Chairman's Annual Report Letter - 2005

Dear Ampex Shareholder:

For the year ended December 31, 2005, Ampex reported net income attributable to common stockholders of $6.7 million or $1.75 per diluted share. Our portfolio of digital imaging patents generated royalties of $28.9 million, which was significantly above our average in recent years, but lower than 2004 when we reported two particularly large royalty prepayments from Sony and Canon. This is the principal reason for the decline from $46.4 million of net income and $12.17 per diluted share that we reported in 2004. We also incurred higher patent litigation expenses in 2005 in connection with a lawsuit that Ampex initiated against Eastman Kodak, claiming infringement of our "rapid image retrieval" patent, and pension-related expenses were higher than in the prior year as well.

As mentioned in last year's letter, the increasing use of digital image compression technologies, in which Ampex has been a pioneer, has broadened the range of consumer products that we can seek to license. In addition to digital video tape recorders in which our patents have been used for many years, we continued to generate royalties from digital still cameras and DVD recorders. We are also currently in discussions with certain manufacturers of camera-equipped cellular telephones to expand our patent licensing program into this product category, and we believe that there may be further opportunities in digital set-top box recorders and digital television receivers.

Last year, we were able to provide a forecasted range of royalty receipts for 2005 and we came close to the upper end of the range. In April of 2006, a patent used in one product line, digital still cameras, will expire. We believe that one or more of our other patents are beginning to be used in these and other digital consumer products which, if we are able to demonstrate infringement, would have a favorable effect on royalty income. We also expect that digital video tape recorder royalties will increase. With such a large number of negotiations in progress, it is difficult to make a meaningful forecast of royalty income for 2006, especially with respect to the timing of receipts. Much depends on the outcome of these discussions, for which it is too early to predict the results. It is unlikely, however, that we can attain the unusually high level of royalties in 2006 that we reached in 2004. It has been and remains Ampex's policy to pursue negotiation as far as possible in preference to litigation, but earnings from patent licensing this year will also be influenced by patent litigation costs which are expected to continue at a high level, and which may increase if we find it necessary to bring lawsuits covering additional patents.

We continue to believe that the Ampex intellectual property portfolio has significant value and we were pleased to have been awarded another technical Emmy by the Academy of Television Arts and Sciences, bringing our total to 12 Emmys and one Oscar. Our patents and the markets for them, as well as their geographic coverage and other matters, are more complex than can be dealt with in this letter. I encourage you to read our report on Form 10-K, included with this report, for a discussion of these topics in greater depth.

Ampex Data Systems Corporation, (ADSC), our image acquisition and storage manufacturing subsidiary, increased its operating income to $1.8 million in 2005 from $1.5 million in 2004. Sales of older tape-related products continued to decline, but sales of our new solid-state and disk-based equipment continued to improve. During the year sales of our new instrumentation recorders represented 67% of system sales, up from only 9% of total system sales in 2004. These new products were also responsible for the majority of the increase in ADSC's backlog of orders for future delivery which almost tripled in 2005 to $9.1 million. During 2005 we received orders from both U.S. and foreign government agencies in connection with several intelligence gathering programs, and also from a major commercial program, Boeing's 787 airframe development. ADSC's new products are early in their life cycle and they have the potential to replace a large installed base of older Ampex equipment. We are optimistic that they will provide an increasing base of revenue and profits to ADSC in future years. We continued our aggressive support of these products in 2005 with Research, Development and Engineering expenditures increasing to 17.3% of ADSC revenue.

While timing is difficult to predict, I believe that there is good reason to be positive about the potential for both our patent licensing and our equipment manufacturing businesses. These opportunities result from investments in technology and market development that Ampex has made over many years. None of this would have been possible were it not for the persistence and dedication of the highly capable people who work at Ampex. I encourage you again to read the attached report on Form 10-K which provides considerably more detail on the topics covered in this letter

Yours sincerely,

Edward Bramson

This letter contains predictions, projections and other statements about the future that are intended to be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of l995 (collectively, "forward-looking statements"). Forward-looking statements relate to various aspects of the Company's operations and strategies, including but not limited to the effects of having experienced significant losses in the past and the risk that the Company may incur losses in the future; the Company's limited liquidity and significant interest expense; its sales and royalty forecasts for future periods not being attained and the risk that the Company will not conclude additional royalty-bearing license agreements covering its digital technologies; the Company's marketing, product development, acquisition, investment, licensing and other strategies not being successful; possible future issuances of debt or equity securities; the possible incurrence of significant patent litigation expenses or adverse legal determinations finding the Company's patents not to be valid or not to have been infringed; new business development and industry trends; the possible need to raise additional capital in order to meet the Company's obligations; reliance on a former affiliate to make contributions to the Company's pension plans which are substantially underfunded; and most other statements that are not historical in nature. Important factors that could cause actual results to differ materially from those described in the forwardlooking statements are described in cautionary statements included in this letter and/or in the Company's 2005 Annual Report on Form 10-K filed with the SEC and its Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2005, June 30, 2005, and September 30, 2005 filed with the SEC. In assessing forward-looking statements, readers are urged to consider carefully these cautionary statements. Forward-looking statements speak only as of the date of this letter, and the Company disclaims any obligations to update such statements.