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 fourth quarter ended December 31, 2005. Revenues for the fourth quarter of 2005 totaled $5,510,000, which represents a 5% increase over revenues of $5,269,000 reported in the previous quarter, and an increase of 18% over revenues of $4,653,000 reported in the fourth quarter of 2004. The Company recorded a net loss for the fourth quarter of 2005 of $526,000, or $0.01 per share based on 39.6 million shares outstanding. This compares to a net loss for the third quarter of 2005 of $558,000, or $0.01 per share based on 39.4 million shares outstanding, and a net loss for the fourth quarter of 2004 of $1,587,000, or $0.04 per share based on 38.7 million shares outstanding. Revenues for fiscal year 2005 totaled $20,963,000, which represents a 44% increase over revenues of $14,558,000 reported in the previous year. The Company recorded a net loss for fiscal year 2005 of $2,616,000 or $0.07 per share based on 39.3 million shares outstanding. This compares to a net loss for the previous year of $9,343,000 or $0.24 per share based on 38.5 million shares outstanding. There were no deferred stock compensation charges for either the quarter ended December 31, 2005 or the quarter ended September 30, 2005. Included in the net loss for the quarter ended December 31, 2004 are deferred stock compensation charges of $1,000 and an asset impairment charge of $331,000. There were no deferred stock compensation charges for the year ended December 31, 2005. Included in the net loss for the year ended December 31, 2004 are deferred stock compensation charges of $286,000 and an asset impairment charge of $331,000. "The fourth quarter capped a year of consistent improvement for AFOP," commented Peter Chang, President and Chief Executive Officer. "Revenues grew for the 7th consecutive quarter, while expenses remained under control, leading to a greatly enhanced bottom line. The net loss for the fourth quarter fell by 6% from last quarter, and by 67% from a year ago. In addition, our gross margin steadily improved throughout the year, ending at 26.1% in the fourth quarter. It is also important to note that while our net loss for the fourth quarter improved by 6% sequentially, our operating net loss was 26% better than last quarter. Finally, our cash and cash equivalents remained essentially unchanged from the prior quarter, at $29 million." "In 2005 we made solid progress in broadening our product and technology platform. As business conditions continue to improve, we remain encouraged about the opportunities we see in the year ahead," concluded Mr. Chang. Conference Call Management will host a conference call at 1:30 p.m. Pacific Time on February 1, 2006 to discuss AFOP's fourth quarter and full year 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 187465. AFOP will also provide a live webcast of its fourth quarter and full year 2005 conference call at AFOP's website www.afop.com. A replay will be available until February 8. The dial in for the instant replay is (877) 660-6853. The replay passcodes (account#: 286; conference ID#: 187465) are both 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, 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 our SEC reports, including AFOP's most recent Form 10-QSB for the quarter ended September 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) Dec. 31, Dec. 31, 2005 2004 ------------ ------------ ASSETS Current assets: Cash and short-term investments $ 29,407 $ 31,456 Accounts receivable, net 3,570 2,322 Inventories 3,670 3,998 Other current assets 634 653 ------------ ------------ Total current assets 37,281 38,429 Property and equipment, net 4,564 5,603 Other assets 105 121 ------------ ------------ Total assets $ 41,950 $ 44,153 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,342 $ 2,205 Accrued expenses and other liabilities 2,428 2,480 ------------ ------------ Total current liabilities 4,770 4,685 Long-term liabilities 859 826 ------------ ------------ Total liabilities 5,629 5,511 Stockholders' equity 36,321 38,642 ------------ ------------ Total liabilities and stockholders' equity $ 41,950 $ 44,153 ============ ============ ALLIANCE FIBER OPTIC PRODUCTS, INC. Condensed Consolidated Statements of Operations (In thousands, except per share amounts) (Unaudited) Three Months Ended Twelve Months Ended --------------------------- ------------------- Dec. 31, Sept. 30, Dec. 31, Dec. 31, Dec. 31, 2005 2005 2004 2005 2004 -------- --------- -------- --------- --------- Revenues $ 5,510 $ 5,269 $ 4,653 $ 20,963 $ 14,558 Cost of revenues 4,070 4,141 3,715 16,363 13,174 -------- --------- -------- --------- --------- Gross profit/(loss) 1,440 1,128 938 4,600 1,384 -------- --------- -------- --------- --------- Operating expenses: Research and development 816 784 1,078 3,434 5,555 Sales and marketing 524 519 564 2,176 2,048 General and administrative 789 756 823 3,009 3,422 Asset impairment charge - - 331 - 331 -------- --------- -------- --------- --------- Total operating expenses 2,129 2,059 2,796 8,619 11,356 Loss from operations (689) (931) (1,858) (4,019) (9,972) Interest and other income, net 163 373 271 1,403 629 -------- --------- -------- --------- --------- Loss before income taxes (526) (558) (1,587) (2,616) (9,343) Income tax provision - - - - - -------- --------- -------- --------- --------- Net loss $ (526) $ (558) $(1,587) $ (2,616) $ (9,343) ======== ========= ======== ========= ========= Net loss per share - basic and diluted $ (0.01) $ (0.01) $ (0.04) $ (0.07) $ (0.24) Weighted average shares outstanding 39,630 39,405 38,670 39,330 38,590 *T