10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________________

FORM 10-Q

(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2015

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number 0-31857

ALLIANCE FIBER OPTIC PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
Delaware	77-0554122
(State or other jurisdiction of	(I.R.S. employer
Incorporation or organization)	identification number)
275 Gibraltar Drive, Sunnyvale, California 94089
(Address of principal executive offices) (Zip Code)
(408)736-6900
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑   No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑   No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer ☐	Accelerated Filer ☑	Non-accelerated filer ☐	Smaller reporting company ☐
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐   No ☑

On April 30, 2015, 17,727,713 shares of the registrant’s Common Stock, $0.001 par value per share, were outstanding.

ALLIANCE FIBER OPTIC PRODUCTS, INC.

FORM 10-Q

QUARTERLY PERIOD ENDED MARCH 31, 2015

INDEX

	Page
PART I: FINANCIAL INFORMATION	1
ITEM 1: FINANCIAL STATEMENTS	1
Condensed Consolidated Balance Sheets	1
Condensed Consolidated Statements of Income and Comprehensive Income	2
Condensed Consolidated Statements of Cash Flows	3
Notes to Condensed Consolidated Financial Statements	4
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS	11
OF OPERATIONS
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	15
ITEM 4: CONTROLS AND PROCEDURES	15
PART II: OTHER INFORMATION	16
ITEM 1A: RISK FACTORS	16
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	25
ITEM 6: EXHIBITS	26
SIGNATURES	27

PART I: FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

ALLIANCE FIBER OPTIC PRODUCTS, INC.
Condensed Consolidated Balance Sheets

(In thousands, except share data)

	March 31,			December 31,
	2015			2014
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	20,381		$	22,723
Short-term investments		32,163			31,857
Accounts receivable, net		14,160			10,806
Inventories, net		10,266			9,305
Deferred tax asset		2,949			3,690
Prepaid expense and other current assets		2,465			2,077
Total current assets		82,384			80,458
Long-term investments		10,681			10,635
Property and equipment, net		14,319			13,868
Other assets		220			212
Total assets	$	107,604		$	105,173
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	10,340		$	9,236
Accrued expenses		9,085			8,699
Total current liabilities		19,425			17,935
Other long-term liabilities		900			978
Total liabilities		20,325			18,913
Commitments and contingencies (Note 9)
Stockholders' equity:
Preferred stock, par value $0.001: 5,000,000 shares authorized:
no shares issued and outstanding at March 31, 2015 and
December 31, 2014.		-			-
Common stock, $0.001 par value: 100,000,000 shares authorized;
17,719,958 and 17,942,595 shares issued and outstanding at
March 31, 2015 and December 31, 2014, respectively.		18			18
Additional paid-in-capital		108,651			111,622
Accumulated deficit		(23,259	)		(26,817	)
Accumulated other comprehensive income		1,869			1,437
Stockholders' equity		87,279			86,260
Total liabilities and stockholders' equity	$	107,604		$	105,173

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

1

ALLIANCE FIBER OPTIC PRODUCTS, INC.
Condensed Consolidated Statements of Income and Comprehensive Income

(Unaudited, in thousands, except per share data)

	Three Months Ended March 31,
	2015			2014
Revenues	$	21,663		$	24,882
Cost of revenues		12,871			14,968
Gross profit		8,792			9,914
Operating expenses:
Research and development		1,143			1,108
Selling, marketing and administrative		2,231			2,336
Total operating expenses		3,374			3,444
Income from operations		5,418			6,470
Interest and other income, net		196			147
Net income before tax		5,614			6,617
Provision for income taxes		(2,056	)		(1,602	)
Net income	$	3,558		$	5,015
Other comprehensive income:
Cumulative translation adjustments		436			(412	)
Unrealized loss on investments		(4	)		(6	)
Comprehensive income	$	3,990		$	4,597
Net income per share:
Basic	$	0.20		$	0.27
Diluted	$	0.19		$	0.26
Shares used in computing net income per share:
Basic		17,872			18,422
Diluted		18,296			19,070

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

2

ALLIANCE FIBER OPTIC PRODUCTS, INC.
Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)

	Three Months Ended March 31,
	2015			2014
Cash flows from operating activities:
Net income	$	3,558		$	5,015
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation		659			684
Amortization of stock-based compensation		496			717
Provision for inventory valuation		139			(31	)
Deferred taxes		1,168			658
Changes in assets and liabilities:
Accounts receivable		(3,354	)		(2,395	)
Inventories		(1,100	)		331
Prepaid expenses and other current assets		(388	)		(70	)
Other assets		(9	)		20
Accounts payable		1,104			104
Accrued expenses		386			515
Other long-term liabilities		(78	)		1
Net cash provided by operating activities		2,581			5,549
Cash flows from investing activities:
Purchase of short-term investments		(31,847	)		(10,631	)
Proceeds from sales and maturities of short-term investments		31,537			6,842
Purchase of long-term investments		(46	)		(45	)
Purchase of property and equipment		(1,015	)		(648	)
Net cash used in investing activities		(1,371	)		(4,482	)
Cash flows from financing activities:
Proceeds from the exercise of stock options		93			80
Repurchase of common stock		(3,986	)		-
Net cash (used in) provided by financing activities		(3,893	)		80
Effect of exchange rate changes on cash and cash equivalents		341			(259	)
Net (decrease) increase in cash and cash equivalents		(2,342	)		888
Cash and cash equivalents at beginning of period		22,723			18,603
Cash and cash equivalents at end of period	$	20,381		$	19,491
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	216		$	203

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

3

ALLIANCE FIBER OPTIC PRODUCTS, INC.

Notes to Condensed Consolidated Financial Statements
(Unaudited)

1. Summary of Significant Accounting Policies

The Company

Alliance Fiber Optic Products, Inc. (the “Company”) was incorporated in California on December 12, 1995 and reincorporated in Delaware on October 19, 2000. The Company designs, manufactures and markets fiber optic components for communications equipment manufacturers. The Company’s headquarters are located in Sunnyvale, California, and it has operations in Taiwan and China.

Basis of Presentation

The accompanying condensed consolidated balance sheet as of December 31, 2014, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements as of and for the three months ended March 31, 2015 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and include the accounts of Alliance Fiber Optic Products, Inc. and its wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations.

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. The unaudited condensed consolidated financial statements as of March 31, 2015, and for the three months ended March 31, 2015 and 2014, reflect, in the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to state fairly the financial information set forth herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for any subsequent interim period or for an entire year.

There have been no significant changes in the Company’s critical accounting policies during the three months ended March 31, 2015 as compared to those disclosed in the Company’s Form 10-K for the fiscal year ended December 31, 2014.

Revenue Recognition

The Company recognizes revenue upon shipment of its products to customers, provided that it has received a purchase order, the price is fixed, collection of the resulting receivable is reasonably assured and transfer of title and risk of loss has occurred. Subsequent to the sale of products, the Company has no obligation to provide any modification or customization upgrades, enhancements or post contract customer support.

Allowance for Doubtful Accounts and Returns

Allowances are provided for estimated returns and potential uncollectable trade receivables. Provisions for return allowances are recorded at the time revenue is recognized based on historical returns, current economic trends and changes in customer demand. Such allowances are adjusted periodically to reflect actual and anticipated experience. The Company also identifies specific accounts considered to have a high risk of uncollectibility and records an allowance for the full amount. Material differences may result in the amount and timing of revenue for any period than if management had made different judgments or utilized different estimates.

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Cash and Cash Equivalents

The Company considers all highly liquid instruments with a maturity of three months or less when purchased to be cash equivalents. Cash equivalents consist primarily of money market accounts, corporate bonds and certificates of deposit.

Short-Term and Long-Term Investments

The Company generally invests its excess cash in certificates of deposit and corporate bonds. Such investments are made in accordance with the Company’s investment policy, which establishes guidelines relative to diversification and maturities designed to maintain safety and liquidity. These guidelines are periodically reviewed and modified to take advantage of trends in yields and interest rates.

Concentrations of Risk

Connectivity products contributed 79.7% and 78.7% of the Company’s revenues for the three months ended March 31, 2015 and 2014, respectively. The Company’s optical passive products contributed 20.3% and 21.3% of the Company’s revenues for the three months ended March 31, 2015 and 2014, respectively.

In the three month ended March 31, 2015 and 2014, the Company’s 10 largest customers comprised 77.9% and 72.6% of the Company’s revenues, respectively. One Web 2.0 customer accounted for 45.1% and 40.6% of the Company’s total revenues for the three months ended March 31, 2015 and 2014, respectively. The amount due from this customer was $5.6 million at March 31, 2015.

2. Recent Accounting Pronouncements

In January 2015, the Financial Accounting Standards Board (“FASB”) issued guidance which eliminates the concept of extraordinary items in an entity’s income statement. The changes in ASU 2015-01 are effective for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

In May 2014, FASB issued a new financial accounting standard which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance. The accounting standard is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2016. Early adoption is not permitted. The Company is currently evaluating the impact of this accounting standard on its consolidated financial statements.

2. Stockholders’ Equity

Stock Repurchase Program. On October 29, 2014, the Company announced a program to repurchase up to $15.0 million worth of the Company’s outstanding common stock. Repurchases under the program may be made in open market and privately negotiated transactions in compliance with Securities and Exchange Commission Rule 10b-18, subject to market conditions, applicable legal requirements and other factors. The Company is not required to repurchase any amount of common stock in any period and the program may be modified or suspended at any time. The duration of the repurchase program is open-ended. For the three months ended March, 31, 2015, an aggregate of 243,737 shares of common stock had been repurchased under the program. For the year ended December 31, 2014, an aggregate of 740,190 shares of common stock had been repurchased under the program. For the years ended December 31, 2013 and 2012, an aggregate of 158,798 and 976,332 shares of common stock, respectively, had been repurchased under the November 2011 program.

4. Stock-based Compensation

The Accounting Standards Codification (“ASC”) 718 requires companies to record compensation expense for stock options measured at fair value, on the date of grant, using an option-pricing model. The fair value of stock options granted and stock purchased pursuant to the Employee Stock Purchase Plan (“ESPP”) was determined using the Black-Scholes Model.

Pursuant to the Company’s 2000 Stock Incentive Plan, participants may be granted restricted stock units (“RSUs”), representing an unfunded, unsecured right to receive shares of the Company’s common stock on the date specified in the recipient’s award. The RSUs granted under the plan generally vest over two years at a rate of 50 percent per year, over three years at a rate of 33.3 percent per year, or over five years at a rate of 20 percent per year. The Company recognizes compensation expense on a straight-line basis over the vesting term of each award.

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Options granted under the 2000 Stock Incentive Plan generally vest over four years. Options have a ten year contractual term.

The following information relates to stock option activity for the three months ended March 31, 2015:

					Weighted
			Weighted		Average
			Average		Remaining	Aggregate
			Exercise		Contractual	Intrinsic
Options	Shares		Price		Life	Value
Outstanding at December 31, 2014	693,100		$	9.08
Granted	10,000			14.48
Exercised	(21,100	)		4.40
Forfeited	(2,000	)		3.91
Outstanding at March 31, 2015	680,000		$	9.32	8.17 Years	$	5,506,558
Vested and expected to vest at March 31, 2015	663,219		$	9.30	8.16 Years	$	5,387,025
Exercisable at March 31, 2015	128,765		$	4.62	5.85 Years	$	1,647,886

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the first quarter of fiscal 2015 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on March 31, 2015. This amount changes based on the fair market value of the Company’s stock. The total intrinsic value of options exercised during the three months ended March 31, 2015 and 2014 was $0.3 million and $0.2 million, respectively.

Cash received from option exercises during the three months ended March 31 was $0.1 million for each of 2015 and 2014. Such amounts are included within the financing activities section in the accompanying condensed consolidated statements of cash flows.

Options to purchase 10,000 shares of common stock were granted during the three months ended March 31, 2015. At March 31, 2015, there was $2.8 million of unrecognized compensation cost related to stock options and RSUs, all of which is expected to be realized over three years.

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The following table summarizes employee stock-based compensation expense resulting from stock options, RSUs and the ESPP (in thousands):

	Three Months Ended March 31,
	2015		2014
Included in cost of revenue	$	121	$	176
Included in operating expenses:
Research and development		46		83
Selling, marketing and administrative		329		458
Total		375		541
Total stock-based compensation expense	$	496	$	717

5. Inventories, net (in thousands)

	March 31,		December 31,
	2015		2014
Inventories
Finished goods	$	2,047	$	2,545
Work-in-process		4,126		2,970
Raw materials		4,093		3,790
	$	10,266	$	9,305

6. Net Income Per Share

Basic net income per share is computed by dividing net income for the period by the weighted average number of shares of common stock outstanding during the period. Diluted net income per share is computed by dividing net income for the period by the combination of dilutive common share equivalents, comprised of shares issuable under the Company’s stock-based compensation plans, and the weighted average number of shares of common stock outstanding during the period.

The following table sets forth the computation of basic and diluted net income per share for the periods indicated (in thousands, except per share data):

	Three Months Ended March 31,
	2015		2014
Numerator:
Net income	$	3,558	$	5,015
Denominator:
Shares used in computing net income per share:
Basic		17,872		18,422
Diluted		18,296		19,070
Net income per share:
Basic	$	0.20	$	0.27
Diluted	$	0.19	$	0.26

7. Comprehensive Income

Comprehensive income is defined as the change in equity of a company during a period resulting from transactions and other events and circumstances, excluding transactions resulting from investments by owners and distributions to owners. The difference between net income and comprehensive income for the Company is due to foreign exchange translations adjustments and unrealized loss on available-for-sale securities.

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8. Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company is subject to income tax in both the United States and various foreign jurisdictions. The effective tax rate is also affected by the taxable earnings in foreign jurisdictions with various different statutory tax rates. The Company reviews its expected annual effective income tax rates and makes changes on a quarterly basis as necessary based on certain factors such as forecasted annual operating income and valuation of deferred tax assets. The Company’s effective tax rate was 36.6% and 24.2% for the three months ended March 31, 2015 and 2014, respectively. The Company’s effective rate differs from its expected federal statutory rate primarily as a result of state taxes, foreign tax rate differences and permanent items.

The Company records net deferred tax assets to the extent it believes these assets will more likely than not be realized. In making such determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations.

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. The Company reduced its deferred tax assets by $0.7 million as of March 31, 2015 as a result of research credits utilized against current taxable income.

9. Commitments and Contingencies

Litigation:

From time to time, the Company may be involved in litigation in the normal course of business. As of the date of these financial statements, the Company is not aware of any material legal proceedings pending or threatened against the Company.

Indemnification and Product Warranty:

The Company indemnifies certain customers, suppliers and subcontractors for attorney fees and damages and costs awarded against these parties in certain circumstances in which products are alleged to infringe third party intellectual property rights, including patents, trade secrets, trademarks or copyrights. In all cases, there are limits on and exceptions to the potential liability for indemnification relating to intellectual property infringement claims. The Company cannot estimate the amount of potential future payments, if any, that it might be required to make as a result of these agreements. As of March 31, 2015, the Company has not paid any claim or been required to defend any action related to indemnification obligations, and accordingly, the Company has not accrued any amounts for such indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations.

The Company generally warrants products against defects in materials and workmanship and non-conformance to specifications for varying lengths of time. If there is a material increase in customer claims compared with historical experience, or if costs of servicing warranty claims are greater than expected, the Company may record a charge against cost of revenues. The Company accrued $0.09 million and $0.08 million for warranty reserves at March 31, 2015 and December 31, 2014.

Operating Leases:

The Company leases office space under long-term operating leases expiring at various dates through 2019.

8

The Company’s aggregate future minimum facility lease payments are as follows (in thousands):

Years ending December 31:
2015 (remaining nine months of the year)	$	722
2016		698
2017		450
2018		445
2019 and after		390
Total	$	2,705

10. Related Party Transactions

As of March 31, 2015, and based on information filed with the Securities and Exchange Commission on January 4, 2002 for the year ended December 31, 2000, Foxconn Holding Limited (“Foxconn”) and Hon Hai Precision Industry Co. Ltd. (“Hon Hai”) held 18.06% of the Company’s common stock. In the normal course of business, the Company sells products to and purchases raw materials from Hon Hai, who is the parent company of Foxconn. These transactions were made at prices and terms consistent with those of unrelated third parties.

No sales to Hon Hai were made in either of the quarters ended March 31, 2015 and 2014. Purchases of raw materials from Hon Hai were $0.5 million and $0.4 million in the quarters ended March 31, 2015 or 2014. No amounts were due from Hon Hai at either of March 31, 2015 and December 31, 2014. Amounts due to Hon Hai were $0.5 million and $0.4 million at March 31, 2015 and December 31, 2014, respectively.

11. Fair Value of Financial instruments

U.S. GAAP defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact a purchase or sale and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability.

The Company uses a fair value hierarchy established by U.S. GAAP that established a three-tiered fair value hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable to prioritize inputs used to measure fair value. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is available and significant to the fair value measurement. Those tiers are defined as follows:

Level 1 —	inputs are quoted prices in active markets for identical assets or liabilities.
Level 2 —	inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly.
Level 3 —	inputs are unobservable and shall be used to the extent that observable inputs are not available in the overall fair value measurement.

In accordance with the U.S. GAAP Codification Topic 820, the following table represents the fair value hierarchy for the Company’s financial assets (investments) measured at fair value on a recurring basis as of March 31, 2015 and December 31, 2014:

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	Fair Value Measurements at
	Reporting Date Using
			Quoted Prices		Significant
			in Active		Other		Significant
	Balance at		Markets for		Observable		Unobservable
	March 31,		Identical Assets		Inputs		Inputs
	2015		(Level 1)		(Level 2)		(Level 3)
Cash equivalents:
Money market mutual funds	$	4,040	$	4,040	$	-	$	-
Marketable Securities:
Time deposits		22,030		22,030		-		-
Corporate bonds		10,133		-		10,133		-
Long-term investments:
Time deposits		10,681		10,681		-		-
Total	$	46,884	$	36,751	$	10,133	$	-
	Fair Value Measurements at
	Reporting Date Using
			Quoted Prices		Significant
			in Active		Other		Significant
	Balance at		Markets for		Observable		Unobservable
	December 31,		Identical Assets		Inputs		Inputs
	2014		(Level 1)		(Level 2)		(Level 3)
Cash equivalents:
Money market mutual funds	$	4,070	$	4,070	$	-	$	-
Marketable Securities:
Time deposits		21,782		21,782		-		-
Corporate bonds		10,075		-		10,075		-
Long-term investments:
Time deposits		10,635		10,635		-		-
Total	$	46,562	$	36,487	$	10,075	$	-

As of March 31, 2015 and December 31, 2014, the Company held investments in corporate bonds, certificates of deposit, and money market securities. The Company’s cash and cash equivalents consist of investments with original maturities of 90 days or less from the date of purchase. The Company’s short-term investments consist of corporate bonds and certificates of deposit with original maturities of 91 days or more from the date of purchase. The Company’s long-term investments consist of certificates of deposit with original maturities of 365 days or more from the date of purchase.

12. Geographic Segment Information

The Company operates in a single industry segment. This industry segment is characterized by rapid technological change and significant competition.

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The following is a summary of the Company’s revenues generated by geographic segments, revenues generated by product lines and identifiable assets located in these segments (in thousands):

	Three Months Ended March 31,
	2015		2014
Revenues
North America	$	15,535	$	15,881
Europe		2,861		5,279
Asia		3,267		3,722
	$	21,663	$	24,882
	Three Months Ended March 31,
	2015		2014
Revenues
Connectivity Products	$	17,263	$	19,581
Optical Passive Products		4,400		5,301
	$	21,663	$	24,882
	March 31,		December 31,
	2015		2014
Property and Equipment
United States	$	219	$	185
Taiwan		8,588		8,568
China		5,512		5,115
	$	14,319	$	13,868

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

When used in this Report, the words “expects,” “anticipates,” “believes”, “estimates,” “plans,” “intends,” “could,” “will,” “may” and similar expressions are intended to identify forward-looking statements. These are statements that relate to future periods and include statements as to our operating results, revenues, sources of revenues, cost of revenues, gross margin, profitability, the amount and mix of anticipated investments, expenditures and expenses, our liquidity and the adequacy of our capital resources, our uses of cash, the impact of the economic environment on our business, exposure to interest rate or currency fluctuations, anticipated working capital and capital expenditures, reliance on our connectivity products, our cash flow, trends in average selling prices, our reliance on the commercial success of our optical passive products, plans for future products and enhancements of existing products, features, benefits and uses of our products, demand for our products, our success being tied to relationships with key customers, industry trends and market demand, our ability to protect our intellectual property, the potential benefit of indemnification agreements, increases in the number of possible requests for licenses and patent infringement claims, our competitive position, sources of competition, consolidation in our industry, our international strategy, risks associated with our international operations, inventory management, our factory utilization levels, our employee relations, the adequacy of our internal controls, and the effect of recent, future and changing accounting pronouncements and our critical accounting policies, estimates, models, judgments and assumptions related to our financial results. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expected. These risks and uncertainties include, but are not limited to, those risks discussed elsewhere in this report, as well as risks related to the development of the metropolitan, last mile access, data center and enterprise networks, customer acceptance of our products, our ability to retain and obtain customers, industry-wide overcapacity and shifts in supply and demand for optical components and modules, our ability to meet customer demand and manage inventory, fluctuations in demand for our products, declines in average selling prices, pricing pressure from customers or potential customers, development of new products by us and our competitors, increased competition, inability to obtain sufficient quantities of raw materials or components, loss of a key supplier, integration of acquired businesses or technologies, financial stability in foreign markets, foreign currency exchange rates, interest rates, costs associated with being a public company, failure to meet customer requirements, our ability to license intellectual property on commercially reasonable terms, the impact of the economic environment, and the risks set forth below under Part II, Item 1A, “Risk Factors.” These forward-looking statements speak only as of the date hereof. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

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The following discussion should be read in conjunction with our Condensed Consolidated Financial Statements and Notes thereto.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of financial condition and results of operations is based on our Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, bad debts, inventories, asset impairments, income taxes, contingencies, and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values for assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

For additional information regarding our critical accounting policies and estimates, see the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2014.

Overview

We were founded in December 1995 and commenced operations to design, manufacture and market fiber optic interconnect products, which we call our connectivity products. We started selling our optical passive products in July 2000. Since their introduction, sales of optical passive products have fluctuated with the overall market for these products. We market and sell our products predominantly through our direct sales force.

Our connectivity products contributed revenues of $17.3 million, or 79.7%, and $19.6 million, or 78.7%, for the three months ended March 31, 2015 and 2014, respectively. Our optical passive products contributed revenues of $4.4 million, or 20.3%, and $5.3 million, or 21.3%, for the three months ended March 31, 2015 and 2014, respectively.

In the three months ended March 31, 2015 and 2014, our 10 largest customers comprised 77.9% and 72.6% of our total revenues, respectively. One Web 2.0 customer accounted for 45.1% and 40.6% of our total revenues for the three months ended March 31, 2015 and 2014, respectively.

Our cost of revenues consists of raw materials, components, direct labor, manufacturing overhead and production start-up costs. We expect that our cost of revenues as a percentage of total revenues will fluctuate from period to period based on a number of factors including:

● changes in manufacturing volume;

● costs incurred in establishing additional manufacturing lines and facilities;

● inventory write-downs and impairment charges related to manufacturing assets;

● mix of products sold;

● changes in our pricing and pricing from our competitors;

● mix of sales channels through which our products are sold; and

● mix of domestic and international sales.

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Research and development expenses consist primarily of salaries and related personnel expenses, fees paid to outside service providers, materials costs, test units, facilities, overhead and other expenses related to the design, development, testing and enhancement of our products. We expense our research and development costs as they are incurred. We believe that a significant level of investment for product research and development is required to remain competitive.

Sales, marketing, and administrative expenses consist of salaries, commissions and related expenses for personnel engaged in marketing, sales and technical support functions, as well as the costs associated with trade shows, promotional activities and travel expenses. It also consists of salaries and related expenses for executive, finance, administrative, accounting and human resources personnel, insurance and professional fees for legal and accounting support. We intend to continue to invest amounts similar to our spending levels in 2014 in our sales and marketing efforts, both domestically and internationally, in order to increase market awareness and to generate sales of our products. We expect administrative expenses will increase in absolute dollars to support our revenue growth, higher insurance premiums and costs associated with compliance with Section 404 of the Sarbanes-Oxley Act of 2002 and being a public company.

Results of Operations

The following table sets forth the relationship between various components of operations as a percentage of revenues for the periods indicated:

	Three Months Ended Mar. 31,
	2015		2014
Revenues	100.0	%	100.0	%
Cost of revenues	59.4		60.2
Gross profit	40.6		39.8
Operating expenses:
Research and development	5.3		4.4
Selling, marketing and administrative	10.3		9.4
Total operating expenses	15.6		13.8
Income from operations	25.0		26.0
Interest and other income, net	0.9		0.6
Net income before tax	25.9	%	26.6	%
Provision for income taxes	(9.5	)	(6.4	)
Net income	16.4	%	20.2	%

Revenues. Revenues were $21.7 million and $24.9 million for the three months ended March 31, 2015 and 2014, respectively. Revenues decreased 12.9% in the quarter ended March 31, 2015 from the same period in 2014, primarily due to decreased volume shipments of products to a few large customers in telecom and datacom market applications.

Cost of Revenues. Cost of revenues was $12.9 million and $15.0 million for the three months ended March 31, 2015 and 2014, respectively. Cost of revenues as a percentage of revenues decreased to 59.4% for the three months ended March 31, 2015 from 60.2% for the three months ended March 31, 2014. The lower cost of revenues and percentage of revenues for the three months ended March 31, 2015 resulted from lower sales.

Gross Profit. Gross profit decreased to $8.8 million, or 40.6% of revenues, for the three months ended March 31, 2015 from $9.9 million, or 39.8% of revenues, for the same period in 2014. The lower gross profit was due to the lower utilization of our factories for the decreased volume shipments of our products. The higher percentage of gross profit was due to lower stock compensation expenses and the change in the mix of products sold for the three months ended March 31, 2015.

Research and Development Expenses. Research and development expenses were $1.1 million for each of the three months ended March 31, 2015 and 2014, respectively. As a percentage of revenues, research and development expenses increased to 5.3% in the three months ended March 31, 2015 from 4.4% for the same period in 2014 as a result of decreased revenues. We expect research and development expenses will increase as we intend to continue to invest in our research and product development efforts.

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Sales, Marketing and Administrative Expenses. Sales, marketing and administrative expenses were $2.2 million and $2.3 million for the three months ended March 31, 2015 and 2014, respectively. As a percentage of revenues, sales and marketing expenses increased to 10.3% in the three months ended March 31, 2015 from 9.4% in the three months ended March 31, 2014 as a result of decreased revenues. We expect sales, marketing and administrative expenses will remain relatively flat in the next quarter.

Stock-Based Compensation. Stock based compensation expense decreased to $0.5 million for the three months ended March 31, 2015 from $0.7 million for the same period in 2014. This decrease was due to fully amortized stock options and RSUs.

Interest and Other Income, Net. Interest and other income, net, was $0.2 million and $0.15 million for the three months ended March 31, 2015 and 2014, respectively. These amounts consisted primarily of interest income which fluctuated based on cash balances and changes in interest rates.

Income Tax Expense. Income tax expense was $2.1 million and $1.6 million for the three months ended March 31, 2015 and 2014, respectively. The increase was primarily due to the increase in foreign income taxes incurred for the three months ended March 31, 2015.

Liquidity and Capital Resources

At March 31, 2015, we had cash and cash equivalents of $20.4 million, short-term investments of $32.1 million and long-term investments of $10.7 million.

Net cash provided by operating activities was $2.6 million for the three months ended March 31, 2015. Net cash provided by operating activities was primarily due to net income of $3.6 million, a decrease in deferred tax assets of $1.2 million, an increase in accounts payable of $1.1 million, total depreciation and stock based compensation expenses of $1.2 million, and a $0.4 million increase in accrued expenses which was offset by a $3.4 million increase in accounts receivable, an $1.0 million increase in inventory, and a $0.4 million increase in prepaid expenses.

Net cash provided by operating activities was $5.5 million for the three months ended March 31, 2014. Net cash provided by operating activities was primarily due to net income of $5.0 million, a decrease in deferred tax assets of $0.7 million, an increase in accrued expenses of $0.5 million, a decrease in inventory of $0.3 million, and contribution from adjustments for non-cash charges, including depreciation, and amortization and stock based compensation of $1.4 million. These were offset by an increase in accounts receivable of $2.4 million.

Net cash used in investing activities was $1.4 million for the three months ended March 31, 2015. In the three months ended March 31, 2015, we spent a net of $0.4 million for the purchase of short-term and long-term investments, and we used $1.0 million to purchase equipment.

Net cash used in investing activities was $4.5 million for the three months ended March 31, 2014. In the three months ended March 31, 2014, we spent a net of $3.8 million for the purchase of short-term and long-term investments, and we used $0.6 million to purchase equipment.

Net cash used in financing activities was $3.9 million for the three months ended March 31, 2015. Net cash used in financing activities was primarily due to $4.0 million used to repurchase common stock pursuant to our stock repurchase program, which was offset by $0.1 million from the exercise of options to purchase shares of our common stock.

Net cash provided by financing activities was $0.1 million for the three months ended March 31, 2014. Net cash provided by financing activities was from the exercise of options to purchase shares of our common stock.

We believe that our current cash, cash equivalents and short-term investments will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12 months. However, our future growth, including any potential acquisitions, may require additional funding. If cash generated from operations is insufficient to satisfy our long-term liquidity requirements, we may need to raise capital through additional equity or debt financings, additional credit facilities, strategic relationships or other arrangements. If additional funds are raised through the issuance of securities, these securities could have rights, preferences and privileges senior to holders of common stock, and the terms of any debt facility could impose restrictions on our operations. The sale of additional equity or debt securities could also result in dilution to our stockholders, and additional financing may not be available in amounts or on terms acceptable to us, if at all. If we are unable to obtain additional funding, we may be required to reduce the scope of our planned product development and marketing efforts. Strategic arrangements, if necessary to raise additional funds, may require us to relinquish our rights to certain of our technologies or products. Our failure to raise capital when needed could harm our business, financial condition and operating results.

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Off Balance Sheet Arrangements

We did not have any off-balance sheet arrangements at March 31, 2015.

Contractual Obligations

The lease on our corporate headquarters in Sunnyvale, California, has a six-year term commencing on July 22, 2004. In June 2010, we renewed the lease for an 18,088 square foot facility in the same building, which lease will expire in January 2016.

In Taiwan, we lease a total of 34,406 square feet in one facility located in Tu-Cheng City, Taiwan. This lease expires at various times from June 2015 to January 2017.

In China, we renewed the lease for our 132,993 square foot facility in Shenzhen, China, which will expire in October 2019. In December 2014, we entered into two lease agreements for our two new manufacturing facilities next to our facility in Shenzhen, China. Each facility has 55,285 square feet and both leases expire in December 2019.

Recent Accounting Pronouncements

See Note 2 of our Notes to Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for information on recent accounting pronouncements.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to risks associated with the translation of Taiwan (NT) and China (RMB) denominated financial results and accounts into U.S. dollars for financial reporting purposes. The carrying value of the assets and liabilities held in our Taiwan and China subsidiaries will be affected by fluctuations in the value of the U.S. dollar as compared to the NT and RMB. Changes in the value of the U.S. dollar as compared to the NT and RMB could have an adverse effect on our reported results of operations and financial condition. As the net positions of our unhedged foreign currency transactions fluctuate, our earnings might be negatively affected. In addition, the reported carrying value of our NT and RMB denominated assets and liabilities held in our Taiwan and China subsidiaries will be affected by fluctuations in the value of the U.S. dollar compared to the NT and RMB. As of March 31, 2015, we had a net asset balance, excluding intercompany payables and receivables, in our Taiwan and China subsidiaries denominated in NT and RMB. If the NT and RMB were to weaken 10 percent against the dollar, our net asset balance would decrease by approximately $2.2 million as of that date.

ITEM 4: CONTROLS AND PROCEDURES

     (a)Evaluation of disclosure controls and procedures. We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Acting Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet reasonable assurance standards. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefitrelationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Acting Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

     (b)Changes in internal controls. There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) identified in connection with the evaluation described in Item 4(a) above that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II: OTHER INFORMATION

ITEM 1A: RISK FACTORS

We have a history of losses, may experience future losses.

From inception through March 31, 2015, we had an accumulated deficit of $23.3 million.

We continue to experience fluctuating demand for our products. If demand for our products declines, we may not be able to decrease our expenses on a timely basis or at levels that offset any such decreases. If demand for our products continues to increase in the future, we may incur significant and increasing expenses for expansion of our manufacturing operations, research and development, sales and marketing, and administration, and in expanding our direct sales and distribution channels. Given the rate at which competition in our industry intensifies and the fluctuations in demand for our products, we may not be able to adequately control our costs and expenses or achieve or maintain adequate operating margins. As a result, we will need to generate and sustain substantially higher revenues while maintaining reasonable cost and expense levels, and our failure to do so may result in additional losses.

We depend on a small number of customers for a significant portion of our revenues, and one customer for approximately 45% of our revenues for the three months ended March 31, 2015 and the loss of, or a significant reduction in orders from, any of these customers, would significantly reduce our revenues and harm our operating results.

In the three months ended March 31, 2015 and 2014, our 10 largest customers comprised 77.9% and 72.6% of our revenues, respectively. One Web 2.0 customer accounted for 45.1% and 40.6% for the three months ended March 31, 2015 and 2014, respectively.

We derive a significant portion of our revenues from a small number of customers, and we anticipate that we will continue to do so in the foreseeable future. These customers may decide not to purchase our products at all, to purchase fewer products than they did in the past, to demand price concessions, or to alter their purchasing patterns in some other way. The loss of any significant customer, a significant reduction in sales we make to a customer, or any problems collecting receivables from one or more significant customers would likely harm our financial condition and results of operations. Changes in purchasing by these customers may also cause our operating results to fluctuate from period to period.

Our connectivity products have historically represented a significant part of our revenues, and if we are unsuccessful in selling our optical passive products, our business may be harmed.

Sales of our connectivity products accounted for 79.7% and 78.7% of our revenues in the quarters ended March 31, 2015 and 2014, respectively, and a majority of our historical revenues. We expect to substantially depend on these products for the majority of our near-term revenues. We have in the past, and may in the future experience declines in average selling prices. Any significant decline in the price of, or demand for, these products, or failure to increase their market acceptance, would seriously harm our business. In addition, we believe that our future growth and a significant portion of our future revenues will depend on the commercial success of our optical passive products. If demand for these products does not continue to increase and our target customers do not continue to adopt and purchase our optical passive products, our revenues may decline.

Continuing weak general economic or business conditions may have a negative impact on our business.

Continuing concerns over inflation, deflation, another recession, energy costs, geopolitical issues, the availability and cost of credit, Federal budget proposals, the Federal deficit and credit rating, unemployment, global economic instability, slowing growth in China and an uncertain real estate market in the U.S. have contributed to increased volatility and diminished expectations for the global economy and expectations of slower global economic growth going forward. These factors, combined with volatile oil prices, declining business and consumer confidence, a volatile stock market and prolonged unemployment, have precipitated an economic slowdown and recession. If the economic climate in the U.S. and abroad does not improve or continues to deteriorate, our business, including our customers and our suppliers, could be negatively affected, resulting in a negative impact on our revenues.

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Our quarterly and annual financial results have historically fluctuated due primarily to introduction of, demand for, and sales of our products, and future fluctuations may cause our stock price to decline.

We believe that period-to-period comparisons of our operating results are not a good indication of our future performance. Our quarterly operating results have fluctuated in the past and are likely to fluctuate significantly in the future due to a number of factors. For example, the timing and expenses associated with product introductions and establishing additional manufacturing lines and facilities, changes in manufacturing volume, declining average selling prices of our products, the timing and extent of product sales, the mix of domestic and international sales, the mix of sales channels through which our products are sold, the mix of products sold and significant fluctuations in demand for our products have caused our operating results to fluctuate in the past. Because we incur operating expenses based on anticipated revenue levels; and a significant percentage of our expenses are fixed in the short term, any delay in generating or recognizing revenues or any decrease in revenues could significantly harm our quarterly results of operations. Other factors, many of which are more fully discussed elsewhere in this report, may also cause our results to fluctuate. Many of the factors that may cause our results to fluctuate are outside of our control. If our quarterly or annual operating results do not meet the expectations of investors and securities analysts, the trading price of our common stock could significantly decline.

If we cannot attract more optical communications equipment manufacturers to purchase our products, we may not be able to increase or sustain our revenues.

Our future success will depend on our ability to migrate existing customers to our new products and our ability to attract additional customers. Some of our present customers are relatively new companies. The growth of our customer base could be adversely affected by:

● customer unwillingness to implement our products;
 

● any delays or difficulties that we may incur in completing the development and introduction of our planned products or product enhancements;
 

● the success of our customers;
 

● excess inventory in the telecommunications industry;
 

● new product introductions by our competitors;
 

● any failure of our products to perform as expected; or
 

● any difficulty we may incur in meeting customers’ delivery requirements or product specifications.

The fluctuations in the economy have affected the telecommunications industry. Telecommunications companies have cut back on their capital expenditure budgets, which has and may continue to further decrease demand for equipment and parts, including our products. This decrease has had and may continue to have an adverse effect on the demand for fiber optic products and negatively impact the growth of our customer base.

We are exposed to risks and increased expenses and business risk as a result of Restriction on Hazardous Substances, or RoHS directives.

Following the lead of the European Union, or EU, various governmental agencies have either already put into place or are planning to introduce regulations that regulate the permissible levels of hazardous substances in products sold in various regions of the world. For example, the RoHS directive for EU took effect on July 1, 2006. The labeling provisions of similar legislation in China went into effect on March 1, 2007. Consequently, many suppliers of products sold into the EU have required their suppliers to becompliant with the new directive. Many of our customers have adopted this approach and have required our full compliance. Though we have devoted a significant amount of resources and effort planning and executing our RoHS program, it is possible that some of our products might be incompatible with such regulations. In such event, we could experience the following consequences: loss of revenue, damaged reputation, diversion of resources, monetary penalties, and legal action.

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The market for fiber optic components is increasingly competitive, and if we are unable to compete successfully our revenues could decline.

The market for fiber optic components is intensely competitive. We believe that our principal competitors are the major manufacturers of optical components and integrated modules, including vendors selling to third parties and business divisions within communications equipment suppliers. Our principal competitors in the components market include Oclaro Inc., JDS Uniphase Corp., Oplink Communications Inc., which was acquired by Koch Industries, Senko Advanced Components and TE Connectivity. We believe that we primarily compete with diversified suppliers for the majority of our product line and to a lesser extent with niche companies that offer a more limited product line. Competitors in any portion of our business may also rapidly become competitors in other portions of our business.

Many of our current and potential competitors have significantly greater financial, technical, marketing, purchasing, manufacturing and other resources than we do. As a result, these competitors may be able to respond more quickly to new or emerging technologies and to changes in customer requirements, to devote greater resources to the development, promotion and sale of products, to negotiate lower prices on raw materials and components, or to deliver competitive products at lower prices.

Several of our existing and potential customers are also current and potential competitors of ours. These companies may develop or acquire additional competitive products or technologies in the future and subsequently reduce or cease their purchases from us. In light of the consolidation in the optical networking industry, we also believe that the size of suppliers will be an increasingly important part of a purchaser’s decision-making criteria in the future. We may not be able to compete successfully with existing or new competitors, and we cannot ensure that the competitive pressures we face will not result in lower prices for our products, loss of market share, or reduced gross margins, any of which could harm our business.

New and competing technologies are emerging due to increased competition and customer demand. The introduction of products incorporating new or competing technologies or the emergence of new industry standards could make our existing products noncompetitive. For example, there are technologies for the design of wavelength division multiplexers that compete with the technology that we incorporate in our products. If our products do not incorporate technologies demanded by customers, we could lose market share causing our business to suffer.

If we fail to effectively manage our operations, specifically given the past history of sudden and dramatic downturn in demand for our products, our operating results could be harmed.

As of March 31, 2015, we had 36 full-time employees in Sunnyvale, California, 342 full-time employees in Taiwan, and 1,117 full-time employees in China. Matching the scale of our operations with demand fluctuations, combined with the challenges of expanding and managing geographically dispersed operations, has placed, and will continue to place, a significant strain on our management and resources. To manage the expected fluctuations in our operations and personnel, we will be required to:

● improve existing and implement new operational, financial and management controls, reporting systems and procedures;
 

● hire, train, motivate and manage additional qualified personnel, especially if we experience a significant increase in demand for our products;
 

● effectively expand or reduce our manufacturing capacity, attempting to adjust it to customer demand; and
 

● effectively manage relationships with our customers, suppliers, representatives and other third parties.

In addition, we will need to continue to coordinate our domestic and international operations and establish and maintain the necessary infrastructure to implement our international strategy. If we are not able to manage our operations in an efficient and timely manner, our business will be severely harmed.

Our success also depends, to a large degree, on the efficient and uninterrupted operation of our facilities. We have expanded our manufacturing facilities in China and manufacture many of our products there. Our facility in Taiwan also houses a substantial portion of our manufacturing operations. There is significant political tension between Taiwan and China. If there is an outbreak of hostilities between Taiwan and China, our manufacturing operations may be disrupted or we may have to relocate our manufacturing operations. Relocating a portion of our employees could cause temporary disruptions in our operations and divert management’s attention.

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Because of the time it takes to develop fiber optic components, we incur substantial expenses for which we may not earn associated revenues.

The development of new or enhanced fiber optic products is a complex and uncertain process. We may experience design, manufacturing, marketing and other difficulties that could delay or prevent the development, introduction or marketing of new products and enhancements. Development costs and expenses are incurred before we generate revenues from sales of products resulting from these efforts. Our research and development expenses were $1.1 million for each of the quarters ended March 31, 2015 and 2014, respectively. We intend to continue to invest in our research and product development efforts, which could have a negative impact on our earnings in future periods.

If we are unable to develop new products and product enhancements that achieve market acceptance, sales of our fiber optic components could decline, which could reduce our revenues.

The communications industry is characterized by rapidly changing technology, frequent new product introductions, changes in customer requirements, evolving industry standards and, more recently, significant variations in customer demand. Our future success depends on our ability to anticipate market needs and develop products that address those needs. As a result, our products could quickly become obsolete if we fail to predict market needs accurately or develop new products or product enhancements in a timely manner. Our failure to predict market needs accurately or to develop new products or product enhancements in a timely manner will harm market acceptance and sales of our products. If the development or enhancement of these products or any other future products takes longer than we anticipate, or if we are unable to introduce these products to market, our sales will not increase. Even if we are able to develop and commercially introduce them, these new products may not achieve the widespread market acceptance necessary to provide an adequate return on our investment.

Current and future demand for our products depends on the continued growth of the Internet and the communications industry, which is experiencing consolidation, realignment, and fluctuating demand for fiber optic products.

Our future success depends on the continued growth of the Internet as a widely used medium for communications and commerce, and the growth of optical networks to meet the increased demand for capacity to transmit data, or bandwidth. If the Internet does not continue to expand as a medium for communications and commerce, the need to significantly increase bandwidth across networks and the market for fiber optic components may not continue to develop. If this growth does not continue, sales of our products may decline, which would adversely affect our revenues. Our customers have experienced an oversupply of inventory due to fluctuating demand for their products that has resulted in inconsistent demand for our products. Future demand for our products is uncertain and will depend heavily on the continued growth and upgrading of optical networks, especially in the metropolitan, last mile, and enterprise access segments of the networks.

Inconsistent spending by telecommunication companies over the past several years has resulted in fluctuating demand for our products. The rate at which communication service providers and other fiber optic network users have built new fiber optic networks or installed new systems in their existing fiber optic networks has fluctuated in the past and these fluctuations may continue in the future. These fluctuations may result in reduced demand for new or upgraded fiber optic systems that utilize our products and therefore, may result in reduced demand for our products. Declines in the development of new networks and installation of new systems have resulted in the past in a decrease in demand for our products, an increase in our inventory, and erosion in the average selling prices of our products.

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The communications industry is experiencing continued consolidation and realignment, as industry participants seek to capitalize on the rapidly changing competitive landscape developing around the Internet and new communications technologies such as fiber optic networks. As the communications industry consolidates and realigns to accommodate technological and other developments, our customers may consolidate or align with other entities in a manner that results in a decrease in demand for our products.

We have experienced fluctuations in market demand due to overcapacity in our industry and an economy that is stymied by current financial and economic conditions, international terrorism, war and political instability.

The United States economy has experienced and continues to experience significant fluctuations in consumption and demand. We have in the past and may in the future experience decreases in demand for our products due to a weak domestic and international economy as the fiber optics industry copes with the effects of oversupply of products, international terrorism, war and political and economic instability. Even if the general economy experiences a recovery, the activity of the United States telecommunications industry may lag behind the recovery of the overall United States economy.

The optical networking component industry often experiences declining average selling prices, and declines in average selling prices of products could cause our gross margins to decline.

The optical networking component industry often experiences declining average selling prices as a result of increasing competition and from pricing pressures resulting in greater unit volume purchases as communication service providers continue to deploy fiber optic networks. We expect that average selling prices will continue to decrease over time in response to new product and technology introductions by us or competitors, price pressures from significant customers, greater manufacturing efficiencies achieved through increased automation in the manufacturing process and inventory build-up due to decreased demand. Average selling price declines may contribute to a decline in our gross margins which could harm our results of operations.

We will not attract new orders for our fiber optic components unless we can deliver sufficient quantities of our products to optical communications equipment manufacturers.

Communications service providers and optical systems manufacturers typically require that suppliers commit to provide specified quantities of products over a given period of time. If we are unable to commit to deliver quantities of our products to satisfy a customer’s anticipated needs, we will lose the order and the opportunity for significant sales to that customer for a lengthy period of time. In addition, we would be unable to fill large orders if we do not have sufficient manufacturing capacity to enable us to commit to provide customers with specified quantities of products. However, if we build our manufacturing capacity and inventory in excess of demand, as we have done in the past, we may produce excess inventory that may have to be reserved or written off.

Because we experience long lead times for materials and components, we may not be able to effectively manage our inventory levels or manufacturing capacity, which could harm our operating results.

Because we experience long lead times for materials and components and are often required to purchase significant amounts of materials and components far in advance of product shipments, we may not effectively manage our inventory levels, which could harm our operating results. Alternatively, if we underestimate our raw material requirements, we may have inadequate inventory, which could result in delays in shipments and loss of customers. If we purchase raw materials and increase production in anticipation of orders that do not materialize or that shift to another quarter, we will, as we have in the past, have to carry or write off excess inventory and our gross margins will decline. Both situations could cause our results of operations to be below the expectations of investors and public market analysts, which could, in turn, cause the price of our common stock to decline. The time our customers require to incorporate our products into their own can vary significantly and generally exceeds several months, which further complicates our planning processes and reduces the predictability of our forecasts. Even if we receive these orders, the additional manufacturing capacity that we add to meet our customer’s requirements may be underutilized in a subsequent quarter.

20

If we are unable to maintain effective internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our reported financial information and the market price of our common stock may be negatively affected.

As a public company, we are required to comply with Section 404 of the Sarbanes-Oxley Act of 2002 which requires that we evaluate and determine the effectiveness of our internal control over financial reporting and provide a management report on our internal controls. We have implemented an ongoing program to perform the system and process evaluation and testing we believe to be necessary to comply with this requirement, however, we cannot assure you that we will be successful in our efforts. If we have a material weakness in our internal control over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, our management will be unable to conclude that our internal control over financial reporting is effective.

Our independent registered public accounting firm is also required to issue an attestation report on the effectiveness of our internal control over financial reporting on an annual basis. Even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm may conclude that there are material weaknesses with respect to our internal controls or the level at which our internal controls are documented, designed, implemented or reviewed. If we are unable to conclude that our internal control over financial reporting is effective or if our auditors were to express an adverse opinion on the effectiveness of our internal control over financial reporting because we had one or more material weaknesses, investors could lose confidence in the accuracy and completeness of our financial disclosures, which could cause the price of our common stock to decline. Internal control deficiencies could also result in a restatement of our financial results.

We depend on key personnel to operate our business effectively in the rapidly changing fiber optic components market, and if we are unable to hire and retain appropriate management and technical personnel, our ability to develop our business could be harmed.

Our success depends to a significant degree upon the continued contributions of the principal members of our technical sales, marketing, engineering and management personnel, many of whom perform important management functions and would be difficult to replace. We particularly depend upon the continued services of our executive officers, particularly Peter Chang, our President and Chief Executive Officer; David Hubbard, our Executive Vice President, Sales and Marketing; Anita Ho, our Acting Chief Financial Officer; and other key engineering, sales, marketing, finance, manufacturing and support personnel. In addition, we depend upon the continued services of key management personnel at our Taiwanese subsidiary and at our facility in China. None of our officers or key employees is bound by an employment agreement for any specific term, and may terminate their employment at any time. We do not have “key person” life insurance policies covering any of our employees.

Our ability to continue to attract and retain highly skilled personnel will be a critical factor in determining whether we will be successful in the future. We may have difficulty hiring skilled engineers at our manufacturing facilities in the United States, Taiwan, and China. If we are not successful in attracting, assimilating or retaining qualified personnel to fulfill our current or future needs, our business may be harmed.

If we are not able to achieve acceptable manufacturing yields and sufficient product reliability in the production of our fiber optic components, we may incur increased costs and delays in shipping products to our customers, which could impair our operating results.

Complex and precise processes are required for the manufacture of our products. Changes in our manufacturing processes or those of our suppliers, or the inadvertent use of defective materials, could significantly reduce our manufacturing yields and product reliability. Because the majority of our manufacturing costs are relatively fixed, manufacturing yields are critical to our results of operations. Lower than expected production yields could delay product shipments, impair our operating results and harm our reputation. We may not obtain acceptable yields in the future.

In some cases, existing manufacturing techniques, which involve substantial manual labor, may not allow us to cost-effectively meet our production goals so that we maintain acceptable gross margins while meeting the cost targets of our customers. We may not achieve adequate manufacturing cost efficiencies.

Because we plan to introduce new products and product enhancements, we must effectively transfer production information from our product development department to our manufacturing group and coordinate our efforts with our suppliers to rapidly achieve volume production. In our experience, our yields have been lower during the early stages of introducing new product to manufacturing. If we fail to effectively manage this process or if we experience delays, disruptions or quality control problems in our manufacturing operations, our shipments of products to our customers could be delayed.

21

Because the qualification and sales cycle associated with fiber optic components is lengthy and varied, it is difficult to predict the timing of a sale or whether a sale will be made, which may cause us to have excess manufacturing capacity or inventory and negatively impact our operating results.

In the communications industry, service providers and optical systems manufacturers often undertake extensive qualification processes prior to placing orders for large quantities of products such as ours, because these products must function as part of a larger system or network. This process may range from three to six months and sometimes longer. Once they decide to use a particular supplier’s product or component, these potential customers design the product into their system, which is known as a design-in win. Suppliers whose products or components are not designed in are unlikely to make sales to that customer until at least the adoption of a future redesigned system. Even then, many customers may be reluctant to incorporate entirely new products into their new systems, as this could involve significant additional redesign efforts. If we fail to achieve design-in wins in our potential customers’ qualification processes, we will lose the opportunity for significant sales to those customers for a lengthy period of time.

In addition, some of our customers require that our products be subjected to standards-based qualification testing, which can take up to nine months or more. While our customers are evaluating our products and before they place an order with us, we may incur substantial sales and marketing and research and development expenses, expend significant management efforts, increase manufacturing capacity and order long lead-time supplies. Even after the evaluation process, it is possible a potential customer will not purchase our products. In addition, product purchases are frequently subject to unplanned processing and other delays, particularly with respect to larger customers for which our products represent a very small percentage of their overall purchase activity. Accordingly, our revenues and operating results may vary significantly and unexpectedly from quarter to quarter.

If our customers do not qualify our manufacturing lines for volume shipments, our optical networking components may be dropped from supply programs and our revenues may decline.

Customers generally will not purchase any of our products, other than limited numbers of evaluation units, before they qualify our products, approve our manufacturing process and approve our quality assurance system. Our existing manufacturing lines, as well as each new manufacturing line, must pass through various levels of approval with our customers. For example, customers may require that we be registered under international quality standards. Our products may also have to be qualified to specific customer requirements. This customer approval process determines whether the manufacturing line achieves the customers’ quality, performance and reliability standards. Delays in product qualification may cause a product to be dropped from a long-term supply program and result in significant lost revenue opportunity over the term of that program.

Our fiber optic components are deployed in large and complex communications networks and may contain defects that are not detected until after our products have been installed, which could damage our reputation and cause us to lose customers.

Our products are designed for deployment in large and complex optical networks. Because of the nature of these products, they can only be fully tested for reliability when deployed in networks for long periods of time. Our fiber optic products may contain undetected defects when first introduced or as new versions are released, and our customers may discover defects in our products only after they have been fully deployed and operated under peak stress conditions. In addition, our products are combined with products from other vendors. As a result, should problems occur, it may be difficult to identify the source of the problem. If we are unable to fix defects or other problems, we could experience, among other things:

● loss of customers;

● damage to our reputation;

● failure to attract new customers or achieve market acceptance;

● diversion of development and engineering resources; and

● legal actions by our customers.

22

The occurrence of any one or more of the foregoing factors could negatively impact our revenues.

The market for fiber optic components is unpredictable, characterized by rapid technological changes, evolving industry standards, and significant changes in customer demand, which could result in decreased demand for our products, erosion of average selling prices, and could negatively impact our revenues.

The market for fiber optic components is characterized by rapid technological change, frequent new product introductions, changes in customer requirements and evolving industry standards. Because this market is new, it is difficult to predict its potential size or future growth rate. Widespread adoption of optical networks, especially in the metropolitan, last mile, enterprise access, and datacenter segments of the networks, is critical to our future success. Potential end-user customers who have invested substantial resources in their existing copper lines or other systems may be reluctant or slow to adopt a new approach, such as optical networks. Our success in generating revenues in this market will depend on:

● the education of potential end-user customers and network service providers about the benefits of optical networks; and

● the continued growth of the metropolitan, last mile, and enterprise access segments of the communications network.

If we fail to address changing market conditions, sales of our products may decline, which would adversely impact our revenues.

Disclosure requirements relating to “conflict minerals” could increase our costs and limit the supply of certain metals that may be used in our products and affect our reputation with customers and stockholders.

As required under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), the Securities and Exchange Commission promulgated final rules regarding annual disclosures by public companies of their use of certain minerals and metals, known as “conflict minerals,” which are mined from the Democratic Republic of the Congo (DRC), and adjoining countries, and their efforts to prevent the sourcing of such conflict minerals from these countries. These rules require us to engage in due diligence efforts to ascertain and disclose the origin of some of the raw materials used in the production process. Annual disclosures are required no later than May 31 of each year. We have and will continue to incur costs associated with complying with these disclosure requirements, including due diligence to determine the sources of conflict minerals, if any, used in our products and other potential changes to our products, processes, or sources of supply as a consequence of such due diligence activities. The rules and our compliance procedures could adversely affect the supply and pricing of materials used in our products. Not all suppliers offer “conflict free” conflict minerals, so we cannot be certain that we will be able to obtain sufficient quantities of conflict free minerals from such suppliers or at competitive prices. Also, our reputation with our customers and stockholders could be damaged if we determine that certain of our products contain minerals not determined to be conflict free or if we are unable to sufficiently verify the origins of conflict minerals used in our products through the procedures we may implement. If we cannot determine that our products exclude conflict minerals sourced from the DRC or adjoining countries, some of our customers may discontinue, or materially reduce, purchases of our products, which could negatively affect our results of operations. In addition, our customers may require us to report to them on our conflict minerals compliance, and if we do not perform this function to a customer’s satisfaction, they may cease to do business with us.

We may be unable to successfully integrate acquired businesses or assets with our business, which may disrupt our business, divert management’s attention and slow our ability to expand the range of our proprietary technologies and products.

To expand the range of our proprietary technologies and products, we may acquire complementary businesses, technologies or products, if appropriate opportunities arise. We may be unable to identify other suitable acquisitions at reasonable prices or on reasonable terms, or consummate future acquisitions or other investments, any of which could slow our growth strategy. We may have difficulty integrating the acquired products, personnel or technologies of any company or acquisition that we may make. Similarly, we may not be able to attract or retain key management, technical or sales personnel of any other companies that we acquire or from which we acquire assets. These difficulties could disrupt our ongoing business, distract our management and employees and increase our expenses.

23

If we fail to protect our intellectual property rights, competitors may be able to use our technologies, which could weaken our competitive position, reduce our revenues or increase our costs.

The fiber optic component market is a highly competitive industry in which we, and most other participants, rely on a combination of patent, copyright, trademark and trade secret laws, confidentiality procedures and licensing arrangements to establish and protect proprietary rights. The competitive nature of our industry, rapidly changing technology, frequent new product introductions, changes in customer requirements and evolving industry standards heighten the importance of protecting proprietary technology rights. Since the United States Patent and Trademark Office keeps patent applications confidential until a patent is issued, our pending patent applications may attempt to protect proprietary technology claimed in a third party patent application. Our existing and future patents may not be sufficiently broad to protect our proprietary technologies; policing the unauthorized use of our products is difficult and we cannot be certain that the steps we have taken will prevent the misappropriation or unauthorized use of our technologies, particularly in foreign countries where the laws may not protect our proprietary rights as fully as United States laws. Our competitors and suppliers may independently develop similar technology, duplicate our products, or design around any of our patents or other intellectual property. If we are unable to adequately protect our proprietary technology rights, others may be able to use our proprietary technology without having to compensate us, which could reduce our revenues and negatively impact our ability to compete effectively.

Litigation may be necessary to enforce our intellectual property rights or to determine the validity or scope of the proprietary rights of others. As a result of any such litigation, we could lose our proprietary rights and incur substantial unexpected operating costs. Any action we take to protect our intellectual property rights could be costly and could absorb significant management time and attention. In addition, failure to adequately protect our trademark rights could impair our brand identity and our ability to compete effectively.

We may be subject to intellectual property infringement claims that are costly to defend and could limit our ability to use some technologies in the future.

Our industry is very competitive and is characterized by frequent intellectual property litigation based on allegations of infringement of intellectual property rights. Numerous patents in our industry have already been issued, and as the market further develops and participants in our industry obtain additional intellectual property protection, litigation is likely to become more frequent. From time to time, third parties may assert patent, copyright, trademark and other intellectual property rights to technologies or rights that are important to our business. In addition, we have and we may continue to enter into agreements to indemnify our customers for any expenses or liabilities resulting from claimed infringements of patents, trademarks or copyrights of third parties. Any litigation arising from claims asserting that our products infringe or may infringe the proprietary rights of third parties, whether the litigation is with or without merit, could be time-consuming, resulting in significant expenses and diverting the efforts of our technical and management personnel. We do not have insurance against our alleged or actual infringement of intellectual property of others. These claims could cause us to stop selling our products, which incorporate the challenged intellectual property, and could also result in product shipment delays or require us to redesign or modify our products or to enter into licensing agreements. These licensing agreements, if required, would increase our product costs and may not be available on terms acceptable to us, if at all.

Although we are not aware of any intellectual property lawsuits filed against us, we may be a party to litigation regarding intellectual property in the future. We may not prevail in any such actions, given their complex technical issues and inherent uncertainties. Insurance may not cover potential claims of this type or may not be adequate to indemnify us for all liability that may be imposed. If there is a successful claim of infringement or we fail to develop non-infringing technology or license the proprietary rights on a timely basis, our business could be harmed.

We have significant manufacturing operations in China, which exposes us to risks inherent in doing business in China.

A significant portion of our manufacturing is conducted at our facilities in Shenzhen, China, and we also conduct research and development-related activities in Shenzhen. Employee turnover in China is high due to the intensely competitive and fluid market for skilled labor. We will need to continue to hire appropriate personnel, obtain and retain required legal authorization to hire such personnel, and expend time and financial resources to hire and train such personnel. In addition, we believe that salary inflation rates for the skilled personnel we hire and seek to retain in China are likely to be higher than inflation rates elsewhere.

24

Operating in China subjects us to political, legal and economic risks. In particular, the political, legal and economic climate in China, both nationally and regionally, is fluid and unpredictable. Our ability to operate in China may be adversely affected by changes in Chinese laws and regulations such as those related to, among other things, taxation, import and export tariffs, environmental regulations, land use rights, intellectual property, currency controls, employee benefits and other matters. In addition, we may not obtain or retain the requisite legal permits to continue to operate in China, and costs or operational limitations may be imposed in connection with obtaining and complying with such permits.

We intend to continue to export the products manufactured at our facilities in China. Under current regulations, upon application and approval by the relevant governmental authorities, we will not be subject to certain Chinese taxes and will be exempt from certain duties on imported materials that are used in the manufacturing process and subsequently exported from China as finished products. However, Chinese trade regulations are in a state of flux, and we may become subject to other forms of taxation and duties in China or may be required to pay export fees in the future. In the event that we become subject to new taxation or export fees in China, our business and results of operations could be materially adversely affected.

We are subject to anti-corruption laws in the jurisdictions in which we operate, including the U.S. Foreign Corrupt Practices Act. Our failure to comply with these laws could result in penalties which could harm our reputation and have a material adverse effect on our business, results of operations and financial condition.

Because of our worldwide operations, we are subject to risks associated with compliance with applicable anti-corruption laws, including the U.S. Foreign Corrupt Practices Act, or FCPA, which generally prohibits U.S. companies and their employees and intermediaries from making payments to foreign officials for the purpose of obtaining or keeping business, securing an advantage, or directing business to another, and requires public companies to maintain accurate books and records and a system of internal accounting controls. Under the FCPA, U.S. companies may be held liable for actions taken by directors, officers, employees, agents, or other strategic or local partners or representatives. If we or our intermediaries fail to comply with the requirements of the FCPA or similar laws, governmental authorities in the United States and elsewhere could seek to impose civil and criminal fines and penalties which could have a material adverse effect on our business, results of operations and financial condition.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Stock Repurchase Program

On October 29, 2014, we announced a program to repurchase up to $15.0 million worth of our outstanding common stock. Repurchases under the program may be made in open market and privately negotiated transactions in compliance with Securities and Exchange Commission Rule 10b-18, subject to market conditions, applicable legal requirements and other factors. We are not required to repurchase any amount of common stock in any period and the program may be modified or suspended at any time. As of March 31, 2015, approximately $1.3 million was remaining to purchase shares of our common stock under the repurchase program. The duration of the repurchase program is open-ended.

25

The following table sets forth information with respect to purchases of our common stock pursuant to the repurchase program during the periods indicated:

					Maximum
					Number of
				Total Number	Shares that
				of Shares	May Yet Be
				Purchased as	Purchased
	Total Number	Average		Part of Publicly	Under the
	of Shares	Price Paid		Announced	Plans or
Period	Purchased	Per Share		Programs	Programs *
January 1 - January 31, 2015	5,987	$	14.4999	5,987	$	5,221,049
February 1 - February 28, 2015	194,909	$	16.2231	194,909	$	3,029,553
March 1 - March 31, 2015	42,841	$	17.1989	42,841	$	1,317,443
Total	243,737	$	15.9740	243,737	$	1,317,443
* Represents dollar amount

ITEM 6: EXHIBITS

Exhibits

Exhibit
Number	Title
31.1	Rule 13a-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a) Certification of Acting Chief Financial Officer
32.1*	Statement of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350).
32.2*	Statement of Acting Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350).
101.INS	XBRL Taxonomy Instance Document
101.SCH	XBRL Taxonomy Schema Document
101.PRE	XBRL Taxonomy Presentation Linkbase Document
101.LAB	XBRL Taxonomy Label Linkbase Document
101.CAL	XBRL Taxonomy Calculation Linkbase Document
101.DEF	XBRL Taxonomy Definition Linkbase document

____________________

* In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”). Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 (the “Securities Act”) or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

26

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: May 11, 2015	ALLIANCE FIBER OPTIC PRODUCTS, INC.
	By	/s/ Anita K. Ho
	Anita K. Ho
	Acting Chief Financial Officer
	(Principal Financial and Accounting Officer and Duly
	Authorized Signatory)

27

Alliance Fiber Optic Products, Inc.

Exhibit Index

Exhibit
Number	Title
31.1	Rule 13a-14(a) Certification of Chief Executive Officer.
31.2	Rule 13a-14(a) Certification of Acting Chief Financial Officer.
32.1*	Statement of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350).
32.2*	Statement of Acting Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350).
101.INS	XBRL Taxonomy Instance Document
101.SCH	XBRL Taxonomy Schema Document
101.PRE	XBRL Taxonomy Presentation Linkbase Document
101.LAB	XBRL Taxonomy Label Linkbase Document
101.CAL	XBRL Taxonomy Calculation Linkbase Document
101.DEF	XBRL Taxonomy Definition Linkbase document

____________________

* In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”). Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 (the “Securities Act”) or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

28

EX-31.1

Exhibit 31.1

Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for the Period Ended March 31, 2015

CERTIFICATION

I, Peter C. Chang, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Alliance Fiber Optic Products, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 11, 2015
By	/s/Peter C. Chang
Peter C. Chang
Chief Executive Officer
(Principal Executive Officer)

29

EX-31.2

Exhibit 31.2

Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for the Period Ended March 31, 2015

CERTIFICATION

I, Anita K. Ho, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Alliance Fiber Optic Products, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 11, 2015
By	/s/Anita K. Ho
Anita K. Ho
Acting Chief Financial Officer
(Principal Accounting Officer)

30

EX-32.1

Exhibit 32.1

STATEMENT OF CHIEF EXECUTIVE OFFICER UNDER 18 U.S.C. § 1350

I, Peter C. Chang, the chief executive officer of Alliance Fiber Optic Products, Inc. (the “Company”), certify for the purposes of section 1350 of chapter 63 of title 18 of the United States Code that, to the best of my knowledge,

(i) the Quarterly Report of the Company on Form 10-Q for the period ended March 31, 2015 (the “Report”), fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934, and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Peter C. Chang

Peter C. Chang

May 11, 2015

31

EX-32.2

Exhibit 32.2

STATEMENT OF ACTING CHIEF FINANCIAL OFFICER UNDER 18 U.S.C. § 1350

I, Anita K. Ho, the acting chief financial officer of Alliance Fiber Optic Products, Inc. (the “Company”), certify for the purposes of section 1350 of chapter 63 of title 18 of the United States Code that, to the best of my knowledge,

(i) the Quarterly Report of the Company on Form 10-Q for the period ended March 31, 2015 (the “Report”), fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934, and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/Anita K. Ho

Anita K. Ho

May 11, 2015

32

XML

Commitments and Contingencies (Details) (USD $)	Mar. 31, 2015	Dec. 31, 2014
Indemnification and Product Warranty:
Accrued warranty reserves	$ 90,000	$ 80,000
Operating Leases:
2015 (remaining nine months of the year)	722,000
2016	698,000
2017	450,000
2018	445,000
2019 and after	390,000
Total	$ 2,705,000

XML

Summary of Significant Accounting Policies (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Dec. 31, 2014
Concentration Risk [Line Items]
Accounts receivable, net	14,160		$ 10,806
Customer A [Member]
Concentration Risk [Line Items]
Accounts receivable, net	5,600
Sales [Member] | Product Concentration Risk [Member] | Connectivity Products [Member]
Concentration Risk [Line Items]
Concentration Risk, Percentage	79.70%	78.70%
Sales [Member] | Product Concentration Risk [Member] | Optical Passive Products [Member]
Concentration Risk [Line Items]
Concentration Risk, Percentage	20.30%	21.30%
Sales [Member] | Customer Concentration Risk [Member]
Concentration Risk [Line Items]
Concentration Risk, Percentage	77.90%	72.60%
Sales [Member] | Customer Concentration Risk [Member] | Customer A [Member]
Concentration Risk [Line Items]
Concentration Risk, Percentage	45.10%	40.60%

XML

Stock-based Compensation

3 Months Ended

Mar. 31, 2015

Stock-based Compensation [Abstract]

Stock-based Compensation

4. Stock-based Compensation 

The Accounting Standards Codification (“ASC”) 718 requires companies to record compensation expense for stock options measured at fair value, on the date of grant, using an option-pricing model. The fair value of stock options granted and stock purchased pursuant to the Employee Stock Purchase Plan (“ESPP”) was determined using the Black-Scholes Model.

Pursuant to the Company's 2000 Stock Incentive Plan, participants may be granted restricted stock units (“RSUs”), representing an unfunded, unsecured right to receive shares of the Company's common stock on the date specified in the recipient's award. The RSUs granted under the plan generally vest over two years at a rate of 50 percent per year, over three years at a rate of 33.3 percent per year, or over five years at a rate of 20 percent per year. The Company recognizes compensation expense on a straight-line basis over the vesting term of each award.

Options granted under the 2000 Stock Incentive Plan generally vest over four years. Options have a ten year contractual term.

The following information relates to stock option activity for the three months ended March 31, 2015:

					Weighted
			Weighted		Average
			Average		Remaining	Aggregate
			Exercise		Contractual	Intrinsic
Options	Shares		Price		Life	Value
Outstanding at December 31, 2014	693,100		$	9.08
Granted	10,000			14.48
Exercised	(21,100	)		4.40
Forfeited	(2,000	)		3.91
Outstanding at March 31, 2015	680,000		$	9.32	8.17 Years	$	5,506,558
Vested and expected to vest at March 31, 2015	663,219		$	9.30	8.16 Years	$	5,387,025
Exercisable at March 31, 2015	128,765		$	4.62	5.85 Years	$	1,647,886

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company's closing stock price on the last trading day of the first quarter of fiscal 2015 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on March 31, 2015. This amount changes based on the fair market value of the Company's stock. The total intrinsic value of options exercised during the three months ended March 31, 2015 and 2014 was $0.3 million and $0.2 million, respectively.

Cash received from option exercises during the three months ended March 31 was $0.1 million for each of 2015 and 2014. Such amounts are included within the financing activities section in the accompanying condensed consolidated statements of cash flows.

Options to purchase 10,000 shares of common stock were granted during the three months ended March 31, 2015. At March 31, 2015, there was $2.8 million of unrecognized compensation cost related to stock options and RSUs, all of which is expected to be realized over three years.

The following table summarizes employee stock-based compensation expense resulting from stock options, RSUs and the ESPP (in thousands):

	Three Months Ended March 31,
	2015		2014
Included in cost of revenue	$	121	$	176
Included in operating expenses:
Research and development		46		83
Selling, marketing and administrative		329		458
Total		375		541
Total stock-based compensation expense	$	496	$	717

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Stock-based Compensation (Schedule of Employee Stock-Based Compensation Expense) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	$ 496	$ 717
Cost of Revenue [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	121	176
Research and Development [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	46	83
Sales, Marketing and Administrative [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	329	458
Operating Expense [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	$ 375	$ 541

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Stock-based Compensation (Narrative) (Details) (USD $)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Proceeds from the exercise of stock options	$ 93,000	$ 80,000
Compensation costs	496,000	717,000
Restricted Stock Units (RSUs) [Member] | Share-based Compensation Award, Tranche One [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	2 years
Vesting rate	50.00%
Restricted Stock Units (RSUs) [Member] | Share-based Compensation Award, Tranche Two [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	3 years
Vesting rate	33.30%
Restricted Stock Units (RSUs) [Member] | Share-based Compensation Award, Tranche Three [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	5 years
Vesting rate	20.00%
Employee Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	4 years
Plan duration	10 years
Intrinsic value of options exercised	300,000	200,000
Unrecognized compensation cost	$ 2,800,000
Unrecognized compensation cost, recognition period	3 years

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Inventories, net (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Inventories, net [Abstract]
Finished goods	$ 2,047	$ 2,545
Work-in-process	4,126	2,970
Raw materials	4,093	3,790
Inventory, Net	$ 10,266	$ 9,305

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Net Income Per Share (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Numerator:
Net income	$ 3,558	$ 5,015
Weighted average of common shares outstanding
Basic	17,872	18,422
Diluted	18,296	19,070
Net income per share:
Basic	$ 0.20	$ 0.27
Diluted	$ 0.19	$ 0.26

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Stockholders' Equity

3 Months Ended

Mar. 31, 2015

Stockholders' Equity [Abstract]

Stockholders' Equity

2. Stockholders' Equity

Stock Repurchase Program. On October 29, 2014, the Company announced a program to repurchase up to $15.0 million worth of the Company's outstanding common stock. Repurchases under the program may be made in open market and privately negotiated transactions in compliance with Securities and Exchange Commission Rule 10b-18, subject to market conditions, applicable legal requirements and other factors. The Company is not required to repurchase any amount of common stock in any period and the program may be modified or suspended at any time. The duration of the repurchase program is open-ended. For the three months ended March, 31, 2015, an aggregate of 243,737 shares of common stock had been repurchased under the program. For the year ended December 31, 2014, an aggregate of 740,190 shares of common stock had been repurchased under the program. For the years ended December 31, 2013 and 2012, an aggregate of 158,798 and 976,332 shares of common stock, respectively, had been repurchased under the November 2011 program.

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Income Taxes (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Income Taxes [Abstract]
Effective tax rate	36.60%	24.20%
Net operating losses utilized against current taxable income	$ 0.7

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Condensed Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Current assets:
Cash and cash equivalents	$ 20,381	$ 22,723
Short-term investments	32,163	31,857
Accounts receivable, net	14,160	10,806
Inventories, net	10,266	9,305
Deferred tax asset	2,949	3,690
Prepaid expense and other current assets	2,465	2,077
Total current assets	82,384	80,458
Long-term investments	10,681	10,635
Property and equipment, net	14,319	13,868
Other assets	220	212
Total assets	107,604	105,173
Current liabilities:
Accounts payable	10,340	9,236
Accrued expenses	9,085	8,699
Total current liabilities	19,425	17,935
Other long-term liabilities	900	978
Total liabilities	20,325	18,913
Commitments and contingencies (Note 9)
Stockholders' equity:
Preferred stock, par value $0.001: 5,000,000 shares authorized: no shares issued and outstanding at March 31, 2015 and December 31, 2014.
Common stock, $0.001 par value: 100,000,000 shares authorized; 17,719,958 and 17,942,595 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively.	18	18
Additional paid-in-capital	108,651	111,622
Accumulated deficit	(23,259)	(26,817)
Accumulated other comprehensive income	1,869	1,437
Stockholders' equity	87,279	86,260
Total liabilities and stockholders' equity	$ 107,604	$ 105,173

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Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2015

Summary of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

1. Summary of Significant Accounting Policies 

The Company 

Alliance Fiber Optic Products, Inc. (the “Company”) was incorporated in California on December 12, 1995 and reincorporated in Delaware on October 19, 2000. The Company designs, manufactures and markets fiber optic components for communications equipment manufacturers. The Company's headquarters are located in Sunnyvale, California, and it has operations in Taiwan and China.

Basis of Presentation 

The accompanying condensed consolidated balance sheet as of December 31, 2014, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements as of and for the three months ended March 31, 2015 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and include the accounts of Alliance Fiber Optic Products, Inc. and its wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations.

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2014. The unaudited condensed consolidated financial statements as of March 31, 2015, and for the three months ended March 31, 2015 and 2014, reflect, in the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to state fairly the financial information set forth herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for any subsequent interim period or for an entire year.

There have been no significant changes in the Company's critical accounting policies during the three months ended March 31, 2015 as compared to those disclosed in the Company's Form 10-K for the fiscal year ended December 31, 2014.

Revenue Recognition 

The Company recognizes revenue upon shipment of its products to customers, provided that it has received a purchase order, the price is fixed, collection of the resulting receivable is reasonably assured and transfer of title and risk of loss has occurred. Subsequent to the sale of products, the Company has no obligation to provide any modification or customization upgrades, enhancements or post contract customer support.

Allowance for Doubtful Accounts and Returns

Allowances are provided for estimated returns and potential uncollectable trade receivables. Provisions for return allowances are recorded at the time revenue is recognized based on historical returns, current economic trends and changes in customer demand. Such allowances are adjusted periodically to reflect actual and anticipated experience. The Company also identifies specific accounts considered to have a high risk of uncollectibility and records an allowance for the full amount. Material differences may result in the amount and timing of revenue for any period than if management had made different judgments or utilized different estimates.

Cash and Cash Equivalents 

The Company considers all highly liquid instruments with a maturity of three months or less when purchased to be cash equivalents. Cash equivalents consist primarily of money market accounts, corporate bonds and certificates of deposit.

Short-Term and Long-Term Investments 

The Company generally invests its excess cash in certificates of deposit and corporate bonds. Such investments are made in accordance with the Company's investment policy, which establishes guidelines relative to diversification and maturities designed to maintain safety and liquidity. These guidelines are periodically reviewed and modified to take advantage of trends in yields and interest rates.

Concentrations of Risk 

Connectivity products contributed 79.7% and 78.7% of the Company's revenues for the three months ended March 31, 2015 and 2014, respectively. The Company's optical passive products contributed 20.3% and 21.3% of the Company's revenues for the three months ended March 31, 2015 and 2014, respectively.

In the three month ended March 31, 2015 and 2014, the Company's 10 largest customers comprised 77.9% and 72.6% of the Company's revenues, respectively. One Web 2.0 customer accounted for 45.1% and 40.6% of the Company's total revenues for the three months ended March 31, 2015 and 2014, respectively. The amount due from this customer was $5.6 million at March 31, 2015.

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Fair Value of Financial instruments (Details) (Fair Value, Measurements, Recurring [Member], USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	$ 4,040	$ 4,070
Total	46,884	46,562
Short-Term Time Deposits [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments	22,030	21,782
Corporate Bond Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments	10,133	10,075
Long-Term Time Deposits [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments	10,681	10,635
Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	4,040	4,070
Total	36,751	36,487
Fair Value, Inputs, Level 1 [Member] | Short-Term Time Deposits [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments	22,030	21,782
Fair Value, Inputs, Level 1 [Member] | Corporate Bond Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments
Fair Value, Inputs, Level 1 [Member] | Long-Term Time Deposits [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments	10,681	10,635
Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents
Total	10,133	10,075
Fair Value, Inputs, Level 2 [Member] | Short-Term Time Deposits [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments
Fair Value, Inputs, Level 2 [Member] | Corporate Bond Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments	10,133	10,075
Fair Value, Inputs, Level 2 [Member] | Long-Term Time Deposits [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments
Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents
Total
Fair Value, Inputs, Level 3 [Member] | Short-Term Time Deposits [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments
Fair Value, Inputs, Level 3 [Member] | Corporate Bond Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments
Fair Value, Inputs, Level 3 [Member] | Long-Term Time Deposits [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments

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Commitments and Contingencies (Tables)

3 Months Ended

Mar. 31, 2015

Commitments and Contingencies [Abstract]

Schedule of Aggregate Future Minimum Facility Lease Payments

Years ending December 31:
2015 (remaining nine months of the year)	$	722
2016		698
2017		450
2018		445
2019 and after		390
Total	$	2,705

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Geographic Segment Information (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Dec. 31, 2014
Revenues
Revenues	$ 21,663	$ 24,882
Property and Equipment
Property and Equipment, net	14,319		13,868
North America [Member]
Revenues
Revenues	15,535	15,881
Europe [Member]
Revenues
Revenues	2,861	5,279
Asia [Member]
Revenues
Revenues	3,267	3,722
United States [Member]
Property and Equipment
Property and Equipment, net	219		185
Taiwan [Member]
Property and Equipment
Property and Equipment, net	8,588		8,568
China [Member]
Property and Equipment
Property and Equipment, net	5,512		5,115
Connectivity Products [Member]
Revenues
Revenues	17,263	19,581
Optical Passive Products [Member]
Revenues
Revenues	$ 4,400	$ 5,301

XML

Geographic Segment Information (Tables)

3 Months Ended

Mar. 31, 2015

Geographic Segment Information [Abstract]

Schedule of Segment Reporting Information

	Three Months Ended March 31,
	2015		2014
Revenues
North America	$	15,535	$	15,881
Europe		2,861		5,279
Asia		3,267		3,722
	$	21,663	$	24,882
	Three Months Ended March 31,
		2015		2014
Revenues
Connectivity Products	$	17,263	$	19,581
Optical Passive Products		4,400		5,301
	$	21,663	$	24,882
	March 31,		December 31,
	2015		2014
Property and Equipment
United States	$	219	$	185
Taiwan		8,588		8,568
China		5,512		5,115
	$	14,319	$	13,868

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Recent Accounting Pronouncements

3 Months Ended

Mar. 31, 2015

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

2. Recent Accounting Pronouncements

In January 2015, the Financial Accounting Standards Board (“FASB”) issued guidance which eliminates the concept of extraordinary items in an entity's income statement. The changes in ASU 2015-01 are effective for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The adoption of this guidance is not expected to have a material impact on the Company's consolidated financial statements.

In May 2014, FASB issued a new financial accounting standard which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance. The accounting standard is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2016. Early adoption is not permitted. The Company is currently evaluating the impact of this accounting standard on its consolidated financial statements.

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Condensed Consolidated Balance Sheets (Parenthetical) (USD $)	Mar. 31, 2015	Dec. 31, 2014
Condensed Consolidated Balance Sheets [Abstract]
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	100,000,000	100,000,000
Common stock, shares issued	17,719,958	17,942,595
Common stock, shares outstanding	17,719,958	17,942,595

XML

Geographic Segment Information

3 Months Ended

Mar. 31, 2015

Geographic Segment Information [Abstract]

Geographic Segment Information

12. Geographic Segment Information

The Company operates in a single industry segment. This industry segment is characterized by rapid technological change and significant competition.

The following is a summary of the Company's revenues generated by geographic segments, revenues generated by product lines and identifiable assets located in these segments (in thousands):

	Three Months Ended March 31,
	2015		2014
Revenues
North America	$	15,535	$	15,881
Europe		2,861		5,279
Asia		3,267		3,722
	$	21,663	$	24,882
	Three Months Ended March 31,
		2015		2014
Revenues
Connectivity Products	$	17,263	$	19,581
Optical Passive Products		4,400		5,301
	$	21,663	$	24,882
	March 31,		December 31,
	2015		2014
Property and Equipment
United States	$	219	$	185
Taiwan		8,588		8,568
China		5,512		5,115
	$	14,319	$	13,868

XML

Document and Entity Information	3 Months Ended
	Mar. 31, 2015	Apr. 30, 2015
Document and Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2015
Entity Registrant Name	ALLIANCE FIBER OPTIC PRODUCTS INC
Entity Central Index Key	0001122342
Current Fiscal Year End Date	--12-31
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2015
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		17,727,713
Trading Symbol	AFOP

XML

Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2015

Summary of Significant Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation 

The accompanying condensed consolidated balance sheet as of December 31, 2014, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements as of and for the three months ended March 31, 2015 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and include the accounts of Alliance Fiber Optic Products, Inc. and its wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations.

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2014. The unaudited condensed consolidated financial statements as of March 31, 2015, and for the three months ended March 31, 2015 and 2014, reflect, in the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to state fairly the financial information set forth herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for any subsequent interim period or for an entire year.

There have been no significant changes in the Company's critical accounting policies during the three months ended March 31, 2015 as compared to those disclosed in the Company's Form 10-K for the fiscal year ended December 31, 2014.

Revenue Recognition

Revenue Recognition 

The Company recognizes revenue upon shipment of its products to customers, provided that it has received a purchase order, the price is fixed, collection of the resulting receivable is reasonably assured and transfer of title and risk of loss has occurred. Subsequent to the sale of products, the Company has no obligation to provide any modification or customization upgrades, enhancements or post contract customer support.

Allowance for Doubtful Accounts and Returns

Allowance for Doubtful Accounts and Returns

Allowances are provided for estimated returns and potential uncollectable trade receivables. Provisions for return allowances are recorded at the time revenue is recognized based on historical returns, current economic trends and changes in customer demand. Such allowances are adjusted periodically to reflect actual and anticipated experience. The Company also identifies specific accounts considered to have a high risk of uncollectibility and records an allowance for the full amount. Material differences may result in the amount and timing of revenue for any period than if management had made different judgments or utilized different estimates.

Cash and Cash Equivalents

Cash and Cash Equivalents 

The Company considers all highly liquid instruments with a maturity of three months or less when purchased to be cash equivalents. Cash equivalents consist primarily of money market accounts, corporate bonds and certificates of deposit.

Short-Term and Long-Term Investments

Short-Term and Long-Term Investments 

The Company generally invests its excess cash in certificates of deposit and corporate bonds. Such investments are made in accordance with the Company's investment policy, which establishes guidelines relative to diversification and maturities designed to maintain safety and liquidity. These guidelines are periodically reviewed and modified to take advantage of trends in yields and interest rates.

Concentrations of Risk

Concentrations of Risk 

Connectivity products contributed 79.7% and 78.7% of the Company's revenues for the three months ended March 31, 2015 and 2014, respectively. The Company's optical passive products contributed 20.3% and 21.3% of the Company's revenues for the three months ended March 31, 2015 and 2014, respectively.

In the three month ended March 31, 2015 and 2014, the Company's 10 largest customers comprised 77.9% and 72.6% of the Company's revenues, respectively. One Web 2.0 customer accounted for 45.1% and 40.6% of the Company's total revenues for the three months ended March 31, 2015 and 2014, respectively. The amount due from this customer was $5.6 million at March 31, 2015.

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Condensed Consolidated Statements of Income and Comprehensive Income (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Condensed Consolidated Statements of Income and Comprehensive Income [Abstract]
Revenues	$ 21,663	$ 24,882
Cost of revenues	12,871	14,968
Gross profit	8,792	9,914
Operating expenses:
Research and development	1,143	1,108
Selling, marketing and administrative	2,231	2,336
Total operating expenses	3,374	3,444
Income from operations	5,418	6,470
Interest and other income, net	196	147
Net income before tax	5,614	6,617
Provision for income taxes	(2,056)	(1,602)
Net income	3,558	5,015
Other comprehensive income:
Cumulative translation adjustments	436	(412)
Unrealized loss on investments	(4)	(6)
Comprehensive income	$ 3,990	$ 4,597
Net income per share:
Basic	$ 0.20	$ 0.27
Diluted	$ 0.19	$ 0.26
Shares used in computing net income per share:
Basic	17,872	18,422
Diluted	18,296	19,070

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Comprehensive Income

3 Months Ended

Mar. 31, 2015

Comprehensive Income [Abstract]

Comprehensive Income

7. Comprehensive Income

Comprehensive income is defined as the change in equity of a company during a period resulting from transactions and other events and circumstances, excluding transactions resulting from investments by owners and distributions to owners. The difference between net income and comprehensive income for the Company is due to foreign exchange translations adjustments and unrealized loss on available-for-sale securities.

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Net Income Per Share

3 Months Ended

Mar. 31, 2015

Net Income Per Share [Abstract]

Net Income Per Share

6. Net Income Per Share 

Basic net income per share is computed by dividing net income for the period by the weighted average number of shares of common stock outstanding during the period. Diluted net income per share is computed by dividing net income for the period by the combination of dilutive common share equivalents, comprised of shares issuable under the Company's stock-based compensation plans, and the weighted average number of shares of common stock outstanding during the period.

The following table sets forth the computation of basic and diluted net income per share for the periods indicated (in thousands, except per share data):

	Three Months Ended March 31,
	2015		2014
Numerator:
Net income	$	3,558	$	5,015
Denominator:
Shares used in computing net income per share:
Basic		17,872		18,422
Diluted		18,296		19,070
Net income per share:
Basic	$	0.20	$	0.27
Diluted	$	0.19	$	0.26

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Fair Value of Financial instruments (Tables)

3 Months Ended

Mar. 31, 2015

Fair Value of Financial instruments [Abstract]

Schedule of Financial Assets at Fair Value

	Fair Value Measurements at
	Reporting Date Using
			Quoted Prices		Significant
			in Active		Other		Significant
	Balance at		Markets for		Observable		Unobservable
	March 31,		Identical Assets		Inputs		Inputs
	2015		(Level 1)		(Level 2)		(Level 3)
Cash equivalents:
Money market mutual funds	$	4,040	$	4,040	$	-	$	-
Marketable Securities:
Time deposits		22,030		22,030		-		-
Corporate bonds		10,133		-		10,133		-
Long-term investments:
Time deposits		10,681		10,681		-		-
Total	$	46,884	$	36,751	$	10,133	$	-
	Fair Value Measurements at
	Reporting Date Using
			Quoted Prices		Significant
			in Active		Other		Significant
	Balance at		Markets for		Observable		Unobservable
	December 31,		Identical Assets		Inputs		Inputs
	2014		(Level 1)		(Level 2)		(Level 3)
Cash equivalents:
Money market mutual funds	$	4,070	$	4,070	$	-	$	-
Marketable Securities:
Time deposits		21,782		21,782		-		-
Corporate bonds		10,075		-		10,075		-
Long-term investments:
Time deposits		10,635		10,635		-		-
Total	$	46,562	$	36,487	$	10,075	$	-

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Stock-based Compensation (Tables)

3 Months Ended

Mar. 31, 2015

Stock-based Compensation [Abstract]

Schedule of Stock Options Activity

					Weighted
			Weighted		Average
			Average		Remaining	Aggregate
			Exercise		Contractual	Intrinsic
Options	Shares		Price		Life	Value
Outstanding at December 31, 2014	693,100		$	9.08
Granted	10,000			14.48
Exercised	(21,100	)		4.40
Forfeited	(2,000	)		3.91
Outstanding at March 31, 2015	680,000		$	9.32	8.17 Years	$	5,506,558
Vested and expected to vest at March 31, 2015	663,219		$	9.30	8.16 Years	$	5,387,025
Exercisable at March 31, 2015	128,765		$	4.62	5.85 Years	$	1,647,886

Schedule of Employee Stock-Based Compensation Expense

	Three Months Ended March 31,
	2015		2014
Included in cost of revenue	$	121	$	176
Included in operating expenses:
Research and development		46		83
Selling, marketing and administrative		329		458
Total		375		541
Total stock-based compensation expense	$	496	$	717

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Related Party Transactions

3 Months Ended

Mar. 31, 2015

Related Party Transactions [Abstract]

Related Party Transactions

10. Related Party Transactions

As of March 31, 2015, and based on information filed with the Securities and Exchange Commission on January 4, 2002 for the year ended December 31, 2000, Foxconn Holding Limited (“Foxconn”) and Hon Hai Precision Industry Co. Ltd. (“Hon Hai”) held 18.06% of the Company's common stock. In the normal course of business, the Company sells products to and purchases raw materials from Hon Hai, who is the parent company of Foxconn. These transactions were made at prices and terms consistent with those of unrelated third parties.

No sales to Hon Hai were made in either of the quarters ended March 31, 2015 and 2014. Purchases of raw materials from Hon Hai were $0.5 million and $0.4 million in the quarters ended March 31, 2015 or 2014. No amounts were due from Hon Hai at either of March 31, 2015 and December 31, 2014. Amounts due to Hon Hai were $0.5 million and $0.4 million at March 31, 2015 and December 31, 2014, respectively.

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Income Taxes

3 Months Ended

Mar. 31, 2015

Income Taxes [Abstract]

Income Taxes

8. Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company is subject to income tax in both the United States and various foreign jurisdictions. The effective tax rate is also affected by the taxable earnings in foreign jurisdictions with various different statutory tax rates. The Company reviews its expected annual effective income tax rates and makes changes on a quarterly basis as necessary based on certain factors such as forecasted annual operating income and valuation of deferred tax assets. The Company's effective tax rate was 36.6% and 24.2% for the three months ended March 31, 2015 and 2014, respectively. The Company's effective rate differs from its expected federal statutory rate primarily as a result of state taxes, foreign tax rate differences and permanent items.

The Company records net deferred tax assets to the extent it believes these assets will more likely than not be realized. In making such determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations.

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. The Company reduced its deferred tax assets by $0.7 million as of March 31, 2015 as a result of research credits utilized against current taxable income.

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2015

Commitments and Contingencies [Abstract]

Commitments and Contingencies

9. Commitments and Contingencies

Litigation:

From time to time, the Company may be involved in litigation in the normal course of business. As of the date of these financial statements, the Company is not aware of any material legal proceedings pending or threatened against the Company.

Indemnification and Product Warranty:

The Company indemnifies certain customers, suppliers and subcontractors for attorney fees and damages and costs awarded against these parties in certain circumstances in which products are alleged to infringe third party intellectual property rights, including patents, trade secrets, trademarks or copyrights. In all cases, there are limits on and exceptions to the potential liability for indemnification relating to intellectual property infringement claims. The Company cannot estimate the amount of potential future payments, if any, that it might be required to make as a result of these agreements. As of March 31, 2015, the Company has not paid any claim or been required to defend any action related to indemnification obligations, and accordingly, the Company has not accrued any amounts for such indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations.

The Company generally warrants products against defects in materials and workmanship and non-conformance to specifications for varying lengths of time. If there is a material increase in customer claims compared with historical experience, or if costs of servicing warranty claims are greater than expected, the Company may record a charge against cost of revenues. The Company accrued $0.09 million and $0.08 million for warranty reserves at March 31, 2015 and December 31, 2014.

Operating Leases:

The Company leases office space under long-term operating leases expiring at various dates through 2019.

The Company's aggregate future minimum facility lease payments are as follows (in thousands):

Years ending December 31:
2015 (remaining nine months of the year)	$	722
2016		698
2017		450
2018		445
2019 and after		390
Total	$	2,705

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Fair Value of Financial instruments

3 Months Ended

Mar. 31, 2015

Fair Value of Financial instruments [Abstract]

Fair Value of Financial instruments

11. Fair Value of Financial instruments

U.S. GAAP defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact a purchase or sale and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability.

The Company uses a fair value hierarchy established by U.S. GAAP that established a three-tiered fair value hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable to prioritize inputs used to measure fair value. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's market assumptions. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is available and significant to the fair value measurement. Those tiers are defined as follows:

Level 1 —	inputs are quoted prices in active markets for identical assets or liabilities.
Level 2 —	inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly.
Level 3 —	inputs are unobservable and shall be used to the extent that observable inputs are not available in the overall fair value measurement.

In accordance with the U.S. GAAP Codification Topic 820, the following table represents the fair value hierarchy for the Company's financial assets (investments) measured at fair value on a recurring basis as of March 31, 2015 and December 31, 2014:

	Fair Value Measurements at
	Reporting Date Using
			Quoted Prices		Significant
			in Active		Other		Significant
	Balance at		Markets for		Observable		Unobservable
	March 31,		Identical Assets		Inputs		Inputs
	2015		(Level 1)		(Level 2)		(Level 3)
Cash equivalents:
Money market mutual funds	$	4,040	$	4,040	$	-	$	-
Marketable Securities:
Time deposits		22,030		22,030		-		-
Corporate bonds		10,133		-		10,133		-
Long-term investments:
Time deposits		10,681		10,681		-		-
Total	$	46,884	$	36,751	$	10,133	$	-
	Fair Value Measurements at
	Reporting Date Using
			Quoted Prices		Significant
			in Active		Other		Significant
	Balance at		Markets for		Observable		Unobservable
	December 31,		Identical Assets		Inputs		Inputs
	2014		(Level 1)		(Level 2)		(Level 3)
Cash equivalents:
Money market mutual funds	$	4,070	$	4,070	$	-	$	-
Marketable Securities:
Time deposits		21,782		21,782		-		-
Corporate bonds		10,075		-		10,075		-
Long-term investments:
Time deposits		10,635		10,635		-		-
Total	$	46,562	$	36,487	$	10,075	$	-

As of March 31, 2015 and December 31, 2014, the Company held investments in corporate bonds, certificates of deposit, and money market securities. The Company's cash and cash equivalents consist of investments with original maturities of 90 days or less from the date of purchase. The Company's short-term investments consist of corporate bonds and certificates of deposit with original maturities of 91 days or more from the date of purchase. The Company's long-term investments consist of certificates of deposit with original maturities of 365 days or more from the date of purchase.

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Related Party Transactions (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Dec. 31, 2014
Related Party Transaction [Line Items]
Ownership percentage	18.06%
Hon Hai Precision Industry Co. Ltd. [Member]
Related Party Transaction [Line Items]
Purchases of raw materials from related party	$ 0.5	$ 0.4
Amounts due to related party	$ 0.5		$ 0.4

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Net Income Per Share (Tables)

3 Months Ended

Mar. 31, 2015

Net Income Per Share [Abstract]

Schedule of Computation of Basic and Diluted Net Income Per Share

	Three Months Ended March 31,
	2015		2014
Numerator:
Net income	$	3,558	$	5,015
Denominator:
Shares used in computing net income per share:
Basic		17,872		18,422
Diluted		18,296		19,070
Net income per share:
Basic	$	0.20	$	0.27
Diluted	$	0.19	$	0.26

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Stockholders' Equity (Details) (USD $) In Millions, except Share data, unless otherwise specified	3 Months Ended	12 Months Ended
	Mar. 31, 2015	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Class of Stock [Line Items]
Stock Repurchase Program, Authorized Amount (in dollars)	15.0
2014 October Program [Member]
Class of Stock [Line Items]
Shares repurchased during period	243,737	740,190
November 2011 Program [Member]
Class of Stock [Line Items]
Shares repurchased during period			158,798	976,332

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Condensed Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Cash flows from operating activities:
Net income	$ 3,558	$ 5,015
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	659	684
Amortization of stock-based compensation	496	717
Provision for inventory valuation	139	(31)
Deferred taxes	1,168	658
Changes in assets and liabilities:
Accounts receivable	(3,354)	(2,395)
Inventories	(1,100)	331
Prepaid expenses and other current assets	(388)	(70)
Other assets	(9)	20
Accounts payable	1,104	104
Accrued expenses	386	515
Other long-term liabilities	(78)	1
Net cash provided by operating activities	2,581	5,549
Cash flows from investing activities:
Purchase of short-term investments	(31,847)	(10,631)
Proceeds from sales and maturities of short-term investments	31,537	6,842
Purchase of long-term investments	(46)	(45)
Purchase of property and equipment	(1,015)	(648)
Net cash used in investing activities	(1,371)	(4,482)
Cash flows from financing activities:
Proceeds from the exercise of stock options	93	80
Repurchase of common stock	(3,986)
Net cash (used in) provided by financing activities	(3,893)	80
Effect of exchange rate changes on cash and cash equivalents	341	(259)
Net (decrease) increase in cash and cash equivalents	(2,342)	888
Cash and cash equivalents at beginning of period	22,723	18,603
Cash and cash equivalents at end of period	20,381	19,491
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$ 216	$ 203

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Inventories, net

3 Months Ended

Mar. 31, 2015

Inventories, net [Abstract]

Inventories, net

5. Inventories, net (in thousands) 

	March 31,		December 31,
	2015		2014
Inventories:
Finished goods	$	2,047	$	2,545
Work-in-process		4,126		2,970
Raw materials		4,093		3,790
	$	10,266	$	9,305

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Stock-based Compensation (Schedule of Stock Option Activity) (Details) (Employee Stock Option [Member], USD $)	3 Months Ended
	Mar. 31, 2015
Employee Stock Option [Member]
Shares
Outstanding, beginning balance	693,100
Granted	10,000
Exercised	(21,100)
Forfeited	(2,000)
Outstanding, ending balance	680,000
Vested and expected to vest, end of period	663,219
Exercisable, end of period	128,765
Weighted Average Exercise Price
Outstanding, beginning balance	$ 9.08
Granted	$ 14.48
Exercised	$ 4.40
Forfeited	$ 3.91
Outstanding, ending balance	$ 9.32
Vested and expected to vest, end of period	$ 9.30
Exercisable, end of period	$ 4.62
Weighted Average Remaining Contractual Life
Outstanding, ending balance	8 years 2 months 1 day
Vested and expected to vest, end of period	8 years 1 month 28 days
Exercisable, end of period	5 years 10 months 6 days
Aggregate Intrinsic Value
Outstanding, ending balance	$ 5,506,558
Vested and expected to vest, end of period	5,387,025
Exercisable, end of period	$ 1,647,886

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Inventories, net (Tables)

3 Months Ended

Mar. 31, 2015

Inventories, net [Abstract]

Schedule of Inventories

	March 31,		December 31,
	2015		2014
Inventories:
Finished goods	$	2,047	$	2,545
Work-in-process		4,126		2,970
Raw materials		4,093		3,790
	$	10,266	$	9,305