FOCUS ENHANCEMENTS INC
S-4/A, 2000-11-22
COMPUTER COMMUNICATIONS EQUIPMENT
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    As filed with the Securities and Exchange Commission on November 22, 2000
                           Registration No. 333-48942


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                          -----------------------------
                         PRE-EFFECTIVE AMENDMENT NO. 1
                                       TO
                                    FORM S-4
                             REGISTRATION STATEMENT
                                      UNDER
                           THE SECURITIES ACT OF 1933
                          -----------------------------


                            FOCUS ENHANCEMENTS, INC.
             (Exact name of registrant as specified in its Charter)


                          -----------------------------

               Delaware                                04-3186320
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
 Incorporation or organization)

                                     1-11860
                          (Primary Standard Industrial
                           Classification Code Number)


                               600 Research Drive
                         Wilmington, Massachusetts 01887
                                 (978) 988-5888

    (address, including zip code, and telephone number, including area code,
                  of registrant's principal executive offices)

                                 Brett A. Moyer
                             Chief Operating Officer
                            Focus Enhancements, Inc.
                               600 Research Drive
                         Wilmington, Massachusetts 01887
                                 (978) 988-5888

            (name, address, including zip code, and telephone number,
                   including area code, of agent for service)

                                   Copies to:

           Neil Aronson, Esq.                    Gregory A. Gehlmann, Esq.
       Mintz, Levin, Cohn, Ferris,              Jerrold F. Petruzzelli, Esq.
          Glovsky and Popeo PC                 Manatt, Phelps & Phillips, LLP
          One Financial Center                 1501 M Street N.W., Suite 700
            Boston, MA 02111                      Washington, D.C. 20005
            (617) 542-6000                           (202) 463-4300


Approximate  date of  commencement  of proposed  sale of the  securities  to the
public:  As  soon as  practicable  after  this  Registration  Statement  becomes
effective and all other  conditions to the proposed merger described herein have
been satisfied or waived.

If the securities  being registered on this Form are being offered in connection
with the  formation of a holding  company and there is  compliance  with General
Instruction G, check the following box. [ ]

If this Form is filed to register additional securities for an offering pursuant
to rule 462(b) under the  Securities  Act,  check the following box and list the
Securities  Act  registration   statement   number  of  the  earlier   effective
registration statement for the same offering. [ ]


If this Form is a  post-effective  amendment filed pursuant to Rule 462(d) under
the  Securities  Act,  check  the  following  box and  list the  Securities  Act
registration  statement number of the earlier effective  registration  statement
for the same offering. [ ]



We  incorporate  by  reference  into  this  prospectus  important  business  and
financial  information  about  Videonics and about us. This  information  is not
included in, or delivered with, this prospectus. We will provide you with a copy
of any and all of the  information  that we  incorporate  by  reference  in this
prospectus,  without  charge,  upon  written  or  oral  request.  If we  do  not
specifically  incorporate  by  reference  in  this  prospectus  exhibits  to the
documents  that we  incorporate  in this  prospectus,  then we will not  provide
copies of those  exhibits.  TO OBTAIN  TIMELY  DELIVERY,  YOU MUST  REQUEST  THE
INFORMATION NO LATER THAN DECEMBER 21, 2000.

Focus  stock is listed on the NASDAQ  SmallCap  Market  with the ticker  symbol:
"FCSE." On October 26, 2000,  the closing  price of one of Focus common stock on
the NASDAQ SmallCap Market was $1.25.

Our principal  executive offices are located at 600 Research Drive,  Wilmington,
Massachusetts, 01887, and our telephone number is (978) 988-5888.

Neither  the  Securities  and  Exchange  Commission,  nor any  state  securities
commission,  has approved or disapproved of these  securities or passed upon the
adequacy of this prospectus.  Any  representation  to the contrary is a criminal
offense.

THE REGISTRANT HEREBY AMENDS THIS  REGISTRATION  STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT  SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY  STATES THAT THIS REGISTRATION  STATEMENT
SHALL  THEREAFTER  BECOME  EFFECTIVE  IN  ACCORDANCE  WITH  SECTION  8(a) OF THE
SECURITIES  ACT OF  1933  OR  UNTIL  THE  REGISTRATION  STATEMENT  SHALL  BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION,  ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.


   AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
                               FACTORS" AT PAGE 13
                The date of this Prospectus is November __, 2000



<PAGE>


                                VIDEONICS, INC.
                                1370 DELL AVENUE
                           CAMPBELL, CALIFORNIA 95008


                    NOTICE OF ANNUAL MEETING OF SHAREHOLDERS


To our shareholders:

The Annual Meeting of Shareholders of Videonics, Inc., a California corporation,
will  be held  at  1370  Dell  Avenue,  Campbell,  California  95008  at 1 p.m.,
California time, on December 28, 2000, for the following purposes:


     1.  Consider and vote upon a proposal to adopt a merger  agreement  between
         Focus  Enhancements,  Inc., PC Video  Conversion,  Inc. and  Videonics,
         Inc., whereby Videonics will become a wholly-owned  subsidiary of Focus
         and each share of Videonics  common  stock will be converted  into 0.87
         shares of Focus common stock;

     2.  Elect four (4)  directors of Videonics  for terms  expiring at the 2001
         Annual Meeting of Shareholders;


     3.  Ratify  the  selection  of  PricewaterhouseCoopers  LLP  as  Videonics'
         accountants for the year ending December 31, 2000; and

     4.  Transact  such other  business as may  properly  come before the Annual
         Meeting or any adjournments thereof.

If you were a  shareholder  of record at the close of business  on November  10,
2000,  you may vote at the meeting or any  postponement  or  adjournment  of the
meeting.

If you sign the proxy card  enclosed,  you also permit the proxy holder to vote,
in their discretion, upon other matters that may come before the annual meeting.
As of the date of mailing,  the Videonics Board of Directors is not aware of any
other matters that may come before the annual meeting.

It is important  that all Videonics  shareholders  vote. We urge you to sign and
return the enclosed proxy as promptly as possible,  regardless of whether or not
you plan to attend the meeting in person. If you do attend the meeting,  you may
then withdraw your proxy and vote in person.


                                         By Order of the Board of Directors



                                         /s/ Michael D'Addio
                                         ---------------------------------------
                                         Michael D'Addio, Chairman of the Board

Dated: November 27, 2000



<PAGE>


                            FOCUS ENHANCEMENTS, INC.
                               600 RESEARCH DRIVE
                         WILMINGTON, MASSACHUSETTS 01887


                    NOTICE OF ANNUAL MEETING OF SHAREHOLDERS


To our shareholders:


The Annual  Meeting of  Shareholders  of Focus  Enhancements,  Inc.,  a Delaware
corporation,  will be held at the Crowne Plaza Hotel,  Woburn,  Massachusetts at
4:00 p.m., Massachusetts time on December 28, 2000, for the following purposes:


     1.  Consider and vote upon a proposal to adopt a merger  agreement  between
         Focus, PC Video Conversion, Inc. and Videonics, Inc., whereby Videonics
         will  become  a  wholly-owned  subsidiary  of Focus  and each  share of
         Videonics  common  stock will be  converted  into 0.87  shares of Focus
         common stock;

     2.  Amend Focus'  Certificate of  Incorporation  to increase the authorized
         number of shares of common stock from 30,000,000 to 50,000,000;

     3.  Elect one (1) Class II director of Focus to serve a three-year term;


     4.  Approve Focus' 2000 Non-Qualified Stock Option Plan;

     5.  Ratify the selection of Wolf & Company,  P.C. as Focus' accountants for
         the year ending December 31, 2000; and

     6.  Transact  such other  business as may  properly  come before the Annual
         Meeting or any adjournments thereof.

If you were a  shareholder  of record at the close of business  on November  10,
2000,  you may vote at the meeting or any  postponement  or  adjournment  of the
meeting.

If you sign the proxy card  enclosed,  you also permit the proxy holder to vote,
in their discretion, upon other matters that may come before the annual meeting.
As of the date of  mailing,  the Focus  Board of  Directors  is not aware of any
other matters that may come before the annual meeting.

It is important that all Focus shareholders vote. We urge you to sign and return
the  enclosed  proxy as promptly as possible,  regardless  of whether or not you
plan to attend the meeting in person. If you do attend the meeting, you may then
withdraw your proxy and vote in person.



                                         By order of the Board of Directors


                                         /s/ Brett A. Moyer
                                         ---------------------------------------
                                         Brett A. Moyer, Chief Operating Officer

Dated: November 27, 2000



<PAGE>


<TABLE>
                                               TABLE OF CONTENTS



<CAPTION>
                                                                                                          Page
                                                                                                          ----
<S>                                                                                                          <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER ..................................................................    1

SUMMARY OF THE JOINT PROXY STATEMENT/PROSPECTUS .........................................................    3
The Companies ...........................................................................................    3
Overview of the Merger Agreement ........................................................................    3
Conditions to Completion of the Merger ..................................................................    3
Reasons for the Merger ..................................................................................    4
Focus Board of Directors' Position on the Fairness of the Merger to Focus Shareholders ..................    5
Recommendations of the Boards of Directors ..............................................................    5
Shareholder Approvals ...................................................................................    5
The Annual Meetings .....................................................................................    5
What You Will Receive in the Merger .....................................................................    5
Focus Board of Directors and Management Following the Merger ............................................    6
Certain Federal Income Tax Consequences .................................................................    6
Accounting Treatment ....................................................................................    6
Comparison of Shareholder's Rights ......................................................................    6
Interests of Officers, Directors and the Controlling Shareholders in the Merger .........................    6
Dissenters' Rights and Appraisal Rights .................................................................    6
Market Price Information ................................................................................    7
For More Information ....................................................................................    7

SUMMARY SELECTED HISTORICAL AND UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED
  FINANCIAL INFORMATION .................................................................................    8
Focus Summary Selected Historical Financial Information .................................................    8
Videonics Summary Selected Historical Financial Information .............................................    9
Summary Selected Unaudited Pro Forma Combined Condensed Consolidated Financial
 Information ............................................................................................   10
Comparative Unaudited Historical and Pro Forma Per Share Data ...........................................   11
Comparative Per share Market Information ................................................................   12

RISK FACTORS ............................................................................................   13
Risks Related to the Merger .............................................................................   13
Risks Related to Focus and Videonics ....................................................................   14

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS ..............................................   18

INTRODUCTION ............................................................................................   19

THE ANNUAL MEETING OF FOCUS SHAREHOLDERS ................................................................   19
When will the meeting be held? ..........................................................................   19
What is the purpose of the Focus meeting? ...............................................................   19
Who can vote at the Focus meeting? ......................................................................   19
How do I vote by proxy? .................................................................................   19
How many votes do I have? ...............................................................................   20
Can I change my vote after I return my proxy card? ......................................................   20
How do I vote in person? ................................................................................   20
What constitutes a quorum? ..............................................................................   20
What vote is required for each proposal? ................................................................   20
What are the costs of solicitation of proxies? ..........................................................   21
Can I make a proposal at the next meeting? ..............................................................   21
Proposal 1 ..............................................................................................   21
Proposal 2 ..............................................................................................   21
Proposal 3 ..............................................................................................   22
Proposal 4 ..............................................................................................   23

                                                      i

<PAGE>


                                                                                                          Page
                                                                                                          ----
Proposal 5 ..............................................................................................   25

THE ANNUAL MEETING OF VIDEONICS SHAREHOLDERS ............................................................   26
When will the meeting be held? ..........................................................................   26
What is the purpose of the Videonics meeting? ...........................................................   26
Who can vote at the Videonics meeting? ..................................................................   26
How do I vote by proxy? .................................................................................   26
How many votes do I have? ...............................................................................   27
Can I change my vote after I return my proxy card? ......................................................   27
How do I vote in person? ................................................................................   27
What constitutes a quorum? ..............................................................................   27
What vote is required for each proposal? ................................................................   27
What are the costs of solicitation of proxies? ..........................................................   27
Can I make a proposal at the next meeting? ..............................................................   27
Proposal 1 ..............................................................................................   28
Proposal 2 ..............................................................................................   28
Proposal 3 ..............................................................................................   28

INFORMATION ABOUT FOCUS .................................................................................   29
The Business ............................................................................................   29
PC Video Conversion, Inc. ...............................................................................   29
Security Ownership of Certain Beneficial Owners and Management ..........................................   30
Information Regarding Directors and Executive Officers ..................................................   31
Executive Compensation ..................................................................................   33
Repricing of Stock Options/Additional Option Plans ......................................................   34
Employment Agreements ...................................................................................   35
Subsequent Separation and Consulting Agreements .........................................................   36
Focus Board Meetings and Committees .....................................................................   36
Compensation of Directors ...............................................................................   36
Certain Relationships and Related Transactions ..........................................................   36
Section 16(A) Beneficial Ownership Reporting Compliance .................................................   36
Recent Developments .....................................................................................   37

INFORMATION ABOUT VIDEONICS .............................................................................   38
The Business ............................................................................................   38
Security Ownership of Certain Beneficial Owners and Management ..........................................   38
Information Regarding Directors and Executive Officers ..................................................   39
Executive Compensation ..................................................................................   40
Employment Agreements ...................................................................................   41
Videonics Board Meetings and Committees .................................................................   41
Remuneration of Non-Employee Directors ..................................................................   41
Report of the Compensation Committee with respect to Executive Compensation .............................   42
Compensation Committee Interlocks and Insider Participation in Compensation Decisions ...................   42
Performance Measurement Comparison ......................................................................   43
Certain Relationships and Related Transactions ..........................................................   44
Section 16(A) Beneficial Ownership Reporting Compliance .................................................   44

THE MERGER ..............................................................................................   44
General .................................................................................................   44
Background of the Merger ................................................................................   45
Opinion of the Financial Advisor to Focus ...............................................................   46
Focus' Reasons for the Merger ...........................................................................   46
Recommendation of the Focus Board .......................................................................   48
Videonics' Reasons for the Merger .......................................................................   48

                                                      ii

<PAGE>


                                                                                                          Page
                                                                                                          ----
Recommendation of the Videonics Board ...................................................................   49
Interests of Certain Persons in the Merger ..............................................................   49
Effective Time of the Merger ............................................................................   50
Structure of the Merger .................................................................................   50
Effects of the Merger ...................................................................................   50
Merger Consideration ....................................................................................   50
Effect of the Merger on Videonics Stock Options and Warrants ............................................   51
Transfer of Shares ......................................................................................   51
Conditions to Completion of the Merger ..................................................................   51
Management and Operations of Focus and Videonics Following the Merger ...................................   52
Operations of Focus and Videonics if the Merger is not Completed ........................................   52
Certain Federal Income Tax Consequences .................................................................   52
Accounting Treatment ....................................................................................   54
Restrictions on Sales of Shares by Affiliates of Videonics and Focus ....................................   54
Listing on NASDAQ of Focus Common Stock to be Issued in the Merger ......................................   54
Federal Securities Laws Consequences ....................................................................   54
Dissenters' Rights ......................................................................................   55

OPINION OF FINANCIAL ADVISOR RETAINED BY THE FOCUS BOARD OF DIRECTORS ...................................   56
The Market Multiple Approach ............................................................................   58
The Discounted Cash Flow Approach .......................................................................   59

THE MERGER AGREEMENT ....................................................................................   61
General .................................................................................................   61
Conversion of Shares ....................................................................................   61
Representations and Warranties ..........................................................................   62
Conduct of Business Before the Merger ...................................................................   62
No Solicitation .........................................................................................   64
Conditions ..............................................................................................   65
Termination; Termination Fees ...........................................................................   66
Amendment and Waiver ....................................................................................   68

PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL INFORMATION .........................................   69
Overview ................................................................................................   69
Unaudited Pro Forma Condensed Consolidated Balance Sheet (As of September 30, 2000) .....................   70
Unaudited Pro Forma Condensed Consolidated Statement of Operations (For the nine
 months ended September 30, 2000) .......................................................................   71
Unaudited Pro Forma Condensed Consolidated Statement of Operations (For the year
 ended December 31, 1999) ...............................................................................   72
Notes To Unaudited Pro Forma Combined Condensed Financial Statements ....................................   73

COMPARISON OF SHAREHOLDER RIGHTS OF FOCUS AND VIDEONICS .................................................   77

EXPERTS .................................................................................................   84

LEGAL MATTERS ...........................................................................................   84

OTHER MATTERS ...........................................................................................   84

WHERE YOU CAN FIND MORE INFORMATION .....................................................................   84

ACCOMPANYING DOCUMENTS ..................................................................................   86

                                                     iii


<PAGE>


                                                  APPENDICES


                                                                                                          Page
                                                                                                          ----

APPENDIX A--Agreement and Plan of Merger, dated as of August 30, 2000, among
            Focus Enhancements, Inc., PC Video Conversion, Inc. and Videonics, Inc. .....................  A-1

APPENDIX B--Dissenters' Rights under Chapter 13 of the California General
            Corporation Law .............................................................................  B-1

APPENDIX C--Certificate of Amendment of the Certificate of Incorporation of Focus
            Enhancements, Inc ...........................................................................  C-1

APPENDIX D--Opinion of Union Atlantic Capital L.C. financial advisors to Board of
            Directors of Focus ..........................................................................  D-1

APPENDIX E--Focus Enhancements, Inc. 2000 Non-Qualified Stock Option Plan ...............................  E-1

APPENDIX F--Annual Report on Form 10-KSB/A of Focus Enhancements, Inc. for the
            Fiscal Year Ended December 31, 1999 .........................................................  F-1

APPENDIX G--Quarterly Report on Form 10-Q of Focus Enhancements, Inc. for the
            Quarter Ended September 30, 2000 ............................................................  G-1

APPENDIX H--Annual Report on Form 10-K of Videonics, Inc. for the Fiscal Year
            Ended December 31, 1999 .....................................................................  H-1

APPENDIX I--Quarterly Report on Form 10-Q of Videonics, Inc. for the Quarter Ended
            September 30, 2000 ..........................................................................  I-1

</TABLE>


                                                      iv

<PAGE>


                     QUESTIONS AND ANSWERS ABOUT THE MERGER


Q:       What is the proposed transaction?

A:       Videonics will merge with a subsidiary of Focus. As a result, Videonics
         will  become  a  wholly-owned   subsidiary  of  Focus,   and  Videonics
         shareholders  will exchange their shares of Videonics  common stock for
         shares of Focus common stock.

Q:       What will I receive in the merger?

A:       Common shareholders of Videonics, other than those exercising rights of
         dissent,  will receive 0.87 shares of Focus common stock for each share
         of Videonics common stock they own. Videonics common  shareholders will
         receive a cash payment in place of any fractional share of Focus common
         stock you would have otherwise received.

Q:       What shareholder approvals are needed?


A:       For Videonics, the affirmative vote of the holders of a majority of the
         outstanding  shares of Videonics  common stock is required to adopt the
         merger agreement.  Each holder of Videonics common stock is entitled to
         one vote per share.  As of November 10,  2000,  the record date for the
         Videonics annual meeting,  Videonics  directors and executive  officers
         and their affiliates owned approximately 50% of the outstanding shares.

A:       For Focus, the affirmative vote of a majority of the outstanding shares
         of Focus common stock is required to adopt the merger  agreement and to
         amend the Focus  Certificate of Incorporation to increase the number of
         authorized  shares of Focus common stock from 30,000,000 to 50,000,000.
         Each holder of Focus common stock is entitled to one vote per share. As
         of November  10, 2000,  the record date for the Focus  annual  meeting,
         Focus  directors  and  executive  officers and their  affiliates  owned
         approximately 5% of the outstanding shares.


Q:       Are we voting on anything else at the annual meeting?

A:       Yes.  Videonics  shareholders  also will be electing four (4) directors
         and ratifying the appointment of auditors.  % Focus  shareholders  also
         will be electing  one  director,  approving  Focus' 2000  Non-Qualified
         Stock Option Plan and ratifying the appointment of auditors.

Q:       What do I need to know?

A:       After carefully  reading and  considering the information  contained in
         this joint proxy  statement/prospectus,  please  respond by completing,
         signing and dating  your proxy card and  returning  it in the  enclosed
         postage  paid  envelope  as soon as possible so that your shares may be
         represented at the annual meeting.

Q:       What if I don't vote?

A:

         o     If you fail to  respond,  it will have the same  effect as a vote
               against the merger.

         o     If you respond  and do not  indicate  how you want to vote,  your
               signed proxy will be counted as a vote in favor of the merger.

         o     If you respond and abstain from voting,  your proxy will have the
               same effect as a vote against the merger.

                                        1

<PAGE>


Q:       Can I change my vote after I have delivered my proxy?

A:       Yes. You can change your vote at any time before your proxy is voted at
         the annual meeting.  You can do this in one of three ways.  First,  you
         can  revoke  your  proxy.  Second,  you can  submit a new  proxy to the
         secretary  of Focus or  Videonics,  as  appropriate,  before the annual
         meeting.  If your shares are held in an account at a brokerage  firm or
         bank,  you should  contact your  brokerage  firm or bank to change your
         vote.  Third, if you are a holder of record,  you can attend the annual
         meeting and vote in person.

Q:       Should I send in my stock certificate now?

A:       No.  After  the  merger  is   completed,   you  will  receive   written
         instructions  from the  exchange  agent on how to  exchange  your stock
         certificates  for  shares  of Focus.  Please do not send in your  stock
         certificates with your proxy.

Q:       Where will  shares of Focus  common  stock being  issued to  Videonics'
         shareholders be listed?

A:       We  intend  to apply to list  these  additional  shares  on the  Nasdaq
         SmallCap Market under the symbol "FCSE".

Q:       When do you expect the merger to be completed?

A:       We are working to complete the merger as quickly as possible. We expect
         to complete the merger before the end of 2000.

Q:       Who can help answer my questions?

A:       If you have any questions about the merger or how to submit your proxy,
         or   if   you   need   additional    copies   of   this   joint   proxy
         statement/prospectus or the enclosed proxy card, you should contact:


         o     if you are a Videonics shareholder:

               Videonics, Inc.
               Investor Relations
               1370 Dell Avenue
               Campbell, California 95008
               (408) 866-8300
               [email protected]

         o     if you are a Focus shareholder:

               Focus Enhancements, Inc.
               Investor Relations
               600 Research Drive
               Wilmington, MA 01887
               (978) 988-5888
               [email protected]


                                        2

<PAGE>


                 SUMMARY OF THE JOINT PROXY STATEMENT/PROSPECTUS


         This summary highlights selected information from this document and may
not  contain  all of the  information  that  is  important  to  you.  To  better
understand the merger and for a more complete  description of the legal terms of
the  merger,  you  should  read the  following  summary  with the more  detailed
information  included  elsewhere,  or that we incorporate by reference,  in this
joint proxy  statement/prospectus.  You may obtain  information  incorporated by
reference into this joint proxy statement/prospectus without charge by following
the instructions in the section entitled "Where You Can Find More  Information."



                                  THE COMPANIES


Videonics, Inc. (see page 38)


         Videonics,  Inc., a California  corporation,  is engaged in the design,
manufacture  and sale of  affordable,  high  quality,  real time,  digital video
post-production  equipment. Its products process, edit and mix raw video footage
as well as  enhance  such  footage  with  audio,  special  effects  and  titles,
resulting in professional quality video production.  Videonics equipment is used
throughout the world in the production of videos.

         Videonics'  common stock is listed on the NASDAQ  SmallCap Market under
the symbol  "VDNX".  Its  principal  offices  are  located at 1370 Dell  Avenue,
Campbell, California 95008, and its telephone number is (408) 866-8300.


Focus Enhancements, Inc. (see page 29)


         Focus Enhancements,  Inc., a Delaware corporation,  internally develops
proprietary  technology for the  conversion and  enhancement of PC and Macintosh
output for display on televisions  and  large-screen  monitors,  and markets and
sells, worldwide, a line of video conversion products using this technology.

         Focus' common stock is listed on the NASDAQ  SmallCap  Market under the
symbol  "FCSE."  Its  principal  offices  are  located  at 600  Research  Drive,
Wilmington, MA 01887, and its telephone number is (978) 988-5888.


PC Video Conversion, Inc. (see page 29)


         PC Video Conversion,  Inc. is a Delaware corporation and a wholly-owned
subsidiary  of Focus formed  solely for the purpose of effecting the merger with
Videonics. Its principal office is located at 600 Research Drive, Wilmington, MA
01887, and its telephone number is (978) 988-5888.


                                   THE MERGER

Overview of the Merger Agreement


         Pursuant to a merger  agreement  dated  August 30,  2000,  among Focus,
Videonics and PC Video Conversion,  PC Video Conversion will merge with and into
Videonics,  with Videonics as the surviving corporation.  As a result, Videonics
will become a wholly-owned subsidiary of Focus. The merger agreement is attached
as Appendix A to this joint proxy  statement/prospectus  and we encourage you to
read it carefully.

         Conditions to  Completion  of the Merger.  (see page 51) Each of Focus'
and Videonics' obligations to complete the merger is subject to the satisfaction
or waiver of specified conditions, including those listed below:


         o     the merger  agreement must be adopted by the shareholders of both
               Focus and Videonics;

         o     the  shareholders  of Focus  must  approve  an  amendment  to the
               Certificate of  Incorporation  of Focus to increase the number of
               its authorized shares of common stock to 50,000,000;

                                        3

<PAGE>


         o     Focus must amend its 2000  Non-Qualified  Stock  Option  Plan and
               submit the plan to its shareholders for approval.


         o     no law,  injunction  or order  preventing  the  merger  may be in
               effect;

         o     any  applicable  waiting  period under U.S.  antitrust  laws must
               expire or be terminated;

         o     the shares of Focus  common stock to be issued in the merger must
               have been approved for listing on the Nasdaq SmallCap Market;

         o     we must have complied with our respective covenants in the merger
               agreement;

         o     our  respective  representations  and  warranties  in the  merger
               agreement must be true and complete;

         o     we each must receive an opinion of tax counsel to the effect that
               the merger will qualify as a tax-free exchange or reorganization,
               or both; and


         o     the continuing  accuracy,  as of the date we complete the merger,
               of the  representations  and  warranties  of  each of  Focus  and
               Videonics contained in the merger agreement.

         Termination of the Merger Agreement. (see page 66) We can jointly agree
to terminate the merger  agreement at any time.  Either of us may also terminate
the merger agreement if:


         o     the merger is not  completed on or before  December 31, 2000,  so
               long as the failure to  complete  the merger is not the result of
               the failure by the party terminating the agreement to fulfill any
               of its obligations under the merger agreement;

         o     government actions do not permit the completion of the merger;


         o     shareholders  of either  company  do not vote to adopt the merger
               agreement or Focus shareholders do not adopt the amendment to the
               Certificate of Incorporation to increase the number of authorized
               shares of common stock;


         o     the other party has failed to recommend  the merger  agreement or
               has withdrawn such support; or

         o     the other  party  breaches  its  representations,  warranties  or
               covenants in the merger agreement in a material way.


         Termination  Fees. (see page 66) The merger agreement  provides that in
several  circumstances,  Focus or  Videonics  may be  required to pay a $300,000
termination fee.

         "No  Solicitation"  Provisions.  (see  page  64) The  merger  agreement
contains  detailed  provisions  prohibiting  Focus and Videonics from seeking an
alternative transaction. These "no solicitation" provisions prohibit us, as well
as our officers,  directors,  subsidiaries and  representatives  from taking any
action to solicit  an  acquisition  proposal.  The  merger  agreement  does not,
however,  prohibit  either  of us or our  respective  Boards of  Directors  from
considering,  and  potentially  recommending,  an unsolicited  bona fide written
superior proposal from a third party.

         Completion  and  Effectiveness  of the  Merger.  (see  page 61) We will
complete the merger when all of the  conditions  to completion of the merger are
satisfied or waived in  accordance  with the merger  agreement.  The merger will
become  effective  when we file  certificates  of  merger  with the  appropriate
states. We expect to complete the merger by the end of 2000.

Reasons for the Merger (see pages 46 and 48)


         The Boards of Directors of Videonics  and Focus believe that the merger
provides  Videonics  and Focus  shareholders  with an investment in a larger and
more  diversified  enterprise  that is well  positioned to take advantage of new
opportunities  and to meet competitive  challenges in a manner that will enhance
shareholder value for various reasons, including the following:

         o     Videonics and Focus have a unique  opportunity  to take advantage
               of the complementary strategic fit of their businesses, combining
               their  operations to create a stronger  commercial  entity in the
               market for video products and technologies.

                                        4
<PAGE>


         o     The  merger  presents   opportunities   for  more  efficient  and
               profitable  operations.  As a  combined  company,  we  will  have
               greater    financial    strength,    operational    efficiencies,
               distribution,  earning power and growth  potential than either of
               us would have on our own.


The Focus Board of  Directors'  Position on the  Fairness of the Merger to Focus
Shareholders (see page 46)


         In considering the fairness to Focus of the merger  consideration to be
paid by Focus to Videonics  shareholders,  the Focus Board of Directors reviewed
and relied,  in part,  on an analysis of the ranges of  potential  values of the
shares of Videonics  common stock that resulted from the  application of several
accepted  valuation  methodologies.  This  analysis,  including the selection of
valuation methodologies,  was prepared by Union Atlantic Capital L.C., financial
advisors to the Focus Board of Directors in connection with the merger.  Details
of Union Atlantic's analysis of the fairness of the merger to Focus are included
in the joint proxy  statement/prospectus (see page 69). A copy of the opinion of
Union  Atlantic  rendered  to the Focus Board of  Directors  is included in this
joint proxy  statement/prospectus as Appendix D. Union Atlantic did not consider
or render any  opinion as to the  fairness  of the merger  consideration  to the
shareholders of Videonics.

Recommendation of the Boards of Directors


         Videonics. (see page 49) The Videonics Board of Directors believes that
the merger is advisable  and fair and in the best  interest of Videonics and its
shareholders  and  unanimously  recommends that you vote for the adoption of the
merger proposal.

         Focus (see page 48).  The Focus Board of  Directors  believes  that the
merger  is  advisable  and  fair  and in the  best  interest  of  Focus  and its
shareholders  and  unanimously  recommends that you vote for the adoption of the
merger proposal.


Shareholder Approvals


         Approval of Videonics Shareholders.  (see page 27) The affirmative vote
of the holders of a majority of the shares of Videonics common stock outstanding
as of the  record  date is  required  to adopt the merger  agreement.  As of the
record date,  Videonics  directors and executive  officers and their  affiliates
owned approximately 50% of the outstanding shares of common stock.

         Approval of Focus  Shareholders.  (see page 20) The affirmative vote of
the holders of a majority of the shares of Focus common stock  outstanding as of
the record date is required to adopt the merger  agreement  and the amendment to
the  Certificate  of  Incorporation  of  Focus.  As of the  record  date,  Focus
directors and executive officers and their affiliates owned  approximately 5% of
the outstanding shares of common stock.


The Annual Meetings


         Annual Meeting of Videonics  Shareholders.  (see page 26) The Videonics
annual meeting will be held at 1370 Dell Avenue,  Campbell,  California 95008 at
1:00 p.m., California time, on December 28, 2000.

         Annual  Meeting of Focus  Shareholders.  (see page 19) The Focus annual
meeting will be held at the Crowne Plaza Hotel,  Woburn,  Massachusetts 01801 at
4:00 p.m., Massachusetts time, on December 28, 2000.

What You Will Receive in the Merger (see pages 50 and 51)

         Each share of Videonics  common stock issued and  outstanding  shall be
converted  into and become  0.87  shares of common  stock,  par value  $0.01 per
share, of Focus.  Each option or warrant granted by Videonics to purchase shares
of Videonics common stock which is outstanding and unexercised immediately prior
to the merger will be assumed by Focus and  converted  into an option or warrant
to purchase  shares of Focus  common  stock in such amount and at such  exercise
price as provided below:


                                        5

<PAGE>
         o     the number of shares of Focus  common  stock to be subject to the
               new  option or warrant  shall be equal to the  product of (i) the
               number  of  shares  of  Videonics  common  stock  subject  to the
               Videonics option or warrant and (ii) 0.87;

         o     the exercise  price per share of Focus common stock under the new
               option or warrant  shall be equal to (i) the  exercise  price per
               share of the Videonics common stock under the Videonics option or
               warrant divided by (ii) 0.87; and

         o     upon each  exercise of a Videonics  option or warrant by a holder
               thereof,  the  aggregate  number of shares of Focus  common stock
               deliverable   upon  such  exercise  shall  be  rounded  down,  if
               necessary,  to the nearest whole share and the aggregate exercise
               price shall be rounded up, if necessary, to the nearest cent.

         Videonics  shareholders  should not send in any stock certificates with
their proxy card. A transmittal  letter with  instructions  for the surrender of
Videonics stock certificates will be mailed to Videonics shareholders as soon as
practicable after completion of the merger.


FocusBoard of Directors and Management Following the Merger (see page 52)


         The initial  Board of Directors of Focus upon  completion of the merger
will consist of seven directors,  three of whom will be selected by the Board of
Directors  of  Videonics  and  four of whom  will be  selected  by the  Board of
Directors of Focus.

         Michael L.  D'Addio  will hold the  positions  of  President  and Chief
Executive  Officer  and Thomas L. Massie will remain as Chairman of the Board of
Focus for the remainder of the current term.


Certain Federal Income Tax Consequences (see page 52)


         The merger is intended to be a tax-free reorganization in which no gain
or loss will be  recognized  by Focus and  Videonics and no gain or loss will be
recognized by Focus and Videonics  shareholders,  except for tax payable on cash
received by Videonics  shareholders instead of fractional shares of Focus common
stock.  A condition  to the merger is that Focus and  Videonics  each receive an
opinion  of counsel to the effect  that the merger  will  constitute  a tax-free
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended.


Accounting Treatment (see page 54)


         We intend to account  for the merger as a  "purchase",  as that term is
used under  generally  accepted  accounting  principles.  This means  that,  for
accounting and financial reporting purposes,  Focus will make a determination of
the fair value of  Videonics'  assets and  liabilities  in order to allocate the
purchase price to the assets acquired and the liabilities assumed.


Comparison of Shareholder's Rights (see page 77)


         There  are  differences  between  the  rights  you have as a holder  of
Videonics  common stock and the rights you will have as a holder of Focus common
stock.


Interests  of Officers, Directors and the Controlling Shareholders in the Merger
(see page 49)


         Certain  officers and directors and other members of the  management of
Videonics  and Focus have  certain  interests  in the merger that are  different
from,  or in addition to, the interests of  shareholders  of Videonics and Focus
generally.  These interests  include the potential for positions as directors or
officers of Focus,  acceleration  of stock  options  and the right to  continued
indemnification  by  Focus  for any  acts or  omissions  occurring  prior to the
merger.


Dissenters' Rights and Appraisal Rights (see page 55)


         Holders of Videonics  common stock who do not wish to accept  shares of
Focus in the merger will be entitled to exercise  dissenters' rights pursuant to
the  provisions of Chapter 13 of the  California  General  Corporations  Law. In
accordance with these provisions,  dissenting  Videonics  shareholders will have
the right to be paid in cash the fair  market  value of their  Videonics  common
stock as determined

                                        6
<PAGE>


by appraisal based upon circumstances immediately prior to the date the proposed
merger  was  announced,   excluding  any   appreciation  or  depreciation  as  a
consequence of the merger,  by fully  complying with the procedures set forth in
the California  General  Corporation Law. The failure of a dissenting  Videonics
shareholder  to comply timely and properly with such  procedures  will result in
the termination or waiver of such rights.


Market Price Information (see page 7)


         Shares of each of Focus and  Videonics  common  stock are traded on the
Nasdaq  SmallCap  Market.  On August 30,  2000,  the last trading day before the
public  announcement  of the merger,  the closing  price of Focus and  Videonics
common stock was $1.72 and $0.88,  respectively.  Based on the exchange ratio of
0.87, the pro forma  equivalent per share value of the Videonics common stock on
August 30, 2000 was approximately $1.01 per share.


For More Information (see page 84)


         More information  regarding Focus and Videonics is available from their
public filings with the Securities and Exchange  Commission.  See "Where You Can
Find More Information".

         If you have any questions about the merger or the information contained
in  this  joint  proxy  statement/prospectus,   please  contact  Focus  Investor
Relations at:

   Focus Enhancements, Inc.
   Investor Relations
   600 Research Drive
   Wilmington, MA 01887
   (978) 988-5888
   [email protected]

or Videonics Investor Relations at:

   Videonics, Inc.
   Investor Relations
   1370 Dell Avenue
   Campbell, California 95008
   (408) 866-8300
   [email protected]

                                        7

<PAGE>


          SUMMARY SELECTED HISTORICAL AND UNAUDITED PRO FORMA COMBINED
                  CONDENSED CONSOLIDATED FINANCIAL INFORMATION

         The  following  tables  present a summary  of (i)  selected  historical
financial data of Focus,  (ii) selected  historical  financial data of Videonics
and (iii) selected unaudited pro forma combined condensed consolidated financial
data of Focus and Videonics, which reflects the merger.

Focus Summary Selected Historical Financial Information

<TABLE>

         The  following   tables   highlight   selected   historical   financial
information of Focus derived from the audited historical  consolidated financial
statements and related notes for each of the years in the five-year period ended
December 31, 1999 and the unaudited  consolidated  financial  statements for the
nine months ended  September 30, 2000 and 1999.  The  historical  information is
only a  summary,  and you  should  read it in  conjunction  with the  historical
financial  statements  and related  notes  contained in the annual and quarterly
reports of Focus which are attached to, or  incorporated by reference into, this
joint proxy statement/prospectus.

<CAPTION>
                                                                             Fiscal Year Ended(1)
                                             -----------------------------------------------------------------------------------
                                               1995              1996               1997               1998               1999
                                             --------          --------           --------           --------           --------
                                                                 (in thousands, except per share amounts)
<S>                                          <C>               <C>                <C>                <C>                <C>
Consolidated Statements Of Operations Data:
Net sales ............................       $ 17,100          $ 15,076           $ 21,026           $ 18,440           $ 17,183
Gross profit .........................          7,354(2)            188(3)           5,934 (4)          3,029 (5)          6,639 (6)
Net income (loss) ....................            329(2)        (10,722)(3)         (1,986)(4)        (12,787)(5)         (1,480)(6)
Basic net income (loss)
 per share ...........................       $   0.05(2)       $  (1.19)(3)       $  (0.16)(4)       $  (0.78)(5)       $  (0.08)(6)
Diluted net income (loss)
 per share ...........................       $   0.04(2)       $  (1.19)(3)       $  (0.16)(4)       $  (0.78)(5)       $  (0.08)(6)
</TABLE>


                                                        Nine Months Ended(1)
                                                       ---------------------
                                                      Sept. 30,    Sept. 30,
                                                        1999          2000
                                                       --------     --------
                                                 (in thousands, except per share
                                                              amounts)

Consolidated Statements Of Operations Data:
Net sales ........................................     $ 12,342     $ 12,130
Gross profit .....................................        6,020        3,751 (7)
Net income (loss) ................................          299       (5,208)(7)
Basic net income (loss)
 per share .......................................     $   0.02     $  (0.21)(7)
Diluted net income (loss)
 per share .......................................     $   0.02     $  (0.21)(7)


<TABLE>
<CAPTION>

                                                                                                                         Nine Months
                                                                         Fiscal Year Ended(1)                             Ended(1)
                                                --------------------------------------------------------------------      ---------
                                                                                                                          Sept. 30,
                                                  1995           1996           1997           1998           1999          2000
                                                -------        -------         -------        -------        -------       -------
                                                                                   (in thousands)
<S>                                             <C>            <C>             <C>            <C>            <C>           <C>
Consolidated Balance Sheet Data:
Working capital (deficit) ...............       $   862        $(1,008)        $ 2,619        $ 1,435        $ 5,633       $ 1,950
Net property, plant &
 equipment ..............................           418            484           1,069          1,272            969           781
Total assets ............................         8,960          7,907          13,921         12,737         15,015        12,399
Current portion of long-term
 debt ...................................           133            124             103            403            442           363
Long-term debt (less current
 portion) ...............................            26             81              74            860            428           254
Shareholders' equity ....................         3,587            973           5,068          2,878          9,207         6,403

<FN>
------------------
(1)  Focus paid no cash dividends during the periods indicated.

(2)  Results  for 1995  include  fourth  quarter  charges  of  $300,000  for the
     write-down of Focus'  inventory to its net realizable  value and a $151,000
     adjustment of goodwill on Inline to its net realizable value.

(3)  Results for 1996 include  third  quarter  charges of $1.3 million to adjust
     goodwill  on Lapis and Inline to its net  realizable  value and a charge of
     $2.0  million  related  to the write off  in-process  R&D  pursuant  to the
     acquisition  of Tview.  In the fourth  quarter,  Focus  incurred a $400,000
     charge to  increase  its  reserve  for stock  balancing.  Additionally,  in
     December   1996  Focus  sold  certain   inventory  to  a  barter   exchange
     organization in exchange for barter or cash equivalent  purchase credits of
     approximately  1,700,000.  Focus  recorded this  transaction as a long-term
     asset at approximately  $1,164,000 based on the estimated fair value of the
     products exchanged. This amount was subsequently written-off as of December
     31, 1996.

(4)  Results for 1997 include $2.5 million in returns in the fourth  quarter due
     to product obsolescence.  Additionally, effective September 30, 1997, Focus
     sold its line of computer  connectivity  products  to  Advanced  Electronic
     Support  Products,  Inc. (AESP) for 189,701 shares of AESP common stock. In
     connection with this transaction, Focus recorded other income in the amount
     of $358,288,  securities  available  for sale in the amount of $595,000 and
     deferred  income of  $84,212.  In  addition,  the Company  sold  networking
     inventory to AESP in the amount of $159,000 at cost.

(5)  Results for 1998 include fourth quarter adjustments of $3.5 million related
     to the return of products from  non-performing  resellers,  $1.9 million in
     write-offs for obsolete  inventory,  $3.1 million write down of goodwill to
     its net  realizable  value  related to Lapis,  Digital  Vision and PC Video
     Conversion, $2.1 million in additional accrued expenses, $766,000 in

                                        8

<PAGE>


     write-off  of fixed  assets  and  $346,000  in write  down of a  marketable
     securities to its net realizable value.

(6)  Results for 1999 include  fourth  quarter  adjustments  of $367,000 for the
     return of products from discontinued  resellers,  $527,000 in write-offs of
     obsolete  inventory,  $383,000 in  write-offs  of  non-performing  accounts
     receivable,  $254,000 in additional accrued expenses, and $284,000 in stock
     compensation and other charges.

(7)  Results for the nine months ended  September  30, 2000  include  charges of
     $207,000  for  additional  inventory  reserves,  $603,000  related  to  the
     write-down  of inventory as a result of a physical  inventory  taken at the
     end of the second  quarter,  $302,000 in  accounting  fees and  $292,000 in
     legal fees  pertaining  to the 1999 annual audit and special  investigation
     and $2.1 million in legal judgement expense related to CRA Systems.
</FN>
</TABLE>


Videonics Summary Selected Historical Financial Information

<TABLE>
         The  following   tables   highlight   selected   historical   financial
information  of  Videonics  derived  from the  audited  historical  consolidated
financial  statements  and related  notes for each of the years in the five-year
period  ended  December  31,  1999  and  the  unaudited  consolidated  financial
statements for the nine months ended September 30, 2000 and 1999. The historical
information is only a summary,  and you should read it in  conjunction  with the
historical  financial  statements and related notes  contained in the annual and
quarterly  reports  of  Videonics  which are  attached  to, or  incorporated  by
reference into, this joint proxy statement/prospectus.


<CAPTION>
                                                               Fiscal Year Ended(1)                            Nine Months Ended(1)
                                       -----------------------------------------------------------------       --------------------
                                                                                                              Sept. 30,    Sept. 30,
                                         1995          1996       1997           1998            1999            1999        2000
                                       --------      --------   --------       --------       ----------       --------    --------
                                                               (in thousands, except per share amounts)
<S>                                    <C>           <C>        <C>            <C>            <C>              <C>         <C>
Consolidated Statements Of Operations Data:
Net sales ..........................   $ 33,561      $ 29,195   $ 19,955       $ 19,672       $   14,226       $ 10,901    $  9,087
Gross profit .......................     16,401        13,929      6,055(4)       6,084(3)         5,411(2)       4,568       3,549
Net income (loss) ..................      3,746(5)        744    (13,441)(4)     (6,713)(3)       (2,634)(2)     (1,905)     (1,194)
Basic net income (loss)
 available for common
 shareholders per share ............   $   0.69(5)   $   0.13   $  (2.34)(4)   $  (1.15)(3)   $    (0.45)(2)   $  (0.31)   $  (0.20)
Diluted net income (loss)
 available for common
 shareholders per share ............   $   0.65(5)   $   0.13   $  (2.34)(4)   $  (1.15)(3)   $    (0.45)(2)   $  (0.31)   $  (0.20)
</TABLE>

<TABLE>

<CAPTION>
                                                                                                                         Nine Months
                                                                       Fiscal Year Ended(1)                                Ended(1)
                                            -----------------------------------------------------------------------      ----------
                                                                                                                           Sept. 30,
                                             1995            1996            1997            1998            1999            2000
                                            -------         -------         -------         -------         -------         -------
                                                                         (in thousands)
<S>                                         <C>             <C>             <C>             <C>             <C>             <C>
Consolidated Balance Sheet Data:
Working capital ....................        $20,127         $21,412         $ 9,902         $ 4,404         $ 3,823         $ 2,871
Net property, plant & equipment ....          1,350           2,037           2,438           1,507             513             299
Total assets .......................         27,350          27,958          15,694           9,164           6,089           5,472
Long-term debt .....................           --              --              --              --             1,035           1,035
Shareholders' equity ...............         24,149          25,731          12,606           5,927           3,346           2,177


<FN>
------------------
(1)  Videonics paid no cash dividends during the periods indicated.

(2)  Results for 1999  include a $650,000  charge in the fourth  quarter for the
     write-down of Videonics' inventory to its net realizable value.

(3)  Results for 1998  include a $1.3 million  charge in the fourth  quarter for
     the  write-down  of the  Videonics'  open  systems  inventory  to  its  net
     realizable value.

(4)  Results for 1997 include:  a $1.9 million  write-off of  intangible  assets
     related to Nova Systems;  a $1.6 million increase in inventory reserves for
     components  rendered obsolete by product  revisions of which  approximately
     $608,000  related to  PowerScript  and $265,000  related to KUB Systems and
     $700,000 related to excess and obsolete assets at Nova Systems;  a $124,000
     increase in warranty  reserves  for  PowerScript  hardware  updates;  a tax
     charge of $5.9 million due to the  establishment  of a valuation  allowance
     against  Videonics'  deferred  tax  assets;  and a $100,000  charge for the
     reduction of  approximately  12 percent of Videonics' work force. The total
     of these charges equaled $9.6 million.

(5)  Results for 1995 include a one-time  charge of  $1,965,000  for purchase of
     in-process  research and  development  related to the  acquisition  of Nova
     Systems assets.  Without this one-time charge, the net income of $3,746,000
     would have been $5,075,000 or $0.88 per share.
</FN>
</TABLE>


                                        9

<PAGE>


Summary Selected Unaudited Pro Forma Combined Condensed  Consolidated  Financial
Information


         We are  providing the following  summary  selected  unaudited pro forma
combined condensed  consolidated  financial data to give you a better picture of
what the  results of  operations  and the  financial  position  of the  combined
businesses of Focus and Videonics might have looked like had the merger occurred
on January 1, 1999 for income  statement  purposes and on September 30, 2000 for
balance sheet purposes.  This information is provided for illustrative  purposes
only and does not show what the results of operations  or financial  position of
Focus  would have been if the merger  with  Videonics  actually  occurred on the
dates  assumed.  In addition,  this  information  does not indicate  what Focus'
future  consolidated  operating results or consolidated  financial position will
be.


         How The Pro Forma Financial Data Was Prepared


         The following summary selected  unaudited pro forma combined  condensed
consolidated  financial  statements combine Focus' historical financial position
at September 30, 2000 with Videonics' historical financial position at September
30, 2000 and the historical results of operations of Focus for fiscal year ended
December 31, 1999 with Videonics for the fiscal year ended December 31, 1999 and
the nine months ended September 30, 2000, for both Focus and Videonics.  The pro
forma statement of operations  data assumes the combination  occurred on January
1, 1999 while the pro forma  balance  sheet data  assumes the  combination  took
place on September 30, 2000.


         These Pro Forma Financial Statements Are Based On Assumptions


         These  statements  reflect  the  issuance  of 0.87 of a share  of Focus
common stock for each outstanding  share of Videonics common stock, the exchange
ratio  specified  in the merger  agreement.  We  assumed  the value of the Focus
shares to be issued for outstanding  Videonics shares to be $8.0 million,  based
on 5.9 million  Videonics  shares  outstanding  as of September 30, 2000 and the
conversion  value of a Videonics share at the time of the merger  agreement.  We
increased this value by approximately  $423,000 for the value of all outstanding
vested Videonics  options to be assumed by Focus and by  approximately  $695,000
for transaction costs associated with the merger.

         The allocation of the aggregate  purchase price of  approximately  $9.1
million  will be finalized  following  receipt of the closing  balance  sheet of
Videonics and a final  independent  appraisal of certain tangible and intangible
assets of Videonics. The excess of the purchase price over the fair value of the
acquired Videonics net tangible and identifiable  intangible assets will then be
allocated to goodwill.


         The  aggregate  purchase  price is expected to be allocated as follows,
based upon a preliminary independent appraisal of Videonics (in thousands):


Tangible assets ..............................................          $ 5,472
Intangible assets acquired:
Tradename ....................................................              317
In-process research and development ..........................              387
Assembled workforce ..........................................            1,001
Goodwill .....................................................            1,715
Existing technology ..........................................            3,495
Long-term debt ...............................................           (1,035)
Other liabilities ............................................           (2,260)
                                                                        -------
Net estimated purchase price allocation ......................          $ 9,092
                                                                        =======


         Because the valuation has not been completed,  the actual amount of the
allocations  could  vary  from the  estimates  above.  The  tangible  assets  of
Videonics  consist  primarily of property,  plant and  equipment,  cash and cash
equivalents  and accounts  receivable  and  inventory.  In-process  research and
development has not reached  technological  feasibility at the acquisition  date
and will be  immediately  charged  to  operations  in the  period  the merger is
consummated.  The  amounts  allocated  to  existing  technology,  tradename  and
assembled workforce will be amortized over the estimated useful life of

                                       10

<PAGE>


three  years.  The purchase  price in excess of net  tangible  and  identifiable
intangible  assets will be allocated to goodwill and amortized over its expected
useful life of five years.

         You should read these summary pro forma  financial  statements with the
historical financial statements

<TABLE>
         This selected  consolidated  financial  data is based on, and should be
read in conjunction with, the historical  consolidated  financial statements and
the related notes  thereto of Focus and  Videonics,  respectively,  incorporated
herein by reference.



<CAPTION>
                                                                                                Fiscal Year             Nine Months
                                                                                                   Ended                   Ended
                                                                                             December 31, 1999        Sept. 30, 2000
                                                                                             -----------------        --------------
                                                                                               (in thousands, except per share data)
<S>                                                                                              <C>                     <C>
Pro Forma Combined Condensed Consolidated Statement Of Operations Data:
Net sales ..........................................................................             $ 31,409                $ 21,217
Loss from operations ...............................................................               (5,451)                 (5,461)
Net loss ...........................................................................               (5,836)                 (7,691)
Net loss per share; basic and diluted ..............................................             $  (0.24)               $  (0.26)
Weighted average common shares; basic and diluted ..................................               23,876                  30,135
</TABLE>


                                                                  Sept. 30, 2000
                                                                  (in thousands)
                                                                 ---------------
Pro Forma Combined Condensed Consolidated Balanced Sheet Data:
Cash and cash equivalents and short-term investments .............  $ 3,040
Working capital ..................................................    2,926
Total assets .....................................................   24,399
Long-term obligations ............................................    1,289
Shareholders' equity .............................................   13,213


Comparative Unaudited Historical and Pro Forma Per Share Data

<TABLE>
         In the following  tables,  we provide you with certain  historical  per
share data and  combined  per share data on an  unaudited  pro forma basis after
giving effect to the merger, assuming that 0.87 of a share of Focus common stock
is issued in exchange for each share of Videonics common stock. This data should
be read along  with the  summary  financial  data and the  historical  financial
statements  of Focus and the notes thereto that are  incorporated  by reference.
The pro forma  information  is presented for  illustrative  purposes  only.  You
should not rely on the pro forma  financial  information as an indication of the
combined  financial  position or results of operations of future  periods or the
results that  actually  would have been  realized had the entities been a single
entity during the periods presented.


<CAPTION>
                                                                                                Fiscal Year             Nine Months
                                                                                                   Ended                   Ended
                                                                                             December 31, 1999        Sept. 30, 2000
                                                                                             -----------------        --------------
<S>                                                                                              <C>                       <C>
Historical--Focus
Basic and diluted net loss per share ...........................................                 $  (0.08)                 $  (0.21)
Book value per share(1) ........................................................                 $   0.38                  $   0.25

                                                                 11

<PAGE>


                                                                                                Fiscal Year             Nine Months
                                                                                                   Ended                   Ended
                                                                                             December 31, 1999        Sept. 30, 2000
                                                                                             -----------------        --------------
Historical--Videonics
Basic and diluted net loss per share ...........................................                 $  (0.45)                 $  (0.20)
Book value per share(1) ........................................................                 $   0.57                  $   0.37



                                                                                                Fiscal Year             Nine Months
                                                                                                   Ended                   Ended
                                                                                             December 31, 1999        Sept. 30, 2000
                                                                                             -----------------        --------------
Unaudited Pro Forma Combined Net Loss Per Share
Pro forma net loss per Focus share(2) ..................................................         $  (0.24)                 $  (0.26)
Equivalent pro forma net loss per Videonics share(3) ...................................         $  (0.21)                 $  (0.23)



                                                                                                                   At Sept. 30, 2000
                                                                                                                   -----------------
Unaudited Pro Forma Combined Book Value
Per Share Pro forma book value per Focus share(4) ........................................................              $  0.43
Equivalent pro forma book value per Videonics share(3) ...................................................              $  0.37

<FN>
------------------
(1)  Historical  book  value per share is  computed  by  dividing  shareholders'
     equity by the number of shares of common  stock  outstanding  at the end of
     each period presented.

(2)  Shares used to calculate pro forma basic and diluted loss per share for the
     year ended  December  31,  1999 were  determined  by adding the 5.1 million
     shares  assumed  to be issued in  exchange  for the  outstanding  Videonics
     shares to Focus' 18.7 million weighted  average shares  outstanding for the
     year ended  December  31, 1999 for a total of 23.8 million  shares.  Shares
     used to  calculate  pro forma basic and diluted loss per share for the nine
     months  ended  September  30,  2000 were  determined  by adding 5.1 million
     shares  assumed  to be issued in  exchange  for the  outstanding  Videonics
     shares to Focus' 25.0 million weighted  average shares  outstanding for the
     nine months ended September 30, 2000 for a total of 30.1 million shares.

(3)  The  Videonics  pro forma  equivalent  per share  amounts  are  computed by
     multiplying  the combined pro forma per share amounts by the exchange ratio
     of 0.87 of a share of Focus common stock for each share of Videonics common
     stock.

(4)  Shares used to calculate  pro forma book value per Focus share at September
     30, 2000 were  determined by adding the 5.1 million  shares  assumed issued
     for the Videonics shares to Focus' absolute shares outstanding at September
     30, 2000 of 25.9 million.
</FN>
</TABLE>



Comparative Per Share Market Information

         Focus  common  stock is listed on the NASDAQ  under the symbol  "FCSE."
Videonics common stock is listed on the NASDAQ under the symbol "VDNX".

         The following  table presents the closing prices per share of Videonics
common  stock and the  closing  prices  per share of Focus  common  stock on the
following dates:

         o     August  30,  2000,   the  last  trading  day  before  the  public
               announcement that Focus would acquire the Videonics common shares
               at an exchange ratio of 0.87; and


         o     November 20, 2000.

         The chart also  presents,  in the line entitled  "Equivalent  Per Share
Price," the pro forma equivalent price per share of Videonics common stock as of
the  dates  specified.  Videonics  pro  forma  equivalent  price  per  share was
determined by multiplying the closing prices of Focus' stock as of the specified
dates by the exchange ratio of 0.87.


                                     At August 30, 2000     At November 20, 2000
                                     ------------------     --------------------
Videonics ..........................      $   0.88                $   0.94
Focus ..............................      $   1.72                $   1.06
Equivalent Per Share Price .........      $   1.50                $   0.92


                                       12

<PAGE>


                                  RISK FACTORS

         In addition to the other  information  contained in or  incorporated by
reference  into this joint  proxy  statement/prospectus,  you  should  carefully
consider the following risk factors in deciding whether to vote for the merger.

Risks Related to the Merger

     The exchange ratio will not be adjusted to reflect  changes in the price of
     Focus common stock or Videonics common stock.

         We have fixed the  exchange  ratio at 0.87 shares of Focus common stock
for each share of Videonics  common stock. We will not adjust the exchange ratio
to reflect  fluctuations  in the market value of shares of Focus common stock or
Videonics common stock. If Videonics shareholders do not properly exercise their
dissenters'  rights in connection with the merger,  they will be locked into the
exchange ratio and will not be able to capture gains from possible  increases in
the value of Videonics common stock.  Videonics shareholders may incur losses if
the value of Focus common stock decreases.

     The merger may not qualify as a tax-free reorganization.

         If the  Internal  Revenue  Service  succeeds in  establishing  that the
merger does not  qualify as a tax-free  reorganization,  Videonics  shareholders
will  recognize  a taxable  gain or loss at the time of the merger  based on the
difference between the value of the Focus shares Videonics  shareholders receive
in the merger and the tax basis of the shares they exchange.

     The anticipated benefits of the merger may not be realized.

         The success of the merger will depend, in part, on the ability of Focus
to realize the anticipated  growth  opportunities and synergies,  from combining
the businesses of Focus and Videonics. Achieving the benefits of the merger will
depend in part on:

         o     effectively and efficiently integrating the policies,  procedures
               and operations of Videonics and Focus;

         o     successfully  retaining  and  attracting  key  employees  of  the
               combined  company,   including   operating   management  and  key
               technical  personnel,  during a period of transition and in light
               of the competitive employment market; and

         o     while integrating the combined company's operations,  maintaining
               adequate focus on our core  businesses in order to take advantage
               of  competitive  opportunities  and  to  respond  to  competitive
               challenges.

         If members of the management team of the combined  company are not able
to  develop  strategies  and  implement  a  business  plan that  achieves  these
objectives,  the anticipated  benefits of the merger may not be realized,  which
would have an adverse  impact on our combined  company and the market  prices of
shares of Focus common stock.

     Fluctuations  in market  prices  may cause the value of the shares of Focus
     common stock that Videonics  shareholders receive to be less than the value
     of their shares of Videonics common stock prior to the merger.

         Upon  completion  of the merger,  each share of Videonics  common stock
will be exchanged  for 0.87 of a share of Focus common  stock.  There will be no
adjustment  for changes in the market  price of Focus  common stock or Videonics
common stock. In addition,  neither Videonics nor Focus may terminate the merger
agreement or "walk away" from the merger solely because of changes in the market
price of Focus common stock or Videonics common stock. Accordingly, the specific
dollar value of Focus common stock that Videonics shareholders will receive upon
the  merger's  completion  will depend on the market value of Focus common stock
when the merger is  completed  and may  decrease  from the date you submit  your
proxy. The share price of Focus common stock is by nature

                                       13

<PAGE>


subject to the  general  price  fluctuations  in the market of  publicly  traded
equity  securities and has experienced  significant  volatility.  We urge you to
obtain recent  market  quotations  for Focus common stock and  Videonics  common
stock

     Directors of Focus and Videonics  have  potential  conflicts of interest in
     recommending that you vote in favor of adoption of the merger agreement.

         A number of  directors  of Focus and a number of directors of Videonics
who  recommend  that you vote in favor of the  adoption of the merger  agreement
have employment or severance agreement or benefit arrangements that provide them
with interests in the merger that are different from yours. The initial Board of
Directors  of  Focus  upon  completion  of the  merger  will  consist  of  seven
directors, three of whom will be selected by the Board of Directors of Videonics
and four of whom will be selected by the Board of Directors of Focus.


         Following the merger,  Michael L. D'Addio,  Chief Executive Officer and
Chairman of Videonics,  will hold the positions of President and Chief Executive
Officer of Focus and Thomas L.  Massie  will  remain as Chairman of the Board of
Focus for the remainder of the current term.


         The receipt of  compensation  benefits or other benefits in the merger,
including the vesting of stock options,  or the continuation of  indemnification
arrangements for current directors of Focus and Videonics  following  completion
of the merger, may influence these directors in making their recommendation that
you vote in favor of the adoption of the merger agreement.


         Carl Berg, a director of Videonics  has loaned $2.3 million to Focus in
the form of a convertible promissory note. See "Focus may be required to repay a
$2.3 million promissory note if the merger is not completed."


         Furthermore,  a principle of Union Atlantic,  Capital L.C., the company
issuing a fairness opinion to Focus shareholders,  is also a member of the board
of directors of Focus.

Risks Related to Focus and Videonics


     Focus has been named as a defendant  in an alleged  class  action  alleging
     violation of federal securities laws.


         The  lawsuits  allege that Focus and its  Chairman  and  certain  other
present and former officers violated federal  securities laws in connection with
a number of allegedly false or misleading  statements and seek  certification as
class actions on behalf of persons alleged to have purchased stock from July 17,
1997 to  February  19,  1999 or  between  November  15,  1999 to March 1,  2000,
respectively.  Focus believes that it has consistently complied with the federal
securities  laws,  and does not believe at this time that this  litigation  will
result in a material adverse effect on its financial condition. Nonetheless, the
management  time and resources that could be required to respond  effectively to
such claims and to defend Focus  vigorously in such  litigation  could adversely
impact our management's administrative capabilities.

     Focus is involved as a defendant in litigation with CRA Systems, Inc.


         In 1996 CRA Systems, Inc., a Texas corporation,  and Focus entered into
an agreement,  the terms and nature of which were  subsequently  disputed by the
parties.  Focus  contended  the  transaction  was simply a sale of inventory for
which Focus was never paid.  CRA contended  otherwise.  CRA brought suit against
Focus for breach of  contract  contending  that Focus  grossly  exaggerated  the
demand for the  product,  and the margin of profit  which was  available  to CRA
regarding this project.  CRA sought to recover  out-of-pocket  losses  exceeding
$100,000,  and lost profits of $400,000 to $1,000,000.  A jury trial in May 2000
in federal district court in Waco, Texas,  resulted in a verdict in favor of CRA
for $848,000  actual damages and  $1,000,000  punitive  damages.  On October 10,
2000,  the  court  rendered  a  judgement  in favor of CRA for  actual  damages,
punitive  damages,  attorneys  fees,  costs and interest;  the judgment  totaled
approximately  $2,000,000.  Focus intends to file an  appropriate  post-judgment
motion requesting that this judgment be reduced  significantly,  and will pursue
an appeal to the United  States  Court of Appeals  for the Fifth  Circuit in New
Orleans, Louisiana. To suspend enforcement of the judgment pending determination
of its post-judgment motion and appeal, Focus is required to post

                                       14

<PAGE>


a bond in the approximate  amount of $2.3 million (being the approximate  amount
of the judgment  plus 10% to cover  interest  and costs of CRA).  On October 27,
2000, Focus submitted a bond and filed its post-judgement  motion. In connection
with this judgment,  Focus has recorded an expense of $2.1 million in the period
ended  September  30,  2000.  See also,  "Focus may be  required to repay a $2.3
million promissory note if the merger is not completed."

     Focus will need to raise additional capital.

         Historically,  Focus has met its short- and long-term  extra cash needs
through  debt and the sale of common  stock in private  placements  in that cash
flow from operations has been insufficient to fund its operations.  For example,
during 1998, it received  $2,827,355  in net proceeds from private  offerings of
common  stock and  $7,003,963  from the  exercise  of common  stock  options and
warrants.  In 1999,  Focus  received  $4,4413,978  in net proceeds  from private
offerings  of common  stock and  $2,596,023  from the  exercise of common  stock
options and  warrants.  For the nine months  ended  September  30,  2000,  Focus
received  $1,284,000 in net proceeds from private  offerings of common stock and
$1,068,862  from the  exercise of stock  options and  warrants.  Future  capital
requirements  will depend on many factors,  including cash flow from operations,
continued progress in research and development programs, competing technological
and market developments, and Focus' ability to market its products successfully.
If Focus requires  additional equity or debt financing in the future,  there can
be no  assurance  that  sufficient  funds will be raised.  Moreover,  any equity
financing  would result in dilution to our  then-existing  shareholders  and any
additional debt financing may result in higher interest expense.  Any financing,
if available,  may be on terms  unfavorable to Focus.  If adequate funds are not
available,  Focus may be required to curtail its activities  significantly.  See
also "Focus is involved as a defendant in litigation with CRA Systems, Inc."

     Focus may be required to repay a $2.3 million promissory note if the merger
     is not completed.

         On October  26,  2000  Focus  issued a secured  promissory  note in the
approximate  principal  amount  of  $2.3  million  in  favor  of  Carl  Berg,  a
shareholder and director of Videonics. The note is convertible into common stock
of Focus under certain conditions. In the event the merger is not completed, the
promissory  note can be called and become  payable in full upon  90-days  notice
from Mr.  Berg,  at his sole  discretion.  The  promissory  note is secured by a
security  agreement  in favor of Mr. Berg  granting  him a security  interest in
first priory over  substantially  all of the assets of Focus.  In the event that
the merger is not  completed,  there is no assurance that Mr. Berg will not seek
repayment of the promissory note.


     Videonics  is  dependent  on a major  shareholder  and  bank  to  fund  its
     operations and is currently in default on its line of credit with the bank.


         Videonics has incurred  losses and negative cash flows from  operations
for  each of the two  years  in the  period  ended  September  30,  2000  and is
dependent upon support from a substantial  shareholder,  a line of credit from a
bank  and upon  generating  sufficient  revenues  from  existing  and soon to be
released  products in order to fund  operations.  During 1999,  management  took
steps to further reduce costs,  including the sale of its Nova Systems Division,
and its German  subsidiary,  both of which had incurred  losses in the two years
immediately  preceding  their sale.  Videonics is assessing its product lines to
identify how to enhance existing or create new distribution channels. During the
first quarter of 2000,  Videonics  introduced  three new products.  Two of those
products  began  shipping  late in the  first  quarter  with the  third  product
shipping in July.  Although there can be no  assurances,  Videonics is currently
developing  and expects to introduce two more products  during the first half of
2001.

         Videonics  has obtained a $1.0 million  asset based line of credit from
Venture  Banking  Group,  a division  of  Cupertino  National  Bank,  secured by
substantially  all of Videonics'  assets. At September 30, 2000 Videonics was in
default with Venture  Banking  Group.  As of November  13, 2000,  Videonics  and
Pacific Business  Funding,  an affiliate of Venture Banking Group, had signed an
agreement to repay Venture Banking Group and in turn loan Videonics  $400,000 on
a fully  secured  basis.  Interest will be calculated at a rate of 12%. The loan
will be due and payable at the earlier of the completion of the proposed  merger
with Focus Enhancements, Inc., or February 5, 2001. As of November 20,


                                       15

<PAGE>


2000,  an  aggregate  of $400,000 is  outstanding  under the line of credit with
Venture Banking Group. Videonics expects to secure additional financing when the
loan  becomes  due.  However,  there can be no  assurance  that such  additional
financing will be available at all or on terms that are acceptable to Videonics.


     Videonics  has  incurred  significant  delays  in the  introduction  of new
     products.

         As the  complexity  of  Videonics'  product  designs and  feature  sets
continues to increase,  Videonics may continue to experience product development
delays that would and has had in the past an adverse effect on the profitability
of our  operations.  There can be no assurance that it will be successful in the
timely development of new products to replace or supplement existing products or
that  Videonics  will  be  successful  in  integrating   acquired   products  or
technologies with its current business.  Delays in new product  development have
had an adverse  material  impact on our growth in 1999,  1998 and 1997.  Similar
adverse  effects on results of operations can be expected until new products are
successfully introduced and accepted by end users.

     Focus  relies on sales to a few  major  customers  for a large  part of its
     revenues.

         For the year ended December 1999,  approximately 26% of Focus' revenues
were  derived  from  sales  to a  major  distributor,  approximately  14% of its
revenues were derived from sales to two major retailers, and approximately 8% of
its  revenues  were  derived  from  sales  to  a  major   consumer   electronics
manufacturer.  Management expects that sales to these customers will continue to
represent a significant  percentage of Focus'  future  revenues.  Focus does not
have long-term  contracts  requiring any customer to purchase any minimum amount
of  products.  There can be no  assurance  that Focus will  continue  to receive
orders of the same  magnitude as in the past from existing  customers or we will
be able to market its current or proposed products to new customers. Loss of any
major customer  would have a material  adverse effect on the Focus business as a
whole.

     Videonics  received a significant  portion of its revenue from one customer
     in 1999.

         During 1999 sales to one customer  accounted for 13% of Videonics total
revenues.  Any termination by a significant  customer of its  relationship  with
Videonics or material  reduction in the amount of business  such a customer does
with Videonics could materially adversely effect Videonics' business,  financial
condition or operating results. For 1998 and 1997, no one customer accounted for
more than 10% of revenues.

     International sales are subject to significant risk.

         Protectionist  trade  legislation  in either the United States or other
countries, such as a change in the current tariff structures,  export compliance
laws or other trade policies,  could adversely  affect our companies  ability to
sell in  international  markets.  Furthermore,  revenues from outside the United
States are subject to inherent risks related  thereto,  including  currency rate
fluctuations,  the general  economic and  political  conditions in each country.
There  can be no  assurance  that  the  economic  crisis  and  currency  issues,
currently  being  experienced  in  certain  parts of the  world  will not have a
material  adverse effect on our companies'  revenue or operating  results in the
future.

     Both companies have a long history of operating losses.


         Both  companies  have  experienced  limited  profitability  since their
inception.  As of  September  30,  2000,  Focus had an  accumulated  deficit  of
$41,887,000, and the accumulated deficit of Videonics was $18,548,000. Focus and
Videonics  respectively incurred net losses of $1,480,000 and $2,634,000 for the
year ended December 31, 1999, and  $12,787,000 and $6,713,000 for the year ended
December 31, 1998.  Focus had a net loss of $5,208,000 for the first nine months
of 2000.  Videonics  had a net loss of  $1,194,000  for the first nine months of
2000.  There  can  be no  assurance  that  the  newly  merged  company  will  be
profitable.


                                       16

<PAGE>


     Focus relies on a single vendor for 90% of its product components.

         Approximately  90% of the  components  for the  products  of Focus  are
manufactured  by a single  vendor on a turnkey  basis.  This  vendor is  located
overseas.  If this vendor  experiences  production or shipping  problems for any
reason,  Focus in turn could experience delays in the production and shipping of
Focus products, which would have an adverse effect on our results of operations.

     Focus' products may become obsolete very quickly.


         The computer peripheral markets are characterized by extensive research
and development and rapid  technological  change resulting in short product life
cycles.  Development  by  others  of  new or  improved  products,  processes  or
technologies  may  make our  products  or  proposed  products  obsolete  or less
competitive.  We must devote  substantial  efforts and  financial  resources  to
enhance  our  existing  products  and to develop new  products.  There can be no
assurance that we will succeed with these efforts.


     Our businesses are very competitive.

         The  computer  peripheral  markets  are  extremely  competitive.  Focus
currently  competes with other developers of video conversion  products and with
video-graphic  integrated  circuit  developers.  Many  of our  competitors  have
greater market recognition and greater financial, technical, marketing and human
resources.  Although Focus is not currently  aware of any  announcements  by its
competitors that would have a material impact on its operations, there can be no
assurance  that  Focus  will be able to compete  successfully  against  existing
companies or new entrants to the marketplace.

         The video  production  equipment  market is highly  competitive  and is
characterized  by  rapid  technological  change,  new  product  development  and
obsolescence, evolving industry standards and significant price erosion over the
life of a product.  Competition is fragmented with several hundred manufacturers
supplying a variety of products to this market.  Videonics anticipates increased
competition  in the video  post-production  equipment  market from both existing
manufacturers  and new market entrants.  Increased  competition  could result in
price  reductions,  reduced margins and loss of market share, any of which could
materially and adversely affect our business, financial condition and results of
operations.  There  can  be no  assurance  that  it  will  be  able  to  compete
successfully against current and future competitors.

         Videonics'  competitors have greater financial,  technical,  marketing,
sales and  customer  support  resources,  greater  name  recognition  and larger
installed  customer  bases than us. In addition,  some of our  competitors  also
offer a wide  variety  of video  equipment,  including  professional  video tape
recorders,  video  cameras and other  related  equipment.  In some cases,  these
competitors may have a competitive  advantage based upon their ability to bundle
their equipment in certain large system sales.

     We are dependent on our suppliers.

         Focus and Videonics  purchase all of their parts from outside suppliers
and  from  time to time  experience  delays  in  obtaining  some  components  or
peripheral  devices.  Additionally,  the  companies are dependent on sole source
suppliers  for  certain  components.  We  attempt  to reduce  the risk of supply
interruption  by  evaluating  and  obtaining  alternative  sources  for  various
components or peripheral devices when such sources are available. However, there
can be no  assurance  that supply  shortages  will not occur in the future which
could significantly increase the cost, or delay shipment of, our products, which
in turn could adversely affect our results of operations.

     We may not be able to protect our proprietary information.


         Although Focus has filed eight patent  applications with respect to its
PC-to-TV video-graphics products,  currently only four patents have been issued.
Focus  treats  its  technical  data  as  confidential  and  relies  on  internal
non-disclosure safeguards,  including confidentiality agreements with employees,
and on laws  protecting  trade secrets to protect its  proprietary  information.
There can be no  assurance  that these  measures  will  adequately  protect  the
confidentiality  of Focus proprietary  information or prove valuable in light of
future technological developments.


                                       17

<PAGE>


     Our quarterly financial results are subject to significant fluctuations.

         Focus has been unable in the past to accurately  forecast our operating
expenses.  Its revenues currently depend heavily on volatile customer purchasing
patterns.  If actual  revenues are less than  projected  revenues,  Focus may be
unable to reduce expenses proportionately, and its operating results, cash flows
and liquidity would likely be adversely affected.


         Videonics  has  experienced   significant  quarterly   fluctuations  in
operating  results and anticipates that these  fluctuations will continue in the
future.  The  fluctuation  in  revenues  in  the  periods  reflected  above  are
attributable   to  various   factors,   including  the  timing  of  new  product
introductions  and shipments,  variations in product mix sold, and private label
sales. In 1999 and 1998,  Videonics' delay in the sales of previously  announced
new products had a significant effect on Videonics'  results of operations,  and
there can be no assurance  that  Videonics  will be able to introduce and timely
sell new  products on a basis  which will avoid  quarterly  fluctuations  in the
future, or even that such new products will be successful in the marketplace.


     Videonics typically operates without a significant amount of backlog.


         Videonics   typically   operates   with  a  small  amount  of  backlog.
Accordingly,  it generally does not have a material  backlog of unfilled orders,
and revenues in any quarter are substantially dependent on orders booked in that
quarter.  Any significant  weakening in customer demand would therefore have and
has had in the past an almost immediate  adverse impact on Videonics'  operating
results.



                         CAUTIONARY STATEMENT CONCERNING
                           FORWARD-LOOKING STATEMENTS

         This joint proxy statement/prospectus and the documents incorporated by
reference  into this joint proxy  statement/prospectus  (see "Where You Can Find
More Information") include forward-looking  statements about Focus and Videonics
within the "safe harbor" provisions of the Private Securities  Litigation Reform
Act of 1995. These statements relate to expectations concerning matters that are
not  historical  facts,  such  as  future  financial  performance,   anticipated
developments,  business  strategy,  projected  costs and plans and objectives of
Focus and Videonics.  Many of these  statements are preceded by,  followed by or
otherwise  include  the  words  "anticipates,"  "expects,"  "intends,"  "plans,"
"believes," "seeks," "estimates" or other similar expressions.  These statements
may be made  expressly in this document or may be  incorporated  by reference to
other documents Focus and Videonics have filed with the SEC.


         Although each of Focus and Videonics believes that such forward-looking
statements are reasonable,  neither of us can assure you that such  expectations
will prove to be correct.  Forward  looking  statements  are not  guarantees  of
future  performance  and are subject to risks and  uncertainties  that may cause
actual results of Focus or Videonics to be materially  different from any future
results  expressed  or  implied  by  either  Focus or  Videonics.  The risks and
uncertainties  include those risks,  uncertainties and risk factors  identified,
among other places, under "Risk Factors" in this document.


         The  most  important   circumstances  that  could  prevent  Focus  from
achieving our stated goals include, but are not limited to, the following:

         o     We may not be able  to  integrate  Videonics  into  our  existing
               business or make the combined businesses profitable.

         o     The market price of Focus common stock may decline as a result of
               the  merger  and  make it  difficult  to  raise  capital  to fund
               operations or to attract employees seeking  compensation  through
               appreciation in stock options.

         o     Focus may not be able to  develop  new  products,  adapt to rapid
               technological  change,  and  introduce  new  products in order to
               remain competitive.

         o     Changes in governmental  regulations may adversely  affect demand
               for our products.

         o     The merger could adversely affect combined financial results.

                                       18

<PAGE>


         These  cautionary  statements  should  not  be  construed  by you as an
exhaustive list or as any admission by Focus or Videonics regarding the adequacy
of  disclosures  made by either  company.  Neither of us can  always  predict or
determine  after the fact what  factors  would  cause  actual  results to differ
materially  from those  indicated  by the  forward-looking  statements  or other
statements.  All cautionary statements should be read as being applicable to all
forward-looking  statements  wherever  they appear.  Focus and  Videonics do not
undertake  any  obligation  to  publicly  update or revise  any  forward-looking
statements, whether as a result of new information,  future events or otherwise.
In light of these risks,  uncertainties  and  assumptions,  the  forward-looking
events discussed herein might not occur.


                                  INTRODUCTION


         This joint proxy  statement/prospectus  provides  information about our
annual  meetings to be held on  December  28,  2000.  The purpose of each of the
annual meetings is to elect directors,  ratify auditors and to consider and vote
upon  the  proposal  to  approve  the  merger  agreement  and  the  transactions
contemplated   thereby,   as  more  fully   explained   in  this   joint   proxy
statement/prospectus.   In  addition,  in  connection  with  the  merger,  Focus
shareholders shall consider and vote upon a proposal to amend its Certificate of
Incorporation  to increase the number of authorized  shares of common stock from
30,000,000 to 50,000,000 and to approve a new stock option plan.


         The Boards of Directors of Videonics and Focus unanimously approved the
merger agreement and recommend that their respective  shareholders  vote for all
proposals to be considered at the annual meetings.


                      ANNUAL MEETING OF FOCUS SHAREHOLDERS

When will the meeting be held?


         This joint proxy  statement/prospectus is being furnished to holders of
Focus common stock in connection  with the  solicitation of proxies by the Focus
Board of Directors at the Focus annual  meeting to be held on December 28, 2000,
at  the  Crowne  Plaza,  2  Forbes  Road,   Woburn,  MA  01801,  at  4:00  p.m.,
Massachusetts time and at any adjournments or postponements of the meeting.


What is the purpose of the Focus meeting?

         The Focus annual  meeting is being held so that  shareholders  of Focus
may: (i) consider and vote upon a proposal to adopt the merger  agreement;  (ii)
consider and vote upon a proposal to amend Focus'  Certificate of  Incorporation
to increase the authorized  number of shares of common stock from  30,000,000 to
50,000,000;  (iii)  elect one (1) Class II  director  to serve for a  three-year
term;   (iv)  consider  and  vote  upon  a  proposal  to  approve   Focus'  2000
Non-Qualified Stock Option Plan; (v) consider and vote upon a proposal to ratify
the  selection of Wolf & Company,  P.C. as Focus'  independent  auditors for the
fiscal year ending December 31, 2000; and (vi) consider and vote upon such other
business that properly comes before the Focus annual meeting or any  adjournment
or postponement of the Focus annual meeting.  By approving the merger agreement,
you also will be approving  the other  transactions  contemplated  by the merger
agreement.

Who can vote at the Focus meeting?


         If you own Focus  common  stock as of the close of business on November
10, 2000 you can vote at the meeting.  On the record date, there were 25,900,203
shares  of  Focus  common  stock  outstanding  and  entitled  to  vote,  held by
approximately 11,200 holders of record.

How do I vote by proxy?


         You vote your proxy by completing the proxy card enclosed in accordance
with its  instructions,  signing  and dating the proxy and  returning  it in the
postage-paid  envelope.  You may also  just sign and date  your  proxy  card and
return  it.  Whether  you plan to  attend  the  meeting  or not,  we urge you to
complete, sign and date the enclosed proxy card and to return it promptly in the
envelope provided. Returning the proxy card will not affect your right to attend
the meeting and vote in person.

                                       19

<PAGE>


         If you  properly  fill in your  proxy card and send it to us in time to
vote, your "proxy" (one of the  individuals  named on your proxy card) will vote
your  shares as you have  directed.  If you sign the proxy  card but do not make
specific  choices,  your proxy will vote your shares as recommended by the Board
of Directors as follows:

         o     "FOR" the election of the nominee for director;

         o     "FOR" the merger agreement;

         o     "FOR" the amendment to the Certificate of Incorporation;

         o     "FOR" the 2000 Non-Qualified Stock Option Plan; and

         o     "FOR" ratification of the appointment of Wolf & Company,  P.C. as
               independent accountants for the year ending December 31, 2000.

         The proxy card  confers  authority on the proxy named in the proxy card
to vote with respect to:

         o     The  election  of any person as a director  should the nominee be
               unable to  serve,  or for good  cause,  will not  serve,  matters
               incident to the conduct of the meeting; and

         o     Other proposals for which management did not have notice at least
               120 days  prior to the date on which  we  mailed  our  notice  of
               annual   meeting  for  the  prior   year's   annual   meeting  of
               shareholders.

         On these other  matters,  your proxy will vote in  accordance  with the
recommendation  of the Focus Board of  Directors,  or, if no  recommendation  is
given,   in   their   own   discretion.   At   the   time   this   joint   proxy
statement/prospectus  was mailed,  we knew of no matters that needed to be acted
upon  at  the  meeting,   other  than  those   discussed  in  this  joint  proxy
statement/prospectus.

How many votes do I have?

         The  number of votes you have is  dependent  on the number of shares of
Focus common stock you own. Each share of Focus common stock entitles you to one
vote.  The proxy card  indicates  the number of shares of common  stock that you
own.

Can I change my vote after I return my proxy card?

         Yes. Even after you have submitted your proxy, you may change your vote
at any time  before the proxy is  exercised  if you file with the  Secretary  of
Focus either a notice of  revocation  or a duly  executed  proxy bearing a later
date.  The  powers of the proxy  holders  will be  suspended  if you  attend the
meeting in person and so request.  Attendance  at the meeting will not by itself
revoke a previously granted proxy.

How do I vote in person?

         If you plan to attend the meeting and vote in person,  we will give you
a ballot form when you arrive.  However,  if your shares are held in the name of
your broker, bank, or other nominee, you must bring a proxy card and letter from
the nominee  authorizing  you to vote the shares and indicating that you are the
beneficial owner of the shares on November 10, 2000, the record date for voting.

What constitutes a quorum?

         The presence at the meeting, in person or by proxy, of the holders of a
majority of the shares of Focus common stock outstanding on the record date will
constitute a quorum,  permitting the conduct of business at the meeting. Proxies
that are marked as abstentions will be included in the calculation of the number
of shares considered to be present at the meeting.

What vote is required for each proposal?

         The  affirmative  vote of the  holders of a  majority  of the shares of
Focus' common stock  outstanding  as of the record date is required to adopt the
proposal to amend Focus'  Certificate of Incorporation to increase the number of
authorized shares of common stock to 50,000,000. Approval

                                       20

<PAGE>


of the  proposals  for the adoption of the merger  agreement and the issuance of
shares in connection with the merger,  approval of the 2000 Non-Qualified  Stock
Option Plan and the ratification of Wolf & Company,  P.C. as Focus'  independent
auditors  requires in each case the affirmative vote of a majority of the shares
present and voting at the Focus  annual  meeting.  The director who receives the
most votes will be elected.


         As of the record date, Focus directors and executive officers and their
affiliates  owned  approximately  5% of the  outstanding  shares of Focus common
stock.


What are the costs of solicitation of proxies?

         We will bear the costs of this  solicitation,  including the expense of
preparing,    assembling,    printing    and    mailing    this   joint    proxy
statement/prospectus  and the material used in this solicitation of proxies. The
proxies will be solicited principally through the mails, but directors, officers
and regular  employees of Focus may solicit proxies  personally or by telephone.
Although  there  is no  formal  agreement  to do  so,  we may  reimburse  banks,
brokerage  houses  and other  custodians,  nominees  and  fiduciaries  for their
reasonable  expense in forwarding these proxy materials to their principals.  In
addition,  Focus will be using Morrow & Company for proxy solicitation at a cost
of approximately ten thousand dollars ($10,000).

Can I make a proposal at the next meeting?

         If you want a proposal  included in next year's proxy statement for the
next annual meeting of shareholders of Focus, Focus must receive the proposal at
its  principal  executive  offices not later than October 29, 2001.  In order to
curtail controversy as to the date on which a proposal was received by Focus, we
suggest that proponents  submit their proposals by certified mail return receipt
requested.


Information on the Focus Proposals


PROPOSAL 1
Approval of Merger Agreement


         For a  discussion  of the  merger and the  merger  agreement,  see "The
Merger",  "Opinion of Financial  Advisor  Retained By Focus Board Of Directors,"
"The Merger Agreement," "The Pro Forma Combined Condensed Consolidated Financial
Information"  and "Comparison Of Shareholders  Rights Of Focus and Videonics" on
pages 44, 56, 61, 69 and 77 of the joint proxy statement/prospectus.


         The Focus Board of Directors  recommends that shareholders vote FOR the
approval of the merger agreement.


PROPOSAL 2--FOCUS MEETING ONLY
Increase in the Number of Authorized Shares Of Common Stock


         The  Focus  Board of  Directors  recommends  that you vote to amend the
Focus  Certificate of Incorporation to increase the number of authorized  shares
of common  stock,  $ 0.01 par value per share,  from  30,000,000  to  50,000,000
shares. Of the 30,000,000 shares of common stock that are currently  authorized,
25,900,203  shares were issued and  outstanding  as of November  10,  2000,  the
record  date  for the  Focus  annual  meeting.  Shares  of Focus  common  stock,
including  the  additional  shares  proposed  for  authorization,  do  not  have
preemptive or similar rights.

         If  the  proposed  amendment  is  approved  by  the  shareholders,  the
additional  authorized  common stock may be issued by Focus  without any further
action or approval by the shareholders. The purpose of the proposed amendment is
to provide  additional  authorized  shares of common  stock for  possible use in
connection with the merger,  as well as possible future  financings,  investment
opportunities,   acquisitions,   employee  benefit  plan  distributions,   other
distributions, such as stock

                                       21

<PAGE>


dividends or stock splits,  or for other  corporate  purposes.  As of the record
date for the Focus  annual  meeting,  taking into  account  shares  reserved for
issuance under existing  warrants,  options and other  commitments of Focus, the
Focus Board of  Directors  has the  authority  to issue  approximately,  317,581
additional  shares of common  stock.  If Focus does not  increase  the number of
shares, its ability to undertake these types of transactions or distributions in
the future will be significantly  restricted.  Except as set forth below,  Focus
has no  specific  plans or  commitments  at this  time for the  issuance  of the
additional authorized shares of common stock that would be added by the proposed
amendment,  but desires to position  itself to do so if and when the need arises
or market conditions otherwise warrant.



<TABLE>
                                                       New Shares To Be Issued



<CAPTION>
                              Reason                                                                Number of shares of common stock
                              ------                                                                --------------------------------
<S>                                                                                                            <C>
Proposed Merger with Videonics(1) .............................................................                5,132,000
Shelf Registration ............................................................................                1,400,000
Investment Bankers fee in connection with the merger(2) .......................................                  186,000
2000 Stock Option Plan(3) .....................................................................                5,000,000


<FN>
------------------
(1)  Subject to the  approval of the merger  agreement  by the  shareholders  of
     Videonics and Focus.  Number of shares is subject to change based on number
     of shares outstanding.

(2)  Investment  Bankers  fee is  subject  to  change  based on number of shares
     issued in connection with the merger and the share price at the time of the
     shareholder approval.

(3)  Subject to the approval by the shareholders of Focus. "See Proposal 4."
</FN>
</TABLE>



         The issuance of additional shares of common stock could,  under certain
circumstances,  have an anti  takeover  effect.  For example,  Focus could issue
shares to dilute  the  equity  ownership  and  corresponding  voting  power of a
shareholder  or group of  shareholders  who may oppose the policies or strategic
plan of Focus'  existing  management.  Such  additional  shares could enable the
Focus Board of Directors to make it more  difficult or  discourage an attempt by
another  person  or  entity  to obtain  control  of  Focus.  The Focus  Board of
Directors has no present  intention of issuing any of the additional  authorized
shares of common stock for such purposes. A copy of the Certificate of Amendment
of the Focus Certificate of Incorporation is attached as Appendix C.

         The Focus Board of Directors  recommends that shareholders vote FOR the
approval of the amendment to Focus' Certificate of Incorporation to increase the
number of authorized shares of Focus common stock from 30,000,000 to 50,000,000.


PROPOSAL 3--FOCUS MEETING ONLY
Election of Class of Directors



         Focus' Certificate of Incorporation divides the Board of Directors into
three classes. Two Class I directors,  Messrs. Massie and Cavalier, were elected
at the Focus annual meeting of  shareholders  on July 26, 1999 for a term ending
on the date of the annual meeting of Focus  shareholders to be held in 2002. Two
Class III directors,  Messrs.  Coldrick,  and Mahoney, were elected at the Focus
annual meeting of shareholders on July 29, 1998 for a term ending on the date of
the  annual  meeting  of Focus  shareholders  to be held in 2001.  The  Class II
Director, Mr. William Dambrackas, was elected by the Focus Board of Directors at
a meeting  held on April 22,  1999.  Focus'  Class II Director was elected for a
term ending on the date of the Focus annual meeting of  shareholders  to be held
in 2000. Mr. Dambrackas has been nominated by the Focus Board for re-election at
the Focus Meeting for a term of three years.


         The Class II Director nominee, Mr. Dambrackas,  is currently serving as
a member of the Focus Board of  Directors.  Shares  represented  by all properly
executed  proxies  received  by the  Focus  Board  and not  otherwise  marked to
withhold authority to vote for the nominee will be voted (unless the

                                       22

<PAGE>


nominee is unable or unwilling  to serve) FOR the  election of the nominee.  The
Focus Board of Directors knows of no reason why such nominee should be unable or
unwilling to serve, but if such should be the case, proxies may be voted for the
election of some other  person or for fixing the number of directors at a lesser
number.

         The Focus Board of Directors  recommends that shareholders vote FOR the
election  of William  Dambrackas,  the  nominee  proposed  by the Focus Board of
Directors,  as a Class II Director  to serve  until the 2003  annual  meeting of
shareholders.



PROPOSAL 4--FOCUS MEETING ONLY
Approval of 2000 Non-Qualified Stock Option Plan

     General.

         On April 27, 2000,  the Board of  Directors  of Focus  adopted the 2000
Non-Qualified Stock Option Plan, subject to approval by Focus  shareholders.  On
August 15, 2000 the maximum number of options  available under the 2000 Plan was
increased from 3,000,000 to 5,000,000 in order to  accommodate  requirements  in
connection  with the  proposed  merger.  A copy of the 2000 Plan is  attached as
Appendix  E.  On  April  27,  2000,  all  five  directors  of  Focus  were  each
automatically granted, subject to the approval by Focus shareholders,  an option
to purchase 100,000 shares of common stock at a purchase price equal to the fair
market  value of the common  stock as of the date the  shareholders  approve the
2000 Plan. Four executive  officers of Focus were also granted options,  subject
to  shareholder  approval,   for  a  total  of  625,000  shares  on  that  date.
Additionally  options were  granted on that date to most other Focus  employees.
The exercise price of each of these additional options will be equal to the fair
market value of Focus common stock as of the date the  shareholders  approve the
2000 Plan.


         The 2000 Plan and the grant of all  options  thereunder  are subject to
the approval of the 2000 Plan by the  affirmative  vote of holders of a majority
of the shares of Focus'  common stock present in person or by proxy and entitled
to vote at the meeting.

     Possible Dilutive Effects of the Option Plan.

         The common  stock to be issued  upon the  exercise  of options  awarded
under the 2000 Plan may either be authorized but unissued shares of Focus common
stock or shares of Focus  common stock  purchased  in the open  market.  In that
Focus shareholders do not have preemptive rights, to the extent that Focus funds
the 2000 Plan, in whole or in part,  with  authorized but unissued  shares,  the
interests of current shareholders will be diluted upon exercise of such options.

     Description of the 2000 Non-Qualified Stock Option Plan.

         The  purpose of the 2000 Plan is to promote the  interests  of Focus by
providing an inducement to obtain and retain the services of qualified persons.

         The 2000 Plan is administered  by the Board of Directors of Focus.  The
Board of Directors, subject to the provisions of the 2000 Plan, has the power to
interpret the 2000 Plan, to determine all questions thereunder, and to adopt and
amend any rules and  regulations for the  administration  of the 2000 Plan as it
may deem desirable.


         The 2000 Plan,  as amended,  authorizes  the grant of options for up to
5,000,000 shares of Focus common stock,  3,053,575 of which remain available for
grant as of the record date. It was initially contemplated that the total number
of shares available under the 2000 Plan would be 3,000,000;  however this number
was  increased  to  5,000,000  to take into  account  options  to be  granted to
Videonics employees upon completion of the merger. Outstanding options under the
2000 Plan are subject to adjustment for capital changes.  If any options granted
under the 2000 Plan are surrendered  before exercise or lapse without  exercise,
in whole or in part, the shares reserved therefor shall continue to be available
under the 2000 Plan.


         Subject to shareholder approval, each person who was a member of Focus'
Board of  Directors  or an  executive  officer of Focus on April 27,  2000,  was
automatically granted on such date options as described above to purchase shares
of Focus common stock.

                                       23

<PAGE>


         The exercise price per share of options  granted under the 2000 Plan is
100% of the  fair-market  value of Focus'  common  stock on the date the plan is
approved by shareholders.  The option exercise price is subject to adjustment to
take into account various equity  distributions,  such as stock splits and stock
dividends, and other changes in Focus' capitalization.

         The Plan requires that options  granted  thereunder  will expire on the
date which is five (5) years from the date of grant.

         Each option granted under the 2000 Plan first becomes  exercisable upon
time periods set by the Compensation  Committee of the Focus Board of Directors.
With respect to non-executive officer employees,  eight and one third percent (8
1/3%) of the shares vest every three months from grant date.  Options  issued to
the Focus Board of Directors  and the  executive  officers  under the 2000 Plan,
shall vest in equal amounts,  occurring monthly over a 3 year period or upon the
occurrence  of certain  events.  The vesting of options on each  vesting date is
conditioned on the optionee having  continuously served as a member of the Focus
Board of Directors or being employed by Focus through that date.

         Subject to the terms and conditions of the 2000 Plan, an option granted
under the 2000 Plan shall be  exercisable  in whole or in part by giving written
notice to Focus at its principal  executive  offices.  The notice must state the
number  of  shares  as to  which  the  option  is  being  exercised  and must be
accompanied by payment in full for such shares.

         In the event an  optionee  ceases to be a member of the Focus  Board of
Director  or an employee  of Focus for any reason  other than  death,  permanent
disability,  termination without cause or termination due to a change in control
of Focus, then unexercised options granted to such optionee shall, to the extent
not then vested,  immediately  terminate and become void,  and any options which
are then vested but have not been  exercised  may be  exercised  by the optionee
until  the  scheduled  termination  date of the  option.  In the  event  that an
optionee  ceases to be a member of the Focus Board of  Directors  or employee of
Focus by reason of his or her permanent  disability or death, any option granted
to such optionee shall be immediately and  automatically  accelerated and become
fully vested and all  unexercised  options shall be  exercisable by the optionee
(or by the  optionee's  personal  representative,  heir or  legatee)  until  the
scheduled expiration date of the option.

         Any  option  granted  pursuant  to the 2000 Plan is not  assignable  or
transferable  other than by will or by the laws of descent and  distribution  or
pursuant to a domestic relations order, and is exercisable during the optionee's
lifetime only by him or her.

         The Focus Board of  Directors  may from time to time adopt  amendments,
certain of which are subject to shareholder approval, and may terminate the 2000
Plan at any time,  however,  such  action  shall not affect  options  previously
granted.

     Federal  Income Tax  Consequences  of the 2000  Non-Qualified  Stock Option
     Plan.

         The  following   discussion   summarizes  certain  federal  income  tax
consequences  for  directors and officers of Focus  receiving  options under the
2000 Plan and  certain  tax  effects on Focus.  However,  the  summary  does not
address every  situation that may result in taxation.  For example,  it does not
address the tax  implications  arising from an  optionee's  death.  Furthermore,
there  are  likely  to be  federal  self-employment  tax and  state  income  tax
consequences  which are not  discussed  herein.  The Plan is not  subject to the
provisions of the Employee  Retirement  Income Security Act of 1974, as amended,
and the  provisions of Section  401(a) of the Internal  Revenue Code of 1986, as
amended, are not applicable to the 2000 Plan.

         o     Options  granted under the 2000 Plan do not qualify as "Incentive
               Stock Options" under Section 422 of the Code.

         o     A director or officer will not recognize any taxable  income upon
               the grant of an option  under the 2000 Plan,  but will  generally
               recognize ordinary compensation income at the time of exercise of
               the option in an amount equal to the excess,  if any, of the fair
               market  value  of the  shares  on the date of  exercise  over the
               exercise price.

         o     When a director or officer  sells the common stock  acquired upon
               exercise  of an option,  he or she  generally  will  recognize  a
               capital gain or loss equal to the difference between the amount

                                       24

<PAGE>


               realized upon sale of the stock and his or her basis in the stock
               (in the case of a cash  exercise,  the  exercise  price  plus the
               amount,  if any, taxed to the director or officer as compensation
               income as a result of his or her exercise of the option).  If the
               director's or officer's  holding period for the stock exceeds one
               year, the gain or loss will be long-term capital gain or loss.

         o     No tax  deduction  will be  allowed to Focus upon the grant of an
               option under the 2000 Plan. When a director or officer recognizes
               compensation  income  as a result  of the  exercise  of an option
               under  the 2000  Plan,  Focus  generally  will be  entitled  to a
               corresponding deduction for income tax purposes.

     Options Granted Under the 2000 Non-Qualified  Stock Option Plan are Subject
     to Shareholder Approval.


<TABLE>
         The following table sets forth information as of November 10, 2000 with
respect to options which were granted under the 2000 Plan,  pending  approval of
the 2000 Plan by Focus'  shareholders,  to (i) each of  Focus'  Chief  Executive
Officer  and the four other  executive  officers  of Focus  named in the Summary
Compensation Table (see "Information About Focus--Summary  Compensation Table"),
(ii) all executive  officers of Focus as a group,  (iii) all directors of Focus,
other than those who are executive officers,  as a group, and (iv) all employees
of Focus, excluding executive officers, as a group.


<CAPTION>
                                                                                                                 Number of Shares
                                                                                                                Subject to Options
                                      Name                                                                    Granted from 2000 Plan
                                      ----                                                                    ----------------------
<S>                                                                                                                 <C>
Brett A. Moyer ............................................................................................           200,000
Christopher P. Ricci ......................................................................................           175,000
William Schillhammer ......................................................................................           125,000
Thomas Hamilton ...........................................................................................           125,000
All executive officers as a group (four persons) ..........................................................           625,000
All directors of Focus, excluding executive officers, as a group (five persons) ...........................           500,000
All employees of Focus, excluding executive officers, as a group (41 persons) .............................           821,425
Options remaining available for Grant .....................................................................         3,053,575
</TABLE>


         The exercise price per share of options  granted under the 2000 Plan is
100% of the  fair-market  value of Focus'  common  stock on the date the plan is
approved by Focus shareholders. The foregoing is only a summary of the 2000 Plan
and is subject to and  qualified  in its  entirety by  reference to the complete
text of the 2000 Plan,  a copy of which is  included as Appendix E to this proxy
statement.

         The Focus Board of Directors  recommends that shareholders vote FOR the
approval of the 2000 Plan.



PROPOSAL 5--FOCUS MEETING ONLY
Ratification of Selection of Auditors

         The Focus Board of Directors  has  selected  Wolf & Company,  P.C.,  to
serve as Focus'  independent  auditors  for the fiscal year ending  December 31,
2000. Wolf & Company,  P.C. has acted as Focus' independent auditors since June,
1996. A representative of Wolf & Company,  P.C. is expected to be present at the
Focus annual  meeting,  will have an  opportunity  to make a  statement,  and is
expected to respond to appropriate questions.


         Shareholder  ratification of the selection of Wolf & Company,  P.C., as
Focus'  independent  accountants  is not required by Focus' Bylaws or otherwise.
However, the Focus Board is submitting the selection of Wolf & Company, P.C., to
the  shareholders for  ratification as a matter of good corporate  practice.  If
shareholders  fail to ratify the  selection,  the Focus Board of Directors  will
reconsider  whether  or not to  retain  that  firm.  Even  if the  selection  is
ratified,  the  Focus  Board of  Directors  in its  discretion  may  direct  the
appointment of a different  independent  accounting  firm at any time during the
year if the Focus Board of Directors  determines  that such a change would be in
the best interests of Focus and its shareholders.

                                       25

<PAGE>


         The Focus Board of  Directors  recommends  that  shareholders  vote FOR
ratification  of its  selection  of Wolf & Company,  P.C. as Focus'  independent
auditors for the fiscal year ending December 31, 2000.


                    ANNUAL MEETING OF VIDEONICS SHAREHOLDERS

When will the meeting be held?

         This joint proxy  statement/prospectus is being furnished to holders of
Videonics  common stock in connection  with the  solicitation  of proxies by the
Videonics  Board of  Directors  at the  Videonics  annual  meeting to be held on
December 28, 2000, at 1370 Dell Avenue,  Campbell,  California  95008 at 1 p.m.,
California time, and at any adjournments or postponements of the meeting.

What is the purpose of the Videonics meeting?

         The  Videonics  annual  meeting is being held so that  shareholders  of
Videonics  may:  (i)  consider  and  vote  upon a  proposal  to  adopt a  merger
agreement;  (ii) elect four (4) directors of Videonics for terms expiring at the
2001 annual meeting of shareholders;  (iii) consider and vote upon a proposal to
ratify the selection of PricewaterhouseCoopers LLP as Videonics' accountants for
the fiscal year ending  December 31, 2000;  and (iv) consider and vote upon such
other  business that properly  comes before the Videonics  annual meeting or any
adjournment or  postponement of the Videonics  annual meeting.  By approving the
merger agreement, you will also be approving the other transactions contemplated
by the merger agreement.

Who can vote at the Videonics meeting?



         If you own  Videonics  common  stock  as of the  close of  business  on
November 10, 2000, you can vote at the meeting.  On the record date,  there were
5,902,550  shares of Videonics  common stock  outstanding  and entitled to vote,
held by approximately 1,785 holders of record.


How do I vote by proxy?

         You vote your proxy by completing the proxy card enclosed in accordance
with its  instructions,  signing  and dating the proxy and  returning  it in the
postage-paid  envelope.  You may also  just sign and date  your  proxy  card and
return  it.  Whether  you plan to  attend  the  meeting  or not,  we urge you to
complete, sign and date the enclosed proxy card and to return it promptly in the
envelope provided. Returning the proxy card will not affect your right to attend
the meeting and vote in person.

         If you  properly  fill in your  proxy card and send it to us in time to
vote, your "proxy" (one of the  individuals  named on your proxy card) will vote
your  shares as you have  directed.  If you sign the proxy  card but do not make
specific  choices,  your proxy will vote your shares as recommended by the Board
of Directors as follows:


         o     "FOR" the merger agreement;

         o     "FOR" the election of the nominees for director; and


         o     "FOR" ratification of the appointment of  PricewaterhouseCoopers,
               LLP as independent  accountants  for the year ending December 31,
               2000.

         The proxy card  confers  authority on the proxy named in the proxy card
to vote with respect to:

         o     The  election  of any  person  as a  director  should  any of the
               nominees be unable to serve,  or for good cause,  will not serve,
               matters incident to the conduct of the meeting; and

         o     Other proposals for which management did not have notice at least
               120 days  prior to the date on which  we  mailed  our  notice  of
               annual   meeting  for  the  prior   year's   annual   meeting  of
               shareholders.

         On these other  matters,  your proxy will vote in  accordance  with the
recommendation of the Videonics Board of Directors,  or, if no recommendation is
given, in their own discretion. At the time

                                       26

<PAGE>


this joint proxy  statement/prospectus  was mailed,  we knew of no matters  that
needed to be acted upon at the meeting, other than those discussed in this joint
proxy statement/prospectus.

How many votes do I have?

         The  number of votes you have is  dependent  on the number of shares of
Videonics  common stock you own. Each share of common stock  entitles you to one
vote.  The proxy card  indicates  the number of shares of common  stock that you
own.

Can I change my vote after I return my proxy card?

         Yes. Even after you have submitted your proxy, you may change your vote
at any time  before the proxy is  exercised  if you file with the  Secretary  of
Videonics either a notice of revocation or a duly executed proxy bearing a later
date.  The  powers of the proxy  holders  will be  suspended  if you  attend the
meeting in person and so request.  Attendance  at the meeting will not by itself
revoke a previously granted proxy.

How do I vote in person?

         If you plan to attend the meeting and vote in person,  we will give you
a ballot form when you arrive.  However,  if your shares are held in the name of
your broker, bank, or other nominee, you must bring a proxy card and letter from
the nominee  authorizing  you to vote the shares and indicating that you are the
beneficial owner of the shares on November 10, 2000, the record date for voting.

What constitutes a quorum?

         The presence at the meeting, in person or by proxy, of the holders of a
majority of the shares of Videonics common stock  outstanding on the record date
will  constitute  a quorum,  permitting  the conduct of business at the meeting.
Proxies that are marked as  abstentions  will be included in the  calculation of
the number of shares considered to be present at the meeting.

What vote is required for each proposal?


         The  affirmative  vote of the  holders of a  majority  of the shares of
Videonics'  common stock  outstanding as of the record date is required to adopt
the merger agreement.  The four nominees for director who receive the most votes
will  be  elected.   Approval  of  the   proposal   for  the   ratification   of
PricewaterhouseCoopers  LLC as  Videonics'  independent  auditors  requires  the
affirmative vote of a majority of the shares present and voting at the Videonics
annual meeting.

         As of the record date,  Videonics  directors and executive officers and
their affiliates owned  approximately 50% of the outstanding shares of Videonics
common stock.


What are the costs of solicitation of proxies?

         We will bear the costs of this  solicitation,  including the expense of
preparing,    assembling,    printing    and    mailing    this   joint    proxy
statement/prospectus  and the material used in this solicitation of proxies. The
proxies will be solicited principally through the mails, but directors, officers
and  regular  employees  of  Videonics  may  solicit  proxies  personally  or by
telephone.  Although  there is no formal  agreement  to do so, we may  reimburse
banks, brokerage houses and other custodians, nominees and fiduciaries for their
reasonable expense in forwarding these proxy materials to their principals.

         Videonics  shareholders  should not send in any stock certificates with
their proxy card. A transmittal  letter with  instructions  for the surrender of
Videonics stock certificates will be mailed to Videonics shareholders as soon as
practicable after completion of the merger.

Can I make a proposal at the next meeting?


         Assuming the merger is not completed  and you want a proposal  included
in next years proxy  statement for the next annual  meeting of  Shareholders  of
Videonics, Videonics must receive at its

                                       27

<PAGE>


principal  executive offices not later than August 29, 2001. In order to curtail
controversy as to the date on which a proposal was received by Videonics,  it is
suggested  that  proponents  submit their  proposals  by  certified  mail return
receipt requested.



Information on the Videonics Proposals


PROPOSAL 1
Approval of Agreement and Plan of Merger


         For a  discussion  of the  merger and the  merger  agreement,  see "The
Merger," "The Merger Agreement," " The Pro Forma Combined Condensed Consolidated
Financial  Information"  and  "Comparison  Of  Shareholders  Rights Of Focus and
Videonics" on pages 44, 61, 69 and 77 of this joint proxy statement/prospectus.


         The Videonics Board of Directors  recommends that shareholders vote FOR
the approval of the merger agreement.



PROPOSAL 2--VIDEONICS MEETING ONLY
Election of Directors

         In accordance with  Videonics'  Articles of  Incorporation,  the entire
Videonics' Board of Directors is elected at each meeting to serve one year terms
until the next annual meeting. The current nominees, Michael L. D'Addio, Carl E.
Berg, Mark C. Hahn, and N. William Jasper,  Jr. are currently serving as members
of the Videonics  Board.  Shares  represented by all properly  executed  proxies
received by the Videonics Board and not otherwise  marked to withhold  authority
to vote for the nominees  will be voted (unless a nominee is unable or unwilling
to serve) FOR the  election of the  nominees.  The  Videonics  Board knows of no
reason why such  nominee  should be unable or  unwilling  to serve,  but if such
should be the case,  proxies may be voted for the  election of some other person
or for fixing the number of directors at a lesser number.


         The Videonics Board of Directors  recommends that shareholders vote FOR
the election of the nominees proposed by the Board of Directors, as directors to
serve until the 2001 Annual Meeting of Videonics Shareholders.



PROPOSAL 3--VIDEONICS MEETING ONLY
Ratification Of Selection Of Auditors

         The Board of  Directors  has  selected  PricewaterhouseCoopers  LLP. as
Videonics' independent accountants for the year ending December 31, 2000 and has
further  directed  that  management  submit the  selection  of  accountants  for
ratification by the shareholders at this meeting. PricewaterhouseCoopers LLP has
acted as Videonics' independent auditors for fiscal years 1997, 1998 and 1999. A
representative  of  PricewaterhouseCoopers  LLP is expected to be present at the
Videonics'  meeting,  will  have  an  opportunity  to make a  statement,  and is
expected to respond to appropriate questions.


         Shareholder ratification of the selection of PricewaterhouseCoopers LLP
as Videonics'  independent  accountants is not required by Videonics'  Bylaws or
otherwise.    However,    the   Board   is    submitting    the   selection   of
PricewaterhouseCoopers  LLP to the  shareholders for ratification as a matter of
good corporate practice.  If the shareholders fail to ratify the selection,  the
Board will reconsider  whether or not to retain that firm. Even if the selection
is  ratified,  the Board in its  discretion  may  direct  the  appointment  of a
different  independent  accounting firm at any time during the year if the Board
determines  that such a change would be in the best  interests of Videonics  and
its shareholders.

         The  Board  of  Directors  recommends  that  shareholders  vote FOR the
ratification of the selection of auditors.

                                       28

<PAGE>


                             INFORMATION ABOUT FOCUS

The Business

         Focus Enhancements,  Inc., a Delaware corporation,  internally develops
proprietary  technology for the  conversion and  enhancement of PC and Macintosh
output for display on televisions  and  large-screen  monitors,  and markets and
sells worldwide a line of video conversion products using this technology.  In a
1997 independent survey by Frost & Sullivan, Focus was recognized as an industry
leader in the  development and marketing of PC-to-TV video  conversion  products
that make  personal  computers "TV ready" and  televisions  "PC ready." In 2000,
Focus has continued to solidify its leadership position with the addition of new
patents  leading  to  industry-wide  recognition.  Focus has also  entered  into
significant new licensing agreements with original equipment  manufacturers,  as
well as strategic alliances with original equipment manufacturers, resellers and
national retail chains.

         Focus' common stock is listed on the NASDAQ  SmallCap  Market under the
symbol  "FCSE."  Its  principal  offices  are  located  at 600  Research  Drive,
Wilmington, MA 01887, and the telephone number is (978) 988-5888.

         Except  as  described  in  this  paragraph,  none of  Focus'  executive
officers or directors  purchased or sold any shares of Focus' common stock since
the execution of the merger  agreement on August 30, 2000. On September 12, 2000
John C.  Cavalier,  a director  of Focus,  sold 9,519 of shares of Focus  common
stock.

         Focus is  subject  to the  disclosure  requirements  of the  Securities
Exchange  Act of 1934,  as  amended,  and is  required  to file  reports,  proxy
statements and other  information with the Commission  relating to its business,
financial  condition and other matters.  You can inspect and copy these reports,
proxy statements and other  information,  at prescribed rates, at the offices of
the Commission and the NASDAQ. See "Where You Can Find More Information."

PC Video Conversion, Inc.

         PC Video  Conversion Inc. is a Delaware  corporation  and  wholly-owned
subsidiary  of Focus,  formed  for the  purpose of  effecting  the  merger.  Its
principal offices are located at 600 Research Drive,  Wilmington,  MA 01887, and
its telephone number is (978) 988-5888.

                                       29

<PAGE>


Security Ownership of Certain Beneficial Owners and Management


<TABLE>
         The following table sets forth certain  information with respect to the
beneficial  ownership  of Focus  common stock as of the November 10, 2000 record
date for the Focus annual meeting,  (except as otherwise noted in footnotes) by:
(i)  each  shareholder  known by  Focus  to own  beneficially  5% or more of the
outstanding  shares of Focus common stock;  (ii) each  director of Focus;  (iii)
each of the named  Focus  executive  officers  as of the end of the most  recent
fiscal year; and (iv) all executive officers and directors of Focus as a group.

<CAPTION>
                                                                                           Percentage of
                                                                                          Number of Shares          Outstanding
                              Name                                                       Beneficially Owned       Common Stock(1)
                              ----                                                       ------------------       ---------------
<S>                                                                                          <C>                       <C>
Thomas L. Massie(2) ................................................................           658,023                 2.5%
John C. Cavalier(3) ................................................................            58,334                 *
William B. Coldrick(4) .............................................................           150,000                 *
Timothy E. Mahoney(5) ..............................................................            58,333                 *
William Dambrackas(6) ..............................................................            33,334                 *
Christopher P. Ricci(7) ............................................................            56,667                 *
Brett A. Moyer(8) ..................................................................           130,000                 *
Thomas Hamilton(9) .................................................................            72,668                 *
William R. Schillhammer III(10) ....................................................            93,667                 *
All executive officers and directors as a group(9 persons)(11) .....................         1,311,026                 5.0%


<FN>
------------------
*    Less than 1% of the outstanding common stock.

(1)  Unless  otherwise   indicated,   each  person  possesses  sole  voting  and
     investment power with respect to the shares.

(2)  Includes  241,356 shares of common stock held directly or indirectly by Mr.
     Massie.  Includes  416,667 shares  issuable  pursuant to outstanding  stock
     options  that are  exercisable  at  November  10,  2000,  or within 60 days
     thereafter.

(3)  Includes 58,334 shares issuable  pursuant to outstanding stock options that
     are exercisable at November 10, 2000 or within 60 days thereafter.

(4)  Includes 150,000 shares issuable pursuant to outstanding stock options that
     are exercisable at November 10, 2000, or within 60 days thereafter.

(5)  Includes 58,333 shares issuable  pursuant to outstanding stock options that
     are exercisable at November 10, 2000, or within 60 days thereafter.

(6)  Includes 33,334 shares issuable  pursuant to outstanding stock options that
     are exercisable at November 10, 2000, or within 60 days thereafter.

(7)  Includes 56,667 shares issuable  pursuant to outstanding stock options that
     are exercisable at November 10, 2000, or within 60 days thereafter.

(8)  Includes 130,000 shares issuable pursuant to outstanding stock options that
     are exercisable at November 10, 2000, or within 60 days thereafter.

(9)  Includes  6,000  shares of common  stock  held  directly  by Mr.  Hamilton.
     Includes 66,668 shares issuable  pursuant to outstanding stock options that
     are exercisable at November 10, 2000, or within 60 days thereafter.

(10) Includes  4,000 shares of common stock held  directly by Mr.  Schillhammer.
     Includes 89,667 shares issuable  pursuant to outstanding stock options that
     are exercisable at November 10, 2000, or within 60 days thereafter.

(11) Includes  1,059,670 shares issuable  pursuant to options to purchase common
     stock exercisable at November 10, 2000, or within 60 days thereafter.
</FN>
</TABLE>


                                       30

<PAGE>


Information Regarding Directors and Executive Officers

<TABLE>
         The following table sets forth the nominees to be elected at the annual
meeting,  the current  directors who will continue to serve as directors  beyond
the Focus annual meeting, and the executive officers of Focus.

<CAPTION>
                                                                                                  Director /
                 Name                                Age(1)             Position                Officer Since
                 ----                                ------             --------                -------------
<S>                                                   <C>     <C>                                   <C>
Thomas L. Massie(6) ............................      38      Chairman of the Board                 1991
William B. Coldrick(3)(5) ......................      58      Vice Chairman of the Board            1993
Timothy E. Mahoney(2)(5) .......................      42      Director                              1997
John C. Cavalier (2)(3)(6) .....................      58      Director                              1992
William Dambrackas(3)(4) .......................      56      Director                              1999
Brett A. Moyer .................................      42      Executive Vice President & Chief
                                                                Operating Officer
Thomas Hamilton ................................      51      Vice President of Research &
                                                                Development
William R. Schillhammer, III ...................      46      Vice President of OEM Sales

<FN>
------------------
(1)  Age as of December 31, 1999

(2)  Member of the Compensation Committee.

(3)  Member of the Audit Committee.

(4)  Nominated to be elected at the Focus annual meeting

(5)  Term as director to expire in 2001.

(6)  Term as director to expire in 2001.
</FN>
</TABLE>



         Thomas L. Massie is Chairman of the Board and a co-founder of Focus and
has served in this position  since  inception of the company in 1992. Mr. Massie
served as Chief  Executive  Officer of Focus during 1999 and 2000,  but resigned
from this position  effective  April 30, 2000. In August 2000, Mr. Massie became
President and Chief Executive Officer of BRIDGELINE Software,  Inc., an Internet
development  firm.  He has  more  than 14 years of  experience  in the  computer
industry as well as related business management  experience.  From 1990 to 1992,
Mr. Massie was the Senior Vice President of Articulate Systems,  responsible for
worldwide sales,  marketing and operations.  From 1979 to 1984, Mr. Massie was a
Non-Commissioned  Officer for the U.S. Army, 101st Airborne Division. Mr. Massie
is a member of the Board of Directors of the Hockey Academy.  The Hockey Academy
is a private, multi-million dollar hockey program development company. On May 1,
2000,  Focus entered into a separation  agreement  with Mr.  Massie  whereby the
parties agreed to sever Mr. Massie's employment relationship effective April 30,
2000.  Mr.  Massie  remains  Chairman  of the Focus Board of  Directors  and, in
addition,  Focus and Mr.  Massie  entered into a consulting  agreement on May 1,
2000. For a discussion of these  agreements,  see  "--Subsequent  Separation and
Consulting Agreements."


         William B.  Coldrick  has served as a Director of Focus  since  January
1993,  Vice Chairman of Focus since July 1994 and as Executive Vice President of
Focus from July 1994 to May 1995.  Mr.  Coldrick is  currently  a  principal  of
Enterprise  Development  Partners,  a consulting  firm serving  emerging  growth
companies  that he  founded in April  1998.  From July 1996 to April  1998,  Mr.
Coldrick was Vice President and General Manager of Worldwide Channel  Operations
for the Computer  Systems Division of Unisys Corp. Mr. Coldrick holds a Bachelor
of Science degree in Marketing from Iona College in New Rochelle, New York.

         Timothy E. Mahoney has served as Director of Focus since March 1997. He
has more than 18 years of  experience  in the computing  industry.  Mr.  Mahoney
founded Union  Atlantic  L.C., in 1994, a merchant bank  providing  professional
management  and capital for  emerging  technology  companies  and in 1999 became
Chairman and Chief Operating  Officer of vFinance.com,  Inc., the parent company
of Union  Atlantic  L.C.  and Union  Atlantic  Capital  L.C.  See also  "Certain
Relationships and Related  Transactions."  Since 1996, Mr. Mahoney has served as
Chairman of Tallard Technologies BV, a PC

                                       31

<PAGE>


products distributor / value added reseller serving Latin America. He earned his
BA degree in computer science and business from West Virginia  University and an
MBA degree from George Washington University.

         John C.  Cavalier has served as a Director of Focus since May 1992.  He
has more than 29 years of business management  experience.  Since November 1996,
Mr. Cavalier has been President,  CEO and a Director of MapInfo  Corporation,  a
software developer.  Prior thereto,  Mr. Cavalier joined Amdahl Company in early
1993 as Vice President and General Manager of Huron, Amdahl's software business.
He earned his undergraduate  degree from the University of Notre Dame and an MBA
from Michigan State University.

         William A. Dambrackas has over 22 years of management experience in the
computer  industry.  He founded Equinox Systems (Nasdaq:  EQNX) 17 years ago and
since then, has served as the company's Chairman,  President and Chief Executive
Officer. Equinox develops high-performance  server-based communications products
for Internet access and commercial systems. Mr. Dambrackas also currently serves
on the Board of Directors of the Florida  Venture Forum,  an  organization  that
serves the needs of venture capital investors and emerging growth companies. Mr.
Dambrackas has been issued three United States  Patents for data  communications
inventions and he was honored as Florida's "Entrepreneur of the Year" in 1984.


         Brett A. Moyer  joined  Focus in May 1997,  and has assumed the role of
Executive Vice  President & Chief  Operating  Officer.  Mr. Moyer brings over 10
years of global sales,  finance and general  management  experience  from Zenith
Electronics  Corporation,  from  February  1986 to May  1997,  where he was most
recently the Vice President and General Manager of Zenith's  Commercial Products
Division.  Mr.  Moyer has also served as Vice  President  of Sales  Planning and
Operations at Zenith where he was responsible for forecasting, customer service,
distribution,  MIS, and regional credit operations.  Mr. Moyer has a Bachelor of
Arts  in  Economics   from  Beloit   College  in  Wisconsin  and  a  Masters  of
International Management with a concentration in finance and accounting from The
American Graduate School of International Management (Thunderbird).

         Thomas  Hamilton  joined  Focus in September  1996 when Focus  acquired
TView,  Inc. From 1992 to 1996,  Mr.  Hamilton was Executive  Vice President and
Co-Founder of TView, Inc. Mr. Hamilton grew TView from inception to a $5 million
per year revenue before being  acquired by Focus.  He  co-developed  proprietary
video processing technology central to Focus' business. Mr. Hamilton has a BS in
Mathematics from Oregon State University.


         William R.  Schillhammer III joined Focus in 1998 with over 12 years of
experience in global sales and marketing.  From 1996 to 1998,  Mr.  Schillhammer
was  Vice  President  of  Marketing  and  Sales  for  Digital  Vision,  Inc.,  a
multi-million dollar developer of video conversion  products.  From 1990 to 1996
Mr.  Schillhammer held various senior  management  positions for Direct Imaging,
Inc.,  most  recently  serving as President.  Mr.  Schillhammer  graduated  from
Dartmouth College with a bachelor's degree in Engineering.

                                       32

<PAGE>



Executive Compensation


<TABLE>
         The following table sets forth,  for the years ended December 31, 1999,
1998, and 1997, the total compensation earned by the Chief Executive Officer and
the four most highly  compensated  executive  officers of Focus whose salary and
bonus for fiscal  year 1999  exceeded  $100,000  for  services  rendered  in all
capacities.


                                                     Summary Compensation Table

<CAPTION>
                                                                                                                         Long-Term
                                                                                                                        Compensation
                                                                          Annual Compensation(1)(2)                       Options/
           Name and                                              --------------------------------------------          -------------
      Principal Position                                         Year            Salary ($)          Bonus($)              SARs(3)
      ------------------                                         ----            ----------          --------              -------
<S>                                                              <C>             <C>                 <C>                   <C>
Thomas L. Massie ..............................................  1999            $150,000            $ 69,154              100,000
   President, Chief                                              1998            $150,000            $132,833              200,000
   Executive Officer and                                         1997            $150,000            $ 45,000              500,000
   Chairman of the Board(4)

Christopher P. Ricci ..........................................  1999            $150,000            $ 15,200               45,000
   Sr. Vice President and                                        1998            $150,000            $ 27,500              125,000
   General Counsel(5)                                            1997                --                  --                   --

Brett Moyer ...................................................  1999            $130,000            $ 63,724(6)            40,000
   Executive Vice President                                      1998            $130,000            $ 41,000(6)           100,000
   & Chief Operating Officer                                     1997            $130,000            $ 45,000              250,000

Thomas Hamilton ...............................................  1999            $129,192                --                175,000
   Vice President of Research                                    1998            $110,000            $  5,000               25,000
                                                                 1997            $110,000            $  4,179                 --

William Schillhammer ..........................................  1999            $ 95,000            $ 52,900(6)            40,000
   Vice President of OEM                                         1998            $ 85,000            $ 22,204(6)           122,000
   Sales                                                         1997                --                  --                   --


<FN>
------------------
(1)  Includes salary and bonus payments earned by the named officers in the year
     indicated,  for  services  rendered  in such  year,  which were paid in the
     following year.

(2)  Excludes  perquisites  and other personal  benefits,  the aggregate  annual
     amount of which for each officer was less than the lesser of $50,000 or 10%
     of the total salary and bonus reported.

(3)  Long-term  compensation  table  reflects  the  grant of  non-qualified  and
     incentive stock options granted to the named persons in each of the periods
     indicated. Includes repriced options for 1998 and 1997.

(4)  During 1999 and 2000 Mr.  Massie  served as President  and Chief  Executive
     Officer of Focus. On May 1, 2000, Focus entered into a separation agreement
     with Mr. Massie whereby the parties agreed to sever Mr. Massie's employment
     relationship  effective April 30,2000.  Mr. Massie remained Chairman of the
     Focus Board of Directors  and, in addition,  Focus and Mr.  Massie  entered
     into a  consulting  agreement  on May 1, 2000.  For a  discussion  of these
     agreements, see "--Subsequent Separation and Consulting Agreements."

(5)  On September 6, 2000,  Mr. Ricci  resigned from his position as Senior Vice
     President and General Counsel of Focus.

(6)  Includes compensation based on sales commissions.
</FN>
</TABLE>


                                       33

<PAGE>


<TABLE>

         The following  tables sets forth as to the Chief Executive  Officer and
each of the other executive  officers named in the Summary  Compensation  Table,
certain  information  with respect to options to purchase shares of common stock
of Focus as of and for the year ended December 31, 1999.



                                                Option/SAR Grants In 1999

<CAPTION>
                                                             Number of     % of Total
                                                            Securities      Options/
                                                            Underlying        SARs           Exercise
                                                              Options/      Granted to        Or Base
                                                                SARs        Employees          Price
                                                              Granted          In             ($/per             Exp.
             Name                                              (#)(1)         1999(2)          Share)            Date
             ----                                              ------         -------          ------            ----
<S>                                                           <C>              <C>            <C>               <C>
Thomas L. Massie ................................             100,000          8.13%          $   1.28          11/12/04
Christopher P. Ricci ............................              25,000          3.66%          $   1.06          02/22/04
                                                               20,000                         $   1.28          11/12/04
Brett Moyer .....................................              40,000          3.25%          $   1.28          11/12/04
Bill Schillhammer ...............................              40,000          3.25%          $   1.28          11/12/04
Thomas Hamilton .................................              25,000         14.23%          $   1.06          02/22/04
                                                               50,000                         $   1.00          09/07/04
                                                              100,000                         $   1.28          11/12/04


<FN>
------------------
(1)  The purpose of Focus'  stock  option  plans,  is to provide  incentives  to
     employees,   directors  and  consultants  who  are  in  positions  to  make
     significant contributions to Focus.

(2)  Focus  granted  options to purchase a total of  1,229,386  shares of common
     stock to employees and directors in 1999.
</FN>
</TABLE>



<TABLE>

         The following table sets forth information concerning options exercised
during fiscal year 1999 and the value of unexercised  options as of December 31,
1999 held by the executives named in the Summary Compensation Table above.

                            Aggregated Option/SAR Exercises in 1999 and Fiscal Year-End Option/SAR Values


<CAPTION>
                                                                               Number of Securities         Value of Unexercised
                                             Shares                           Underlying Unexercised            In-the-Money
                                            Acquired         Value           Options/SARs at Year-End    Options/SARs at Year-End(1)
                                           on Exercise      Realized       ----------------------------   --------------------------
                                               (#)            ($)          Exercisable    Unexercisable   Exercisable  Unexercisable
                                             -------       ---------       -----------    -------------   -----------  -------------
<S>                                          <C>           <C>               <C>             <C>          <C>             <C>
Thomas L. Massie ...................         500,000       1,782,000         150,000         400,000      $1,072,500      $2,812,000
Christopher P. Ricci ...............          41,668         147,505               0         128,332      $        0      $  904,885
Brett Moyer ........................         200,001         708,003               0         189,999      $        0      $1,333,241
William Schillhammer ...............          15,000          53,100          30,668         131,332      $  213,450      $  923,264
Thomas Hamilton ....................          88,334         312,702               0         191,666      $        0      $1,362,745

<FN>
------------------
(1)  Value is based on the  difference  between  option  exercise  price and the
     closing  price as  quoted  on the  NASDAQ  SmallCap  Market at the close of
     trading on December  31, 1999  ($8.25)  multiplied  by the number of shares
     underlying the option.
</FN>
</TABLE>


     Additional Options.

         For a  discussion  of the  plan  and  awards  granted  thereunder,  see
"Proposal 4 - Focus Meeting  Only--Approval of 2000  Non-Qualified  Stock Option
Plan," on page 31 of this joint proxy statement/ prospectus.


Repricing of Stock Options/Additional Option Plans

         On March 19, 1997,  the Focus Board of  Directors  elected to terminate
the 1995 Directors  Stock Option Plan and all options granted  thereunder.  By a
unanimous  vote,  the Focus Board of Directors  established  the 1997  Directors
Stock  Option  Plan and  authorized  the  grant of  options  to  purchase  up to
1,000,000  shares of common stock under the 1997 Directors Stock Option Plan. On
March 19, 1997, options to purchase 200,000 shares at an exercise price of $1.88
per share were granted to Mr. Cavalier, options to purchase 100,000 shares at an
exercise  price of $1.88 per share were granted to each of Messrs.  Coldrick and
Mahoney and options to purchase  50,000 shares at an exercise price of $1.88 per
share were granted to a now former  director.  All of the options are subject to
various vesting provisions.

                                       34

<PAGE>


         Focus  maintains  the right to reprice  options that it may grant under
its existing  stock option  plans.  On  September  1, 1998,  Focus  repriced all
employee  and  director  options  under  all  plans to $1.22 per share for those
options  priced in excess of this  value.  This price  represented  the  closing
market price of Focus' common stock on September 1, 1998.

         On  September 1, 1998,  the Focus Board of Directors  approved the 1998
Non-Qualified Stock Option Plan. The 1998 Plan authorized the grant on September
1, 1998 of stock  options  for  75,000  shares  of  common  stock to each of Mr.
Mahoney and Mr. Coldrick and for 100,000 shares to Mr. Cavalier, each of whom is
neither an employee nor officer of Focus.

         Mr. Massie  received a grant of an option for 200,000  shares under the
2000 Plan.  Mr. Moyer received a grant of an option for 100,000 shares under the
2000 Plan.  All such  options have an exercise  price of $1.22,  the fair market
value on the date of grant. Upon joining the Focus Board of Directors,  on April
22,  1999,  Mr.   Dambrackas   was  granted,   subject  to  approval  by  Focus'
shareholders,  a stock option for 100,000  shares of common stock at an exercise
price of $1.4063, the fair market value on the date of grant.

Employment Agreements

         Focus and Brett Moyer are parties to an employment  contract  effective
May 15, 1997, as amended to date, which renews  automatically after December 31,
2000, for one year terms, subject to certain termination provisions. Pursuant to
this employment  contract,  Mr. Moyer serves as Executive Vice President & Chief
Operating Officer.  This employment contract requires acceleration of vesting of
all options held by Mr. Moyer so as to be  immediately  exercisable if Mr. Moyer
is  terminated  without cause during the term of the  contract.  The  employment
contract  provides  for  bonuses as  determined  by the Board of  Directors  and
employee benefits, including health and disability insurance, in accordance with
the Focus' policies.  On May, 2000, Mr. Moyer's employment  contract was amended
to extend the term until May 1, 2002,  which renews  automatically  after May 1,
2000 for successive one year terms, subject to certain termination provisions.

         Focus and  Christopher  Ricci were  parties to an  employment  contract
effective March 1, 1998, as amended to date, which renewed  automatically  after
December  31,  2000,  for  one  year  terms,   subject  to  certain  termination
provisions. Pursuant to this employment contract, Mr. Ricci served as our Senior
Vice President, General Counsel and Secretary. This employment contract required
the  acceleration  of  vesting  of all  options  held by Mr.  Ricci  so as to be
immediately exercisable if Mr. Ricci is terminated without cause during the term
of the contract.  In addition,  in the case of a change in control of Focus, for
up to one year following such change in control Mr. Ricci, at his sole election,
could  choose to  terminate  his  employment,  in which case Mr.  Ricci would be
entitled to receive a lump sum cash payment  equal to two years' salary plus the
continuation of such salary for an additional two years after such  termination.
Mr. Ricci's employment  contract provided for annual bonuses to be determined by
the Board of Directors and employee  benefits,  including  health and disability
insurance,  to be provided in accordance with company policies.  On September 6,
2000,  Mr. Ricci  resigned from his position as Senior Vice  President,  General
Counsel and Secretary.  Mr. Ricci's employment  agreement was terminated on that
date and replaced with a new agreement  providing for his employment by Focus as
a part-time  consultant  terminating April 30, 2001, unless sooner terminated by
both parties.  The part-time  consulting agreement provides that Mr. Ricci shall
continue to hold all of the stock options previously granted to him and requires
the  acceleration  of  vesting  of all  options  held by Mr.  Ricci  so as to be
immediately exercisable if Mr. Ricci is terminated without cause during the term
of the contract.

         Focus  and  Thomas  Hamilton  are  parties  to an  employment  contract
effective October 17, 1996, as amended to date, which renews automatically after
December  31,  1998,  for  one  year  terms,   subject  to  certain  termination
provisions.  Pursuant to this employment  contract,  Mr. Hamilton serves as Vice
President  of Research &  Development.  This  employment  contract  requires the
acceleration  of  vesting  of  all  options  held  by Mr.  Hamilton  so as to be
immediately  exercisable if Mr. Hamilton is terminated  without cause during the
term of the contract. The employment contract provides for bonuses as determined
by the Focus Board of Directors  and  employee  benefits,  including  health and
disability insurance, in accordance with Focus' policies.

                                       35

<PAGE>


Subsequent Separation and Consulting Agreements

         On May 1, 2000,  Focus  entered  into a separation  agreement  with Mr.
Massie whereby the parties agreed to sever Mr. Massie's employment  relationship
effective  April 30, 2000. Mr. Massie remains on the Board of Directors of Focus
and any options granted by Focus will continue to vest under their current terms
for as long as he remains a director or a  consultant,  whichever is longer.  In
addition,  under the  severance  agreement,  Focus (i) paid Mr.  Massie  for all
accrued  vacation and unpaid  bonuses;  and (ii) will forgive two notes totaling
$140,000,  including  all  interest,  owed by Mr. Massie to Focus over eight (8)
fiscal quarters, ending June 30, 2002.

         In addition,  Focus and Mr. Massie entered into a Consulting  Agreement
on May 1, 2000,  whereby Mr. Massie receives a monthly consulting fee of $11,000
plus  expenses.  Pursuant to the  agreement,  Mr.  Massie  will assist  Focus in
financial  matters,  including  but not  limited  to,  the  raising of long term
capital, planing product development,  advising on merger and acquisitions,  and
recruiting  a new  president  for  Focus.  The  minimum  amount  due under  this
agreement is $110,000.

Focus Board Meetings and Committees

         The Focus Board of Directors  met four (4) times during the fiscal year
ended  December 31, 1999.  None of the directors  attended fewer than 75% of the
meetings held during the period.  The Focus Board of Directors  also took action
by unanimous  written  consent in lieu of a meeting on six (6) occasions  during
1999.

         The  Compensation  Committee  of the  Focus  Board,  of  which  Messrs.
Cavalier and Mahoney are members,  sets the  compensation of the Chief Executive
Officer,  reviews  and  approves  the  compensation  arrangements  for all other
officers  of Focus and  administers  Focus'  various  stock  option  plans.  The
Compensation  Committee  did not meet during the fiscal year ended  December 31,
1999. The Compensation  Committee also took action by unanimous  written consent
in lieu of a meeting on three (3) occasions during 1999.

         The Audit Committee of the Board, of which Messrs. Mahoney and Coldrick
were  members in 1999,  and Messrs.  Cavalier,  Dambrackas  and Coldrick are now
members, reviews all financial functions of Focus, including matters relating to
the appointment and activities of Focus'  auditors.  The Audit Committee did not
meet during the fiscal year ended December 31, 1999.


         The  Focus  Board of  Directors  does  not  currently  have a  standing
nominating  committee.  For  a  discussion  of  the  nomination  procedure,  see
"Comparison  of  Shareholder  Rights  of  Focus  and  Videonics--Advance  Notice
Provisions for Shareholder Nominations and Proposals."


Compensation of Directors

         Directors  of Focus  receive  no  direct  cash  compensation  for their
services as  directors.  See,  however  "Repricing  of Stock  Options/Additional
Option Plans".

Certain Relationships and Related Transactions

         Timothy  Mahoney,   who  is  a  Focus  director,   is  a  principle  of
vFinance.com,  Inc., the parent  company to Union  Atlantic  Capital L.C., and a
partner of Union Atlantic L.C. In 1999, Focus paid Union Atlantic L.C.  $112,226
in consulting fees in connection with equity financing agreements  negotiated by
Union Atlantic L.C. Union Atlantic  Capital L.C. an affiliated  company of Union
Atlantic  L.C.,  will  also be paid  approximately  $280,000  in shares of Focus
common stock for brokerage fees in connection with the merger.

Section 16(a) Beneficial Ownership Reporting Compliance

         Section  16(a) of the  Securities  Exchange  Act of 1934,  as  amended,
requires Focus' directors and executive officers,  and persons who own more than
10% of a registered class of Focus' equity  securities,  to file initial reports
of  ownership  and reports of changes in  ownership  with the  Commission.  Such
persons are  required  by SEC  regulations  to furnish  Focus with copies of all
Section 16(a) forms they file.

                                       36

<PAGE>


         Based solely on Focus'  review of the copies of such forms  received by
it or written  representations  from certain  reporting  persons,  that no other
reports were required, Focus believes that all filing requirements applicable to
its officers,  directors,  and greater than 10% beneficial  owners were complied
with during this year ended December 31, 1999.


Recent Developments


     CRA Systems, Inc.


         In 1996 CRA Systems, Inc., a Texas corporation,  and Focus entered into
an agreement,  the terms and nature of which were  subsequently  disputed by the
parties.  Focus  contended  the  transaction  was simply a sale of inventory for
which Focus was never paid.  CRA contended  otherwise.  CRA brought suit against
Focus for breach of  contract  contending  that Focus  grossly  exaggerated  the
demand for the  product,  and the margin of profit  which was  available  to CRA
regarding this project.  CRA sought to recover  out-of-pocket  losses  exceeding
$100,000,  and lost profits of $400,000 to $1,000,000.  A jury trial in May 2000
in federal district court in Waco, Texas,  resulted in a verdict in favor of CRA
for $848,000  actual damages and  $1,000,000  punitive  damages.  On October 10,
2000,  the court  rendered a judgment  on the verdict in favor of CRA for actual
damages,  punitive  damages,  attorneys fees,  costs and interest;  the judgment
totaled  approximately  $2.1  million.  Focus  intends  to file  an  appropriate
post-judgment motion requesting that this judgment be reduced significantly, and
will  pursue an appeal  to the  United  States  Court of  Appeals  for the Fifth
Circuit in New  Orleans,  Louisiana.  To  suspend  enforcement  of the  judgment
pending  determination of its post-judgment motion and appeal, Focus is required
to post a bond in the approximate  amount of $2.3 million (being the approximate
amount of the judgment plus 10% to cover  interest and costs of CRA). On October
27,  2000,  Focus  submitted  a bond and filed  its  post-judgement  motion.  In
connection with this judgment,  Focus has recorded an expense of $2.0 million in
the period ended September 30, 2000. See also "Risk Factors."


     Promissory Note in the Principal Amount of $2.3 Million


         On October  26,  2000  Focus  issued a secured  promissory  note in the
approximate  principal  amount of $2.3 million to Carl Berg, a  shareholder  and
director of Videonics.  The promissory note was issued in connection with a loan
made to Focus by Mr. Berg for the purpose of  collateralizing  the $2.3  million
bond to be posted in connection with the CRA litigation, as described above. The
promissory  note has a term of three years and bears interest at a rate of prime
plus 1%.  The  principal  amount of the note will be due at the end of its term,
with interest to be paid quarterly.  Under certain  circumstances,  including at
the election of Mr. Berg and Focus,  the  promissory  note is  convertible  into
shares of Focus common stock generally equal to the value of the promissory note
and any accrued and unpaid  interest.  In the event the merger is not completed,
the promissory note can be called and become payable in full upon 90-days notice
from Mr.  Berg,  at his sole  discretion.  The  promissory  note is secured by a
security  agreement  in favor of Mr. Berg  granting  him a security  interest in
first  priory  over  substantially  all of the  assets of Focus.  See also "Risk
Factors--Focus  may be required to repay a $2.3 million  promissory  note if the
merger is not completed."


                                       37

<PAGE>


                           INFORMATION ABOUT VIDEONICS

The Business

         Videonics,  Inc., a California  corporation,  is engaged in the design,
manufacture,  and sale of  affordable,  high quality,  real time,  digital video
post-production equipment.  Videonics' products process, edit, and mix raw video
footage as well as enhance such footage with audio,  special effects and titles,
resulting in professional quality video production.  Videonics equipment is used
throughout the world in the production of videos.

         Our common  stock is listed on the  NASDAQ  SmallCap  Market  under the
symbol "VDNX." Our principal offices are located at 1370 Dell Avenue,  Campbell,
California 95008, and our telephone number is (408) 866-8300.

         None of Videonics'  executive  officers or directors  purchased or sold
any  shares of  Videonics'  common  stock  since  the  execution  of the  merger
agreement on August 30, 2000.

         Videonics is subject to the disclosure  requirements  of the Securities
Exchange  Act of 1934,  as  amended,  and is  required  to file  reports,  proxy
statements and other  information with the Commission  relating to its business,
financial  condition and other matters.  You can inspect and copy these reports,
proxy statements and other  information,  at prescribed rates, at the offices of
the Securities  Exchange Commission and the NASDAQ. See "Where You Can Find More
Information."

Security Ownership of Certain Beneficial Owners and Management


<TABLE>
         The following table sets forth certain  information with respect to the
beneficial  ownership  of  Videonics  common  stock as of the  November 10, 2000
record date for the  Videonics  annual  meeting  (except as  otherwise  noted in
footnotes) by: (i) each shareholder known by Videonics to own beneficially 5% or
more of the outstanding  shares of Videonics common stock; (ii) each director of
Videonics; (iii) each of the named Videonics executive officers as of the end of
the most recent fiscal year;  and (iv) all  executive  officers and directors of
Videonics as a group.


<CAPTION>
                                                                                                                       Percentage of
                                                                                              Number of Shares          Outstanding
                                  Name                                                       Beneficially Owned        Common Stock
                                  ----                                                       ------------------        ------------
<S>                                                                                              <C>                       <C>
Carl E. Berg(1) ......................................................................            1,473,505                 24%
Michael L. D'Addio(2) ................................................................              921,762(3)              15%
Mark C. Hahn(2) ......................................................................              493,515                  8%
N. William Jasper, Jr.(2) ............................................................               42,536(4)               1%
Jeffrey A. Burt ......................................................................               66,375(5)               1%
Gary L. Williams .....................................................................               41,504(6)               *
All executive officers and directors as a group(6 persons) (7) .......................            3,039,197                 50%

<FN>
------------------
*    Represents less than 1%

(1)  10050 Bandley Drive, Cupertino, CA 95014.

(2)  1370 Dell Avenue, Campbell, CA 95008.

(3)  Includes  9,000  shares  subject  to stock  options  exercisable  as of the
     November  10,  2000 or  within  60 days  thereafter  held by Mr.  D'Addio's
     spouse, an employee of Videonics.

(4)  Includes 11,256 shares subject to stock options  exercisable as of November
     10, 2000 or within 60 days thereafter.

(5)  Includes 66,375 shares subject to stock options  exercisable as of November
     10, 2000 or within 60 days thereafter.

(6)  Includes 41,504 shares subject to stock options  exercisable as of November
     10, 2000 or within 60 days thereafter.

(7)  Includes  an  aggregate  of  128,135  shares  included  pursuant  to  notes
     (4)--(6).
</FN>
</TABLE>


                                       38

<PAGE>


Information Regarding Directors and Executives Officers


<TABLE>
         The following table sets forth the executive  officers and directors of
Videonics.

<CAPTION>
                                                                                       Director /
              Name               Age(1)                    Position                   Officer Since
              ----               ------                    --------                   -------------
<S>                             <C>        <C>                                            <C>
Michael L. D'Addio(2) .........   55       Chairman of the Board, Chief                   1986
                                           Executive Officer and Director
Jeffrey A. Burt ...............   47       V.P. Operations                                1992
Gary L. Williams ..............   33       V.P. Finance, Chief Financial Officer          1999
                                           and Secretary
Carl E. Berg(2) ...............   61       Director                                       1987
Mark C. Hahn(2) ...............   50       Director                                       1986
N. William Jasper, Jr.(2) .....   52       Director                                       1993

<FN>
------------------
(1)  As of December 31, 1999.

(2)  All four (4)  directors  have been  nominated  to be  elected at the annual
     meeting.
</FN>
</TABLE>



         Michael L.  D'Addio,  a co-founder  of  Videonics,  has served as Chief
Executive  Officer  and  Chairman  of the Board of  Directors  since  Videonics'
inception in July 1986. In addition Mr. D'Addio  served as Videonics'  President
from July 1986 until  November  1997.  From May 1979 through  November  1985 Mr.
D'Addio served as President,  Chief Executive  Officer and Chairman of the Board
of Directors of Corvus Systems, a manufacturer of small computers and networking
systems.  Mr.  D'Addio holds an A.B.  degree in  Mathematics  from  Northeastern
University.

         Jeffrey A. Burt has served as Vice President of Operations of Videonics
since April 1992.  From August 1991 to March 1992, Mr. Burt served  Videonics as
its Materials  Manager.  Prior to that time,  from October 1990 until July 1991,
Mr. Burt acted as a consultant to Videonics in the area of materials management.
From May 1989 to October 1990, Mr. Burt served as the Director of  Manufacturing
of On  Command  Video.  Mr.  Burt  holds a B.A.  degree  in  Economics  from the
University of Wisconsin at Whitewater.

         Gary L. Williams has served Videonics as its Vice President of Finance,
Chief Financial Officer and Secretary since February 1999. From February 1995 to
January 1999, Mr.  Williams served as Videonics'  Controller.  From July 1994 to
January 1995, he served as Controller for Western Micro  Technology,  a publicly
traded company in the electronics  distribution  business.  From January 1990 to
June 1994, Mr. Williams  worked in public  accounting for Coopers & Lybrand LLP.
Mr.  Williams is a Certified  Public  Accountant  and has a Bachelors  Degree in
Business  Administration,  with an emphasis in  Accounting  from San Diego State
University.

         Carl E. Berg, a co-founder of Videonics, has served on Videonics' Board
of Directors  since June 1987. Mr. Berg is currently  Chief  Executive  Officer,
President and a director for Mission West Properties, a real estate company. Mr.
Berg is also a member of the Board of Directors of Integrated Device Technology,
Inc., Valence Technology, Inc., and Systems Integrated Research.

         Mark C. Hahn, a co-founder of Videonics,  has served as Director  since
Videonics'  inception  in July 1986.  Since  November  1999,  Mr.  Hahn has been
employed at Facelink.com,  Inc., an internet  provider of web based  photography
display  services.  From  February  1996 to  November  1999,  Mr. Hahn served as
Videonics'  Chief Technical  Officer.  From July 1986 to February 1996, Mr. Hahn
served as  Videonics'  Vice  President  of Research  and  Development.  Prior to
co-founding  Videonics,  Mr. Hahn served as Vice President of Research and Chief
Technologist  of Corvus Systems from May 1979 to February 1986. Mr. Hahn holds a
B.S.  degree in Electrical  Engineering  from  Princeton  University  and a M.S.
degree in Electrical Engineering from Stanford University.

         N. William  Jasper,  Jr.  joined the Board of Directors of Videonics in
August 1993.  Since 1983, Mr. Jasper has been the President and Chief  Operating
Officer of Dolby Laboratories, Inc.

                                       39

<PAGE>


Executive Compensation

<TABLE>
         The  following  table sets forth,  the years ended  December  31, 1999,
1998, and 1997, the total compensation earned by the Chief Executive Officer and
each of the  executive  officers of Videonics  whose salary and bonus for fiscal
year 1999 exceeded $100,000 for services rendered in all capacities.


                                                     Summary Compensation Table


<CAPTION>
                                                                                                     Long-Term
                                                                               Annual               Compensation        All Other
                                                                          Compensation(1)              Option/        Compensation
          Name and                                                 -----------------------------   ---------------   ---------------
     Principal Position                               Year         Salary($)            Bonus($)        SARs(#)              ($)
     ------------------                               ----         ---------            --------        -------              ---
<S>                                                   <C>          <C>                     <C>         <C>               <C>
Michael L. D'Addio ................................   1999         $150,000                0                0                   0
  Chief Executive Officer                             1998         $150,000                0                0                   0
                                                      1997         $130,667                0                0                   0

Jeffrey A. Burt ...................................   1999         $133,462                0                0                   0
  Vice President of                                   1998         $122,693                0           30,000(2)                0
  Operations                                          1997         $110,000                0           30,000(2)         $ 30,200(3)

Gary L. Williams ..................................   1999         $118,697                0           50,000                   0
  Vice President of                                   1998         $ 94,085                0           22,504(5)                0
  Finance, CFO &                                      1997         $ 86,020                0           16,504(6)                0
  Secretary(4)


<FN>
------------------
(1)  Except for annual  compensation  reported  below,  there is no other annual
     compensation to report.

(2)  Includes  repriced  options to purchase  30,000 shares of Videonics  common
     stock.

(3)  Amounts represent gain recognized on exercise of nonstatutory stock options
     issued under Videonics' 1987 Stock Option Plan.

(4)  Mr.  Williams was appointed Vice  President of Finance and Chief  Financial
     Officer in February 1999.

(5)  Includes  repriced  options to purchase  16,504 shares of Videonics  common
     stock.

(6)  Includes  repriced  options to purchase  10,504 shares of Videonics  common
     stock.
</FN>
</TABLE>



<TABLE>
         The following  tables set forth as to the Chief  Executive  Officer and
each of the other executive  officers named in the Summary  Compensation  Table,
certain  information  with respect to options to purchase shares of common stock
of Videonics as of and for the year ended December 31, 1999.


                                                      Option/SAR Grants in 1999


<CAPTION>
                                      Number of      % of Total                                       Potential Realizable
                                     Securities       Options/                                       Value at Assumed Annual
                                     Underlying         SARs      Exercise                            Rates of Stock Price
                                       Option/       Granted to    or Base                              Appreciation for
                                         SARs         Employees     Price                                 Option Term (3)
                                       Granted           In         ($/per        Exp.             ---------------------------------
          Name                          (#)(1)         1999(2)      Share)       Date              0% ($)      5% ($)        10% ($)
          ----                          ------         -------      ------       ----              ------      -------       -------
<S>                                     <C>             <C>        <C>          <C>                  <C>      <C>            <C>
Jeffrey A. Burt ....................    25,000           7.2%      $   0.78     2/17/09              0        $12,304        $31,143
Gary L. Williams ...................    50,000          14.4%      $   0.78     2/17/09              0        $24,608        $62,286


<FN>
------------------
(1)  Options granted in this table have exercise prices equal to the fair market
     value of  Videonics  common  stock on the date of grant.  All such  options
     typically  become  exercisable  at a rate of 1/8 after  the first  full six
     months of employment,  and 1/8 every six months thereafter for a total four
     year vesting period following the date of grant.

(2)  Videonics  granted  options to purchase a total of 348,124 shares of common
     stock to employees and Directors in 1999.

(3)  Potential  realizable value assumes that the stock price increases from the
     date of grant  until the end of the  option  term (10  years) at the annual
     rate  specified  (0%,  5%,  10%).  Annual  compounding   results  in  total
     appreciation of 63% (at 5% per year) and 159% (at 10% per year). The 5% and
     10% assumed rates of appreciation (over the deemed fair market value at the
     grant  date) are  mandated  by the  rules of the  Securities  and  Exchange
     Commission  and do not represent  Videonics'  estimate or projection of the
     future growth of the price of Videonics' common stock.
</FN>
</TABLE>


<TABLE>

         The following table sets forth information concerning options exercised
during fiscal year 1999 and the value of unexercised  options as of December 31,
1999 held by the executives named in the Summary Compensation Table above.

                                       40

<PAGE>


                      Aggregated Option/SAR Exercises in 1999 and Fiscal Year-End Option/SAR Values


<CAPTION>
                                                              Number of Securities              Value of Unexercised
                                Shares                       Underlying Unexercised          In-the-Money Options/SARs
                             Acquired on       Value        Options/SARs at Year-End               at Year-End(1)
                               Exercise      Realized    -------------------------------   ------------------------------
            Name                  #              $        Exercisable     Unexercisable     Exercisable     Unexercisable
--------------------------- -------------   ----------   -------------   ---------------   -------------   --------------
<S>                              <C>           <C>           <C>              <C>             <C>             <C>
Michael L. D'Addio ........      --            --                --               --               --               --
Jeffrey A. Burt ...........      --            --            56,375           25,625          $11,321          $ 2,078
Gary L. Williams ..........      --            --            22,691           49,813          $   594          $ 4,156

<FN>
------------------
(1)  Calculated on the basis of  Videonics'  common stock closing price of $0.88
     on December 31, 1999, minus the exercise price.
</FN>
</TABLE>



<TABLE>
                                          Ten-Year Option/SAR Repricing


<CAPTION>
                                                          Market                                    Length of
                                         Number of       Price of      Exercise                      Original
                                         Securities      Stock at      Price at                    Option Term
                                         Underlying      Time of       Time of                     Remaining at
                                         Option/SAs     Repricing     Repricing        New           Date of
                                        Repriced or         or            or        Exercise       Repricing or
           Name               Date        Amended       Amendment     Amendment       Price         Amendment
-------------------------- ---------   -------------   -----------   -----------   ----------   -----------------
<S>                        <C>             <C>           <C>           <C>          <C>         <C>
Jeffrey A. Burt .......... 6/24/98         30,000        $  1.50       $  5.00      $  1.50     9 years 56 days
                           8/19/97         30,000        $  5.00       $  7.50      $  5.00     8 years 177 days
Gary L. Williams ......... 6/24/98         10,504        $  1.50       $  5.00      $  1.50     9 years 56 days
                           6/24/98          6,000        $  1.50       $  4.50      $  1.50     9 years 56 days
                           8/19/97         10,504        $  5.00       $  7.50      $  5.00     8 years 177 days
</TABLE>


Employment Agreements

         Videonics  has entered into Key Employee  Agreements  with Mr. Burt and
Mr.  Williams to provide for the  acceleration  of option  vesting under certain
circumstances upon a change in control as defined in those agreements.

Videonics Board Meeting and Committees

         During the year ending December 31, 1999,  there were four (4) meetings
of the Videonics Board of Directors.  Each director  attended 90% or more of the
meetings of the  Videonics  Board of Directors  and  Committees of the Videonics
Board of  Directors on which he served,  except that Mark C. Hahn only  attended
two meetings during 1999.

         The Audit  Committee was  established on December 15, 1994. The members
of the Audit  Committee  are  Messrs.  Berg and  Jasper,  neither  of whom is an
employee of Videonics.  The  functions of the Audit  Committee are to define the
scope of the audit,  review the auditor's reports and comments,  and monitor the
internal  auditing  procedures  of Videonics.  The Audit  Committee did not meet
during 1999.

         The  Compensation  Committee of the  Videonics  Board of Directors  was
established on October 27, 1994. The members of the  Compensation  Committee are
Messrs. Berg and Jasper, neither of whom is employed by Videonics. The functions
of the Compensation Committee are to make recommendations to the Videonics Board
concerning  salaries  and  incentive   compensation  for  Videonics'   executive
officers. The Compensation Committee did not meet during 1999.

         Videonics does not presently have a standing Nominating Committee.  For
a discussion of the nomination procedure,  see "Comparison of Shareholder Rights
of Focus and Videonics -- Advance Notice  Provisions for Shareholder  Nomination
and Proposals."

Remuneration of Non-Employee Directors

         Videonics does not compensate non-employee directors who are also major
shareholders,   such  as  Mr.  Berg,  for  their  services.  Other  non-employee
directors,  such as Mr. Jasper, receive $500 for each board meeting attended. In
addition, non-employee directors of Videonics who are not major

                                       41

<PAGE>


shareholders  of Videonics  are granted  nonstatutory  stock options to purchase
4,504 shares of Videonics'  common stock on August 31 of each year. During 1999,
Mr. Jasper received options to purchase 4,504 shares of Videonics'  common stock
representing all options granted to directors in 1999.

Report of the Compensation Committee with respect to Executive Compensation

         Videonics' executive compensation program has been designed to:

         o     attract and retain  executives  capable of leading  Videonics  to
               meet its  business  objectives  and to  motivate  them to enhance
               long-term   shareholder   value  through   compensation  that  is
               comparable  to the levels  offered by other  companies in similar
               industries;

         o     motivate key  executive  officers to achieve  strategic  business
               initiatives and reward them for their achievement; and

         o     align the interests of executives with the long-term interests of
               Videonics'  shareholders through award opportunities resulting in
               the ownership of Videonics' common stock. Annual compensation for
               Videonics' executive officers may consist of three elements: cash
               salary,  cash incentive  bonus,  and stock option  grants.  Stock
               option grants provide an incentive  which focuses the executive's
               attention on managing  Videonics from the perspective of an owner
               with an equity stake in the  business.  These stock  options will
               generally  provide value to the recipient  only when the price of
               Videonics' stock increases above the option grant price.

         The  Committee   recognizes  that  the  salary  paid  to  Mr.  D'Addio,
Videonics' Chief Executive Officer,  is substantially  below that paid to others
in comparable positions of similar companies. The Committee increased the annual
salary of Mr.  D'Addio,  Videonics'  CEO to $150,000 in 1997 from  $92,000.  The
Committee  recognizes that Mr. D'Addio's  current salary is still  significantly
below the salary of CEOs in comparable  public companies;  however,  Mr. D'Addio
has declined any additional increase.

         During 2001, it is  anticipated  that the Committee will conduct annual
performance  reviews  comparing  actual  Company  progress of Videonics  against
annual plans. Elements of such plans, including progress on product development,
sales and marketing,  expense  control and  organizational  development,  may be
considered.

         Carl E. Berg
         N. William Jasper Jr.


Compensation  Committee  Interlocks  and  Insider  Participation in Compensation
Decisions


         The Compensation Committee consists of Messrs. Berg and Jasper, neither
of whom is employed by Videonics. There are no Compensation Committee interlocks
between Videonics and other entities involving Videonics' executive officers and
Videonics board members who serve as executive officers of such entities.

                                       42

<PAGE>


Performance Measurement Comparison

<TABLE>
         The  following  graph  compares  the  yearly  percentage  change in the
cumulative shareholder return of the common stock of Videonics,  with CRSP Total
Return Index for the Nasdaq Stock Market (Domestic Companies) and the CRSP Total
Return  Index for the  Nasdaq  Electronic  Component  Companies,  for the period
beginning December 31, 1995 and ending December 31, 1999. The graph assumes that
$100.00 was invested on December 31, 1995.

[The following  descriptive  data is supplied in accordance  with Rule 304(d) of
Regulation S-T]

<CAPTION>
                                                                               Cumulative Total Return
                                                        ------------------------------------------------------------------------
                                                        12/31/95        12/31/96        12/31/97        12/31/98        12/31/99
                                                        --------        --------        --------        --------        --------
<S>                                                        <C>              <C>             <C>              <C>             <C>
Videonics, Inc. .......................................    100              76              35               5               8
Nasdaq (Domestic) .....................................    100             123             151             212             394
Electronic Component Companies ........................    100             173             181             280             550
</TABLE>

                                       43

<PAGE>


         These indices are calculated on a dividend reinvested basis.  Videonics
emphasizes  that the performance of Videonics stock over the period shown is not
necessarily indicative of the future performance of Videonics stock.


Certain Relationships and Related Transactions

         There is no pending  litigation  or  proceeding  involving  a director,
officer,  employee or other agent of Videonics as to which  indemnification from
Videonics is being sought nor is  Videonics  aware of any pending or  threatened
litigation  that may  result  in claims  for  indemnification  by any  director,
officer, employee or other agents.

         At December 31, 1999, Videonics had an unsecured loan from Carl Berg, a
director and  shareholder of Videonics.  This loan, in the amount of $1,035,000,
bears interest at 8% per year, and is due on January 16, 2001.  Accrued interest
is payable at maturity.  On March 22,  2000,  the loan was amended to extend the
maturity date to January 16, 2002.

Section 16(A) Beneficial Ownership Reporting Compliance

         Section  16(a) of the  Securities  Exchange  Act of 1934,  as  amended,
requires Videonics' directors, executive officers, and persons who own more than
ten percent of a registered class of Videonics' equity securities,  to file with
the Securities  Exchange  Commission initial reports of ownership and reports of
changes in ownership of common stock and other equity  securities  of Videonics.
Officers,  directors and greater than ten percent  shareholders  are required by
Securities Exchange  Commission  regulations to furnish Videonics with copies of
all Section 16(a) forms they file.

         To Videonics' knowledge, based solely on a review of the copies of such
reports   and   amendments   thereto   furnished   to   Videonics   and  written
representations  from the reporting persons that no other reports were required,
Videonics believes that all Section 16(a) filing requirements  applicable to its
officers,  directors and greater than ten percent (10%)  beneficial  owners were
complied with during the year ended December 31, 1999.


                                   THE MERGER

General

         The merger  agreement  provides that the merger will be  consummated if
the required approvals of the Focus and Videonics  shareholders are obtained and
all other conditions to the merger are satisfied or waived. Upon consummation of
the merger,  PC Video  Conversion,  a wholly-owned  subsidiary of Focus, will be
merged with and into  Videonics,  the separate  corporate  existence of PC Video
Conversion will cease, and Videonics will continue as the surviving  corporation
and a wholly-owned subsidiary of Focus. Pursuant to the merger, each outstanding
share of  Videonics  common  stock  (other than  shares  owned by  Videonics  as
treasury stock or by Focus or PC Video Conversion, all of which will be canceled
and retired) will be converted  into 0.87 shares of Focus common stock,  subject
to dissenters'  rights. A copy of the merger agreement is attached as Appendix A
to this joint proxy  statement/prospectus  and is incorporated by reference into
this joint proxy statement/prospectus.


         Based upon the number of  outstanding  shares of Focus and Videonics as
of  November  10,  2000,  the record  date for the annual  meetings of Focus and
Videonics,  the shareholders of Videonics  immediately prior to the consummation
of the merger would own  approximately 17% of the outstanding Focus common stock
immediately  following  consummation of the merger. Such percentage could change
depending upon whether  shares of Focus common stock and Videonics  common stock
issuable upon exercise of outstanding Focus and Videonics stock options or other
rights  are  issued,  and  whether  and to what  extent  Videonics  shareholders
exercise  dissenters' rights. If the shares of Focus common stock that Videonics
shareholders  would receive in connection with the merger includes a fraction of
a share of Focus  common  stock,  Focus will  instead pay them an amount in cash
equal to that fractional  interest  rather than give them a fractional  share of
Focus common stock.


                                       44

<PAGE>


         This joint proxy  statement/prospectus also constitutes a prospectus of
Focus, which is a part of the Registration  Statement on Form S-4 filed by Focus
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended,  in order to register  the shares of Focus common stock to be issued in
connection with the merger.

Background to the Merger

         On February 9, 2000,  Thomas Massie,  then Chief  Executive  Officer of
Focus and now  Chairman,  and  Michael  D'Addio,  Chairman  and Chief  Executive
Officer of Videonics met to discuss possible strategic alliances between the two
companies.  During that time,  they  discussed  a variety of topics  relating to
their  businesses  and the synergies  between them.  Mr. Massie  inquired of Mr.
D'Addio as to whether  or not he as both a major  shareholder  of and the CEO of
Videonics  would be  receptive to a strategic  relationship  or  acquisition  of
Videonics  by Focus.  Mr.  D'Addio  noted that he would do some  research on the
matter in the course of the next few months  and after  such would  discuss  the
matter with the Videonics Board of Directors.

         The matter was still being  researched  by Mr.  D'Addio when Mr. Massie
placed  himself  and his Chief  Financial  Officer on leave from Focus  while an
internal audit was conducted of Focus in early 2000. Mr. D'Addio had a telephone
conversation with Messrs.  Timothy Mahoney and William Coldrick,  both Directors
of Focus,  immediately after the internal audit was announced and agreed to hold
the  matter  in  abeyance  until the audit was  complete  and the  results  were
formally announced. Because Focus was conducting an internal review, the parties
did not consider a merger or any type of combination as feasible or advisable.

         On May 5, 2000,  at a meeting of the Board of Directors  of  Videonics,
Mr. D'Addio  discussed the  possibility  of a combination of Videonics.  At that
time the  Videonics  Board of  Directors  authorized  Mr.  D'Addio to expand the
discussions  with  Focus,   including  the  possible  acquisition  by  Focus  of
Videonics.  Mr.  D'Addio  made a number of calls to Mr.  Massie on the  subject.
Furthermore,  counsel for Videonics  was also asked to outline for  management's
consideration the major points of a possible merger.

         On May 16 and May 17,  2000,  Mr.  D'Addio and Mr.  Massie,  along with
executive  staff members from both  companies,  met in California to present the
senior management with more detailed information  regarding the possible merger.
After that,  Videonics and Focus sent out due  diligence  requests for documents
and operational  matters  relating to each other.  During the months of June and
July,  the  parties  reviewed  the  various  documents  and other due  diligence
materials provided.

         On June 7 and 8, 2000, Mr. D'Addio and Gary Williams,  Chief  Financial
Officer of Videonics  conducted on site  preliminary  due diligence at Focus and
determined that they would like to proceed further in the discussions.

         On June 12, 2000, at a meeting of the Board of Directors of Focus,  Mr.
Massie presented information on Videonics and informed the board of his meetings
and discussion to date with  Videonics.  The board then authorized Mr. Massie to
continue  conversations  with Videonics  regarding a possible  merger of the two
companies.

         On June 13 and 14,  2000,  Mr.  Massie,  Brett Moyer,  Chief  Operating
Officer,  Chris Ricci,  In-house Counsel, and members of Union Atlantic L.C. and
Union Atlantic Capital L.C.'s due diligence team conducted on site due diligence
on Videonics at the Videonics office in California.

         On June 15, 2000, Focus and Videonics  outlined the terms of the merger
in a non-binding  letter of intent. At that time the exchange ratio had not been
agreed.  The terms of the letter were  presented  to the Board of  Directors  of
Videonics  at a meeting  on June 23,  2000.  The  Videonics  Board of  Directors
authorized Mr. D'Addio to continue the due diligence process. Pending successful
completion of the due diligence process and successful  negotiation of the terms
of an  agreement,  the board would  proceed to negotiate a definitive  agreement
after the release of the June 30, 2000 Quarterly Report on Form 10-QSB of Focus.

                                       45

<PAGE>


         On June 26, 2000,  Mr.  Massie  discussed the terms of the draft letter
with the  Board of  Directors  of  Focus.  The board  authorized  Mr.  Massie to
continue  the  Focus  due  diligence   and,   assuming  all  due  diligence  was
successfully completed and the parties could agree to the terms, the board would
proceed to negotiate a definitive agreement.

         On July 27, 2000,  Mr. Massie and Focus Director  William  Coldrick met
with Messrs.  D'Addio and Williams and  Videonics  Director Carl Berg to discuss
the  status of the  proposed  merger  and its terms.  At the  conclusion  of the
meeting, the parties agreed to attempt to move the process forward.

         On August 7, 2000,  the Focus Board of Directors met. At that meeting a
detailed  review  of  the  business,  finance,  and  management  aspects  of the
acquisition  were  presented  and  the  board  agreed  to  move  forward  on the
negotiation  of a final merger  agreement.  On August 21, 2000,  Focus filed its
Form 10-QSB with the Securities and Exchange Commission.

         Counsel for the parties, with management, negotiated the final terms of
the merger agreement and drafts of the proposed  agreements were then circulated
to each member of the  respective  Boards of Directors  on August 28, 2000.  The
Boards of Directors  reviewed  the merger  agreement  and a summary  prepared by
management and counsel.

         On August 29,  2000,  Messrs.  D'Addio  and Massie  received  unanimous
consent from their  respective  Boards of Directors that they approve the merger
agreement,  declared  them  advisable  and  resolved  to  recommend  that  their
respective shareholders approve the merger agreement.

         After the close of business on August 30, 2000,  the parties signed the
merger  agreement.  On the morning of August 31, 2000,  the parties issued press
releases announcing the proposed merger of Focus and Videonics.

Opinion of the Financial Advisors to Focus

         In considering the fairness to Focus of the Merger  consideration to be
paid by Focus to Videonics  Shareholders,  the Focus Board of Directors reviewed
and relied,  in part,  on an analysis of the ranges of  potential  values of the
shares of Videonics  common stock that resulted from the  application of several
accepted  valuation  methodologies.  This  analysis,  including the selection of
valuation methodologies,  was prepared by Union Atlantic Capital L.C., financial
advisors to the Focus Board of Directors in connection with the merger.

         On  February  14,  2000 the Focus  Board of  Directors  retained  Union
Atlantic Capital L.C. to act as its financial advisor in analyzing financial and
strategic  considerations  regarding the proposed  merger.  A report provided to
Focus by Union Atlantic Capital L.C. did not include an opinion of the merits of
the merger,  but  described to  anticipated  impact of the proposed  merger upon
Focus and Videonics.  The terms of Union Atlantic Capital L.C.'s  engagement for
its  services  include a success  fee upon  completion  of the  merger.  Timothy
Mahoney,  who is a director  of Focus,  is a partner of Union  Atlantic  L.C. an
affiliated  company of Union Atlantic Capital L.C. and a principal in the parent
company of Union Atlantic Capital L.C.


         On October 3, 2000,  Union  Atlantic  Capital  L.C. was retained by the
Focus Board of Directors as to the fairness to Focus of the  consideration to be
paid in the merger to the Videonics Shareholders.  In its opinion,  delivered to
the Focus Board of  Directors  on October 20, 2000 Union  Atlantic  Capital L.C.
stated that it believes the  consideration in the form of shares of Focus common
stock to be paid by Focus in the merger to the Videonics shareholders based on a
ratio of 0.87 shares of Focus  common  stock for each share of Videonics is fair
to Focus.  The details of Union  Atlantic  Capital  L.C.'s  analysis are set out
below in "Opinion Of Financial Advisor Retained By Focus."


Focus' Reasons for the Merger

         The Focus Board of Directors  believes  that the merger  represents  an
attractive strategic fit between two companies with similar business strategies,
as well as complementary operations and geographic presences. The Focus Board of
Directors  believes  that the  combined  company  will  have  greater  financial
strength,  operational  efficiencies,  earning power and growth  potential  than
either

                                       46

<PAGE>


Focus or  Videonics  would have on its own.  In  particular,  the Focus Board of
Directors  believes that  significant  strategic  benefit will come from selling
each  company's  products  through the other's  distribution  channels.  In this
regard,  the Focus Board of Directors reviewed a number of potential benefits of
the merger  which it believed  would  contribute  to the success of the combined
company  and thus  inure  to the  benefit  of  shareholders  of both  companies,
including the following:

         o     Synergies of the combined company.

         o     Creation  of  a  stronger  company,  from  both  a  business  and
               technological perspective.

         o     Selling efficiencies and expanded distribution.

         o     Combination of the most favorable attributes of the companies.

         o     Opportunities for more efficient and profitable operations

         o     Complementary distribution centers and delivery networks.

         o     Leverage international distribution channels.

         o     Leverage research and development capabilities for both company's
               products.

         o     Increase Focus pro forma revenues by approximately 70%.

         o     Consolidate duplicate overhead functions, increasing cash flow.

         o     Provide qualified and experienced executive leadership.

         In reaching  its  decision  to approve  the merger,  the Focus Board of
Directors also considered the following factors:

         o     The  recent  historical  performance  of Focus  common  stock and
               Videonics  common stock. See  "Summary--Comparative  Market Price
               Information."


         o     Certain   historical  and   prospective   financial   information
               regarding  Focus and  Videonics;  in  particular,  the  impact of
               Videonics'  operations  on  the  combined  company's  results  of
               operations   and  future  cash  flow.  See  "Pro  Forma  Combined
               Condensed Consolidated Financial Information."


         o     Information   concerning   Focus'   and   Videonics'   respective
               businesses,   assets,   management,   competitive   position  and
               prospects.

         o     Enhanced ability to expand into foreign markets.

         o     Current  industry,  economic  and  market  conditions,  including
               recent acquisitions and combinations in the industry.

         o     The long-term growth potential of the combined company.

         o     The likelihood that the merger could be consummated.

         o     The  structure  of the  transaction  and the terms of the  merger
               agreement.

         o     The  compatibility  of  the  corporate   cultures  and  operating
               philosophies of the companies.

         o     Prior to taking action on the merger  agreement,  the Focus Board
               received   presentations   from,   and  reviewed  the  terms  and
               conditions of the merger agreement with, Focus management,  Union
               Atlantic  Capital  L.C.  and legal  counsel.  The Focus  Board of
               Directors also considered a number of potential risks relating to
               the merger discussed in "Risk Factors."

         o     The  foregoing   discussion  of  the   information   and  factors
               considered  and given  weight by the Focus Board of  Directors is
               not intended to be exhaustive.  In view of the variety of factors
               considered in connection  with its evaluation of the merger,  the
               Focus Board of Directors did not find it practicable  to, and did
               not,  quantify  or  otherwise  assign  relative  weights  to  the
               specific  factors  considered in reaching its  determination.  In
               addition,  individual members of the Focus Board of Directors may
               have given different weights to different factors.

                                       47

<PAGE>


Recommendations of the Focus Board of Directors

         The Focus Board of  Directors  believes  that the  consummation  of the
merger is in the best interests of Focus and its  shareholders,  and unanimously
recommends that the Focus  shareholders vote for approval of the merger proposal
at the Focus meeting and the other matters which are related to the merger.

Videonics' Reasons for the Merger

         The Videonics Board of Directors believes that the merger will create a
stronger company from both a business and technology  perspective.  The combined
company should have greater financial strength,  operational  efficiencies,  and
growth  potential  than  either  Focus or  Videonics  would have on its own.  In
particular, the Videonics Board of Directors believes:


         o     Significant  synergies  and cost  savings  will  result  from the
               consolidation of the companies'  financial,  administrative,  and
               operations  in the Campbell,  California  office of Videonics and
               the   streamlining   of  Focus'  sales,   marketing  and  service
               activities in Massachusetts.

         o     Creation  of  a  stronger  company,  from  both  a  business  and
               technological perspective.

         o     Capitalize on chip  technology to create digital video  solutions
               for expanded customer base.

         o     The combined companies should experience  additional cost savings
               by combining marketing efforts.

         o     Focus   provides   Videonics   with   an   expanded   engineering
               organization  to develop and  produce  more  advanced  technology
               products.

         o     The merger  should allow  Videonics  to expand its  international
               distribution through the increased channels provided by Focus.

         In reaching its decision to approve the merger,  the Videonics Board of
Directors also considered the following factors:

         o     The  recent  historical  performance  of Focus  common  stock and
               Videonics  common stock. See  "Summary--Comparative  Market Price
               Information."

         o     Certain   historical  and   prospective   financial   information
               regarding Focus and Videonics.  See "Pro Forma Combined Condensed
               Consolidated Financial Information."

         o     Information   concerning   Focus'   and   Videonics'   respective
               businesses,   assets,   management,   competitive   position  and
               prospects.

         o     Enhanced   ability  to  expand  into  the   computer  and  retail
               distribution markets.

         o     Current  industry,  economic  and  market  conditions,  including
               recent acquisitions and combinations in the industry.

         o     The long-term growth potential of the combined company.

         o     The likelihood that the merger could be consummated.

         o     The tax-free nature of the exchange.

         o     The  structure  of the  transaction  and the terms of the  merger
               agreement.

         o     The  compatibility  of  the  corporate   cultures  and  operating
               philosophies of the companies.

         o     The opportunity for increased  liquidity in the Videonics  common
               stock.

         Prior to taking action on the merger agreement,  the Videonics Board of
Directors  received  presentations  from Focus management and reviewed the terms
and conditions of the merger agreement with Videonics management.  The Videonics
Board of Directors also  considered a number of potential  risks relating to the
merger discussed in "Risk Factors."

         The foregoing  discussion of the information and factors considered and
given  weight  by  the  Videonics  Board  of  Directors  is not  intended  to be
exhaustive.  In view of the variety of factors considered in connection with its
evaluation of the merger, the Videonics Board of Directors did not

                                       48
<PAGE>

find it  practicable  to, and did not,  quantify or  otherwise  assign  relative
weights to the specific  factors  considered in reaching its  determination.  In
addition,  individual members of the Videonics Board of Directors may have given
different weights to different factors.

Recommendations of the Videonics Board of Directors

         The Videonics Board of Directors  believes that the consummation of the
merger  is in  the  best  interests  of  Videonics  and  its  shareholders,  and
unanimously  recommends that the Videonics shareholders vote for approval of the
merger proposal at the Videonics meeting.

Interests of Certain Persons in the Merger

         You should be aware of the interests that executive officers, directors
and controlling shareholders of Focus and Videonics have interests in the merger
that are different from and in addition to your and their  respective  interests
as  shareholders.  The Boards of Directors of Focus and Videonics  were aware of
these  agreements and arrangements  during their  deliberations of the merits of
the merger and in determining to recommend to their respective shareholders that
they vote for the proposal to adopt the merger agreement.

     Governance Structure and Management Positions.

         Pursuant to the terms of the merger  agreement,  upon completion of the
merger:

         o     The Board of  Directors of Focus will consist of four (4) current
               directors of Focus and three (3) current  directors of Videonics.
               The parties have not determined which directors will serve on the
               new Focus board.

         o     Upon  completion of the merger,  Videonics will be a wholly-owned
               subsidiary  of Focus,  and the current  board of  Videonics  will
               remain board members of Videonics as a wholly-owned subsidiary of
               Focus until they resign.

         o     Mr. D'Addio will become President and Chief Executive  Officer of
               Focus.

         o     Mr. Massie will remain Chairman of the Board of Focus.

     Focus

         Timothy  Mahoney,  a director of Focus,  is a  principle  in the parent
company of Union  Atlantic  Capital L.C.  Union  Atlantic has acted as financial
advisor to Focus and will be paid in connection with various  services  provided
in connection with the merger.

     Videonics

         On October  26,  2000  Focus  issued a secured  promissory  note in the
approximate  principal  amount of $2.3 million to Carl Berg, a  shareholder  and
director of Videonics.  The promissory note was issued in connection with a loan
made to Focus by Mr. Berg for the purpose of  collateralizing  the $2.3  million
bond to be posted in connection with the CRA litigation, as described above. The
promissory  note has a term of three years and bears interest at a rate of prime
plus 1%.  The  principal  amount of the note will be due at the end of its term,
with interest to be paid quarterly.  Under certain  circumstances,  including at
the election of Mr. Berg and Focus,  the  promissory  note is  convertible  into
shares of Focus common stock generally equal to the value of the promissory note
and any accrued and unpaid  interest.  In the event the merger is not completed,
the promissory note can be called and become payable in full upon 90-days notice
from Mr.  Berg,  at his sole  discretion.  The  promissory  note is secured by a
security  agreement  in favor of Mr. Berg  granting  him a security  interest in
first priory over substantially all of the assets of Focus.


         Under key employee  agreements  between  Videonics  and Gary  Williams,
Chief Financial  Officer and Jeffrey Burt, Vice President of Operations,  41,000
and  15,265   options  to  purchase   shares  of  common  stock  of   Videonics,
respectively, will accelerate because of the merger.

         Carl Berg,  a principle  shareholder  and  director of  Videonics,  has
committed  to  Videonics  to support its working  capital  requirements  through
December  31,  2001.  This  commitment  remains in effect  until the  earlier of
December 31, 2001, a change in control of Videonics,  a material  adverse change
in the business or financial condition of Videonics,  or Videonics' tangible net
worth  falls  below  $1.5  million.  Furthermore,  Michael  D'Addio,  the  Chief
Executive  Officer  of  Videonics,  has made a similar  commitment,  limited  to
$200,000,  effective  until the  earlier  of  December  31,  2001 or a change in
control of Videonics.

                                       49
<PAGE>

     Videonics Stock Options.

         Persons  holding stock options in Videonics will exchange their options
for options in Focus  pursuant to the exchange  ratio.  In  connection  with the
merger, Focus has agreed to increase by 2,000,000 the number of shares available
for issuance  pursuant to its 2000 stock option plan (from  3,000,000  shares to
5,000,000  shares).  Such shares will be available for issuance to employees and
directors of Focus and its subsidiaries upon completion of the merger.

     Indemnification and Insurance Agreements.

         Videonics  has  entered  into   indemnification   agreements  with  key
executive  officers pursuant to which Videonics has agreed,  among other things,
to indemnify  such  persons to the maximum  extent  permitted by the  California
General Corporation Law. These agreements will remain unaffected by the merger.

Effective Time of the Merger

         As soon as practicable on or after satisfaction or waiver of all of the
conditions  to the merger and the closing of the merger,  the merger will become
effective upon filing of the  Certificates of Merger with States of Delaware and
California  or such later date and time as may be specified in the  Certificates
of Merger. The time at which the merger becomes effective is referred to in this
document as the "Effective Time."

Structure of the Merger

         Subject to the terms and conditions of the merger agreement and subject
to the terms of the Delaware General  Corporation Law, at the Effective Time, PC
Video  Conversion,  will merge with and into Videonics.  Videonics will continue
its corporate  existence  following  the merger in accordance  with the Delaware
General Corporation Law as a wholly-owned  subsidiary of Focus. At the Effective
Time, the separate corporate existence of PC Video Conversion will terminate.

Effects of the Merger


         At the Effective Time, as a result of PC Video Conversion's merger into
it,  Videonics  will become a  wholly-owned  subsidiary of Focus.  The Videonics
common  stock will be  exchanged  for shares of Focus  common stock as described
under "The  Merger  Agreement--Conversion  of  Securities."  Each share of Focus
common stock  outstanding  immediately  prior to the Effective  Time will remain
outstanding and unchanged as a result of the merger.


         No fractional shares of Focus common stock will be issued in connection
with the merger.  In lieu of fractional  shares,  Focus will make a cash payment
equal  to the  fractional  interest  in  which  a  Videonics  shareholder  would
otherwise  receive  multiplied by the closing price of the common stock of Focus
on the first trading day immediately following the completion of the merger.

Merger Consideration


         At the Effective Time, each share of Videonics common stock, other than
shares held by Focus or PC Video  Conversion (all of which will be cancelled) or
any shares with respect to which dissenters' rights have been properly exercised
in accordance with the California  General  Corporation  Law, as described below
under "Dissenters' Rights," will be automatically  converted into 0.87 shares of
Focus common stock.  Following the merger,  there will be no shares of Videonics
common stock outstanding, and Videonics will become a wholly-owned subsidiary of
Focus.  As soon as  reasonably  practicable  after the  Effective  Time,  Focus'
exchange agent will send a letter of transmittal and  instructions  with respect
to the surrender by Videonics shareholders of their Videonics stock certificates
to each former Videonics shareholder.


         Videonics  shareholders  should not send in any stock certificates with
their proxy card. A transmittal  letter with  instructions  for the surrender of
Videonics stock certificates will be mailed to Videonics shareholders as soon as
practicable after completion of the merger.

                                       50
<PAGE>

Effect of the Merger on Videonics Stock Options and Warrants

         Videonics  has, from time to time,  issued options to acquire shares of
Videonics common stock pursuant to the Videonics 1987 Stock Option Plan and 1996
Amended  Stock  Option  Plan.  Videonics  has also issued one warrant to Venture
Banking  Group,  a division of Cupertino  National Bank for 95,000 shares of its
common stock. On the effective date of the merger,  each  outstanding  option or
warrant, whether or not exercisable, will be assumed by Focus. Each stock option
and  warrant  will  continue  to have,  and be  subject  to,  the same terms and
conditions,  including the vesting of shares issuable upon the exercise thereof,
as were  applicable  to the stock  option or  warrant  immediately  prior to the
effective date of the merger, except that:

         o     Each Videonics  stock option and warrant will be exercisable  (or
               will become  exercisable  in accordance  with its terms) for that
               number of whole shares of Focus common stock equal to the product
               of the  number of  shares of  Videonics  common  stock  that were
               issuable   upon   exercise  of  such  stock   option  or  warrant
               immediately  prior  to the  Effective  Time  multiplied  by 0.87,
               rounded  down to the  nearest  whole  number  of  shares of Focus
               common stock; and

         o     The per share exercise price for the shares of Focus common stock
               issuable  upon  exercise of such assumed  stock option or warrant
               will be equal to the quotient determined by dividing the exercise
               price per share of  Videonics  common  stock at which  such stock
               option  or  warrant  was  exercisable  immediately  prior  to the
               Effective Time by 0.87, rounded up to the nearest whole cent.

Transfer of Shares

         Shares of Videonics  common stock will not be  transferred on the stock
transfer books at or after the Effective Time. If certificates representing such
shares are presented to Videonics  after the Effective  Time, the shares will be
cancelled  and  exchanged  for shares of Focus  common stock and cash in lieu of
fractional shares.

Conditions to Completion of the Merger

         Each  party's  obligation  to  effect  the  merger  is  subject  to the
following conditions:

         o     Videonics  shareholders  must  approve the merger  agreement  and
               Focus  shareholders  must  approve the merger  agreement  and the
               issuance of additional shares;

         o     Focus   shareholders   must  amend  the  Focus   Certificate   of
               Incorporation to increase the number of authorized shares;

         o     No law shall have been enacted, entered,  promulgated or enforced
               by any governmental authority which would make the merger illegal
               or otherwise prohibiting the consummation of the merger or create
               a material adverse effect on Videonics or Focus;

         o     All authorizations, consents, orders, permits or approvals of, or
               declarations  or filings  with,  and all  expirations  of waiting
               periods  imposed  by,  any   governmental   authority  which  are
               necessary  for  the  consummation  of  merger  must be  filed  or
               obtained;

         o     The registration statement shall have been declared effective and
               shall not be  subject to a stop  order or  proceedings  seeking a
               stop order; and

         o     The shares of Focus common stock to be issued in connection  with
               the merger  shall have been  approved  for listing on the Nasdaq,
               subject to official notice of issuance.

         The   obligation  of  Focus,   PC  Video   Conversion   and  Videonics,
respectively,  to  effect  the  merger is  subject  to the  satisfaction  of the
following additional conditions by the other parties:

         o     The  representations and warranties of Focus, PC Video Conversion
               and Videonics  shall be true and correct,  except (i) for changes
               contemplated by the merger  agreement and (ii) where the failures
               to be true and correct,  individually  or in the aggregate,  have
               not had and are not

                                       51

<PAGE>


               reasonably  likely to have a material  adverse effect on Focus or
               Videonics or a material  adverse effect upon the  consummation of
               the transactions contemplated in the merger agreement;

         o     Each party shall have performed,  in all material  respects,  all
               obligations  required  to be  performed  by it under  the  merger
               agreement, and each of Focus and Videonics shall have received an
               officer's certificate to such effect from the other;

         o     Each party shall have received a written  opinion from counsel to
               the effect that the merger will be treated for Federal income tax
               purposes  as a  tax-free  reorganization  within  the  meaning of
               Section 368(a) of the Internal Revenue Code; and

         o     Focus shall have  amended its 2000 Stock  Option Plan to increase
               by 2,000,000 (from  3,000,000  shares to 5,000,000) the number of
               shares of Focus common stock reserved for issuance thereunder and
               shall have  submitted such amended plan to its  shareholders  for
               approval.

Management and Operations of Focus and Videonics

         Following  the Merger The Board of  Directors  of Focus  following  the
merger  will  consist  of  seven  (7)  directors,  four of which  are  currently
directors of Focus and three of which are currently directors of Videonics.

         Upon the  closing of the  merger,  the current  Board of  Directors  of
Videonics, until their resignations, will remain board members of Videonics as a
wholly-owned  subsidiary of Focus.  Mr. Massie will remain Chairman of the Board
of Focus and Mr. D'Addio will become  President and Chief  Executive  Officer of
Focus.

         It is currently  anticipated that the following  additional  members of
the senior  management of Videonics  will join the existing  management  team of
Focus:

         o     Jeffrey Burt as Vice President of Operations.

         o     Gary  Williams as Vice  President of Finance and Chief  Financial
               Officer.

         The corporate  headquarters of the combined  company will be located in
Campbell, California, the current headquarters of Videonics. It is expected that
the  Massachusetts  operations of Focus will move to a smaller  facility that is
geared to sales,  marketing and service  operations to support the Focus product
lines.

Operations of Focus and Videonics if the Merger is not Completed

         If the merger is not completed, it is expected that Focus and Videonics
will  continue  to operate as separate  entities,  conducting  their  respective
businesses as currently carried on.

Certain Federal Income Tax Consequences

         In the opinion of Mintz, Levin, Cohn, Ferris,  Glovsky and Popeo, P.C.,
the following are the material United States federal income tax  consequences of
the merger. This opinion and the following  discussion are based on the Internal
Revenue  Code  of  1986,  the  regulations  promulgated   thereunder,   existing
administrative  interpretations and court decisions, all of which are subject to
change,   possibly  with  retroactive  effect,  and  assumptions,   limitations,
representations  and covenants,  including  those  contained in  certificates of
officers of Focus, PC Video Conversion and Videonics  expected to be executed as
of the completion of the merger. This discussion does not address all aspects of
United States federal  income  taxation that may be important to you in light of
your particular  circumstances  or if you are subject to special rules,  such as
rules relating to:

         o     shareholders  who are not  citizens  or  residents  of the United
               States;

         o     financial institutions;

         o     tax-exempt organizations;

         o     insurance companies;

         o     dealers in securities;

                                       52

<PAGE>


         o     shareholders   who  acquired  their  common  stock  of  Videonics
               pursuant  to  the  exercise  of  options  or  similar  derivative
               securities or otherwise as compensation; and

         o     shareholders  who hold their common stock of Videonics as part of
               a straddle or conversion transaction.

         This  discussion  assumes you hold your common  stock of  Videonics  as
capital assets within the meaning of Section 1221 of the Internal Revenue Code.

         Tax  opinions  regarding  the  merger.  Completion  of  the  merger  is
conditioned on:

         o     the  delivery  of an opinion to Focus and  Videonics  from Mintz,
               Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

         This  opinion  will state that the  merger  will  qualify as a tax-free
reorganization  within the  meaning of Section  368(a) of the  Internal  Revenue
Code. This opinion will assume the absence of changes in existing facts and will
rely on assumptions,  representations and covenants including those contained in
certificates  to be  executed  by officers  of Focus,  PC Video  Conversion  and
Videonics  dated as of the  completion of the merger.  This opinion will neither
bind the IRS nor  preclude  the IRS from  adopting a position  contrary  to that
expressed below, and no assurance can be given that contrary  positions will not
be  successfully  asserted  by the IRS or  adopted  by a court if the issues are
litigated. The opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. is
subject to the limitations and  qualifications  set forth in the opinion, a copy
of which is filed as Exhibit  8.1 to the  registration  statement  of which this
joint  proxy  statement/prospectus  forms  a part,  and is  based  upon  factual
assumptions made by Mintz,  Levin,  Cohn,  Ferris,  Glovsky and Popeo,  P.C. and
representations made by Focus, Videonics and PC Video Conversion.  Neither Focus
nor  Videonics  intends to obtain a ruling from the IRS with  respect to the tax
consequences of the merger.

         Tax implications to Focus  shareholders.  Focus  shareholders  will not
recognize gain or loss for United States federal income tax purposes as a result
of the merger.

         Tax implications to Videonics shareholders.  Except as discussed below,
you will not  recognize  gain or loss  for  United  States  federal  income  tax
purposes  when you exchange your  Videonics  common stock for Focus common stock
pursuant to the merger.  The  aggregate  tax basis of the Focus common stock you
receive as a result of the merger will be the same as your  aggregate  tax basis
in the Videonics  stock you surrender in the exchange,  reduced by the tax basis
of any Videonics  stock for which you receive cash instead of fractional  shares
of Focus common stock.  The holding period of the Focus common stock you receive
as a result of the exchange  will  include the period  during which you held the
Videonics stock you exchange in the merger.

         Fractional  shares  of Focus  common  stock  will not be  issued in the
merger.  You will  recognize  gain or loss for United States  federal income tax
purposes  with  respect to the cash you receive  instead of a  fractional  share
interest  in Focus  common  stock.  Your gain or loss will equal the  difference
between the amount of cash you receive and the tax basis of your Videonics stock
surrendered in the merger that is allocated to fractional  shares.  This gain or
loss will be capital gain or loss, and will be a long-term  capital gain or loss
if your  stock has been  held for more  than one year at the time the  merger is
completed.

         Tax implications to Focus,  Videonics and PC Video  Conversion.  Focus,
Videonics and the PC Video Conversion will not recognize gain or loss for United
States federal income tax purposes as a result of the merger.


         Backup  withholding.  Unless an exemption  applies under the applicable
law and  regulations,  the  exchange  agent may be required to withhold  and, if
required,  will withhold 31% of any cash payments to a Videonics  shareholder in
the merger  unless the holder  provides the  appropriate  form. A holder  should
complete  and  sign  the  substitute  Form  W-9  enclosed  with  the  letter  of
transmittal  sent by the exchange agent.  Unless an applicable  exemption exists
and is proved in a manner  satisfactory  to the exchange  agent,  this completed
form provides the information,  including the holder's  taxpayer  identification
number, and certification necessary to avoid backup withholding.

                                       53

<PAGE>


THIS DISCUSSION IS NOT INTENDED TO BE A COMPLETE  ANALYSIS OR DESCRIPTION OF ALL
POTENTIAL   UNITED  STATES  FEDERAL  INCOME  TAX   CONSEQUENCES   OR  ANY  OTHER
CONSEQUENCES  OF THE MERGER.  IN ADDITION,  THIS DISCUSSION DOES NOT ADDRESS TAX
CONSEQUENCES  WHICH  MAY  VARY  WITH,  OR ARE  CONTINGENT  ON,  YOUR  INDIVIDUAL
CIRCUMSTANCES.  MOREOVER, THIS DISCUSSION DOES NOT ADDRESS ANY NON-INCOME TAX OR
ANY FOREIGN, STATE OR LOCAL TAX CONSEQUENCES OF THE MERGER. ACCORDINGLY, YOU ARE
STRONGLY  URGED TO CONSULT  WITH YOUR TAX ADVISOR TO  DETERMINE  THE  PARTICULAR
UNITED STATES FEDERAL,  STATE, LOCAL OR FOREIGN INCOME OR OTHER TAX CONSEQUENCES
TO YOU OF THE MERGER


Accounting Treatment

         Under generally accepted accounting principles,  it is anticipated that
the merger will be accounted for under the purchase  method of  accounting.  The
assets and  liabilities  of  Videonics  will be  reflected  in the  consolidated
financial  statements  of Focus based on their fair  values as of the  effective
date of the merger.  Results of operations of Videonics will be reflected in the
consolidated  financial  statements  of Focus for all periods  subsequent to the
effective  date of the merger.  Under the  purchase  method of  accounting,  the
excess purchase price paid over the fair market value of net assets is amortized
as an expense over the period estimated to be beneficial.

Restrictions on Sales of Shares by Affiliates of Videonics and Focus

         The shares of Focus  common  stock to be issued in the  merger  will be
registered  under the  Securities  Act of 1933,  as amended,  and will be freely
transferable  under the Securities  Act, except for shares of Focus common stock
issued to any  person who is deemed to be an  "affiliate"  of either of Focus or
Videonics at the time of the merger.  Persons who may be deemed to be affiliates
include  individuals  or entities that control,  are controlled by, or are under
the common  control of Focus or  Videonics  and may  include  some of Focus' and
Videonics'  respective  officers  and  directors,   as  well  as  the  principal
shareholders  of Focus or  Videonics.  Affiliates  may not sell their  shares of
Focus common stock acquired in the merger except pursuant to:

         o     an effective  registration  statement  under the  Securities  Act
               covering the resale of those shares;

         o     an exemption under paragraph (d) of Rule 145 under the Securities
               Act; or

         o     any other applicable exemption under the Securities Act.

         Focus'  registration  statement  on Form S-4, of which this joint proxy
statement/prospectus  forms a part, does not cover the resale of shares of Focus
common stock to be received by affiliates in the merger.

Listing on the NASDAQ of Focus Common Stock to be Issued in the Merger

         Focus will use its best efforts to cause the shares of its common stock
to be issued in  connection  with the merger to be  approved  for listing on the
NASDAQ before the completion of the merger.

Federal Securities Laws Consequences

         All shares of Focus common stock received by Videonics  shareholders in
the merger will be freely transferable, except that shares of Focus common stock
received by persons who are deemed to be  affiliates  of Videonics  prior to the
merger  may be resold  by them  only in  transactions  permitted  by the  resale
provisions of Rule 145 promulgated  under the Securities Act (or Rule 144 in the
case of such persons who become  affiliates of Focus) or otherwise in compliance
with (or pursuant to an exemption  from) the  registration  requirements  of the
Securities Act.  Persons deemed to be affiliates of Focus or Videonics are those
individuals  or entities that control,  are  controlled  by, or are under common
control with, such party and generally include executive  officers and directors
of such party as well as certain  principal  shareholders  of such  party.  This
joint proxy statement/prospectus does not cover any resale of Focus common stock
received by affiliates of Videonics in the merger.

                                       54

<PAGE>


Dissenters' Rights

         THE FOLLOWING  SUMMARY OF  DISSENTERS'  RIGHTS UNDER  CALIFORNIA LAW IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO CHAPTER 13 OF THE  CALIFORNIA  GENERAL
CORPORATION LAW, THE COMPLETE TEXT OF WHICH IS ATTACHED HERETO AS APPENDIX B.

         FAILURE TO STRICTLY  FOLLOW THE  PROCEDURES  SET FORTH IN CHAPTER 13 OF
THE CALIFORNIA  GENERAL  CORPORATION LAW MAY RESULT IN THE LOSS,  TERMINATION OR
WAIVER OF DISSENTERS'  RIGHTS. A VIDEONICS  SHAREHOLDER WHO VOTES TO APPROVE THE
MERGER WILL NOT HAVE A RIGHT TO DISSENT FROM THE MERGER.

         Videonics  shareholders  who object to the merger  may,  under  certain
circumstances  and  by  following  the  precise  procedures  prescribed  by  the
California General Corporation Law, exercise dissenters' rights and receive cash
in the amount of the fair  market  value for their  Videonics  shares.  The fair
market value shall be determined as of the day before the first  announcement of
the terms of the proposed merger, excluding any appreciation or depreciation due
to the proposed merger, but adjusted for any stock split, reverse stock split or
share  dividend which becomes  effective  thereafter.  The merger  agreement was
signed by all its  respective  parties  on August  30,  2000 and the  merger was
announced on August 31, 2000.  Immediately  prior to announcement of the merger,
the closing  price of Videonics  common stock on August 30, 2000 was $0.875.  If
Videonics shareholders exercise dissenters' rights in connection with the merger
(a  "Dissenting  Shareholder")  under  Chapter  13  of  the  California  General
Corporation  Law,  any  "Dissenting  Shares"  (as  defined  below)  will  not be
converted  into Focus common stock but will instead be converted  into the right
to receive such  consideration  as may be  determined  to be due with respect to
such Dissenting Shares pursuant to the laws of the State of California.

         Any  shareholder  who  wishes  to  exercise  his or her  right  to have
Videonics  purchase some or all of his or her shares for cash in an amount equal
to the shares'  fair market  value (a  "Dissenting  Shareholder")  must take the
following steps:


         1.    Such Dissenting  Shareholder  must not vote some or all of his or
               her shares in favor of the merger ("Dissenting Shares");

         2.    Such Dissenting Shareholder must make written demand on Videonics
               to purchase his or her Dissenting Shares, and such demand must be
               received by Videonics  within  thirty (30) days after the date on
               which the  notice of  approval  of the  merger was mailed to such
               Dissenting Shareholder. Such written demand must state the number
               and  class of his or her  Dissenting  Shares  and must  contain a
               statement of what such  Dissenting  Shareholder  claims to be the
               fair  market  value  of those  shares  as of the day  before  the
               announcement of the proposed merger. The statement of fair market
               value constitutes an offer by the Dissenting  Shareholder to sell
               the Dissenting Shares at such price; and

         3.    Within  the  same  thirty  (30)  day  period,   such   Dissenting
               Shareholder must submit the stock  certificates  representing his
               Dissenting Shares to Videonics at its principal executive offices
               (1370 Dell Avenue, Campbell California 95008 attn: Secretary) for
               endorsement,  with a  statement  that the shares  are  Dissenting
               Shares.


         Neither a vote against  approval of the merger nor the  submission of a
proxy  directing a negative vote will be  sufficient  to  constitute  the demand
described in clause (2) above.

         Dissenters'  rights  may not be  perfected  with  respect to any shares
unless such shares are not voted in favor of the merger. A Videonics shareholder
may vote part of the shares which the  shareholder  is entitled to vote in favor
of the merger without jeopardizing dissenters' rights as to shares voted against
or in abstention with respect to the merger; however, if a Videonics shareholder
votes part of the shares he is entitled to vote in favor of the merger and fails
to  specify  the  number of shares  he is voting in favor of the  merger,  it is
conclusively  presumed  under  California  law that the Videonics  shareholder's
approving  vote is with respect to all shares which the  shareholder is entitled
to vote.

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<PAGE>


         Within  ten (10) days after the date of the  approval  of the merger by
the Videonics shareholders, Videonics will mail to each Dissenting Shareholder a
notice  of  approval  of the  merger,  together  with a  statement  of the price
determined by Videonics to represent the fair market value of Dissenting Shares,
a  brief  description  of the  procedure  to be  followed  for the  exercise  of
dissenters'  rights,  and a copy of certain  sections of the California  General
Corporation  Law setting  forth such  procedures.  The  statement  of price will
constitute  an offer by Videonics  to purchase at the price  stated  therein any
Dissenting  Shares.  If Videonics and the Dissenting  Shareholder agree that the
shares  are  Dissenting  Shares  and  agree  upon the price of the  shares,  the
Dissenting  Shareholder  will be  entitled  to the agreed  price  plus  interest
thereon at the legal rate on judgments from the date of such agreement.  Payment
of the fair market  value of the  Dissenting  Shares will be made within  thirty
(30) days after such agreement and upon surrender of the certificates therefor.

         If Videonics denies that the shares are Dissenting  Shares or Videonics
and the Dissenting  Shareholder  fail to agree upon the fair market value of the
shares,  then the Dissenting  Shareholder may file,  within six (6) months after
the  date  on  which  notice  of  approval  of the  merger  was  mailed  to such
shareholder,  but not  thereafter,  a complaint in Superior  Court in the proper
California  county,  requesting  the  court to  determine  either or both of (i)
whether the shares are  Dissenting  Shares and (ii) the fair market value of the
Dissenting  Shares.  The costs of the action will be assessed or  apportioned as
such Court  considers  equitable  but, if the fair market value is determined to
exceed the price offered to the Dissenting  Shareholder by Videonics,  Videonics
will be required to pay such costs. Under certain circumstances, attorneys' fees
may also be awarded.

         The  foregoing is a summary of the rights of  Dissenting  Shareholders,
does not  purport to be a complete  statement  thereof and is  qualified  in its
entirety by reference to Chapter 13 of the California General Corporation Law, a
copy   of   which   is   attached   as   Appendix   B  to   this   joint   proxy
statement/prospectus.


      OPINION OF FINANCIAL ADVISOR RETAINED BY THE FOCUS BOARD OF DIRECTORS

         On October 3, 2000 Focus engaged Union Atlantic  Capital L.C. to render
an  opinion  that the  consideration  to be  given  by  Focus  to the  Videonics
shareholders  in  connection  with the merger is fair to Focus from a  financial
point of view.

         Representatives  of the Focus Board of Directors  considered  retaining
various  investment  bankers  to  assist  it in its  evaluation  of  the  merger
proposal. In selecting a firm, the Focus Board of Directors considered a variety
of  factors,  including  the firm's  reputation,  experience,  expertise  in the
relevant  industries,  cost,  and ability to assist  Focus in a timely  fashion.
Based on the foregoing,  the Focus Board of Directors selected Union Atlantic as
its financial advisor.

         As  compensation  to Union Atlantic for its services in connection with
the  merger,  the  Board of  Directors  agreed to pay  Union  Atlantic  a fee of
$50,000.  No portion of Union Atlantic's fees for this engagement are contingent
upon the  successful  completion  of the merger.  The Board of Directors and the
Focus  Board of  Directors  have also agreed to  indemnify  Union  Atlantic  and
related persons against certain liabilities, including liabilities under federal
securities laws, arising out of the engagement of Union Atlantic,  and reimburse
Union Atlantic for certain expenses.

         Independent  from the  rendering of this  fairness  opinion,  Focus had
engaged  Union  Atlantic on February 14, 2000 to act as its advisor in analyzing
financial and strategic considerations regarding the proposed merger. The report
did not render an opinion on the merit of such a merger,  but  demonstrated  the
impact of such a merger on both parties.  The terms of the engagement letter for
that  financial  advisory  service  between Union  Atlantic and Focus included a
success fee,  upon the  conclusion  of the merger.  Union  Atlantic has made its
fairness opinion determination independent of this or any other consideration.

         Union Atlantic is a nationally  recognized investment banking firm that
is continually  engaged in providing  financial  advisory services in connection
with mergers and  acquisitions,  leveraged  buyouts,  business  valuations for a
variety of  regulatory  and planning  purposes,  financial  restructurings,  and
private placements of debt and equity securities.

                                       56

<PAGE>


         Timothy Mahoney, who is a Focus director,  is a principle in the parent
company to Union Atlantic  Capital L.C., and a partner of Union Atlantic L.C. In
1999,  Focus paid Union Atlantic L.C.  $112,226 in consulting fees in connection
with  equity  financing  agreements  negotiated  by Union  Atlantic  L.C.  Union
Atlantic L.C. will also be paid approximately $280,000 in shares of Focus common
stock for brokerage fees in connection with the merger.

         Union  Atlantic  did not,  and was not  requested  by Focus to make any
recommendations as to the form or amount of consideration to be paid by Focus in
connection with the merger. Focus did not impose any restrictions or limitations
upon Union  Atlantic  with respect to its  investigation  or the  procedures  it
followed in rendering its opinion.

         In arriving at its opinion, Union Atlantic took the following actions:

         o     Reviewed Focus' and Videonics'  annual reports to shareholders on
               Form 10-KSB/A and 10-K,  respectively,  for the fiscal year ended
               1999 and quarterly reports on Form 10-QSB and 10-Q, respectively,
               for the quarter  ending June 30, 2000. We also  reviewed  company
               prepared  unaudited interim financial  statements for the quarter
               ended  September  30, 2000,  which  management  of the  companies
               identified  as  being  the  most  current  financial   statements
               available;

         o     Reviewed the merger  agreement dated August 30, 2000 by and among
               the Focus, Videonics and PC Video Conversion;

         o     Met with certain  members of the senior  management  of Focus and
               Videonics to discuss the operations,  financial condition, future
               prospects and projected  operations and  performance of Focus and
               Videonics;

         o     Reviewed  forecasts  and  projections   prepared  by  Focus'  and
               Videonics' management with respect to Focus and Videonics for the
               years ending December 31, 2000 through 2004;

         o     Reviewed  the  historical  market  prices and  trading  volume of
               Focus' and Videonics' publicly traded securities;

         o     Reviewed  certain other  publicly  available  financial  data for
               certain  companies that we deem comparable to Focus, and publicly
               available prices and premiums paid in other  transactions that we
               considered similar to the merger; and

         o     Conducted such other  studies,  analyses and inquiries as we have
               deemed appropriate.


         In order to render its opinion,  Union Atlantic  compared the intrinsic
equity  value of  Videonics  relative  to the  total  consideration  offered  to
Videonics'  shareholders.  When determining the value of a business  enterprise,
there are three general approaches available to the valuation professional:  the
market  approach,  the income  approach and the asset  approach.  These are also
commonly  referred to as the market multiple,  discounted cash flow and adjusted
book value  approaches,  respectively.  The choice of which approach to use in a
particular  situation  will depend  upon the  specific  facts and  circumstances
associated  with the  company,  as well as the purpose  for which the  valuation
analysis is being  conducted.  Union  Atlantic did not utilize the adjusted book
value approach  because,  in the exercise of its  professional  judgment,  Union
Atlantic  concluded that such approach was not  appropriate  for determining the
value of Focus or Videonics' common stock, since the more appropriate use of the
adjusted book value approach would be for either  liquidation  valuations or the
valuation of capital  intensive  going-concerns.  The comparable market multiple
analysis  estimated the per share value by calculating  median market  multiples
for the latest twelve month's financial  performance of the peer group companies
and then  applying a selected  multiples to numerous  indicators  of  Videonics'
financial performance. The discounted cash flow analysis estimated the per share
value by  discounting  to the present,  at a  risk-adjusted  discount  rate, the
projected cash flows to be generated by Videonics'  business,  including a range
of synergies or cost savings attributed  Videonics as a result of the merger, as
estimated by Videonics and Focus' management.


         The per share value  generated by each  methodology was higher than the
consideration  to be paid in  connection  with the  merger.  Accordingly,  Union
Atlantic, independent of any other consideration,

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<PAGE>


concluded that the payment to the  shareholders  of Videonics in connection with
the  merger  was  fair to  Focus  from a  financial  point  of  view.  No  other
conclusions of value were reached by Union Atlantic.

         Union   Atlantic   relied  upon  and   assumed,   without   independent
verification,  that the financial forecasts and projections  provided to it have
been reasonably  prepared and reflect the best currently  available estimates of
the future  financial  results and  condition of Focus and  Videonics,  and that
there has been no material change in the assets,  financial condition,  business
or prospects of Videonics since the date of the most recent financial statements
made available to Union Atlantic.

         Union   Atlantic  did  not   independently   verify  the  accuracy  and
completeness  of the  information  supplied  to it with  respect  to  Focus  and
Videonics  and  did  not  assume  any   responsibility   with  respect  to  such
information.  Union  Atlantic has made visits to both Focus and  Videonics,  but
these visits did not include any physical inspection or independent appraisal of
any of the properties or assets of Focus or Videonics.  Union Atlantic's opinion
is necessarily based on business,  economic, market and other conditions as they
existed and could be evaluated by it at the date of its letter.

         In  reaching  its  conclusions  Union  Atlantic  utilized  two  primary
valuation methodologies, as described below:

The Market Multiple Approach

         The market multiple  approach is one of determining a level of earnings
or revenue that is considered to be representative of the future  performance of
the business, and multiplying this figure by an appropriate risk-adjusted market
multiple.

         The market multiple is an expression of what investors  believe to be a
fair and  reasonable  rate of  return  for the  particular  security,  given the
inherent risks of ownership. It incorporates expectations of growth and rests on
the implicit assumption that some level of earnings or revenue will be generated
by the enterprise into  perpetuity.  The market  multiple  employed was selected
through the market  comparison  method,  whereby  companies  having  their stock
traded in the public market were selected for comparison  purposes and used as a
basis for choosing a reasonable market multiple for Videonics.

         In employing the market multiple  approach,  a  representative  list of
publicly  owned  companies  that are  similar  to  Videonics  in those  respects
carrying  the  greatest  weight  with the  investing  public were  selected  for
comparison purposes.  Union Atlantic conducted a search for companies which were
comparable to Videonics in terms of its operating and financial characteristics.
Key search criteria included:

         o     The company's primary business had to be comparable to Videonics.

         o     The company's  common stock had to be outstanding in the hands of
               the public.

         o     The  company's  trading  market  had to be  relatively  active to
               obtain true investor sentiment.


         The results of this search  indicated that the following four companies
met these  search  criteria  and were most  comparable  to  Videonics:  Pinnacle
Systems, Inc., Avid Technology,  Inc., Chyron Corporation,  and Sony Corporation
In some cases, companies may appear to be engaged in somewhat different lines of
business, although they may be similar from an investment standpoint.


         Primarily,  they offered operational and economic  comparability in the
areas of major importance to the investing public.  Accordingly,  Union Atlantic
relied upon the entire peer group, taken as a whole, for comparison purposes and
used the median values to reach its  valuation.  Union  Atlantic  noted that the
selected comparable companies are significantly larger than Videonics, have more
liquidity and are more profitable. Moreover, several of the comparable companies
operate more diversified activities than Videonics.

         Earnings  before   interest,   taxes,   depreciation  and  amortization
("EBITDA"),  earnings  before  interest  and  taxes  ("EBIT"),  and  net  income
multiples for the  comparable  companies  were derived from  examining  publicly
available  information  for the latest twelve  months'  revenue.  The enterprise
value  of  the  common  equity  is  computed  by  multiplying   those  financial
performance measures with

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<PAGE>


the  multiples  obtained  from the  comparable  group.  It was Union  Atlantic's
opinion that an investor considering an investment in Videonics would select the
median multiple among those identified.

The Discounted Cash Flow Approach


         Forecasts  for the  five-year  period  ended  December  31,  2005  were
provided  by  Videonics'  management.  The key  determinants  to value  once the
forecasted  cash flows are  established  is the rate used to  discount  the cash
flows to present value and the expected annual growth rate or market multiple to
be applied to the last year's cash flow in estimating  the terminal value of the
enterprise.

         Selecting  Discount  Rates.  Union  Atlantic  utilized  a  market-based
approach  in  selecting  the  discount  rate.  This  approach  consists of Union
Atlantic's estimate of Videonics' risk-adjusted cost of capital.  Depending upon
whether  the cash flows  being  discounted  are before the  payment of  interest
expense or after,  the  appropriate  discount  rate is either the cost of equity
("K(e)")  or a  weighted  average  cost of  capital  ("WACC").  The  cash  flows
throughout  this  analysis do not  consider  the payment of  interest,  they are
debt-free  cash  flows,  and  therefore  WACC was  selected  as the  appropriate
discount rate. The WACC represents the combined average cost of debt and equity.
The cost of debt is determined,  in this analysis,  from  Videonics' own cost of
debt,  including tax  consequences.  The Capital  Asset Pricing Model  ("CAPM"),
which  states  that the  return  on any risky  asset  must be  greater  than the
risk-free  rate,  is used to calculate  the cost of equity K(e),  as indicted as
follows:


   K(e) =  R(F)(R(M)-R(F))(B(L))
   R(F) = Risk-free  rate of return
   Where R(M) = Return on market portfolio
   B = beta*


* Beta is a standardized measure of the nondiversifiable  risk and is defined as
the  covariance  of the subject  company  return with the market  divided by the
variance of the market returns.


         Union  Atlantic's  application of the CAPM to compute a reasonable cost
of equity for Videonics,  and selection of the additional  variables used in the
WACC equation were based on the comparative  analysis  summarized in the "Market
Multiple"  section,  above.  In  addition,  Union  Atlantic's  selection  of  an
appropriate discount rate incorporated Union Atlantic's assessment of Videonics'
ability to achieve the results  projected by its management.  In summary,  Union
Atlantic's analysis yielded an estimated WACC of approximately ten percent.


         Determination  of  Terminal  Value.  The  terminal  value  used  in the
discounted  cash flow  approach is  essentially  an estimate of the value of the
enterprise  as of the end of the final  period for which  cash flow  projections
have been made.  It is  necessary to compute  this value  because,  although the
expectation  is that the company will remain a viable  going-concern  beyond the
final  period,  one cannot  project with enough  certainty  the cash flows to be
generated in any given period.

         The primary method of computing the terminal value for a  going-concern
is the  "multiple  method,"  which uses a  projected  market  multiple as in the
market multiple approach.  Typically, the EBITDA for the final projection period
is adjusted to arrive at a "normalized"  EBITDA level,  and then multiplied by a
reasonable EBITDA multiple to yield an indication of value for the company.

         The terminal  value is then  discounted  back to the present  using the
previously  selected  discount rate. In Union Atlantic's  analysis of Videonics,
Union  Atlantic  concluded  that a  EBITDA  multiple  ranging  from  14 to 18 is
reasonable  for  determining  the  terminal  value  of  Videonics,  in  light of
comparables.


         In its analysis,  Union  Atlantic also took into account the average of
the average daily closing bid and asked prices of one share of Videonics' Common
Stock for a period of 21 consecutive trading days ending on Thursday October 12,
2000 as reported on NASDAQ Small Cap Market.  Union  Atlantic also  considered a
21-day  average  in  reviewing  comparable  companies  for the  market  multiple
approach.

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<PAGE>


         Valuations derived from the methodologies above resulted in indications
of the value for  Videonics'  operations  that  exceed the merger  price.  Union
Atlantic concluded that the Market Multiple Approach provided the best valuation
indicator of the two  methodologies.  Based on Videonics'  projections,  the DCF
method resulted in a significantly  higher  valuation.  However,  uncertainty of
future  cash flows for the company and the  predominant  weight of the  terminal
value in the  valuation may not make it an accurate  indicator of value,  from a
market perspective.

         The Market Multiple approach resulted in a value of approximately  $9.2
million, versus an aggregate purchase price of $9.1 million. The Market Multiple
approach does not take into consideration any synergies which may be of value to
Focus Enhancements.

         Because the value of the consideration in the merger was lower than the
implied value of Videonics'  stock price generated by both  methodologies in the
above analysis,  Union Atlantic  concluded that the consideration to be given by
Focus in connection  with the merger was fair to Focus from a financial point of
view.


         The  aforementioned  analyses  required  studies of the overall market,
economic and industry  conditions in which Videonics  operates,  and the Focus '
operating  results.  Research into, and  consideration of, these conditions were
incorporated into the analyses.


         Union Atlantic's opinion is based on the business, economic, market and
other  conditions  as they  existed as of October 13,  2000.  In  rendering  its
opinion,  Union  Atlantic  has  relied  upon and  assumed,  without  independent
verification,   that  the  financial  results  provided  to  Union  Atlantic  by
Videonics' management have been reasonably prepared and reflect the best current
available  estimates of the financial results and condition of the Focus.  Union
Atlantic  did not  independently  verify the  accuracy  or  completeness  of the
information  supplied  to it with  respect  to  Videonics  and does  not  assume
responsibility  for it. Except as set forth above,  Union  Atlantic did not make
any physical  inspection or independent  appraisal of the specific properties or
assets of Videonics.


         The preparation of a fairness opinion is a complex  analytical  process
involving various determinations as to the most appropriate and relevant methods
of  financial  analysis  and  application  of those  methods  to the  particular
circumstances and is therefore not readily susceptible to summary description.

         In  arriving at its  opinion,  Union  Atlantic  did not  attribute  any
particular  weight to any analysis or factor  considered  by it, but rather made
the qualitative  judgments as to the significance and relevance of each analysis
and factor.  Accordingly,  Union  Atlantic  believes  that its  analyses and the
summary  set forth  herein  must be  considered  as a whole  and that  selecting
portions of its analyses  without  considering  all factors and  analyses  could
create an incomplete view of the processes  underlying the analyses set forth in
the Union  Atlantic  opinion.  In its  analysis,  Union  Atlantic  made numerous
assumptions with respect to Videonics and Focus, industry  performance,  general
business,  economic,  market and financial conditions and other matters, many of
which are beyond  the  control of the Focus.  The  estimates  contained  in such
analyses are not necessarily indicative of actual values or predictive of future
results or values,  which may be more or less  favorable  than suggested by such
analyses.


         Additionally,   analyses   relating  to  the  value  of  businesses  or
securities  are not  appraisals.  Accordingly,  such  analyses and estimates are
inherently subject to substantial uncertainty.


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<PAGE>


                              THE MERGER AGREEMENT

         The  following  is a summary of the material  provisions  of the merger
agreement,  a copy of  which is  attached  as  Appendix  A to this  joint  proxy
statement/prospectus  and is incorporated  herein by reference.  This summary is
qualified in its entirety by reference to the merger agreement.  Shareholders of
Focus and Videonics are urged to read the merger agreement in its entirety for a
more complete description of the terms and conditions of the merger.

General

         The merger agreement provides that following the approval of the merger
by Focus  shareholders  and Videonics  shareholders,  and the  satisfaction  and
waiver of the other  conditions to the merger,  PC Video  Conversion  will merge
with and into Videonics,  with Videonics continuing as the surviving corporation
and becoming a wholly-owned subsidiary of Focus after the merger.


         If all  conditions  to the merger are  satisfied or waived,  the merger
will become effective at the Effective Time. See "The  Merger--Effective Time of
the Merger."


Conversion of Shares

         At the  time of the  merger,  each  issued  and  outstanding  share  of
Videonics  common  stock  (other than  shares,  if any, as to which  dissenters'
rights are  exercised  and shares of  Videonics  common  stock owned by PC Video
Conversion or Focus,  all of which will be cancelled) will be converted into the
right, without interest,  to receive 0.87 shares (the "Exchange Ratio") of Focus
common stock.  Each share of the common stock of PC Video Conversion  issued and
outstanding  immediately  prior  to the  effective  time of the  merger  will be
converted into one share of common stock of Focus.

         The Exchange  Ratio may be subject to  adjustment  to reflect fully the
effect of any stock split, reverse split, stock dividend (including any dividend
or distribution of securities  convertible  into Focus common stock or Videonics
common stock), reorganization,  recapitalization,  reclassification, conversion,
consolidation,  contribution  or  exchange  of shares or other like  change with
respect to Focus common stock or Videonics common stock occurring after the date
hereof and prior to the effective date of merger.


         Shares of  Videonics  common stock as to which  dissenters'  rights are
perfected,  if any,  will not be converted  into or represent a right to receive
shares  of Focus  common  stock,  but will  represent  only the  right to obtain
payment of the fair value of such shares. See "The Merger-- Dissenters' Rights."


         As soon  as  reasonably  practicable  after  the  Effective  Time,  the
exchange agent,  will send a letter of transmittal and instructions with respect
to the surrender by Videonics shareholders of their Videonics stock certificates
to  each  former  Videonics   shareholder.   Upon  surrender  by  the  Videonics
shareholders of their stock certificates representing shares of Videonics stock,
together with a duly executed  letter of transmittal  and other  documents,  the
Videonics   shareholders   will  be  entitled  to  receive  stock   certificates
representing  whole shares of Focus common stock which such holder has the right
to receive  pursuant to the merger  agreement  in respect of shares of Videonics
stock  formerly  evidenced by such Videonics  certificate,  together with a cash
payment in lieu of fractional shares, if any.

         After the merger,  until so  surrendered  to the exchange  agent,  each
certificate that previously represented shares of Videonics stock will represent
only the right to receive upon surrender a certificate  evidencing  whole shares
of Focus common stock into which such shares of Videonics  stock were  converted
in the merger and cash in lieu of fractional  shares of Focus common  stock,  if
any, as described below. The holder of such unexchanged  certificate will not be
entitled to receive any dividends or other distributions  payable by Focus until
the certificate has been exchanged. When their certificates are surrendered, any
unpaid  dividends  with a record date after the Effective Time but prior to such
surrender  with  respect to whole  shares of Focus  common stock and any cash in
lieu of fractional  shares of Focus common stock payable as described below will
be paid without interest.

         Focus will not issue  fractional  shares of common stock in the merger.
Instead  of  fractional  shares,  the  exchange  agent will pay to each of those
shareholders an amount in cash determined by

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<PAGE>


multiplying the fractional share interest to which the holder would otherwise be
entitled  by the  closing  sale  price of a share of Focus  Common  Stock on the
NASDAQ  Composite  Transaction  Tape on the  first  day of  trading  immediately
following the Effective Time.

Representations and Warranties

         The merger agreement  contains various  customary  representations  and
warranties relating to, among other things:

         o     due  organization,  valid  existence  and good standing of Focus,
               Videonics,  PC Video  Conversion  and  each of  their  respective
               subsidiaries and certain similar corporate matters;

         o     the capital structure of each of Focus and Videonics;

         o     the authorization, execution, delivery, and enforceability of the
               merger agreement and related matters;

         o     conflicts under articles of  incorporation  or by-laws,  required
               consents,  approvals,  orders and  authorizations of governmental
               authorities   relating  to,  and   non-contravention  of  certain
               agreements as a result of, the merger agreement;

         o     documents  and  financial  statements  filed by each of Focus and
               Videonics  with  the  SEC  and the  accuracy  of the  information
               contained in such documents;

         o     the absence of certain material adverse events or changes;

         o     litigation;

         o     compliance   with   applicable   laws,   permits  and   licensing
               requirements;

         o     the  accuracy  of  information  supplied  by  each of  Focus  and
               Videonics in connection with the  Registration  Statement on Form
               S-4 and this joint proxy statement/prospectus;

         o     employee benefit plans;

         o     labor matters;

         o     environmental matters and hazardous materials;

         o     the absence of  restrictions  on business  activities  of each of
               Focus and Videonics;

         o     title to assets;

         o     engagement of and payment of fees to brokers, investment bankers,
               finders  and  financial  advisors in  connection  with the merger
               agreement;

         o     accounting and tax matters relating to the merger;

         o     intellectual property;

         o     insurance;

         o     ownership of securities;

         o     agreements, contracts and commitments;

         o     the absence of unlawful  business  practices of each of Focus and
               Videonics; and

         o     interested party transactions.

Conduct of Business Before the Merger

         Each of  Videonics  and Focus has agreed in the merger  agreement  that
during the period from the date of the merger agreement and continuing until the
Effective Time or the termination of the merger  agreement,  Videonics and Focus
will, and will cause its respective subsidiaries to:

         o     carry on  their  respective  businesses  in the  ordinary  course
               consistent with past practice;

         o     use all  reasonable  efforts to  preserve  intact  their  current
               business organizations;

         o     keep  available  the  services  of  their  current  officers  and
               employees;

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<PAGE>

         o     preserve their relationships with customers, suppliers and others
               having business dealings with them;

         o     not issue,  sell,  pledge,  dispose of, encumber,  authorize,  or
               propose the issuance, sale, pledge,  disposition,  encumbrance or
               authorization of any shares of capital stock of any class, or any
               options, warrants,  convertible securities or other rights of any
               kind to  acquire  any  shares of  capital  stock of, or any other
               ownership interest, subject to certain exceptions (including, (i)
               in the case of  Videonics  Plans and Focus Plans in effect on the
               date of the merger,  (ii) existing dividend  reinvestment  plans,
               (iii) the  issuance  of up to  2,500,000  shares of Focus  common
               stock  pursuant  to a shelf  registration  on Form S-1,  (iv) the
               posting of Focus common stock held in treasury as collateral  for
               a judgment adverse to Focus in the matter of CRA Systems, Inc. v.
               Focus  Enhancements,  Inc.,  and (v)  payment  of Union  Atlantic
               L.C.'s fee for providing  investment banking services to Focus in
               connection  with  this  transaction  by  the  issuance  to  Union
               Atlantic Capital L.C. of shares of Focus common stock);

         o     not amend or  propose to amend its  certificate  or  articles  of
               incorporation  or bylaws,  except as  contemplated  in the merger
               agreement;

         o     not split,  combine or  reclassify  any  outstanding  shares,  or
               declare, set aside or pay any dividend or distribution payable in
               cash,  stock,  property or  otherwise,  except those  declared in
               accordance with existing  dividend policy payable to shareholders
               of record on the record dates consistently used in prior periods;

         o     not redeem,  purchase or otherwise acquire shares of its stock or
               offer to do the same;

         o     not engage in any merger,  consolidation or acquisition of assets
               (other than an entity which is a  wholly-owned  subsidiary  as of
               the date of the  merger  and other  than the  incorporation  of a
               wholly-owned Subsidiary);

         o     except  for  transactions  which do not  exceed  $100,000  in the
               aggregate in any 12 month period, not sell,  pledge,  dispose of,
               or encumber or authorize or propose the sale, pledge, disposition
               or encumbrance  any of its assets or assets of its  subsidiaries,
               subject  to  certain  exceptions  (including  (i)  those  in  the
               ordinary course of business  consistent  with past practice,  and
               (ii) the  sub-lease  by Focus  of its  Wilmington,  Massachusetts
               facility);

         o     not sell, transfer, lease, license, sublicense, mortgage, pledge,
               dispose  of,  encumber,   grant,  or  otherwise  dispose  of  any
               intellectual  property rights, or amend or modify in any material
               way any existing agreement  regarding such intellectual  property
               rights;

         o     not  incur  indebtedness  other,  than in the  normal  course  of
               business;

         o     not authorize or propose or enter into any  contract,  agreement,
               commitment  or  arrangement  with  respect to any of above  noted
               matters;

         o     not hire or terminate any employee or  consultant,  except in the
               ordinary  course of business  consistent  with past practice,  or
               increase  compensation  payable  to its  officers  or  employees,
               except for retention  agreements  entered into in anticipation of
               the merger,  or grant any severance or  termination  pay or stock
               options to, or enter into any  employment or severance  agreement
               with any director, officer or other employee of it or in the case
               of Focus, any of its  subsidiaries,  or establish,  adopt,  enter
               into or amend any collective  bargaining,  bonus, profit sharing,
               thrift,  compensation,  stock option,  restricted stock, pension,
               retirement,  deferred  compensation,   employment,   termination,
               severance,  or other  plan,  agreement,  trust,  fund,  policy or
               arrangement  for the benefit of any current or former  directors,
               officers or employees;

         o     not change any accounting  policies or procedures unless required
               by statute or GAAP;

         *     not create,  incur suffer to exist or assume any  Encumbrance  on
               any  material  asset  of  it  or,  in  the  case  of  Focus,  its
               subsidiary;

         o     not  enter,  modify,  amend,  transfer,  terminate  any  material
               agreement or assign any material rights  thereunder or enter into
               or extend any lease with respect to real  property with any third
               party;

                                       63
<PAGE>

         o     not make any tax  election or settle or  compromise  any federal,
               state,  local or  foreign  income  tax  liability  or agree to an
               extension of a statute of limitations;

         o     not settle any material  litigation  or waive,  assign or release
               any material rights or claims with certain exceptions as outlined
               in the merger agreement;

         o     not directly engage in any transaction, agreement, arrangement or
               understanding,  either directly or indirectly, with any party not
               listed on the disclosure schedule;

         o     maintain insurance currently in effect;

         o     not take any action which it believes when taken could reasonably
               be  expected  to  adversely  delay in any  material  respect  the
               ability  to  obtain  governmental  approval  for any  transaction
               related to the merger;

         o     not take any action to cause  shares of their  respective  common
               stock to cease to be quoted on any stock exchange; and

         o     not cause its  representations  and  warranties  contained in the
               merger agreement to become inaccurate.

No Solicitation

         The merger  agreement  provides that  Videonics and Focus each will not
permit  any of its  affiliates  to, nor shall it  authorize  any of its or their
officers, directors,  employees,  financial advisors,  representatives or agents
to:


         o     solicit, facilitate, initiate or encourage, or take any action to
               solicit, facilitate,  initiate or encourage, any inquiries or the
               making of any proposal or offer that  constitutes  an acquisition
               proposal by a third party; or


         o     participate  or engage in discussions  or  negotiations  with any
               person relating to any  acquisition  proposal by a third party or
               which might  reasonably  be expected to result in an  acquisition
               proposal  or  provide  information  concerning  same to any third
               party.

         However,  nothing contained in the merger agreement  prevents Videonics
or Focus, or their respective  Boards of Directors,  from furnishing  non-public
information to, or entering into discussions or negotiations with, any person or
entity in connection with an unsolicited, bona fide written acquisition proposal
to the shareholders of such party, if and only to the extent that:

         o     the board of  directors  of such  party  believes  in good  faith
               (after   consultation  with  its  financial  advisor)  that  such
               acquisition proposal would result in a more favorable transaction
               than that contemplated by the merger agreement;

         o     the board of directors of such party receives  written opinion of
               outside  counsel  that the action is  required to comply with its
               fiduciary duties to shareholders under applicable law; and

         o     provides  written  notice to the other parties of its decision to
               so participate or furnish.

         In  addition,  the  merger  agreement  provides  that,  except  in  the
situation where prior to receiving shareholder approval of the merger, the Board
of Directors of a party receives an acquisition  proposal that would result on a
more  favorable  transaction  than that  contemplated  by the merger  agreement,
neither the Board of Directors of Videonics or Focus nor any  committee  thereof
shall:

         o     approve or  recommend,  or propose to approve or  recommend,  any
               acquisition proposal other than the merger;

         o     adversely  withdraw or modify its approval or  recommendation  of
               the  merger,  the  merger  agreement  or any  of  the  underlying
               transactions;

         o     fail to reaffirm its approval or  recommendation of the merger or
               the merger  agreement  within two (2) business  days after such a
               request is made by either party;

                                       64

<PAGE>


         o     enter,  or cause  such party or any  subsidiary  of such party to
               enter,  into  any  letter  of  intent,  agreement  in  principle,
               acquisition  agreement or other similar  agreement related to any
               acquisition proposal; or

         o     resolve or announce its intention to do any of the foregoing.

         In addition to the above mentioned  obligations,  each of Videonics and
Focus  shall:  (i)  immediately  advise  the other  orally and in writing of any
request for information  (including the material terms,  conditions and identity
of the  requester)  with respect to any  acquisition  proposal;  (ii) inform the
other  party on a prompt and  current  basis of the  status  and  content of any
discussions  regarding any acquisition  proposal  including any change in price,
structure or form of consideration,  and material terms or conditions  regarding
the proposal.

Conditions

         The respective  obligations of Focus and Videonics to effect the merger
are subject to the satisfaction (or waiver) of the following conditions:

         o     the  merger  is  approved  by the Focus  shareholders,  Videonics
               shareholders and by Focus in its capacity as the sole shareholder
               of PC Video Conversion;

         o     the issuance of shares of Focus common stock in  connection  with
               the merger is approved by the Focus shareholders;

         o     no  order,   injunction,   or  judgment,   or  statute,  rule  or
               regulation,  is in  effect  that  makes  the  merger  illegal  or
               otherwise  prohibits the  completion of the merger or which would
               result in the merger having a material adverse effect on Focus or
               Videonics;

         o     all governmental  authorizations,  consents,  orders or approvals
               have  been  obtained  and  all  waiting  periods  imposed  by any
               Governmental  Entity have expired,  unless the failure to file or
               obtain approval of any of the foregoing is not reasonably  likely
               to have a material adverse effect;

         o     the  registration  statement  applicable to the merger has become
               effective  and is not the  subject of a stop order or  proceeding
               seeking a stop order;

         o     all state  securities and blue sky permits or approvals  required
               have been received;

         o     the shares of Focus  common stock to be issued in the merger have
               been approved for listing on the NASDAQ;

         o     all material consents or approvals of any person whose consent is
               required under any agreement or instrument in order to permit the
               completion of the merger,  unless the failure to obtain  approval
               or consent would not have a material adverse effect;

         o     no event or circumstance  constituting a material  adverse effect
               for Focus or Videonics shall have occurred; and

         o     Focus and  Videonics  shall have obtained a written legal opinion
               to the effect that the merger will be treated for federal  income
               tax  purposes  as a tax-free  reorganization  under the  Internal
               Revenue Code.

         In addition,  the merger  agreement  provides that the  obligations  of
Videonics  to effect the merger are subject to the  satisfaction  (or waiver) of
the following conditions:


         o     the  representations  and  warranties  of  Focus  in  the  merger
               agreement  are true  and  correct  as of the  date of the  merger
               agreement and also, except to the extent such representations and
               warranties speak as of an earlier date, as of the closing date of
               the  merger,  except for such  failures to be true that would not
               reasonably  be  expected  to have a  material  adverse  effect on
               Focus,   either  with  or  without  including  its  ownership  of
               Videonics and its subsidiaries  after the merger.  Videonics must
               receive a certificate of an executive officer of Focus confirming
               the satisfaction of such representations and warranties;

                                       65

<PAGE>


         o     Focus and PC Video  Conversion  have  performed  in all  material
               respects all  obligations  required to be performed by them under
               the  merger  agreement  at or  prior to the  closing  date of the
               merger,  except for such  failures  to  perform  or comply  which
               individually or in the aggregate would not reasonably be expected
               to result in a material  adverse  effect on Focus  either with or
               without including its ownership of Videonics and its subsidiaries
               after the merger.  Videonics  must  receive a  certificate  of an
               executive  officer of Focus confirming such obligations have been
               satisfied; and


         o     Focus shall have  amended its 2000 Stock  Option Plan to increase
               by 2,000,000  (from  3,000,000  shares to  5,000,000  shares) the
               number of shares of Focus  common  stock  reserved  for  issuance
               thereunder  and shall have  submitted  such  amended  plan to its
               shareholders for approval.

         In addition,  the merger  agreement  provides that the  obligations  of
Focus to effect the merger are  subject to the  satisfaction  (or waiver) of the
following conditions:

         o     the  representations  and  warranties  of Videonics in the merger
               agreement  are true  and  correct  as of the  date of the  merger
               agreement and also, except to the extent such representations and
               warranties speak as of an earlier date, as of the closing date of
               the  merger,  except for such  failures to be true that would not
               reasonably  be  expected  to have a  material  adverse  effect on
               Focus,   either  with  or  without  including  its  ownership  of
               Videonics  and its  subsidiaries  after the  merger.  Focus  must
               receive  a  certificate  of an  executive  officer  of  Videonics
               confirming such representations and warranties; and


         o     Videonics has performed in all material  respects all obligations
               required to be performed  by it under the merger  agreement at or
               prior to the closing date of the merger, except for such failures
               to perform or comply which individually or in the aggregate would
               not reasonably be expected to result in a material adverse effect
               on Videonics  after the merger.  Focus must receive a certificate
               of an executive officer of Videonics  confirming such obligations
               have been satisfied.


Termination; Termination Fees

         The  merger  agreement  may be  terminated  at any  time  prior  to the
Effective  Time,  whether  before or after the approval by the  shareholders  of
Focus and Videonics, as follows:

         o     by mutual written consent of Focus and Videonics;


         o     by either Focus or Videonics if the merger is not  consummated on
               or before  December  31,  2000,  provided  that if certain of the
               joint  conditions to closing have not yet been fulfilled,  either
               of Focus or Videonics may extend such date to March 30, 2001; and
               if such certain  joint  conditions  remain  unfilled on March 30,
               2001, such date may be further extended to June 30, 2001,  unless
               within  five days  prior to March  30,  2001  Focus or  Videonics
               reasonably determines that it is substantially  unlikely that any
               of such certain  joint  conditions  will be fulfilled by June 30,
               2001 and delivers a notice to the other stating this;


         o     by either Focus or Videonics if a court of competent jurisdiction
               or other  governmental  entity  issues  a  final,  non-appealable
               order, decree or ruling or has taken any other action permanently
               restraining, enjoining, or otherwise prohibiting the merger;

         o     by  Videonics  if: (i) Focus has breached or failed to perform in
               any  material  respect  any of its  representations,  warranties,
               covenants or agreements contained in the merger agreement,  which
               breach (a) is incapable of being cured by Focus prior to December
               31,  2000  and  (b)  renders  any  of  the  joint  conditions  or
               conditions to be satisfied by Focus  incapable of being satisfied
               prior  to  December  31,  2000,  or  (ii)  if any  of  the  joint
               conditions  or  conditions  to be  satisfied  by Focus  cannot be
               satisfied prior to December 31, 2000;

         o     by Focus if:  (i)Videonics  has  breached or failed to perform in
               any  material  respect  any of its  representations,  warranties,
               covenants or agreements contained in the merger agreement,  which
               breach (a) is  incapable  of being  cured by  Videonics  prior to
               December 31, 2000 and (b) renders any of the joint  conditions or
               conditions to be satisfied by Videonics incapable of

                                       66

<PAGE>


               being satisfied prior to December 31, 2000, or (ii) if any of the
               joint  conditions  or  conditions  to be  satisfied  by Videonics
               cannot be satisfied prior to the Termination date;


         o     by either  Focus or  Videonics  if the Board of  Directors of the
               other,  or any  committee of the Board of Directors of the other,
               (i) fails to include in the joint proxy  statement/prospectus its
               recommendation   without   modification  or  qualification   that
               shareholders  approve the merger  agreement and the merger,  (ii)
               modifies  or  withdraws  in an  adverse  manner its  approval  or
               recommendation of the merger agreement or the merger, (iii) fails
               to reaffirm such approval or  recommendation  upon the request of
               the other,  (iv)  approves  or  recommends  any other third party
               Acquisition  Proposal, or (v) resolves to take any of the actions
               described in (i) -- (iv); or

         o     by either Focus or Videonics if any of the required  approvals of
               the  shareholders  of  Videonics or Focus shall fail to have been
               obtained at duly held  shareholders'  meetings of such companies,
               including any adjournments thereof.

         Focus has agreed to pay  Videonics a  termination  fee of three hundred
thousand dollars ($300,000) upon the earliest to occur of the following events:

         o     the termination of the merger agreement by Videonics if the Focus
               Board  of  Directors  or any  Committee  of the  Focus  Board  of
               Directors   (i)   fails   to   include   in   the   joint   proxy
               statement/prospectus  its recommendation  without modification or
               qualification that shareholders  approve the merger agreement and
               the merger,  (ii) modifies or withdraws in an adverse  manner its
               approval or recommendation of the merger agreement or the merger,
               (iii) fails to reaffirm such approval or recommendation  upon the
               request of the other, (iv) approves or recommends any other third
               party  Acquisition  Proposal,  or (v) resolves to take any of the
               actions  described in (i)--(iv);  or by Focus or Videonics if any
               of the required  shareholder  approvals of Focus or Videonics are
               not obtained under  circumstances  in which  Videonics could have
               (but did not) terminated the merger agreement  pursuant to any of
               the foregoing items (i)--(v);


         o     prior to the Focus shareholder  meeting there shall have an third
               party  acquisition  proposal or an announcement or agreement with
               respect  to such a  proposal,  Videonics  terminates  the  merger
               agreement because any of the required Focus shareholder approvals
               are not obtained  and Focus enters into a definitive  third party
               acquisition  proposal  within 12 months after the  termination of
               the merger agreement; or

         o     there is a material  breach  relating  to  approval  of the joint
               proxy statement/prospectus which is not cured (or is incapable of
               being cured) by Focus within 30 days after notice of the breach.

         In  addition  Videonics  has agreed to pay Focus a  termination  fee of
three  hundred  thousand  dollars  ($300,000)  upon the earliest to occur of the
following events:


         o     the termination of the merger agreement by Focus if the Videonics
               Board of Directors or any  Committee  of the  Videonics  Board of
               Directors   (i)   fails   to   include   in   the   joint   proxy
               statement/prospectus  its recommendation  without modification or
               qualification that shareholders  approve the merger agreement and
               the merger,  (ii) modifies or withdraws in an adverse  manner its
               approval or recommendation of the merger agreement or the merger,
               (iii) fails to reaffirm such approval or recommendation  upon the
               request of the other, (iv) approves or recommends any other third
               party  Acquisition  Proposal,  or (v) resolves to take any of the
               actions described in (i)--(iv) or by Focus or Videonics if any of
               the required shareholder  approvals of Focus or Videonics are not
               obtained under  circumstances  in which Focus could have (but did
               not)  terminated  the  merger  agreement  pursuant  to any of the
               foregoing items (i)--(v);


         o     prior to the  Videonics  shareholder  meeting  there shall have a
               third party acquisition  proposal or an announcement or agreement
               with  respect to such a  proposal,  Focus  terminates  the merger
               agreement  because  any of  the  required  Videonics  shareholder
               approvals are not obtained and Videonics enters into a definitive
               third  party  Acquisition  Proposal  within 12  months  after the
               termination of the merger agreement; or

                                       67

<PAGE>


         o     there is a material  breach  relating  to  approval  of the joint
               proxy statement/prospectus which is not cured (or is incapable of
               being  cured) by  Videonics  within 30 days  after  notice of the
               breach.

Amendment and Waiver

         The  parties to the merger  agreement  may amend the merger  agreement,
provided that any amendment  that by law or in accordance  with the rules of any
relevant stock  exchange  requires  further  approval by the Focus and Videonics
shareholders   will  not  be  made   without  the  further   approval  of  those
shareholders. Any amendment will be in writing.


         The merger agreement permits Videonics and Focus to extend the time for
performance  of  any  of the  obligations  of the  other  party,  to  waive  any
inaccuracies in the  representations  of the other party and, subject to certain
limitations, waive compliance with any of the agreements or conditions contained
in the merger agreement.


                                       68

<PAGE>


         PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL INFORMATION

Overview


         On August 30,  2000,  Focus  Enhancements,  Inc.,  reached a definitive
agreement to merge with  Videonics,  Inc., in a transaction  to be accounted for
using the purchase  method of accounting.  Focus will issue 0.87 shares of Focus
common stock for each issued and outstanding  share of Videonics common stock on
the closing date. Focus also  anticipates  incurring  approximately  $695,000 in
acquisition  expenses,  including  financial  advisory  and legal fees and other
direct  transaction  costs,  which will also be included  as a component  of the
purchase price. The allocation of the aggregate  purchase price of approximately
$9.1 million will be finalized following receipt of the closing balance sheet of
Videonics  and a final  independent  appraisal of certain  intangible  assets of
Videonics.

         The accompanying  unaudited pro forma combined  condensed  consolidated
balance  sheet  gives  effect to the  merger of Focus and  Videonics  as if such
transaction  occurred on September 30, 2000.  The  unaudited pro forma  combined
condensed  balance sheet  combines the unaudited  consolidated  balance sheet of
Focus as of September 30, 2000, and the consolidated  balance sheet of Videonics
as of September 30, 2000.

         The accompanying  unaudited pro forma combined  condensed  consolidated
statements of operations present the results of operations of Focus for the year
ended  December 31, 1999 and the  nine-month  period ended  September  30, 2000,
combined  with the  statement  of  operations  of  Videonics  for the year ended
December 31, 1999 and the  nine-month  period  ended  September  30,  2000.  The
unaudited pro forma  combined  condensed  unaudited  consolidated  statements of
operations  give effect to this  acquisition as if it had occurred as of January
1, 1999. The pro forma combined financial statements are based on the respective
historical  consolidated financial statements and the notes thereto of Focus and
Videonics which are included or incorporated herein by reference.  The pro forma
adjustments  are   preliminary  and  based  on  management's   estimates  and  a
preliminary valuation of the intangible assets acquired.


         In addition,  management is in the process of assessing and formulating
its integration plans.  Management  anticipates  restructuring  costs associated
with  integration  of the two companies  primarily  related to severance,  lease
abandonment and equipment disposal. These costs are direct and incidental to the
merger.  In  accordance  with  generally  accepted  accounting  principals,  the
acquirer  (Focus) must  expense  these costs and not include them as part of the
purchase  price.  These costs  represent  Focus' best estimates to date based on
information  currently  available.  For  purposes  of the pro forma  financials,
management  has estimated  that  restructuring  costs are not expected to exceed
$1.2  million.  This  amount is subject  to change  based on actual  results.  A
significant  component of the restructuring cost is related to the full value of
the  remaining  lease  amounts  due  on  the  Focus'  Wilmington,  Massachusetts
facility.  Focus expects to mitigate this amount through  negotiations  with the
landlord and or sub-leasing the facility.

         The unaudited pro forma combined condensed  consolidated  balance sheet
and  statements of operations  are not  necessarily  indicative of the financial
position and operating results that would have been achieved had the transaction
been in effect as of the dates  indicated and should not be construed as being a
representation of financial position or future operating results of the combined
companies.


         The  unaudited  pro forma  combined  condensed  consolidated  financial
information  should  be  read  in  conjunction  with  the  audited  consolidated
financial  statements  and  related  notes of Focus  and  Videonics,  which  are
incorporated in this joint proxy statement/prospectus by reference.

                                       69

<PAGE>


<TABLE>
                                      Unaudited Pro Forma Condensed Consolidated Balance Sheet
                                                      As of September 30, 2000
                                                           (in thousands)


<CAPTION>
                                                                  Focus          Videonics        Pro Forma               Pro Forma
                                                                  Actual           Actual        Adjustments               Combined
                                                                  ------           ------        -----------               --------
<S>                                                              <C>              <C>              <C>                     <C>
                          Assets

Current assets:
Cash and cash Equivalents ...............................        $  1,286         $    474             --                  $  1,760
Certificate of deposit ..................................           1,280             --               --                     1,280
Accounts receivable, net ................................           2,802              975             --                     3,777
Inventories .............................................           1,984            3,506             --                     5,490
Prepaid expenses and other current assets ...............             340              176             --                       516
Total current assets ....................................           7,692            5,131                                   12,823
                                                                 --------         --------         --------                --------
Property and equipment, net .............................             781              299             --                     1,080
Capitalized software development costs ..................           3,148             --           $  3,495 (A,F)             6,643
Intangible and other assets .............................             294               42            1,318 (A)               1,654
Goodwill ................................................             484             --              1,715 (A)               2,199
                                                                 --------         --------         --------                --------
Total assets ............................................        $ 12,399         $  5,472         $  6,528                $ 24,399
                                                                 ========         ========         ========                ========
           Liabilities and Shareholders' Equity
Current liabilities:
Notes payable ...........................................            --           $    400             --                  $    400
Obligations under capital lease .........................        $     46             --               --                        46
Current portion of long-term debt .......................             317             --               --                       317
Accounts payable ........................................           2,768            1,177             --                     3,945
Accrued liabilities .....................................             463              683         $  1,895 (B,J)             3,041
Accrued legal judgement expense .........................           2,148             --               --                     2,148
                                                                 --------         --------         --------                --------
Total current liabilities ...............................           5,742            2,260            1,895                   9,897
                                                                 --------         --------         --------                --------
Obligations under capital lease .........................             190             --               --                       190
Long-term debt ..........................................              64            1,035             --                     1,099
                                                                 --------         --------         --------                --------
Total Liabilities .......................................           5,996            3,295            1,895                  11,186
                                                                 --------         --------         --------                --------
Shareholders' equity:
Preferred stock .........................................            --               --               --                      --
Common stock ............................................             263           20,725          (20,674)(C)                 314
Additional paid-in capital ..............................          48,727             --              8,529 (D)               57,256
Accumulated deficit .....................................         (41,887)         (18,548)          16,961 (E,F,J)         (43,474)
Deferred compensation ...................................            --               --               (183)(G)                (183)
Treasury stock ..........................................            (700)            --               --                      (700)
                                                                 --------         --------         --------                --------
Total shareholders' equity ..............................           6,403            2,177            4,633                  13,213
                                                                 --------         --------         --------                --------
Total liabilities and shareholders' equity ..............        $ 12,399         $  5,472         $  6,528                $ 24,399
                                                                 ========         ========         ========                ========

<FN>
                                       See accompanying notes to unaudited pro forma combined
                                           condensed consolidated financial information.
</FN>
</TABLE>

                                                                 70

<PAGE>


<TABLE>
                                             Unaudited Pro Forma Condensed Consolidated
                                                       Statement of Operations
                                            For the Nine Months Ended September 30, 2000
                                                (in thousands, except per share data)


<CAPTION>
                                                                 Focus            Videonics         Pro forma             Pro forma
                                                                 Actual            Actual          Adjustments             Combined
                                                                 ------            ------          -----------             --------
<S>                                                             <C>               <C>               <C>                    <C>
Net revenues ..........................................         $ 12,130          $  9,087              --                 $ 21,217
Cost of goods sold ....................................            8,379             5,538          $   (167)(I,K)           13,750
                                                                --------          --------          --------               --------
Gross profit ..........................................            3,751             3,549               167                  7,467
                                                                --------          --------          --------               --------
Operating expenses:
Sales, marketing and support ..........................            2,748             2,275               (58)(I,K)            4,965
General and administrative ............................            2,377               758                 9 (I,K)            3,144
Research and development ..............................              758             1,619               (97)(I,K)            2,280
Depreciation and amortization .........................              733              --               1,604 (H,I)            2,337
Restructuring expense .................................              202              --                --                      202
                                                                --------          --------          --------               --------
Total operating expenses ..............................            6,818             4,652             1,458                 12,928
                                                                --------          --------          --------               --------
Loss from operations ..................................           (3,067)           (1,103)           (1,291)                (5,461)
Interest expense, net .................................              (58)              (91)             --                     (149)
Other income, net .....................................               67              --                --                       67
CRA judgement expense .................................           (2,148)             --                --                   (2,148)
                                                                --------          --------          --------               --------
Loss before income taxes ..............................           (5,206)           (1,194)           (1,291)                (7,691)
Income tax expense ....................................               (2)             --                --                       (2)
                                                                --------          --------          --------               --------
Net Loss ..............................................         $ (5,208)         $ (1,194)         $ (1,291)              $ (7,693)
                                                                ========          ========          ========               ========
Basic and diluted net loss per share ..................         $  (0.21)         $  (0.20)                                $  (0.26)
                                                                ========          ========                                 ========
Number of shares used in basic and
 diluted computation ..................................           25,003             5,896                                   30,135
                                                                ========          ========                                 ========

<FN>
                                       See accompanying notes to unaudited pro forma combined
                                            condensed consolidated financial information.
</FN>
</TABLE>

                                                                 71

<PAGE>


<TABLE>
                                             Unaudited Pro Forma Condensed Consolidated
                                                       Statement of Operations
                                                For the Year Ended December 31, 1999
                                                (in thousands, except per share data)


<CAPTION>
                                                                 Focus           Videonics         Pro forma              Pro forma
                                                                 Actual            Actual          Adjustment              Combined
                                                                --------          --------          --------               --------
 <S>                                                             <C>               <C>               <C>                    <C>
Net revenues ..........................................         $ 17,183          $ 14,226              --                 $ 31,409
Cost of goods sold ....................................           10,544             8,815          $   (403)(I,K)           18,956
                                                                --------          --------          --------               --------
Gross profit ..........................................            6,639             5,411               403                 12,453
                                                                --------          --------          --------               --------
Operating expenses:
Sales, marketing and support ..........................            3,970             3,875              (185)(I,K)            7,660
General and administrative ............................            1,878             1,219                 6 (I,K)            3,103
Research and development ..............................            1,401             2,879              (351)(I,K)            3,929
Depreciation and amortization .........................              557              --               2,655 (H,I)            3,212
                                                                --------          --------          --------               --------
Total operating expenses ..............................            7,806             7,973             2,125                 17,904
                                                                --------          --------          --------               --------
Loss from operations ..................................           (1,167)           (2,562)           (1,722)                (5,451)
Interest expense, net .................................             (531)              (72)             --                     (603)
Other income, net .....................................              218              --                --                      218
                                                                --------          --------          --------               --------
Loss before income taxes ..............................           (1,480)           (2,634)           (1,722)                (5,836)
Income tax expense ....................................             --                --                --                     --
                                                                --------          --------          --------               --------
Net Loss ..............................................         $ (1,480)         $ (2,634)         $ (1,722)              $ (5,836)
                                                                ========          ========          ========               ========
Basic and diluted net loss per share ..................         $  (0.08)         $  (0.45)                                $  (0.24)
                                                                ========          ========                                 ========
Number of shares used in basic and
 diluted computation ..................................           18,744             5,866                                   23,876
                                                                ========          ========                                 ========

<FN>
                                       See accompanying notes to unaudited pro forma combined
                                           condensed consolidated financial information.
</FN>
</TABLE>

                                                                 72

<PAGE>


            Notes To Unaudited Pro Forma Combined Condensed Financial
                        Statements of Focus and Videonics


1.       Basis of Pro Forma Presentation


         On  August  30,  2000,  Videonics  agreed  to merge  with  Focus,  in a
transaction  accounted  for as a  purchase.  The  total  purchase  price of $9.1
million included  consideration of 5.1 million shares of Focus common stock, the
issuance of 689,000 of Focus stock  options  valued at $423,000 in exchange  for
Videonics options and estimated direct transaction costs of $695,000.

         The  Focus  Pro  Forma  Combined   Condensed   Consolidated   Financial
Statements  provide for the  exchange of 0.87 shares of Focus  common  stock for
each outstanding share of Videonics common stock. The actual number of shares of
Focus  common  stock to be issued will depend on the actual  number of shares of
Videonics  common stock  outstanding on the date the merger closes.  The average
market  price per share of Focus  common  stock of $1.55 is based on the average
closing price for a range of trading days (August 28, 2000 through  September 5,
2000) around the announcement date (August 31, 2000) of the merger. Based on the
total number of  Videonics  options  outstanding  at August 31, 2000 Focus would
issue  options to purchase  689,000  shares of Focus  common stock at a weighted
average exercise price of $1.34. The actual number of options granted depends on
the  actual  number of  Videonics  options  outstanding  on the date the  merger
closes. The estimated fair value of vested options,  as well as estimated direct
transaction  expenses  of  $695,000,  have been  included as a part of the total
estimated purchase cost.


         The total purchase cost of the Videonics merger is estimated as follows
(in thousands):



  Value of common shares issued ..............................            $7,974
  Assumption of Videonics options ............................               423
  Estimated transaction costs and expenses ...................               695
                                                                          ------
  Total purchase cost ........................................            $9,092
                                                                          ======


<TABLE>
         The purchase  price  allocation,  which is  preliminary  and  therefore
subject  to  change  based on  Videonics'  final  analysis,  is as  follows  (in
thousands):

<CAPTION>
                                                                      Annual         Useful
                                                      Amount       Amortization       lives
                                                    ----------   ----------------   --------
<S>                                                     <C>               <C>       <C>
Purchase Price Allocation:
Tangible Assets .................................    $  5,472           n/a             n/a
Intangible assets acquired:
   Existing technology ..........................       3,495         $   874       4 years
   Assembled workforce ..........................       1,001             334       3 years
   Tradename ....................................         317              79       4 years
   Goodwill .....................................       1,715             343       5 years
   In-process research and development ..........         387           n/a             n/a
Long-term debt ..................................      (1,035)          n/a             n/a
Other liabilities ...............................      (2,260)          n/a             n/a
                                                     --------         -------
Net estimated purchase price allocation .........    $  9,092         $ 1,630
                                                     ========         =======
</TABLE>


         The tangible net assets acquired represent the historical net assets of
Videonics  business  as of  September  30,  2000.  As  required  under  purchase
accounting,  the assets and  liabilities of Videonics have been adjusted to fair
value.


         Focus  performed an allocation of the total purchase price of Videonics
to its individual assets acquired and liabilities assumed. Of the total purchase
price,  $387,000 has been allocated to in-process  research and  development and
will be charged to expense  in the  period the  transaction  closes.  Due to its
non-recurring nature, the in-process research and development  attributed to the
Videonics  transaction  has been  excluded  from  the pro  forma  statements  of
operations. However, it is reflected in the pro forma balance sheet.

                                       73

<PAGE>



            Notes To Unaudited Pro Forma Combined Condensed Financial
                        Statements of Focus and Videonics


         In  addition  to the value  assigned  to the  in-process  research  and
development projects,  Videonics' tangible assets and specific intangible assets
were  identified  and  valued.  The  related  amortization  of the  identifiable
intangible  assets is reflected as a pro forma  adjustment  to the Unaudited Pro
Forma Condensed Combined Statements of Operations.  The identifiable  intangible
assets  include  existing  technology,  deferred  compensation,  tradename,  and
assembled workforce.

         A  portion  of the  purchase  price  has been  allocated  to  developed
technology  and  in-process   research  and  development   ("IPRD").   Developed
technology and IPRD were  identified and valued  through  extensive  interviews,
analysis  of data  provided by the  Videonics  business  concerning  development
projects, their stage of development,  the time and resources needed to complete
them, if applicable,  their expected  income  generating  ability and associated
risks.  The income  approach,  which includes an analysis of the cash flows, and
risks  associated  with  achieving  such cash flows,  was the primary  technique
utilized in valuing the developed technology and IPRD.

         Where development projects had reached technological feasibility,  they
were  classified  as developed  technology  and the value  assigned to developed
technology was  capitalized.  The developed  technology is being  amortized on a
straight-line basis over its estimated useful life of four years.

         Where  the   development   projects   had  not  reached   technological
feasibility  and had no future  alternative  uses, they were classified as IPRD,
which  will be  expensed  upon the  consummation  of the  merger.  The value was
determined  by  estimating  the  expected  cash  flows  from the  projects  once
commercially viable,  discounting the net cash flows back to their present value
and then applying a percentage of completion to the calculated  value as defined
below.


         o     Net cash flows.  The net cash flows from the identified  projects
               are based on  estimates of revenue,  cost of sales,  research and
               development costs, selling,  general and administrative costs and
               income taxes from those  projects.  These  estimates are based on
               the  assumptions  mentioned  below.  The research and development
               costs  included in the model reflect  costs to sustain  projects,
               but exclude costs to bring  in-process  projects to technological
               feasibility.

         The estimated revenue is based on projections of Videonics business for
each in-process project.  These projections are based on its estimates of market
size and  growth,  expected  trends in  technology  and the nature and  expected
timing  of  new  product   introductions  by  the  Videonics  business  and  its
competitors.

         Projected  gross  margins  and  operating   expenses   approximate  the
Videonics business' recent historical levels.

         o     Discount   rate.  The  discount  rate  employed  in  valuing  the
               developed, core and in process technologies range from 15% to 25%
               and are consistent with the implied transaction  discount rate. A
               higher  discount  rate  was  used in  valuing  the  IPRD,  due to
               inherent uncertainties  surrounding the successful development of
               the IPRD, market acceptance of the technology, the useful life of
               such  technology and the  uncertainty of  technological  advances
               which could potentially impact the estimates described above.


         o     Percentage of  completion.  The percentage of completion for each
               project  was  determined  using  costs  incurred  to date on each
               project as compared to the remaining  research and development to
               be completed to bring each project to technological  feasibility.
               The percentage of completion varied by individual project ranging
               from 10% to 75%.

         If the projects  discussed above are not  successfully  developed,  the
sales and  profitability  of the combined  company may be adversely  affected in
future periods.

         The  acquired  assembled   workforce  is  comprised  of  manufacturing,
research and development and sales,  general and administrative  employees.  The
value of the assembled  workforce was derived by estimating the costs to replace
the existing employees, including recruiting, hiring and training costs for each
category of employee. The value of the assembled workforce is being amortized on
a straight-line basis over its estimated useful life of three years.

                                       74

<PAGE>



           Notes To Unaudited Pro Forma Combined Condensed Financial
                        Statements of Focus and Videonics


         The Videonics  tradename  has been in use for over 13 years.  Following
the merger, certain of Focus' products will continue to sold under the Videonics
tradename  Videonics is known as a leading  provider of digital  video  products
throughout the world. In estimating the value of the tradename,  the relief from
royalty  method was  employed.  The relief from  royalty  method is based on the
assumption  that in lieu of ownership,  a firm would be willing to pay a royalty
in order to exploit the related benefits of the assets.  Therefore, a portion of
Focus'  earnings,  equal to the after-tax  royalty that would have been paid for
the use of the trademark and tradename,  can be attributed to Focus'  possession
of the  trademark  and  tradename.  The  trademark  and tradename are each being
amortized on a straight-line basis over its estimated useful life of four years.

Goodwill  represents the excess of the purchase price over the fair value of the
underlying net identifiable assets.



2.        Pro Forma Adjustments


         The Focus Unaudited Pro Forma Combined Condensed Consolidated Financial
Statements  give  effect to the  allocation  of the total  purchase  cost to the
assets and liabilities of Videonics based on their respective fair values and to
amortization of the fair value over the respective  useful lives.  The pro forma
combined  provision  (benefit)  for income taxes does not  represent the amounts
that would have resulted had Focus and Videonics filed  consolidated  income tax
returns during the periods  presented.  The following pro forma adjustments have
been made to the unaudited pro forma combined condensed  consolidated  financial
statements:

         (A)   To  record  the  estimated  fair  value of  intangible  assets as
               described in Note 1. Includes the following:



Existing technology ...................................               $3,495,000
Assembled workforce ...................................                1,001,000
Tradename .............................................                  317,000
Goodwill ..............................................                1,715,000
                                                                      ----------
                                                                      $6,528,000
                                                                      ==========


         (B)   To reflect estimated direct transaction expenses of $695,000.


         (C)   To eliminate the historical common stock account of Videonics and
               to record  the par value of common  stock of $51,000 to be issued
               upon the closing of the merger.

         (D)   To record the anticipated  value of 5.1 million shares of Focus's
               common stock valued at approximately  $7,974,000  (reduced by the
               par value of such  stock of  $51,000  and the  assumption  of the
               outstanding Videonics options valued at approximately $606,000.

         (E)   To  eliminate  the  historical  accumulated  deficit  account  of
               Videonics.

         (F)   To record the  in-process  research and  development of $387,000,
               which is,  treated  as an expense  and  therefore  increases  the
               accumulated deficit.

         (G)   To  record  deferred  compensation  of  $183,000  related  to the
               unvested options assumed in the merger.

         (H)   To record the amortization of identifiable  intangible assets and
               goodwill  related  to  the  acquisition  of  Videonics  as if the
               transaction occurred January 1, 1999.

         (I)   To   reclassify   depreciation   expense   to  conform  to  Focus
               presentation.


         (J)   To  record  $1,200,000  of  estimated  restructuring  costs to be
               incurred  to  integrate  the  two  companies.   These  costs  are
               primarily  related  to  severance,  lease  abandonment  and asset
               disposal.

                                       75

<PAGE>


           Notes To Unaudited Pro Forma Combined Condensed Financial
                        Statements of Focus and Videonics

         (K)   To record the amortization  expense  associated with the deferred
               compensation  related to unvested  options  totaling  $91,500 and
               $68,625 for the twelve month and nine month period, respectively.

         Deferred tax assets totaling $1.9 million  associated with non-goodwill
intangibles was recorded but was offset completely by a $1.9 million increase in
the valuation allowance against deferred tax assets.

         The pro forma  combined  consolidated  financial  statements  include a
non-recurring  expense arising from a $2.1 million judgement rendered on October
10, 2000 against Focus and in favor of CRA Systems Inc.


3.       Pro Forma Net Loss Per Share


         The pro forma  basic and  dilutive  net loss per share are based on the
weighted  average  number of shares of pro forma Focus common stock  outstanding
during  each period  plus the shares  assumed to be issued in  exchange  for the
outstanding shares of Videonics.  Dilutive securities  including the replacement
Videonics  options are not included in the computation of pro forma dilutive net
loss per share as their effect would be anti-dilutive.


4.       Subsequent Event

         On October  26,  2000  Focus  issued a secured  promissory  note in the
approximate  principal  amount of $2.3 million to Carl Berg, a  shareholder  and
director of Videonics.  The promissory note was issued in connection with a loan
made to Focus by Mr. Berg for the purpose of  collateralizing  the $2.3  million
bond to be posted in connection with the CRA litigation, as described above. The
promissory  note has a term of three years and bears interest at a rate of prime
plus 1%.  The  principal  amount of the note will be due at the end of its term,
with interest to be paid quarterly.  Under certain  circumstances,  including at
the election of Mr. Berg and Focus,  the  promissory  note is  convertible  into
shares of Focus common stock generally equal to the value of the promissory note
and any accrued and unpaid  interest.  In the event the merger is not completed,
the promissory note can be called and become payable in full upon 90-days notice
from Mr.  Berg,  at his sole  discretion.  The  promissory  note is secured by a
security  agreement  in favor of Mr. Berg  granting  him a security  interest in
first priory over substantially all of the assets of Focus.

                                       76

<PAGE>


             COMPARISON OF SHAREHOLDER RIGHTS OF FOCUS AND VIDEONICS


         This section of the joint proxy statement/prospectus  describes certain
differences  between the rights of holders of Focus common  stock and  Videonics
common  stock.  While  we  believe  that the  description  covers  the  material
differences between the two, this summary may not contain all of the information
that is important to you. You should carefully read this entire document and the
other documents we refer to for a more complete understanding of the differences
between being a shareholder of Focus and being a shareholder of Videonics.

Applicable State Corporate Law

         Videonics is incorporated under the laws of the State of California and
is governed by the California  General  Corporation  Law. Focus is  incorporated
under  the  laws  of the  State  of  Delaware  and is  governed  by the  General
Corporation  Law of the State of  Delaware.  As a result of this  difference  in
governing law,  shareholders of Videonics receiving shares of Focus common stock
may have  statutory  rights  different  than  those  associated  with  shares of
Videonics common stock.

         Important  differences between the General Corporation Law of the State
of California and the General  Corporation Law of the State of Delaware include,
but are not limited to, the following:

         o     Delaware law allows a corporation to limit  directors'  liability
               and indemnify  directors  against claims to a greater extent than
               is permitted under California law.

         o     Delaware  law  allows  a  corporation   to  take  more  extensive
               anti-takeover  measures than are permitted under  California law,
               including  allowing a Delaware  corporation to eliminate  special
               shareholder   meetings  and  to  elect  a  classified   board  of
               directors.

         o     Delaware  law  includes a  specific  anti-takeover  statute  that
               prevents  certain  business  combinations  not  approved  by  the
               incumbent board. California law has no analogous statute.

         In addition,  Delaware law and California law differ in their treatment
of appraisal or dissenters  rights,  the payment of dividends,  and  shareholder
voting related to business combinations and combinations.


         As a  Delaware  corporation,  Focus is  subject  to the  provisions  of
Section  203 of the  General  Corporation  Law of the State of  Delaware.  Under
certain  circumstances,  the provisions of Section 203 may make the consummation
of various  business  transactions by "interested  shareholders,"  as defined in
Section 203,  with Focus more  difficult for a three-year  period  following the
time that a shareholder  becomes an "interested  shareholder." A corporation may
waive  the  protective   provisions  of  Section  203  in  its   certificate  of
incorporation or bylaws, but Focus has not currently done so.


Authorized and Outstanding Capital Stock


         Videonics  has two  classes of  authorized  capital  stock,  designated
"common  stock"  and  "preferred   stock."  Videonics  is  authorized  to  issue
30,000,000  shares of common  stock and, as of  November  10,  2000,  there were
5,902,550  shares of common stock  outstanding.  Videonics is also authorized to
issue 10,000,000  shares of preferred stock,  with such rights,  preferences and
designations  that the board of directors of Videonics may determine.  Currently
there are no outstanding shares of Videonics preferred stock.


         Focus has two classes of authorized  capital stock,  designated "common
stock" and "preferred stock," each with a par value of $0.01 per share. Focus is
authorized to issue 30,000,000 shares of common stock.  Focus is also authorized
to issue 3,000,000 shares of preferred stock, with such rights,  preferences and
designations  that the board of directors of Focus may determine.  The rights of
the  holders of Focus'  common  stock will be subject  to, and may be  adversely
affected by, the rights of holders of any preferred  stock that may be issued in
the future.  Also, any issuance of preferred  stock could make it more difficult
for a third party to acquire,  or  discourage  a third party from  acquiring,  a
majority  of the  outstanding  voting  stock of Focus.  There are  currently  no
outstanding shares of Focus preferred stock.

                                       77

<PAGE>


Voting Rights

         Holders  of Focus  common  stock are also  entitled  to one vote on all
matters submitted to Focus  shareholders for their approval for each share held.
However,  holders of Focus common  stock are not entitled to cumulate  votes for
the election of directors.  Pursuant to Focus's bylaws, all matters submitted to
the  shareholders  (including  the election of directors)  must be approved by a
majority of the votes cast in a meeting where a quorum is present.


         Except with respect to the election of directors,  holders of Videonics
common  stock are  entitled to one vote on all matters  submitted  to  Videonics
shareholders  for their  approval  for each share of common  stock  held.  Under
certain  circumstances,  holders  of  Videonics  common  stock are  entitled  to
cumulate votes for the election of directors.  Where votes are cumulated for the
election of directors, each holder of Videonics common stock is entitled to that
number of votes which is equal to the total number of shares of Videonics common
stock held,  multiplied by the number of directors being elected. The cumulative
number of votes allotted to each Videonics shareholder using this formula may be
allocated by such shareholder in any manner, including for a single director, or
for two or more  directors,  at the  discretion of such  Videonics  shareholder.
Under Videonics'  bylaws,  all matters submitted to the shareholders  (including
the election of directors) must be approved by a majority of the votes cast in a
meeting where a quorum is present.


Directors

     Number of Directors

         Focus' Board of Directors currently consists of five (5) directors. The
number of directors is determined  by resolution of the Board of Directors,  but
cannot be less than three.

         Videonics' Board of Directors currently consists of five (5) directors.
The bylaws of Videonics  provides  that the number of  directors  cannot be less
than three (3) nor more than five (5).  The exact  number of  directors is fixed
from time to time by the Board of Directors or by the shareholders at the annual
meeting of shareholders.

     Classified Board of Directors

         Delaware law provides  that a  corporation's  board of directors may be
divided into various  classes with  staggered  terms of office.  Focus' Board of
Directors  is divided into three  classes,  as nearly equal in size as possible,
with one class elected annually. Focus directors are elected for a term of three
years. The term of each director is subject to the election and qualification of
the  director's  successor and to the director's  earlier death,  resignation or
removal.  Focus'  classified Board of Directors may make it more difficult for a
third party to gain control of Focus.

         The classified  structure of Focus' Board of Directors serves to ensure
continuity and stability in a corporation's  leadership in part because,  at any
time, at least  two-thirds  of the board has had prior  experience on the board.
The  structure  also would  moderate  the pace of any change in control of Focus
because all directors'  terms do not expire at the same time,  which extends the
time required to elect a majority of the board.

         Videonics'  Board of Directors is not divided into  different  classes.
Members of Videonics'  Board of Directors are elected by a majority of the votes
cast at the annual  meeting of  shareholders.  Videonics  directors  are elected
until the next annual  meeting of  shareholders  and until their  successors are
elected and qualified or their earlier resignation or removal.

     Removal of Directors

         Focus directors, or the entire Focus Board of Directors, may be removed
with or without  cause. A director can be removed with cause by the holders of a
majority  of the  shares of Focus  common  stock  then  entitled  to vote at the
election of directors. A director may be removed without cause by the holders of
at least  seventy-five  percent  (75%) of the shares of Focus  common stock then
entitled to vote at an election of directors.

                                       78

<PAGE>


         Videonics directors, or the entire Videonics Board of Directors, may be
removed  with or  without  cause by the  affirmative  vote of the  holders  of a
majority of the shares of  Videonics  common  stock then  entitled to vote at an
election of directors.

     Filling Vacancies on the Board of Directors

         Except as otherwise required by the Certificate of Incorporation or the
Delaware  General  Corporation  Law, any vacancies in Focus' Board of Directors,
however occurring, or any newly-created  directorship resulting from an increase
in the number of seats on the Focus Board of  Directors,  will be filled by vote
of a majority of the directors then in office, even if less than a quorum, or by
the sole remaining director.  Vacancies in Focus' Board of Directors will not be
filled  by   shareholders.   Newly   created   directorships   or  decreases  in
directorships in Focus' Board of Directors will be apportioned among the classes
of directors so as to make all classes as nearly equal in number as practicable.

         To the extent reasonably possible, any newly created Focus directorship
will be added to the class of directors whose term of office is to expire at the
latest date  following  the  creation  of that  directorship,  unless  otherwise
provided for by resolution of the majority of the directors then in office.  Any
eliminated Focus  directorship will be subtracted from the class whose office is
to expire at the earliest date following the  elimination  of the  directorship,
unless  otherwise  provided for by  resolution  of the majority of the directors
then in office.

         A vacancy or vacancies in Videonics' Board of Directors shall be deemed
to exist in the case of the death, resignation or removal of any director, or if
the Board of Directors by  resolution  declares  vacant the office of a director
who has been  declared of unsound  mind by an order of court or  convicted  of a
felony,  or if the  authorized  number  of  directors  be  increased,  or if the
shareholders  fail,  at any  meeting of  shareholders  at which any  director or
directors are elected,  to elect the full  authorized  number of directors to be
voted  for at that  meeting.  Videonics'  bylaws  provide  that any  vacancy  on
Videonics'  board of  directors  may be filled by the  remaining  members of the
board of directors (even if less than a quorum), or the sole remaining director,
except  that any  vacancies  created by  removal  of a  director  by vote of the
shareholders or court order may only be filled by a vote of the shareholders. In
addition, the shareholders may fill any vacancies not filled by the directors.

Shareholder Action by Written Consent

         Focus  shareholders  may take  action at annual or special  meetings of
shareholders,  or by the written consent of shareholders having no less than the
minimum number of votes that would be necessary to take such action at a meeting
at which all shares entitled to vote on the matter were present and voted.

         Videonics  shareholders  must take action at annual or special meetings
of shareholders. No action can be taken by the written consent of shareholders.

Ability to Call Special Meetings

         Special  meetings  of Focus  shareholders  may be called only by Focus'
Board of Directors, the chairman of the Focus Board of Directors, the President,
or by the  affirmative  vote of a majority of the Focus Board of Directors or by
shareholders entitled to cast not less than 10% of the vote at such meetings.

         Special  meetings of Videonics  shareholders  may be called only by the
Videonics' Board of Directors, the chairman of the Videonics Board of Directors,
its  president,  or any  holders  of not less than 10% of the  capital  stock of
Videonics.

Advance Notice Provisions for Shareholder Nominations and Proposals

         Focus' bylaws allow shareholders to nominate candidates for election to
Focus' Board of Directors or to propose  business to be  transacted at an annual
shareholder meeting. However, such

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nominations and proposals may only be made by a shareholder who has given timely
written notice to the secretary of Focus before the annual  shareholder  meeting
in the manner described below.

         Under Focus' bylaws, to be timely, notice of shareholder nominations or
proposals to be made at an annual  shareholder  meeting must be delivered to the
secretary  of Focus not less than 60 days nor more than 90 days before the first
anniversary of the preceding year's annual shareholder meeting.  However, if the
date of the annual meeting is moved ahead more than 30 days before or delayed by
more  than  60  days  after  the  anniversary  of the  preceding  year's  annual
shareholder meeting,  notice to be timely must be delivered not earlier than the
close of business on (i) the 90th day prior to such annual meeting and not later
than the close of  business  on the later of the (ii) the 60th day prior to such
annual  meeting;  or  (iii)  the  10th day  following  the day on  which  public
announcement of the date of such meeting is first made.

         Shareholder  nominations  and proposals  will not be brought before any
Focus  shareholder  meeting unless the nomination or proposal was brought before
the meeting in accordance with Focus' shareholder  advance notice procedure,  as
set forth in the Bylaws.

         Videonics'  bylaws  allow  shareholders  to  nominate   candidates  for
election  to  Videonics'  Board  of  Directors  or  to  propose  business  to be
transacted at an annual  shareholder  meeting.  However,  such  nominations  and
proposals may only be made by a shareholder  who has given timely written notice
to the  secretary  of  Videonics  before the annual  shareholder  meeting in the
manner described below.

         Under  Videonics'   bylaws,   to  be  timely,   notice  of  shareholder
nominations  or  proposals to be made at an annual  shareholder  meeting must be
delivered to the secretary of Videonics not less than 120 days in advance of the
date specified in the proxy materials.

         Videonics does not have a provision in its Articles of Incorporation or
bylaws requiring advance notice or a specific procedural process for shareholder
nominations  of candidates  for election to the Videonics  Board of Directors or
for shareholder proposals before Videonics' annual shareholder meeting. However,
certain procedures must be met for nominations.

Amendment of Articles/Certificate of Incorporation

         Under  Delaware  law,  a  certificate  of  incorporation  of a Delaware
corporation  may be  amended  by  approval  of the  board  of  directors  of the
corporation  and  the  affirmative  vote of the  holders  of a  majority  of the
outstanding  shares entitled to vote for the amendment,  unless a higher vote is
required by the  corporation's  certificate of incorporation.  In addition,  the
Certificate of  Incorporation of Focus requires,  for certain  amendments to the
Certificate,  the  affirmative  vote of the holders of shares of voting stock of
Focus representing at least seventy-five percent (75%) of voting power of all of
the then  outstanding  shares of the capital stock entitled to vote generally in
the election of directors, voting together in a single class.

         Under  California  law,  the  approval of the board of  directors  of a
California  corporation and the affirmative vote of the holders of a majority of
the  outstanding  shares entitled to vote generally is required for amendment of
the  articles  of  incorporation  unless  a  higher  vote  is  required  by  the
corporation's  articles of  incorporation.  Videonics  does not currently have a
higher vote  required by its  Articles of  Incorporation  in order to amend such
documents.

Amendment of Bylaws

         Under  Delaware  law,  shareholders  entitled to vote have the power to
adopt,  amend  or  repeal  bylaws.  In  addition,  a  corporation  may,  in  its
certificate of incorporation, confer that power upon the board of directors. The
shareholders always have the power to adopt, amend or repeal bylaws, even though
the board may also be delegated that power.

         Focus' by-laws may be amended or repealed by the affirmative  vote of a
majority of the Focus Board of  Directors  at any meeting or by the  affirmative
vote of the holders of eighty percent (80%) of the  outstanding  voting power of
the then outstanding  shares of capital stock of Focus at any meeting at which a
proposal to amend or repeal the by-laws is properly presented.

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<PAGE>


         Videonics'  bylaws may be amended or replaced by the vote of a majority
of the outstanding  shares entitled to vote.  Additionally,  Videonics' Board of
Directors is  authorized  to alter,  amend and repeal  Videonics'  bylaws at any
meeting  of the  board.  Its  bylaws do not  contain  any  supermajority  voting
requirements for amendments.  Holders of a majority of the outstanding shares of
Videonics  common  stock can also amend the  by-laws by vote.  This means that a
lower vote is  required to change  Videonics'  bylaws than is required to change
Focus' bylaws.

Limitation of Liability of Directors

         Focus's  certificate  of  incorporation   provides  that  the  personal
liability  of  Focus's  directors  to Focus and its  shareholders  for  monetary
damages  arising  out of a breach of the  directors'  fiduciary  duties has been
expressly  eliminated to the fullest extent permitted by the General Corporation
Law of the State of Delaware. In addition,  Focus's certificate of incorporation
provides that if the General Corporation Law of the State of Delaware is amended
to  authorize  the further  elimination  or  limitation  of the  liability  of a
director,  then the liability of Focus's directors will be eliminated or limited
to the fullest extent  permitted by the General  Corporation Law of the State of
Delaware as so amended.  Currently,  the General Corporation Law of the State of
Delaware  permits a  corporation  to include a provision in its  certificate  of
incorporation  or bylaws  enabling the  corporation  to limit or  eliminate  the
personal  liability of its directors to the corporation or its  shareholders for
damages arising out of a breach of the directors'  fiduciary duties,  subject to
certain limitations.

         Videonics'   articles  of  incorporation   provide  that  the  personal
liability of Videonics' directors to Videonics and its shareholders for monetary
damages  arising  out of a breach of the  directors'  fiduciary  duties has been
expressly  eliminated to the fullest extent  permitted by the Corporation Law of
the  State  of  California.  Currently,  the  Corporation  Law of the  State  of
California  permits a  corporation  to include a  provision  in its  articles of
incorporation  or bylaws  enabling the  corporation  to limit or  eliminate  the
personal  liability of its directors to the  corporation for damages arising out
of a breach of the directors' fiduciary duties,  subject to certain limitations.
The  limitation  of  liability  permitted  by  California  law does not apply to
actions  brought  directly by shareholders  (such as a shareholder  class action
lawsuit)  or to  liabilities  resulting  from  "acts or  omissions  that  show a
reckless   disregard  for  the  director's   duty  to  the  corporation  or  its
shareholders  in  circumstances  in which the director was aware, or should have
been aware, in the ordinary course of performing a director's  duties, of a risk
of serious injury to the corporation or its  shareholders" or "acts or omissions
that  constitute  an  unexcused  pattern  of  inattention  that  amounts  to  an
abdication of the director's duty to the corporation or its shareholders."

         While these  provisions  provide the  directors of Videonics  and Focus
with protection  against awards for monetary  damages arising out of a breach of
fiduciary  duties,  they do not  eliminate the duty itself.  Accordingly,  these
provisions will have no effect on the availability of equitable remedies such as
an  injunction  or  rescission  based  upon a  director's  breach  of his or her
fiduciary duties.

Indemnification of Directors and Officers

         The  General  Corporation  Law of  the  State  of  Delaware  permits  a
corporation to indemnify its directors,  officers,  employees and agents for any
liability arising out of an action or threatened action, other than an action by
or in the right of the  corporation,  to which such person is a party due to his
or her service as a director,  officer,  employee or agent,  provided  that such
person acted in good faith and in a manner he or she  reasonably  believed to be
in, or not opposed to, the best interests of the  corporation,  and with respect
to any criminal action, which he or she had no reason to believe was unlawful.

         Focus' Certificate of Incorporation provides for the indemnification of
its directors and officers. The indemnification provisions state that any person
who was or is a party or is threatened  to be made a party to any action,  suit,
or proceeding, whether civil, criminal,  administrative or investigative,  other
than an action or suit brought by Focus, because that person either:

         o     is or was a director or officer of Focus; or

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<PAGE>


         o     is or was serving at the request of Focus, as a director, officer
               or  trustee  of,  or  in  a  similar   capacity   with,   another
               corporation,   partnership,   joint   venture,   trust  or  other
               enterprise   (including  any  employee  benefit  plan),  will  be
               indemnified   against   expenses,   including   attorney's  fees,
               judgements,  fines,  and amounts paid in settlement  actually and
               reasonably  incurred by him or her in connection with the action,
               suit or  proceeding,  and any appeal  therefrom,  to the  fullest
               extent  permitted by Delaware law. These  indemnification  rights
               are not  exclusive  of any other right to which  persons  seeking
               indemnification   may  be  entitled  under  any  law  (common  or
               statutory),  agreement,  vote of  shareholders  or  disinterested
               directors or otherwise.

         In the case of any action or suit by Focus to procure a judgment in its
favor,  no  indemnification  will be made (i)  except  for  expenses,  including
attorneys' fees, or (ii) relating to any claim,  issue or matter as to which the
director or officer  has been  judged to be liable to Focus,  unless and only to
the extent that the Court of Chancery of Delaware  determines that,  despite the
adjudication of liability but in view of all of the  circumstances  of the case,
the  director,  officer or trustee is entitled to  indemnity  for such  expenses
which the court finds proper.

         Additionally,  Focus  may  pay  expenses  incurred  by  its  directors,
officers or trustees in defending a civil or criminal action, suit or proceeding
in advance of the final disposition of that action, suit or proceeding. However,
those  payments  will be made only if Focus  receives  an  undertaking  by or on
behalf of the director,  officer or trustee, to repay all amounts advanced if it
is ultimately  determined  that he or she is not entitled to be  indemnified  by
Focus.

         In the event that a claim for indemnification  against such liabilities
(other than the  payment by the small  business  issuer of expenses  incurred or
paid by a director,  officer or controlling  person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by such
director,  officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of counsel the
matter  has  been  settled  by  controlling  precedent,  submit  to a  court  of
appropriate  jurisdiction  the question  whether such  indemnification  by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.

         Videonics'  articles of incorporation  limit the liability of directors
to the full extent  permitted by California law.  California law provides that a
corporation's  articles of  incorporation  may  eliminate  or limit the personal
liability of directors for monetary damages for breach of their fiduciary duties
as directors, except liability for:

         o     acts  of  omissions  that  involve  intentional  misconduct  or a
               knowing and culpable violation of law;

         o     acts or omissions that a director  believes to be contrary to the
               best  interest of Videonics or its  shareholders  or that involve
               the absence of good faith on the part of the director;

         o     any  transaction  from  which  a  director  derived  an  improper
               personal benefit;

         o     acts  or  omissions  that  show  a  reckless  disregard  for  the
               director's  duty  to  Videonics  or  Videonics'  shareholders  in
               circumstances  in which the  director  was aware,  or should have
               been aware,  in the  ordinary  course of  performing a director's
               duties,  of  a  risk  of  serious  injury  to  Videonics  or  its
               shareholders;

         o     acts  or  omissions  that  constitute  an  unexcused  pattern  of
               inattention  that amounts to an abdication of the director's duty
               to Videonics or its shareholders;

         o     unlawful  payments of dividends or unlawful stock  repurchases or
               redemptions,  unlawful  distribution of assets to shareholders or
               unlawful  loans or guarantees to directors,  officers and others;
               or

         o     any transaction between a director and Videonics.

         Videonics'  bylaws  provide  that  it  will  indemnify  its  directors,
officers,  employees  or  other  agents  to  the  fullest  extent  permitted  by
California law, including circumstances in which indemnification is

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otherwise  discretionary  under  California  law.  Videonics  has  entered  into
indemnification agreements with our directors and officers containing provisions
that are in some respects broader than the specific  indemnification  provisions
contained in the California  Corporations Code. The  indemnification  agreements
may require Videonics:

         o     to indemnify its directors and officers against  liabilities that
               may arise by reason of their  status or service as  directors  or
               officers,  other than liabilities arising from willful misconduct
               of a culpable nature;

         o     to advance their expenses  incurred as a result of any proceeding
               against them as to which they could be indemnified; and

         o     to obtain  directors'  and  officers'  insurance  if available on
               reasonable terms.


         The  Securities  and  Exchange  Commission  has  advised  that,  in its
opinion, any indemnification of the directors and officers of Focus or Videonics
for liabilities  arising under the Securities Act of 1933, as amended is against
public policy as expressed in the Act and is therefore unenforceable.


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<PAGE>


                                     EXPERTS

         The consolidated  financial statements of Focus as of December 31, 1999
and  for  the  year  ended   have  been   incorporated   in  this  joint   proxy
statement/prospectus  and in the  Registration  Statement  by  reference  to our
Annual Report on Form 10-KSB/A for the year ended December 31, 1999, in reliance
on the report of Wolf & Company,  P.C.,  independent  accountants,  given on the
authority of said firm as experts in auditing and accounting.


         The  consolidated  financial  statements of Videonics as of December 31
1999 and 1998 and for each of the three years in the period  ended  December 31,
1999 incorporated in this Joint Proxy  Statement/Prospectus  by reference to the
Annual  Report on Form 10-K for the year ended  December  31,  1999 have been so
incorporated   in  reliance  on  the  report  of   PricewaterhouseCoopers   LLP,
independent  accountants,  given on the  authority  of said firm as  experts  in
auditing and accounting.



                                  LEGAL MATTERS

         The   validity  of  Focus  common  stock  to  be  issued  to  Videonics
shareholders  pursuant  to  the  merger  and  certain  other  legal  matters  in
connection with the merger will be passed upon for Focus by Mintz,  Levin, Cohn,
Ferris, Glovsky and Popeo, PC, Boston, Massachusetts.


                                  OTHER MATTERS

         As of the date of this joint proxy statement/prospectus,  management of
Focus and  Videonics  know of no other  business  that will  come  before  their
respective  annual  meetings.  Should any other matters properly come before the
annual  meetings,  the proxy in the  enclosed  form  confers  upon the person or
persons designated to vote the shares  discretionary  authority to vote the same
with respect to any other matter in accordance  with the discretion of the Focus
and Videonics Boards of Directors.


                      WHERE YOU CAN FIND MORE INFORMATION

         We file annual,  quarterly and special  reports,  proxy  statements and
other information with the Securities and Exchange Commission.  You may read and
copy any document we file at the SEC's  public  reference  rooms in  Washington,
D.C.,  New  York,  New  York  and  Chicago,  Illinois.  Please  call  the SEC at
1-800-SEC-0330 for further  information on the public reference rooms. Copies of
these  materials can be obtained at prescribed  rates from the Public  Reference
Section  of  the  SEC  at its  principal  office  at  450  Fifth  Street,  N.W.,
Washington,  D.C.  20549.  Our SEC filings are also available to the public from
the SEC's Website at "http://www.sec.gov."


         The SEC allows us to "incorporate by reference" the information we file
with them,  which means that we can  disclose  important  information  to you by
referring you to those documents.  The information  incorporated by reference is
considered to be part of this joint proxy statement/prospectus,  and information
that we file later with the SEC will  automatically  update and  supersede  this
information.  We  incorporate  by reference the  documents  listed below and any
future  filings we will make with the SEC under  Sections  13(a),  13(c),  14 or
15(d) of the Securities Exchange Act of 1934:


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<PAGE>


Focus

         The  following  documents  filed by Focus  with  the  SEC,  are  hereby
incorporated by reference into this joint proxy statement/prospectus:


         o     Notification  of late filing of Annual  Report on Form 10-KSB for
               the fiscal  year ended  December  31,  1999 on Form NT 10-K filed
               with the Commission on March 30, 2000.

         o     Annual  Report on Form 10-KSB for the fiscal year ended  December
               31, 1999, filed with the Commission on April 14, 2000.

         o     Annual  Report  on form  10-KSB/A  for  the  fiscal  year  ending
               December 31, 1999, filed with the Commission on May 1, 2000.

         o     Notification  of late filing on Form 10-QSB for quarterly  period
               ended March 31, 2000 on Form NT-10Q, filed with the Commission on
               May 15, 2000.


         o     Quarterly  Report on Form 10-QSB for the  quarterly  period ended
               March 31, 2000, filed with the Commission on May 22, 2000.

         o     Report on Form 8-K  filed  with the  Commission  on March 2, 2000
               containing  a press  release  announcing  that the Focus board of
               directors  have formed a committee  to review  certain  financial
               control issues and determine the possible  effects of such issues
               on the financial  statements of Focus for the year ended December
               31, 1999 and prior periods.

         o     Notification  of late filing of Form 10-QSB for quarterly  period
               ended June 30, 2000 on Form NT 10-Q, filed with the Commission on
               August 15, 2000.

         o     Quarterly  Report on Form 10-QSB for the  quarterly  period ended
               June 30, 2000, filed with the Commission on August 21, 2000.

         o     Current report on Form 8-K filed with the Commission on September
               8, 2000  containing a press release  announcing  the execution of
               the merger agreement and a copy of the merger agreement.


         o     Current  report on Form 8-K filed with the  Commission on October
               31, 2000 to announce the issuance of a secured promissory note in
               the principal  amount of $2.3 million in order to collateralize a
               $2.3  million  bond  to  be  posted  in  connection  with  Focus'
               litigation  with CRA Systems,  Inc.  Focus also announced that it
               had submitted a supersedeas bond in the Federal District Court of
               Waco,  Texas  to  suspend  the  enforcement  of  a  $1.8  million
               judgement in favor of CRA Systems, Inc.

         o     Current  report  on Form  8-K/A  filed  with  the  Commission  on
               November 2, 2000 to attach additional  exhibits to the previously
               filed Form 8-K, filed on October 31, 2000.

         o     Quarterly  Report on Form  10-Q for the  quarterly  period  ended
               September  30, 2000,  filed with the  Commission  on November 14,
               2000.

         You may  request a copy of these  filings,  at no cost,  by  writing or
telephoning Focus at the following address:

         Focus Enhancements, Inc.
         Attention: Investor Relations
         600 Research Drive
         Wilmington, Massachusetts 01887
         (978) 988-5888.


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<PAGE>


Videonics


         The  following  documents  filed by Videonics  with the SEC, are hereby
incorporated by reference into this joint proxy statement/prospectus:


         o     Annual report on Form 10-K for the fiscal year ended December 31,
               1999, filed with the Commission on March 29, 2000.

         o     Annual  report on Form 10-K/A for the fiscal year ended  December
               31, 1999, filed with the Commission on April 28, 2000.

         o     Quarterly  report on Form 10-Q for the  quarter  ended  March 31,
               2000, filed with the Commission on May 11, 2000.

         o     Quarterly  report on Form  10-Q for the  quarter  ended  June 30,
               2000, filed with the Commission on August 14, 2000.

         o     Report on Form 8-K filed with the Commission on September 8, 2000
               containing a press release announcing the execution of the merger
               agreement and a copy of the merger agreement.


         o     Quarterly report on Form 10-Q for the quarter ended September 30,
               2000, filed with the Commission on November 14, 2000.

         You may  request a copy of these  filings  at no cost,  by  writing  or
telephoning Videonics at the following address:

         Videonics, Inc.
         Attention: Investor Relations
         1370 Dell Avenue
         Campbell, California 95008
         (408) 866-8300.


         This  joint  proxy  statement/prospectus  is  part  of  a  registration
statement we have filed with the Securities and Exchange Commission.  You should
rely only on the  information  or  representations  provided in this joint proxy
statement/prospectus.  We have  authorized no one to provide you with  different
information.  We are not making an offer of these  securities in any state where
the offer is not permitted.  You should not assume that the  information in this
prospectus  is  accurate as of any date other than the date on the front of this
prospectus.


                             ACCOMPANYING DOCUMENTS


         This joint  proxy  statement/prospectus  includes  copies of Focus' and
Videonics' Annual Reports on Form 10-KSB/A and 10-K, respectively,  for the year
ended  December  31, 1999 and Focus' and  Videonics'  Quarterly  Reports on Form
10-Q, for the quarter ended September 30, 2000. See Appendices F, G, H, and I.


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                                   APPENDIX A

            AGREEMENT AND PLAN OF MERGER DATED AS OF AUGUST 30, 2000

                          AGREEMENT AND PLAN OF MERGER


     This  AGREEMENT AND PLAN OF MERGER (this  "Agreement"),  dated as of August
30,  2000,  is entered  into by and among Focus  Enhancements,  Inc., a Delaware
corporation ("Focus"),  PC Video Conversion,  Inc., a Delaware corporation and a
wholly owned subsidiary of Focus ("Merger Subsidiary"),  and Videonics,  Inc., a
California corporation ("Videonics").

     Whereas,  the Board of Directors of each of Focus,  Merger  Subsidiary  and
Videonics has determined  that it is in the best  interests of its  shareholders
that  Focus and  Videonics  enter  into a  business  combination  under  which a
subsidiary  of Focus will merge with and into  Videonics  pursuant to the Merger
(as defined in Section 1.1 hereof);

     Whereas, upon completion of the Merger, vacancies on the Board of Directors
of Focus shall be filled by persons appointed by the Board of Directors of Focus
such that the Board of Directors  of Focus  consists of seven  persons,  four of
whom  shall be  nominated  by Focus  and  three of whom  shall be  nominated  by
Videonics;

     Whereas,  upon  completion  of  the  Merger,  Michael  D'Addio,  the  Chief
Executive  Officer of  Videonics,  shall be appointed as the President and Chief
Executive Officer of Focus;

     Whereas,  the Board of Directors of each of Focus,  Merger  Subsidiary  and
Videonics has determined that the Merger and the other transactions contemplated
hereby are  consistent  with, and in  furtherance  of, its  respective  business
strategies  and goals and has approved the Merger upon the terms and  conditions
set forth herein; and

     Whereas,  for federal  income tax purposes,  it is intended that the Merger
shall constitute a tax-free reorganization.

     Now, therefore,  in consideration of the foregoing and the mutual covenants
and agreements herein contained,  and intending to be legally bound hereby,  the
Parties hereto hereby agree as follows:


                                    ARTICLE I

                                   THE MERGER


     Section 1.1 The Merger.  At the  Effective  Time (as defined in Section 1.2
hereof) and subject to and upon the terms and conditions of this Agreement,  the
Delaware  Corporation  Law ("DCL") and the  California  Corporate  Law  ("CCL"),
Merger Subsidiary will be merged with and into Videonics (the "Merger"), whereby
the separate corporate  existence of Merger Subsidiary shall cease and Videonics
shall  continue as the  surviving  corporation  which shall be a  subsidiary  of
Focus.  Videonics  as the  surviving  corporation  after  the  Merger  is herein
sometimes  referred to as the "Surviving  Corporation" and Merger  Subsidiary as
the non-surviving  corporation after the Merger is herein sometimes  referred to
as the "Merged Corporation."  Videonics,  Focus and Merger Subsidiary are herein
referred to collectively as the "Parties" and each individually as a "Party."

     Section  1.2  Effective   Time.  As  promptly  as  practicable   after  the
satisfaction or waiver of the conditions set forth in Article VII hereof and the
consummation of the Closing referred to in Section 2.9 hereof, the Parties shall
cause the Merger to be  consummated  by filing a Certificate  of Merger with the
Secretary of State of the State of Delaware with respect to the Merger,  in such
form as required by, and executed in accordance with, the relevant provisions of
the DCL and CCL (the time of such filing being the "Effective Time").

     Section 1.3 Effect of the Merger.  At the Effective Time, the effect of the
Merger  shall be as provided in the  applicable  provisions  of the DCL and CCL.
Without limiting the generality of the foregoing,  and subject  thereto,  at the
Effective Time all the property,  rights,  privileges,  powers and franchises of
Videonics and Merger Subsidiary shall continue with, or vest in, as the case may
be,  Videonics as the  Surviving  Corporation,  and all debts,  liabilities  and
duties of Videonics and Merger  Subsidiary  shall continue to be, or become,  as
the case may be, the debts, liabilities and duties of Videonics as the Surviving
Corporation.  As of the Effective  Time,  the Surviving  Corporation  shall be a
direct subsidiary of Focus.


                                       A-1


<PAGE>


     Section 1.4 Subsequent Actions. If at any time after the Effective Time the
Surviving  Corporation  shall  consider or be advised  that any deeds,  bills of
sale,  assignments,  assurances  or any other actions or things are necessary or
desirable to continue in, vest, perfect or confirm of record or otherwise in the
Surviving  Corporation  its right,  title or interest in, to or under any of the
rights,  properties,   privileges,   franchises  or  assets  of  either  of  its
constituent corporations acquired or to be acquired by the Surviving Corporation
as a result of, or in connection with, the Merger or otherwise to carry out this
Agreement,  the officers and  directors of the  Surviving  Corporation  shall be
directed and  authorized  to execute and  deliver,  in the name and on behalf of
either  of such  constituent  corporations,  all  such  deeds,  bills  of  sale,
assignments and assurances and to take and do, in the name and on behalf of each
of such  corporations or otherwise,  all such other actions and things as may be
necessary or desirable to vest,  perfect or confirm any and all right, title and
interest in, to and under such rights,  properties,  privileges,  franchises  or
assets in the Surviving Corporation or otherwise to carry out this Agreement.

     Section 1.5 Certificate of Incorporation; Bylaws; Directors and Officers of
Surviving Corporation. Unless otherwise agreed by Videonics and Focus before the
Effective Time, at the Effective Time:

      (a)  the  Certificate  of  Incorporation  of  Videonics  as the  Surviving
   Corporation  shall be the Articles of Incorporation of Videonics as in effect
   immediately prior to the Effective Time, until thereafter amended as provided
   by Law and such Certificate of Incorporation;


      (b) the bylaws of  Videonics  as the  Surviving  Corporation  shall be the
   bylaws of Videonics immediately prior to the Effective Time, until thereafter
   amended as  provided  by Law and the  Certificate  of  Incorporation  and the
   bylaws of such Surviving Corporation; and

      (c) the  directors  and  officers of  Videonics  immediately  prior to the
   Effective  Time shall  continue to serve in their  respective  offices of the
   Surviving  Corporation  from and after the Effective Time, in each case until
   their  successors  are  elected or  appointed  and  qualified  or until their
   resignation or removal. If at the Effective Time a vacancy shall exist on the
   Board of  Directors  or in any  office  of the  Surviving  Corporation,  such
   vacancy may thereafter be filled in the manner provided by Law and the bylaws
   of the Surviving Corporation.


                                   ARTICLE II

                EFFECT ON STOCK OF THE SURVIVING CORPORATION AND
                             THE MERGED CORPORATION


     Section 2.1  Conversion of  Securities.  The manner and basis of converting
the  shares of  common  stock of the  Surviving  Corporation  and of the  Merged
Corporation  at the  Effective  Time,  by virtue of the Merger and  without  any
action  on the  part  of  any  of the  Parties  or  the  holder  of any of  such
securities, shall be as hereinafter set forth in this Article II.

     Section 2.2 Conversion of Shares.

      (a) Subject to Section 2.7, each share of common stock,  no par value,  of
   Videonics  ("Videonics  Common  Stock")  issued and  outstanding  immediately
   before the Effective Time (excluding those canceled  pursuant to Section 2.3)
   and all rights in respect thereof,  shall at the Effective Time,  without any
   action on the part of any holder  thereof,  be converted into and become 0.87
   shares of common stock,  par value $0.01 per share,  of Focus ("Focus  Common
   Stock"),  provided  that any  Dissenting  Shares (as defined in Section 2.13)
   shall dealt with as provided in Section 2.13. Such ratio of Videonics  Common
   Stock to Focus Common Stock is herein referred to as the "Exchange Ratio."

      (b) As of the  Effective  Time,  all  shares  of  Videonics  Common  Stock
   converted pursuant to Section 2.2(a) shall no longer be outstanding and shall
   automatically  be canceled  and  retired  and shall cease to exist,  and each
   holder of a certificate  (each, an "Old  Certificate")  representing any such
   shares of Videonics  Common Stock shall cease to have any rights with respect
   thereto,  except  the right to  receive  shares  of Focus  Common  Stock,  in
   accordance with Section 2.2(a),  certain dividends or other  distributions in
   accordance  with Section 2.7(d) and any cash in lieu of fractional  shares of
   Focus  Common  Stock to be  issued  or paid in  consideration  therefor  upon
   surrender  of such  certificate  in  accordance  with  Section  2.6,  without
   interest.



                                       A-2


<PAGE>



     Section 2.3  Cancellation  of Treasury Shares and Shares Owned by Focus and
Merger  Subsidiary.  At the Effective Time, each share of Videonics Common Stock
held in the  treasury  of  Videonics  or owned  by  Merger  Subsidiary  or Focus
immediately  prior to the  Effective  Time shall be canceled  and retired and no
shares of stock or other securities of Focus or the Surviving  Corporation shall
be issuable,  and no payment or other  consideration shall be made, with respect
thereto.

     Section  2.4  Conversion  of Common  Stock of the Merged  Corporation  into
Common Stock of the Surviving Corporation.  At the Effective Time, each share of
common stock of Merger  Subsidiary  issued and outstanding  immediately prior to
the Effective Time, and all rights in respect thereof, shall, without any action
on the part of Focus, forthwith cease to exist and be converted into one validly
issued,  fully paid and  nonassessable  share of common stock,  of the Surviving
Corporation (the "Surviving  Corporation  Common Stock").  Immediately after the
Effective Time and upon surrender by Focus of the certificates  representing the
shares of the common  stock of Merger  Subsidiary,  Videonics  as the  Surviving
Corporation  shall deliver to Focus an appropriate  certificate or  certificates
representing the Surviving Corporation Common Stock created by conversion of the
common stock of Merger Subsidiary owned by Focus.

     Section 2.5  Adjustments  to Exchange  Ratio.  Without  limiting  any other
provision  of this  Agreement,  the  Exchange  Ratio  shall  be  correspondingly
adjusted to reflect fully the effect of any stock split,  reverse  split,  stock
dividend (including any dividend or distribution of securities  convertible into
Focus Common Stock or Videonics Common Stock), reorganization, recapitalization,
reclassification, conversion, consolidation, contribution or exchange of shares,
any  shelf-registration  or other like change with respect to Focus Common Stock
or  Videonics  Common  Stock  occurring  after the date  hereof and prior to the
Effective Time.

     Section 2.6 Fractional Shares. No fraction of a share of Focus Common Stock
will be issued  hereunder,  but in lieu thereof each holder of Videonics  Common
Stock who would  otherwise  be entitled to a fraction of a share of Focus Common
Stock  (after  aggregating  all  fractional  shares of Focus  Common Stock to be
received by such holder)  shall receive from Focus an amount of cash (rounded to
the nearest whole cent) equal to the product of such fraction  multiplied by the
closing  price  for a share  of  Focus  Common  Stock  on the  NASDAQ  Composite
Transaction  Tape on the first trading day  immediately  following the Effective
Time.

     Section 2.7 Surrender of Certificates.

      (a) Exchange Agent.  Prior to the Effective Time,  Focus shall designate a
   bank or trust company to act as Exchange Agent in the Merger.

      (b) Focus to Provide  Common  Stock.  On or prior to the  Effective  Time,
   Focus shall make  available to the Exchange  Agent for exchange in accordance
   with this Article II, the shares of Focus Common Stock  issuable  pursuant to
   Section 2.2 in exchange for outstanding Videonics Common Stock, together with
   an  estimated  amount of cash to be paid  pursuant  to Section 2.6 in lieu of
   fractional shares.

      (c) Exchange Procedures.  Promptly after the Effective Time, the Surviving
   Corporation  shall  cause  to  be  mailed  to  each  holder  of  record  of a
   certificate or certificates (the  "Certificates")  which immediately prior to
   the Effective Time represented  outstanding  shares of Videonics Common Stock
   whose shares were  converted into the right to receive shares of Focus Common
   Stock pursuant to Section 2.2, a letter of  transmittal  (which shall specify
   that  delivery  shall  be  effected,  and  risk  of  loss  and  title  to the
   Certificates  shall  pass,  only upon  delivery  of the  Certificates  to the
   Exchange  Agent and shall be in such form and have such other  provisions  as
   Focus may  reasonably  specify) and  instructions  for use in  effecting  the
   surrender  of the  Certificates  in exchange  for  certificates  representing
   shares  of  Focus  Common  Stock.   Upon  surrender  of  a  Certificate   for
   cancellation to the Exchange Agent, together with such letter of transmittal,
   duly  completed  and validly  executed in  accordance  with the  instructions
   thereto,  the  holder of such  Certificate  shall be  entitled  to receive in
   exchange  therefor,  and Focus shall cause to be  distributed,  a certificate
   representing  the number of whole shares of Focus Common Stock and payment in
   lieu of fractional shares which such holder has the right to receive pursuant
   to Section  2.6,  and the  Certificate  so  surrendered  shall  forthwith  be
   canceled.  Until so surrendered,  each outstanding Certificate that, prior to
   the  Effective  Time,  represented  shares of Videonics  Common Stock will be
   deemed from and after the Effective Time, for all corporate  purposes,  other
   than the payment of  dividends,  to evidence  the  ownership of the number of
   full shares of Focus  Common  Stock into which such  Videonics  Common  Stock
   shall  have been so  converted  and the right to receive an amount in cash in
   lieu of the issuance of any fractional shares in accordance with Section 2.6.


                                       A-3


<PAGE>



   Any portion of the shares of Focus Common Stock  deposited  with the Exchange
   Agent pursuant to Section 2.7(b) which remains  undistributed  to the holders
   of the  Certificates  representing  Videonics  Common  Stock for twelve  (12)
   months after the Effective Time shall be delivered to Focus, upon demand, and
   any holders of Videonics Common Stock who have not theretofore  complied with
   this Article II shall  thereafter  look only to Focus for Focus Common Stock,
   any cash in lieu of fractional shares of Focus Common Stock and any dividends
   or distributions with respect to Focus Common Stock to which such holders may
   be entitled.

      (d)  Distributions  With Respect to  Unexchanged  Shares.  No dividends or
   other distributions declared or made after the Effective Time with respect to
   Focus Common Stock with a record date after the  Effective  Time will be paid
   to the holder of any unsurrendered  Certificate with respect to the shares of
   Videonics Common Stock represented thereby until the holder of record of such
   Certificate shall surrender such Certificate.  Subject to applicable  escheat
   Law, following surrender of any such Certificate,  there shall be paid to the
   record holder of the certificates  representing  whole shares of Focus Common
   Stock  issued in exchange  therefor,  without  interest,  at the time of such
   surrender,  the amount of dividends or other distributions with a record date
   after the Effective Time  theretofore  paid with respect to such whole shares
   of Focus Common Stock.

      (e) Transfers of Ownership.  If any certificate for shares of Focus Common
   Stock is to be issued  in a name  other  than  that in which the  Certificate
   surrendered in exchange therefor is registered, it will be a condition of the
   issuance  thereof  that  the  Certificate  so  surrendered  will be  properly
   endorsed  and  otherwise  in proper  form for  transfer  and that the  Person
   requesting such exchange will have paid to Focus, or any agent  designated by
   it, any  transfer  or other  taxes  required  by reason of the  issuance of a
   certificate  for shares of Focus  Common Stock in any name other than that of
   the registered holder of the certificate  surrendered,  or established to the
   satisfaction  of Focus or any agent  designated  by it that such tax has been
   paid or is not payable.

      (f) No  Liability.  Notwithstanding  anything  to  the  contrary  in  this
   Agreement,  none of the  Exchange  Agent,  Focus,  Merger  Subsidiary  or the
   Surviving  Corporation  shall be liable to a holder of Videonics Common Stock
   for any Focus Common Stock or any amount  properly paid to a public  official
   pursuant to any applicable abandoned property, escheat or similar Law.

      (g)  Withholding  of Tax.  Focus or the Exchange Agent will be entitled to
   deduct and withhold from the consideration otherwise payable pursuant to this
   Agreement to any holder of  Videonics  Common Stock such amounts as Focus (or
   any affiliate  thereof) or the Exchange  Agent shall  determine in good faith
   they are required to deduct and  withhold  with respect to the making of such
   payment under the Internal Revenue Code of 1986, as amended (the "Code"),  or
   any provision of federal, state, local or foreign tax Law. To the extent that
   amounts are so withheld by Focus or the Exchange Agent, such withheld amounts
   will be treated for all purposes of this Agreement as having been paid to the
   holder of the  Videonics  Common Stock in respect of whom such  deduction and
   withholding were made by Focus.

     Section 2.8 Further  Ownership Rights in Videonics Common Stock. All shares
of Focus Common Stock issued upon the surrender for exchange of Videonics Common
Stock in accordance  with the terms of this Article II (including  any cash paid
in respect thereof) shall be deemed to have been issued in full  satisfaction of
all rights  pertaining to such Videonics Common Stock under this Article II, and
there  shall be no  further  registration  of  transfers  on the  records of the
Surviving   Corporation  of  Videonics   Common  Stock  which  were  outstanding
immediately  prior  to  the  Effective  Time.  If,  after  the  Effective  Time,
Certificates  are presented to the Surviving  Corporation  for any reason,  they
shall be canceled and exchanged as provided in this Article II.

     Section 2.9 Closing.  Unless this Agreement  shall have been terminated and
the  transactions  contemplated  by this  Agreement  abandoned  pursuant  to the
provisions  of Article VIII,  and subject to the  provisions of Article VII, the
closing of the Merger  (the  "Closing")  will take place at 10:00 a.m.  (Eastern
time) on a date (the "Closing  Date") to be mutually agreed upon by the parties,
which  date  shall be not  later  than the  third  Business  Day  after  all the
conditions  set forth in  Article  VII shall have been  satisfied  (or waived in
accordance  with  Section  8.4,  to the extent the same may be  waived),  unless
another  time  and/or date is agreed to in writing by the  parties.  The Closing
shall take place at the  offices of Mintz,  Levin,  Cohn,  Ferris,  Glovsky  and
Popeo, PC, unless another place is agreed to in writing by the parties.

     Section  2.10  Lost,  Stolen or  Destroyed  Certificates.  In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the


                                       A-4


<PAGE>



making of an affidavit of that fact by the holder thereof,  such shares of Focus
Common Stock and cash for fractional shares, if any, as may be required pursuant
to Section 2.6; provided,  however,  that Focus may, as a condition precedent to
the  issuance  thereof,  require  the owner of such  lost,  stolen or  destroyed
certificates  to  deliver  a bond in such  sum as it may  reasonably  direct  as
indemnity against any claim that may be made against Focus or the Exchange Agent
with respect to the Certificates alleged to have been lost, stolen or destroyed.

     Section 2.11 Tax Consequences. For federal income tax purposes, the parties
intend  that the Merger be treated as a tax free  reorganization  under the Code
and the parties agree to take whatever  steps are required to give effect to the
Merger on such a basis.

     Section  2.12  Options  to  Purchase  Videonics  Common  Stock.  (a) At the
Effective  Time,  each option or warrant granted by Videonics to purchase shares
of Videonics Common Stock  (collectively,  the "Videonics  Options",  and each a
"Videonics Option) which is outstanding and unexercised immediately prior to the
Effective Time shall be assumed by Focus and converted into an option or warrant
to purchase  shares of Focus  Common  Stock in such amount and at such  exercise
price as provided  below and otherwise  having the same terms and  conditions as
are in effect immediately prior to the Effective Time (except to the extent that
such terms,  conditions and restrictions may be altered in accordance with their
terms as a result of the transactions contemplated hereby):

      (i) the  number of shares of Focus  Common  Stock to be subject to the new
   option or warrant  shall be equal to the  product of (x) the number of shares
   of  Videonics  Common  Stock  subject  to the  Videonics  Option  and (y) the
   Exchange Ratio;

      (ii) the  exercise  price per share of Focus  Common  Stock  under the new
   option or warrant  shall be equal to (x) the exercise  price per share of the
   Videonics Common Stock under the Videonics Option divided by (y) the Exchange
   Ratio; and

      (iii) upon each exercise of a Videonics  Option by a holder  thereof,  the
   aggregate  number of  shares  of Focus  Common  Stock  deliverable  upon such
   exercise shall be rounded down, if necessary,  to the nearest whole share and
   the  aggregate  exercise  price  shall be rounded  up, if  necessary,  to the
   nearest cent.

     The  adjustments  provided  herein with  respect to any  options  which are
"incentive  stock  options"  (as  defined in Section  422 of the Code)  shall be
effected in a manner consistent with Section 424(a) of the Code.

      (b) Focus shall  reserve  for  issuance a  sufficient  number of shares of
   Focus Common Stock for delivery upon exercise of Videonics Options assumed by
   Focus under this Agreement. Focus shall file as soon as practicable after the
   Effective Date a registration statement under the Securities Act covering the
   shares of Focus Common  Stock  issuable  upon the  exercise of the  Videonics
   Options  assumed  by Focus  pursuant  to Section  2.12(a),  and shall use its
   reasonable  efforts to cause such registration  statement to become effective
   as soon thereafter as practicable and to maintain such registration in effect
   until the exercise or expiration of such assumed Videonics Options.

     Section  2.13  Dissenting  Shareholders.  Notwithstanding  anything in this
Agreement to the contrary, shares of Videonics Common Stock which are issued and
outstanding  immediately  prior to the  Effective  Time and  which are held by a
shareholder  who has the right (to the extent such right is available by Law) to
demand and receive  payment of the fair value of the shares of Videonics  Common
Stock owned by such shareholder (the "Dissenting  Shares")  pursuant to the CCL,
shall not be  converted  into or be  exchangeable  for the right to receive  the
consideration  provided in Section 2.2 unless and until such  shareholder  shall
fail to  perfect  his or her right to an  appraisal  or shall  have  effectively
withdrawn or lost such right under the CCL, as the case may be. Such  Dissenting
Shares shall be cancelled at the Effective Time and, thereafter, shall represent
only the right to exercise  statutory dissent right under the CCL or receive the
consideration provided for in Section 2.2.


                                       A-5


<PAGE>


                                   ARTICLE III

                   REPRESENTATIONS AND WARRANTIES OF VIDEONICS

     Except as  expressly  disclosed  in the  Videonics  Filed SEC  Reports  (as
defined below)  (including all exhibits  referred to therein) or as set forth in
the disclosure  schedule  delivered by Videonics to Focus as provided for herein
(the  "Videonics  Disclosure  Schedule")  (each  section of which  qualifies the
correspondingly  numbered  representation  and warranty or covenant as specified
therein), Videonics hereby represents and warrants to Focus as follows:

     Section 3.1 Organization and Qualification. Videonics is a corporation duly
organized,  validly  existing  and  in  good  standing  under  the  laws  of its
jurisdiction  of  incorporation  or  organization.  Videonics  has the requisite
corporate  power  and  authority  and  any  necessary  Governmental   Authority,
franchise,  license,  certificate  or  permit  to  own,  operate  or  lease  the
properties  that it  purports  to own,  operate  or  lease  and to  carry on its
business  as it is now  being  conducted,  and is duly  qualified  as a  foreign
corporation to do business,  and is in good standing, in each jurisdiction where
the character of its properties  owned,  operated or leased or the nature of its
activities makes such qualification necessary.

     Section 3.2 Articles of Incorporation and Bylaws.  Videonics has heretofore
furnished,  or otherwise made available, to Focus a complete and correct copy of
the  Articles  of  Incorporation  and the  bylaws,  each as  amended to the date
hereof,  of  Videonics.  Such Articles of  Incorporation  and bylaws are in full
force and effect.  Videonics is not in violation of any of the provisions of its
Articles of Incorporation.

     Section 3.3 Capitalization.

      (a) The authorized  capital stock of Videonics  consists of (i) 10,000,000
   shares of preferred  stock,  no par value,  none of which is  outstanding  or
   reserved for issuance,  and (ii) 30,000,000 shares of Videonics Common Stock,
   no par value,  of which,  as of July 31,  2000,  (A)  5,899,299  shares  were
   validly issued and outstanding as fully paid and non-assesable, (B) no shares
   were held in the treasury of Videonics, (C) 858,239 shares were issuable upon
   the exercise of options outstanding under the Videonics employee and director
   stock  option  plans or  agreements,  and (D)  95,000  shares  were  issuable
   pursuant to outstanding warrants. Since July 31, 2000, no shares of Videonics
   Common Stock have been issued,  except upon the exercise of options described
   in the immediately  preceding  sentence.  There are no outstanding  Videonics
   Equity  Rights  except  for  Videonics  Equity  Rights  issued  to  Videonics
   employees in the ordinary  course of business.  Section 3.3 of the  Videonics
   Disclosure   Schedule  sets  forth  a  complete  and  accurate  list  of  all
   outstanding  Videonics Equity Rights as of July 31, 2000, including the terms
   and the holder thereof. There are no outstanding  obligations of Videonics to
   repurchase,  redeem or  otherwise  acquire  any  shares of  capital  stock of
   Videonics.

      (b) Videonics does not have any subsidiaries.

      (c) There are no voting trusts,  proxies or other agreements,  commitments
   or  understandings of any character to which Videonics is a party or by which
   Videonics is bound with respect to the voting of any shares of capital  stock
   of Videonics.

     Section 3.4 Authority Relative to this Agreement.

      (a)  Videonics has the  necessary  corporate  power and authority to enter
   into this Agreement and, subject to obtaining the requisite  approval of this
   Agreement  by  Videonics'  shareholders  required by the CCL (the  "Videonics
   Shareholder Approval"),  to perform its obligations hereunder.  The execution
   and  delivery  of  this  Agreement  by  Videonics,  and the  consummation  by
   Videonics of the transactions  contemplated hereby, have been duly authorized
   by all  necessary  corporate  action  on the part of  Videonics,  subject  to
   obtaining the Videonics  Shareholder  Approval.  This Agreement has been duly
   executed  and  delivered by Videonics  and,  assuming the due  authorization,
   execution  and  delivery  thereof  by each of Focus  and  Merger  Subsidiary,
   constitutes a legal, valid and binding  obligation of Videonics,  enforceable
   against it in accordance with its terms.

      (b) The Board of Directors of Videonics has directed  that this  Agreement
   be  submitted  to the  shareholders  of  Videonics  for  their  approval  and
   authorization.  The affirmative vote of a majority (50% plus one vote) of the
   votes cast, in person or by proxy,  by holders of the  outstanding  Videonics
   Common Stock at


                                       A-6


<PAGE>


   a  special   meeting  of  the   shareholders  of  Videonics  (the  "Videonics
   Shareholders'  Meeting")  is the only  vote of the  holders  of any  class or
   series of capital stock of Videonics  necessary to approve and authorize this
   Agreement,  the Merger  and the other  transactions  contemplated  hereby and
   thereby.

     Section 3.5 No Conflict; Required Filings and Consents.

      (a) Except as  described  in  subsection  (b)  below,  the  execution  and
   delivery of this Agreement by Videonics does not, and the performance of this
   Agreement by Videonics will not, (i) violate or conflict with the Articles of
   Incorporation  or bylaws of Videonics,  (ii) conflict with or violate any Law
   applicable to Videonics or by which any of its property or assets  (including
   investments)  is bound or  affected,  or (iii)  result  in any  breach  of or
   constitute  a default (or an event which with notice or lapse of time or both
   would become a default) under, or give to others any rights of termination or
   cancellation  of, or result in the creation of an  Encumbrance  on any of the
   properties or assets (including investments) of Videonics pursuant to, result
   in the loss of any material  benefit under, or result in any  modification or
   alteration  of, or require the  consent of any other party to, any  contract,
   instrument,  permit, license or franchise to which Videonics is a party or by
   which Videonics or any of its property or assets  (including  investments) is
   bound or affected,  except,  in the case of clauses (ii) and (iii) above, for
   conflicts,   violations,  breaches,  defaults,  results  or  consents  which,
   individually or in the aggregate, would not have a Material Adverse Effect on
   Videonics.

      (b) Except for applicable requirements, if any, of the Securities Act, the
   Exchange Act, the Blue Sky Laws, the HSR Act or any Foreign  Competition Laws
   and the filing and recordation of appropriate merger or other documents under
   the DCL and CCL, (i)  Videonics is not required to submit any notice,  report
   or other  filing  with any  Governmental  Authority  in  connection  with the
   execution,  delivery or  performance  of this  Agreement  and (ii) no waiver,
   consent,  approval or authorization of any Governmental Authority is required
   to be obtained by Videonics in  connection  with its  execution,  delivery or
   performance of this Agreement.

     Section 3.6 SEC Filings; Financial Statements.

      (a)  Videonics has filed all forms,  reports and documents  required to be
   filed with the SEC since December 15, 1994 (collectively,  the "Videonics SEC
   Reports",  with such  Videonics  SEC Reports  filed with the SEC prior to the
   date  hereof  being  referred  to as  "Videonics  Filed  SEC  Reports").  The
   Videonics  SEC Reports (i) were  prepared in  accordance  and  complied as of
   their  respective  dates with the  requirements  of the Securities Act or the
   Exchange Act, as the case may be, and the rules and  regulations  promulgated
   under each of such  respective  Acts,  and (ii) did not at the time they were
   filed (or if amended by a filing  prior to the date  hereof as of the date of
   such  amendment)  contain any untrue  statement of a material fact or omit to
   state a material fact required to be stated  therein or necessary in order to
   make the statements  therein,  in the light of the circumstances  under which
   they were made, not misleading.

      (b) The financial  statements,  including all related notes and schedules,
   contained in the Videonics SEC Reports (or incorporated by reference therein)
   (i) fairly present the consolidated financial position of Videonics as at the
   respective dates thereof and the consolidated  results of operations and cash
   flows of Videonics for the periods  indicated in accordance with GAAP applied
   on a consistent  basis throughout the periods involved (except for changes in
   accounting principles disclosed in the notes thereto) and subject in the case
   of interim  financial  statements to normal year-end  adjustments and (ii) in
   the case of financial statements included in Videonics SEC Reports,  complied
   in all material respects with applicable accounting requirements of the SEC.

     Section 3.7 Absence of Certain  Changes or Events.  Except as  disclosed in
the Videonics  Filed SEC Reports and in Section 3.7 of the Videonics  Disclosure
Schedule,  since December 31, 1999, (i) Videonics has not incurred any liability
except in the ordinary course of its business consistent with its past practices
and which will not,  either  individually  or in the aggregate,  have a Material
Adverse  Effect on Videonics,  (ii) there has not been any change,  or any event
involving a prospective change, in the business,  financial condition or results
of  operations of Videonics  which has had, or is  reasonably  likely to have, a
Material  Adverse  Effect on  Videonics,  and (iii)  Videonics has conducted its
business in the ordinary course consistent with its past practices.

     Section 3.8  Litigation.  There are no Actions  pending  or, to  Videonics'
knowledge,  threatened  against  Videonics,  or  any  properties  or  rights  of
Videonics, by or before any Governmental Authority, except for those


                                       A-7



<PAGE>

that are not,  individually  or in the  aggregate,  reasonably  likely to have a
Material   Adverse  Effect  on  Videonics  or  prevent,   materially   delay  or
intentionally  delay  the  ability  of  Videonics  to  consummate   transactions
contemplated  hereby.  Videonics is not subject to any Actions or claims  which,
individually or in the aggregate, has or might have a Material Adverse Effect on
Videonics.

     Section 3.9 Permits;  No Violation of Law. The business of Videonics is not
being conducted in violation of any Law, or in violation of any Permits,  except
for possible  violations none of which,  individually  or in the aggregate,  may
have a Material  Adverse Effect on Videonics.  No investigation or review by any
Governmental  Authority  (including any stock exchange or other self- regulatory
body) with respect to Videonics,  in relation to any alleged violation of Law is
pending  or,  to  Videonics'  knowledge,  threatened,  nor has any  Governmental
Authority (including any stock exchange or other self-regulatory body) indicated
an intention to conduct the same, except for such investigations  which, if they
resulted  in  adverse  findings,  would  not  reasonably  be  expected  to have,
individually  or in the  aggregate,  a  Material  Adverse  Effect on  Videonics.
Videonics  is not  subject  to any cease and  desist or other  order,  judgment,
injunction  or decree  issued by, or a party to any written  agreement,  consent
agreement or memorandum  of  understanding  with,  or a party to any  commitment
letter or similar  undertaking  to, or subject to any order or directive  by, or
adopted any board resolutions at the request of, any Governmental Authority that
materially  restricts  the conduct of its  business or which may  reasonably  be
expected to have a Material Adverse Effect on Videonics,  nor has Videonics been
advised that any Governmental Authority is considering issuing or requesting any
of the foregoing.

     Section 3.10 Joint Proxy Statement.  None of the information supplied or to
be supplied by or on behalf of  Videonics  for  inclusion  or  incorporation  by
reference  in the  registration  statement  to be filed with the SEC by Focus in
connection  with the issuance of shares of Focus Common Stock in the Merger (the
"Registration  Statement") will, at the time the Registration  Statement becomes
effective under the Securities Act,  contain any untrue  statement of a material
fact or omit to state  any  material  fact  required  to be  stated  therein  or
necessary  to make the  statements  therein,  in the light of the  circumstances
under which they were made, not misleading.  None of the information supplied or
to be supplied by or on behalf of Videonics  for inclusion or  incorporation  by
reference in the joint proxy  statement,  in  definitive  form,  relating to the
meetings of Videonics and Focus  shareholders  to be held in connection with the
Merger,  or in the related proxy and notice of meeting,  or soliciting  material
used in  connection  therewith  (referred to herein  collectively  as the "Joint
Proxy  Statement") will, at the dates mailed to shareholders and at the times of
the Videonics shareholders' meeting and the Focus shareholders' meeting, contain
any untrue  statement  of a  material  fact or omit to state any  material  fact
required  to be stated  therein  or  necessary  in order to make the  statements
therein,  in the light of the  circumstances  under  which they were  made,  not
misleading. The Registration Statement and the Joint Proxy Statement (except for
information  relating  solely to Focus) will  comply as to form in all  material
respects with the  provisions of the Securities Act and the Exchange Act and the
rules and regulations promulgated thereunder.

     Section 3.11 Employee Matters; ERISA.

      (a) Section 3.11(a) of the Videonics  Disclosure  Schedule contains a true
   and complete  list of each  deferred  compensation,  incentive  compensation,
   stock  purchase,  stock  option  and other  equity  compensation  plan;  each
   "welfare"  plan,  fund or program  (within the meaning of Section 3(1) of the
   Employee Retirement Income Security Act of 1974, as amended ("ERISA"));  each
   "pension"  plan,  fund or program  (within  the  meaning  of Section  3(2) of
   ERISA);  and each  other  material  employee  benefit  plan,  fund,  program,
   agreement or  arrangement,  in each case,  that is  sponsored,  maintained or
   contributed  to or required to be  contributed to by Videonics or any entity,
   any trade or business  (whether or not  incorporated)  which is a member of a
   controlled  group or which is under common control with Videonics  within the
   meaning  of  Section  414 of the Code or which  could be deemed a of ERISA (a
   "Videonics  ERISA  Affiliate"),  or to which  Videonics or a Videonics  ERISA
   Affiliate  is a party,  whether  written  or  oral,  for the  benefit  of any
   director,  employee or former  employee of Videonics or any  Videonics  ERISA
   Affiliates,  whether  or not such plan has been  terminated  (the  "Videonics
   Plans").  There  are no  restrictions  on the  ability  of  Videonics  or any
   Videonics ERISA  Affiliates to amend,  modify or terminate any Videonics Plan
   and each Videonics Plan is fully and readily  assignable and  transferable by
   its sponsor to either the Focus or the Merger Subsidiary.

      (b) Videonics  has  heretofore  made  available to Focus true and complete
   copies of the Videonics Plans and any amendments thereto (or if the Videonics
   Plan is not a written Videonics Plan, a description


                                       A-8


<PAGE>




   thereof),  any related  trust or other  funding  vehicle,  the three (3) most
   recent reports or summaries required under ERISA or the Code, the most recent
   audited financial  statements and most recent  determination  letter received
   from the  Internal  Revenue  Service  with  respect  to each  Videonics  Plan
   intended to qualify under Section 401 of the Code.

      (c) No  Videonics  Plan is subject to Title IV of ERISA or Section  412 of
   the Code,  nor is any  Videonics  Plan a  "multiemployer  pension  plan",  as
   defined in Section  3(37) of ERISA,  or subject to Section  302 of ERISA.  No
   Videonics Plan is a "single-employer  plan under multiple  controlled groups"
   as described in Section 4063 of ERISA.

      (d) Except as would not be materially adverse to Videonics, each Videonics
   Plan has been operated and  administered  in all respects in accordance  with
   its terms and applicable Law, including ERISA and the Code. There has been no
   "prohibited transaction," as such term is defined in Section 406 of ERISA and
   Section 4975 of the Code,  with respect to any Videonics  Plan;  there are no
   claims pending (other than routine claims for benefits) or threatened against
   any Videonics Plan or against the assets of any Videonics Plan, nor are there
   any current or threatened  Encumbrance  on the assets of any Videonics  Plan.
   Videonics and all Videonics  ERISA  Affiliates have performed all obligations
   required to be performed by them under, are not in default under or violation
   of, and have no knowledge of any default or violation by any other party with
   respect to, any of the Videonics Plans. All contributions required to be made
   to any Videonics  Plan under  applicable  Law or the terms of the  respective
   Videonics  Plan have been made on or before  their due dates and a reasonable
   amount has been  accrued for  contributions  to each  Videonics  Plan for the
   current plan years;  except as disclosed on Section  3.11(d) of the Videonics
   Disclosure Schedule, the transaction contemplated herein will not directly or
   indirectly  result in an increase  of  benefits,  acceleration  of vesting or
   acceleration  of timing for  payment of any  benefit  to any  participant  or
   beneficiary under any Videonics Plan.

      (e) Each Videonics  Plan intended to be "qualified"  within the meaning of
   Section  401(a) of the Code and the  trusts  maintained  thereunder  that are
   intended to be exempt from  taxation  under  Section  501(a) of the Code have
   received a favorable  determination or other letter  indicating that they are
   so qualified, and no event has occurred since the date of said letter(s) that
   could reasonably be expected to materially adversely affect the qualification
   of such Videonics Plan.

      (f) No  Videonics  Plan or written  or oral  agreement  provides  medical,
   surgical, hospitalization, death or similar benefits (whether or not insured)
   for directors,  employees or former employees of Videonics or Videonics ERISA
   Affiliates for periods extending beyond their retirement or other termination
   of service,  other than (i) coverage  mandated by applicable  Law, (ii) death
   benefits under any "pension plan" or (iii) benefits the full cost of which is
   borne by the current or former employee (or his beneficiary).

      (g)  No  amounts  payable  under  the  Videonics  Plans  will  fail  to be
   deductible  for federal  income Tax purposes by virtue of Section 280G of the
   Code.

      (h)  Except  as set  forth in  section  3.11 of the  Videonics  Disclosure
   Schedule, the execution, delivery and performance of, and consummation of the
   transactions  contemplated by this Agreement will not (i) entitle any current
   or former  employee or officer of Videonics or any Videonics  ERISA Affiliate
   to severance pay, unemployment  compensation or any other payment,  except as
   expressly provided in this Agreement,  (ii) accelerate the time of payment or
   vesting,  or increase  the amount of  compensation  due any such  employee or
   officer,  or (iii) assuming Focus takes the action specified in Section 2.12,
   accelerate  the  vesting of any stock  option or of any shares of  restricted
   stock.

     Section 3.12 Employment and Labor Matters.

      (a) Except as  identified in Section  3.12(a) of the Videonics  Disclosure
   Schedule,   as  of  the  date  hereof,  there  are  no  material  employment,
   consulting,  severance pay,  continuation pay, termination or indemnification
   agreement or other similar  agreements  of any nature  (whether in writing or
   not)  between  Videonics  and any  current  or former  shareholder,  officer,
   director, employee, or any consultant. Except as set forth in Section 3.12(a)
   of the Videonics  Disclosure  Schedule,  no individual will accrue or receive
   additional  benefits,  service or  accelerated  rights to payments  under any
   Videonics  Agreement or any of the agreements set forth in Section 3.12(a) of
   the Videonics Disclosure Schedule, including the right to receive any


                                       A-9


<PAGE>




   parachute payment, as defined in Section 280G of the Code, or become entitled
   to severance,  termination  allowance or similar  payments as a result of the
   transaction  contemplated herein that could result in the payment of any such
   benefits or payments.  Videonics is not  delinquent in payments to any of its
   employees or consultants  for any wages,  salaries,  commissions,  bonuses or
   other compensation for any services.  None of Videonics'  employment policies
   or practices is currently being audited or  investigated by any  Governmental
   Authority. There are no threatened or pending Actions alleging claims against
   Videonics  brought by or on behalf of any employee or other individual or any
   Governmental Authority with respect to employment practices.

      (b) Except as set forth in Section  3.12(b)  of the  Videonics  Disclosure
   Schedule,  there  are  no  controversies,   pending  or  threatened,  between
   Videonics and any of its employees  and employee  relations  are, in general,
   considered to be good; Videonics is not a party to any collective  bargaining
   agreement or other labor union  contract  applicable  to persons  employed by
   Videonics,  nor are there any activities or proceedings of any labor union to
   organize any such  employees of  Videonics;  during the past five years there
   have  been no  strikes,  slowdowns,  work  stoppages,  lockouts,  or  threats
   thereof, by or with respect to any employees of Videonics. Videonics does not
   have  nor at the  Closing  will it  have  any  obligation  under  the  Worker
   Adjustment and Retraining  Notification Act (the "WARN Act"). Videonics is in
   material  compliance with all applicable  state,  local,  federal and foreign
   employment, wage and hour, labor and other employee applicable laws.

     Section  3.13  Environmental   Matters.   Except  for  such  matters  that,
individually or in the aggregate,  are not reasonably  likely to have a Material
Adverse  Effect on Videonics:  (i)  Videonics  has complied with all  applicable
Environmental  Laws;  (ii) the  properties  currently  owned or  operated  by it
(including soils, groundwater, surface water, buildings or other structures) are
not contaminated with any Hazardous  Substances;  (iii) the properties  formerly
owned or operated by it were not contaminated  with Hazardous  Substances during
the period of  ownership or operation by it; (iv) it is not subject to liability
for any  Hazardous  Substance  disposal  or  contamination  on any  third  party
property;  (v) it has not been  associated with any release or threat of release
of any Hazardous Substance; (vi) it has not received any notice, demand, letter,
claim or request for  information  alleging  that it may be in  violation  of or
liable  under any  Environmental  Law;  (vii) it is not  subject to any  orders,
decrees,  injunctions or other  arrangements with any Governmental  Authority or
any  indemnity  or other  agreement  with any third party  relating to liability
under any Environmental Law or relating to Hazardous  Substances;  and (viii) it
knows of no  circumstances  or conditions  involving it that could result in any
claims, liability,  investigations, costs or restrictions on the ownership, use,
or transfer of any of its properties pursuant to any Environmental Law.

     Section 3.14 Absence of Restrictions on Business Activities.  Except as set
forth in Section 3.14 of Videonics Disclosure Schedule, there is no agreement or
order  binding upon  Videonics or any of its  properties  which has had or could
reasonably be expected to have the effect of prohibiting or materially impairing
any  business  practice of  Videonics or the conduct of business by Videonics as
currently conducted. Except as set forth in Section 3.14 of Videonics Disclosure
Schedule, Videonics is not subject to any non-competition or similar restriction
on its business.  Videonics has not at any time entered into, or agreed to enter
into, any interest rate swaps,  caps,  floors or option  agreements or any other
interest rate risk management arrangement or foreign exchange contracts.

     Section  3.15 Title to Assets;  Leases.  Videonics  owns no real  property.
Section 3.15 of Videonics  Disclosure  Statement  sets forth a true and complete
list of all real property leased by Videonics,  and the aggregate monthly rental
or other fee payable  under such lease.  Except as  described in Section 3.15 of
the Videonics  Disclosure  Schedule,  Videonics has good and marketable title to
all of its properties and assets,  free and clear of all  Encumbrances,  charges
and encumbrances, except Encumbrances for Taxes not yet due and payable and such
Encumbrances  or other  imperfections  of title,  if any,  as do not  materially
detract  from the value of or  interfere  with the present  use of the  property
affected thereby. All leases pursuant to which Videonics leases real or personal
property from others are valid and effective in accordance with their respective
terms, and there is not, under any of such leases, any existing material default
or event of material  default  (or event which with notice or lapse of time,  or
both,  would constitute a material default and in respect of which Videonics has
not taken adequate steps to prevent such a default from occurring).


                                      A-10


<PAGE>



     Section 3.16 Brokers. Except as disclosed in Schedule 3.16 of the Videonics
Disclosure  Schedule,  the arrangements which have been disclosed to Focus prior
to the date hereof,  no broker,  finder or investment  banker is entitled to any
brokerage, finder's, investment banking or other fee or commission in connection
with the  transactions  contemplated by this Agreement  based upon  arrangements
made by or on behalf of Videonics.

     Section  3.17 Tax  Matters.  Except  as set  forth in  Section  3.17 of the
Videonics Disclosure Schedule:

      (a) All  federal,  state,  local and foreign Tax Returns  required to have
   been filed by  Videonics  have been filed with the  appropriate  governmental
   authorities by the due date thereof,  including extensions, and correctly and
   completely  reflect all material Tax liabilities of Videonics  required to be
   shown thereon;

      (b) All Taxes  payable by or with  respect to  Videonics,  have been fully
   paid  or  adequately   reflected  as  a  liability  on  Videonics'  financial
   statements included in the Videonics SEC Reports;

      (c) With  respect to any period  for which Tax  Returns  have not yet been
   filed,  or for which Taxes are not yet due or owing,  Videonics  has made due
   and sufficient accruals for such Taxes in its books and records and financial
   statements;

      (d) Neither Videonics nor any of its affiliates has taken,  agreed to take
   or omitted to take any action  that would  prevent or impede the Merger  from
   qualifying as a tax-free reorganization under Section 368 of the Code;

      (e) No deficiencies for any Taxes have been proposed, asserted or assessed
   against Videonics that are not adequately reserved for under GAAP, except for
   deficiencies  that individually or in the aggregate would not have a Material
   Adverse Effect on Videonics.  All  assessments  for Taxes due and owing by or
   with respect to Videonics with respect to completed and settled  examinations
   or  concluded  litigation  have been paid.  Videonics  has not incurred a Tax
   liability since December 31, 1999,  other than those incurred in the ordinary
   course of business.

      (f) Videonics is not aware of any material Encumbrances for Taxes upon any
   assets  of  Videonics  apart  from  Encumbrances  for  Taxes  not yet due and
   payable; and

      (g)  Videonics  has not  requested,  or been  granted  any  waiver  of any
   federal,  state,  local or foreign statute of limitations with respect to, or
   any  extension  of a period for the  assessment  of, any Tax. No extension or
   waiver of time  within  which to file any Tax  Return of, or  applicable  to,
   Videonics has been granted or requested which has not since expired.

      (h)  Videonics  is not and has never  been (nor  does  Videonics  have any
   liability  for unpaid Taxes  because it once was) a member of an  affiliated,
   consolidated,  combined or unitary group, and Videonics is not a party to any
   Tax  allocation  or  sharing  agreement  or liable for the Taxes of any other
   party, as transferee or successor, by contract, or otherwise.

      (i)  Videonics  is not  presently  and has not been a "foreign  investment
   company" as such term is defined in Section 1246(b) of the Code.

      (j)  Videonics  is not  presently  and has  not  been a  "passive  foreign
   investment company" as such term is defined in Section 1297(a) of the Code.


      (k)  Videonics  is not  presently  and has not been at any time during the
   last five years a "controlled foreign corporation" as such term is defined in
   Section 957(a) of the Code.

      (l)  Videonics  has not made any  payments,  is not  obligated to make any
   payments,  and is not a party to any agreement  that under any  circumstances
   could  obligate it to make any  payments  that will not be  deductible  under
   Section 280G of the Code.

      (m) No unsatisfied deficiency, delinquency or default for any Tax has been
   ordered,  proposed or assessed against or with respect to Videonics,  nor has
   Videonics  received  notice of any such  deficiency,  delinquency  or default
   which, in any such case, may have a Material Adverse Effect.

      (n)  Videonics  has  not  been  a  United  States  real  property  holding
   corporation  within the meaning of Section  897(c)(2)  of the Code during the
   applicable period specified in Section 897(c)(1)(A)(ii) of the Code.

      (o)  Videonics  has  complied  with all  applicable  Laws  relating to the
   payment and withholding of Taxes (including, without limitation,  withholding
   of Taxes pursuant to Sections 1441, 1442 and 3406 of the Code or


                                      A-11


<PAGE>



   similar  provisions  under any foreign Laws) and has,  within the time and in
   the manner required by Law, withheld from employee wages and paid over to the
   proper  Governmental  Authorities all amounts  required to be so withheld and
   paid over under all applicable Laws.

      (p) No property of Videonics is "tax-exempt  use property" as such term is
   defined in Section 168 of the Code.

      (q) Videonics has not made an election under Section 341(f) of the Code.

     Section 3.18 Intellectual Property.

      (a) Section 3.18(a) of Videonics  Disclosure  Schedule sets forth, for the
   Intellectual Property owned by Videonics, a complete and accurate list of all
   United  States  and  foreign  (a)  patents;  (b)  trademarks,   registrations
   (including  material  Internet domain  registrations)  and  applications  and
   material  unregistered  trademarks;   and  (c)  copyright  registrations  and
   applications, indicating for each, the applicable jurisdiction,  registration
   number (or application number), and date issued (or date filed).

      (b) All  trademarks,  patents and  copyrights  are currently in compliance
   with all Laws (including the timely post-registration filing of affidavits of
   use and incontestability and renewal applications with respect to trademarks,
   and the  payment of filing,  examination  and  maintenance  fees and proof of
   working or use with respect to patents),  are valid and enforceable,  and are
   not subject to any maintenance fees or actions falling due within ninety (90)
   days  after  the  Effective  Time.  No  issued  trademark  has been or is now
   involved in any  cancellation  and, to the  knowledge of  Videonics,  no such
   action is threatened  with respect to any of the  trademarks  that would have
   Material  Adverse  Effect.  No  patent  has  been or is now  involved  in any
   interference,   reissue,   re-examination  or  opposing  proceeding.  To  the
   knowledge of Videonics,  there are no potentially  conflicting  trademarks or
   potentially interfering patents of any third party.

      (c) Section 3.18(c) of Videonics Disclosure Schedule sets forth a complete
   and accurate list of all material  license  agreements  granting to Videonics
   any  material  right to use or  practice  any rights  under any  Intellectual
   Property other than Intellectual  Property which is used for  infrastructural
   purposes and is commercially available on reasonable terms (collectively, the
   "Videonics  License  Agreements"),  indicating  for  each the  title  and the
   parties thereto.

      (d) Except as set forth in Schedule  3.18(d) of the  Videonics  Disclosure
   Schedule or as would not be materially adverse to Videonics:

          (i)  Videonics  owns  free and  clear of all  Encumbrances,  all owned
       Intellectual  Property used in Videonics'  business,  and has a valid and
       enforceable  right to use all of the  Intellectual  Property  licensed to
       Videonics and used in Videonics' business;

          (ii) Videonics has taken  reasonable steps to protect the Intellectual
       Property which Videonics owns;

          (iii) The conduct of  Videonics'  business as  currently  conducted or
       contemplated  does not infringe  upon any  Intellectual  Property  rights
       owned or controlled by any third party;

          (iv) There is no litigation pending or, to the knowledge of Videonics,
       threatened  or any  written  claim  from any  Person  (a)  alleging  that
       Videonics'  activities  or the conduct of its  business  infringes  upon,
       violates,  or  constitutes  the  unauthorized  use  of  the  Intellectual
       Property rights of any third party or (b) challenging the ownership, use,
       validity or enforceability of any Intellectual Property of Videonics;

          (v) To the knowledge of Videonics, no third party is misappropriating,
       infringing,  diluting,  or violating any  Intellectual  Property owned by
       Videonics  and no such Actions have been brought  against any third party
       by Videonics;

          (vi) The  execution,  delivery  and  performance  by Videonics of this
       Agreement and the  consummation of the transactions  contemplated  hereby
       will not result in the loss or impairment of or give rise to any right of
       any third party to terminate  any of  Videonics'  right to own any of the
       Intellectual  Property  owned  by  Videonics  or to use any  Intellectual
       Property  licensed  to  Videonics   pursuant  to  the  Videonics  License
       Agreements,  nor  require the consent of any  Governmental  Authority  or
       third party in respect of any such Intellectual Property; and


                                      A-12


<PAGE>


          (vii) The Software  owned or  purported  to be owned by Videonics  was
       either (i) developed by employees of Videonics  within the scope of their
       employment,  (ii) developed by independent  contractors who have assigned
       their  rights  to  Videonics  pursuant  to  written  agreements  or (iii)
       otherwise acquired by Videonics from a third party.

      (e) Except as would not have a Material  Adverse Effect on Videonics,  all
   trademarks  of Videonics  have been in continuous  use by  Videonics.  To the
   knowledge of Videonics (i) there has been no prior use of such  trademarks by
   any third party which would confer upon said third party  superior  rights in
   such  trademarks,  (ii)  Videonics  have  adequately  policed all  trademarks
   against third party  infringement  and (iii) the registered  trademarks  have
   been  continuously  used in the form appearing in, and in connection with the
   goods and services listed in, their respective registration certificates.

      (f) Except as would not be materially adverse to Videonics,  Videonics has
   taken all reasonable  steps in accordance  with normal  industry  practice to
   protect  Videonics'  rights in confidential  information and trade secrets of
   Videonics.  Without  limiting  the  foregoing  and  except  as  would  not be
   materially  adverse  to  Videonics,  Videonics  has and  enforces a policy of
   requiring  each employee,  consultant  and contractor to execute  proprietary
   information,   confidentiality   and  assignment   agreements   substantially
   consistent   with   Videonics'   standard   forms   thereof.   Except   under
   confidentiality obligations, to the knowledge of Videonics, there has been no
   material  disclosure  by Videonics of material  confidential  information  or
   trade secrets.

     Section 3.19 Insurance.  Section 3.19 of Videonics Disclosure Schedule sets
forth a true and complete list of all material  insurance  policies and fidelity
bonds  covering  the  assets,  business,  equipment,   properties,   operations,
employees,  officers and directors of Videonics. There is no claims by Videonics
pending  under  any of such  policies  or bonds as to  which  coverage  has been
questioned,  denied or disputed by the  underwriters  of such policies or bonds.
All  premiums  payable  under all such  policies  and  bonds  have been paid and
Videonics is otherwise in full  compliance  with the terms of such  policies and
bonds (or other policies and bonds  providing  substantially  similar  insurance
coverage),  and  Videonics  shall  maintain  in full  force and  effect all such
insurance  during the period from the date hereof through the Closing Date. Such
policies  of  insurance  and  bonds are of the type and in  amounts  customarily
carried by Persons  conducting  businesses  similar  to those of  Videonics  and
reasonable in light of the assets of Videonics. To the knowledge of Videonics as
of the date  hereof,  there is not any  threatened  termination  of or  material
premium increase with respect to any of such policies or bonds.

     Section  3.20  Ownership  of  Securities.  As of the date  hereof,  neither
Videonics nor, to Videonics' knowledge,  any of its affiliates or associates (as
such terms are defined under the Exchange Act), (i) beneficially owns,  directly
or indirectly,  or (ii) is party to any agreement,  arrangement or understanding
for the purpose of  acquiring,  holding,  voting or disposing  of, in each case,
shares of capital stock of Focus,  which in the aggregate  represent 10% or more
of the outstanding shares of Focus Common Stock.

     Section 3.21 Certain Contracts.  All contracts described in Item 601(b)(10)
of  Regulation  S-K to which  Videonics  is a party or may be bound  ("Videonics
Contracts")  have been filed as exhibits to, or  incorporated  by reference  in,
Videonics'  Annual Report on Form 10-K for the year ended December 31, 1999. All
Videonics  Contracts  are valid and in full force and effect on the date hereof.
Each such Videonics Contract is in full force and effect, is a valid and binding
obligation of Videonics and, to the knowledge of Videonics,  of each other party
thereto and is enforceable  against Videonics in accordance with its terms, and,
to the knowledge of Videonics,  enforceable against each other party thereto, in
each case  except to the extent the  enforcement  thereof  may be limited by (A)
bankruptcy, insolvency,  reorganization,  moratorium or other similar Law now or
hereafter in effect  relating to  creditors'  rights  generally  and (B) general
principles of equity  (regardless of whether  enforceability  is considered in a
proceeding in equity or at Law), and there has not occurred any material default
by any  party  thereto  which  remains  unremedied  as of the  date  hereof.  No
condition  exists or event has occurred which (whether with or without notice or
lapse of time or both,  or the happening or occurrence of any other event) would
constitute a default by Videonics or, to the  knowledge of Videonics,  any other
party  thereto  under,  or result in a right in  termination  of, any  Videonics
Contract.

     Section 3.22 Certain  Business  Practices.  As of the date hereof,  neither
Videonics nor any director, officer, employee or agent of Videonics has (i) used
any funds for unlawful  contributions,  gifts,  entertainment  or other unlawful
payments relating to political  activity,  (ii) made any unlawful payment to any
foreign  or  domestic  government  official  or  employee  or to any  foreign or
domestic political party or campaign or violated any


                                      A-13


<PAGE>



provision  of the Foreign  Corrupt  Practices  Act of 1977,  as  amended,  (iii)
consummated  any  transaction,  made any payment,  entered into any agreement or
arrangement  or taken any other action in  violation of Section  1128B(b) of the
Social Security Act, as amended, or (iv) made any other unlawful payment.

     Section  3.23  Interested  Party  Transactions.   Except  as  disclosed  in
Videonics  SEC  Reports,  Videonics is not  indebted to any  director,  officer,
employee or agent of  Videonics  (except for amounts due as normal  salaries and
bonuses  and in  reimbursement  of  ordinary  expenses),  and no such  Person is
indebted to  Videonics,  and there have been no other  transactions  of the type
required to be disclosed  pursuant to Items 402 and 404 of Regulation  S-K under
the Securities Act and the Exchange Act.


                                      A-14


<PAGE>



                                   ARTICLE IV
                     REPRESENTATIONS AND WARRANTIES OF FOCUS

     Except as  expressly  disclosed  in the Focus Filed SEC Reports (as defined
below)  (including  all  exhibits  referred  to  therein) or as set forth in the
disclosure  schedule delivered by Focus to Videonics as provided for herein (the
"Focus   Disclosure   Schedule")   (each   section   of  which   qualifies   the
correspondingly  numbered  representation  and warranty or covenant as specified
therein), Focus hereby represents and warrants to Videonics as follows:

     Section 4.1 Organization and Qualification; Subsidiaries. Focus and each of
its Subsidiaries is a corporation  duly organized,  validly existing and in good
standing under the laws of its  jurisdiction of  incorporation  or organization.
Focus  and  each of its  Subsidiaries  has the  requisite  corporate  power  and
authority  and  any  necessary  Governmental  Authority,   franchise,   license,
certificate or permit to own,  operate or lease the properties  that it purports
to own,  operate  or  lease  and to  carry on its  business  as it is now  being
conducted, and is duly qualified as a foreign corporation to do business, and is
in good  standing,  in each  jurisdiction  where the character of its properties
owned,   operated  or  leased  or  the  nature  of  its  activities  makes  such
qualification necessary.

     Section 4.2 Certificate of Incorporation  and Bylaws.  Focus has heretofore
furnished, or otherwise made available, to Videonics a complete and correct copy
of the Certificate of Incorporation and the bylaws,  each as amended to the date
hereof, of Focus and each of its Subsidiaries. Such Certificate of Incorporation
and  bylaws  are  in  full  force  and  effect.  Neither  Focus  nor  any of its
Subsidiaries  is in  violation  of  any  of the  provisions  of  its  respective
Certificate of Incorporation.

     Section 4.3 Capitalization.

      (a) The authorized capital stock of Focus consists of (i) 3,000,000 shares
   of preferred stock, par value $0.01 per share,  none of which are outstanding
   or reserved for issuance,  and (ii) 30,000,000  shares of Focus Common Stock,
   of which, as of July 31, 2000, (A)  25,857,871shares  were validly issued and
   outstanding as fully paid and non-assessable, (B) 450,000 shares were held in
   the treasury of Focus,  (C) 2,977,451  shares were issuable upon the exercise
   of options  outstanding  under the Focus employee stock option plans, and (D)
   632,429  shares were  reserved for issuance in  connection  with  outstanding
   warrants.  In addition to the  foregoing,  2,500,000,  390,000 and  3,000,000
   shares of Focus Common Stock have been  reserved for issuance by the Board of
   Directors of Focus, in connection with, respectively,  a shelf offering to be
   filed on Form S-1,  warrants  granted but not yet issued and  employee  stock
   options to be issued by Focus, which reservations shall become effective upon
   ratification by the shareholders of Focus.  Since July 31, 2000, no shares of
   Focus  Common  Stock have been  issued,  except upon the  exercise of options
   described in the  immediately  preceding  sentence.  There are no outstanding
   Focus Equity Rights except for Focus Equity Rights issued to Focus  employees
   in the  ordinary  course of  business.  Section  4.3 of the Focus  Disclosure
   Schedule  sets forth a complete and accurate  list of all  outstanding  Focus
   Equity  Rights  as of July 31,  2000,  including  the  terms  and the  holder
   thereof.  There are no outstanding  obligations of Focus or any of the Focus'
   Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital
   stock of Focus.

      (b) All of the outstanding capital stock of each of Focus' Subsidiaries is
   duly  authorized and validly issued as fully paid and  nonassessable.  All of
   the issued and  outstanding  capital stock of each of Focus'  Subsidiaries is
   owned  by  Focus   free  and  clear  of  any   Encumbrances.   There  are  no
   subscriptions,  options, warrants, calls, commitments, agreements, conversion
   rights or other rights of any character (contingent or otherwise) to purchase
   or otherwise acquire any shares of the capital stock of any Focus Subsidiary,
   whether or not presently  issued or outstanding  and there are no outstanding
   obligations of Focus or any of Focus'  Subsidiaries to repurchase,  redeem or
   otherwise acquire any shares of capital stock of any of Focus' Subsidiaries.

      (c) There are no voting trusts,  proxies or other agreements,  commitments
   or  understandings of any character to which Focus or any of its Subsidiaries
   is a party or by which Focus or any of its Subsidiaries is bound with respect
   to the  voting  of  any  shares  of  capital  stock  of  Focus  or any of its
   Subsidiaries.

     Section 4.4 Authority Relative to this Agreement.

      (a) Focus has the  necessary  corporate  power and authority to enter into
   this  Agreement  and,  subject to obtaining  the  requisite  approval of this
   Agreement  and the  related  increase in the  authorized  capital of Focus by
   Focus' shareholders  required by the DCL (the "Focus Shareholder  Approval"),
   to perform its  obligations  hereunder.  The  execution  and delivery of this
   Agreement by Focus, and the consummation by Focus of the


                                      A-15


<PAGE>



   transactions  contemplated hereby, have been duly authorized by all necessary
   corporate  action  on the part of  Focus,  subject  to  obtaining  the  Focus
   Shareholder Approval.  This Agreement has been duly executed and delivered by
   Focus and, assuming the due authorization,  execution and delivery thereof by
   Videonics,  constitutes  a legal,  valid  and  binding  obligation  of Focus,
   enforceable against it in accordance with its terms.

      (b) The Board of Directors of Focus has directed  that this  Agreement and
   the proposed increase in the authorized capital of Focus required to complete
   the Merger be submitted to the  shareholders  of Focus for their approval and
   authorization.  An  affirmative  vote of the  majority  (50% plus one) of the
   votes cast, in person or by proxy, by holders of the outstanding Focus Common
   Stock  at a  special  meeting  of  the  shareholders  of  Focus  (the  "Focus
   Shareholders'  Meeting")  is the only  vote of the  holders  of any  class or
   series of capital  stock of Focus  necessary  to approve and  authorize  this
   Agreement,  the Merger  and the other  transactions  contemplated  hereby and
   thereby.

     Section 4.5 No Conflict; Required Filings and Consents.

      (a) Except as  described  in  subsection  (b)  below,  the  execution  and
   delivery of this  Agreement  by Focus does not, and the  performance  of this
   Agreement by Focus will not, (i) violate or conflict with the  Certificate of
   Incorporation  or bylaws of Focus,  (ii)  conflict  with or  violate  any Law
   applicable  to Focus  or any of its  Subsidiaries  or by  which  any of their
   respective  property or assets (including  investments) is bound or affected,
   (iii) violate or conflict with the Certificate of  Incorporation or bylaws of
   any of Focus'  Subsidiaries,  (iv)  result in any breach of or  constitute  a
   default (or an event which with notice or lapse of time or both would  become
   a default) under, or give to others any rights of termination or cancellation
   of, or result in the creation of an  Encumbrance  on any of the properties or
   assets (including  investments) of Focus or any of its Subsidiaries  pursuant
   to,  result  in the loss of any  material  benefit  under,  or  result in any
   modification  or alteration of, or require the consent of any other party to,
   any contract,  instrument, permit, license or franchise to which Focus or any
   of its Subsidiaries is a party or by which Focus, any of such Subsidiaries or
   any of their respective  property or assets (including  investments) is bound
   or  affected,  except,  in the  case of  clauses  (ii) and  (iv)  above,  for
   conflicts,   violations,  breaches,  defaults,  results  or  consents  which,
   individually or in the aggregate, would not have a Material Adverse Effect on
   Focus.

      (b) Except for  applicable  requirements,  if any, of the  Securities  Act
   Exchange Act Blue Sky Laws, the pre-Merger  notification  requirements of the
   HSR Act or  Foreign  Competition  Laws  and the  filing  and  recordation  of
   appropriate  merger or other  documents  under the DCL, (i) neither Focus nor
   any of its  Subsidiaries  is required  to submit any notice,  report or other
   filing with any  Governmental  Authority in  connection  with the  execution,
   delivery  or  performance  of this  Agreement  and (ii) no  waiver,  consent,
   approval or  authorization  of any  Governmental  Authority is required to be
   obtained  by  Focus  or  any of  its  Subsidiaries  in  connection  with  its
   execution, delivery or performance of this Agreement.

     Section 4.6 SEC Filings; Financial Statements.

      (a) Focus has filed all forms,  reports and documents required to be filed
   with the SEC since May 25, 1993, (collectively, the "Focus SEC Reports", with
   such  Focus SEC  Reports  filed with the SEC prior to the date  hereof  being
   referred  to as "Focus  Filed SEC  Reports").  The Focus SEC Reports (i) were
   prepared in  accordance  and complied as of their  respective  dates with the
   requirements  of the  Securities Act or the Exchange Act, as the case may be,
   and the rules and regulations promulgated under each of such respective acts,
   and (ii) did not at the time they were filed (or if amended by a filing prior
   to the date  hereof  as of the date of such  amendment)  contain  any  untrue
   statement of a material  fact or omit to state a material fact required to be
   stated therein or necessary in order to make the statements  therein,  in the
   light of the circumstances under which they were made, not misleading.

      (b) The financial  statements,  including all related notes and schedules,
   contained in the Focus SEC Reports (or incorporated by reference therein) (i)
   fairly  present  the  consolidated   financial  position  of  Focus  and  its
   Subsidiaries as at the respective dates thereof and the consolidated  results
   of operations  and cash flows of Focus and its  Subsidiaries  for the periods
   indicated in accordance  with GAAP applied on a consistent  basis  throughout
   the periods involved (except for changes in accounting  principles  disclosed
   in the notes thereto) and subject in the case of interim financial statements
   to normal year-end  adjustments and (ii) in the case of financial  statements
   included  in Focus  SEC  Reports,  complied  in all  material  respects  with
   applicable accounting requirements of the SEC.


                                      A-16


<PAGE>



     Section 4.7 Absence of Certain  Changes or Events.  Except as  disclosed in
the Focus Filed SEC Reports and in Section 4.7 of the Focus Disclosure Schedule,
since  December 31, 1999, (i) Focus and its  Subsidiaries  have not incurred any
liability  except in the ordinary  course of their  businesses  consistent  with
their  past  practices  and  which  will  not,  either  individually  or in  the
aggregate,  have a Material Adverse Effect on Focus or any of its  Subsidiaries,
(ii) there has not been any change, or any event involving a prospective change,
in the business, financial condition or results of operations of Focus or any of
its  Subsidiaries  which has had, or is  reasonably  likely to have,  a Material
Adverse  Effect on Focus or any of its  Subsidiaries,  and  (iii)  Focus and its
Subsidiaries  have conducted their respective  businesses in the ordinary course
consistent with their past practices.

     Section 4.8 Litigation. Except for the matter of CRA Systems, Inc. v. Focus
Enhancements,  Inc.  and other  matters  previously  disclosed  in the Focus SEC
Reports,  there are no  Actions  pending  or, to  Focus'  knowledge,  threatened
against Focus or any of its  Subsidiaries,  or any properties or rights of Focus
or any of its Subsidiaries,  by or before any Governmental Authority, except for
those that are not, individually or in the aggregate,  reasonably likely to have
a  Material  Adverse  Effect  on Focus or any of its  Subsidiaries  or  prevent,
materially  delay or  intentionally  delay the  ability  of Focus to  consummate
transactions  contemplated hereby.  Neither Focus nor any of its Subsidiaries is
subject to any claim or order which,  individually  or in the aggregate,  has or
might have a Material Adverse Effect on Focus or its Subsidiaries.

     Section 4.9 Permits;  No Violation of Law. The  businesses of Focus and its
Subsidiaries are not being conducted in violation of any Law, or in violation of
any Permits,  except for possible  violations none of which,  individually or in
the  aggregate,  may  have a  Material  Adverse  Effect  on  Focus or any of its
Subsidiaries.   No  investigation  or  review  by  any  Governmental   Authority
(including  any stock exchange or other self-  regulatory  body) with respect to
Focus or its Subsidiaries in relation to any alleged violation of Law is pending
or,  to  Focus'  knowledge,  threatened,  nor  has  any  Governmental  Authority
(including  any stock  exchange  or other  self-regulatory  body)  indicated  an
intention to conduct the same,  except for such  investigations  which,  if they
resulted  in  adverse  findings,  would  not  reasonably  be  expected  to have,
individually or in the aggregate,  a Material  Adverse Effect on Focus.  Neither
Focus nor any of its  Subsidiaries  is  subject to any cease and desist or other
order,  judgment,  injunction  or decree issued by, or is a party to any written
agreement,  consent agreement or memorandum of understanding with, or is a party
to any commitment  letter or similar  undertaking to, or is subject to any order
or  directive  by, or has adopted any board  resolutions  at the request of, any
Governmental  Authority that materially restricts the conduct of its business or
which may reasonably be expected to have a Material Adverse Effect on Focus, nor
has  Focus  or  any of its  Subsidiaries  been  advised  that  any  Governmental
Authority is considering issuing or requesting any of the foregoing.

     Section 4.10 Proxy  Statement.  None of the  information  supplied or to be
supplied by or on behalf of Focus for inclusion or incorporation by reference in
the Registration  Statement will, at the time the Registration Statement becomes
effective under the Securities Act,  contain any untrue  statement of a material
fact or omit to state  any  material  fact  required  to be  stated  therein  or
necessary  to make the  statements  therein,  in the light of the  circumstances
under which they were made, not misleading.  None of the information supplied or
to be  supplied  by or on behalf  of Focus for  inclusion  or  incorporation  by
reference in the Proxy Statement,  in definitive form,  relating to the meetings
of Videonics and Focus shareholders to be held in connection with the Merger, or
in the Joint Proxy Statement  will, at the dates mailed to  shareholders  and at
the times of the  Videonics  shareholders'  meeting and the Focus  shareholders'
meeting,  contain any untrue  statement of a material  fact or omit to state any
material  fact  required to be stated  therein or necessary in order to make the
statements  therein,  in the light of the  circumstances  under  which they were
made, not misleading.  The Registration  Statement and the Joint Proxy Statement
(except for information  relating solely to Videonics) will comply as to form in
all material respects with the provisions of the Securities Act and the Exchange
Act and the rules and regulations promulgated thereunder.

     Section 4.11 Employee Matters; ERISA.

      (a) Section 4.11(a) of the Focus Disclosure  Schedule  contains a true and
   complete list of each deferred compensation,  incentive  compensation,  stock
   purchase,  stock option and other equity  compensation  plan;  each "welfare"
   plan,  fund or program  (within  the meaning of Section  3(1) of ERISA;  each
   "pension"  plan,  fund or program  (within  the  meaning  of Section  3(2) of
   ERISA);  and each  other  material  employee  benefit  plan,  fund,  program,
   agreement or  arrangement,  in each case,  that is  sponsored,  maintained or
   contributed to or required to


                                      A-17


<PAGE>


   be contributed  to by Focus or any entity,  or any of its  Subsidiaries,  any
   trade or  business  (whether  or not  incorporated)  which  is a member  of a
   controlled  group or which is under  common  control  with  Focus  within the
   meaning  of  Section  414 of the Code or  which  could  be  deemed a  "single
   employer"  within the  meaning of  Section  4001(b) of ERISA (a "Focus  ERISA
   Affiliate"), or to which Focus or a Focus ERISA Affiliate is a party, whether
   written or oral, for the benefit of any director, employee or former employee
   of  Focus  or  Focus  ERISA  Affiliate,  whether  or not  such  plan has been
   terminated (the "Focus  Plans").  There are no restrictions on the ability of
   Focus,  its  Subsidiaries or any Focus ERISA  Affiliates to amend,  modify or
   terminate any Focus Plan.

      (b) With respect to each Focus Plan,  Focus has heretofore  made available
   to Focus  true and  complete  copies  of the  Focus  Plan and any  amendments
   thereto  (or if the Focus Plan is not a written  Focus  Plan,  a  description
   thereof),  any related  trust or other  funding  vehicle,  the three (3) most
   recent reports or summaries required under ERISA or the Code, the most recent
   audited financial  statements and most recent  determination  letter received
   from the Internal Revenue Service with respect to each Focus Plan intended to
   qualify under Section 401 of the Code.

      (c) No Focus Plan is  subject  to Title IV of ERISA or Section  412 of the
   Code, nor is any Focus Plan a  "multiemployer  pension  plan",  as defined in
   Section 3(37) of ERISA,  or subject to Section 302 of ERISA. No Focus Plan is
   a  "single-employer  plan under multiple  controlled  groups" as described in
   Section 4063 of ERISA.

      (d) Except as would not be  materially  adverse to Focus,  each Focus Plan
   has been operated and  administered  in all respects in  accordance  with its
   terms and applicable  Law,  including  ERISA and the Code.  There has been no
   "prohibited transaction," as such term is defined in Section 406 of ERISA and
   Section 4975 of the Code, with respect to any Focus Plan; there are no claims
   pending  (other than routine  claims for benefits) or threatened  against any
   Focus Plan or against the assets of any Focus Plan, nor are there any current
   or  threatened  Encumbrances  on the assets of any Focus Plan.  Focus and the
   Focus  ERISA  Affiliates  have  performed  all  obligations  required  to  be
   performed by them under,  are not in default  under or violation of, and have
   no  knowledge of any default or violation by any other party with respect to,
   any of the Focus Plans.  All  contributions  required to be made to any Focus
   Plan under applicable Law or the terms of the respective Focus Plan have been
   made on or before  their due dates and a  reasonable  amount has been accrued
   for  contributions  to each Focus Plan for the current plan years;  except as
   disclosed  on  Section  4.11(d)  of  the  Focus  Disclosure   Schedule,   the
   transaction  contemplated herein will not directly or indirectly result in an
   increase of benefits,  acceleration  of vesting or acceleration of timing for
   payment of any  benefit to any  participant  or  beneficiary  under any Focus
   Plan.

      (e) Each Focus  Plan  intended  to be  "qualified"  within the  meaning of
   Section  401(a) of the Code and the  trusts  maintained  thereunder  that are
   intended to be exempt from  taxation  under  Section  501(a) of the Code have
   received a favorable  determination or other letter  indicating that they are
   so qualified, and no event has occurred since the date of said letter(s) that
   could reasonable be expected to materially adversely affect the qualification
   of such Focus Plan.

      (f) No Focus Plan or written or oral agreement provides medical, surgical,
   hospitalization,  death or similar  benefits  (whether  or not  insured)  for
   directors,  employees or former employees of Focus or any of its Subsidiaries
   or Focus ERISA  Affiliates for periods  extending  beyond their retirement or
   other termination of service,  other than (i) coverage mandated by applicable
   Law, (ii) death  benefits under any "pension plan" or (iii) benefits the full
   cost  of  which  is  borne  by  the  current  or  former   employee  (or  his
   beneficiary).

      (g) No amounts  payable  under the Focus Plans will fail to be  deductible
   for federal income Tax purposes by virtue of Section 280G of the Code.

      (h) The execution,  delivery and performance  of, and  consummation of the
   transactions  contemplated by this Agreement will not (i) entitle any current
   or former  employee  or  officer  of Focus or any Focus  ERISA  Affiliate  to
   severance pay,  unemployment  compensation  or any other  payment,  except as
   expressly provided in this Agreement,  (ii) accelerate the time of payment or
   vesting,  or increase  the amount of  compensation  due any such  employee or
   officer, or (iii) accelerate the vesting of any stock option or of any shares
   of restricted stock.

     Section 4.12 Employment and Labor Matters.

      (a)  Except  as set  forth in  Section  4.12(a)  of the  Focus  Disclosure
   Schedule,   as  of  the  date  hereof,  there  are  no  material  employment,
   consulting,  severance pay,  continuation pay, termination or indemnification
   agreement


                                      A-18


<PAGE>



   or other similar agreements of any nature (whether in writing or not) between
   Focus or any  Subsidiary  and any  current  or former  shareholder,  officer,
   director, employee, or any consultant. Except as set forth in Section 4.12(a)
   of the Focus  Disclosure  Schedule,  no  individual  will  accrue or  receive
   additional  benefits,  service or  accelerated  rights to payments  under any
   Focus  Agreement or any of the agreements set forth in Section 4.12(a) of the
   Focus  Disclosure  Schedule,  including  the right to receive  any  parachute
   payment,  as defined  in  Section  280G of the Code,  or become  entitled  to
   severance,  termination  allowance  or  similar  payments  as a result of the
   transaction  contemplated herein that could result in the payment of any such
   benefits or payments.  Neither  Focus nor any  Subsidiary  is  delinquent  in
   payments to any of its  employees  or  consultants  for any wages,  salaries,
   commissions,  bonuses or other compensation for any services.  None of Focus'
   or any  Subsidiary's  employment  policies or practices  is  currently  being
   audited  or  investigated  by  any  Governmental  Authority.   There  are  no
   threatened or pending Actions alleging claims against Focus or any Subsidiary
   brought  by or  on  behalf  of  any  employee  or  other  individual  or  any
   Governmental Authority with respect to employment practices.

      (b)  Except  as set  forth in  Section  4.12(b)  of the  Focus  Disclosure
   Schedule, there are no controversies pending or threatened,  between Focus or
   any of its Subsidiaries  and any of their  respective  employees and employee
   relations  are, in general,  considered to be good;  neither Focus nor any of
   its Subsidiaries is a party to any collective  bargaining  agreement or other
   labor  union  contract  applicable  to  persons  employed  by  Focus  or  its
   Subsidiaries  nor are there any  activities or proceedings of any labor union
   to organize any such  employees of Focus or any of its  Subsidiaries;  during
   the past five years there have been no strikes,  slowdowns,  work  stoppages,
   lockouts, or threats thereof, by or with respect to any employees of Focus or
   any of its  Subsidiaries.  Focus  does not have nor at the  Closing  will the
   company  have any  obligation  under the  Worker  Adjustment  and  Retraining
   Notification  Act (the "WARN Act").  Focus and each of its Subsidiaries is in
   material  compliance with all applicable  state,  local,  federal and foreign
   employment, wage and hour, labor and other applicable laws.

     Section  4.13  Environmental   Matters.   Except  for  such  matters  that,
individually or in the aggregate,  are not reasonably  likely to have a Material
Adverse  Effect on Focus or any of its  Subsidiaries:  (i) each of Focus and its
Subsidiaries  has complied  with all  applicable  Environmental  Laws;  (ii) the
properties  currently  owned  or  operated  by it or  any  of  its  Subsidiaries
(including soils, groundwater, surface water, buildings or other structures) are
not contaminated with any Hazardous  Substances;  (iii) the properties  formerly
owned or operated by it or any of its Subsidiaries  were not  contaminated  with
Hazardous Substances during the period of ownership or operation by it or any of
its  Subsidiaries;  (iv)  neither it nor any of its  Subsidiaries  is subject to
liability for any Hazardous  Substance  disposal or  contamination  on any third
party  property;  (v) neither it nor any Subsidiary has been associated with any
release or threat of release of any Hazardous Substance; (vi) neither it nor any
Subsidiary  has  received  any  notice,  demand,  letter,  claim or request  for
information  alleging that it or any of its  Subsidiaries may be in violation of
or  liable  under  any  Environmental  Law;  (vii)  neither  it  nor  any of its
Subsidiaries   is  subject  to  any  orders,   decrees,   injunctions  or  other
arrangements  with any Governmental  Authority or is subject to any indemnity or
other   agreement  with  any  third  party  relating  to  liability   under  any
Environmental Law or relating to Hazardous Substances;  and (viii) there are not
circumstances or conditions  involving it or any of its Subsidiaries  that could
to result in any claim, liability,  investigations, costs or restrictions on the
ownership,   use,  or  transfer  of  any  of  its  properties  pursuant  to  any
Environmental Law.

     Section 4.14 Absence of Restrictions on Business Activities.  Except as set
forth in Section  4.14 of Focus  Disclosure  Schedule,  there is no agreement or
order binding upon Focus or any of its  Subsidiaries or any of their  properties
which has had or could  reasonably be expected to have the effect of prohibiting
or  materially   impairing  any  business  practice  of  Focus  or  any  of  its
Subsidiaries  or the conduct of business by Focus or any of its  Subsidiaries as
currently conducted. Neither Focus nor any of its Subsidiaries is subject to any
non-competition or similar restriction on their respective  businesses.  Neither
Focus nor any of its  Subsidiaries  has at any time entered  into,  or agreed to
enter into, any interest rate swaps,  caps,  floors or option  agreements or any
other interest rate risk management arrangement or foreign exchange contracts.

     Section 4.15 Title to Assets;  Leases.  Except as described in Section 4.15
of Focus Disclosure Schedule, Focus owns no real property. Section 4.15 of Focus
Disclosure  Statement  sets forth a true and complete  list of all real property
leased by Focus or any of its Subsidiaries,  and the aggregate monthly rental or
other fee payable  under such lease.  Except as described in Section 4.15 of the
Focus  Disclosure  Schedule,  Focus  and each of its  Subsidiaries  has good and
marketable  title to all of their  properties and assets,  free and clear of all
Encumbrances,  charges  and  encumbrances,  except  Encumbrances  for  Taxes (as
defined below) not yet due and


                                      A-19


<PAGE>


payable and such Encumbrances or other imperfections of title, if any, as do not
materially  detract from the value of or  interfere  with the present use of the
property  affected  thereby.  All leases  pursuant  to which Focus or any of its
Subsidiaries lease real or personal property from others are valid and effective
in accordance with their  respective  terms, and there is not, under any of such
leases,  any existing  material  default or event of material  default (or event
which with notice or lapse of time, or both, would constitute a material default
and in respect of which Focus or such Subsidiary has not taken adequate steps to
prevent such a default from occurring).

     Section 4.16  Brokers.  Except as  disclosed in Schedule  4.16 of the Focus
Disclosure  Schedule,  the  arrangements  which have been disclosed to Videonics
prior to the date hereof, no broker,  finder or investment banker is entitled to
any  brokerage,  finder's,  investment  banking  or other fee or  commission  in
connection  with the  transactions  contemplated  by this  Agreement  based upon
arrangements made by or on behalf of Focus or any of its Subsidiaries.

     Section 4.17 Tax Matters.  Except as set forth in Section 4.17 of the Focus
Disclosure Schedule:

      (a) All  federal,  state,  local and foreign Tax Returns  required to have
   been filed by Focus or its Subsidiaries  have been filed with the appropriate
   governmental  authorities by the due date thereof including  extensions;  and
   correctly and  completely  reflect all material Tax  liabilities of Focus and
   its Subsidiaries required to be shown thereon;

      (b)  All  Taxes  payable  by or  with  respect  to  Focus  or  any  of its
   Subsidiaries,  have been fully paid or adequately reflected as a liability on
   Focus' financial statements included in the Focus SEC Reports;

      (c) With  respect to any period  for which Tax  Returns  have not yet been
   filed,  or  for  which  Taxes  are  not  yet  due or  owing,  Focus  and  its
   Subsidiaries  have made due and  sufficient  accruals for such Taxes in their
   respective books and records and financial statements;

      (d) Neither Focus nor any of its affiliates  has taken,  agreed to take or
   omitted to take any  action  that  would  prevent  or impede the Merger  from
   qualifying as a tax-free reorganization under Section 368 of the Code;

      (e) No deficiencies for any Taxes have been proposed, asserted or assessed
   against Focus or any of its Subsidiaries that are not adequately reserved for
   under GAAP,  except for  deficiencies  that  individually or in the aggregate
   would not have a Material  Adverse Effect on Focus. All assessments for Taxes
   due and owing by or with respect to Focus and each of its  Subsidiaries  with
   respect to completed and settled  examinations  or concluded  litigation have
   been  paid.  Neither  Focus or any of its  Subsidiaries  has  incurred  a Tax
   liability  since  December 31, 1999 other than those incurred in the ordinary
   course of business.

      (f) Focus is not aware of any  material  Encumbrances  for Taxes  upon any
   assets of Focus or any of its  Subsidiaries  apart from for  Encumbrances not
   yet due and payable; and

      (g)  Neither  Focus nor any of its  Subsidiaries  has  requested,  or been
   granted  any  waiver of any  federal,  state,  local or  foreign  statute  of
   limitations  with respect to, or any extension of a period for the assessment
   of, any Tax.  No  extension  or waiver of time  within  which to file any Tax
   Return  of,  or  applicable  to,  Focus or any of its  Subsidiaries  has been
   granted or requested which has not since expired.

      (h) Other  than with  respect  to its  Subsidiaries,  Focus is not and has
   never been (nor does Focus have any  liability  for unpaid  Taxes  because it
   once was) a member of an affiliated, consolidated, combined or unitary group,
   and  neither  Focus  nor  any of  its  Subsidiaries  is a  party  to any  Tax
   allocation  or  sharing  agreement  or is  liable  for the Taxes of any other
   party, as transferee or successor, by contract, or otherwise.

      (i) Focus is not presently and has not been a "foreign investment company"
   as such term is defined in Section 1246(b) of the Code.

      (j) Focus is not presently and has not been a "passive foreign  investment
   company" as such term is defined in Section 1297(a) of the Code.


      (k) Focus is not  presently  and has not been at any time  during the last
   five  years a  "controlled  foreign  corporation"  as such term is defined in
   Section 957(a) of the Code.

      (l)  Focus  and its  Subsidiaries  have  not made  any  payments,  are not
   obligated to make any payments,  and are not a party to any  agreements  that
   under any circumstances  could obligate any of them to make any payments that
   will not be deductible under Section 280G of the Code.


                                      A-20


<PAGE>

      (m) No unsatisfied deficiency, delinquency or default for any Tax has been
   ordered,  proposed  or  assessed  against  or with  respect  to  Focus or any
   Subsidiary,  nor has  Focus or any  Subsidiary  received  notice  of any such
   deficiency,  delinquency  or  default  which,  in any such  case,  may have a
   Material Adverse Effect.

      (n) Focus has not been a United States real property  holding  corporation
   within the meaning of Section  897(c)(2)  of the Code  during the  applicable
   period specified in Section 897(c)(1)(A)(ii) of the Code.

      (o) Focus and each of its  Subsidiaries  have complied with all applicable
   Laws relating to the payment and  withholding  of Taxes  (including,  without
   limitation,  withholding of Taxes pursuant to Sections 1441, 1442 and 3406 of
   the Code or similar  provisions under any foreign Laws) and have,  within the
   time and in the manner required by Law, withheld from employee wages and paid
   over to the proper  Governmental  Authorities  all amounts  required to be so
   withheld and paid over under all applicable Laws.

      (p) No property of Focus or any of its  Subsidiaries  is  "tax-exempt  use
   property" as such term is defined in Section 168 of the Code.

      (q) Neither Focus nor any of its  Subsidiaries  has made an election under
   Section 341(f) of the Code.

     Section 4.18 Intellectual Property.

      (a) Section  4.18(a) of Focus  Disclosure  Schedule  sets  forth,  for the
   Intellectual  Property  owned by Focus and its  Subsidiaries,  a complete and
   accurate list of all United States and foreign (a) patents;  (b)  trademarks,
   registrations   (including   material  Internet  domain   registrations)  and
   applications  and  material  unregistered   trademarks;   and  (c)  copyright
   registrations   and   applications,   indicating  for  each,  the  applicable
   jurisdiction,  registration number (or application  number),  and date issued
   (or date filed).

      (b) All  trademarks,  patents and  copyrights  are currently in compliance
   with all Laws (including the timely post-registration filing of affidavits of
   use and incontestability and renewal applications with respect to trademarks,
   and the  payment of filing,  examination  and  maintenance  fees and proof of
   working or use with respect to patents),  are valid and enforceable,  and are
   not subject to any maintenance fees or actions falling due within ninety (90)
   days after the  Effective  Time.  No trademark has been or is now involved in
   any cancellation and, to the knowledge of Focus and its Subsidiaries, no such
   action is  threatened  with respect to any of the  trademarks.  No patent has
   been or is now  involved  in any  interference,  reissue,  re-examination  or
   opposing  proceeding.  To the knowledge of Focus and its Subsidiaries,  there
   are no potentially  conflicting trademarks or potentially interfering patents
   of any third party.

      (c) Section 4.18(c) of Focus Disclosure Schedule sets forth a complete and
   accurate list of all material license agreements  granting to Focus or any of
   its  Subsidiaries  any material right to use or practice any rights under any
   Intellectual  Property  other than  Intellectual  Property  which is used for
   infrastructural  purposes and is commercially  available on reasonable  terms
   (collectively, the "Focus License Agreements"), indicating for each the title
   and the parties thereto.

      (d)  Except as would not be  materially  adverse  to Focus and each of its
   Subsidiaries:

         (i)  Focus  or a  Subsidiary  of  Focus  owns  free  and  clear  of all
      Encumbrances, all owned Intellectual Property used in Focus' business, and
      has a valid and enforceable right to use all of the Intellectual  Property
      licensed to Focus and used in Focus' business;

         (ii) Focus and each of its Subsidiaries  have taken reasonable steps to
      protect the Intellectual Property which Focus or such Subsidiary owns;

         (iii)  The  conduct  of  Focus'  and its  Subsidiaries'  businesses  as
      currently   conducted  or   contemplated   does  not  infringe   upon  any
      Intellectual Property rights owned or controlled by any third party;

         (iv) There is no  Litigation  pending  or, to the  knowledge  of Focus,
      threatened  or any written  claim from any Person (a) alleging that Focus'
      activities  or  the  conduct  of  its  businesses  or  that  of any of its
      Subsidiaries infringes upon, violates, or constitutes the unauthorized use
      of the Intellectual  Property rights of any third party or (b) challenging
      the  ownership,  use,  validity  or  enforceability  of  any  Intellectual
      Property of Focus or any of its Subsidiaries;

         (v) To the knowledge of Focus and its  Subsidiaries,  no third party is
      misappropriating,  infringing,  diluting,  or violating  any  Intellectual
      Property  owned by Focus or any of its  Subsidiaries  and no such  Actions
      have  been  brought  against  any  third  party  by  Focus  or  any of its
      Subsidiaries;

                                      A-21
<PAGE>

         (vi) The execution, delivery and performance by Focus of this Agreement
      and the  consummation  of the  transactions  contemplated  hereby will not
      result in the loss or impairment of or give rise to any right of any third
      party to terminate any of Focus' or any of its Subsidiaries'  right to own
      any of the Intellectual Property owned by Focus or any of its Subsidiaries
      or to use  any  Intellectual  Property  licensed  to  Focus  or any of its
      Subsidiaries  pursuant to the Focus  License  Agreements,  nor require the
      consent of any  Governmental  Authority  or third  party in respect of any
      such Intellectual Property; and

         (vii) The  Software  owned or  purported to be owned by Focus or any of
      its  Subsidiaries  was either (i)  developed  by  employees  of Focus or a
      Subsidiary of Focus within the scope of their  employment,  (ii) developed
      by  independent  contractors  who have assigned their rights to Focus or a
      Subsidiary  of Focus  pursuant to written  agreements  or (iii)  otherwise
      acquired by Focus or a Subsidiary of Focus from a third party.

      (e) All trademarks of Focus and its  Subsidiaries  have been in continuous
   use by Focus or its  Subsidiaries.  To the  knowledge  of Focus (i) there has
   been no prior use of such  trademarks  by any third party which would  confer
   upon said third party superior rights in such trademarks,  (ii) Focus and its
   Subsidiaries  have  adequately  policed all  trademarks  against  third party
   infringement and (iii) the registered  trademarks have been continuously used
   in the form  appearing  in,  and in  connection  with the goods and  services
   listed in, their respective registration certificates.

      (f) Except as would not be materially  adverse to Focus,  Focus and/or its
   Subsidiaries  have  taken all  reasonable  steps in  accordance  with  normal
   industry  practice  to  protect  Focus'  and  its  Subsidiaries'   rights  in
   confidential  information and trade secrets of Focus and/or its Subsidiaries.
   Without limiting the foregoing and except as would not be materially  adverse
   to Focus,  Focus and its Subsidiaries  have and enforce a policy of requiring
   each employee,  consultant and contractor to execute proprietary information,
   confidentiality  and  assignment  agreements  substantially  consistent  with
   Focus' standard forms thereof. Except under confidentiality  obligations,  to
   the knowledge of Focus, there has been no material disclosure by Focus or any
   Subsidiary of Focus of material confidential information or trade secrets.

     Section 4.19  Insurance.  Section 4.19 of Focus  Disclosure  Schedule  sets
forth a true and complete list of all material  insurance  policies and fidelity
bonds  covering  the  assets,  business,  equipment,   properties,   operations,
employees,  officers and  directors of Focus and its  Subsidiaries.  There is no
claim by Focus or any of its Subsidiaries  pending under any of such policies or
bonds as to which  coverage  has been  questioned,  denied  or  disputed  by the
underwriters  of such  policies or bonds.  All premiums  payable  under all such
policies and bonds have been paid and Focus and its  Subsidiaries  are otherwise
in full  compliance with the terms of such policies and bonds (or other policies
and bonds providing substantially similar insurance coverage),  and Focus shall,
and shall cause its  Subsidiaries to, maintain in full force and effect all such
insurance  during the period from the date hereof through the Closing Date. Such
policies  of  insurance  and  bonds are of the type and in  amounts  customarily
carried  by  Persons  conducting  businesses  similar  to those of Focus and its
Subsidiaries   and   reasonable  in  light  of  the  assets  of  Focus  and  its
Subsidiaries.  Except for any  increase in the premium  for the  directors'  and
officers'  insurance  policy of Focus and any bond posted in  connection  with a
judgment  adverse  to  Focus  in  the  matter  of  CRA  Systems,  Inc  v.  Focus
Enhancements,  Inc,. to the  knowledge of Focus as of the date hereof,  there is
not any threatened  termination of or material  premium increase with respect to
any of such policies or bonds.

     Section 4.20 Ownership of Securities.  As of the date hereof, neither Focus
nor, to Focus' knowledge, any of its affiliates or associates (as such terms are
defined under the Exchange Act), (i) beneficially owns,  directly or indirectly,
or (ii) is party to any agreement,  arrangement or understanding for the purpose
of acquiring,  holding,  voting or disposing of, in each case, shares of capital
stock  of  Videonics,  which  in the  aggregate  represent  10% or  more  of the
outstanding shares of Videonics Common Stock.

     Section 4.21 Certain Contracts.  All contracts described in Item 601(b)(10)
of Regulation S-K to which Focus or its  Subsidiaries is a party or may be bound
("Focus Contracts") have been filed as exhibits to, or incorporated by reference
in, Focus'  Annual  Report on Form 10-KSB for the year ended  December 31, 1999.
All Focus  Contracts  are valid and in full force and effect on the date hereof.
Each such Focus  Contract  is in full force and  effect,  is a valid and binding
obligation of Focus or such  Subsidiary  and, to the knowledge of Focus, of each
other party  thereto and is  enforceable  against  Focus or such  Subsidiary  in
accordance with its terms, and, to the knowledge of Focus,  enforceable  against
each other party thereto, in each case except to the extent the

                                      A-22
<PAGE>



enforcement   thereof   may   be   limited   by  (A)   bankruptcy,   insolvency,
reorganization,  moratorium  or other  similar  Law now or  hereafter  in effect
relating to creditors'  rights  generally  and (B) general  principles of equity
(regardless of whether enforceability is considered in a proceeding in equity or
at Law),  and there has not occurred any material  default by any party  thereto
which remains unremedied as of the date hereof. No condition exists or event has
occurred  which (whether with or without notice or lapse of time or both, or the
happening or occurrence of any other event) would  constitute a default by Focus
or any of its  Subsidiaries  or,  to the  knowledge  of Focus,  any other  party
thereto under, or result in a right in termination of, any Focus Contract.

     Section 4.22 Certain  Business  Practices.  As of the date hereof,  neither
Focus nor any of its Subsidiaries nor any director,  officer,  employee or agent
of  Focus  or any of its  Subsidiaries  has (i)  used  any  funds  for  unlawful
contributions,  gifts,  entertainment  or other  unlawful  payments  relating to
political  activity,  (ii) made any unlawful  payment to any foreign or domestic
government official or employee or to any foreign or domestic political party or
campaign or violated any provision of the Foreign Corrupt Practices Act of 1977,
as amended,  (iii) consummated any transaction,  made any payment,  entered into
any agreement or  arrangement  or taken any other action in violation of Section
1128B(b) of the Social Security Act, as amended, or (iv) made any other unlawful
payment.

     Section 4.23 Interested  Party  Transactions.  Except as disclosed in Focus
SEC  Reports,  neither  Focus nor any of its  Subsidiaries  is  indebted  to any
director, officer, employee or agent of Focus or any of its Subsidiaries (except
for amounts due as normal salaries and bonuses and in  reimbursement of ordinary
expenses),  and no such Person is indebted to Focus or any of its  Subsidiaries,
and there have been no other  transactions  of the type required to be disclosed
pursuant to Items 402 and 404 of Regulation S-K under the Securities Act and the
Exchange Act.

     Section 4.24 Merger Subsidiary.  Focus and Merger Subsidiary  represent and
warrant to Videonics as follows:

      (a) Organization and Corporate Power.  Merger  Subsidiary is a corporation
   duly  incorporated,  validly  existing and in good standing under the laws of
   the State of Delaware. Merger Subsidiary is a direct, wholly-owned subsidiary
   of Focus.

      (b) Corporate Authorization. Merger Subsidiary has all requisite corporate
   power and authority to enter into this  Agreement  and,  subject to obtaining
   the requisite approval of this Agreement by Merger  Subsidiary's  shareholder
   as  required  by DCL  (the  "Merger  Subsidiary  Shareholder  Approval"),  to
   consummate the transactions  contemplated  hereby. The execution and delivery
   of this  Agreement  by  Merger  Subsidiary,  and the  consummation  by Merger
   Subsidiary of the transactions contemplated hereby, have been duly authorized
   by all necessary  corporate action on the part of Merger Subsidiary,  subject
   to obtaining the Merger Subsidiary  Shareholder Approval.  This Agreement has
   been duly executed and delivered by Merger Subsidiary and constitutes a valid
   and  binding  agreement  of  Merger  Subsidiary,  enforceable  against  it in
   accordance with its terms.

      (c) Non Contravention.  The execution,  delivery and performance by Merger
   Subsidiary of this Agreement and the consummation by Merger Subsidiary of the
   transactions  contemplated  hereby do not and will not contravene or conflict
   with the certificate of incorporation or by-laws of Merger Subsidiary.

      (d) No  Business  Activities.  Merger  Subsidiary  has not  conducted  any
   activities   other  than  in  connection  with  the  organization  of  Merger
   Subsidiary,   the  negotiation  and  execution  of  this  Agreement  and  the
   consummation of the transactions  contemplated hereby.  Merger Subsidiary has
   no Subsidiaries.


                                      A-23


<PAGE>



                         ARTICLE V CONDUCT OF BUSINESSES
                               PENDING THE MERGER


     Section 5.1 Conduct of Business in the Ordinary  Course.  Each of Videonics
and Focus  covenants and agrees that,  except as otherwise  provided for herein,
between the date hereof and the Effective Time, unless the Chairman of the Board
of Directors of the other shall  otherwise  consent in writing,  the business of
such Party and its  Subsidiaries  shall be conducted  only in, and such entities
shall not take any action  except in, the  ordinary  course of business and in a
manner  consistent  with past practice;  and each of Videonics and Focus and its
Subsidiaries  will  use  their  commercially   reasonable  efforts  to  preserve
substantially  intact  their  business  organizations,  to  keep  available  the
services of those of their present  officers,  employees and consultants who are
integral  to the  operation  of their  businesses  as  presently  conducted,  to
maintain  in effect  all  Material  Agreements  and to  preserve  their  present
relationships  with  significant  customers and suppliers and with other persons
with whom they have significant business relations.  By way of amplification and
not limitation,  except as expressly  contemplated  by this  Agreement,  each of
Videonics  and Focus  agrees on behalf of itself and, in the case of Focus,  its
Subsidiaries,  that they will not,  between  the date  hereof and the  Effective
Time, directly or indirectly,  do any of the following without the prior written
consent of the other, as set forth in the first sentence of this Section 5.1:

      (a) (i) except for (A) the  issuance of shares of  Videonics  Common Stock
   and Focus Common Stock in order to satisfy  obligations  under the  Videonics
   Plans and Focus Plans in effect on the date hereof and Focus Equity Rights or
   Videonics  Equity  Rights  issued  thereunder  and  under  existing  dividend
   reinvestment  plans,  which  issuances  shall be consistent with its existing
   policy  and past  practice;  (B)  grants of stock  options  with  respect  to
   Videonics  Common  Stock or Focus  Common  Stock to employees in the ordinary
   course  of  business  and in  amounts  and in a manner  consistent  with past
   practice;  and (C), in the case of Focus, (1) the issuance of up to 2,500,000
   shares of Focus Common Stock  pursuant to a shelf  registration  on Form S-1,
   (2) the posting of Focus Common Stock held in treasury as collateral  for the
   a  judgment  adverse  to Focus in the matter of CRA  Systems,  Inc.  v. Focus
   Enhancements,  Inc. or (3) payment of some or all of Union  Atlantic LC's fee
   for providing  investment  banking  services to Focus in connection with this
   transaction by the issuance to Union Atlantic of shares of Focus Common Stock
   in accordance with the agreement attached as Schedule A hereto,  issue, sell,
   pledge,  dispose of,  encumber,  authorize,  or propose the  issuance,  sale,
   pledge,  disposition,  encumbrance or  authorization of any shares of capital
   stock of any class, or any options, warrants, convertible securities or other
   rights of any kind to acquire  any  shares of capital  stock of, or any other
   ownership  interest in, such Party or any of its Subsidiaries;  (ii) amend or
   propose to amend the  Certificate or Articles of  Incorporation,  as the case
   may be, or bylaws of such Party  (other than the  increase in the  authorized
   capital of Focus  contemplated  herein) or any of its  Subsidiaries or adopt,
   amend or  propose to amend any  shareholder  rights  plan or  related  rights
   agreement;  (iii) split,  combine or  reclassify  any  outstanding  shares of
   Videonics  Common Stock or Focus Common Stock,  or declare,  set aside or pay
   any dividend or distribution  payable in cash,  stock,  property or otherwise
   with  respect to shares of  Videonics  Common  Stock or Focus  Common  Stock,
   except for cash dividends to  shareholders of Videonics and Focus declared in
   accordance with existing dividend policy payable to shareholders of record on
   the record dates consistently used in prior periods; (iv) redeem, purchase or
   otherwise  acquire or offer to redeem,  purchase  or  otherwise  acquire  any
   shares of its capital  stock,  or (v)  authorize or propose or enter into any
   contract,  agreement,  commitment or  arrangement  with respect to any of the
   matters prohibited by this Section 5.1(a).

      (b) (i) acquire  (by merger,  consolidation,  or  acquisition  of stock or
   assets)  any  corporation,  partnership  or other  business  organization  or
   division  thereof or make any  investment  in another  entity  (other than an
   entity which is a wholly owned Subsidiary of such Party as of the date hereof
   and other than  incorporation of a wholly owned  Subsidiary);  (ii) except in
   the ordinary course of business and in a manner consistent with past practice
   and except  for the  sub-lease  by Focus of its  Wilmington  facility,  sell,
   pledge,  dispose of, or encumber or  authorize  or propose the sale,  pledge,
   disposition  or  encumbrance  of  any  assets  of  such  Party  or any of its
   Subsidiaries,  except for  transactions  which do not exceed  $100,000 in the
   aggregate in any 12-month  period,  no Party shall make any  dispositions  in
   excess of an aggregate of $100,000;  or (iii) authorize,  enter into or amend
   any contract, agreement, commitment or arrangement with respect to any of the
   matters prohibited by this Section 5.1(b);


                                      A-24


<PAGE>



      (c) sell, transfer, lease, license, sublicense,  mortgage, pledge, dispose
   of, encumber, grant or otherwise dispose of any Intellectual Property rights,
   or amend or modify in any material way any existing  agreements  with respect
   to any Intellectual Property rights;

      (d) incur any indebtedness for borrowed money or issue any debt securities
   or assume,  guarantee  (other  than  guarantees  by Focus of bank debt of its
   Subsidiaries  entered into in the ordinary  course of business) or endorse or
   otherwise as an accommodation  become responsible for, the obligations of any
   Person, or make any loans, advances or enter into any financial  commitments,
   except in the ordinary  course of business  consistent with past practice and
   as otherwise  permitted  under any loan or credit  agreement to which it is a
   party;  authorize any capital  expenditures  which are, in the aggregate,  in
   excess of $100,000 for it and, in the case of Focus, its  Subsidiaries  taken
   as a whole;  or enter into or amend in any  material  respect  any  contract,
   agreement,  commitment or arrangement  with respect to any of the matters set
   forth in this Section 5.1(d);

      (e) hire or terminate any employee or  consultant,  except in the ordinary
   course of business  consistent with past practice;  increase the compensation
   (including,  without  limitation,  bonus) payable or to become payable to its
   officers  or  employees,  except for  retention  agreements  entered  into in
   anticipation  of the  Merger and except  for  previously  disclosed  officers
   salary  increases,  increases  in  salary or wages of  employees  who are not
   officers of it or, in the case of Focus,  its  Subsidiaries  in the  ordinary
   course of business consistent with past practices,  or grant any severance or
   termination  pay or stock  options  to,  or  enter  into  any  employment  or
   severance agreement with any director, officer or other employee of it or, in
   the case of Focus, any of its Subsidiaries,  or establish,  adopt, enter into
   or  amend  any  collective   bargaining,   bonus,  profit  sharing,   thrift,
   compensation,  stock option, restricted stock, pension, retirement,  deferred
   compensation,  employment,  termination,  severance or other plan, agreement,
   trust,  fund,  policy or arrangement for the benefit of any current or former
   directors, officers or employees;

      (f) change, any accounting  policies or procedures  (including  procedures
   with respect to reserves,  revenue recognition,  payments of accounts payable
   and  collection  of  accounts   receivable)   unless  required  by  statutory
   accounting principles or GAAP;

      (g)  create,  incur,  suffer to exist or  assume  any  Encumbrance  on any
   material assets of it or, in the case of Focus, its Subsidiaries;

      (h) other than in the  ordinary  course of business  consistent  with past
   practice,  (A)  enter  into any  Material  Agreement,  (B)  modify,  amend or
   transfer in any material respect or terminate any Material Agreement to which
   it or, in the case of  Focus,  any of its  Subsidiaries  is a party or waive,
   release or assign any material  rights or claims thereto or thereunder or (C)
   enter into or extend any lease with respect to real  property  with any third
   party;

      (i) make any Tax  election or settle or  compromise  any  federal,  state,
   local or foreign  income tax  liability or agree to an extension of a statute
   of limitations;

      (j)  settle  any  material  litigation  or waive,  assign or  release  any
   material rights or claims except,  in the case of litigation,  any litigation
   which  settlement  would not (A) impose either  material  restrictions on the
   conduct  of  the  business  of it  or,  in  the  case  of  Focus,  any of its
   Subsidiaries  or (B) for  any  individual  litigation  item  settled,  exceed
   $100,000  in  cost or  value  to it or,  in the  case  of  Focus,  any of its
   Subsidiaries.  Neither Videonics,  Focus or any Focus Subsidiaries shall pay,
   discharge  or satisfy any  liabilities  or  obligations  (absolute,  accrued,
   asserted or  unasserted,  contingent  or  otherwise),  except in the ordinary
   course of business  consistent  with past  practice in an amount or value not
   exceeding  $50,000 in any instance or series of related instances or $100,000
   in the  aggregate  or in  accordance  with their terms as in effect as of the
   date hereof;

      (k) engage in any transaction,  or enter into any agreement,  arrangement,
   or understanding with, directly or indirectly,  any related party, other than
   those  existing  as of the date  hereof  which are  listed in the  Disclosure
   Schedule of such party;

      (l) maintain in full force and effect all  insurance,  as the case may be,
   currently in effect; and

      (m) take any action  which it  believes  when taken  could  reasonably  be
   expected to adversely  affect or delay in any material respect the ability of
   any of the  Parties  to obtain any  approval  of any  Governmental  Authority
   required to consummate the transactions contemplated hereby;


                                      A-25


<PAGE>



      (n) other than  pursuant to this  Agreement,  take any action to cause the
   shares of their  respective  Common Stock to cease to be quoted on any of the
   stock exchanges on which such shares are now quoted;

      (o)  take  any  action  which it  believes  when  taken  would  cause  its
   representations  and warranties  contained herein to become inaccurate in any
   material respect.

     Section 5.2 No Solicitation.

      (a) From the date hereof  until the earlier of the  Effective  Time or the
   termination  of this  Agreement in accordance  with its terms,  neither Party
   shall,  nor shall it permit any of its  affiliates to, nor shall it authorize
   or permit or any of its or their respective officers,  directors,  employees,
   representatives or agents (collectively,  the "Representatives")  directly or
   indirectly,  to (i) solicit,  facilitate,  initiate or encourage, or take any
   action to solicit,  facilitate,  initiate or encourage,  any inquiries or the
   making of any proposal or offer that  constitutes an Acquisition  Proposal or
   (ii)  participate or engage in discussions or  negotiations  with, or provide
   any  information to, any Person  concerning an Acquisition  Proposal or which
   might reasonably be expected to result in an Acquisition Proposal. Each party
   shall immediately cease and cause to be terminated and shall cause all of its
   Representatives  to terminate all existing  discussions or negotiations  with
   any Persons conducted heretofore with respect to, or that could reasonably be
   expected  to lead to, an  Acquisition  Proposal.  Each party  shall  promptly
   notify all of its Representatives of its obligations under this Section.

      (b) Notwithstanding  the foregoing,  any Party (the "Solicited Party") may
   participate in discussions or negotiations with, or furnish  information to a
   third  party  pursuant  to a  confidentiality  agreement  with  terms no less
   favorable to the Solicited  Party than those in effect  between the Solicited
   Party and the other Parties  hereto if and only if (i) such  Solicited  Party
   has submitted an unsolicited  bona fide written  Acquisition  Proposal to the
   Solicited Party's Board of Directors and (ii) neither the Solicited Party nor
   any of its Representatives,  shall have violated Section 5.2(a) and the Board
   of Directors of the Solicited  Party (A) believes in good faith based on such
   matters as it deems relevant,  including the advice of the Solicited  Party's
   financial  advisor,  that such  Acquisition  Proposal  constitutes a Superior
   Proposal,  (B)  receives a written  opinion of outside  counsel to the effect
   that,  and based on such advice such Board  determines  by a majority vote in
   its good faith judgment  that,  taking such action is required to satisfy the
   fiduciary  duties of such Board under  applicable  Law and (C) provides prior
   written  notice to the other  Parties of its  decision to so  participate  or
   furnish.

      (c) Except as set forth in the  following  sentence,  neither the Board of
   Directors of a Party to this  Agreement nor any  committee  thereof shall (i)
   approve or  recommend,  or propose to approve or recommend,  any  Acquisition
   Proposal  other  than the  Merger,  (ii)  withdraw  or modify or  propose  to
   withdraw  or modify in a manner  adverse to the other  party its  approval or
   recommendation of the Merger, this Agreement or the transactions contemplated
   hereby,  (iii) upon a request by either of the other  Parties to reaffirm its
   approval or  recommendation  of this  Agreement or the Merger,  fail to do so
   within two (2) Business Days after such request is made, (iv) enter, or cause
   such  Party or any  Subsidiary  of such  Party to enter,  into any  letter of
   intent,  agreement  in  principle,  acquisition  agreement  or other  similar
   agreement related to any Acquisition Proposal, or (v) resolve or announce its
   intention to do any of the  foregoing.  The  immediately  preceding  sentence
   notwithstanding,  in the event  that prior to  approval  of the Merger by its
   shareholders, the Board of Directors of a Party receives a Superior Proposal,
   the Board of Directors of such party may (i) approve or recommend, or propose
   to approve or recommend,  such Superior Proposal, (ii) withdraw or modify, or
   propose to  withdraw  or modify,  in a manner  adverse to the other Party its
   recommendation of the Merger, this Agreement or the transactions contemplated
   hereby,  (iii) fail to reaffirm its  recommendation  of this Agreement or the
   Merger  after a request  by the  other  Party to do so,  or (iv)  resolve  or
   announce its  intention  to do any of the actions set forth in the  preceding
   clauses (i) through (iii), if (1) such Board of Directors  receives a written
   opinion of outside  counsel to the effect  that,  and based on such advice of
   outside  counsel  such Board  determines  by a majority  vote of directors in
   their good faith judgment that, taking such action is required to satisfy the
   fiduciary  duties of such  directors  and (2) such Party  furnishes the other
   Parties two (2)  Business  Days' prior  written  notice of the taking of such
   action (which notice shall  include a description  of the material  terms and
   conditions of the Superior Proposal and identify the person making the same).


                                      A-26


<PAGE>



      (d) In addition to the other  obligations of the Parties set forth in this
   Section 5.2, each Party shall  immediately  advise the other Party orally and
   in writing of any request for  information  with  respect to any  Acquisition
   Proposal,  or any  inquiry  with  respect  to or  which  could  result  in an
   Acquisition  Proposal,  the material  terms and  conditions  of such request,
   Acquisition  Proposal or inquiry,  and the identity of the person  making the
   same.  Each Party shall inform the other Party on a prompt and current  basis
   of the  status and  content  of any  discussions  regarding  any  Acquisition
   Proposal with a third Party and as promptly as  practicable  of any change in
   the price,  structure or form of the  consideration  or material terms of and
   conditions regarding any Acquisition Proposal or of any other developments or
   circumstances  which could  reasonably be expected to culminate in the taking
   of any of the actions  referred to in Section  5.2(c).  Nothing  contained in
   this Section  5.2(d) shall prevent any Party hereto from  complying with Rule
   14d-9 and Rule 14e-2 promulgated under the Exchange Act.







                                      A-27


<PAGE>




                                   ARTICLE VI
                              ADDITIONAL AGREEMENTS

     Section 6.1 Joint Proxy Statement and Registration Statement.

      (a) Focus and Videonics shall (i) as promptly as practicable following the
   date  hereof  prepare  and  file  with  the SEC  joint  preliminary  proxy or
   information statement relating to the Merger and this Agreement,  (ii) obtain
   and furnish the  information  required to be included by the SEC in the Joint
   Proxy Statement and, after consultation with each other,  respond promptly to
   any comments made by the SEC with respect to the Joint Proxy Statement, (iii)
   cause the Joint  Proxy  Statement  and the  prospectus  to be included in the
   Registration Statement,  including any amendment or supplement thereto, to be
   mailed to their  respective  shareholders  at the earliest  practicable  date
   after the Registration  Statement is declared  effective by the SEC, and (iv)
   use all reasonable efforts to obtain the necessary approval of the Merger and
   this Agreement by their  respective  shareholders  and, in the case of Focus,
   use all reasonable  efforts to obtain the necessary  approval of the increase
   in the authorized  capital of Focus required to complete the Merger.  Neither
   Videonics nor Focus shall file with or  supplementally  provide to the SEC or
   mail to its  shareholders  the Joint  Proxy  Statement  or any  amendment  or
   supplement  thereto  without the prior  consent of the other.  Videonics  and
   Focus shall fully participate in the preparation of the Joint Proxy Statement
   and any amendment or supplement thereto and shall consult with each other and
   their advisors concerning any comments from the SEC with respect thereto.

      (b) Focus shall prepare and file with the SEC a Registration  Statement on
   Form S-4 and the parties hereto shall use all reasonable  efforts to have the
   Registration   Statement  declared  effective  by  the  SEC  as  promptly  as
   practicable.  Focus shall obtain and furnish the  information  required to be
   included  in  the  Registration   Statement  and,  after   consultation  with
   Videonics,  respond  promptly to any comments made by the SEC with respect to
   the Registration Statement.

      (c) The Joint Proxy  Statement  shall  include the  recommendation  of the
   Board of  Directors  of  Videonics  in favor of approval and adoption of this
   Agreement  and the  Merger,  except to the extent that  Videonics  shall have
   withdrawn or modified its  recommendation  of this Agreement or the Merger as
   permitted by Section 5.2.

      (d) The Joint Proxy  Statement  shall  include the  recommendation  of the
   Board  of  Directors  of Focus in favor  of  approval  and  adoption  of this
   Agreement,  the Merger and the  approval of the  increase  in the  authorized
   capital of Focus  required to complete the Merger,  except to the extent that
   Focus shall have  withdrawn or modified its approval of the  Agreement or the
   Merger as permitted by Section 5.2.

      (e) Focus and  Videonics  shall,  as  promptly  as  practicable,  make all
   necessary filings with respect to the Merger under the Securities Act and the
   Exchange Act and the rules and  Regulations  thereunder and under  applicable
   Blue Sky or similar securities laws, rules and Regulations, and shall use all
   reasonable  efforts to obtain required  approvals and clearances with respect
   thereto.

      (f) The  Parties  will  cooperate  in the  preparation  of the Joint Proxy
   Statement  and the  Registration  Statement  and in having  the  Registration
   Statement declared effective as soon as practicable.

     Section 6.2 Videonics Shareholders' Meeting. Videonics shall promptly after
the date  hereof  take  all  action  necessary  in  accordance  with CCL and its
Articles of  Incorporation  and bylaws to duly call,  give notice of and (unless
Focus requests  otherwise)  hold the Videonics  Shareholders  Meeting as soon as
practicable  following the date upon which the  Registration  Statement  becomes
effective  and  shall  consult  with  Focus in  connection  therewith.  Once the
Videonics Shareholders Meeting has been called and noticed,  Videonics shall not
postpone  or adjourn  (other than for the absence of a quorum and then only to a
future date specified by Focus) the Videonics  Shareholders  Meeting without the
consent of Focus.  The Board of Directors of Videonics  shall  declare that this
Agreement is  advisable  and,  subject to Section  5.2(c),  recommend  that this
Agreement and the transactions contemplated hereby be approved and authorized by
the shareholders of Videonics and include in the Joint Proxy Statement a copy of
such  recommendations;  provided,  however,  that  the  Board  of  Directors  of
Videonics shall submit this Agreement to the  shareholders of Videonics  whether
or not the Board of Directors of Videonics at any time subsequent to making such
recommendation  takes any action  permitted by Section  5.2(c).  Videonics shall
solicit from  shareholders of Videonics proxies in favor of the Merger and shall
take all other  action  necessary  or advisable to secure the vote or consent of
shareholders  required by the CCL to authorize  the Merger;  provided,  however,
that this  provision  shall not prohibit the Board of Directors  from taking any
action permitted by Section 5.2(c).


                                      A-28


<PAGE>




     Section 6.3 Focus  Shareholders'  Meeting.  Focus shall  promptly after the
date hereof take all action necessary in accordance with DCL and its Certificate
of Incorporation  and bylaws to duly call, give notice of and (unless  Videonics
requests  otherwise) hold the Focus Shareholders  Meeting as soon as practicable
following the date upon which the Registration  Statement  becomes effective and
shall  consult  with   Videonics  in  connection   therewith.   Once  the  Focus
Shareholders  Meeting has been called and  noticed,  Focus shall not postpone or
adjourn  (other  than for the absence of a quorum and then only to a future date
specified by Videonics) the Focus  Shareholders  Meeting  without the consent of
Videonics.  The Board of  Directors  of Focus shall  declare  that the Merger is
advisable and, subject to Section 5.2(c),  recommend that this Agreement and the
transactions  contemplated hereby be approved and authorized by the shareholders
of Focus  and that the  authorized  capital  of  Focus be  increased  to  permit
consummation of the Merger and shall include in the Joint Proxy Statement a copy
of such recommendations;  provided however, that the Board of Directors of Focus
shall submit this Agreement to the Focus  shareholders  and hold a shareholders'
vote to approve an increase in the  authorized  capital of Focus  whether or not
the  Board  of  Directors  of  Focus  at any  time  subsequent  to  making  such
recommendation takes any action permitted by Section 5.2(c). Focus shall solicit
from  shareholders  of Focus  proxies in favor of the Merger and the increase in
the  authorized  capital of Focus and shall take all other  action  necessary or
advisable  to secure  the vote or  consent of  shareholders  required  by DCL to
authorize  the  Merger  and the  increase  in the  authorized  capital of Focus;
provided, however, that this provision shall not prohibit the Board of Directors
from taking any action permitted by Section 5.2(c).

     Section 6.4 Consummation of Merger; Additional Agreements.

      (a) Upon the terms and  subject  to the  conditions  hereof and as soon as
   practicable  after the  conditions  set forth in Article VII hereof have been
   fulfilled or waived,  each of the Parties  required to do so shall execute in
   the  manner  required  by the DCL and CCL and  deliver  to and file  with the
   Secretary  of State of the State of Delaware  and  Secretary  of State of the
   State of California such instruments and agreements as may be required by the
   DCL and CCL and the Parties shall take all such other and further  actions as
   may be required by Law to make the Merger effective.

      (b) Each of the Parties  will  comply in all  material  respects  with all
   applicable  laws  and  with  all  applicable  rules  and  regulations  of any
   Governmental  Authority  in  connection  with  its  execution,  delivery  and
   performance of this Agreement and the transactions  contemplated hereby. Each
   of the Parties agrees to use all commercially reasonable efforts to obtain in
   a timely manner all necessary  waivers,  consents and approvals and to effect
   all  necessary  registrations  and  filings,  and  to  use  all  commercially
   reasonable  efforts to take,  or cause to be taken,  all other actions and to
   do, or cause to be done, all other things  necessary,  proper or advisable to
   consummate  and make effective as promptly as  practicable  the  transactions
   contemplated by this Agreement and to effect all necessary  filings under the
   Securities Act, the Exchange Act and the HSR Act.

      (c) Each of Focus and  Videonics  shall,  in  connection  with the efforts
   referenced in Section 6.4(a) and (b), (i) cooperate in all respects with each
   other in connection  with any filing or submission and in connection with any
   investigation  or other  inquiry,  including  any  proceeding  initiated by a
   private  party;  (ii)  promptly  inform  the  other  party  of  any  material
   communication  received  by such  party  from,  or given by such party to any
   Governmental Authority and of any material communication received or given in
   connection with any proceeding by a private party, in each case regarding any
   of the transactions  contemplated hereby and (iii) consult with each other in
   advance of any meeting or conference with any such Governmental Authority or,
   in connection with any proceeding by a private party,  with any other person,
   and to the extent permitted by the applicable Governmental Authority or other
   person,  give the other Parties the  opportunity to attend and participate in
   such meetings and conferences.

      (d) In  furtherance  and not in limitation of the covenants of the Parties
   contained  in Sections  6.4(a),  (b) and (c), if any  Action,  including  any
   Action by a private  party,  is instituted  (or  threatened to be instituted)
   challenging  any  transaction  contemplated by this Agreement as violative of
   any  applicable  Law, or if any Law is  enacted,  entered or  promulgated  or
   enforced by a Governmental Authority which would make the Merger or the other
   transactions  contemplated hereby illegal or otherwise prohibit or materially
   impair  or delay  consummation  of the  transactions  contemplated  hereby or
   thereby,  each of Focus and  Videonics  shall  cooperate in all respects with
   each other and use all commercially  reasonable efforts to contest and resist
   any such Action,  to have vacated,  lifted,  reversed or overturned  any Law,
   whether temporary, preliminary or permanent, that is in effect


                                      A-29


<PAGE>



   and that prohibits,  prevents or restricts  consummation of the  transactions
   contemplated  by this  Agreement and to have such Law repealed,  rescinded or
   made  inapplicable.  Notwithstanding  the foregoing or any other provision of
   this  Agreement,  nothing in this Section 6.4 shall limit a Party's  right to
   terminate this Agreement pursuant to Section 8.1 so long as such Party has up
   to then complied in all respects with its obligations under this Section 6.4.

      (e) If any  objections  are  asserted  with  respect  to the  transactions
   contemplated  hereby under any applicable Law or if any suit is instituted by
   any  Governmental  Authority  or any  private  party  challenging  any of the
   transactions  contemplated hereby as violative of any applicable Law, each of
   Focus and Videonics shall use its commercially  reasonable efforts to resolve
   any such  objections or challenge as such  Governmental  Authority or private
   party  may  have  to  such  transactions  under  such  Law  so as  to  permit
   consummation of the transactions contemplated by this Agreement.

     Section 6.5  Notification of Certain  Matters.  Each of Videonics and Focus
shall give prompt notice to the other of the following:

      (a) the  occurrence  or  nonoccurrence  of any event whose  occurrence  or
   nonoccurrence  would be  likely to cause  either  (i) any  representation  or
   warranty  contained  in this  Agreement  to be  untrue or  inaccurate  in any
   material  respect at any time from the date hereof to the Effective  Time, or
   (ii) directly or indirectly, any Material Adverse Effect on such Party;

      (b) any material failure of such Party, or any officer, director, employee
   or Agent of any thereof, to comply with or satisfy any covenant, condition or
   agreement to be complied with or satisfied by it hereunder, and

      (c) any facts  relating  to such Party which  would make it  necessary  or
   advisable to amend the Joint Proxy Statement or the Registration Statement in
   order to make  the  statements  therein  not  misleading  or to  comply  with
   applicable Law; provided,  however,  that the delivery of any notice pursuant
   to this  Section  6.5  shall  not  limit or  otherwise  affect  the  remedies
   available hereunder to the Party receiving such notice.

     Section 6.6 Access to Information; Confidentiality.

      (a) From the date hereof to the  Effective  Time,  each of  Videonics  and
   Focus shall, and, in the case of Focus, shall cause its Subsidiaries, and its
   and their officers,  directors,  employees,  auditors,  counsel and agents to
   afford the  officers,  employees,  auditors,  counsel and agents of the other
   Party  complete  access  at all  reasonable  times  to such  Party's  and its
   Subsidiaries'  officers,  employees,  auditors,  counsel agents,  properties,
   offices and other facilities and to all of their respective books and records
   (except as may be  required  by Law),  and shall  furnish  the other with all
   financial,  operating and other data and  information as such other Party may
   reasonably request, including in connection with confirmatory due diligence.

      (b) Each of Videonics  and Focus agrees that all  information  so received
   from the other Party shall be deemed received  pursuant to the  Nondisclosure
   Agreement and such Party shall,  and shall cause its Subsidiaries and each of
   its and their  respective  Representatives,  to comply with the provisions of
   the  Nondisclosure  Agreement  with  respect  to  such  information  and  the
   provisions of the Nondisclosure  Agreement are hereby  incorporated herein by
   reference  with the same effect as if fully set forth  herein,  provided that
   such information may be used for any purpose contemplated hereby.

     Section 6.7 Public  Announcements.  Focus and Videonics  shall consult with
and obtain the approval of the other party before  issuing any press  release or
other public announcement with respect to the Merger or this Agreement and shall
not issue any such press release prior to such consultation and approval, except
as may be required by  applicable  Law or any listing  agreement  related to the
trading of the shares of either  party on any  national  securities  exchange or
national automated  quotation system, in which case the party proposing to issue
such press release or make such public announcement shall use reasonable efforts
to  consult in good faith with the other  party  before  issuing  any such press
release or making any such public  announcement.  Notwithstanding the foregoing,
in the event either party's Board of Directors  withdraws its  recommendation of
this  Agreement  in  compliance  herewith,  such will no longer be  required  to
consult with or obtain the agreement of the other party in  connection  with any
press release or public announcement.

     Section 6.8 Employee Benefit Plans. The Videonics Plans and the Focus Plans
in effect at the date  hereof  shall  remain  in  effect  immediately  after the
Effective Time with respect to classes of employees covered by such


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<PAGE>


plans  immediately  prior  to the  Effective  Time,  provided  that,  as soon as
practicable  after the  Effective  Time,  the Board of  Directors  of Focus will
examine the Videonics  Plans and the Focus Plans and will select plans for Focus
and Videonics that have substantially  similar terms to the best of each type of
plan currently available to employees of either of Focus or Videonics.

     Section 6.9 Succession.

      (a) At the Effective Time, (i) Michael L. D'Addio shall hold the positions
   of President and Chief  Executive  Officer of Focus and (ii) Thomas L. Massie
   shall  remain as  Chairman  of the Board of Focus  for the  remainder  of his
   current term.  If Mr.  D'Addio is unable or unwilling to hold such offices as
   set forth above, his successor shall be selected by the Board of Directors of
   Focus.

      (b) As soon as practicable  after the date hereof,  Focus shall enter into
   an employment  agreement  effective as of the Effective Time (the "Employment
   Agreement") with Messr. D'Addio containing arrangements concerning management
   succession satisfactory to each Party.

     Section 6.10 Stock Exchange Listing. Each of the Parties shall use its best
efforts to obtain,  prior to the Effective Time, the approval for listing on the
NASDAQ,  effective  upon  official  notice of  issuance,  of the shares of Focus
Common Stock into which the Videonics Common Stock will be converted pursuant to
Article II hereof and which will be issuable upon  exercise of options  pursuant
to Section 2.12 hereof.

     Section 6.11 Post-Merger Focus Board of Directors.

      (a) At the Effective  Time, one or more of the incumbent  directors  shall
   resign from the Board of Directors of Focus so that there shall be sufficient
   vacancies  for the Board of Directors to appoint three  directors,  one being
   appointed  for each of one,  two and three  years,  and all of whom  shall be
   nominated by Videonics as provided below. After the Effective Time, the Board
   of  Directors  of Focus shall be  comprised  of seven  directors  as provided
   below. To the extent possible,  the Videonics nominees shall be selected from
   persons who are directors of Videonics prior to the Effective Time.

      (b) The persons to serve  initially  on the Board of Directors of Focus at
   the Effective  Time who are Videonics  Directors (as defined  below) shall be
   selected  solely by and at the absolute  discretion of the Board of Directors
   of Videonics  prior to the  Effective  Time;  and the persons to serve on the
   Board of Directors of Focus at the Effective Time who are Focus Directors (as
   defined below) shall be selected solely by and at the absolute  discretion of
   the Board of Directors  of Focus prior to the  Effective  Time.  In the event
   that,  prior to the  Effective  Time,  any person so selected to serve on the
   Board of Directors of Focus after the  Effective  Time is unable or unwilling
   to serve in such position,  the Board of Directors which selected such person
   shall  designate  another of its members to serve in such  person's  stead in
   accordance with the provisions of the immediately preceding sentence.

      (c) If, at any time prior to  September  1, 2002,  the number of Videonics
   Directors  is less than three then,  subject to the  fiduciary  duties of the
   directors,  the Board of Directors shall appoint to fill any existing vacancy
   or vacancies,  as appropriate,  such person or persons as may be requested by
   the remaining  Videonics  Directors (if the number of Videonics Directors is,
   or would  otherwise  become,  less  than  three)  or by the  remaining  Focus
   Directors (if the number of Focus  Directors is, or would  otherwise  become,
   less than four) to ensure  that  there  shall be four  Focus  Directors.  The
   provisions of the  preceding two sentences  shall not apply in respect of any
   vacancy which occurs after September 1, 2002. The term  "Videonics  Director"
   means (i) any person  serving as a director of  Videonics  on the date hereof
   who becomes a director of Focus at the Effective Time and (ii) any person who
   subsequently  becomes  a  director  of  Focus  and who is  designated  by the
   Videonics Directors pursuant to this paragraph; and the term "Focus Director"
   means (i) any person  serving as a director  of Focus on the date  hereof who
   continues as a director of Focus after the Effective Time and (ii) any person
   who becomes a director of Focus and who is designated by the Focus  Directors
   pursuant to this  paragraph.  From the  Effective  Time through  September 1,
   2002,  the Board of  Directors  shall  consist  of a number of  Directors  as
   described above and such number of Directors shall not be amended.

      (d) Each of Videonics and Focus shall take such action as shall reasonably
   be deemed by either  thereof to be advisable to give effect to the provisions
   set forth in this section,  including but not limited to  incorporating  such
   provisions in the bylaws of Focus in effect at the Effective Time.


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<PAGE>



     Section 6.12 Blue Sky.  Videonics  and Focus will use their best efforts to
obtain prior to the Effective  Time all necessary blue sky permits and approvals
required to permit the  distribution  of the shares of Focus  Common Stock to be
issued in accordance with the provisions of this Agreement.

     Section 6.13 Tax-Free Reorganization. Each of the Parties will use its best
efforts to cause the Merger to  qualify as a tax-free  reorganization  under the
Code.


                                   ARTICLE VII
                              CONDITIONS TO MERGER

     Section 7.1  Conditions to  Obligations of Each Party to Effect the Merger.
The  respective  obligations of each Party to effect the Merger shall be subject
to the following conditions:

      (a)  Shareholder  Approval.  The  Videonics  Shareholder  Approval,  Focus
   Shareholder  Approval and Merger Subsidiary  Shareholder  Approval shall have
   been obtained;

      (b) Amendment of Articles of Focus.  The Certificate of  Incorporation  of
   Focus shall have been amended to increase the authorized  capital of Focus to
   permit the issuance of Focus Common Stock in accordance with the requirements
   of Section 2.2;

      (c) Legality.  No Law shall have been  enacted,  entered,  promulgated  or
   enforced by any Governmental  Authority which is in effect and has the effect
   of (i) making the Merger illegal or otherwise prohibiting the consummation of
   the Merger or (ii) creating a Material  Adverse Effect on Videonics or Focus,
   with or without  including its  ownership of Videonics  and its  Subsidiaries
   after the Effective Time;

      (d) HSR Act. Any waiting  period  applicable  to the  consummation  of the
   Merger under the HSR Act shall have expired or been terminated;

      (e) Regulatory Matters. All authorizations,  consents,  orders, permits or
   approvals of, or declarations or filings with, and all expirations of waiting
   periods  imposed  by,  any  Governmental  Authority  (all  of the  foregoing,
   "Consents")  which are necessary  for the  consummation  of the  transactions
   contemplated  hereby,  other than Consents which, if not obtained,  would not
   have a  Material  Adverse  Effect on Focus,  with or  without  including  its
   ownership of Videonics and its Subsidiaries  after the Merger,  or Videonics,
   shall have been filed, have occurred or have been obtained (all such Consents
   being  referred  to as the  "Requisite  Regulatory  Approvals")  and all such
   Requisite Regulatory  Approvals shall be in full force and effect,  provided,
   however,  that a Requisite  Regulatory  Approval  shall not be deemed to have
   been obtained if in  connection  with the grant thereof there shall have been
   an imposition by any  Governmental  Authority of any condition,  requirement,
   restriction  or  change  of  regulation,  or any  other  action  directly  or
   indirectly related to such grant taken by such Governmental Authority,  which
   would  reasonably be expected to have a Material  Adverse Effect on either of
   (A) Videonics or (B) Focus (either with or without including its ownership of
   Videonics and its Subsidiaries after the Merger);

      (f) Registration  Statement  Effective.  The Registration  Statement shall
   have been declared  effective and no stop order suspending the  effectiveness
   of the Registration Statement shall then be in effect, and no proceedings for
   that purpose shall then be threatened by the SEC or shall have been initiated
   by the SEC and not concluded or withdrawn;

      (g) Blue Sky.  All  state  securities  or blue sky  permits  or  approvals
   required to carry out the  transactions  contemplated  hereby shall have been
   received;

      (h) Stock  Exchange  Listing.  The shares of Focus Common Stock into which
   the  Videonics  Common Stock will be converted  pursuant to Article II hereof
   and the shares of Focus  Common Stock  issuable  upon the exercise of options
   pursuant to Section 2.12 hereof shall have been duly  approved for listing on
   the NASDAQ, subject to official notice of issuance;

      (i) Consents  Under  Agreements.  Each of  Videonics  and Focus shall have
   obtained  the  consent or approval  of any person  whose  consent or approval
   shall be required  under any  agreement or  instrument in order to permit the
   consummation of the transactions  contemplated  hereby or material agreement,
   except  those which the failure to obtain would not,  individually  or in the
   aggregate,  have a Material  Adverse Effect on Videonics or Focus,  including
   its ownership of Videonics and its Subsidiaries after the Merger;


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<PAGE>


      (j) No Material Adverse Effect. From and including the date hereof,  there
   shall not have  occurred  any event and no  circumstance  shall exist  which,
   alone or together with any one or more other events or circumstances has had,
   is having or would  reasonably be expected to have a Material  Adverse Effect
   on Videonics, Focus or any Focus Subsidiary;

      (k) Satisfactory Completion of Due Diligence. Within seven (7) days of the
   date  hereof,  both parties  shall have  satisfactorily  completed  their due
   diligence  review of the other party and shall be satisfied  with the results
   thereof; and

      (l) Tax  Opinion.  The  parties  shall have  received an opinion of either
   Manatt,  Phelps & Phillips,  counsel to  Videonics,  or Mintz,  Levin,  Cohn,
   Ferris,  Glovsky  and Popeo,  PC,  counsel to Focus,  dated as of the Closing
   Date,  in  form  and  substance   reasonably   satisfactory  to  the  paties,
   substantially to the effect that, on the basis of the facts,  representations
   and assumptions set forth in such opinion,  the Merger constitutes a tax-free
   reorganization  under  the Code and  therefore:  (A) no gain or loss  will be
   recognized  for federal  income tax  purposes by Focus,  Videonics  or Merger
   Subsidiary as a result of the formation of Merger  Subsidiary and the Merger;
   (B) no gain or loss will be recognized for federal income tax purposes by the
   shareholders  of  Videonics  upon their  exchange of  Videonics  Common Stock
   solely for Focus Common Stock  pursuant to the Merger (except with respect to
   cash received in lieu of a fractional  share interest in Focus Common Stock);
   and (C) no gain or loss will be recognized for federal income tax purposes by
   the  shareholders  of  Focus  as  a  result  of  the  Merger,  including  the
   Certificate  of  Amendment.  In rendering  such  opinion,  legal  counsel may
   require and rely upon representations and covenants including representations
   and covenants contained in officer's certificates of Videonics and Focus.

     Section  7.2  Additional  Conditions  to  Obligations  of  Videonics.   The
obligations  of  Videonics  to  effect  the  Merger  are  also  subject  to  the
fulfillment of the following conditions:

      (a) Representations and Warranties.  The representations and warranties of
   Focus  contained  in this  Agreement  shall be true and  correct  on the date
   hereof and (except to the extent such representations and warranties speak as
   of a date earlier than the date hereof) shall also be true and correct on and
   as of the Closing Date,  except for changes  contemplated  by this Agreement,
   with the same  force  and  effect as if made on and as of the  Closing  Date,
   provided,  however,  that for  purposes of this  Section  7.2(a)  only,  such
   representations  and warranties shall be deemed to be true and correct unless
   the failure or failures of such  representations and warranties to be so true
   and correct  (without regard to materiality  qualifiers  contained  therein),
   individually or in the aggregate,  results or would reasonably be expected to
   result  in a  Material  Adverse  Effect  on  Focus,  either  with or  without
   including its ownership of Videonics and its Subsidiaries after the Merger;

      (b)  Agreements  and  Covenants.  Focus and Merger  Subsidiary  shall have
   performed or complied  with all  agreements  and  covenants  required by this
   Agreement to be performed or complied with by them on or before the Effective
   Time, provided,  however, that for purposes of this Section 7.2(b) only, such
   agreements  and  covenants  shall be deemed to have been complied with unless
   the  failure  or  failures  of such  agreements  and  covenants  to have been
   complied with (without regard to materiality  qualifiers  contained therein),
   individually or in the aggregate,  results or would reasonably be expected to
   result  in a  Material  Adverse  Effect  on  Focus,  either  with or  without
   including its ownership of Videonics and its Subsidiaries after the Merger;

      (c)  Certificates.  Videonics  shall  have  received a  certificate  of an
   executive  officer of Focus to the effect set forth in paragraphs (a) and (b)
   above;

      (d)  Disclosure  Schedule.  (i)  Focus  shall  have  delivered  the  Focus
   Disclosure  Schedule  within  Seven (7) days of the date  hereof and (ii) all
   matters disclosed in the Focus Disclosure Schedule that could have a Material
   Adverse  Effect on Focus shall be matters that were disclosed to Videonics on
   or before the execution and delivery by Videonics of this Agreement; and

      (e) Stock Option Plan. Focus shall have amended its 2000 Stock Option Plan
   to increase by 1,000,000 the number of shares of Focus Common Stock  reserved
   for issuance  thereunder  and shall have  submitted  such amended plan to its
   shareholders for approval.

     Section 7.3 Additional  Conditions to Obligations of Focus. The obligations
of Focus to  effect  the  Merger  are also  subject  to the  fulfillment  of the
following conditions:



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<PAGE>



      (a) Representations and Warranties.  The representations and warranties of
   Videonics  contained in this Agreement  shall be true and correct on the date
   hereof and (except to the extent such representations and warranties speak as
   of a date earlier than the date hereof) shall also be true and correct on and
   as of the Closing Date,  except for changes  contemplated  by this Agreement,
   with the same  force  and  effect as if made on and as of the  Closing  Date,
   provided,  however,  that for  purposes of this  Section  7.3(a)  only,  such
   representations  and warranties shall be deemed to be true and correct unless
   the failure or failures of such  representations and warranties to be so true
   and correct  (without regard to materiality  qualifiers  contained  therein),
   individually or in the aggregate,  results or would reasonably be expected to
   result  in a  Material  Adverse  Effect on  Videonics  or Focus  (only  after
   including its ownership of Videonics and its Subsidiaries after the Merger);

      (b) Agreements and Covenants.  Videonics  shall have performed or complied
   with all agreements and covenants  required by this Agreement to be performed
   or complied with by them on or before the Effective Time, provided,  however,
   that for purposes of this Section 8.3(b) only,  such agreements and covenants
   shall be deemed to have been  complied with unless the failure or failures of
   such  agreements and covenants to have been complied with (without  regard to
   materiality qualifiers contained therein),  individually or in the aggregate,
   results or would  reasonably  be  expected  to result in a  Material  Adverse
   Effect on Videonics;

      (c) Certificates.  Focus shall have received a certificate of an executive
   officer of Videonics to the effect set forth in paragraphs (a) and (b) above;
   and

      (d) Disclosure Schedule.  (i) Videonics shall have delivered the Videonics
   Disclosure  Schedule  within  seven (7) days of the date  hereof and (ii) all
   matters  disclosed in the  Videonics  Disclosure  Schedule  that could have a
   Material  Adverse Effect on Videonics shall be matters that were disclosed to
   Focus on or before the execution and delivery by Focus of this Agreement.


                                  ARTICLE VIII
                        TERMINATION, AMENDMENT AND WAIVER

     Section 8.1  Termination.  This  Agreement  may be  terminated  at any time
before the Effective  Time, in each case as authorized by the respective  Boards
of Directors of Videonics or Focus:

      (a) By mutual written consent of each of Videonics and Focus;

      (b) By  either  Videonics  or  Focus if the  Merger  shall  not have  been
   consummated on or before  December 31, 2000 (the "Initial  Termination  Date"
   and as such may be extended  pursuant  to this  paragraph,  the  "Termination
   Date"),  provided,  however,  that  if on  the  Termination  Date  any of the
   conditions  to the Closing set forth in Sections  7.1(b),  (c)(i),  (d), (e),
   (f), (g), (h) or (i) shall not have been fulfilled,  but all other conditions
   to the Closing  shall be  fulfilled  or shall be capable of being  fulfilled,
   then the Termination Date shall be extended to March 30, 2001, (the "Extended
   Termination Date"); and provided further that if on the Extended  Termination
   Date any of the  conditions  to the  Closing  set forth in  Sections  7.1(b),
   (c)(i), (d), (e), (f), (g), (h) or (i) shall not have been fulfilled, but all
   other  conditions  to the Closing  shall be  fulfilled or shall be capable of
   being fulfilled,  then the Termination Date shall be further extended to June
   30, 2001 (the "Final Termination Date"), unless within five days prior to the
   Extended  Termination  Date  any  Party  reasonably  determines  that  it  is
   substantially unlikely that any of the conditions to the Closing set forth in
   Sections 7.1(b),  (c)(i), (d), (e), (f), (g), (h) or (i) will be fulfilled by
   the Final Termination Date and delivers to the other Parties a notice to such
   effect. The right to terminate this Agreement under this Section 8.1(b) shall
   not be available to any Party whose failure to fulfill any  obligation  under
   this  Agreement  has been the cause of, or  resulted  in, the  failure of any
   condition to be satisfied;

      (c) By  Videonics  or Focus if after the date hereof a court of  competent
   jurisdiction or Governmental  Authority shall have issued an order, decree or
   ruling or taken any other action (which  order,  decree or ruling the Parties
   shall use  their  commercially  reasonable  efforts  to  lift),  in each case
   permanently restraining,  enjoining or otherwise prohibiting the transactions
   contemplated  by this  Agreement,  and such  order,  decree,  ruling or other
   action shall have become final and nonappealable;

      (d) (i) by  Videonics,  (A) if Focus  shall  have  breached  or  failed to
   perform  in any  material  respect  any of its  representations,  warranties,
   covenants or other agreements contained in this Agreement, which breach


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<PAGE>



   or failure to perform (1) is  incapable  of being cured by Focus prior to the
   Termination  Date and (2)  renders  any  condition  under  Section 7.1 or 7.2
   incapable  of being  satisfied  prior to the  Termination  Date,  or (B) if a
   condition  under  Sections  7.1 or 7.2 to  Videonics'  obligations  hereunder
   cannot be satisfied  prior to the  Termination  Date;  (ii) by Focus,  (A) if
   Videonics  shall have  breached or failed to perform in any material  respect
   any  of  its  representations,  warranties,  covenants  or  other  agreements
   contained  in this  Agreement,  which  breach or failure  to  perform  (1) is
   incapable of being cured by Videonics prior to the  Termination  Date and (2)
   renders any condition  under Sections 7.1 or 7.3 incapable of being satisfied
   prior to the  Termination  Date, or (B) if a condition  under Sections 7.1 or
   7.3  to  Focus'  obligations  hereunder  cannot  be  satisfied  prior  to the
   Termination Date;

      (e) By either of Focus or Videonics if the Board of Directors of the other
   Party or any committee of the Board of Directors of the other Party (i) shall
   fail to include  in the Joint  Proxy  Statement  its  recommendation  without
   modification or qualification  that  shareholders  approve this Agreement and
   the Merger,  (ii) shall withdraw or modify in any adverse manner its approval
   or  recommendation  of this  Agreement  or the  Merger,  (iii)  shall fail to
   reaffirm  such approval or  recommendation  upon such Party's  request,  (iv)
   shall approve or recommend any  Acquisition  Proposal or (v) shall resolve to
   take any of the actions specified in this Section 8.1(e); or

      (f)  By  Focus  or  Videonics  if any of  the  required  approvals  of the
   shareholders  of Videonics or Focus shall fail to have been  obtained at duly
   held  shareholders'  meetings of such companies,  including any  adjournments
   thereof.

     Section 8.2 Effect of Termination.

      (a) In the event of  termination  of this Agreement as provided in Section
   8.1  hereof,  and  subject to the  provisions  of Section  9.1  hereof,  this
   Agreement shall forthwith  become void and there shall be no liability on the
   part of any of the  Parties,  except (i) as set forth in this Section 8.2 and
   in Sections 3.10,  3.16,  4.10, 4.16 and 9.3 hereof,  and (ii) nothing herein
   shall relieve any Party from liability for any willful breach hereof.

      (b) If this  Agreement (i) is terminated by Videonics  pursuant to Section
   8.1(e)  hereof,  (ii) could have been (but was not)  terminated  by Videonics
   pursuant to Section 8.1(e) hereof and is subsequently  terminated by Focus or
   Videonics  pursuant  to Section  8.1(f)  because of the failure to obtain the
   Focus  Shareholder  Approval,  (iii) (A) could  not have been  terminated  by
   Videonics pursuant to Section 8.1(e) hereof but is subsequently terminated by
   Focus or  Videonics  pursuant  to Section  8.1(f)  because of the  failure to
   obtain the Focus Shareholder  Approval,  (B) prior to the Focus Shareholders'
   Meeting there shall have been an Acquisition Proposal, an announcement of any
   intention  with respect to an  Acquisition  Proposal,  or any agreement  with
   respect  to  an  Acquisition  Proposal  involving  Focus  or  any  of  Focus'
   Subsidiaries,  and  (C)  within  12  months  after  the  termination  of this
   Agreement, Focus enters into a definitive agreement with any third party with
   respect to any Acquisition  Proposal, or (iv) is terminated by Videonics as a
   result of Focus'  material breach of Sections 6.1 or 6.3 hereof which, in the
   case of a breach  thereof that can be cured by Focus,  is not cured within 30
   days  after  notice  thereof  to  Focus,  Focus  shall  pay  to  Videonics  a
   termination fee of three hundred thousand dollars ($300,000).

      (c) If this  Agreement  (i) is  terminated  by Focus  pursuant  to Section
   8.1(e)  hereof,  (ii)  could  have  been  (but was not)  terminated  by Focus
   pursuant to Section 8.1(e) hereof and is subsequently terminated by Videonics
   or Focus  pursuant  to Section  8.1(f)  because of the  failure to obtain the
   Videonics Shareholder  Approval,  (iii) (A) could not have been terminated by
   Focus  pursuant to Section  8.1(e) hereof but is  subsequently  terminated by
   Videonics  or Focus  pursuant  to Section  8.1(f)  because of the  failure to
   obtain  the  Videonics  Shareholder  Approval,  (B)  prior  to the  Videonics
   Shareholders'  Meeting  there  shall have been an  Acquisition  Proposal,  an
   announcement of any intention with respect to an Acquisition Proposal, or any
   agreement with respect to any Acquisition Proposal involving  Videonics,  and
   (C)  within 12 months  after the  termination  of this  Agreement,  Videonics
   enters into a definitive  agreement  with any third party with respect to any
   Acquisition  Proposal,  or  (iv)  is  terminated  by  Focus  as a  result  of
   Videonics' material breach of Section 6.1 or 6.2 hereof which, in the case of
   a breach that can be cured by  Videonics,  is not cured  within 30 days after
   notice thereof to Videonics,  Videonics  shall pay to Focus a termination fee
   of three hundred thousand dollars ($300,000).

      (d) Each termination fee payable under Sections 8.2(b) and (c) above shall
   be payable in cash,  payable no later than one  business  day  following  the
   delivery of notice of termination to the other Party, or, if such fee shall


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<PAGE>


   be payable  pursuant to clause (iii) of either of Section 8.2(b) or (c), such
   fee shall be payable no later than one  business day  following  the day such
   Party enters into the definitive agreement referenced in such clause (iii).

      (e)  Videonics and Focus agree that the  agreements  contained in Sections
   8.2(b) and (c) above are an integral part of the transactions contemplated by
   this Agreement and constitute  liquidated  damages and not a penalty.  In the
   event of any dispute as to whether any fee due under such Sections 8.2(b) and
   (c) is due and  payable,  the  prevailing  party shall be entitled to receive
   from the  other  Party  the  costs and  expenses  (including  legal  fees and
   expenses) in connection with any action,  including the filing of any lawsuit
   or other legal action,  relating to such dispute.  Interest  shall be paid on
   the  amount  of any  unpaid  fee at the  publicly  announced  prime  rate  of
   Citibank, N.A. from the date such fee was required to be paid.

     Section  8.3  Amendment.  This  Agreement  may be  amended  by the  Parties
pursuant to a writing  adopted by action taken by all of the Parties at any time
before the Effective  Time;  provided,  however,  that,  after  approval of this
Agreement by the  shareholders of Focus and Videonics,  no amendment may be made
which  would (a)  alter or change  the  amount or kinds of  consideration  to be
received by the  holders of  Videonics  Common  Stock upon  consummation  of the
Merger,  (b)  alter or  change  any term of the  Articles  of  Incorporation  of
Videonics  or  the  Certificate  of  Incorporation  of  Focus  (except  for  the
implementation at the Effective Time of the Certificate  Amendment) or (c) alter
or change any of the terms and conditions of this  Agreement if such  alteration
or  change  would  adversely  affect  the  holders  of any  class or  series  of
securities of Videonics or Focus. This Agreement may not be amended except by an
instrument in writing signed by the Parties.

     Section 8.4 Waiver.  At any time before the Effective  Time,  any Party may
(a) extend the time for the  performance of any of the obligations or other acts
of the other Parties,  (b) waive any  inaccuracies  in the  representations  and
warranties contained herein or in any document delivered pursuant hereto and (c)
waive compliance with any of the agreements or conditions  contained herein. Any
agreement on the part of a Party to any such  extension or waiver shall be valid
only as  against  such Party and only if set forth in an  instrument  in writing
signed by such Party.


                                   ARTICLE IX
                               GENERAL PROVISIONS

     Section 9.1 Non-Survival of Representations, Warranties and Agreements. The
representations,  warranties and agreements in this Agreement shall terminate at
the Effective Time or upon the termination of this Agreement pursuant to Section
8.1  hereof,  as the case may be,  except that (a) the  agreements  set forth in
Article I and Sections 2.2, 2.4, 2.6, 2.7, 2.8, 2.11, 2.12 and 6.11 hereof shall
survive the Effective Time indefinitely,  (b) the agreements and representations
set forth in Sections  3.10,  3.16,  4.10,  4.16,  6.6, 8.2 and 9.3 hereof shall
survive  termination  indefinitely and (c) nothing  contained herein shall limit
any  covenant  or  Agreement  of the  Parties  which by its  terms  contemplates
performance after the Effective Time.

     Section 9.2  Notices.  All notices and other  communications  given or made
pursuant  hereto shall be in writing and shall be deemed to have been duly given
or made as of the date of receipt and shall be delivered personally or mailed by
registered or certified mail (postage prepaid,  return receipt requested),  sent
by  overnight  courier or sent by  telecopy,  to the  Parties  at the  following
addresses or telecopy numbers (or at such other address or telecopy number for a
Party as shall be specified by like notice):

   (a) if to Videonics:

                     Videonics   Corporation,   1370   Dell   Avenue,  Campbell,
                     California 95008
                     Attention: Michael D'Addio, Chairman and CEO,
                     Phone: (408) 866-8300, Fax: (408) 866-4859

   with a copy to (which shall not constitute notice):

                     Manatt,  Phelps  &  Phillips, 1001 Page Mill Road, Bldg. 2,
                     Suite 100,
                     Palo Alto, California 94304-1006
                     Attention:   Jerold  F.  Petruzzelli,  Esq.,  Phone:  (650)
                     812-1335,
                     Fax: (650) 213-0260

   (b) if to Focus:

                     Focus Enhancements, Inc., 600 Research Drive, Wilmington,
                     Massachusetts  01887, Attention: Vice President and General
                     Counsel,
                     Phone: (978) 988-5888 Fax: (978) 661-0160


                                      A-36


<PAGE>



   with a copy to (which shall not constitute notice):

                     Mintz,   Levin,  Cohen,  Ferris  &  Pompeo,  One  Financial
                     Center, Boston,
                     Massachusetts 02109, Attention: Neil Aronson, Esq.
                     Phone: (617) 542-6000 Fax: (617) 542-2241

     Section 9.3 Expenses.  Except as otherwise provided in this Agreement,  all
costs  and  expenses   incurred  in  connection  with  this  Agreement  and  the
transactions contemplated hereby shall be paid by the Party incurring such costs
and  expenses,  except  that those  expenses  incurred  in  connection  with the
printing of the Joint Proxy Statement and the Registration Statement, as well as
the filing fees related  thereto and any filing fee required in connection  with
the  filing  of  Pre-merger  Notifications  under  the HSR Act,  shall be shared
equally by Videonics and Focus.

     Section 9.4  Certain  Definitions.  For  purposes  of this  Agreement,  the
following terms shall have the following meanings:

      (a) "Acquisition Proposal" shall mean any inquiry,  proposal or offer from
   any Person (other than Focus,  Merger  Subsidiary,  Videonics or any of their
   affiliates)   relating  to  any  merger,   consolidation,   recapitalization,
   liquidation or other direct or indirect business  combination,  involving any
   of the Parties or any of their  respective  Subsidiaries  or the  issuance or
   acquisition  of shares of capital stock or other equity  securities of any of
   the Parties or any of their  respective  Subsidiaries  representing  19.9% or
   more of the  outstanding  capital stock of such Party or  Subsidiary,  as the
   case may be, or any tender or exchange offer that if consummated would result
   in any  Person,  together  with all  affiliates  thereof,  (other than Focus,
   Merger Subsidiary,  Videonics or any of their affiliates) beneficially owning
   shares of capital  stock or other equity  securities of any of the Parties or
   any of  their  respective  Subsidiaries  representing  19.9%  or  more of the
   outstanding capital stock of such Party or Subsidiary, as the case may be, or
   the sale,  lease  exchange,  license  (whether  exclusive  or not),  or other
   disposition of any significant  portion of the Intellectual  Property rights,
   or any  significant  portion of the  business or other assets of any Party or
   any of its Subsidiaries,  or any other transaction, the consummation of which
   could reasonably be expected to impede, interfere with, prevent or materially
   delay the consummation of the transactions contemplated hereby or which would
   reasonably be expected to diminish  significantly  the benefits to any of the
   Parties of the transactions contemplated hereby.

      (b)  "Actions"  means  any  claim,   action,   suit,  charge,   complaint,
   arbitration,   proceeding  or  announced   investigation  by  or  before  any
   Governmental Authority.

      (c)  "affiliate"  of a person means a person that directly or  indirectly,
   through one or more intermediaries,  controls,  is controlled by, or is under
   common control with, the first mentioned person.

      (d) "Blue Sky Laws" means the state securities laws.

      (e) "Commercially  reasonable  efforts" shall mean those efforts necessary
   or  advisable  to advance  the  interests  of the  Parties in  achieving  the
   purposes and specific  requirements  and  satisfying  the  conditions of this
   Agreement,  provided  that such  efforts  will not require or include  either
   expense or conduct not ordinarily  incurred or engaged in by Parties  seeking
   to  implement  agreements  of this  type  unless  part of a  separate  mutual
   understanding of the Parties not contained in this Agreement  whether reached
   before or after the Agreement is executed.

      (f)  "Control"  (including  the terms  "controlled  by" and "under  common
   control  with") means the  possession,  direct or  indirect,  of the power to
   direct or cause the  direction  of the  management  and policies of a person,
   whether through the ownership of stock,  as trustee or executor,  by contract
   or credit arrangement or otherwise.

      (g) "Encumbrance" means any security interest granted in assets located in
   the United States or similar  security  right  granted  outside of the United
   States, pledge, mortgage, lien (including, without limitation,  environmental
   and tax liens),  encumbrance,  adverse  claim,  preferential  arrangement  or
   restriction of any kind,  including,  without limitation,  any restriction on
   the use,  voting,  transfer,  receipt  of  income  or other  exercise  of any
   attributes of ownership.

      (h)  "Environmental  Law" means any Law relating  to: (A) the  protection,
   investigation or restoration of the environment,  health,  safety, or natural
   resources, (B) the handling, use, presence, disposal, release,


                                      A-37


<PAGE>


   discharge or threatened  release or discharge of any  Hazardous  Substance or
   (C) noise, odor, wetlands,  pollution,  contamination or any injury or threat
   of injury to persons or property in connection with any Hazardous Substance.

      (i) "Exchange Act" means the Securities Exchange Act of 1934, as amended.

      (j) "Focus Equity  Rights" shall mean  subscriptions,  options,  warrants,
   calls,  commitments,  agreements,  conversion  rights or other  rights of any
   character  (contingent  or  otherwise)  to purchase or otherwise  acquire any
   shares of the capital stock of Focus from Focus or any of Focus' Subsidiaries
   at any time, or upon the happening of any stated event.

      (k) "GAAP" means generally  accepted  accounting  principles  applied in a
   manner consistent with past practice.

      (l) "Governmental  Authority" means any federal,  state,  local or foreign
   government,  any  court,  administrative,  regulatory  or other  governmental
   agency, commission or authority or any non-governmental U.S. or foreign self-
   regulatory agency, commission or authority or any arbitral tribunal.

      (m) "Hazardous Substance" means any substance that is: listed,  classified
   or regulated  pursuant to any  Environmental  Law,  including  any  petroleum
   product or by-product,  asbestos- containing material,  lead-containing paint
   or plumbing, polychlorinated biphenyls, radioactive materials or radon.

      (n) "HSR  Act"  means  the  pre-Merger  notification  requirements  of the
   Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

      (o)  "Intellectual  Property" of any Party,  means all  designs,  patents,
   patent applications and other rights, trademarks, trademark registrations and
   applications,  service marks,  service mark  registrations  and applications,
   copyrights,  copyright registrations and applications,  trade or brand names,
   trade secrets,  proprietary manufacturing information,  know how, inventions,
   inventors notes and drawings owned or used by such Party.

      (p)  "Knowledge"  of any Party  shall  mean the  actual  knowledge  of the
   executive officers of such Party.

      (q) "Law" means any federal,  state,  local or foreign statute,  act, law,
   ordinance,  regulation,  rule, code, order, decree,  judgment,  policy, other
   requirement or rule of law.

      (r)  "Material  Adverse  Effect"  means  any  change  in or  effect on the
   business of the referenced  corporation or any of its Subsidiaries that is or
   will be materially adverse to the business,  operations (including the income
   statement),   properties   (including   intangible   properties),   condition
   (financial or otherwise),  assets,  liabilities or regulatory  status of such
   referenced  corporation and its Subsidiaries  taken as a whole, but shall not
   include  the  effects of changes  that are  generally  applicable  in (A) the
   United States economy or (B) the United States securities  markets if, in any
   of (A) or (B), the effect on Videonics or Focus, determined without including
   its  ownership  of Videonics  after the Merger,  (as the case may be) and its
   respective Subsidiaries, taken as a whole, is not materially disproportionate
   relative to the effect on the other and its  Subsidiaries,  taken as a whole.
   All  references  to  Material  Adverse  Effect  on Focus or its  Subsidiaries
   contained in Article III, IV, VI or VII of this Agreement  shall be deemed to
   refer solely to Focus and its Subsidiaries without including its ownership of
   Videonics and its Subsidiaries after the Merger.

      (s) "Permits" permits, franchises, licenses, authorizations, certificates,
   variances,  exemptions, orders, registrations or consents that are granted by
   any   Governmental   Authority   (including   any  stock  exchange  or  other
   self-regulatory body).

      (t) "Person" means an individual, corporation,  partnership,  association,
   trust,  estate,  limited  liability  company,  labor  union,   unincorporated
   organization, entity or group (as defined in the Exchange Act).

      (u) "SEC" means the United States Securities and Exchange Commission.

      (v) "Software" means any and all (i) computer programs,  including any and
   all software implementations of algorithms, models and methodologies, whether
   in source code or object code, (ii) databases and compilations, including any
   and all data and collections of data,  whether machine readable or otherwise,
   (iii) descriptions,  flow-charts and other work product used to design, plan,
   organize  and  develop  any of the  foregoing,  and (iv)  all  documentation,
   including  user  manuals  and  training  materials,  relating  to  any of the
   foregoing.


                                      A-38


<PAGE>


      (w)  "Subsidiary"  or "Focus  Subsidiary"  means any  corporation or other
   legal  entity of which Focus  (either  alone or through or together  with any
   other Subsidiary or Subsidiaries),  owns,  directly or indirectly,  more than
   50% of the stock or other equity interests the holders of which are generally
   entitled  to vote  for the  election  of the  board  of  directors  or  other
   governing body of such corporation or other legal entity.

      (x) "Securities Act" means the Securities Act of 1933, as amended.

      (y) "Superior Proposal" means any bona fide Acquisition Proposal to effect
   a merger,  consolidation or sale of all or substantially all of the assets or
   capital stock of any of Focus or Videonics  which is on terms which the Board
   of Directors of such Party  determine by a majority  vote of its directors in
   their good faith judgment (based on the written opinion,  with only customary
   qualifications,  of a financial advisor of nationally  recognized  reputation
   that the consideration  provided in such Acquisition  Proposal likely exceeds
   the value of the consideration provided for in the Merger), after taking into
   account all relevant  factors,  including any conditions to such  Acquisition
   Proposal, the timing of the closing thereof, the risk of nonconsummation, the
   ability  of the  person  making  the  Acquisition  Proposal  to  finance  the
   transaction  contemplated  thereby  and any  required  governmental  or other
   consents,  filings and approvals, to be more favorable to the shareholders of
   such Party than the Merger (or any revised proposal made by the other Party).

      (z) "Tax" or "Taxes" shall mean taxes and governmental  impositions of any
   kind in the nature of (or similar to) taxes,  payable to any federal,  state,
   local or foreign taxing  authority,  including but not limited to those on or
   measured by or referred to as income,  franchise,  profits,  gross  receipts,
   capital ad valorem,  custom  duties,  alternative  or add-on  minimum  taxes,
   estimated, environmental,  disability, registration, value added, sales, use,
   service,  real  or  personal  property,   capital  stock,  license,  payroll,
   withholding, employment, social security, workers' compensation, unemployment
   compensation,  utility,  severance,  production,  excise, stamp,  occupation,
   premiums, windfall profits, transfer and gains taxes, and interest, penalties
   and additions to tax imposed with respect  thereto;  and "Tax Returns"  shall
   mean returns,  reports and information statements,  including any schedule or
   attachment  thereto,  with  respect  to Taxes  required  to be filed with the
   Internal  Revenue Service or any other  governmental  or taxing  authority or
   agency, domestic or foreign, including consolidated, combined and unitary tax
   returns.

      (aa)  "Videonics  Equity  Rights"  shall  mean   subscriptions,   options,
   warrants, calls, commitments,  agreements,  conversion rights or other rights
   of any character  (contingent or otherwise) to purchase or otherwise  acquire
   any  shares  of the  capital  stock of  Videonics  from  Videonics  or any of
   Videonics'  Subsidiaries  at any time,  or upon the  happening  of any stated
   event.

     Section 9.5  Headings.  The headings  contained in this  Agreement  are for
reference  purposes  only  and  shall  not  affect  in any  way the  meaning  or
interpretation of this Agreement.

     Section 9.6 Severability.  If any term or other provision of this Agreement
is invalid,  illegal or incapable of being enforced by any rule of Law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the  economic or legal  substance  of
the  transactions  contemplated  hereby is not affected in any manner adverse to
any Party. Upon such  determination that any term or other provision is invalid,
illegal or  incapable of being  enforced,  the Parties  shall  negotiate in good
faith to modify  this  Agreement  so as to  effect  the  original  intent of the
Parties as  closely  as  possible  in an  acceptable  manner to the end that the
transactions contemplated hereby are fulfilled to the maximum extent possible.

     Section 9.7 Entire Agreement; No Third-Party Beneficiaries.  This Agreement
constitutes  the entire  agreement  and,  except as expressly  set forth herein,
supersedes any and all other prior agreements and undertakings, both written and
oral,  among the Parties,  or any of them,  with  respect to the subject  matter
hereof and, except for Section 6.11 (Post-Merger  Focus Board of Directors),  is
not intended to confer upon any person other than Videonics,  Focus,  and Merger
Subsidiary and, after the Effective Time,  their  respective  shareholders,  any
rights or remedies hereunder.

     Section 9.8  Assignment.  This Agreement shall not be assigned by operation
of Law or otherwise.

     Section  9.9  Governing  Law.  This  Agreement  shall be  governed  by, and
construed in accordance  with,  the Laws of the State of Delaware  applicable to
contracts executed in and to be performed entirely within that State,


                                      A-39


<PAGE>



without regard to the conflicts of laws  provisions  thereof;  provided that the
Merger  shall be  governed by the Laws of the State of  Delaware  applicable  to
contracts  executed in and to be performed  entirely within that State,  without
regard to the conflicts of laws provisions thereof.

     Section 9.10  Counterparts.  This  Agreement may be executed in two or more
counterparts,  and by the different  Parties in separate  counterparts,  each of
which when  executed  shall be deemed to be an original,  but all of which shall
constitute one and the same Agreement.

     Section 9.11 Interpretation.

      (a) Whenever the words  "include",  "includes" or "including"  are used in
   this  Agreement  they shall be deemed to be  followed  by the words  "without
   limitation."

      (b) Words  denoting any gender shall include all genders.  Where a word or
   phrase is defined herein,  each of its other  grammatical  forms shall have a
   corresponding meaning. The plural shall include the singular, and vice versa.

      (c) A reference to any party to this  Agreement or any other  agreement or
   document shall include such party's successors and permitted assigns.

      (d) A reference to any  legislation or to any provision of any legislation
   shall include any  modification  or  re-enactment  thereof,  any  legislative
   provision  substituted therefor and all regulations and statutory instruments
   issued thereunder or pursuant thereto.

      (e) All  references  to "$" and dollars shall be deemed to refer to United
   States currency unless otherwise specifically provided.

In Witness  Whereof,  Videonics,  Focus and Merger  Subsidiary  have caused this
Agreement to be executed as of the date first written above by their  respective
officers thereunto duly authorized.


VIDEONICS CORPORATION                       FOCUS ENHANCEMENTS, INC.

By: /s/ Michael L. D'Addio                  By: /s/ Thomas Massie
     ---------------------                        ---------------------
Name: Michael L. D'Addio                    Name: Thomas L. Massie

Title: Chairman and Chief Executive Officer Title: Chairman of the Board


                                            PC VIDEO CONVERSION, INC.

                                            By: /s/ Christopher Ricci
                                               ---------------------
                                            Name: Christopher P. Ricci

                                            Title: Secretary


                                      A-40


<PAGE>


                                   APPENDIX B


               DISSENTERS' RIGHTS UNDER CHAPTER 13 OF CALIFORNIA
                             GENERAL CORPORATION LAW


CALIFORNIA CORPORATIONS CODE SECTION 1300-1312.


     1300.  (a) If the approval of the  outstanding  shares  (Section  152) of a
corporation is required for a reorganization  under  subdivisions(a)  and (b) or
subdivision  (e) or (f) of Section 1201,  each  shareholder  of the  corporation
entitled  to  vote on the  transaction  and  each  shareholder  of a  subsidiary
corporation in a short-form merger may, by complying with this chapter,  require
the  corporation in which the  shareholder  holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are dissenting
shares as defined in subdivision  (b). The fair market value shall be determined
as of the day  before  the  first  announcement  of the  terms  of the  proposed
reorganization or short-form merger,  excluding any appreciation or depreciation
in consequence of the proposed action, but adjusted for any stock split, reverse
stock split, or share dividend which becomes effective  thereafter.  (b) As used
in this chapter,  "dissenting  shares" means shares which come within all of the
following   descriptions:   (1)  Which  were  not   immediately   prior  to  the
reorganization or short-form merger either (A) listed on any national securities
exchange  certified by the Commissioner of Corporations under subdivision (o) of
Section  25100 or (B) listed on the National  Market  System of the NASDAQ Stock
Market, and the notice of meeting of shareholders to act upon the reorganization
summarizes  this  section and  Sections  1301,  1302,  1303 and 1304;  provided,
however,  that this provision does not apply to any shares with respect to which
there exists any  restriction on transfer  imposed by the  corporation or by any
law or regulation; and provided,  further, that this provision does not apply to
any class of shares  described in subparagraph  (A)or (B) if demands for payment
are filed with  respect to 5 percent or more of the  outstanding  shares of that
class.  (2)  Which  were  outstanding  on the  date  for  the  determination  of
shareholders  entitled to vote on the  reorganization  and (A) were not voted in
favor of the  reorganization  or, (B) if described in subparagraph (A) or (B) of
paragraph  (1) (without  regard to the provisos in that  paragraph),  were voted
against the  reorganization,  or which were held of record on the effective date
of a short-form  merger;  provided,  however,  that subparagraph (A) rather than
subparagraph  (B) of this  paragraph  applies  in any case  where  the  approval
required by Section 1201 is sought by written  consent rather than at a meeting.
(3) Which the dissenting  shareholder has demanded that the corporation purchase
at their fair market  value,  in  accordance  with Section  1301.  (4) Which the
dissenting shareholder has submitted for endorsement, in accordance with Section
1302.  (c) As used in this chapter,  "dissenting  shareholder"  means the record
holder of dissenting shares and includes a transferee of record.

     1301.  (a) If,  in the  case of a  reorganization,  any  shareholders  of a
corporation  have a  right  under  Section  1300,  subject  to  compliance  with
paragraphs (3) and (4) of subdivision (b) thereof, to require the corporation to
purchase  their  shares  for  cash,  such  corporation  shall  mail to each such
shareholder a notice of the approval of the  reorganization  by its  outstanding
shares (Section 152) within 10 days after the date of such approval, accompanied
by a copy of Sections1300, 1302, 1303, 1304 and this section, a statement of the
price  determined by the  corporation  to represent the fair market value of the
dissenting  shares,  and a brief  description of the procedure to be followed if
the shareholder desires to exercise the shareholder's right under such sections.
The statement of price  constitutes  an offer by the  corporation to purchase at
the price stated any dissenting  shares as defined in subdivision (b) of Section
1300,unless they lose their status as dissenting shares under  Section1309.  (b)
Any  shareholder  who has a right to require the  corporation  to  purchase  the
shareholder's  shares for cash under  Section 1300,  subject to compliance  with
paragraphs  (3)  and  (4)  of  subdivision  (b)thereof,   and  who  desires  the
corporation  to  purchase  such  shares  shall  make  written  demand  upon  the
corporation  for the purchase of such shares and payment to the  shareholder  in
cash of their fair market  value.  The demand is not  effective  for any purpose
unless it is received by the  corporation  or any transfer  agent thereof (1) in
the  case  of  shares  described  in  clause  (i) or (ii)  of  paragraph  (1) of
subdivision  (b) of  Section  1300  (without  regard  to the  provisos  in  that
paragraph),  not later than the date of the  shareholders'  meeting to vote upon
the  reorganization,  or (2) in any other case  within 30 days after the date on
which  the  notice  of  the  approval  by the  outstanding  shares  pursuant  to
subdivision  (a) or the notice  pursuant to subdivision  (i) of Section 1110 was
mailed to the  shareholder.  (c) The demand  shall state the number and class of
the shares held of record by the shareholder which the shareholder  demands that
the corporation  purchase and shall contain a statement of what such shareholder
claims to be the


                                       B-1

<PAGE>

fair market value of those shares as of the day before the  announcement  of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.

     1302.  Within 30 days after the date on which notice of the approval by the
outstanding  shares or the notice pursuant to subdivision (i)of Section 1110 was
mailed to the  shareholder,  the shareholder  shall submit to the corporation at
its principal office or at the office of any transfer agent thereof,  (a) if the
shares are certificated securities,  the shareholder's certificates representing
any shares which the shareholder  demands that the corporation  purchase,  to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the  shareholder  demands that the  corporation  purchase.  Upon
subsequent  transfers of the dissenting  shares on the books of the corporation,
the  new  certificates,   initial  transaction  statement,   and  other  written
statements  issued therefor shall bear a like statement,  together with the name
of the original dissenting holder of the shares.

     1303. (a) If the corporation and the shareholder  agree that the shares are
dissenting  shares  and  agree  upon the  price of the  shares,  the  dissenting
shareholder  is entitled to the agreed price with interest  thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation. (b) Subject to the
provisions  of Section  1306,  payment of the fair  market  value of  dissenting
shares shall be made within 30 days after the amount  thereof has been agreed or
within  30  days  after  any   statutory  or   contractual   conditions  to  the
reorganization   are  satisfied,   whichever  is  later,  and  in  the  case  of
certificated  securities,  subject to  surrender of the  certificates  therefor,
unless provided otherwise by agreement.

     1304. (a) If the corporation  denies that the shares are dissenting shares,
or the corporation and the shareholder  fail to agree upon the fair market value
of the  shares,  then the  shareholder  demanding  purchase  of such  shares  as
dissenting  shares or any  interested  corporation,  within six months after the
date on which notice of the approval by the outstanding  shares (Section 152) or
notice   pursuant  to  subdivision  (i)  of  Section  1110  was  mailed  to  the
shareholder,  but not thereafter,  may file a complaint in the superior court of
the  proper  county  praying  the court to  determine  whether  the  shares  are
dissenting  shares or the fair market value of the dissenting  shares or both or
may  intervene  in any  action  pending  on  such a  complaint.  (b) Two or more
dissenting shareholders may join as plaintiffs or be joined as defendants in any
such action and two or more such actions may be  consolidated.  (c) On the trial
of the action, the court shall determine the issues. If the status of the shares
as dissenting shares is in issue, the court shall first determine that issue. If
the fair  market  value of the  dissenting  shares is in issue,  the court shall
determine,  or shall appoint one or more impartial appraisers to determine,  the
fair market value of the shares.

     1305.  (a) If the court  appoints an  appraiser or  appraisers,  they shall
proceed forthwith to determine the fair market value per share.  Within the time
fixed by the court, the appraisers, or a majority of them, shall make and file a
report in the office of the clerk of the court.  Thereupon, on the motion of any
party,  the  report  shall be  submitted  to the  court and  considered  on such
evidence  as the  court  considers  relevant.  If the  court  finds  the  report
reasonable,  he court  may  confirm  it.  (b) If a  majority  of the  appraisers
appointed  fail to make and file a report  within 10 days from the date of their
appointment  or within such  further  time as may be allowed by the court or the
report is not confirmed by the court,  the court shall determine the fair market
value of the dissenting  shares.  (c) Subject to the provisions of Section 1306,
judgment  shall be  rendered  against the  corporation  for payment of an amount
equal to the fair market value of each dissenting share multiplied by the number
of dissenting shares which any dissenting shareholder who is a party, or who has
intervened,  is entitled to require the  corporation to purchase,  with interest
thereon at the legal rate from the date on which  judgment was entered.  (d) Any
such  judgment  shall  be  payable  forthwith  with  respect  to  uncertificated
securities  and,  with  respect  to  certificated  securities,   only  upon  the
endorsement and delivery to the corporation of the  certificates  for the shares
described in the judgment. Any party may appeal from the judgment. (e) The costs
of the action,  including reasonable  compensation tot he appraisers to be fixed
by the court, shall be assessed or apportioned as the court considers equitable,
but,  if the  appraisal  exceeds  the  price  offered  by the  corporation,  the
corporation  shall  pay the  costs  (including  in the  discretion  of the court
attorneys' fees, fees of expert witnesses and interest at the legal


                                       B-2

<PAGE>

rate on judgments from the date of compliance  with Sections 1300,  1301 and1302
if the value awarded by the court for the shares is more than125  percent of the
price offered by the corporation under subdivision(a) of Section 1301).

     1306. To the extent that the provisions of Chapter 5 prevent the payment to
any holders of dissenting  shares of their fair market value,  they shall become
creditors of the  corporation  for the amount thereof  together with interest at
the legal rate on judgments  until the date of payment,  but  subordinate to all
other  creditors  in any  liquidation  proceeding,  such debt to be payable when
permissible under the provisions of Chapter 5.

     1307.  Cash  dividends  declared  and  paid  by the  corporation  upon  the
dissenting  shares  after  the date of  approval  of the  reorganization  by the
outstanding  shares  (Section  152) and prior to  payment  for the shares by the
corporation  shall  be  credited  against  the  total  amount  to be paid by the
corporation therefor.

     1308.  Except as expressly  limited in this chapter,  holders of dissenting
shares continue to have all the rights and privileges  incident to their shares,
until the fair  market  value of their  shares is agreed upon or  determined.  A
dissenting  shareholder  may not  withdraw  a  demand  for  payment  unless  the
corporation consentsthereto.

     1309.  Dissenting  shares lose their  status as  dissenting  shares and the
holders thereof cease to be dissenting  shareholders and cease to be entitled to
require the  corporation  to purchase  their shares upon the happening of any of
the following: (a) The corporation abandons the reorganization. Upon abandonment
of the  reorganization,  the  corporation  shall pay on demand to any dissenting
shareholder  who has initiated  proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable  attorneys' fees.
(b) The shares are  transferred  prior to their  submission  for  endorsement in
accordance  with Section 1302 or are  surrendered  for conversion into shares of
another class in accordance  with the articles.  (c) The dissenting  shareholder
and the  corporation  do not agree upon the  status of the shares as  dissenting
shares or upon the purchase  price of the shares,  and neither files a complaint
or intervenes in a pending action as provided in Section 1304, within six months
after the date on which  notice of the  approval  by the  outstanding  shares or
notice pursuant to subdivision (i) of Section1110 was mailed to the shareholder.
(d) The dissenting shareholder,  with the consent of the corporation,  withdraws
the shareholder's demand for purchase of the dissenting shares.

     1310. If litigation is instituted to test the  sufficiency or regularity of
the votes of the shareholders in authorizing a  reorganization,  any proceedings
under  Sections 1304 and 1305 shall be suspended  until final  determination  of
such litigation.

     1311.  This  chapter,  except  Section  1312,  does not apply to classes of
shares whose terms and provisions  specifically  set forth the amount to be paid
in respect to such shares in the event of a reorganization or merger.

     1312.  (a) No  shareholder  of a  corporation  who has a right  under  this
chapter to demand payment of cash for the shares held by the  shareholder  shall
have any right at law or in equity to attack the validity of the  reorganization
or short-form  merger,  or to have there  organization or short-form  merger set
aside or  rescinded,  except in an action to test  whether  the number of shares
required to authorize or approve the  reorganization  have been legally voted in
favor  thereof;  but any holder of shares of a class whose terms and  provisions
specifically  set forth the amount to be paid in respect to them in the event of
a reorganization  or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the  reorganization are
approved  pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.  (b) If
one of the  parties to a  reorganization  or  short-form  merger is  directly or
indirectly  controlled  by, or under common  control with,  another party to the
reorganization  or  short-form  merger,  subdivision  (a) shall not apply to any
shareholder  of such  party  who has  not  demanded  payment  of cash  for  such
shareholder's shares pursuant to this chapter; but if the shareholder institutes
any action to attack the validity of the  reorganization or short-form merger or
to have the  reorganization  or short-form  merger set aside or  rescinded,  the
shareholder  shall not  thereafter  have any right to demand payment of cash for
the  shareholder's  shares  pursuant  to this  chapter.  The court in any action
attacking the validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded shall not restrain or
enjoin the consummation of the transaction  except upon 10 days' prior notice to
the  corporation  and upon a  determination  by the court that  clearly no other
remedy will  adequately  protect  the  complaining  shareholder  or the class of
shareholders of which such shareholder is a member. (c) If one of the parties to
a reorganization or short-form  merger is directly or indirectly  controlled by,
or under common control with,  another party to the reorganization or short-form
merger, in any action to attack the validity of the


                                       B-3

<PAGE>

reorganization or short-form merger or to have the  reorganization or short-form
merger set aside or  rescinded,  (1) a party to a  reorganization  or short-form
merger which controls another party to the  reorganization  or short-form merger
shall have the burden of proving that the  transaction is just and reasonable as
to the shareholders of the controlled party, and(2) a person who controls two or
more  parties to a  reorganization  shall  have the  burden of proving  that the
transaction  is just  and  reasonable  as to the  shareholders  of any  party so
controlled.


                                       B-4

<PAGE>

                                   APPENDIX C


                            CERTIFICATE OF AMENDMENT
                                     OF THE
                          CERTIFICATE OF INCORPORATION
                                       OF
                           FOCUS ENHANCEMENTS, INC.


     FOCUS  Enhancements,  Inc. a corporation  organized and existing  under the
laws if the State of Delaware (the "Corporation"), pursuant to the provisions of
the General  Corporation Law of the State of Delaware (the "DGCL"),  DOES HEREBY
CERTIFY as follows:

     FIRST:  The  Certificate  of  Incorporation  of the  Corporation  is hereby
amended by  deleting  the first  paragraph  of Section 4 of the  Certificate  of
Incorporation  in its  present  form and  substituting  therefore  new first and
second paragraphs of Section 4 in the following form:

       A. The  Corporation  is authorized  to issue two classes of stock,  to be
          designated,  respectively,  "Common Stock" and "Preferred  Stock." The
          total  number of shares this  corporation  is  authorized  to issue is
          Fifty-Three Million (53,000,000) shares capital stock.

       B. Of such authorized shares,  Fifty Million (50,000,000) shares shall be
          designated  "Common  Stock"  and have a par value of $0.01 per  share.
          Three Million (3,000,000) shares shall be designated "Preferred Stock"
          and have a par value of $0.01 per share.

     SECOND:   The  amendment  of  the  Certificate  of   Incorporation  of  the
Corporation set forth in this  Certificate of Amendment has been duly adopted in
accordance  with the  provisions  of Section 242 of the DGCL by (a) the Board of
Directors of the Corporation having duly adopted a resolution setting forth such
amendment and declaring its  advisability  and submitting it to the shareholders
of  the  Corporation  for  their  approval,  and  (b)  the  shareholders  of the
Corporation  having  duly  adopted  such  amendment  by vote of the holders of a
majority of the outstanding  stock entitled to vote thereon at a special meeting
of  shareholders  called and held upon noticed in accordance with Section 222 of
the DGCL.


     IN WITNESS  WHEREOF,  the  Corporation  has caused its corporate seal to be
hereunto  affixed and the  Certificate of Amendment to be signed by Brett Moyer,
its Chief Operating Officer, and attested to by , its Secretary, this
------------ .


                                        FOCUS ENHANCEMENTS, INC.



                                       By:
                                           -------------------------------------




                                           Brett Moyer

                                           Chief Operating Officer



ATTEST:



-------------------------
Secretary

                                       C-1

<PAGE>

                                   APPENDIX D


                  [Letterhead of Union Atlantic Capital L.C.]



October 20, 2000

To The Board of Directors
Focus Enhancements, Inc.


Gentlemen:

     We understand that Focus  Enhancements,  Inc.  ("Company"  hereinafter) has
entered into a merger agreement dated as of August 30, 2000  ("Agreement")  with
Videonics, Inc. ("VDS" hereinafter) and PC Video Conversion,  Inc. ("Acquisition
Sub"  hereinafter)  whereby  VDS will be merged  with and into  Acquisition  Sub
("Merger"  hereinafter).  Capitalized  terms not  otherwise  defined  herein are
defined as set forth in the Agreement.  The aggregate consideration  deliverable
by Company in the Merger (the "Merger Consideration") will be equal to (a) a sum
of .87 shares of the  Company's  common  stock times the number of shares of VDS
common shares issued prior to the Effective Time including all VDS common shares
issuable  upon the  exercise or  conversion  of options,  warrants,  convertible
securities or other rights to acquire VDS that are outstanding as of the date of
the  Agreement.  The Merger and other  related  transactions  disclosed to Union
Atlantic  Capital,   L.C.  are  all  referred  to  collectively  herein  as  the
"Transaction."  You have requested our opinion (the "Opinion") as to the matters
set forth below. The Opinion does not address the Company's  underlying business
decision to effect the Transaction.  We have not been requested to, and did not,
solicit third party  indications of interest in acquiring all or any part of the
Company  or VDS.  Furthermore,  at your  request,  we have  not  negotiated  the
Transaction or advised you with respect to alternatives to it.


     In connection  with this Opinion,  we have made such reviews,  analyses and
inquiries as we have deemed necessary and appropriate  under the  circumstances.
Among other things, we have:

       1.  Reviewed the Company's and VDS's annual  reports to  shareholders  on
   Forms 10-KSB/A and 10-K for the fiscals year ended 1999 and quarterly reports
   on Forms  10-QSB  and 10-Q for the  quarter  ending  June 30,  2000.  We also
   reviewed  Company-prepared  interim financial statements for the period ended
   September 30, 2000,  which the Company's and VDS's  management has identified
   as being the most current financial statements available;


       2. Reviewed  copies  of  the  following agreements: Agreement and Plan of
   Merger dated August 30, 2000 by and among the Company and VDS.

       3. Met  with  certain members of the senior management of the Company and
   VDS  to  discuss  the  operations,  financial condition, future prospects and
   projected operations and performance of the Company;


       4. Reviewed  forecasts  and  projections  prepared  by  the Company's and
   VDS's  management  with  respect  to the Company for the years ended December
   31, 2000 through 2004;


       5. Reviewed  the  historical  market  prices  and  trading volume for the
   Company's and VDS's publicly traded securities;

       6. Reviewed certain other publicly  available  financial data for certain
   companies  that we deem  comparable  to the Company,  and publicly  available
   prices and premiums paid in other  transactions that we considered similar to
   the Transaction;


       7. Conducted  such  other  studies,  analyses  and  inquiries  as we have
deemed appropriate.

     We have relied upon and assumed, without independent verification, that the
financial forecasts and projections provided to us have been reasonably prepared
and reflect  the best  currently  available  estimates  of the future  financial
results  and  condition  of the  Company  and VDS,  and that  there  has been no
material change in the assets, financial condition, business or prospects of the
Company  and VDS since the date of the most  recent  financial  statements  made
available to us.



                                       D-1

<PAGE>

     We have not  independently  verified the accuracy and  completeness  of the
information supplied to us with respect to the Company and VDS and do not assume
any responsibility  with respect to it. We have not made any physical inspection
or  independent  appraisal of any of the  properties or assets of the Company or
VDS. Our opinion is necessarily  based on business,  economic,  market and other
conditions as they exist and can be evaluated by us at the date of this letter.

     Based upon the foregoing,  and in reliance thereon,  it is our opinion that
the  consideration  to be  tendered  by  the  Company  in  connection  with  the
Transaction is fair to the shareholders of the Company from a financial point of
view.



UNION ATLANTIC CAPITAL, L.C.

/s/ Union Atlantic Capital, L.C.

                                       D-2

<PAGE>

                                   APPENDIX E

                           FOCUS ENHANCEMENTS, INC.
                      2000 NON-QUALIFIED STOCK OPTION PLAN


     1. Purpose.  This Non-Qualified  Stock Option Plan, to be known as the 2000
Non-Qualified  Stock  Option  Plan  (hereinafter,  this  "Plan") is  intended to
promote the interests of FOCUS Enhancements,  Inc. (hereinafter,  the "Company")
by  providing  an  inducement  to obtain and retain the  services  of  qualified
persons  to serve  as  employees  of the  Company  or  members  of its  Board of
Directors (the "Board").

     2. Available Shares.  The total number of shares of Common Stock, par value
$.01 per share,  of the Company  (the "Common  Stock") for which  options may be
granted under this Plan shall not exceed 5,000,000 shares, subject to adjustment
in accordance  with  paragraph 10 of this Plan.  Shares subject to this Plan are
authorized but unissued shares or shares that were once issued and  subsequently
reacquired  by  the  Company.  If  any  options  granted  under  this  Plan  are
surrendered before exercise or lapse without exercise,  in whole or in part, the
shares reserved therefor shall continue to be available under this Plan.

     3.  Administration.  This Plan shall be  administered  by the Board or by a
committee appointed by the Board (the "Committee"). In the event the Board fails
to appoint or refrains  from  appointing a  Committee,  the Board shall have all
power and authority to administer this Plan. In such event, the word "Committee"
wherever  used herein shall be deemed to mean the Board.  The  Committee  shall,
subject to the provisions of the Plan,  have the power to construe this Plan, to
determine  all  questions  hereunder,  and to adopt  and  amend  such  rules and
regulations for the  administration  of this Plan as it may deem  desirable.  No
member  of the  Board  or the  Committee  shall  be  liable  for any  action  or
determination made in good faith with respect to this Plan or any option granted
under it.

     4. Grant of Options. Subject to the availability of shares under this Plan,
the Board may make additional  grants to employees of the Company and/or members
of the Board  under this Plan from time to time,  including  but not limited to,
the Grant Date.

     Anything in this Plan to the contrary notwithstanding, the effectiveness of
this Plan and of the grant of all options hereunder is in all respect subject to
this Plan and options  granted  under it shall be of no force and effect  unless
and until the approval of this Plan in accordance with the Company's  by-laws by
the vote of the holders of a majority of the  Company's  shares of Common  Stock
present in person or by proxy and entitled to vote at a meeting of  shareholders
at which this Plan is presented for approval.

     5.  Option  Price.  The  purchase  price of the stock  covered by an option
granted  pursuant  to this Plan shall be 100% of the fair  market  value of such
shares on either  (i) the day the option is  granted,  or (ii) such other day as
the Board shall  determine  at their sole  discretion.  The option price will be
subject to adjustment in accordance  with the provisions of paragraph 10 of this
Plan.  For purposes of this Plan, if, at the time an option is granted under the
Plan, the Company's Common Stock is publicly  traded,  "fair market value" shall
be  determined  as of the last  business  day for  which  the  prices  or quotes
discussed  in this  sentence  are  available  prior to the date  such  option is
granted  and shall mean (i) the lower of the last sale  price for the  Company's
Common  Stock or the  average  (on that  date) of the high and low prices of the
Common Stock on the principal national  securities  exchange on which the Common
Stock is traded,  if the Common  Stock is then  traded on a national  securities
exchange;  or (ii) the last  reported  sale  price (on that  date) of the Common
Stock on the Nasdaq National Market, if the Common Stock is not then traded on a
national securities exchange;  or (iii) the closing bid price (or average of bid
prices)  last  quoted (on that date) by an  established  quotation  service  for
over-the-counter  securities,  if the Common Stock is not reported on the NASDAQ
National Market List. However, if the Common Stock is not publicly traded at the
time an option is granted under the Plan, "fair market value" shall be deemed to
be the fair value of the  Common  Stock as  determined  by the  Committee  after
taking into  consideration  all factors which it deems  appropriate,  including,
without limitation,  recent sale and offer prices of the Common Stock in private
transactions negotiated at arm's length.

     6.  Period of Option.  Unless  sooner  terminated  in  accordance  with the
provisions of paragraph 8 of this Plan, an option granted hereunder shall expire
on the date which is five (5) years after the date of grant of the option.


                                       E-1

<PAGE>


     7. (a)  Vesting  of Shares  and  Non-Transferability  of  Options.  Options
granted  under this Plan shall not be  exercisable  until  they  become  vested.
Options  granted  under  this Plan shall vest in the  optionee  and thus  become
exercisable  in accordance  with the following  schedule,  or other  schedule as
determined  by the  Committee  from time to time,  or upon the  occurrence  of a
specified event,  provided that the optionee has continuously served as a member
of the Board, as an employee of the Company,  or in another advisory role to the
Company,  as stated more  specifically in the option grant letter,  through such
vesting date then after the expiration  each three (3) calendar  months from the
Granting  Date, the Option may be exercised to the extent of not more than eight
and one-third percent (81|M/3%) of the Optioned Shares for each such three month
period that elapses from the Granting Date.


     The  number  of  shares  as to  which  options  may be  exercised  shall be
cumulative, so that once the option shall become exercisable as to any shares it
shall  continue  to be  exercisable  as to  said  shares,  until  expiration  or
termination of the option as provided in this Plan;  provided  however,  that if
stockholder  approval is required under applicable law, any option granted under
this Plan  shall in no event be  exercised  unless  and until this Plan has been
approved by the Company's stockholders, but upon such approval the vesting shall
become effective as of the date of the grant.

       (b)  Meetings.  Notwithstanding  subsection  (a) of this  Section 7, if a
   Board  optionee  fails to attend less than 80% of the Board  meetings held in
   the twelve months prior to any vesting date,  the number of shares vesting on
   such vesting date shall be reduced proportionately based on the percentage of
   Board meetings attended by such optionee.

       (c)  Non-transferability.  Any option granted pursuant to this Plan shall
   not be assignable or  transferable  other than by will or the laws of descent
   and  distribution  or  pursuant  to a domestic  relations  order and shall be
   exercisable during the optionee's lifetime only by him or her.

     8. Termination of Option Rights.

       (a) Except as otherwise specified in the agreement relating to an option,
   in the event an  optionee  ceases to be an employee of Company or a member of
   the Board,  as the case may be, for any reason  other than death or permanent
   disability,  any then unexercised portion of options granted to such optionee
   shall, to the extent not then vested,  immediately terminate and become void;
   any portion of an option  which is then vested but has not been  exercised at
   the time the  optionee  so ceases to be a member of the Board or an  employee
   may be  exercised,  to the extent it is then  vested by the  optionee  within
   ninety days after such event.

       (b) In the event that an optionee ceases to be an employee of the Company
   or a member of the  Board,  as the case may be, by reason of his or her death
   or  permanent  disability,  any  option  granted  to such  optionee  shall be
   immediately  and  automatically  accelerated  and become fully vested and all
   unexercised  options  shall  be  exercisable  by  the  optionee  (or  by  the
   optionee's personal  representative,  heir or legatee, in the event of death)
   for a period of one year  thereafter.  Any options which are then exercisable
   but have not been exercised at the time the Optionee so ceases to be a member
   of the Board of Directors or an employee may be exercised,  to the extent any
   portion of such  options are then  exercisable,  by the  Optionee at any time
   prior to the scheduled  expiration  date of the option.  Notwithstanding  the
   foregoing,  in the event any  Optionee (i) ceases to be a member of the Board
   of Directors at the request of the Company, (ii) is removed without cause, or
   (iii) otherwise does not stand for nomination or re-election as a director of
   the  Company at the  request of the  Company,  then any portion of any Option
   granted to such Optionee which is not then  exercisable  shall be accelerated
   and such Option shall be fully  exercisable by the Optionee at any time prior
   to the scheduled  expiration date. No portion of this Option may be exercised
   if the  Optionee is removed  from the Board of  Directors  for any one of the
   following reasons: (i) disloyalty, gross negligence,  dishonesty or breach of
   fiduciary  duty  to  the  Company;  or  (ii)  the  commission  of an  act  of
   embezzlement,  fraud or  deliberate  disregard of the rules or polices of the
   Company  which  results  in loss,  damage or injury to the  Company,  whether
   directly or  indirectly;  or (iii) the  unauthorized  disclosure of any trade
   secret or confidential  information of the Company; or (iv) the commission of
   an act which constitutes unfair competition with the Company or which induces
   any customer of the Company to break a contract with the Company;  or (v) the
   conduct of any  activity on behalf of any  organization  or entity which is a
   competitor  of the Company  (unless such conduct is approved by a majority of
   the members of the Board of Directors).


                                       E-2

<PAGE>

     9. Exercise of Option. Subject to the terms and conditions of this Plan and
the option  agreements,  an option granted  hereunder  shall, to the extent then
exercisable,  be exercisable in whole or in part by giving written notice to the
Company by mail or in person addressed to FOCUS Enhancements, Inc., 600 Research
Drive, Wilmington,  Massachusetts,  at its principal executive offices, or other
such address as Optionee may be informed  from time to time,  stating the number
of shares with respect to which the option is being  exercised,  accompanied  by
payment in full for such shares.  Payment may be (a) in United States dollars in
cash or by check,  (b) in whole or in part in shares of the Common  Stock of the
Company  already owned by the person or persons  exercising the option or shares
subject  to the  option  being  exercised  (subject  to  such  restrictions  and
guidelines  as the  Board may adopt  from time to time),  valued at fair  market
value  determine  in  accordance  with  the  provisions  of  paragraph  5 or (c)
consistent  with  applicable  law , through the delivery of an assignment to the
Company of a sufficient  amount of the  proceeds  from the sale to the broker or
selling  agent to pay that  amount to the  Company,  which  sale shall be at the
participant's direction at the time of exercise. There shall be no such exercise
at any one time as to  fewer  than  one  hundred  (100)  shares.  The  Company's
transfer  agent  shall,  on behalf of the  Company,  prepare  a  certificate  or
certificates  representing  such  shares  acquired  pursuant  to exercise of the
option,  shall register the optionee as the owner of such shares on the books of
the Company and shall cause the fully executed certificate(s)  representing such
shares to be delivered to the optionee as soon as  practicable  after payment of
the option price in full. The holder of an option shall not have any rights of a
stockholder  with  respect to the shares  covered by the  option,  except to the
extent that one or more  certificates  for such shares shall be delivered to him
or her upon the due exercise of the option.

     10.  Adjustments  Upon Changes in Capitalization and Other Events. Upon the
occurrence  of any of the following events, an optionee's rights with respect to
options  granted  to  him  or  her  hereunder  shall  be adjusted as hereinafter
provided:

       (a) Stock Dividends and Stock Splits. If the shares of Common Stock shall
   be subdivided  or combined  into a greater or smaller  number of shares or if
   the Company shall issue any shares of Common Stock as a stock dividend on its
   outstanding  Common Stock,  the number of shares of Common Stock  deliverable
   upon the exercise of options  shall be  appropriately  increased or decreased
   proportionately,  and appropriate  adjustments  shall be made in the purchase
   price per share to reflect such subdivisions, combination or stock dividend.

       (b)   Recapitalization   Adjustments.   If  (i)  the  Company  is  to  be
   consolidated  with or acquired by another entity in a merger,  sale of all or
   substantially  all of the  Company's  assets or otherwise  and (ii) the Board
   resolves at its sole  discretion to vest options upon the  completion of such
   merger or sale, then each option granted under this Plan which is outstanding
   but unvested as of the effective date of such event shall become  exercisable
   in full twenty (20) days prior to the  effective  date of such event.  In the
   event of a reorganization,  re-capitalization,  merger, consolidation, or any
   other change in the  corporate  structure  or shares of the  Company,  to the
   extent  permitted  by Rule  16b-3  of the  Securities  Exchange  Act of 1934,
   adjustments  in the number and kind of shares  authorized by this Plan and in
   the  number  and  kind of  shares  covered  by,  and in the  option  price of
   outstanding  options under this Plan necessary to maintain the  proportionate
   interest of the optionees and preserve,  without exceeding, the value of such
   options,  shall be made.  Notwithstanding  the foregoing,  no such adjustment
   shall be made which would, within the meaning of any applicable provisions of
   the Internal  Revenue Code of 1986,  as amended,  constitute a  modification,
   extension or renewal of any Option or a grant of  additional  benefits to the
   holder of an Option.

       (c) Issuances of  Securities.  Except as expressly  provided  herein,  no
   issuance  by the  Company  of shares  of stock of any  class,  or  securities
   convertible  into  shares  of  stock  of  any  class,  shall  affect,  and no
   adjustment  by reason  thereof  shall be made with  respect to, the number or
   price  of  shares  subject  to  options.  No  adjustments  shall  be made for
   dividends paid in cash or in property other than securities of the Company.


       (d) Adjustments.  Upon the happening of any of the foregoing events,  the
   class and  aggregate  number of shares set forth in  paragraph 2 of this Plan
   that are subject to options which previously have been or subsequently may be
   granted under this Plan shall also be appropriately  adjusted to reflect such
   events.  The Board shall determine the specific  adjustments to be made under
   this paragraph 11, and its determination shall be conclusive.


                                       E-3

<PAGE>

     11. Legend on  Certificates.  The certificates  representing  shares issued
pursuant  to the  exercise  of an option  granted  hereunder  shall  carry  such
appropriate  legend,  and  such  written  instructions  shall  be  given  to the
Company's  transfer agent, as may be deemed necessary or advisable by counsel to
the Company in order to comply with the  requirements  of the  Securities Act of
1993 or any state securities laws.

     12.  Representations of Optionee. If requested by the Company, the optionee
shall  deliver  to the  Company  written  representations  and  warranties  upon
exercise of the option that are  necessary to show  compliance  with Federal and
state securities laws,  including  representations  and warranties to the effect
that a purchase of shares under the option is made for investment and not with a
view to their distribution (as that term is used in the Securities Act of 1993).

     13. Option Agreement. Each option granted under the provisions of this Plan
shall  be  evidenced  by an  option  agreement,  which  agreement  shall be duly
executed and delivered on behalf of the Company and by the optionee to whom such
option is granted. The option agreement shall contain such terms, provisions and
conditions not inconsistent with this Plan as may be determined by the committee
and the officer executing it.

     14.  Termination  and  Amendment  of Plan.  ptions may no longer be granted
under this Plan after April 27,  2010,  and this Plan shall  terminate  when all
options granted or to be granted hereunder are no longer outstanding.  The Board
may at any time  terminate  this Plan or make  such  modification  or  amendment
thereof as it deems advisable;  provided,  however, that if stockholder approval
of the Plan is  required  by law,  the Board may not,  without  approval  by the
affirmative  vote of the  holders  of a majority  of the shares of Common  Stock
present  in person  or by proxy and  voting  on such  matter at a  meeting,  (a)
increase  the maximum  number of shares for which  options may be granted  under
this Plan (except by adjustment  pursuant to Section 10), (b) materially  modify
the  requirements  as to eligibility to participate in this Plan, (c) materially
increase  benefits  accruing to option holders under this Plan or (d) amend this
Plan in any manner  which would cause Rule 16b-3 under the  Securities  Exchange
Act (or any successor or amended  provision  thereof) to become  inapplicable to
this Plan;  and provided  further that the  provisions of this Plan specified in
Rule  16b-3(c)(2)(ii)(A)  (or any successor or amended provision  thereof) under
the Securities Exchange Act of 1934 (including without limitation, provisions as
to eligibility, amount, price and timing of awards) may not be amended more than
once  every six  months,  other  than to comport  with  changes in the  Internal
Revenue  Code,  the  Employee  Retirement  Income  Security  Act,  or the  rules
thereunder. Termination or any modification or amendment of this Plan shall not,
without  consent of a  participant,  affect  his or her  rights  under an option
previously granted to him or her.

     15.  Withholding  of Income  Taxes.  Upon the  exercise  of an option,  the
Company,  in accordance with Section  3402(a) of the Internal  Revenue Code, may
require the optionee to pay withholding  taxes in respect to amounts  considered
to be compensation includible in the optionee's gross income.

     16. Compliance with  Regulations.  It is the Company's intent that the Plan
comply in all respects with Rule 16b-3 under the Securities Exchange Act of 1934
(or any successor or amended  provision  thereof) and any applicable  Securities
and Exchange Commission  interpretations  thereof. If any provision of this Plan
is deemed not to be in compliance  with Rule 16b-3,  the provision shall be null
and void.

     17.  Governing  Law. The  validity  and  construction  of this Plan and the
instruments  evidencing  options  shall  be governed by the laws of the State of
Delaware, without giving effect to the principles of conflicts of law thereof.

Approved by Board of Directors of the Company: August 15, 2000.

                                       E-4

<PAGE>

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                                   APPENDIX F


                   U. S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 10-KSB/A


[X]  ANNUAL  REPORT  UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
     1934
                For the fiscal year ended December 31, 1999, or



[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13  OR  15(D)  OF THE SECURITIES
     EXCHANGE ACT OF 1934
              For the transition period from         to         .

                         Commission File Number 1-11860



                           FOCUS Enhancements, Inc.
                (Name of Small Business Issuer in its Charter)

                                    Delaware
                         (State or Other Jurisdiction of
                         Incorporation or Organization)
                                   04-3186320
                     (I.R.S. Employer Identification No.)

                               600 RESEARCH DRIVE
                        Wilmington, Massachusetts 01887
                   (Address of Principal Executive Offices)


                                (978) 988-5888
               (Issuer's Telephone Number, Including Area Code)

            Securities registered pursuant to Section 12(b) of Act:

                               Title of Each Class

                          Common Stock, $.01 par value
                      Name of Exchange on which Registered
                                     NASDAQ

       Securities registered pursuant to Section 12(g) of the Act: None
                    -------------------------------------

     Check whether the Issuer (1) has filed all reports  required to be filed by
Section 13 or 15(d) of the Securities  Exchange Act of 1934 during the preceding
12 months (or for such other 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.
[X] Yes No [ ]


     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of  Regulation  S-B  contained  in  this  form  and no  disclosure  will  be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.  [X]

     Issuer's  revenues  for the  fiscal  year  ended  December  31,  1999  were
$17,182,985.  The  aggregate  market  value  of  voting  Common  Stock  held  by
non-affiliates  of the Registrant  was  approximately  $51,348,421  based on the
closing bid price of the Registrant's Common Stock on April 12, 2000 as reported
by NASDAQ ($2.0625 per share).

     As of April  14,  2000,  there  were  24,896,204  shares  of  Common  Stock
outstanding.

     Document  Incorporated  by  Reference:  Portions  of the  Definitive  Proxy
Statement  for the Annual  Meeting  of  Stockholders  for the fiscal  year ended
December  31,  1999,  to be  filed  pursuant  to  Regulations  14A  (the  "Proxy
Statement"), are incorporated by reference in Part III of this Form 10-KSB.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

<PAGE>


                                     PART I



ITEM 1. BUSINESS


Business of the Company

     FOCUS Enhancements,  Inc., (`the Company' or `FOCUS'),  internally develops
proprietary  technology for the  conversion and  enhancement of PC and Macintosh
output for display on televisions  and  large-screen  monitors,  and markets and
sells,  worldwide,  a line of video  conversion  products using this technology.
These video conversion  products range from  custom-designed  video co-processor
chips,  used by leading Original  Equipment  Manufacturers  (OEMs),  to computer
peripherals  marketed to  consumers  directly  and  through a global  network of
value-added resellers (VARs),  distributors and retailers. In a 1997 independent
survey by Frost & Sullivan,  FOCUS was  recognized as an industry  leader in the
development  and  marketing  of PC-to-TV  video  conversion  products  that make
personal  computers  "TV ready"  and  televisions  "PC  ready".  In 1999,  FOCUS
continued to solidify this leadership position through:

     1. Increased  research  and development investment, resulting in additional
patents  being  awarded  to the Company, and in industry-wide recognition of the
superior video quality of its products,

     2. Significant  new  licensing  agreements  with  OEMs  for  use  of FOCUS'
proprietary  TV  video  conversion  ASIC  chips  in  current  and future product
designs, and

     3. New  strategic  alliances with major OEMs, resellers and national retail
chains.

     In our 1998  Annual  Report the Company  stated that it was in  discussions
with other PC  manufacturers,  television  manufacturers,  VGA chip and VGA card
developers. In 1999 many of these discussions came to fruition.

     The Company was founded in December  1991, as a  Massachusetts  corporation
and was  reincorporated in Delaware in April 1993. In December 1993, the Company
acquired Lapis Technologies,  Inc. (`Lapis'), a developer of high-quality,  low-
cost Macintosh PC-to-TV video graphics products.  Effective  September 30, 1996,
the Company  consummated the acquisition of Tview, Inc., a developer of PC-to-TV
video  conversion  ASIC  technology.  This  acquisition has played a significant
strategic role in allowing FOCUS to gain a major  technological  position in the
video scan conversion category, and has positioned FOCUS as a leader in PC-to-TV
video conversion technology. On September 30, 1997, the Company sold its line of
computer connectivity products. On March 31, 1998, the Company acquired selected
assets of Digital  Vision,  Inc., a manufacturer  of both PC-to-TV and TV- to-PC
products.  On July 29,  1998,  the Company  acquired  the net assets of PC Video
Conversion,  Inc., a manufacturer  of  professional  high-end  video  conversion
products.  In  December  1998,  the  Company  restructured  this  entity  into a
Professional  Products Research & Development group and began to consolidate its
operating activities to the Company's corporate headquarters.

     The  Company's  executive  offices  are  located  at  600  Research  Drive,
Wilmington,  Massachusetts 01887. Its Research and Development center is located
at 9275 SW Nimbus Avenue,  Beaverton,  Oregon.  The Company's  Professional  A/V
Conversion  team is located at 16120  Caputo  Drive,  Suite A, Morgan  Hill,  CA
95037.  The  Company's  general  telephone  number  is (978)  988-5888,  and its
Worldwide Web address is http:www.focusinfo.com.


Business Strategy

     In 1999 the Company  continued to concentrate  its resources on the growing
PC-  to-TV  scan  conversion  technology  market,  which has been  projected  by
independent  industry  sources to grow,  within the United States  alone,  at an
annual compound growth rate of  approximately  24%,  achieving sales of over 200
million  dollars by the year 2003,  see Frost & Sullivan 1997 report.  Following
key strategic  acquisitions  over the past six years, and the  discontinuance of
any lines not  directly  in line with the  Company's  strategic  direction,  the
Company  continues to focus on internal research and development of cutting-edge
video enhancement technology and products. Also, while continuing to service and
expand its global marketing  network targeting  Professional  Consumers and Home
Consumers,  the Company has long recognized  that the greatest growth  potential
for its technology is through sales to, and licensing  agreements with,  leading
OEMs. Because the patented design of FOCUS' FS400 family of


                                       F-2

<PAGE>

ASICs has  allowed the  Company to  dramatically  improve  video  quality  while
reducing  cost,  leading  manufacturers  in  the  Internet  Appliance  (IA),  PC
Reference Design, and Television markets signed agreements with FOCUS in 1999.


Product Strategy

     The  company  continues  on  its  course  of  concentrating  on  developing
low-cost,  high-quality video conversion technology. For the year ended December
31, 1999 research and development  expenditures  were $1,400,732.  Approximately
77% of this expenditure was directed toward new product activities.


Marketing and Sales Strategy

   * The Company  vigorously  pursued the OEM market for its technology in 1999,
     resulting in numerous  Licensing  Integration  agreements  with some of the
     most significant  names in the United States and global TV, PC and Internet
     Appliance  markets.  In 2000 the Company will continue to  concentrate  its
     marketing  efforts  toward  those  OEMs  which  dominate  their  respective
     markets, and which have the manufacturing,  sales and distribution networks
     in place to  capitalize  on the huge growth  forecast  for the PC-to-TV and
     TV-to-PC  conversion  products over the next decade.  Also,  the redesigned
     Company  web  site,  launched  in March  1999,  features  a new OEM  Custom
     Integration section to showcase FOCUS' line of proprietary video conversion
     ASICs and OEM solutions.

   * The Professional Consumer market continues to be a growing segment, and the
     Company made significant inroads into that market in 1999. In September the
     Company  unveiled  its new Tview  QuadScan  Pro,  a  cost-effective,  high-
     resolution line quadrupler/video scaler at the CEDIA Expo '99. The QuadScan
     is being marketed for  professional  AV  applications,  as well as for home
     theater   use.   FOCUS   continued   to   expand   its   presence   in  the
     Videoconferencing  and Education  markets  through new strategic  alliances
     consummated  in 1999.  Additionally,  the Company added a new  Professional
     Consumer Products section to its redesigned World Wide Web site.

   * While the  Company  has  determined  that the OEM  market  offers  the best
     potential for future  growth,  it also  continues to recognize its consumer
     channel,  through  its  reseller  distribution  network  as a  substantial,
     revenue-  generating  market.  One of the potentially  most significant new
     distributor  agreements was signed with The Douglas  Stewart  Company,  the
     nation's  largest  marketer of computer  products,  electronics and student
     supplies to the  education  market.  The Company  also  continues  to offer
     cooperative     advertising     incentives     to     resellers     on    a
     percentage-of-product-purchases   basis.   Funded  programs  include  sales
     incentives, special pricing programs, and targeted advertising campaigns.

   * Direct Marketing to business, education and end-user consumers continues to
     be a viable and  profitable  segment  for the  Company.  Arrangements  with
     independent,  third-party mail order companies such as MicroWarehouse, CDW,
     Global Computer Supplies, MultiZones and PC Connections have proven to be a
     cost-effective method for achieving direct sales.

     The  Company's  web site  contains an  interactive  list of  resellers  and
outlets for its products  contributing to the goal of direct access to end users
and  building  relationships.  The Company also offers the ability to buy direct
on-line through various computer resellers including MicroWarehouse and Multiple
Zones International.  In March 1999, the Company went live with its new Web site
that allows for direct product purchasing from FOCUS.

     The Company also utilizes a  sophisticated  24-hour  fax-on-demand  system.
Each product  specification fax requested by the customer is cross-marketed  for
synergistic products.

     * Cross-Marketing.  The Company ships over 10,000 products per month, and a
FOCUS PC-to-TV product guide is provided in all shipped packages.  This strategy
is designed to increase customer awareness of other FOCUS products, and aids the
Company's brand-recognition marketing goals.

     * Display  Advertising. The  Company utilizes target advertising in popular
computer  and  consumer  journals  for  the  development  of lead generation and
product  brand  recognition.  The  Company  has  advertised in magazines such as
Selling  Power,  Advanced  Imaging, Mobile Computing, Laptop Buyer's Guide, Inc.
Magazine, Technology & Learning, and Presentations.


                                       F-3

<PAGE>

     * Global  Distribution.  The Company has made significant  investments over
the last several years in creating a global  reseller/VAR  channel. In 1995, the
Company had  approximately  250 resellers  globally.  As of December  1999,  the
Company's products are marketed in over 2,200 store fronts globally.

     In the United States and Canada, the Company markets and sells its products
through national resellers such as CompUSA,  Micro Center,  Midwest Micro, Fry's
Electronics,  and J&R Music  World.  The Company  markets and sells its products
through  national  distributors  such as  Ingram  Micro,  D&H  Distributing  and
Academic  Distributing.  The Company also markets and sells its products through
third-party  mail order  resellers such as  MicroWarehouse,  Multiple  Zones, PC
Connection and CDW.

     In the rest of the world,  the  Company's  products are sold to  resellers,
independent mail order companies and distributors in Latin America,  France, the
United Kingdom, Scandinavia,  Germany,  Switzerland,  Italy, the Czech Republic,
Russia, Australia, Japan, China, Singapore, and the Republic of Korea.

     *  Telemarketing  and Telesales.  The Company is receiving and placing over
50,000 sales calls per year. The Company  utilizes  telemarketing  and telesales
programs.

     * Telemarketing.  The Company gathers valuable marketing data from callers.
This data  allows the  Company to  continuously  analyze its market data such as
customer type,  media response and product  interest.  The Company also receives
registration  cards that provide the Company with marketing  information such as
product quality,  service quality and sales  representative  product  knowledge.
Additionally,  in 1999  the  Company  established  a new  rebate  program  which
required the completion of an information card in order to receive the rebate.

     * Reactive  Telesales.  The Company  receives calls and product orders from
its lead generation  marketing  efforts such as advertising,  targeted  business
reply cards and product guides (catalog) mailings.


Products and Applications

     FOCUS develops  internally all of its PC-to-TV video  conversion  products,
both external boxes and ASICs, thereby allowing the Company to market and sell a
proprietary group of products to the PC-to-TV video conversion marketplace.  The
Company's  products  are  compatible  with  both  Windows  and  Mac OS  personal
computers.  FOCUS' products allow PC owners to utilize any television as a large
screen computer display for use in  presentations,  training,  education,  video
conferencing, Internet viewing and home gaming.

     The Company's  primary focus within the  video/graphics  category is in the
conversion of standard PC video output (VGA) into  television  video input (NTSC
or PAL).  FOCUS'  broad  line of  PC-to-TV  products  easily  allows the user to
display Windows or Mac OS video output  directly to a standard  television or to
videotape.  These  products  are  currently  available  as either a  board-level
product or an external set-top device.  FOCUS currently sells its PC-to-TV video
conversion  products under the TView(R) brand.  These products have a variety of
features  geared toward the needs of business,  education and consumer  customer
groups. The Company has developed various  proprietary  enhancements for its PC-
to-TV products including image stabilization,  which eliminates all flicker, and
TrueScale(R) video compression  technology which ensures proper aspect ratios on
the  television  screen  even when a computer  image is  compressed  to fit on a
television.



Consumer PC-to-TV Video Scan Conversion Products


     1. External  Set-Top  Boxes.  The Company  currently  offers four models of
external set-top boxes under the TView brand. The Company sells the TView Micro,
Micro XGA, the TView Silver and the TView Gold, all of which are compatible with
both  Windows- and Mac OS-based  personal  computers.  All the external  set-top
boxes weigh less than 7 ounces,  and are easily  connected to the VGA video port
of the computer and a television through the cables provided.

     2. PCMCIA Card. The Company also offers a PCMCIA card under the TView brand
that provides PC-to-TV conversion capabilities to laptop computer users. Sold as
the TView Gold Card,  this PCMCIA card fits into any laptop computer with a type
II or type III PC card slot.  The TView Gold Card permits the user to make large
screen  presentations  without the size and weight  associated with presentation
monitors and portable projection devices.


                                       F-4

<PAGE>

     3. Internal  Card. The Company also offers a PCI card under the TView brand
that provides PC-to-TV  conversion  capabilities to desktop computer users. Sold
as the TView  Gold PCI Card,  this card fits into any  computer  with a PCI card
slot.  The TView Gold PCI Card  permits  the user to make  presentations  on any
television.

     All FOCUS  products are shipped with the Company's  proprietary  Electronic
Marker(TM)  software which turns the computer screen cursor into a drawing tool,
allowing  the user to highlight  or annotate  text and graphics  directly on the
screen.


Commercial PC-to-TV Video Scan Conversion Products

     Internal Board Level Products for PCs and TVs. For those environments where
portability is less important, such as classrooms or home entertainment systems,
the Company  offers board level  products that can be installed  directly into a
personal  computer or  television.  The  Company  currently  offers  board level
products for OEM televisions.


Professional PC-to-TV Video Scan Conversion Products

     The Company's TView Pro AV products are high-end video  conversion  devices
that  address the  high-quality  standards  of the  professional  broadcast  and
presentation  markets.  The Company offers each of its professional  products in
desktop,  rackmount,  and board-level  forms.  The TView Pro AV products are the
most advanced  broadcast-quality  conversion products in the marketplace.  These
products allow the user to take any  high-resolution  computer image and project
it onto any compatible  NTSC/PAL display or VCR or over a videoconference  link.
The QuadScan is a line  Quadrupler/Scaler that eliminates visible scan lines and
flicker from standard video for the home theater/professional video markets.


Video Scan Conversion Integrated-Circuit Products (ASICs)

     Integrated  Circuits.  The  Company  currently  offers  three  families  of
integrated  circuits.  The FS300 family of ASICs was developed for both consumer
and  commercial  applications.  The FS300  was the  Company's  third  generation
PC-to-TV video encoder designed to increase the video conversion capabilities of
FOCUS' products while reducing the cost of manufacturing the Company's products.
The FS300 supports  resolutions of up to 10x4 x 768 and features patented "video
scaling"  technology  whereby  the  image  on  the  television  is  scaled  both
horizontally and vertically to perfectly fit the entire contents of the computer
screen on the TV.

     During 1998-1999,  the Company developed a fourth generation scan converter
to advance  the  technology  to  optimize  the image  quality on a TV, the FS400
family.  Four  major  areas  of  advancement  in  the  FS400  family  are  total
compatibility  with all computer  systems up to very high resolution 2560 x 2048
displays,   significantly  improved  TV  image  quality  including  an  advanced
sharpness-enhanced 2D flicker filter (patent pending), auto-sensing, sizing, and
scaling for hands off TV  operation,  and advanced  digital and  progressive  TV
output modes.  A version of the FS400 also supports the new DVD copy  protection
schemes with  Macrovision  encoding  for DVD movie  capable  systems.  The FS400
delivers all these features with lower power, lower cost, and a smaller package.
The FS400 will replace the FS310 over Y2000.

     The Company also  announced its FS450 iNet TV ASIC in July 1999.  The FS450
family of ASICs was specifically designed for the exploding internet set top box
market, information appliances, and TV enabled PCs. It utilizes the high quality
output  characteristics of the FS400 family with a low cost digital interface to
most graphic ICs found in low cost PCs, set top boxes,  and 3D graphic cards. It
is in this area where the Company  intends to focus its research and development
efforts, furthering its core competency in this type of technology and expanding
the application  and use of video scan conversion to address digital  television
including HDTV, interactive television,  information appliances,  LCD panels and
plasma display markets.

     In December of 1999, the Company  announced sale of its FS400 digital video
coprocessor. The FS400 supports high-resolution,  faster speed, progressive scan
displays,  and  Macrovision  for DVD. It also  delivers such features with lower
power  consumption,  a  smaller  footprint  and  does so at half the cost of the
FS300. The Company plans to launch additional ASICs in 2000.


                                       F-5

<PAGE>

TV/Camcorder-to-PC Conversion Consumer Products

     InVideo capture cards allow computers to capture and manipulate  images and
videos originally  displayed on a television,  camcorder,  or other conventional
video  device.  This  technology  is  driving  the  burgeoning  market for video
conferencing  products.  FOCUS'  InVideo  TV tuner  cards  allow  for the  cost-
effective  conversion of analog television  signals to digital video signals for
output on a computer monitor.

     In March 1999, the Company  announced the new InVideo(TM) USB Capture.  The
InVideo(TM)  USB Capture  allows users to access  video from any NTSC/PAL  video
source and save it directly to any computer.  Moreover,  FOCUS'  InVideo(TM) USB
Capture combines  MMX-enhanced software with powerful video capture hardware and
can be  connected  to a camcorder,  VCR,  DVD video  player,  or any device that
outputs NTSC or PAL video for full motion/full-color video capture.  InVideo USB
Capture offers plug and play  installation  for hardware  platforms that support
the Windows 98 operating systems.


PC-to-TV Video Scan Conversion Applications

     Television  Display Device.  The large-screen area of a TV monitor makes it
an inexpensive way to present computer  graphics and text to a large audience or
classroom environment.  The Company's products can be used with a TV monitor for
presentations,  education,  training, video teleconferencing,  Internet viewing,
and video gaming applications.

     *   Presentations.   TView  products  are  ideal  for  sales  and  business
presentations.  In particular,  because of the lightweight and small size of the
products,  they have been  embraced by mobile  presenters  and sales forces as a
cost-effective and space effective tool.

     Education and Training.  In education,  teachers and corporate trainers see
the  benefit  of using  computers  in the  classroom  to create  an  interactive
learning  environment.  Because TView products allow the use of one computer for
multiple  students,  teachers  and  curriculum  developers  no longer need to be
constrained in their use of computers for instructional purposes.

     * Internet  Viewing.  TView  products  also take  advantage  of the rise in
popularity  of the  Internet  and the advent of  Internet-related  products  for
television.  By allowing current PC owners to adapt their existing technology to
display on a  television,  TView  products  bridge the gap  between  current and
future  Internet  usage  by  offering  the  full  functionality  of  a  PC  on a
television.

     * Video Gaming.  TView products make the PC gaming  experience  larger than
life by allowing  users to play PC games on a  television.  By connecting a PC's
sound and video ports to a television,  the gaming  enthusiast  can share in the
gaming  experience  with a group or simply  play  along with the impact of a big
screen television.

     * Print to  Video.  The TView  systems  will  output  the  computer  images
directly to a VCR allowing for an inexpensive way to print anything created on a
Windows or Mac OS personal computer to video tape.

     * Mirroring Mode. The Company's proprietary technology allows the presenter
to use the small  computer  screen as a  mirroring  console  to the same  images
displayed on the larger TV monitor.  Training of  applications  can be performed
from the Windows or Mac OS personal  computer  while the  audience  observes the
images on the TV monitor.


TV-to-PC Video Conversion Applications

     The InVideo line of products  allow  television  or camcorder  images to be
imported into any computer with fully scalable, full-motion, full-color graphics
for use in desktop publishing, video-conferencing and video e-mail. This product
is used by businesses, web designers and distance learning customers who want to
stream video clips, create CD multimedia presentations and send video e-mail.


Customer Support

     Management  believes that its future success will depend, in part, upon the
continued strength of customer  relationships.  To ensure customer satisfaction,
the Company provides customer service and technical support through a five-days-
per-week "hot line" telephone  service.  The Company uses 800 telephone  numbers
for customer  service and a local  telephone  number for technical  support (the
customer pays for the phone charge on technical  support).  The customer service
and support lines are currently staffed by technicians who provide advice


                                       F-6

<PAGE>

free of charge to ensure customer  satisfaction and obtain valuable  feedback on
new product concepts.  In order to educate its own telephone support  personnel,
the Company also  periodically  conducts in-house training programs and seminars
on new products and technology advances in the industry.

     The  Company  offers  this same  level of support  for its entire  domestic
market including its direct market customers who purchase the Company's products
through computer  superstores or system  integrators.  The Company also provides
technical support to its international resellers and distributors. The Company's
international  resellers  and  distributors  also provide  local  support to the
customers for their respective markets.

     The Company  provides  customers with a one- to three-year  warranty on all
products.  The Company  repairs or replaces a defective  product  which is still
under warranty coverage,  and substantially all the components which the Company
purchases are also covered by vendor warranties of comparable duration. Returned
products with defective  components are returned by the Company to the component
vendors for repair or replacement.  Product returns, exclusive of reseller stock
balancing,  averaged  approximately  36% and 17% of total product revenue during
the years ended  December  31,  1998 and 1999,  respectively.  In 1999,  product
returns  were the result of normal  customer  returns in the  Company's  retail,
distribution  and mail order  channels.  The  decrease  in product  returns  was
principally the result of the consolidation of one of the Company's distribution
channels effective in Q498.


Competition

     The Company currently competes with other developers of PC-to-TV conversion
products,  TV-to-PC  conversion  products and with  developers  of  videographic
integrated  circuits.  Although the Company  believes that it is a leader in the
PC-to-TV  conversion product  marketplace,  the videographic  integrated circuit
market  is  intensely  competitive  and  characterized  by  rapid  technological
innovations.  This has  resulted in new product  introductions  over  relatively
short  time  periods  with  frequent  advances  in   price/performance   ratios.
Competitive factors in these markets include product performance, functionality,
product quality and reliability,  as well as volume pricing discounts,  customer
service,  customer support,  marketing capability,  corporate reputation,  brand
recognition  and  increases  in relative  price/performance  ratios for products
serving these markets.  In the PC-to-TV  conversion  product market, the Company
competes with companies such as AI Tech and AVerMedia.  In the TV-to-PC  market,
the Company competes with other video-in and digital frame capture manufacturers
such as Hauppauge and A.T.I. In the videographic integrated circuits market, the
Company competes with Averlogic and Fairchild Semiconductor.

     Certain of the  Company's  competitors  have greater  technical and capital
resources, more marketing experience, and larger research and development staffs
than the Company. Management believes that it competes favorably on the basis of
product quality and technical  benefits and features.  The Company also believes
it provides competitive pricing, extended warranty coverage, and strong customer
relationships,  including selling,  servicing and after-market support. However,
there can be no assurance that the Company will be able to compete  successfully
in the future against existing companies or new entrants to the marketplace.


Manufacturing

     In the manufacture of its products, the Company relies primarily on turnkey
subcontractors who utilize components purchased or specified by the Company. The
"turnkey" house is responsible for component procurement,  board level assembly,
product assembly, quality control testing, and in some cases, final pack-out and
direct shipment.  All subcontracted turnkey houses currently used by the Company
are  ISO  9002  certified.  During  1999,  the  Company  relied  on two  turnkey
manufacturers  for  approximately  90% of the Company's  product  manufacturing.
Effective in Q499, the Company relied on a new Far East turnkey manufacturer for
approximately  90% of the Company's  manufacturing.  The Company has since begun
using an additional Far East Manufacturer as a 2nd source of turnkey products.

     Upon  receipt  of  a  customer's   order,   the   Company's   telemarketing
representative enters the order into the Company's  computerized order entry and
inventory  management  system.  Once the customer's credit has been verified and
approved by the finance department,  the orders are electronically dispatched to
operations for order  fulfillment and shipment.  The Company then performs final
packaging and  fulfillment  of product  orders with most  customer  orders being
shipped in less than three  business days from the date they are placed into the
system. For


                                       F-7

<PAGE>

certain  commercial  PC-to-TV video conversion  products,  the Company's turnkey
manufacturers ship directly to the OEM customer and forward-shipping information
to the Company for billing purposes.

     Quality  control  is  maintained  through  standardized  ISO  9002  quality
assurance practices at the build site and random testing of finished products as
they arrive at the Company's  fulfillment  center.  Management believes that the
turnkey  model  helps it to lower  inventory  and staff  requirements,  maintain
better quality control and product flexibility and achieve quicker product turns
and better cash flow.

     All  customer  returns  are  processed  by the  Company in its  fulfillment
center.  Upon receipt of a returned product, a trained testing technician at the
Company  tests the product to diagnose the problem.  If a product is found to be
defective the unit is either  returned to the turnkey  subcontractor  for rework
and repair or is  repaired by the Company  and  returned  to the  customer.  The
majority  of the  Company's  defective  returns are  repaired  or  replaced  and
returned to customers  within five business days. In 1999,  product returns that
are  determined  to be  defective  represented  approximately  0.5% of the total
product revenues.


Intellectual Property and Proprietary Rights

     The Company currently has five patents pending and five patents issued, six
of which relate to its PC-to-TV video conversion  chips, and anticipates  filing
another  patent  application in the third quarter of 2000.  Patent  applications
have  also  been  filed  to  secure  intellectual  property  rights  in  foreign
jurisdictions.  The  Company  has also  filed  applications  to  register  eight
trademarks to add to its two currently registered trademarks.  Historically, the
Company has relied  principally  upon a combination  of  copyrights,  common law
trademarks  and trade secret laws to protect the rights to its products  that it
markets under the FOCUS and TView brand names.

     Upon joining the Company, employees and consultants are required to execute
agreements providing for the non-disclosure of confidential  information and the
assignment of  proprietary  know-how and  inventions  developed on behalf of the
Company.  In addition,  the Company seeks to protect its trade secrets and know-
how through  contractual  restrictions with vendors and certain large customers.
There can be no  assurance  that these  measures  will  adequately  protect  the
confidentiality of the Company's proprietary information or that others will not
independently  develop products or technology that are equivalent or superior to
those of the Company.

     Additionally,  in connection with OEM and VAR agreements, the Company often
seeks to require  manufacturers  to display the Company's logo  conspicuously on
their product. Management expects that this should increase name recognition and
further the association of the Company's name with the associated goods.

     Because  of the rapid pace of  technological  innovation  in the  Company's
markets,  management  believes that in addition to the patents filed and issued,
the  Company's  success  relies upon the creative  skills and  experience of its
employees, the frequency of Company product offerings and enhancements,  product
pricing and performance features,  its diversified  marketing strategy,  and the
quality and reliability of its support services


Personnel

     As of December  31,  1999,  the  Company  employed 54 people on a full-time
basis, of which 16 are in research and development,  9 in marketing and sales, 7
in customer support, 10 in operations, and 12 in finance and administration.


Backlog

     At December 31, 1999, the Company had a backlog of  approximately  $911,000
for  products  ordered by  customers  as  compared  to a backlog of  $282,000 at
December 31, 1998, an increase of $629,000 or 223%. The Company  expects to fill
these  orders in 2000.  The  increase  in backlog in 1999 as compared to 1998 is
primarily due to development  delays on the FS400 ASIC combined with  production
delays on  Professional  AV products in the fourth  quarter of 1999.  Generally,
management  does not believe  backlog for  products  ordered by  customers  is a
meaningful indicator of sales that can be expected for a particular time period.


ITEM 2. PROPERTIES

     As of December 31, 1999,  the Company  leased  approximately  40,000 square
feet of space at four locations.  The Company leased approximately 22,000 square
feet of space at $16,380 per month in Wilmington,  Massachusetts, which was used
for  administration,  sales,  marketing,  customer  service,  limited  assembly,
quality


                                       F-8

<PAGE>

control,  packaging and shipping.  This lease is scheduled to expire in February
2004. The company leases  additional space in the following  locations:  Orinda,
California,  Morgan Hill, California, and Beaverton, Oregon. The Orinda facility
is mainly used for research and development with  approximately  500 square feet
at $950 per month.  The Morgan Hill  facility is mainly used for high-end  video
conversion  development and final production,  with approximately  11,640 square
feet at $4,320 per month,  expiration being May 2000. The Beaverton  facility is
mainly used for research and development,  with approximately  4,700 square feet
at $3,631 per month, expiration being June 30, 2000. The Company is currently in
negotiations for new space in Beaverton,  Oregon.  The Company believes that its
existing  facilities are adequate to meet current  requirements  and that it can
readily  obtain  appropriate  additional  space as may be required on comparable
terms.


ITEM 3. LEGAL PROCEEDINGS

     The  Company  has been named as a  defendant  in 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  shares of our common  stock  from July 17,  1997 to
February 19, 1999. In March of 2000, 15 additional actions were filed which made
claims on behalf of  shareholders  who purchased  stock from the previous  class
period  through  March  1,  2000.  The  actions  are in  the  process  of  being
consolidated.  The  complaints  allege  that the  company,  its chief  executive
officer and its chief financial  officers,  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. We intend to
contest this case vigorously.

     From time to time,  the Company is party to certain  other claims and legal
proceedings  that arise in the  ordinary  course of  business  of which,  in the
opinion of  management,  do not have a material  adverse effect on the Company's
financial position or results of operation.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters  were  submitted  during  the  fourth  quarter of the year ended
December 31, 1999 to a vote of security holders of the Company,  whether through
solicitation of proxies or otherwise.



                                     PART II


ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
        STOCKHOLDER MATTERS

     Trading in the Company's  Common Stock and public warrants (the "Warrants")
commenced  on May 25,  1993,  when the  Company  completed  its  initial  public
offering,  and since that time the  Company's  Common Stock and Warrants  traded
principally on the NASDAQ  SmallCap  Market under the symbol "FCSE" and "FCSEW",
respectively.  The  Company's  Common Stock and Warrants were also traded on the
Boston Stock Exchange under the symbols "FCS" and "FCSW",  respectively,  during
the period May 26, 1993 through  March 7, 1997.  On May 27, 1998,  the Company's
Warrants expired. The following table sets forth the range of quarterly high and
low bid  quotations  for the Company's  Common Stock and Warrants as reported by
NASDAQ. The quotations represent inter-dealer  quotations without adjustment for
retail  markups,  markdowns or commissions,  and may not  necessarily  represent
actual transactions.  The closing bid price of the Company's Common Stock on the
NASDAQ SmallCap Market on March 31, 2000 was $3.125 per share.


                                       F-9

<PAGE>


<TABLE>
<CAPTION>
                                            Warrants                        Common Stock
                            ----------------------------------------   -----------------------
                                 High Bid              Low Bid          High Bid      Low Bid
                            ------------------   -------------------   ----------   ----------
<S>                              <C>                  <C>                <C>          <C>
Calendar 1999 Quotations
 First Quarter                   Expired               Expired           $ 1.81       $  .91
 Second Quarter                  Expired               Expired           $ 1.75       $ 1.00
 Third Quarter                   Expired               Expired           $ 2.00       $  .94
 Fourth Quarter                  Expired               Expired           $ 9.13       $ 1.00
Calendar 1998 Quotations
 First Quarter                   $   1.25             $   0.50           $ 4.25       $ 2.50
 Second Quarter                  $   1.17             $   0.03           $ 4.75       $ 2.38
 Third Quarter                   Expired               Expired           $ 3.47       $ 1.19
 Fourth Quarter                  Expired               Expired           $ 1.28       $ 1.19
</TABLE>

     As of March 8,  2000,  there were 226  holders  of record of the  Company's
24,881,204  shares of Common Stock outstanding on that date. As of March 9, 2000
the Company estimates that approximately  11,500 shareholders hold securities in
street name.  The Company does not know the actual number of  beneficial  owners
who may be the underlying holders of such shares.

     The  Company has not  declared  nor paid any cash  dividends  on its Common
Stock since its inception.  The Company  intends to retain future  earnings,  if
any, for use in its business.


ITEM 5(b) SALES OF UNREGISTERED SECURITIES DURING THE YEAR ENDED
          DECEMBER 31, 1999

     During the fiscal  year ended  December  31,  1999,  we sold the  following
securities  pursuant  to one or more  exemptions  from  registration  under  the
Securities Act of 1933, as amended,  including the exemption provided by Section
4(2) thereof:

      See Liquidity and Capital Resources section on pages 19, 20 and 21.

     We relied on one or more exemptions from registration  under the Securities
Act of 1933,  as  amended  (the  "Securities  Act"),  for each of the  foregoing
transactions,  including  without  limitation the exemption  provided by Section
4(2) of the Securities  Act. We used all of the net cash proceeds  raised by the
sale of unregistered securities to repay indebtedness and for working capital.


ITEM  6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS


Introduction

     On March 31, 1998, the Company acquired  selected assets of Digital Vision,
Inc.,  a  manufacturer  of both  PC-to-TV  and  TV-to-PC  products.  The Company
marketed  two new  products as a result of the  acquisition,  identified  as its
InVideo product line.  Sales of this product line in 1999 totaled  approximately
$465,000 as compared  with $500,000 for 1998.  Gross profits for these  products
were  approximately  $145,000 as compared  to  $200,000 in 1998.  Sales  related
expenses  totaled $90,000 in 1999 compared to $200,000 in 1998. This acquisition
resulted in no additional personnel being added to the Company.

     On July  29,  1998,  the  Company  acquired  the  net  assets  of PC  Video
Conversion,  Inc. ("PC Video"), a manufacturer of Professional A/V products.  In
1999,   revenues  from  products   resulting  from  this   acquisition   totaled
approximately  $2,100,000  compared to  approximately  $700,000  in 1998.  Gross
margin on sales of  professional  A/V products was  approximately  $1,300,000 in
1999 compared to  approximately  $500,000 in 1998.  Operating  expenses  totaled
approximately $850,000 in 1999 versus approximately $600,000 in 1998.

     In connection with the Company's sale of its line of computer  connectivity
products in 1997,  the Company  acquired  189,701  shares of the common stock of
Advanced Electronic Support Products,  Inc. ("AESP"). Due to a prolonged decline
in the per share market price of the AESP stock investment, the Company adjusted
this investment to its estimated net realizable value. This resulted in a charge
to  earnings  of  approximately  $346,000  in 1998.  In June and July 1999,  the
Company  sold the  189,701  shares of AESP  stock  yielding  gross  proceeds  of
approximately $329,000 and recognizing a gain of approximately $80,000.


                                      F-10

<PAGE>

Results of Operations

     Year ended December 31, 1999 as compared to Year Ended December 31, 1998

     The  following  table sets  forth,  for the periods  indicated,  income and
expense items included in the Consolidated  Statements of Operations,  expressed
as a percentage of net sales:




<TABLE>
<CAPTION>
                                                                  Year Ended December 31,
                                                                  -----------------------
                                                                     1999         1998
                                                                  ----------   ----------
<S>                                                                 <C>           <C>
         Net sales ............................................      98%          100%
         Licensing fees .......................................       2            --
                                                                    ---           ---
           Total revenues .....................................     100           100
         Cost of goods sold ...................................      61            84
                                                                    ---           ---
         Gross profit .........................................      39            16
                                                                    ---           ---
         Operating expenses:
           Sales, marketing and support .......................      23            37
           General and administrative .........................      11            12
           Research and development ...........................       8             9
           Depreciation and amortization ......................       4             8
           Impairment of goodwill .............................      --            17
                                                                    ---           ---
    Total operating expenses ..................................      46            83
                                                                    ---           ---
         Loss from operations .................................      (7)          (67)
         Interest expense, net ................................      (3)           (1)
         Other income .........................................       1             1
         Gain (loss) on securities available for sale .........      --            (2)
         Income (loss) before income taxes ....................      (9)          (69)
         Income tax expense ...................................      --            --
                                                                     ----       -----
         Net loss .............................................      (9)%         (69)%
                                                                   ====         =====
</TABLE>

Net Sales
     Net sales for the year ended December 31, 1999 were $17,183,000 as compared
with $18,440,000 for the year ended December 31, 1998, a decrease of $1,257,000,
or 7%.  During the year ended  December  31,  1999,  the  Company  had net sales
increases to Professional AV customers (205%) and Internet  customers,  while it
had  decreases in net sales to US Resellers  (9%),  to  International  customers
(10%), to OEM customers (37%), and Other sales (79%).

     In 1999,  net sales to US  Resellers  (Distributors,  Retailers,  VAR's and
Education segments) were approximately $11,402,000 as compared to $12,498,000 in
1998,  a  decrease  of  $1,096,000  or 9%. Net sales  included  sales to a major
distributor totaling approximately $4,318,000 or 25% as compared to 5,686,000 or
31% in 1998.  The  decrease in absolute  dollars is the result of a reduction in
major  retailers  that were directed to this  distributor in 1999 as compared to
1998.

     During 1999,  net sales to OEM customers were  approximately  $2,442,000 as
compared to  $3,866,000 in 1998, a decrease of $1,424,000 or 37%. The decline in
OEM sales was primarily due to the delay in  development  and  completion of the
Company's new FS400 mixed signal ASIC for the television,  computer and internet
appliance markets.  This ASIC was completed in Q499 and is in full production in
Q100.

     Net sales to international  customers in 1999 were  approximately  $758,000
compared to $605,000 in 1998,  an increase of $153,000 or 25%.  The  increase is
principally  the  result  of  the  addition  of  professional  AV  sales  to the
international sector.

     In  1999,  net  sales  to  Professional  AV  customers  were  approximately
$2,112,000  compared to $692,000 in 1998, an increase of $1,420,000 or 205%. The
increase is primarily due to development of a distribution  and reseller channel
in 1999, combined with the introduction of two new products.  In addition,  1998
results  only  consist of five months  activity  pursuant to the  purchase of PC
Video Conversion, Inc. on July 30, 1998.

     In 1999, net sales to customers on-line via the internet were approximately
$167,000  compared to $0 in 1998. The increase is principally  the result of the
Company  establishing  an  e-commerce  site  which  offers  products  direct  to
customers.


                                      F-11

<PAGE>

     Other net sales in 1999 were approximately $165,000 as compared to $780,000
in 1998,  a  decrease  of  $615,000  or 79%.  Other  sales  in 1998  principally
consisted of networking and other  discontinued  product sales. The Company sold
its networking product line in September, 1997 to AESP.


Licensing Fees

     In 1999, the Company  received  licensing fees of $350,000 as compared with
$-0-  in  1998.  Licensing  fees  in  1999  were  comprised  of  single  source,
non-recurring licensing revenues.


Cost of Goods Sold

     Cost of goods sold was $10,544,000, or 61% of net sales, for the year ended
December 31, 1999, as compared with  $15,411,000,  or 84% of net sales,  for the
year ended  December 31, 1998,  a decrease of  $4,867,000  or 32%. In the fourth
quarter of 1999, the Company  adjusted the carrying values of certain  inventory
items to their estimated net realizable values. As a result, the Company charged
approximately  $527,000  to expense in the fourth  quarter of 1999  writing  off
certain items and increasing its inventory  reserves to approximately  $399,000.
In the  fourth  quarter  of  1998,  as a  result  of a  detailed  review  of its
inventories the Company  identified  certain excess and obsolete inventory items
and  also  determined  that  the  cost  of  certain   inventory  items  required
adjustments to their estimated net realizable  value.  As a result,  the Company
charged  approximately  $1,929,000  to expenses  in the fourth  quarter of 1998,
thereby  increasing  its  inventory  reserves  to  approximately  $2,168,000  at
December 31, 1998. In addition, the Company recognized an additional $240,000 in
market  development  costs in 1998 as a result of its expansion  into the office
superstore  retail  market.  Cost of sales as a percentage of sales in 1999 were
slightly  lower  compared to 1998,  exclusive of the inventory  adjustments  and
market development expenses in 1998. This is principally the result of continued
cost reductions in manufacturing designs along with a new Far East manufacturing
relationship established in Q499 resulting in lower manufacturing costs.

     During the fourth  quarter of 1999,  the Company  reduced  cost of sales by
$420,000,  representing  the cost of product sales returns from major customers,
including  anticipated  sales returns in the first quarter of 2000.  The Company
also adjusted  cost of sales by accruing for price  protection  and  cooperative
advertising  credit claimed on prior  products sold as the Company's  management
decided in the  fourth  quarter of 1999 to offer  pricing  incentives  to remain
competitive  in  2000.  This  accrual  resulted  in a  charge  of  approximately
$194,000.

     During the fourth  quarter of 1998,  the Company  reduced  cost of sales by
approximately  $3,400,000,  representing  the cost of product sales returns from
major  customers,  including  anticipated  sales returns in the first quarter of
1999.  The Company also adjusted cost of sales by accruing for price  protection
claims on prior products sold as the Company's  management decided in the fourth
quarter  of 1998  to  reduce  its  suggested  retail  price  in  1999 to  remain
competitive. This accrual resulted in a charge of approximately $645,000.


Sales, Marketing and Support Expenses.

     Sales,  marketing  and  support  expenses  were  $3,970,000,  or 23% of net
revenues, for the year ended December 31, 1999, as compared with $6,902,000,  or
37% of net  revenues,  for the year ended  December  31,  1998,  a  decrease  of
$2,932,000  or 42%. The  decrease in sales,  marketing  and support  expenses in
absolute  dollars is primarily the result of reduced  marketing and  advertising
expenditures  resulting  from the  consolidation  of a segment of the  Company's
retail channel in Q498. In addition,  the Company postponed marketing activities
pertaining to its new FS400 ASIC that encountered development delays and was not
released from engineering until Q499.


General and Administrative Expenses.

     General and  administrative  expenses for the year ended  December 31, 1999
were  $1,878,000 or 11% of net revenues,  as compared with  $2,166,000 or 12% of
net  revenues  for the year ended  December  31, 1998, a decrease of $288,000 or
13%.  The  decrease in terms of  absolute  dollars  and as a  percentage  of net
revenues  is  primarily  due  to  decreases  in  provisions  for  bad  debts  of
approximately $99,000, consulting fees of approximately $80,000, office supplies
of approximately $51,000, recruiting expenses of approximately $45,000, investor
relations expenses of approximately  $41,000 and temporary help of approximately
$25,000.  These  reductions  were offset by an  increase  in stock  compensation
charges of approximately $65,000.


                                      F-12

<PAGE>

Research and Development Expenses.

     Research and development expenses for the year ended December 31, 1999 were
approximately  $1,401,000 or 8% of net revenues,  as compared with $1,699,000 or
9% of net revenues, for the year ended December 31, 1998, a decrease of $298,000
or 18%.  The  decrease in research  and  development  expenses in both  absolute
dollars  and as a  percentage  of revenues is due  primarily  to a reduction  of
period  expenses  in  the  Beaverton,   OR  development  center  resulting  from
incremental  increases in capitalized  ASIC  development  costs of approximately
$605,000, offset by an increase in Professional AV products R&D of approximately
$305,000. This increase is a result of a full twelve months activity as compared
with only five months  activity in 1999 pursuant to the  acquisition of PC Video
Conversion, Inc. on July 29, 1998.


Depreciation and Amortization.

     Depreciation and amortization expenses for the year ended December 31, 1999
were  $557,000 or 4% of net revenues,  as compared with  $1,499,000 or 8% of net
revenues,  for the year ended  December 31, 1998, a decrease of $942,000 or 63%.
In the fourth  quarter of 1998, the Company  performed a detailed  review of its
property and equipment accounts. As a result of this review, certain assets were
written off and the estimated  useful lives of certain assets were revised.  The
effect of these  write-offs  and revisions  resulted in additional  depreciation
expense of  approximately  $766,000.  In addition,  in 1998 the Company recorded
additional  amortization  of goodwill  resulting from the acquisition of Digital
Vision, Inc. and PC Video Conversion, Inc. totaling approximately $146,000.


Interest Expense, Net.

     Net interest expense for the year ended December 31, 1999 was $531,000,  or
3% of net revenues, as compared to $226,000, or 1% of net revenues, for the year
ended  December  31,  1998,  an increase of  $305,000 or 135%.  The  increase in
interest expense is attributable to an increase in interest bearing  obligations
at increased  interest  rates.  On March 31,  1999,  the Company was required to
restructure its line of credit with its commercial bank resulting in an increase
in interest rate combined with additional transaction fees.


Impairment of Goodwill

     The  Company  recognized  a  write-off  of  $3,054,000 in 1998 representing
impaired  goodwill  resulting  from the acquisitions of Lapis Technologies, Inc.
("Lapis"),  Digital  Vision,  Inc.  ("Digital  Vision") and PC Video Conversion,
Inc. ("PC Video").

     The  Company  acquired  Lapis in  December,  1993 and  utilized  its  video
conversion  technology in its products  through 1998. In 1997, the Company began
developing  its  own  proprietary  video  conversion   technology  and  in  Q198
introduced its FS300 video conversion ASIC to the market place. During 1998, the
Company   began   including   this  ASIC  in  its   manufactured   products  and
simultaneously began the end-of-life cycle for Lapis based products.  By the end
of Q498, all remaining inventory  incorporating Lapis technology was disposed of
by sale or  write-off.  The  Company  wrote-off  the  balance  of  approximately
$543,000 of impaired goodwill on Lapis Technologies, Inc.

     The  Company  acquired  Digital  Vision  on March 31,  1998 to  obtain  its
TV-to-PC  product line.  Upon evaluation of the product line, the Company deemed
that only two products warranted  inclusion in its product  portfolio.  However,
this line,  the InVideo  product line was not widely  accepted by the  Company's
customer base due to significant  competition in its category,  limited  product
features in comparison  with the  competition,  and its cost structure  required
pricing higher than many of the competing products.  In addition, no proprietary
technology was acquired with this acquisition. The Company achieved sales, gross
profit and expenses of $500,000,  $200,000  and  $200,000  respectively  for the
InVideo  product line in 1998. As result of an impairment  analysis in Q498, the
Company  determined  that the acquired  goodwill  was  impaired.  The  remaining
goodwill  was valued  using a  discounted  cash flow model  that  resulted  in a
write-off of approximately $1,070,000 of impaired goodwill.

     On July 30, 1998 the  Company  purchased  the net assets of PC Video.  This
acquisition was intended to provide the Company with an entry into high quality,
professional  audio/video  scan  conversion  market.  Upon review of the product
offerings  of  PC  Video,   the  Company  realized  that  the  product  quality,
manufacturing  capacity,  and  distribution  network were  inadequate to provide
positive operating income from this venture on an


                                      F-13

<PAGE>

on-going basis and  discontinued  producing all products of the former PC Video.
The  engineering  resources  pertaining to product design and technology  vision
were evaluated and deemed  exceptional by management.  Accordingly,  the Company
decided to restructure the PC Video operation into a high-end,  professional A/V
research  and  development  center in Q498 tasked to produce  new high  quality,
professional  A/V product  utilizing the Company's  proprietary ASIC technology.
During  1998,  sales of legacy PC Video  products  were  approximately  $700,000
yielding gross profits of approximately $500,000 offset by operating expenses of
approximately  $600,000.  The Company  performed an impairment  analysis in Q498
utilizing a  discounted  cash flow model,  resulting  in a write-off of impaired
goodwill of approximately $1,441,000.


Other Income.

     For the year ended  December  31,  1999,  the Company  had other  income of
$138,000 or 1% of net  revenues as compared to other  income of $100,000 or 0.5%
of net revenues for the year ended December 31, 1998, an increase of $38,000.


Gain (Loss) On Securities Available for Sale
     On September 30, 1997,  the Company sold its line of computer  connectivity
products to AESP for 189,701  shares of AESP common stock.  Included in the sale
were  customer  lists and the right to use the FOCUS  networking  brand  name to
market the product line as well as certain of AESP's complementary  products. In
connection  with this  transaction,  the Company  recorded  other  income in the
amount of  $358,000.  During  1998,  the fair  market  value of this  investment
declined 58%. At December 31, 1998, there was no indication that the fair market
value of this investment would increase substantially in the foreseeable future,
therefore  the Company  recognized a loss on this  investment  of  approximately
$346,000 in the fourth quarter of 1998.

     During  June and July 1999,  the Company  sold the  189,701  shares of AESP
common stock. The Company received gross proceeds of approximately  $329,000 and
recognized a gain of approximately $80,000 on the transaction.


Net Loss.

     For the year ended  December 31, 1999,  the Company  reported a net loss of
$1,480,000,  or  $0.08  per  share  (basic),  as  compared  to  a  net  loss  of
$12,787,000, or $0.78 per share (basic), for the year ended December 31, 1998, a
reduction in loss of  $11,307,000.  For the quarter ended December 31, 1999, the
Company recorded a net loss of approximately $1,779,000. This loss resulted from
certain  adjustments  in the fourth  quarter as follows:  product  returns  from
discontinued   resellers   (approximately   $367,000),   inventory   adjustments
(approximately   $527,000),   accounts  receivable  adjustments   (approximately
$383,000),   accrued  expense   adjustment   (approximately   $254,000),   stock
compensation and other charges (approximately $284,000).

     For the quarter ended December 31, 1998, the Company recorded a net loss of
approximately $14,235,000.  This loss resulted from reduced sales in the quarter
due to lower than anticipated sell through of the Company's  products and higher
than expected  inventory levels at certain retail  customers,  which resulted in
significant sales returns in the fourth quarter.  In addition,  the Company made
significant  adjustments in the fourth quarter.  The effect of the sales returns
and the significant fourth quarter  adjustments are as follows:  product returns
from  non-performing  resellers  (approximately  $3,455,000),  impaired goodwill
(approximately  $3,054,000),  inventory adjustments (approximately  $1,929,000),
accrued expense adjustments (approximately $2,125,000),  fixed asset adjustments
(approximately  $766,000),  and revaluation of stock investments  (approximately
$346,000).


Financial Condition

     Total Assets.

     Total  assets  increased  $2,279,000  or 18%,  from  December  31,  1998 to
December  31,  1999.  The  increase in assets is due to:  increases  of cash and
certificates of deposit by $2,889,000, accounts receivable by $360,000, property
and equipment by $174,000,  capitalized software development costs by $1,645,000
and  other  current  assets  by  $24,000;  offset by  reductions  of  securities
available for sale by $249,000,  inventory by  $2,360,000,  goodwill by $186,000
and other assets by $17,000.  Cash and  certificates of deposits  increased 210%
principally  resulting from equity infusions in 1999 from private  placements of
common stock and issuances of common stock


                                      F-14

<PAGE>

pursuant to exercises of common stock warrants and options.  Accounts receivable
increased by 14% in 1999 compared with 1998  principally  due increased sales in
Q499  compared  to  Q498.  In Q498  the  Company  restructured  a  segment  of a
non-performing reseller channel resulting in significant sales returns. Property
and equipment  increased 22% primarily due to investments in year 2000 compliant
computer hardware and software systems.  Capitalized  software development costs
increased 344% resulting from increased  investments in ASIC development  costs.
Securities  available for sale  decreased by 100% in 1999 compared with 1998 due
to the sale of the  189,701  shares  of AESP  stock in June and July  1999.  The
decrease in inventory  in 1999 as compared  with 1998 is the result of increased
sales  combined  with  inventory  adjustments  in Q499  compared to  significant
product returns and inventory  adjustments in Q498. Goodwill decreased by 23% in
1999 compared with 1998 due to normal amortization.


     Total Liabilities.

     Total liabilities  decreased  $4,051,000,  or 41% from December 31, 1998 to
December 31,  1999.  The  decrease is  primarily  due to:  decreases in accounts
payable by $2,586,000,  accrued  liabilities  by $1,291,000,  capital leases and
long term debt by $393,000 and deferred  income by $84,000;  offset by increases
in notes payable by $304,000.  Decreases in accounts  payable is principally the
result of increased  payments on debt  obligations and vendor payables  combined
with  the   reclassification  of  certain  accounts  payable  to  notes  payable
(approximately $1,006,000). Accrued liabilities decreased as a result of reduced
marketing  activities  in 1999 as  compared  to 1998.  Long term debt  decreased
primarily due to payments  under capital  leases and long-term  notes payable in
accordance with contractual agreements.


     Stockholders' Equity.

     Stockholders'  equity  increased  $6,329,000  from  December  31,  1998  to
December  31, 1999.  The increase is primarily  due the issuance of common stock
resulting  from the  exercise  of common  stock  options and  warrants  totaling
$2,596,000,  as well as a private  offerings  of the  Company's  common stock of
approximately  $4,414,000 the repayment of a note receivable for common stock of
approximately   $316,000  and  the  liquidation  of  liabilities  through  stock
issuances of approximately  $320,000.  These increases were offset by a net loss
incurred in fiscal year 1999 of $1,480,000.


Liquidity and Capital Resources

     Since inception,  the Company has financed its operations primarily through
the public and private sale of common stock,  short-term  borrowing from private
lenders, and favorable credit arrangements with vendors and suppliers.

     Net cash used in operating activities for the years ended December 31, 1999
and 1998 was $753,000 and  $4,591,000,  respectively.  In 1999, net cash used in
operating  activities  consisted  principally  of the net  loss  of  $1,480,000,
increase in accounts receivable of $360,000,  and a decrease in accounts payable
and accrued  liabilities of $1,854,000  offset  principally by  depreciation  of
$557,000  and a decrease in inventory of  $2,360,000.  In addition,  the Company
issued  common stock for services and debt of $159,000 and  recognized a gain on
the sale of securities of $80,000 and previously  deferred income of $84,000. In
1998, net cash used in operating  activities consisted primarily of the net loss
of $12,787,000, and increases in inventories of $1,587,000,  accounts payable of
$387,000,  accrued liabilities of $916,000 with decreases in accounts receivable
of  $3,325,000.  In addition,  the Company had a decrease in value of marketable
securities of $346,000 and write-off of impaired goodwill of $3,054,000.

     Net cash used in investing activities for the years ended December 31, 1999
and 1998 was  $5,471,000 and  $2,042,000,  respectively.  In 1999,  cash used in
investing  activities  consisted  primarily  of the  purchase  of  property  and
equipment and capitalized software development costs of $2,158,000, increases in
certificate of deposits of $281,000,  offset by proceeds  received from the sale
of securities  available for sale of $329,000.  In 1998,  cash used in investing
activities  consisted  primarily of the purchase of property and  equipment  and
capitalized   software   development   costs  of  $858,000   and  cash  paid  in
acquisitions, net of cash received, of $931,000, and increases in certificate of
deposits of $253,000.

     Net cash from  financing  activities  for the years ended December 31, 1999
and 1998 was  $5,471,000  and  $7,042,000,  respectively.  In 1999,  the Company
received $4,414,000 in net proceeds from private offerings of


                                      F-15

<PAGE>

Common  Stock and  $2,596,000  from the  exercise  of common  stock  options and
warrants,  and repayment of a note receivable for common stock of $316,000.  The
proceeds in 1999 were offset by  $1,721,000  in payments on notes  payable,  and
payments made under capital lease obligations of $134,000.  In 1998, the Company
received  $2,827,000 in net proceeds from private  offerings of Common Stock and
$7,004,000 from the exercise of common stock options and warrants.  The proceeds
in 1998 were offset by  $1,954,000  in payments  on notes  payable,  $700,000 in
payments for treasury  stock  acquired,  and payments  made under  capital lease
obligations of $135,000.

     As of December 31, 1999, the Company had working capital of $5,633,000,  as
compared to working  capital of  $1,435,000 at December 31, 1998, an increase of
$4,198,000.  The Company's cash and  certificates  of deposit were $4,271,000 at
December 31, 1999, compared to $1,381,000, at December 31, 1998.

     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, 2004 at an exercise price
of $1.063 per share. These warrants were exercised on February 23, 2000 (15,000)
and March 2, 2000 (15,000).

     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. These warrants were exercised on December 10, 1999.

     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 per share. These warrants were exercised on December 3, 1999.

     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 per share.  These  warrants
were exercised on November 23, 1999 under a net exercise provision  resulting in
the issuance of 38,181 shares.

     On June 4, 1999, the Company entered into a financing  agreement  resulting
in  $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.  In addition  Union  Atlantic  received a warrant to purchase  25,000
shares of common stock as compensation for brokering the private placement.  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 warrants. The Company received proceeds from this transaction in
two  tranches  of  $600,000.  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 $58,222  yielding  net  proceeds of  $541,778  was funded on
August 18, 1999.

     On September  17,  1999,  the Company  entered  into a financing  agreement
resulting in $1,500,000 in gross  proceeds from the sale of 1,583,333  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 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 $750,000.  The first tranche was funded on
September  21, 1999 for  $750,000  less fees and expenses  associated  with this
offering of $64,903  yielding net proceeds of $685,097.  The second  tranche was
funded on November 17, 1999 for $750,000 less fees and expenses  associated with
this offering of $60,000 yielding net proceeds of $690,000.

     On September 22, 1999, the Company received gross proceeds of $135,000 from
the issuance of 120,000  shares of common stock  resulting  from the exercise of
common stock warrants issued pursuant to the June 4, 1999 private placement.


     In November 1999, the Company  completed a financing of $2,000,000 in gross
proceeds  from the sale of 1,250,000  shares of common stock and the issuance of
three  warrants to purchase an  additional  125,000  shares of common stock in a
private placement to three unaffiliated  accredited investors.  The warrants are
exercisable until December 1, 2004 at a per-share  exercise price of $3.1969 The
shares issued in connection with this transaction


                                      F-16

<PAGE>

and  issuable  upon  exercise  of the  warrant  will  be  registered  under  the
Securities Act of 1933. Fees and expenses associated with this offering amounted
to approximately $42,000 yielding net proceeds of $1,958,000.

     During the year ended  December  31,  1999,  the Company  issued at various
times,  2,095,780  shares of common  stock  resulting  from other  exercises  of
options and warrants,  receiving cash of  approximately  $2,461,000.  On June 1,
1998,  the  Company  recorded a note  receivable  in the amount of  $316,418  in
connection  with the  exercise of stock  options to purchase  171,000  shares of
common stock by a former  director.  On December 28, 1999, the Company  received
$352,000 in full payment of this note, including accrued interest at 8%.

     On January 18, 2000,  the Company  received gross proceeds of $990,000 from
the issuance of 330,000  shares of common stock  resulting  from the exercise of
common  stock  warrants  issued   pursuant  to  a  private   placement  with  an
unaffiliated investor on September 10, 1997.

     The Company  maintains  incentive  stock option plans for all employees and
directors.  Management believes that these plans provide long term incentives to
employees  and directors and promote  longevity of service.  The Company  prices
issued  options at the closing of NASDAQ market price of its common stock on the
date of the option  issuance.  In addition,  the Company  maintains the right to
re-price the options under such plans to reflect devaluation in the market value
of its common stock.  On September 1, 1998,  the Company  re-priced all employee
and director options under all plans to $1.22 per share for those options priced
in excess of this value.  This price represented the closing market price of the
Company's  common  stock on  September  1, 1998.  The FASB has issued a proposed
interpretative  release - Stock  Compensation  -  Interpretation  of APB No. 25,
which will have a prospective  impact on the Company's stock option plans,  when
adopted.

     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 to
provide the liquidity necessary for the Company to continue operations.


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.


Recent Accounting Pronouncements

     The FASB has issued a proposed  interpretive  release,  Stock Compensation-
Interpretation of APB Opinion 25  ("Interpretation").  The  Interpretation  will
provide  accounting  guidance  on  several  issues  that  are  not  specifically
addressed in Accounting Principles Board ("APB") Opinion No. 25, "Accounting for
Stock  Issued  to   Employees."   Of  the  many   questions   addressed  in  the
Interpretation,  the most  significant are a clarification  of the definition of
the term  "employee" for purposes of applying the opinion and the accounting for
options that have been repriced.

     The  Interpretation  is generally  effective  beginning  July 1, 2000.  The
Interpretation  applies  prospectively at that date for repricings that occurred
after  December 15, 1998. It also applies  prospectively  on July 1, 2000 to new
awards  granted after  December 15, 1998 for purposes of applying the definition
of "employee".

     In December 1999, the Securities and Exchange Commission (the "Commission")
published Staff  Accounting  Bulletin  ("SAB") No. 101,  "Revenue  Recognition",
which provides guidance for applying generally accepted accounting principles to
revenue recognition in financial statements filed with the Commission, including
income statement presentation and disclosure.  As originally issued, SAB 101 was
to be applied no later than the first quarter of the fiscal year beginning after
December 15, 1999. However, the Commission has delayed the effective date of the
SAB for  companies  with fiscal years  beginning  between  December 16, 1999 and
March 15, 2000. For such entities, the mandatory  implementation date may now be
no later than the second quarter of the fiscal year beginning after December 15,
1999.


     The  Company  is  in  the  process  of   reviewing   and   evaluating   the
pronouncements detailed above to determine the potential impact on the financial
statements of the Company.



                                      F-17

<PAGE>

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-KSB 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.


                                      F-18

<PAGE>

ITEM 7. FINANCIAL STATEMENTS

     The Company's  consolidated  financial statements and the related report of
independent  accountants are presented in pages F-1 - F-23,  which are contained
in this Annual Report immediately following page 29. The consolidated  financial
statements filed in this Item 7 are as follows:



<TABLE>
<CAPTION>
                                                                                              Page
                                                                                             -----
<S>                                                                                          <C>
Report of Independent Accountants ........................................................    F-1
Consolidated Balance Sheets as of December 31, 1999 and 1998 .............................    F-2
Consolidated Statements of Operations for the Years Ended December 31, 1999 and 1998 .....    F-3
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1999 and     F-4
  1998
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999 and 1998 .....    F-5
Notes to Consolidated Financial Statements ...............................................    F-7
</TABLE>


ITEM  8. CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
       FINANCIAL DISCLOSURE
     Not Applicable

     This  Amendment No. 1 on form 10-KSB/a to the registrant's annual report on
form  10-KSB for the year ended December 31, 1999, (the "Report") is being filed
to include the information required to be set forth in part III of the report


                                    PART III


Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
      COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT


OCCUPATIONS OF DIRECTORS AND EXECUTIVE OFFICERS


Directors
     Thomas L. Massie is Chairman of the Board and a  co-founder  of the Company
and has  served  in these  positions  since  1992.  He has more than 14 years of
experience  in the  computer  industry  as well as related  business  management
experience.  From 1990 to 1992,  Mr.  Massie was the Senior  Vice  President  of
Articulate Systems,  responsible for worldwide sales,  marketing and operations.
Articulate Systems is a multi-million dollar developer and manufacturer of voice
control and communications  products for the PC marketplace.  Articulate Systems
was acquired by Dragon  Systems in 1997.  From 1986 to 1990,  Mr. Massie was the
Chairman of the Board, and founder of MASS Microsystems.  MASS Microsystems is a
publicly-held  developer of multimedia  hardware  products and high-end  removal
storage  subsystems.  Mr. Massie led MASS Microsystems from business plan to $30
million in profitable  revenues.  MASS  Microsystems went public in 1989 and was
acquired by Ramtek in 1992. From 1985 to 1986, Mr. Massie was the co-founder and
Executive Vice President of Sales and Marketing for  MacMemory,  Inc.  MacMemory
was a multi-million-dollar  developer of custom memory and acceleration products
that was acquired in 1986 by Cyclone Technologies. From 1979 to 1984, Mr. Massie
was a Non-Commissioned  Officer for the U.S. Army, 101st Airborne Division.  Mr.
Massie is a member of the Board of Directors of the Hockey  Academy.  The Hockey
Academy is a private,  multi-million  dollar hockey program development company.
Mr. Massie is 38 years old and his term expires in 2002.

     William  B.  Coldrick has served as a Director of the Company since January
1993,  Vice  Chairman  of  the  Company  since  July  1994 and as Executive Vice
President  of  the Company from July 1994 to May 1995. Mr. Coldrick is currently
a  principal  of  Enterprise  Development  Partners,  a  consulting firm serving
emerging  growth  companies  that  he  founded  in April 1998. From July 1996 to
April  1998,  Mr.  Coldrick  was Vice President and General Manager of Worldwide
Channel  Operations  for  the Computer Systems Division of Unisys Corp. In March
1991,  Mr.  Coldrick  retired  as  Senior  Vice President, U.S. Sales, for Apple
Computer,  Inc.,  which he joined in 1982. As Senior Vice President, U.S. Sales,
for  Apple  Computer,  Mr.  Coldrick  was  responsible  for  leading  all sales,
support,  service,  distribution and channel activities for Apple throughout the
United  States.  Previously  at  Apple,  Mr.  Coldrick held the position of Vice
President and General Manager for Western Operations, and was


                                      F-19

<PAGE>

responsible  for  overseeing  sales,  marketing, service and support for Apple's
largest  business  unit  in  the  field  organization.  In  a  prior position as
National  Sales Director, U.S. Sales, Mr. Coldrick directed the expansion of the
U.S.  field  sales  force.  Mr.  Coldrick  also  held the position of Area Sales
Director  of  the  Northeast  Area.  Before joining Apple, Mr. Coldrick spent 14
years  with  Honeywell  Information Systems, where he held a number of positions
including  Regional Marketing Director. Mr. Coldrick holds a Bachelor of Science
degree  in  Marketing  from Iona College in New Rochelle, New York. Mr. Coldrick
is 57 years old and his term expires in 2001.

     John C. Cavalier has served as a Director of the Company since May 1992. He
has more than 29 years of business management  experience.  Since November 1996,
Mr. Cavalier has been President,  CEO and a Director of MapInfo  Corporation,  a
software developer.  Prior thereto,  Mr. Cavalier joined Amdahl Company in early
1993 as Vice President and General Manager of Huron, Amdahl's software business.
In July of 1993, he was also  appointed  President  and CEO of Antares  Alliance
Group,  a joint venture  between Amdahl and EDS. From July 1990 to July 1992, he
was President,  Chief Executive Officer and a director of Bimillenium Company, a
software development company.  Bimillenium is a developer of scientific software
for the Macintosh  and UNIX  marketplace.  From April 1987 to January 1992,  Mr.
Cavalier was a Director of MASS Microsystems.  He was President, Chief Executive
Officer and a director of ShareBase  Company,  a database systems company,  from
November  1987 to June  1990.  He  earned  his  undergraduate  degree  from  the
University of Notre Dame and an MBA from Michigan State University. Mr. Cavalier
is 58 years old and his term expires in 2002.

     Timothy  E. Mahoney has served as Director of the Company since March 1998.
He  has  more than 18 years of experience in the computing industry. Mr. Mahoney
founded  Union  Atlantic  L.C.,  in 1994, a merchant bank providing professional
management  and  capital  for  emerging  technology  companies.  Since 1996, Mr.
Mahoney  has  served  as  Chairman  of  Tallard  Technologies  BV, a PC products
distributor  /  value added reseller serving Latin America. From 1991 to 1994 he
was  President  of SyQuest Technology, SyDos Division, responsible for expanding
distribution  channels  for  SyQuest's  hard  disk  drive products. From 1986 to
1991,  Mr.  Mahoney  was  President  of  Rodine  Systems,  Inc.,  a  provider of
Macintosh  mass storage peripherals. He earned his BA degree in computer science
and  business  from  West  Virginia  University  and  an  MBA degree from George
Washington  University.  Mr.  Mahoney  is  42  years old and his term expires in
2001.

     William A.  Dambrackas  has over 22 years of  management  experience in the
computer  industry.  He founded Equinox Systems (Nasdaq:  EQNX) 16 years ago and
since then, has served as the company's Chairman,  President and Chief Executive
Officer. Equinox develops high-performance  server-based communications products
for Internet access and commercial systems. Mr. Dambrackas also currently serves
on the Board of Directors of the Florida  Venture Forum,  an  organization  that
serves the needs of venture  capital  investors and emerging  growth  companies.
Prior to  founding  Equinox in 1983,  Mr.  Dambrackas  held  senior  engineering
management  positions  at  Racal-Milgo  from 1979 to 1983 and  Infotron  Systems
from1976 to 1979. He also has held design engineering positions at GTE- Ultronic
Systems  from  1969 to 1976,  Thiokol  Corporation  from  1968 to 1969,  and RCA
television  recording  systems from 1966 to 1968. Mr. Dambrackas has been issued
three  United  States  Patents  for data  communications  inventions  and he was
honored as Florida's  "Entrepreneur  of the Year" in 1984. Mr.  Dambrackas is 55
years old and his term expires in 2000.

Executive Officers

     Christopher  P. Ricci joined the Company as Sr. Vice  President of Business
Development, General Counsel and Secretary in 1998. From 1996 to 1998, Mr. Ricci
led the  intellectual  property  group for the  Boston  law firm of  Sullivan  &
Worcester  LLP,  where he  advised  on a  variety  of  issues  including  patent
prosecution, trademark prosecution, licensing of technology in both domestic and
foreign markets,  methods of protecting and exploiting intellectual property, as
well as supporting litigation and corporate acquisitions.  From 1993 to 1996 Mr.
Ricci also  worked as in-house  counsel to the  electronic  imaging  division of
Polaroid  Corporation and was previously and a partner at Lambert & Ricci, PC, a
Boston  intellectual  property law firm. Prior to entering the legal profession,
Mr. Ricci worked for five years as an  electrical  engineer  designing  computer
control  systems.  Mr. Ricci  received his law degree from New England School of
Law.  He  graduated  from the  University  of  Massachusetts  at Amherst  with a
bachelor's degree in electrical  engineering and a minor in applied mathematics.
He has also earned a  certificate  in  software  engineering  from  Northeastern
University.  Mr. Ricci has lectured and been  published  both  domestically  and
abroad on a variety of business  and  intellectual  property law  subjects.  Mr.
Ricci is 34 years old.
     Thomas  Hamilton  joined  the  Company  in  September 1996 when the Company
acquired  TView,  Inc.  From  1992  to  1996,  Mr.  Hamilton  was Executive Vice
President and Co-Founder of TView, Inc. Mr. Hamilton grew


                                      F-20

<PAGE>

TView  from  inception to a $5M per year revenue before being acquired by FOCUS.
He  co-developed  proprietary  video  processing  technology  central  to FOCUS'
business.  From 1987 to 1992, Mr. Hamilton was the Vice President of Engineering
at  Summit  Design,  a publicly held Integrated Circuit design software company,
in  Beaverton,  Oregon  having approximately $20MM in annual sales. From 1975 to
1987,  he  served  in  various engineering and marketing management positions at
Tektronix  Inc.,  Wilsonville, Oregon. Mr. Hamilton has a BS in Mathematics from
Oregon State University. Mr. Hamilton is 49 years old.

     Brett A. Moyer joined the Company in May 1997,  and has assumed the role of
Vice President of Pro A/V Sales. Mr. Moyer brings over 10 years of global sales,
finance and general management  experience from Zenith Electronics  Corporation,
where he was most recently the Vice  President  and General  Manager of Zenith's
Commercial  Products  Division.  Mr. Moyer has also served as Vice  President of
Sales  Planning  and  Operations  at  Zenith  where  he  was   responsible   for
forecasting,   customer   service,   distribution,   MIS,  and  regional  credit
operations. Mr. Moyer has a Bachelor of Arts in Economics from Beloit College in
Wisconsin and a Masters of  International  Management  with a  concentration  in
finance  and  accounting  from The  American  Graduate  School of  International
Management (Thunderbird). Mr. Moyer is 41 years old.

     William  R.  Schillhammer III joined the Company in 1998 with over 12 years
of   experience   in  global  sales  and  marketing.  From  1996  to  1998,  Mr.
Schillhammer  was  Vice  President  of  Marketing  and Sales for Digital Vision,
Inc.,  a  multi-million dollar developer of video conversion products. From 1990
to  1996  Mr.  Schillhammer  held various senior management positions for Direct
Imaging,  Inc., most recently serving as President. From 1989 to 1990 he was the
Vice  President  of  Sales  for Mega Scan Technology, Inc. From 1988 to 1989 Mr.
Schillhammer  was  the  Vice  President  for Number Nine Computer Corporation, a
publicly  held  multi-million  dollar company. From 1980 to 1988 he held various
management  positions  with  the  Intel  Corporation. Mr. Schillhammer graduated
from   Dartmouth   College   with   a  bachelor's  degree  in  Engineering.  Mr.
Schillhammer is 45 years old.


Section 16(a) Beneficial Ownership Reporting Compliance

     Section  16(a) of the  Securities  Exchange  Act of 1934,  as amended  (the
"Exchange Act"),  requires the Company's directors and executive  officers,  and
persons  who own more than 10% of a  registered  class of the  Company's  equity
securities,  to file  initial  reports of  ownership  and  reports of changes in
ownership with the Securities and Exchange  Commission (the "SEC"). Such persons
are  required  by SEC  regulations  to furnish  the  Company  with copies of all
Section 16(a) forms they file.

     Based solely on the Company's  review of the copies of such forms  received
by it or written  representations  from certain reporting  persons,  the Company
believe that during the year ended  December 31, 1999,  all filing  requirements
applicable to its directors,  executive officers and greater-than-10% beneficial
owners were met.


Item 10. EXECUTIVE COMPENSATION

     The  following  table sets forth  certain  information  with respect to the
annual and long-term  compensation for services in all capacities to the Company
for the fiscal years ended  December 31, 1999,  1998, and 1997, of those persons
who were, at December 31, 1999, (i) the Company's  Chief  Executive  Officer and
(ii) the four other  highest paid  executive  officers of the Company  receiving
total cash and bonus  compensation in excess of $100,000 (the "Named Officers").
The  Company did not grant any  restricted  stock  awards or stock  appreciation
rights or make any long term incentive plan payouts to the individuals  named in
the tables below during the fiscal year indicated.


                                      F-21

<PAGE>

                           SUMMARY COMPENSATION TABLE


<TABLE>
<CAPTION>
                                                         Annual Compensation(1)
           Name and                                                             Other Annual
      Principal Position                 Salary($)          Bonus($)         Compensation($)(2)     Options/SAR(3)
------------------------------          -----------   -------------------   --------------------   ---------------
<S>                            <C>       <C>              <C>                       <C>                <C>
Thomas L. Massie ............. 1999      $150,000         $   69,154                --                 100,000
 Chairman of the Board         1998      $150,000         $  132,833                --                 200,000
                               1997      $150,000         $   45,000                --                 500,000
Christopher P. Ricci ......... 1999      $150,000         $   15,200                --                  45,000
 Sr. Vice President and        1998      $150,000         $   27,500                --                 125,000
 General Counsel               1997           --                 --                 --                     --
Brett Moyer .................. 1999      $130,000         $   63,724 (4)            --                  40,000
 Vice President of             1998      $130,000         $   41,000 (4)            --                 100,000
 Pro AV Sales                  1997      $130,000         $   45,000                --                 250,000
Thomas Hamilton .............. 1999      $129,192                 --                --                 175,000
 Vice President of             1998      $110,000         $    5,000                --                  25,000
 Research                      1997      $110,000         $    4,179                --                      --
William Schillhammer ......... 1999      $ 95,000         $   52,900 (4)            --                  40,000
 Vice President of             1998      $ 85,000         $   22,204 (4)            --                 122,000
 OEM Sales                     1997           --                 --                 --                     --


<FN>
------------
(1) Includes  salary and bonus payments earned by the Named Officers in the year
    indicated,  for  services  rendered  in such  year,  which  were paid in the
    following year.
(2) Excludes  perquisites  and other  personal  benefits,  the aggregate  annual
    amount of which for each  officer was less than the lesser of $50,000 or 10%
    of the total salary and bonus reported.
(3) Long-term  compensation  table  reflects  the  grant  of  non-qualified  and
    incentive  stock options granted to the named persons in each of the periods
    indicated.
(4) Includes compensation based on sales commissions.
</FN>
</TABLE>



     The  following  table sets forth  information  concerning  options  granted
during the fiscal year ended  December 31, 1999 to the  executives  named in the
Summary   Compensation  Table  above.  The  Company  did  not  grant  any  stock
appreciation rights during the fiscal year.



                        OPTION GRANTS IN LAST FISCAL YEAR


<TABLE>
<CAPTION>
                                                      Percentage of             Individual Grants
                                                      Total Options    -----------------------------------
                                  Shares Subject       Granted to
                                    to Options       Employees in FY
             Name                     Granted            1999(1)        Exercise Price     Expiration Date
------------------------------   ----------------   ----------------   ----------------   ----------------
<S>                                   <C>                 <C>             <C>                <C>
Thomas L. Massie .............        100,000              8.13%          $  1.2813          11/12/2004
Christopher P. Ricci .........         25,000              3.66%          $  1.063            2/22/2004
                                       20,000                             $  1.2813          11/12/2004
Brett Moyer ..................         40,000              3.25%          $  1.2813          11/12/2004
Bill Schillhammer ............         40,000              3.25%          $  1.2813          11/12/2004
Thomas Hamilton ..............         25,000             14.23%          $  1.063            2/22/2004
                                       50,000                             $  1.00              9/7/2004
                                      100,000                             $  1.2813          11/12/2004


<FN>
------------
(1) A total of  1,229,386  options  were  granted to  employees,  directors  and
    consultants in 1999 under the Company's  stock option plans,  the purpose of
    which is to provide  incentives to employees,  directors and consultants who
    are in positions to make significant contributions to the Company.
</FN>
</TABLE>


                                      F-22

<PAGE>

     The following  table sets forth  information  concerning  option  exercises
during fiscal year 1999 and the value of unexercised  options as of December 31,
1999 held by the executives named in the Summary Compensation Table above.


                AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                           AND FISCAL YEAR-END VALUES


<TABLE>
<CAPTION>
                                                                          Number of                  Value of Unexercised,
                                                                         Unexercised                  In-the-Money Options
                                   Shares                       Options at December 31, 1998            at December 31,
                                Acquired on        Value                (Exercisable/                  1998 (Exercisable/
                                Exercise(#)     Realized($)            Unexercisable)                  Unexercisable)(1)
                               -------------   -------------   ------------------------------   -------------------------------
<S>                               <C>            <C>           <C>                                       <C>
Thomas L. Massie .............    500,000        3,527,000     150,000                                   $1,072,500
                                                                      (Exercisable)                             (Exercisable)
                                                               300,000                                   $2,109,000
                                                                    (Unexercisable)                           (Unexercisable)
Christopher P. Ricci .........     41,668          292,926     0                                         $        0
                                                                      (Exercisable)                             (Exercisable)
                                                               128,332                                   $  904,885
                                                                    (Unexercisable)                           (Unexercisable)
Brett Moyer ..................    200,001        1,406,007     0                                         $        0
                                                                      (Exercisable)                             (Exercisable)
                                                               189,999                                   $1,333,241
                                                                    (Unexercisable)                           (Unexercisable)
William Schillhammer .........     15,000          105,450     30,668                                    213,533
                                                                      (Exercisable)                             (Exercisable)
                                                               131,332                                   923,264
                                                                    (Unexercisable)                           (Unexercisable)
Thomas Hamilton ..............     88,334          620,989     0                                         $        0
                                                                      (Exercisable)                             (Exercisable)
                                                               191,666                                   $1,362,745
                                                                    (Unexercisable)                           (Unexercisable)


<FN>
------------
(1) Value is based on the difference  between option exercise price and the fair
    market  value at December  31, 1999 ($8.25 per share,  the closing  price as
    quoted on the NASDAQ SmallCap Market at the close of trading on December 31,
    1999) multiplied by the number of shares underlying the option.
</FN>
</TABLE>


Employment Agreements

     The Company and Brett Moyer are parties to an Employment Contract effective
May 15, 1997, as amended to date, which renews  automatically after December 31,
2000, for one year terms, subject to certain termination provisions. Pursuant to
this  Employment  Contract,  Mr. Moyer serves as Vice President of Pro AV Sales.
This Employment Contract requires acceleration of vesting of all options held by
Mr. Moyer so as to be immediately exercisable if Mr. Moyer is terminated without
cause during the term of the  contract.  The  Employment  Contract  provides for
bonuses as determined by the Board of Directors and employee benefits, including
health and disability insurance, in accordance with the Company's policies.

     FOCUS and Christopher Ricci are parties to an employment contract effective
March 1, 1998, as amended to date, which renews automatically after December 31,
2000, for one year terms, subject to certain termination provisions. Pursuant to
this employment contract, Mr. Ricci serves as our Senior Vice President, General
Counsel and Secretary.  This employment  contract  requires the  acceleration of
vesting of all options held by Mr. Ricci so as to be immediately  exercisable if
Mr.  Ricci is  terminated  without  cause  during the term of the  contract.  In
addition,  in the case of a  change  in  control  of  FOCUS,  for up to one year
following such change in control Mr. Ricci, at his sole election,  may choose to
terminate his employment, in which case Mr. Ricci would be entitled to receive a
lump sum cash payment equal to two years' salary plus the  continuation  of such
salary  for  an  additional  two  years  after  such  termination.  Mr.  Ricci's
employment contract provides for annual bonuses to be determined by the Board of
Directors and employee benefits,  including health and disability insurance,  to
be provided in accordance with company policies.


                                      F-23

<PAGE>

     The  Company  and Steven  Morton  are  parties  to an  Employment  Contract
effective October 17, 1996, as amended to date, which renews automatically after
December  31,  2000,  for  one  year  terms,   subject  to  certain  termination
provisions.  Pursuant to this  Employment  Contract,  Mr.  Morton serves as Vice
President of Engineering.  This Employment Contract requires the acceleration of
vesting of all options held by Mr. Morton so as to be immediately exercisable if
Mr.  Morton is terminated  without  cause during the term of the  contract.  The
Employment Contract provides for bonuses as determined by the Board of Directors
and employee benefits,  including health and disability insurance, in accordance
with the Company's policies.

     The  Company and Thomas  Hamilton  are  parties to an  Employment  Contract
effective October 17, 1996, as amended to date, which renews automatically after
December  31,  1998,  for  one  year  terms,   subject  to  certain  termination
provisions.  Pursuant to this Employment  Contract,  Mr. Hamilton serves as Vice
President  of Research &  Development.  This  Employment  Contract  requires the
acceleration  of  vesting  of  all  options  held  by Mr.  Hamilton  so as to be
immediately  exercisable if Mr. Hamilton is terminated  without cause during the
term of the contract. The Employment Contract provides for bonuses as determined
by the Board of Directors and employee benefits, including health and disability
insurance, in accordance with the Company's policies.


Compensation of Directors
     Directors  of the  Company  receive no direct cash  compensation  for their
services as directors.  In 1999, the Company paid Union Atlantic L.C. $66,000 in
placement fees in connection with equity financing  agreements brokered by Union
Atlantic.  The Company  paid  consulting  fees and  expenses  to Union  Atlantic
amounting to $46,226 in 1999.  Timothy  Mahoney,  who is a FOCUS director,  is a
partner of Union Atlantic.

     On March 19,  1997,  the Board of Directors  elected to terminate  the 1995
Directors Plan and all options  granted  thereunder.  By a unanimous vote of the
Board of Directors, the Board established the 1997 Directors Plan and authorized
the grant of options to purchase up to  1,000,000  shares of Common  Stock under
the plan. On March 19, 1997,  options to purchase  200,000 shares at an exercise
price of $1.88 per share were  granted  to Mr.  Cavalier,  options  to  purchase
100,000  shares at an exercise  price of $1.88 per share were granted to each of
Messrs.  Coldrick  and  Mahoney  and  options to  purchase  50,000  shares at an
exercise price of $1.88 per share were granted to a now former director.  All of
the options are subject to various vesting provisions.

     On September 1, 1998, the Board of Directors approved the re-pricing of all
of the aforementioned  options granted to current directors (totaling options to
purchase 400,000 shares) to a price of $1.22 per share, the fair market value on
the date of such re-pricing.

     On  September  1,  1998,  the  Board of  Directors  approved  the 1998 Non-
Qualified  Stock Option (NQSO) Plan.  The 1998 NQSO Plan  authorized  the grant,
subject to approval by the Company's stockholders, on September 1, 1998 of stock
options  for  75,000  shares  of  Common  Stock to each of Mr.  Mahoney  and Mr.
Coldrick  and for  100,000  shares to Mr.  Cavalier,  each of whom is neither an
employee nor officer of the Company.  Mr.  Massie  received a grant,  subject to
approval by the Company's  stockholders,  of an option for 200,000  shares under
the 2000 NQSO Plan.  Mr.  Moyer  received a grant,  subject to  approval  by the
Company's  stockholders,  of an option for 100,000 shares. All such options have
an exercise  price of $1.22,  the fair market  value on the date of grant.  Upon
joining the Board of Directors,  on April 22, 1999, Mr.  Dambrackas was granted,
subject to approval by the  Company's  stockholders,  a stock option for 100,000
shares of Common Stock at an exercise price of $1.4063, the fair market value on
the date of grant.

     The Company  maintains the right to reprice options that it may grant under
its existing stock option plans. On September 1, 1998, the Company  repriced all
employee  and  director  options  under  all  plans to $1.22 per share for those
options  priced in excess of this  value.  This price  represented  the  closing
market price of the Company's common stock on September 1, 1998.


Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The  following  table sets forth  certain  information  with respect to the
beneficial  ownership of the  Company's  Common Stock on May 1, 2000 by (i) each
person known to the Company who  beneficially  owns 5% or more of the 24,896,204
outstanding shares of its Common Stock, (ii) each director of the Company, (iii)
each executive officer identified in the Summary  Compensation Tables below, and
(iv) all  directors  and  executive  officers of the Company as a group.  Unless
otherwise indicated below, to the knowledge of the Company, all persons listed


                                      F-24

<PAGE>

below have sole  voting and  investment  power with  respect to their  shares of
Common  Stock,  except  to the  extent  authority  is shared  by  spouses  under
applicable law. All  communications  for the individuals  listed below should be
directed to c/o Focus  Enhancements,  Inc., 600 Research Drive,  Wilmington,  MA
01887.





<TABLE>
<CAPTION>
                                                                             Amount of Beneficial Ownership
                                                                            --------------------------------
Name of Beneficial Owner                                                     Number of Shares     Percent(1)
-------------------------------------------------------------------------   ------------------   -----------
<S>                                                                               <C>                 <C>
Thomas L. Massie (2) ....................................................         316,667             1.27
John C. Cavalier (3) ....................................................          42,853               *
William B. Coldrick (4) .................................................         125,000               *
Timothy E. Mahoney (5) ..................................................          33,333               *
William Dambrackas (6) ..................................................          33,334               *
Christopher P. Ricci (7) ................................................          41,667               *
Brett A. Moyer (8) ......................................................          83,333               *
Thomas Hamilton (9) .....................................................          14,334               *
William R. Schillhammer III (10) ........................................          54,668               *
All executive officers and directors as a group (9 persons)(11) .........         745,189             2.99


<FN>
------------
* Less than 1% of the outstanding Common Stock.
 (1) Unless  otherwise   indicated,   each  person  possesses  sole  voting  and
     investment power with respect to the shares.
 (2) Does not include  133,333 shares  issuable  pursuant to  outstanding  stock
     options  that  are  not  exercisable  at May 1,  2000  or  within  60  days
     thereafter.
 (3) Includes 9,519 shares of Common Stock held directly by Mr.  Cavalier.  Does
     not include 50,000 shares  issuable  pursuant to outstanding  stock options
     that are not currently at May 1, 2000 or within 60 days thereafter.
 (4) Does not include  50,000  shares  issuable  pursuant to  outstanding  stock
     options  that  are  not  exercisable  at May 1,  2000,  or  within  60 days
     thereafter.
 (5) Does not include  50,000  shares  issuable  pursuant to  outstanding  stock
     options  that  are  not  exercisable  at May 1,  2000,  or  within  60 days
     thereafter.
 (6) Does not include  66,666  shares  issuable  pursuant to  outstanding  stock
     options  that  are  not  exercisable  at May 1,  2000,  or  within  60 days
     thereafter.
 (7) Does not include  86,665  shares  issuable  pursuant to  outstanding  stock
     options  that  are  not  exercisable  at May 1,  2000,  or  within  60 days
     thereafter.
 (8) Does not include  106,666 shares  issuable  pursuant to  outstanding  stock
     options  that  are  not  exercisable  at May 1,  2000,  or  within  60 days
     thereafter.
 (9) Includes 6,000 shares of common stock held directly by Mr.  Hamilton.  Does
     not include 183,332 shares issuable  pursuant to outstanding  stock options
     that are not exercisable at May 1, 2000, or within 60 days thereafter.
(10) Includes  4,000 shares of common stock held  directly by Mr.  Schillhammer.
     Does not include  111,332 shares  issuable  pursuant to  outstanding  stock
     options  that  are  not  exercisable  at May 1,  2000,  or  within  60 days
     thereafter.
(11) Includes  19,519  shares of Common  Stock.  Also  includes  725,670  shares
     issuable  pursuant  to  options  and  warrants  to  purchase  Common  Stock
     exercisable at May 1, 2000, or within 60 days thereafter.
</FN>
</TABLE>


Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     In 1999, the Company paid Union Atlantic L.C.  $66,000 in placement fees in
connection with equity  financing  agreements  brokered by Union  Atlantic.  The
Company paid consulting fees and expenses to Union Atlantic amounting to $46,226
in  1999.  Timothy  Mahoney,  who is a FOCUS  director,  is a  partner  of Union
Atlantic.


ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
     (a) Exhibits

                                      F-25

<PAGE>

     The following  exhibits,  required by Item 601 of Regulation S-B, are filed
as a part of this Annual Report on Form 10-KSB or are  incorporated by reference
to previous  filings as  indicated  by the footnote  immediately  following  the
exhibit.  Exhibit numbers,  where  applicable,  in the left column correspond to
those of Item 601 of Regulation S-B.


<TABLE>
<CAPTION>
  Exhibit
 Item No.                                              Item and Description
----------   -------------------------------------------------------------------------------------------------------
<S>          <C>
  1.4        Form of Stock Escrow Agreement (1)
  2.1        Agreement of Merger, dated April 12, 1993, between FOCUS Enhancement, Inc., a Massachusetts
             corporation, and the Company (1)
  2.2        Certificate of Merger, as filed with the Delaware Secretary of State on April 12, 1993 (1)
  2.3        Articles of Merger, as filed with the Massachusetts Secretary of State on April 14, 1993 (1)
  2.4        Agreement and Plan of Reorganization and Merger between the Company, FOCUS Acquisition
             Corporation and Lapis Technologies, Inc. dated as of November 29, 1993 (2)
  3.1        Second Restated Certificate of Incorporation of the Company (1)
  3.2        Certificate of Amendment to Second Restated Certificate of Incorporation of the Company (3)
  3.3        Restated By-laws of the Company (1)
  4.1        Specimen certificate for Common Stock of the Company (1)
  4.2        Specimen certificate for Redeemable Common Stock Purchase Warrant (1)
  4.3        Form of Warrant Agreement between the Company, Mellon Securities Trust Company and Thomas
             James Associates, Inc. (1)
  4.4        Form of Warrant issued to Thomas James Associates, Inc. (1)
 10.1        Amended and Restated Employment Contract between the Company and a Corporate Officer,
             effective January 1, 1992 (1)
 10.2        1992 Stock Option Plan, as amended (4)
 10.3        Form of Incentive Stock Option Agreement, as amended, under the 1992 Stock Option Plan, as
             amended (1)
 10.4        Form of Non-Qualified Stock Option Agreement, as amended, under the 1992 Stock Option Plan, as
             amended (1)
 10.5        1993 Non-Employee Director Stock Option Plan (4)
 10.6        Form of Non-Qualified Stock Option Agreement under the 1993 Non- Employee Director Stock
             Option Plan (4)
 10.7        Credit Agreement between the Company, Lapis and Silicon Valley Bank dated January 20, 1994 (4)
 10.8        Promissory Note in the principal amount of $2,000,000, dated as of January 20, 1994, made by the
             Company and Lapis to the order of Silicon Valley Bank (4)
 10.9        Security Agreement, dated as of January 20, 1994, by the Company in favor of Silicon Valley Bank
             (4)
 10.10       Security Agreement, dated as of January 20, 1994, by Lapis in favor of Silicon Valley Bank (4)
 10.11       Pledge  Agreement,  dated as of January 20, 1994, by the Company in favor of Silicon  Valley Bank
             (4)
 10.12       Purchase and Sale Agreement,  dated as of May 25, 1994,  between the Company and Inline Software,
             Inc. (5)
 10.13       Master Purchase  Agreement,  dated as of August 12, 1994, between the Company and Apple Computer,
             Inc. (5)
 10.14       Forbearance Letter, dated as of October 6, 1994, to the Company from Silicon Valley Bank (5)
 10.15       Note and Warrant Subscription Agreement,  dated as of October 18, 1994, between the Company and a
             Private Lender (5)
 10.16       Security Agreement, dated as of October 18, 1994, between the Company and a Private Lender (5)
 10.17       Term Line of Credit Note, dated October 18, 1994, by the Company in favor of a Private Lender (5)
 10.18       Warrant W-K issued to a Private Lender, dated as of October 18, 1995 (5)
 10.19       Intercreditor  and  Subordination  Agreement,  dated as of October 18,  1994,  by and between the
             Company, a Private Lender and Silicon Valley Bank (5)
 10.20       Debt Extension Agreement, dated as of February 22, 1995, by and between the Company and a Private
             Lender (5)
 10.21       1995 Non-Employee Director Stock Plan (7)
 10.22       Form of Non-Qualified Stock Option Agreement under the 1995 Non- Employee Director Stock Plan (6)
 10.23       Form of Settlement Agreement between the Company and Lapis Technologies, Inc. Shareholders (7)
</TABLE>

                                      F-26

<PAGE>


<TABLE>
<CAPTION>
  Exhibit
 Item No.                                            Item and Description
----------   ---------------------------------------------------------------------------------------------------
<S>          <C>
 10.24       Manufacturing Agreement between the Company and a manufacturer (7)
 10.25       Loan Document Modification Agreement dated as of April 5, 1996 by and between the Company,
             Lapis Technologies, Inc. and Silicon Valley Bank (8)
 10.26       Amended and Restated Promissory Note dated as of April 5, 1996 in favor of Silicon Valley Bank (8)
 10.27       Amendment No. 2 to the Note and Warrant Subscription Agreement dated as of June 28, 1996
             between the Company and a Private Lender (8)
 10.28       Amended and Restated Term Line of Credit Note dated as of June 28, 1996 in favor of a Private
             Lender (8)
 10.29       Security Agreement dated as of June 28, 1996 between the Company and a Private Lender (8)
 10.30       Warrant W96/6, dated June 28, 1996, issued to a Private Lender (8)
 10.31       Agreement dated as of June 28, 1996 between the Company and a manufacturer (8)
 10.32       Security Agreement dated as of June 28, 1996 between the Company and a manufacturer (8)
 10.33       Amendment to Master Purchase Agreement between the Company and TV OEM. (10)
 10.34       Lease Agreement  between the Company and Cummings  Properties for the facility at 142 North Road,
             Sudbury, Massachusetts (10)
 10.35       Agreement of Plan of Merger dated September 30, 1996, by and among the Company, FOCUS
             Acquisition Corp., and TView, Inc. (9)
 10.36       Form of Stock Subscription Agreement between the Company and various investors in the December
             95 Offering (11)
 10.37       Form of Amendment No. 1 to Stock Subscription Agreement dated April 1996 between the Company
             and various investors in the December 95 Offering (11)
 10.38       Form of Warrant issued to various investors pursuant to Amendment No. 1 (11)
 10.39       Form of Subscription Agreement between the Company and various investors in the March 97
             Offering (11)
 10.40       Form of Warrant issued to the placement agent in the March 97 Offering (11)
 10.41       1997 Director Stock Option Plan (12)
 10.42       Form of Director Stock Option Agreement (12)
 10.43       Key Officer Non-Qualified Stock Option Agreement for a Corporate Officer (12)

 10.44       Key Officer Non-Qualified Stock Option Agreement for a Corporate Officer (12)

 10.45       Key Officer Non-Qualified Stock Option Agreement for a Corporate Officer (12)

 10.46       Subscription  Agreement  between the Company and Smith Barney  Fundamental Value Fund, Inc. dated
             September 8, 1997 (13)

 10.47       Form of Warrant dated September 10, 1997 issued to designees of the placement agent (13)
 10.48       Lease by Wakefield Ready Mixed Concrete Co., Inc. to FOCUS Enhancements, Inc. dated December
             1, 1998
 10.49       Common Stock and Warrants Purchase Agreement with AMRO International, S.A.(14)
 10.50       Form of Stock Purchase Warrant issued to AMRO International, S.A. (included as Exhibit A to the
             Common Stock and Warrants Purchase Agreement). (14)
 10.51       Form of Registration Rights Agreement with AMRO International, S.A. (included as Exhibit B to
             the Common Stock and Warrants Purchase Agreement. (14)
 10.52       Registration Rights Agreement dated as of July 29, 1998 between the Company and PC Video
             Conversion, Inc. (15)
 10.53       Form of Common Stock Purchase Warrant issued to Brian Swift and Edward Price. (16)
 10.54       Common Stock Purchase Warrant issued to Silicon Valley Bank. (16)
 10.55       Common Stock and Warrant Purchase Agreement, as amended, with BNC Bach International Ltd.,
             INC (17).
 10.56       Form of Stock Purchase Warrant issued to BNC Bach International, Inc. (included as Exhibit A to
             the Common Stock and Warrant Agreement (17).
 10.57       Form of Registration Rights Agreement with BNC Bach International Ltd., Inc. (included as Exhibit
             B to the Common Stock and Warrant Purchase Agreement (17).
 10.58       Common Stock and Warrant Purchase Agreement with The Raptor Global Portfolio Ltd., The Altar
             Rock Fund L.P. and Roseworth Group, LTD (18).
 10.59       Form of Stock Purchase Warrant issued to The Raptor Global Portfolio Ltd. (for 87,150 shares), The
             Altar Rock Fund L.P. (for 350 shares) and Roseworth Group, Ltd. (for 37,500 shares) (included as
             Exhibit A to the Common Stock and Warrant Purchase Agreement) (18).
</TABLE>

                                      F-27

<PAGE>


<TABLE>
<CAPTION>
  Exhibit
 Item No.                                        Item and Description
----------   --------------------------------------------------------------------------------------------
<S>          <C>
 10.60       Form of Registration Rights Agreement with The Raptor Global Portfolio Ltd., The Altar Rock
             Fund L.P. and Roseworth Group, Ltd. (included as Exhibit B to the Common Stock and Warrant
             Purchase Agreement) (18).
 10.61       Contract for services to be rendered to FOCUS Enhancements, Inc. by R.J. Falkner & Company,
             INC (18).
 10.62       Form of Stock Purchase Warrant issued to each of R. Jerry Falkner and Richard W. West (18).
 10.63       Agreement between Union Atlantic, L.C. and FOCUS Enhancements, Inc. confirming agreement to
             issue warrant in exchange for fee reduction (18).
 10.64       Stock Purchase Warrant issued to Union Atlantic, L.C. (18).
 11          Statement re Computation of Earnings [Loss] Per Share
 21          Subsidiaries of the Company
 23          Consent of Wolf & Company P.C., Independent Accountants
 27          Financial Data Schedule for year ended December 31, 1999


<FN>
------------
 (1) Filed  as  an exhibit to the Company's Registration Statement on Form SB-2,
     No. 33-60248-B, and incorporated herein by reference.
 (2) Filed as an  exhibit  to the  Company's  Current  Report  on Form 8-K dated
     November 29, 1993, and incorporated herein by reference.
 (3) Filed as an  exhibit to the  Company's  Form  10-QSB  for the period  ended
     September 30, 1995, and incorporated herein by reference.
 (4) Filed as an  exhibit  to the  Company's  Form  10-KSB  for the  year  ended
     December 31, 1993, and incorporated herein by reference.
 (5) Filed as an  exhibit  to the  Company's  Form  10-KSB  for the  year  ended
     December 31, 1994, and incorporated herein by reference.
 (6) Filed  as  an  exhibit to the Company's Registration Statement on Form S-8,
     No.  33-80651,  filed  with  the  Commission  on  December  19,  1995,  and
     incorporated herein by reference.
 (7) Filed  as  an exhibit to the Company's Registration Statement on Form SB-2,
     No. 33-80033, and incorporated herein by reference.
 (8) Filed as an exhibit to the Company's  Form 10-QSB for the period ended June
     30, 1995, and incorporated herein by reference.
 (9) Filed as an exhibit to the Company's  Form 8-K dated  November 4, 1996
(10) Filed as an exhibit to the Company Form 10-KSB for the year ended  December
     31, 1995 and incorporated herein by reference.
(11) Filed  as  an  exhibit to the Company's Registration Statement on Form S-3,
     No.  333-26911, filed with the Commission on May 12, 1997, and incorporated
     herein by reference.
(12) Filed  as  an  exhibit to the Company's Registration Statement on Form S-8,
     No.   333-33243,   filed  with  the  Commission  on  August  8,  1997,  and
     incorporated herein by reference.
(13) Filed as an exhibit to the Company's Form 8-K dated September 10, 1997
(14) Filed as an exhibit to the  Company's  Registration  Statement on Form S-3,
     No. 333-81177, filed with the Commission on June 21, 1999, and incorporated
     herein by reference.
(15) Filed as an exhibit to the Company's  Form 10-QSB dated August 14, 1998 and
     incorporated herein by reference.
(16) Filed as an exhibit to the  Company's  Form  10-QSB  dated May 17, 1999 and
     incorporated herein by reference.
(17) Filed  as an exhibit to the Company's Registration Statement on Form S-333,
     No.  333-82163, filed with the Commission on July 2, 1999, and incorporated
     herein by reference.
(18) Filed  as  an  exhibit  to  the  Company's  Registration Statements on From
     S-333,  No.  333-94621,  filed with the Commission on January 13, 2000, and
     incorporated herein by reference.
</FN>
</TABLE>


     (b) Reports on Form 8-K

     The Company  filed no reports on Form 8-K during the fiscal  quarter  ended
December 31, 1999.

                                      F-28

<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Stockholders of
FOCUS Enhancements, Inc. Wilmington, Massachusetts

We  have  audited  the  accompanying   consolidated   balance  sheets  of  FOCUS
Enhancements,  Inc. and  subsidiaries  as of December 31, 1999 and 1998, and the
related  consolidated  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   consolidated   financial   position  of  FOCUS
Enhancements,  Inc. and  subsidiaries  as of December 31, 1999 and 1998, and the
consolidated  results  of their  operations  and cash  flows for the years  then
ended, in conformity with generally accepted accounting principles.

As  indicated  in Note 8, the Company  has been named as a defendant  in sixteen
lawsuits.  The complaints allege that the Company,  its Chief Executive Officer,
and its Chief Financial  Officer violated federal  securities laws in connection
with a number of allegedly false or misleading statements and seek certification
as a class  action and certain  unquantified  damages.  The  Company  intends to
contest this litigation vigorously.


/s/ WOLF & COMPANY, P.C.

WOLF & COMPANY, P.C.


Boston, Massachusetts
April 11, 2000


                                      F-29

<PAGE>

                           FOCUS ENHANCEMENTS, INC.

                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>
                                                                                            December 31,
                                                                                 -----------------------------------
                                                                                       1999               1998
                                                                                 ----------------   ----------------
<S>                                                                               <C>                <C>
                                                          ASSETS
Current assets:
   Cash and cash equivalents                                                      $   3,736,517      $   1,128,380
   Certificate of deposit                                                               534,091            253,067
   Securities available for sale                                                            --             248,983
   Accounts receivable, net of allowances of $294,907 and $649,987 at
    December 31, 1999 and 1998, respectively                                          2,913,005          2,553,139
   Inventories                                                                        3,588,702          5,948,624
   Prepaid expenses and other current assets                                            240,732            217,092
                                                                                  -------------      -------------
     Total current assets 11,013,047 10,349,285
Property and equipment, net                                                             968,594            794,716
Capitalized software development costs                                                2,122,450            477,761
Other assets, net                                                                       287,116            304,498
Goodwill, net                                                                           624,277            810,673
                                                                                  -------------      -------------
Total assets                                                                      $  15,015,484      $  12,736,933
                                                                                  =============      =============
                                           LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Notes payable                                                                  $   1,006,258      $     702,057
   Current portion of long-term debt                                                    312,556            283,180
   Obligations under capital leases                                                     129,451            119,536
   Accounts payable                                                                   3,413,285          5,999,694
   Accrued liabilities                                                                  518,726          1,810,025
                                                                                  -------------      -------------
     Total current liabilities                                                        5,380,276          8,914,492
Deferred income                                                                              --             84,212
Obligations under capital leases, non-current                                           202,002            321,760
Long-term debt, net of current portion                                                  226,041            538,597
                                                                                  -------------      -------------
     Total liabilities                                                                5,808,319          9,859,061
                                                                                  -------------      -------------
Commitments and contingencies Stockholders' equity:
   Preferred stock, $.01 par value; 3,000,000 shares authorized; none issued                --                 --
   Common stock, $.01 par value; 30,000,000 shares authorized, 24,504,203
    and 18,005,090 shares issued and outstanding at December 31, 1999 and
    1998, respectively                                                                  245,042            180,051
   Additional paid-in capital                                                        46,340,891         38,913,304
   Accumulated deficit                                                              (36,678,638)       (35,198,935)
   Note receivable, common stock                                                            --            (316,418)
   Treasury stock at cost, 450,000 shares                                              (700,130)          (700,130)
                                                                                  -------------      -------------
     Total stockholders' equity                                                       9,207,165          2,877,872
                                                                                  -------------      -------------
     Total liabilities and stockholders' equity                                   $  15,015,484      $  12,736,933
                                                                                  =============      =============

<FN>
              The accompanying notes are an integral part of the consolidated financial statements.
</FN>
</TABLE>


                                      F-30

<PAGE>

                           FOCUS ENHANCEMENTS, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                       Years ended December 31,
                                                 ------------------------------------
                                                       1999                1998
                                                 ----------------   -----------------
<S>                                                <C>                <C>
Net sales                                          $ 16,832,985       $  18,440,226
Licensing fees                                          350,000                 --
                                                   ------------       -------------
   Net revenues                                      17,182,985          18,440,226
Cost of goods sold                                   10,543,997          15,410,912
                                                   ------------       -------------
   Gross profit                                       6,638,988           3,029,314
                                                   ------------       -------------
Operating expenses:
   Sales, marketing and support                       3,969,705           6,901,546
   General and administrative                         1,878,045           2,166,352
   Research and development                           1,400,732           1,698,977
   Depreciation and amortization expense                557,303           1,499,496
   Impairment of goodwill                                   --            3,053,880
                                                   ------------       -------------
     Total operating expenses                         7,805,785          15,320,251
                                                   ------------       -------------
Loss from operations                                 (1,166,797)        (12,290,937)
Interest expense, net                                  (531,023)           (225,802)
Other income, net                                       138,002             100,073
Gain/(loss) on securities available for sale             80,115            (346,017)
                                                   ------------       -------------
Loss before income taxes                             (1,479,703)        (12,762,683)
Income tax expense                                          --               24,641
                                                   ------------       -------------
Net loss                                           $ (1,479,703)      $ (12,787,324)
                                                   ============       =============
Loss per common share:
   Basic                                           $      (0.08)      $       (0.78)
                                                   ============       =============
   Diluted                                         $      (0.08)      $       (0.78)
                                                   ============       =============
Weighted average common shares outstanding:
   Basic                                             18,743,698          16,336,872
                                                   ============       =============
   Diluted                                           18,743,698          16,336,872
                                                   ============       =============
</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-31

<PAGE>

                           FOCUS ENHANCEMENTS, INC.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                    YEARS ENDED DECEMBER 31, 1999 AND 1998


<TABLE>
<CAPTION>
                                     Common Stock
                               ------------------------     Additional
                                  Shares       Amount    Paid-in Capital
                               ------------ ----------- -----------------
<S>                             <C>          <C>           <C>
Balance at
 December 31, 1997              14,010,186   $140,102      $27,339,892
Issuance of common stock
 upon exercise of stock
 options and warrants            2,429,958     24,299        7,296,082
Issuance of common stock
 from private offerings,
 net of issuance costs of
$ 172,645                        1,092,150     10,922        2,816,433
Issuance of common stock
 for acquisitions of
 Digital Vision, Inc. and
 PC Video Conversion,
 Inc.                              472,796      4,728        1,460,897
Purchase of treasury stock             --         --               --
Net loss                               --         --               --
                                ----------   --------      -----------
Balance at
 December 31, 1998              18,005,090    180,051       38,913,304
Issuance of common stock
 upon exercise of stock
 options and warrants            2,215,780     22,158        2,573,865
Issuance of common stock
 from private offerings,
 net of issuance costs of
$ 286,022                        4,183,333     41,833        4,372,145
Common stock issued in
 settlement of accounts
 payable                           100,000      1,000          322,260
Common stock warrants
 issued for services and
 debt                                  --         --           159,317
Repayment of note
 receivable-common
 stock                                 --         --               --
Net loss                               --         --               --
                                ----------   --------      -----------
Balance at
 December 31, 1999              24,504,203   $245,042      $46,340,891
                                ==========   ========      ===========

<CAPTION>
                                                      Note                          Total
                                  Accumulated      Receivable      Treasury     Stockholders'
                                    Deficit       Common Stock      Stock          Equity
                               ----------------- -------------- ------------- ----------------
<S>                              <C>              <C>            <C>           <C>
Balance at
 December 31, 1997               $ (22,411,611)   $       --     $      --     $    5,068,383
Issuance of common stock
 upon exercise of stock
 options and warrants                      --        (316,418)          --          7,003,963
Issuance of common stock
 from private offerings,
 net of issuance costs of
$ 172,645                                  --             --            --          2,827,355
Issuance of common stock
 for acquisitions of
 Digital Vision, Inc. and
 PC Video Conversion,
 Inc.                                      --             --            --          1,465,625
Purchase of treasury stock                 --             --       (700,130)         (700,130)
Net loss                           (12,787,324)           --            --        (12,787,324)
                                 -------------    -----------    ----------    --------------
Balance at
 December 31, 1998                 (35,198,935)      (316,418)     (700,130)        2,877,872
Issuance of common stock
 upon exercise of stock
 options and warrants                      --             --            --          2,596,023
Issuance of common stock
 from private offerings,
 net of issuance costs of
$ 286,022                                  --             --            --          4,413,978
Common stock issued in
 settlement of accounts
 payable                                   --             --            --            323,260
Common stock warrants
 issued for services and
 debt                                      --             --            --            159,317
Repayment of note
 receivable-common
 stock                                     --         316,418           --            316,418
Net loss                            (1,479,703)           --            --         (1,479,703)
                                 -------------    -----------    ----------    --------------
Balance at
 December 31, 1999               $ (36,678,638)   $       --     $ (700,130)   $    9,207,165
                                 =============    ===========    ==========    ==============
</TABLE>


               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-32

<PAGE>

                           FOCUS ENHANCEMENTS, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                             Years Ended December 31,
                                                                                       ------------------------------------
                                                                                             1999                1998
                                                                                       ----------------   -----------------
<S>                                                                                      <C>                <C>
Cash flows from operating activities:
Net loss                                                                                 $ (1,479,703)      $ (12,787,324)
Adjustments to reconcile net loss to net cash used in operating activities:
   Depreciation and amortization                                                              557,303           1,499,496
   Amortization of discount on note payable                                                    42,344              17,696
   Common stock warrants issued for service or debt                                           159,317                 --
   Deferred income                                                                            (84,212)                --
   Loss (gain) on securities available for sale                                               (80,115)            346,017
   Write down of impaired goodwill                                                                --            3,053,880
   Changes in operating assets and liabilities, net of the effects of acquisitions;
     (Increase) decrease in accounts receivable                                              (359,866)          3,324,750
     Decrease (increase) in inventories                                                     2,359,922          (1,587,185)
     Decrease (increase) in prepaid expenses and other assets                                 (13,458)            237,799
     Increase (decrease) in accounts payable                                                 (563,149)            386,892
     Increase (decrease) in accrued liabilities                                            (1,291,299)            916,044
                                                                                         ------------       -------------
   Net cash used in operating activities                                                     (752,916)         (4,591,935)
                                                                                         ------------       -------------
Cash flows from investing activities:
   Proceeds from sale of securities available for sale                                        329,098                 --
   Increase in certificate of deposit                                                        (281,024)           (253,067)
   Additions to property and equipment and capitalized software development
    costs                                                                                  (2,157,623)           (858,011)
   Cash paid in acquisitions, net of cash received                                                --             (930,563)
                                                                                         ------------       -------------
Net cash used in investing activities                                                      (2,109,549)         (2,041,641)
                                                                                         ------------       -------------
Cash flows from financing activities:
   Payments on notes payable and long-term debt                                            (1,721,323)         (1,953,900)
   Payments under capital lease obligations                                                  (134,494)           (135,183)
   Payments for purchase of treasury stock                                                        --             (700,130)
   Repayment of note receivable-common stock                                                  316,418                 --
   Net proceeds from private offerings of common stock                                      4,413,978           2,827,355
   Net proceeds from exercise of common stock options and warrants                          2,596,023           7,003,963
                                                                                         ------------       -------------
Net cash provided by financing activities                                                   5,470,602           7,042,105
                                                                                         ------------       -------------
Net increase in cash and cash equivalents                                                   2,608,137             408,529
Cash and cash equivalents at beginning of year                                              1,128,380             719,851
                                                                                         ------------       -------------
Cash and cash equivalents at end of year                                                 $  3,736,517       $   1,128,380
                                                                                         ============       =============
</TABLE>

                                      F-33

<PAGE>


<TABLE>
<S>                                                           <C>            <C>
Supplemental Cash Flow Information:
   Interest paid                                              $  441,558     $200,129
   Income taxes paid                                                  --        5,020
   Equipment acquired under capital leases                        24,651      400,304
   Common stock issued in settlement of accounts payable         323,260           --
   Note payable issued in settlement of accounts payable       1,700,000           --
</TABLE>

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 (liabilities) 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.

                                      F-34

<PAGE>


                           FOCUS ENHANCEMENTS, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Business of the Company.  FOCUS Enhancements,  Inc. (the "Company" "FOCUS")
is involved in the development and marketing of proprietary PC-to-TV convergence
products for Windows(TM) and Mac(TM) OS based personal computers.  The Company's
products,  which are sold  globally  through  original  equipment  manufacturers
(OEM's) and resellers, merge computer generated graphics and television displays
for presentations, training, education, video teleconferencing, Internet viewing
and home gaming markets.  Based on a targeted product plan and its experience in
video conversion technology, FOCUS has developed a strategy to play a major role
in the PC-to-TV convergence industry.

     Over 90% of the components for the Company's products are manufactured on a
turnkey basis by two vendors, Furthertech Company, Ltd, and Asemtec Corporation.
In the event that these vendors were to cease supplying the Company,  management
believes that alternative turnkey manufacturers for the Company's products could
be secured.  However, the Company would most likely experience short-term delays
in the shipments of its products.

     The personal  computer  enhancements  market is  characterized by extensive
research and development  and rapid  technological  change  resulting in product
life  cycles of  twelve  to  eighteen  months.  Development  by others of new or
improved products,  processes or technologies may make the Company's products or
proposed products obsolete or less competitive. Management believes it necessary
to devote  substantial  efforts and financial  resources to enhance its existing
PC-to-TV  products and to develop new products.  There can be no assurance  that
the Company will succeed with these efforts.

     Basis of Presentation.  The consolidated  financial  statements include the
accounts of the Company and its wholly-owned  subsidiariary PC Video Conversion,
Inc. The Company's other subsidiaries, Lapis Technologies, Inc., TView, Inc. and
FOCUS  Enhancements,  B.V.  (Netherlands  corporation)  became  inactive or were
merged  into FOCUS in 1999.  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 year ended December 31, 1998.

                                      1998
                               ---------------
  Net sales                     $  20,023,000
  Loss from operations            (11,753,700)
  Net loss                        (12,254,500)
  Net loss per common share
  Basic                         $        (.73)
  Diluted                       $        (.73)

     Reclassifications. Certain  accounts  have  been  reclassified  in the 1998
consolidated financial statements to conform to the 1999 presentation.

     Use  of  Estimates.  The  process  of  preparing  financial  statements  in
conformity with generally  accepted  accounting  principles  requires the use of
estimates  and  assumptions  regarding  certain  types of  assets,  liabilities,
revenues  and  expenses.  Actual  results  may differ  from  estimated  amounts.
Significant  estimates used in preparing these financial  statements  related to
accounts receivable allowances, stock balancing allowances, inventory valuation,
deferred  tax  asset  valuation,  the  value of equity  instruments  issued  for
services and the  recoverability  of goodwill related to acquisitions.  It is at
least reasonably possible that the estimates will change within the next year.


                                      F-35

<PAGE>

                           FOCUS ENHANCEMENTS, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

     Financial  Instruments.  The carrying amounts reflected in the consolidated
balance  sheets for cash,  receivables  and  accounts  payable  approximate  the
respective  fair values due to the  short-term  maturity  of these  instruments.
Notes payable and long-term debt approximate the respective fair values as these
instruments  bear  interest  at terms that would be  available  through  similar
transactions  with other third parties.  The fair value of securities  available
for sale are based on the quoted market prices.

     Cash  and  Cash  Equivalents.  The  Company  considers  all  highly  liquid
investments  purchased  with an original  maturity of three months or less to be
cash equivalents.

     Securities  Available  for Sale.  Securities  available for sale consist of
marketable  equity  securities  carried at fair value, with unrealized gains and
losses reported as a separate component of stockholders' equity. Declines in the
fair value of securities  available for sale below their cost that are deemed to
be other than temporary are reflected in operations as realized losses.

     Revenue Recognition. Revenue from product sales is recognized when products
are shipped.  Revenue from sales to  distributors  may be subject to  agreements
allowing rights of return and price protection.  The Company provides allowances
for  potential  uncollectible  amounts,  estimated  stock  balancing  and future
returns, exchanges and price protection credits.

     Concentration of Credit Risk. As of December 31, 1999, a major  distributor
represented  approximately  23% of the Company's  accounts  receivable,  a major
retailer represented  approximately 13% of the Company's accounts receivable and
a  second  major  distributor  represented  approximately  12% of the  Company's
accounts receivable.  As of December 31, 1998, a major distributor,  represented
approximately  14%  of the  Company's  accounts  receivable,  a  major  retailer
represented  approximately 13% of the Company's accounts  receivable and a major
television manufacturer customer represented  approximately 20% of the Company's
accounts  receivable.  The Company  provides  credit to  customers in the normal
course of  business  with terms  generally  ranging  between 30 to 90 days.  The
Company does not usually require collateral for trade receivables,  but attempts
to limit credit risk through its customer credit evaluation process.

     The  company  maintains  its bank  accounts  with  high  quality  financial
institutions  to minimize  credit  risk,  however,  the  company's  balances may
periodically exceed federal deposit insurance limits.

     Inventories.  Inventories  are stated at the lower of cost or market  value
using the first-in, first-out method, but not in excess of net realizable value.
The Company  periodically  reviews its  inventories for potential slow moving or
obsolete  items  and  provides  valuation  allowances  for  specific  items,  as
appropriate.

     Property and  Equipment.  Property and  equipment  are recorded at cost and
depreciated  using the  straight-line  method over the estimated useful lives of
the related assets as set forth below.  Equipment leased under capital leases is
stated at the present value of future lease  obligations  and is amortized  over
estimated useful lives.

Category                     Depreciation Period
--------------------------   -------------------------------------------
  Equipment                  3-5 years
  Furniture and fixtures     5 years
  Purchased software         1-3 years
  Leasehold improvements     Lesser of 5 years or the term of the lease

     Capitalized  Software  Development Costs.  Capitalized software development
costs are stated at cost and will be amortized on a units of  production  method
over the estimated  useful life of the asset  commencing on the date the product
is  released.  The  Company  capitalized  $1,644,689  and  $477,761  of software
development  costs  in 1999 and  1998,  respectively.  No  products  related  to
capitalized software development costs were released as of December 31, 1999.

     Goodwill. Goodwill  resulting  from business combinations is amortized on a
straight-line  basis  over periods ranging from five to seven years. The Company
evaluates the net realizable value of goodwill periodically based


                                      F-36

<PAGE>

                           FOCUS ENHANCEMENTS, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

on a number of factors including operating results,  business plans, budgets and
economic projections. The Company's evaluation also considers non-financial data
such as market trends,  customer  relationships,  product development cycles and
changes in management's market emphasis.

     Advertising  and Sales  Promotion  Costs.  Advertising  and sales promotion
costs are expensed as incurred. Advertising expense was approximately $1,756,000
and $3,309,000 for the years ended December 31, 1999 and 1998, respectively.

     Legal  Fees. Legal  fees  are  charged  to  expense in the period the legal
services are performed.

     Research  and  Development. Research  and development costs are expensed as
incurred.

     Product  Warranty  Costs. The Company's warranty period for its products is
generally  one  to  three  years.  Estimated  future  costs  for initial product
warranties are not material.

     Income  Taxes.  Deferred  taxes  are  determined  based on the  differences
between the  financial  statement and tax basis  carrying  amounts of assets and
liabilities,  using  enacted  tax  rates in  effect  in the  years in which  the
differences are expected to reverse. Valuation allowances are provided if, based
upon the weight of available  evidence,  it is more likely than not that some or
all of the deferred tax assets will not be realized.

     Foreign  Currency  Translation.  The  functional  currency of the Company's
foreign subsidiary, FOCUS Enhancements, B.V., is its local currency, the Gilder.
Financial  statements are translated into U.S.  dollars using the exchange rates
at each  balance  sheet  date for assets  and  liabilities  and using a weighted
average exchange rate for each period for revenue,  expenses,  gains and losses.
Foreign  exchange  gains or losses,  which are not material,  are  recognized in
income for the years presented.  On July 1, 1999, the Company closed its foreign
subsidiary and on August 15, 1999 dissolved this entity.

     Stock  Compensation  Plans.  Statement  of Financial  Accounting  Standards
("SFAS") No. 123,  "Accounting  for  Stock-Based  Compensation"  encourages  all
entities to adopt a fair value based method of  accounting  for  employee  stock
compensation  plans,  whereby  compensation  cost is  measured at the grant date
based on the fair  value of the  award  which  is  recognized  over the  service
period,  which is usually the vesting period.  However, it also allows an entity
to continue  to measure  compensation  cost for those plans using the  intrinsic
value based method of  accounting  prescribed  by  Accounting  Principles  Board
("APB")  Opinion No. 25,  "Accounting  for Stock Issued to  Employees,"  whereby
compensation cost is the excess, if any, of the quoted market price of the stock
at the grant date (or other  measurement  date) over the amount an employee must
pay to acquire the stock.  Stock options issued under the Company's stock option
plans have no intrinsic value at the grant date, accordingly,  under APB Opinion
No. 25, no compensation cost is recognized.  The Company has elected to continue
with the accounting prescribed in APB Opinion No. 25 and, as a result, must make
pro forma disclosures of net income and earnings per share and other disclosures
as if the fair value based method of accounting had been applied.

     Net Income (Loss) Per Share.  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 years ended December 31, 1999 and 1998, options and warrants
applicable to 4,240,655  shares and 4,937,645  shares,  respectively  were anti-
dilutive and excluded from the diluted earnings per share computation.

     Comprehensive   Income.   Accounting   principles  generally  require  that
recognized  revenue,  expenses,  gains and  losses be  included  in net  income.
Certain  Financial  Accounting  Standards  Board ("FASB")  statements,  however,
require entities to report specific  changes in assets and liabilities,  such as
unrealized gains and losses on


                                      F-37

<PAGE>

                           FOCUS ENHANCEMENTS, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

available-for-sale   securities  and  foreign  currency  items,  as  a  separate
component of the equity section of the balance sheet. Such items, along with net
income,  are  components  of  comprehensive  income.  There  was no  accumulated
comprehensive income at December 31, 1999 and 1998.

     Segment  Information.  SFAS No.  131,  "Disclosures  about  Segments  of an
Enterprise  and Related  Information,"  establishes  standards  for the way that
public business  enterprises  report  information  about  operating  segments in
annual and interim  financial  statements.  It also  establishes  standards  for
related  disclosures  about  products and services,  geographic  areas and major
customers.  Generally,  financial  information is required to be reported on the
basis that it is used internally for evaluating segment performance and deciding
how to allocate resources to segments.  The Statement also requires  descriptive
information  about the way that the  operating  segments  were  determined,  the
products and services provided by the operating  segments,  differences  between
the  measurements  used in reporting  segment  information and those used by the
enterprise  in its  general-purpose  financial  statements,  and  changes in the
measurement of segment amounts from period to period.


Recent Accounting Pronouncements

     The FASB has issued a proposed  interpretive  release,  Stock Compensation-
Interpretation of APB Opinion 25  ("Interpretation").  The  Interpretation  will
provide  accounting  guidance  on  several  issues  that  are  not  specifically
addressed in APB Opinion No. 25,  "Accounting for Stock Issued to Employees." Of
the many questions addressed in the  Interpretation,  the most significant are a
clarification  of the definition of the term "employee" for purposes of applying
the opinion and the accounting for options that have been repriced.

     The  Interpretation  is generally  effective  beginning  July 1, 2000.  The
Interpretation  applies  prospectively at that date for repricings that occurred
after  December 15, 1998. It also applies  prospectively  on July 1, 2000 to new
awards  granted after  December 15, 1998 for purposes of applying the definition
of "employee".

     In December 1999, the Securities and Exchange Commission (the "Commission")
published Staff  Accounting  Bulletin  ("SAB") No. 101,  "Revenue  Recognition",
which provides guidance for applying generally accepted accounting principles to
revenue recognition in financial statements filed with the Commission, including
income statement presentation and disclosure.  As originally issued, SAB 101 was
to be applied no later than the first quarter of the fiscal year beginning after
December 15, 1999. However, the Commission has delayed the effective date of the
SAB for  companies  with fiscal years  beginning  between  December 16, 1999 and
March 15, 2000. For such entities, the mandatory  implementation date may now be
no later than the second quarter of the fiscal year beginning after December 15,
1999.

     The  Company  is  in  the  process  of   reviewing   and   evaluating   the
pronouncements detailed above to determine the potential impact on the financial
statements of the Company.


2. Fourth Quarter Adjustments

     In the fourth  quarters of 1999 and 1998, the Company  sustained net losses
of  $1,779,000  and  $14,235,000,  respectively.  A summary of the effect on net
income of sales returns and other significant year-end adjustments follows:

              Description                     1999           1998
---------------------------------------   -----------   -------------
  Sales returns                            $367,000      $3,455,000
  Impairment loss on goodwill                   --        3,054,000
  Inventory                                 527,000       1,929,000
  Fixed assets                                  --          766,000
  Write-down of securities                      --          346,000
  Accounts receivable                       383,000             --
  Accrued expenses                          254,000       2,125,000
  Stock compensation and other              284,000             --

                                      F-38

<PAGE>

                           FOCUS ENHANCEMENTS, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

3. Inventories
     Inventories at December 31, consist of the following:


                           1999           1998
                      -------------   ------------
  Raw materials        $1,039,356      $  230,364
  Work in process         171,637             --
  Finished goods        2,377,709       5,718,260
                       ----------      ----------
  Totals               $3,588,702      $5,948,624
                       ==========      ==========


     The Company  periodically  reviews its  inventories  for  obsolescence  and
adjusts  carrying  costs  to  estimated  net  realizable  values  when  they are
determined  to be less than cost.  In the fourth  quarter of 1999,  the  Company
identified  certain  excess and  obsolete  inventory  and charged  approximately
$527,000 to expense,  writing off certain  inventory  and  increasing  inventory
reserves to $399,000 at December 31, 1999.  In the fourth  quarter of 1998, as a
result of a detailed review,  the Company identified certain excess and obsolete
inventory  items and also  determined  that the cost of certain  inventory items
required  adjustments to their  estimated net realizable  value.  As a result of
this inventory review, the Company charged  approximately  $1,929,000 to expense
in the fourth  quarter of 1998,  thereby  increasing  its inventory  reserves to
approximately $2,168,000 at December 31, 1998.


4. Property and Equipment
     Property and equipment consist of the following at:

                                                      December 31,
                                              ----------------------------
                                                   1999           1998
                                              -------------   ------------
         Equipment                             $1,062,443      $  893,116
         Furniture and fixtures                   107,530         132,522
         Leasehold improvements                   295,249         134,599
         Purchased software                       246,980          29,100
                                               ----------      ----------
                                                1,712,202       1,189,337
         Less accumulated depreciation and
  amortization                                    743,608         394,621
                                               ----------      ----------
         Net book value                        $  968,594      $  794,716
                                               ==========      ==========

     Depreciation and amortization expense related to property and equipment for
the years ended  December  31, 1999 and 1998 totaled  $363,707  and  $1,135,259,
respectively.

     In the fourth quarter of 1998, the Company  performed a detailed  review of
its property and equipment accounts. As a result of this review,  certain assets
were written off and the estimated  useful lives of certain assets were revised.
The effect of these revisions and write-offs resulted in additional depreciation
expense of approximately $766,000.


5. Other Assets

Notes Receivable.
     The Company has $140,000 in notes  receivable  bearing interest at 8.0% per
annum due from an  officer of the  Company at  December  31,  1999 and 1998.  At
December  31,  1999,  interest  receivable  of $28,467 is  included  in accounts
receivable.  Interest  income  recognized on the notes  receivable for the years
ended December 31, 1999 and 1998 amounted to $11,200 and $6,067, respectively.


Restricted Assets.
     As  part of the Company's acquisition of TView, Inc. in September 1996, the
Company  assumed a $125,000 irrevocable stand-by letter of credit with a bank to
secure office space in Beaverton, Oregon. During 1997, the


                                      F-39

<PAGE>

                           FOCUS ENHANCEMENTS, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Company placed $125,000 in an interest  bearing account at the Company's bank to
secure the letter of credit.  During 1999,  the Company  requested  and received
$83,334 from the interest bearing account,  thus reducing the stand-by letter of
credit. The amount recorded as an other asset as of December 31, 1999 is $41,666
as compared to $125,000 at December 31, 1998.


6. Notes Payable

Line of Credit, Bank.

     During  1999,  the  Company  repaid  all  monies  owed  under  an  accounts
receivable  financing  agreement  with its bank,  and  closed  its  account.  At
December 31, 1998,  the Company  maintained a line of credit with the same bank.
Borrowings  under the line were payable upon demand and were  collateralized  by
all of the assets of the Company,  except as noted below.  Borrowings aggregated
$620,000 at December  31, 1998,  and were  charged  interest at the bank's prime
rate plus 1% (8.75% at December 31, 1998). 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.  On March 31,  1999,  the
Company repaid all monies owed on this line of credit with its  commercial  bank
totaling  approximately  $637,000  from  proceeds  received  under a  $2,000,000
accounts  receivable  financing  agreement  with the same  commercial  bank. The
agreement  allowed  for  advances on  accounts  receivable  not to exceed 80% of
qualified invoices. Interest was charged on the outstanding balance at a rate of
the prime lending rate plus 4.5%. Under the terms of this agreement the bank was
issued  warrants to purchase  100,000 shares of the Company's  common stock at a
price of $1.70 per share.

Term Loan, Bank.

     On March 31, 1998, the Company  assumed a $329,953 bank loan resulting from
the purchase of certain  assets and the  assumption  of certain  liabilities  of
Digital  Vision,  Inc. The  borrowings  bear  interest at the prime rate plus 2%
(9.75 % at December 31,  1998).  The  outstanding  balance is payable in monthly
installments, with interest, until the loan expiration date of June 30, 1999. At
December 31, 1998,  the  outstanding  amount owed on this loan was $82,057.  The
loan was paid in full at December 31, 1999.

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 with interest
at a rate of 12% per annum.  The balance of the Note was  $1,006,258 at December
31, 1999.  On December 31, 1999,  the Company and the holder of the note reached
an agreement as to the settlement of the note and related accounts  payable.  On
January  5, 2000 the  Company  repaid  $1,000,000  of these  obligations  and on
January  28,  2000,  escrowed  $669,000  to be paid to the holder in three equal
installments on February 5, March 5, and April 5, 2000.

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, Inc. 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.  Maturities  of  long-term  debt at  December  31,  1999 are as
follows:

  2000        312,556
  2001        226,041
              -------
  Total      $538,597
             ========

7. Other Income

Sale of Networking Assets.
     Effective  September  30,  1997,  the  Company  sold its  line of  computer
connectivity products to Advanced Electronic Support Products, Inc. ("AESP") for
189,701 shares of AESP common stock. Included in the sale were


                                      F-40

<PAGE>

                           FOCUS ENHANCEMENTS, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

customer lists and the rights to use the FOCUS  networking  brand name to market
the  product  line as well as  certain  of  AESP's  complementary  products.  In
connection  with this  transaction,  the Company  recorded  other  income in the
amount of  $358,288,  securities  available  for sale in the amount of  $595,000
(discounted  15% to reflect  temporary  restrictions  on the common stock),  and
deferred income of $84,212. In addition,  the Company sold networking  inventory
to AESP in the amount of $159,000  at cost.  A director of the Company is also a
director  of AESP.  At  December  31,  1998,  the fair  value of the  securities
available for sale was $248,983.  The Company recorded a loss of $346,017 on the
securities  available for sale in 1998 as the decline in value was considered to
be other than  temporary.  In June and July 1999,  the Company  sold the 189,701
shares of AESP stock  yielding  gross  proceeds of  approximately  $329,000  and
recognizing a gain of approximately $80,000.


Accounts Payable.
     During the year ended December 31, 1999, the Company  recognized a total of
$71,076 of other income in connection  with the release of selected  obligations
and the reduction of certain accounts payable.


8. Commitments and Contingencies


Leases.
     The Company leases office  facilities and certain equipment under operating
leases.  Under  the  lease  agreements,  the  Company  is  obligated  to pay for
utilities,  taxes,  insurance and maintenance.  Total rent expense for the years
ended  December  31,  1999 and 1998 was  approximately  $400,000  and  $451,000,
respectively.

     The Company  leases  certain  computer and office  equipment  under capital
leases with three to five-year  terms.  The cost of assets under capital  leases
was  $468,525  and  $443,874 at December  31, 1999 and 1998,  respectively,  and
accumulated  amortization  was $135,832 and $44,181,  respectively.  Capitalized
leased assets are included in property and equipment.

     Minimum lease commitments at December 31, 1999 are as follows:

                                          Capital Leases     Operating Leases
                                         ----------------   -----------------
2000                                         $165,988           $  322,357
2001                                          121,289              263,477
2002                                           69,075              240,080
2003                                           47,143              208,617
2004                                            1,118               69,312
                                             --------           ----------
Total minimum lease payments                  404,613            1,103,843
                                                                ==========
Less amounts representing interest             73,160
                                             --------
Present value of minimum obligations          331,453
Less current portion                          129,451
                                             --------
Non-current portion                          $202,002
                                             ========

Employment Agreements.

     The Company has employment agreements with certain corporate officers.  The
agreements  are  generally  one to three years in length and provide for minimum
salary levels.  These agreements include severance payments of approximately one
to three times each officer's annual compensation.


Letters of Credit.

     In  September  1999,  the  Company  entered  into an  agreement  with a new
subcontractor.  As part of the agreement the Company was required to obtain from
its bank an  irrevocable  sight letter of credit to secure payment of each order
placed with this vendor.  The Company was  required to secure  these  letters of
credit by


                                      F-41

<PAGE>

                           FOCUS ENHANCEMENTS, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

depositing  cash in an interest  bearing  account with the bank. At December 31,
1999, the Company maintained an interest bearing account  collateralizing  sight
letters of credit in the amount of $534,091.  This amount is recorded in current
assets.

     In  July,  1998,  the  Company  entered  into  an  agreement  with  another
subcontractor.  As part of the agreement  the  Company's  bank issued a $250,000
irrevocable  stand-  by letter of  credit  to  secure  payment  of the  vendor's
invoices.  The Company  placed  $250,000 in an interest  bearing  account at the
Company's  bank to secure the  letter of  credit.  This  amount is  recorded  in
current assets as of December 31, 1998.  This  agreement was  terminated  during
1999.


Purchase Commitment.

     The Company has agreed to  purchase a minimum of  $2,500,000  of cables and
other products from Advanced Electronic Support Products, Inc. ("AESP") by March
29, 2001. In return,  the Company has received certain pricing  commitments over
the term of the  master  purchase  agreement.  For the  period  October  1, 1997
through  December  31, 1999,  the Company  purchased  approximately  $995,000 of
products  from AESP.  In the event that the Company  does not  purchase at least
$2,500,000 of cables and other products  during the term of the master  purchase
agreement,  the Company must pay AESP an amount  equal to 20% of the  difference
between $2,500,000 and the aggregate amount of purchases.


Litigation.

     The  Company  has been named as a  defendant  in 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  shares of our common  stock  from July 17,  1997 to
February 19, 1999. In March of 2000, 15 additional actions were filed which made
claims on behalf of  shareholders  who purchased  stock from the previous  class
period  through  March  1,  2000.  The  actions  are in  the  process  of  being
consolidated.  The  complaints  allege  that the  company,  its chief  executive
officer and its chief financial  officers,  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. We intend to
contest this case vigorously.

     From time to time,  the Company is party to certain  other claims and legal
proceedings  that arise in the ordinary course of business which, in the opinion
of  management,  will  not  have a  material  adverse  effect  on the  Company's
financial position or results of operation.


Special Investigation

     The Company's  independent auditors,  Wolf & Company,  P.C., brought to the
attention  of the Board  certain  matters  relating to the  Company's  financial
controls.  The  Board of  Directors  thereafter  formed a special  committee  to
investigate.  The special  committee engaged the law firm of Foley, Hoag & Eliot
LLP,  which  engaged the  accounting  firm of Arthur  Andersen LLP to aid in the
investigation.  Based upon its investigation,  the committee has concluded that,
despite his denials,  an accounting  manager in the Company's finance department
misstated the  inventory  records of the Company's Pro AV series for purposes of
presentation to the Company's  outside auditors in connection with the audit for
the year ended December 31, 1999. A revised inventory list for the Pro AV series
as of  December  31,  1999 has been  compiled  in  connection  with the  special
committee's  review and has been  subject  to audit  tests  performed  by Wolf &
Company,  P.C. as part of its year end audit of the financial  statements of the
Company as a whole. The accounting manager in question has been discharged.  The
Board is continuing its review of the special committee's report.

     As  a  result  of  the  Committee's  investigation,  the  Company  incurred
significant  fees and expenses  which will be charged to earnings in the quarter
ended March 31, 2000. The total amount of such expenses has not been  determined
at this time.


                                      F-42

<PAGE>

                           FOCUS ENHANCEMENTS, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

9. STOCKHOLDERS' EQUITY


Common Stock.

     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, 2004 at an exercise price
of $1.063 per share.  The Company recorded $15,033 in expense for the year ended
December 31, 1999 based on the fair value of the warrants.  These  warrants were
exercised on February 23, 2000 (15,000) and March 2, 2000 (15,000).

     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.  These  warrants were exercised on December 10, 1999.
The Company  recorded  charges of $50,111 for the year ended  December  31, 1999
based on the fair value of the warrants.

     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 per share.  These  warrants were  exercised on December 3, 1999.
The Company  recorded  charges of $25,055 for the year ended  December  31, 1999
based on the fair value of the warrants.

     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 per share.  These  warrants
were exercised on November 23, 1999 under a net exercise provision  resulting in
the issuance of 38,181 shares.  The Company  recorded charges of $69,118 for the
year ended December 31, 1999 based on the fair value of the warrants.

     On June 4, 1999, the Company entered into a financing  agreement  resulting
in  $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 also issued a warrant to purchase 25,000 shares of common
stock at $1.478125 per share exercisable through June 4, 2004 to Union Atlantic,
L.C.  in  connection  with  the  placement.  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 warrants.  The Company
received  proceeds from this transaction in two tranches of $600,000.  The first
tranche was funded on June 14, 1999 for $600,000 less expenses  associated  with
this offering of $60,897  yielding net proceeds of $539,103.  The second tranche
for  $600,000  less  expenses of $58,222  yielding  net proceeds of $541,778 was
funded on August 18, 1999.

     On September  17,  1999,  the Company  entered  into a financing  agreement
resulting in $1,500,000 in gross  proceeds from the sale of 1,583,333  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  received  proceeds from this transaction in
two tranches of $750,000 . The first  tranche was funded on  September  21, 1999
for $750,000  less  expenses of $64,903  yielding net proceeds of $685,097.  The
second  tranche was funded in October 1999 for  $750,000  less fees and expenses
associated with this offering of $60,000 yielding net proceeds of $690,000.

     On September 22, 1999, the Company received gross proceeds of $135,000 from
the issuance of 120,000  shares of common stock  resulting  from the exercise of
common stock warrants issued pursuant to the June 4, 1999 private placement.


     On November 19, 1999,  the Company agreed to issue 100,000 shares of common
stock to a  subcontractor  in  settlement of $323,260 of accounts  payable.  The
Company agreed to register the shares under the Securities Act


                                      F-43

<PAGE>

                           FOCUS ENHANCEMENTS, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

of 1933. The Company also agreed to issue up to an additional  100,000 shares of
common stock if the average market price for the five trading days preceding the
effective date of the  registration  statement is less than $3.23 per share. The
Company was not required to issue any of the additional shares.

     In November, 1999, the Company completed a financing of $2,000,000 in gross
proceeds  from the sale of 1,250,000  shares of common stock and the issuance of
three  warrants to purchase an aggregate of 125,000  shares of common stock in a
private placement to three unaffiliated  accredited investors.  The warrants are
exercisable until December 1, 2004 at a per-share exercise price of $3.1969. The
shares issued in connection with this  transaction and issuable upon exercise of
the  warrant  will be  registered  under the  Securities  Act of 1933.  Expenses
associated with this offering  amounted to  approximately  $42,000  yielding net
proceeds of $1,958,000.

     During the year ended  December  31,  1999,  the Company  issued at various
times,  2,095,780  shares of common  stock  resulting  from other  exercises  of
options and warrants, receiving cash of approximately $2,461,023.

     On January 18, 2000,  the Company  received gross proceeds of $990,000 from
the issuance of 330,000  shares of common stock  resulting  from the exercise of
common  stock  warrants  issued   pursuant  to  a  private   placement  with  an
unaffiliated  investor on September 10, 1997.  During the period from January 1,
2000 to March 31, 2000 the Company issued 62,001 shares on the exercise of other
options and warrants.

     On March 3, 1998, the Company  received  approximately  $3,000,000 in gross
proceeds  from the sale of  1,092,150  shares of Common  Stock and  warrants  to
purchase  327,645  shares  of  common  stock  in  a  private   placement  to  an
unaffiliated  accredited  investor.  The shares issued in  connection  with this
transaction and issuable upon exercise of the warrants were registered under the
Securities Act of 1933 on April 22, 1998. Fees and expenses associated with this
offering amounted to approximately $172,600 yielding net proceeds of $2,827,400.
In connection with this transaction, the Board of Directors authorized the grant
of warrants to the  placement  agent to purchase  21,429 shares of the Company's
common  stock at a price of $4.2118 per share  exercisable  for a period of five
years.  During  December  1998,  the investor  exercised its warrants to acquire
327,645 shares for approximately $399,000.

     The  Company  received  gross  proceeds  of  $6,146,888  as a result of the
exercise of 910,650 of the Company's  redeemable  common stock purchase warrants
(the "Warrants") issued in connection with the Company's initial public offering
in May 1993. The Company issued  1,649,202 shares of common stock as a result of
the exercise.  In accordance with the anti-dilution  provisions of the Warrants,
the holder was entitled to receive 1.811 shares of common stock for each Warrant
exercised.  The Warrants were  exercisable at a price of $6.75 per Warrant until
expiration on May 27, 1998.

     During the year ended  December  31,  1998,  the Company  issued at various
times,  453,111 shares of common stock resulting from other exercises of options
and warrants,  receiving cash and notes receivable of approximately $774,000. On
June 1, 1998, the Company  recorded a note  receivable in the amount of $316,418
in connection  with the exercise of stock options to purchase  171,000 shares of
common stock by a former director.  The note is due on demand and bears interest
at 8% due quarterly. At December 31, 1998, the note receivable has been recorded
as an offset to  stockholders'  equity.  In December 1999, the Company  received
approximately $352,000 in full payment of this note, including accrued interest.


                                      F-44

<PAGE>

                           FOCUS ENHANCEMENTS, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

COMMON STOCK PURCHASE WARRANTS.
     Common stock warrant activity is summarized as follows:


<TABLE>
<CAPTION>
                                                             1999                                  1998
                                              ----------------------------------   ------------------------------------
                                                                  Grant Price                            Grant Price
                                                  Shares             Range              Shares              Range
                                              -------------   ------------------   ---------------   ------------------
<S>                                             <C>           <C>                     <C>            <C>
Warrants outstanding at beginning of year       1,018,329     $0.90 - $9.11            3,715,507     $0.90 - $9.11
Anti-dilution adjustment                              --                                  61,237
Warrants granted                                  700,000     $  1.06-$3.20              682,074     $  2.75-$4.21
Warrants exercised                               (370,000)    $  1.06-$1.70           (2,035,180)    $  1.22-$3.73
Warrants canceled                                 (25,000)    $        1.48           (1,405,309)    $  3.25-$3.81
                                                ---------                             ----------
Warrants outstanding at end of year             1,323,329     $1.06 - $9.11            1,018,329     $0.90 - $9.11
                                                =========     ================        ==========     ================
Warrants exercisable at end of year             1,323,329     $1.06 - $9.11            1,018,329     $0.90 - $9.11
                                                ---------     ----------------        ----------     ----------------
Weighted average fair value of warrants
 granted during the year                                      $         .68                          $        1.25
</TABLE>


1992 Stock Option Plan.

     The  Company's  1992  Stock  Option  Plan (the  "Plan"),  provides  for the
granting of incentive and non-qualified  options to purchase up to approximately
1,800,000  shares of common  stock.  Incentive  stock  options may be granted to
employees of the  Company.  Non-qualified  options may be granted to  employees,
directors or  consultants  of the Company.  Incentive  stock  options may not be
granted at a price less than 100%  (110% in  certain  cases) of the  fair-market
value of common stock at date of grant. Non-qualified options may not be granted
at a price less than 85% of fair-market  value of common stock at date of grant.
As of  December  31,  1999,  all options  granted  under the plan were issued at
market  value at the date of  grant.  Options  generally  vest  annually  over a
three-year  period and are  exercisable  over a  five-year  period  from date of
grant.  The term of each option under the Plan is for a period not exceeding ten
years  from date of  grant.  During  1998,  the  Board of  Directors  authorized
reductions in the exercise  price of certain  options  granted under the plan to
prices  reflecting the market value on the  re-pricing  date. As of December 31,
1999,  options  under the Plan to  purchase  1,160,972  shares of the  Company's
common  stock were  outstanding  with  exercise  prices of $1.00 to $1.3438  per
share.

1995 Key Officer Non Qualified Stock Options.

     In 1995,  the Board of  Directors  authorized  the issuance to two officers
warrants to purchase an aggregate of 500,000 shares of common stock at $1.10 per
share.  The options  expire in April 2002.  As of December 31, 1999,  options to
purchase  150,000 shares of the Company's  common stock were outstanding with an
exercise price of $1.10 per share.

1997 Director Stock Option Plan.

     In March  1997,  the Board of  Directors  adopted the 1997  Director  Stock
Option Plan (the "1997 Director  Plan"),  subject to stockholder  approval which
was received on July 25, 1997.  The 1997 Director Plan  authorized  the grant of
options to purchase up to an aggregate of 1,000,000 shares of common stock. Each
non-employee  director who was in office on March 19, 1997 received an automatic
grant of an option to purchase  shares of common stock ranging  between  100,000
and 200,000  shares based on time of service.  The  exercise  price per share of
options  granted under the 1997 Director Plan is 100% of the market value of the
common stock of the Company on the date of grant. Options granted under the 1997
Director Plan are exercisable over a five-year period with vesting determined at
varying amounts over a three year period. As of December 31, 1999, options under
the 1997 Director Plan to purchase  237,372 shares of the Company's common stock
were outstanding with an exercise price between $ 1.00 and $1.88 per share.

1997 Key Officer Non Qualified Stock Options.

     In March 1997, the Board of Directors authorized the grant of non-qualified
stock  options to certain key  officers  of the  Company  (the "1997 Key Officer
Agreements"). The 1997 Key Officer Agreements related to the


                                      F-45

<PAGE>

                           FOCUS ENHANCEMENTS, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

grant of options to  purchase  up to an  aggregate  of 920,000  shares of common
stock.  The  exercise  price per  share of  options  granted  under the 1997 Key
Officer  Agreements  equaled 100% of the market value of the common stock of the
Company  on the date of  grant.  Options  granted  under  the  1997 Key  Officer
Agreements  are  exercisable in  installments  over a three-year  period.  As of
December 31, 1999,  options  under the 1997 Key Officer  Agreements  to purchase
350,000  shares of the  Company's  common stock were  outstanding  with exercise
prices of $1.22 and $1.2813 per share.


1998 Director Stock Option Plan.
     On  September  1,  1998,  the  Board  of  Directors  adopted,   subject  to
stockholder  approval,  the 1998 Non-qualified Stock Option Plan (the "1998 NQSO
Plan").  The 1998 NQSO Plan authorized the grant of options to purchase up to an
aggregate of 1,250,000 shares of common stock.  Each  non-employee  director who
was in office on  September 1, 1998  received an  automatic  grant of an option,
subject to  stockholder  approval,  to purchase  75,000  shares of common stock.
Employee officers and directors received a grant of an option to purchase shares
of common  stock  ranging  from  10,000 to  200,000  shares  based  upon time of
service.  The exercise  price per share of options  granted  under the 1998 NQSO
Plan is 100% of the market  value of the common stock of the Company on the date
of grant.  Options  granted  under the 1998  NQSO  Plan are  exercisable  over a
five-year  period with vesting  determined at varying  amounts over a three year
period.  As of December 31, 1999,  options  under the 1998 NQSO Plan to purchase
980,936 shares of the Company's  common stock were  outstanding with an exercise
price between $1.06 and $1.41.

<TABLE>
     A summary of the status of the  Company's  outstanding  stock options as of
December  31,  1999 and 1998,  and the changes  during the years then ended,  is
presented below:

<CAPTION>
                                                             1999                                  1998
                                             ------------------------------------   -----------------------------------
                                                                Weighted Average                       Weighted Average
                                                  Shares         Exercise Price          Shares         Exercise Price
                                             ---------------   ------------------   ---------------   -----------------
<S>                                             <C>                 <C>                <C>                 <C>
Options outstanding at beginning of year         3,919,396          $   1.22            2,966,396          $ 1.81
Options granted                                  1,191,340          $   1.17            3,873,680          $ 1.42
Options exercised                               (1,816,125)         $   1.53             (394,778)         $ 1.90
Options canceled                                  (403,497)         $   1.23           (2,525,982)         $ 1.96
                                                ----------                             ----------
Options outstanding at end of year               2,891,114          $   1.21            3,919,316          $ 1.22
                                                ==========                             ==========
Options exercisable at end of year                 393,391          $   1.21            1,289,536          $ 1.20
                                                ==========                             ==========
Weighted average fair value of options
 granted during the year                                                 .57                               $  .92
</TABLE>

     Information  pertaining to options  outstanding  at December 31, 1999 is as
follows:

<TABLE>
<CAPTION>
                                                Options Outstanding                 Options Exercisable
                                      ----------------------------------------   -------------------------
                                                        Weighted     Weighted                     Weighted
                                                        Average       Average                     Average
              Range of                 Outstanding     Remaining     Exercise     Exercisable     Exercise
          Exercise Prices                12/31/99         Life         Price        12/31/99       Price
-----------------------------------   -------------   -----------   ----------   -------------   ---------
<S>                                     <C>           <C>               <C>         <C>              <C>
$0.91-1.82                              2,841,114     2.2 yrs           1.10        381,148          1.10
$1.83-2.73                                 50,000     4.90 yrs          1.88         12,243          1.88
                                        ---------                                   -------
Outstanding at December 31, 1999        2,891,114     3.6 yrs           1.21        393,391          1.21
                                        =========                                   =======
</TABLE>

Stock-based Compensation.

<TABLE>
     At December 31, 1999, the Company has stock option plans and non-plan stock
options that are  described  above.  The Company  applies APB Opinion No. 25 and
related  interpretations  in  accounting  for  stock  options.  Accordingly,  no
compensation cost has been recognized for stock options issued to employees. Had
compensation cost for the Company's stock-based compensation plans and non- plan
stock options outstanding been determined


                                      F-46

<PAGE>

                           FOCUS ENHANCEMENTS, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

based  on the fair  value at the  grant  dates  for  awards  under  those  plans
consistent  with the method  prescribed  by SFAS No. 123, the Company's net loss
and loss per share would have been adjusted to the pro forma  amounts  indicated
below:


<CAPTION>
                                                 Years ended December 31,
                                           ------------------------------------
                                                 1999                1998
                                           ----------------   -----------------
<S>                        <C>               <C>                <C>
Net loss                   As reported       $ (1,479,703)      $ (12,787,324)
                           Pro forma         $ (2,587,558)      $ (14,483,121)
Basic loss per share       As reported       $       (.08)      $        (.78)
                           Pro forma         $       (.14)      $        (.89)
Diluted loss per share     As reported       $       (.08)      $        (.78)
                           Pro forma         $       (.14)      $        (.89)
</TABLE>


     Common stock  equivalents  have been excluded from all calculations of loss
per share and pro forma  loss per share in 1999 and 1998  because  the effect of
including them would be anti-dilutive.

     The fair value of each grant is  estimated  on the date of the grant  using
the  Black-Scholes  option-pricing  model  with the  following  weighted-average
assumptions  used for grants in 1999 and 1998,  respectively;  dividend yield of
0.0 percent;  expected  volatility of 50% and 75%,  risk-free  interest rates of
6.0% and expected lives of 5.0 years.

     In addition,  the Company maintains the right to re-price the options under
such plans to reflect  devaluation  in the market value of its common stock.  On
September 1, 1998, the Company re-priced all employee and director options under
all plans to $1.22 per share for those  options  priced in excess of this value.
This price represented the closing market price of the Company's common stock on
September 1, 1998. The FASB has issued a proposed interpretative release - Stock
Compensation  -  Interpretation  of APB No. 25,  which  will have a  prospective
impact on the Company's stock option plans, if adopted.


10. Income Taxes

     The Company and its  subsidiaries  file a  consolidated  federal income tax
return.  Allocation of the provision for income taxes between  federal and state
income taxes is as follows:

                                                      Years Ended
                                                        December
                                                          31,
                                                   ------------------
                                                    1999       1998
                                                   ------   ---------
         Current:
           Federal income taxes                     $ --     $    --
           State income taxes                         --      24,641
                                                    ----     -------
                                                      --      24,641
         Deferred federal and state income taxes      --          --
                                                    ----     -------
                                                    $ --     $24,641
                                                    ====     =======

 <TABLE>
    The  differences  between the provisions for income taxes from the benefits
computed by applying the statutory Federal income tax rate are as follows:

<CAPTION>
                                                                      Years Ended December 31,
                                                                 -----------------------------------
                                                                       1999               1998
                                                                 ---------------   -----------------
<S>                                                                <C>               <C>
         Benefit computed at statutory rate (34%)                  $  (503,000)      $  (4,339,000)
         State income tax benefit, net of federal tax                  (92,000)           (766,000)
         Increase in valuation allowance on deferred tax asset         546,000           5,029,000
         Other, net                                                     49,000             100,641
                                                                   -----------       -------------
                                                                   $       --        $      24,641
                                                                   ===========       =============
</TABLE>

                                      F-47

<PAGE>

                           FOCUS ENHANCEMENTS, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

<TABLE>
   The net deferred tax asset consists of the following:

<CAPTION>
                                                                 December 31,
                                                       ---------------------------------
                                                             1999              1998
                                                       ---------------   ---------------
<S>                                                     <C>               <C>
         Deferred tax asset                             $  15,611,000     $  15,065,000
         Deferred tax liability                                   --                --
         Valuation allowance on deferred tax asset        (15,611,000)      (15,065,000)
                                                        -------------     -------------
         Net deferred tax asset                         $         --      $         --
                                                        =============     =============
</TABLE>

<TABLE>
     The tax effects of each type of income and  expense  item that give rise to
deferred taxes are as follows:

<CAPTION>
                                                                   December 31,
                                                        ----------------------------------
                                                              1999              1998
                                                        ---------------   ----------------
<S>                                                      <C>               <C>
         Net operating loss carry forward                $  11,526,000     $   9,909,000
         Income tax credit carry forward                       185,000           185,000
         Tax basis in excess of book basis of fixed
          assets                                               157,000           157,000
         Book inventory cost less than tax basis               160,000           867,000
         Reserve for bad debts not deductible for
          income taxes                                         118,000           260,000
         Tax basis in excess of book basis of other
          assets                                               466,000           466,000
         Tax basis in subsidiaries in excess of book
          value                                              2,999,000         3,221,000
                                                         -------------     -------------
                                                            15,611,000        15,065,000
         Valuation allowance on deferred tax asset         (15,611,000)      (15,065,000)
                                                         -------------     -------------
         Net deferred tax asset                          $         --      $         --
                                                         =============     =============
</TABLE>

<TABLE>
     A summary of the change in the  valuation  allowance on deferred tax assets
is as follows:

<CAPTION>
                                                         Years Ended December 31,
                                                      -------------------------------
                                                           1999             1998
                                                      --------------   --------------
<S>                                                   <C>              <C>
         Balance at beginning of year                  $15,065,000      $10,036,000
         Addition to the allowance for the benefit
          of net operating loss carry forwards not
          recognized                                       546,000        5,029,000
                                                       -----------      -----------
         Balance at end of year                        $15,611,000      $15,065,000
                                                       ===========      ===========
</TABLE>

<TABLE>
     At  December  31,  1999,  the  Company  has the  following  carry  forwards
available for income tax purposes:


<S>                                                                       <C>
         Federal net operating loss carry forwards expiring in various
          amounts through 2020                                             $28,815,000
                                                                           ===========
         State net operating loss carry forwards expiring in various
          amounts through 2005                                             $19,485,000
                                                                           ===========
         Credit for research activities                                    $   185,000
                                                                           ===========
</TABLE>


     Due to the  uncertainty  surrounding the realization of these favorable tax
attributes,  the Company has placed a valuation  allowance against its otherwise
recognizable net deferred tax assets.  The net operating loss carry forwards are
subject to annual limitations based on ownership changes in the Company's common
stock as provided in Section 382 of the Internal Revenue Code.


                                      F-48

<PAGE>

                           FOCUS ENHANCEMENTS, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

11. Business Combinations
     Lapis Technologies,  Inc. On December 16, 1993, FOCUS issued 500,000 shares
of its  common  stock,  subject to  adjustment  based on the value of the common
stock,  in  exchange  for  all  of  the   outstanding   common  stock  of  Lapis
Technologies,  Inc. ("Lapis").  The business combination was accounted for using
the purchase method of accounting.  From May to August 1995, the Company settled
substantially  all  claims by the former  Lapis  shareholders  arising  from the
Company's  acquisition of Lapis by issuing 123,879 shares of common stock to the
former  Lapis  shareholders.  This  stock  issuance  was  accounted  for  as  an
adjustment to the purchase price.

     In the  fourth  quarter  of 1998,  as a  result  of its  evaluation  of the
impairment  of  intangible  assets  related  to this  acquisition,  the  Company
wrote-off the balance of the goodwill in the amount of  approximately  $543,000.
The  evaluation  considered  the Company's  recent  acquisitions,  the declining
Macintosh  marketplace,   shifting  of  the  market  to  PC-based  products  and
technological advances, and projected future sales of Lapis products.

     TView, Inc. Effective September 30, 1996, FOCUS acquired all of the capital
stock of TView, Inc. ("TView").  The business combination has been accounted for
using the purchase  method of  accounting.  Accordingly,  the purchase price was
allocated  to the assets  acquired  based on their  estimated  fair value.  This
accounting treatment resulted in approximately $716,000 of goodwill that will be
amortized over its estimated benefit period of seven years. At December 31, 1998
and 1997,  the  balance  of the  goodwill  was  $366,267  and  $488,355,  net of
accumulated amortization of $349,757 and $227,669, respectively.

     On March 31, 1998, the Company issued 350,000 shares of common stock valued
at  approximately  $1,115,600 in  conjunction  with the  acquisition  of certain
assets of Digital Vision, Inc. ("Digital Vision"). Shares issued as part of this
transaction  have been registered under the Securities Act of 1933. In addition,
the Company agreed to pay approximately $47,000 in cash for net liabilities with
a fair value of  approximately  ($160,000),  consisting  of accounts  receivable
($164,400),  inventory  ($60,600)  offset  by the  assumption  of notes  payable
($330,000)  and  accounts  payable  ($55,000).  At March 31,  1998,  the Company
recorded goodwill of approximately $1,322,000 as a result of this acquisition.

     In the  fourth  quarter  of 1998,  as a  result  of its  evaluation  of the
impairment  of  intangible  assets  related  to this  acquisition,  the  Company
wrote-off a portion of the goodwill in the amount of  approximately  $1,070,000.
Upon  evaluation of the product line,  the Company deemed that only two products
warranted  inclusion in its family of products.  However,  this In-Video product
line was not widely  accepted by the Company's  customer base due to significant
competition in its category,  limited  product  features in comparison  with the
competition,  and its cost  structure  required  pricing higher then many of the
competing  products.  In addition,  no proprietary  technology was acquired with
this  acquisition.  As a result of a discounted  cash flow  analysis in December
1998, the Company  determined  goodwill  recorded on the  acquisition of Digital
Vision should be written down to approximately  $127,000.  At December 31, 1999,
the balance of the goodwill was $95,245.  The  operations of Digital Vision have
been included in the financial statements of the Company since April 1, 1998.

     On July 29, 1998, the Company  acquired  certain assets and assumed certain
liabilities  of PC Video  Conversion,  Inc.  ("PC Video").  At the closing,  the
Company paid PC Video  $700,000 in cash and  delivered a promissory  note in the
principal  amount of $1,000,000  providing  payment of principal and interest at
3.5% over a period of 36 months.  The Company  computed a discount of $89,915 on
the note based on its  incremental  borrowing  rate.  In  addition,  the Company
issued 122,796 shares of common stock as a result of the acquisition, which were
valued at $350,000  and the  Company  agreed to  register  the shares  under the
Securities  Act of 1933.  The Company also  assumed  $80,367 of  liabilities  in
connection  with  this  acquisition.  The  acquisition  was  accounted  for as a
purchase and resulted in goodwill of approximately $1,657,000.

     The Company  paid Union  Atlantic,  LC $155,652  for  marketing  consulting
services rendered,  agency services and standard business expenses in connection
with the  purchase of PC Video.  A Director of the Company is a partner of Union
Atlantic, LC.

     In  December  1998,  as a result of its  evaluation  of the  impairment  of
intangible assets related to this  acquisition,  the Company wrote-off a portion
of the goodwill in the amount of approximately $1,441,000 resulting


                                      F-49

<PAGE>

                           FOCUS ENHANCEMENTS, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

in a  December  31,  1998  balance of  approximately  $195,000.  The  evaluation
considered  a  limited  distribution   network,   limited  product  features  in
comparison  with the  competition,  and the lack of proprietary  technology.  At
December  31,  1999,  the balance of goodwill was  $162,765.  However,  after an
evaluation of the technical engineering resources and product vision, management
of the Company  restructured the PC Video business into a professional  products
research and development center and began to consolidate its remaining operating
activities  into  its  corporate   office.   This   restructuring   resulted  in
approximately $70,000 in one- time charges in 1998.


12. Segment Information

     The  Company   operates  in  one   business   segment:   the   development,
manufacturing,  marketing and sale of computer  enhancement devices for personal
computers and  televisions.  Sales to a major  television  manufacturer  in 1998
totaled  approximately  $2,646,000 or 14% of the Company's revenues.  Sales to a
major  distributor in 1999  represented  approximately  $4,318,000 or 25% of the
Company's revenues as compared to approximately  $5,686,000,  or 31% of revenues
for 1998.

     Sales  outside  North  America  for the year ended  December  31, 1999 were
approximately  $704,000,  principally to Europe  ($396,000) and Asia ($308,000).
Sales  outside  North  America  for  the  year  ended  December  31,  1998  were
approximately $951,000, principally to Europe ($604,000) and Asia ($347,000).


13. Employee Benefit Plan

     Effective  July 1, 1998,  the Company  implemented a Section  401(k) Profit
Sharing Plan (the "401(k)  Plan") for all  eligible  employees.  The Company may
make discretionary  contributions to the 401(k) Plan. Employees are permitted to
make  elective  deferrals  of up to 15% of employee  compensation  and  employee
contributions  to the  401(k)  Plan  are  fully  vested  at all  times.  Company
contributions become vested over a period of five years. The Company has made no
contributions to the 401(k) Plan as of December 31, 1999.


14. Related Party Transactions

     In connection with the Company's private  placement  transactions (see Note
9),  the  Company  paid  placement  fees of $66,000  to Union  Atlantic,  LC. In
addition,  the Company paid consulting  fees and expenses to Union Atlantic,  LC
amounting  to $46,226 in 1999.  A Director  of the Company is a partner in Union
Atlantic, LC.


                                      F-50

<PAGE>

                                   SIGNATURES

     In accordance  with Section 13 or 15(d) of the  Securities  Exchange Act of
1934,  the  Registrant has duly caused this report on Form 10-KSB/A to be signed
on its behalf by the undersigned, thereunto duly authorized.

                                          FOCUS ENHANCEMENTS, INC.



                                          By: /s/ William Coldrick
                                            -------------------------
                                            William Coldrick
                                            Vice Chairman

     In  accordance  with the Exchange Act, this report has been signed below by
the following  persons on behalf of the  Registrant and in the capacities and on
the dates indicated.

           Signature                          Title                   Date
------------------------------   ------------------------------   ------------
       /s/ Thomas L. Massie      Chairman of the Board            May 1, 2000
---------------------------
       Thomas L. Massie

        /s/ Brett A. Moyer       Principal Accounting Officer     May 1, 2000
---------------------------
        Brett A. Moyer

       /s/ John C. Cavalier      Director                         May 1, 2000
---------------------------
       John C. Cavalier

     /s/ William B. Coldrick     Director                         May 1, 2000
---------------------------
        William B. Coldrick

     /s/ Timothy E. Mahoney      Director                         May 1, 2000
---------------------------
        Timothy E. Mahoney

     /s/ William Dambrackas      Director                         May 1, 2000
---------------------------
        William Dambrackas

                                      F-51

<PAGE>

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                                   APPENDIX G



                                   FORM 10-QSB
                    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, 2000

[  ] 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
                        (State or other jurisdiction of
                   incorporation or organization) 04-3186320
                                  (IRS Employer
                              identification No.)

                               600 Research Drive
                              Wilmington, MA 01887
                   (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, 2000,  there were  outstanding  25,900,203  SHARES OF
COMMON STOCK, $.01 PAR VALUE PER SHARE.


--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

<PAGE>


                           FOCUS ENHANCEMENTS, INC.
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)



<TABLE>
<CAPTION>
                                                                           September 30,      December 31,
                                                                                2000              1999
                                                                          ---------------   ---------------
<S>                                                                        <C>               <C>
                                                          ASSETS
Current Assets:
   Cash and cash equivalents ..........................................    $   1,285,610     $   3,736,517
   Certificate of deposit .............................................        1,280,635           534,091
   Accounts receivable, net of allowances of $417,860 and $1,402,176
    at September 30, 2000 and December 31, 1999, respectively .........        2,801,828         2,913,005
   Inventories ........................................................        1,983,662         3,588,702
   Prepaid expenses and other current assets ..........................          340,474           240,732
                                                                           -------------     -------------
     Total current assets .............................................        7,692,209        11,013,047
   Property and equipment, net ........................................          781,342           968,594
   Capitalized software development costs .............................        3,147,890         2,122,450
   Other assets, net ..................................................          293,980           287,116
   Goodwill, net ......................................................          483,944           624,277
                                                                           -------------     -------------
     Total assets .....................................................    $  12,399,365     $  15,015,484
                                                                           =============     =============

                                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Notes payable ......................................................    $         --      $   1,006,258
   Obligations under capital leases ...................................           46,337           129,451
   Current portion of long-term debt ..................................          317,367           312,556
   Accounts payable ...................................................        2,767,497         3,413,285
   Accrued liabilities ................................................          463,136           518,726
   Accrued legal judgement expense ....................................        2,147,722                --
                                                                           -------------     -------------
     Total current liabilities ........................................        5,742,059         5,380,276
Obligations under capital leases ......................................          190,469           202,002
   Long-term debt, net of current portion .............................           63,560           226,041
                                                                           -------------     -------------
   Total liabilities ..................................................        5,996,088         5,808,319
                                                                           -------------     -------------
Stockholders' equity:
   Preferred stock, $.01 par value; 3,000,000 shares authorized; none
    issued ............................................................              --                --
   Common stock, $.01 par value; 30,000,000 shares authorized,
    26,350,203 and 24,504,203 shares issued at September 30, 2000
    and December 31, 1999, respectively ...............................          263,502           245,042
   Additional paid-in capital .........................................       48,726,937        46,340,891
   Accumulated deficit ................................................      (41,887,032)      (36,678,638)
   Treasury stock at cost, 450,000 shares .............................         (700,130)         (700,130)
                                                                           -------------     -------------
     Total stockholders' equity .......................................        6,403,277         9,207,165
                                                                           -------------     -------------
     Total liabilities and stockholders' equity .......................    $  12,399,365     $  15,015,484
                                                                           =============     =============



<FN>
     See accompanying notes to Unaudited Consolidated Financial Statements
</FN>
</TABLE>



                                       G-2

<PAGE>


                           FOCUS ENHANCEMENTS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)



<TABLE>
<CAPTION>
                                                            Three Months Ended
                                                     --------------------------------
                                                      September 30,     September 30,
                                                           2000             1999
                                                     ---------------   --------------
<S>                                                   <C>               <C>
Net sales ........................................    $  4,116,181      $ 2,998,031
Licensing fees ...................................             --           200,000
                                                      ------------      -----------
Net revenues .....................................    $  4,116,180      $ 3,198,031
Cost of goods sold ...............................       2,714,705        1,257,490
                                                      ------------      -----------
   Gross profit ..................................       1,401,476        1,940,541
                                                      ------------      -----------
Operating expenses:
   Sales, marketing and support ..................         760,721          886,620
   General and administrative ....................         523,779          387,942
   Research and development ......................         212,757          305,762
   Depreciation and amortization expense .........         282,753          144,638
                                                      ------------      -----------
     Total operating expenses ....................       1,780,010        1,724,962
                                                      ------------      -----------
(Loss)Income from operations .....................        (378,534)         215,579
Interest expense, net ............................          (3,628)        (156,890)
Other income, net ................................          13,038           82,670
Legal judgement Expense (CRA) ....................      (2,147,722)             --
                                                      ------------      -----------
(Loss)Income before income taxes .................      (2,516,846)         141,359
Income tax expense ...............................             --               --
                                                      ------------      -----------
Net (Loss)Income .................................    $ (2,516,846)     $   141,359
                                                      ============      ===========
Net (Loss)Income per common share
   Basic .........................................    $      (0.10)     $      0.01
                                                      ============      ===========
   Diluted .......................................    $      (0.10)     $      0.01
                                                      ============      ===========
Weighted average common shares outstanding
   Basic .........................................      25,863,036       19,061,111
                                                      ============      ===========
   Diluted .......................................      25,863,036       19,389,684
                                                      ============      ===========



<FN>
               The accompanying notes are an integral part of the
                       consolidated financial statements.
</FN>
</TABLE>


                                       G-3

<PAGE>


                           FOCUS ENHANCEMENTS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)



<TABLE>
<CAPTION>
                                                               Nine Months Ended
                                                       --------------------------------
                                                        September 30,     September 30,
                                                             2000             1999
                                                       ---------------   --------------
<S>                                                     <C>               <C>
Net sales ..........................................    $ 12,130,425      $12,142,413
Licensing fees .....................................             --           200,000
                                                        ------------      -----------
Net revenues .......................................    $ 12,130,425      $12,342,413
Cost of goods sold .................................       8,379,290        6,322,656
                                                        ------------      -----------
   Gross profit ....................................       3,751,135        6,019,757
                                                        ------------      -----------
Operating expenses:
   Sales, marketing and support ....................       2,747,566        2,907,104
   General and administrative ......................       2,377,417        1,169,112
   Research and development ........................         757,943        1,068,568
   Depreciation and amortization expense ...........         733,426          417,864
   Restructuring expense ...........................         202,252              --
                                                        ------------      -----------
     Total operating expenses ......................       6,818,604        5,562,648
                                                        ------------      -----------
(Loss) Income from operations ......................      (3,067,469)         457,109
Interest expense, net ..............................         (57,706)        (323,751)
Other income, net ..................................          66,649          165,683
Legal judgement expense (CRA) ......................      (2,147,722)             --
                                                        ------------      -----------
(Loss) Income before income taxes ..................      (5,206,248)         299,041
Income tax expense .................................          (2,146)             --
                                                        ------------      -----------
Net (Loss) Income ..................................    $ (5,208,394)     $   299,041
                                                        ============      ===========
Net (Loss) Income per common share .................
   Basic ...........................................    $      (0.21)     $      0.02
                                                        ============      ===========
   Diluted .........................................    $      (0.21)     $      0.02
                                                        ============      ===========
Weighted average common shares outstanding .........
   Basic ...........................................      25,003,382       18,210,783
                                                        ============      ===========
   Diluted .........................................      25,003,382       18,673,763
                                                        ============      ===========




<FN>
               The accompanying notes are an integral part of the
                       consolidated financial statements.
</FN>
</TABLE>


                                       G-4

<PAGE>


                           FOCUS ENHANCEMENTS, INC.
                        STATEMENT OF CHANGES IN EQUITY
                 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
                                   (Unaudited)



<TABLE>
<CAPTION>
                                                Common Stock
                                        ----------------------------     Additional
                                             Shares        Amount     Paid-in Capital
                                        --------------- ------------ -----------------
<S>                                        <C>           <C>            <C>
Balance at December 31, 1999 ..........    24,504,203    $ 245,042      $46,340,891
Issuance of common stock upon
 exercise of stock options and
 warrants .............................       446,000        4,460        1,116,046
Issuance of common stock from
 private offerings, net of
 issuance cost of $216,000 ............     1,400,000       14,000        1,270,000
Net loss ..............................    (5,208,394)
Balance at September 30, 2000 .........    26,350,203    $ 263,502      $48,726,937
                                           ==========    =========      ===========

<CAPTION>
                                                                              Total
                                           Accumulated       Treasury     Stockholders'
                                             Deficit           Stock         Equity
                                        ----------------- -------------- --------------
<S>                                       <C>               <C>            <C>
Balance at December 31, 1999 ..........   $ (36,678,638)    $ (700,130)    $9,207,165
Issuance of common stock upon
 exercise of stock options and
 warrants .............................                                     1,120,506
Issuance of common stock from
 private offerings, net of
 issuance cost of $216,000 ............                                     1,284,000
Net loss ..............................      (5,208,394)
Balance at September 30, 2000 .........   $ (41,887,032)    $ (700,130)    $6,403,277
                                          =============     ==========     ==========



<FN>
           See accompanying notes to Unaudited Financial Statements
</FN>
</TABLE>


                                       G-5

<PAGE>


                           FOCUS ENHANCEMENTS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)



<TABLE>
<CAPTION>
                                                                                    Nine Months Ended
                                                                             --------------------------------
                                                                              September 30,     September 30,
                                                                                   2000             1999
                                                                             ---------------   --------------
<S>                                                                           <C>               <C>
Cash flows from operating activities:
 Net Loss ................................................................    $ (5,208,394)     $    299,041
 Adjustments to reconcile net income to net cash used in operating
   activities:
   Depreciation and amortization .........................................         733,426           417,864
   Deferred Income .......................................................               0           (84,212)
   Amortization of discount on note payable ..............................           5,563             5,563
   Increase in accrued interest on notes receivable, common stock ........               0           (10,547)
   Changes in operating assets and liabilities, net of the effects of
    acquisition: .........................................................
    (Increase) decrease in accounts receivable ...........................         111,177          (957,528)
    Decrease in securities available for sale ............................             --            248,983
    Decrease (increase) in inventories ...................................       1,605,040         2,433,675
    Decrease (increase) in prepaid expenses and other assets .............      (1,132,034)       (1,356,551)
    (Decrease) increase in accounts payable ..............................        (551,530)         (254,510)
    (Decrease) increase in accrued liabilities ...........................       2,092,132        (1,416,474)
                                                                              ------------      ------------
     Net cash used (Provided)in operating activities .....................      (2,305,183)         (674,696)
                                                                              ------------      ------------
Cash flows from investing activities:
 Decrease (increase) in certificates of deposit ..........................        (746,544)          113,067
 Purchase of property and equipment ......................................        (405,851)         (484,026)
                                                                              ------------      ------------
     Net cash used in investing activities ...............................      (1,152,395)         (370,959)
                                                                              ------------      ------------
Cash flows from financing activities:
 Payments on notes payable ...............................................      (1,100,517)       (1,447,057)
 Payments under capital lease obligations ................................        (252,318)          (73,963)
 Payments on long-term debt ..............................................             --           (209,733)
 Net proceeds from accounts receivable factoring .........................             --            451,730
 Net proceeds from private offerings of common stock .....................       1,284,000         1,784,588
 Net proceeds from exercise of common stock options and warrants .........       1,120,506           163,756
                                                                              ------------      ------------
     Net cash provided by financing activities ...........................       1,051,672           669,321
                                                                              ------------      ------------
Net increase in cash and cash equivalents ................................      (2,450,907)         (376,334)
Cash and cash equivalents at beginning of period .........................       3,736,517         1,128,380
                                                                              ------------      ------------
Cash and cash equivalents at end of period ...............................    $  1,285,610      $    752,046
                                                                              ============      ============
Supplemental Cash Flow Information:
 Interest paid ...........................................................    $     54,078      $    364,091
 Income taxes paid .......................................................             --                --
</TABLE>


                                       G-6

<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, 2000 and for the three and  nine-month  periods
ended  September  30,  2000  and  1999  are  unaudited  and  should  be  read in
conjunction with the consolidated financial statements and notes thereto for the
year ended  December 31, 1999  included in the  Company's  Annual Report on Form
10-KSB/A for the year ended December 31, 1999.

     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, 2000 are not
necessarily  indicative  of the  results  that may be  expected  for any  future
period.

     The consolidated  financial  statements include the accounts of the Company
and its wholly-owned  subsidiary PC Video  Conversion,  Inc. The companies other
subsidiaries, Lapis Technologies, Inc., T-View, Inc and Focus Enhancements, B.V.
(Netherlands corporation) became inactive or were merged into Focus in 1999. All
intercompany accounts and transactions have been eliminated upon consolidation.



2. RESTATEMENT

     Historically,  the company  provided a gross margin  reserve for  estimated
sales returns each quarter.  In connection  with its review of the impact of SAB
101, the Company found that certain  transactions that were recorded as sales in
the second and third quarters of 1999 should not have been recorded as sales. As
a  result,   the  company  has  restated  the   financial   statements   of  the
aforementioned  quarters to correct the amount of revenue previously reported in
those  quarters.  This was  announced in the June 30,2000 10QSB filed August 21,
2000.

     As  indicated  above,  the Company has provided  gross margin  reserves for
estimated  sales returns and the Company  believes that such estimated  reserves
were adequate to cover the gross  margins on the restated  sales and other sales
returns. Accordingly, the restatement of the financial statements for the second
and third  quarters of 1999 did not have any impact on the  previously  reported
net income of those quarters.

     In addition,  in its quarterly financial  statements for the year 2000, the
Company  is  providing  a  reserve  for  estimated  sales  returns  based on the
estimated  sales value of the sales returns rather than a gross margin  reserve.
to be consistent with the quarterly financial statement presentation in 2000.

<TABLE>
     The items in the financial  statements that are affected by the restatement
are as follows:


<CAPTION>
                                                   (In Thousands)
                                ----------------------------------------------------
                                   6/30/99       6/30/99       9/30/99      9/30/99
                                 Previously        As        Previously        As
                                  Reported      Restated      Reported      Restated
                                ------------   ----------   ------------   ---------
<S>                                <C>          <C>            <C>          <C>
INCOME STATEMENT
Revenue .....................      $ 4,440      $ 4,077        $ 4,106      $ 3,198
Cost of Goods Sold ..........        2,491        2,128          2,165        1,257
Net Income ..................           55           55            141          141
BALANCE SHEET
Accounts Receivable .........      $ 3,513      $ 3,296        $ 3,511      $ 2,996
Inventory ...................        4,406        4,622          3,515        4,030
Current Assets ..............        8,359        8,359          8,325        8,325
</TABLE>


     The Company is in the process of amending  the Form 10QSB for each of these
quarters to reflect this restatement


3. NET INCOME PER SHARE

     In February  1997,  FASB issued 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


                                       G-7

<PAGE>

                           FOCUS ENHANCEMENTS, INC.
      NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

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, 2000 and 1999,  options
and warrants  applicable to 2,054,069 shares and 4,261,221 shares,  respectively
were anti-dilutive and excluded from the diluted earnings per share computation.


4. 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, 2000
and 1999.


5. INVENTORIES
     Inventories consist of the following:

                                      September 30,2000     December 31,1999
                                     -------------------   -----------------
  Finished goods ...................      $  782,850           $2,377,709
  Work In Process ..................      $   19,067           $  171,637
  Raw Materials ....................      $1,181,745           $1,039,356
                                          ----------           ----------
                                          $1,983,662           $3,588,702
                                          ==========           ==========

6. 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 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. Maturities of long-term debt at September 30, 2000 are as follows:

  Year Ended 12/31/00 .........    $317,367
  Year Ended 12/31/01 .........      63,560
                                   --------
  Total .......................    $380,927

     On July 28, 2000,  the Company  entered into a  Separation  Agreement  with
Steve Wood. Mr. Wood was the Vice President of Pro AV  engineering,  former sole
shareholder of PC Video  Conversion,  Inc.,  and leader of the Company's  Morgan
Hill facility. On June 15, 2000, the Company closed the Morgan Hill facility. On
July 28, 1998, the Company  purchased from PC Video Conversion,  Inc.,  selected
assets and liabilities  and, in return,  issued a promissory note and entered an
employment  agreement with Mr. Wood. As part of the Separation  agreement  which
terminated Mr. Wood's employment agreement, Mr. Wood remained a consultant until
an upgrade to one of the Companies Pro AV products is completed.  In return, Mr.
Wood  received a right to convert the  promissory  note into common stock of the
Company.  Under terms of the  Agreement,  the election  must be made within five
days following the  shareholder  meeting at which time the  outstanding  balance
would be  converted  at a price of  ninety-three  percent  (93%) of the  average
closing price of the Company  common stock on the five trading days prior to the
conversion date, up to a maximum of 500,000 shares of common stock.


7. COMMON STOCK TRANSACTIONS

     On January 18, 2000,  the Company  received gross proceeds of $990,000 from
the issuance of 330,000  shares of common stock  resulting  from the exercise of
common  stock  warrants  issued   pursuant  to  a  private   placement  with  an
unaffiliated investor.


                                       G-8

<PAGE>

                           FOCUS ENHANCEMENTS, INC.
      NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

     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 exercised on February 23, 2000 (15,000
shares) and March 2, 2000 (15,000 shares).

     On May 1,  2000,  the Board of  Directors  approved  by  unanimous  written
consent,  an increase in the  authorized  shares of common  stock to  43,000,000
shares.

     On May 1,  2000,  the Board of  Directors  approved  by  unanimous  written
consent,  the establishment of the 2000 Non-Qualified Stock Option Plan, subject
to stockholder approval.  In addition,  the Board authorized 3,000,000 shares to
be reserved for the 2000 Plan.  On May 5, 2000,  the Company  granted  2,473,375
Stock Options under the 2000 Plan.

     On June 9, 2000, the Company entered into a financing  agreement  resulting
in  $1,500,000  in gross  proceeds  from the sale of 1,400,000  shares of common
stock and the issuance of a warrant to purchase an additional  140,000 shares of
common stock in a private placement, to an unaffiliated accredited investor. The
warrant is  exercisable  until June 30,  2005 at a per-share  exercise  price of
$1.625. In addition, Union Atlantic received a warrant to purchase 45,000 shares
of common stock as compensation for brokering the private placement. The warrant
is exercisable until June 30, 2005 at a per-share  exercise price of $1.625. The
Company  intends to file a  registration  statement  under the Securities Act of
1933 for the shares issued in connection with this  transaction and for those to
be issued upon exercise of the warrants. The Company received proceeds from this
transaction on June 9, 2000. The fees and expenses associated with this offering
was $216,000 yielding net proceeds of $1,284,000.

     During the  quarter  ended June 30,  2000,  the  Company  issued at various
times,  11,667 shares of common stock  resulting from other exercises of options
and  warrants,  receiving  cash of  approximately  $12,700.  Additional  Paid-in
Capital of 1,282,584  ($1,270,000 for the private placement and $12,584 from the
exercise of stock  options and  warrants)  for the quarter is net of $216,000 of
related legal expenses.

     On July 28,  2000,  the  Company  entered  into an  equity  line of  credit
agreement with Euston  Investments  Holdings  Limited,  a British Virgin Islands
Corporation, for the future issuance and purchase of shares of our common stock.
The equity line of credit  agreement  establishes  what is  sometimes  termed an
equity drawdown facility.

     In general, the investor, Euston Investments,  has committed to provide the
Company up to $5 million as the Company  requests it over a 24 month period,  in
return for common stock the Company issues to Euston Investments.  The number of
shares  issued to Euston  Investments  in return for that money is determined by
dividing the  contracted  price per share into the amount of money  requested by
the Company. The per share dollar amount Euston Investments is 10% less than the
average  closing  bid price of our common  stock  during a valuation  period.  A
"valuation  period" is defined as the period of fifteen  trading days  beginning
seven  trading  days  immediately  before the Trading Day on which a drawdown is
requested  and ending seven  trading days  immediately  after such date. We will
receive  the  amount of the  drawdown  less an  escrow  agent fee of $750 and 7%
placement  fee  payable  to the  placement  agent,  Union  Atlantic,  LC,  which
introduced Euston  Investments to the Company.  The aggregate total of all draws
cannot  exceed $5 million.  We are under no obligation to request a draw for any
period.  In  lieu of  providing  Euston  Investments  with a  minimum  aggregate
drawdown  commitment,  we have  issued to Euston  Investments  a stock  purchase
warrant to purchase 250,000 shares of our common stock with an exercise price of
$1.625. The warrant expires June 12, 2005.

     During the quarter ended  September 30, 2000, the Company issued at various
times,  42,332 shares of common stock  resulting  from  exercises of options and
warrants,  receiving cash of approximately  $423, and additional Paid-in Capital
of $51,222.

     For the nine month period ended  September 30, 2000,  the Company issued at
various  times,  446,000  shares of common  stock  resulting  from  exercises of
options and warrants, receiving cash of approximately $1,120,507.


                                       G-9

<PAGE>

                           FOCUS ENHANCEMENTS, INC.
      NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Additional Paid-in Capital of 2,386,047($1,270,000 for the private placement and
$1,116,047  from the exercise of stock  options and warrants) for this period is
net of $245,440 of related legal expenses.


8. SEPARATION AGREEMENTS AND CONSULTING AGREEMENTS

     On September  6,2000,  Mr. Chris Ricci resigned from his position as Senior
Vice President,  General Counsel and Secretary. Mr. Ricci's employment agreement
was terminated on that date and replaced with a new agreement  providing for his
employment by Focus as a part-time consultant terminating April 30, 2001, unless
sooner terminated by both parties.  The part-time  consulting agreement provides
that Mr.  Ricci  shall  continue  to hold all of the  stock  options  previously
granted to him and requires the  acceleration  of vesting of all options held by
Mr. Ricci so as to be immediately exercisable if Mr. Ricci is terminated without
cause during the term of the contract.


9. LITIGATION

     As noted in PART  II-OTHER  INFORMATION,  ITEM 1., LEGAL  PROCEEDINGS,  the
Company has disclosed certain legal proceedings. The class action suits included
therein  are in their  early  stages and it is not yet  possible  to estimate an
outcome.


CRA Litigation

     On October 10, 2000,  the court rendered a judgment on the verdict in favor
of CRA for actual damages, punitive damages, attorneys fees, costs and interest;
the  judgment  totaled  approximately  $2,000,000.  Focus  intends  to  file  an
appropriate  post-judgment  motion  requesting  that this  judgment  be  reduced
significantly,  and will pursue an appeal to the United  States Court of Appeals
for the Fifth Circuit in New Orleans,  Louisiana.  To suspend enforcement of the
judgment pending  determination of its post-judgment motion and appeal, Focus is
required to post a bond in the  approximate  amount of $2.3  million  (being the
approximate amount of the judgment plus 10% to cover interest and costs of CRA).
On October 27, 2000, Focus submitted a bond and filed its post-judgement motion.
In connection with this judgment,  Focus has recorded a legal judgement  expense
of approximately $2,147,000 in the period ended September 30, 2000.



10. SUBSEQUENT EVENTS

     On October 26, 2000, in  connection  with the posting of a bond for the CRA
legal judgement,  Focus borrowed approximately $2.3 million and issued a secured
promissory note in the principal amount of $2.3 million in favor of Carl Berg, a
shareholder  and  director  of  Videonics.  In  the  event  the  Focus/Videonics
previously announced merger is not completed,  the promissory note can be called
and become  payable  in full upon  90-days  notice  from Mr.  Berg,  at his sole
discretion.  The promissory note is secured by a security  agreement in favor of
Mr. Berg granting him a security interest in first priory over substantially all
of the assets of Focus. In the event that the merger is not completed,  there is
no assurance that Mr. Berg will not seek repayment of the promissory note.



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/A for the year ended December 31, 1999.

     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


                                      G-10

<PAGE>

                           FOCUS ENHANCEMENTS, INC.
      NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

"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/A for the
year ended December 31, 1999, including, but not limited to, the section therein
entitled "Certain Factors That May Affect Future Results."

     In its quarterly  financial  statements  for the year 2000,  the Company is
providing a reserve for estimated  sales  returns  based on the estimated  sales
value of the sales returns rather than only a gross margin  reserve.  The second
and third  quarters  of 1999 have been  restated  to reflect  this  change to be
consistent  with the financial  statement  presentation  in 2000.  The financial
statement accounts for Q2 and Q3 of 1999 that have been changed to reflect these
changes for  comparative  purposes are Revenue,  Cost,  Accounts  Receivable and
Inventory.

     Historically,  the company  provided a gross margin  reserve for  estimated
sales returns each quarter.  In connection  with its review of the impact of SAB
101, the Company found that certain  transactions that were recorded as sales in
the second and third quarters of 1999 should not have been recorded as sales. As
a  result,   the  company  has  restated  the   financial   statements   of  the
aforementioned  quarters to correct the amount of revenue previously reported in
those quarters.


RESULTS OF OPERATIONS

     Three-Month   Period   Ended  September  30,  2000  As  Compared  With  The
Three-Month Period Ended September 30, 1999


Net Revenues

     Net revenues for the three-month  period ended September 30, 2000 ("Q3 00")
were  $4,116,181 as compared with  $3,198,031 for the  three-month  period ended
September  30, 1999 ("Q3 99"),  an increase of $918,149 or 29%.  The increase in
sales  is  primarily   attributed  to  OEM/Licensing  and  Professional  Product
customers.  Specifically,  net revenues in Q3 00 to OEM product sales  increased
351% to  $1,102,000  in Q3 00 from  $229,000 in Q3 99. Net  Revenues in Q3 00 to
Professional  Product customers  increased 93% to $1,111,000 from $576,000 in Q3
99. The  increases  in net  revenues  were offset by a decrease in the  consumer
video conversion product line of 7% to $2,539,000 in Q3 00 from $2,722,000 in Q3
99. As referenced herein, a restatement of Q3 99 financial  information resulted
in a $908,000 reduction to net revenues for 1999 comparative purposes.




                                      G-11

<PAGE>

                           FOCUS ENHANCEMENTS, INC.
      NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Sales Backlog

     As of  September  30,  2000,  the  Company  had a sales  order  backlog  of
approximately $646,000.


Cost of Goods Sold

     Cost of goods sold were  $2,714,705 or 65% of net revenues,  for the three-
month period ended September 30, 2000, as compared with $1,257,490 or 39% of net
revenues,  for the  three-month  period ended September 30, 1999, an increase in
absolute  dollars of $1,457,215 or 116%. The Company's  gross profit margins for
Q3 00 and Q3 99 were  35% and 61%,  respectively.  The  decrease  in Q3 00 gross
margin is  primarily  due to a $908,000  decrease to cost of goods sold for 1999
comparative  purposes,no  licensing revenue in Q3 00 and an increase in OEM chip
revenue in Q3 00.


Sales, Marketing and Support Expenses

     Sales, marketing and support expenses were $760,721 or 18% of net revenues,
for the  three-month  period ended September 30, 2000, as compared with $886,620
or 28% of net revenues,  for the three-month  period ended September 30, 1999, a
decrease of $125,899.  This was primarily due to a diminishment  of expenditures
for mail order advertising and direct mail advertising.


General and Administrative Expenses

     General  and  administrative  expenses  for the  three-month  period  ended
September  30, 2000 were  $523,779  or 13% of net  revenues,  as  compared  with
$387,942 or 12% of net revenues for the  three-month  period ended September 30,
1999,  an increase of $135,837 or 35%. The  increase in absolute  dollars is due
primarily to increases in legal fees  (approximately  $87,000),  consulting fees
(approximately $73,000), and banking fees (approximately  $11,000).  Payroll was
reduced by $44,000.


Research and Development Expenses

     Research  and  development   expenses  for  the  three-month  period  ended
September  30,  2000  were  $212,757,  or 5% of net  revenues,  as  compared  to
$305,762,  or 10% of net revenues,  for  three-month  period ended September 30,
1999, a decrease of $93,005 or 30%.


Interest Expense, Net

     Net interest  expense for the  three-month  period ended September 30, 2000
was  $3,628,  or 0% of net  revenues,  as  compared  to  $156,890,  or 5% of net
revenues,  for the  three-month  period ended  September 30, 1999, a decrease of
$153,262,  or 98%.  The  decrease is  primarily  attributable  to  decreases  in
interest paying obligations for the quarter ended September 30, 2000 as compared
to the quarter ended September 30, 1999.


Other Income

     Other  Income for the  three-month  period  ended  September  30,  2000 was
$13,038 as compared to $82,760,  for the three-month  period ended September 30,
1999, a decrease of $69,632.


Legal Judgement Expense

     On October 27, 2000,  Focus  submitted a bond and filed its  post-judgement
motion in regard to the CRA litigation.  In connection with this judgment, Focus
has recorded a Legal judgement expense of approximately $2,147,000 in the period
ended September 30, 2000.


Net Loss

     For the quarter ended  September 30, 2000, the Company  reported a net loss
of ($2,516,846), or ($0.10) per share, as compared to net income of $141,359, or
$0.01 per share,  for the quarter  ended  September  30,  1999.  The net loss is
primarily due to the physical inventory adjustment, increased inventory reserves
and  the  recording  of  the  CRA  legal  judgement   expense  of  approximately
$2,147,000.


                                      G-12

<PAGE>

                           FOCUS ENHANCEMENTS, INC.
      NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

RESULTS OF OPERATIONS

     Nine-Month  Period Ended September 30, 2000 As Compared With The Nine-Month
Period Ended September 30, 1999


Net Revenues

     Net revenues for the nine-month  period ended  September 30, 2000 ("Q3 00")
were  $12,130,425 as compared with  $12,342,413 for the nine-month  period ended
September  30, 1999 ("Q3 99"),  a decrease  of  $211,988 or 2%. The  decrease in
sales is  primarily  attributed  to the  discontinuation  of  sales  to  certain
resellers of the Company's  consumer video conversion product line. Net sales to
consumer video conversion  customers through Q3 00 were $6,117,000,  compared to
$9,596,000 for the same period in 1999. These sales decreased 36% or $3,478,000.
The  decrease  was  offset  by an  increase  in sales to the  OEM/Licensing  and
Professional Product customers.  Specifically, net revenues through Q3 00 to the
Company's  OEM/Licensing  customers  increased 66% to $2,498,000 from $1,501,000
for the same period in 1999. Net Revenues through Q3 00 to Professional  Product
customers increased 54% to $2,410,000 from $1,568,000 through Q3 99.


Cost of Goods Sold

     Cost of goods sold were  $8,379,290 or 69% of net  revenues,  for the nine-
month period ended September 30, 2000, as compared with $6,322,656 or 51% of net
revenues,  for the  nine-month  period ended  September 30, 1999, an increase in
absolute  dollars of  $2,056,634  or 33%. The  Company's  gross  profit  margins
through Q3 00 and Q3 99 were 31% and 49%,  respectively.  The  decrease in gross
margins is due principally to a $603,000 writedown of inventory as a result of a
physical  inventory  taken at the end of Q2 00. The Company  also  provided  for
additional  reserves of $207,000  for  liquidation  of the InVideo  Conferencing
product  line,  the  repair  of  returned  products,   and  potential  inventory
obsolescence  in Q2 00.  compared to $0 in Q2 99.  Additionally,  the Company is
selling slow moving inventory at cost, which has generated  $400,000 in cash but
has eroded  margins on the  remainder  of the  consumer  product  line.  In Q3 a
$180,000  writedown of inventory  resulting from  obsolesence and an increase of
marketing  development  funds of  $25,000  occurred.  As  referenced  herein,  a
restatement of Q3 99 financial  information  resulted in a $908,000  decrease to
cost of goods sold for 1999 comparative purposes.


Sales, Marketing and Support Expenses

     Sales,  marketing  and  support  expenses  were  $2,747,566  or  23% of net
revenues,  for the nine-month  period ended September 30, 2000, as compared with
$2,907,104 or 24% of net revenues, for the nine-month period ended September 30,
1999, a decrease of  $159,538.This  decrease was due primarily to a reduction in
marketing expenditures pertaining to direct mail and mail order advertising.


General and Administrative Expenses

     General  and  administrative  expenses  for  the  nine-month  period  ended
September  30, 2000 were  $2,377,417  or 20% of net  revenues,  as compared with
$1,169,112 or 9% of net revenues for the nine-month  period ended  September 30,
1999, an increase of $1,208,305 or 103%. The increase in absolute dollars is due
primarily to increases in  accounting  fees  (approximately  $302,000) and legal
fees  (approximately  $292,000) in  conjunction  with the completion of the 1999
annual audit and review of accounting  practices  and the special  investigation
conducted by the Board of Directors  with respect to the  financial  controls of
the  Company,  combined  with  increases  in  payroll  (approximately  $78,000),
accounts  receivable   reserves   (approximately   $118,000),   consulting  fees
(approximately $170,000), investor relations (approximately $59,000) and banking
fees (approximately $24,000).



                                      G-13

<PAGE>

                           FOCUS ENHANCEMENTS, INC.
      NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Research and Development Expenses

     Research and development expenses for the nine-month period ended September
30, 2000 were $757,943, or 6% of net revenues, as compared to $1,068,568,  or 9%
of net revenues,  for nine-month  period ended September 30, 1999, a decrease of
$310,625 or 29%.This reduction was promarily due to an increased  capitalization
rate  during Q1 00 and Q2 00 as well as a  reduction  in labor  expense due to a
shortage of engineers in the tight northwest labor market.


Restructuring Expense

     During Q2 00 the company  successfully  completed the closing of its Morgan
Hill facility.  In conjunction  with the closing and movement of materials , the
company wrote off an additional $40,000 worth of materials in Q2 00.


Interest Expense, Net

     Net interest expense for the nine-month period ended September 30, 2000 was
$57,706, or 1% of net revenues,  as compared to $323,751, or 3% of net revenues,
for the nine-month  period ended September 30, 1999, a decrease of $266,045,  or
82%.  The  decrease is primarily  attributable  to decreases in interest  paying
obligations  for the quarter ended September 30, 2000 as compared to the quarter
ended September 30, 1999.


Other Income

     Other Income for the nine-month period ended September 30, 2000 was $57,706
as compared to $165,683,  for the nine-month  period ended September 30, 1999, a
decrease of $99,034.  This was primarily due to a decrease in cash  availability
for deposit purposes that would generate interest income.


Judgement Expense

     On October 27, 2000,  Focus  submitted a bond and filed its  post-judgement
motion in regard to the CRA litigation.  In connection with this judgment, Focus
has  recorded  an  expense  of  approximately  $2,147,000  in the  period  ended
September 30, 2000.


Net Loss

     For the nine-month  period ended September 30, 2000, the Company reported a
net loss of  ($5,208,394),  or ($0.21)  per share,  as compared to net income of
$299,041,  or $0.02 per share,  for the  nine-month  period ended  September 30,
1999.  The net loss is  primarily  due to the  physical  inventory  variance  of
consigned  goods,  increased  inventory  reserves,  discontinuation  of sales to
certain resellers, one-time restructuring expenses for the closure of the Morgan
Hill,  CA operation  and  significant  non-recurring  accounting  and legal fees
pursuant to the 1999 annual audit and related review of accounting practices and
the special  investigation  of the Board of Directors.  The CRA legal  judgement
accounted for $2,147,000 of the to date loss.


LIQUIDITY AND CAPITAL RESOURCES

     Net cash provided for (used in)  operating  activities  for the  nine-month
periods  ended  September  30,  2000  and 1999 was  ($2,350,183)  and  $674,696,
respectively.  In the year 2000 period,  net cash used in  operating  activities
consisted  primarily  of  increases  in  prepaid  expenses  and other  assets of
$1,132,034  and a decrease in accounts  payable of $551,530.  This was offset by
decreases in inventory of $1,658,803 and accounts  receivable of $111,177 and an
increase  in  accrued   liabilities   of   $2,092,132   and   depreciation   and
amortization(non-cash  charge) of $733,426.  As of September  30, 2000 and 1999,
accounts receivable from a major distributor  represented  approximately 24% and
26%, respectively of total accounts receivable.  In Q3 00, the Company continued
to record provisions for potential future uncollectable  accounts and maintained
reserves for potential product returns.


                                      G-14

<PAGE>

                           FOCUS ENHANCEMENTS, INC.
      NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

     In the nine months ended  September  30, 1999,  net cash used in operations
consisted  primarily  of an  increase  in accounts  receivable  of $957,528  and
prepaid  expense  of  $1,356,551  and  a  decrease  in  accrued  liabilities  of
$1,416,474  and accounts  payable of $254,510.  This was offset by a decrease in
inventory  of  $2,433,675  and  securities  available  for sale of $248,983  and
depreciation and amortization  (non-cash charge) of $417,864,  and net income of
$299,041.

     Net cash used in investing  activities  for the  nine-month  periods  ended
September  30,  2000 and  September  30,1999  was  ($1,152,395)  and  ($370,959)
respectively.  In 2000 and 1999 period,  cash used in investing  activities  was
principally  for the purchase of property and equipment.  Additionally,  Standby
Letters of Credit are currently  utilized to establish  credit  facilities for a
manufacturer of the companies products.

     Net cash  provided by (used in)  financing  activities  for the  nine-month
periods  ended  September  30,  2000  and  1999  was  $1,051,671  and  $669,321,
respectively.  In the  2000  period,  the  Company  received  $2,404,506  in net
proceeds from the exercise of common stock options and warrants and from private
offerings.  The  Company's  financing  proceeds were offset by payments on notes
payable and capital lease  obligations.  In the same period in 1999, the Company
received  $1,948,344 in net proceeds from private offerings of common stock, and
$451,730  in net  proceeds  from  the  factoring  of  accounts  receivable.  The
Company's financing proceeds were offset by payments on notes payable,  accounts
receivable financing and capital lease obligations.


     As of September 30, 2000, the Company had working capital of $1,950,150, as
compared to  $5,632,771  at December  31, 1999,  a decrease of  $3,682,621.  The
Company's  cash  position at September  30, 2000 was  $1,285,610,  a decrease of
$2,450,907 over cash and equivalents at December 31, 1999. As noted herein,  the
Company has  disclosed a judgement in the  litigation  with CRA that will have a
significant impact on the cash requirements of the Company. Please reference the
following   disclosure  under  PART  II--OTHER   INFORMATION,   ITEM  1.,  LEGAL
PROCEEDINGS.


     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.


RECENT ACCOUNTING PRONOUNCEMENTS

     The FASB  issued  a  proposed  interpretive  release,  Stock  Compensation-
Interpretation of APB Opinion 25  ("Interpretation").  The  Interpretation  will
provide  accounting  guidance  on  several  issues  that  are  not  specifically
addressed in Accounting  Principles Board ("APB") No. 25,  "Accounting for Stock
Issued to Employees. Of the many questions addressed in the Interpretation,  the
most  significant is the  clarification of the definition of the term "employee"
for the  purposes of applying  the opinion and the  accounting  for options that
have been repriced.

     The  Interpretation  is generally  effective  beginning  July 1, 2000.  The
Interpretation  applies  prospectively  at the date for  repricings  that occurs
after  December 15, 1998. It also applies  prospectively  on July 1, 2000 to new
awards  granted after  December 15, 1998 for purposes of applying the definition
of "employee".

     In   December   1999,   the   Securities   and   Exchange  Commission  (the
"Commission")  published  Staff  Accounting  Bulleting ("SAB") No. 101, "Revenue
Recognition", which provides guidance for applying generally


                                      G-15

<PAGE>

                           FOCUS ENHANCEMENTS, INC.
      NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

accepted accounting  principles to revenue  recognition in financial  statements
filed  with  the  Commission,   including  income  statement   presentation  and
disclosure.  As  originally  issued  SAB 101 was to be applied no later than the
first quarter of the fiscal year beginning after December 15, 1999. However, the
Commission  has delayed the effective  date of the SAB for companies with fiscal
years beginning between December 16, 1999 and March 15, 2000. For such entities,
the mandatory implementation date may now be no later than the fourth quarter of
the fiscal year beginning after December 15, 1999.

     The company is in the process of reviewing and continuing its evaluation of
the  pronouncements  detailed  above to determine  the  potential  impact on the
financial statements of the company.


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 involves risks and uncertainties.  In particular,  statements  contained in
this Form 10-KSB/A 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.


                          PART II -- OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS



Class Action Suits

     The Company and certain of it's Officers and  Directors  have been named as
defendants in two alleged  class-actions pending 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  shares of our common  stock from July 17, 1997 to February  19, 1999.
Consolidated  amended  complaints  have been filed in each alleged class action.
The first complaint  alleges a claim of shareholders  who purchased Focus shares
during the July 17,1997 to February, 1999 period. The second complaint alleges a
class of shareholders  who purchased  shares between November 15, 1999 and March
1, 2000. The first complaint was initially filed in November of 1999: The second
complaint  was  initially  filed in March of 2000.  Both  complaints  purport to
allege  violations of the federal  securities laws. The Defendants have moved to
dismiss the amended complaint in the Ridel actions, and are in process of moving
to dismiss the amended complaint in the James  actions,for,inter alia failure to
plead with the  specificity  required  both by rule 9(b) of the Federal Rules of
Civil Procedure, and the Private Securities Litigation Reform Act of 1995.



                                      G-16

<PAGE>

                           FOCUS ENHANCEMENTS, INC.
      NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

CRA Systems, Inc.

     In 1996 CRA Systems,  Inc., a Texas corporation,  and Focus entered into an
agreement,  the terms and  nature of which  were  subsequently  disputed  by the
parties.  Focus  contended  the  transaction  was simply a sale of inventory for
which Focus was never paid.  CRA contended  otherwise.  CRA brought suit against
Focus for breach of  contract  contending  that Focus  grossly  exaggerated  the
demand for the  product,  and the margin of profit  which was  available  to CRA
regarding this project.  CRA sought to recover  out-of-pocket  losses  exceeding
$100,000,  and lost profits of $400,000 to $1,000,000.  A jury trial in May 2000
in federal district court in Waco, Texas,  resulted in a verdict in favor of CRA
for $848,000 actual damages and 1,000,000 punitive damages. On October 10, 2000,
the court rendered a judgment on the verdict in favor of CRA for actual damages,
punitive  damages,  attorneys  fees,  costs and interest;  the judgment  totaled
approximately  $2,000,000.  Focus intends to file an  appropriate  post-judgment
motion requesting that this judgment be reduced  significantly,  and will pursue
an appeal to the United  States  Court of Appeals  for the Fifth  Circuit in New
Orleans, Louisiana. To suspend enforcement of the judgment pending determination
of its post-judgment  motion and appeal, Focus is required to post a bond in the
approximate amount of $2.3 million (being the approximate amount of the judgment
plus 10% to cover interest and costs of CRA).

     On October 27, 2000,  Focus  submitted a bond and filed its  post-judgement
motion.  In  connection  with this  judgment,  Focus has  recorded an expense of
approximately $2,147,000. in the period ended September 30, 2000.

     From time to time,  the Company is party to certain  other claims and legal
proceedings  that arise in the  ordinary  course of  business  of which,  in the
opinion of management,  has a material adverse effect on the Company's financial
position or results of operation.


ITEM 2. CHANGES IN SECURITIES

     On June 9, 2000, the Company entered into a financing  agreement  resulting
in  $1,500,000  in gross  proceeds  from the sale of 1,400,000  shares of common
stock and the issuance of a warrant to purchase an additional  140,000 shares of
common stock in a private placement, to an unaffiliated accredited investor. The
warrant is  exercisable  until June 30,  2005 at a per-share  exercise  price of
$1.625. In addition, Union Atlantic received a warrant to purchase 45,000 shares
of common stock as compensation for brokering the private placement. The warrant
is exercisable until June 30, 2005 at a per-share  exercise price of $1.625. The
Company  intends to file a  registration  statement  under the Securities Act of
1933 for the shares issued in connection with this  transaction and for those to
be issued upon exercise of the warrants. The Company received proceeds from this
transaction on June 9, 2000. The fees and expenses associated with this offering
was $216,000 yielding net proceeds of $1,284,000.

     No person acted as an  underwriter  with respect to this  transaction.  The
Company  relied on Section 4(2) of the  Securities  Act of 1933, as amended (the
"Securities  Act"), for the exemption from the registration  requirements of the
Securities Act, since no public offering was involved.

     During the month of  September,2000,  42,332  shares of stock  available to
current and former  employees  thru their stock option plan were exercised for a
share price of $1.22 resulting in $51,221 of additional paid in Capital.


ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     None


ITEM 4. SUBMISSION OF MATTERS TO A VOTE

     None


ITEM 5. OTHER INFORMATION/SUBSEQUENT EVENTS

     On October 30, 2000 the Company filed an S-4  Registration  Statement  with
the Securities and Exchange  Commission relating to securities of the Registrant
exchangeable  for  shares of  common  stock of  Videonics,  Inc.,  a  California
corporation,  no par value,  in the proposed merger of Videonics with and into a
wholly-owned subsidiary of the Registrant.


                                      G-17

<PAGE>

                           FOCUS ENHANCEMENTS, INC.
      NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

     On October 26, 2000, in  connection  with the posting of a bond for the CRA
legal judgement,  Focus borrowed approximately $2.3 million and issued a secured
promissory note in the principal amount of $2.3 million in favor of Carl Berg, a
shareholder  and  director  of  Videonics.  In  the  event  the  Focus/Videonics
previously announced merger is not completed,  the promissory note can be called
and become  payable  in full upon  90-days  notice  from Mr.  Berg,  at his sole
discretion.  The promissory note is secured by a security  agreement in favor of
Mr. Berg granting him a security interest in first priory over substantially all
of the assets of Focus. In the event that the merger is not completed,  there is
no assurance that Mr. Berg will not seek repayment of the promissory note.



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
   a. The following exhibits are filed herewith:

     11.0 Statement Re: Computation of Per Share Earnings

     27.0 Financial data schedule

     b. Reports on Form 8-K

     The Company did not file any reports on Form 8-K during the quarters  ended
     March 31 and June 30, 2000.

     The Company  filed an 8k on October  31,2000 to announce  the issuance of a
     secured  promissory note in the principal  amount of $2,362,494  inorder to
     collateralize  a $2.3 million bond to be posted in  connection  with Focus'
     litigation with CRA Systems Inc. Focus also announced that it had submitted
     a supersedeas  bond in the Federal  District Court of Waco Texas to suspend
     the enforcement of a $1.8 million judgement in favor of CRA Systems, Inc.

     The Company filed an 8k/A on November 2,2000 to attach additional  exhibits
     to the previously filed Form 8K, filed on October 31, 2000.



                                      G-18

<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.


August 21, 2000                           FOCUS ENHANCEMENTS, INC.

                                          By: /s/ Brett A. Moyer
                                                  ------------------------------
                                                  Brett A. Moyer
                                                  Executive Vice President
                                                  & Chief Operating Officer

August 21, 2000                           By: /s/ Richard A. Nardella
                                                  ------------------------------
                                                  Richard A. Nardella
                                                  Principal Accounting Officer


                                      G-19

<PAGE>

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                                   APPENDIX H


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                     -------------------------------------
                                    FORM 10-K


[X]  ANNUAL  REPORT  UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
     1934
                 For the fiscal year ended December 31, 1999,
                                       or

[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13  OR  15(d)  OF THE SECURITIES
     EXCHANGE ACT OF 1934
              For the transition period from         to         .

                         Commission File Number 0-25036

                                Videonics, Inc.
             (Exact name of Registrant as specified in its charter)

                                   California
                        (State or other jurisdiction of
                         incorporation or organization)


                     1370 Dell Ave., Campbell, California
                   (Address of Principal Executive Offices)
                                   77-0118151
                      (I.R.S. Employer Identification No.)

                                      95008
                                   (Zip Code)

Registrant's telephone number, including area code:        (408) 866-8300

Securities  registered  pursuant to Section  12(b) of the Act:  None
Securitiesregistered pursuant to Section 12(g) of Act:

                               Title of each class
                               -------------------
                        Common Stock, without par value

                   Name of each exchange on which registered
                   -----------------------------------------
                          Nasdaq National Market System

     Indicate  by check mark  whether the  Registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934 during the preceding 12 months (or for such other  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.  [X] Yes No [ ]

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained,  to the
best  of  the  Registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [ ]

     At March 1,  2000,  the  aggregate  market  value of Common  Stock  held by
non-affiliates of the Registrant was approximately $6,002,364.

     As of March 1, 2000, there were 5,881,847 shares of the Registrant's Common
Stock outstanding.


                       DOCUMENTS INCORPORATED BY REFERENCE

     Materials from the Regisrant's  definitive Proxy Statement  relating to its
2000 Annual Meeting of  Shareholders to be held on or about August 17, 2000 (the
"Proxy  Statement")  have been  incorporated by reference into Part III, of this
Report.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

<PAGE>


                                     PART I


     This  Annual  Report on Form 10-K  contains  forwarding-looking  statements
within the  meaning of the  Private  Securities  Litigation  Reform Act of 1995,
particularly  statements  regarding market  opportunities,  market share growth,
competitive  growth,  new  product   introductions,   success  of  research  and
development,  research and  development  expenses,  customer  acceptance  of new
products,  gross margin and selling,  general and administrative expenses. These
forward-looking  statements involve risks and uncertainties,  and the cautionary
statements  set forth below identify  important  factors that could cause actual
results to differ  materially  form those  predicted in any such forward looking
statements.  Such factors  include,  but are not limited to, adverse  changes in
general economic  conditions,  including adverse changes in the specific markets
for the Company's products,  adverse business  conditions,  decreased or lack of
growth in the market for video  post-production  equipment,  adverse  changes in
customer  order  patterns,  increased  competition,  lack of  acceptance  of new
products, pricing pressures, lack of success in technological advancement, risks
associated with foreign  operations,  and other factors,  including those listed
below.


ITEM 1. BUSINESS

     Videonics,  Inc., a California corporation organized in 1986 (the "Company"
or "Videonics"),  is a leader in the design, development,  manufacture, and sale
of affordable, high quality, real time, digital video post-production equipment.
The  Company's  products  process,  edit,  and mix raw video  footage as well as
enhance such  footage  with audio,  special  effects,  and titles,  resulting in
professional  quality video production.  Videonics  equipment is used throughout
the world in the  production  of videos.  As of  December  31,  1999,  more than
550,000 units of Videonics equipment have been sold worldwide.

     Videonics' products incorporate general-purpose computers,  special-purpose
microprocessor-based  systems,  and internally  developed  application  specific
integrated  circuits  ("ASICs") with digital signal processing ("DSP") and other
capabilities. The Company also implements much of its products' functionality in
software.  The Company  believes that its proprietary  technologies  provide the
infrastructure to develop a broad array of video post-production  solutions.  By
reducing the cost of high performance  post-production  equipment,  Videonics is
making  post-production   capabilities  available  to  an  expanding  market  of
potential users.


The Video Production Process

     The  video  production  process  consists  of  three steps: pre-production,
production, and post-production.

     Pre-production  is the  planning  of a video:  writing a  script,  creating
storyboards   (sketches  which  show  how  a  scene  will  look  and  describing
transitions),  planning shots,  budgeting,  obtaining  props and locations,  and
scheduling.  Production  is the  shooting of the video  scenes,  with or without
sound.  Post-production  involves  assembling  and combining  video footage with
titles,  effects,  and  audio  elements  to  create  a  master  tape  ready  for
distribution.

     The need for video post-production  processing arises from the fact that it
is  very  difficult  to  make  an  original  recording  serve  as  the  finished
production.  Doing so would  require  that scenes be shot in the final order and
that no errors occur during the original recording session.  Each time a mistake
is made,  the user would have to position  the tape  precisely at the end of the
previous scene and reshoot the desired scene perfectly.  Titles and effects must
be  planned  ahead of time and  inserted  exactly  at the  appropriate  moments,
working from a complete,  thorough script. Since this scenario is impractical in
most  situations,  the user instead  shoots raw footage and  assembles the final
video  production  by using  post-production  equipment  to arrange  the desired
scenes and add effects,  titles,  and other  improvements.  For video makers who
desire a polished product, the post-production process is essential.

     Generally,  post-production  includes five major elements. Video editing is
the process of removing,  rearranging,  and recording  video footage from one or
more video sources onto a single video output medium  (e.g.,  videotape).  Video
mixing allows video from  multiple  sources to be combined in many ways beyond a
simple cut or fade.  Transition  effects,  such as dissolves or fades (one video
scene fades away as another appears), wipes and slides (a moving boundary sweeps
in new video as the old video is pushed away),  and compression  effects (videos
shrink  away or expand to fill the  screen)  are all used as  "fillers"  between
scenes.  Video special effects manipulate video images to add dramatic elements.
Special effects can be used to modify the video material,


                                       H-2

<PAGE>

changing its color,  flipping the image,  and adding picture  warping effects to
achieve a different mood or appearance such as those created by a picture within
a picture.  A chroma key helps to  superimpose  one image  over  another  (e.g.,
enabling a TV weather  forecaster to stand in front of an animated weather map).
Video  titling is the  process of adding  text,  special  characters,  and basic
graphic  elements to the video.  Titles can be  superimposed  on the video or on
colored backgrounds.  Titles help tell the story,  identify people,  places, and
objects, add credits, and the like. A variety of colors, patterns, fonts, sizes,
and effects (e.g.,  scrolls and crawls) can be used. Audio mixing is the process
of combining  various sound  elements  such as native sound (the original  sound
recorded with the video), narration,  music, and sound effects (e.g., a crashing
window, a lion's roar, or an explosion).

The Markets For Video Post-Production Equipment

     The Company  believes that the market for video  post-production  equipment
generally  can be  separated  into  five  segments,  categorized  by the  users'
requirements  and  individual  expertise:  videographer;  business and industry;
videophile;  education;  and  broadcast  professional.  These  markets for video
post-production  equipment  cover a wide  range  of  users,  price  sensitivity,
expertise levels, applications, demographics, and objectives.

     Videographer.   Videographers   are   typically   full-time   or  part-time
entrepreneurs  producing  videotapes  on a  commercial  basis.  They may  record
special events such as weddings,  birthdays,  sporting  competitions,  religious
ceremonies, and other celebrations.  Videographers also perform substantial work
on a commercial  basis for business and industry.  For instance,  a videographer
may produce videos for customer  instruction  in the use of a product,  create a
"home" or "commercial  property" tour video for small residential and commercial
real estate  brokerage  concerns,  or make videos of vacation  destinations  for
travel agents.  Videographers  want their videos to have the same  appearance as
those produced by broadcast professionals.

     Business and  Industry.  The business and industry  category  includes both
internal and external  production  facilities  producing  video for  government,
corporate,  institutional, and other large organizations. An internal user could
include  the  in-house  production  department  of  a  large  corporation  or  a
charitable  organization.  The  external  user  could  be an  independent  video
production  facility marketing its expertise to large institutions which lack an
in-house video production  department.  A typical  corporate user in this market
might produce videos for  instruction in the use of the  corporation's  products
(e.g., how to install and use a cellular telephone or a new computer),  employee
training  manuals,  sales or promotional  aids for product  presentation,  video
informational brochures, or video newsletters from management to shareholders or
employees.

     Videophile. The videophile is a video enthusiast or hobbyist whose interest
has led to the adoption of new video technology for personal use. The videophile
generally shoots a video for personal non-commercial purposes with the intention
of editing raw video footage into a finished video production.  The videophile's
camcorders,  VCRs,  and  editing  equipment  are  affordable  and high  quality.
Occasionally,  videophiles  capitalize  on their  growing  expertise by becoming
videographers.  A typical  videophile  may belong to a "video  club"  along with
other video making enthusiasts or merely want to record entertainment events and
historical  milestones  for family and  friends.  Videophiles  may create a tape
library  in  several  different  video  formats  and may want an easy  method to
consolidate and edit tapes into a single,  standard format.  Videophiles require
affordable  post-production equipment that works with different tape formats and
is easy to use.

     Education. The education market consists of the audio-visual departments of
educational  institutions,  which use video internally to serve the needs of the
institution  as well as teach students the art of video  production.  While some
uses in an  educational  setting may be no different  than those of business and
industry,  other uses include  recording  sporting  events to improve a player's
performance,  recording a debate or dramatic  performance  to teach  speaking or
other acting skills,  and replacing,  as in the case of a video yearbook,  still
photography with video.

     Broadcast  Professional.  The broadcast  professional is the most demanding
video  post-production  equipment user,  requiring equipment to meet the highest
quality  broadcast  standards  in  order to  create  finished  commercial  video
productions.  Industry  analysts have  estimated that there are more than 16,000
worldwide sites for equipment in this user category,  including  studio,  cable,
network,  and television  broadcasters  as well as  independent  post-production
facilities.  Users in this market are generally less  price-sensitive than those
in other  categories,  frequently  paying  from  $100,000  to  $2,000,000  for a
complete suite of video  post-production  equipment.  This specialized equipment
also requires a large investment in user training and studio facilities.


                                       H-3

<PAGE>

The Videonics Solution

     The  Company's  solution  is to  design,  develop,  manufacture  and market
products that incorporate  advanced  proprietary  digital video  technologies to
significantly reduce the cost and difficulty of creating high quality video. The
Company's  current  product  line  provides  solutions  for  each  stage  of the
post-production   process.   The   majority  of  the   Company's   products  are
single-purpose microprocessor-based systems that utilize DSP algorithms in ASICs
and  proprietary  software,  all  developed  by the  Company.  The Company  also
provides  post-production  solutions which operate on general-purpose  computers
and local area networks.  These  solutions are generally  categorized as desktop
video.  Company-developed  software,  incorporated  in each  Videonics  product,
provides  easy-to-use  implementations  of sophisticated  video  post-production
processes.  By using proprietary ASICs and software to replace more costly video
post-production equipment, the Company has been able to significantly reduce the
cost of its digital video post-production products.


Strategy

     Videonics'  objective  is to maintain  and expand its position in the video
post-production  market.  The Company has implemented  this strategy by means of
its acquisitions,  as well as internally developed  technologies,  products, and
marketing  programs.  By reducing the cost of high  performance  post-production
equipment,  the  Company  makes  post-production  capabilities  available  to an
expanding   market  of  potential  users.   The  Company's   business   strategy
incorporates the following elements:

     Expand   Proprietary   Technology  Base.  The  Company  believes  that  its
proprietary   digital  video  hardware  and  software   technology   provides  a
competitive  advantage in achieving  the  development  of a broad array of video
post-production solutions. The Company intends to continue to devote significant
resources to expanding its library of circuits, proprietary ASICs and associated
software to develop  products that  incorporate  higher  levels of  performance,
functionality, and integration.

     Expand Worldwide  Distribution.  The Company intends to further develop its
United States market by targeting  specific  vertical  distribution  channels to
reach  the   broadcast   professional   and  business   and  industry   markets.
Internationally,  the Company is expanding its distribution channels in emerging
markets.  The Company  believes  that  distributing  products  through  domestic
dealers and  international  wholesalers is a  cost-effective  method of reaching
potential product users.

     Heighten  Brand Name  Awareness.  The Company  believes that its brand name
awareness will remain an important factor in the distribution channels where its
products are sold,  and it takes steps to heighten such  recognition by selected
advertising,  attendance  at industry  trade shows,  and  maintaining  a focused
public relations campaign.

     Leverage  Manufacturing and Distribution.  The Company's strategy is to use
its resources in a cost-effective manner.  Wherever practical,  the Company uses
third party services for activities such as manufacturing  and accessing certain
sales channels.  The Company contracts with third party manufacturers located in
Mexico for most product manufacturing.


Technology

     Digital  technology has been incorporated in all of the Company's  products
developed in the 1990s.  This technology is principally  implemented by means of
Company-developed  DSP ASICs and software.  All of the Company's ASICs have been
developed  by the  Company's  engineers or contract  employees.  The software is
proprietary  and has been  developed  by the  Company's  software  engineers  or
contract employees.

     The Company's engineers employ proprietary  hardware and software libraries
in conjunction with other advances in technology,  such as fast turn gate arrays
and VHDL design  methodology,  to prototype new products in an efficient manner.
One  measure  of the growth in the  technical  sophistication  of the  Company's
products is illustrated below in terms of the increasing numbers of complex gate
arrays in its proprietary ASICs and of lines of code in its proprietary software
algorithms in select products.


                                       H-4

<PAGE>

          PROPRIETARY ASIC AND SOFTWARE CONTENT OF SELECTED PRODUCTS

<TABLE>
<CAPTION>
                                      Approximate       Approximate Lines      Year
             Product                ASIC Gate Count      of Software Code     Shipped
--------------------------------   -----------------   -------------------   --------
<S>                                     <C>                 <C>                <C>
Sound Effects Mixer ............              0                1,000           1991
Thumbs Up Video Editor .........          4,000                6,000           1992
Video TitleMaker 2000 ..........         20,000               25,000           1994
Digital Video Mixer ............         62,000               15,000           1994
Edit Suite .....................          8,000               28,000           1995
PowerScript ....................        142,000              100,000           1996
Effetto Pronto (1) .............        250,000              600,000           1997
MXPro ..........................        118,000              107,000           1998
MXProDV ........................        150,000              137,000           1999

<FN>
------------
(1) Beta version shipped in 1997 with production version shipped in 1998.
</FN>
</TABLE>


Selected Products

     The Company offers a broad range of digital video  products,  each designed
to meet specific video post-production needs. The products work with most of the
commonly used broadcast  standards,  videotape formats, and with most brands and
models of video equipment. The Company's products range in price from under $179
for certain software products to more than $6,000 for certain hardware products.


Videographer

     Digital  Video Mixer.  The Digital  Video Mixer,  first shipped in February
1994,  provides a user with a portable video  production  facility.  The Digital
Video  Mixer has four video  inputs and  offers  over 200  effects at any of ten
speeds.    These   effects   include   fades,    wipes,    slides,    dissolves,
picture-in-picture,  flips,  luminance  key,  color  generation,  zooms,  freeze
frames,  color and negative  reversals,  rolls,  the ability to superimpose  one
video  image  over  another,  and  a  split  screen.  The  Digital  Video  Mixer
incorporates  four ASICs,  including an ASIC with a time base corrector  ("TBC")
feature that allows it to execute video mixing. A reduced view of all four video
inputs  on a single  "preview"  monitor  shows the  action  of all four  sources
without  the need for  additional  monitors.  The Digital  Video Mixer  offers a
"picture-in-picture"  which  allows two moving  video images to be placed on the
screen at once. A unique "compose"  function allows the user to create a complex
image made up of any number of still images and colored rectangles, along with a
moving video or solid color  background.  The "chroma  key" feature  enables the
user to shoot a subject against a solid color  background and replace that color
with a separate video source. This is the same technique used to place a weather
forecaster  in front of a weather  map. The product  accepts  S-video as well as
composite  video  signals.  The  Digital  Video Mixer has won  numerous  awards,
including  the  Outstanding  New  Editing  Equipment  Award  for  1994 by  Video
Magazine,  the European  Video Editing  Product of The Year for 1994-1995 by the
European  Video  Awards  Panel,  the Video  Post-Production  Product of The Year
1994-1995 by Video Camera  Magazine U.K, and the 1997 Audio Video  International
Product of The Year Award for Special Effects Generator. The Digital Video Mixer
has a U.S. suggested retail price of $999.

     MXPro.  The MXPro  Digital  Video  Mixer  first  shipped  in April of 1998.
Designed from the ground up, the MXPro is the only  4-input,  10-bit video mixer
in its price category.  Over 500 different effects,  including stars, hearts and
diamonds,  hard  edges,  soft  edges,  colored  borders  and  shadows  provide a
multitude of options for the creative video professional. Thirty transitions can
be placed in a  user-definable  menu for easy access.  Basic,  trailing  effects
shapes,  edges and the  user-definable  effects are  organized  into  transition
"banks" and can be easily  accessed with the press of one button.  MXPro's built
in color  correction  capability  and TBC  eliminate  the  need  for  dedicated,
specialized equipment providing a similar function.  Color correction parameters
can  be  selected   separately  for  each  channel  of  video.  MXPro  boasts  a
signal-to-noise  ratio of  greater  than 60db and  bandwidth  of  5.5mhz.  MXPro
incorporates  upgradeable  architecture  to support  the future  addition  of DV
(Digital Video) inputs and outputs. MXPro has won several awards including: Best
"Stand Alone Special  Effects  Generator" from VideoMaker and the 1998 A/V Video
Magazine Platinum Award. The MXPro has a U.S. suggested retail price of $1,799.


                                       H-5

<PAGE>

     MXProDV.  The MXProDV Digital Video Mixer is a real-time DV production tool
that  preserves  the DV signal  from start to  finish.  The  MXProDV  combines a
switcher, mixer, frame synchronizer,  TBC (Time Base Corrector), special effects
generator,  10-bit A to D converter and Firewire/iLink technology all in one. It
offers over 500 real-time transitions and effects to mix from both DV and analog
sources.  The  flexibility of MXProDV's  feature set makes it the ideal solution
for live  studio  productions  and  presentations,  broadcast  streaming  on the
Internet,  and the perfect  companion for a non-linear  editing system.  MXProDV
supports and mixes both DV (via IEEE  1394/FireWire/i.LINK) and analog video and
audio.  The 500 digital  effects  include  dissolves,  transitions,  shape wipes
(circles,  hearts, etc.) with soft edges, colored borders, drop shadows,  chroma
key, picture-in-picture,  negative, flip, mosaic, and many other effects. Mixing
can be done between four sources at a time from a  combination  of ten different
video inputs  including 2 DV, 4 S-video,  and 4 composite.  MXProDV supports the
enhanced audio mixing  capability of the DV format including 32kHz 4 channel and
48kHz 2 channel digital audio sampling with a multitude of mixing  options.  The
MXProDV was awarded  the 1999 Best  Stand-Alone  Special  Effects  Generator  by
VideoMaker Magazine. MXProDV has a U.S. suggested retail price of $2,495.

     Video   TitleMaker  3000.  First  shipped  in  September  1996,  the  Video
TitleMaker  3000 is a step up from the TitleMaker  2000.  Its two-piece  design,
with a  separate  PC-style  keyboard,  makes it  easier  to type in  text.  User
productivity  is also  improved  with the superior  keyboard and more than three
times the processing  speed of the TitleMaker 2000. The product offers more than
200 font-size  combinations  (compared to 92 in TitleMaker 2000) and doubles the
amount of user memory to store over 16,000 characters. A clock/calendar function
allows  the  user  to  display  the  time  and  date  and  permits  the  user to
automatically  trigger  a page of titles at a  specified  time and date,  and to
repeat that action periodically. The product features the same video quality and
resolution as the  TitleMaker  2000 and includes its other  features:  1,000,000
colors;  fades,  rolls  and  crawls;  bold,  shadow,  and  outline;  ability  to
superimpose over video or colored or patterned backgrounds; full set of accented
and international characters; and storage as projects. The Video TitleMaker 3000
received the 1997 Consumer  Electronics Show Innovations Award.  TitleMaker 3000
has a U.S.  suggested  retail price of $799 and is  available in other  language
versions.

     Personal   TitleMaker.   First  shipped  in  November  1997,  the  Personal
TitleMaker is a character generator primarily aimed at the camcorder enthusiasts
looking for an entry-level  titler. The Personal  TitleMaker offers its users: a
choice  of seven  high-resolution  fonts;  over  1,000,000  colors  for  titles,
backgrounds and borders;  fades,  rolls and crawls;  ability to superimpose over
video  or  colored  or   patterned   backgrounds;   full  set  of  accented  and
international  characters and a GPI (General  Purpose  Interface)  trigger input
allows remote triggering of titles from external controllers, such as Videonics'
Thumbs Up editor and Edit Suite. Personal TitleMaker has a U.S. suggested retail
price of $399. In 1998,  Personal  TitleMaker won the Best Production  Accessory
Award from Camcorder User Magazine.

     MediaMotion.  MediaMotion is a machine-control plug-in software product for
non-linear  (disk-based)  video editing  applications  including Adobe Premiere.
MediaMotion  adds  the  ability  to  control  VCRs,  camcorders  and  other  GPI
triggerable devices from inside Adobe Premiere and Ulead's MediaStudio Pro. With
MediaMotion, a user can batch-digitize select portions of source tapes, allowing
unattended  recording to disk.  This saves time and disk space.  MediaMotion 3.0
won the  VideoMaker  1998  Accessory  Product of the Year award.  MediaMotion is
available for Windows operating systems and has a U.S. suggested retail price of
$179.

     Python.  First  shipped  in  November  1997,  Python  captures,   digitally
compresses,  and plays back  full-motion  video from any video source  including
camcorders,  VCRs, and cameras.  Python is an external MPEG video capture device
which allows PC and laptop users to send video e-mails,  add streaming  video to
Web pages, and add full-motion video to multimedia presentations. Python creates
highly compressed video files in real time, using the  industry-standard  MPEG-1
format. Python also captures  high-resolution JPEG still pictures.  Software for
viewing  MPEG video and JPEG still  pictures  is widely  available  on most PCs.
Python has a U.S. suggested retail price of $199.


Broadcast

     Effetto Pronto. Effetto Pronto, first shipped in 1997, consists of Effetto,
a  QuickTime  based  compositing  software  component  and  Pronto,  a dedicated
resolution independent PCI hardware accelerator card. The Pronto PCI accelerator
card can  process  almost  one  million  pixels  of film,  video,  graphics  and
character generator


                                       H-6

<PAGE>

elements  in  real-time.   Effetto  Pronto  enables  significant   increases  in
productivity  and frees the creative  process by allowing  multiple  iterations,
rapid re-edits and increased  rendering speeds.  Effetto Pronto offers virtually
unlimited creative control, with effects and functions previously unavailable in
an integrated compositing package.  Features include:  chrominance and luminance
keying; a full complement of special effects; a professional character generator
with complete animation control over every letter of text, the ability to design
in true  three-dimensional  workspace,  instant  feedback on a video monitor and
support for certain  third-party Adobe After Effects plug-ins.  In July of 1999,
software version 2.0 was released adding an Animatable Camera function,  Dynamic
Effects  Caching  and a  real-time  chroma-keyer  with  edge  control  and spill
supression.  Effetto Pronto has won several awards including: 1998 Video Systems
Vanguard Award,  Digital Producer  Magazine Best product of 1998, 1998 A/V Video
Magazine Platinum Award in the Compositing/DVE  category, Top Tools of 1998 from
Interactivity  Magazine and the Editors Choice Award from  Videography  Magazine
for NAB'97.  The Videonics'  Effetto Pronto system has a U.S.  suggested  retail
price of $1,999.

     PowerScript.  First shipped in September 1996,  PowerScript is a standalone
character generator that generates images,  characters, and graphics internally,
without the aid of an external computer. Rotation, sizing, stretching, outlines,
color,  transparency,  and other  advanced  functions are imaged by its internal
PostScript engine. It displays high quality (10-bit digital video)  anti-aliased
titles and offers the  character,  graphics  display,  and  formatting  features
supported  by the  PostScript  display  technology.  Two  high-end  versions  of
PowerScript were added in 1997;  PowerScript  Studio has composite and Y/C video
inputs and outputs while  PowerScript  Studio  Component offers analog component
inputs and outputs,  in addition to composite and Y/C. Both models are available
in  PAL  (Phase  Alternating  Line)  and  NTSC  (National  Television  Standards
Committee)  versions.  In 1998,  two  models  of  PowerScript  Studio  4000 were
introduced and shipped.  These models include  enhanced version 4.0 software and
come bundled with  PowerScript  Communicator,  a Windows based software  product
that  includes  control  and  scheduling  of up to 10  PowerScript  from  remote
locations. While PowerScript is a standalone product, it also includes extensive
networking  capabilities that enables users to connect the product to a separate
computer or computer network. It supports  industry-standard  Internet protocols
(TCP/IP,  FTP,  PPP) and accepts  serial or Ethernet  connections.  These enable
desktop computers,  using standard software and hardware,  to transfer projects,
fonts, graphics,  and other files.  PowerScript images EPS-format graphic files,
created using standard graphic  applications like Adobe Illustrator,  CorelDraw,
and Adobe Photoshop, on standard platforms,  including Macintosh,  Windows, DOS,
UNIX, and Amiga. A wide range of additional  features include expandable PC Card
(PCMCIA)  storage,  TBC,  user-definable  styles,  roll  and  crawl,  transition
effects,  clock/calendar,  GPI  trigger,  and  video  test  patterns.  In  1999,
PowerScript  4000 Pro was added to the  PowerScript  product line. The Videonics
PowerScript  product line has a U.S.  suggested  retail price range of $3,000 to
$6,000.


Marketing

     The  primary  goal  of  the  Company's  marketing  efforts  is to  increase
awareness of the Company's  products and technology and of their advantages over
competing  products or technologies.  These objectives are accomplished  through
advertising programs directed at users of post-production  equipment, a targeted
public relations program,  trade show exhibitions,  and educational  programs in
video making.

     The Company  advertises  principally  in  magazines  directed at  broadcast
professionals,  videographers,  and video producers in the business, industrial,
and educational segments of the market. Videonics has received editorial mention
in  many of  these  publications.  The  Company  exhibited  its  products  at 11
different U.S. trade shows during 1999, including the International Broadcasters
Convention, the National Association of Broadcasters, and INFOCOMM.

     The Company's  standalone  products carry a standard  two-year  warranty on
both parts and labor. Each of the Company's computer based products carry either
a two-year  warranty on hardware and a 90 day warranty on software or a one-year
warranty on both hardware and software.  In 1995, the Company added a ProService
feature that  enabled  customers to receive  their  repaired  units within 48-72
hours in exchange for payment of rush  charges.  The Company's  HelpLine  allows
customers  to talk  directly  with  support  personnel  equipped  to answer user
questions.  This support is free to the Company's  customers except for the cost
of the phone call. The Company believes that it obtains  valuable  feedback from
offering this service, which it then uses in developing new products.


                                       H-7

<PAGE>

Sales

     Domestic  Sales.  The Company  wholesales its products in the United States
through a direct  sales  organization,  supported by  independent  manufacturers
representative  organizations.  In 1999, 1998, and 1997, respectively,  sales in
the United States accounted for approximately 71%, 64%, and 67% of the Company's
total  revenues.  The Company sells to a variety of sales channels which in turn
sell to end-users.  The Company's  sales channels  include Value Added Resellers
(VARs) who  specialize  in selling to the  broadcast  market,  direct mail order
businesses,  audio/visual  specialty stores, camera and video shops,  industrial
dealers  which  service  business  and  industry,  catalogs,  and  certain  mass
merchants.   The  majority  of  the  Company's  sales  channels   specialize  in
audio-visual or video products and have product knowledgeable sales personnel.

     International  Sales.  The Company has addressed the  international  market
opportunity  by selling its  products  through  wholesale  distributors  and its
German subsidiary, which service 78 different countries, and by selling selected
products to  international  private label  customers.  In 1999,  1998, and 1997,
respectively,  sales outside the United States accounted for approximately  29%,
36%,  and 33% of the  Company's  total  revenues As of December  31,  1999,  the
Company had three  employees who service and support its  international  private
label customers and country specific distributors.  The Company's  international
distributors  also sell the Company's  products under the Videonics  brand name,
through  channels  similar  to those used by the  Company in the United  States.
These  distributors  also  provide  dealers  with  marketing  programs,  such as
advertising  and public  relations,  as well as customer  service and  technical
support.

     Protectionist  trade  legislation  in  either  the  United  States or other
countries, such as a change in the current tariff structures,  export compliance
laws or other trade policies,  could adversely  affect the Company's  ability to
sell in  international  markets.  Furthermore,  revenues from outside the United
States are subject to inherent  risks  related  thereto,  including  the general
economic and political  conditions  in each  country.  There can be no assurance
that the economic  crisis and currency  issues  currently  being  experienced in
certain parts of Asia and South America will not have a material  adverse effect
on the Company's revenue or operating  results in the future.  Sales made by the
Company outside the United States are priced in U.S. dollars and are, therefore,
not subject to currency exchange fluctuations. The Company's primary exposure to
changes in exchange rates is related to its German subsidiary and changes in the
German mark. In 1999, 1998 and 1997 foreign currency fluctuations did not have a
material affect on the Company's  operating  results.  In September of 1999, the
Company sold its German subsidiary, Videonics Vertrieb Deutschland GmbH.

     Distribution  channels. The  Company  sells  to three categories of buyers,
both  internationally  and  domestically:  videographer,  broadcast, and desktop
video.

     Videographer  products  may be  defined  as  free  standing,  easy  to use,
inexpensive  products  that address a particular  need,  such as video mixing or
titling.   These  products  are  sold  through  direct  mail  order  businesses,
e-commerce sites, audio/visual retailers, and industrial dealers.

     Broadcast  products may be defined as those which operate in a professional
edit  studio and may be used in  conjunction  with a master  control  panel or a
switcher, or may also operate as stand alone units. These units must comply with
industry technical  specifications for video quality. An example of this type of
product is the  PowerScript  Character  Generator.  Broadcast  products are sold
principally through VARs and system houses that service the broadcast industry.

     Desktop  video  products,  such as Effetto  Pronto,  use a  general-purpose
computer as their  control  element.  These  products  are sold through VARs and
retailers  who  may  also  sell   general-purpose   computers,   software,   and
peripherals.

     Localized marketing. The Company works with its private label customers and
international  distributors  to provide  extensive  support by adapting both its
products and  accompanying  publications  for the local country of distribution.
Promotional  materials,  such as brochures,  are produced in the local language.
Universal  symbols,  rather than language  specific text, are used for many user
interface elements such as on-screen displays. All products are designed to meet
most  local  regulatory  standards.   In  Europe,  for  example,   products  are
manufactured for the PAL television standard. The Company's products are further
designed to support local languages.  The Company's character generator products
include  special  characters  and accents to support  French,  German,  Italian,
Spanish, Dutch, Russian,  Hungarian,  Polish, Greek, Romanian,  Turkish, and the
Scandinavian


                                       H-8

<PAGE>

languages.   The   Company's   product   architecture   facilitates   additional
localization  by substituting one read only memory ("ROM") component for another
(e.g., a Czech/Slovak ROM for an English ROM) to become a local product.

     Private label relationships.  The Company believes that strategic alliances
are  essential  to  compete  successfully  in  certain  large  foreign  markets,
particularly  Japan.  The Company  therefore seeks to distribute  through select
private label  relationships with well-known  electronics  manufacturers  having
highly developed distribution channels and substantial brand name recognition in
the country of  distribution.  This strategy  enables the Company to concentrate
its efforts on technology and product development,  rather than making the heavy
financial and time commitment  required to build distribution  channels in these
difficult-to-access  markets.  The Company's first private label relationship in
Japan  was with  Matsushita  Electrical  Industrial  Co.,  Ltd.  ("Matsushita.")
Matsushita  purchased a custom version of the Company's  EditMaker  product that
was  manufactured  by the  Company and is sold under the  Panasonic  brand name.
While the Company  has  discontinued  this  product,  it has an ongoing  support
obligation to Matsushita.  The Company currently manufactures the Sony Titler, a
Japanese  language  character  generator  for  sale in  Japan  known as the Sony
XV-J1000.  Designed to Sony  specifications by the Company's product development
team in Campbell, California, the Sony Titler is manufactured by the Company and
shipped to Sony from the United  States.  The Sony  Titler  includes a front-end
processor, which translates from a standard keyboard into 6,930 unique Kanji and
Kana (Japanese) characters for subsequent video display (up to 110,880 different
font/size character variations).  This  software-intensive  product provides all
the  functionality  of its English  language  counterpart,  plus some additional
functions required by the Japanese  language.  Such features include the ability
to present  text  (titles)  in either a  horizontal  or a vertical  format.  The
Company's private label sales have decreased significantly over the past 3 years
and represent less than 1 percent of revenues for 1999.

     For 1998 and 1997, no one customer accounted for more than 10% of revenues.
During  1999  sales  to B&H  Photo  accounted  for 13% of  total  revenues.  Any
termination by a significant  customer of its  relationship  with the Company or
material  reduction  in the amount of  business  such a  customer  does with the
Company could  materially  adversely  effect the Company's  business,  financial
condition  or  operating  results.  Also,  see Note 11 of Notes to  Consolidated
Financial  Statements for information  concerning sales to foreign customers and
industry segments.

     Backlog.  The Company  typically  operates  with a small amount of backlog.
Accordingly,  the Company generally does not have a material backlog of unfilled
orders, and revenues in any quarter are substantially dependent on orders booked
in that quarter.  Any  significant  weakening in customer demand would therefore
have and has had in the past an almost immediate adverse impact on the Company's
operating results and on the Company's ability to maintain profitability.


Manufacturing and Suppliers

     Typically,  the Company  initiates small production runs of new products at
the  Company's   headquarters  in  Campbell,   California  before   transferring
manufacturing  to third party contract  manufacturers  located in Mexico.  Final
configuration and testing  ordinarily take place at the Company's  headquarters.
Generally, when received in Campbell, each of the products undergoes testing and
inspection  before final  shipment to customers.  The Company uses an integrated
materials management system for purchasing,  inventory control, cost accounting,
and invoicing. As of December 31, 1999, the Company employed 21 persons directly
in  manufacturing  and  operations  management  in Campbell  and has a permanent
quality and test assurance program at its contract  manufacturers'  locations in
Mexico.

     The Company is dependent on sole source  suppliers  for certain  components
used in its products.  These components include certain key integrated circuits,
which  are  utilized  in  the   Company's   products,   ASICs  or  gate  arrays,
microprocessors,  filters, converters, and other parts. Although the Company has
generally  been  able to  procure  components  on a timely  basis,  an  extended
interruption  in the supply of any of the components  currently  obtained from a
single source could have a material  adverse  effect on the Company's  operating
results. While the Company believes alternative sourcing of these items could be
developed,  this might result in additional  cost in materials and overhead.  In
addition,  the Company buys most of its components from third party vendors on a
purchase order basis without any advance  contractual  commitments  and does not
carry significant inventories of


                                       H-9

<PAGE>

these items. A shortage of any one part such as ROM semiconductor devices, or an
increase  in the  price of a part,  could  adversely  affect  production  of the
Company's  products or reduce  gross  margins.  There can be no  assurance  that
component supplies will be adequate at all times to ensure that customer product
orders will be manufactured or filled in a timely manner.


Research and Development

     The Company places a high priority on research and development. Development
efforts focus on video quality, system performance,  feature set expansion, user
productivity,  improved  processing,  and storage.  In 1999, 1998, and 1997, the
Company  invested $2.9 million,  $4.8 million,  and $7.0 million,  respectively,
constituting  20%,  24%,  and 35% of its  total net  revenues  in  research  and
development,  respectively.  Because  digitized  video consumes large amounts of
data and requires substantial computer power to process such data, the Company's
engineers  constantly  seek new methods to improve its  products'  capacity  and
manipulation of video.  Maximizing the processing of video information contained
in video random access memory  ("VRAM"),  through the development of ASICs, is a
focus of the Company's  development  staff,  as are the  compression and storage
issues  necessitated  when integrating and  manipulating  large amounts of video
data.  As part  of  this  ongoing  effort,  the  Company  has  made  significant
investments in advanced computer programming tools. The Company's engineers work
extensively with VHDL design methodology. Any new ASIC designs are maintained in
VHDL libraries, which product designers may then use to prototype subsequent new
products.

     As of December  31,  1999,  the Company  employed 13 hardware  and software
engineers with technical  skills in design and development of ASICs,  digital or
analog video signal generation-processing, or embedded software.

     In  1999,  the  Company  continued  to  experience  substantial  delays  in
completing the successful  development  of products.  The Company  completed and
began shipping  Effetto Pronto software  version 2.0 in July 1999 and MXProDV in
August 1999. Effetto Pronto version 2.0, the Company's digital video effects and
compositing  system, was originally  scheduled to begin production  shipments in
April 1999.  MXProDV,  the Company's  advanced DV Digital Mixer,  was originally
scheduled  to be  introduced  in late in 1998,  but due to delays  was  actually
introduced  in April 1999 with  production  shipments  beginning in August 1999.
Delays in shipments of Effetto Pronto version 2.0 and MXProDV contributed to the
revenue shortfall for 1999.

     In 1998, 1997 and 1996, the Company also experienced  substantial delays in
completing  the  successful  development  of products,  which  contributed  to a
shortfall  in revenues and  significantly  affected  profitability  during those
periods.  The Company  completed and began  shipping MXPro and Effetto Pronto in
April 1998 and June 1998,  respectively.  MXPro, the Company's  advanced Digital
Mixer,  introduced  in  September  of 1997  was  originally  scheduled  to begin
shipments in the fourth quarter of 1997.  Effetto Pronto,  the Company's digital
video  effects  and  compositing  system,  was  originally  scheduled  to  begin
production  shipments in 1997. The Company  completed and began shipping Python,
Personal  TitleMaker  and a beta version of Effetto Pronto in the fourth quarter
of 1997. Shipments of Python and beta shipments of Effetto Pronto occurred later
than originally planned.  The PowerScript  Character Generator in the NTSC video
format,  introduced  in 1995,  was  completed for shipment in September of 1996.
After extensive field use, major revisions of  PowerScript's  software were made
in 1997, with additional improvements being made in the first quarter of 1998.

     As the  complexity  of the  Company's  product  designs  and  feature  sets
continues to increase,  the Company may continue to experience  similar  product
development delays that would have an adverse effect on the profitability of its
operations. There can be no assurance that the Company will be successful in the
timely development of new products to replace or supplement existing products or
that  the  Company  will be  successful  in  integrating  acquired  products  or
technologies with its current business.  Delays in new product  development have
had an adverse  material impact on the Company's  growth in 1999, 1998 and 1997.
Similar adverse  effects on the Company's  results of operations can be expected
until new products are  successfully  introduced and accepted by end users.  See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations."

     The Company's  success  depends,  in part, on its ability to anticipate new
technological  developments,  to develop expertise in such technologies,  and to
develop and introduce in a timely and cost-effective  manner additional features
and new products that satisfy  customer needs and desires.  As noted above,  the
Company  has been  unable to ship new  products  in a timely  fashion  in recent
years,  which has had a substantial  adverse impact on the Company's  results of
operations.  Such results have, in any event,  fluctuated  widely on a quarterly
basis.


                                      H-10

<PAGE>

There can be no assurance that any new products will be developed  successfully,
that the Company will be able to introduce  additional  new products  which will
gain acceptance in the marketplace,  that the Company will  successfully  assess
new  technological  developments  and  incorporate  them into  future or current
products,  or that the Company  will be able to do so in a timely  fashion.  Any
future  failure to develop or  introduce  new  products in a timely  manner,  or
customer  rejection of new products,  may have a material  adverse effect on the
Company's future results of operations.


Competition

     The  video  production  equipment  market  is  highly  competitive  and  is
characterized  by  rapid  technological  change,  new  product  development  and
obsolescence, evolving industry standards and significant price erosion over the
life of a product.  Competition is fragmented with several hundred manufacturers
supplying  a  variety  of  products  to this  market.  The  Company  anticipates
increased  competition in the video  post-production  equipment market from both
existing  manufacturers  and new market entrants.  Increased  competition  could
result in price  reductions,  reduced  margins and loss of market share,  any of
which could  materially and adversely affect the Company's  business,  financial
condition and results of operations.  There can be no assurance that the Company
will be able to compete successfully against current and future competitors.

     Competition for the Company's broadcast products (i.e. character generation
and desktop compositing) is generally based on product  performance,  breadth of
product  line,  service and support,  market  presence and price.  The Company's
principal  competitors in the character  generation and graphics imaging systems
market  include  Chyron,  For-A,  Knox,  and  AVS.  Competitors  in the  desktop
compositing and effects market include Adobe and Discreet Logic. Although viewed
as  competition  in some of the  markets  in which  the  Company  competes,  the
Company's  desktop  compositing  and  effects  product  requires  the Company to
partner with other companies offering complementary products in order to provide
complete  solutions to customers.  These  companies  include  Media 100,  Artel,
Puffin Designs and ICE. Maintaining this compatibility,  while enhancing its own
products,  continues to put a  tremendous  burden on the  Company's  engineering
resources.

     The Company's competition in the videographer market comes from a number of
groups of video  companies,  such as suppliers of  traditional  video  equipment
including JVC,  Matsushita  and Sony,  providers of desktop  editing  solutions,
video  software  application  companies  and others.  Suppliers of desktop video
editing systems or components such as Avid, Pinnacle Systems, Matrox Electronics
Systems,  Ltd.,  Media100,  Inc., have  established  desktop video  distribution
channels,  experience  in marketing  video  products and  significant  financial
resources.

     Many  of the  Company's  competitors  have  greater  financial,  technical,
marketing,  sales and customer support  resources,  greater name recognition and
larger  installed  customer  bases than the Company.  In  addition,  some of the
Company's  competitors also offer a wide variety of video  equipment,  including
professional video tape recorders, video cameras and other related equipment. In
some cases, these competitors may have a competitive  advantage based upon their
ability to bundle their equipment in certain large system sales.

     The Company  believes  that the markets for its products will remain highly
competitive. The Company believes that its ability to compete depends on factors
both  within and outside its  control,  including  the success and timing of new
product  developments  introduced  by the Company and its  competitors,  product
performance  and price,  market presence and customer  support.  There can be no
assurance that the Company will be able to compete  successfully with respect to
these  factors.  Maintaining  any  advantage  that the Company may have over its
competitors will require  continuing  investments by the Company in research and
development,  sales and marketing and customer service and support. In addition,
as the Company enters new markets, whether through acquisitions,  alliances with
other companies or on its own, the Company may encounter  distribution channels,
technical  requirements  and  competitive  factors that differ from those in the
markets in which it currently  operates.  There can be no assurance  the Company
will be able to compete successfully in these new markets.


Proprietary Rights

     The  Company  relies  on a  combination  of  trade  secret,  copyright  and
trademark laws, and contractual  agreements to safeguard its proprietary  rights
in technology and products.  The Company has registered the Videonics brand name
and certain product  trademarks in the United States,  as well as in some of its
international


                                      H-11

<PAGE>

markets. There can be no assurance however, that the Company will have access to
the Videonics  brand name and trademark in all  countries.  The inability to use
the  Videonics  brand name and  trademark  in a country,  could  materially  and
adversely affect the Company's  business in that country.  The Company routinely
enters into  confidentiality and assignment of invention agreements with each of
its employees and nondisclosure agreements with its key customers and vendors.

     While the  Company  relies on these  measures  to protect  its  proprietary
rights,  there can be no assurance  that the Company's  technology is adequately
protected by such measures or that the technology will not be reverse-engineered
by third parties without  violation of the Company's  proprietary  rights.  Such
protection may not preclude  competitors from developing  products with features
and prices  similar to or even  better  than those of the  Company.  The Company
believes that its products and other proprietary rights do not infringe upon the
proprietary rights or products of third parties. In 1997, the Company reached an
agreement  with a third party patent  holder in which  royalties  are payable on
certain of the Company's  products.  Payment of these royalties will not have an
adverse  material  effect on the  Company's  financial  condition  or results of
operations.  There can be no assurance,  however,  that other third parties will
not assert  infringement  claims  against the Company in the future or that such
claims  will not result in costly  litigation  or require the Company to license
intellectual property rights from third parties.  There can be no assurance that
any such licenses would be available on terms  acceptable to the Company,  if at
all.

     The Company believes that,  because the pace of technological  change is so
rapid in the digital video  electronics  industry,  the best  protection for its
proprietary  rights is its  continued  substantial  investment  in research  and
development to apply the latest advances in data storage and data compression to
the integration of video  post-production  functions.  The Company believes that
any legal protection  afforded by copyright,  and trade secret laws will be less
of a factor on the Company's  ability to compete than the ability and creativity
of its research and development staff to develop products which satisfy customer
needs.  Moreover,  the Company believes that market positioning and rapid market
entry are equally important to the success of its products.


Employees

     As of March 1, 2000, the Company had 62 full-time  employees,  including 16
in research and development,  20 in sales and marketing, 21 in operations, and 5
in finance and administration. None of the Company's employees is represented by
a labor union or is covered by  collective  bargaining  agreements.  The Company
believes that its employee relations are good. The Company has never experienced
a work stoppage.


ITEM 2. PROPERTIES.

     The Company's principal administrative,  sales and marketing,  research and
development,  and operating  facilities are located in Campbell,  California and
consist of approximately  27,500 square feet under a lease which expires on July
31, 2002.  The Company also has a research and  development  facility in Millis,
Massachusetts,  which has 2,500  square  feet  under a lease  which  expires  on
December 1, 2000.


ITEM 3. LEGAL PROCEEDINGS.

     The Company is not currently involved in any material legal proceedings.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     No  matter was submitted to a vote of the Company's shareholders during the
fourth quarter of the fiscal year ended December 31, 1999.


                                      H-12

<PAGE>

                                     PART II


ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
        SHAREHOLDER MATTERS

     Effective  May 20,  1999,  the  Company's  Common Stock moved to the Nasdaq
SmallCap Market from the Nasdaq National Market System, where it had been listed
since its initial public  offering was declared  effective on December 15, 1994.
The Company's  trading symbol on the Nasdaq SmallCap Market is "VDNX".  Prior to
that date,  there was no  established  public  trading  market for the Company's
Common Stock.  The following  table sets forth the quarterly  high and low sales
price information of the Common Stock during the fiscal years ended December 31,
1999 and 1998.


                               Q1           Q2           Q3           Q4
                           ----------   ----------   ----------   ----------
FY99 ..........   High       $ 3.25       $ 2.06       $ 1.50       $ 1.31
                   Low       $ 0.38       $ 0.50       $ 0.25       $ 0.50
FY98 ..........   High       $ 4.50       $ 4.63       $ 2.13       $ 1.50
                   Low       $ 1.50       $ 1.38       $ 0.75       $ 0.47


     As of  March  1,  2000,  there  were  approximately  1,150  holders  of the
Company's Common Stock. The closing sales price of the Company's Common Stock on
March 1, 2000 was $2.06 per share.

     Other than the  distributions  to S  corporation  shareholders  for certain
income tax  liabilities  associated  with the Company's  1994  earnings  through
December  14,  1994,  the Company has never  declared or paid  dividends  on its
Common Stock and does not  anticipate  paying any  dividends in the  foreseeable
future.  The Company currently  intends to retain its earnings,  if any, for the
operation and development of its business.


ITEM 6. SELECTED FINANCIAL DATA

     The selected  financial  data set forth below with respect to the Company's
statements  of  operations  for each of the years in the five year period  ended
December 31, 1999,  and with respect to the balance sheets at December 31, 1999,
1998,  1997, 1996 and 1995 are derived from financial  statements that have been
audited by  PricewaterhouseCoopers  LLP, independent accountants.  The financial
data should be read in conjunction with the Company's  Financial  Statements and
related  Notes and with  "Management's  Discussion  and  Analysis  of  Financial
Condition  and Results of  Operations"  included  elsewhere in this Report.  The
balance sheets as of December 31, 1999 and 1998, and the statement of operations
for each of the  three  years in the  period  ended  December  31,  1999 and the
independent auditors' report thereon, are included in Item 8 of this Report.


                                      H-13

<PAGE>

Statement of Operations Data:
(in thousands, except per share data)

<TABLE>
<CAPTION>
                                                      Year Ended December,
                                               -----------------------------------
                                                      1999              1998
                                               ----------------- -----------------
<S>                                               <C>               <C>
Net revenues .................................    $   14,226        $   19,672
Operating income (loss) ......................        (2,562)(1)        (6,722)(2)
Net income (loss) ............................        (2,634)(1)        (6,713)(2)
Net income (loss) per share--basic ...........         (0.45)(1)         (1.15)(2)
Shares used in per share
 calculation--basic ..........................         5,866             5,833
Net income (loss) per share--diluted .........         (0.45)(1)         (1.15)(2)
Shares used in per share
 calculation--diluted ........................         5,866             5,833
Balance Sheet Data:
Working capital ..............................    $    3,823        $    4,404
Total assets .................................         6,089             9,164
Shareholders' equity .........................         3,346             5,927
Dividends declared per share .................           --                --

<CAPTION>
                                                             Year Ended December,
                                               -------------------------------------------------
                                                      1997             1996           1995
                                               ------------------ ------------- ----------------
<S>                                               <C>               <C>            <C>
Net revenues .................................    $    19,955       $  29,195      $  33,561
Operating income (loss) ......................        (12,984)(3)         401          4,811 (4)
Net income (loss) ............................        (13,441)(3)         744          3,746 (4)
Net income (loss) per share--basic ...........          (2.34)(3)         0.13          0.69 (4)
Shares used in per share
 calculation--basic ..........................          5,744           5,616          5,413
Net income (loss) per share--diluted .........          (2.34)(3)         0.13          0.65
Shares used in per share
 calculation--diluted ........................          5,744           5,933          5,791
Balance Sheet Data:
Working capital ..............................    $     9,902       $  21,412      $  20,127
Total assets .................................         15,694          27,958         27,350
Shareholders' equity .........................         12,606          25,731         24,149
Dividends declared per share .................            --              --             --

<FN>
------------
(1) Results  for  1999  include  a $655,000 charge in the fourth quarter for the
    write-down of the Company's inventory to its net realizable value
(2) Results for 1998 include a $1.3 million charge in the fourth quarter for the
    write-down of the  Company's  open systems  inventory to its net  realizable
    value.
(3) Results for 1997  include:  a $1.9 million  write-off of  intangible  assets
    related to Nova Systems;  a $1.6 million increase in inventory  reserves for
    components  rendered  obsolete by product  revisions of which  approximately
    $608,000  related to  PowerScript  and  $265,000  related to KUB Systems and
    $700,000  related to excess and obsolete assets at Nova Systems;  a $124,000
    increase in warranty reserves for PowerScript hardware updates; a tax charge
    of $5.9 million due to the  establishment of a valuation  allowance  against
    the Company's  deferred tax assets;  and a $100,000 charge for the reduction
    of  approximately 12 percent of the Company's work force. The total of these
    charges equaled $9.6 million.
(4) Results  for 1995  include a one-time  charge of  $1,965,000  for  purchased
    in-process  research and  development  related to the  acquisition  of Nova.
    Without this one-time  charge,  the net income of $3,746,000 would have been
    $5,075,000 or $0.88 per share.
</FN>
</TABLE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS

     This Annual Report on Form 10-K, including the following sections, contains
forward-looking   statements  within  the  meaning  of  the  Private  Securities
Litigation  Reform  Act  of  1995,   particularly  statements  regarding  market
opportunities,   market   share   growth,   competitive   growth,   new  product
introductions, success of research and development expenses, customer acceptance
of new products,  gross margin and selling, general and administrative expenses.
These  forward-looking  statements  involve  risks  and  uncertainties,  and the
cautionary statements set forth below,  specifically those contained in "Factors
That May Affect Future Results of Operations,"  identify  important factors that
could cause actual results to differ materially from those predicted in any such
forward-looking  statements.  Such  factors  include,  but are not  limited  to,
adverse changes in general economic conditions, including adverse changes in the
specific  markets  for the  Company's  products,  adverse  business  conditions,
decreased or lack of growth in the market for video  post-production  equipment,
adverse  changes in customer  order  patterns,  increased  competition,  lack of
acceptance of new products,  pricing pressures, lack of success in technological
advancements,  risks  associated  with foreign  operations,  and other  factors,
including those listed below.


                                      H-14

<PAGE>

Overview

     Videonics  is  a  designer  of  affordable,   high-quality,  digital  video
post-production  equipment.   Videonics  products  are  used  by  videographers,
business,  industry,  education  and  videophiles;  they  are  also  used in the
broadcast, cable, video presentation and video conferencing markets. The Company
manufactures  standalone  and  personal-computer-based   hardware  and  software
products  that capture,  edit and mix raw video footage and add special  effects
and titles.  Products include edit  controllers,  video and audio mixers,  video
processors, character generators,  multimedia software, computer-based animation
and video compositing systems.


1997

     After   shipping   PowerScript  to  a  wide  base  of  customers  in  1996,
deficiencies  in the user interface and certain signal timing issues in specific
applications were discovered that made the product difficult to sell. Therefore,
in 1997,  the Company  released  new  versions of the  operating  software  that
enhanced the user  interface  and operating  speed of the Power Script  Product.
Signal  timing issues were  addressed  with the  introduction  of two new higher
priced  versions  of  PowerScript  (PowerScript  Studio and  PowerScript  Studio
Component) targeted at higher end customers. In 1997, the Company announced four
major new products that were expected to ship in 1997:  Effetto  Pronto,  MXPro,
Python and Personal TitleMaker. As of December 31, 1997, the Company had brought
Python and Personal TitleMaker to market in commercial quantities.  Since Python
and Personal  TitleMaker  were shipped in the fourth  quarter of 1997, the first
three quarters of 1997 did not contain  revenues from any of the  aforementioned
new products.  To reduce  expenses,  the Company reduced its personnel by twelve
percent on January 15, 1998.


1998

     In the second  quarter of 1998, the Company began  production  shipments of
MXPro and Effetto Pronto.  Sales of MXPro tracked closely to the Company's plan,
while sales of Effetto Pronto were significantly  below plan. Effetto Pronto did
not generate  meaningful revenues during 1998, as customer acceptance was slower
than expected.  Effetto Pronto's lower than anticipated revenues,  combined with
continued  significant research and development and sales and marketing expenses
associated  with the product,  resulted in a significant  operating loss for the
Company.  In addition,  sales of the Company's  open system  products  decreased
significantly from their 1997 run rate, due primarily to increased  competition.
As such,  in the fourth  quarter of 1998,  the Company  reduced its open systems
inventory to its net realizable value.


1999

     To reduce the Company's expenses and focus its resources,  the Company sold
its Nova Systems  Division  ("Nova") to a private  company in  Massachusetts  on
January 29, 1999 (see the Notes to the  Consolidated  Financial  Statements  for
further  details).  In July 1999, the Company began  shipments of Effetto 2.0, a
significant  software  upgrade to Effetto  Pronto.  Although  Effetto Pronto 2.0
included numerous feature enhancements,  sales of the product were significantly
below plan and failed to generate  meaningful  revenues in 1999. In August 1999,
the  Company  began  shipments  of  its  MXProDV  product,   which  provided  an
incremental  increase to revenues.  In the fourth  quarter of 1999,  the Company
reduced  the  carrying  value of certain  slow  moving  products  and soon to be
discontinued products to their net realizable value. These factors combined with
declining  sales of the  Company's  older  Videographer  products  and delays in
shipment of the  Company's  new  Videographer  products,  resulted in  operating
losses in each quarter of 1999. Results for 2000 are highly dependent on planned
shipment and customer acceptance of new products.


                                      H-15

<PAGE>

Results of Operations

<TABLE>
     The   following   table  sets  forth   certain  items  from  the  Company's
consolidated  statements  of  operations as a percentage of net revenues for the
periods indicated:

<CAPTION>
                                                                Year Ended December 31,
                                                        ---------------------------------------
                                                            1999          1998          1997
                                                        -----------   -----------   -----------
<S>                                                        <C>           <C>           <C>
         Net revenues ...............................      100.0%        100.0%        100.0%
         Cost of revenues ...........................       62.0          69.1          69.7
          Gross profit ..............................       38.0          30.9          30.3
         Operating expenses
          Research & development ....................       20.2          24.4          34.8
          Selling & marketing .......................       27.2          33.5          40.3
          General & administrative ..................        8.6           7.2           8.9
          Amortization of intangible assets .........         --            --           2.0
          Write-off of intangible assets ............         --            --           9.4
                                                           -----         -----         -----
          Total operating expenses ..................       56.0          65.1          95.4
                                                           -----         -----         -----
           Operating loss ...........................      (18.0)        (34.2)        (65.1)
         Interest income (expense), net .............      ( 0.5)           --           1.3
                                                           -----         -----         -----
          Loss before income taxes ..................      (18.5)        (34.2)        (63.8)
         Provision for income taxes .................         --            --           3.6
                                                           -----         -----         -----
           Net loss .................................      (18.5)%       (34.2)%       (67.4)%
                                                           =====         =====         =====
</TABLE>

Comparison of Years Ended December 31, 1999 and 1998

     Net Revenues.  Net revenues  decreased  28% to $14.2 million in 1999,  from
$19.7  million in 1998.  The  decrease in revenue was due in part to the sale of
the Company's Nova Division, decreased sales of the Company's older videographer
products and decreased  sales of the Company's  Effetto Pronto  product,  offset
partially by sales of the MXProDV  product which was  introduced in late August,
1999.  International  revenues for 1999 were $4.1 million or 29% of net revenues
compared to $7.0 million or 36% of net revenues in 1998.

     Gross  Profit.  Gross profit  decreased to $5.4 million in 1999,  from $6.1
million in 1998. Gross profit, as a percentage of net revenues, increased to 38%
in 1999 from 31% in 1998. In 1999, the Company  recorded a $733,000  increase in
inventory  reserves  to  reduce  the  carrying  value  of its  slow  moving  and
discontinued  products  to their net  realizable  value.  In 1998,  the  Company
recorded a $1.7 million increase in inventory  reserves  primarily to reduce the
carrying value of its open systems inventory.  Charges to inventory reserves, as
a percentage of net revenues were 5% and 8% for 1999 and 1998, respectively.

     Research and Development.  Research and development  expenses decreased 40%
to $2.9 million during 1999 compared to $4.8 million in 1998, and decreased as a
percentage of net revenues to 20% in 1999 from 24% in 1998. The decrease was due
to the Company's  sale of Nova, a decrease in personnel and reduction in the use
of consultants.  The Company anticipates that research and development  expenses
will decrease slightly in 2000 when compared to 1999.

     Selling and Marketing. Selling and marketing expenses decreased 41% to $3.9
million in 1999  compared to $6.6 million in 1998,  and decreased to 27% in 1999
compared to 34% in 1998,  as a  percentage  of net  revenues.  The  decrease was
primarily due to the Company's sale of Nova, a decrease in personnel and reduced
advertising  and  promotional   expenses  as  the  Company  brought  advertising
expenditures in-line with current revenue levels.  Included in expenses for 1999
was  approximately  $52,000 of  closing  costs  associated  with the sale of the
Company's German subsidiary. Revenue and assets employed by the Company's German
office, were not material to the consolidated  financial  statements.  Since the
sale of its German  subsidiary,  the Company has utilized local  distribution to
market and sell its products as it does throughout the rest of Europe.

     General and Administrative.  General and administrative  expenses decreased
14% to $1.2  million  in 1999  compared  to $1.4  million in 1998.  General  and
administrative  expenses increased as a percentage of net revenues to 9% in 1999
compared to 7% in 1998. The decrease in actual expenses between 1999 and 1998 is
primarily due to a decrease in personnel.


                                      H-16

<PAGE>

     Interest Expense, net. The Company recorded net interest expense of $72,000
in 1999  compared to net  interest  expense of $21,000 in 1998.  The increase is
primarily due to interest  expense incurred on higher  borrowings  between years
and  amortization  of warrants  issued in August 1999,  in  connection  with the
Company's line of credit.

     Provision for Income Taxes. In 1999, Company recorded an income tax benefit
of $847,000 on its pretax loss,  offset completely by a $847,000 increase in the
valuation  allowance against the Company's  deferred tax assets. As such, no tax
benefit was  recognized  during 1999.  The Company  maintained a 100%  valuation
allowance against its deferred tax assets due to the uncertainty surrounding the
realization of such assets.  If it is determined that it is more likely than not
that the deferred tax assets are  realizable,  the valuation  allowance  will be
reduced.  During 1998, the Company recorded a tax benefit of $30,000 on a pretax
loss of $6.7  million.  This  benefit  was  primarily  the result of a state tax
refund. In addition,  the Company recorded in 1998 an income tax benefit of $3.7
million on its pretax loss,  offset completely by a $3.7 million increase in the
valuation allowance against the Company's deferred tax assets.


Comparison of Years Ended December 31, 1998 and 1997

     Net  Revenues.  Net revenues  decreased 1% to $19.7  million in 1998,  from
$20.0 million in 1997. This decrease is primarily  attributable to reduced sales
of  open  systems  products  and  older  Videographer  products  offset  by  the
introduction of MXPro and Effetto Pronto.  International  revenues for 1998 were
$7.0  million  or 36% of net  revenues  compared  to $6.6  million or 33% of net
revenues in 1997.

     Gross Profit. Gross profit remained at $6.1 million for both 1998 and 1997.
Gross profit, as a percentage of net revenues, increased to 31% in 1998 from 30%
in 1997.  In 1998,  the Company  recorded a $1.3  million  increase in inventory
reserves to reduce the carrying  value of its open systems  inventory.  In 1997,
the  Company  recorded  a  $1.6  million  increase  in  inventory  reserves  for
components  rendered  obsolete  by  product  revisions  of  which  approximately
$608,000 related to PowerScript, $265,000 related to KUB and $700,000 related to
excess and obsolete assets at Nova; and a $124,000 increase in warranty reserves
for PowerScript hardware updates.

     Research and Development.  Research and development  expenses decreased 31%
to $4.8 million during 1998 compared to $7.0 million in 1997, and decreased as a
percentage  of net  revenues  to 24% in 1998  from  35% in 1997.  The  decreased
expenses were primarily due to the  reductions in personnel and decreased  usage
of  consultants as  significant  work on PowerScript  and MXPro was completed in
1998.

     Selling and Marketing. Selling and marketing expenses decreased 18% to $6.6
million in 1998  compared to $8.0 million in 1997,  and decreased to 34% in 1998
compared to 40% in 1997,  as a  percentage  of net  revenues.  This  decrease in
selling and marketing  expenses was primarily a result of decreased  advertising
and promotional expenses as the Company brought advertising expenditures in-line
with current revenue levels.

     General and Administrative.  General and administrative  expenses decreased
20% to $1.4 million in 1998  compared to $1.8 million in 1997,  and decreased to
7% in 1998 compared to 9% in 1997 as a percentage of net revenues. This decrease
was  primarily  due to a charge of  $375,000  in 1997 to bad debt  reserves  for
specific accounts.

     Write-off of  Intangibles.  In 1997,  the Company  wrote-off  the remaining
unamortized  value of the  purchased  technology  and  goodwill  established  in
connection with the acquisition of Nova. The write-off  totaled $1.9 million and
was primarily due to continued  losses and lack of  commercially  successful new
product introductions.

     Interest Expense, net. In 1998 the Company recorded net interest expense of
$21,000  compared to net  interest  income of  $261,000 in 1997.  The shift from
interest  income to  interest  expense  is  primarily  due to  interest  expense
calculated  on  shareholder  loans offset only  partially by interest  income on
lower cash balances available for investment.

     Provision for Income Taxes. At December 31, 1998 the Company recorded a tax
benefit of $30,000 on a pretax loss of $6.7 million.  This benefit was primarily
the result of a state tax refund.  In addition,  the Company  recorded an income
tax  benefit of $3.7  million on its pretax  loss  offset  completely  by a $3.7
million increase in the valuation  allowance against the Company's  deferred tax
assets. The Company continued to maintain a 100% valuation allowance against its
deferred tax assets due to the  uncertainty  surrounding the realization of such
assets.  At December 31, 1997 the Company incurred a tax charge of $718,000 on a
pretax loss of $12.7 million.


                                      H-17

<PAGE>


This  charge was the result of the  establishment  of a $5.9  million  valuation
allowance  against the  Company's  deferred  tax assets  offset  partially by an
income tax benefit of $4.6 million the Company recorded on its pretax loss.


Quarterly Results of Operations

     The following table sets forth certain quarterly financial  information for
the  periods  indicated.  This  information  has  been  derived  from  unaudited
financial  statements that, in the opinion of management,  have been prepared on
the same basis as the audited  information,  and includes  all normal  recurring
adjustments  necessary for a fair presentation of such information.  The results
of operations for any quarter are not  necessarily  indicative of the results to
be expected for any future period.


<TABLE>
<CAPTION>
                                                           1999