AFOP Reports 3rd Quarter 2006 Results

  
    
  
  
    
      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