AFOP Alliance Fiber Optic Products, Inc.

Alliance Fiber Optic Products, Inc. (Nasdaq:AFOP), an innovative supplier of fiber optic components, subsystems and integrated modules for the optical network equipment market, today reported its financial results for the third quarter ended September 30, 2005. Revenues for the third quarter of 2005 were $5,269,000, which represents a 2% increase over revenues of $5,178,000 reported in the previous quarter, and an increase of 44% over revenues of $3,665,000 reported in the third quarter of 2004. The Company recorded a net loss for the third quarter of 2005 of $558,000, or $0.01 per share based on 39.4 million shares outstanding. This compares to a net loss for the second quarter of 2005 of $720,000, or $0.02 per share based on 39.3 million shares outstanding, and a net loss for the third quarter of 2004 of $2,390,000, or $0.06 per share based on 39.0 million shares outstanding. There were no deferred stock compensation charges for either the quarter ended September 30, 2005 or the quarter ended June 30, 2005. Included in the net loss for the quarter ended September 30, 2004 are deferred stock compensation charges of $69,000. Peter Chang, President and Chief Executive Officer, commented, "We are encouraged by the continued improvement in our overall financial results in the third quarter of 2005. Revenues improved sequentially once again, expenses were under control, and we moved closer to achieving breakeven on the bottom line. Third quarter 2005 revenue grew by 44% from a year ago, and by 2% from last quarter. Our net loss before income taxes fell to $558,000, or $0.01 per share in the quarter, a substantial improvement over the net loss of $2.4 million in the year ago quarter, and the net loss of $720,000 in the second quarter of 2005. "As the business environment strengthens in our market, this should lead toward modest growth in the quarters ahead," concluded Mr. Chang. Conference Call Management will host a conference call at 1:30 p.m. Pacific Time on October 26, 2005 to discuss AFOP's third quarter 2005 financial results. To participate in AFOP's conference call, please call (877) 407-9210 at least ten minutes prior to the call in order for the operator to connect you. The confirmation number for the call is 172274. AFOP will also provide a live webcast of its third quarter 2005 conference call at AFOP's website www.afop.com. A replay will be available until November 2. The dial in for the replay is (877) 660-6853. The replay passcode is account # 286; conference ID # 172274. Both are required for the replay. About AFOP Founded in 1995, Alliance Fiber Optic Products, Inc. designs, manufactures and markets a broad range of high performance fiber optic components and integrated modules. AFOP's products are used by leading and emerging communications equipment manufacturers to deliver optical networking systems to the long-haul, enterprise, metropolitan and last mile access segments of the communications network. AFOP offers a broad product line of passive optical components including interconnect systems, couplers and splitters, thin film DWDM components and modules, fixed and variable optical attenuators, and depolarizers. AFOP is headquartered in Sunnyvale, California, with manufacturing and product development capabilities in the United States, Taiwan and China. AFOP's website is located at http://www.afop.com. Except for the historical information contained herein, the matters set forth in this press release, including statements as to our future prospects and growth, including revenue growth and improvement in overall financial results, and the strengthening of the business environment in AFOP's market, are forward looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially, including, but not limited to general economic conditions and trends, the impact of competitive products and pricing, timely introduction of new technologies, timely design acceptance by our customers, the acceptance of new products and technologies by our customers, customer demand, the timing of customer orders, loss of key customers, ability to ramp new products into volume production, industry-wide shifts in supply and demand for optical components and modules, industry overcapacity, failure of cost control initiatives, financial stability in foreign markets, and other risks detailed from time to time in SEC reports, including AFOP's most recent Form 10-QSB for the quarter ended June 30, 2005. These forward-looking statements speak only as of the date hereof. AFOP disclaims any intention or obligation to update or revise any forward-looking statements. -0- *T ALLIANCE FIBER OPTIC PRODUCTS, INC. Condensed Consolidated Balance Sheets (in thousands) (Unaudited) Sept. 30, Dec. 31, 2005 2004 ---------- --------- ASSETS Current assets: Cash and short-term investments $29,401 $31,456 Accounts receivable 3,014 2,322 Inventories 3,416 3,998 Other current assets 656 653 ---------- --------- Total current assets 36,487 38,429 Property and equipment, net 4,814 5,603 Other assets 134 121 ---------- --------- Total assets $41,435 $44,153 ========== ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $1,842 $2,205 Accrued expenses and other liabilities 2,231 2,480 ---------- --------- Total current liabilities 4,073 4,685 Long-term liabilities 865 826 ---------- --------- Total liabilities 4,938 5,511 Stockholders' equity 36,497 38,642 ---------- --------- Total liabilities and stockholders' equity $41,435 $44,153 ========== ========= ALLIANCE FIBER OPTIC PRODUCTS, INC. Condensed Consolidated Statements of Operations (In thousands, except per share amounts) (Unaudited) Three Months Nine Months Ended Ended ------------------------ ----------------- Sept. Jun. Sept. Sept. Sept. 30, 30, 30, 30, 30, 2005 2005 2004 2005 2004 ------- ------- -------- -------- -------- Revenues $5,269 $5,178 $3,665 $15,453 $9,905 Cost of revenues 4,141 4,077 3,159 12,293 9,458 ------- ------- -------- -------- -------- Gross profit 1,128 1,101 506 3,160 447 ------- ------- -------- -------- -------- Operating expenses: Research and development 784 882 1,474 2,618 4,477 Sales and marketing 519 560 469 1,653 1,484 General and administrative 756 713 927 2,219 2,599 ------- ------- -------- -------- -------- Total operating expenses 2,059 2,155 2,870 6,490 8,560 Loss from operations (931) (1,054) (2,364) (3,330) (8,113) Interest and other income, net 373 334 (26) 1,240 358 ------- ------- -------- -------- -------- Net loss $(558) $(720) $(2,390) $(2,090) $(7,755) ======= ======= ======== ======== ======== Net loss per share - basic and diluted $(0.01) $(0.02) $(0.06) $(0.05) $(0.20) Weighted average shares outstanding 39,405 39,259 38,970 39,228 38,492 *T