0001206774-12-004533.txt : 20121114 0001206774-12-004533.hdr.sgml : 20121114 20121114125506 ACCESSION NUMBER: 0001206774-12-004533 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20120930 FILED AS OF DATE: 20121114 DATE AS OF CHANGE: 20121114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLIANCE FIBER OPTIC PRODUCTS INC CENTRAL INDEX KEY: 0001122342 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 770554122 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-31857 FILM NUMBER: 121202664 BUSINESS ADDRESS: STREET 1: 275 GIBRALTAR DRIVE CITY: SUNNYVALE STATE: CA ZIP: 94089 BUSINESS PHONE: 4087366900 MAIL ADDRESS: STREET 1: 275 GIBRALTAR DRIVE CITY: SUNNYVALE STATE: CA ZIP: 94089 FORMER COMPANY: FORMER CONFORMED NAME: ALLIANCE FIBER OPTICS PRODUCTS INC DATE OF NAME CHANGE: 20000822 10-Q 1 afop_10q.htm QUARTERLY REPORT

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________________

FORM 10-Q

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

For the quarterly period ended September 30, 2012

¨ 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)
 
(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 þ 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 þ 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.

Large accelerated filer ¨ Accelerated Filer ¨ Non-accelerated filer ¨ Smaller reporting company þ
(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 þ

On October 31, 2012, 8,744,819 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 SEPTEMBER 30, 2012

INDEX

     Page
PART I: FINANCIAL INFORMATION   1
     ITEM 1: FINANCIAL STATEMENTS 1
          Condensed Consolidated Balance Sheets 1
          Condensed Consolidated Statements of 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 OF OPERATIONS 11
     ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 16
     ITEM 4: CONTROLS AND PROCEDURES 16
PART II: OTHER INFORMATION 17
     ITEM 1A: RISK FACTORS 17
     ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER  
     MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 27  
     ITEM 6: EXHIBITS 28
SIGNATURE 29



PART I: FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

ALLIANCE FIBER OPTIC PRODUCTS, INC.
Condensed Consolidated Balance Sheets

(In thousands, except share data)

September 30, December 31,
      2012       2011
(Unaudited)
Assets
Current assets:
     Cash and cash equivalents $          8,518 $         13,820
     Short-term investments 34,145 25,768
     Accounts receivable, net 8,292 6,630
     Inventories, net 7,302 6,763
     Prepaid expense and other current assets 1,770 714
          Total current assets 60,027 53,695
 
Long-term investments 10,229 10,098
Property and equipment, net 7,346 7,718
Other assets 211 162
          Total assets $ 77,813 $ 71,673
 
Liabilities and Stockholders' Equity
Current liabilities:
     Accounts payable $ 6,239 $ 3,647
     Accrued expenses 4,273 3,624
     Current portion of bank loan - 97
          Total current liabilities 10,512 7,368
 
Long-term liabilities
     Bank loan - 129
     Other long-term liabilities 596 562
          Total long term liabilities 596 691
          Total liabilities 11,108 8,059
 
Commitments and contingencies (Note 8)
 
Stockholders' equity:
     Preferred stock, par value $0.001: 5,000,000 shares authorized:
          no shares issued and outstanding at September 30, 2012 and
          December 31, 2011, respectively - -
     Common stock, $0.001 par value: 20,000,000 shares authorized;
          8,751,974 and 8,891,219 shares issued and outstanding at
          September 30, 2012 and December 31, 2011. 9 9
     Additional paid-in-capital 113,385 114,957
     Accumulated deficit (49,308 ) (53,353 )
     Accumulated other comprehensive income 2,619 2,001
     Stockholders' equity 66,705 63,614
          Total liabilities and stockholders' equity $ 77,813 $ 71,673

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

1



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

(Unaudited, in thousands, except per share data)

Three Months Ended September 30, Nine Months Ended September 30,
      2012       2011       2012       2011
Revenues $              12,390 $               11,778 $              34,452 $              31,883
Cost of revenues 7,979 7,963 22,688 21,580
       Gross profit 4,411 3,815 11,764 10,303
Operating expenses:  
       Research and development 819 834 2,465 2,356
       Sales and marketing 614 595 1,951 1,711
       General and administrative 1,079 1,052 3,281 3,095
              Total operating expenses 2,512 2,481 7,697 7,162
Income from operations 1,899 1,334 4,067 3,141
Interest and other income, net 194 149 504 452
Net income before income tax 2,093 1,483 4,571 3,593
Income tax expense (benefit) 201 29 526 (131 )
Net income $ 1,892 $ 1,454 $ 4,045 $ 3,724
 
       Cumulative translation adjustments 303 (914 ) 585 (328 )
       Unrealized gain (loss) on investments 42 2 33 (13 )
Comprehensive income $ 2,237 $ 542 $ 4,663 $ 3,383
 
Net income per share:
              Basic $ 0.22 $ 0.16 $ 0.46 $ 0.42
              Diluted $ 0.21 $ 0.16 $ 0.45 $ 0.41
Shares used in computing net income per share:
              Basic 8,790 8,883 8,819 8,853
              Diluted 8,988 9,040 9,000 9,119

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)

Nine Months Ended September 30,
      2012       2011
Cash flows from operating activities:
     Net Income $             4,045 $             3,724
     Adjustments to reconcile net income to net cash provided by
          operating activities:
          Depreciation and amortization 1,189 1,131
          Loss on disposal of property and equipment 6 6
          Amortization of stock-based compensation 786 513
          Deferred restricted stock unit compensation (647 ) -
          Provision for inventory 164 (176 )
     Changes in assets and liabilities:
               Accounts receivable (1,662 ) (620 )
               Inventories (703 ) 133
               Prepaid expenses and other assets (1,056 ) 77
               Other assets (52 ) (2 )
               Accounts payable 2,592 (611 )
               Accrued expenses 649 (1,317 )
               Other long-term liabilities 34 5
                    Net cash provided by operating activities 5,345 2,863
 
Cash flows from investing activities:
     Purchase of short-term investments (17,193 ) (12,341 )
     Proceeds from sales and maturities of short-term investments 8,850 27,636
     Purchase of long-term investments (131 ) (10,054 )
     Purchase of property and equipment (717 ) (1,304 )
                    Net cash (used in) provided by investing activities (9,191 ) 3,937
 
Cash flows from financing activities:
     Proceeds from issuance of common stock under ESPP 207 210
     Proceeds from the exercise of stock options 477 383
     Repurchase of common stock (2,395 ) -
     Repayment of bank borrowings (230 ) (68 )
                    Net cash (used in) provided by financing activities (1,941 ) 525
 
Effect of exchange rate changes on cash and cash equivalents 485 (373 )
Net (decrease) increase in cash and cash equivalents (5,302 ) 6,952
Cash and cash equivalents at beginning of period 13,820 8,040
Cash and cash equivalents at end of period $ 8,518 $ 14,992
 
Supplemental disclosure of cash flow information:
     Cash paid for interest $ (4 ) $ (6 )
     Cash paid for income tax $ (379 ) $ (83 )

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, 2011, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements as of September 30, 2012 and for the three and nine months ended September 30, 2011 and 2012 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, 2011. The unaudited condensed consolidated financial statements as of September 30, 2012, and for the three and nine months ended September 30, 2012 and 2011, 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 nine months ended September 30, 2012 as compared to what was previously disclosed in the Company’s Form 10-K for the fiscal year ended December 31, 2011.

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

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 reserves 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. 

4



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 market rate accounts, corporate bonds and certificates of deposit.

Short-Term and Long-Term Investments

The Company generally invests its excess cash in certificates of deposit, corporate bonds, and commercial paper. 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

Our connectivity products contributed 67.0% and 73.6% of our revenues for the three months ended September 30, 2012 and 2011, respectively. Our optical passive products contributed 33.0% and 26.4% of our revenues for the three months ended September 30, 2012 and 2011, respectively.

Our connectivity products contributed 71.4% and 75.6% of our revenues for the nine months ended September 30, 2012 and 2011, respectively. Our optical passive products contributed 28.6% and 24.4% of our revenues for the nine months ended September 30, 2012 and 2011, respectively.

In the three months ended September 30, 2012 and 2011, our 10 largest customers comprised 66.3% and 68.6% of our revenues, respectively. For the three months ended September 30, 2012, three customers accounted for 14.1%, 11.0% and 10.1% of our total revenues, respectively. Amounts due from these customers were $1.5 million, $1.0 million and $0.8 million, respectively, at September 30, 2012. For the three months ended September 30, 2011, two customers accounted for 13.8% and 11.7% of our total revenues, respectively. Amounts due from these customers were $1.2 million and $1.0 million, respectively, at September 30, 2011.

In the nine months ended September 30, 2012 and 2011, our 10 largest customers comprised 62.9% and 63.6% of our revenues, respectively. For the nine months ended September 30, 2012, no customer accounted for 10% or more of our revenues. For the nine months ended September 30, 2011, one customer accounted for 14.8% of our revenues.

2. Recent Accounting Pronouncements and Accounting Changes

In January 2012, the Company adopted Accounting Standards Update (“ASU”) 2011-12 Comprehensive Income (topic 220) which required additional disclosures for comprehensive income. As permitted under this standard, we have elected to present comprehensive income in two separate but consecutive financial statements, consisting of a statement of income followed by a separate statement of comprehensive income. This standard is required to be applied retrospectively beginning January 1, 2012, except for certain provisions for which adoption was delayed.

In May 2011, the Financial Accounting Standards Board (“FASB”) issued ASU 2011-04, Fair Value Measurement (“ASU 2011-04”), which amended ASC 820, Fair Value Measurements (“ASC 820”), providing a consistent definition and measurement of fair value, as well as similar disclosure requirement between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles, clarifies the application of existing fair value measurement and expands the disclosure requirements. ASU 2011-04 is effective for us beginning January 1, 2012. The adoption of ASU 2011-04 did not have a material effect on our consolidated financial statements or disclosures.

5



3. 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”) prior to June 30, 2010 was determined using the Binomial Lattice Model. The Company adopted the Black-Scholes valuation model for stock options granted and stock purchased pursuant to the ESPP after June 30, 2010. The Company believes that the Black-Scholes model is more appropriate in determining fair value of its stock-based compensation and does not differ materially from the previous valuation model used.

At September 30, 2012 the Company had one stock-based compensation plan, which is the 2000 Stock Incentive Plan as described below.

In November 2000, the Company adopted its 2000 Stock Incentive Plan under which 1,500,000 shares of common stock were reserved for issuance to eligible employees, directors and consultants upon exercise of stock options and stock purchase rights. The plan was amended and restated in 2010 to, among other things, extend the term under which awards may be granted under the plan until March 17, 2020, eliminate a 10 million share ceiling on the aggregate number of shares of common stock that may be issued under the plan, and to include certain qualifying performance criteria and annual award limits so that awards granted under the plan qualify as “performance-based compensation" under the requirements of Section 162(m) of the Internal Revenue Code of 1986, as amended.

Under the 2000 Stock Incentive Plan, participants may be granted restricted stock units (“RSUs”), representing an unfunded, unsecured right to receive a Company common share 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 or over five years at a rate of 20 percent per year. The Company recognizes compensation expense on a straight-line basis over the applicable vesting term of each award.

Options granted under the 2000 Stock Incentive Plan generally vest over four years and are exercisable for not more than ten years. However, most options granted in the past four years have been fully vested at the time of grant. Options are exercisable for not more than ten years.

The following information relates to stock option activity for the nine months ended September 30, 2012:

Weighted
Weighted Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Options       Shares       Price       Life       Value
     Outstanding at December 31, 2011 824,280 $        7.26
     Granted 125,000 8.36
     Exercised (143,900 ) 5.23
     Forfeited (42,400 ) 9.74
     Outstanding at September 30, 2012 762,980 $ 7.68 5.35 Years $     1,200,229
     Vested and expected to vest at September 30, 2012 744,377 $ 7.67 5.26 Years $ 1,185,697
     Exercisable at September 30, 2012 549,743 $ 7.47 4.01 Years $ 1,039,958

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 third quarter of fiscal 2012 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 September 30, 2012. This amount changes based on the fair market value of the Company’s stock. The total intrinsic value of options exercised was $0.08 million and $0.5 million for the three and nine months ended September 30, 2012, respectively. The total intrinsic value of options exercised was $0.09 million and $0.3 million for the three and nine months ended September 30, 2011, respectively. 

6



No options were granted during the three months ended September 30, 2012 and 2011, respectively. As of September 30, 2012, there was $2.1 million of unrecognized compensation cost related to share-based compensation arrangements granted under the Plan. The compensation cost is expected to be realized over four years.

Cash received from option exercises during the three and nine months ended September 30, 2012 was $0.1 million and $0.5 million, respectively, and is included within the financing activities section in the accompanying condensed consolidated statements of cash flows.

During the nine months ended September 30, 2012, a total of 30,837 shares were issued under the Company’s ESPP and cash received from purchases of common stock was $0.2 million. Compensation expense recorded in the quarter ended September 30, 2012 related to the ESPP was approximately $0.03 million. As of September 30, 2012, there was $0.01 million of unrecognized compensation cost related to the ESPP which is expected to be realized over the next month.

During the nine months ended September 30, 2011, the Company granted 273,000 RSUs with a total grant-date fair value of $2.5 million. The resulting compensation expense recorded in the quarter ended September 30, 2012 was approximately $0.2 million. There was $1.6 million of total unrecognized compensation cost related to RSUs granted under the Plan, of which $0.2 million is expected to be realized over one year and $1.4 million is expected to be realized over four years.

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

Three Months Ended September 30, Nine Months Ended September 30,
      2012       2011       2012       2011
Included in cost of revenue $ 28 $ 28 $ 86 $ 74
Included in operating expenses:  
       Research and development 32 29 92 48
       Sales and marketing 65 63 188 117
       General and administrative 143 139 420 274
              Total 240 231 700 439
Total stock-based compensation expense $ 268 $ 259 $ 786 $ 513

4. Inventories, net (in thousands)

September 30, December 31,
      2012       2011
Inventories:
     Finished goods $ 1,890 $ 2,263
     Work-in-process 2,838 2,475
     Raw materials 2,574 2,025
$ 7,302 $ 6,763

5. 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. There were no incremental dilutive common share equivalents in the periods presented.

7



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 September 30, Nine Months Ended September 30,
2012       2011       2012       2011
Numerator:
       Net income $ 1,892 $ 1,454 $ 4,045 $ 3,724
Denominator:
       Shares used in computing net income per share:
       Basic 8,790 8,883 8,819 8,853
       Diluted 8,988 9,040 9,000 9,119
Net income per share:
       Basic $ 0.22 $ 0.16 $ 0.46 $ 0.42
       Diluted $ 0.21 $ 0.16 $ 0.45 $ 0.41

6. 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 gain (loss) on available-for-sale securities.

7. Income Taxes

The Company adopted ASC 740, Accounting for Uncertainty in Income Taxes, on January 1, 2007. It is the Company's accounting policy to record income tax interest and penalties in the income tax provision. The Company did not have any material unrecognized tax benefits or uncertain tax positions at September 30, 2012.

8. 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 September 30, 2012, 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 nonconformance 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 $0.02 million for warranty reserves at each of September 30, 2012 and 2011.

8



Operating Leases:

The Company leases office space under long-term operating leases expiring at various dates through 2016.

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

Years ending December 31:      
     2012 (remaining three months of the year) $      179
     2013 437
     2014 359
     2015 212
     2016 18
     2017 1
Total $ 1,206

9. Bank Loans

In November 2004, the Company entered into a ten-year loan of $0.5 million in Taiwan with an interest rate of 2.3% for the first two years and 3.6% for the following years. In November 2006, the Company entered into a seven-year loan of $0.2 million in Taiwan with an interest rate of 2.8%. Both loans were secured by the Company’s building in Taiwan. In September 2007, the Company also entered a five-year equipment loan of $0.1 million with an interest rate of 3.68%. In July 2012, the Company paid off all of the loans.

10. Related Party Transactions

As of September 30, 2012, Foxconn Holding Limited was a holder of 18.28% of the Company’s common stock, based on share ownership information set forth in a Schedule 13G filed by Foxconn Holding Limited on January 4, 2002. The Company sells products to and purchases raw materials in the normal course of business from Hon Hai Precision Industry Company Limited, the parent company of Foxconn Holding Limited. These transactions were made at prices and terms consistent with those with unrelated third parties.

Sales of products to Hon Hai Precision Industry Company Limited were zero and $0.06 million for the three and nine months ended September 30, 2012, respectively. Purchases of raw materials from Hon Hai Precision Industry Company Limited were $0.2 million and $0.8 million for the three and nine months ended September 30, 2012, respectively. Amounts due from Hon Hai Precision Industry Company Limited were $0.03 million for both the three and nine months ended September 30, 2012. Amounts due to Hon Hai Precision Industry Company Limited were $0.3 million for both the three and nine months ended September 30, 2012.

Sales of products to Hon Hai Precision Industry Company Limited were zero and $0.02 million for the three and nine months ended September 30, 2011, respectively. Purchases of raw materials from Hon Hai Precision Industry Company Limited were $0.3 million and $0.9 million for the three and nine months ended September 30, 2011, respectively. Amounts due from Hon Hai Precision Industry Company Limited were de miniums for both three and nine months ended September 30, 2011. Amounts due to Hon Hai Precision Industry Company Limited were $0.4 million for both the three and nine months ended September 30, 2011.

11. Fair Value of Financial instruments

Effective January 1, 2008, the Company adopted ASC 820 which provides a definition of fair value, establishes a hierarchy for measuring fair value under generally accepted accounting principles, and requires certain disclosures about fair values used in the financial statements. ASC 820 does not extend the use of fair value beyond what is currently required by other pronouncements, and it does not pertain to stock-based compensation under ASC 718, Share-Based Payments or to leases under ASC 840, Accounting for Leases.

9



In February 2008, FASB ASC 820 was issued. This FASB Staff Position provides a one year deferral of the effective date of ASC 820 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. Therefore, the Company has adopted the provisions of ASC 820 with respect to financial assets and liabilities only.

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:

  • Level 1 – Quoted prices in active markets for identical assets or liabilities.
     
  • Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
     
  • Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company measures the following financial assets at fair value on a recurring basis. The fair values of these financial assets at September 30, 2012 (in thousands) were as follows:

Fair Value Measurements at
Reporting Date Using
Quoted Prices Significant
in Active Other Significant
Balance at Markets for Observable Unobservable
September 30, Identical Assets Inputs Inputs
      2012       (Level 1)       (level 2)       (Level 3)
Cash equivalents:
     Money market mutual funds $ 3,038 $ 3,038 $ - $ -
Marketable Securities:
     Time deposits 22,480 22,480 - -
     Corporate bonds 11,665 - 11,665 -
Long-term investments:
     Time deposits 10,229 10,229 - -
Total $ 47,412 $ 35,747 $ 11,665 $ -

As of September 30, 2012, the Company held investments in corporate bonds, certificates of deposit, and money market securities. The Company’s cash and cash equivalents are comprised of investments with original maturities of 90 days or less from the date of purchase. The Company’s short-term investments comprise 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 comprise certificates of deposit with original maturities of 365 days or more from the date of purchase.

10



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 from geographic segments, revenues generated by product lines and identifiable assets located in these segments (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
      2012       2011       2012       2011
Revenues
     North America $ 7,184 $ 6,495 $ 20,435 $ 17,544
     Europe 2,327 2,221 6,178 5,509
     Asia 2,879 3,062 7,839 8,830
$ 12,390 $ 11,778 $ 34,452 $ 31,883
 
Three Months Ended September 30, Nine Months Ended September 30,
2012 2011 2012 2011
Revenues
     Connectivity Products $ 8,307 $ 8,665 $ 24,591 $ 24,098
     Optical Passive Products 4,083 3,113 9,861 7,785
$ 12,390 $ 11,778 $ 34,452 $ 31,883

September 30, December 31,
      2012       2011
Property and Equipment
     United States $ 50 $ 91
     Taiwan 3,257 3,491
     China 4,039 4,136
$ 7,346 $ 7,718

13. Subsequent Event

On October 25, 2012, the Company announced it had declared an annual cash dividend of $0.25 per share and a one-time special cash dividend of $1.00 per share payable on December 11, 2012 to holders of record on November 30, 2012.

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 protecting 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, 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 on 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, 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, development of new products by us and our competitors, increased competition, inability to obtain sufficient quantities of a raw material component, 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 remain listed on the Nasdaq Capital Market, 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. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company’s 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, 2010.

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.

Our connectivity products contributed revenues of $8.3 million, or 67.0% and $8.7 million, or 73.6% for the three months ended September 30, 2012 and 2011, respectively. Our optical passive products contributed revenues of $4.1 million, or 33.0% and $3.1 million, or 26.4% for the three months ended September 30, 2012 and 2011, respectively.

Our connectivity products contributed revenues of $24.6 million, or 71.4% and $24.1 million, or 75.6% for the nine months ended September 30, 2012 and 2011, respectively. Our optical passive products contributed revenues of $9.9 million, or 28.6% and $7.8 million, or 24.4% for the nine months ended September 30, 2012 and 2011, respectively.

In the three months ended September 30, 2012 and 2011, our 10 largest customers comprised 66.3% and 68.6% of our revenues, respectively. For the three months ended September 30, 2012, three customers accounted for 14.1%, 11.0% and 10.1% of our total revenues. For the three months ended September 30, 2011, two customers accounted for 13.8% and 11.7% of our total revenues.

In the nine months ended September 30, 2012 and 2011, our 10 largest customers comprised 62.9% and 63.6% of our revenues, respectively. For the nine months ended September 30, 2012, no customer accounted for 10% or more of our total revenue. For the nine months ended September 30, 2011, one customer accounted for 14.8% of our total revenue.

We market and sell our products predominantly through our direct sales force.

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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 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.

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 and marketing expenses consist primarily of salaries, commissions and related expenses for personnel engaged in marketing, sales and technical support functions, as well as costs associated with trade shows, promotional activities and travel expenses. We intend to continue to invest in our sales and marketing efforts, both domestically and internationally, in order to increase market awareness and to generate sales of our products. However, we cannot be certain that our expenditures will result in higher revenues. In addition, we believe that our future success depends upon establishing successful relationships with a variety of key customers.

General and administrative expenses consist primarily of salaries and related expenses for executive, finance, administrative, accounting and human resources personnel, insurance and professional fees for legal and accounting services.

Results of Operations

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

Three Months Ended September 30, Nine Months Ended September 30,
      2012       2011       2012       2011
Revenues                100.0 %                100.0 %                100.0 %                100.0 %
Cost of revenues 64.4 67.6 65.9 67.7
       Gross profit 35.6 32.4 34.1 32.3
                         
Operating expenses:
       Research and development 6.6 7.1 7.1 7.4
       Sales and marketing 5.0 5.0 5.7 5.3
       General and administrative 8.7 9.0 9.5 9.7
              Total operating expenses 20.3 21.1 22.3 22.4
                         
Income from operations 15.3 11.3 11.8 9.9
Interest and other income, net 1.6 1.3 1.4 1.4
Net income before tax 16.9 12.6 13.2 11.3
Income tax 1.6 0.3 1.5 (0.4 )
Net income 15.3 % 12.3 % 11.7 % 11.7 %

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Revenues. Revenues were $12.4 million and $11.8 million for the three months ended September 30, 2012 and 2011, respectively. Revenues increased 5.2% in the quarter ended September 30, 2012 from the same period in 2011. Revenues were $34.5 million and $31.9 million for the nine months ended September 30, 2012 and 2011, respectively. Revenues increased 8.1% in the nine months ended September 30, 2012 from the same period in 2011. The increase for the three and nine months ended September 30, 2012 was mainly due to increased orders from our existing customers and higher volume shipments of telecom and enterprise applications related products.

Cost of Revenues. Cost of revenues was $8.0 million for each of the three months ended September 30, 2011 and 2010. Cost of revenues as a percentage of revenues decreased to 64.4% for the three months ended September 30, 2012 from 67.6% for the three months ended September 30, 2011. Cost of revenues was $22.7 million and $21.6 million for the nine months ended September 30, 2012 and 2011, respectively. Cost of revenues as a percentage of revenues decreased to 65.9% for the nine months ended September 30, 2012 from 67.7% for the nine months ended September 30, 2011. The lower cost of revenues percentage for the three and nine months ended September 30, 2012 resulted from increased factory utilization due to higher productions.

Gross Profit. Gross profit increased to $4.4 million, or 35.6% of revenues, for the three months ended September 30, 2012 from $3.8 million, or 32.4% of revenues, for the same period in 2011. Gross profit increased to $11.8 million, or 34.1% of revenues, for the nine months ended September 30, 2012 from $10.3 million, or 32.3% of revenues, for the same period in 2011. For the three and nine months ended September 30, 2012, the higher gross profit was due to the higher utilization of our factories as a result of increased volume shipments to our customers.

Research and Development Expenses. Research and development expenses were $0.8 million for each of the three months ended September 30, 2012 and 2011. Research and development expenses increased to $2.5 million for the nine months ended September 30, 2012 from $2.4 million for the same period in 2011. The higher research and development expenses were due to higher capital investments for new product development.

As a percentage of revenues, research and development expenses decreased to 6.6% in the three months ended September 30, 2012 from 7.1% for the same period in 2011. As a percentage of revenues, research and development expenses decreased to 7.1% in the nine months ended September 30, 2012 from 7.4% for the same period in 2011. The lower research and development expenses as a percentage of revenues were mainly due to increased revenue levels. We expect research and development expenses will remain relatively flat in the next quarter.

Sales and Marketing Expenses. Sales and marketing expenses were $0.6 million for each of the three months ended September 30, 2012 and 2011. Sales and marketing expenses increased to $2.0 million for the nine months ended September 30, 2012 from $1.7 million for the same period in 2011. The higher sales and marketing expenses were due to new hire and stock based compensation charges.

As a percentage of revenues, sales and marketing expenses were 5% for each of the three months ended September 30, 2012 and 2011. As a percentage of revenues, sales and marketing expenses increased to 5.7% in the nine months ended September 30, 2012 from 5.3% for the same period in 2011. The higher sales and marketing expenses as a percentage of revenues was mainly due to higher stock based compensation charges. We expect sales and marketing expenses will remain relatively flat in the next quarter.

General and Administrative Expenses. General and administrative expenses were $1.1 million for each of the three months ended September 30, 2012 and 2011, respectively. General and administrative expenses increased to $3.3 million for the nine months ended September 30, 2012 from $3.1 million for the same period in 2011. The higher general and administrative expenses were mainly due to higher stock based compensation charges.

As a percentage of revenues, general and administrative expenses decreased to 8.7% in the three months ended September 30, 2012 from 9.0% for the same period in 2011. As a percentage of revenues, general and administrative expenses decreased to 9.5% in the nine months ended September 30, 2012 from 9.7% for the same period in 2011. The lower general and administrative expenses as a percentage of revenues was mainly due to increased revenue levels. We expect general and administrative expenses will remain relatively flat in the next quarter.

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Stock-Based Compensation. Total stock-based compensation was $0.3 million for each of the three months ended September 30, 2012 and 2011. Total stock-based compensation increased to $0.8 million for the nine months ended September 30, 2012 from $0.5 million for the same period in 2011. This increase was due to RSUs granted in June 2011 and stock option granted in January and April 2012, and resulted in higher stock-based compensation expense.

Interest and Other Income, Net. Interest and other income, net, was $0.2 million and $0.1 million for the three months ended September 30, 2012 and 2011, respectively. Interest and other income, net, was $0.5 million for each of the nine months ended September 30, 2012 and 2011. 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 approximately $0.2 million and $0.03 million for the three months ended September 30, 2012 and 2011, respectively. Income tax expense was $0.5 million and income tax benefit was $0.1 million for the nine months ended September 30, 2012 and 2011, respectively. The income tax expense for the three and nine months ended September 30, 2012 was mainly from our Taiwan and China operations. Our U.S. operations did not incur income tax expense for the three and nine months ended September 30, 2012 and 2011 because we utilized tax credits due to our accumulated deficit. The credit for the three and nine months ended September 30, 2011 was due to the reversal of an over-accrual for California state tax in 2010.

Liquidity and Capital Resources

At September 30, 2012, we had cash and cash equivalents of $8.5 million and short-term investments of $34.1 million. During the quarter ended June 30, 2011, we moved $10.0 million from short-term investments to long-term investments comprised of a certificate of deposit. Long-term investments at September 30, 2012 were $10.2 million.

Net cash provided by operating activities was $5.3 million for the nine months ended September 30, 2012. Net cash provided by operating activities was primarily due to net income of $4.0 million, an increase in accounts payable of $2.6 million, an increase in accrued expenses and other liabilities of $0.7 million, and contribution from adjustment for non-cash charges, including depreciation and amortization and stock based compensation of, $2.0 million. These were offset by a $1.7 million increase in accounts receivable, a $1.1 million increase in prepaid expenses, a $0.5 million increase in inventory and $0.6 million of deferred compensation expenses related to RSUs.

Net cash provided by operating activities was $2.9 million for the nine months ended September 30, 2011. The increase in net cash provided by operating activities was primarily due to net income of $3.7 million and contribution from adjustment for non-cash charges, including depreciation and amortization and stock based compensation, of $1.6 million. These were offset by a $1.3 million in decrease in accrued expenses, a $0.6 million increase in accounts receivable and a $0.6 million decrease in accounts payable.

Net cash used in investing activities was $9.2 million for the nine months ended September 30, 2012. This resulted primarily from $8.3 million in net purchases of short-term investments and $0.7 million of equipment purchases.

Net cash provided by investing activities was $3.9 million for the nine months ended September 30, 2011. This resulted from $15.3 million in net proceeds from short-term investments and $10.1 million in purchases of long-term investments. We also used $1.3 million on equipment purchases.

Net cash used in financing activities was $1.9 million for the nine months ended September 30, 2012. Net cash used in financing activities was primarily due to $2.7 million used to repurchase common stock pursuant to our stock repurchase program and the repayment of $0.2 million in bank borrowings, which was offset in part by proceeds from the sale of our common stock through our ESPP.

Net cash provided by financing activities was $0.5 million for the nine months ended September 30, 2011. Net cash provided by financing activities was primarily due to proceeds from the exercise of options to purchase our common stock and the sale of our common stock through our ESPP, which was offset in part by repayment of bank borrowings.

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On October 25, 2012, the Company announced it had declared an annual cash dividend of $0.25 per share and a one-time special cash dividend of $1.00 per share payable on December 11, 2012 to holders of record on November 30, 2012, which dividend payments are expected to total approximately over $11 million.

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 result in additional 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 financing, 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.

Off Balance Sheet Arrangements

We did not have any off-balance sheet arrangements at September 30, 2012.

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 a 18,088 square foot facility in the same building, which lease will expire in January 2016.

In Taiwan, we lease a total of approximately 38,800 square feet in one facility located in Tu-Cheng City, Taiwan. This lease expires at various times from December 2012 to December 2014. In December 2000, we purchased approximately 8,200 square feet of space immediately adjacent to our leased facility for $0.8 million, bringing the total square footage to approximately 47,000 square feet.

We lease a 132,993 square foot facility in Shenzhen, China, which lease will expire in October 2014.

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

Not required.

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-benefit relationship 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.

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(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.

PART II: OTHER INFORMATION

ITEM 1A: RISK FACTORS

We have a history of losses, may experience future losses and may not be able to generate sufficient revenues in the future to sustain profitability.

We had net income of $1.9 million in the quarter ended September 30, 2012. Although we generated a profit in the quarter, we may not be able to sustain profitability and our cash flows may be negative again in the future. As of September 30, 2012, we had an accumulated deficit of $49.3 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 increases significantly in the future, we expect to incur significant and increasing expenses for expansion of our manufacturing operations, research and development, sales and marketing, and administration, and in expanding 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, to maintain profitability, we will need to generate and sustain substantially higher revenues while maintaining reasonable cost and expense levels. We may not be able to sustain profitability on a quarterly or an annual basis.

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

Sales of our connectivity products accounted for over 67.0% of our revenues in the quarter ended September 30, 2012 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, which we began shipping commercially in July 2000. Demand for these products has fluctuated over the past few years, declining sharply starting in mid fiscal 2001 and then increasing beginning in 2003. 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 and we may have to write-off additional inventory that is currently on our books.

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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 in stability, slowing growth in China, the U.S. mortgage market 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 increased 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.

We depend on a small number of customers for a significant portion of our total revenues 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 quarters ended September 30, 2012 and 2011, our 10 largest customers comprised 66.3% and 68.6% of our revenues, respectively. In the nine months ended September 30, 2012 and 2011, our 10 largest customers comprised 62.9% and 63.6% of our revenues, respectively. Three customers accounted for 14.1%, 11.0% and 10.1% of our total revenues for the three months ended September 30, 2012. Two customers accounted for 13.8% and 11.7% of our total revenues for the three months ended September 30, 2011. No customer accounted for 10% or more of our total revenues for the nine months ended September 30, 2012. One customer accounted for 14.8% of our total revenues for the nine months ended September 30, 2011.

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, 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 them would likely harm our financial condition and results of operations.

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 the demand for our products have caused our operating results to fluctuate in the past. Because we incur operating expenses based on anticipated revenue trends, and a high 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 section, 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.

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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 be compliant 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.

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 Corp., DiCon Fiberoptics, Inc., JDS Uniphase Corp., Oplink Communications Inc., Senko Advanced Components and Tyco Electronics Corporation. 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 more 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.

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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 September 30, 2012, we had a total of 31 full-time employees in Sunnyvale, California, 303 full-time employees in Taiwan, and 790 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 coordinate our domestic and international operations and establish 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.

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 difficulties in design, manufacturing, marketing and other areas 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 $0.8 million and $2.5 million for the three and nine months ended September 30, 2012, respectively. We intend to continue to invest in our research and product development efforts and the amount of our future investments may be substantial, which could have a negative impact on our earnings in future periods if we do not earn associated revenue from such efforts.

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 continued 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.

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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.

The communications industry is experiencing 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 are experiencing fluctuations in market demand due to overcapacity in our industry and an economy that is stymied by the current financial and economic situation, international terrorism, war and political instability.

The United States economy has experienced and continues to experience significant fluctuations in consumption and demand. During the past several years, telecommunication companies have mostly decreased their spending, which has resulted in excess inventory, overcapacity and a decrease in demand for our products. We may experience further decreases in the 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 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 our 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 volumes 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.

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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.

We depend on a limited number of third parties to supply key materials, components and equipment, such as ferrules, optical filters and lenses, and if we are not able to obtain sufficient quantities of these items at acceptable prices, our ability to fill orders would be limited and our operating results could be harmed.

We depend on third parties to supply the raw materials and components we use to manufacture our products. To be competitive, we must obtain from our suppliers, on a timely basis, sufficient quantities of raw materials and components at acceptable prices. We obtain most of our critical raw materials and components from a single or limited number of suppliers and generally do not have long-term supply contracts with them. As a result, our suppliers could terminate the supply of a particular material or component at any time without penalty. Finding alternative sources may involve significant expense and delay, if these sources can be found at all. One component, GRIN lenses, is only available from one supplier. Difficulties in obtaining raw materials or components in the future may delay or limit our product shipments, which could result in lost orders, increase our costs, reduce our control over quality and delivery schedules and require us to redesign our products. If a supplier became unable or unwilling to continue to manufacture or ship materials or components in required volumes, we would have to identify and qualify an acceptable replacement. A delay or reduction in shipments or any need to identify and qualify replacement suppliers would harm our business.

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.

We are exposed to risks and increased expenses as a result of laws requiring public companies to evaluate internal controls over financial reporting.

Although we will not have to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002 until we become an accelerated filer, we are still required to perform an assessment of our internal control over financial reporting and to disclose management’s assessment of the same under Section 404(a) of Sarbanes-Oxley. 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. In the event that our chief executive officer, acting chief financial officer or, when applicable, our independent registered public accounting firm, determines that our internal control over financial reporting is not effective as defined under Section 404(a), investor perceptions of our company may be negatively affected and this could cause a decline in our stock price.

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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 and impair our operating results. 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.

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.

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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.

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

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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, and enterprise access 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.

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.

If our common stock is not relisted on the Nasdaq Global Market, we may be subject to certain provisions of the California General Corporation Law that may affect our charter documents and result in additional expenses.

Beginning at the commencement of trading on November 8, 2002, the listing of our common stock was transferred from the Nasdaq Global Market to the Nasdaq Capital Market. As a result, we may become subject to certain sections of the California General Corporation Law that will affect our charter documents if our common stock is not returned to being listed on the Nasdaq Global Market. A recent Delaware decision has called into question the applicability of the California General Corporation Law to Delaware corporations. However, if the California General Corporation Law applies to our Company, we will not be able to continue to have a classified board or continue to eliminate cumulative voting by our stockholders. In addition, certain provisions of our Certificate of Incorporation that call for supermajority voting may need to be approved by stockholders every two years or be eliminated. Also, in the event of a reorganization, stockholders will have dissenting stockholder rights under both California and Delaware law. Any of these changes will result in additional expense as we will have to comply with certain provisions of the California General Corporation Law as well as the Delaware General Corporation Law. We included these provisions in our charter documents in order to delay or discourage a change of control or changes in our management. Because of the California General Corporation Law, we may not be able to avail ourselves of these provisions.

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 as it is difficult to police the unauthorized use of our products 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.

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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.

Because our manufacturing operations are located in active earthquake fault zones in Taiwan, and our Taiwan location is susceptible to the effects of a typhoon, we face the risk that a natural disaster could limit our ability to supply products.

Our primary manufacturing operation is located in Tu-Cheng City, Taiwan, an active earthquake fault zone. This region has experienced large earthquakes in the past and may likely experience them in the future. In September 2001, a typhoon hit Taiwan causing businesses, including our manufacturing facility, and the financial markets to close for two days. A large earthquake or typhoon in Taiwan could disrupt our manufacturing operations in Taiwan for an extended period of time, which would limit our ability to supply our products to our customers in sufficient quantities on a timely basis, harming our customer relationships.

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ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Stock Repurchase Program

On November 30, 2011, we announced a program to repurchase up to $6.0 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 requirement 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 September 30, 2012, approximately $3.0 million was remaining to purchase shares of our common stock under the repurchase program. The duration of the repurchase program is open-ended.

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 *
December 1 - December 31, 2011 41,487 $     7.8228 41,487 $    5,675,456
January 1 - January 31, 2012 35,325 $ 8.0258 35,325 $ 5,391,945
February 1 - February 29, 2012 36,222 $ 8.9509 36,222 $ 5,067,725
March 1 - March 31, 2012 30,186 $ 9.3443 30,186 $ 4,785,658
April 1 - April 30, 2012 30,002 $ 8.9841 30,002 $ 4,516,116
May 1 - May 30, 2012 39,757 $ 8.3150 39,757 $ 4,185,538
June 1 - June 30, 2012 23,300 $ 8.4775 23,300 $ 3,988,013
July 1 - July 31, 2012 24,185 $ 9.2120 24,185 $ 3,765,221
August 1 - August 31, 2012 28,594 $ 9.3413 28,594 $ 3,498,116
September 1 - September 30, 2012 24,565 $ 9.3599 24,565 $ 3,268,191
     Total 313,623 $ 8.5153 313,623 $ 3,268,191

____________________

* Represents dollar amount

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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 Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

** In accordance with Rule 406T of Regulation S-T, the information furnished in these exhibits will not be deemed “filed” for purpose of Section 18 of the Exchange Act. Such exhibits will not be deemed to be incorporated by reference into any filing under the Securities Act or Exchange Act.

28



SIGNATURE

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: November 14, 2012

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)

29



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 Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

** In accordance with Rule 406T of Regulation S-T, the information furnished in these exhibits will not be deemed “filed” for purpose of Section 18 of the Exchange Act. Such exhibits will not be deemed to be incorporated by reference into any filing under the Securities Act or Exchange Act.

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EX-31.1 2 exhibit31-1.htm RULE 13A-14(A) CERTIFICATION OF CHIEF EXECUTIVE OFFICER

Exhibit 31.1

Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for the Period Ended September 30, 2012

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: November 14, 2012
 
By   /s/Peter C. Chang  
Peter C. Chang
Chief Executive Officer
(Principal Executive Officer)

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EX-31.2 3 exhibit31-2.htm RULE 13A-14(A) CERTIFICATION OF ACTING CHIEF FINANCIAL OFFICER

Exhibit 31.2

Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for the Period Ended September 30, 2012

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: November 14, 2012
 
By   /s/Anita K. Ho  
Anita K. Ho  
Acting Chief Financial Officer
(Principal Accounting Officer)

32


EX-32.1 4 exhibit32-1.htm STATEMENT OF CHIEF EXECUTIVE OFFICER UNDER SECTION 906

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 September 30, 2012 (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
   
November 14, 2012

33


EX-32.2 5 exhibit32-2.htm STATEMENT OF ACTING CHIEF FINANCIAL OFFICER UNDER SECTION 906

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 September 30, 2012 (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
   
November 14, 2012

34


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Summary of Significant Accounting Policies </font></b></p> <p align="justify"><b><i><font size="2" style="font-family:arial">The Company </font></i></b></p> <p align="justify"><font size="2" style="font-family:arial">Alliance Fiber Optic Products, Inc. (the &#8220;Company&#8221;) 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&#8217;s headquarters are located in Sunnyvale, California, and it has operations in Taiwan and China. </font></p> <p align="justify"><b><i><font size="2" style="font-family:arial">Basis of Presentation </font></i></b></p> <p align="justify"><font size="2" style="font-family:arial">The accompanying condensed consolidated balance sheet as of December 31, 2011, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements as of September 30, 2012 and for the three and nine months ended September 30, 2011 and 2012 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the &#8220;SEC&#8221;) 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 (&#8220;U.S. GAAP&#8221;) have been condensed or omitted pursuant to such rules and regulations. </font></p> <p align="justify"><font size="2" style="font-family:arial">These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company&#8217;s Annual Report on Form 10-K for the year ended December 31, 2011. The unaudited condensed consolidated financial statements as of September 30, 2012, and for the three and nine months ended September 30, 2012 and 2011, 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.</font></p> <p align="justify"><font size="2" style="font-family:arial">There have been no significant changes in the Company&#8217;s critical accounting policies during the nine months ended September 30, 2012 as compared to what was previously disclosed in the Company&#8217;s Form 10-K for the fiscal year ended December 31, 2011.</font><font style="font-family:arial"> </font></p> <p align="justify"><b><i><font size="2" style="font-family:arial">Revenue Recognition </font></i></b></p> <p align="justify"><font size="2" style="font-family:arial">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.</font></p> <p align="justify"><b><i><font size="2" style="font-family:arial">Allowance for Doubtful Accounts </font></i></b></p> <p align="justify"><font size="2" style="font-family:arial">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 reserves the full amount. 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Such investments are made in accordance with the Company&#8217;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. </font></p> <p align="justify"><b><i><font size="2" style="font-family:arial">Concentrations of Risk </font></i></b></p> <p align="justify"><font size="2" style="font-family:arial">Our connectivity products contributed 67.0% and 73.6% of our revenues for the three months ended September 30, 2012 and 2011, respectively. Our optical passive products contributed 33.0% and 26.4% of our revenues for the three months ended September 30, 2012 and 2011, respectively. </font></p> <p align="justify"><font size="2" style="font-family:arial">Our connectivity products contributed 71.4% and 75.6% of our revenues for the nine months ended September 30, 2012 and 2011, respectively. Our optical passive products contributed 28.6% and 24.4% of our revenues for the nine months ended September 30, 2012 and 2011, respectively.</font></p> <p align="justify"><font size="2" style="font-family:arial">In the three months ended September 30, 2012 and 2011, our 10 largest customers comprised 66.3% and 68.6% of our revenues, respectively. For the three months ended September 30, 2012, three customers accounted for 14.1%, 11.0% and 10.1% of our total revenues, respectively. Amounts due from these customers were $1.5 million, $1.0 million and $0.8 million, respectively, at September 30, 2012. For the three months ended September 30, 2011, two customers accounted for 13.8% and 11.7% of our total revenues, respectively. Amounts due from these customers were $1.2 million and $1.0 million, respectively, at September 30, 2011.</font></p> <p align="justify"><font size="2" style="font-family:arial">In the nine months ended September 30, 2012 and 2011, our 10 largest customers comprised 62.9% and 63.6% of our revenues, respectively. For the nine months ended September 30, 2012, no customer accounted for 10% or more of our revenues. For the nine months ended September 30, 2011, one customer accounted for 14.8% of our revenues.</font></p> <p align="justify"><b><font size="2" style="font-family:arial">2. 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Outstanding at December 31, 2011</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">824,280</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font></td> <td align="right" bgcolor="#c0c0c0" width="2%" nowrap="nowrap"><font size="2" style="font-family:arial">7.26</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"></td> </tr> <tr valign="bottom"> <td align="left" width="82%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; Granted</font></td> <td align="right" width="1%" nowrap="nowrap"></td> <td align="right" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">125,000</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="right" width="2%" nowrap="nowrap"><font size="2" style="font-family:arial">8.36</font></td> <td align="right" width="1%" nowrap="nowrap"></td> <td align="left" width="3%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="3%" nowrap="nowrap"></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="82%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; Exercised</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td style="border-bottom: black 1pt none; text-align: right; width: 3%; background-color: #c0c0c0;" nowrap="nowrap"><font size="2" style="font-family:arial">(143,900</font></td> <td style="border-bottom: black 1pt none; text-align: left; width: 1%; background-color: #c0c0c0;" nowrap="nowrap"><font size="2" style="font-family:arial">)</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" bgcolor="#c0c0c0" width="2%" nowrap="nowrap"><font size="2" style="font-family:arial">5.23</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"></td> </tr> <tr valign="bottom"> <td align="left" width="82%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; Forfeited</font></td> <td align="right" width="1%" nowrap="nowrap"></td> <td style="text-align: right; width: 3%; border-bottom: black 1pt solid;" nowrap="nowrap"><font size="2" style="font-family:arial">(42,400</font></td> <td style="text-align: left; width: 1%; border-bottom: black 1pt solid;" nowrap="nowrap"><font size="2" style="font-family:arial">)</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="right" width="2%" nowrap="nowrap"><font size="2" style="font-family:arial">9.74</font></td> <td align="right" width="1%" nowrap="nowrap"></td> <td align="left" width="3%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="3%" nowrap="nowrap"></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="82%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; Outstanding at September 30, 2012</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">762,980</font></td> <td align="left" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" bgcolor="#c0c0c0" width="2%" nowrap="nowrap"><font size="2" style="font-family:arial">7.68</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td style="text-align: center;" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">5.35 Years</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$&#160;&#160;&#160;&#160; </font></td> <td align="right" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">1,200,229</font></td> </tr> <tr valign="bottom"> <td align="left" width="82%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; Vested and expected to vest at September 30, 2012</font></td> <td align="right" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 2pt double;" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">744,377</font></td> <td align="left" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" width="2%" nowrap="nowrap"><font size="2" style="font-family:arial">7.67</font></td> <td align="right" width="1%" nowrap="nowrap"></td> <td style="text-align: center;" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">5.26 Years</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">1,185,697</font></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="82%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; Exercisable at September 30, 2012</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">549,743</font></td> <td align="left" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" bgcolor="#c0c0c0" width="2%" nowrap="nowrap"><font size="2" style="font-family:arial">7.47</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td style="text-align: center;" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">4.01 Years</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">1,039,958</font></td> </tr> </table> <div>&#160;</div> <p align="justify"><font size="2" style="font-family:arial">The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company&#8217;s closing stock price on the last trading day of the third quarter of fiscal 2012 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 September 30, 2012. This amount changes based on the fair market value of the Company&#8217;s stock. The total intrinsic value of options exercised was $0.08 million and $0.5 million for the three and nine months ended September 30, 2012, respectively. The total intrinsic value of options exercised was $0.09 million and $0.3 million for the three and nine months ended September 30, 2011, respectively.</font></p> <p align="justify"><font size="2" style="font-family:arial">No options were granted during the three months ended September 30, 2012 and 2011, respectively. As of September 30, 2012, there was $2.1 million of unrecognized compensation cost related to share-based compensation arrangements granted under the Plan. The compensation cost is expected to be realized over four years.</font></p> <p align="justify"><font size="2" style="font-family:arial">Cash received from option exercises during the three and nine months ended September 30, 2012 was $0.1 million and $0.5 million, respectively, and is included within the financing activities section in the accompanying condensed consolidated statements of cash flows. </font></p> <p align="justify"><font size="2" style="font-family:arial">During the nine months ended September 30, 2012, a total of 30,837 shares were issued under the Company&#8217;s ESPP and cash received from purchases of common stock was $0.2 million. Compensation expense recorded in the quarter ended September 30, 2012 related to the ESPP was approximately $0.03 million. As of September 30, 2012, there was $0.01 million of unrecognized compensation cost related to the ESPP which is expected to be realized over the next month. </font></p> <p align="justify"><font size="2" style="font-family:arial">During the nine months ended September 30, 2011, the Company granted 273,000 RSUs with a total grant-date fair value of $2.5 million. The resulting compensation expense recorded in the quarter ended September 30, 2012 was approximately $0.2 million. There was $1.6 million of total unrecognized compensation cost related to RSUs granted under the Plan, of which $0.2 million is expected to be realized over one year and $1.4 million is expected to be realized over four years. </font></p> <p align="justify"><font size="2" style="font-family:arial">The following table summarizes employee stock-based compensation expense resulting from stock options, RSUs, and the ESPP (in thousands): </font></p> <table style="line-height: 14pt; width: 100%; border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0"> <tr valign="bottom"> <td align="left" width="88%" nowrap="nowrap"></td> <td align="right" width="1%" nowrap="nowrap"></td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="9%" colspan="5" nowrap="nowrap"><b><font size="1" style="font-family:arial">Three Months Ended September 30,</font></b></td> <td align="right" width="1%" nowrap="nowrap"></td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="9%" colspan="5" nowrap="nowrap"><b><font size="1" style="font-family:arial">Nine Months Ended September 30,</font></b></td> </tr> <tr valign="bottom"> <td align="left" width="88%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="4%" colspan="2" nowrap="nowrap"><b><font size="1" style="font-family:arial">2012</font></b></td> <td align="left" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="4%" colspan="2" nowrap="nowrap"><b><font size="1" style="font-family:arial">2011</font></b></td> <td align="left" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="4%" colspan="2" nowrap="nowrap"><b><font size="1" style="font-family:arial">2012</font></b></td> <td align="right" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="4%" colspan="2" nowrap="nowrap"><b><font size="1" style="font-family:arial">2011</font></b></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="88%" nowrap="nowrap"><font size="1" style="font-family:arial">Included in cost of revenue</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">$</font></td> <td align="right" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">28</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">$</font></td> <td align="right" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">28</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">$</font></td> <td align="right" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">86</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">$</font></td> <td align="right" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">74</font></td> </tr> <tr valign="bottom"> <td align="left" width="88%" nowrap="nowrap"><font size="1" style="font-family:arial">Included in operating expenses:</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="3%" nowrap="nowrap">&#160;</td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="3%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="3%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="3%" nowrap="nowrap"></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="88%" nowrap="nowrap"><font size="1" style="font-family:arial">&#160;&#160;&#160;&#160;&#160;&#160; Research and development</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">32</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">29</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">92</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">48</font></td> </tr> <tr valign="bottom"> <td align="left" width="88%" nowrap="nowrap"><font size="1" style="font-family:arial">&#160;&#160;&#160;&#160;&#160;&#160; Sales and marketing</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="right" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">65</font></td> <td align="right" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="right" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">63</font></td> <td align="right" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="right" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">188</font></td> <td align="right" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="right" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">117</font></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="88%" nowrap="nowrap"><font size="1" style="font-family:arial">&#160;&#160;&#160;&#160;&#160;&#160; General and administrative</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">143</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">139</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">420</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">274</font></td> </tr> <tr valign="bottom"> <td align="left" width="88%" nowrap="nowrap"><font size="1" style="font-family:arial">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Total</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">240</font></td> <td align="right" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">231</font></td> <td align="right" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">700</font></td> <td align="right" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">439</font></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="88%" nowrap="nowrap"><font size="1" style="font-family:arial">Total stock-based compensation expense</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">268</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">259</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">786</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">513</font></td> </tr> </table> <p align="justify"><b><font size="2" style="font-family:arial">4. Inventories, net (in thousands) </font></b></p> <div align="center"> <table style="line-height: 14pt; width: 80%; border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0"> <tr valign="bottom"> <td align="left" width="92%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td style="text-align: center;" width="4%" colspan="2" nowrap="nowrap"><b><font size="2" style="font-family:arial">September 30,</font></b></td> <td align="right" width="1%"></td> <td style="text-align: center;" width="4%" colspan="2" nowrap="nowrap"><b><font size="2" style="font-family:arial">December 31,</font></b></td> </tr> <tr valign="bottom"> <td align="left" width="92%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="4%" colspan="2" nowrap="nowrap"><b><font size="2" style="font-family:arial">2012</font></b></td> <td style="text-align: center;" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="4%" colspan="2" nowrap="nowrap"><b><font size="2" style="font-family:arial">2011</font></b></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="92%" nowrap="nowrap"><font size="2" style="font-family:arial">Inventories:</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"></td> </tr> <tr valign="bottom"> <td align="left" width="92%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; Finished goods</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">1,890</font></td> <td align="right" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">2,263</font></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="92%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; Work-in-process</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">2,838</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">2,475</font></td> </tr> <tr valign="bottom"> <td align="left" width="92%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; Raw materials</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">2,574</font></td> <td align="right" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">2,025</font></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="92%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">7,302</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">6,763</font></td> </tr> </table> </div> <p align="justify"><b><font size="2" style="font-family:arial">5. Net Income Per Share </font></b></p> <p align="justify"><font size="2" style="font-family:arial">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&#8217;s stock-based compensation plans, and the weighted-average number of shares of common stock outstanding during the period. There were no incremental dilutive common share equivalents in the periods presented. </font></p> <p align="justify"><font size="2" style="font-family:arial">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):</font></p> <table style="line-height: 14pt; width: 100%; border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0"> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"></td> <td style="text-align: center;" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: black 1pt solid; text-align: center; width: 1%;" colspan="5" nowrap="nowrap"><b><font size="1" style="font-family:arial">Three Months Ended September 30,</font></b></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="border-bottom: black 1pt solid; text-align: center; width: 1%;" colspan="5" nowrap="nowrap"><b><font size="1" style="font-family:arial">Nine Months Ended September 30,</font></b></td> </tr> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="border-bottom: black 1pt solid; text-align: center; width: 1%;" colspan="2" nowrap="nowrap"><b><font size="1" style="font-family:arial">2012</font></b></td> <td style="text-align: center;" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: black 1pt solid; text-align: center; width: 1%;" colspan="2" nowrap="nowrap"><b><font size="1" style="font-family:arial">2011</font></b></td> <td style="text-align: center;" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: black 1pt solid; text-align: center; width: 1%;" colspan="2" nowrap="nowrap"><b><font size="1" style="font-family:arial">2012</font></b></td> <td style="text-align: center;" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: black 1pt solid; text-align: center; width: 1%;" colspan="2" nowrap="nowrap"><b><font size="1" style="font-family:arial">2011</font></b></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="100%" nowrap="nowrap"><font size="1" style="font-family:arial">Numerator:</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> </tr> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"><font size="1" style="font-family:arial">&#160;&#160;&#160;&#160;&#160;&#160; Net income</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">1,892</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">1,454</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">4,045</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">3,724</font></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="100%" nowrap="nowrap"><font size="1" style="font-family:arial">Denominator:</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> </tr> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"><font size="1" style="font-family:arial">&#160;&#160;&#160;&#160;&#160;&#160; Shares used in computing net income per share:</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="100%" nowrap="nowrap"><font size="1" style="font-family:arial">&#160;&#160;&#160;&#160;&#160;&#160; Basic</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td style="border-bottom: black 2pt double; text-align: left; background-color: #c0c0c0; width: 1%;" nowrap="nowrap"></td> <td style="border-bottom: black 2pt double; text-align: right; background-color: #c0c0c0; width: 1%;" nowrap="nowrap"><font size="1" style="font-family:arial">8,790</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td style="border-bottom: black 2pt double; text-align: left; background-color: #c0c0c0; width: 1%;" nowrap="nowrap"></td> <td style="border-bottom: black 2pt double; text-align: right; background-color: #c0c0c0; width: 1%;" nowrap="nowrap"><font size="1" style="font-family:arial">8,883</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td style="border-bottom: black 2pt double; text-align: left; background-color: #c0c0c0; width: 1%;" nowrap="nowrap"></td> <td style="border-bottom: black 2pt double; text-align: right; background-color: #c0c0c0; width: 1%;" nowrap="nowrap"><font size="1" style="font-family:arial">8,819</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td style="border-bottom: black 2pt double; text-align: left; background-color: #c0c0c0; width: 1%;" nowrap="nowrap"></td> <td style="border-bottom: black 2pt double; text-align: right; background-color: #c0c0c0; width: 1%;" nowrap="nowrap"><font size="1" style="font-family:arial">8,853</font></td> </tr> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"><font size="1" style="font-family:arial">&#160;&#160;&#160;&#160;&#160;&#160; Diluted</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">8,988</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">9,040</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">9,000</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">9,119</font></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="100%" nowrap="nowrap"><font size="1" style="font-family:arial">Net income per share:</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> </tr> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"><font size="1" style="font-family:arial">&#160;&#160;&#160;&#160;&#160;&#160; Basic</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">0.22</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">0.16</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">0.46</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">0.42</font></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="100%" nowrap="nowrap"><font size="1" style="font-family:arial">&#160;&#160;&#160;&#160;&#160;&#160; Diluted</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">0.21</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">0.16</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">0.45</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">0.41</font></td> </tr> </table> <p align="justify"><b><font size="2" style="font-family:arial">6. Comprehensive Income</font></b></p> <p align="justify"><font size="2" style="font-family:arial">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 gain (loss) on available-for-sale securities.</font></p> <p align="justify"><b><font size="2" style="font-family:arial">7. Income Taxes </font></b></p> <p align="justify"><font size="2" style="font-family:arial">The Company adopted ASC 740, </font><i><font size="2" style="font-family:arial">Accounting for Uncertainty in Income Taxes,</font></i><font size="2" style="font-family:arial"> on January 1, 2007. It is the Company's accounting policy to record income tax interest and penalties in the income tax provision. The Company did not have any material unrecognized tax benefits or uncertain tax positions at September 30, 2012.</font></p> <p align="justify"><b><font size="2" style="font-family:arial">8. Commitments and Contingencies </font></b></p> <p align="justify"><b><font size="2" style="font-family:arial">Litigation:</font></b><font size="2" style="font-family:arial"> </font></p> <p align="justify"><font size="2" style="font-family:arial">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.</font></p> <p align="justify"><b><font size="2" style="font-family:arial">Indemnification and Product Warranty:</font></b></p> <p align="justify"><font size="2" style="font-family:arial">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 September 30, 2012, 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. </font></p> <p align="justify"><font size="2" style="font-family:arial">The Company generally warrants products against defects in materials and workmanship and nonconformance 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 $0.02 million for warranty reserves at each of September 30, 2012 and 2011.</font></p> <p align="justify"><b><font size="2" style="font-family:arial">Operating Leases:</font></b></p> <p align="justify"><font size="2" style="font-family:arial">The Company leases office space under long-term operating leases expiring at various dates through 2016.</font></p> <p align="justify"><font size="2" style="font-family:arial">The Company&#8217;s aggregate future minimum facility lease payments are as follows (in thousands): </font></p> <div align="center"> <table style="line-height: 14pt; width: 60%; border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0"> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="100%" nowrap="nowrap"><font size="2" style="font-family:arial">Years ending December 31:</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> </tr> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; 2012 (remaining three months of the year)</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$&#160;&#160;&#160;&#160;&#160; </font></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">179</font></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="100%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; 2013</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">437</font></td> </tr> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; 2014</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">359</font></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="100%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; 2015</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">212</font></td> </tr> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; 2016</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">18</font></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="100%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; 2017</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">1</font></td> </tr> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"><font size="2" style="font-family:arial">Total</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">1,206</font></td> </tr> </table> </div> <p align="justify"><b><font size="2" style="font-family:arial">10. Related Party Transactions </font></b></p> <p align="justify"><font size="2" style="font-family:arial">As of September 30, 2012, Foxconn Holding Limited was a holder of 18.28% of the Company&#8217;s common stock, based on share ownership information set forth in a Schedule 13G filed by Foxconn Holding Limited on January 4, 2002. The Company sells products to and purchases raw materials in the normal course of business from Hon Hai Precision Industry Company Limited, the parent company of Foxconn Holding Limited. These transactions were made at prices and terms consistent with those with unrelated third parties. </font></p> <p align="justify"><font size="2" style="font-family:arial">Sales of products to Hon Hai Precision Industry Company Limited were zero and $0.06 million for the three and nine months ended September 30, 2012, respectively. Purchases of raw materials from Hon Hai Precision Industry Company Limited were $0.2 million and $0.8 million for the three and nine months ended September 30, 2012, respectively. Amounts due from Hon Hai Precision Industry Company Limited were $0.03 million for both the three and nine months ended September 30, 2012. Amounts due to Hon Hai Precision Industry Company Limited were $0.3 million for both the three and nine months ended September 30, 2012. </font></p> <p align="justify"><font size="2" style="font-family:arial">Sales of products to Hon Hai Precision Industry Company Limited were zero and $0.02 million for the three and nine months ended September 30, 2011, respectively. Purchases of raw materials from Hon Hai Precision Industry Company Limited were $0.3 million and $0.9 million for the three and nine months ended September 30, 2011, respectively. Amounts due from Hon Hai Precision Industry Company Limited were de miniums for both three and nine months ended September 30, 2011. Amounts due to Hon Hai Precision Industry Company Limited were $0.4 million for both the three and nine months ended September 30, 2011.</font></p> <p align="justify"><b><font size="2" style="font-family:arial">11. Fair Value of Financial instruments </font></b></p> <p align="justify"><font size="2" style="font-family:arial">Effective January 1, 2008, the Company adopted ASC 820 which provides a definition of fair value, establishes a hierarchy for measuring fair value under generally accepted accounting principles, and requires certain disclosures about fair values used in the financial statements. ASC 820 does not extend the use of fair value beyond what is currently required by other pronouncements, and it does not pertain to stock-based compensation under ASC 718, </font><i><font size="2" style="font-family:arial">Share-Based Payments</font></i><font size="2" style="font-family:arial"> or to leases under ASC 840, </font><i><font size="2" style="font-family:arial">Accounting for Leases</font></i><font size="2" style="font-family:arial">.</font></p> <p align="justify"><font size="2" style="font-family:arial">In February 2008, FASB ASC 820 was issued. This FASB Staff Position provides a one year deferral of the effective date of ASC 820 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. Therefore, the Company has adopted the provisions of ASC 820 with respect to financial assets and liabilities only.</font></p> <p align="justify"><font size="2" style="font-family:arial">ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. 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The fair values of these financial assets at September 30, 2012 (in thousands) were as follows:</font><font style="font-family:arial"> </font></p> <table style="line-height: 14pt; width: 100%; border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0"> <tr valign="bottom"> <td align="left" width="98%" nowrap="nowrap"></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="text-align: center;" width="11%" colspan="11" nowrap="nowrap"><font size="2" style="font-family:arial">Fair Value Measurements at</font></td> </tr> <tr valign="bottom"> <td align="left" width="98%" nowrap="nowrap"></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="11%" colspan="11" nowrap="nowrap"><font size="2" style="font-family:arial">Reporting Date Using</font></td> </tr> <tr valign="bottom"> <td align="left" width="98%" nowrap="nowrap"></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="text-align: center;" width="2%" colspan="2" nowrap="nowrap"><font size="2" style="font-family:arial">Quoted Prices</font></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="text-align: center;" width="2%" colspan="2" nowrap="nowrap"><font size="2" style="font-family:arial">Significant</font></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> </tr> <tr valign="bottom"> <td align="left" width="98%" nowrap="nowrap"></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="text-align: center;" width="2%" colspan="2" nowrap="nowrap"><font size="2" style="font-family:arial">in Active</font></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="text-align: center;" width="2%" colspan="2" nowrap="nowrap"><font size="2" style="font-family:arial">Other</font></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="text-align: center;" width="2%" colspan="2" nowrap="nowrap"><font size="2" style="font-family:arial">Significant</font></td> </tr> <tr valign="bottom"> <td align="left" width="98%" nowrap="nowrap"></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="text-align: center;" width="2%" colspan="2" nowrap="nowrap"><font size="2" style="font-family:arial">Balance at</font></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="text-align: center;" width="2%" colspan="2" nowrap="nowrap"><font size="2" style="font-family:arial">Markets for</font></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="text-align: center;" width="2%" colspan="2" nowrap="nowrap"><font size="2" style="font-family:arial">Observable</font></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="text-align: center;" width="2%" colspan="2" nowrap="nowrap"><font size="2" style="font-family:arial">Unobservable</font></td> </tr> <tr valign="bottom"> <td align="left" width="98%" nowrap="nowrap"></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="text-align: center;" width="2%" colspan="2" nowrap="nowrap"><font size="2" style="font-family:arial">September 30,</font></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="text-align: center;" width="2%" colspan="2" nowrap="nowrap"><font size="2" style="font-family:arial">Identical Assets</font></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="text-align: center;" width="2%" colspan="2" nowrap="nowrap"><font size="2" style="font-family:arial">Inputs</font></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="text-align: center;" width="2%" colspan="2" nowrap="nowrap"><font size="2" style="font-family:arial">Inputs</font></td> </tr> <tr valign="bottom"> <td align="left" width="98%" nowrap="nowrap"></td> <td style="text-align: center;" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="2%" colspan="2" nowrap="nowrap"><font size="2" style="font-family:arial">2012</font></td> <td style="text-align: center;" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="2%" colspan="2" nowrap="nowrap"><font size="2" style="font-family:arial">(Level 1)</font></td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="2%" colspan="2" nowrap="nowrap"><font size="2" style="font-family:arial">(level 2)</font></td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="2%" colspan="2" nowrap="nowrap"><font size="2" style="font-family:arial">(Level 3)</font></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="98%" nowrap="nowrap"><font size="2" style="font-family:arial">Cash equivalents:</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> </tr> <tr valign="bottom"> <td align="left" width="98%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; Money market mutual funds</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">3,038</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">3,038</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">-</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">-</font></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="98%" nowrap="nowrap"><font size="2" style="font-family:arial">Marketable Securities:</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> </tr> <tr valign="bottom"> <td align="left" width="98%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; Time deposits</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">22,480</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">22,480</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">-</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">-</font></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="98%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; Corporate bonds</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">11,665</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">-</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">11,665</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">-</font></td> </tr> <tr valign="bottom"> <td align="left" width="98%" nowrap="nowrap"><font size="2" style="font-family:arial">Long-term investments:</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="98%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; Time deposits</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">10,229</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">10,229</font></td> <td align="left" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">-</font></td> <td align="left" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">-</font></td> </tr> <tr valign="bottom"> <td align="left" width="98%" nowrap="nowrap"><font size="2" style="font-family:arial">Total</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">47,412</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">35,747</font></td> <td align="left" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">11,665</font></td> <td align="left" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">-</font></td> </tr> </table> <div>&#160;</div> <p align="justify"><font size="2" style="font-family:arial">As of September 30, 2012, the Company held investments in corporate bonds, certificates of deposit, and money market securities. The Company&#8217;s cash and cash equivalents are comprised of investments with original maturities of 90 days or less from the date of purchase. The Company&#8217;s short-term investments comprise corporate bonds and certificates of deposit with original maturities of 91 days or more from the date of purchase. The Company&#8217;s long-term investments comprise certificates of deposit with original maturities of 365 days or more from the date of purchase.</font></p> <p align="justify"><b><font size="2" style="font-family:arial">12. Geographic Segment Information </font></b></p> <p align="justify"><font size="2" style="font-family:arial">The Company operates in a single industry segment. This industry segment is characterized by rapid technological change and significant competition. </font></p> <p align="justify"><font size="2" style="font-family:arial">The following is a summary of the Company&#8217;s revenues generated from geographic segments, revenues generated by product lines and identifiable assets located in these segments (in thousands): </font></p> <table style="line-height: 14pt; width: 100%; border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0"> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="1%" colspan="5" nowrap="nowrap"><b><font size="2" style="font-family:arial">Three Months Ended September 30,</font></b></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="1%" colspan="5" nowrap="nowrap"><b><font size="2" style="font-family:arial">Nine Months Ended September 30,</font></b></td> </tr> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"></td> <td style="text-align: center;" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="1%" colspan="2" nowrap="nowrap"><b><font size="2" style="font-family:arial">2012</font></b></td> <td style="text-align: center;" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="1%" colspan="2" nowrap="nowrap"><b><font size="2" style="font-family:arial">2011</font></b></td> <td style="text-align: center;" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="1%" colspan="2" nowrap="nowrap"><b><font size="2" style="font-family:arial">2012</font></b></td> <td style="text-align: center;" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="1%" colspan="2" nowrap="nowrap"><b><font size="2" style="font-family:arial">2011</font></b></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="100%" nowrap="nowrap"><b><font size="2" style="font-family:arial">Revenues</font></b></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> </tr> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; North America</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">7,184</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">6,495</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">20,435</font></td> <td align="right" width="1%" nowrap="nowrap"></td> <td align="right" style="text-align: left;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">17,544</font></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="100%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; Europe</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">2,327</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">2,221</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">6,178</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">5,509</font></td> </tr> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; Asia</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">2,879</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">3,062</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">7,839</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">8,830</font></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="100%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">12,390</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">11,778</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">34,452</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 2pt double; text-align: left;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">31,883</font></td> </tr> <tr> <td width="100%" colspan="13">&#160;</td> </tr> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="1%" colspan="5" nowrap="nowrap"><b><font size="2" style="font-family:arial">Three Months Ended September 30,</font></b></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="1%" colspan="5" nowrap="nowrap"><b><font size="2" style="font-family:arial">Nine Months Ended September 30,</font></b></td> </tr> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="1%" colspan="2" nowrap="nowrap"><b><font size="2" style="font-family:arial">2012</font></b></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="1%" colspan="2" nowrap="nowrap"><b><font size="2" style="font-family:arial">2011</font></b></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="1%" colspan="2" nowrap="nowrap"><b><font size="2" style="font-family:arial">2012</font></b></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="1%" colspan="2" nowrap="nowrap"><b><font size="2" style="font-family:arial">2011</font></b></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="100%" nowrap="nowrap"><b><font size="2" style="font-family:arial">Revenues</font></b></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> </tr> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; Connectivity Products</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">8,307</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">8,665</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">24,591</font></td> <td align="right" width="1%" nowrap="nowrap"></td> <td align="right" style="text-align: left;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">24,098</font></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="100%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; Optical Passive Products</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">4,083</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">3,113</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">9,861</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">7,785</font></td> </tr> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">12,390</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">11,778</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">34,452</font></td> <td align="right" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 2pt double; text-align: left;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">31,883</font></td> </tr> </table> <div>&#160;</div> <table style="line-height: 14pt; width: 80%; border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0"> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"></td> <td style="text-align: center;" width="1%"></td> <td style="text-align: center;" width="1%" colspan="2" nowrap="nowrap"><b><font size="2" style="font-family:arial">September 30,</font></b></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="text-align: center;" width="1%" colspan="2" nowrap="nowrap"><b><font size="2" style="font-family:arial">December 31,</font></b></td> </tr> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"></td> <td style="text-align: center;" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="1%" colspan="2" nowrap="nowrap"><b><font size="2" style="font-family:arial">2012</font></b></td> <td style="text-align: center;" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="1%" colspan="2" nowrap="nowrap"><b><font size="2" style="font-family:arial">2011</font></b></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="100%" nowrap="nowrap"><b><font size="2" style="font-family:arial">Property and Equipment</font></b></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> </tr> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; United States</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">50</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">91</font></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="100%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; Taiwan</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">3,257</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">3,491</font></td> </tr> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; China</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">4,039</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">4,136</font></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="100%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">7,346</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">7,718</font></td> </tr> </table> <p align="justify"><b><font size="2" style="font-family:arial">13. Subsequent Event</font></b></p> <p align="justify"><font size="2" style="font-family:arial">On October 25, 2012, the Company announced it had declared an annual cash dividend of $0.25 per share and a one-time special cash dividend of $1.00 per share payable on December 11, 2012 to holders of record on November 30, 2012.</font></p> <p align="justify"><b><i><font size="2" style="font-family:arial">Basis of Presentation </font></i></b></p> <p align="justify"><font size="2" style="font-family:arial">The accompanying condensed consolidated balance sheet as of December 31, 2011, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements as of September 30, 2012 and for the three and nine months ended September 30, 2011 and 2012 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the &#8220;SEC&#8221;) 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 (&#8220;U.S. GAAP&#8221;) have been condensed or omitted pursuant to such rules and regulations. </font></p> <p align="justify"><font size="2" style="font-family:arial">These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company&#8217;s Annual Report on Form 10-K for the year ended December 31, 2011. The unaudited condensed consolidated financial statements as of September 30, 2012, and for the three and nine months ended September 30, 2012 and 2011, 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.</font></p> <p align="justify"><font size="2" style="font-family:arial">There have been no significant changes in the Company&#8217;s critical accounting policies during the nine months ended September 30, 2012 as compared to what was previously disclosed in the Company&#8217;s Form 10-K for the fiscal year ended December 31, 2011.</font></p> <p align="justify"><b><i><font size="2" style="font-family:arial">Revenue Recognition </font></i></b></p> <p align="justify"><font size="2" style="font-family:arial">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.</font></p> <p align="justify"><b><i><font size="2" style="font-family:arial">Allowance for Doubtful Accounts </font></i></b></p> <p align="justify"><font size="2" style="font-family:arial">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 reserves 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.</font></p> <p align="justify"><b><i><font size="2" style="font-family:arial">Cash and Cash Equivalents </font></i></b></p> <p align="justify"><font size="2" style="font-family:arial">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 market rate accounts, corporate bonds and certificates of deposit.</font></p> <p align="justify"><b><i><font size="2" style="font-family:arial">Short-Term and Long-Term Investments </font></i></b></p> <p align="justify"><font size="2" style="font-family:arial">The Company generally invests its excess cash in certificates of deposit, corporate bonds, and commercial paper. Such investments are made in accordance with the Company&#8217;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.</font></p> <p align="justify"><b><i><font size="2" style="font-family:arial">Concentrations of Risk </font></i></b></p> <p align="justify"><font size="2" style="font-family:arial">Our connectivity products contributed 67.0% and 73.6% of our revenues for the three months ended September 30, 2012 and 2011, respectively. Our optical passive products contributed 33.0% and 26.4% of our revenues for the three months ended September 30, 2012 and 2011, respectively. </font></p> <p align="justify"><font size="2" style="font-family:arial">Our connectivity products contributed 71.4% and 75.6% of our revenues for the nine months ended September 30, 2012 and 2011, respectively. Our optical passive products contributed 28.6% and 24.4% of our revenues for the nine months ended September 30, 2012 and 2011, respectively.</font></p> <p align="justify"><font size="2" style="font-family:arial">In the three months ended September 30, 2012 and 2011, our 10 largest customers comprised 66.3% and 68.6% of our revenues, respectively. For the three months ended September 30, 2012, three customers accounted for 14.1%, 11.0% and 10.1% of our total revenues, respectively. Amounts due from these customers were $1.5 million, $1.0 million and $0.8 million, respectively, at September 30, 2012. For the three months ended September 30, 2011, two customers accounted for 13.8% and 11.7% of our total revenues, respectively. Amounts due from these customers were $1.2 million and $1.0 million, respectively, at September 30, 2011.</font></p> <p align="justify"><font size="2" style="font-family:arial">In the nine months ended September 30, 2012 and 2011, our 10 largest customers comprised 62.9% and 63.6% of our revenues, respectively. For the nine months ended September 30, 2012, no customer accounted for 10% or more of our revenues. For the nine months ended September 30, 2011, one customer accounted for 14.8% of our revenues.</font></p> <p align="justify"><font size="2" style="font-family:arial">The following information relates to stock option activity for the nine months ended September 30, 2012:</font></p> <table style="line-height: 14pt; width: 100%; border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0"> <tr valign="bottom"> <td align="left" width="82%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="3%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="2%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td style="text-align: center;" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">Weighted</font></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="3%" nowrap="nowrap"></td> </tr> <tr valign="bottom"> <td align="left" width="82%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="3%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td style="text-align: center;" width="3%" colspan="2" nowrap="nowrap"><font size="2" style="font-family:arial">Weighted</font></td> <td align="right" width="1%" nowrap="nowrap"></td> <td style="text-align: center;" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">Average</font></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="3%" nowrap="nowrap"></td> </tr> <tr valign="bottom"> <td align="left" width="82%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="3%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td style="text-align: center;" width="3%" colspan="2" nowrap="nowrap"><font size="2" style="font-family:arial">Average</font></td> <td align="right" width="1%" nowrap="nowrap"></td> <td style="text-align: center;" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">Remaining</font></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="text-align: center;" width="4%" colspan="2" nowrap="nowrap"><font size="2" style="font-family:arial">Aggregate</font></td> </tr> <tr valign="bottom"> <td align="left" width="82%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="3%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td style="text-align: center;" width="3%" colspan="2" nowrap="nowrap"><font size="2" style="font-family:arial">Exercise</font></td> <td align="right" width="1%" nowrap="nowrap"></td> <td style="text-align: center;" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">Contractual</font></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="text-align: center;" width="4%" colspan="2" nowrap="nowrap"><font size="2" style="font-family:arial">Intrinsic</font></td> </tr> <tr valign="bottom"> <td align="left" style="border-bottom: #000000 1pt solid;" width="82%" nowrap="nowrap"><font size="2" style="font-family:arial">Options</font></td> <td align="left" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="4%" colspan="2" nowrap="nowrap"><font size="2" style="font-family:arial">Shares</font></td> <td align="left" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="3%" colspan="2" nowrap="nowrap"><font size="2" style="font-family:arial">Price</font></td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">Life</font></td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="4%" colspan="2" nowrap="nowrap"><font size="2" style="font-family:arial">Value</font></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="82%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; Outstanding at December 31, 2011</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">824,280</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font></td> <td align="right" bgcolor="#c0c0c0" width="2%" nowrap="nowrap"><font size="2" style="font-family:arial">7.26</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"></td> </tr> <tr valign="bottom"> <td align="left" width="82%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; Granted</font></td> <td align="right" width="1%" nowrap="nowrap"></td> <td align="right" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">125,000</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="right" width="2%" nowrap="nowrap"><font size="2" style="font-family:arial">8.36</font></td> <td align="right" width="1%" nowrap="nowrap"></td> <td align="left" width="3%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="3%" nowrap="nowrap"></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="82%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; Exercised</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td style="border-bottom: black 1pt none; text-align: right; width: 3%; background-color: #c0c0c0;" nowrap="nowrap"><font size="2" style="font-family:arial">(143,900</font></td> <td style="border-bottom: black 1pt none; text-align: left; width: 1%; background-color: #c0c0c0;" nowrap="nowrap"><font size="2" style="font-family:arial">)</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" bgcolor="#c0c0c0" width="2%" nowrap="nowrap"><font size="2" style="font-family:arial">5.23</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"></td> </tr> <tr valign="bottom"> <td align="left" width="82%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; Forfeited</font></td> <td align="right" width="1%" nowrap="nowrap"></td> <td style="text-align: right; width: 3%; border-bottom: black 1pt solid;" nowrap="nowrap"><font size="2" style="font-family:arial">(42,400</font></td> <td style="text-align: left; width: 1%; border-bottom: black 1pt solid;" nowrap="nowrap"><font size="2" style="font-family:arial">)</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="right" width="2%" nowrap="nowrap"><font size="2" style="font-family:arial">9.74</font></td> <td align="right" width="1%" nowrap="nowrap"></td> <td align="left" width="3%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="3%" nowrap="nowrap"></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="82%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; Outstanding at September 30, 2012</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">762,980</font></td> <td align="left" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" bgcolor="#c0c0c0" width="2%" nowrap="nowrap"><font size="2" style="font-family:arial">7.68</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td style="text-align: center;" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">5.35 Years</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$&#160;&#160;&#160;&#160; </font></td> <td align="right" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">1,200,229</font></td> </tr> <tr valign="bottom"> <td align="left" width="82%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; Vested and expected to vest at September 30, 2012</font></td> <td align="right" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 2pt double;" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">744,377</font></td> <td align="left" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" width="2%" nowrap="nowrap"><font size="2" style="font-family:arial">7.67</font></td> <td align="right" width="1%" nowrap="nowrap"></td> <td style="text-align: center;" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">5.26 Years</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">1,185,697</font></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="82%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; Exercisable at September 30, 2012</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">549,743</font></td> <td align="left" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" bgcolor="#c0c0c0" width="2%" nowrap="nowrap"><font size="2" style="font-family:arial">7.47</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td style="text-align: center;" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">4.01 Years</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">1,039,958</font></td> </tr> </table> <p align="justify"><font size="2" style="font-family:arial">The following table summarizes employee stock-based compensation expense resulting from stock options, RSUs, and the ESPP (in thousands): </font></p> <table style="line-height: 14pt; width: 100%; border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0"> <tr valign="bottom"> <td align="left" width="88%" nowrap="nowrap"></td> <td align="right" width="1%" nowrap="nowrap"></td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="9%" colspan="5" nowrap="nowrap"><b><font size="1" style="font-family:arial">Three Months Ended September 30,</font></b></td> <td align="right" width="1%" nowrap="nowrap"></td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="9%" colspan="5" nowrap="nowrap"><b><font size="1" style="font-family:arial">Nine Months Ended September 30,</font></b></td> </tr> <tr valign="bottom"> <td align="left" width="88%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="4%" colspan="2" nowrap="nowrap"><b><font size="1" style="font-family:arial">2012</font></b></td> <td align="left" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="4%" colspan="2" nowrap="nowrap"><b><font size="1" style="font-family:arial">2011</font></b></td> <td align="left" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="4%" colspan="2" nowrap="nowrap"><b><font size="1" style="font-family:arial">2012</font></b></td> <td align="right" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="4%" colspan="2" nowrap="nowrap"><b><font size="1" style="font-family:arial">2011</font></b></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="88%" nowrap="nowrap"><font size="1" style="font-family:arial">Included in cost of revenue</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">$</font></td> <td align="right" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">28</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">$</font></td> <td align="right" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">28</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">$</font></td> <td align="right" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">86</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">$</font></td> <td align="right" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">74</font></td> </tr> <tr valign="bottom"> <td align="left" width="88%" nowrap="nowrap"><font size="1" style="font-family:arial">Included in operating expenses:</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="3%" nowrap="nowrap">&#160;</td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="3%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="3%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="3%" nowrap="nowrap"></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="88%" nowrap="nowrap"><font size="1" style="font-family:arial">&#160;&#160;&#160;&#160;&#160;&#160; Research and development</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">32</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">29</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">92</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">48</font></td> </tr> <tr valign="bottom"> <td align="left" width="88%" nowrap="nowrap"><font size="1" style="font-family:arial">&#160;&#160;&#160;&#160;&#160;&#160; Sales and marketing</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="right" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">65</font></td> <td align="right" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="right" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">63</font></td> <td align="right" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="right" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">188</font></td> <td align="right" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="right" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">117</font></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="88%" nowrap="nowrap"><font size="1" style="font-family:arial">&#160;&#160;&#160;&#160;&#160;&#160; General and administrative</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">143</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">139</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">420</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">274</font></td> </tr> <tr valign="bottom"> <td align="left" width="88%" nowrap="nowrap"><font size="1" style="font-family:arial">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Total</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">240</font></td> <td align="right" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">231</font></td> <td align="right" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">700</font></td> <td align="right" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">439</font></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="88%" nowrap="nowrap"><font size="1" style="font-family:arial">Total stock-based compensation expense</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">268</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">259</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">786</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="1" style="font-family:arial">513</font></td> </tr> </table> <p align="justify"><b><font size="2" style="font-family:arial">Inventories, net (in thousands) </font></b></p> <div align="center"> <table style="line-height: 14pt; width: 80%; border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0"> <tr valign="bottom"> <td align="left" width="92%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td style="text-align: center;" width="4%" colspan="2" nowrap="nowrap"><b><font size="2" style="font-family:arial">September 30,</font></b></td> <td align="right" width="1%"></td> <td style="text-align: center;" width="4%" colspan="2" nowrap="nowrap"><b><font size="2" style="font-family:arial">December 31,</font></b></td> </tr> <tr valign="bottom"> <td align="left" width="92%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="4%" colspan="2" nowrap="nowrap"><b><font size="2" style="font-family:arial">2012</font></b></td> <td style="text-align: center;" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="4%" colspan="2" nowrap="nowrap"><b><font size="2" style="font-family:arial">2011</font></b></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="92%" nowrap="nowrap"><font size="2" style="font-family:arial">Inventories:</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"></td> </tr> <tr valign="bottom"> <td align="left" width="92%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; Finished goods</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">1,890</font></td> <td align="right" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">2,263</font></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="92%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; Work-in-process</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">2,838</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">2,475</font></td> </tr> <tr valign="bottom"> <td align="left" width="92%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; Raw materials</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">2,574</font></td> <td align="right" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">2,025</font></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="92%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">7,302</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="3%" nowrap="nowrap"><font size="2" style="font-family:arial">6,763</font></td> </tr> </table> </div> <p align="justify"><font size="2" style="font-family:arial">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):</font></p> <table style="line-height: 14pt; width: 100%; border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0"> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"></td> <td style="text-align: center;" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: black 1pt solid; text-align: center; width: 1%;" colspan="5" nowrap="nowrap"><b><font size="1" style="font-family:arial">Three Months Ended September 30,</font></b></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="border-bottom: black 1pt solid; text-align: center; width: 1%;" colspan="5" nowrap="nowrap"><b><font size="1" style="font-family:arial">Nine Months Ended September 30,</font></b></td> </tr> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="border-bottom: black 1pt solid; text-align: center; width: 1%;" colspan="2" nowrap="nowrap"><b><font size="1" style="font-family:arial">2012</font></b></td> <td style="text-align: center;" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: black 1pt solid; text-align: center; width: 1%;" colspan="2" nowrap="nowrap"><b><font size="1" style="font-family:arial">2011</font></b></td> <td style="text-align: center;" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: black 1pt solid; text-align: center; width: 1%;" colspan="2" nowrap="nowrap"><b><font size="1" style="font-family:arial">2012</font></b></td> <td style="text-align: center;" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: black 1pt solid; text-align: center; width: 1%;" colspan="2" nowrap="nowrap"><b><font size="1" style="font-family:arial">2011</font></b></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="100%" nowrap="nowrap"><font size="1" style="font-family:arial">Numerator:</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> </tr> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"><font size="1" style="font-family:arial">&#160;&#160;&#160;&#160;&#160;&#160; Net income</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">1,892</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">1,454</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">4,045</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">3,724</font></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="100%" nowrap="nowrap"><font size="1" style="font-family:arial">Denominator:</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> </tr> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"><font size="1" style="font-family:arial">&#160;&#160;&#160;&#160;&#160;&#160; Shares used in computing net income per share:</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="100%" nowrap="nowrap"><font size="1" style="font-family:arial">&#160;&#160;&#160;&#160;&#160;&#160; Basic</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td style="border-bottom: black 2pt double; text-align: left; background-color: #c0c0c0; width: 1%;" nowrap="nowrap"></td> <td style="border-bottom: black 2pt double; text-align: right; background-color: #c0c0c0; width: 1%;" nowrap="nowrap"><font size="1" style="font-family:arial">8,790</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td style="border-bottom: black 2pt double; text-align: left; background-color: #c0c0c0; width: 1%;" nowrap="nowrap"></td> <td style="border-bottom: black 2pt double; text-align: right; background-color: #c0c0c0; width: 1%;" nowrap="nowrap"><font size="1" style="font-family:arial">8,883</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td style="border-bottom: black 2pt double; text-align: left; background-color: #c0c0c0; width: 1%;" nowrap="nowrap"></td> <td style="border-bottom: black 2pt double; text-align: right; background-color: #c0c0c0; width: 1%;" nowrap="nowrap"><font size="1" style="font-family:arial">8,819</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td style="border-bottom: black 2pt double; text-align: left; background-color: #c0c0c0; width: 1%;" nowrap="nowrap"></td> <td style="border-bottom: black 2pt double; text-align: right; background-color: #c0c0c0; width: 1%;" nowrap="nowrap"><font size="1" style="font-family:arial">8,853</font></td> </tr> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"><font size="1" style="font-family:arial">&#160;&#160;&#160;&#160;&#160;&#160; Diluted</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">8,988</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">9,040</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">9,000</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">9,119</font></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="100%" nowrap="nowrap"><font size="1" style="font-family:arial">Net income per share:</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> </tr> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"><font size="1" style="font-family:arial">&#160;&#160;&#160;&#160;&#160;&#160; Basic</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">0.22</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">0.16</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">0.46</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">0.42</font></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="100%" nowrap="nowrap"><font size="1" style="font-family:arial">&#160;&#160;&#160;&#160;&#160;&#160; Diluted</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">0.21</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">0.16</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">0.45</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="1" style="font-family:arial">0.41</font></td> </tr> </table> <p align="justify"><font size="2" style="font-family:arial">The Company&#8217;s aggregate future minimum facility lease payments are as follows (in thousands): </font></p> <div align="center"> <table style="line-height: 14pt; width: 60%; border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0"> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="100%" nowrap="nowrap"><font size="2" style="font-family:arial">Years ending December 31:</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> </tr> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; 2012 (remaining three months of the year)</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$&#160;&#160;&#160;&#160;&#160; </font></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">179</font></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="100%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; 2013</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">437</font></td> </tr> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; 2014</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">359</font></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="100%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; 2015</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">212</font></td> </tr> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; 2016</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">18</font></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="100%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; 2017</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">1</font></td> </tr> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"><font size="2" style="font-family:arial">Total</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">1,206</font></td> </tr> </table> </div> <p align="justify"><font size="2" style="font-family:arial">The following is a summary of the Company&#8217;s revenues generated from geographic segments, revenues generated by product lines and identifiable assets located in these segments (in thousands): </font></p> <table style="line-height: 14pt; width: 100%; border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0"> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="1%" colspan="5" nowrap="nowrap"><b><font size="2" style="font-family:arial">Three Months Ended September 30,</font></b></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="1%" colspan="5" nowrap="nowrap"><b><font size="2" style="font-family:arial">Nine Months Ended September 30,</font></b></td> </tr> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"></td> <td style="text-align: center;" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="1%" colspan="2" nowrap="nowrap"><b><font size="2" style="font-family:arial">2012</font></b></td> <td style="text-align: center;" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="1%" colspan="2" nowrap="nowrap"><b><font size="2" style="font-family:arial">2011</font></b></td> <td style="text-align: center;" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="1%" colspan="2" nowrap="nowrap"><b><font size="2" style="font-family:arial">2012</font></b></td> <td style="text-align: center;" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="1%" colspan="2" nowrap="nowrap"><b><font size="2" style="font-family:arial">2011</font></b></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="100%" nowrap="nowrap"><b><font size="2" style="font-family:arial">Revenues</font></b></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> </tr> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; North America</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">7,184</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">6,495</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">20,435</font></td> <td align="right" width="1%" nowrap="nowrap"></td> <td align="right" style="text-align: left;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">17,544</font></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="100%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; Europe</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">2,327</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">2,221</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">6,178</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">5,509</font></td> </tr> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; Asia</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">2,879</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">3,062</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">7,839</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">8,830</font></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="100%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">12,390</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">11,778</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">34,452</font></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 2pt double; text-align: left;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">31,883</font></td> </tr> <tr> <td width="100%" colspan="13">&#160;</td> </tr> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="1%" colspan="5" nowrap="nowrap"><b><font size="2" style="font-family:arial">Three Months Ended September 30,</font></b></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="1%" colspan="5" nowrap="nowrap"><b><font size="2" style="font-family:arial">Nine Months Ended September 30,</font></b></td> </tr> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="1%" colspan="2" nowrap="nowrap"><b><font size="2" style="font-family:arial">2012</font></b></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="1%" colspan="2" nowrap="nowrap"><b><font size="2" style="font-family:arial">2011</font></b></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="1%" colspan="2" nowrap="nowrap"><b><font size="2" style="font-family:arial">2012</font></b></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="1%" colspan="2" nowrap="nowrap"><b><font size="2" style="font-family:arial">2011</font></b></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="100%" nowrap="nowrap"><b><font size="2" style="font-family:arial">Revenues</font></b></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> </tr> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; Connectivity Products</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">8,307</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">8,665</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">24,591</font></td> <td align="right" width="1%" nowrap="nowrap"></td> <td align="right" style="text-align: left;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">24,098</font></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="100%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; Optical Passive Products</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">4,083</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">3,113</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">9,861</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">7,785</font></td> </tr> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">12,390</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">11,778</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">34,452</font></td> <td align="right" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 2pt double; text-align: left;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">31,883</font></td> </tr> </table> <div>&#160;</div> <table style="line-height: 14pt; width: 80%; border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0"> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"></td> <td style="text-align: center;" width="1%"></td> <td style="text-align: center;" width="1%" colspan="2" nowrap="nowrap"><b><font size="2" style="font-family:arial">September 30,</font></b></td> <td style="text-align: center;" width="1%" nowrap="nowrap"></td> <td style="text-align: center;" width="1%" colspan="2" nowrap="nowrap"><b><font size="2" style="font-family:arial">December 31,</font></b></td> </tr> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"></td> <td style="text-align: center;" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="1%" colspan="2" nowrap="nowrap"><b><font size="2" style="font-family:arial">2012</font></b></td> <td style="text-align: center;" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="1%" colspan="2" nowrap="nowrap"><b><font size="2" style="font-family:arial">2011</font></b></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="100%" nowrap="nowrap"><b><font size="2" style="font-family:arial">Property and Equipment</font></b></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> </tr> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; United States</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">50</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">91</font></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="100%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; Taiwan</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">3,257</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">3,491</font></td> </tr> <tr valign="bottom"> <td align="left" width="100%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; China</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">4,039</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">4,136</font></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="100%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">7,346</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"> <p><font size="2" style="font-family:arial">7,718</font></p> </td> </tr> </table> 0.736 0.686 0.138 0.264 0.117 0.756 0.636 0.148 0.244 0.670 0.663 0.141 0.330 0.110 0.101 0.714 0.629 0.286 1500000 1000000 800000 824280 762980 125000 -143900 -42400 744377 549743 5.23 8.36 7.26 7.68 9.74 7.67 7.47 P5Y4M6D P5Y3M4D P4Y0M4D 1200229 1185697 1039958 231000 28000 29000 63000 139000 439000 74000 48000 117000 274000 240000 28000 32000 65000 143000 700000 86000 92000 188000 420000 1500000 10000000 2020-03-17 P2Y P5Y Options granted under the 2000 Stock Incentive Plan generally vest over four years and are exercisable for not more than ten years. 90000 300000 80000 500000 2100000 100000 500000 30837 30000 10000 1600000 200000 1400000 2263000 1890000 2475000 2838000 2025000 2574000 179000 437000 359000 212000 1000 1206000 20000 20000 P10Y P7Y P5Y 500000 200000 100000 0.0230 0.0360 0.028 0.0368 0.1828 0 20000 0 60000 300000 900000 200000 800000 400000 300000 30000 47412000 3038000 0 0 10229000 0 0 0 0 0 11665000 0 35747000 11665000 0 11665000 10229000 3038000 <p align="justify"><font size="2" style="font-family:arial">The Company measures the following financial assets at fair value on a recurring basis. 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text-align: center;" width="2%" colspan="2" nowrap="nowrap"><font size="2" style="font-family:arial">2012</font></td> <td style="text-align: center;" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="2%" colspan="2" nowrap="nowrap"><font size="2" style="font-family:arial">(Level 1)</font></td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="2%" colspan="2" nowrap="nowrap"><font size="2" style="font-family:arial">(level 2)</font></td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="1%" nowrap="nowrap">&#160;&#160;&#160;&#160;&#160;</td> <td style="border-bottom: #000000 1pt solid; text-align: center;" width="2%" colspan="2" nowrap="nowrap"><font size="2" style="font-family:arial">(Level 3)</font></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="98%" nowrap="nowrap"><font size="2" style="font-family:arial">Cash equivalents:</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> </tr> <tr valign="bottom"> <td align="left" width="98%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; Money market mutual funds</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">3,038</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">3,038</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">-</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">-</font></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="98%" nowrap="nowrap"><font size="2" style="font-family:arial">Marketable Securities:</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> </tr> <tr valign="bottom"> <td align="left" width="98%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; Time deposits</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">22,480</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">22,480</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">-</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="right" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">-</font></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="98%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; Corporate bonds</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">11,665</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">-</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">11,665</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">-</font></td> </tr> <tr valign="bottom"> <td align="left" width="98%" nowrap="nowrap"><font size="2" style="font-family:arial">Long-term investments:</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> </tr> <tr valign="bottom"> <td align="left" bgcolor="#c0c0c0" width="98%" nowrap="nowrap"><font size="2" style="font-family:arial">&#160;&#160;&#160;&#160; Time deposits</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">10,229</font></td> <td align="left" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">10,229</font></td> <td align="left" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">-</font></td> <td align="left" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"></td> <td align="right" style="border-bottom: #000000 1pt solid;" bgcolor="#c0c0c0" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">-</font></td> </tr> <tr valign="bottom"> <td align="left" width="98%" nowrap="nowrap"><font size="2" style="font-family:arial">Total</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">47,412</font></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">35,747</font></td> <td align="left" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">11,665</font></td> <td align="left" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"></td> <td align="left" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">$</font></td> <td align="right" style="border-bottom: #000000 2pt double;" width="1%" nowrap="nowrap"><font size="2" style="font-family:arial">-</font></td> </tr> </table> 18000 1.00 0.25 2012-10-25 0 -647000 no customer accounted for 10% or more of our revenues. <p align="justify"><b><font size="2" style="font-family:arial">9. 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Commitments and Contingencies (Details Textual) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2012
Sep. 30, 2011
Product Warranty Accrual $ 0.02 $ 0.02
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Geographic Segment Information (Tables)
9 Months Ended
Sep. 30, 2012
Segment Reporting [Abstract]  
Schedule of Segment Reporting Information, by Segment [Table Text Block]

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

Three Months Ended September 30, Nine Months Ended September 30,
      2012       2011       2012       2011
Revenues
     North America $ 7,184 $ 6,495 $ 20,435 $ 17,544
     Europe 2,327 2,221 6,178 5,509
     Asia 2,879 3,062 7,839 8,830
$ 12,390 $ 11,778 $ 34,452 $ 31,883
 
Three Months Ended September 30, Nine Months Ended September 30,
2012 2011 2012 2011
Revenues
     Connectivity Products $ 8,307 $ 8,665 $ 24,591 $ 24,098
     Optical Passive Products 4,083 3,113 9,861 7,785
$ 12,390 $ 11,778 $ 34,452 $ 31,883
 
September 30, December 31,
      2012       2011
Property and Equipment
     United States $ 50 $ 91
     Taiwan 3,257 3,491
     China 4,039 4,136
$ 7,346 $

7,718

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Geographic Segment Information (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Dec. 31, 2011
Revenues          
Revenues $ 12,390 $ 11,778 $ 34,452 $ 31,883  
Property and Equipment          
Property and equipment, net 7,346   7,346   7,718
Connectivity Products [Member]
         
Revenues          
Revenues 8,307 8,665 24,591 24,098  
Optical Passive Products [Member]
         
Revenues          
Revenues 4,083 3,113 9,861 7,785  
North America [Member]
         
Revenues          
Revenues 7,184 6,495 20,435 17,544  
Europe [Member]
         
Revenues          
Revenues 2,327 2,221 6,178 5,509  
Asia [Member]
         
Revenues          
Revenues 2,879 3,062 7,839 8,830  
United States [Member]
         
Property and Equipment          
Property and equipment, net 50   50   91
Taiwan [Member]
         
Property and Equipment          
Property and equipment, net 3,257   3,257   3,491
China [Member]
         
Property and Equipment          
Property and equipment, net $ 4,039   $ 4,039   $ 4,136
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Inventories, net
9 Months Ended
Sep. 30, 2012
Inventory Disclosure [Abstract]  
Inventory Disclosure [Text Block]

4. Inventories, net (in thousands)

September 30, December 31,
      2012       2011
Inventories:
     Finished goods $ 1,890 $ 2,263
     Work-in-process 2,838 2,475
     Raw materials 2,574 2,025
$ 7,302 $ 6,763
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Stock-based Compensation (Details Textual) (USD $)
3 Months Ended 9 Months Ended 12 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Dec. 31, 2010
Dec. 31, 2000
Stock Issued During Period, Shares, Share-based Compensation, Gross (in shares)         10,000,000 1,500,000
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Date     Mar. 17, 2020      
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period     2 years      
Share-based Compensation Arrangement by Share-based Payment Award, Award Requisite Service Period     5 years      
Share Based Compensation Arrangement By Share Based Payment Award Granted Description     Options granted under the 2000 Stock Incentive Plan generally vest over four years and are exercisable for not more than ten years.      
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period, Total Intrinsic Value $ 80,000 $ 90,000 $ 500,000 $ 300,000    
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized 2,100,000   2,100,000      
Employee Service Share-based Compensation, Cash Received from Exercise of Stock Options 100,000   500,000      
Stock Issued During Period, Shares, Employee Stock Purchase Plans (in shares)     30,837      
Employee Service Share-based Compensation, Tax Benefit from Compensation Expense 30,000          
Un Recognized Compensation Cost For Employee Stock Purchase Plan 10,000   10,000      
Share-Based Compensation 268,000 259,000 786,000 513,000    
Restricted Stock Units (Rsus) [Member]
           
Share Based Compensation Arrangement By Share Based Payment Award Granted Description     The RSUs granted under the plan generally vest over two years at a rate of 50 percent per year or over five years at a rate of 20 percent per year.      
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period (in shares)       273,000    
Share-Based Compensation 200,000          
Un Recognized Compensation Cost For Restricted Stock Units Granted     1,600,000      
Share Based Compensation Expected To Be Realized Over Two Years     200,000      
Share Based Compensation Expected To Be Realized Over Five Years     1,400,000      
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value       $ 2,500,000    
Employee Stock [Member]
           
Proceeds from Stock Plans     $ 200,000      
XML 19 R28.htm IDEA: XBRL DOCUMENT v2.4.0.6
Stock-based Compensation (Details 1) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Operating expenses:        
Allocated Share-based Compensation Expense $ 240 $ 231 $ 700 $ 439
Total stock-based compensation expense 268 259 786 513
Cost Of Sales [Member]
       
Operating expenses:        
Allocated Share-based Compensation Expense 28 28 86 74
Research and Development Expense [Member]
       
Operating expenses:        
Allocated Share-based Compensation Expense 32 29 92 48
Sales and marketing (Member)
       
Operating expenses:        
Allocated Share-based Compensation Expense 65 63 188 117
General and Administrative Expense [Member]
       
Operating expenses:        
Allocated Share-based Compensation Expense $ 143 $ 139 $ 420 $ 274
XML 20 R30.htm IDEA: XBRL DOCUMENT v2.4.0.6
Inventories, net (Details) (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2012
Dec. 31, 2011
Inventories:    
Finished goods $ 1,890 $ 2,263
Work-in-process 2,838 2,475
Raw materials 2,574 2,025
Inventories, net $ 7,302 $ 6,763
XML 21 R31.htm IDEA: XBRL DOCUMENT v2.4.0.6
Net Income Per Share (Details) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Numerator:        
Net income $ 1,892 $ 1,454 $ 4,045 $ 3,724
Denominator:        
Basic (in shares) 8,790 8,883 8,819 8,853
Diluted (in shares) 8,988 9,040 9,000 9,119
Net income per share:        
Basic (in dollars per share) $ 0.22 $ 0.16 $ 0.46 $ 0.42
Diluted (in dollars per share) $ 0.21 $ 0.16 $ 0.45 $ 0.41
XML 22 R8.htm IDEA: XBRL DOCUMENT v2.4.0.6
Stock-based Compensation
9 Months Ended
Sep. 30, 2012
Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract]  
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

3. 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”) prior to June 30, 2010 was determined using the Binomial Lattice Model. The Company adopted the Black-Scholes valuation model for stock options granted and stock purchased pursuant to the ESPP after June 30, 2010. The Company believes that the Black-Scholes model is more appropriate in determining fair value of its stock-based compensation and does not differ materially from the previous valuation model used.

At September 30, 2012 the Company had one stock-based compensation plan, which is the 2000 Stock Incentive Plan as described below.

In November 2000, the Company adopted its 2000 Stock Incentive Plan under which 1,500,000 shares of common stock were reserved for issuance to eligible employees, directors and consultants upon exercise of stock options and stock purchase rights. The plan was amended and restated in 2010 to, among other things, extend the term under which awards may be granted under the plan until March 17, 2020, eliminate a 10 million share ceiling on the aggregate number of shares of common stock that may be issued under the plan, and to include certain qualifying performance criteria and annual award limits so that awards granted under the plan qualify as “performance-based compensation" under the requirements of Section 162(m) of the Internal Revenue Code of 1986, as amended.

Under the 2000 Stock Incentive Plan, participants may be granted restricted stock units (“RSUs”), representing an unfunded, unsecured right to receive a Company common share 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 or over five years at a rate of 20 percent per year. The Company recognizes compensation expense on a straight-line basis over the applicable vesting term of each award.

Options granted under the 2000 Stock Incentive Plan generally vest over four years and are exercisable for not more than ten years. However, most options granted in the past four years have been fully vested at the time of grant. Options are exercisable for not more than ten years.

The following information relates to stock option activity for the nine months ended September 30, 2012:

Weighted
Weighted Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Options       Shares       Price       Life       Value
     Outstanding at December 31, 2011 824,280 $        7.26
     Granted 125,000 8.36
     Exercised (143,900 ) 5.23
     Forfeited (42,400 ) 9.74
     Outstanding at September 30, 2012 762,980 $ 7.68 5.35 Years $     1,200,229
     Vested and expected to vest at September 30, 2012 744,377 $ 7.67 5.26 Years $ 1,185,697
     Exercisable at September 30, 2012 549,743 $ 7.47 4.01 Years $ 1,039,958
 

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 third quarter of fiscal 2012 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 September 30, 2012. This amount changes based on the fair market value of the Company’s stock. The total intrinsic value of options exercised was $0.08 million and $0.5 million for the three and nine months ended September 30, 2012, respectively. The total intrinsic value of options exercised was $0.09 million and $0.3 million for the three and nine months ended September 30, 2011, respectively.

No options were granted during the three months ended September 30, 2012 and 2011, respectively. As of September 30, 2012, there was $2.1 million of unrecognized compensation cost related to share-based compensation arrangements granted under the Plan. The compensation cost is expected to be realized over four years.

Cash received from option exercises during the three and nine months ended September 30, 2012 was $0.1 million and $0.5 million, respectively, and is included within the financing activities section in the accompanying condensed consolidated statements of cash flows.

During the nine months ended September 30, 2012, a total of 30,837 shares were issued under the Company’s ESPP and cash received from purchases of common stock was $0.2 million. Compensation expense recorded in the quarter ended September 30, 2012 related to the ESPP was approximately $0.03 million. As of September 30, 2012, there was $0.01 million of unrecognized compensation cost related to the ESPP which is expected to be realized over the next month.

During the nine months ended September 30, 2011, the Company granted 273,000 RSUs with a total grant-date fair value of $2.5 million. The resulting compensation expense recorded in the quarter ended September 30, 2012 was approximately $0.2 million. There was $1.6 million of total unrecognized compensation cost related to RSUs granted under the Plan, of which $0.2 million is expected to be realized over one year and $1.4 million is expected to be realized over four years.

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

Three Months Ended September 30, Nine Months Ended September 30,
      2012       2011       2012       2011
Included in cost of revenue $ 28 $ 28 $ 86 $ 74
Included in operating expenses:  
       Research and development 32 29 92 48
       Sales and marketing 65 63 188 117
       General and administrative 143 139 420 274
              Total 240 231 700 439
Total stock-based compensation expense $ 268 $ 259 $ 786 $ 513
XML 23 R32.htm IDEA: XBRL DOCUMENT v2.4.0.6
Commitments and Contingencies (Details) (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2012
2012 (remaining three months of the year) $ 179
2013 437
2014 359
2015 212
2016 18
2017 1
Total $ 1,206
XML 24 R2.htm IDEA: XBRL DOCUMENT v2.4.0.6
Condensed Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2012
Dec. 31, 2011
Assets    
Cash and cash equivalents $ 8,518 $ 13,820
Short-term investments 34,145 25,768
Accounts receivable, net 8,292 6,630
Inventories, net 7,302 6,763
Prepaid expense and other current assets 1,770 714
Total current assets 60,027 53,695
Long-term investments 10,229 10,098
Property and equipment, net 7,346 7,718
Other assets 211 162
Total assets 77,813 71,673
Liabilities and Stockholders' Equity    
Accounts payable 6,239 3,647
Accrued expenses 4,273 3,624
Current portion of bank loan 0 97
Total current liabilities 10,512 7,368
Long-term liabilities    
Bank loan 0 129
Other long-term liabilities 596 562
Total long term liabilities 596 691
Total liabilities 11,108 8,059
Commitments and contingencies (Note 8)      
Stockholders' equity:    
Preferred stock, par value $0.001: 5,000,000 shares authorized: no shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively 0 0
Common stock, $0.001 par value: 20,000,000 shares authorized; 8,751,974 and 8,891,219 shares issued and outstanding at September 30, 2012 and December 31, 2011. 9 9
Additional paid-in-capital 113,385 114,957
Accumulated deficit (49,308) (53,353)
Accumulated other comprehensive income 2,619 2,001
Stockholders' equity 66,705 63,614
Total liabilities and stockholders' equity $ 77,813 $ 71,673
XML 25 R6.htm IDEA: XBRL DOCUMENT v2.4.0.6
Summary of Significant Accounting Policies
9 Months Ended
Sep. 30, 2012
Organization, Consolidation and Presentation Of Financial Statements [Abstract]  
Organization, Consolidation, Basis of Presentation, Business Description and Accounting Policies [Text Block]

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, 2011, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements as of September 30, 2012 and for the three and nine months ended September 30, 2011 and 2012 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, 2011. The unaudited condensed consolidated financial statements as of September 30, 2012, and for the three and nine months ended September 30, 2012 and 2011, 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 nine months ended September 30, 2012 as compared to what was previously disclosed in the Company’s Form 10-K for the fiscal year ended December 31, 2011.

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

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 reserves 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 market rate accounts, corporate bonds and certificates of deposit.

Short-Term and Long-Term Investments

The Company generally invests its excess cash in certificates of deposit, corporate bonds, and commercial paper. 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

Our connectivity products contributed 67.0% and 73.6% of our revenues for the three months ended September 30, 2012 and 2011, respectively. Our optical passive products contributed 33.0% and 26.4% of our revenues for the three months ended September 30, 2012 and 2011, respectively.

Our connectivity products contributed 71.4% and 75.6% of our revenues for the nine months ended September 30, 2012 and 2011, respectively. Our optical passive products contributed 28.6% and 24.4% of our revenues for the nine months ended September 30, 2012 and 2011, respectively.

In the three months ended September 30, 2012 and 2011, our 10 largest customers comprised 66.3% and 68.6% of our revenues, respectively. For the three months ended September 30, 2012, three customers accounted for 14.1%, 11.0% and 10.1% of our total revenues, respectively. Amounts due from these customers were $1.5 million, $1.0 million and $0.8 million, respectively, at September 30, 2012. For the three months ended September 30, 2011, two customers accounted for 13.8% and 11.7% of our total revenues, respectively. Amounts due from these customers were $1.2 million and $1.0 million, respectively, at September 30, 2011.

In the nine months ended September 30, 2012 and 2011, our 10 largest customers comprised 62.9% and 63.6% of our revenues, respectively. For the nine months ended September 30, 2012, no customer accounted for 10% or more of our revenues. For the nine months ended September 30, 2011, one customer accounted for 14.8% of our revenues.

XML 26 R35.htm IDEA: XBRL DOCUMENT v2.4.0.6
Related Party Transactions (Details Textual) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Foxconn [Member]
       
Equity Method Investment, Ownership Percentage 18.28%   18.28%  
Honhai [Member]
       
Sales Revenue, Goods, Net $ 0 $ 0 $ 0.06 $ 0.02
Cost of Goods Sold, Direct Materials 0.2 0.3 0.8 0.9
Due To Related Parties 0.3 0.4 0.3 0.4
Due From Related Parties $ 0.03   $ 0.03  
XML 27 R22.htm IDEA: XBRL DOCUMENT v2.4.0.6
Net Income Per Share (Tables)
9 Months Ended
Sep. 30, 2012
Earnings Per Share, Basic and Diluted [Abstract]  
Schedule of Calculation of Numerator and Denominator in Earnings Per Share [Table Text Block]

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 September 30, Nine Months Ended September 30,
2012       2011       2012       2011
Numerator:
       Net income $ 1,892 $ 1,454 $ 4,045 $ 3,724
Denominator:
       Shares used in computing net income per share:
       Basic 8,790 8,883 8,819 8,853
       Diluted 8,988 9,040 9,000 9,119
Net income per share:
       Basic $ 0.22 $ 0.16 $ 0.46 $ 0.42
       Diluted $ 0.21 $ 0.16 $ 0.45 $ 0.41
XML 28 R36.htm IDEA: XBRL DOCUMENT v2.4.0.6
Fair Value of Financial instruments (Details) (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2012
Assets, Fair Value Disclosure, Recurring $ 47,412
Corporate Bond Securities [Member]
 
Assets, Fair Value Disclosure, Recurring 11,665
Maturity Over 365 Days [Member]
 
Assets, Fair Value Disclosure, Recurring 10,229
Maturity Over 90 Days [Member] | Time Deposits [Member]
 
Assets, Fair Value Disclosure, Recurring 22,480
Money Market Funds [Member]
 
Assets, Fair Value Disclosure, Recurring 3,038
Fair Value, Inputs, Level 1 [Member]
 
Assets, Fair Value Disclosure, Recurring 35,747
Fair Value, Inputs, Level 1 [Member] | Corporate Bond Securities [Member]
 
Assets, Fair Value Disclosure, Recurring 0
Fair Value, Inputs, Level 1 [Member] | Maturity Over 365 Days [Member]
 
Assets, Fair Value Disclosure, Recurring 10,229
Fair Value, Inputs, Level 1 [Member] | Maturity Over 90 Days [Member] | Time Deposits [Member]
 
Assets, Fair Value Disclosure, Recurring 22,480
Fair Value, Inputs, Level 1 [Member] | Money Market Funds [Member]
 
Assets, Fair Value Disclosure, Recurring 3,038
Fair Value, Inputs, Level 2 [Member]
 
Assets, Fair Value Disclosure, Recurring 11,665
Fair Value, Inputs, Level 2 [Member] | Corporate Bond Securities [Member]
 
Assets, Fair Value Disclosure, Recurring 11,665
Fair Value, Inputs, Level 2 [Member] | Maturity Over 365 Days [Member]
 
Assets, Fair Value Disclosure, Recurring 0
Fair Value, Inputs, Level 2 [Member] | Maturity Over 90 Days [Member]
 
Assets, Fair Value Disclosure, Recurring 0
Fair Value, Inputs, Level 2 [Member] | Money Market Funds [Member]
 
Assets, Fair Value Disclosure, Recurring 0
Fair Value, Inputs, Level 3 [Member]
 
Assets, Fair Value Disclosure, Recurring 0
Fair Value, Inputs, Level 3 [Member] | Corporate Bond Securities [Member]
 
Assets, Fair Value Disclosure, Recurring 0
Fair Value, Inputs, Level 3 [Member] | Maturity Over 365 Days [Member]
 
Assets, Fair Value Disclosure, Recurring 0
Fair Value, Inputs, Level 3 [Member] | Maturity Over 90 Days [Member]
 
Assets, Fair Value Disclosure, Recurring 0
Fair Value, Inputs, Level 3 [Member] | Money Market Funds [Member]
 
Assets, Fair Value Disclosure, Recurring $ 0
XML 29 R24.htm IDEA: XBRL DOCUMENT v2.4.0.6
Fair Value of Financial instruments (Tables)
9 Months Ended
Sep. 30, 2012
Fair Value Disclosures [Abstract]  
Fair Value, Assets Measured on Recurring Basis [Table Text Block]

The Company measures the following financial assets at fair value on a recurring basis. The fair values of these financial assets at September 30, 2012 (in thousands) were as follows:

Fair Value Measurements at
Reporting Date Using
Quoted Prices Significant
in Active Other Significant
Balance at Markets for Observable Unobservable
September 30, Identical Assets Inputs Inputs
      2012       (Level 1)       (level 2)       (Level 3)
Cash equivalents:
     Money market mutual funds $ 3,038 $ 3,038 $ - $ -
Marketable Securities:
     Time deposits 22,480 22,480 - -
     Corporate bonds 11,665 - 11,665 -
Long-term investments:
     Time deposits 10,229 10,229 - -
Total $ 47,412 $ 35,747 $ 11,665 $ -
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XML 31 R7.htm IDEA: XBRL DOCUMENT v2.4.0.6
Recent Accounting Pronouncements and Accounting Changes
9 Months Ended
Sep. 30, 2012
New Accounting Pronouncements and Changes In Accounting Principles [Abstract]  
Description of New Accounting Pronouncements Not yet Adopted [Text Block]

2. Recent Accounting Pronouncements and Accounting Changes

In January 2012, the Company adopted Accounting Standards Update (“ASU”) 2011-12 Comprehensive Income (topic 220) which required additional disclosures for comprehensive income. As permitted under this standard, we have elected to present comprehensive income in two separate but consecutive financial statements, consisting of a statement of income followed by a separate statement of comprehensive income. This standard is required to be applied retrospectively beginning January 1, 2012, except for certain provisions for which adoption was delayed.

In May 2011, the Financial Accounting Standards Board (“FASB”) issued ASU 2011-04, Fair Value Measurement (“ASU 2011-04”), which amended ASC 820, Fair Value Measurements (“ASC 820”), providing a consistent definition and measurement of fair value, as well as similar disclosure requirement between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles, clarifies the application of existing fair value measurement and expands the disclosure requirements. ASU 2011-04 is effective for us beginning January 1, 2012. The adoption of ASU 2011-04 did not have a material effect on our consolidated financial statements or disclosures.

XML 32 R3.htm IDEA: XBRL DOCUMENT v2.4.0.6
Condensed Consolidated Balance Sheets [Parenthetical] (USD $)
Sep. 30, 2012
Dec. 31, 2011
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 20,000,000 20,000,000
Common stock, shares issued 8,751,974 8,891,219
Common stock, shares outstanding 8,751,974 8,891,219
XML 33 R17.htm IDEA: XBRL DOCUMENT v2.4.0.6
Geographic Segment Information
9 Months Ended
Sep. 30, 2012
Segment Reporting [Abstract]  
Segment Reporting Disclosure [Text Block]

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 from geographic segments, revenues generated by product lines and identifiable assets located in these segments (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
      2012       2011       2012       2011
Revenues
     North America $ 7,184 $ 6,495 $ 20,435 $ 17,544
     Europe 2,327 2,221 6,178 5,509
     Asia 2,879 3,062 7,839 8,830
$ 12,390 $ 11,778 $ 34,452 $ 31,883
 
Three Months Ended September 30, Nine Months Ended September 30,
2012 2011 2012 2011
Revenues
     Connectivity Products $ 8,307 $ 8,665 $ 24,591 $ 24,098
     Optical Passive Products 4,083 3,113 9,861 7,785
$ 12,390 $ 11,778 $ 34,452 $ 31,883
 
September 30, December 31,
      2012       2011
Property and Equipment
     United States $ 50 $ 91
     Taiwan 3,257 3,491
     China 4,039 4,136
$ 7,346 $ 7,718
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Document And Entity Information
9 Months Ended
Sep. 30, 2012
Oct. 31, 2012
Entity Registrant Name ALLIANCE FIBER OPTIC PRODUCTS INC  
Entity Central Index Key 0001122342  
Current Fiscal Year End Date --12-31  
Entity Filer Category Smaller Reporting Company  
Trading Symbol afop  
Entity Common Stock, Shares Outstanding   8,744,819
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Sep. 30, 2012  
Document Fiscal Period Focus Q3  
Document Fiscal Year Focus 2012  

XML 36 R18.htm IDEA: XBRL DOCUMENT v2.4.0.6
Subsequent Event
9 Months Ended
Sep. 30, 2012
Subsequent Events [Abstract]  
Subsequent Events [Text Block]

13. Subsequent Event

On October 25, 2012, the Company announced it had declared an annual cash dividend of $0.25 per share and a one-time special cash dividend of $1.00 per share payable on December 11, 2012 to holders of record on November 30, 2012.

XML 37 R4.htm IDEA: XBRL DOCUMENT v2.4.0.6
Condensed Consolidated Statements of Income (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Revenues $ 12,390 $ 11,778 $ 34,452 $ 31,883
Cost of revenues 7,979 7,963 22,688 21,580
Gross profit 4,411 3,815 11,764 10,303
Operating expenses:        
Research and development 819 834 2,465 2,356
Sales and marketing 614 595 1,951 1,711
General and administrative 1,079 1,052 3,281 3,095
Total operating expenses 2,512 2,481 7,697 7,162
Income from operations 1,899 1,334 4,067 3,141
Interest and other income, net 194 149 504 452
Net income before income tax 2,093 1,483 4,571 3,593
Income tax expense (benefit) 201 29 526 (131)
Net income 1,892 1,454 4,045 3,724
Cumulative translation adjustments 303 (914) 585 (328)
Unrealized gain (loss) on investments 42 2 33 (13)
Comprehensive income $ 2,237 $ 542 $ 4,663 $ 3,383
Net income per share:        
Basic (in dollars per share) $ 0.22 $ 0.16 $ 0.46 $ 0.42
Diluted (in dollars per share) $ 0.21 $ 0.16 $ 0.45 $ 0.41
Shares used in computing net income per share:        
Basic (in shares) 8,790 8,883 8,819 8,853
Diluted (in shares) 8,988 9,040 9,000 9,119
XML 38 R12.htm IDEA: XBRL DOCUMENT v2.4.0.6
Income Taxes
9 Months Ended
Sep. 30, 2012
Income Tax Disclosure [Abstract]  
Income Tax Disclosure [Text Block]

7. Income Taxes

The Company adopted ASC 740, Accounting for Uncertainty in Income Taxes, on January 1, 2007. It is the Company's accounting policy to record income tax interest and penalties in the income tax provision. The Company did not have any material unrecognized tax benefits or uncertain tax positions at September 30, 2012.

XML 39 R11.htm IDEA: XBRL DOCUMENT v2.4.0.6
Comprehensive Income
9 Months Ended
Sep. 30, 2012
Stockholders Equity Note [Abstract]  
Comprehensive Income (Loss) Note [Text Block]

6. 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 gain (loss) on available-for-sale securities.

XML 40 R23.htm IDEA: XBRL DOCUMENT v2.4.0.6
Commitments and Contingencies (Tables)
9 Months Ended
Sep. 30, 2012
Commitments and Contingencies Disclosure [Abstract]  
Schedule of Future Minimum Lease Payments for Capital Leases [Table Text Block]

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

Years ending December 31:      
     2012 (remaining three months of the year) $      179
     2013 437
     2014 359
     2015 212
     2016 18
     2017 1
Total $ 1,206
XML 41 R19.htm IDEA: XBRL DOCUMENT v2.4.0.6
Summary of Significant Accounting Policies (Policies)
9 Months Ended
Sep. 30, 2012
Organization, Consolidation and Presentation Of Financial Statements [Abstract]  
Basis Of Presentation [Policy Text Block]

Basis of Presentation

The accompanying condensed consolidated balance sheet as of December 31, 2011, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements as of September 30, 2012 and for the three and nine months ended September 30, 2011 and 2012 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, 2011. The unaudited condensed consolidated financial statements as of September 30, 2012, and for the three and nine months ended September 30, 2012 and 2011, 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 nine months ended September 30, 2012 as compared to what was previously disclosed in the Company’s Form 10-K for the fiscal year ended December 31, 2011.

Revenue Recognition, Policy [Policy Text Block]

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.

Trade and Other Accounts Receivable, Policy [Policy Text Block]

Allowance for Doubtful Accounts

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 reserves 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, Policy [Policy Text Block]

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 market rate accounts, corporate bonds and certificates of deposit.

Short Term Long Term Investments [Policy Text Block]

Short-Term and Long-Term Investments

The Company generally invests its excess cash in certificates of deposit, corporate bonds, and commercial paper. 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.

Concentration Of Risk [Policy Text Block]

Concentrations of Risk

Our connectivity products contributed 67.0% and 73.6% of our revenues for the three months ended September 30, 2012 and 2011, respectively. Our optical passive products contributed 33.0% and 26.4% of our revenues for the three months ended September 30, 2012 and 2011, respectively.

Our connectivity products contributed 71.4% and 75.6% of our revenues for the nine months ended September 30, 2012 and 2011, respectively. Our optical passive products contributed 28.6% and 24.4% of our revenues for the nine months ended September 30, 2012 and 2011, respectively.

In the three months ended September 30, 2012 and 2011, our 10 largest customers comprised 66.3% and 68.6% of our revenues, respectively. For the three months ended September 30, 2012, three customers accounted for 14.1%, 11.0% and 10.1% of our total revenues, respectively. Amounts due from these customers were $1.5 million, $1.0 million and $0.8 million, respectively, at September 30, 2012. For the three months ended September 30, 2011, two customers accounted for 13.8% and 11.7% of our total revenues, respectively. Amounts due from these customers were $1.2 million and $1.0 million, respectively, at September 30, 2011.

In the nine months ended September 30, 2012 and 2011, our 10 largest customers comprised 62.9% and 63.6% of our revenues, respectively. For the nine months ended September 30, 2012, no customer accounted for 10% or more of our revenues. For the nine months ended September 30, 2011, one customer accounted for 14.8% of our revenues.

XML 42 R15.htm IDEA: XBRL DOCUMENT v2.4.0.6
Related Party Transactions
9 Months Ended
Sep. 30, 2012
Related Party Transactions [Abstract]  
Related Party Transactions Disclosure [Text Block]

10. Related Party Transactions

As of September 30, 2012, Foxconn Holding Limited was a holder of 18.28% of the Company’s common stock, based on share ownership information set forth in a Schedule 13G filed by Foxconn Holding Limited on January 4, 2002. The Company sells products to and purchases raw materials in the normal course of business from Hon Hai Precision Industry Company Limited, the parent company of Foxconn Holding Limited. These transactions were made at prices and terms consistent with those with unrelated third parties.

Sales of products to Hon Hai Precision Industry Company Limited were zero and $0.06 million for the three and nine months ended September 30, 2012, respectively. Purchases of raw materials from Hon Hai Precision Industry Company Limited were $0.2 million and $0.8 million for the three and nine months ended September 30, 2012, respectively. Amounts due from Hon Hai Precision Industry Company Limited were $0.03 million for both the three and nine months ended September 30, 2012. Amounts due to Hon Hai Precision Industry Company Limited were $0.3 million for both the three and nine months ended September 30, 2012.

Sales of products to Hon Hai Precision Industry Company Limited were zero and $0.02 million for the three and nine months ended September 30, 2011, respectively. Purchases of raw materials from Hon Hai Precision Industry Company Limited were $0.3 million and $0.9 million for the three and nine months ended September 30, 2011, respectively. Amounts due from Hon Hai Precision Industry Company Limited were de miniums for both three and nine months ended September 30, 2011. Amounts due to Hon Hai Precision Industry Company Limited were $0.4 million for both the three and nine months ended September 30, 2011.

XML 43 R13.htm IDEA: XBRL DOCUMENT v2.4.0.6
Commitments and Contingencies
9 Months Ended
Sep. 30, 2012
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies Disclosure [Text Block]

8. 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 September 30, 2012, 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 nonconformance 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 $0.02 million for warranty reserves at each of September 30, 2012 and 2011.

Operating Leases:

The Company leases office space under long-term operating leases expiring at various dates through 2016.

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

Years ending December 31:      
     2012 (remaining three months of the year) $      179
     2013 437
     2014 359
     2015 212
     2016 18
     2017 1
Total $ 1,206
XML 44 R14.htm IDEA: XBRL DOCUMENT v2.4.0.6
Bank Loans
9 Months Ended
Sep. 30, 2012
Debt Disclosure [Abstract]  
Long-term Debt [Text Block]

9. Bank Loans

In November 2004, the Company entered into a ten-year loan of $0.5 million in Taiwan with an interest rate of 2.3% for the first two years and 3.6% for the following years. In November 2006, the Company entered into a seven-year loan of $0.2 million in Taiwan with an interest rate of 2.8%. Both loans were secured by the Company’s building in Taiwan. In September 2007, the Company also entered a five-year equipment loan of $0.1 million with an interest rate of 3.68%. In July 2012, the Company paid off all of the loans.

XML 45 R16.htm IDEA: XBRL DOCUMENT v2.4.0.6
Fair Value of Financial instruments
9 Months Ended
Sep. 30, 2012
Fair Value Disclosures [Abstract]  
Fair Value Disclosures [Text Block]

11. Fair Value of Financial instruments

Effective January 1, 2008, the Company adopted ASC 820 which provides a definition of fair value, establishes a hierarchy for measuring fair value under generally accepted accounting principles, and requires certain disclosures about fair values used in the financial statements. ASC 820 does not extend the use of fair value beyond what is currently required by other pronouncements, and it does not pertain to stock-based compensation under ASC 718, Share-Based Payments or to leases under ASC 840, Accounting for Leases.

In February 2008, FASB ASC 820 was issued. This FASB Staff Position provides a one year deferral of the effective date of ASC 820 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. Therefore, the Company has adopted the provisions of ASC 820 with respect to financial assets and liabilities only.

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:

  • Level 1 – Quoted prices in active markets for identical assets or liabilities.
     
  • Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
     
  • Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company measures the following financial assets at fair value on a recurring basis. The fair values of these financial assets at September 30, 2012 (in thousands) were as follows:

Fair Value Measurements at
Reporting Date Using
Quoted Prices Significant
in Active Other Significant
Balance at Markets for Observable Unobservable
September 30, Identical Assets Inputs Inputs
      2012       (Level 1)       (level 2)       (Level 3)
Cash equivalents:
     Money market mutual funds $ 3,038 $ 3,038 $ - $ -
Marketable Securities:
     Time deposits 22,480 22,480 - -
     Corporate bonds 11,665 - 11,665 -
Long-term investments:
     Time deposits 10,229 10,229 - -
Total $ 47,412 $ 35,747 $ 11,665 $ -
 

As of September 30, 2012, the Company held investments in corporate bonds, certificates of deposit, and money market securities. The Company’s cash and cash equivalents are comprised of investments with original maturities of 90 days or less from the date of purchase. The Company’s short-term investments comprise 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 comprise certificates of deposit with original maturities of 365 days or more from the date of purchase.

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Bank Loans (Details Textual) (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2007
Dec. 31, 2006
Dec. 31, 2004
Loan Agreement Period 5 years 7 years 10 years
Long-Term Debt $ 0.1 $ 0.2 $ 0.5
Long-Term Debt, Percentage Bearing Fixed Interest, Percentage Rate 3.68% 2.80%  
First Two Years [Member]
     
Long-Term Debt, Percentage Bearing Variable Interest, Percentage Rate     2.30%
More Than Two Years [Member]
     
Long-Term Debt, Percentage Bearing Variable Interest, Percentage Rate     3.60%
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Inventories, net (Tables)
9 Months Ended
Sep. 30, 2012
Inventory Disclosure [Abstract]  
Schedule of Inventory, Current [Table Text Block]

Inventories, net (in thousands)

September 30, December 31,
      2012       2011
Inventories:
     Finished goods $ 1,890 $ 2,263
     Work-in-process 2,838 2,475
     Raw materials 2,574 2,025
$ 7,302 $ 6,763
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Summary of Significant Accounting Policies (Details Textual) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Customer Concentration Risk Percentage     no customer accounted for 10% or more of our revenues.  
Connectivity Products [Member]
       
Concentration Risk, Percentage 67.00% 73.60% 71.40% 75.60%
Optical Passive Products [Member]
       
Concentration Risk, Percentage 33.00% 26.40% 28.60% 24.40%
Top 10 Customers [Member]
       
Concentration Risk, Percentage 66.30% 68.60% 62.90% 63.60%
One Customer [Member]
       
Concentration Risk, Percentage 14.10% 13.80%   14.80%
Due From Customers 1.5 1.2 1.5 1.2
Two Customers [Member]
       
Concentration Risk, Percentage 11.00% 11.70%    
Due From Customers 1.0 1.0 1.0 1.0
Three Customers [Member]
       
Concentration Risk, Percentage 10.10%      
Due From Customers 0.8   0.8  
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Condensed Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Cash flows from operating activities:    
Net Income $ 4,045 $ 3,724
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 1,189 1,131
Loss on disposal of property and equipment 6 6
Amortization of stock-based compensation 786 513
Deferred restricted stock unit compensation (647) 0
Provision for inventory 164 (176)
Changes in assets and liabilities:    
Accounts receivable (1,662) (620)
Inventories (703) 133
Prepaid expenses and other assets (1,056) 77
Other assets (52) (2)
Accounts payable 2,592 (611)
Accrued expenses 649 (1,317)
Other long-term liabilities 34 5
Net cash provided by operating activities 5,345 2,863
Cash flows from investing activities:    
Purchase of short-term investments (17,193) (12,341)
Proceeds from sales and maturities of short-term investments 8,850 27,636
Purchase of long-term investments (131) (10,054)
Purchase of property and equipment (717) (1,304)
Net cash (used in) provided by investing activities (9,191) 3,937
Cash flows from financing activities:    
Proceeds from issuance of common stock under ESPP 207 210
Proceeds from the exercise of stock options 477 383
Repurchase of common stock (2,395) 0
Repayment of bank borrowings (230) (68)
Net cash (used in) provided by financing activities (1,941) 525
Effect of exchange rate changes on cash and cash equivalents 485 (373)
Net (decrease) increase in cash and cash equivalents (5,302) 6,952
Cash and cash equivalents at beginning of period 13,820 8,040
Cash and cash equivalents at end of period 8,518 14,992
Supplemental disclosure of cash flow information:    
Cash paid for interest (4) (6)
Cash paid for income tax $ (379) $ (83)
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Net Income Per Share
9 Months Ended
Sep. 30, 2012
Earnings Per Share, Basic and Diluted [Abstract]  
Earnings Per Share [Text Block]

5. 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. There were no incremental dilutive common share equivalents in the periods presented.

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 September 30, Nine Months Ended September 30,
2012       2011       2012       2011
Numerator:
       Net income $ 1,892 $ 1,454 $ 4,045 $ 3,724
Denominator:
       Shares used in computing net income per share:
       Basic 8,790 8,883 8,819 8,853
       Diluted 8,988 9,040 9,000 9,119
Net income per share:
       Basic $ 0.22 $ 0.16 $ 0.46 $ 0.42
       Diluted $ 0.21 $ 0.16 $ 0.45 $ 0.41
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Stock-based Compensation (Details) (USD $)
9 Months Ended
Sep. 30, 2012
Shares Outstanding at December 31, 2011 824,280
Shares Granted 125,000
Shares Exercised (143,900)
Shares Forfeited (42,400)
Shares Outstanding at September 30, 2012 762,980
Shares Vested and expected to vest at September 30, 2012 744,377
Shares Exercisable at September 30, 2012 549,743
Weighted Average Exercise Price Outstanding at December 31, 2011 $ 7.26
Weighted Average Average Granted (in dollars per share) $ 8.36
Weighted Average Exercise Price Exercised (in dollars per share) $ 5.23
Weighted Average Exercise Price Forfeited (in dollars per share) $ 9.74
Weighted Average Exercise Price Outstanding at September 30, 2012 (in dollars per share) $ 7.68
Weighted Average Exercise Price Vested and expected to vest at September 30, 2012 (in dollars per share) $ 7.67
Weight Average Exercise Price Exercisable at September 30, 2012 $ 7.47
Weighted Average Remaining Contractual Life Outstanding at September 30, 2012 5 years 4 months 6 days
Weighted Average Remaining Contractual Life Vested and expected to vest at September 30, 2012 5 years 3 months 4 days
Weighted Average Remaining Contractual Life Exercisable at September 30, 2012 4 years 0 months 4 days
Aggregate Intrinsic Value Outstanding at September 30, 2012 $ 1,200,229
Aggregate Intrinsic Value Vested and expected to vest at September 30, 2012 1,185,697
Aggregate Intrinsic Value Exercisable at September 30, 2012 $ 1,039,958
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Subsequent Event (Details Textual) (Subsequent Event [Member], USD $)
9 Months Ended
Sep. 30, 2012
Subsequent Event [Member]
 
Subsequent Event, Date Oct. 25, 2012
Common Stock, Dividends, Per Share, Declared (in dollars per share) $ 0.25
One Time Special Cash Dividend Declared (in dollars per share) 1.00
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Stock-based Compensation (Tables)
9 Months Ended
Sep. 30, 2012
Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract]  
Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

The following information relates to stock option activity for the nine months ended September 30, 2012:

Weighted
Weighted Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Options       Shares       Price       Life       Value
     Outstanding at December 31, 2011 824,280 $        7.26
     Granted 125,000 8.36
     Exercised (143,900 ) 5.23
     Forfeited (42,400 ) 9.74
     Outstanding at September 30, 2012 762,980 $ 7.68 5.35 Years $     1,200,229
     Vested and expected to vest at September 30, 2012 744,377 $ 7.67 5.26 Years $ 1,185,697
     Exercisable at September 30, 2012 549,743 $ 7.47 4.01 Years $ 1,039,958
Schedule Of Stock Based Compensation Expense [Table Text Block]

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

Three Months Ended September 30, Nine Months Ended September 30,
      2012       2011       2012       2011
Included in cost of revenue $ 28 $ 28 $ 86 $ 74
Included in operating expenses:  
       Research and development 32 29 92 48
       Sales and marketing 65 63 188 117
       General and administrative 143 139 420 274
              Total 240 231 700 439
Total stock-based compensation expense $ 268 $ 259 $ 786 $ 513