SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A #1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Date of Report (Date of earliest event reported):
November 4, 1996 (October 18, 1996)
FOCUS Enhancements, Inc.
(Exact name of registrant as specified in its charter)
Delaware 1-11860 04-3186320
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification
Number)
142 North Road, Sudbury, Massachusetts 01776
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508) 371-2000
800 West Cummings Park, Woburn, Massachusetts 01801
(Former name or former address, if changed
since last report)
Total number of pages: 4
<PAGE>
Item 1. Changes in Control of Registrant
Not Applicable
Item 2. Acquisition or Disposition of Assets
On October 18, 1996, FOCUS Enhancements, Inc., a Delaware corporation,
("FOCUS" or the "Company") consummated the acquisition of all of the capital
stock of TView, Inc., a Delaware corporation ("TView"), pursuant to the terms
and conditions set forth in the Agreement and Plan of Merger, dated as of
September 30, 1996 (the "Agreement and Plan of Merger"), by and among FOCUS,
TView and FOCUS Acquisition Corp., a Delaware corporation and wholly-owned
subsidiary of FOCUS.
In consideration for the capital stock of TView, the Company paid to
TView stockholders an aggregate of $2,000,000 in FOCUS common stock, $.01 par
value per share, which aggregated 732,869 shares of such stock.
The Agreement and Plan of Merger is contained in Item 7 hereto
(previously filed).
The merger is being accounted for as a tax free reorganization under
the provisions of Section 368(a)(2)(D) of the Internal Revenue Code of 1986, as
amended. Due to the amount of assets purchased as compared to the total assets
of the Company, the transaction qualifies as the acquisition of a significant
business under Regulation S-X of the Securities Act of 1933, as amended.
In accordance with Regulation S-B, Item 3.10, financial statements for
the business being acquired along with the pro forma financial information
showing the combined financial statements of the Company and TView are filed
with this report.
Item 3. Bankruptcy or Receivership
Not Applicable
Item 4. Changes in Registrant's Certifying Accountant
Not Applicable
Item 5. Other Events
Not Applicable
Item 6. Resignation of Registrant's Directors
Not Applicable
- 2 -
<PAGE>
Item 7. Financial Statements and Exhibits
(a) Financial statements of business acquired:
Report of KPMG Peat Marwick LLP.................................... F-2
Balance Sheets - December 31, 1994 and 1995........................ F-3
Statements of Operations - Years Ended December 31, 1994 and 1995.. F-5
Statements of Cash Flows - Years Ended December 31, 1994 and 1995.. F-6
Statements of Stockholders' Equity - Years Ended
December 31, 1994 and 1995......................................... F-7
Notes to Financial Statements...................................... F-8
Balance Sheet - September 30, 1996 (unaudited).................... F-17
Statement of Operations - Nine Months Ended
September 30, 1996 (unaudited).................................... F-18
Statement of Cash Flows - Nine Months Ended
September 30, 1996 (Unaudited).................................... F-19
(b) Pro forma financial information:
FOCUS Enhancements, Inc. and TView, Inc. Pro Forma
combined Financial Statements (unaudited)......................... F-20
Pro Forma Combined Balance Sheet - September 30, 1996............. F-21
Pro Forma Combined Statement of Operations - Year
Ended December 31, 1995........................................... F-22
Pro Forma Combined Statements of Operations - Nine Months
Ended September 30, 1996.......................................... F-23
Notes to Pro Forma Combined Financial Statements.................. F-24
The unaudited pro forma combined balance sheet as of September 30, 1996
gives effect to the acquisition of TView, Inc. by FOCUS Enhancements, Inc., as
if the acquisition, accounted for as a purchase, had occurred on September 30,
1996 and the unaudited pro forma combined statements of operations for the year
ended December 31, 1995 and the nine month period ended September 30, 1996 give
effect to the acquisition as if the acquisition had occurred at the beginning of
the period presented. The pro forma information is based on historical financial
statements of TView, Inc. and FOCUS Enhancements, Inc. after giving effect to
the proposed transaction using the purchase method of accounting and the
assumptions and adjustments in the accompanying notes to the pro forma combined
financial statements. FOCUS Enhancements, Inc. will continue its study to
determine the fair value of the acquired assets and liabilities. The pro forma
combined financial statements have been prepared on the basis of preliminary
estimates.
These pro forma statements may not be indicative of the results that actually
would have occurred if the combination had not been in effect on the dates
indicated or which may be obtained in the future. The pro forma financial
statements should be read in conjunction with the audited
-3-
<PAGE>
financial statements and notes of TView, Inc. and the audited financial
statements of FOCUS Enhancements, Inc.
The purchase price is subject to post-closing adjustment subject to final
determination of amounts for accounts receivable, inventory and unbilled costs
of TView, Inc. In the event that there are any post-closing adjustments, the
unaudited pro forma combined financial statements would be accordingly adjusted.
(c) Exhibits
Exhibit 2 Agreement and Plan of Merger dated as of September 30, 1996, by and
among FOCUS Enhancements, Inc., a Delaware corporation, FOCUS
Acquisition Corp., a Delaware corporation and wholly-owned
subsidiary of FOCUS, and TView, Inc., a Delaware corporation
(previously filed)
Exhibit 23 Consent of KPMG Peat Marwick LLP (filed herewith)
Item 8. Change in Fiscal Year
Not Applicable
Item 9. Sales of Equity Securities Pursuant to Regulation S
Not Applicable
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
FOCUS ENHANCEMENTS, INC.
By: /s/Thomas L. Massie
Thomas L. Massie
President
Date: January 3, 1997
-4-
<PAGE>
TVIEW, INC.
Financial Statements
December 31, 1995 and 1994
(With Independent Auditors' Report Thereon)
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors
TView, Inc.:
We have audited the accompanying balance sheets of TView, Inc. as of December
31, 1995 and 1994, and the related statements of operations, stockholders'
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of T. View, Inc. as of
December 31, 1995 and 1994, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 10 to the
financial statements, the Company suffered significant losses and negative cash
flows from operations during 1995 which raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in note 10. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
September 13, 1996
F-2
<PAGE>
<TABLE>
<CAPTION>
TVIEW, INC.
Balance Sheets
December 31, 1995 and 1994
Assets 1995 1994
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 735,668 $ 582
Trade accounts receivable, less allowance for
doubtful accounts of $2,440 and $620 in 1995 and
1994, respectively, and allowance for sales returns
of $109,815 and $20,379 in 1995 and 1994,
respectively (note 7) 776,732 390,901
Inventories, net (note 2) 516,821 90,476
Prepaid expenses and other current assets 74,105 14,603
----------- -----------
Total current assets 2,103,326 496,562
----------- -----------
Furniture and equipment, at cost (note 3) 527,944 253,302
Less accumulated depreciation (156,791) (75,049)
Net furniture and equipment 371,153 178,253
Other assets:
Deposits 4,884 6,453
Software development, less accumulated
amortization of $14,125 and $2,825 in 1995
and 1994, respectively 8,475 19,775
---------- ----------
Total other assets 13,359 26,228
---------- ----------
Total assets $2,487,838 $ 701,043
========== ==========
(continued)
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
TVIEW, INC.
Balance Sheets
December 31, 1995 and 1994
Liabilities and Stockholders' Equity 1995 1994
------------------------------------ ---- ----
<S> <C> <C>
Current liabilities:
Trade accounts payable $ 906,360 $ 238,503
Accrued payroll and payroll taxes 84,828 21,076
Bank line of credit (note 4) - 226,229
Notes payable to stockholders (note 8) - 45,000
Current portion of capital lease obligation (note 3) 55,535 43,915
Other accrued liabilities 162,669 63,611
---------- ----------
Total current liabilities 1,209,392 638,334
---------- ----------
Capital lease obligation, less current portion (note 3) 80,346 40,826
---------- ----------
Total liabilities 1,289,738 679,160
Stockholders' equity (note 6):
Convertible preferred stock, $.001 par value;
3,000,000 shares authorized; aggregate liquidation
preference of $2,611,250:
Series A; 1,500,000 shares authorized;
1,500,000 and -0- issued and outstanding
at December 31, 1995 and 1994, respectively 1,500 -
Series A-1; 1,500,000 shares authorized;
no shares issued and outstanding at December 31,
1995 and 1994 - -
Common stock; $.001 par value; 4,000,000 authorized;
1,532,401 and 1,500,000 shares issued and outstanding
at December 31, 1995 and 1994, respectively 1,532 1,500
Additional paid-in capital 2,499,955 28,500
Retained deficit (1,304,887) (8,117)
---------- ----------
Total stockholders' equity 1,198,100 21,883
Commitments (note 3) ---------- ----------
Total liabilities and stockholders' equity $2,487,838 $ 701,043
========== ==========
</TABLE>
F-4
<PAGE>
TVIEW, INC.
Statements of Operations
Years ended December 31, 1995 and 1994
1995 1994
---- ----
Net sales $ 3,655,453 $ 2,730,393
Cost of sales 2,333,765 1,085,406
------------ ------------
Gross margin 1,321,688 1,644,987
Operating expenses:
Research and development 529,630 144,638
Marketing and sales 1,575,649 1,009,986
General and administrative 468,900 401,108
------------ ------------
Total operating expenses 2,574,179 1,555,732
------------ ------------
Income (loss) from operations (1,252,491) 89,255
Interest income 24,683 -
Interest expense (69,702) (21,422)
Other, net 740 -
------------ ------------
Income (loss) before income taxes (1,296,770) 67,833
Income taxes (note 5) - -
------------ ------------
Net income (loss) $ $ (1,296,770) $ 67,833
============ ============
See accompanying notes to financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
TVIEW, INC.
Statements of Cash Flows
Years ended December 31, 1995 and 1994
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,296,770) $ 67,833
Adjustments to reconcile net income (loss) to net
cash from operating activities:
Depreciation and amortization 93,042 44,517
Changes in assets and liabilities:
Trade accounts receivable (385,831) (16,125)
Inventories (426,345) (4,626)
Prepaid expenses and other assets (57,933) 27,619
Trade accounts payable 721,318 (160,380)
Accrued payroll and other accrued liabilities 162,810 43,590
------------ -----------
Net cash from operating activities (1,189,709) 2,428
Cash flows from investing activities:
Purchases of furniture and equipment (172,984) (33,955)
Capitalized software and development costs - (22,600)
------------ -----------
Net cash from investing activities (172,984) (56,555)
Cash flows from financing activities:
Repayment of stockholder borrowings (45,000) -
Proceeds from stockholder borrowings - 45,000
Principal payments on capital lease obligations (50,518) (41,570)
Proceeds from issuance of preferred stock 2,419,526 -
Distribution to stockholders - (86,700)
Net proceeds (repayments) on bank line of credit (226,229) 126,912
------------ -----------
Net cash from financing activities 2,097,779 43,642
------------ -----------
Net change in cash and cash equivalents 735,086 (10,485)
Cash and cash equivalents, beginning of year 582 11,067
------------ -----------
Cash and cash equivalents, end of year $ 735,668 $ 582
============ ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 69,702 $ 33,142
============ ===========
Noncash activities arising from investing and financing activities:
Capital lease obligations totaling $101,658 and $67,538 in
1995 and 1994, respectively, were incurred when
the Company entered into leases for new equipment.
Common stock issued in lieu of payable owing in the amount
of $53,461 in 1995.
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
TVIEW, INC.
Statements of Stockholders' Equity
Years ended December 31, 1995 and 1994
Additional Retained Total
Preferred stock Common stock paid-in earnings Stockholders'
Shares Amount Shares Amount capital (deficit) Equity
--------- ------ --------- ------ --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 - $ - 1,500,000 $1,500 28,500 10,750 40,750
Distribution to stockholders - - - - - (86,700) (86,700)
Net income for the year - - - - - 67,833 67,833
--------- ------ --------- ------ --------- ----------- -----------
Balance, December 31, 1994 - - 1,500,000 1,500 28,500 (8,117) 21,883
Conversion of trade debt
to common stock - - 32,401 32 53,429 - 53,461
Issuance of preferred stock,
net of issuance costs 1,500,000 1,500 - - 2,418,026 - 2,419,526
Net loss for the year - - - - - (1,296,770) (1,296,770)
--------- ------ --------- ------ --------- ----------- -----------
Balance, December 31, 1995 1,500,000 $1,500 1,532,401 $1,532 2,499,955 (1,304,887) 1,198,100
========= ====== ========= ====== ========= =========== ===========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
F-7
<PAGE>
TVIEW, INC.
Notes to Financial Statements
December 31, 1995 and 1994
(1) Organization and Summary of Significant Accounting Policies
(a) Organization
TView is engaged in the business of designing, marketing, manufacturing
and selling a line of products which integrate TV video and computer
video for multi-media computer use.
(b) Cash and Cash Equivalents
Cash equivalents consist of investments in highly liquid investment
instruments with original maturities of three months or less.
(c) Inventories
Inventories consist of hardware and printed materials and are stated at
the lower of cost or market. Cost is determined using the first-in,
first-out method.
(d) Furniture and Equipment
Furniture and equipment are stated at cost. Maintenance and repairs are
expensed as incurred. Equipment held under capital leases is capitalized
at an amount equal to the fair value of the leased property at the
inception of the lease which approximates the present value of the
minimum lease payments.
Furniture and equipment is depreciated over the estimated useful lives of
the assets using the straight-line method. Equipment held under capital
leases is amortized over varying periods not in excess of applicable
lease terms on a straight-line basis.
Depreciation expense for the years ended December 31, 1995 and 1994 was
$81,742 and $41,692, respectively.
(e) Revenue Recognition
Revenues are recognized at the time of shipment, net of estimated sales
returns and allowances.
(Continued)
F-8
<PAGE>
TVIEW, INC.
Notes to Financial Statements
(f) Income Taxes
The Company accounts for income taxes under the asset and liability
method of Statement of Financial Accounting Standards (SFAS) No. 109.
Under the asset and liability method, deferred income taxes reflect the
future tax consequences of differences between the tax bases of assets
and liabilities and their financial reporting amounts at each year end.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in the tax rates is
recognized in income in the period that includes the enactment date.
(g) Right of Return
The Company has a sales return policy for certain distributors ranging
from a percent of recent sales to unlimited return. Based on historical
experience, including sales returns subsequent to its year end, the
Company believes the allowance for sales returns presented in the
accompanying balance sheets is adequate to cover product returns on sales
recognized during the years ended December 31, 1995 and 1994.
(h) Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of cash, cash
equivalents and accounts receivable. Management believes the credit risk
associated with cash and cash equivalents is minimal. The Company sells
its products primarily to major hardware/software distributors throughout
the United States. The concentration of credit risk associated with
accounts receivable is also considered minimal.
(i) Capitalized Software Development Costs
Software development costs have been accounted for in accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed".
Under the standard, capitalization of software development costs begins
upon the establishment of technological feasibility, subject to net
realizable value considerations.
Capitalized costs consist of those costs associated with the development
of the initial product. Enhancements to this software have not been
significant and have therefore been expensed as incurred. Capitalized
costs are being amortized on a straight-line basis over a period of two
years. Amortization of capitalized software development costs totaled
$11,300 and $2,825 in 1995 and 1994, respectively.
(Continued)
F-9
<PAGE>
TVIEW, INC.
Notes to Financial Statements
(j) Financial Instruments
The carrying amount of cash equivalents, accounts receivable, accounts
payable and other current liabilities approximates fair value because of
the short-term nature of these instruments. The fair value of long-term
lease obligations was estimated by discounting the future cash flows
using market interest rates and does not differ significantly from that
reflected in the financial statements.
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters
of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the
estimates.
(k) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(2) Inventories
Inventories consist of the following at December 31:
1995 1994
---- ----
Raw materials $ 76,684 23,811
Work in process 315,057 44,648
Finished goods 199,080 22,017
----------- -----------
590,821 90,476
Less valuation reserve (74,000) -
----------- -----------
Inventories, net $ 516,821 90,476
=========== ===========
(3) Lease Obligations
The Company is a party to a number of noncancelable lease agreements for
office furniture and equipment which are accounted for as capital leases.
The leases extend for varying periods up to approximately five years and
generally provide for the payment of taxes, insurance, and maintenance by
the lessee. Certain of these leases have options to purchase at varying
dates.
(Continued)
F-10
<PAGE>
TVIEW, INC.
Notes to Financial Statements
The Company's property held under capital leases, included in equipment in
the balance sheet, consists of the following:
1995 1994
---- ----
Equipment $ 233,893 132,235
Less accumulated amortization (82,292) (49,233)
---------- ----------
Equipment under capital leases, net $ 151,601 83,002
========== ==========
Amortization expense is included in depreciation expense for fixed assets.
Future minimum lease payments under capital and operating leases (with
initial or remaining lease terms in excess of one year) and the present
value of future minimum capital lease payments are as follows:
Capital Operating
leases leases
Year ending December 31:
1996 $ 68,721 78,084
1997 52,663 45,360
1998 36,131 45,360
1999 750 45,360
2000 - 45,360
---------- ----------
Net minimum lease payments 158,265 $ 259,524
==========
Less amount representing interest 22,384
----------
Present value of net
minimum lease payments 135,881
Less current portion of capital
lease obligation 55,535
----------
Capital lease obligation,
less current portion $ 80,346
==========
Rental expense for operating leases amounted to $44,502 and $29,834 for the
years ended December 31, 1995 and 1994, respectively.
The Company entered into an operating lease in January of 1996 which
requires minimum monthly payments of $3,780 through June of 2001. These
future minimum payments have been included in the schedule above.
(Continued)
F-11
<PAGE>
TVIEW, INC.
Notes to Financial Statements
(4) Line of Credit
The Company had a $350,000 line of credit through U.S. Bank of Oregon at 3%
over the bank's prime rate at December 31, 1994. The line of credit was
secured through deeds on two of the owners' homes and the Company's
accounts receivable. The credit line was paid in full during 1995.
(5) Income Taxes
Prior to January 1, 1995 the Company was an S Corporation under the
Internal Revenue Code (the Code) and the Company's taxable income was
generally taxed to the stockholders. Accordingly, no income tax expense or
deferred income taxes are reflected in the financial statements for periods
prior to December 31, 1994. At December 31, 1994, the S Corporation
election was terminated.
The Company had no income tax expense for the years ended December 31, 1995
and 1994.
The actual benefit for the year ended December 31, 1995 differs from the
"expected" benefit computed by applying the United States federal corporate
rate as follows:
1995
----
Computed "expected" income tax benefit (34)%
Increases (decreases) resulting from:
State income taxes, net of federal tax benefit (4)
Changes in valuation allowance 37
Other, net 1
----
- %
====
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at December 31, 1995 and 1994, are
derived primarily from net operating loss carryforwards, depreciation,
operating leases, inventory obsolescence reserve, sales reserve and bad
debt reserve. Gross deferred tax assets and liabilities amount to
$512,792 and $33,827, respectively, and $8,200 and $8,200, respectively,
at December 31, 1995 and 1994.
(Continued)
F-12
<PAGE>
TVIEW, INC.
Notes to Financial Statements
The valuation allowance for deferred tax assets as of December 31, 1995,
was $478,965. The net change in the total valuation allowance for the year
ended December 31, 1995, was an increase of $478,965.
The Company has federal and state net operating loss carryforwards for tax
purposes of approximately $1,134,000 which expire in 2010. The Company's
ability to use its net operating loss carryforwards to offset future
taxable income is subject to annual restrictions contained in the Code.
These restrictions act to limit the Company's future use of its net
operating losses following certain substantial stock ownership changes
enumerated in the Code. Approximately $567,000 of net operating loss
carryforwards are limited as to future utilization. The purchase
transaction outlined in note 9, would cause an additional change in
ownership which would limit the utilization of all net operating loss
carryforwards.
(6) Stockholders' Equity
(a) Authorized Capital
At December 31, 1995, the authorized capital stock of the Company
consists of 4,000,000 shares of common stock and 3,000,000 shares of
preferred stock. Authorized preferred stock is comprised of 1,500,000 and
1,500,000 shares of Series A and Series A-1 stock, respectively.
(b) Preferred Stock
- Pursuant to the terms of the August 4, 1995 Series A Preferred
Stock Purchase Agreement, the Company issued 1,500,000 shares of
Series A preferred stock at $1.67 per share.
- Each share of preferred stock is voluntarily convertible into
common stock at any time after the date of issuance. The number of
shares of common stock to be received upon conversion is
determined by dividing the original issue price of such share of
preferred stock by the conversion price at the time in effect for
a share of such series of preferred stock. Conversion is automatic
upon the earlier of a) a public offering of the Company's common
stock which results in aggregate proceeds to the Company of at
least $7,500,000 at an offering price of at least $3.33 per common
share; or b) the consent of holders of not less than the majority
of the then outstanding shares of preferred stock.
- The terms of the Series A and Series A-1 Preferred Stock are
entitled to voting rights whereby they receive the number of votes
equal to the number of shares of common stock into which the
shares of preferred stock could be converted.
(Continued)
F-13
<PAGE>
TVIEW, INC.
Notes to Financial Statements
- Preferred stockholders are entitled to receive dividends in an
amount equal to $0.17 per share per annum. Preferred stockholders
are entitled to receive this dividend on a cumulative basis prior
and in preference to any dividend to common stockholders other
than dividends payable solely in common stock. In addition to this
accrued dividend, preferred stockholders have the right to receive
any dividends paid on common stock (on an as converted to common
stock basis). As of December 31, 1995, no dividends had been
declared or paid.
- Upon liquidation, dissolution or winding up of the affairs of the
Company, the preferred stockholders receive preference over the
common shareholders of the Company at an amount per share equal to
the preferred issue price plus accrued but unpaid dividends to the
date of the distribution whether or not declared. After payment
has been made in full to the preferred stockholders, the remaining
assets and funds of the Company available for distribution to
stockholders shall be distributed ratably among the preferred (on
an as converted to common stock basis) and common stockholders.
- Series A preferred stock is subject to certain mandatory
redemption features. If at any time following the original issue
date, the holders of Series A preferred stock are given the
opportunity to purchase shares of the Company's capital stock at a
price per share which is less than the conversion price then in
effect for the Series A preferred stock, and a holder of Series A
preferred stock does not purchase its pro rata share of the
securities offered to the holders of Series A preferred stock in
connection with such financing, then each share of Series A
preferred stock held by such nonparticipating holder shall
automatically and without future action on the part of such
nonparticipating holder be converted immediately prior to the
consummation of such financing into one share of Series A-1
preferred stock.
As of December 31, 1995, the Company has reserved 1,500,000 shares of its
common stock pursuant to the conversion privileges of the Series A
preferred stock.
(c) Preferred Stock Warrants
In October of 1995, the Company obtained a $350,000 leasing line of
credit. In consideration, the Company issued a five year warrant to the
leasing company providing the facility for 13,473 shares of preferred
stock exercisable at $1.67 per share. As of December 31, 1995, this
warrant was still outstanding.
(Continued)
F-14
<PAGE>
TVIEW, INC.
Notes to Financial Statements
(d) Stock Incentive Plan
In March of 1995, stockholders approved the Stock Incentive Plan (the
Plan) which authorized the issuance of up to 250,000 shares of common
stock. In September 1995, the Plan was amended to increase the number of
shares authorized for issuance to 567,599. The Plan authorizes the
issuance of incentive options and nonqualified stock options to employees
and consultants.
Incentive stock options allow for the purchase of common stock at prices
determined by the Board of Directors but which generally must be
purchased at prices not less than fair market value at the date of grant.
These options expire ten years from the date of grant and are exercisable
as determined by the Board, with vesting over a period of four years.
The option price for nonqualified stock options is determined by the
Board of Directors. These options expire within a maximum of ten years
from the date of grant and are exercisable as determined by the Board,
with vesting over a period of four years.
The following table summarizes the stock option activity for the year
ended December 31, 1995
<TABLE>
<CAPTION>
Number of shares
--------------------------
Qualified Non-
incentive qualified Price
stock stock per
options options Total share
------- ------- ----- -----
<S> <C> <C> <C> <C>
Options outstanding at
December 31, 1994 - - - $ -
Options:
Granted 412,500 - 412,500 .15 - 1.50
Exercised - - - -
Canceled (27,000) - (27,000) 1.50
-------- --------- -------- ------------
Options outstanding at
December 31, 1995 385,500 385,500 $ .15
======== ========= ======== ============
</TABLE>
(Continued)
F-15
<PAGE>
TVIEW, INC.
Notes to Financial Statements
(7) Major Customers
During 1995, the Company had sales to two customers which accounted for
approximately 33% and 24% of total revenues. The Company has accounts
receivable from these customers representing approximately 62% of trade
accounts receivable at December 31, 1995.
(8) Related Party Transactions
The Company borrowed $45,000 from the three stockholders of record in
November 1994. The principal balance of these notes along with accrued
interest was repaid in 1995.
(9) Subsequent Event
In July of 1996, the Company signed a letter of intent with FOCUS
Enhancements, Inc. (Focus), whereby Focus plans to purchase all of the
outstanding common and preferred stock of the Company. The Company will
become a new wholly-owned subsidiary of Focus.
(10) Going Concern
As illustrated in the financial statements, the Company had significant
losses and negative cash flow from operations during 1995. As discussed in
the previous note, however, the Company has signed a letter of intent to be
purchased by Focus. Management believes that the Company will continue to
operate with the funding and infrastructure which will be provided by Focus
upon consummation of the acquisition.
F-16
<PAGE>
TVIEW, INC.
Balance Sheet
(unaudited)
ASSETS
September 30,
1996
---------------
Current Assets:
Cash and cash equivalents $ 27,248
Accounts receivable, net 320,960
Inventories 173,111
Prepaid expenses and other current assets 69,251
---------------
Total current assets 590,570
Property and equipment, net 377,556
Other assets, net 23,961
Goodwill, net
---------------
Total assets $ 992,087
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 85,100
Obligations under capital leases
Accounts payable 776,870
Accrued liabilities 200,585
---------------
Total current liabilities 1,062,555
Notes payable -
Obligations under capital leases 178,488
---------------
Total liabilities 1,241,043
---------------
Commitments
Stockholders' equity
Preferred stock 1,563
Common stock 1,782
Additional paid-in capital 2,620,642
Accumulated deficit (2,872,943)
---------------
Total stockholders' equity (248,956)
---------------
Total liabilities and stockholders' equity $ 992,087
===============
F-17
<PAGE>
TVIEW, INC.
Statement Of Operations
(unaudited)
Nine
Months
Ended
September 30,
1996
----------------
Net sales $ 1,651,119
Cost of goods sold 1,097,634
----------------
Gross profit 553,485
Operating expenses:
Sales, marketing and support 987,195
General and administrative 446,609
Research and development 669,387
----------------
Total operating expenses 2,103,191
----------------
Income (loss) from operations (1,549,706)
Interest expense, net (22,142)
Other income (expense) 3,792
----------------
Net income (loss) before income taxes (1,568,056)
Federal income tax expense -
----------------
Net income (loss) $ (1,568,056)
================
F-18
<PAGE>
TVIEW, INC.
Statement of Cash Flows
(unaudited)
Nine Months
Ended
September 30,
1996
--------------
Cash flows from operating activities:
Net income (loss) $(1,568,056)
Adjustments to reconcile net income (loss) to net
cash from operating activities:
Depreciation and amortization 66,986
Changes in assets and liabilities:
Trade accounts receivable 455,772
Inventories 343,710
Prepaid expenses and other assets 4,854
Trade accounts payable (129,489)
Accrued payroll and other accrued liabilities (46,904)
-----------
Net cash from operating activities (873,127)
Cash flows from investing activities:
Purchases of furniture and equipment (84,000)
Capitalized software and development costs --
-----------
Net cash from investing activities (84,000)
Cash flows from financing activities:
Repayment of stockholder borrowings --
Proceeds from stockholder borrowings 85,100
Principal payments on capital lease obligations 42,607
Proceeds from issuance of preferred stock 121,000
Distribution to stockholders --
Net proceeds (repayments) on bank line of credit --
-----------
Net cash from financing activities 248,707
-----------
Net change in cash and cash equivalents (708,420)
Cash and cash equivalents, beginning of period 735,668
-----------
Cash and cash equivalents, end of period $ 27,248
===========
F-19
<PAGE>
FOCUS Enhancements, Inc.
and
TView, Inc.
Pro Forma Combined Financial Statements
(unaudited)
F-20
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED BALANCE SHEET
September 30, 1996
(unaudited)
ASSETS
FOCUS Pro Forma
Enhancements, TView, Adjustments Pro Forma
Inc. Inc. DR (CR) Combined
-------------------- -------------- ------------------- ---------------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 644,968 $ 27,248 - $ 672,216
Accounts receivable, net 4,896,133 320,960 (316,917) (b) 4,900,176
Inventories 1,753,385 173,111 (1,000) (b) 1,925,496
Prepaid expenses and
other current assets 197,099 69,251 266,350
-------------------- -------------- ------------------- ---------------
Total current assets 7,491,585 590,570 (317,917) 7,764,238
Property and equipment, net 260,824 377,556 (240,868) (b) 397,512
Other assets, net 108,902 23,961 (73,961) (b) -
(58,902) (d)
Goodwill, net 2,014,132 569,729 (b) 1,369,728
(1,214,133) (d)
-------------------- -------------- ------------------- ---------------
Total assets $ 9,875,443 $ 992,087 (1,336,052) 9,531,478
==================== ============== =================== ===============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C>
Current liabilities:
Notes payable $ 2,547,458 $ 85,100 85,100 (b) $ 2,547,458
Obligations under capital leases 41,821 41,821
Accounts payable 2,926,201 776,870 285,515 (b) 3,417,556
Accrued liabilities 1,372,544 200,585 (68,642) (b) 1,641,771
-------------------- -------------- ------------------- ---------------
Total current liabilities 6,888,024 1,062,555 301,973 7,648,606
Notes payable - -
Obligations under capital leases 178,488 178,488
-------------------- -------------- ------------------- ---------------
Total liabilities 6,888,024 1,241,043 301,973 7,827,094
-------------------- -------------- ------------------- ---------------
Commitments
Stockholders' equity
Preferred stock 1,563 1,563 (b) -
Common stock 100,642 1,782 (7,329) (a) 107,971
1,782 (b)
Additional paid-in capital 18,487,602 2,620,642 (1,992,671) (a) 20,470,273
2,630,642 (b)
Accumulated deficit (15,600,825) (2,872,943) (2,872,943) (b) (18,873,860)
2,000,000 (a)
1,273,035 (d)
-------------------- -------------- ------------------- ---------------
Total stockholders' equity 2,987,419 (248,956) 1,034,079 1,704,384
-------------------- -------------- ------------------- ---------------
Total liabilities and
stockholders' equity $ 9,875,443 $ 992,087 1,336,052 $ 9,531,478
==================== ============== =================== ===============
</TABLE>
F-21
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(unaudited)
FOCUS Pro forma
Enhancements, TView, Adjustments Pro forma
Inc. Inc. DR (CR) Combined
-------------------- -------------------- ------------------ ----------------------
<S> <C> <C> <C> <C>
Net sales $ 17,099,616 $ 3,655,453 -- $ 20,755,069
Cost of goods sold 9,745,228 2,333,765 -- 12,078,993
-------------------- -------------------- ------------------ ----------------------
Gross profit 7,354,388 1,321,688 -- 8,676,076
Operating expenses:
Sales, marketing and support 3,161,566 1,575,649 (1,215,649) (b) 3,521,566
General and administrative 2,544,492 468,900 81,390 (a) 2,625,882
(468,900) (b)
Research and development 1,007,513 529,630 (300,000) (b) 1,237,143
-------------------- -------------------- ------------------ ----------------------
Total operating expenses 6,713,571 2,574,179 (1,903,159) 7,384,591
-------------------- -------------------- ------------------ ----------------------
Income (loss) from operations 640,817 (1,252,491) (1,903,159) 1,291,485
Interest expense, net (606,165) (69,702) (675,867)
Other income (expense) 317,109 25,423 342,532
-------------------- -------------------- ------------------ ----------------------
Net income (loss) before income taxes 351,761 (1,296,770) (1,903,159) 958,150
Federal income tax expense (23,000) - - (23,000)
-------------------- -------------------- ------------------ ----------------------
Net income (loss) $ 328,761 $ (1,296,770) $ (1,903,159) $ 935,150
==================== ==================== ================== ======================
Net income (loss) per share 0.04 0.11
==================== ======================
Weighted average shares outstanding 8,173,526 8,173,526
==================== ======================
</TABLE>
F-22
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(unaudited)
FOCUS Pro forma
Enhancements, TView, Adjustments Pro forma
Inc. Inc. DR (CR) Combined
---------------------- --------------------- ---------------- --------------------
<S> <C> <C> <C> <C>
Net sales $ 11,498,362 $ 1,651,119 $ 99,906 (c) $ 13,049,575
Cost of goods sold 11,193,421 1,097,634 (66,416) (c) 12,224,639
---------------------- --------------------- ---------------- --------------------
Gross profit 304,941 553,485 33,490 824,936
Operating expenses:
Sales, marketing and support 2,917,645 987,195 (717,195) (a) 3,187,645
General and administrative 1,919,798 446,609 (446,609) (a) 1,980,840
61,042 (b)
Research and development 1,150,260 669,387 (875,647) (a) 944,000
---------------------- --------------------- ---------------- --------------------
Total operating expenses 5,987,703 2,103,191 (1,978,409) 6,112,485
---------------------- --------------------- ---------------- --------------------
Income (loss) from operations (5,682,762) (1,549,706) (1,944,919) (5,287,549)
Interest expense, net (235,607) (22,142) -- (257,749)
Other income (expense) (12,792) 3,792 -- (9,000)
---------------------- --------------------- ---------------- --------------------
Net income (loss) before income taxes (5,931,161) (1,568,056) (1,944,919) (5,554,298)
Federal income tax expense (16,541) - - (16,541)
---------------------- --------------------- ---------------- --------------------
Net income (loss) $ (5,947,702) $ (1,568,056) $ (1,944,919) $ (5,570,839)
====================== ===================== ================ ====================
Net income (loss) per share (0.70) (0.66)
====================== ====================
Weighted average shares outstanding 8,477,011 8,477,011
====================== ====================
</TABLE>
F-23
<PAGE>
Notes to Pro Forma Combined Balance Sheet
The unaudited Pro Forma Combined Balance Sheet has been prepared from the
unaudited September 30, 1996 balance sheet of FOCUS Enhancements, Inc. and the
unaudited September 30, 1996 balance sheet of TView, Inc. and gives effect to
the following:
(a) To reflect the purchase price of $2,000,000 as determined in
accordance with the purchase and sale agreement, recognition of
debt and expenses associated with the acquisition.
(b) To reflect the adjustment of assets and liabilities to their
respective relizable values and the allocation of the excess of
net assets acquired over the purchase price resulting from the
acquisition of TView, Inc. by FOCUS Enhancements, Inc.
(c) To reflect the write off of in process engineering resulting from
the acquisition of TView, Inc. by FOCUS Enhancements, Inc.
(d) To reflect the write off of goodwill resulting from prior
acquisitions. by FOCUS Enhancements, Inc. in accordance with SFAS
121.
F-24
<PAGE>
Notes to Pro Forma Combined Statement of Operations
Year Ended December 31, 1995
The unaudited Pro Forma Combined Statement of Operations for the year ended
December 31, 1995 has been prepared from the audited December 31, 1995 Statement
of Operations of FOCUS Enhancements, Inc. and the audited December 31, 1995
Statement of Operations of TView, Inc. and gives effect to the following:
(a) To reflect amortization over a seven year period of the excess of
net assets over the purchase price which resulted from the
acquisition.
(b) To reflect the cost savings resulting from the consolidation of
operations between FOCUS Enhancements, Inc. and TView, Inc.
F-25
<PAGE>
Notes to Pro Forma Combined Statement of Operations
Nine Months Ended September 30, 1996
The unaudited Pro Forma Combined Statement of Operations for the nine months
ended September 30, 1996 has been prepared from the unaudited September 30, 1996
Statement of Operations of FOCUS Enhancements, Inc. and the unaudited September
30, 1996 Statement of Operations of TView, Inc. and gives effect to the
following:
(a) To reflect the cost savings resulting from the consolidation of
operations between FOCUS Enhancements, Inc. and TView, Inc.
(b) To reflect amortization over a seven year period of the excess of
net assets over the purchase price which resulted from the
acquisition.
(c) To reflect the elimination of sales and the associated cost of
sales between between FOCUS Enhancements, Inc. and TView, Inc.
In addition, the Pro Forma Combined Statement of Operations for the nine months
ended September 30, 1996 exclude two items considered to be non-recurring which
were included in the unaudited Statement of Operations of Focus Enhancements,
Inc. for the nine month period ended September 30, 1996: (i) the write-off of a
portion of the goodwill related to the acquisition of Lapis Technologies, Inc.
($1,273,035); and (ii) the expense for purchased research and development
acquired from TView, Inc.($2,000,000).
F-26
Exhibit 23
Consent of Independent Certified Public Accountants
The Board of Directors
TView, Inc.:
We consent to the inclusion of our report dated September 13, 1996, with respect
to the balance sheets of TView, Inc. as of December 31, 1995 and 1994, and the
related statements of operations, stockholders' equity, and cash flows of the
years then ended, which report appears in the Form 8-K to be filed by Focus
Enhancements, Inc.
KPMG Peat Marwick LLP
Portland, Oregon
January 3, 1997
