FOCUS ENHANCEMENTS INC
S-4, 2000-10-30
COMPUTER COMMUNICATIONS EQUIPMENT
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    As filed with the Securities and Exchange Commission on October 30, 2000
                             Registration No. 333-

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                          -----------------------------
                                    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. [ ]

<PAGE>

<TABLE>
<CAPTION>
                                              CALCULATION OF REGISTRATION FEE
======================================================================================================================
                                                                Proposed Maximum        Proposed           Amount of
         Title of each Class of                 Amount to be     Offering Price         Aggregate         Registration
     Securities to be Registered (1)           Registered (2)     Per Share (3)     Offering Price (3)       Fee (3)
----------------------------------------------------------------------------------------------------------------------
<S>                                              <C>                 <C>               <C>                 <C>
Common stock, $0.01 par  value per share         5,953,597           $1.15             $6,846,637          $1,810.00
======================================================================================================================
<FN>
(1)  This  registration  statement  relates  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.

(2) Based on the maximum  number of shares  expected to be issued in  connection
with the merger,  calculated as the product of (a) 5,902,550 shares of Videonics
common  stock  outstanding  on October 26, 2000 (other than shares  owned by the
registrant)  plus 940,665 shares for which options and warrants were outstanding
on October 26, 2000  (totaling  6,843,215)  and (b) the  exchange  ratio of 0.87
shares of the  registrant's  common  stock for each  share of  Videonics  common
stock.

(3) Estimated  solely for the purpose of  calculating  the  registration  fee in
accordance with Rules 457(c) and 457(f) under the Securities Act of 1933,  based
upon (a) $1.00,  the  average of the high and low prices per share of  Videonics
common  stock on the Nasdaq  Stock Market on October 26, 2000 as reported in the
consolidated  transaction reporting system, divided by (b) the exchange ratio of
0.87.
</FN>
</TABLE>
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 21
                 The date of this Prospectus is November o, 2000

                                       1
<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.       Elect four (4)  directors of Videonics  for terms  expiring at the 2001
Annual Meeting of Shareholders.

2.       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.

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
                                          --------------------
Dated: _________________, 2000            Michael D'Addio, Chairman of the Board


                                       2
<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.       Elect one (1) Class II director of Focus to serve a three-year term.

2.       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.

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

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
                                         ------------------
Dated:_________________, 2000            Brett A. Moyer, Chief Operating Officer


                                       3
<PAGE>

<TABLE>
<CAPTION>
                                TABLE OF CONTENTS


                                                                                                               Page
                                                                                                               ----
<S>                                                                                                            <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...........................................................................8

SUMMARY.........................................................................................................10
The Companies...................................................................................................10
Overview of the Merger Agreement................................................................................10
Reasons for the Merger..........................................................................................11
Focus Board of Directors' Position on the Fairness of the Merger to Focus Shareholders..........................12
Recommendations of the Boards of Directors......................................................................12
Shareholder Approvals...........................................................................................12
The Annual Meetings.............................................................................................12
What You Will Receive in the Merger.............................................................................12
Focus Board of Directors and Management Following the Merger....................................................13
Certain Federal Income Tax Consequences.........................................................................13
Accounting Treatment............................................................................................13
Comparison of Shareholder's Rights..............................................................................13
Interests of Officers, Directors and the Controlling Shareholders in the Merger.................................13
Dissenters' Rights and Appraisal Rights.........................................................................13
Market Price Information........................................................................................14
For More Information............................................................................................14

SUMMARY SELECTED HISTORICAL AND UNAUDITED PRO FORMA COMBINED CONDENSED
CONSOLIDATED FINANCIAL INFORMATION..............................................................................15
Focus Summary Selected Historical Financial Information.........................................................15
Videonics Summary Selected Historical Financial Information.....................................................16
Summary Selected Unaudited Pro Forma Combined Condensed Consolidated Financial Information......................17
Comparative Unaudited Historical and Pro Forma Per Share Data...................................................19
Comparative Per share Market Information........................................................................20

RISK FACTORS....................................................................................................21
Risks Related to the Merger.....................................................................................21
Risks Related to Focus and Videonics............................................................................22

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS......................................................26

INTRODUCTION....................................................................................................27

THE ANNUAL MEETING OF FOCUS SHAREHOLDERS........................................................................27
When will the meeting be held?..................................................................................27
What is the purpose of the Focus meeting?.......................................................................27
Who can vote at the Focus meeting?..............................................................................27
How do I vote by proxy?.........................................................................................27
How many votes do I have?.......................................................................................28
Can I change my vote after I return my proxy card?..............................................................28
How do I vote in person?........................................................................................28
What constitutes a quorum?......................................................................................28
What vote is required for each proposal?........................................................................28
What are the costs of solicitation of proxies?..................................................................29
Can I make a proposal at the next meeting?......................................................................29
Proposal 1......................................................................................................30
Proposal 2......................................................................................................30
Proposal 3......................................................................................................31
Proposal 4......................................................................................................31


                                       4
<PAGE>


Proposal 5......................................................................................................34

THE ANNUAL MEETING OF VIDEONICS SHAREHOLDERS....................................................................35
When will the meeting be held?..................................................................................35
What is the purpose of the Videonics meeting?...................................................................35
Who can vote at the Videonics meeting?..........................................................................35
How do I vote by proxy?.........................................................................................35
How many votes do I have?.......................................................................................36
Can I change my vote after I return my proxy card?..............................................................36
How do I vote in person?........................................................................................36
What constitutes a quorum?......................................................................................36
What vote is required for each proposal? .......................................................................36
What are the costs of solicitation of proxies?..................................................................36
Can I make a proposal at the next meeting?......................................................................36
Proposal 1......................................................................................................37
Proposal 2......................................................................................................37
Proposal 3......................................................................................................37

INFORMATION ABOUT FOCUS.........................................................................................38
The Business....................................................................................................38
PC Video Conversion, Inc........................................................................................38
Security Ownership of Certain Beneficial Owners and Management..................................................39
Information Regarding Directors and Executive Officers..........................................................40
Executive Compensation..........................................................................................43
Repricing of Stock Option.......................................................................................45
Employment Agreements...........................................................................................46
Subsequent Separation and Consulting Agreements.................................................................47
Focus Board Meetings and Committees.............................................................................47
Compensation of Directors.......................................................................................47
Certain Relationships and Related Transactions..................................................................47
Section 16(A) Beneficial Ownership Reporting Compliance.........................................................47
Recent Developments ............................................................................................48

INFORMATION ABOUT VIDEONICS.....................................................................................49
The Business....................................................................................................49
Security Ownership of Certain Beneficial Owners and Management..................................................49
Information Regarding Directors and Executive Officers..........................................................51
Executive Compensation..........................................................................................52
Employment Agreements...........................................................................................54
Videonics Board Meetings and Committees.........................................................................54
Remuneration of Non-Employee Directors..........................................................................54
Report of the Compensation Committee with respect to Executive Compensation.....................................55
Compensation Committee Interlocks and Insider Participation in Compensation Decisions...........................55
Performance Measurement Comparison..............................................................................55
Certain Relationships and Related Transactions..................................................................56
Section 16(A) Beneficial Ownership Reporting Compliance.........................................................56

THE MERGER......................................................................................................57
General.........................................................................................................57
Background of the Merger........................................................................................57
Opinion of the Financial Advisor to Focus.......................................................................58
Focus' Reasons for the Merger...................................................................................59
Recommendation of the Focus Board...............................................................................60
Videonics' Reasons for the Merger...............................................................................60
Recommendation of the Videonics Board...........................................................................61
Interests of Certain Persons in the Merger......................................................................61
Effective Time of the Merger....................................................................................62


                                       5
<PAGE>


Structure of the Merger.........................................................................................62
Effects of the Merger...........................................................................................62
Merger Consideration............................................................................................62
Effect of the Merger on Videonics Stock Options and Warrants....................................................63
Transfer of Shares..............................................................................................63
Conditions to Completion of the Merger..........................................................................63
Management and Operations of Focus and Videonics Following the Merger...........................................64
Operations of Focus and Videonics if the Merger is not Completed................................................64
Certain Federal Income Tax Consequences.........................................................................64
Accounting Treatment............................................................................................66
Restrictions on Sales of Shares by Affiliates of Videonics and Focus............................................66
Listing on NASDAQ of Focus Common Stock to be Issued in the Merger..............................................66
Federal Securities Laws Consequences............................................................................67
Dissenters' Rights..............................................................................................67

OPINION OF FINANCIAL ADVISOR RETAINED BY FOCUS BOARD OF DIRECTORS...............................................69

THE MERGER AGREEMENT............................................................................................74
General.........................................................................................................74
Conversion of Shares............................................................................................74
Representations and Warranties..................................................................................75
Conduct of Business Before the Merger...........................................................................75
No Solicitation.................................................................................................77
Conditions......................................................................................................78
Termination; Termination Fees...................................................................................79
Amendment and Waiver............................................................................................81

PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL INFORMATION.................................................82
Overview........................................................................................................82
Unaudited -Pro Forma Condensed Consolidated Balance Sheet
(As of June 30, 2000)...........................................................................................83
Unaudited -Pro Forma Condensed Consolidated Statement of Operations
(For the six months ended June 30, 2000)........................................................................84
Unaudited -Pro Forma Condensed Consolidated Statement of Operations
(For the year ended December 31, 1999)..........................................................................85
Notes To Unaudited Pro Forma Combined Condensed Financial Statements............................................86

COMPARISON OF SHAREHOLDER RIGHTS OF FOCUS AND VIDEONICS.........................................................91

EXPERTS.........................................................................................................97

LEGAL MATTERS...................................................................................................97

OTHER MATTERS...................................................................................................97

WHERE YOU CAN FIND MORE INFORMATION.............................................................................97

ACCOMPANYING DOCUMENTS..........................................................................................99


                                                     6
<PAGE>


                                                APPENDICES

<S>                 <C>                                                                                      <C>
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-QSB of Focus Enhancements, Inc. for the
                    Quarter Ended June 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
                    June 30, 2000  ..........................................................                I-1

</TABLE>


                                                     7
<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 o% of the outstanding shares.

         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 o % 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.


                                       8
<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]


                                       9
<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
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 49)

         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 38)

         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 38)

         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 78) 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;

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


                                       10
<PAGE>


         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 79) 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    either  of our  shareholders  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 79) 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  77) 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 74) 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 59 and 60)

         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.


                                       11
<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 pages 58 and 59)

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

Shareholder Approvals

         Approval of Videonics  Shareholders  (see page 36) 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 o% of the outstanding shares of common stock.

         Approval of Focus  Shareholders  (see page 28) 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 o% of
the outstanding shares of common stock.

The Annual Meetings

         Annual  Meeting of Videonics  Shareholders  (see page 35) 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 27) The Focus  annual
meeting will be held at the Crowne Plaza Hotel,  Woburn,  Massachusetts  at 4:00
p.m. on December 28, 2000.

What You Will Receive in the Merger (see pages 62 and 63)

         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 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:


                                       12
<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 (ii) 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.

Focus Board of Directors and Management Following the Merger (see page 64)

         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 64)

         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 66)

         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 91)

         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 61)

         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 67)

         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


                                       13
<PAGE>


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  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 20)

         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 97)

         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]


                                       14
<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

         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
six months ended June 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.

<TABLE>

<CAPTION>
                                                           Fiscal Year Ended(1)                             Six Months Ended(1)
                                      ---------------------------------------------------------------      ---------------------
                                                                                                           June 30,     June 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 ..........................  $ 17,100     $ 15,076      $ 21,026      $ 18,440      $ 17,183      $  9,144     $  8,014
Gross profit .......................     7,354(2)       188 (3)     5,934 (4)     3,029 (5)     6,639 (6)     4,079        2,350 (7)
Net income (loss) ..................       329(2)   (10,722)(3)    (1,986)(4)   (12,787)(5)    (1,480)(6)       158       (2,692)(7)
Basic net income (loss)
per share ..........................  $   0.05(2)  $  (1.19)(3)  $  (0.16)(4)  $  (0.78)(5)  $  (0.08)(6)  $   0.01     $  (0.11)(7)
Diluted net income (loss)
per share ..........................  $   0.04(2)  $  (1.19)(3)  $  (0.16)(4)  $  (0.78)(5)  $  (0.08)(6)  $   0.01     $  (0.11)(7)

</TABLE>

<TABLE>
<CAPTION>
                                                               Fiscal Year Ended(1)                      Six Months Ended(1)
                                                -------------------------------------------------        --------------------
                                                    1995      1996       1997      1998      1999            June 30, 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            $ 4,713
Net property, plant &
equipment ....................................       418       484      1,069     1,272       969                836
Total assets .................................     8,960     7,907     13,921    12,737    15,015             13,288
Current portion of
long-term debt ...............................       133       124        103       403       442                381
Long-term debt (less
current portion) .............................        26        81         74       860       428                266
Shareholders' equity .........................     3,587       973      5,068     2,878     9,207              8,868
<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.

(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
     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 six months ended June 30, 2000 include  charges of $207,000
     for additional  inventory  reserves,  $603,000  related to the write-off of
     obsolete inventory,  $302,000 in accounting fees and $292,000 in legal fees
     pertaining to the 1999 annual audit and special investigation.
</FN>
</TABLE>


                                       15
<PAGE>


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 six months  ended  June 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)                                     Six Months Ended (1)
                           ----------------------------------------------------------------         ---------------------------
                                                                                                     June 30,         June 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         $9,672         $ 14,226           $7,059            $5,991
Gross profit..........       16,401        13,929     6,055(4)       8,815(3)         6,084(2)         2,922             2,339
Net income (loss).....        3,746(5)        744   (13,441)(4)     (6,713)(3)        2,634)(2)       (1,644)             (816)
Basic net income (loss)
available for
common shareholders per
share ................      $  0.69(5)   $   0.13   $ (2.34)(4)     $(1.15)(3)       $(0.45)(2)       $(0.28)           $(0.14)
Diluted net income
(loss) available for
common shareholders per
share ................      $  0.65(5)   $   0.13   $ (2.34)(4)     $(1.15)(3)        $(0.45)(2)       $(0.28)          $ (0.14)
</TABLE>

<TABLE>
<CAPTION>
                                                           Fiscal Year Ended (1)                            Six Months Ended (1)
                                            -------------------------------------------------------         --------------------
                                               1995        1996        1997        1998        1999            June 30, 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              $ 3,170
Net property, plant &
equipment ..............................      1,350       2,037       2,438       1,507         513                  372
Total assets ...........................     27,350      27,958      15,694       9,164       6,089                5,637
Long-term debt .........................       --          --          --          --         1,035                1,035
Shareholders' equity ...................     24,149      25,731      12,606       5,927       3,346                2,552
<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


                                       16
<PAGE>


       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>

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 June 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 June 30, 2000 with Videonics'  historical financial position at June 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 six
months  ended  June 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
June 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  June  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  $595,000
for transaction costs associated with the merger.

         The allocation of the aggregate  purchase price of  approximately  $8.9
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...................................................   $5,637
Intangible assets acquired:
       Tradename..................................................      317
       In-process research and development........................      387
       Assembled workforce........................................    1,001
       Goodwill...................................................    1,140
       Existing technology........................................    3,495
Long-term debt....................................................   (1,035)
Other liabilities.................................................   (2,050)
                                                                     -------

Net estimated purchase price allocation...........................   $8,892
                                                                      =====


                                       17
<PAGE>


         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 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

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.
<TABLE>
<CAPTION>
                                                                       Fiscal Year               Six Months
                                                                          Ended                    Ended
                                                                    December 31, 1999          June 30, 2000
                                                                    -----------------          -------------
                                                                       (in thousands, except per share data)
<S>                                                                       <C>                     <C>
Pro Forma Combined Condensed Consolidated Statement Of
Operations Data:
Net sales.........................................................        $31,409                 $14,005
Loss from operations..............................................         (5,336)                 (4,256)
Net loss..........................................................         (5,721)                 (4,311)
Net loss per share; basic and diluted.............................         $(0.24)                  $(0.15)
Weighted average common shares; basic and diluted.................         23,876                  29,689

                                                                                             June 30, 2000
                                                                                             (in thousands)
                                                                                             --------------
Pro Forma Combined Condensed Consolidated Balanced Sheet Data:
Cash and cash equivalents and short-term investments....................................           $2,682
Working capital.........................................................................            6,687
Total assets............................................................................           24,879
Long-term obligations...................................................................            1,301
Shareholders' equity....................................................................           16,179
</TABLE>


                                       18
<PAGE>


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          Six Months
                                                                   Ended                Ended
                                                             December 31, 1999      June 30, 2000
                                                             -----------------      -------------
<S>                                                               <C>                  <C>
Historical -- Focus
Basic and diluted net loss per share ....................         $(0.08)              $(0.11)
Book value per share(1)..................................         $ 0.38               $ 0.34
</TABLE>
<TABLE>
<CAPTION>
                                                                Fiscal Year          Six Months
                                                                   Ended                Ended
                                                             December 31,1999       June 30, 2000
                                                             ----------------       -------------
<S>                                                               <C>                  <C>
Historical -- Videonics
Basic and diluted net loss per share.....................         $(0.45)              $(0.14)
Book value per share(1)..................................         $ 0.57               $ 0.43
</TABLE>
<TABLE>
<CAPTION>
                                                                Fiscal Year          Six Months
                                                                   Ended                Ended
                                                             December 31, 1999      June 30, 2000
                                                             -----------------      -------------
<S>                                                               <C>                  <C>
Unaudited Pro Forma Combined Net Loss Per Share
Pro forma net loss per Focus share(2)....................         $(0.24)              $(0.15)
Equivalent pro forma net loss per Videonics share(3).....         $(0.21)              $(0.13)
</TABLE>
<TABLE>
<CAPTION>
                                                               At June 30, 2000
                                                               ----------------
<S>                                                                  <C>
Unaudited Pro Forma Combined Book Value Per Share
Pro forma book value per Focus share(4)...................           $0.52
Equivalent pro forma book value per Videonics share(3)....           $0.45
<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 six months  ended June 30, 2000 were  determined
         by adding 5.1 million  shares  assumed to be issued in exchange for the
         outstanding  Videonics  shares to Focus' 24.8 million  weighted average
         shares  outstanding  for the six months ended June 30, 2000 for a total
         of 29.9 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 June
         30,  2000 were  determined  by adding the 5.1  million  shares  assumed
         issued for the Videonics  shares to Focus' absolute shares  outstanding
         at June 30, 2000 of 26.3 million.
</FN>
</TABLE>


                                       19
<PAGE>


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 o, 2000. [the most recent  practicable  date prior to the
              mailing of this joint proxy statement/prospectus]

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 froma  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, 2000
                                        ------------------     -----------------
Videonics...........................             $0.88                 o
Focus...............................             $1.72                 o
Equivalent Per Share Price..........             $1.50                 o


                                       20
<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 subject to the general
price  fluctuations in the market of publicly  traded equity  securities and has
experienced


                                       21
<PAGE>


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  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 agreed in principle to loan $1.5
million  to Focus in the form of a  convertible  promissory  note.  Details  are
currently being negotiated by the parties.

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


                                       22
<PAGE>


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 six months ended June 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."

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 June 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 the  date  of  this  joint  proxy
statement/prospectus,  both  Videonics  and Venture  Banking  Group were working
towards a resolution but had not reached a definitive settlement  agreement.  As
of October 9, 2000,  an aggregate of $400,000 is  outstanding  under the line of
credit.

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.


                                       23
<PAGE>


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 June 30, 2000, Focus had an accumulated deficit of $39,370,187,
and the accumulated  deficit of Videonics was  $18,770,000.  Focus and Videonics
respectively incurred net losses of $1,479,703 and $2,634,000 for the year ended
December 31, 1999,  and  $12,787,324  and $6,713,000 for the year ended December
31, 1998.  Focus had a net loss of $2,691,549  for the first six months of 2000.
Videonics had a net loss of $816,000 for the first six months of 2000. There can
be no assurance that the newly merged company will be profitable.

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


                                       24
<PAGE>


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.

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.

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. 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.


                                       25
<PAGE>



                         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.

         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.


                                       26
<PAGE>


                                  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.

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., 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 o shares of
Focus common stock  outstanding  and entitled to vote,  held by  approximately o
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 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


                                       27
<PAGE>


        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 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  o% of the  outstanding  shares of Focus common
stock.


                                       28
<PAGE>


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.


                                       29
<PAGE>


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 57, 69, 74, 82 and 91 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,
o 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 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,  o 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


                                       30
<PAGE>


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 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 accomodate  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


                                       31
<PAGE>


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, o 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.

         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.


                                       32
<PAGE>


         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
              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.


                                       33
<PAGE>


Options  Granted Under the 2000  Non-Qualified  Stock Option Plan are Subject to
Shareholder Approval.
<TABLE>
         The following  table sets forth  information as of October 9, 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)                                                          1,180,397

Options remaining available for Grant                                       2,694,603
</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.

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.


                                       34
<PAGE>


                    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 o
shares of Videonics  common  stock  outstanding  and  entitled to vote,  held by
approximately o 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 election of the nominees for director;

         o    "FOR" the merger agreement; 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   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.


                                       35
<PAGE>


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.  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.  The four nominees for director who receive the most votes will
be elected.

         As of the record date,  Videonics  directors and executive officers and
their affiliates owned  approximately  o%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 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


                                       36
<PAGE>


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 57, 74, 82 and 91 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.


                                       37
<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.


                                       38
<PAGE>


Security Ownership of Certain Beneficial Owners and Management

         The following table sets forth certain  information with respect to the
beneficial ownership of Focus common stock as of the October 9, 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.

                                                                  Percentage of
                                            Number of Shares       Outstanding
                        Name               Beneficially Owned    Common Stock(1)
                        ----               ------------------    ---------------


Thomas L. Massie (2)                             658,023                2.54%

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                5.06%


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

*    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  October  9,  2000,  or  within  60 days
     thereafter.

(3)  Includes 58,334 shares issuable  pursuant to outstanding stock options that
     are exercisable at October 9, 2000 or within 60 days thereafter.

(4)  Includes 150,000 shares subject to stock options  exercisable as of October
     9, 2000, or within 60 days thereafter.

(5)  Includes 58,333 shares issuable  pursuant to outstanding stock options that
     are exercisable at October 9, 2000, or within 60 days thereafter.

(6)  Includes 33,334 shares issuable  pursuant to outstanding stock options that
     are exercisable at October 9, 2000, or within 60 days thereafter.

(7)  Includes 56,667 shares issuable  pursuant to outstanding stock options that
     are exercisable at October 9, 2000, or within 60 days thereafter.

(8)  Includes 130,000 shares issuable pursuant to outstanding stock options that
     are exercisable at October 9, 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 October 9, 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 not exercisable at October 9, 2000, or within 60 days thereafter.

(11) Includes  1,259,670  shares  issuable  pursuant to options and  warrants to
     purchase  common stock  exercisable  at October 9, 2000,  or within 60 days
     thereafter.


                                       39
<PAGE>


<TABLE>
Information Regarding Directors and Executive Officers

         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.

                                                                                             Director /
<CAPTION>
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                1993
                                                            Board

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>

                                       40

<PAGE>


         Thomas L. Massie is Chairman of the Board and a co-founder of Focus and
has served in this position since 1992. Mr. Massie served as President and Chief
Executive  Officer  of Focus  during  1999 and 2000,  but  resigned  from  these
positions  effective  April 30,  2000.  On August  28,  2000 Mr.  Massie  became
President and Chief Executive Officer of BRIDELINE  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 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 $5M 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.

                                       41

<PAGE>

         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.

                                       42

<PAGE>


<TABLE>
Executive Compensation

      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
                                          Annual Compensation(1)(2)            Compensation
                                          -------------------------            ------------

          Name and                                                               Options/
     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>
                                       43
<PAGE>


<TABLE>
         The following tables sets forth as to the Chief Executive  Officers 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>

                                       44

<PAGE>


<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>
                             Shares                        Number of Securities            Value of Unexercised
                            Acquired       Value          Underlying Unexercised               In-the-Money
                           on Exercise    Realized       Options/SARs at Year-End        Options/SARs at Year-End
                           -----------    --------       ------------------------        ------------------------

                               (#)           ($)       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.

                                       45

<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.

                                       46

<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.

                                       47

<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   $2,000,000.   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 $2.0 million in
the period ended September 30, 2000.


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.


                                       48

<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

         The following table sets forth certain  information with respect to the
beneficial  ownership of Videonics common stock as of the October 9, 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.

                                                                   Percentage of
                                            Number of Shares        Outstanding
                Name                       Beneficially Owned      Common Stock
                ----                       ------------------      ------------

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                                   40,254 (6)              *

All executive officers and directors
as a group (6 persons) (7)                      3,037,947                50%

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

*        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
         October  9,  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
         October 9, 2000 or within 60 days thereafter.

                                       49

<PAGE>

(5)      Includes  66,375  shares  subject to stock  options  exercisable  as of
         October 9, 2000 or within 60 days thereafter.

(6)      Includes  40,254  shares  subject to stock  options  exercisable  as of
         October 9, 2000 or within 60 days thereafter.

(7)      Includes an aggregate of 126,885 shares included  pursuant to notes (4)
         - (6).

                                       50

<PAGE>


Information Regarding Directors and Executives Officers

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

                                                                    Director /
Name                         Age(1)           Position            Officer Since
----                         ---              --------            -------------

Michael L. D'Addio(2)          55       Chairman of the               1986
                                        Board, Chief
                                        Executive Officer
                                        and Director

Jeffrey A. Burt                47       V.P. Operations               1992

Gary L. Williams               33       V.P. Finance,                 1999
                                        Chief Financial
                                        Officer and Secretary

Carl E. Berg(2)                61       Director                      1987

Mark C. Hahn(2)                50       Director                      1986

N. William Jasper, Jr.(2)      52       Director                      1993

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

(1)      As of December 31, 1999.

(2)      All four (4) directors  have been nominated to be elected at the annual
         meeting.

         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

                                       51

<PAGE>


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.

<TABLE>
Executive Compensation

         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>
                                                           Annual                   Long-Term           All Other
                                                       Compensation(1)            Compensation        Compensation
                                                       ---------------            ------------        ------------
Name and                                                                            Option/
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's 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>

                                       52

<PAGE>


<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.


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

                         Shares                       Number of Securities                 Value of Unexercised
                      Acquired on     Value          Underlying Unexercised              In-the-Money Options/SARs
                        Exercise    Realized        Options/SARs at Year-End                  at Year-End(1)
Name                       #          $           Exercisable      Unexercisable        Exercisable      Unexercisable
--------------------   --------- -----------      -----------      -------------        -----------      -------------

<CAPTION>
<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>

                                       53

<PAGE>


<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/SARs       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 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.

                                       54

<PAGE>

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.

<TABLE>
Performance Measurement Comparison

         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)

                                              Cumulative Total Return

<CAPTION>
                         -------------------------------------------------------------
                         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>

                                       55

<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.

                                       56

<PAGE>


                                   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 o% 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.

         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

                                       57

<PAGE>


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.

         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.

                                       58

<PAGE>
         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 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  "Unaudited  Pro Forma
                  Combined Financial Statements."

         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.

                                       59
<PAGE>

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

         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."

         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.

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  "Unaudited  Pro  Forma
                  Combined Financial Statements."

         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.

                                       60

<PAGE>


         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 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.


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         Under key employee  agreements  between  Videonics  and Gary  Williams,
Chief Financial  Officer and Jeffrey Burt, Vice President of Operations,  42,250
and  15,265   options  to  purchase   shares  of  common  stock  of   Videonics,
respectively, will accelerate because of the merger.

      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 "--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' and Appraisal  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.

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<PAGE>


         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.

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.

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<PAGE>


         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 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

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<PAGE>
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;

         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

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<PAGE>


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.

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

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         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  resales of Focus  common
stock received by affiliates of Videonics in the merger.

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

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<PAGE>


         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.

         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.

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<PAGE>




         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.

         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;


                                       69
<PAGE>


         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,  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:


                                       70
<PAGE>


         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., Chryon 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 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's  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's 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  Videonic's own cost of
debt,  including tax  consequences.  The


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<PAGE>


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's  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's
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.

         Valuations derived from the methodologies above resulted in indications
of the value for  Videonics's  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 Videonic's  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 or $1.79 per share,  versus an imputed  merger price (based on the value
of Focus' stock offered to Videonics  shareholders) of $7.6 million or $1.47 per
share.

         Because the value of the consideration in the merger was lower than the
implied value of Videonics's 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


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<PAGE>


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's  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.


                                       74
<PAGE>


         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 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;

         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


                                       75
<PAGE>


              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;

         o    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;

         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;


                                       76
<PAGE>


         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;

         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;

         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


                                       77
<PAGE>


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; and

         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
              indiviually  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;

         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 .


                                       78
<PAGE>


         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  indiviually 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 (i) 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 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


                                       79
<PAGE>


              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

         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.


                                       80
<PAGE>


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.


                                       81
<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
$8.9 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 June  30,  2000.  The  unaudited  pro  forma  combined
condensed  balance sheet  combines the unaudited  consolidated  balance sheet of
Focus as of June 30, 2000, and the consolidated balance sheet of Videonics as of
June 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 six-month  period ended June 30, 2000,  combined
with the statement of  operations  of Videonics for the year ended  December 31,
1999 and the  six-month  period ended June 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.


                                       82
<PAGE>

<TABLE>
            Unaudited Pro Forma Condensed Consolidated Balance Sheet
                               As of June 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                      $  1,084      $    330          --               $  1,414
Certificate of deposit                            1,268          --            --                  1,268
Accounts receivable, net                          2,909         1,018          --                  3,927
Inventories                                       3,308         3,787          --                  7,095
Prepaid expenses and other current assets           297            85          --                    382
                                               --------      --------      --------             --------
Total current assets                              8,866         5,220                             14,086
                                               --------      --------      --------             --------

Property and equipment, net                         836           372          --                  1,208
Capitalized software development costs            2,814          --        $  3,495 (A,F)          6,309
Intangible and other assets                         242            45         1,318 (A)            1,605
Goodwill                                            531          --           1,140 (A)            1,671
                                               --------      --------      --------             --------

Total assets                                   $ 13,289      $  5,637      $  5,953             $ 24,879
                                               ========      ========      ========             ========

Liabilities and Shareholders' Equity

Current liabilities:
Notes payable                                      --        $    250          --               $    250
Obligations under capital lease                $     68          --            --                     68
Current portion of long-term debt                   313          --            --                    313
Accounts payable                                  3,195         1,097          --                  4,292
Accrued liabilities                                 578           703      $  1,195 (B,J)          2,476
                                               --------      --------      --------             --------
Total current liabilities                         4,154         2,050         1,195                7,399
                                               --------      --------      --------             --------

Obligations under capital lease                     202          --            --                    202
Long-term debt                                       64         1,035          --                  1,099
                                               --------      --------      --------             --------
Total Liabilities                                 4,420         3,085         1,195                8,700
                                               --------      --------      --------             --------

Shareholders' equity:
Preferred stock                                    --            --            --                   --
Common stock                                        263        20,722       (20,671)                 314
Additional paid-in capital                       48,676          --           8,529  (C,D)        57,205
Accumulated deficit                             (39,370)      (18,170)       17,083 (C,D)        (40,457)
Deferred compensation                              --            --            (183)(E,F,J)         (183)
Treasury stock                                     (700)         --            --    (G)            (700)
                                               --------      --------      --------             --------
Total shareholders' equity                        8,869         2,552         4,758               16,179
                                               --------      --------      --------             --------

Total liabilities and shareholders' equity     $ 13,289      $  5,637      $  5,953             $ 24,879
                                               ========      ========      ========             ========

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


                                       83
<PAGE>


<TABLE>
                   Unaudited Pro Forma Condensed Consolidated
                             Statement of Operations
                     For the six months ended June 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                             $  8,014      $  5,991          --             $ 14,005
Cost of goods sold                          5,664         3,652      $   (153)(I,K)        9,163
                                         --------      --------      --------           --------
    Gross profit                            2,350         2,339           153              4,842
                                         --------      --------      --------           --------

Operating expenses:
   Sales, marketing and support             1,987         1,529           (46)(I,K)        3,470
   General and administrative               1,854           497             7 (I,K)        2,358
   Research and development                   545         1,076           (76)(I,K)        1,545
   Depreciation and amortization              451          --           1,072 (H,I)        1,523
   Restructuring expense                      202          --            --                  202
                                         --------      --------      --------           --------
Total operating expenses                    5,039         3,102           957              9,098
                                         --------      --------      --------           --------

Loss from operations                       (2,689)         (763)         (804)            (4,256)

Interest expense, net                         (54)          (53)         --                 (107)
Other income, net                              54          --            --                   54
                                         --------      --------      --------           --------

Loss before income taxes                   (2,689)         (816)         (804)            (4,309)

Income tax expense                              2          --            --                    2
                                         --------      --------      --------           --------

Net Loss                                 $ (2,691)     $   (816)     $   (804)          $ (4,311)
                                         ========      ========      ========           ========

Basic and diluted net loss per share     $  (0.11)     $  (0.14)                        $  (0.15)
                                         ========      ========                         ========

Number of shares used in basic and
diluted computation                        24,557         5,893                           29,689
                                         ========      ========                         ========
<FN>
See accompanying  notes to unaudited pro forma combined  condensed  consolidated financial information.
</FN>
</TABLE>


                                       84
<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     Adjustments         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          --           2,540 (H,I)        3,097
                                                          --------      --------      --------           --------
Total operating expenses                                     7,806         7,973         2,010             17,789
                                                          --------      --------      --------           --------

Loss from operations                                        (1,167)       (2,562)       (1,607)            (5,336)

Interest expense, net                                         (531)          (72)         --                 (603)
Other income, net                                              218          --            --                  218
                                                          --------      --------      --------           --------

Loss before income taxes                                    (1,480)       (2,634)       (1,607)            (5,721)

Income tax expense                                            --            --            --                 --
                                                          --------      --------      --------           --------

Net Loss                                                  $ (1,480)     $ (2,634)     $ (1,607)          $ (5,721)
                                                          ========      ========      ========           ========

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>


                                       85
<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 $9.0
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 $595,000.

         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  $595,000,  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                                     595
                                                                         -------
Total purchase cost                                                       $8,992
                                                                          ======

<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                                             $ 5,637                   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                                                   1,140                   228              5 years
In-process research and development                             387                   n/a                  n/a
Long-term debt                                               (1,035)                  n/a                  n/a
Other liabilities                                            (2,050)                  n/a                  n/a
                                                            -------               -------
Net estimated purchase price allocation                     $ 8,892               $ 1,515
                                                            =======               =======
</TABLE>


         The tangible net assets acquired represent the historical net assets of
Videonics  business as of June 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.


                                       86
<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.

         - 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.

         - 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.

         - 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.


                                       87
<PAGE>


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


         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.

         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.

                                       88
<PAGE>


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


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                                         1,140,000
                                                           --------
                                                         $5,953,000

(B)      To reflect estimated direct transaction expenses of $595,000.

(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 $600,000 of estimated  restructuring  costs to be incurred to
         integrate  the two  companies.  These  costs are  primarily  related to
         severance, lease abandonment and asset disposal.

(K)      To  record  the  amortization  expense  associated  with  the  deferred
         compensation  related to unvested  options totaling $91,500 and $45,750
         for the twelve month and six 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 do not include
a  non-recurring  expense  arising  from a $2.0  million  judgement  rendered on
October 10, 2000 against Focus and in favor of CRA Systems Inc.


                                       89
<PAGE>


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


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.


                                       90
<PAGE>


                       COMPARISON OF RIGHTS OF HOLDERS OF
                  VIDEONICS COMMON STOCK AND FOCUS COMMON STOCK

         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.

Certificates Of Incorporation And Bylaws

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  October  9,  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


                                       91
<PAGE>



acquiring,  a  majority  of the  outstanding  voting  stock of Focus.  There are
currently no outstanding shares of Focus preferred stock.

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.


                                       92
<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 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.


                                       93
<PAGE>


         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.


                                       94
<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


                                       95
<PAGE>


brought by Focus, because that person either:

         o    is or was a director or officer of Focus; or

         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


                                       96
<PAGE>


         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 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.


                                     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,  1998 and 1997,  and each for the two-year  period ended December 31, 1999
have been incorporated by reference herein and in the Registration  Statement in
reliance upon the report of PricewaterhouseCoopes  L.L.P., independent certified
accountants,  incorporated  by reference  herein and upon the  authority of said
experts in accounting and auditing.


                                  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


                                       97
<PAGE>


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:

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 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 ended  December
              31, 1999, filed with the Commission May 1, 2000

         o    Notification  of late filing of Form 10-QSB for  quarterly  period
              ended March 31, 2000 on Form NT 10-Q, 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.

You may request a copy of these  filings,  at no cost, by writing or telephoning
Focus at the following address:

Focus  Enhancements,  Inc. 600 Research Drive  Wilmington,  Massachusetts  01887
Attention: Investor Relations (978) 988-5888.

Videonics

    The following documents filed by Focus 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.


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<PAGE>


         You may  request a copy of these  filings  at no cost,  by  writing  or
telephoning  Videonics at the  following  address:  Videonics,  Inc.,  1370 Dell
Avenue, Campbell, California 95008 Attention: Investor Relations (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  Report on Form
10-QSB  and  10-Q,  respectively,  for the  quarter  ended  June 30,  2000.  See
Appendices F, G, H, and I.


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<PAGE>

                                   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



<PAGE>


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.

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,

                                       2

<PAGE>


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.

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

                                       3

<PAGE>


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. 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

                                       4

<PAGE>


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
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,

                                       5

<PAGE>


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

                                       6

<PAGE>


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.


                                   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.

                                       7

<PAGE>


         (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  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.

                                       8

<PAGE>


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 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

                                       9

<PAGE>


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 "single  employer"  within the  meaning of Section  4001(b) 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 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.

                                       10

<PAGE>


         (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,

                                       11

<PAGE>


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
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.

                                       12

<PAGE>


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).

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,

                                       13

<PAGE>


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 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).

                                       14

<PAGE>


         (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

                                       15

<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

                                       16

<PAGE>


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  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.


                                   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.

                                       17

<PAGE>


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  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

                                       18

<PAGE>


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

                                       19

<PAGE>


Focus SEC Reports,  complied in all material respects with applicable accounting
requirements of the SEC.

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

                                       20

<PAGE>


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 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.

                                       21

<PAGE>


         (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 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

                                       22

<PAGE>


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  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

                                       23

<PAGE>


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.

                                       24

<PAGE>


         (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.

         (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

                                       25

<PAGE>


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;

                           (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

                                       26

<PAGE>


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  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

                                       27

<PAGE>


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.

                                       28

<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

                                       29

<PAGE>


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);

         (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;

                                       30

<PAGE>


         (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;

         (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

                                       31

<PAGE>


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).

         (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.


                                   ARTICLE VI
                              ADDITIONAL AGREEMENTS

Section 6.1 Joint Proxy Statement and Registration Statement.

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         (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

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<PAGE>


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).

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.

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<PAGE>


         (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  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

                                       35

<PAGE>


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 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.

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<PAGE>


         (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;

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<PAGE>


         (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;

         (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;

                                       39

<PAGE>


         (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:

         (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.

                                       40

<PAGE>


                                  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 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

                                       41

<PAGE>


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 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).

                                       42

<PAGE>


         (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

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<PAGE>


         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

         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.

                                       44

<PAGE>


         (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,  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.

                                       45

<PAGE>


         (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.

         (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.

                                       46

<PAGE>


         (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.

                                       47

<PAGE>


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,  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.

                                       48

<PAGE>


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

                                       49


<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 fair  market  value of those  shares as of the day  before  the
announcement of the proposed


                                       1
<PAGE>


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  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).


                                        2
<PAGE>


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


                                       3
<PAGE>


of the  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.


                                       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
______ of _____________, 2000.

                                             FOCUS ENHANCEMENTS, INC.



                                             By:
                                                  ------------------------------
                                                  Brett Moyer
                                                  Chief Operating Officer
ATTEST:




------------------------------
Secretary


<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 31,
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, 1996
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


<PAGE>


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.

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.




<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.


<PAGE>


         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.

         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 (8 1/3%) 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


<PAGE>


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).

         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


<PAGE>


shall determine the specific adjustments to be made under this paragraph 11, and
its determination shall be conclusive.

         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. Options 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.




<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                       04-3186320
          (State or Other Jurisdiction of     (I.R.S. Employer
          Incorporation or Organization)      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:

                                                        NAME OF EXCHANGE
TITLE OF EACH CLASS                                     ON WHICH REGISTERED
Common Stock, $.01 par value                            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>

                               TABLE OF CONTENTS
<TABLE>
<CAPTION>

                                                                           Page
                                                                           ----
<S>         <C>                                                            <C>
PART I
Item 1.     Business                                                          3
Item 2.     Properties                                                       11
Item 3.     Legal Proceedings                                                11
Item 4.     Submission of Matters to a Vote of Security Holders              11

PART II
Item 5.     Market for Registrant's Common Equity and
            Related Stockholder Matters                                      12
Item 6.     Management's Discussion and Analysis of Financial Condition
            and Results of Operations                                        13
Item 7.     Financial Statements                                             23
Item 8.     Changes in and Disagreements with Accountants on Accounting
            and Financial Disclosure                                         24

PART III
Item 9.     Directors, Executive Officers, Promoters and Control Persons,
            Compliance with Section 16(a) of the Exchange Act                25
Item 10.    Executive Compensation                                           25
Item 11.    Security Ownership of Certain Beneficial Owners
            and Management                                                   25
Item 12.    Certain Relationships and Related Transactions                   25
Item 13.    Exhibits and Reports on Form 8-K                                 25
</TABLE>

                                       2
<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,


                                       3
<PAGE>

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 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


                                       4
<PAGE>

   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.

 . 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.

                                       5
<PAGE>

 . 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.

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.

                                       6
<PAGE>

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.

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.

                                       7
<PAGE>

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.


                                       8
<PAGE>

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 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.

                                       9
<PAGE>

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
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

                                       10
<PAGE>

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
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.

                                       11
<PAGE>

                                    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.
<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.

                                       12
<PAGE>

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.

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>

                                       13
<PAGE>


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.

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

                                       14
<PAGE>


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.

                                       15
<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.

                                       16
<PAGE>

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 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.


                                       17
<PAGE>

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 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.

                                       18
<PAGE>

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 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

                                       19
<PAGE>

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 and issuable upon exercise of
the warrant will be registered under the Securities Act of 1933. Fees and
expenses

                                      20
<PAGE>


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.


                                       21
<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.

                                       22
<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 1998    F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999 and 1998              F-5
Notes to Consolidated Financial Statements                                                        F-7
</TABLE>

                                       23
<PAGE>

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not Applicable

                                       24
<PAGE>



       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 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 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.

                          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             --              --                 --                       --
</TABLE>

(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.

     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
                                                      Total Options                   Individual Grants
                                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
</TABLE>


- -------------------------------------
(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.


     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 (Exercisable)              $ 0  (Exercisable)
                                                                      128,332                      $904,885
                                                                      (Unexercisable)              (Unexercisable)

Brett Moyer                       200,001        1,406,007            0  (Exercisable)             $0  (Exercisable)
                                                                      189,999                      $1,333,241
                                                                      (Unexercisable)              (Unexercisable)

William Schillhammer               15,000          105,450            30,668 (Exercisable)         213,533 (Exercisable)
                                                                      131,332                      923,264
                                                                      (Unexercisable)              (Unexercisable)

Thomas Hamilton                    88,334          620,989            0                            $0
                                                                      (Exercisable)                (Exercisable)
                                                                      191,666                      $1,362,745
                                                                      (Unexercisable)              (Unexercisable)
</TABLE>

- -------------------------------------
(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.

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.

     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
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
</TABLE>

- -------------------------------------
  *  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.


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

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.

Exhibit Item No.   Item and Description

     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)

                                       25
<PAGE>

     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)

                                       26
<PAGE>

    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)

    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)



                                       27
<PAGE>

    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).

    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


                                       28
<PAGE>

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

      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.


     (b) Reports on Form 8-K

         The Company filed no reports on Form 8-K during the fiscal quarter
ended December 31, 1999.

                                       29
<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-1
<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,        2,913,005            2,553,139
   1999 and 1998, respectively
  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               245,042              180,051
   18,005,090 shares issued and outstanding at December 31, 1999 and 1998,
   respectively
  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
                                                                                      ============         ============
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
   statements.

                                      F-2
<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-3
<PAGE>

                           FOCUS ENHANCEMENTS, INC.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                    YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>

                                 Common Stock                                          Note                     Total
                            ----------------------     Additional      Accumulated  Receivable     Treasury  Stockholders'
                             Shares         Amount   Paid-in Capital     Deficit    Common Stock    Stock       Equity
                            ----------------------   ---------------   -----------  ------------   --------  -------------
<S>                          <C>          <C>        <C>               <C>          <C>            <C>       <C>
Balance at December 31,
 1997                       14,010,186   $140,102    $27,339,892     $(22,411,611)  $       --     $      --    $  5,068,383

Issuance of common stock
 upon exercise of stock      2,429,958     24,299      7,296,082               --     (316,418)           --       7,003,963
 options and warrants

Issuance of common stock
 from private offerings,     1,092,150     10,922      2,816,433               --           --            --       2,827,355
 net of issuance costs of
 $172,645


Issuance of common stock       472,796      4,728      1,460,897               --           --            --       1,465,625
 for acquisitions of
 Digital Vision, Inc. and
 PC Video Conversion, Inc.
Purchase of treasury stock          --         --             --               --           --      (700,130)       (700,130)

Net loss                            --         --             --      (12,787,324)          --            --     (12,787,324)
                            ----------   --------    -----------     ------------    ---------     ---------    ------------

Balance at December 31,     18,005,090    180,051     38,913,304      (35,198,935)    (316,418)     (700,130)      2,877,872
 1998
Issuance of common stock     2,215,780     22,158      2,573,865               --           --            --       2,596,023
 upon exercise of stock
 options and warrants
Issuance of common stock     4,183,333     41,833      4,372,145               --           --            --       4,413,978
 from private offerings,
 net of issuance costs of
 $286,022
Common stock issued in         100,000      1,000        322,260               --           --            --         323,260
 settlement of accounts
 payable
Common stock warrants
 issued for services
 and debt                           --         --        159,317               --           --            --         159,317
Repayment of note                   --         --             --               --      316,418            --         316,418
 receivable-common stock
Net loss                            --         --             --       (1,479,703)          --            --      (1,479,703)
                            ----------   --------    -----------     ------------    ---------     ---------    ------------
Balance at December 31,     24,504,203   $245,042    $46,340,891     $(36,678,638)  $       --     $(700,130)   $  9,207,165
 1999                       ==========   ========    ===========     ============   ==========     =========    ============
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
   statements.

                                      F-4
<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-5
<PAGE>

<TABLE>
<CAPTION>
Supplemental Cash Flow Information:
<S>                                                                                               <C>         <C>
   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:

<TABLE>
<S>                                                        <C>
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)
                                                                   ===========
</TABLE>


On July 29, 1998, the Company purchased certain assets and assumed certain
liabilities of PC Video Conversion, Inc. as follows:

<TABLE>
<S>                                                        <C>
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)
                                                                   ===========
</TABLE>




The accompanying notes are an integral part of the consolidated financial
statements.

                                      F-6
<PAGE>

                           FOCUS ENHANCEMENTS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Business of the Company. FOCUS Enhancements, Inc. (the "Company" or
"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)

                                      F-7
<PAGE>

     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.

     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

                                      F-8
<PAGE>


     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 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.

                                      F-9
<PAGE>


     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 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.

                                      F-10
<PAGE>


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:

<TABLE>
<CAPTION>
DESCRIPTION                                 1999              1998
                                         -----------      ------------
<S>                                      <C>              <C>
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                --
</TABLE>
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:
<TABLE>
<CAPTION>
                                                        December 31,
                                               ------------------------------
                                                  1999                1998
                                               ----------          ----------
<S>                                            <C>                 <C>
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
                                               ==========          ==========
</TABLE>

                                      F-11
<PAGE>

     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 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.

                                      F-12
<PAGE>

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 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.

                                      F-13
<PAGE>

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 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.

                                      F-14
<PAGE>

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.


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.

                                      F-15
<PAGE>

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 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.

                                      F-16
<PAGE>

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.

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              1,018,329      $0.90 - $9.11             3,715,507       $0.90 - $9.11
 beginning of year

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              1,323,329      $1.06 - $9.11             1,018,329       $0.90 - $9.11
 end of year                        ==========      =============           ===========       =============
Warrants exercisable at              1,323,329      $1.06 - $9.11             1,018,329       $0.90 - $9.11
 end of year                        ==========      =============           ===========       =============
Weighted average fair                                       $ .68                                     $1.25
 value of warrants
 granted during the year
</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.

                                      F-17
<PAGE>

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 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.

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:


<TABLE>
<CAPTION>
                                                1999                                    1998
                                -------------------------------------  ---------------------------------------
                                                    Weighted Average                        Weighted Average
                                     Shares          Exercise Price          Shares          Exercise Price
                                -----------------  ------------------  ------------------  -------------------
<S>                             <C>                <C>                 <C>                 <C>
Options outstanding                    3,919,396         $ 1.22          2,966,396                 $1.81
at beginning of year
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                    2,891,114         $ 1.21          3,919,316                 $1.22
at end of year                        ==========                        ==========

Options exercisable                      393,391         $ 1.21          1,289,536                 $1.20
at end of year                        ==========                        ==========

Weighted average fair value                                 .57                                    $ .92
 of options granted during
 the year
</TABLE>

                                      F-18
<PAGE>

Information pertaining to options outstanding at December 31, 1999 is as
follows:

<TABLE>
<CAPTION>
                                         Options Outstanding                            Options Exercisable
                        -----------------------------------------------------  --------------------------------------
<S>                     <C>               <C>                <C>               <C>                 <C>
                                              Weighted           Weighted                               Weighted
                                               Average           Average                                Average
     Range of             Outstanding         Remaining          Exercise         Exercisable           Exercise
   Exercise Prices          12/31/99            Life              Price             12/31/99             Price
- ----------------------  ----------------  -----------------  ----------------   -----------------  ------------------
           $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                 2,891,114        3.6 yrs             1.21             393,391               1.21
December 31, 1999              =========                                            ========

</TABLE>


STOCK-BASED COMPENSATION.

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 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:
                                      F-19
<PAGE>

<TABLE>
<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:


<TABLE>
<CAPTION>
                                                    Years Ended  December 31,
                                                  -----------------------------
                                                       1999           1998
                                                  --------------  -------------
<S>         <C>                                   <C>             <C>
Current:
            Federal income taxes                  $           --        $    --
                                                              --         24,641
            State income taxes                    --------------        -------

                                                              --         24,641
Deferred federal and state income
taxes                                                         --             --
                                                  --------------        -------
                                                  $           --        $24,641
                                                  ==============        =======
</TABLE>

                                      F-20
<PAGE>

The differences between the provisions for income taxes from the benefits
computed by applying the statutory Federal income tax rate are as follows:


<TABLE>
<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                    546,000             5,029,000
 asset
Other, net                                                          49,000               100,641
                                                              ------------          ------------
                                                              $         __          $     24,641
                                                              ============          ============
</TABLE>


The net deferred tax asset consists of the following:
<TABLE>
<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>


The tax effects of each type of income and expense item that give rise to
deferred taxes are as follows:


<TABLE>
<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>


A summary of the change in the valuation allowance on deferred tax assets is as
follows:


<TABLE>
<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>


                                      F-21
<PAGE>

At December 31, 1999, the Company has the following carry forwards available for
income tax purposes:


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
                                                        ===========

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.

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.

                                      F-22
<PAGE>

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 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-23
<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.


<TABLE>
<CAPTION>
              Signature                                     Title                                 Date
- --------------------------------------  ----------------------------------------------  -------------------------
<S>                                     <C>                                             <C>


/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
- --------------------------------------
John C. Cavalier                        Director                                        May 1, 2000


/s/ William B. Coldrick
- --------------------------------------
William B. Coldrick                     Director                                        May 1, 2000


/s/ Timothy E. Mahoney
- --------------------------------------
Timothy E. Mahoney                      Director                                        May 1, 2000


/s/ William Dambrackas
- --------------------------------------
William Dambrackas                      Director                                        May 1, 2000
</TABLE>

<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:   June 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                                           04-3186320
(State or other jurisdiction of                           (IRS Employer
incorporation or organization)                          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 June 30, 2000, there were outstanding 26,307,871 SHARES OF COMMON STOCK,
$.01 PAR VALUE PER SHARE.
<PAGE>

                           FOCUS ENHANCEMENTS, INC.
                                  FORM 10-QSB

                               QUARTERLY REPORT
                                 June 30, 2000

                               TABLE OF CONTENTS

                                                                            PAGE

FACING PAGE                                                                   1
TABLE OF CONTENTS                                                             2

PART I.  FINANCIAL INFORMATION

ITEM 1. Consolidated Financial Statements:

        Consolidated Balance Sheets at June 30, 2000
        and December 31, 1999                                                 3

        Consolidated Statements of Operations
        for the Three Months Ended June 30, 2000
        and 1999                                                              4

        Consolidated Statements of Operations                                 5
        for the Six Months Ended June 30, 2000
        and 1999

        Statement of Changes in Equity for the Six
        Months Ended June 30, 2000                                            6

        Consolidated Statements of Cash Flows
        for the Six Months Ended June 30, 2000
        and 1999                                                              7

    Notes to Consolidated Financial Statements                             8-11

ITEM 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations                              11-16

PART II. OTHER INFORMATION

 ITEM 1. Legal Proceedings                                                  17
 ITEM 2. Changes in Securities                                              17
 ITEM 3. Defaults Upon Senior Securities                                    17
 ITEM 4. Submission of Matters to a Vote of Security Holders                17
 ITEM 5. Other Information                                                  17
 ITEM 6. Exhibits and Reports on Form 8-K                                   17

SIGNATURES                                                                  18

                                       2
<PAGE>

                            FOCUS ENHANCEMENTS, INC.
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                June 30,     December 31,
                                                                  2000           1999
                                                              ------------   ------------
<S>                                                           <C>            <C>
                           ASSETS
Current Assets:
   Cash and cash equivalents                                  $  1,083,922   $  3,736,517
   Certificate of deposit                                        1,267,871        534,091
   Accounts receivable, net of
     allowances of $731,832 and
     $1,402,176 at June 30, 2000 and
     December 31, 1999, respectively                             2,909,487      2,913,005
   Inventories                                                   3,307,638      3,588,702
   Prepaid expenses and other current assets                       296,929        240,732
                                                              ------------   ------------
     Total current assets                                        8,865,847     11,013,047

   Property and equipment, net                                     835,803        968,594
   Capitalized software development costs                        2,814,098      2,122,450
   Other assets, net                                               241,648        287,116
   Goodwill, net                                                   530,744        624,277
                                                              ------------   ------------
     Total assets                                             $ 13,288,140   $ 15,015,484
                                                              ============   ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Notes payable                                              $          0   $  1,006,258
   Obligations under capital leases                                 68,694        129,451
   Current portion of long-term debt                               312,556        312,556
   Accounts payable                                              3,195,066      3,413,285
   Accrued liabilities                                             577,802        518,726
                                                              ------------   ------------
     Total current liabilities                                   4,154,118      5,380,276

   Obligations under capital leases                                201,984        202,002
     Long-term debt, net of current portion                         63,560        226,041
                                                              ------------   ------------
     Total liabilities                                           4,419,662      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,
     26,307,871 and 24,504,203 shares
     issued at June 30, 2000 and December 31,
     1999, respectively                                            263,079        245,042
   Additional paid-in capital                                   48,675,716     46,340,891
   Accumulated deficit                                         (39,370,187)   (36,678,638)
   Treasury stock at cost, 450,000 shares                         (700,130)      (700,130)
                                                              ------------   ------------
     Total stockholders' equity                                  8,868,478      9,207,165
                                                              ------------   ------------
     Total liabilities and stockholders' equity               $ 13,288,140   $ 15,015,484
                                                              ============   ============
</TABLE>


See accompanying notes to Unaudited Consolidated Financial Statements

                                       3
<PAGE>

                            FOCUS ENHANCEMENTS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>


                                                  Three Months Ended
                                                June 30,       June 30,
                                                  2000           1999
                                                               (Note 2)
                                               -----------   -----------
<S>                                            <C>           <C>
Net revenues                                   $ 4,399,974   $ 4,077,304
Cost of goods sold                               3,334,953     2,128,033
                                               -----------   -----------

 Gross profit                                    1,065,021     1,949,271
                                               -----------   -----------

Operating expenses:

 Sales, marketing and support                      959,067       996,789
 General and administrative                        706,465       427,228
 Research and development                          285,359       270,325
 Depreciation and amortization expense             237,061       133,856
                                               -----------   -----------
  Total operating expenses                       2,187,952     1,828,198
                                               -----------   -----------

Income from operations                          (1,122,931)      121,073

Interest expense, net                              (34,312)     (145,496)
Other income, net                                   43,211        79,115
                                               -----------   -----------
Income before income taxes                      (1,114,032)       54,692

Income tax expense                                   1,854            --
                                               -----------   -----------
Net income                                     $(1,112,178)  $    54,692
                                               ===========   ===========

Net income per common share
  Basic                                        $     (0.04)  $      0.00
                                               ===========   ===========
  Diluted                                      $     (0.04)  $      0.00
                                               ===========   ===========

Weighted average common shares outstanding

  Basic                                         24,785,659    18,011,725
                                               ===========   ===========
  Diluted                                       24,785,659    18,012,361
                                               ===========   ===========
</TABLE>


*See accompanying notes to Unaudited Consolidated Financial Statements

                                       4
<PAGE>

                            FOCUS ENHANCEMENTS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                   Six Months Ended
                                                 June 30,      June 30,
                                                   2000         1999
                                                              (Note 2)
                                               -----------   -----------
<S>                                            <C>           <C>
Net revenues                                   $ 8,014,244   $ 9,144,383
Cost of goods sold                               5,664,585     5,065,167
                                               -----------   -----------

 Gross profit                                    2,349,659     4,079,216
                                               -----------   -----------

Operating expenses:

 Sales, marketing and support                    1,986,844     2,020,484
 General and administrative                      1,853,639       781,170
 Research and development                          545,187       762,806
 Depreciation and amortization expense             450,673       273,226
 Restructuring Expenses                            202,252            --
                                               -----------   -----------
   Total operating expenses                      5,038,595     3,837,686
                                               -----------   -----------

Income/(loss) from operations                   (2,688,936)      241,530

Interest expense, net                              (54,078)     (166,861)
Other income, net                                   53,611        83,013
                                               -----------   -----------
Income/(Loss) before income taxes               (2,689,403)      157,682

Income tax expense                                  (2,146)           --
                                               -----------   -----------
Net Loss                                       $(2,691,549)  $   157,682
                                               ===========   ===========
Net Loss per common share
   Basic                                       $     (0.11)  $      0.01
                                               ===========   ===========
   Diluted                                     $     (0.11)  $      0.01
                                               ===========   ===========
Weighted average common shares outstanding
   Basic                                        24,556,510    18,008,426
                                               ===========   ===========
   Diluted                                      24,556,510    18,009,062
                                               ===========   ===========

*See accompanying notes to Unaudited Financial Statements
  </TABLE>


                                       5
<PAGE>

                            FOCUS ENHANCEMENTS, INC.
                         STATEMENT OF CHANGES IN EQUITY
                     FOR THE SIX MONTHS ENDED JUNE 30, 2000
                                   (Unaudited)


<TABLE>
<CAPTION>
                                      Common Stock                                                        Total
                                 -----------------------   Additional       Accumulated    Treasury    Stockholders'
                                   Shares       Amount  Paid-in Capital      Deficit        Stock         Equity
                                 ----------------------- --------------- ---------------- ----------- --------------
<S>                              <C>            <C>        <C>            <C>             <C>            <C>
Balance at December 31, 1999     24,504,203     $245,042   $ 46,340,891   $ (36,678,638)  $  (700,130)  $ 9,207,165

Issuance of common stock            403,668        4,037      1,064,825                                   1,068,862
 upon exercise of stock
 options and warrants

Issuance of common stock          1,400,000       14,000      1,270,000                                   1,284,000
 from private offerings,
 net of issuance cost of
 $

Common stock issued in
 settlement of accounts
 payable

Common stock warrants
 issued for services
 and debt

Net loss                                                                     (2,691,549)                 (2,691,549)

                                 ----------   ----------- --------------- ---------------- ----------- -------------
Balance at June 30, 2000         26,307,871   $  263,079  $  48,675,716   $ (39,370,187)   $ (700,130)  $ 8,868,478
                                 ==========   =========== =============== ================ =========== =============


</TABLE>

 See accompanying notes to Unaudited Financial Statements



                                       6
<PAGE>

                            FOCUS ENHANCEMENTS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)




<TABLE>
<CAPTION>
                                                                                                       Six Months Ended
                                                                                                 June 30,              June 30,
                                                                                                   2000                  1999
                                                                                              --------------        --------------
<S>                                                                                             <C>                  <C>
Cash flows from operating activities:
    Net Loss                                                                                    $(2,691,549)         $   157,682

    Adjustments to reconcile net income to net cash used in operating activities:
        Depreciation and amortization                                                               450,673              273,226
        Deferred Income                                                                                   0              (84,212)
        Increase in accrued interest on notes receivable, common stock                                    0               (4,219)
        Changes in operating assets and liabilities, net of the effects of acquisition:
            (Increase) decrease in accounts receivable                                               (3,518)            (498,993)
            Decrease (increase) in inventories                                                     (281,064)           1,326,414
            Decrease (increase) in prepaid expenses and other assets                                 82,805              (60,483)
            (Decrease) increase in accounts payable                                                 123,960              148,447
            (Decrease) increase in accrued liabilities                                              (59,075)          (1,162,850)
                                                                                                -----------          -----------
        Net cash used (Provided)in operating activities                                          (2,377,768)              95,012
                                                                                                -----------          -----------

Cash flows from investing activities:
    Decrease (increase) in certificates of deposit                                                 (733,780)             163,067
    Purchase of property and equipment                                                             (570,137)          (1,292,234)
                                                                                                -----------          -----------
        Net cash used in investing activities                                                    (1,303,917)          (1,129,167)
                                                                                                -----------          -----------

Cash flows from financing activities:
    Payments on notes payable                                                                    (1,100,517)          (1,027,057)
    Payments under capital lease obligations                                                       (223,256)             (42,909)
    Payments on long-term debt                                                                           --             (138,080)
    Net proceeds from accounts receivable factoring                                                      --              611,847
    Net proceeds from private offerings of common stock                                           1,284,000              539,103
    Net proceeds from exercise of common stock options and warrants                               1,068,862                   --
                                                                                                -----------          -----------
        Net cash provided by financing activities                                                 1,029,089              (57,096)
                                                                                                -----------          -----------

Net increase in cash and cash equivalents                                                        (2,652,596)          (1,091,251)

Cash and cash equivalents at beginning of period                                                  3,736,517            1,128,380
                                                                                                -----------          -----------

Cash and cash equivalents at end of period                                                      $ 1,083,921          $    37,129
                                                                                                ===========          ===========

Supplemental Cash Flow Information:

        Interest paid                                                                           $    54,078          $   166,861
        Income taxes paid
                                                                                                       --                     --
</TABLE>

                                       7
<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 June 30, 2000 and for the three and six-month periods ended June
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 six month periods ended June 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

     The company is in the process of reviewing and evaluating the impact of
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.

     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.

     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.
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 items in the financial statements that are affected by the restatement
are as follows:

<TABLE>
<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

                                       8
<PAGE>

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 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 six months ended
June 30, 2000 and 1999, options and warrants applicable to 2,890,742 shares and
4,447,671 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 six-month period ended June 30, 2000 and
1999.


5.   INVENTORIES

Inventories consist of the following:
                                        June 30,2000        December 31,1999
                                      ---------------       ----------------
Finished goods                           $2,770,280             $2,377,709
Work In Process                          $   42,557             $  171,637
Raw Materials                            $  494,801             $1,039,356
                                      ---------------       ----------------
                                         $3,307,638             $3,588,702
                                      ===============       ================

6.   CLOSURE OF THE MORGAN HILL FACILITY

     During Q2 00 the Company successfully completed the closure 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.

7.   NOTES PAYABLE / SECURITY ARRANGEMENTS

     Note Payable, 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.
This term loan was paid in full as of June 30, 2000.

                                       9
<PAGE>

8.   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 June 30, 2000 are as follows:

                  2000                         376,116
                                              --------
                  To be booked in July           4,811
                  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 deal, 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.


9.   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 on September 10, 1997.

     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).

     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 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.

     For the six-month period ended June 30, 2000, the Company issued at various
times, 403,668 shares of common stock resulting from other exercises of options
and warrants, receiving cash of approximately $1,068,862. Additional Paid-in
Capital of 2,334,825 ($1,270,000 for the private placement and $1,064,825 from
the exercise of stock options and warrants) for this period is net of $245,440
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.

     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.


10.   SEPARATION AGREEMENTS AND CONSULTING AGREEMENTS

     On May 1, 2000, the Company entered into a Separation Agreement with Thomas
L.Massie, President and CEO, whereby the Company and Mr. Massie agreed to sever
Mr.Massie's employment relationship effective April 30, 2000.

                                       10
<PAGE>

     On May 1, 2000, the Company entered into a Separation Agreement with Gary
M. Cebula, Vice President of Finance and Administration, whereby the Company and
Mr. Cebula agreed to sever Mr. Cebula's employment relationship effective April
30, 2000.

     On May 1, 2000, the Company entered into a Consulting Agreement with
William B. Coldrick, Vice Chairman, to provide management services to the
Company for the period of May 1, 2000 to December 31, 2000.

     On May 1, 2000, the Company entered into a Consulting Agreement with Thomas
L. Massie, Chairman, to provide management services to the Company for the
period of May 1, 2000 to December 31, 2000.

     On May 1, 2000, the Company entered into a Consulting Agreement with Gary
Cebula to provide financial management services to the Company for the period of
May 1, 2000 to December 31, 2000.

     The Company estimates that the aggregate financial impact to the Company of
the above agreements for the year ended December 31, 2000 will be approximately
$260,000 comprised of $176,000 in compensation and $84,000 of debt forgiveness
for the year ended December 31, 2000.


11.  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. In the CRA case, a verdict was returned in May 2000 requiring Focus to
pay a judgement of approximately $1.8m. Since mediation is scheduled for late
August, it is not possible at this time to estimate the final amount that will
ultimately be paid. In the event that mediation is unsuccessful, Focus intends
to contest the verdict through an appeal. It is common practice that the Court
will withhold its judgement until completion of mediation.

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 "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

                                       11
<PAGE>

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 June 30, 2000 As Compared
                With The Three-Month Period Ended June 30, 1999

Net Revenues

     Net revenues for the three-month period ended June 30, 2000 ("Q2 00") were
$4,399,974 as compared with $4,077,304 for the three-month period ended June 30,
1999 ("Q2 99"), an increase of $322,670 or 8%. The increase in sales is
primarily attributed to OEM/Licensing and Professional Product customers.
Specifically, net revenues in Q2 00 to OEM/Licensing customers increased 81% to
$1,145,000 in Q2 00 from $631,000 in Q2 99. Net Revenues in Q2 00 to
Professional Product customers increased 42% to $868,000 from $611,000 in Q2 99.
The increases in net revenues were offset by a decrease in the consumer video
conversion product line of 16% to $2,386,000 in Q2 00 from $2,835,000 in Q2 99.
As referenced herein, a restatement of Q2 99 financial information resulted in a
$363,000 reduction to net revenues for 1999 comparative purposes.

Sales Backlog

     As of June 30, 2000, the Company had a sales order backlog of approximately
$510,000.

Cost of Goods Sold

     Cost of goods sold were $3,334,953 or 76% of net revenues, for the three-
month period ended June 30, 2000, as compared with $2,128,033 or 52% of net
revenues, for the three-month period ended June 30, 1999, an increase in
absolute dollars of $1,206,920 or 55%. The Company's gross profit margins for Q2
00 and Q2 99 were 24% and 48%, respectively. The decrease in Q2 00 gross margin
is primarily due 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. As referenced herein, a
restatement of Q2 99 financial information resulted in a $363,000 decrease to
cost of goods sold for 1999 comparative purposes.

Sales, Marketing and Support Expenses

     Sales, marketing and support expenses were $959,067 or 22% of net
revenues, for the three-month period ended June 30, 2000, as compared with
$996,789 or 24% of net revenues, for the three-month period ended June 30,
1999, a decrease of $37,722.

General and Administrative Expenses

     General and administrative expenses for the three-month period ended June
30, 2000 were $706,465 or 16% of net revenues, as compared with $427,228 or 10%
of net revenues for the three-month period ended June 30, 1999, an increase of
$279,237 or 65%. The increase in absolute dollars is due primarily to increases
in payroll (approximately $68,000), accounts receivable reserves (approximately
$73,000), consulting fees (approximately $66,000), investor relations
(approximately $28,000) and banking fees (approximately $24,000).

Research and Development Expenses

     Research and development expenses for the three-month period ended June 30,
2000 were $285,359, or 6% of net revenues, as compared to $270,325, or 7% of net
revenues, for three-month period ended June 30, 1999, an increase of $15,034 or
6%.

Interest Expense, Net

                                       12
<PAGE>

     Net interest expense for the three-month period ended June 30, 2000 was
$34,312, or 1% of net revenues, as compared to $145,496, or 4% of Net revenues,
for the three-month period ended June 30, 1999, a decrease of $111,184, or 76%.
The decrease is primarily attributable to decreases in interest paying
obligations for the quarter ended June 30, 2000 as compared to the quarter ended
June 30, 1999.

Other Income

     Other Income for the three-month period ended June 30, 2000 was $43,211 as
compared to $79,115, for the three-month period ended June 30, 1999, a decrease
of $35,904.

Net Loss

     For the quarter ended June 30, 2000, the Company reported a net loss of
($1,112,178), or ($0.04) per share, as compared to net income of $54,692, or
$0.00 per share, for the quarter ended June 30, 1999. The net loss is primarily
due to the physical inventory adjustment and increased inventory reserves.


RESULTS OF OPERATIONS

              Six-Month Period Ended June 30, 2000 As Compared
                With The Six-Month Period Ended June 30, 1999

Net Revenues

     Net revenues for the six-month period ended June 30, 2000 ("Q2 00") were
$8,014,244 as compared with $9,144,383 for the six-month period ended June 30,
1999 ("Q2 99"), a decrease of $1,130,139 or 12%. 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 Q2 00 were $4,793,000, compared to $6,801,000 for
the same period in 1999. These sales decreased 30% or $2,008,000. The decrease
was offset by an increase in sales to the OEM/Licensing and Professional Product
customers. Specifically, net revenues through Q2 00 to the Company's
OEM/Licensing customers increased 28% to $1,676,000 from $1,308,000 for the same
period in 1999. Net Revenues through Q2 00 to Professional Product customers
increased 49% to $1,544,000 from $1,035,000 through Q2 99.

Cost of Goods Sold

     Cost of goods sold were $5,664,585 or 71% of net revenues, for the six-
month period ended June 30, 2000, as compared with $5,065,167 or 55% of net
revenues, for the six-month period ended June 30, 1999, an increase in absolute
dollars of $599,418 or 12%. The Company's gross profit margins through Q2 00 and
Q2 99 were 29% and 45%, 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.

Sales, Marketing and Support Expenses

     Sales, marketing and support expenses were $1,986,844 or 25% of net
revenues, for the six-month period ended June 30, 2000, as compared with
$2,020,484 or 22% of net revenues, for the six-month period ended June 30, 1999,
a decrease of $33,640.

General and Administrative Expenses

     General and administrative expenses for the six-month period ended June 30,
2000 were $1,853,639 or 23% of net revenues, as compared with $781,170 or 9% of
net revenues for the six-month period ended June 30, 1999, an increase of
$1,072,469 or 137%. 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

                                       13
<PAGE>

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 $122,000), accounts receivable reserves
(approximately $118,000), consulting fees (approximately $97,000), investor
relations (approximately $48,000) and banking fees (approximately $24,000).

Research and Development Expenses

     Research and development expenses for the six-month period ended June 30,
2000 were $545,187, or 7% of net revenues, as compared to $762,806, or 7% of net
revenues, for six-month period ended June 30, 1999, a decrease of $217,619 or
29%.

Interest Expense, Net

     Net interest expense for the six-month period ended June 30, 2000 was
$54,078, or 1% of net revenues, as compared to $166,861, or 2% of net revenues,
for the six-month period ended June 30, 1999, a decrease of $112,783, or 68%.
The decrease is primarily attributable to decreases in interest paying
obligations for the quarter ended June 30, 2000 as compared to the quarter ended
June 30, 1999.

Other Income

     Other Income for the six-month period ended June 30, 2000 was $53,611 as
compared to $83,013, for the six-month period ended June 30, 1999, a decrease of
$29,402.

Net Loss

     For the six-month period ended June 30, 2000, the Company reported a net
loss of ($2,691,549), or ($0.11) per share, as compared to net income of
$157,682, or $0.01 per share, for the six-month period ended June 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.

LIQUIDITY AND CAPITAL RESOURCES

     Net cash provided for (used in) operating activities for the six-month
periods ended June 30, 2000 and 1999 was ($2,377,767) and $95,012, respectively.
In the year 2000 period, net cash used in operating activities consisted
primarily of increases in inventory of $281,064, prepaid expenses and other
assets of $82,805,and accounts receivable of $3,518, a decrease in accrued
liabilities of $59,075 and a net loss of $2,691,549. This was offset by an
increase in accounts payable of $123,960 and depreciation and amortization
(non-cash charge) of $450,673. As of June 30, 2000 and 1999, accounts receivable
from a major distributor represented approximately 26% and 35%, respectively of
total accounts receivable. In Q2 00, the Company continued to record provisions
for potential future uncollectable accounts and maintained reserves for
potential product returns.

     In the six months ended June 30, 1999, net cash used in operations
consisted primarily of an increase in accounts receivable of $498,993 and
prepaid expense of $60,483 and a decrease in accrued liabilities of $1,162,850.
This was offset by a decrease in inventory of $1,326,414, an increase in
accounts payable of 148,447, depreciation and amortization (non-cash charge) of
$273,226, and net income of $157,682.

     Net cash used in investing activities for the six-month periods ended June
30, 2000 and June 30,1999 was ($1,303,917) and ($1,129,167) respectively. In
2000 and 1999 period, cash used in investing activities was principally for the
purchase of property and equipment and capitalized software development costs.
Additionally, Standby Letters of Credit are currently utilized to establish
credit facilities for a manufacturer of the companies products.

                                       14
<PAGE>

     Net cash provided by (used in) financing activities for the six-month
periods ended June 30, 2000 and 1999 was $1,029,089 and ($57,096), respectively.
In the 2000 period, the Company received $2,352,862 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
$539,103 in net proceeds from private offerings of common stock, and $611,847 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 June 30, 2000, the Company had working capital of $4,711,729, as
compared to $5,632,771 at December 31, 1999, a decrease of $921,042. The
Company's cash position at June 30, 2000 was $1,083,921, a decrease of
$2,883,239 over cash and equivalents at December 31, 1999. As noted herein, the
Company has disclosed a potential judgement or settlement with CRA Associates
that will have an impact on the cash balance 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 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.

                                       15
<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 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.

                                       16
<PAGE>

                           PART II - OTHER INFORMATION


ITEM 1.   LEGAL PROCEEDINGS

     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 Company was named as a defendant in a lawsuit filed in U.S. District
Court for the District of Texas, on or about November 1, 1999, by CRA
Associates, Inc. The complaint alleged that the company breached a contract,
committed fraud, and engaged in misrepresentation and deceptive trade practices.
In May, a verdict was returned against Focus which require Focus to pay to CRA
approximately $1.8m. Subsequent filed motions are seeking to increase this
amount by adding pre- and post-judgement interest, as well as attorney's fees.
The Company has since filed post-judgement motions and both parties have agreed
to mediation, which will occur in late August. It is our expectation that the
court will refrain from rendering judgement on the verdict pending completion of
mediation. In the event that mediation is unsuccessful and judgement is against
Focus, then the Company intends to contest the verdict through an appeal.

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.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

     None

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE

     None

ITEM 5.   OTHER INFORMATION

     None




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
        --------------------------------

a.   The following exhibits are filed herewith:

     10.1 Consulting Agreement dated March 1, 2000 between the Company and
          William B. Coldrick
     10.2 Consulting Agreement dated May 1, 2000 between the Company and Thomas
          L. Massie
     10.3 Consulting Agreement dated May 1, 2000 between the Company and Gary M.
          Cebula

                                       17
<PAGE>

   10.4   Separation Agreement dated May 1, 2000 between the Company and Thomas
          L. Massie
   10.5   Separation Agreement dated April 30, 2000 between the Company and Gary
          M. Cebula
   10.6   Separation Agreement dated July 10, 2000 between the Company and
          J. Stephen Wood
   10.7   Consulting Agreement dated July 10, 2000 between the Company and Red &
          White Enterprises, Inc.
   10.8   Private Equity Line of Credit Agreement dated July 28, 2000 between
          the Company and Euston Investments Holdings Limited
   10.9   Registration Rights Agreement dated June 9, 2000 between the investor
          and the Company
   10.10  Registration Rights Agreement dated July 28, 2000 between Euston
          Investments Holdings Limited and the Company
   10.11  Common Stock Warrant and Purchase Agreement dated June 9, 2000
   11.    Statement Re: Computation of Per Share Earnings
   27.    Financial data schedule

b. Reports on Form 8-K

     The Company on March 2, 2000 filed a Form 8-K related to the period ending
     December 31, 1999.

     The Company did not file any reports on Form 8-K during the quarters
     ended March 31 and June 30, 2000.




                                   SIGNATURES
                                   ----------

In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


                            FOCUS ENHANCEMENTS, INC.




       August 21, 2000         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







                                       18


<PAGE>

                                   APPENDIX H


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                    FORM 10-K
(Mark One)

[X] ANNUAL REPORT PURSUANT TO 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                                     77-0118151
         (State or other jurisdiction of                    (I.R.S. Employer
         incorporation or organization)                     Identification No.)

1370 Dell Ave., Campbell, California                              95008
(Address of principal executive offices)                       (Zip Code)

Registrant's telephone number, including area code:          (408) 866-8300

Securities registered pursuant to Section 12(b) of the Act:       None

Securities registered pursuant to Section 12(g) of the Act:

       Title of each class             Name of each exchange on which registered
       -------------------             -----------------------------------------
Common Stock, without par value               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  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 [ ]

       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 Registrant'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>

<TABLE>
                                 VIDEONICS, INC.

                                TABLE OF CONTENTS

<CAPTION>
PART I

<S>           <C>                                                                                          <C>
         ITEM 1.    BUSINESS.............................................................................. 3

         ITEM 2.    PROPERTIES............................................................................18

         ITEM 3.    LEGAL PROCEEDINGS.....................................................................18

         ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ..................................18

PART II

         ITEM 5.    MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS................19

         ITEM 6.    SELECTED FINANCIAL DATA...............................................................20

         ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.22

         ITEM 7A.   QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK............................31

         ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...........................................31

         ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..49

PART III

         ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.......................................49

         ITEM 11.   EXECUTIVE COMPENSATION................................................................49

         ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........................49

         ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................49

PART IV

         ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K......................50
</TABLE>

                                       2

<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,

                                       3

<PAGE>

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,  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

                                       4

<PAGE>

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.

                                       5

<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.

                                       6

<PAGE>

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.

           PROPRIETARY ASIC AND SOFTWARE CONTENT OF SELECTED PRODUCTS

                            Approximate           Approximate Lines      Year
      Product             ASIC Gate Count         of Software Code      Shipped
      -------             ---------------         ----------------      -------

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

(1) Beta version shipped in 1997 with production version shipped in 1998.

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

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<PAGE>

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.

       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,

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<PAGE>

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 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

                                       9

<PAGE>

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

                                       10

<PAGE>

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.

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.

                                       11

<PAGE>

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   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

                                       12

<PAGE>

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.

                                       13

<PAGE>

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 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

                                       14

<PAGE>

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.  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.

                                       15

<PAGE>

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

                                       16

<PAGE>

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  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.

                                       17

<PAGE>

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.

                                       18

<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.

                                       19

<PAGE>

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.

                                       20

<PAGE>

<TABLE>
Statement of Operations Data:
(in thousands, except per share data)

                                                   Year Ended December,

<CAPTION>
                              1999            1998          1997           1996       1995
                              ----            ----          ----           ----       ----
<S>                        <C>            <C>            <C>            <C>        <C>
Net revenues               $ 14,226       $ 19,672       $ 19,955       $ 29,195   $ 33,561
Operating income (loss)      (2,562)(1)     (6,722)(2)    (12,984)(3)        401      4,811(4)
Net income (loss)            (2,634)(1)     (6,713)(2)    (13,441)(3)        744      3,746(4)
Net income (loss) per
share - basic                 (0.45)(1)      (1.15)(2)      (2.34)(3)       0.13       0.69(4)
Shares used in per share
calculation - basic           5,866          5,833          5,744          5,616      5,413
Net income (loss) per
share - diluted               (0.45)(1)      (1.15)(2)      (2.34)(3)       0.13       0.65
Shares used in per share
calculation - diluted         5,866          5,833          5,744          5,933      5,791

Balance Sheet Data:
Working capital            $  3,823       $  4,404       $  9,902       $ 21,412   $ 20,127
Total assets
                              6,089          9,164         15,694         27,958     27,350
Shareholders' equity          3,346          5,927         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>

                                       21

<PAGE>

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.

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

                                       22

<PAGE>

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.

                                       23

<PAGE>


Results of Operations

       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:

                                                    Year Ended December 31,
                                                 1999        1998        1997
                                                -----       -----       -----

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)%
                                                =====       =====       =====

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

                                       24

<PAGE>

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.

       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.

                                       25

<PAGE>

       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.  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.

                                       26

<PAGE>

<TABLE>
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.

<CAPTION>
                                                       1999                                         1998
                                      --------------------------------------      --------------------------------------
(in thousands, except per share data)    Q1         Q2         Q3         Q4         Q1         Q2         Q3         Q4
                                         --         --         --         --         --         --         --         --

<S>                                   <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Net revenues and other income         $ 3,665    $ 3,394    $ 3,842    $ 3,326    $ 4,719    $ 5,907    $ 5,025    $ 4,021
Gross profit (loss)                     1,458      1,464      1,646        843      1,742      2,437      2,066       (161)
Operating loss                           (810)      (806)      (245)      (701)    (1,705)      (883)    (1,128)    (3,006)
Net loss                                 (823)      (821)      (261)      (729)    (1,706)      (841)    (1,137)    (3,029)
Net loss per share - basic and
  diluted                               (0.14)     (0.14)     (0.04)     (0.12)     (0.29)     (0.14)     (0.19)     (0.52)
Shares used in computing per
  share amounts - basic and diluted     5,858      5,867      5,869      5,872      5,790      5,831      5,854      5,857
</TABLE>

----------

       The  Company  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,  the  Company's  delay in the  sales  of  previously
announced  new products had a  significant  effect on the  Company's  results of
operations,  and  there can be no  assurance  that the  Company  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.

       The Company typically operates with a small backlog. Therefore, quarterly
revenues and operating results have generally  depended on the volume and timing
of orders received during the quarter.  Backlog is not an accurate  predictor of
what the  Company's  revenues  will be in  future  periods,  and there can be no
assurance that the Company will be profitable in any particular quarter.

Factors That May Affect Future Results of Operations

        The Company  believes its future  results of  operations  will likely be
impacted by factors such as delays in development  and shipment of the Company's
new products and new versions of existing  products,  market  acceptance  of new
products  and  upgrades,  growth  in  the  marketplace  in  which  it  operates,
competitive   product  offerings,   and  adverse  changes  in  general  economic
conditions  in any of the  countries  in which the Company  does  business.  The
Company's   results  in  prior  years  have  been  affected  by  these  factors,
particularly  with respect to developing  and  introducing  new products such as
PowerScript, Effetto Pronto, MXPro and Python.

                                       27

<PAGE>

       Due to the factors noted above,  the Company's  future earnings and stock
price may be subject to  significant  volatility,  particularly  on a  quarterly
basis.  Any shortfall in revenue or earnings from levels  expected by securities
analysts  or  anticipated  by the Company  based upon  product  development  and
introduction schedules could have an immediate and significant adverse effect on
the  trading  price  of  the  Company's   Common  Stock  in  any  given  period.
Additionally,  the  Company may not learn of such  shortfalls  until late in the
fiscal quarter,  which could result in an even more immediate and adverse effect
on the  trading  price of the  Company's  Common  Stock.  Finally,  the  Company
participates  in a highly dynamic  industry,  which often results in significant
volatility  of the  Company's  Common Stock price.  See "Business - Research and
Development".

Year 2000 Update

       We believe  that we have  successfully  rendered  our  product,  internal
management and other  administrative  systems and external  information  systems
year 2000 compliant.  Since January 1, 2000, we have  experienced no disruptions
in our  business  operations  as a result of year 2000  compliance  problems  or
otherwise,  and have  received no reports of any year 2000  compliance  problems
with our products.  To date,  the total cost of our efforts to address year 2000
compliance has not been material.

       Nonetheless,  some problems related to the year 2000 risks may not appear
until  several  months after  January 1, 2000.  Year 2000 issues  could  include
problems with our own products or with  third-party  products or technology that
we use. Any problems  that are not  identified  and corrected  successfully  and
completely could adversely affect our business.

Liquidity and Capital Resources

       From the  Company's  inception  until  its  initial  public  offering  in
December  1994,  which resulted in net proceeds to the Company of $15.8 million,
the Company financed its operations through private sales of equity, shareholder
loans, and bank borrowings. At December 31, 1999, the Company's principal source
of  liquidity  is cash of  approximately  $715,000  and access to a $1.0 million
revolving,  asset based line of credit.  Throughout 1999, the Company maintained
borrowings from a major shareholder of $1.0 million at an interest rate of 8.0%,
terms that the Company considered more favorable than those it could obtain from
other commercial  sources. At December 31, 1999, the Company had borrowings from
this shareholder totaling $1.0 million at an interest rate of 8.0% per year, due
January 16, 2001. On March 22, 2000,  the maturity date of the $1.0 million loan
was extended from January 16, 2001 to January 16, 2002.

       Operating Activities.  In 1999, net cash used in operating activities was
$96,000  resulting  primarily from an operating loss of $756,000 after adjusting
for  non-cash  items and a $524,000  decrease in accrued  expenses,  offset by a
decrease in  inventories of $1.2 million.  Inventories  decreased as the Company
continued to better align its  inventory  with its current  revenue  levels.  In
1998, net cash used in operating  activities was $811,000,  resulting  primarily
from an  operating  loss of $3.7 million  after  adjusting  for non-cash  items,
offset by a decrease  in  accounts  receivable  of  $414,000  and a decrease  in
inventories  of $2.4 million.  Accounts  receivable  decreased  because of lower
sales  during  the  fourth  quarter  of  1998  compared  to  1997  and  improved
collections.  Inventories  decreased as the Company better aligned its

                                       28

<PAGE>

inventory with its current revenue  levels.  In 1997, net cash used in operating
activities was $5.6 million,  resulting primarily from an operating loss of $6.6
million after  adjusting for non-cash  items, an increase in inventories of $2.3
million,   offset  by  a  decrease  in  accounts  receivable  of  $1.7  million.
Inventories  increased  primarily in anticipation  of new product  shipments and
lower than  expected  shipments of new products in 1997.  Receivables  decreased
primarily because of decreased sales

       Investing  Activities.  Capital equipment  expenditures in 1999, 1998 and
1997 were  $120,000,  $378,000,  and $1.6 million  respectively,  primarily  for
computers,  software and engineering  equipment used in research and development
and other  activities.  The Company  currently  anticipates  that  additions  to
property and equipment will require capital expenditures of $320,000 through the
end of 2000.  In 1999,  the Company  received  proceeds of $52,000 in connection
with the sale of its Nova Systems division. In 1997, the Company had redemptions
of $1.5 million of marketable securities.

       Financing  Activities.  In 1999,  the  Company  received  $7,000 from the
exercise of stock options under the Company's  stock option plan and proceeds of
$35,000  from the  issuance  of notes  payable to a  shareholder.  In 1998,  the
Company  received $34,000 from the exercise of stock options under the Company's
stock  option  plan and  proceeds  of $1.0  million  from the  issuance of notes
payable to a  shareholder.  Additionally  in 1998, the Company repaid $19,000 of
the notes payable to a shareholder.  In 1997, the Company received $154,000 from
the exercise of stock options under the Company's stock option plan

       The Company has incurred  losses and negative cash flows from  operations
for each of the  three  years  in the  period  ended  December  31,  1999 and is
dependent  upon  support  from a  substantial  shareholder  and upon  generating
sufficient  revenues from existing and soon to be released  products in order to
fund  operations.  During  1999,  Management  continued to take 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. The Company is assessing its product lines to identify how
to enhance  existing  or create new  distribution  channels.  During  2000,  the
Company is  developing  and expects to release  more than two new products.

       As described in the notes to the consolidated  financial statements,  the
Company has  obtained a $1.0  million  asset  based line of credit from  Venture
Banking Group, a division of Cupertino  National Bank,  secured by the Company's
assets.  Interest on any  advances  will be  calculated  at a rate of 1.5% above
prime.  Under the terms of the  agreement,  the  Company is required to maintain
certain  financial ratios and meet other  covenants,  including those related to
net worth,  profitability and indebtedness.  The revolving maturity date of this
facility is August 25, 2001. As of the date of this filing,  the Company had not
borrowed from this facility.

       The  Company   believes  that  its  current  cash,   borrowings   from  a
shareholder,  together with its operating cash flows, will be sufficient to meet
the Company's requirements for working capital, and capital expenditures through
the end of 2000.

                                       29

<PAGE>

ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT
         MARKET RISK

       The  Company's  market  risk  disclosures  pursuant  to  item  7A are not
material and are therefore not required.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

       Balance  sheets  of the  Company  as of  December  31,  1999 and 1998 and
statements of income,  shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1999, together with the related notes and
the report of PricewaterhouseCoopers LLP, independent accountants, are set forth
on pages 31 to 48. Other required financial  information is set forth herein, on
page 58.

                                       30

<PAGE>


Videonics, Inc.
Consolidated Financial Statements
as of December 31, 1999 and 1998

                                       31

<PAGE>

                        Report of Independent Accountants

To the Board of Directors and Shareholders of
Videonics, Inc.:

In our opinion,  the  accompanying  consolidated  balance sheets and the related
consolidated statements of operations, of shareholder's equity and of cash flows
present fairly, in all material  respects,  the financial position of Videonics,
Inc.  and its  subsidiaries  at December  31, 1999 and 1998,  and the results of
their  operations and their cash flows for each of the three years in the period
ended  December 31, 1999, in conformity  with  accounting  principles  generally
accepted in the United States. 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 of these
statements  in  accordance  with auditing  standards  generally  accepted in the
United  States,  which  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,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for the opinion expressed above.


/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

San Jose, California
January 28, 2000

                                       32

<PAGE>


Videonics, Inc.
Consolidated Balance Sheets
December 31, 1999 and 1998
(in thousands)
--------------------------------------------------------------------------------


                                                             1999         1998
Assets
Current assets:
    Cash and cash equivalents                              $    715    $    837
    Accounts receivable, net                                    886         852
    Inventories                                               3,785       5,830
    Prepaids and other current assets                           145         122
                                                           --------    --------
        Total current assets                                  5,531       7,641

Property and equipment, net                                     513       1,507
Other assets                                                     45          16
                                                           --------    --------

        Total assets                                       $  6,089    $  9,164
                                                           --------    --------

Liabilities and Shareholders' Equity
Current liabilities:
    Loan payable to shareholder                            $   --      $  1,000
    Accounts payable                                            974         947
    Accrued expenses                                            734       1,290
                                                           --------    --------
        Total current liabilities                             1,708       3,237
                                                           --------    --------

Long term liabilities
    Loan payable to shareholder                               1,035        --
                                                           --------    --------
        Total liabilities                                     2,743       3,237
                                                           --------    --------

Commitments and contingencies (Note 6)

Shareholders' equity:
    Preferred stock, no par value:
      Authorized:  10,000 shares in 1999 and 1998;
      Issued and outstanding:  None                            --          --
    Common stock, no par value:
      Authorized:  30,000 shares in 1999 and 1998;
      Issued and outstanding: 5,874 shares in 1999 and
      5,858 shares in 1998                                   20,700      20,647
    Accumulated deficit                                     (17,354)    (14,720)
                                                           --------    --------
        Total shareholders' equity                            3,346       5,927
                                                           --------    --------

           Total liabilities and shareholders' equity      $  6,089    $  9,164
                                                           --------    --------

        The accompanying notes are an integral part of these consolidated
                             financial statements.

                                       33

<PAGE>

Videonics, Inc.
Consolidated Statements of Operations
(in thousands, except per share data)
--------------------------------------------------------------------------------

                                                    Year Ended December 31,
                                                  1999        1998       1997

Net revenues and other income                  $ 14,226    $ 19,672    $ 19,955
Cost of revenues                                  8,815      13,588      13,900
                                               --------    --------    --------
      Gross profit                                5,411       6,084       6,055
                                               --------    --------    --------

Operating expenses:
    Research and development                      2,879       4,798       6,951
    Selling and marketing                         3,875       6,593       8,041
    General and administrative                    1,219       1,415       1,779
    Amortization of intangible assets              --          --           393
    Write-off of intangible assets                 --          --         1,875
                                               --------    --------    --------
                                                  7,973      12,806      19,039
                                               --------    --------    --------

Operating loss:                                  (2,562)     (6,722)    (12,984)

Interest (expense) income, net                      (72)        (21)        261
                                               --------    --------    --------

Loss before income taxes                         (2,634)     (6,743)    (12,723)

Provision for (benefit from) income taxes          --           (30)        718
                                               --------    --------    --------

Net loss                                       $ (2,634)   $ (6,713)   $(13,441)
                                               --------    --------    --------

Net loss per share - basic and diluted         $   (.45)   $  (1.15)   $  (2.34)
                                               --------    --------    --------

Shares used in per share calculation - basic      5,866       5,833       5,744
                                               --------    --------    --------

Shares used in per share calculation - diluted    5,866       5,833       5,744
                                               --------    --------    --------

        The accompanying notes are an integral part of these consolidated
                             financial statements.

                                       34

<PAGE>


<TABLE>
Videonics, Inc.
Consolidated Statements of Shareholders' Equity
For Each of the Three Years in the Period Ended December 31, 1999
(in thousands, except per share data)
---------------------------------------------------------------------------------------------

<CAPTION>
                                                                     Retained
                                                                     Earnings
                                                   Common Stock    (Accumulated Shareholders'
                                                 Shares    Amount    Deficit)     Equity

<S>                                               <C>     <C>        <C>         <C>
Balances, December 31, 1996                       5,705   $ 20,297   $  5,434    $ 25,731

Issuance of common stock from
    exercise of options                              80        154       --           154
Amortization of deferred compensation              --           36       --            36
Tax benefit from exercise of
    nonqualified stock options                     --          126       --           126
Net loss                                           --         --      (13,441)    (13,441)
                                               --------   --------   --------    --------

Balances, December 31, 1997                       5,785     20,613     (8,007)     12,606

Issuance of common stock from
    exercise of options                              73         34       --            34
Net loss                                           --         --       (6,713)     (6,713)
                                               --------   --------   --------    --------

Balances, December 31, 1998                       5,858     20,647    (14,720)      5,927

Issuance of common stock from
    exercise of options                              16          8       --             8
Issuance of warrants in payment of loan fees       --           45       --            45
Net loss                                           --         --       (2,634)     (2,634)
                                               --------   --------   --------    --------

Balances, December 31, 1999                       5,874   $ 20,700   $(17,354)   $  3,346
                                               --------   --------   --------    --------

<FN>
        The accompanying notes are an integral part of these consolidated
                             financial statements.
</FN>
</TABLE>

                                       35

<PAGE>

<TABLE>
Videonics, Inc.
Consolidated Statements of Cash Flows
(in thousands)
----------------------------------------------------------------------------------------------


<CAPTION>
                                                                    Year Ended December 31,
                                                                 1999       1998        1997

<S>                                                          <C>         <C>         <C>
Cash flows from operating activities:
    Net loss                                                 $ (2,634)   $ (6,713)   $(13,441)
    Adjustments to reconcile net loss
      to net cash used in operating activities:
        Loss on disposal of property and equipment                  7           5          76
        Loss on sale of Nova Systems                               48        --          --
        Loss on sale of German Subsidiary                          65        --          --
        Depreciation and amortization                           1,025       1,304       1,563
        Provision for doubtful accounts                          --            25         375
        Provision for excess and obsolete inventories             733       1,661       1,641
        Deferred income taxes                                    --          --         1,299
        Write-off of intangible assets                           --          --         1,875
        Change in assets and liabilities:
           Accounts receivable                                    (71)        414       1,740
           Inventories                                          1,203       2,447      (2,270)
           Prepaid income taxes                                  --           550         670
           Prepaid and other current assets                        46          97         274
           Other                                                  (29)        250        (252)
           Accounts payable                                        35        (495)        352
           Accrued expenses                                      (507)       (356)        509
                                                             --------    --------    --------
               Net cash used in operating activities              (79)       (811)     (5,589)
                                                             --------    --------    --------

Cash flows from investing activities:
    Purchases of property and equipment                          (120)       (378)     (1,611)
    Proceeds from disposition of Nova Systems                      52        --          --
    Proceeds from sale of marketable securities                  --          --         1,500
                                                             --------    --------    --------
               Net cash used in investing activities              (68)       (378)       (111)
                                                             --------    --------    --------

Cash flows from financing activities:
    Proceeds from issuance of loans payable to shareholder         18       1,019        --
    Repayment of notes payable                                   --           (19)       --
    Proceeds from issuance of common stock                          7          34         154
                                                             --------    --------    --------
               Net cash provided by financing activities           25       1,034         154
                                                             --------    --------    --------

Decrease in cash and cash equivalents                            (122)       (155)     (5,546)
Cash and cash equivalents at beginning of year                    837         992       6,538
                                                             --------    --------    --------

Cash and cash equivalents at end of year                     $    715    $    837    $    992
                                                             --------    --------    --------

Supplemental  disclosure of cash flow  information:
    Cash paid during the period for:
      Interest                                               $      3    $     43    $   --
      Income taxes                                           $   --      $      2    $      5
Supplement schedule of non-cash financing activities:
    Tax benefit from exercise of nonqualified
      stock options                                          $   --      $   --      $    126

<FN>
        The accompanying notes are an integral part of these consolidated
                             financial statements.
</FN>
</TABLE>

                                       36

<PAGE>

Videonics, Inc.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

1.     Business

       Videonics,  Inc. (the  "Company") was  incorporated  on July 3, 1986. The
       Company is a designer of digital  video  post-production  equipment.  The
       Company's  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   stand-alone  and  personal-computer   based  hardware  and
       software  products  that  edit and mix raw  video  footage,  add  special
       effects and titles, and process audio and video signals.


2.     Summary of Significant Accounting Policies

       Basis of preparation

       The Company has incurred  losses and negative cash flows from  operations
       in each of the three years in the period  ended  December 31, 1999 and is
       dependent upon support from a substantial shareholder and upon generating
       sufficient  revenues  from  existing and soon to be released  products in
       order to fund operations. Management has taken steps to reduce costs, and
       in that regard sold its Nova Systems division on January 29, 1999 and its
       German  subsidiary  on September  29, 1999 which had incurred  losses for
       each of the two years in the period ended  December 31, 1998. The Company
       is assessing  its product  lines to identify  how to enhance  existing or
       create new distribution channels.  During 2000, the Company is developing
       and expects to release  more than two new  products.  Management  expects
       that the cost  reductions  together  with  revenue  generated  from these
       products will be sufficient  to meet the  Company's  obligations  as they
       become due. In the event that such cost  reduction  and revenue  from new
       products  are not  sufficient  to meet  the  Company's  obligations,  the
       Company may need to seek additional financing.  There can be no assurance
       that such additional  financing will be available or will be available on
       terms  acceptable to the Company which, as a result,  may have an adverse
       effect on the Company.

       Principles of consolidation

       The consolidated financial statements include the accounts for Videonics,
       Inc.  and its wholly owned  subsidiaries.  All  significant  intercompany
       accounts and transactions have been eliminated.

       Use of estimates

       The  preparation  of financial  statements in conformity  with  generally
       accepted accounting  principles requires management to make estimates and
       assumptions  that affect the reported  amounts of assets and  liabilities
       and  disclosure of contingent  assets and  liabilities at the date of the
       financial  statements  and the reported  amounts of revenues and expenses
       during the  reporting  period.  Actual  results  could  differ from those
       estimates.

       Revenue recognition

       The  Company  recognized  revenues  from gross  sales,  upon  shipment of
       product,  provided all significant obligations have been met. A provision
       is  made  to   estimate   customer   returns   and   estimated   warranty
       repair/replacement costs at the time a sale is recorded.

       Research and development expenditures

       Research  and  development  expenditures  are  charged to  operations  as
       incurred.

                                       37

<PAGE>

Videonics, Inc.
Notes to Consolidated Financial Statements (Continued)
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       Advertising

       The Company  expenses the production co