-party software or other licensed technology into almost all of our products.

From time to time, we may be required to license additional technology from third-parties to develop new products or product enhancements. Third-party licenses may not continue to be available to us on commercially reasonable terms or at all. Our inability to maintain any third-party licenses required in our current products, or to obtain third-party licenses necessary to develop new products and product enhancements, could require us to obtain substitute technology at greater cost or of lower quality or performance standards.

Actions Semiconductor and the Actions Semiconductor logo are our registered trademarks. These trademarks remain valid while we continue to use and renew them.

Third-parties could infringe or misappropriate our patents, copyrights, trademarks and other proprietary rights. In addition, other parties may assert infringement claims against us or our customers. Although we do not believe our platforms infringe any patents, our platforms may be found to infringe one or more issued patents. In addition, because many pending patent applications in China, the United States and elsewhere are not publicly disclosed by the relevant patent and trademark offices until the application is published, there may be applications that relate to our platforms of which we have no knowledge.

We may be subject to legal proceedings and other claims in the ordinary course of our business, including claims of alleged infringement of the patents and other intellectual property rights of third-parties. We may also be required to resort to litigation to enforce our intellectual property rights. Intellectual property litigation is expensive and time-consuming and could divert management’s attention away from running our business. Intellectual property litigation could also require us to pay substantial damages to the party claiming infringement, stop selling products or using technology that contains the allegedly infringing intellectual property, develop non-infringing technology or enter into license agreements. These license agreements, if required, may not be available on acceptable terms, if at all, in the event of a successful claim of infringement.

47

D.           Trend Information

Demand for portable media players. Throughout 2004 and 2005, a combination of factors, including a decrease in the price of portable media players caused by a significant decrease in the price of flash memory, which is a major cost component of many portable media players, and the growing acceptance of digital media distribution channels on the Internet such as Apple iTunes, Yahoo, MusicMatch and Napster, resulted in rapid growth in demand for portable media players. Because we supply SoCs for use in portable media players, we benefited greatly from the increased demand, and our revenues and profitability grew rapidly during this period. Further, we expect the growth in emerging markets, including China, India, Russia, and Brazil, will outpace the growth of the overall market for portable media players. However, while we anticipate future growth, it is unlikely that we will experience growth in revenues and profitability on a percentage basis comparable to what we experienced during 2004 and 2005 when consumer demand for portable media players began to increase rapidly. Accordingly, you should not rely on the results of any prior quarterly or annual periods as an indication of our future operating performance. In 2008, we were negatively impacted by the global financial crisis. We experienced a significant decrease in sales, especially in the fourth quarter of 2008, which resulted in 8.1 million units of less shipments compared to the same period in 2007. In addition, we also experienced a decrease in sales to our overseas market and we cannot be sure when such decreases would cease.

Average selling price of our products. The portable media player market has been characterized by rapidly changing technical standards and consumer preferences. Consumers generally expect that new product releases will have more capabilities than previous generations. To succeed in this intensely competitive and quickly evolving market, brand owners must constantly and rapidly introduce portable media players with more functions and enhanced features. As an SoC and integrated platform solutions provider for these brand owners, we typically introduce a new product series every nine to twelve months, and introduce new SoC products within a series with increased functionality and enhanced features more frequently.

The average selling price of any particular SoC product declines over time after it reaches maturity in the product life cycle. In general, we earn higher margins when a new SoC model is first introduced to the market and experience a corresponding decline in margins as its average selling price declines. However, we typically are able to partially offset the decline in the average selling price of a particular SoC, and mitigate the decline in our margins, through progressively increasing our yields during the product’s life. For example, we experienced a significant increase in shipments of our eight series SoCs commencing in the fourth quarter of 2004, and the eight series was one of our principal product lines in 2006. However, over a two years period from the fourth quarter of 2004 to the fourth quarter of 2006, the average selling price of our eight series SoCs decreased by approximately 48.1%. We introduced our nine series SoCs in the third quarter of 2005, which provide more functionality than our earlier series SoCs and are sold at higher prices. From the third quarter of 2005 to the fourth quarter of 2007, we have also experienced an approximately 59% decrease in the average selling price in our nine series SoCs. We introduced our eleven series SoCs in the second quarter of 2008, which provide more functionality and performance than nine series SoCs and sold at slightly higher prices. From the second quarter of 2008 to the fourth quarter of 2008, we also experienced an approximately 7.4% decrease in the average selling price in our eleven series SoCs. While our overall average selling prices generally benefit from the introduction of new SoC products, this benefit may be partially offset by pricing strategies we employ. For example, we may, from time to time, seek to take advantage of market opportunities by reducing our prices for certain SoC products in order to increase our sales volume and market share.

We seek to achieve revenue growth and margin stability through increasing our share of the total volume of units shipped by offering products with high functionality and competitive pricing; continuously integrating additional functionality to improve the value of our products; and reducing costs by achieving smaller die size, greater integration and migration to more advanced process technologies. In the event that we are not able to timely introduce new products, the average selling price of our products will decline and we may not be able to offset such decline by realizing additional production efficiencies.

Seasonality of the demand for our products. Like sales for most consumer electronics products, portable media player sales tend to increase significantly in the fourth quarter to meet the year-end holiday demand. However, due to the adverse impact of the global economic depression, sales in the fourth quarter of 2008 was much lower than that of the previous four quarters. Otherwise, orders for our SoCs generally increase in the third and forth quarters of each year and decrease in the first quarter. For example, our revenues decreased by US$7.1 million, or 22.0%, from US$32.3 million in the three months ended December 31, 2007 to US$25.2 million in the three months ended March 31, 2008, principally due to a 17.9% decrease in units shipped. Our revenues decreased by US$11.2 million, or 41.2%, from US$27.2 million in the three months ended September 31, 2008 to US$16.0 million in the three months ended December 31, 2008, principally due to a 33.1% decrease in units shipped. As the rate of growth in our sales declines, we expect seasonality to have a more pronounced effect on our sales and cause our quarterly results to fluctuate significantly in future periods. And the achievement in the future is estimated to be continual declined, under the impact of global economic depression.

Foundry capacity and wafer pricing. To maximize our unit sales and profits, we must secure committed foundry capacity that is adequate to produce all of the SoCs that we can sell to our customers at prices that enable us to maintain or increase our profit margins. Wafer pricing is affected by the volume of our purchases and overall market demand, and tends to be cyclical. Because contract foundries have fixed capacities, in times of strong market demand, the prices that contract foundries charge for their wafer products and services generally increase, and correspondingly in times of lesser market demand, the prices that contract foundries charge for their wafer products and services may decrease. As a result, if the overall demand for electronics products is high, contract foundries that manufacture wafer products for electronics products may increase the prices that they charge to their customers, including our company. While our increased sales volume has helped us to negotiate better pricing terms and secure committed capacity with our foundries, we are still subject to seasonal and other factors affecting foundry capacity and pricing that are beyond our control.

48

Presently, He Jian manufactures almost all of our semiconductors. We also maintain relationships with other foundries to help ensure that we have alternative manufacturing capabilities if He Jian fails to achieve satisfactory yields or is unable to meet our requirements. However, there are many purchasers of foundry products and services that are larger than us, and our ability to source adequate foundry services could be affected by significant increases in demand for electronics products.

E. Off-balance Sheet Arrangements

We do not have any outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency forward contracts as of December 31, 2008.

F. Tabular Disclosure of Contractual Obligations

The following sets forth information regarding our aggregate payment obligations under our contracts and commercial commitments as of December 31, 2008:

	Payments due by period
Contractual obligations	Total		Less than 1 year		1-3 years		3-5 years		After 5 years
	(thousands)
Operating lease obligations	US$	1,012	US$	730	US$	282	US$	—	US$	—
Royalty Commitment		150		150		—		—		—
Purchase Obligations		4,784		4,784		—		—		—
Capital Commitment		516		516		—		—		—
Other Liabilities		2,067		1,818		249		—		—
Total contractual obligations	US$	8,529	US$	7,998	US$	531		—		—

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.         Directors and Senior Management

Directors, Executive Officers and Key Employees

The following table sets forth our executive officers, directors and key employees, their ages as of December 31, 2008 and the positions held by them. The business address for each of our executive officers and directors is c/o Actions Semiconductor Co., Ltd., 15-1, No. 1, HIT Road, Tangjia, Zhuhai, Guangdong, 519085, the People’s Republic of China.

Name	Age	Position
Lee, Hsiang-Wei (David)	49	Director, Chairman of the Board
Yeh, Nan-Horng	50	Director and Chief Executive Officer
Chiu, Tzu-Yin(1)	53	Director
Lin, Yu-Hsin Casper(1)	62	Director
Hsiao, Paul(1)	37	Director
Chen, Chin-Hsin (Fred) (1)	66	Director
Li, Shao Chuan (Shawn)	41	Director and Chief Technology Officer
Chou, Pei-Fen (Patricia)	41	Chief Financial Officer

(1)       Member of each of the audit committee, compensation committee and nominations committee.

49

Lee, Hsiang-Wei (David) has served as our Chairman since October 2007. Previously, Mr. Lee served as our Chief Financial Officer since August 2005. Mr. Lee also currently serves as CEO of Robeco TEDA (Tianjin) Asset Management Co., Ltd, and a director of Pacific Sun Investment Management Co., Ltd. Previously, Mr. Lee was the CEO of ABN AMRO Asset Management (China). From 1995 to 2002 he was the Chairman and CEO of ABN AMRO Asset Management’s Taiwan operations where he managed assets in the amount of US$3.5 billion. Mr. Lee has more than 15 years of experience in corporate finance and investment management. Mr. Lee holds a Master of Business Administration degree from Duke University and a Bachelor of Science degree in biometrics from National Taiwan University.

Yeh, Nan-Hornghas served as our Chief Executive Officer since May 2005 and as one of our directors since October 2007. Previously, Mr. Yeh served as a director and vice president of Realtek Semiconductor Corp. He also served as a director and the president of each of Globaltec Management Consulting Corp. and Globaltec Technology Partner I Venture Capital Corp. Mr. Yeh holds a Master in Business Administration degree from Washington University in St. Louis and a Bachelor of Science degree in transportation management from National Chiao Tung University in Taiwan.

Chiu, Tzu-Yinhas served as one of our directors since September 2005. Mr. Chiu also currently serves as the President and Chief Executive Officer of Huahong NEC Electronics Company since February 2009. Previously, Mr. Chiu served as President and Chief Operating Officer of SilTerra Malaysia Sdn. Bhd. from January 2007 until January 2009, as a senior vice president and the Chief Operating Officer of Huahong International Corporation until December 2006, senior vice president of operations in Semiconductor Manufacturing International Corporation, a major foundry in China, from January 2001 until July 2005, and as a fab director for Taiwan Semiconductor Manufacturing Company from 1996 to 2001. Mr. Chiu holds a Ph.D. in Electrical Engineering from University of California at Berkeley and an EMBA from Columbia University.

Lin, Yu-Hsin Casperhas served as one of our directors since August 2005. Previously, Mr. Lin served as the chairman and director of Memory Devices, Ltd., a memory module manufacturer, a director of Twinmos Tech. Inc., a network module manufacturer, and a director and the Chief Financial Officer of United Microelectronics, a semiconductor wafer manufacturer. Mr. Lin holds a Master in Business Administration degree from Bloomsbury University of Pennsylvania and a Bachelor of Art degree from the accounting department of Soochow University in Taiwan.

Hsiao, Paulhas served as one of our directors since October 2005. Mr. Hsiao is a partner at New Enterprise Associates (NEA), a venture capital firm with $10 billion under management. Mr. Hsiao has been involved with numerous NEA semiconductor investments, including Spreadtrum Communications, a multimedia cellular semiconductor company, Atheros Communications, a wireless semiconductor company, and Luminary Micro, a fabless semiconductor company. Mr. Hsiao holds a Master of Business Administration degree from Harvard Business School and a Bachelor of Science degree in mechanical engineering from Massachusetts Institute of Technology.

Chen, Chin-Hsin (Fred) has served as one of our directors since October 2007. Mr. Chen also currently serves as the Director of the OLED Laboratory, Display Institute, National Chiao Tung University in Hsinchu, Taiwan and Director of the Centre for Advanced Luminescence Materials (CALM) at Hong Kong Baptist University. Previously Mr. Chen was a group leader and senior scientist at the Display Technology Laboratory of Eastman Kodak Co., in Rochester, New York, USA. Mr. Chen is the co-inventor of the key Doped OLED Guest-Host Emitter Technology and has been awarded more than 35 U.S. patents.

Li, Shao Chuan (Shawn)has served as one of our directors since September 2005 and as our Chief Technology Officer since the establishment of our operations in December 2001. Before joining us, Mr. Li was the director of research and development at Zhuhai Arestek Electronic Co., Ltd. Mr. Li holds a Master of Science degree in electrical engineering from Beijing Institute of Technology.

Chou, Pei-Fen (Patricia) has served as our Chief Financial Officer since October 2007. Previously Ms. Chou was the Vice President of Finance at Actions. Prior to joining Actions in November 2006, Ms. Chou served as the Director of Business Development and then Senior Director of Accounting at Semiconductor Manufacturing International Corporation (SMIC), where she was responsible for establishing a U.S. presence, developing new business initiatives, and leading the company’s global accounting team. She also participated in raising US$650 million in private funds and SMIC’s US$1.6 billion NYSE-listed IPO. From 1996 to 2001, Patricia was the Director of Accounting and Planning of Winbond Electronics Corporation U.S. operation. Prior to that, Chou worked as a financial auditor in Taiwan, Hong Kong, and the United States with Deloitte. Ms. Chou received a Bachelor of Business Administration from National Taiwan University, Master of Accounting from University of Southern California, and Master of Business Administration from University of California at Berkeley. She is also a Certified Public Accountant in Taiwan, the United States, and China.

B.         Compensation

Cash Compensation

Our directors and senior management receive compensation in the form of salaries and annual bonuses. While we do not have a specific bonus plan setting the calculation of our annual bonuses, each director is entitled to receive an annual discretionary bonus of such amount as shall be determined by the board of directors. Additionally, our senior management and employees are entitled to receive an annual discretionary bonus based on their individual performance and our financial performance during the year in question.

50

The aggregate amount of salaries and bonuses paid by us to our directors and executive officers during the year ended December 31, 2008 was approximately US$1.2 million. None of our directors or executive officers has any employment or service contracts with us providing for benefits upon termination of employment.

Equity Compensation

On May 21, 2008, options to purchase 770,000 of our American Depositary Shares, representing 4,620,000 of ordinary shares, were granted under our 2007 Equity Performance and Incentive Plan to our directors and executive officers. The per share exercise price of the options granted to our directors and executive officers was set at $3.30 per ADS, or $0.55 per ordinary shares, with reference of the market price on the date of grant.

The options will be vested in four tranches with two sets of vesting schedule. Each option vested will have an effective exercise period of two years. Under the equal vesting schedule, twenty-five percent (25%) of the Shares on the anniversary of the grant and twenty-five percent (25%) of the Shares on each of the next three anniversaries of the First Vesting Date, provided that the Optionee remains in the continuous service of the Company through each such vesting date. Under the graded vesting schedule, fifteen percent (15%) of the Shares on the anniversary of the grant, twenty percent (20%), thirty percent (30%) and thirty-five percent (35%) of the Shares on the next three anniversary of the grant, respectively, provided that the Optionee remains in the continuous service of the Company through each such vesting date.

On February 26, 2009, our board of directors and Compensation Committee offered to our employees, consultants and non-employee directors the opportunity to amend their outstanding stock options to purchase our American Depositary Shares, or ordinary shares that were granted on May 21, 2008, August 4, 2008 or January 21, 2009 (as applicable). This offer replaces the exercise price, as quoted in ADS, of U.S. $3.30 of the outstanding stock options with an exercise price of U.S. $1.40. Further, it also extends the first vesting date from May 21, 2009, August 4, 2009, or January 21, 2010, as applicable, to May 21, 2010.

Our board of directors and executive officers accepted this offer. As a result, the table below summarized the current terms of stock option granted to each director and executive officer as of March 31, 2009.

Date of Grant	Date of Amendment	Name	Position	Number of Options Granted		Exercise Price (quoted as in ADS)		First Vesting Date
May 21, 2008	February 26, 2009	Lee, Hsiang-Wei (David)	Director, Chairman of the Board		120,000	$	1.40	May 21, 2010
May 21, 2008	February 26, 2009	Yeh, Nan-Horng	Director and Chief Executive Officer		250,000	$	1.40	May 21, 2010
May 21, 2008	February 26, 2009	Chiu, Tzu-Yin	Director		50,000	$	1.40	May 21, 2010
May 21, 2008	February 26, 2009	Lin, Yu-Hsin Casper	Director		50,000	$	1.40	May 21, 2010
May 21, 2008	February 26, 2009	Hsiao, Paul	Director		50,000	$	1.40	May 21, 2010
May 21, 2008	February 26, 2009	Chen, Chin-Hsin (Fred)	Director		50,000	$	1.40	May 21, 2010
May 21, 2008	February 26, 2009	Li, Shao Chuan (Shawn)	Director and Chief Technology Officer		100,000	$	1.40	May 21, 2010
May 21, 2008	February 26, 2009	Chou, Pei-Fen (Patricia)	Chief Financial Officer		100,000	$	1.40	May 21, 2010

Indemnification

Cayman Islands law and our articles of association provide that we may indemnify our directors and officers acting in relation to any of our affairs against any liability incurred as a result of any act or failure to act in carrying out their functions other than such liability (if any) that may be incurred by the willful neglect or default of any such persons. No such director or officer shall be liable to the company for any loss or damage in carrying out their functions unless that liability arises through the willful neglect or default of such person.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been informed that in the opinion of the U.S. Securities and Exchange Commission, or the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

51

2007 Equity Performance and Incentive Plan

In May, 2007, our board of directors and shareholders adopted a 2007 equity incentive plan, or the 2007 Plan, which is intended to attract and retain officers, employees, non-employee directors and consultants for us and our subsidiaries and to provide to such persons incentives to stay with us or our subsidiaries and make superior contributions to us in the future. We have reserved 8 million ADSs upon exercise of awards granted under the 2007 Plan.

Types of Awards. We may grant the following types of awards under our 2007 Plan:

• Option rights to purchase our ADSs;

• Restricted shares, which are non-transferable ADSs, that may be subject to forfeiture;

• Restricted Shares Units, which represent the right to receive our ADSs at a specified date in the future, which may be subject to forfeiture;

Plan Administration. Our board of directors, or our compensation committee (or its subcommittee) designated by our board or directors, will administer the 2007 Plan. A majority of the committee (or subcommittee) will constitute a quorum, and the action of the members of the committee (or subcommittee) present at any meeting at which a quorum is present, or acts unanimously approved in writing, will be the acts of the committee (or subcommittee).

The interpretation and construction by our board of directors of any provision of the 2007 Plan or of any agreement, notification or document evidencing the grant of option rights, restricted shares or restricted share units and any determination by the board of directors pursuant to any provision of the 2007 Plan or of any such agreement, notification or document will be final and conclusive. No member of our board of directors will be liable for any such action or determination made in good faith. 

Amendment. Our board of directors may at any time and from time to time amend the 2007 Plan in whole or in part; provided, however, that any amendment that must be approved by our shareholders in order to comply with applicable law or the rules of the NASDAQ Global Market or, if our ADSs are not quoted on the NASDAQ Global Market, the principal national securities exchange upon which our ordinary shares are traded or quoted, will not be effective unless and until such approval has been obtained. Nothing herein shall be construed to limit our authority to offer similar or dissimilar benefits under other plans or otherwise with or without further shareholder approval.

Generally, Nasdaq Marketplace Rule 4350(i)(1)(A) requires each issuer to obtain shareholders' approval of all equity compensation plans (including stock option plans) and material amendments to such plans. However, pursuant to Nasdaq Market Rule 4350(a)(1), we have elected to follow our home country's practices (in this case, being Cayman Islands’ practices) in lieu of the requirements of Nasdaq Marketplace Rule 4350. Our home country practices do not require us to obtain a shareholders' approval for amendments to our existing equity incentive plans.

On February 26, 2009, we initiated an offer to amend (the “Offer to Amend”) to amend the terms of the options previously granted to certain of our employees, consultants, and non-employee directors. On March 20, 2009, we completed our Offer to Amend. As a result, options to purchase approximately 7,742,000 shares of our American Depositary Shares, or approximately 99.9% of all eligible options, were tendered for amendment in accordance with the Offer to Amend. The terms of our Offer to Amend can be found in the Form CB filed with the Securities and Exchange Commission on February 26, 2009.

Our board of directors also may permit participants to elect to defer the issuance of ADSs or the settlement of awards in cash under the 2007 Plan pursuant to such rules, procedures or programs as it may establish for purposes of the 2007 Plan. Our board of directors also may provide that deferred issuances and settlements include the payment or crediting of dividend equivalents or interest on the deferral amounts.

Our board of directors may condition the grant of any award or combination of awards authorized under the 2007 Plan on the surrender or deferral by the participant of his or her right to receive a cash bonus or other compensation otherwise payable by us or one of our subsidiaries to the participant.

52

In case of termination of employment by reason of death, disability or normal or early retirement, or in the case of hardship or other special circumstances, of a participant who holds an option right not immediately exercisable in full, or any restricted shares as to which the risk of forfeiture or the prohibition or restriction on transfer has not lapsed, or any restricted share units as to which the restriction period has not been completed, or who holds shares subject to any transfer restriction imposed pursuant to the 2007 Plan, the board of directors may, in its sole discretion, accelerate the time at which such option right may be exercised or the time at which such risk of forfeiture or prohibition or restriction on transfer will lapse or the time when such restriction period will end or the time when such transfer restriction will terminate or may waive any other limitation or requirement under any such award.

Our 2007 Plan does not confer upon any participant any right with respect to employment or other service with us or any of our subsidiary (including, without limitation, continuation of employment), nor does it interfere in any way with any of our right or the right of any of our subsidiaries would otherwise have to terminate such participant’s employment or other service at any time, with or without cause. The terms of employment of an employee is not affected by the execution of the 2007 Plan. Awards granted under the 2007 Plan does not form a part of the terms of employment of an employee or entitle such employee to take into account awards granted under the 2007 Plan when calculating any compensation or damages upon the termination of such employee’s employment for any reason.

Termination. No grant will be made under this 2007 Plan after January 1, 2020, but all grants made on or prior to such date will continue in effect thereafter subject to the terms thereof and of this Plan.

C. Board Practices

Our board of directors currently consists of seven members. Currently, three committees have been established under the board: the audit committee, the compensation committee and the nominations committee. Mr. Lin, Yu-Hsin Casper, Mr. Paul Hsiao, Mr. Chiu, Tzu-Yin and Mr. Chen, Chin-Hsin Fred serve as independent board members on our audit committee, nominations committee and compensation committee. There are no family relationships between any of our executive officers and directors.

The audit committee is responsible for overseeing the accounting and financial reporting processes of our company and audits of our financial statements, including the appointment, compensation and oversight of the work of our independent auditors. Mr. Lin, Yu-Hsin Casper is the Chairman of the audit committee and a “financial expert” within the meaning of the Sarbanes-Oxley Act of 2002.

The compensation committee of the board of directors reviews and makes recommendations to the board regarding our compensation policies for our officers. Mr. Paul Hsiao is the Chairman of the compensation committee.

The nominations committee of the board of directors identifies individuals qualified to become members of the board, consistent with criteria approved by the board and selects or recommends that the board select, the director nominees for the next annual shareholders’ meeting and recommends members of the board to the board for committee membership. Mr. Chiu, Tzu-Yin is the Chairman of the nominations committee.

D. Employees

As of December 31, 2006 and 2007, we had 423 and 560 full-time employees, respectively. As of December 31, 2008, we had 658 full-time employees, including 389 dedicated engineers in the research and development department, 85 field application engineers in customer service department, 28 in sales and marketing, 115 in general and administration and 41 in manufacturing and logistics functions. Of these full-time employees, 484 are located in Zhuhai, China, 84 are located in Beijing, China, 63 are located in Shenzhen, China, 33 are located in Shanghai, China and 6 are located in Hong Kong, China. We have never had a work stoppage and none of our employees is covered by a collective bargaining agreement. We believe that relations with our employees are good.

We adopted an equity incentive plan that is designed to assist us to attract and retain key employees, directors and consultants of outstanding ability and to motivate such employees, directors and consultants to exert their best efforts on our behalf by providing compensation and incentives through the granting of awards.

On May 21, 2008, options to purchase 8 million of our American Depositary Shares were granted under our 2007 Equity Performance and Incentive Plan to our employees, consultants and non-employee directors. The per share exercise price of the options granted to our directors and executive officers was set at $3.30 per ADS, or $0.55 per ordinary shares, with reference of the market price on the date of grant.

The options will be vested in four tranches with two sets of vesting schedule. Each option vested will have an effective exercise period of two years.

53

Under the equal vesting schedule, twenty-five percent (25%) of the Shares on the anniversary of the grant and twenty-five percent (25%) of the Shares on each of the next three anniversaries of the First Vesting Date, provided that the Optionee remains in the continuous service of the Company through each such vesting date (“Equal Vesting”).

Under the graded vesting schedule, fifteen percent (15%) of the Shares on the anniversary of the grant, twenty percent (20%), thirty percent (30%) and thirty-five percent (35%) of the Shares on the next three anniversary of the grant, respectively, provided that the Optionee remains in the continuous service of the Company through each such vesting date.

As a result of early termination of employment, certain stock options were rendered and the Compensation Committee further granted options to purchase 33,000 and 31,000 ADSs to certain new employees on August 4, 2008 and January 21, 2009.

On February 26, 2009, our board of directors and Compensation Committee offered to our employees, consultants and non-employee directors the opportunity to amend their outstanding stock options to purchase our American Depositary Shares, or ordinary shares that were granted on May 21, 2008, August 4, 2008 or January 21, 2009 (as applicable). This offer replaces the exercise price, as quoted in ADS, of U.S. $3.30 of the outstanding stock options with an exercise price of U.S. $1.40. Further, it also extends the first vesting date from May 21, 2009, August 4, 2009, or January 21, 2010, as applicable, to May 21, 2010.

E. Share ownership

The following table sets forth the share ownership by our directors and senior management as of March 31, 2009.

	Ordinary shares owned
Name	Number		Percent
Surrey Glory Investments Limited(1)		4,687,200	0.90	%

(1) Surrey Glory Investments Limited has six shareholders. Mr. Li, Shao Chuan (Shawn), one of our directors and Chief Technology Officer may be deemed as its beneficial owner.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. Major Shareholders

According to the Schedule 13G/A filed with the Securities and Exchange Commission on February 17, 2009 by Janus Capital Management LLC (“Janus Capital”), Janus Capital has a direct 89.9% ownership stake in INTECH Investment Management (“INTECH”) and a direct 78.4% ownership stake in Perkins Investment Management LLC (“Perkins”). As a result of its role as investment adviser or sub-adviser to certain managed portfolio managed by Janus Capital, INTECH and/or Perkins, Janus Capital may be deemed to be the beneficial owner of 4,683,325 ADSs, or approximately 5.5% of our outstanding shares, as of February 17, 2009. We do not have further information with respect to Janus Capital, INTECH or Perkin’s ownership in us subsequent to the Schedule 13G/A filed by Janus Capital on February 17, 2009.

As of April 16, 2009, we do not have any other person known to us to own, directly or indirectly, 5% or more of our ordinary shares. We are not aware of any arrangement that may at a subsequent date result in a change of control of our company.

As of March 31, 2009, there were four registered holders of 49,573,515 of our American depositary shares in the United States, consisting of approximately 57.64% of our outstanding ordinary shares.

B. Related Party Transactions

During the years ended December 31, 2002, 2003 and 2004, we received capital contributions of US$1.9 million, US$2.4 million and US$0.7 million, respectively, from Honorable Data, our sole shareholder during those periods.

Pursuant to a share purchase agreement entered into in August 2004 and amended in December 2004, Honorable Data, the sole registered shareholder of Actions Semiconductor (Mauritius) since its inception, transferred all of the shares it owned in Actions Semiconductor (Mauritius) for an aggregate purchase price of US$35,580,000 to 25 purchasers, consisting of companies owned by financial investors and four British Virgin Islands companies owned by our employees at the time. Honorable Data was owned by a single shareholder who is not affiliated with any of our officers or directors. None of the companies owned by financial investors that purchased shares from Honorable Data are affiliates of our Company or have relationships with us other than their shareholdings. We believe that the price at which Honorable Data sold its shares was negotiated on an arm’s length bases between Honorable Data and the companies that purchased our shares. We did not receive any proceeds from that sale.

54

Certain of our employees formed British Virgin Islands companies for the sole purpose of making an investment in our Company. We did not advise our employees on the benefits, if any, of holding shares in us through BVI companies.

We were incorporated as an exempted company under the laws of the Cayman Islands on July 27, 2005 to hold the equity interests in Actions Semiconductor (Mauritius). In connection with our incorporation, the then 25 shareholders of Actions Semiconductor (Mauritius) transferred their respective interests representing the entire share capital of Actions Semiconductor (Mauritius) to us in consideration for 480 million newly-issued ordinary shares of our company. Following this transfer, we own 100% of the share capital of Actions Semiconductor (Mauritius) and the 25 shareholders, in aggregate, held 100% of our total outstanding shares including 8.09% of our total shares outstanding held by four British Virgin Islands companies on behalf of 47 of our employees.

Details of the ownership by our employees of our ordinary shares as of March 31, 2009 are provided in the following table:

Name of BVI Company	Directors	Shares Beneficially Owned
Surrey Glory Investments Limited(1)	Wang Yang, Yun-Ching		4,687,200	0.91	%
Fairly Consultants Limited (2)	Wu, Zhang Liang		3,281,036	0.64	%
Fineway Group Limited(3)	Zhu, Wenge		6,074,053	1.18	%
			14,042,289	2.72	%

(1) Surrey Glory Investments Limited has six shareholders, two of whom are employees.

(2) Fairly Consultants Limited has twenty-four shareholders, fourteen of whom are employees.

(3) Fineway Group Limited has sixteen shareholders, eight of whom are employees

We have been notified by each of the entities named in the table above that its respective director has sole voting and investment power with respect to all of our ordinary shares shown as beneficially owned by it.

Sale of Our Shares

On September 2, 2005, certain of our shareholders entered into a share purchase agreement (the “Share Purchase Agreement”) for the sale and transfer of an aggregate of 115,113,930 of our issued and outstanding ordinary shares to 24 purchasers (the “Purchasers”) at a purchase price of US$0.833 per share, for an aggregate consideration of US$95,889,905. Among our shareholders that were parties to the Share Purchase Agreement was Starlink Development Limited, for which Mr. Kang, Byung Jin, the former chairman of our board of directors, is the sole director and majority shareholder. Starlink Development Limited sold 15,599,520 of our ordinary shares pursuant to the Share Purchase Agreement. We were also a party to the Share Purchase Agreement in order to make certain representations and warranties regarding the Company to the Purchasers. The transactions contemplated under the Share Purchase Agreement were completed on September 9, 2005 (the “Closing Date”).

Consultancy Services

During the year ended December 31, 2006, we received consultancy services for intellectual property and legal affairs, product technology, product development and technology licensing and research and development from several individual shareholders for fees amounting to approximately US$540,000.

Our Audit Committee has determined that these transactions were fair and reasonable to us and on terms comparable to those from unrelated third parties.

Transactions with DVI

Mr. Lee, Hsiang-Wei (David) our Chairman of board of directors and former Chief Financial Officer, was previously a shareholder and director of a customer, Digital Vision Incorporation Limited (“DVI”). As of December 31, 2005, Mr. Hsiang-Wei Lee had disposed of all his equity interest in DVI, which were acquired before becoming our Chief Financial Officer, and resigned as director of DVI.

55

Our Audit Committee has determined that our transactions with DVI were fair and reasonable to us and on terms comparable to those from unrelated third parties.

Transactions with Namyoung Corporation

Mr. Kang, Byung-Jin (Peter), our former chairman of the board of directors, was also the President of Namyoung Corporation, which provides agency service by introducing customers and providing technology support. For the year ended December 31st, 2007, the commission fees paid to Namyoung Corporation amounted to US$159,000.

Our Audit Committee has determined that our transactions with Namyoung were fair and reasonable to us and on terms comparable to those from unrelated third parties.

Transactions with Hi-Trend

During the year ended December 31, 2007, we recognized income of US$278,000 for granting of rights to use its proprietary technology in SoCs for power meters indefinitely to an affiliate, Hi-Trend Investment Holding Co., Ltd. Further, during the year ended December 31, 2007, we received testing service revenue from Hi-Trend amounting to US$308,000.

Our Audit Committee has determined that our transactions with Hi-Trend were fair and reasonable to us and on terms comparable to those from unrelated third parties.

Transactions with GMI Technology

During the year ended December 31, 2007 and 2008, we sold products to GMI Technology amounting to US$13.7 million and US$24.4 million, respectively. The president of GMI Technology is the elder brother of Mr. Yeh, Nan-Horng, one of our directors and the Chief Executive Officer.

Our Audit Committee has determined that our transactions with GMI were fair and reasonable to us and on terms comparable to those from unrelated third parties.

C. Interests of Experts and Counsel

Not applicable.

ITEM 8. FINANCIAL INFORMATION

A. Consolidated Statements and Other Financial Information

Financial Statements

Please see “Item 18. Financial Statements”. Other than as disclosed elsewhere in this annual report, no significant changes have occurred since the date of our annual financial statements.

Legal Proceedings

On August 17, 2006, two of our former advisors have filed a complaint in the U.S. District Court for the Southern District of California against the Company and its subsidiary Actions Mauritius, seeking compensatory damages for services rendered. On April 7, 2008, the Company and its subsidiary filed a motion to dismiss the complaint on the grounds that it is not subject to personal jurisdiction in California and that the Peoples’ Republic of China would be the more appropriate forum for this litigation.

On January 30, 2009, the motion was granted and a judgment of dismissal was entered in favor of the Company and Actions Mauritius on February 4, 2009. Plaintiffs have appealed the dismissal to the United States Court of Appeals for the Ninth Circuit and that appeal is currently pending. Plaintiffs' opening brief is due on June 22, 2009.

We do not believe this dispute will have any material impact on our financial conditions or results of operation.

56

Dividend Policy

Annual dividends, if any, on our shares and ADSs will be declared by and subject to the discretion of our board of directors. Our board of directors may from time to time pay to the shareholders such interim dividends as appear to our board of directors to be justified by our profits. We may pay dividends to shareholders in the future; however, such payments will depend upon a number of factors, including our results of operations, earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors considered relevant by our board of directors. We currently intend to retain all of our earnings to finance the development and expansion of our business and therefore do not intend to declare or pay cash dividends on our shares and ADSs in the near to medium term.

Our dividends may be declared and paid out of our profits, realized or unrealized, or from any reserve set aside from profits which the directors determine is no longer needed or out of our share premium account. We currently have no reserve set aside from profits for the payment of dividends.

Our ability to pay dividends depends substantially on the payment of dividends to us by Actions Semiconductor (Zhuhai) and Artek Microelectronics (Shenzhen). Actions Semiconductor (Zhuhai) and Artek Microelectronics (Shenzhen) may pay dividends only out of its accumulated distributable profits, if any, determined in accordance with its articles of association, and the accounting standards and regulations in China. In addition, each of Actions Semiconductor (Zhuhai) and Artek Microelectronics (Shenzhen), as a wholly foreign owned enterprise, is required to provide for a reserve fund and a staff and workers’ bonus fund, and to set aside at least 10% (up to an aggregate amount equal to half of its registered capital) of its after-tax profits each year at the discretion of its board of directors. Allocations to these statutory reserves and funds can only be used for specific purposes and are not distributable to us in the form of loans, advances, or cash dividends. Any limitation on the payment of dividends by our subsidiaries could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our businesses, pay dividends, and otherwise fund and conduct our businesses.

Our subsidiary Actions Semiconductor (Mauritius) declared a special dividend in June 2005 in the amount of US$20 million, which was paid in July 2005. We will not use this dividend distribution as a reference or basis to determine the amount of future dividends, if any. Any future dividends will be paid in accordance with our policy described above.

B. Significant Changes

Not applicable.

ITEM 9. THE OFFER AND LISTING

A. Offer and Listing Details

Our ADSs have been quoted on The NASDAQ Global Market under the symbol ACTS since November 30, 2005. Each ADS represents six ordinary shares. On April 16, 2009, the last reported sale price of our ADSs on the Nasdaq Global Market was US$1.70. As of March 31, 2009, there were four registered holders and 4,319 beneficial holders of ADSs on our record.

The table below sets forth, for the periods indicated, the highest and lowest closing prices and the average daily volume of trading activities on the Nasdaq Global Market for our ordinary shares represented by ADSs.

					Average Daily
	High		Low		Trading Volume
2006		12.24		6.55		226,776
2007		8.50		3.98		399,942
2008		4.40		1.35		183,498
First Quarter		4.40		2.82		129,759
Second Quarter		3.96		2.94		121,550
Third Quarter		3.55		2.26		201,998
Fourth Quarter		2.50		1.35		278,167
October		2.50		1.73		424,896
November		2.02		1.35		261,389
December		1.76		1.38		139,259
2009
First Quarter		1.81		1.35		271,272
January		1.81		1.38		488,820
February		1.55		1.38		241,489
March		1.60		1.35		99,223
April (through April 16, 2009)	1.75		1.56		95,273

57

B. Plan of Distribution

Not applicable.

C. Markets

Our ADSs are listed on the Nasdaq Global Market under the symbol “ACTS”.

D. Selling Shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expense of the Issue

Not applicable.

ITEM 10. ADDITIONAL INFORMATION

A. Share Capital

As of March 31, 2009, our authorized share capital consisted of 2.0 billion shares, par value 0.000001 per share, and there were 516.0 million ordinary shares issued and outstanding. All of our issued and outstanding shares are fully paid and non-assessable.

B. Memorandum and Articles of Association

Company Objects and Purposes

We are a Cayman Islands exempted company and our affairs are governed by our memorandum and articles of association, as amended and restated from time to time, and the Companies Law (2007 Revision) of the Cayman Islands, which is referred to below as the Companies Law. A Cayman Islands exempted company is a company that conducts its business outside of the Cayman Islands, is exempted from certain requirements of the Companies Law, including a filing of an annual return of its shareholders with the Registrar of Companies, does not have to make its register of shareholders open to inspection and may obtain an undertaking against the imposition of any future taxation. According to our memorandum and articles of association, the objects for which we are established are unrestricted and we have full power and authority to carry out any object not prohibited by the Companies Law or as the same may be revised from time to time, or any other law of the Cayman Islands.

The following are summaries of material terms and provisions of our memorandum and articles of association and the Companies Law insofar as they relate to the material terms of our ordinary shares. These summaries are not complete, and you should read the forms of our memorandum and articles of association, which was filed as exhibits to our registration statement on Form F-1.

58

The holders of ADSs will not be treated as our shareholders and will be required to surrender their ADSs for cancellation and withdrawal from the depositary facility in which the ordinary shares are held in order to exercise shareholders’ rights in respect of the ordinary shares. The depositary will agree, so far as it is practical, to vote or cause to be voted the amount of ordinary shares represented by ADSs in accordance with the non-discretionary written instructions of the holder of such ADSs.

Board of Directors

We are managed by a board of directors which currently consists of seven members. Our articles of association provide that the board of directors shall consist of not more than eleven directors, including at least three independent directors.

The directors are divided into three classes, designated Class I, Class II, and Class III, as nearly equal in number as the then total number of directors permits. At the 2006 annual meeting of shareholders, all directors stood for election. Class I Directors were elected for a one-year term, Class II Directors for a two-year term and Class III Directors for a three-year term. At each succeeding annual meeting of shareholders beginning in 2007, successors to the class of directors whose terms expire at that annual meeting shall be elected for a three-year term. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional directors of any class elected to fill a vacancy resulting from an increase in such class will hold office for a term that coincides with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director.

Our shareholders may by special resolution at any time remove any director for negligence or other reasonable cause before the expiration of his period of office notwithstanding anything in the articles of association or in any agreement between us and such director, and may by ordinary resolution elect another person in his stead. Any person so elected will hold office during such term only as the director in whose place he is elected would have held the same if he had not been removed. Subject to our articles of association, the directors will have power at any time and from time to time to appoint any person to be a director, either as an addition to the existing directors or to fill a vacancy resulting from death, resignation, retirement, disqualification, removal from office or any other reason, but so that the total amount of directors (exclusive of alternate directors) must not at any time exceed the number fixed in accordance with the articles of association.

There are no share ownership qualifications for directors.

Meetings of our board of directors may be convened at any time deemed necessary by any member of our board of directors. Advance notice of a meeting is not required if all our directors are present or represented at the meeting concerned and consent to the holding of such meeting.

A meeting of our board of directors will be competent to make lawful and binding decisions if any two members of our board of directors are present or represented. At any meeting of our directors, each director, by his or her presence or by his or her alternate, is entitled to one vote. A director may vote in respect of any contract or transaction in which he is interested, provided, (a) such director must, if his interest in such contract or arrangement is material, declare the nature of his interest at the earliest meeting of the board at which it is practicable for him to do so, either specifically or by way of a general notice stating that, by reason of the facts specified in the notice, he is to be regarded as interested in any contracts of a specified description which we may subsequently make and (b) if such contract or arrangement is a transaction with a related party, such transaction has been approved by the Audit Committee.

Questions arising at a meeting of our board of directors are required to be decided by simple majority votes of the members of our board of directors present or represented at the meeting. In the case of a tie vote, the chairman of the meeting shall have a second or deciding vote. Our board of directors may also pass resolutions without a meeting by unanimous written consent.

Subject to the recommendation of our Compensation Committee, the remuneration to be paid to the directors shall be such remuneration as the directors shall determine. Such remuneration shall be deemed to accrue from day to day. The directors shall also be entitled to be paid their traveling, hotel and other expenses properly incurred by them in going to, attending and returning from meetings of the directors, or any committee of the directors, or general meetings of the company, or otherwise in connection with our business, or to receive a fixed allowance in respect thereof as may be determined by the directors from time to time, or a combination partly of one such method and partly the other.

Under Cayman Islands laws, our directors have a duty of loyalty and must act honestly and in good faith and in our best interests. Our directors also have a duty to exercise the care, diligence, and skills that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duties to us, our directors must ensure compliance with the memorandum and articles of association and the class rights vested thereunder in the holders of the shares. The Company may in certain circumstances have rights to damages if a duty owed by the directors is breached.

59

Voting Rights Attaching to the Shares

Subject to any rights or restrictions attached to any shares, at any general meeting every shareholder who is present in person (or, in the case of a shareholder being a corporation, by its duly authorized representative) or by proxy shall have one vote and on a poll every shareholder present in person (or, in the case of a shareholder being a corporation, by its duly appointed representative) or by proxy shall have one vote for each share which such shareholder is the holder. Voting at any meeting of the shareholders is by show of hands unless a poll is demanded. A poll may be demanded by the chairman or any other shareholder present in person or by proxy holding at least 10% in par value of the shares giving a right to attend and vote at the meeting.

Any ordinary resolution to be passed by the shareholders requires the affirmative vote of a simple majority of the votes cast at a meeting of our shareholders, while a special resolution requires the affirmative vote of no less than two-thirds of the votes cast at a meeting of our shareholders. Holders of our ordinary shares may by ordinary resolution, among other things, elect directors, and make alterations of capital. A special resolution is required for matters such as a change of name.

No shareholder shall be entitled to vote or be reckoned in a quorum, in respect of any share, unless such shareholder is registered as our shareholder at the applicable record date for that meeting.

If a recognized clearing house (or its nominee(s)) is our shareholder, it may authorize such person or persons as it thinks fit to act as its representative(s) at any meeting or at any meeting of any class of shareholders provided that, if more than one person is so authorized, the authorization shall specify the number and class of shares in respect of which each such person is so authorized. A person authorized pursuant to this provision is entitled to exercise the same powers on behalf of the recognized clearing house (or its nominee(s)) as if such person was the registered holder of our shares held by that clearing house (or its nominee(s)) including the right to vote individually on a show of hands.

Protection of Minority Shareholders

The Grand Court of the Cayman Islands may, on the application of shareholders holding not less than one-fifth of our shares in issue, appoint an inspector to examine our affairs and report thereon in a manner as the Grand Court shall direct.

Any shareholder may petition the Grand Court of the Cayman Islands which may make a winding up order, if the court is of the opinion that it is just and equitable that we should be wound up.

Claims against us by our shareholders must, as a general rule, be based on the general laws of contract or tort applicable in the Cayman Islands or their individual rights as shareholders as established by our memorandum and articles of association.

The Cayman Islands courts ordinarily would be expected to follow English case law precedents which permit a minority shareholder to commence a representative action against, or derivative actions in our name to challenge (1) an act which is ultra vires or illegal, (2) an act which constitutes a fraud against the minority and the wrongdoers are themselves in control of us, and (3) an irregularity in the passing of a resolution which requires a qualified (or special) majority.

Pre-emption Rights

There are no pre-emption rights applicable to the issuance of new shares under either Cayman Islands law or our memorandum and articles of association.

Liquidation Rights

Subject to any special rights, privileges or restrictions as to the distribution of available surplus assets on liquidation for the time being attached to any class or classes of shares, if the Company shall be wound up the liquidator may, with the sanction of a Special Resolution of the Company and any other sanction required by the Companies Law, divide among the shareholders in kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may for that purpose value any assets and determine how the division shall be carried out as between the shareholders or different classes of shareholders. The liquidator may, with the like sanction, vest the whole or any part of such assets in trustees upon such trusts for the benefit of the shareholders as the liquidator, with the like sanction, shall think fit, but so that no shareholders shall be compelled to accept any asset upon which there is a liability. If the Company shall be wound up, and the assets available for distribution among the shareholders as such shall be insufficient to repay the whole of the paid-up capital, such assets shall be distributed so that, as nearly as may be, the losses shall be borne by the shareholders in proportion to the capital paid up, or which ought to have been paid up, at the commencement of the winding up on the shares held by them respectively. And if winding up the assets available for distribution among the shareholders shall be more than sufficient to repay the whole of the capital paid up at the commencement of the winding up, the excess shall be distributed amongst the shareholders in proportion to the capital paid up at the commencement of the winding up on the shares held by them respectively.

60

Modification of Rights

Except with respect to share capital (as described below) and the location of the registered office, alterations to our memorandum and articles of association may only be made by special resolution of no less than two-thirds of votes cast at a meeting of the shareholders.

Subject to the Companies Law, all or any of the special rights attached to any class, unless otherwise provided for by the terms of issue of the shares of that class, may be varied, modified or abrogated either with the consent in writing of the holders of not less than 75% of the issued shares of that class or with the sanction of a special resolution passed at a separate general meeting of the holders of the shares of that class. The provisions of our articles of association relating to general meetings shall applymutatis mutandis to every such separate general meeting, but so that the quorum for the purposes of any such separate general meeting other than an adjourned meeting shall be a person or persons together holding, or represented by proxy, on the date of the relevant meeting not less than one-third of the issued shares of that class, every holder of shares of the class shall be entitled on a poll to one vote for every such share held by such holder and that any holder of shares of that class present in person or by proxy may demand a poll.

The special rights conferred upon the holders of any class of shares shall not, unless otherwise expressly provided in the rights attaching to or the terms of issue of such shares, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith.

Meetings

Subject to our articles of association, any meeting shall be called by not less than 20 days’ notice in writing. Notice of every general meeting will be given to all of our shareholders.

Notwithstanding that a meeting is called by shorter notice than that mentioned above, but, subject to our articles of association, it will be deemed to have been duly called, if it is so agreed (1) in the case of a meeting called as an annual general meeting by all of our shareholders (or their proxies) entitled to attend and vote at the meeting; or (2) in the case of any other meeting, by a majority in number of our shareholders having a right to attend and vote at the meeting, being a majority together holding not less than 95% in nominal value of the shares giving that right.

No business other than the appointment of a chairman of the meeting may be transacted at any general meeting unless a quorum is present at the commencement of business. However, the absence of a quorum will not preclude the appointment of a chairman of the meeting. If present, the chairman of our board of directors shall be the chairman presiding at any shareholders’ meetings.

Two of our members present in person or by proxy or corporate representative representing not less than one third in nominal value of our total issued voting shares shall be a quorum.

A corporation being a shareholder shall be deemed for the purpose of our articles of association to be present in person if represented by its duly authorized representative. Such duly authorized representative shall be entitled to exercise the same powers on behalf of the corporation which he or she represents as that corporation could exercise if it were our individual shareholder.

The quorum for a separate general meeting of the holders of a separate class of shares is described in “Modification of Rights” above.

Transfer of Shares

Subject to any applicable restrictions set forth in our articles of association, any of our shareholders may transfer all or any of his or her shares by an instrument of transfer in the usual or common form or in any other form which our directors may approve.

Our board of directors may, in its absolute discretion, decline to register any transfer of any share without assigning any reasons therefor.

If our directors refuse to register a transfer they shall, within two months after the date on which the instrument of transfer was lodged, send to each of the transferor and the transferee notice of such refusal.

61

The registration of transfers may be suspended and the register closed at such times and for such periods as our board of directors may from time to time determine, provided, however, that the registration of transfers shall not be suspended nor the register closed for more than 45 days in any year.

Share Repurchase

We are empowered by the Companies Law and our articles of association to purchase our own shares, subject to certain restrictions. Our directors may only exercise this power on our behalf, subject to the Companies Law, our memorandum and articles of association and to any applicable requirements imposed from time to time by the SEC, the Nasdaq Global Market, or by any recognized stock exchange on which our securities are listed.

Dividends

Subject to the Companies Law and to our articles of association, our board of directors may, from time to time, declare dividends (including interim dividends) in any currency. No dividend may be declared or paid other than out of our profits and reserves lawfully available for distribution, including share premium.

Unless and to the extent that the rights attached to any shares or the terms of issue thereof otherwise provide, with respect to any shares not fully paid throughout the period in respect of which the dividend is paid, all dividends shall be apportioned and paid pro rata according to the amounts paid up on the shares during any portion or portions of the period in respect of which the dividend is paid. For these purposes no amount paid up on a share in advance of calls shall be treated as paid up on the share.

Our board of directors may from time to time pay to our shareholders such interim dividends as appear to the directors to be justified by our profits. Our directors may also pay dividends semi-annually or at other intervals to be selected by them at a fixed rate if they are of the opinion that the profits available for distribution justify the payment. The board may also declare and pay special dividends as they think fit.

Our board of directors may retain any dividends or other monies payable on or in respect of a share upon which we have a lien, and may apply the same in or towards satisfaction of the debts, liabilities or engagements in respect of which the lien exists. Our board of directors may also deduct from any dividend or other monies payable to any shareholder all sums of money, if any, presently payable by him or her to us on account of calls, installments or otherwise.

No dividend shall carry interest against us.

Any dividend, interest or other sum payable in cash to a holder of shares may be paid by check or warrant sent through the post addressed to the registered address of the shareholder entitled, or in the case of joint holders, to the registered address of the person whose name stands first in our register of shareholders in respect of the joint holding to such person and to such address as the holder or joint holders may in writing direct. Every check or warrant so sent shall be made payable to the order of the holder or, in the case of joint holders, to the order of the holder whose name stands first on our register of shareholders in respect of such shares, and shall be sent at his or their risk and the payment of any such check or warrant by the bank on which it is drawn shall operate as a good discharge to us in respect of the dividend and/or bonus represented thereby, notwithstanding that it may subsequently appear that the same has been stolen or that any endorsement there on has been forged.

Any dividend unclaimed for six years from the date of declaration of such dividend may be forfeited by the board of directors and shall revert to us.

Our board of directors may, with the sanction of the shareholders in general meeting, direct that any dividend be satisfied wholly or in part by the distribution of specific assets of any kind, and in particular of paid up shares, debentures or warrants to subscribe securities of any other company, and where any difficulty arises in regard to such distribution our directors may settle it as they think expedient, and in particular may disregard fractional entitlements, round the same up or down or provide that the same shall accrue to our benefit, and may fix the value for distribution of such specific assets and may determine that cash payments shall be made to any of our shareholders upon the footing of the value so fixed in order to adjust the rights of all parties, and may vest any such specific assets in trustees as may seem expedient to our board of directors.

Issuance of Additional Ordinary Shares or Preferred Shares

Our articles of association authorizes our board of directors to issue additional ordinary shares from time to time as our board of directors shall determine, to the extent of available authorized but unissued shares.

Our articles of association authorizes our board of directors to establish from time to time one or more series of preferred shares and to determine, with respect to any series of preferred shares, the terms and rights of that series, including:

62

• the designation of the series;

• the number of shares of the series;

• the dividend rights, dividend rates, conversion rights, voting rights; and

• the rights and terms of redemption and liquidation preferences.

Our board of directors may issue series of preferred shares without action by our shareholders to the extent authorized but unissued. Accordingly, the issuance of preferred shares may adversely affect the rights of the holders of the ordinary shares. In addition, the issuance of preferred shares may be used as an anti-takeover device without further action on the part of the shareholders, subject to general principles of Cayman Islands common law, including the duties of our board of directors to exercise their power for a proper purpose. We have no immediate plans to issue any preferred shares.

The listing maintenance requirements of the Nasdaq Global Market, which apply so long as our ADSs are quoted on that market, require shareholder approval of certain issuances of our securities equal to or exceeding 20% of the then outstanding voting power of all our securities or the then outstanding number of our ordinary shares.

Inspection of Books and Records

Holders of our ordinary shares will have no general right under Cayman Islands law to inspect or obtain copies of our list of shareholders or our corporate records. However, we will provide our shareholders with annual audited financial statements.

Untraceable Shareholders

We are entitled to sell any shares of a shareholder who is untraceable, provided that:

• all checks or warrants, not being less than three in number, for any sums payable in cash to the holder of such shares have remained uncashed for a period of 12 years;

• we have not during that time or before the expiry of the three-month period referred to in the last bullet under this section received any indication of the whereabouts or existence of the shareholder or person entitled to such shares by death, bankruptcy or operation of law;

• during the 12-year period, at least three dividends in respect of the shares in question have become payable and no dividend during that period has been claimed by the shareholder; and

• Upon expiration of the 12-year period, we have caused an advertisement to be published in newspapers (or, by electronic communication in the manner in which notices may be served by us by electronic means as provided in our articles of association), giving notice of its intention to sell these shares, and a period of three months has elapsed since such advertisement.

The net proceeds of any such sale shall belong to us, and when we receive these net proceeds we shall become indebted to the former shareholder for an amount equal to such net proceeds.

Differences in Corporate Law

The Companies Law distinguishes between ordinary resident companies and exempted companies, and we are an exempted company with limited liability under the Companies Law. Any company that is registered in the Cayman Islands but conducts business mainly outside of the Cayman Islands may apply to be registered as an exempted company. The responsibilities of an exempted company are essentially the same as for an ordinary company except for the exemptions and privileges listed below:

• an exempted company does not have to file an annual return of its shareholders with the Registrar of Companies;

63

• an exempted company’s register of members is not open to inspection;

• an exempted company does not have to hold an annual general meeting;

• an exempted company may issue no par value, negotiable or bearer shares;

• an exempted company may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 20 years in the first instance);

• an exempted company may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands;

• an exempted company may register as a limited duration company; and

• an exempted company may register as a segregated portfolio company.

The company has not registered as a limited duration company or a segregated portfolio company and could not do so without prior shareholder approval. The company has no intention to seek such shareholder approval.

The Companies Law is modeled after similar laws in the United Kingdom but does not follow recent changes in United Kingdom laws. In addition, the Companies Law differs from laws applicable to U.S. corporations and their shareholders. Set forth below is a summary of the significant provisions of the Companies Law applicable to us.

Duties of Directors

Under Cayman Islands law, at common law, members of a board of directors owe a fiduciary duty to the company to act in good faith in their dealings with or on behalf of the company and exercise their powers and fulfill the duties of their office honestly. This duty has four essential elements:

• a duty to act in good faith in the best interests of the company;

• a duty not to personally profit from opportunities that arise from the office of director;

• a duty to avoid conflicts of interest; and

• a duty to exercise powers for the purpose for which such powers were intended.

In general, the Companies Law imposes various duties on officers of a company with respect to certain matters of management and administration of the company. The Companies Law contains provisions, which impose default fines on persons who fail to satisfy those requirements. However, in many circumstances, an individual is only liable if he knowingly is guilty of the default or knowingly and willfully authorizes or permits the default.

Interested Directors

The provisions under Cayman Islands law neither require a director who is interested in a transaction entered into by a Cayman company to disclose his interest nor render such director liable to such company for any profit realized pursuant to such transaction.

Voting Rights and Quorum Requirements

Under Cayman Islands law, the voting rights of shareholders are regulated by the company’s articles of association and, in certain circumstances, the Companies Law. The articles of association will govern matters such as quorum for the transaction of business, rights of shares, and majority votes required to approve any action or resolution at a meeting of the shareholders or board of directors. Our articles of association provide that a quorum for a general meeting shall be two members present in person or by proxy or corporate representative provided, however, that in no case shall such quorum be less than one-third of the outstanding voting shares in the capital of the company. Under Cayman Islands law, certain matters must be approved by a special resolution which is defined as two-thirds of the votes cast by shareholders present at a meeting and entitled to vote. Other than special resolutions, all resolutions shall be passed by a simple majority of those shares voted at a meeting at which a quorum is present.

64

Mergers and Similar Arrangements

The Companies Law permits mergers and consolidations between Cayman Islands companies and between Cayman Islands companies and non-Cayman Islands companies. For these purposes, (a) “merger” means the merging of two or more constituent companies and the vesting of their undertaking, property and liabilities in one of such companies as the surviving company and (b) a “consolidation” means the combination of two or more constituent companies into a consolidated company and the vesting of the undertaking, property and liabilities of such companies to the consolidated company. In order to effect such a merger or consolidation, the directors of each constituent company must approve a written plan of merger or consolidation (a “Plan”), which must then be authorized by either (a) a special resolution of the shareholders of each constituent company voting together as one class if the shares to be issued to each shareholder in the consolidated or surviving company will have the same rights and economic value as the shares held in the relevant constituent company or (b) a shareholder resolution of each constituent company passed by a majority in number representing 75% in value of the shareholders voting together as one class. The Plan must be filed with the Registrar of Companies together with a declaration as to the solvency of the consolidated or surviving company, a list of the assets and liabilities of each constituent company and an undertaking that a copy of the certificate of merger or consolidation will be given to the members and creditors of each constituent company and published in the Cayman Islands Gazette. Dissenting shareholders have the right to be paid the fair value of their shares (which, if not agreed between the parties, will be determined by the Cayman Islands court) if they follow the required procedures, subject to certain exceptions. Court approval is not required for a merger or consolidation which is effected in compliance with these statutory procedures. In addition, there are statutory provisions that facilitate the reconstruction and amalgamation of companies, provided that the arrangement in question is approved by a majority in number of each class of shareholders and creditors with whom the arrangement is to be made, and who must in addition represent three-fourths in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in-person or by proxy at a meeting, or meetings convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder would have the right to express to the court the view that the transaction should not be approved, the court can be expected to approve the arrangement if it satisfies itself that:

• the statutory provisions as to majority vote have been complied with;

• the shareholders have been fairly represented at the meeting in question;

• the arrangement is one that a businessman would reasonably approve; and

• the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Law.

When a takeover offer is made and accepted by holders of 90.0% of the shares within four months, the offerer may, within a two-month period, require the holders of the remaining shares to transfer such shares on the terms of the offer. An objection may be made to the Grand Court of the Cayman Islands but is unlikely to succeed unless there is evidence of fraud, bad faith or collusion.

If the arrangement and reconstruction are thus approved, any dissenting shareholders would have no rights comparable to appraisal rights, which would otherwise ordinarily be available to dissenting shareholders of U.S. corporations, providing rights to receive payment in cash for the judicially determined value of the shares.

Shareholder Suits

The Cayman Islands courts can be expected to follow English case law precedents. The common law principles (namely the rule in Foss v. Harbottle and the exceptions thereto) which permit a minority shareholder to commence a class action against or derivative actions in the name of the Company to challenge (a) an act which is ultra vires to the Company or illegal, (b) an act which constitutes a fraud against the minority where the wrongdoers are themselves in control of the Company, and (c) an action which requires a resolution with a qualified (or special) majority which has not been obtained) have been applied and followed by the courts in the Cayman Islands.

65

Under Delaware law, a stockholder may bring a derivative action on behalf of the corporation to enforce the rights of the corporation. Delaware law expressly authorizes stockholder derivative suits on the condition that the stockholder either held the stock at the time of the transaction of which the stockholder complains, or acquired the stock thereafter by operation of law and continues to hold it throughout the duration of the suit. An individual may also commence a class action suit on behalf of himself and other similarly situated stockholders where the requirements for maintaining a class action under Delaware law have been met. A plaintiff instituting a derivative suit is required to serve a demand on the corporation before bringing suit, unless such demand would be futile.

Corporate Governance

Cayman Islands laws do not restrict transactions with directors, requiring only that directors exercise a duty of care and owe a fiduciary duty to the companies for which they serve. Under our memorandum and articles of association, subject to any separate requirement for audit committee approval under the applicable rules of The Nasdaq Stock Market, Inc. or unless disqualified by the chairman of the relevant board meeting, so long as a director discloses the nature of his interest in any contract or arrangement in which he is interested, such a director may vote in respect of any contract or proposed contract or arrangement in which such director is interested and may be counted in the quorum at such meeting.

Indemnification

Cayman Islands law does not limit the extent to which a company’s articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. Our articles of association provide for the indemnification of our directors, auditors and other officers against all liabilities incurred by him or her as a result of any act or failure to act in carrying out his or her functions other than such liability (if any) that he or she may incur by his own willful neglect or default.

Shareholder Proposals

The Companies Law does not provide shareholders any right to bring business before a meeting or requisition a general meeting. Our articles of association provide that the directors shall on a members requisition forthwith proceed to convene an extraordinary general meeting of the company. A members requisition is a requisition of shareholders of the company holding at the date of deposit of the requisition not less than 10% in par value of the capital of the company as at that date carries the right of voting at general meetings of the company.

Approval of Corporate Matters by Written Consent

The Companies Law allows a special resolution to be passed in writing if signed by all the shareholders and authorized by the articles of association.

Calling of Special Shareholders Meetings

The Companies Law does not have provisions governing the proceedings of shareholders meetings which are usually provided in the articles of association.

Staggered Board of Directors

The Companies Law does not contain statutory provisions that require staggered board arrangements for a Cayman Islands company. Such provisions, however, may validly be provided for in the articles of association, and we have provided for a staggered board of directors in our articles of association. Pursuant to such provision, one-third of the current members of our board is required to stand for re-election each year.

Issuance of Preferred Stock

The Companies Law allows shares to be, issued with preferred, deferred or other special rights, whether in regard to dividends, voting, return of share capital or otherwise. Our articles of association provide that the directors may allot, issue, grant options over or otherwise dispose of shares (including fractions of a share) with or without preferred, deferred or other special rights or restrictions, in one or more series, whether with regard to dividend rights, dividend rates, conversion rights, voting rights, rights and terms of redemption and liquidation preferences or otherwise and to such persons, at such times and on such other terms as they think proper.

66

Anti-takeover Provisions

The Companies Law does not prevent companies from adopting a wide range of defensive measures, such as staggered boards, blank check preferred stock, removal of directors only for cause and provisions that restrict the rights of shareholders to call meetings and submit shareholder proposals. Our articles of association contain the following provisions which may be regarded as defensive measures: (i) a staggered board of directors and (ii) shareholders right to requisition a general meeting so that only the shareholders holding not less than 10% in par value of the capital of the company as at that date may requisition a general meeting.

Alteration of Capital

We may from time to time by ordinary resolution:

• increase the share capital by such sum as the resolution shall prescribe and with such rights, priorities and privileges annexed thereto, as the Company in general meeting may determine;

• consolidate and divide all or any of its share capital into shares of larger amount than its existing shares;

• by subdivision of its existing shares or any of them divide the whole or any part of its share capital into shares of smaller amount than is fixed by the Memorandum of Association or into shares without par value; and

• cancel any shares that at the date of the passing of the resolution have not been taken or agreed to be taken by any person.

We may, by special resolution, subject to any confirmation or consent required by the Companies Law, reduce our share capital or any capital redemption reserve fund in any manner authorized by law.

C. Material Contracts

See Exhibits 10.1 and 10.2, to our Registration Statement on Form F-1 (File No. 333-129208) filed with the Commission on October 24, 2005. Other than such contracts, we have not entered into any material contracts outside the ordinary course of our business within the two years preceding the date of this annual report.

D. Exchange Controls

Foreign Currency Exchange

Pursuant to the Administrative Regulations on Foreign Exchange amended by the State Council on August 5, 2008 and effective as of the same date and various further regulations issued by the Sate Administration of Foreign exchange (the “SAFE”), Renminbi can be freely converted into foreign currency and remitted out of China through a designated foreign exchange bank for current account transactions, such as payment for purchase of goods and services. However, all income and payments in foreign currency must be basis on the true and legal transactions, which shall be examined by the bank. For capital account transactions, such as equity investments and loans, conversion of foreign currency into Renminbi, or Renminbi into foreign currency, and remittance thereof into or out of China requires approval or registration by SAFE or its local office.

Within China, unless otherwise approved, all payments must be made in Renminbi. Pursuant to the new amended regulation, Chinese companies may repatriate foreign currency payments received from abroad into China or retain them abroad , the conditions and terms thereof shall be provided by SAFE, in accordance with the Balance of Payments and the need of foreign currency administration .Foreign invested enterprises, such as Actions Semiconductor (Zhuhai) and Artek Microelectronics (Shenzhen), are allowed to retain foreign currency in accounts with designated foreign exchange banks, subject to a maximum amount set by SAFE.

Dividend Distribution

The principal regulations governing distribution of dividends by wholly foreign owned enterprises include the Wholly Foreign-owned Enterprise Law amended by SCNPC on October 31, 2000 and effective as of the same date, and its Implementing Rules amended by the State Council on April 12, 2001 and effective as of the same date.

67

Under these regulations, a foreign invested enterprise in China may pay dividends only out of its accumulated distributable profits, if any, determined in accordance with its articles of association, and the accounting standards and regulations in China. In particular, each of our principle PRC subsidiaries, Actions Semiconductor (Zhuhai) and Artek Microelectronics (Shenzhen), as wholly foreign owned enterprises, is required to provide for a reserve fund and a staff and workers’ bonus fund, and to set aside at least 10% (up to an aggregate amount equal to half of its registered capital) of its after-tax profits each year.

E. Taxation

Cayman Islands Taxation

The following discussion of the material Cayman Islands tax consequences of an investment in our ordinary shares or ADSs is directly based on the advice of Maples and Calder as to Cayman Islands law. However, it does not consider any investor’s particular circumstances, and does not consider tax consequences other than those arising under Cayman Islands law.

The Cayman Islands currently have no exchange control restrictions and no income, corporate or capital gains tax, estate duty, inheritance tax, gift tax or withholding tax applicable to us or to any holder of ADS or of ordinary shares. Accordingly, any payment of dividends or any other distribution made on the ordinary shares will not be subject to taxation in the Cayman Islands, no Cayman Islands withholding tax will be required on such payments to any shareholder and gains derived from the sale of ordinary shares will not be subject to Cayman Islands capital gains tax. The Cayman Islands are not party to any double taxation treaties.

The Company has obtained an undertaking from the Governor-in-Cabinet of the Cayman Islands that, in accordance with section 6 of the Tax Concessions Law (1999 Revision) of the Cayman Islands, for a period of 20 years from August 9, 2005, no law which is enacted in the Cayman Islands imposing any tax to be levied on profits, income, gains or appreciations will apply to us or our operation and, in addition, that no tax to be levied on profits, income, gains or appreciations or which is in the nature of the estate duty or inheritance tax will be payable (i) on or in respect of our shares, debentures, or other obligations, or (ii) by way of withholding in whole or in part of a payment of dividend or other distribution of income or capital by us.

United States Federal Income Taxation

The following is a summary of the material United States federal tax consequences relating to the purchase, ownership, and disposition of the ordinary shares or ADSs. The information provided below is based on the United States Internal Revenue Code of 1986, as amended, or the Code, Treasury Regulations, proposed Treasury Regulations, Internal Revenue Service, or the IRS, published rulings and court decisions, all as of the date hereof. These authorities may change, possibly on a retroactive basis, or the IRS might interpret the existing authorities differently. In either case, the tax consequences of purchasing, owning or disposing of ordinary shares or ADSs could differ from those described below. We do not intend to obtain a ruling from the IRS with respect to the tax consequences of acquiring or holding the ordinary shares or ADSs.

This description is general in nature and does not discuss all aspects of U.S. federal income taxation that may be relevant to a particular investor in light of the investor’s particular circumstances, or to certain types of investors subject to special treatment under U.S. federal income tax laws, such as:

• banks or financial institutions;

• life insurance companies;

• tax-exempt organizations;

• dealers in securities or foreign currencies;

• traders in securities that elect to apply a mark-to-market method of accounting;

• shareholders that actually or constructively hold 10% or more of the total combined voting power of all of the classes of our stock entitled to vote;

• persons holding ordinary shares or ADSs as part of a position in a “straddle” or as part of a “hedging,” “conversion” or “integrated” transaction for U.S. federal income tax purposes;

• persons subject to the alternative minimum tax provisions of the Code; and

68

• persons that have a “functional currency” other than the U.S. dollar.

This description generally applies to purchasers of the ordinary shares or ADSs as capital assets. This description does not consider the effect of any foreign, state, local or other tax laws that may be applicable to particular investors.

Investors considering the purchase of ordinary shares or ADSs should consult their own tax advisors regarding the application of the U.S. federal income tax laws to their particular situations and the consequences of U.S. federal estate or gift tax laws, foreign, state, or local laws, and tax treaties.

U.S. Holders

As used herein, the term “U.S. Holder” means a beneficial owner of ordinary shares or ADSs that is:

• a citizen or resident of the U.S. for U.S. federal income tax purposes;

• a corporation or other entity taxable as a corporation for U.S. federal income tax purposes organized in or under the laws of the U.S. or any political subdivision thereof;

• an estate the income of which is subject to U.S. federal income taxation regardless of its source; or

• a trust, if such trust validly elects to be treated as a U.S. person for U.S. federal income tax purposes, or if (a) a court within the U.S. can exercise primary supervision over its administration and (b) one or more U.S. persons have the authority to control all of the substantial decisions of such trust.

If a partnership (including any entity treated as a partnership for U.S. tax purposes) is a beneficial owner of the ordinary shares or ADSs, the U.S. tax treatment of a partner in the partnership will generally depend on the status of the partner and the activities of the partnership. A holder of the ordinary shares or ADSs that is a partnership and partners in such partnership should consult their tax advisors about the U.S. federal income tax consequences of holding and disposing of the ordinary shares or ADSs.

For U.S. federal income tax purposes, U.S. Holders of ADSs will be treated as the beneficial owners of the underlying shares represented by the ADSs. Accordingly, no gain or loss will be recognized upon the exchange of ADSs for the holder’s proportionate interest in the shares, a holder’s tax basis in the withdrawn shares will be the same as its tax basis in the ADSs surrendered in exchange therefor, and the holding period in the withdrawn shares will include the period during which the holder held the surrendered ADSs.

If you are not a U.S. Holder, the following subsection does not apply to you and you should refer to “Non-U.S. Holders” below.

Taxation of Dividends and Other Distributions on Ordinary Shares or ADSs

Subject to the passive foreign investment company rules discussed below, all distributions to a U.S. Holder with respect to the U.S. Holder’s ordinary shares or ADSs, other than certain pro rata distributions of our shares, will be includible in the U.S. Holder’s gross income as ordinary dividend income when received, but only to the extent that the distribution is paid out of our current or accumulated earnings and profits. For this purpose, earnings and profits will be computed under U.S. federal income tax principles. The dividends will not be eligible for the dividends-received deduction allowed to corporations. To the extent that the amount of the distribution exceeds our current and accumulated earnings and profits, it will be treated first as a tax-free return of capital to the extent of the U.S. Holder’s tax basis in the U.S. Holder’s ordinary shares or ADSs, and to the extent the amount of the distribution exceeds the U.S. Holder’s tax basis, the excess will be taxed as capital gain.

If you are an individual U.S. Holder, dividends paid to you in taxable years beginning before January 1, 2009 from a “qualified foreign corporation” will be taxable to you at a maximum tax rate of 15% provided that you meet certain holding period and other requirements. A non-United States corporation (other than a passive foreign investment company) 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 (ii) with respect to any dividend it pays on shares (or ADSs backed by such shares) which is readily tradable on an established securities market in the United States. There is currently no such tax treaty in effect between the United States and the Cayman Islands. Our ADSs have been quoted on the Nasdaq Global Market under the Symbol “ACTS” since November 30, 2005. Each ADS represents six ordinary shares.

69

Dividends paid with respect to our ordinary shares could cease to be qualified dividend income if our ordinary shares or ADSs are delisted from The Nasdaq Global Market and do not subsequently become regularly traded on The Nasdaq SmallCap Market or other qualified exchange or market or if we are treated as a passive foreign investment company.

Dividends paid in Renminbi will be included in each U.S. Holder’s income as a U.S. dollar amount based on the spot rate in effect on the date that the U.S. Holder (or, in the case of a U.S. Holder of ADSs, the Depositary) receives the dividend, regardless of whether the payment is converted into U.S. dollars. If the U.S. Holder (or the Depositary) does not receive U.S. dollars on the date the dividend is distributed, the U.S. Holder will be required to include either gain or loss in income when the U.S. Holder (or the Depositary) later exchanges the Renminbi for U.S. dollars. The gain or loss will be equal to the difference between the U.S. dollar value of the amount that the U.S. Holder includes in income when the dividend is received and the amount that the U.S. Holder receives on the exchange of the Renminbi for U.S. dollars. The gain or loss generally will be ordinary income or loss from United States sources. If we distribute non-cash property as a dividend, the U.S. Holder will generally include in income an amount equal to the fair market value, in U.S. dollars, of the property on the date that it is distributed. Dividends will constitute foreign source income for foreign tax credit limitation purposes. The rules relating to the foreign tax credit are complex and U.S. Holders should consult their tax advisors to determine the foreign tax credit implications of owning the ordinary shares or ADSs.

Taxation of Disposition of Ordinary Shares or ADSs

Subject to the passive foreign investment company rules discussed below, a U.S. Holder will recognize taxable gain or loss on any sale or exchange of ordinary shares or ADSs equal to the difference between the amount realized (in U.S. dollars) for the ordinary shares or ADSs and the U.S. Holder’s tax basis (in U.S. dollars) in the ordinary shares or ADSs. The gain or loss recognized generally will be capital gain or loss. Capital gain of an individual U.S. Holder that is recognized before January 1, 2009 generally is taxed at a maximum tax rate of 15% if the property giving rise to the capital gain is held for more than one year. The deductibility of capital loss is subject to limitations.

Any gain or loss that a U.S. Holder recognizes will generally be treated as United States source income or loss for purposes of foreign tax credit limitations, unless it is attributable to an office or other fixed place of business outside the U.S. and certain other conditions are met.

Passive Foreign Investment Company

A company is considered a passive foreign investment company, or PFIC, for any taxable year if either:

• at least 75% of its gross income is passive income; or

• at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of passive income.

For the purpose of applying the income and asset tests described above, we will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation if we own, directly or indirectly, 25% or more (by value) of the stock of such corporation.

We believe we will be classified as a PFIC, for U.S. federal income tax purposes, for calendar year 2009 and in future years. The determination of whether or not we are classified as a PFIC is a factual determination that is made annually based on the categories and amounts of income that we earn and the categories and valuation of our assets (including goodwill), all of which are subject to change. There is no assurance as to the categories of assets in which we may invest. Moreover, in calculating goodwill, the valuation of our assets may be based on our anticipated total market value, determined with reference to the market price of our ordinary shares or ADSs.

Assuming we are classified as a PFIC for 2009 or in any other future taxable year, you would be subject to special rules generally intended to reduce or eliminate any benefits from the deferral of United States federal income tax that a U.S. Holder could derive from investing in a non-United States company that does not distribute all of its earnings on a current basis. In such event, you may be subject to tax at ordinary income tax rates on (i) any gain recognized on the sale of the ordinary shares or ADSs and (ii) any “excess distribution” paid on ordinary shares or ADSs (generally, a distribution in excess of 125% of the average annual distributions paid by us in the three preceding taxable years). In addition, you may be subject to an interest charge on such gain or excess distribution. Finally, the 15% maximum rate on our dividends would not apply if we are or become a PFIC.

70

Assuming we are a PFIC, you would generally be able to avoid the “excess distribution” rules described above by making a timely so-called “mark-to-market” election with respect to your ADSs and ordinary shares provided our ADSs and ordinary shares are “marketable.” If you made this election in a timely fashion, you would recognize as ordinary income or ordinary loss the difference between the fair market value of your ADSs and ordinary shares on the first day of any taxable year and their value on the last day of that taxable year. Any ordinary income resulting from this election would generally be taxed at ordinary income rates and would not be eligible for the reduced rate of tax applicable to qualified dividend income. Any ordinary losses would be limited to the extent of the net amount of previously included income as a result of the mark-to-market election, if any. Your basis in the ADSs and ordinary shares would be adjusted to reflect any such income or loss.

We do not intend to provide you with the information you would need to make or maintain a so-called “Qualified Electing Fund” or “QEF” election. Accordingly, if we were a PFIC in any year you would not be able to avoid the “excess distribution” rules described above by making such an election with respect to your ADSs and ordinary shares.

You are urged to consult your tax advisor regarding the potential tax consequences to you assuming we are or become a PFIC, as well as any elections that may be available to you to mitigate such consequences. 

Non-U.S. Holders

A Non-U.S. Holder generally will not be subject to U.S. federal income tax on dividends paid by us with respect to our ordinary shares or ADSs unless the income is effectively connected with the Non-U.S. Holder’s conduct of a trade or business in the United States. In such cases, you generally will be taxed in the same manner as a U.S. Holder.

A Non-U.S. Holder generally will not be subject to U.S. federal income tax on any gain attributable to a sale or other disposition of our ordinary shares or ADSs unless such gain is effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States or the Non-U.S. Holder is a natural person who is present in the United States for 183 days or more and certain other conditions exist. In the first case, the Non-U.S. Holder will be taxed in the same manner as a U.S. Holder. In the second case, the Non-U.S. Holder will be subject to U.S. federal income tax at a rate of 30% on the amount by which such Non-U.S. Holder’s U.S.-source capital gains exceed such U.S.-source capital loss.

Dividends and gains that are effectively connected with a Non-U.S. Holder’s conduct of a trade or business in the United States generally will be subject to tax in the same manner as they would be if the Non-U.S. Holder were a U.S. Holder, except that the passive foreign investment company rules will not apply. Effectively connected dividends and gains received by a corporate Non-U.S. Holder may also be subject to an additional branch profits tax at a 30% rate or a lower tax treaty rate.

Information Reporting and Backup Withholding

In general, information reporting requirements will apply to dividends in respect of our ordinary shares or ADSs or the proceeds received on the sale, exchange or redemption of our ordinary shares or ADSs paid within the United States (and, in certain cases, outside the United States) to U.S. Holders other than certain exempt recipients, such as corporations, and backup withholding tax may apply to such amounts if the U.S. Holder fails to provide an accurate taxpayer identification number (or otherwise establishes, in the manner provided by law, an exemption from backup withholding) or to report interest and dividends required to be shown on the U.S. Holder’s U.S. federal income tax returns. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as credit against the U.S. Holder’s U.S. federal income tax liability provided that the appropriate returns are filed.

A Non-U.S. Holder generally may eliminate the requirement for information reporting and backup withholding by providing certification of its foreign status to the payer, under penalties of perjury, on IRS Form W-8BEN.

F. Dividends and paying agents

Not applicable.

G. Statement by experts

Not applicable.

H. Documents on display

We file annual reports with and furnish other information to the SEC as may be applicable from time to time. You may read and copy any documents filed or furnished by Actions at the SEC’s public reference room in Washington, D.C. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room.

71

I. Subsidiary Information

Not applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk.

Our exposure to market risk for changes in interest rates relates primarily to the interest income generated by our cash deposits in banks and other financial institutions.. In 2006, 2007 and 2008, the rate of return on cash deposit was 2.9%, 3.2% and 4.7%, respectively. However, in light of the current global economic crisis, interest rates for cash deposits have generally been reduced and may be further reduced. For example, China’s central bank cut interest rates several times since 2008. As of December 31, 2008, the one-year Renminbi deposit rate was 2.25% in China, compared with 4.14% as of December 31, 2007. If global economic and market conditions remain uncertain or deteriorate further, decreased interest rate might adversely affect out interest income and further impact our net income.

We have not used derivative financial instruments in our investment portfolio to hedge interest rate risks or otherwise. Interest-earning instruments carry a degree of interest rate risk. However, historically we have not been exposed to material risks due to changes in interest rates. Our future interest income may fluctuate in line with the changes in interest rates.

Foreign Exchange Risk.

Our reporting currency is the U.S. dollar and virtually all of our sales are denominated in U.S. dollars. Our operating expenses and substantially all of our assets and liabilities are denominated in Renminbi. As a result, we are exposed to foreign exchange risk, and our results of operations may be negatively impacted by fluctuations in the exchange rate between the U.S. dollar and Renminbi. Due to the potential substantial volatility of currency exchange rates caused by the unprecedented turmoil in the global financial market, we cannot predict the effect of exchange rate fluctuations upon our financial statements and future operating results. Generally, if the Renminbi appreciates against the U.S. dollar, our operating expenses will increase and, as a consequence, our operating margins and net income will likely decline. However, this effect may partially offset by the fact that we also incur substantial expenses and liabilities in foreign currencies. We believe that the potential loss that would result from an increase or decrease in the exchange rate may have an adverse impact on us. Since July 2005 the Renminbi is no longer pegged solely to the U.S. dollar. Instead, it was reported to be pegged against a basket of currencies, determined by the People’s Bank of China, against which it can rise or fall by as much as 0.3% each day. This volatility range was further expanded by the People’s Bank of China by 0.5% each day since May 21, 2007. If the Renminbi had been 1% and 5% less valuable against the U.S. dollar than the actual rate as of December 31, 2008 which was used in preparing our audited financial statements as of and for the year ended December 31, 2008, our net asset value, as presented in U.S. dollars, would have been reduced by US$1.5 and US$7.3 million, respectively. Conversely, if the Renminbi had been 1% and 5% more valuable against the U.S. dollar as of that date, then our net asset value would have increased by US$1.6 and US$8.1 million, respectively.

We have experiencedforeign exchange a gain of US$ 5.6 million in 2007 and a gain of US$ 1.2 million in 2008. In addition, we have recognized foreign currency translation adjustments of approximately US$5.2 and US$11.0 million in 2007 and 2008, respectively. 

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

None.

ITEM 15. CONTROLS AND PROCEDURES

We maintain a set of disclosure controls and procedures designed to ensure that information required to be disclosed by us in reports that we file or submit under the U.S. Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and terms.

72

Disclosure control and procedures. Pursuant to Rules 13a-14(c) of the Securities Exchange Act of 1934, as amended. An evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer of the effectiveness of our disclosure controls procedures. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were effective as of December 31, 2008.

Management’s Annual Report on Internal Control Over Financial Reporting. Management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed under the supervision of our Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with U.S. GAAP. Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. As of December 31, 2008, management conducted an assessment of the effectiveness of our internal control over financial reporting based on the framework established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has determined that our internal control over financial reporting as of December 31, 2008 is effective.

Changes in Internal Control Over Financial Reporting. During 2008, no change to our internal control over financial reporting occurred that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Attestation Report of the Registered Public Accounting Firm

The effectiveness of internal control over financial reporting as of December 31, 2008 has been audited by Deloitte Touche Tohmatsu, an independent registered public accounting firm with a report to the shareholders and the Board of Directors of the Company included herein:

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

Our Board of Directors has determined that Mr. Lin, Yu-Hsin Casper, the chairman of our Audit Committee and an independent, non-executive director, is a “financial expert” as defined under the applicable rules of the SEC issued pursuant to Section 407 of the Sarbanes-Oxley Act of 2002.

ITEM 16B. CODE OF ETHICS

We have adopted a Code of Ethics that applies to all of our directors, officers and employees. We have never granted a waiver for non-compliance with the policies and procedures set forth in the code of ethics for any director, officer or employee of our company or any of our subsidiaries.

A copy of our Code of Ethics is available at our website at www.action-semi.com

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The table below summarizes the fees that we paid or accrued for services provided by Deloitte Touche Tohmatsu for the years ended December 31, 2007, and 2008.

	For the year ended December 31,
	2007		%		2008		%
	(thousands)				(thousands)
Audit Fees	US$	615	99.7	%	US$	700		99.7	%
Tax Fees		2	0.3	%		2		0.3	%
All Other Fees		Nil	-			Nil		-
Total	US$	617	100.0	%	US$	702		100.0	%

73

Audit Fees. This category includes the audit of our annual financial statements and services that are normally provided by Deloitte Touche Tohmatsu in connection with statutory and regulatory filings or engagements for those fiscal years.

Tax Fees. This category consists of professional services rendered by the Deloitte Touche Tohmatsu for tax compliance and tax advice. The services for the fees disclosed under this category include tax return preparation and technical tax advice.

All other Fees. There were no other fees billed by Deloitte Touche Tohmatsu for the fiscal years ended December 31, 2007 and 2008, respectively. 

All non-audit services need to be pre-approved by the Audit Committee on a case-by-case basis. Accordingly, we have not established any pre-approval policies and procedures. All audit and non-audit services performed by the Deloitte Touche Tohmatsu were pre-approved by the 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

In May 2007, our board of directors authorized a program to repurchase up to 8 million of our American Depositary Shares (ADSs) representing 48 million ordinary shares. Any shares acquired will be used in connection with our employee benefit plans and other general corporate purposes. We may repurchase shares in the open market or through privately negotiated transactions. The timing and actual number of ADSs repurchased will depend upon market conditions and other factors, in accordance with Securities and Exchange Commission requirements.

As of January 21, 2009, the initial 8 million ADS repurchase program has been completed and our board of directors approved an add-on share repurchase program under which we may repurchase up to 12 million additional ADSs through December 31, 2010.

The following table sets forth our share repurchase activities as of March 31, 2009.

Period	Total Number of ADSs purchased		Average Price Paid per ADS		Total Number of Shares Purchased		Maximum Number of Shares that May Yet Be Purchased
2007		1,303,647	US$	5.09		1,303,647		6,696,353
2008		3,779,374		2.46		5,083,021		2,916,979
January		38,027		3.3		1,341,674		6,658,326
February		110,449		3.56		1,452,123		6,547,877
March		-		-		1,452,123		6,547,877
April		-		-		1,452,123		6,547,877
May		75,165		3.47		1,527,288		6,472,712
June		481,115		3.54		2,008,403		5,991,597
July		-		-		2,008,403		5,991,597
August		572,352		3.1		2,580,755		5,419,245
September		634,280		3.08		3,215,035		4,784,965
October		-		-		3,215,035		4,784,965
November		1,424,652		1.69		4,639,687		3,360,313
December		443,334		1.54		5,083,021		2,916,979
2009
January(1)		3,346,036		1.42		8,429,057		11,570,943
February		489,540		1.5		8,918,597		11,081,403
March		-		-		8,918,597		11,081,403

_____________________

Note:

(1): the board of directors approved an add-on repurchase program up to 12 million additional ADSs on January 21, 2009

74

ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

Not Applicable.

ITEM 16G. CORPORATE GOVERNANCE

Generally, Nasdaq Marketplace Rule 4350(i)(1)(A) requires each issuer to obtain shareholders' approval of all equity compensation plans (including stock option plans) and material amendments to such plans. However, pursuant to Nasdaq Market Rule 4350(a)(1), we have elected to follow our home country's practices (in this case, being Cayman Islands’ practices) in lieu of the requirements of Nasdaq Marketplace Rule 4350. Our home country practices do not require us to obtain a shareholders' approval for amendments to our existing equity incentive plans.

On February 26, 2009, we initiated an offer to Amend to amend the terms of the options previously granted to certain of our employees, consultants, and non-employee directors (the “Offer to Amend”). On March 20, 2009, we completed our Offer to Amend. As a result options to purchase approximately 7,742,000 shares of our ADSs, or approximately 99.9% of all eligible options, were tendered for amendment in accordance with the Offer to Amend. The terms of our Offer to Amend can be found in the Form CB filed with the Securities and Exchange Commission on February 26, 2009.

PART III

ITEM 17. FINANCIAL STATEMENTS 

The Company has elected to provide the financial statements and related information specified in Item 18 in lieu of Item 17.

ITEM 18. FINANCIAL STATEMENTS 

See Item 19(a) for a list of financial statements filed under Item 18.

ITEM 19. EXHIBITS

(a)  See Item 18 for a list of the financial statements filed as part of this annual report.

(b)  Exhibits to this Annual Report:

12.1	Certification of Chief Executive Officer required by Rule 13a-14(a) under the Exchange Act.
12.2	Certification of Chief Financial Officer required by Rule 13a-14(a) under the Exchange Act.
13.1	Certification of Chief Executive Officer and Chief Financial Officer required by Rule 13a-14(b) under the Exchange Act.
99.1	Consent of Deloitte & Touche

75

SIGNATURES

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.

Actions Semiconductor Co., Ltd.
By:	/s/ PEI-FEN (PATRICIA) CHOU
Name:	Pei-Fen (Patricia) Chou
Title:	Chief Financial Officer

Date: April 17, 2009

76

ACTIONS SEMICONDUCTOR CO., LTD.

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2006, 2007 AND 2008

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

CONTENTS	PAGE(S)
Report of Independent Registered Public Accounting Firm	F - 2
Consolidated Balance Sheets as of December 31, 2007 and 2008	F - 4
Consolidated Statements of Operations for the years ended December 31, 2006, 2007 and 2008	F - 5
Consolidated Statements of Shareholders' Equity and Comprehensive Income for the years ended December 31, 2006, 2007 and 2008	F - 6
Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2007 and 2008	F - 7
Notes to the Consolidated Financial Statements	F - 9
Schedule 1 - Actions Semiconductor Co., Ltd. - condensed financial information as of December 31, 2007 and 2008 and for the years ended December 31, 2006, 2007 and 2008	F - 35

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF

ACTIONS SEMICONDUCTOR CO., LTD.    

We have audited the accompanying consolidated balance sheets of Actions Semiconductor Co., Ltd. (the "Company") and its subsidiaries (collectively referred to as the "Group") as of December 31, 2007 and 2008, and the related consolidated statements of operations, shareholders' equity and comprehensive income, and cash flows for each of the three years in the period ended December 31, 2008 and the related financial statement schedule included on Schedule 1.  These consolidated financial statements and the financial statement schedules are the responsibility of the Company's management.  Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Group as of December 31, 2007 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.  Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Group's internal control over financial reporting as of December 31, 2008, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated April 17, 2009, expressed an unqualified opinion on the Group's internal control over financial reporting.

Deloitte Touche Tohmatsu

Hong Kong

April 17, 2009

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF

ACTIONS SEMICONDUCTOR CO., LTD.   

We have audited the internal control over financial reporting of Actions Semiconductor Co., Ltd. (the "Company") and its subsidiaries (collectively referred to as the "Group") as of December 31, 2008, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting.  Our responsibility is to express an opinion on the Group's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.  Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.  We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel 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.  A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis.  Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Group maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and the financial statement schedule as of and for the year ended December 31, 2008 of the Group and our report dated April 17, 2009 expressed an unqualified opinion on those financial statements and the financial statement schedule.

Deloitte Touche Tohmatsu

Hong Kong

April 17, 2009

F-3

ACTIONS SEMICONDUCTOR CO., LTD.

CONSOLIDATED BALANCE SHEETS

 (In thousands of U.S. dollars, except share and per share data)

	At December 31,
	2007		2008
ASSETS
Current assets:
Cash and cash equivalents	$	72,054	$	45,435
Time deposits		2,613		61
Restricted cash		1,782		440
Marketable securities		165,317		201,151
Trading securities		-		19,299
Accounts receivable, net		5,103		2,435
Amount due from a related party		943		1,497
Notes receivable		372		74
Inventories		12,542		8,720
Prepaid expenses and other current assets		2,479		1,532
Deferred tax assets		739		686
Total current assets		263,944		281,330
Investment in an equity method investee		1,719		4,142
Other investments ($82 and $196 carried at fair value as of December 31, 2007 and 2008, respectively)		5,479		7,044
Rental deposits		79		39
Property, plant and equipment, net		6,436		7,144
Land use right		1,509		1,580
Acquired intangible assets, net		5,849		4,197
Deposit paid for acquisition of property, plant and equipment		27		403
Deferred tax assets		-		206
TOTAL ASSETS	$	285,042	$	306,085
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	12,334	$	4,050
Accrued expenses and other current liabilities		9,435		6,846
Other liabilities		884		1,818
Loan from minority shareholders		-		1,500
Short-term bank loan		1,519		-
Income tax payable		749		221
Deferred tax liabilities		-		480
Total current liabilities		24,921		14,915
Other liabilities		686		249
Deferred tax liabilities		-		1,750
Total liabilities		25,607		16,914
Minority interest		204		35
Commitments and contingencies (Note 18)
Shareholders' equity:
Ordinary shares of par value $0.000001:
2,000,000,000 shares authorized
485,501,874 (2007: 508,178,118) shares issued and outstanding	$	1	$	1
Additional paid-in capital		43,679		36,606
Accumulated other comprehensive income		9,628		20,483
Retained earnings		205,923		232,046
Total shareholders' equity		259,231		289,136
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	285,042	$	306,085

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

F-4

ACTIONS SEMICONDUCTOR CO., LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands of U.S. dollars, except share and per share data)

	Year ended December 31,
	2006			2007			2008
Revenues:
Third-parties:
System-on-a chip products		170,129			102,626			70,528
Semiconductor product testing services		99			-			214
		170,228			102,626			70,742
Related-parties:
System-on-a chip products		-			13,694			24,388
Semiconductor product testing services		-			308			-
		-			14,002			24,388
Total revenues		170,228			116,628			95,130
Cost of revenues:
System-on-a-chip products		(75,853	)		(56,687	)		(47,248	)
Semiconductor product testing services		(58	)		(231	)		(177	)
Total cost of revenues		(75,911	)		(56,918	)		(47,425	)
Gross profit		94,317			59,710			47,705
Other operating income		1,634			392			797
Operating expenses:
Research and development		(9,773	)		(12,381	)		(19,477	)
General and administrative		(8,663	)		(10,485	)		(10,399	)
Selling and marketing		(1,626	)		(1,880	)		(1,694	)
Total operating expenses		(20,062	)		(24,746	)		(31,570	)
Income from operations:		75,889			35,356			16,932
Other income		-			11,570			1,213
Dividend income		-			-			20
Fair value change in trading securities		-			-			92
Interest income		4,876			7,162			11,912
Interest expense		(160	)		(82	)		(4	)
Income before income taxes, equity in net loss of an equity method investee and minority interests		80,605			54,006			30,165
Income taxes expense		(5,984	)		(2,202	)		(3,632	)
Equity in net loss of an equity method investee		(156	)		(383	)		(576	)
Minority interests		96			220			166
Net income	$	74,561		$	51,641		$	26,123
Net income per share: Basic and diluted	$	0.144		$	0.101		$	0.052
Weighted-average shares used in computation:
Basic and diluted		516,000,000			513,588,069			501,763,805

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

F-5

ACTIONS SEMICONDUCTOR CO., LTD.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

AND COMPREHENSIVE INCOME

(In thousands of U.S. dollars, except share and per share data)

									Accumulated
									other
	Ordinary shares					Additional			comprehensive			Retained					Comprehensive
	Number			Amount		paid-in capital			income			earnings		Total			income
Balance at January 1, 2006		516,000,000		$	1	$	49,629		$	1,224		$	79,721	$	130,575
Reversal of overprovision of capitalized offering expenses		-			-		712			-			-		712			-
Foreign currency translation adjustments		-			-		-			3,172			-		3,172			3,172
Net income		-			-		-			-			74,561		74,561			74,561
Balance at December 31, 2006		516,000,000		$	1	$	50,341		$	4,396		$	154,282	$	209,020		$	77,733
Repurchase of ordinary shares		(7,821,882	)		-		(6,662	)		-			-		(6,662	)		-
Foreign currency translation adjustments		-			-		-			5,231			-		5,231			5,231
Unrealised gains on other investments		-			-		-			1			-		1			1
Net income		-			-		-			-			51,641		51,641			51,641
Balance at December 31, 2007		508,178,118		$	1	$	43,679		$	9,628		$	205,923	$	259,231		$	56,873
Repurchase of ordinary shares		(22,676,244	)		-		(9,368	)		-			-		(9,368	)		-
Share-based compensation		-			-		2,295			-			-		2,295			-
Foreign currency translation adjustments		-			-		-			10,951			-		10,951			10,951
Unrealised loss on other investments		-			-		-			(96	)		-		(96	)		(96	)
Net income		-			-		-			-			26,123		26,123			26,123
Balance at December 31, 2008		485,501,874		$	1	$	36,606		$	20,483		$	232,046	$	289,136		$	36,978

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

F-6

ACTIONS SEMICONDUCTOR CO., LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of U.S. dollars)

	Year ended December 31,
	2006			2007			2008
Operating activities:
Net income	$	74,561		$	51,641		$	26,123
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant and equipment		991			1,594			2,085
Allowance for doubtful accounts receivable		-			282			496
Amortization of acquired intangible assets		990			2,349			3,232
Utilization of subsidy from local authorities of Beijing and Zhuhai the People's Republic of China (the "PRC")		(35	)		(10	)		(602	)
Write down of inventories		86			538			901
Loss on disposal of property, plant and equipment		65			320			70
Gain on disposal of intangible assets		-			(18	)		-
Fair value change in trading securities		-			-			(92	)
Gain on disposal other investments		-			-			(6	)
Share-based compensation		-			-			2,295
Minority interests		(96	)		(220	)		(166	)
Deferred tax		(134	)		(77	)		2,083
Equity in net loss of an equity method investee		156			383			576
Changes in operating assets and liabilities:
Proceeds from disposal of trading securities		-			-			17,111
Purchase of trading securities		-			-			(36,318	)
Accounts receivable		42			474			2,169
Amounts due from a related party		2,192			(943	)		(554	)
Notes receivable		(420	)		1,828			315
Inventories		825			(6,170	)		3,611
Prepaid expenses and other current assets		(4,030	)		4,289			1,601
Amount due from equity method investee		(133	)		-			52
Income tax recoverable		11			-			-
Accounts payable		2,184			(4,023	)		(8,999	)
Accrued expenses and other current liabilities		(2,698	)		(3,839	)		(5,522	)
Income tax payable		2,258			(1,557	)		(576	)
Rental deposit (paid) refunded		(41	)		(25	)		45
Net cash provided by operating activities		76,774			46,816			9,930
Investing activities:
Investment in an equity method investee		(1,125	)		(2,281	)		(3,000	)
Purchase of other investments		-			(3,831	)		(2,215	)
Proceeds from disposal of property, plant and equipment		79			39			18
Proceeds from disposal of intangible assets		-			64			-
Increase in deposit paid for acquisition of property, plant and equipment		-			-			(368	)
Purchase of marketable securities		(20,531	)		(141,108	)		(25,575	)
Purchase of property, plant and equipment		(5,793	)		(2,586	)		(2,429	)
Purchase of intangible assets		(1,910	)		(4,241	)		(1,194	)
Decrease (increase) in restricted cash		2,563			(1,626	)		1,389
(Increase) decrease in time deposits		(21,471	)		44,423			2,691
Net cash used in investing activities		(48,188	)		(111,147	)		(30,683	)

F-7

ACTIONS SEMICONDUCTOR CO., LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS - continued

(In thousands of U.S. dollars)

	Year ended December 31,
	2006			2007			2008
Financing activities:
Proceeds from short-term bank loans		5,291			1,431			-
Repayment of short-term bank loans		(7,665	)		-			(1,580	)
Proceeds from loan from minority shareholders		-			-			1,500
Advance subsidy from local authorities of Beijing and Zhuhai, the PRC		447			830			1,025
Repurchase of ordinary shares		-			(6,662	)		(9,368	)
Amounts due to shareholders		77,377			-			-
Repayment of amounts due to shareholders		(77,367	)		(10	)		-
Net cash used in financing activities		(1,917	)		(4,411	)		(8,423	)
Net increase (decrease) in cash and cash equivalents		26,669			(68,742	)		(29,176	)
Cash and cash equivalents at the beginning of the year		108,896			137,778			72,054
Effect of exchange rate changes on cash		2,213			3,018			2,557
Cash and cash equivalents at the end of the year	$	137,778		$	72,054		$	45,435
Supplemental cash flow information:
Cash paid during the period for:
Interest	$	(160	)	$	(82	)	$	(4	)
Income taxes	$	(3,849	)	$	(3,785	)	$	(2,110	)
Non-cash investing activities
Purchases of intangible assets	$	(880	)	$	(1,379	)	$	(988	)

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

F-8

ACTIONS SEMICONDUCTOR CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2008

(In thousands of U.S. dollars, except share and per share data, share related data and unless otherwise stated)

1. ORGANIZATION AND PRINCIPAL ACTIVITIES

Actions Semiconductor Co., Ltd ("Actions Semiconductor Cayman Islands" or "the Company") is a holding company incorporated in the Cayman Islands on July 27, 2005.

Another company, Actions Semiconductor Co., Ltd. ("Actions Semiconductor Mauritius") was incorporated under the laws of Mauritius on November 21, 2001.  On December 28, 2001, Actions Semiconductor Mauritius established a wholly-owned subsidiary in the People's Republic of China ("PRC") namely, Actions Semiconductor Co., Ltd ("Actions Semiconductor Zhuhai").

On August 17, 2005, Actions Semiconductor Cayman Islands issued 480 million ordinary shares in exchange of the 3 million ordinary shares of Actions Semiconductors Mauritius (collectively referred as the "Exchange").  The shareholders of Actions Semiconductor Mauritius became the holders of 100% of the outstanding shares of Actions Semiconductor Cayman Islands in proportion to their interests in Actions Semiconductor Mauritius.

The Exchange was accounted for as a reverse merger and the financial statements of Actions Semiconductor Cayman Islands presents the historical results, assets and liabilities of Actions Semiconductor Mauritius on the consummation of the reverse merger on the basis that Actions Semiconductor Mauritius was the accounting acquirer.  Prior to the Exchange, Actions Semiconductor Cayman Islands was a shell company which contained only insignificant amount of assets and no liabilities.

At December 31, 2008, the subsidiaries of the Company include the following:

	Place and date of	Attributable equity
Name of Company	incorporation/establishment	interest held	Principal activities
Actions Semiconductor Co., Ltd.	Republic of Mauritius	100%	Investment holding
("Actions Semiconductor Mauritius")	("Mauritius")
	November 16, 2001
Actions Semiconductor Co., Ltd.	PRC	100%	Design and manu-
("Actions Semiconductor Zhuhai")	November 17, 2001		facture of system-
			on-a-chip products
Shanghai Actions Semiconductor Co., Ltd.	PRC	100%	Design and manu-
("Actions Semiconductor Shanghai ")	March 27, 2008		facture of system-
			on-a-chip products
Actions Enterprise (HK) Co., Ltd.	Hong Kong	100%	Investment holding
	September 6, 2007
Actions Technology (HK) Company	Hong Kong	100%	Trading of system-on-
Limited ("Actions Hong Kong")	January 13, 1999		a-chip products
Actions Microelectronics Co., Ltd.	Hong Kong	100%	Trading of system-on-
	August 17, 2007		a-chip products
Actions Microelectronics Co., Ltd.	PRC	80%	Design and manu-
("Beijing Actions")	December 13, 2005		facture of system-
			on-a-chip products

F-9

ACTIONS SEMICONDUCTOR CO., LTD.

1. ORGANIZATION AND PRINCIPAL ACTIVITIES - continued

	Place and date of	Attributable equity
Name of Company	incorporation/establishment	interest held	Principal activities
Artek Microelectronics (HK) Co., Limited	Hong Kong	100%	Trading of system-
	January 16, 2006		on-a-chip products
Artek Microelectronics Co., Ltd.	PRC	100%	Design and manu-
("Artek Microelectronics Shenzhen")	March 14, 2006		facture of system-on-
			a-chip products
Actions Capital Investment Inc.	The BVI	100%	Investment holding
	February 10, 2006
Actions Investment Consulting (Shanghai)	PRC	100%	Investment consulting
Co., Ltd. ("Actions Investment Consulting")	November 6, 2006		and management

Actions Semiconductor Cayman Islands and its subsidiaries (the "Group") are principally engaged in the design and development of System-on-a-chip ("SoC") products and total solutions for the development and manufacture of portable media players and the provision of testing solutions.  The Group's total solutions include SoCs, solution development kits and detailed specifications of other required components and the providers' information of those components.  The Group's total solutions enable its customers to quickly introduce new portable media players, which play multimedia files by compressing to a fraction of their size using any one of a number of audio and video compression technologies, into the mainstream market worldwide.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

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

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its majority-owned subsidiaries.  All significant intercompany transactions and balances are eliminated on consolidation.

Use of estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses for the periods presented.  Actual results could differ from those estimates.  The significant accounting estimates, which have had an impact on the consolidated financial statements, include allowances for doubtful receivables , write down of  slow moving and obsolete inventories, deferred  tax valuation allowance, useful lives of property, plant and equipment and intangible assets,  provision for litigation claims and valuation of stock option expenses.

F-10

ACTIONS SEMICONDUCTOR CO., LTD.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Cash and cash equivalents

Cash and cash equivalents consist of cash on hand, demand deposits and highly liquid investments which are unrestricted as to withdrawal and use, and which have maturities of three months or less when purchased.

Time deposits

Time deposits consist of deposits placed with financial institutions with original maturity terms of greater than three months but less than one year.

Restricted cash

Restricted cash at December 31, 2007 represented a bank deposit in respect of a short-term bank loan granted to the Group which was subsequently repaid in 2008.  Restricted cash at December 31, 2008 represented a bank deposit in respect of construction of a building in Zhuhai, the PRC, which is restricted as collateral for payment to construction workers.

Marketable securities

Marketable securities are highly liquid investments which have maturities of one year or less when purchased.  Marketable securities are classified as held-to-maturity as the Group has the positive intent and ability to hold the securities to maturity.  All of the Group's held-to-maturity marketable securities are stated at amortized cost.

Trading securities

Trading securities are highly liquid investments in publicly traded mutual funds.  The investment is reported at fair value and unrealized gains and losses are included in earnings.

Notes receivable

Notes receivable represent bank acceptance drafts that are arranged by customers to settle their accounts payable to the Group.  The notes receivable are non-interest bearing and are typically due within 180 days or less.

Research and development

Research and development costs are expensed as incurred.

Inventories

Inventories are stated at the lower of cost or market value.  Cost is determined using the weighted average method and mainly comprise cost of materials and sub-contract service fee.  Write down of potentially obsolete or slow moving inventories is recorded based on management's assumptions about future demand and market conditions.

F-11

ACTIONS SEMICONDUCTOR CO., LTD.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Investments under equity method

The investments for which the Group has the ability to exercise significant influence are accounted for using the equity method.  Under the equity method, original investments are recorded at cost and adjusted by the Group's share of undistributed earnings or losses of the entities, by dividend distributions or subsequent investments.  All unrecognized inter-company profits and losses have been eliminated under the equity method.

When the estimated amount to be realized from the investments falls below its carrying value, an impairment charge is recognized in the consolidated statements of operations when the decline in value is considered other than temporary.

Other investments

Other investments comprise investments in equity securities and are classified as available-for-sale securities depending on the Group's intention on holding these investments.  The investments are  reported at fair value and  unrealized gains and losses are excluded from earnings and reported in a separate component of shareholder's equity.  Equity securities that do not have readily determinable market values are carried at cost. Fair values of equity securities carried at cost are estimated if there are identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investments..

Property, plant and equipment and land use right

Property, plant and equipment, net are carried at cost less accumulated depreciation.  Assets under construction are not depreciated until construction is completed and the assets are ready for their intended use.  Gains and losses on disposal of property, plant and equipment and land use right are included in the consolidated statement of operations.

Depreciation rates computed using the straight-line method are as follows:

Buildings	20 years
Leasehold improvements	Shorter of lease terms or 3 years
Furniture, fixtures and equipment	5 years
Motor vehicles	5 years
Plant and machinery	3 to 5 years

All land in the PRC is owned by the government.  According to PRC law, the government may sell the right to use of the land for a specified period of time.  Thus, all of the Group's land, which were all purchased in the PRC, are considered to be leasehold land and classified as land use right.  These are amortized on a straight-line basis over the respective term of the right to use the land.  Amortization expense was $26, $31 and $38 for years ended December 31, 2006, 2007 and 2008 respectively.

F-12

ACTIONS SEMICONDUCTOR CO., LTD.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Acquired intangible assets, net

Acquired intangible assets comprising purchased software and technology licenses are amortized on a straight-line basis over their expected useful economic lives, which range between two and ten years.

Impairment of long-lived assets

The Group reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable.  When these events occur, the Group measures impairment by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition.  If the sum of the expected undiscounted cash flow is less than the carrying amount of the assets, the Group would recognize an impairment loss based on the fair value of the assets.

Government subsidies

Government subsidies include cash subsidies and advance subsidies received from the local PRC governments in Zhuhai by Actions Semiconductor Zhuhai and in Beijing by Beijing Actions. Cash subsidies are recognized as other income when received and when all the conditions for their receipt have been met.  Cash subsidies recognized as income were $35, $10 and $602 for the years ended December 31, 2006, 2007 and 2008, respectively.

Advance subsidies received from the government have been recorded in other liabilities.  A certain portion of such advance subsidies are repayable and another portion will be recognized as other income when and if Actions Semiconductor Zhuhai incurs interest expense on bank borrowings (see note 15 for additional details).

Revenue recognition

The Group's revenues are primarily derived from sale of SoC products and their total system solutions, which it designs and develops, at its own expense.  The Group recognizes revenue based on firm customer orders with fixed terms and conditions, including price net of discount and commission, if any.  The Group recognizes revenue when delivery has occurred and collectibility is determined to be reasonably assured.  The Group also provides semiconductor product testing, and revenue is recognized when the services are rendered.  The Group does not provide its customers with any price protection and only provides the right of return for defective goods in connection with its warranty policy.  The costs of the Group's warranty policy to-date are insignificant.

F-13

ACTIONS SEMICONDUCTOR CO., LTD.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Income taxes

The Group accounts for income taxes using the asset and liability method.  Under this method, deferred income taxes are recognized for temporary differences between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements, tax loss carryforwards, and credits by applying enacted statutory tax rates applicable to future years.  Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.  Current income taxes are provided for in accordance with the laws of the relevant tax authorities.

Effective January 1, 2007, the Group adopted the Financial Accounting Standard Board ("FASB") Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109" ("FIN 48"), which clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements.  The interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  FIN 48 also provides accounting guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.  There is no material impact of FIN 48 on the Group's consolidated financial statements.

Advertising costs

Advertising costs are expensed as incurred and are included in general and administrative expense, and selling and marketing expenses.  Total advertising expenses were approximately $183, $414 and $142 for the years ended December 31, 2006, 2007 and 2008 respectively.

Comprehensive income

Accumulated other comprehensive income included unrealized gains on investments and foreign currency translation adjustments and is reported as a separate component in the statement of shareholders' equity and comprehensive income.

Foreign currency translation

All transactions in currencies other than functional currencies during the year are converted at the exchange rates prevailing on the respective transaction dates.  Foreign currency monetary assets and liabilities at the balance sheet date are remeasured at the exchange rates existing on that date.  Exchange differences are recorded in the consolidated statement of operations.

The financial statements of all subsidiaries with functional currencies other than the U.S. dollars, are translated into U.S. dollars.  All assets and liabilities are translated at the rates of exchange prevailing at the balance sheet date, and all income and expense items are translated at the average rates of exchange over the year.  All exchange differences arising from the translation of subsidiaries' financial statements are recorded as a component of comprehensive income.

F-14

ACTIONS SEMICONDUCTOR CO., LTD.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Fair value of financial instruments

Fair values of cash and cash equivalents, time deposits, restricted cash, marketable securities, accounts receivable, notes receivable, accounts payable, accrued expenses, loan from minority shareholders and short-term bank loan. Except for other liabilities, the carrying fair values approximate their carrying amounts due to their short-term maturities.  Please refer to note 13 for the estimated fair value of other liabilities.

Concentration of credit risk

Financial instruments that potentially expose the Group to concentrations of credit risk consist primarily of cash and cash equivalents, time deposits, restricted cash, marketable securities, trading securities, accounts receivable and notes receivable.  The Group places its cash and cash equivalents, time deposits, restricted cash, marketable securities and trading securities with financial institutions with high-credit ratings and quality.

The Group conducts credit evaluations of customers and generally does not require collateral or other security from its customers.  The Group establishes an allowance for doubtful accounts based upon estimates, factors surrounding the credit risk of specific customers and other information.  As a result of the Group's credit evaluation, combined with its success in collecting approximately 100% of its outstanding account receivables and notes receivables, no allowance for doubtful accounts was recorded at December 31, 2006.  For the year ended December 31, 2007 and 2008, allowance for doubtful accounts of $282 and $496 was recorded by the Group respectively, and most of the remaining outstanding balances were collected subsequently.

Movements in allowances for doubtful accounts receivable are as follows:

Year ended	Beginning		Charged to		Closing
December 31	balance		expense		balance
2007	$	-	$	282	$	282
2008	$	282	$	496	$	778

F-15

ACTIONS SEMICONDUCTOR CO., LTD.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Net income per share

Basic net income per share is computed by dividing net income by the weighted average number of ordinary shares outstanding during the year.  Diluted earnings per share give effect to all dilutive potential common shares outstanding during the year.  The weighted average number of common shares outstanding is adjusted to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued.

Stock options

The Group measures the cost of employee services received in exchange for share-based compensation at the grant date fair value of the award.  The Group recognizes the compensation costs on a straight-line over the vesting period.  Share-based compensation cost with a graded vesting schedule is recognized on a straight-line basis over the requisite service period of the entire award.

The compensation costs of $112, $1,394, $662 and $127 have been included as cost of revenues, research and development expenses, general and administrative expenses, and selling and marketing expenses, respectively.

Recently issued accounting pronouncements

In February 2008, the FASB issued FASB Staff Position ("FSP") SFAS No. 157-2, "Effective Date of FASB Statement No. 157", which defers the effective date of SFAS No.  157 for all non-recurring fair value measurements of non-financial assets and nonfinancial liabilities until fiscal years beginning after November 15, 2008 and interim periods within those fiscal years.  The Group is currently evaluating the impact of adoption of FSP SFAS No. 157-2, for non-recurring fair value measurements of non-financial assets and liabilities.

In October 2008, the FASB issued FSP SFAS No. 157-3, "Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active" ("FSP SFAS No. 157-3").  FSP SFAS No. 157-3 clarifies the application of SFAS No. 157 in a market that is not active and provides guidance on the key considerations in determining the fair value of a financial instrument when the market for these instruments is not active.  The clarifying guidance provided in FSP SFAS No. 157-3 did not result in a change to Group's financial position, results of operations and cash flows.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations" ("SFAS No. 141R").  The objective of SFAS No. 141R is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects.  SFAS No. 141R requires an acquirer to recognize any assets and noncontrolling interest acquired and liabilities assumed to be measured at fair value as of the acquisition date.  Liabilities related to contingent consideration are recognized and measured at fair value on the date of acquisition rather than at a later date when the amount of the consideration may be resolved beyond a reasonable doubt.  This revised approach replaces SFAS No. 141's allocation process in which the cost of an acquisition was allocated to the individual assets acquired and liabilities assumed based on their respective fair values.  This statement applies prospectively to business combinations where the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.

F-16

ACTIONS SEMICONDUCTOR CO., LTD.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Recently issued accounting pronouncements - continued

In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interest in Consolidation Financial Statements an Amendment of Accounting Research Bulletin No. 51" ("SFAS No. 160").  This statement amends ARB 51 and establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary.  It requires noncontrolling interest (minority interest) to be recognized as equity in the consolidated financial statements and separate from the parent's equity and the amount of net income (loss) attributable to the noncontrolling interest to be included in consolidated net income (loss) on the face of the consolidated statement of operations.  SFAS No.160 clarifies that changes in a parent's ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest.  In addition, this statement requires that a parent recognize a gain or loss in net income (loss) when a subsidiary is deconsolidated and also requires expanded disclosures regarding the interests of the parent and the interests of the noncontrolling owners.

SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008.  The adoption of SFAS No.160 is not expected to have a material impact on the Group's financial position, results of operations or cash flows.

At the November 24, 2008 meeting, the FASB ratified the consensus reached by the Task Force in Issue No.  08-6: Equity Method Investment Accounting Considerations ("EITF 08-6").  Because of the significant changes to the guidance on subsidiary acquisitions and subsidiary equity transactions and the increased use of fair value measurements as a result of Statements 141(R) and 160, questions have arisen regarding the application of that accounting guidance to equity method investments.  EITF 08-6 provides guidance for entities that acquire or hold investments accounted for under the equity method.  This issue is effective for transactions occurring in fiscal years and interim periods beginning on or after December 15, 2008.  Early adoption is not permitted.  The Group does not expect the adoption of EITF 08-6 to have a material impact on the Group's consolidated financial statements.

3. MARKETABLE SECURITIES AND TRADING SECURITIES

The Group's marketable securities represented held-to-maturity securities with various banks or independent financial institutions in the PRC.  As of December 31, 2007 and 2008, all held-to-maturity securities of the Group had maturities of less than one year.  The aggregate fair value of the held-to-maturity securities approximate to its carrying value as of December 31, 2007 and 2008.

The Group's trading securities comprised investments in publicly traded mutual funds in Taiwan.  The investments are reported at fair value and its unrealized gains/losses are included in earnings.  As of December 31, 2008, an unrealized gain of $56 has been recognized.

F-17

ACTIONS SEMICONDUCTOR CO., LTD.

4. INVENTORIES

Inventories consisted of the following:

	At December 31,
	2007		2008
Raw materials	$	4,042	$	1,319
Work in progress		1,236		425
Finished goods		7,264		6,976
	$	12,542	$	8,720

Slow moving inventories amounted to $86, $538 and $901 were written down for the year ended December 31, 2006, 2007 and 2008, respectively.

5. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following:

	At December 31,
	2007		2008
Prepaid expenses	$	284	$	448
Value added tax refundable		1,917		778
Others		278		306
	$	2,479	$	1,532

6. INVESTMENT IN AN AFFILIATE

Hi-Trend Investment Holding Co., Ltd ("Hi Trend")

Hi-Trend is a private company which designs, manufactures, and markets integrated circuit devices, including for energy meters and organic light emitting diode displays incorporated in portable electronics.

In March 2006, the Group acquired an additional 10% of equity interest in Hi-Trend for a cash consideration of $1,125.  The Group exercised significant influence over but did not control Hi-Trend, and the investment in Hi-Trend was accounted for under the equity method of accounting.  The equity in net loss of an affiliate amounted to approximately $156 for year ended December 31, 2006.  In addition, in May 2006 the Group entered into an agreement with a subsidiary of Hi-Trend pursuant to which it licensed the Group's energy metering SoC technology in exchange for a royalty fee under an installment plan.  Hi-Trend completed the license royalty payment plan in 2007.

F-18

ACTIONS SEMICONDUCTOR CO., LTD.

6. INVESTMENT IN AN AFFILIATE - continued

Hi-Trend Investment Holding Co., Ltd ("Hi Trend") - continued

In November 2007, the Group ceased to exercise significant influence over Hi-Trend as the Group was not entitled to appoint representative to Hi Trend's board of directors.  In December 2007, Hi-Trend increased its capital by $1,000 through issuance of shares to other shareholders and consequently the Group's ownership interest in Hi-Trend decreased to 15%.  In June 2008, the Group disposed 5% interest and its ownership decreased to 10%.  The investment has been recorded under other investment at cost as of December 31, 2007 and 2008.

Mavrix Technology Inc. ("Mavrix")

Mavrix is a fabless semiconductor company which provides SoC solutions to the mobile digital TV and the portable multimedia market.

As of December 31, 2007, the Group purchased 16.23% of equity interest in Mavrix for $2,281, which was recorded as other investment under the cost method of accounting.  In 2008, the Group increased its ownership interest to 19.82% through purchase of additional equity interest of 3.59% for a cash consideration of $3,000.  Consequent to the increase in ownership interest, the Group has the ability to exercise significant influence over the operating and financial policies of Mavrix through representation on the board of directors which comprise five directors.  As a result, Mavrix became an equity method investee and the Group's retained earnings and results of operations have been adjusted retrospectively by $562 to recognize the Group's share of loss in the equity ownership interest for the year ended December 31, 2007.  Cost of investment in Mavrix previously classified as other investments has been retrospectively adjusted as investment in equity method investee as of December 31, 2007.

7. OTHER INVESTMENTS

	At December 31,
	2007		2008
Listed investments:
- Equity securities listed in Taiwan	$	82	$	196
Unlisted securities		5,397		6,848
	$	5,479	$	7,044

For the listed available-for-sale securities, the Group has planned for long term holding, the investment is reported at fair value and its unrealized gains are excluded from earnings and reported in a separate component of shareholder's equity.  As of December 31, 2008, the unrealized loss was $96.

The unlisted investments represent investments in unlisted equity securities issued by private entities.

F-19

ACTIONS SEMICONDUCTOR CO., LTD.

8. FAIR VALUE MEASUREMENTS

Effective January 1, 2008, the Group adopted the SFAS 157, "Fair Value Measurements" for all finance assets and liabilities, that are recognized or disclosed at fair value in the consolidated financial statement on a recurring basis (at least annually).  Under SFAS 157, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the "exit price") in an orderly transaction between market participants at the measurement date.  When determining the fair value measurements for assets and liabilities required or permitted to be carried at fair value, the Group considers the principal or most advantageous market in which it would transact and also considers assumptions that market participants would use when pricing the asset or liability.

Fair Value Hierarchy

SFAS 157 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. SFAS 157 establishes three levels of inputs that may be used to measure fair value:

Level 1

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

The following table summarizes the Group's assets and liabilities measured at fair value on a recurring basis:

	Fair Value Measurements
	atDecember31,2008Using
	Quoted Prices
	in Active
	Markets for
Assets	Identical Assets		Total
	(Level 1)
Available-for-sale securities	$	196	$	196
Publicly traded mutual funds in Taiwan		19,299	$	19,299
Total assets measured at fair value	$	19,495	$	19,495

Investments primarily include publicly traded mutual funds with portfolios focus on bonds and other highly liquid money market products and equity securities listed in Taiwan.

F-20

ACTIONS SEMICONDUCTOR CO., LTD.

9. PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net consist of the following:

	At December 31,
	2007			2008
Buildings	$	36		$	34
Leasehold improvements		171			366
Furniture, fixtures and equipment		2,237			3,155
Motor vehicles		488			720
Plant and machinery		6,655			7,474
Total		9,587			11,749
Less: Accumulated depreciation		(3,342	)		(5,580	)
Construction in progress		191			975
Property, plant and equipment, net	$	6,436		$	7,144

The Group has recorded depreciation expense of $991, $1,594 and $2,085 for the years ended December 31, 2006, 2007 and 2008, respectively.

10. ACQUIRED INTANGIBLE ASSETS, NET

Acquired intangible assets, net consist of the following:

	At December 31,
	2007			2008
Cost:
Purchased software	$	6,424		$	7,523
Technology licenses		3,153			3,847
		9,577			11,370
Accumulated amortization:
Purchased software		(2,473	)		(4,899	)
Technology licenses		(1,255	)		(2,274	)
		(3,728	)		(7,173	)
Acquired intangible assets, net	$	5,849		$	4,197

The intangible assets of the Group mainly consist of purchased software which is used to support the administration of the business and technology licenses acquired for the purpose of utilizing certain intellectual property held by third parties.

The Group has recorded amortization expense of $990, $2,349 and $3,232 for the years ended December 31, 2006, 2007 and 2008, respectively.  Intangible asset amortization expense is estimated to be $2,305, $1,032, $382 and $340 for the 2009, 2010, 2011 and 2012 fiscal years, respectively.

F-21

ACTIONS SEMICONDUCTOR CO., LTD.

11. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following:

	At December 31,
	2007		2008
Accrued wages and bonuses	$	5,002	$	3,876
Accrued legal and professional fees		409		260
Accrued insurance expenses		210		179
Payables for acquisition of intangible assets		1,379		988
Royalty fees payable		546		333
Accrued consulting fees		1,000		500
Others		889		710
	$	9,435	$	6,846

12. SHORT-TERM BANK LOAN

As of December 31, 2007, the short-term bank loan of $1,519 was secured by a bank deposit, carried interest at 5.265% annually and denominated in Renminbi.  The loan has been subsequently repaid.

13. OTHER LIABILITIES

The local authorities in Beijing and Zhuhai, the PRC, operate certain government subsidy programs which are intended to encourage companies to invest in the high technology industry in Zhuhai and Beijing.

Actions Semiconductor Zhuhai was granted an interest free cash advance of $447 during the year ended December 31, 2006. This interest free cash advance is intended to subsidize Actions Semiconductor Zhuhai's research and development costs and will be recognized as other income when all the conditions for their receipt have been met.

For the year ended December 31, 2007, Actions Semiconductor Zhuhai and Beijing Actions were further granted $830 cash subsidy, the total other liabilities amounted to $1,570, in which $884 was repayable within one year; $686 are repayable in 2009 and therefore are recorded in non-current liabilities.

For the year ended December 31, 2008, Actions Semiconductor Zhuhai was further granted $1,025 cash subsidy, the total liabilities amounted to $2,067, in which $1,818 was repayable within one year and $249 are repayable in 2010 and therefore are recorded in non-current liabilities.

The estimated fair value of the advances granted to Actions Semiconductor Zhuhai and Beijing Actions based on the Group's borrowing interest rate from independent financial institution was approximately $1,476 and $1,994 at December 31, 2007 and 2008, respectively.

F-22

ACTIONS SEMICONDUCTOR CO., LTD.

14. STOCK OPTIONS

In May 2008, the Board of Directors approved a stock option plan and granted 8,000,000 stock options to the directors of the Company and senior officers of the Group to subscribe to 8,000,000 shares of the Company.  The options granted under this plan have a requisite service period of four years.  The Board of Directors also has the right to terminate any unvested options. In August 2008, the Board of Directors approved and granted an additional 33,000 options to employees of the Group.

The options vest over four years and expire six years from grant date.  For some of the employees, twenty-five percent of the options vest on each of the four years following the grant date.  For the other employees, fifteen, twenty, thirty and thirty five percent, respectively, will vest on each of the four years following the grant date.

On February 26, 2009, the Board of Directors modified the option plan to reduce the option exercise price from $3.30 to $1.40 and extended the first vesting period to May 21, 2010 for all granted options and as a result extended the vesting period to 5 years from grant date and contractual maturity to 7 years from grant date. Any incremental increase in the fair value of the options as a result of the modification will be amortized over the remaining vesting period.

Details of the options granted by the Company in 2008 are as follows:

			Fair value
Number of	Exercise		of ordinary share		Intrinsic value
options granted	price		at grant date		at grant date
1,677,000	$	3.30	$	3.30		-
6,323,000	$	3.30	$	3.30		-
33,000	$	3.30	$	3.04		-

A summary of stock option activity is as follows:

				For the year ended
				December 31, 2008
				Weighted average		Weight average
	Number			exercise price		fair value
	of options			per option		at grant date
Outstanding at the beginning of the year		-			-		-
Granted on May 21, 2008		8,000,000		$	3.30	$	1.28
Granted on August 4, 2008		33,000		$	3.30	$	1.10
Exercised		-			-		-
Forfeited		(196,500	)	$	3.30	$	1.28
Outstanding at the end of the year		7,836,500

There was no option exercisable at of December 31, 2008.

F-23

ACTIONS SEMICONDUCTOR CO., LTD.

14. STOCK OPTIONS - continued

The following table summarizes information with respect to stock options outstanding at December 31, 2008:

Options exercisable

Options outstanding as of December 31, 2008

as of December 31, 2008

Weighted

Weighted

Weighted

average

average

average

exercise

Aggregate

Number

exercise

Aggregate

Number

contractual

price

intrinsic

of

price

intrinsic

of option

period

per option

value

options

per option

value

Ordinary shares

7,836,500

5 years

$

3.30

-

-

-

-

As at December 31, 2008, options to purchase 163,500 number of ordinary shares were available for future grant.

The fair value of each option award is estimated at grant date during 2008 using the Black-Scholes option-pricing model based on the following assumptions:

Year ended December 31, 2008
Risk-free interest rate (1)	2.41% to 3.09%
Expected life (2)	2-5 years
Expected volatility (3)	47.7%
Dividend yield (4)	Nil

(1) Risk-free interest rate

Risk-free interest rate adopted the yield to maturity of United States government bonds with the same maturity as the respective expected term of the options.

(2) Expected life

The expected life was estimated as the average between the vesting term of the options and the original contractual term.

(3) Expected volatility

The expected volatility of the underlying ADS during the life of the options was calculated based on the Company's historical stock price volatility over the period from initial public offering through to the grant date.

(4) Dividend yield

The dividend yield was expected to be nil based on the Company's historical dividend distribution record and its policy.

(5) Share price

The fair value of the ordinary shares on the grant date was the closing price of the Company's stock at each grant date.

F-24

ACTIONS SEMICONDUCTOR CO., LTD.

14. STOCK OPTIONS - continued

For the year ended December 31, 2008, the Group recognized $112, $1,394, $662 and $127 of compensation expense in costs of revenue, research and development expenses, general and administrative expenses, and selling and marketing expenses, respectively.  A total of $6,534 of unrecognized compensation expense related to non-vested stock options as of December 31, 2008 are expected to be recognized over a weighted-average period of 3.4 years on a straight-line basis.

15. OTHER INCOME

Other income for 2007 mainly consisted of foreign exchange gains of $5,624 and a tax refund of $5,946; while for 2008, mainly represented foreign exchange gains of $1,159.

Under a scheme by the Municipal Bureau of Tax Zhuhai, to encourage reinvestment of profits, tax paid in prior years may be fully or partly refunded, depending on certain qualifications of the tax payer. As a result of Actions Mauritius's injection of undistributed profit earned in 2006, the Group received tax refund of $5,946 in 2007.  One of the conditions for the tax refund is that the reinvestment cannot be withdrawn within five years. During this period, the repatriation of the invested capital will be restricted and the Company does not intend to withdraw the reinvested capital any time before December 2012.

For the years ended December 31, 2007 and 2008, tax refund for reinvestment of profits under the capital reinvestment scheme was removed along with effective of new "Law of the People's Republic of China on Enterprise Income Tax" since January 1, 2008.  Therefore the PRC tax paid or payable by subsidiaries operating in the PRC during the years ended December 31, 2007 and 2008 has been expensed and cannot be refunded.

16. INCOME TAXES

The components of income before income taxes, equity in net loss of an affiliate and minority interest are as follows:

	Year ended December 31,
	2006			2007			2008
Domestic	$	(930	)	$	(2,347	)	$	(2,183	)
Foreign		81,535			56,353			32,348
	$	80,605		$	54,006		$	30,165

The Company is tax exempt in the Cayman Islands.

Under the current Mauritius law, Actions Semiconductor Mauritius' income is subject to taxation; however, up to and as of December 31, 2008, the entity has not had any taxable profits. Actions Microelectronics Co., Ltd and Actions Capital Investment Inc. and Actions Investment Consulting have been loss making since their incorporation.

F-25

ACTIONS SEMICONDUCTOR CO., LTD.

16. INCOME TAXES - continued

In 2006 and 2007, companies in PRC were generally subject to a 30% foreign enterprise income tax ("FEIT"), and a 3% local income tax.  However, Actions Semiconductor Zhuhai was established in the Zhuhai Special Economic Zone ("Zhuhai Economic Zone") of China as a foreign investment enterprise and principally conducts its business operations in this Zhuhai Economic Zone.  Therefore, it was subject to a reduced FEIT rate of 15%.  In addition, Actions Semiconductor Zhuhai is a production oriented enterprise and exempted from FEIT for its first two years of profitable operations after offsetting prior years' tax losses and entitled to 50% reduction in its FEIT for the following three years as approved by the tax authorities in accordance with the China Income Tax Law for Enterprises with Foreign Investment and Foreign Enterprises and its Implementation Rules issued in 1991.  Actions Semiconductor Zhuhai is exempt from 3% local income tax during the above preferential tax treatment period of five years pursuant to the Rules Concerning Exemption or Reduction of Local Income Tax for Foreign Invested Enterprises issued by the People's Government of Guangdong Province issued in 1992.

As a result of such preferential tax treatments, Actions Semiconductor Zhuhai was exempt from FEIT in the years ended December 31, 2004 and 2005, which were the first and second year in which Actions Semiconductor Zhuhai had profits after offsetting prior years' tax losses.  Thereafter, Actions Semiconductor Zhuhai had  a 50% reduction in  FEIT rate, which resulted in  7.5% tax, during each of two years ended December 31, 2006 and 2007.

Artek Microelectronics Shenzhen was established in the Shenzhen Special Economic Zone ("Shenzhen Economic Zone") of China as a foreign investment enterprise and principally conducts its business operations in this Shenzhen Economic Zone.  Therefore, it was subject to the reduced FEIT rate of 15% and is exempted from FEIT in the years ended December 31, 2007 and 2008, which were the first and second year Artek Microelectronics Shenzhen had profits after offsetting prior years' tax losses.  Thereafter, Artek Microelectronics Shenzhen expects to benefit from a 50% reduction of FEIT rate, which will be 10%, 11%, 12% for the year ending December 31, 2009, 2010 and 2011, respectively, as approved by the tax authorities in accordance with the China Income Tax Law for Enterprises with Foreign Investment and Foreign Enterprises and its Implementation Rules issued in 1991.  In addition, Artek Microelectronics Shenzhen is exempted from 3% local income tax during the above preferential tax treatment period of five years pursuant to the Rules Concerning Exemption or Reduction of Local Income Tax for Foreign Invested Enterprises issued by the People's Government of Guangdong Province issued in 1992.

Effective January 1, 2008, the new "Law of the People's Republic of China on Enterprise Income Tax" was implemented. The new law requires that:

1. For all resident enterprises, domestic or foreign, the unified Enterprise Income Tax rate is unified 25%.

2. Enterprises that are categorized as the "High Tech Enterprise" will have a reduced tax rate of 15%.

3. From January 1, 2008 onwards, enterprises that enjoyed a preferential tax rate  will need to adopt the new law over the next five years. Specifically; for enterprises with a current preferential tax rate of 15%, the tax rate will be 18%, 20%, 22%, 24%, and 25% for the years ended December 31, 2008, 2009, 2010, 2011, and 2012, respectively.

F-26

ACTIONS SEMICONDUCTOR CO., LTD.

16. INCOME TAXES - continued

The new law allows the preferential tax treatment to be continued by enterprises up until it is fully utilized.  For enterprises that have preferential tax treatment, all preferential tax treatments were required to be commenced in 2008.

Actions Semiconductor Zhuhai continues to use the preferential tax treatment. In 2008, the tax rate is 18% and by applying the final year of preferential tax treatment, which reduces the income tax rate by 50%, the applicable tax rate is 9%.  On December 16, 2008, certificate of "Hi-Tech Enterprises" was granted to Actions Semiconductor Zhuhai, as a result, the applicable tax rate will be 15% for the years ended December 31, 2009, 2010 and 2011, respectively, and 25% thereafter.

Artek Microelectronics Shenzhen started using the tax preferential treatment in 2007. As such, it was exempted from income tax in 2007 and 2008.  From 2009 to 2011, the income tax rate will be reduced by 50%, thus the income tax will be 10%, 11%, 12% for the years ended December 31, 2009, 2010, and 2011, respectively.  If Artek Microelectronics Shenzhen obtain certificate of "Hi-Tech Enterprise", an income tax rate of 15% will be applied for the years ended 2012, 2013 and 2014. Otherwise, the normal 25% income tax rate will be applied.

Beijing Actions had no taxable profit in 2006, 2007 and 2008. Under the new income tax law, it requires that the preferential tax treatment be applied from 2008 even if it had no taxable profit. As such, Beijing Actions will be exempt from income tax in 2008 and 2009.  From 2010 to 2012, the income tax rate will be reduced by 50%, thus the rate of each year will be 11%, 12%, and 12.5%, respectively.  Beijing Actions was classified as "Hi Tech Enterprises" in 2006.  The Company believes that Beijing Actions will continue to be classified under this category. From 2013 onwards, if this classification is still applied, then the income tax rate will be 15%. Otherwise, the rate will be 25%.

Uncertainties exist with respect to how China's current income tax law applies to our overall operations, and more specifically, with regard to tax residency status.  China's Enterprise Income Tax Law ("EIT Law") became effective January 1, 2008 and includes a provision specifying that legal entities organized outside of China will be considered residents for Chinese income tax purposes if their place of effective management or control is within China.  The Implementation Rules to the EIT Law provide that non-resident legal entities will be considered China residents if substantial and overall management and control over the manufacturing and business operations, personnel, accounting, properties, etc. occurs within China.  Additional guidance is expected to be released by the Chinese government in the near future that may clarify how to apply this standard to taxpayers.  The Company determined that legal entities organized outside of China should not be treated as China tax residents for EIT Law purposes as the places of effective management are outside of China.  If one or more of our legal entities organized outside of China were characterized as China tax resident, then the additional tax cost might be $1,308.

The Company's calculation of income taxes generally reflects the Company's status as a non-PRC tax resident company.  The tax residency of a company is normally a question of fact.  For a company which has been established outside the PRC, tax residency will only be in the PRC if the location of effective management of the Company is in the PRC.  PRC for this purpose does not include Hong Kong, Macao, or Taiwan.

An additional consequence of the Company and/or its non-PRC subsidiaries being tax resident in the PRC would be the taxability in the PRC of the non-PRC tax resident recipients of certain payments made by the Company.  This may include dividends, interest, and royalties.

F-27

ACTIONS SEMICONDUCTOR CO., LTD.

16. INCOME TAXES - continued

The Company, which has subsidiaries that are tax resident in the PRC, will be subject to the PRC dividend withholding tax of 5% when and if undistributed earnings are declared to be paid as dividends commencing on January 1, 2008 to the extent those dividends are paid out of profits that arose on or after January 1, 2008. The Company's tax provision includes $1,738 of income tax expense for the 5% dividend withholding tax on the balance of distributable profits that arose on or after January 1, 2008 within its PRC subsidiaries as of the balance sheet date.

Actions Hong Kong and Artek Microelectronics (HK) Co., Limited are subjected to Hong Kong Profits Tax at a rate of 17.5%, 17.5% and 16.5% for the year ended December 31, 2006, 2007 and 2008 respectively.

The current and deferred components of the income tax expense (credit) appearing in the consolidated statements of operations are as follows:

	Year ended December 31,
	2006			2007			2008
Current tax	$	6,118		$	2,279		$	1,521
Deferred tax		(134	)		(77	)		2,111
	$	5,984		$	2,202			3,632

The Group's deferred tax assets and liabilities as at December 31, 2007 and 2008 are attributable to the following:

	At December 31,
	2007			2008
Expenditures deductible for tax purpose in future years
- Accrued legal and professional fees	$	20		$	19
- Accrued bonus		273			454
- Other		31			153
Tax losses		814			981
Depreciation and amortization		12			266
Total deferred tax assets	$	1,150		$	1,873
Valuation allowance		(411	)		(981	)
Deferred tax assets		739			892
Income taxable for tax purpose in future years
- Interest income		-			(492	)
Deferred tax liability arising from withholding tax on undistributed profits		-			(1,738	)
Total deferred tax liabilities		-			(2,230	)
Deferred tax assets (liabilities), net	$	739		$	(1,338	)

F-28

ACTIONS SEMICONDUCTOR CO., LTD.

16. INCOME TAXES - continued

The following is the analysis of deferred tax balances for reporting purposes:

	At December 31,
	2007		2008
Deferred tax assets
Current portion	$	739	$	686
Non-current portion		-		206
	$	739	$	892
Deferred tax liabilities
Current portion	$	-	$	(480	)
Non-current portion		-		(1,750	)
	$	-	$	(2,230	)
Deferred tax assets (liabilities), net	$	739	$	(1,338	)

A valuation allowance has been provided for Actions Hong Kong and Beijing Actions since realization of the recorded deferred tax assets is dependent on generating sufficient taxable income in Actions Hong Kong and Beijing Actions.  As management does not believe that it is more likely than not that all of the deferred tax asset attributable to Actions Hong Kong will be realized, valuation allowance of $411 and $981 has been established as of December 31, 2007 and December 31, 2008, respectively in respect of the related deferred tax asset, of these subsidiaries.

As of December 31, 2008, the Company's PRC subsidiaries had tax losses of approximately $810 that will expire five years from the respective financial years incurring the losses. Other losses may be carried forward indefinitely.

The additional tax that would have been payable without the tax exemption and preferential income tax rate amounts to approximately $6,206, $4,284 and $5,036 for the years ended December 31, 2006, 2007 and 2008, respectively, representing a decrease in the basic and diluted earnings per ordinary share of $0.012, $0.008 and $0.010 for the years ended December 31, 2006, 2007 and 2008, respectively.

The Group has made its assessment of the level of tax authority for each tax position (including the potential application of interest and penalties) based on the technical merits, and has measured the unrecognized tax benefits associated with the tax positions. Based on the evaluation by the Group, it is concluded that there are no significant uncertain tax positions requiring recognition in the consolidated financial statements. The Group classifies interest and/or penalties related to unrecognized tax benefits as a component of income tax provisions; however, as of December 31, 2007 and 2008, there is no interest and penalties related to uncertain tax positions, and the Group has no material unrecognized tax benefit which would favorably affect the effective income tax rate in future periods. The Group does not anticipate any significant increases or decreases to its liability for unrecognized tax benefit within the next twelve months. The tax positions for the years 2006 to 2008 may be subject to examination by the PRC and Hong Kong tax authorities.

F-29

ACTIONS SEMICONDUCTOR CO., LTD.

16. INCOME TAXES - continued

A reconciliation between the provision for income tax computed by applicable PRC enterprise income tax rate to income before income taxes, equity in net loss of an affiliate and minority interests, and actual provision for income taxes is as follows:

	Year ended December 31,
	2006			2007			2008
PRC tax rate		15	%		15	%		18	%
Tax provision at PRC enterprise income tax rate	$	12,091		$	8,101		$	5,430
Expenses not deductible for tax purposes		477			764			1,091
Share-based compensation not deductible for tax purposes		-			-			413
Income not taxable for tax purposes		(519	)		(2,393	)		(431	)
Net change in valuation allowance		233			134			570
Effect of tax exemption and preferential income tax rate granted to PRC subsidiaries		(6,206	)		(4,284	)		(5,036	)
Effect of the different income tax rates in other jurisdictions		(111	)		(121	)		(138	)
Effect of withholding tax on undistributed earnings		-			-			1,738
Others		19			1			(5	)
Income tax expense	$	5,984		$	2,202		$	3,632

17. SEGMENT AND GEOGRAPHIC INFORMATION

The Group's chief operating decision maker has been identified as the Chief Executive Officer.  The Group does not specifically identify and allocate any assets by operating segment nor does management evaluate operating segment using discrete asset information.  The chief operating decision maker makes use of gross profit margin of different products and services as the Group's reporting segment since it is impractical to allocate operating expenses to each reporting segment when making decisions about allocating resources and assessing performance of the Group.

	Year ended December 31,
	2006		2007		2008
Revenue:
MMP SoC for portable media players	$	168,907	$	116,320	$	94,916
Energy metering SoC		1,222		-		-
Testing solutions		99		308		214
	$	170,228	$	116,628	$	95,130
Gross profit:
MMP SoC for portable media players	$	93,694	$	59,633	$	47,668
Energy metering SoC		582		-		-
Testing solutions		41		77		37
	$	94,317	$	59,710	$	47,705

Geographic information

The Group operates in China/Hong Kong and all of the Group's long-lived assets are located in China/Hong Kong and substantially all of our sales are made in China/Hong Kong.

F-30

ACTIONS SEMICONDUCTOR CO., LTD.

18. COMMITMENTS AND CONTINGENCIES

(a) Operating leases

The Group leases certain office premises under non-cancelable leases with terms that range from one to two years and are renewable subject to negotiation.  Rental expense under operating leases for the years ended December 31, 2006, 2007 and 2008 was $362, $600 and $885, respectively.

Future minimum lease payments under non-cancelable operating lease agreements on December 31, 2008 were $1,012 of which $730 and $282 are payable in the years ended December 31, 2009 and 2010, respectively.

(b) Capital commitments

Capital commitments for purchase of property, plant and equipment as of December 31, 2007 and 2008 was $572 and $516 respectively.

(c) Royalty fee commitments

The Group has entered into several royalty agreements for the use of certain technology knowhow ("Technology Knowhow") used in the Group's products.

Technology Knowhow A

The Group paid a fixed amount of royalty for each of the Group's products sold which make use of the Technology Knowhow A, where the minimum quarterly royalty fee commitment was $500.  This agreement was terminated during year ended December 31, 2007.

Technology Knowhow B

In March 2005, the Group entered into a royalty agreement ("Agreement") for the use of Technology Knowhow B for a period of three years, effective from March 2005 ("Effective date"), and will automatically be renewed for additional one year unless notice of non-renewal is delivered at least sixty days prior to the end of third year.

In September 2006, the Group terminated the Agreement and entered into a new royalty agreement ("New Agreement").  The New Agreement is for the use of Technology Knowhow B for a period of three years, effective from June 6, 2006 ("New Effective date"), and will automatically be renewed for additional one year unless notice of non-renewal is delivered at least sixty days prior to the end of third year.  Pursuant to the New Agreement, the Group will pay a fixed amount of royalty fee for unlimited use of the Technology Knowhow B and there is a minimum royalty fee commitment of $280 during the first twelve months from the New Effective date.

In October 2007, the Group revised the New Agreement. The revised agreement allows the Company to have unlimited use of the Technology Knowhow B for a sum of $200. The revised agreement is effective for period from October 1, 2007 to September 30, 2008.

In October 2008, the Group revised its October 2007 New Agreement, which the terms and conditions are the same for both agreements.  The October 2008 New Agreement is effective for period from October 1, 2008 to September 30, 2009.

F-31

ACTIONS SEMICONDUCTOR CO., LTD.

18. COMMITMENTS AND CONTINGENCIES - continued

(c) Royalty fee commitments - continued

Technology Knowhow C

In 2007, the Group has entered into an agreement with Technology Knowhow C provider. The Group licensed the Technology Knowhow C based on a fee schedule for the life of the relevant technologies. During the year ended December 31, 2007, the product using the licensed Technology Knowhow C was still in the development stage, thus the Group did not produce or sell any SoC products and is therefore not subject to royalty fee payment to Technology Knowhow C provider.

During the year ended December 31, 2008, the Group paid royalty expenses for the Group's products sold, for which were made using Technology knowhow C.

The Group's total royalty expenses paid for the use of all Technology Knowhow for the years ended December 31, 2006, 2007 and 2008 amounted to $4,104, $2,319 and $426, respectively.  Royalty commitment as of December 31, 2007 and 2008 was same as $150.

(d) Contingencies

Two of the Group's former advisors have filed a compliant in the U.S. District Court for the Southern District of California against the Group on August 17, 2006, seeking compensatory damages for services rendered.  The Group has filed a motion to dismiss the complaint on the grounds that it is not subject to personal jurisdiction in California and that the Peoples' Republic of China would be the more appropriate forum for this litigation.  As at December 31, 2008, the motion is currently pending before the U.S. District Court for the Southern District of California.  No provision has been made in the consolidated financial statements because the Group is in the process of assessing the claim at this preliminary stage and has no reliable basis to reasonably estimate the Group's potential liability, if any.

While management, including internal counsel, currently believes that the ultimate outcome of the above proceeding, will not have a material adverse effect on the Group's financial position, litigation is subject to inherent uncertainties.  If an unfavourable ruling was to occur, there exists the possibility of a material adverse impact on the net income of the period in which the ruling occurs.

19. MAJOR CUSTOMERS

The Group primarily sells to customers located in China/Hong Kong.

The following table summarizes net revenues and accounts receivable for customers, which accounted for 10% or more of the Group's net revenues and accounts receivable:

	Net revenues
	Year ended December 31,
	2006			2007			2008
Customer A		24	%		16	%		-
Customer B		12	%		-			-
Customer C		11	%		-			-
Customer D		10	%		10	%		-
Customer E		-			12	%		26	%
Customer F		-			13	%		17	%
		57	%		51	%		43	%

F-32

ACTIONS SEMICONDUCTOR CO., LTD.

19. MAJOR CUSTOMERS - continued

	Accounts receivable
	At December 31,
	2007			2008
Customer A		21	%		-
Customer C		13	%		-
Customer D		12	%		-
Customer E		16	%		38	%
Customer F		18	%		30	%
Customer G		-			13	%
		80	%		81	%

20. EMPLOYEE BENEFIT PLAN

Full time employees of the Group in the PRC participate in a government-mandated multi-employer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees.  Chinese labor regulations require the Group to accrue for these benefits based on certain percentages of the employees' salaries.  Employees of the Group in Hong Kong have joined the Mandatory Provident Fund ("MPF") Scheme which is also a defined contribution plan.  The contribution to the MPF Scheme is calculated based on the rules set out in the MPF Ordinance in Hong Kong which is 5% on the relevant income of the employee with a specific ceiling.  The total provisions for these employee benefits were $528, $981 and $1,665 for the years ended December 31, 2006, 2007 and 2008, respectively.

21. RELATED PARTY TRANSACTIONS

During the year ended December 31, 2006, the Group received consultancy services for intellectual property and legal affairs, product technology, product development and technology licensing and research and development from several individual shareholders of the Company amounting to $540. For the year ended December 31, 2007 and 2008, there were no consultancy services received from the shareholders of the Company.

During the year ended December, 31, 2007, the Group recognized income of $278 for granting of rights to use its proprietary technology in SoCs for energy metering business indefinitely to an affiliate, Hi-Trend. Further, during the year ended December 31, 2007, the Group made sales for testing services to Hi-Trend amounting to $308. Effective November 2007, the Group ceased to exercise its significant influence on Hi-Trend and the Group's holding in Hi-Trend was then recorded as other investments under the cost method of accounting as of December 31, 2007 and 2008.

During the year ended December 31, 2007, the Group received agency services from Namyoung Corporation for introducing customers and paid commission fee to Namyoung Corporation amounting $159. Mr. Kang, Byung-Jin (Peter), who is the president of Namyoung Corporation, was also the director and chairman of the board of the Company before resigning from the Board of the Company on October 29, 2007.

During the year ended December 31, 2007 and 2008, the Group recognized net sales of $13,694 and $24,388 from G.M.I. Technology Inc. ("GMI") respectively.  As of December 31, 2007 and 2008, amount due from a related party represented a balance due from GMI of $943 and $1,497 respectively.  GMI's president is a family member of the Group's Chief Executive officer.

F-33

ACTIONS SEMICONDUCTOR CO., LTD.

22. MAINLAND CHINA PROFIT APPROPRIATION AND RESTRICTION ON CAPITAL REPATRIATION

Pursuant to the laws applicable to the PRC's Foreign Investment Enterprises, the Company's subsidiaries in the PRC registered as foreign-owned enterprise must make appropriations from after-tax profit to non-distributable reserve funds as determined by the Board of Directors of the relevant PRC subsidiary.  These reserves include a (1) general reserve, (2) enterprise expansion fund and (3) staff bonus and welfare fund.  Subject to certain cumulative limits, the general reserve fund requires annual appropriations of not less than 10% of after-tax profit (as determined under accounting principles and financial regulations applicable to PRC enterprises at each year-end); the other fund appropriations are at the Group's discretion.  These reserve funds can only be used for specific purposes and are not distributable as cash dividends.  As of December 31, 2007 and 2008, the balance of these of the Company's PRC subsidiaries reserves amounted to $9,380 and $12,116, respectively.

In addition to these reserves, the registered capital of the Company's PRC subsidiaries are also restricted.  As of December 31, 2007 and 2008, the total amount of the restricted capital and reserves amounted to $106,885 and $115,327, respectively.

F-34

ACTIONS SEMICONDUCTOR CO., LTD.

SCHEDULE 1

BALANCE SHEETS

(In thousands of U.S. dollars, except share and per share data)

	At December 31,
	2007		2008
ASSETS
Current assets:
Cash and cash equivalents	$	13,635	$	2,693
Amounts due from subsidiaries		615		1,397
Prepaid expenses and other current assets		180		154
Total current assets		14,430		4,244
Investments in subsidiaries		279,171		332,145
Deposit paid for acquisition of property, plant and equipment		-		275
Acquired intangible assets, net		663		276
TOTAL ASSETS	$	294,264		336,940
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accrued expenses and other current liabilities	$	1,349	$	818
Amounts due to subsidiaries		33,684		46,986
Total liabilities		35,033	$	47,804
Commitments and contingencies
Shareholders' equity:
Ordinary shares of par value $0.000001:
2,000,000,000 shares authorized 485,501,874
(2007: 508,178,118) shares issued and outstanding	$	1	$	1
Additional paid-in capital		43,679		36,606
Accumulated other comprehensive income		9,628		20,483
Retained earnings		205,923		232,046
Total shareholders' equity		259,231		289,136
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	294,264	$	336,940

F-35

ACTIONS SEMICONDUCTOR CO., LTD.

STATEMENTS OF OPERATIONS

(In thousands of U.S. dollars, except share and per share data)

	Year ended December 31,
	2006			2007			2008
Operating expenses:
Research and development	$	-		$	(364	)	$	(387	)
General and administrative		(2,564	)		(3,150	)		(4,240	)
Total operating expenses		(2,564	)		(3,514	)		(4,627	)
Loss from operations		(2,564	)		(3,514	)		(4,627	)
Interest income		1,701			1,179			206
Loss before income taxes		(863	)		(2,335	)		(4,421	)
Share of net profits of subsidiaries, net of taxes		75,424			53,976			30,531
Investment income		-			-			13
Net income	$	74,561		$	51,641		$	26,123

F-36

ACTIONS SEMICONDUCTOR CO., LTD.

STATEMENTS OF SHAREHOLDERS' EQUITY

AND COMPREHENSIVE INCOME

(In thousands of U.S. dollars, except share and per share data)

									Accumulated
									other
	Ordinary shares					Additional			comprehensive		Retained					Comprehensive
	Number			Amount		paid-in capital			income		earnings		Total			income
Balance at January 1, 2006		516,000,000			1		49,629			1,224		79,721	$	130,575
Reversal of overprovision of capitalized offering expenses		-			-		712			-		-		712			-
Foreign currency translation adjustments		-			-		-			3,172		-		3,172			3,172
Net income		-			-		-			-		74,561		74,561			74,561
Balance at December 31, 2006		516,000,000		$	1	$	50,341		$	4,396	$	154,282	$	209,020		$	77,733
Purchase of ordinary shares		(7,821,882	)		-		(6,662	)		-		-		(6,662	)		-
Foreign currency translation adjustments		-			-		-			5,232		-		5,232			5,232
Net income (restated)		-			-		-			-		51,641		51,641			51,641
Balance at December 31, 2007 (restated)		508,178,118		$	1	$	43,679		$	9,628	$	205,923	$	259,231		$	56,873
Repurchase of ordinary shares		(22,676,244	)		-		(9,368	)		-		-		(9,368	)		-
Share-based compensation		-			-		2,295			-		-		2,295			-
Foreign currency translation adjustments		-			-		-			10,855		-		10,855			10,855
Net income		-			-		-			-		26,123		26,123			26,123
Balance at December 31, 2008		485,501,874		$	1	$	36,606		$	20,483	$	232,046	$	289,136		$	36,978

F-37

ACTIONS SEMICONDUCTOR CO., LTD.

STATEMENTS OF CASH FLOWS

(In thousands of U.S. dollars)

	Year ended December 31,
	2006			2007			2008
Operating activities:
Net income		74,561			51,641			26,123
Adjustments to reconcile net income to net cash provided by operating activities:
Amortisation of acquired intangible assets		65			342			387
Share-based compensation		-			-			2,295
Share of net profits of subsidiaries		(75,424	)		(53,976	)		(30,531	)
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		(104	)		73			26
Accrued expenses and other current liabilities		(1,259	)		(437	)		(531	)
Amounts due to subsidiaries		14,330			(8,124	)		13,302
Net cash provided by (used in) operating activities		12,169			(10,481	)		11,071
Investing activities:
Capital contribution in subsidiaries		(22,125	)		(536	)		(11,588	)
Increase in amounts due from subsidiaries		(446	)		(119	)		(782	)
Increase in deposit paid for acquisition of property, plant and equipment		-			-			(275	)
Purchase of intangible assets		(619	)		(451	)		-
Cash used in investing activities		(23,190	)		(1,106	)		(12,645	)
Financing activities:
Repurchase of ordinary shares		-			(6,662	)		(9,368	)
Amounts due to shareholders		77,377			-			-
Repayment of amounts due to shareholders		(77,367	)		(10	)		-
Cash provided by (used in) financing activities		10			(6,672	)		(9,368	)
Net decrease in cash and cash equivalents		(11,011	)		(18,259	)		(10,942	)
Cash and cash equivalents at the beginning of the year		42,905			31,894			13,635
Cash and cash equivalents at the end of the year		31,894			13,635			2,693

F-38

ACTIONS SEMICONDUCTOR CO., LTD.

NOTES TO SCHEDULE 1

1. Schedule 1

Schedule 1 has been provided pursuant to the requirements of Rule 12-04(a) and 4-08(e)(3) of Regulation S-X, which require condensed financial information as to financial position, changes in financial position and results and operations of a parent company as of the same dates and for the same periods for which audited consolidated financial statements have been presented when the restricted net assets of the consolidated and unconsolidated subsidiaries together exceed 25 percent of consolidated net assets as of end of the most recently completed fiscal year.

As of December 31, 2007 and 2008, $106,885 and $115,327 of the restricted capital and reserves are not available for distribution, and as such, the condensed financial information of the Company has been presented for the years ended December 31, 2006, 2007 and 2008.

2. Basis of preparation

The condensed financial information has been prepared using the same accounting policies as set out in the Group's consolidated financial statements except that the parent company has used equity method to account for its subsidiaries.

F-39