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, 2006. The Company's GAAP results reflect the adoption of SFAS 123R regarding the expensing of stock-based compensation. Revenues for the third quarter of 2006 totaled $7,573,000, a 44% increase compared with $5,269,000 for the year ago quarter and 21% increase from revenues of $6,252,000 recorded in the second quarter of 2006. Gross margin in the quarter improved to 29% from 21% in the year ago quarter and 26% in the second quarter of 2006. GAAP net profit for the third quarter of 2006 was $358,000, or $0.01 per share, an improvement over a net loss of $(558,000) in the year ago quarter, or $(0.01) per share, and a net income of $19,000 for the second quarter of 2006, or zero per share. Included in expenses for the quarter ended September 30, 2006 was $83,000 of stock-based compensation charges under SFAS 123R. Included in expenses for the quarter ended June 30, 2006 was $32,000 of stock-based compensation charges under SFAS 123R. There were no deferred stock-based compensation charges for either the quarter ended September 30, or June 30, 2005, respectively. Peter Chang, President and Chief Executive Officer, commented, �Besides repeated double digit revenue growth and continuous gross margin improvement, the third quarter of 2006 marked another important milestone in AFOP�s quarterly financial results � AFOP achieved both positive operating margin and positive operating cash flow in Q3, 2006, after returning to positive earnings per share in the previous quarter.� �Our performance reflects increasing demand from key customers, gaining business from newer customers, and continuous improvement of our technical capability and operational efficiency.�Our balance sheet remains strong with cash and cash equivalents increasing from the previous quarter to about $30 million.� �Based on input from our customers and current backlog, we expect that revenues in the fourth quarter of 2006 will continue growing. Additionally, with continued focus on operational efficiencies, we believe that earnings in the coming quarter will improve over the previous quarter, and the Company will return to profitability on annual basis in 2006 as well,� concluded Mr. Chang. Conference Call Management will host a conference call at 1:30 p.m. Pacific Time on October 25,�2006 to discuss AFOP�s third�quarter 2006 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�217296. AFOP will also provide a live webcast of its�third�quarter 2006 conference call at AFOP�s website www.afop.com. An audio replay will be available until�November 1, 2006. The dial in�number for the replay is 877-660-6853�or 201-612-7415. The replay passcodes (account # 286; conference ID#: 217296) 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�CWDM & DWDM components and modules, optical attenuators, and�micro-optics devices. 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 ability to continue to improve gross margins, our ability to maintain positive earnings, operating margins or cash flow, our ability to be profitable in future periods, our ability to improve our earnings and the level of earnings in future periods, our ability to increase revenues and the extent of any revenue increase, the ability to sustain increasing customer demand for our products, and our ability to continue to improve our operating efficiency, and technological capabilities, 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 for our products, the timing of customer orders, loss of key customers, ability to ramp new products into volume production, the costs associated with running our operations, 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 Form 10-Q for the quarter ended June 30, 2006. 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. ALLIANCE FIBER OPTIC PRODUCTS, INC. Condensed Consolidated Balance Sheets (in thousands) � Sep. 30, Dec. 31, 2006� 2005� (unaudited) ASSETS Current assets: Cash and short-term investments $ 29,826� $ 29,407� Accounts receivable 3,872� 3,570� Inventories 4,812� 3,670� Other current assets � 799� � 634� Total current assets 39,309� 37,281� � Property and equipment, net 4,057� 4,564� Other assets 152� 105� � � Total assets $ 43,518� $ 41,950� � � � LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 3,159� $ 2,342� Accrued expenses and other liabilities � 2,605� � 2,428� Total current liabilities 5,764� 4,770� � Long-term liabilities � 803� � 859� Total liabilities 6,567� 5,629� � Stockholders' equity 36,951� 36,321� � � Total liabilities and stockholders' equity $ 43,518� $ 41,950� ALLIANCE FIBER OPTIC PRODUCTS, INC. Condensed Consolidated Statements of Operations (In thousands, except per share amounts) (Unaudited) � Three Months Ended Nine Months Ended Sep. 30, Jun. 31, Sep. 30, Sep. 30, Sep. 30, 2006� 2006� 2005� 2006� 2005� � Revenues $ 7,573� $ 6,252� $ 5,269� $ 19,046� $ 15,453� � Cost of revenues � 5,402� � 4,621� � 4,141� � 13,907� � 12,293� Gross profit � 2,171� � 1,631� � 1,128� � 5,139� � 3,160� � Operating expenses: Research and development 815� 708� 784� 2,282� 2,618� Sales and marketing 543� 555� 519� 1,684� 1,653� General and administrative � 789� � 720� � 756� � 2,272� � 2,219� Total operating expenses 2,147� 1,983� 2,059� 6,238� 6,490� � Income (loss) from operations 24� (352) (931) (1,099) (3,330) Interest and other income, net 334� 371� 373� 1,103� 1,240� � � � � � Net income (loss) $ 358� $ 19� $ (558) $ 4� $ (2,090) � Net income (loss) per share - basic and diluted Basic $ 0.01� $ 0.00� $ (0.01) $ 0.00� $ (0.05) Diluted $ 0.01� $ 0.00� $ (0.01) $ 0.00� $ (0.05) � Weighted average shares outstanding Basic 40,205� 40,086� 39,405� 40,023� 39,228� Diluted 43,728� 43,713� 39,405� 43,545� 39,228� � Included in costs and expenses above: Stock based compensation charges Cost of revenue $ 33� $ 9� $ -� $ 65� $ -� Research and development 17� 6� -� 38� -� Sales and marketing 6� 4� -� 22� -� General and administrative � 27� � 13� � -� � 67� � -� Total $ 83� $ 32� $ -� $ 192� $ -� 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, 2006. The Company's GAAP results reflect the adoption of SFAS 123R regarding the expensing of stock-based compensation. Revenues for the third quarter of 2006 totaled $7,573,000, a 44% increase compared with $5,269,000 for the year ago quarter and 21% increase from revenues of $6,252,000 recorded in the second quarter of 2006. Gross margin in the quarter improved to 29% from 21% in the year ago quarter and 26% in the second quarter of 2006. GAAP net profit for the third quarter of 2006 was $358,000, or $0.01 per share, an improvement over a net loss of $(558,000) in the year ago quarter, or $(0.01) per share, and a net income of $19,000 for the second quarter of 2006, or zero per share. Included in expenses for the quarter ended September 30, 2006 was $83,000 of stock-based compensation charges under SFAS 123R. Included in expenses for the quarter ended June 30, 2006 was $32,000 of stock-based compensation charges under SFAS 123R. There were no deferred stock-based compensation charges for either the quarter ended September 30, or June 30, 2005, respectively. Peter Chang, President and Chief Executive Officer, commented, "Besides repeated double digit revenue growth and continuous gross margin improvement, the third quarter of 2006 marked another important milestone in AFOP's quarterly financial results -- AFOP achieved both positive operating margin and positive operating cash flow in Q3, 2006, after returning to positive earnings per share in the previous quarter." "Our performance reflects increasing demand from key customers, gaining business from newer customers, and continuous improvement of our technical capability and operational efficiency. Our balance sheet remains strong with cash and cash equivalents increasing from the previous quarter to about $30 million." "Based on input from our customers and current backlog, we expect that revenues in the fourth quarter of 2006 will continue growing. Additionally, with continued focus on operational efficiencies, we believe that earnings in the coming quarter will improve over the previous quarter, and the Company will return to profitability on annual basis in 2006 as well," concluded Mr. Chang. Conference Call Management will host a conference call at 1:30 p.m. Pacific Time on October 25, 2006 to discuss AFOP's third quarter 2006 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 217296. AFOP will also provide a live webcast of its third quarter 2006 conference call at AFOP's website www.afop.com. An audio replay will be available until November 1, 2006. The dial in number for the replay is 877-660-6853 or 201-612-7415. The replay passcodes (account # 286; conference ID#: 217296) 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 CWDM & DWDM components and modules, optical attenuators, and micro-optics devices. 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 ability to continue to improve gross margins, our ability to maintain positive earnings, operating margins or cash flow, our ability to be profitable in future periods, our ability to improve our earnings and the level of earnings in future periods, our ability to increase revenues and the extent of any revenue increase, the ability to sustain increasing customer demand for our products, and our ability to continue to improve our operating efficiency, and technological capabilities, 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 for our products, the timing of customer orders, loss of key customers, ability to ramp new products into volume production, the costs associated with running our operations, 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 Form 10-Q for the quarter ended June 30, 2006. 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) Sep. 30, Dec. 31, 2006 2005 ------------- ------------ (unaudited) ASSETS Current assets: Cash and short-term investments $ 29,826 $ 29,407 Accounts receivable 3,872 3,570 Inventories 4,812 3,670 Other current assets 799 634 ------------- ------------ Total current assets 39,309 37,281 Property and equipment, net 4,057 4,564 Other assets 152 105 ------------- ------------ Total assets $ 43,518 $ 41,950 ============= ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 3,159 $ 2,342 Accrued expenses and other liabilities 2,605 2,428 ------------- ------------ Total current liabilities 5,764 4,770 Long-term liabilities 803 859 ------------- ------------ Total liabilities 6,567 5,629 Stockholders' equity 36,951 36,321 ------------- ------------ Total liabilities and stockholders' equity $ 43,518 $ 41,950 ============= ============ *T -0- *T ALLIANCE FIBER OPTIC PRODUCTS, INC. Condensed Consolidated Statements of Operations (In thousands, except per share amounts) (Unaudited) Three Months Ended Nine Months Ended -------------------------- ----------------- Sep. 30, Jun. 31, Sep. 30, Sep. 30, Sep. 30, 2006 2006 2005 2006 2005 -------- -------- -------- -------- -------- Revenues $ 7,573 $ 6,252 $ 5,269 $19,046 $15,453 Cost of revenues 5,402 4,621 4,141 13,907 12,293 -------- -------- -------- -------- -------- Gross profit 2,171 1,631 1,128 5,139 3,160 -------- -------- -------- -------- -------- Operating expenses: Research and development 815 708 784 2,282 2,618 Sales and marketing 543 555 519 1,684 1,653 General and administrative 789 720 756 2,272 2,219 -------- -------- -------- -------- -------- Total operating expenses 2,147 1,983 2,059 6,238 6,490 Income (loss) from operations 24 (352) (931) (1,099) (3,330) Interest and other income, net 334 371 373 1,103 1,240 -------- -------- -------- -------- -------- Net income (loss) $ 358 $ 19 $ (558) $ 4 $(2,090) ======== ======== ======== ======== ======== Net income (loss) per share - basic and diluted Basic $ 0.01 $ 0.00 $ (0.01) $ 0.00 $ (0.05) Diluted $ 0.01 $ 0.00 $ (0.01) $ 0.00 $ (0.05) Weighted average shares outstanding Basic 40,205 40,086 39,405 40,023 39,228 Diluted 43,728 43,713 39,405 43,545 39,228 Included in costs and expenses above: Stock based compensation charges Cost of revenue $ 33 $ 9 $ - $ 65 $ - Research and development 17 6 - 38 - Sales and marketing 6 4 - 22 - General and administrative 27 13 - 67 - -------- -------- -------- -------- -------- Total $ 83 $ 32 $ - $ 192 $ - ======== ======== ======== ======== ======== *T