AFOP Alliance Fiber Optic Products, Inc.

Alliance Fiber Optic Products, Inc. (NASDAQ CM: 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, 2008. Revenues for the third quarter of 2008 totaled $10,829,000, an 18% increase from revenues of $9,170,000 recorded in the third quarter of 2007 and a 5% increase compared with revenues of $10,323,000 for the second quarter of 2008. The Company recorded net income for the third quarter of 2008 of $1,345,000, or $0.03 per share, a 24% improvement over net income of $1,081,000, or $0.03 per share, for the second quarter of 2008. This compares to net income for the third quarter of 2007 of $1,065,000, or $0.03 per share. Included in expenses for the quarter ended September 30, 2008 was $34,000 of stock-based compensation charges under FAS 123(R). Included in expenses for the quarter ended September 30, 2007 and the second quarter of 2008 were $91,000 and $46,000 of stock-based compensation charges under SFAS 123(R), respectively. Peter Chang, President and Chief Executive Officer, commented, �We are very pleased with the financial performance and progress AFOP has made in the quarter ending September 30, 2008. With continued sequential quarterly revenue growth, we again delivered record quarterly sales and generated record quarterly profits in the quarter. With gross margin remaining above 31%, our operating profit margin reached the 10% level for the first time since going public. In addition, this is the twentieth consecutive quarter with revenue growth over the year ago quarter.� �Our balance sheet improved as well. At the end of the 3rd quarter, our cash and cash equivalent assets, together with our short-term and long-term investments, increased to $38.2 million. The net value includes an aggregate $1.3M value reduction on our auction rate securities investments, after the adoption of FAS 157, since January 1, 2008.� �Looking forward, although the overall market has been slowing with the severe economic conditions recently, we expect to deliver a record year for AFOP in both sales and profits as fiscal year 2008 concludes. In addition, we expect to generate additional net cash from our operating activities during the quarter,� concluded Mr. Chang. Conference Call Management will host a conference call at 1:30 p.m. Pacific Time on October�22, 2008 to discuss AFOP�s third quarter 2008 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�299032. AFOP will also provide a live webcast of its third quarter 2008 conference call at AFOP�s website: www.afop.com. An audio replay will be available until October 29, 2008. The dial in for the replay is 877-660-6853. The replay pass-codes (account # 286; conference ID#: 299032) 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. 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 www.afop.com. Except for the historical information contained herein, the matters set forth in this press release, including statements as to future market demand, future sales growth and profitability, and our expectations regarding year end 2008 results, including our expectations regarding 2008 sales, profits and net cash from operating activities, 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, order trends and 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 quarterly report on Form 10-Q for the quarter ended June 30, 2008. 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, � 2008 � 2007 (unaudited) ASSETS Current assets: Cash and short-term investments $ 23,231 $ 36,480 Accounts receivable 5,568 5,393 Inventories 6,366 5,003 Other current assets � 517 � 481 Total current assets 35,682 47,357 � Long-term investments 14,990 - Property and equipment, net 4,584 4,373 Other assets � 238 � 226 Total assets $ 55,494 $ 51,956 � � LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 5,354 $ 4,523 Accrued expenses and other liabilities � 3,452 � 3,520 Total current liabilities 8,806 8,043 � Long-term liabilities � 937 � 1,006 Total liabilities 9,743 9,049 � Stockholders' equity 45,751 42,907 � � Total liabilities and stockholders' equity $ 55,494 $ 51,956 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. 30, Sep. 30 Sep. 30 Sep. 30 � 2008 � 2008 � 2007 � 2008 � 2007 � Revenues $ 10,829 $ 10,323 $ 9,170 $ 30,553 $ 24,572 � Cost of revenues � 7,403 � 7,069 � 6,291 � 20,927 � 16,822 Gross profit � 3,426 � 3,254 � 2,879 � 9,626 � 7,750 � Operating expenses: Research and development 884 895 876 2,677 2,413 Sales and marketing 608 645 556 1,921 1,759 General and administrative � 888 � 893 � 817 � 2,675 � 2,593 Total operating expenses 2,380 2,433 2,249 7,273 6,765 � Income (loss) from operations 1,046 821 630 2,353 985 Interest and other income, net � 319 � 281 � 435 � 996 � 1,333 Net income before tax $ 1,365 $ 1,102 $ 1,065 $ 3,349 $ 2,318 Income tax � 20 � 21 � - � 103 � - Net income $ 1,345 $ 1,081 $ 1,065 $ 3,246 $ 2,318 � Net income per share: Basic $ 0.03 $ 0.03 $ 0.03 $ 0.08 $ 0.06 Diluted $ 0.03 $ 0.03 $ 0.02 $ 0.08 $ 0.05 � Weighted average shares outstanding: Basic 41,641 41,574 40,980 41,536 40,799 Diluted 42,542 42,674 44,929 42,621 44,747 � Included in costs and expenses above: Stock based compensation charges Cost of revenue $ 17 $ 20 $ 29 $ 59 $ 121 Research and development 7 9 13 26 50 Sales and marketing 5 6 9 18 33 General and administrative � 5 � 11 � 40 � 28 � 114 Total $ 34 $ 46 $ 91 $ 131 $ 318