FORM 10-QSB/A
(Amendment No. 1)
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1999
[ ] 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 1-11860
FOCUS Enhancements, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 04-3186320
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
600 Research Drive
Wilmington, MA 10887
(Address of principal executive offices)
(978) 988-5888
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 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 X No_____
As of September 30, 1999, there were outstanding 20,252,481 shares of Common
Stock, $.01 par value per share.
<PAGE>
FOCUS ENHANCEMENTS, INC.
FORM 10-QSB
QUARTERLY REPORT
September 30, 1999
TABLE OF CONTENTS
Page
Facing Page 1
Table of Contents 2
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets at September 30, 1999
and December 31, 1998 3
Consolidated Statements of Operations
for the Three Months Ended September 30, 1999 and 1998 4
Consolidated Statements of Operations
for the Nine Months Ended September 30, 1999 and 1998 5
Statement of Changes in Equity for the Nine
Months Ended September 30, 1999 6
Statement of Changes in Equity for the Nine
Months Ended September 30, 1998 7
Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1999 and 1998 8-9
Notes to Consolidated Financial Statements 10-12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13-20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 23
2
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<TABLE>
<CAPTION>
FOCUS ENHANCEMENTS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
September 30, December 31,
1999 1998
--------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 752,046 $ 1,128,380
Certificate of deposit 140,000 253,067
Securities available for sale -- 248,983
Accounts receivable, net of allowances of $558,095 and $649,987 at
September 30, 1999 and December 31, 1998, respectively 3,510,667 2,553,139
Inventories 3,514,949 5,948,624
Prepaid expenses and other current assets 407,821 217,092
------------ ------------
Total current assets 8,325,483 10,349,285
Property and equipment, net 2,651,920 1,272,477
Other assets, net 275,690 304,498
Goodwill, net 670,876 810,673
------------ ------------
Total assets
$ 11,923,969 $ 12,736,933
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 2,340,086 $ 702,057
Obligations under capital leases 130,327 119,536
Current portion of long-term debt 304,963 283,180
Accounts payable 3,111,828 5,999,694
Accrued liabilities 393,078 1,810,025
------------ ------------
Total current liabilities 6,280,282 8,914,492
Deferred income -- 84,212
Obligations under capital leases 237,006 321,760
Long-term debt, net of current portion 307,081 538,597
------------ ------------
Total liabilities 6,824,369 9,859,061
------------ ------------
Stockholders' equity
Preferred stock, $.01 par value; 3,000,000 shares authorized; none issued -- --
Common stock, $.01 par value; 25,000,000 shares authorized,
20,252,481 and 18,005,090 shares issued at September 30, 1999 and
December 31, 1998, respectively 202,525 180,051
Additional paid-in capital 40,824,064 38,913,304
Accumulated deficit (34,899,894) (35,198,935)
Note receivable, common stock (326,965) (316,418)
Treasury stock at cost, 450,000 shares (700,130) (700,130)
------------ ------------
Total stockholders' equity 5,099,600 2,877,872
------------ ------------
Total liabilities and stockholders' equity $ 11,923,969 $ 12,736,933
============ ============
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
</TABLE>
3
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FOCUS ENHANCEMENTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
September 30, September 30,
1999 1998
-------------- -------------
Net sales $ 3,906,065 $ 7,266,180
Licensing fees 200,000 --
------------ ------------
Net revenues $ 4,106,065 $ 7,266,180
Cost of goods sold 2,165,524 4,207,259
------------ ------------
Gross profit 1,940,541 3,058,921
------------ ------------
Operating expenses:
Sales, marketing and support 886,620 1,473,426
General and administrative 387,942 571,280
Research and development 305,762 323,073
Depreciation and amortization expense 144,638 218,091
------------ ------------
Total operating expenses 1,724,962 2,585,870
------------ ------------
Income from operations 215,579 473,051
Interest expense, net (156,890) (16,819)
Other income, net 82,670 11,493
------------ ------------
Income before income taxes 141,359 467,725
Income tax expense -- --
------------ ------------
Net income $ 141,359 $ 467,725
============ ============
Net income per common share
Basic $ 0.01 $ 0.03
============ ============
Diluted $ 0.01 $ 0.03
============ ============
Weighted average common shares outstanding
Basic 19,061,111 17,427,999
============ ============
Diluted 19,389,684 18,118,926
============ ============
The accompanying notes are an integral part of the consolidated
financial statements.
4
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FOCUS ENHANCEMENTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Ended
September 30, September 30
1999 1998
--------------- -------------
Net sales $ 13,413,400 $ 19,390,215
Licensing fees 200,000 --
------------ ------------
Net revenues $ 13,613,400 $ 19,390,215
Cost of goods sold 7,593,643 11,054,551
------------ ------------
Gross profit 6,019,757 8,335,664
------------ ------------
Operating expenses:
Sales, marketing and support 2,907,104 3,920,763
General and administrative 1,169,112 1,346,764
Research and development 1,068,568 878,797
Depreciation and amortization expense 417,864 574,590
------------ ------------
Total operating expenses 5,562,648 6,720,914
------------ ------------
Income from operations 457,109 1,614,750
Interest expense, net (323,751) (154,229)
Other income, net 165,683 17,261
------------ ------------
Income before income taxes 299,041 1,477,782
Income tax expense -- 29,661
------------ ------------
Net income $ 299,041 $ 1,448,121
============ ============
Net income per common share
Basic $ 0.02 $ 0.09
============ ============
Diluted $ 0.02 $ 0.09
============ ============
Weighted average common shares outstanding
Basic 18,210,783 16,054,513
============ ============
Diluted 18,673,763 16,702,305
============ ============
The accompanying notes are an integral part of the consolidated
financial statements.
5
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<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
Additional Receivable
Common Paid-in Accumulated Treasury
Stock Capital Deficit Stock Stock Total
-------- ----------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance $ 180,051 $ 38,913,304 $ (35,198,935) $ (316,418) $ (700,130) $2,877,872
Comprehensive income:
Net income -- -- 299,041 -- -- 299,041
Reclassification of common stock 38 (38) -- -- -- --
Common stock issued 22,436 1,910,798 1,933,234
Interest on notes receivable, common stock (10,547) (10,547)
--------------------------------------------------------------------------------
Ending balance $ 202,525 $ 40,824,064 $ (34,899,894) $ (326,965) $ (700,130) $5,099,600
================================================================================
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
FOCUS ENHANCEMENTS, INC.
STATEMENT OF CHANGES IN EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
Accum-
ulated
Other Notes
Additional Compre- Receivable
Common Paid-in Accumulated hensive Common Treasury
Stock Capital Deficit Income Stock Stock Total
-------- ----------- ------------ --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning balance $ 140,102 $27,339,892 $(22,411,611) $ -- $ -- $ -- $ 5,068,383
Comprehensive Income
Net income -- -- 1,448,121 -- -- -- 1,448,121
Other comprehensive income, net of tax
Unrealized gains on securities -- -- (156,316) -- -- (156,316)
-----------
Comprehensive income 1,291,805
-----------
Common stock issued 36,276 11,265,853 -- -- -- -- 11,302,129
Treasury stock purchased (700,130) (700,130)
--------- ----------- ------------ --------- --------- --------- -----------
Ending balance $ 176,378 $38,605,745 $(20,963,490) $(156,316) $ -- $(700,130) $16,962,187
========= =========== ============ ========= ========= ========= ===========
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
</TABLE>
7
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<TABLE>
<CAPTION>
FOCUS ENHANCEMENTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30, September 30,
1999 1998
---------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 299,041 $ 1,448,121
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 417,864 574,590
Deferred income (84,212) --
Amortization of discount on note payable 5,563 4,583
Increase in accrued interest on note receivable, common stock (10,547) --
Changes in operating assets and liabilities, net of the effects of acquisition:
(Increase) decrease in accounts receivable (957,528) (3,864,571)
Decreses in securities available for sale 248,983 --
Decrease (increase) in inventories 2,433,675 1,096,996
Decrease (increase) in prepaid expenses (190,729) (47,102)
Decrease (increase) other assets 28,808 --
(Decrease) increase in accounts payable (254,510) (2,043,512)
(Decrease) increase in accrued liabilities (1,416,474) (621,285)
----------- -----------
Net cash provided by (used in) operating activities 519,934 (3,452,180)
----------- -----------
Cash flows from investing activities:
Decrease in certificates of deposit 113,067 --
Purchase of property and equipment (1,678,656) (618,394)
Cash paid in acquisitions, net of cash received
-- (930,563)
----------- -----------
Net cash used in investing activities (1,565,589) (1,548,957)
----------- -----------
Cash flows from financing activities:
Payments on notes payable (1,447,057) (1,740,478)
Payments under capital lease obligations (73,963) (105,078)
Payments for purchase of treasury stock -- (700,130)
Payments on long-term debt (209,733) --
Net changes in accounts receivable financing 451,730 --
Net proceeds from private offerings of common stock 1,784,588 2,827,355
Net proceeds from exercise of common stock options and warrants 163,756 7,009,149
----------- -----------
Net cash provided by (used in) financing activities 669,321 7,290,818
----------- -----------
Net change in cash and cash equivalents (376,334) 2,289,681
Cash and cash equivalents at beginning of period 1,128,380 719,851
----------- -----------
Cash and cash equivalents at end of period $ 752,046 $ 3,009,532
=========== ===========
Supplemental Cash Flow Information:
Interest paid $ 364,091 $ 154,229
Income taxes paid -- 29,661
</TABLE>
8
<PAGE>
Supplemental schedule of non-cash investing and financing activities: On March
31, 1998, the Company purchased certain assets and assumed certain liabilities
of Digital Vision, Inc. as follows:
Fair value of tangible assets acquired 224,957
Fair value of liabilities assumed (384,495)
Fair value of net assets acquired (159,538)
Common stock issued (1,115,625)
Cash paid (46,980)
Excess of cost over fair value of net assets acquired $ (1,322,143)
============
On July 29, 1998, the Company purchased certain assets and assumed Certain
liabilities of PC Video Conversion, Inc. as follows:
Fair value of tangible assets acquired 613,336
Fair value of liabilities assumed (80,367)
------------
Fair value of net assets acquired 532,969
Common stock issued (350,000)
Cash paid (700,000)
Note payable (910,085)
Acquisition costs (229,781)
------------
Excess of cost over fair value of net assets acquired $ (1,656,897)
============
The accompanying notes are an integral part of the consolidated
financial statements.
9
<PAGE>
FOCUS ENHANCEMENTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements of FOCUS Enhancements, Inc. ("the
Company") as of September 30, 1999 and for the three- and nine-month periods
ended September 30, 1999 and 1998 are unaudited and should be read in
conjunction with the consolidated financial statements and notes thereto for the
year ended December 31, 1998 included in the Company's Annual Report on Form
10-KSB for the year ended December 31, 1998. The consolidated financial
statements include the accounts of the Company and its wholly owned subsidiaries
PC Video Conversion, Inc., Lapis Technologies, Inc., TView, Inc., and FOCUS
Enhancements, BV. On March 31, 1998, the Company acquired certain assets and
assumed certain liabilities of Digital Vision, Inc. in a transaction accounted
for under the purchase method of accounting. On July 29, 1998, the Company
acquired certain assets and assumed certain liabilities of PC Video Conversion,
Inc. in a transaction accounted for under the purchase method of accounting. All
intercompany accounts and transactions have been eliminated upon consolidation.
The results of operations of Digital Vision, Inc. have been included in the
accompanying consolidated financial statements since April 1, 1998. The results
of operations of PC Video Conversion, Inc. have been included in the
accompanying consolidated financial statements since July 29, 1998. The
following unaudited pro forma information presents a summary of the consolidated
results of operations of the Company as if the acquisitions had occurred at the
beginning of the nine-month period presented.
Nine Months Ended
-----------------
September 30,
-------------
1998
----
Net sales $ 21,391,000
Income from operations 1,718,000
Net income 1,526,333
Net income per common share
Basic $ .09
Diluted $ .09
In the opinion of management, the consolidated financial statements include all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the results of the interim periods. The results of
operations for the three- and nine- month periods ended September 30, 1999 are
not necessarily indicative of the results that may be expected for any future
period.
2. NET INCOME PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128 - "Earnings
Per Share" which requires earnings per share to be calculated on a basic and
dilutive basis. Basic earnings per share represents income available to common
stock divided by the weighted-average number of common shares outstanding during
the period. Diluted earnings per share reflects additional common shares that
would have been outstanding if dilutive potential common shares had been issued,
as well as any adjustment to income that would result from the assumed
conversion. Potential common shares that may be issued by the Company relate
solely to outstanding stock options and warrants, and are determined using the
treasury stock method. The assumed conversion of outstanding dilutive stock
options and warrants would increase the shares outstanding but would not require
an adjustment to income as a result of the conversion. For the nine months ended
September 30, 1999 and 1998, options and warrants applicable to 4,261,221 shares
and 1,940,040 shares, respectively were anti-dilutive and excluded from the
diluted earnings per share computation.
10
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3. INCOME TAXES
The Company has utilized its net operating loss carryforwards in
estimating its provision for income taxes in the nine-month period ended
September 30, 1999 and 1998.
4. INVENTORIES
Inventories consist of the following:
September 30, December 31,
------------- ------------
1999 1998
---- ----
Finished goods $3,093,433 $5,718,260
Raw materials 421,516 230,364
---------- ----------
$3,514,949 $5,948,624
========== ==========
5. NOTES PAYABLE
Line of Credit, Bank. As of December 31, 1998, the Company maintained a
revolving line of credit with a bank with outstanding borrowings of $620,000.
Borrowings bear interest at the bank's prime rate plus 1% (8.75% at December 31,
1998), are payable upon demand and are collateralized by all of the assets of
the Company, except as noted below. Under the terms of the line of credit
agreement, the Company was required to comply with certain restrictive covenants
and was in violation of certain of these covenants at December 31, 1998. On
March 31, 1999, the Company repaid all monies owed on this line of credit
totaling approximately $637,000 from proceeds received under a $2,000,000
accounts receivable financing agreement with its commercial bank. The agreement
allows for advances on accounts receivable not to exceed 80% of qualified
invoices. Interest is charged on the outstanding balance at a rate of the prime
lending rate plus 4.5% (12.75% at September 30, 1999). Under the terms of this
agreement the bank has been issued warrants to purchase 100,000 shares of the
Company's common stock at a price of $1.70 per share. The Company recorded stock
option compensation charges of $10,697 for the nine months ended September 30,
1999 pursuant to this issuance. At September 30, 1999, the Company had
borrowings under this agreement of approximately $452,000.
Long-Term Debt. On July 29, 1998, the Company issued a $1,000,000 note
payable to a related party in conjunction with the acquisition of PC Video
Conversion providing for the payment of principal and interest at 3.5 % over a
period of 36 months. The Company computed a discount of $89,915 on this note
based on its incremental borrowing rate. The balance owed on this note payable,
net of discount at September 30, 1999 was $612,044. Maturities of this note at
September 30, 1999 are as follows:
1999 $ 73,447
2000 312,556
2001 226,041
--------
Total $612,044
========
Term Loan, Vendor. On April 20, 1999, the Company converted certain
accounts payable due to a contract manufacturer to a term note in the amount of
$1,700,000. Interest at a rate of 12% per annum was payable weekly until the
loan expiration date of September 30, 1999. In addition, Mr. Thomas L. Massie,
President and CEO of the Company, personally guaranteed payment of this term
note up to an amount not to exceed $600,000. Under the terms of the guarantee,
the holder of the note defers recourse on the guarantee until December 31, 1999.
At September 30, 1999, the Company was in violation of the balloon payment
provision and maintained a balance due of $1,375,000. On October 1, 1999, the
Company paid $368,742.50 on this note reducing the balance
11
<PAGE>
outstanding to $1,006,257.50. The holder of the note has brought an action
against the Company, which is discussed in detail in Item 1 of Part II of this
Report, for payment under the note.
6. COMMON STOCK TRANSACTIONS
On February 22, 1999, the Company issued warrants to purchase 30,000
shares of common stock as partial compensation to an unaffiliated investor
relations firm. The warrants are exercisable until February 22, 2002 at an
exercise price of $1.063 per share. These warrants were terminated on May 31,
1999 as a result of the termination of the agreement with this investor
relations firm.
On February 22, 1999, the Company issued warrants to purchase 100,000
shares of common stock as partial compensation to an unaffiliated investment
advisor. The warrants are exercisable until September 9, 2002 at an exercise
price of $1.063 per share. The Company recorded stock compensation charges of
$16,704 for the nine months ended September 30, 1999 pursuant to this issuance.
On February 22, 1999, the Company issued warrants to purchase 50,000
shares of common stock pursuant to a debt financing arrangement with an
unrelated individual. The warrants are exercisable until February 22, 2004 at an
exercise price of $1.063. The Company recorded stock compensation charges of
$3,341 for the nine months ended September 30, 1999 pursuant to this issuance.
On March 22, 1999, the Company issued warrants to purchase 100,000
shares of common stock representing partial fees pursuant to a debt financing
arrangement with an unaffiliated commercial bank. The warrants are exercisable
until March 22, 2006 at an exercise price of $1.70. The Company recorded stock
compensation charges of $10,697 for the nine months ended September 30, 1999
pursuant to this issuance.
On June 4, 1999, the Company completed a financing of $1,200,000 in
gross proceeds from the sale of 1,350,000 shares of common stock and the
issuance of a warrant to purchase an additional 120,000 shares of common stock
in a private placement to an unaffiliated accredited investor. The warrant is
exercisable until June 30, 2004 at a per-share exercise price of $1.478125. The
company filed a registration statement under the Securities Act of 1933 for the
shares issued in connection with this transaction and issuable upon exercise of
the warrant . The Company received proceeds from this transaction in two
tranches of $600,000, less applicable fees. The first tranche was funded on June
14, 1999 for $600,000 less fees and expenses associated with this offering of
$60,897 yielding net proceeds of $539,103. The second tranche for $600,000 less
applicable fees of $42,015 yielding net proceeds of $557,985 was funded on
August 18, 1999, which was the date on which the above-referenced registration
statement became effective.
On June 30, 1999, as a result of a reconciliation with its transfer
agent, the Company determined that 3,808 shares of common stock were
misclassified between common stock and additional paid-in capital. Accordingly,
on June 30, 1999 the Company adjusted its records to properly reflect its common
stock outstanding.
On September 17, 1999, the Company completed a financing of $1,500,000
in gross proceeds from the sale of 1,500,000 shares of common stock and the
issuance of a warrant to purchase an additional 150,000 shares of common stock
in a private placement to an unaffiliated accredited investor. The warrant is
exercisable until September 17, 2002 at a per-share exercise price of $1.5375.
The shares issued in connection with this transaction and issuable upon exercise
of the warrant will be registered under the Securities Act of 1933. The Company
will receive proceeds from this transaction in two tranches of $750,000, less
applicable fees. The first tranche was funded on September 21, 1999 for $750,000
less fees and expenses associated with this offering of $62,515 yielding net
proceeds of $687,485. The second tranche for $750,000 less applicable fees will
be funded at the time when the above-referenced registration becomes effective.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following information should be read in conjunction with the
consolidated financial statements and notes thereto in Part I, Item 1 of this
Quarterly Report and with Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1998.
The Company does not provide forecasts of the future financial
performance of the Company. However, from time to time, information provided by
the Company or statements made by its employees may contain "forward looking"
information that involves risks and uncertainties. In particular, statements
contained in this Form 10-QSB which are not historical facts constitute forward
looking statements and are made under the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Each forward looking statement should
be read in conjunction with the consolidated financial statements and notes
thereto in Part I, Item 1, of this Quarterly Report and with the information
contained in Item 2, including, but not limited to, "Certain Factors That May
Affect Future Results" contained herein, together with the Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1998, including, but not limited to, the section therein entitled
"Certain Factors That May Affect Future Results."
RESULTS OF OPERATIONS
Three-Month Period Ended September 30, 1999 As Compared
With The Three-Month Period Ended September 30, 1998
Net Sales
Net sales for the three-month period ended September 30, 1999 ("Q3 99")
were $3,905,065 as compared with $7,266,180 for the three-month period ended
September 30, 1998 ("Q3 98"), a decrease of $3,160,115 or 46%. The decrease in
net sales is principally attributable to the consolidation and restructuring of
a segment of the Company's retail channel that resulted in the elimination of
certain non-performing resellers of the Company's video conversion product line
in North America effective in fourth quarter of 1998. Specifically, net sales in
Q3 99 to the Company's US resellers decreased 46% to $3,059,000 from $5,641,000
in Q3 98. Net sales to OEM/Licensing customers decreased 75% to $210,000 in Q3
99 from $830,000 for the same quarter in 1998. This decrease is primarily the
result of a delay in the development and production of the Company's new FS400
ASIC. Net sales of the Company's professional AV products totaled $533,000 in Q3
99 versus $ 406,000 in Q3 98, an increase of $127,000 or 31%. This increase is
principally the result of favorable market penetration of the newly introduced
professional product lines for the teleconferencing and home theater markets.
Licensing Fees
In Q3 99, the Company received an initial licensing fee of $200,000 as
compared with $-0- in Q3 98.
As of September 30, 1999, the Company had a sales order backlog of
approximately $500,000.
13
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Cost of Goods Sold
Cost of goods sold were $2,165,524 or 55% of net sales, for the
three-month period ended September 30, 1999, as compared with $4,207,259 or 58%
of net sales, for the three-month period ended September 30, 1998, a decrease in
absolute dollars of $2,041,735 or 49%. The Company's gross profit margins for Q3
99 and Q3 98 were 45% and 42%, respectively. As a percentage of sales, cost of
goods sold was lower in Q3 99 principally due to reduced manufacturing costs of
consumer products combined with incremental sales of professional AV products at
margins that are considerably greater. Sales to OEM customers on which margins
are typically lower declined in Q3 99 also contributing to higher margins as a
percentage of sales.
Sales, Marketing and Support Expenses
Sales, marketing and support expenses were $886,620 or 22% of net
revenues, for the three-month period ended September 30, 1999, as compared with
$1,473,426 or 20% of net revenues, for the three-month period ended September
30, 1998, a decrease of $586,806 or 40%. The decrease in absolute dollars is due
primarily to reductions in channel marketing expenditures resulting from market
restructuring efforts.
General and Administrative Expenses
General and administrative expenses for the three-month period ended
September 30, 1999 were $387,942 or 9% of net revenues, as compared with
$571,280, or 8% of net revenues for the three-month period ended September 30,
1998, a decrease in absolute dollars of $183,338 or 32%. The decrease in
absolute dollars is principally due to decreases in payroll and employee
benefits ($140,000), investor relations fees ($17,000) and bad debt provisions
($27,000).
Research and Development Expenses
Research and development expenses for the three-month period ended
September 30, 1999 were $305,762, or 7% of net revenues, as compared to
$323,073, or 4% of net revenues, for three-month period ended September 30,
1998, a decrease in absolute dollars of $17,311 or 5%. The decrease was due
principally to a reduced payroll and employee benefits offset by a full three
months of operating expenses in Q399 in comparison to two months operating
expenses in the Q398 period resulting from the acquisition of PC Video
Conversion on July 29, 1998.
Interest Expense, Net
Net interest expense for the three-month period ended September 30,
1999 was $156,890, or 4% of net revenues, as compared to $16,819, or 0.2% of net
revenues, for the three-month period ended September 30, 1998, an increase of
$140,071. The increase is primarily attributable to an increase in outstanding
interest bearing debt for the three months ended September 30, 1999.
Other Income (Expense)
Other Income (Expense) for the three-month period ended September 30,
1999 was $82,670 as compared to $11,493, for the three-month period ended
September 30, 1998. The increase is principally due to a negotiated reduction of
vendor debt due to product quality issues.
Net Income
For the quarter ended September 30, 1999, the Company reported net
income of $141,359, or $0.01 per share, as compared to $467,725, or $0.03 per
share, for the quarter ended September 30, 1998.
14
<PAGE>
Nine-Month Period Ended September 30, 1999 As Compared
With The Nine-Month Period Ended September 30, 1998
Net Sales
Net sales for the nine-month period ended September 30, 1999 (the "99
Period") were $13,413,400 as compared with $19,390,215 for the nine-month period
ended September 30, 1998 (the "98 Period"), a decrease of $5,976,815 or 31%. The
decrease in net sales is primarily due to the consolidation and restructuring of
a segment of the Company's retail channel that resulted in the elimination of
certain non-performing resellers of the Company's video conversion product line
in North America in the fourth quarter of 1998. Specifically, net sales in the
99 Period to the Company's US resellers decreased 36% to $9,596,000 from
$15,103,000 in the 98 Period. Net sales to OEM/Licensing customers decreased 47%
to $1,501,000 in the 99 Period from $2,831,000 for the 98 period. This decrease
is primarily the result of a delay in the development and production of the
Company's new FS400 ASIC. Net sales of the Company's professional AV products
totaled $1,568,000 in the 99 Period versus $406,000 in the 98 Period, an
increase of $1,162,000 or 286%. The Company began distributing this product line
on August 1, 1998 as a result of the acquisition of PC Video Conversion, Inc.
Licensing Fees
In the 99 Period, the Company recorded licensing fees of $200,000
compared with $-0- in the 98 Period. Cost of Goods Sold
Cost of goods sold were $7,593,643 or 57% of net sales, for the
nine-month period ended September 30, 1999, as compared with $11,054,551 or 57%
of net sales, for the nine-month period ended September 30, 1998, a decrease in
absolute dollars of $3,460,908 or 31%. The decrease in cost of sales in absolute
dollars was principally the result of a decrease in revenues in the 99 Period as
compared to the 98 Period.
Sales, Marketing and Support Expenses
Sales, marketing and support expenses were $2,907,104 or 21% of net
revenues, for the nine-month period ended September 30, 1999, as compared with
$3,920,763 or 20% of net revenues, for the nine-month period ended September 30,
1998, a decrease in absolute dollars of $1,013,659 or 26%. The decrease in
absolute dollars is due primarily to reductions in channel marketing
expenditures resulting from market restructuring efforts.
General and Administrative Expenses
General and administrative expenses for the nine-month period ended
September 30, 1999 were $1,169,112 or 9% of net revenues, as compared with
$1,346,764, or 7% of net revenues for the nine-month period ended September 30,
1998, a decrease in absolute dollars of $177,652 or 13%. The decrease in
absolute dollars is principally due to decreases in payroll and employee
benefits ($125,000), temporary help ($25,000) and bad debt provisions
($129,000), offset by increases in telephone ($22,000), investor relations
($27,000) and legal expenses ($55,000).
15
<PAGE>
Research and Development Expenses
Research and development expenses for the nine-month period ended
September 30, 1999 were $1,068,568 or 8% of net revenues, as compared to
$878,797, or 5% of net revenues, for nine-month period ended September 30, 1998,
an increase in absolute dollars of $189,771 or 22%. The increase was due
principally to increased staffing, employee benefits and operating expenses
resulting from the acquisition of PC Video Conversion on July 29, 1998,
representing nine month's activity in the 99 Period as compared to two month's
activity in the 98 Period.
Interest Expense, Net
Net interest expense for the nine-month period ended September 30, 1999
was $323,751, or 2% of net revenues, as compared to $154,229, or 1% of net
revenues, for the nine-month period ended September 30, 1998, an increase in
absolute dollars of $169,522, or 110%. The increase is primarily attributable to
an increase in outstanding debt balances for the 99 period compared to the 98
Period.
Other Income
Other Income for the nine-month period ended September 30, 1999 was
$165,683 as compared to $17,261, for the nine-month period ended September 30,
1998. The increase is principally due to gains on the sales of marketable
securities and debt forgiveness due to vendor quality issues in the 99 Period.
Net Income
For the nine-month period ended September 30, 1999, the Company
reported net income of $299,041 or $0.02 per share, as compared to $1,448,121,
or $0.09 per share, for the nine-month period ended September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided for (used in) operating activities for the nine-month
periods ended September 30, 1999 and 1998 was $519,934 and ($3,452,180),
respectively. In the 99 Period, net cash provided by operating activities
consisted primarily of a decrease in inventory of $2,433,675 combined with
non-cash charges for depreciation and amortization of $417,864 and net income of
$299,041. This was offset by increases in accounts receivable of $957,528 and
prepaid expenses of $190,729, combined with decreases in securities available
for sale of $248,983, accounts payable of $254,510 and accrued liabilities of
$1,416,474. As of September 30, 1999, accounts receivable from a major
distributor represented approximately 26% of total accounts receivable. In the
99 Period, the Company continued to record provisions for potential future
uncollectable accounts and continually monitors inventory levels at its
resellers and maintains reserves for potential product returns.
For the nine months ended September 30, 1998, net cash used in
operations consisted primarily of increases in accounts receivable of $3,864,571
and decreases in accounts payable and accrued expenses of $2,043,512 and
$621,285, respectfully. This was offset by a decrease in inventory of
$1,096,996.
Net cash (used in) investing activities for the nine-month periods
ended September 30, 1999 and 1998 was ($1,565,589) and ($1,548,957),
respectively. In the 99 Period, cash used in investing activities was
principally for the purchase of property and equipment and capitalized ASIC
development costs. In the 98 Period, cash used in investing activities was for
the purchase of property and equipment and capitalized ASIC development costs
($618,394) and for cash paid resulting from the acquisition of PC Video
Conversion, Inc. ($930,563).
16
<PAGE>
Net cash provided by financing activities for the nine-month periods
ended September 30, 1999 and 1998 was $669,321 and $7,290,818, respectively. In
the 99 Period, the Company received $1,784,588 in net proceeds from private
offerings of common stock and $163,756 from the exercise of common stock options
and warrants. The Company's financing proceeds were offset by payments on notes
payable, accounts receivable financing and capital lease obligations. In the
same nine-month period in 1998, the Company received $2,827,355 in net proceeds
from private offerings of common stock and $7,009,149 from the exercise of
common stock options and warrants. The 98 Period financing proceeds were offset
by payments on notes payable and capital lease obligations.
As of September 30, 1999, the Company had working capital of
$2,045,201, as compared to $1,434,793 at December 31, 1998, an increase of
$610,408. The Company's cash position at September 30, 1999 was $752,046 , a
decrease of $376,334 from cash balances at December 31, 1998.
At September 30, 1999, the Company was in violation of the balloon
payment provision of a term note payable to a contract manufacturer in the
amount of $1,375,000. The holder of the note has brought an action against the
Company, which is discussed in detail in Item 1 of Part II of this Report, for
payment under the note. Mr. Thomas L. Massie, President and CEO of the Company,
has personally guaranteed payment of this term note up to an amount not to
exceed $600,000. Under the terms of the guarantee, the holder of the note defers
recourse on the guarantee until December 31, 1999. On October 1, 1999, the
Company paid $368,742.50 on this note reducing the balance outstanding to
$1,006,257.50. In addition, the Company is pursing additional capital funding to
improve working capital.
Although the Company has been successful in the past in raising
sufficient capital to fund its operations, there can be no assurance that the
Company will achieve sustained profitability or obtain sufficient financing in
the future.
Effects of Inflation and Seasonality
The Company believes that inflation has not had a significant impact on
the Company's sales or operating results. The Company's business does not
experience substantial variations in revenues or operating income during the
year due to seasonality.
Environmental Liability
The Company has no known environmental violations or assessments.
Year 2000
General
The Company's Year 2000 compliance project ("The Project") is
proceeding on schedule. The Project is addressing the issue of computer programs
and embedded computer chips being unable to distinguish between the year 1900
and the year 2000. In early 1999, in order to improve access to business
information and to strengthen its infrastructure through common, integrated
computing systems across the Company, the Company began a business systems
replacement project with systems that use programs from a nationally known
business software company ("System"). The installation of the new systems, which
are expected to make approximately 90 percent of the Company's business computer
systems Year 2000 compliant, is scheduled for completion by November 30, 1999.
The System will replace a non-compliant accounting and manufacturing system.
Implementation of the System is on schedule and approximately 95 percent
complete. To facilitate the Project, The Company has retained outside
consultants with expertise in wide area networking ("WAN"), systems integration
and business/contact data management.
17
<PAGE>
The Company has developed a contingency plan to make the programs that
are scheduled to be replaced by the System Year 2000 compliant. The contingency
plan includes contracted on-site support, workflow modification, and integration
of Year 2000 compliant systems. At the end of first quarter 1999, management
agreed that there was no need to implement the contingency plan at that time.
The decision will be re-evaluated monthly through year-end. Remaining business
software programs are expected to be made Year 2000 compliant through The
Project, including those supplied by vendors, or they will be retired. None of
the Company's other information technology ("IT") projects have been delayed due
to the implementation of The Project.
Project
The Project is being implemented in two phases: Phase I, installation
of the hardware and business applications, preceded the WAN installation and the
integration of various communications systems. Phase I was 95% completed on
September 30, 1999. Phase II is expected to be completed by November 30, 1999.
The Project is divided into two major sections - infrastructure and
applications software (sometimes collectively referred to as "IT Systems") and
third-party suppliers and customers ("External Agents"). The general phases
common to all sections are: (1) inventorying Year 2000 items; (2) assigning
priorities to identified items; (3) assessing the Year 2000 compliance of items
determined to be material to the Company; (4) repairing or replacing material
items that are determined not to be Year 2000 compliant; (5) testing material
items; and (6) designing and implementing contingency and business continuation
plans for each organization and Company location.
At September 30, 1999, the inventory and priority assessment phases of
each section of the Project had been completed. While substantially complete,
the process of assessing Year 2000 compliance of its material items and
repairing or replacing such items continues on an ongoing basis. Material items
are those believed by the Company to have a risk involving the safety of
individuals, or that may cause damage to property or the environment, or that
have a material effect on the Company's revenues. The testing phases of the
Project will be performed by the Company and will be ongoing as hardware or
system software is remedied, upgraded or replaced.
The infrastructure portion of the IT section consists of hardware and
systems software other than applications software. The Company has completed the
activities required to achieve infrastructure Year 2000 compliance as of
September 30, 1999.
The application software portion of the IT section includes both the
conversion of applications software that is not Year 2000 compliant and, where
available from the supplier, the replacement of such software. The Company
estimates that the software conversion phase was 100 percent complete at
September 30, 1999.
The testing phase for application software is ongoing and was
substantially completed by September 30, 1999. The vendor software replacements
and upgrades were installed as of July 19, 1999 and the initial testing of these
applications was completed by September 30, 1999. The Company will continue
testing the applications on an ongoing basis through December 31, 1999.
The External Agents section includes the process of identifying and
prioritizing critical suppliers and customers at the direct interface level, and
communicating with them about their plans and progress in addressing their own
Year 2000 issues. Detailed evaluations of the most critical third parties have
been initiated. These evaluations will be followed by the development of
contingency plans, which are scheduled for completion by November 30, 1999. The
Company estimates that this section was on schedule at September 30, 1999.
Follow-up reviews of External Agents are expected to be undertaken through the
remainder of 1999.
18
<PAGE>
Costs
The total cost associated with required modifications to become Year
2000 compliant is not expected to be material to the Company's financial
position. The estimated total cost of the Project is approximately $300,000. The
total amount expended on the Project through September 30, 1999, was $265,000,
of which approximately $200,000 related to the cost to repair or replace
software and related hardware problems, and approximately $65,000 related to the
cost of identifying and communicating with External Agents. The estimated future
cost of completing the Project is estimated to be approximately $35,000; $10,000
to repair or replace software and related hardware and $25,000 to identify and
communicate with External Agents. Funds for the Project are provided from a
separate budget of $300,000 for all items other than External Agent costs, which
are included in existing operating budgets. Ancillary costs of implementing the
System are not included in these cost estimates.
Risks
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party suppliers and customers,
the Company is unable to determine at this time whether the consequences of Year
2000 failures will have a material impact on the Company's results of
operations, liquidity or financial condition. The Project is expected to
significantly reduce the Company's level of uncertainty about the Year 2000
problem and, in particular, about the Year 2000 compliance and readiness of its
material External Agents. The Company believes that, with the implementation of
new business systems and completion of the Project as scheduled, the possibility
of significant interruptions of normal operations should be reduced.
Readers are cautioned that forward-looking statements contained in the
year 2000 Update should be read in conjunction with the Company's disclosures
under the heading: "CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS" herein.
The Company is including the following cautionary statement to take
advantage of the "safe harbor" provisions of the PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995 for any forward-looking statement made by, or on behalf of,
the Company. The factors identified in this cautionary statement are important
factors (but not necessarily all important factors) that could cause actual
results to differ materially from those expressed in any forward-looking
statement made by, or on behalf of, the Company.
Where any such forward-looking statement includes a statement of the
assumptions or bases underlying such forward-looking statement, the Company
cautions that, while it believes such assumptions or bases to be reasonable and
makes them in good faith, assumed facts or bases almost always vary from actual
results, and the differences between assumed facts or bases and actual results
can be material, depending on the circumstances. Where, in any forward-looking
statement, the Company, or its management, expresses an expectation or belief as
to future results, such expectation or belief is expressed in good faith and
believed to have a reasonable basis, but there can be no assurance that the
statement of expectation or belief will result, or be achieved or accomplished.
19
<PAGE>
Taking into account the foregoing, the following are identified as
important risk factors that could cause actual results with respect to the
Company's Year 2000 compliance to differ materially from those expressed in any
forward-looking statement made by, or on behalf of, the Company:
o The dates on which the Company believes the Project will be completed
and the System will be implemented are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, third-party modification plans
and other factors. However, there can be no guarantee that these estimates will
be achieved, or that there will not be a delay in, or increased costs associated
with, the implementation of the Project.
o A delay in the implementation of the System could impact the Company's
readiness for transactions involving the Euro currency in connection with the
Company's European sales activities.
o Other specific factors that might cause differences between the
estimates and actual results include, but are not limited to, the availability
and cost of personnel trained in these areas, the ability to locate and correct
all relevant computer code, timely responses to and corrections by third-parties
and suppliers, the ability to implement interfaces between the new systems and
the systems not being replaced, and similar uncertainties.
o Due to the general uncertainty inherent in the Year 2000 problem,
resulting in part from the uncertainty of the Year 2000 readiness of
third-parties and the interconnection of global businesses, the Company cannot
ensure its ability to timely and cost-effectively resolve problems associated
with the Year 2000 issue that may materially and adversely affect its operations
and business, or expose it to third-party liability.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company does not provide forecasts of the future financial
performance of the Company. However, from time to time, information provided by
the Company or statements made by its employees may contain "forward looking"
information that involve risks and uncertainties. In particular, statements
contained in this Form 10-QSB which are not historical facts (including, but not
limited to, statements concerning international revenues, anticipated operating
expense levels and such expense levels relative to the Company's total revenues)
constitute forward looking statements and are made under the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. The
Company's actual results of operations and financial condition have varied and
may in the future vary significantly from those stated in any forward looking
statements. Factors that may cause such differences include, without limitation,
the availability of capital to fund the Company's future cash needs, reliance on
major customers, history of operating losses, limited availability of capital
under credit arrangements with lenders, market acceptance of the Company's
products, technological obsolescence, competition, component supply problems and
protection of proprietary information, as well as the accuracy of the Company's
internal estimates of revenue and operating expense levels and the Company's
ability to achieve Year 2000 compliance on a timely basis as more fully
described above.
20
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has been named as the defendant in an action brought by
PAGG Corporation and Via Systems, Inc. in the Superior Court for Middlesex
County, Commonwealth of Massachusetts, filed on or about November 2, 1999. PAGG
and Via are former contract manufacturers of the Company and are seeking payment
by the Company for certain amounts alleged to be receivable for inventory
manufactured for the Company and pursuant to an outstanding secured note from
the Company to PAGG. The amount in controversy is approximately $1,800,000. PAGG
holds a security interest in all of the Company's assets. Management is
responding to this suit by contesting this case vigorously, including the
assertion of the defense against the claim on non-payment under the note that
PAGG has refused to take returns of defective products manufactured by PAGG for
the Company.
The Company has recently been made aware of a lawsuit filed in United
States District Court for the District of Massachusetts, on or about November 9,
1999, on behalf of Frank E. Ridel and other currently-unnamed person(s) who are
alleged to have purchased common stock of Focus Enhancements from July 17, 1997
to February 19, 1999. The complaint alleges that the Company and the Company's
CEO violated Federal Securities Laws in connection with a number of allegedly
false or misleading statements and seeks certification as a class action and
certain unquantified damages. The suit was filed only recently and the Company
had not yet been formally served as of November 12, 1999. Accordingly, the
Company has not yet had an opportunity to evaluate the allegations. However,
management believes it has consistently complied with Federal Securities Laws.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
At September 30, 1999, the Company was in violation of the balloon
payment provision of a term note payable to a contract manufacturer, PAGG
Corporation, in the amount of $1,375,000. As described in detail in Item 1
above, the Company is in litigation with the holder of the note. The President
and CEO of the Company has personally guaranteed payment of the note up to an
amount not to exceed $600,000. However, the holder of the note has agreed to
defer recourse on Mr. Massie's guarantee provision until December 31, 1999. On
October 1, 1999, the Company paid $368,742.50 on the note reducing the balance
outstanding to $1,006,257.50, thus obviating the personal guarantee.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
None
ITEM 5. OTHER INFORMATION
On November 11, 1999, the Company and Faroudja, Inc. of Sunnyvale,
California ("Faroudja") jointly announced that the Copmany and Foroudja had
agreed to terminate their discussions regarding a proposed merger of the two
companies. The Company had initially announced on October 5, 1999 that it had
entered into a non-binding letter of intent dated October 4, 1999 with Faroudja
regarding a proposed merger of the Company with Faroudja. A copy of the parties'
joint press release pertaining to their announcement that their discussions
pursuant to the letter of intent have been terminated is included as Exhibit
99.1 to this Report on Form 10-QSB.
21
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. The following exhibits are filed herewith:
11. Statement Re: Computation of Per Share Earnings
27. Financial data schedule
99.1 Press Release issued on November 11, 1999
b. Reports on Form 8-K
The Company filed a Current Report on Form 8-K on October 8, 1999,
pursuant to which it reported its having entered into a letter of
intent dated October 4, 1999 pertaining to a proposed merger with
Faroudja, Inc. of Sunnyvale, California.
22
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FOCUS Enhancements, Inc.
November 16, 1999 By: \s\ Thomas L. Massie
Thomas L. Massie
Chief Executive Officer and
Chairman of the Board
(Principal Executive Officer)
November 16, 1999 By: \s\ Gary M. Cebula
Gary M. Cebula
Vice President of Finance
and Administration
(Principal Accounting Officer)
23
<TABLE>
<CAPTION>
EXHIBIT 11
FOCUS ENHANCEMENTS, INC.
STATEMENT OF COMPUTATION OF INCOME PER SHARE
Three months ended Three months ended
September 30, September 30,
1999 1998
------------------ ------------------
<S> <C> <C>
Net income $ 141,359 $ 467,725
=========== ===========
Basic:
Weighted average number of common shares outstanding 19,061,111 17,427,999
=========== ===========
Diluted:
Weighted average number of common shares outstanding 19,061,111 17,427,999
Weighted average common equivalent shares 328,573 690,927
Weighted average number of common and common equivalent ----------- -----------
shares outstanding used to calculate per share data 19,389,684 18,118,926
=========== ===========
Net income per share
Basic $ 0.01 $ 0.03
=========== ===========
Diluted $ 0.00 $ 0.04
=========== ===========
<PAGE>
<CAPTION>
EXHBIIT 11
Nine months ended Nine months ended
September 30, September 30,
1999 1998
------------------ ------------------
<S> <C> <C>
Net income $ 299,041 $ 1,448,121
=========== ===========
Basic:
Weighted average number of common shares outstanding 18,210,783 16,054,513
=========== ===========
Diluted:
Weighted average number of common shares outstanding 18,210,783 16,054,513
Weighted average common equivalent shares 462,980 647,792
Weighted average number of common and common equivalent ----------- -----------
shares outstanding used to calculate per share data 18,673,764 16,702,305
=========== ===========
Net income per share
Basic $ 0.02 $ 0.09
=========== ===========
Diluted $ 0.02 $ 0.09
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 752,056
<SECURITIES> 0
<RECEIVABLES> 4,068,762
<ALLOWANCES> (558,095)
<INVENTORY> 3,514,949
<CURRENT-ASSETS> 8,325,483
<PP&E> 3,304,488
<DEPRECIATION> (652,568)
<TOTAL-ASSETS> 11,923,969
<CURRENT-LIABILITIES> 6,280,282
<BONDS> 0
0
0
<COMMON> 202,525
<OTHER-SE> 4,897,079
<TOTAL-LIABILITY-AND-EQUITY> 11,923,969
<SALES> 13,413,400
<TOTAL-REVENUES> 13,613,400
<CGS> 7,593,643
<TOTAL-COSTS> 5,562,648
<OTHER-EXPENSES> 165,683
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (323,751)
<INCOME-PRETAX> 299,041
<INCOME-TAX> 0
<INCOME-CONTINUING> 299,041
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 299,041
<EPS-BASIC> 0.02
<EPS-DILUTED> 0.02
</TABLE>
Exhibit 99.1
Faroudja and FOCUS Enhancements Agree to End Merger Discussions
SUNNYVALE, Calif. and WILMINGTON, Mass.--(BUSINESS WIRE)--Nov. 11,
1999--Faroudja, Inc. (Nasdaq: FDJA) and FOCUS Enhancements, Inc. (Nasdaq: FCSE),
announced today they have mutually agreed to terminate merger discussions that
were initiated pursuant to a letter of intent announced on October 5, 1999.
Faroudja, Inc. (Nasdaq: FDJA) is a world leader in high-performance video
processing technologies for markets requiring superior image quality solutions.
The Company provides innovative products for the HDTV broadcast, home theater,
digital television and PC/TV convergence markets. Faroudja's technologies are
protected by more than 60 patents. Faroudja has received numerous awards,
including an Emmy award for Engineering Development and a Lifetime Achievement
Emmy presented in June 1998 to its founder, Yves Faroudja.
FOCUS Enhancements, Inc. (Nasdaq: FSCE) is an industry leader in the development
and marketing of advanced, proprietary video conversion ASICs for the rapidly
converging, multi-billion dollar Internet, computer and television industries.
The Company's technology, which is sold globally through Original Equipment
Manufacturers (OEMs) and resellers, merges computer-generated graphics and
television displays for Internet viewing, presentations, training, education,
video teleconferencing, and home gaming markets. In addition, the Company is
developing a family of products that will enable the current installed base of
televisions, VCRs, and camcorders to remain functional in upcoming HDTV
environments.
CONTACT: Faroudja, Sunnyvale
Ken Boschwitz, 408/617-7257
VP Business Development
or
FOCUS Enhancements, Wilmington
Gary M Cebula, 978/988-5888
VP, Finance & Administration
or
Financial/General Interest Media:
Robinson Lerer & Montgomery, New York
Michael Bulger, 212/484-7413
