Focus Enhancements, Inc. (NASDAQ:FCSE) today announced financial
results for its third quarter and nine months ended September 30,
2006. Third Quarter 2006 Financial Results Total revenue of $11.6
million increased approximately 69 percent from $6.9 million in the
third quarter of 2005. Semiconductor Business revenue was $6.2
million, an increase of over 550 percent from $946,000 in the third
quarter of 2005. Systems Business revenue was $5.4 million, a
decrease of approximately 8 percent compared to $5.9 million in the
same quarter of 2005. Gross margin as a percent of sales was 50
percent, compared to 37 percent in the same quarter of 2005. Cash
and cash equivalents plus available credit facilities increased to
$5.8 million at September 30, 2006 from $4.4 million at June 30,
2006. �Semiconductor chips drove third quarter revenue, as portable
media player (PMP) manufacturers ramped production for the holiday
season,� stated Brett Moyer, president and CEO of Focus
Enhancements. �Also, component supply issues that impacted
FireStore� shipments in the third quarter have been addressed, and
we have resumed shipments early in the fourth quarter. In addition,
we are continuing to develop and launch new solutions within our
FireStore and ProxSys� media acquisition and asset management
products as well as developing a new chip for the PMP market.�
Moyer continued, �Focus Enhancements� Ultra Wideband (UWB)
initiative continues to exceed our expectations. Our existing
original equipment and original device manufacturer customer base
provides us with a solid sales platform and a strong competitive
advantage. During the last week of October, we conducted a TALARIA�
technology sales tour and visited over 25 existing and potential
customers in Japan, Korea and Taiwan. The technology was very well
received, and potential customers stated they are eager to receive
evaluation kits. Our team is working to meet demand for evaluation
kits.� Gary Williams, CFO of Focus Enhancements, stated, �Strong
revenue growth combined with cost containment improved our overall
performance. Gross margins rose to 50 percent, due to increased
sales including those of higher-margin semiconductor and
high-definition FireStore products. In addition, we controlled
non-research and development operating expenses, saving $700,000
compared to our plan. As a result, we narrowed our net loss per
share to $0.01, compared to our earlier third quarter guidance of a
net loss per share of $0.03 to $0.04.� Nine Months Ended September
30, 2006 Financial Results Revenue of $27.2 million increased 47
percent from $18.5 million in the first nine months of 2005.
Semiconductor Business revenue was $9.3 million, an increase of
over 300 percent from $2.3 million in the first nine months of
2005. Systems Business revenue was $17.9 million, a 10 percent
increase over $16.2 million in the first nine months of 2005.
During the third quarter of 2006, in accordance with accounting
principles generally accepted in the United States (GAAP), the
company recorded certain non-cash expenses that were not required
in the third quarter of 2005. The company recorded $171,000 of
stock-based compensation expenses, in accordance with Statement of
Financial Accounting Standards (SFAS) No. 123 (revised 2004),
�Accounting for Stock-Based Compensation.� Additionally, during the
first and second quarters of 2006, in accordance with SFAS No. 133
�Accounting for Derivative Instruments and Hedging Activities,� the
company recorded an expense of $5.4 million associated with the
valuation of a derivative component of its $10 million convertible
note financing completed in the first quarter of 2006. On June 28,
2006, the company amended certain agreements associated with its
$10 million convertible notes, eliminating the derivative
component. In accordance with such amendments, the company was able
to reclassify the total derivative liability associated with its
convertible notes from long-term liabilities to additional paid-in
capital. Net loss for the third quarter of 2006 was $866,000, or
$0.01 per share. Non-GAAP net loss for the quarter was $695,000, or
$0.01 per share. This compares to a GAAP and non-GAAP third quarter
2005 net loss of $3.4 million, or $0.05 per share. Non-GAAP net
loss is defined as net loss excluding non-cash stock-based
compensation and derivative accounting charges. Management believes
the non-GAAP net loss better reflects the underlying business
performance of the company and is a meaningful metric. A
reconciliation of net loss to non-GAAP net loss is contained in the
unaudited condensed consolidated financial statements attached
hereto. Net loss for the nine months ended September 30, 2006 was
$12.9 million, or $0.19 per share. Non-GAAP net loss for the nine
months was $7.1 million, or $0.10 per share. This compares to GAAP
and non-GAAP net loss for the nine months ended September 30, 2005
of $12.1 million, or $0.20 per share, and $12.0 million, or $0.20
per share, respectively. The 2005 results are based on 60.4 million
weighted average shares outstanding, and the 2006 results are based
on 68.6 million weighted average shares outstanding. 2006 Outlook
Based upon currently available information, management expects
fourth quarter 2006 revenues to be approximately $10.3 million and
GAAP net loss per share to be approximately $0.04. The company is
reaffirming its full year 2006 revenue guidance announced on
October 5, 2006 of approximately $37.5 million, which represents
annual growth of greater than 50 percent as compared to 2005
reported revenue of $24.6 million. Management expects the
Semiconductor Business to contribute approximately 30 percent of
total revenue for the full-year 2006 and the System Business to
contribute the remaining 70 percent. Based on currently available
information, gross margin as a percent of revenue is now expected
to be in the range of 47 percent to 49 percent in the fourth
quarter. Due to implemented cost controls, the company has reduced
its second half of 2006 operating expense guidance by approximately
$500,000 and management currently expects fourth quarter operating
expenses to be approximately $7.3 million to $7.5 million. Third
Quarter and Recent Highlights Semiconductor Business: Completed
sales tour of Asia demonstrating TALARIA UWB technology to
Japanese, Korean and Chinese consumer electronics and USB
manufacturers. Showcased TALARIA UWB wireless technology at Analyst
Days in New York on October 10th and San Francisco on November 2nd.
Systems Business: Introduced a new line-up of award winning FS-4
Portable Direct To Edit� (DTE) Recorders. The new FS-4Pro HD models
feature higher capacities, with 60GB, 80GB, and 100GB versions
providing between 4.5 and 7.5 hours of DV/HDV recording. Announced
Version 3.0 software for FS-100 Portable DTE recorder enabling
users to more than double the record time from 100 minutes to 200
minutes using record native 720/24p, 25p and 30p in the MXF P2 or
QuickTime file formats commonly used in Apple�s Final Cut Pro.
Launched HD support for the ProxSys line of advanced media asset
management servers. Released Version 2.0 software adding native
QuickTime HDTV support to the DTE FS-4Pro HD, FS-C and DR-HD100
recorders. Demonstrated media asset management for Panasonic MXF
File Formats at the IBC Conference from September 8th � 12th.
Investor Conference Call The company will host a shareholder
conference call to discuss its third quarter 2006 results on
Thursday, November 9, 2006 at 1:30 p.m. Pacific Time. Brett Moyer,
president and chief executive officer, and Gary Williams, chief
financial officer, will deliver prepared remarks and conduct a
question and answer session. The call is being webcast by
Thomson/CCBN and can be accessed at Focus Enhancements� web site at
www.focusinfo.com. The webcast will be available through December
9, 2006. If you do not have Internet access, the telephone dial-in
number is 706-634-0182 for domestic and international participants.
Please dial in five to ten minutes prior to the beginning of the
call at 1:30 p.m. PT (4:30 p.m. ET). A telephone replay will be
available through November 13th; dial 706-645-9291, and enter
access code 9439015. About Focus Enhancements, Inc. Focus
Enhancements, Inc. (NASDAQ CM:FCSE), headquartered in Campbell, CA,
is a leading designer of world-class solutions in advanced,
proprietary video and wireless video technologies. The company�s
Semiconductor Group develops integrated circuits (ICs) for
high-performance applications in the video convergence market,
including IPTV set-top boxes and portable media players. Focus
Enhancements is currently developing a wireless IC chip set based
on the WiMedia UWB standard and designed to be compatible with
Wireless USB and used in personal computer (PC), consumer
electronics (CE), and mobile electronics applications. The
company�s System Group develops video products for the digital
media markets, with customers in the broadcast, video production,
digital signage and digital asset management markets. More
information on Focus Enhancements may be obtained from the
company�s Securities and Exchange Commission (SEC) filings, or by
visiting the Focus Enhancements home page at
http://www.focusinfo.com. Use of Non-GAAP Financial Information To
supplement the company�s condensed consolidated financial
statements presented in accordance with GAAP, Focus Enhancements
uses non-GAAP measures of certain components of financial
performance, including net loss and net loss per share data, which
are adjusted from results based on GAAP to exclude certain
expenses. These non-GAAP measures are provided to enhance
investors� overall understanding of the company�s current financial
performance and the company�s prospects for the future.
Specifically, the company believes the non-GAAP results provide
useful information to both management and investors by excluding
certain expenses that may not be indicative of its core operating
results. These measures should be considered in addition to results
prepared in accordance with GAAP, but should not be considered a
substitute for, or superior to, GAAP results. These non-GAAP
measures included in this press release have been reconciled to the
GAAP results. Safe Harbor Statement Statements in this press
release which are not historical including statements regarding
management�s intentions, hopes, expectations, representations,
plans or predictions about the future are forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Such statements include statements regarding
management�s expectations of funding requirements in 2006, demand
for Focus Enhancements� products, which impacts revenue, revenue
expectations including the amount of revenue contributed by its
business units, gross margin percentage and cash from operations
and management�s plans to complete its Ultra Wideband (UWB)
semiconductor chip designs. Because these forward-looking
statements involve risks and uncertainties, there are important
factors that could cause our actual results to differ materially
from those in the forward-looking statements. Factors that could
cause actual results to differ materially include customers�
acceptance of recently introduced products, changes in customer
order patterns, unforeseen increased costs and delays in research
and development, the company�s ability to maintain adequate funding
to develop and implement its UWB technology, the performance and
acceptance of its UWB technology, and the risk factors specified in
Item 1A of the company's Form 10-K for the year ended December 31,
2005, and Form 10-Q for the three months ended March 31, 2006 and
June 30, 2006 as well as other periodic filings with the Securities
and Exchange Commission (SEC). These statements are based on
information as of November 9, 2006, and the company assumes no
obligation to update any forward-looking statements, whether as a
result of new information, future events, or otherwise. Focus
Enhancements, Inc. Condensed Consolidated Statements of Operations
(In thousands, except per share amounts) (Unaudited) � Three Months
Ended Nine Months Ended � September 30, 2006 September 30, 2005
September 30, 2006 September 30, 2005 � Net revenue $ 11,605� $
6,880� $ 27,195� $ 18,468� Cost of revenue 5,819� 4,360� 14,957�
11,804� Gross margin 5,786� 2,520� 12,238� 6,664� � Operating
expenses: Sales, marketing and support 2,131� 1,783� 6,753� 4,958�
General and administrative 1,025� 925� 3,005� 2,920� Research and
development 3,114� 2,977� 8,961� 10,260� Amortization of intangible
assets 127� 127� 381� 403� 6,397� 5,812� 19,100� 18,541� Loss from
operations (611) (3,292) (6,862) (11,877) Interest expense, net
(337) (93) (828) (174) Value of derivative security -� -� (4,000)
-� Change in value of derivative security -� -� (1,361) -� Other
income (expense), net 82� (10) 150� (50) Loss before income tax
expense (benefit) (866) (3,395) (12,901) (12,101) Income tax
expense (benefit) -� (1) 9� 10� Net loss $ (866) $ (3,394) $
(12,910) $ (12,111) � � Net loss per share Basic and diluted $
(0.01) $ (0.05) $ (0.19) $ (0.20) � Weighted average number of
shares used in per share calculations: Basic and diluted 69,233�
62,268� 68,611� 60,414� Focus Enhancements, Inc. Condensed
Consolidated Balance Sheets (In thousands, except share and per
share amounts) (Unaudited) � September 30, 2006 December 31, 2005
Assets � Current assets: Cash and cash equivalents $ 1,133� $ 637�
Accounts receivable, net of allowances of $367 and $418,
respectively 3,707� 3,197� Inventories 4,551� 3,743� Prepaid
expenses and other current assets 1,183� 759� Total current assets
10,574� 8,336� � Long-term assets: Property and equipment, net
1,023� 1,212� Other assets 177� 54� Intangible assets, net 349�
866� Goodwill 13,191� 13,191� $ 25,314� $ 23,659� � Liabilities and
Stockholders' Equity � Current liabilities: Accounts payable $
3,730� $ 3,001� Accrued liabilities 4,031� 3,292� Current portion
of capital lease obligations 24� 107� Borrowings under line of
credit 500� 2,966� Current portion of notes payable to bank -� 3�
Term loan 700� 2,500� Total current liabilities 8,985� 11,869� �
Long-term liabilities: Convertible notes 10,425� -� Other
liabilities -� 100� Capital lease obligations, net of current
portion -� 10� Total liabilities 19,410� 11,979� � Stockholders'
equity: Preferred stock, $0.01 par value; authorized 3,000,000
shares; 3,161 shares issued and outstanding at September 30, 2006
and December 31, 2005 (aggregate liquidation preference $3,917) -�
-� Common stock, $0.01 par value; 100,000,000 shares authorized,
70,724,461 and 68,382,113 shares issued and outstanding at
September 30, 2006 and December 31, 2005, respectively 698� 674�
Treasury stock at cost, 497,055 shares at September 30, 2006 and
December 31, 2005 (750) (750) Additional paid-in capital 108,322�
101,297� Deferred stock-based compensation -� (214) Accumulated
other comprehensive income (82) 47� Accumulated deficit (102,284)
(89,374) � Total stockholders' equity 5,904� 11,680� � � $ 25,314�
$ 23,659� Focus Enhancements, Inc. Selected Business Segment Data
(In thousands) (Unaudited) � Revenue: Three Months Ended Nine
Months Ended � September 30, 2006 September 30, 2005 September 30,
2006 September 30, 2005 � Systems Business $ 5,441� $ 5,934� $
17,856� $ 16,176� Semiconductor Business 6,164� 946� 9,339� 2,292�
Net Revenue $ 11,605� $ 6,880� $ 27,195� $ 18,468� � � Research and
Development: Three Months Ended Nine Months Ended � September 30,
2006 September 30, 2005 September 30, 2006 September 30, 2005 �
Systems Business $ 902� $ 786� $ 2,236� $ 2,834� Semiconductor
Business 2,212� 2,191� 6,725� 7,426� Total Research and Development
$ 3,114� $ 2,977� $ 8,961� $ 10,260� Reconciliation of Net Loss to
Non-GAAP Net Loss (In thousands) (Unaudited) � Three Months Ended
Nine Months Ended � September 30, 2006 September 30, 2005 September
30, 2006 September 30, 2005 � Net loss, as reported $ (866) $
(3,394) $ (12,910) $ (12,111) � Plus: Stock-based compensation 171�
17� 494� 105� Value of derivative liability -� -� 4,000� -� Change
in value of derivative liability -� -� 1,361� -� � � � � Non-GAAP
net loss $ (695) $ (3,377) $ (7,055) $ (12,006) � Non-GAAP net loss
per share $ (0.01) $ (0.05) $ (0.10) $ (0.20) Focus Enhancements,
Inc. (NASDAQ:FCSE) today announced financial results for its third
quarter and nine months ended September 30, 2006. Third Quarter
2006 Financial Results -- Total revenue of $11.6 million increased
approximately 69 percent from $6.9 million in the third quarter of
2005. -- Semiconductor Business revenue was $6.2 million, an
increase of over 550 percent from $946,000 in the third quarter of
2005. -- Systems Business revenue was $5.4 million, a decrease of
approximately 8 percent compared to $5.9 million in the same
quarter of 2005. -- Gross margin as a percent of sales was 50
percent, compared to 37 percent in the same quarter of 2005. --
Cash and cash equivalents plus available credit facilities
increased to $5.8 million at September 30, 2006 from $4.4 million
at June 30, 2006. "Semiconductor chips drove third quarter revenue,
as portable media player (PMP) manufacturers ramped production for
the holiday season," stated Brett Moyer, president and CEO of Focus
Enhancements. "Also, component supply issues that impacted
FireStore(TM) shipments in the third quarter have been addressed,
and we have resumed shipments early in the fourth quarter. In
addition, we are continuing to develop and launch new solutions
within our FireStore and ProxSys(R) media acquisition and asset
management products as well as developing a new chip for the PMP
market." Moyer continued, "Focus Enhancements' Ultra Wideband (UWB)
initiative continues to exceed our expectations. Our existing
original equipment and original device manufacturer customer base
provides us with a solid sales platform and a strong competitive
advantage. During the last week of October, we conducted a
TALARIA(TM) technology sales tour and visited over 25 existing and
potential customers in Japan, Korea and Taiwan. The technology was
very well received, and potential customers stated they are eager
to receive evaluation kits. Our team is working to meet demand for
evaluation kits." Gary Williams, CFO of Focus Enhancements, stated,
"Strong revenue growth combined with cost containment improved our
overall performance. Gross margins rose to 50 percent, due to
increased sales including those of higher-margin semiconductor and
high-definition FireStore products. In addition, we controlled
non-research and development operating expenses, saving $700,000
compared to our plan. As a result, we narrowed our net loss per
share to $0.01, compared to our earlier third quarter guidance of a
net loss per share of $0.03 to $0.04." Nine Months Ended September
30, 2006 Financial Results -- Revenue of $27.2 million increased 47
percent from $18.5 million in the first nine months of 2005. --
Semiconductor Business revenue was $9.3 million, an increase of
over 300 percent from $2.3 million in the first nine months of
2005. -- Systems Business revenue was $17.9 million, a 10 percent
increase over $16.2 million in the first nine months of 2005.
During the third quarter of 2006, in accordance with accounting
principles generally accepted in the United States (GAAP), the
company recorded certain non-cash expenses that were not required
in the third quarter of 2005. The company recorded $171,000 of
stock-based compensation expenses, in accordance with Statement of
Financial Accounting Standards (SFAS) No. 123 (revised 2004),
"Accounting for Stock-Based Compensation." Additionally, during the
first and second quarters of 2006, in accordance with SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities," the
company recorded an expense of $5.4 million associated with the
valuation of a derivative component of its $10 million convertible
note financing completed in the first quarter of 2006. On June 28,
2006, the company amended certain agreements associated with its
$10 million convertible notes, eliminating the derivative
component. In accordance with such amendments, the company was able
to reclassify the total derivative liability associated with its
convertible notes from long-term liabilities to additional paid-in
capital. Net loss for the third quarter of 2006 was $866,000, or
$0.01 per share. Non-GAAP net loss for the quarter was $695,000, or
$0.01 per share. This compares to a GAAP and non-GAAP third quarter
2005 net loss of $3.4 million, or $0.05 per share. Non-GAAP net
loss is defined as net loss excluding non-cash stock-based
compensation and derivative accounting charges. Management believes
the non-GAAP net loss better reflects the underlying business
performance of the company and is a meaningful metric. A
reconciliation of net loss to non-GAAP net loss is contained in the
unaudited condensed consolidated financial statements attached
hereto. Net loss for the nine months ended September 30, 2006 was
$12.9 million, or $0.19 per share. Non-GAAP net loss for the nine
months was $7.1 million, or $0.10 per share. This compares to GAAP
and non-GAAP net loss for the nine months ended September 30, 2005
of $12.1 million, or $0.20 per share, and $12.0 million, or $0.20
per share, respectively. The 2005 results are based on 60.4 million
weighted average shares outstanding, and the 2006 results are based
on 68.6 million weighted average shares outstanding. 2006 Outlook
Based upon currently available information, management expects
fourth quarter 2006 revenues to be approximately $10.3 million and
GAAP net loss per share to be approximately $0.04. The company is
reaffirming its full year 2006 revenue guidance announced on
October 5, 2006 of approximately $37.5 million, which represents
annual growth of greater than 50 percent as compared to 2005
reported revenue of $24.6 million. Management expects the
Semiconductor Business to contribute approximately 30 percent of
total revenue for the full-year 2006 and the System Business to
contribute the remaining 70 percent. Based on currently available
information, gross margin as a percent of revenue is now expected
to be in the range of 47 percent to 49 percent in the fourth
quarter. Due to implemented cost controls, the company has reduced
its second half of 2006 operating expense guidance by approximately
$500,000 and management currently expects fourth quarter operating
expenses to be approximately $7.3 million to $7.5 million. Third
Quarter and Recent Highlights Semiconductor Business: -- Completed
sales tour of Asia demonstrating TALARIA UWB technology to
Japanese, Korean and Chinese consumer electronics and USB
manufacturers. -- Showcased TALARIA UWB wireless technology at
Analyst Days in New York on October 10th and San Francisco on
November 2nd. Systems Business: -- Introduced a new line-up of
award winning FS-4 Portable Direct To Edit(R) (DTE) Recorders. The
new FS-4Pro HD models feature higher capacities, with 60GB, 80GB,
and 100GB versions providing between 4.5 and 7.5 hours of DV/HDV
recording. -- Announced Version 3.0 software for FS-100 Portable
DTE recorder enabling users to more than double the record time
from 100 minutes to 200 minutes using record native 720/24p, 25p
and 30p in the MXF P2 or QuickTime file formats commonly used in
Apple's Final Cut Pro. -- Launched HD support for the ProxSys line
of advanced media asset management servers. -- Released Version 2.0
software adding native QuickTime HDTV support to the DTE FS-4Pro
HD, FS-C and DR-HD100 recorders. -- Demonstrated media asset
management for Panasonic MXF File Formats at the IBC Conference
from September 8th - 12th. Investor Conference Call The company
will host a shareholder conference call to discuss its third
quarter 2006 results on Thursday, November 9, 2006 at 1:30 p.m.
Pacific Time. Brett Moyer, president and chief executive officer,
and Gary Williams, chief financial officer, will deliver prepared
remarks and conduct a question and answer session. The call is
being webcast by Thomson/CCBN and can be accessed at Focus
Enhancements' web site at www.focusinfo.com. The webcast will be
available through December 9, 2006. If you do not have Internet
access, the telephone dial-in number is 706-634-0182 for domestic
and international participants. Please dial in five to ten minutes
prior to the beginning of the call at 1:30 p.m. PT (4:30 p.m. ET).
A telephone replay will be available through November 13th; dial
706-645-9291, and enter access code 9439015. About Focus
Enhancements, Inc. Focus Enhancements, Inc. (NASDAQ CM:FCSE),
headquartered in Campbell, CA, is a leading designer of world-class
solutions in advanced, proprietary video and wireless video
technologies. The company's Semiconductor Group develops integrated
circuits (ICs) for high-performance applications in the video
convergence market, including IPTV set-top boxes and portable media
players. Focus Enhancements is currently developing a wireless IC
chip set based on the WiMedia UWB standard and designed to be
compatible with Wireless USB and used in personal computer (PC),
consumer electronics (CE), and mobile electronics applications. The
company's System Group develops video products for the digital
media markets, with customers in the broadcast, video production,
digital signage and digital asset management markets. More
information on Focus Enhancements may be obtained from the
company's Securities and Exchange Commission (SEC) filings, or by
visiting the Focus Enhancements home page at
http://www.focusinfo.com. Use of Non-GAAP Financial Information To
supplement the company's condensed consolidated financial
statements presented in accordance with GAAP, Focus Enhancements
uses non-GAAP measures of certain components of financial
performance, including net loss and net loss per share data, which
are adjusted from results based on GAAP to exclude certain
expenses. These non-GAAP measures are provided to enhance
investors' overall understanding of the company's current financial
performance and the company's prospects for the future.
Specifically, the company believes the non-GAAP results provide
useful information to both management and investors by excluding
certain expenses that may not be indicative of its core operating
results. These measures should be considered in addition to results
prepared in accordance with GAAP, but should not be considered a
substitute for, or superior to, GAAP results. These non-GAAP
measures included in this press release have been reconciled to the
GAAP results. Safe Harbor Statement Statements in this press
release which are not historical including statements regarding
management's intentions, hopes, expectations, representations,
plans or predictions about the future are forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Such statements include statements regarding
management's expectations of funding requirements in 2006, demand
for Focus Enhancements' products, which impacts revenue, revenue
expectations including the amount of revenue contributed by its
business units, gross margin percentage and cash from operations
and management's plans to complete its Ultra Wideband (UWB)
semiconductor chip designs. Because these forward-looking
statements involve risks and uncertainties, there are important
factors that could cause our actual results to differ materially
from those in the forward-looking statements. Factors that could
cause actual results to differ materially include customers'
acceptance of recently introduced products, changes in customer
order patterns, unforeseen increased costs and delays in research
and development, the company's ability to maintain adequate funding
to develop and implement its UWB technology, the performance and
acceptance of its UWB technology, and the risk factors specified in
Item 1A of the company's Form 10-K for the year ended December 31,
2005, and Form 10-Q for the three months ended March 31, 2006 and
June 30, 2006 as well as other periodic filings with the Securities
and Exchange Commission (SEC). These statements are based on
information as of November 9, 2006, and the company assumes no
obligation to update any forward-looking statements, whether as a
result of new information, future events, or otherwise. -0- *T
Focus Enhancements, Inc. Condensed Consolidated Statements of
Operations (In thousands, except per share amounts) (Unaudited)
Three Months Ended Nine Months Ended ---------------------
--------------------- September September September September 30,
2006 30, 2005 30, 2006 30, 2005 ---------- ---------- ----------
---------- Net revenue $11,605 $6,880 $27,195 $18,468 Cost of
revenue 5,819 4,360 14,957 11,804 ---------- ---------- ----------
---------- Gross margin 5,786 2,520 12,238 6,664 ----------
---------- ---------- ---------- Operating expenses: Sales,
marketing and support 2,131 1,783 6,753 4,958 General and
administrative 1,025 925 3,005 2,920 Research and development 3,114
2,977 8,961 10,260 Amortization of intangible assets 127 127 381
403 ---------- ---------- ---------- ---------- 6,397 5,812 19,100
18,541 ---------- ---------- ---------- ---------- Loss from
operations (611) (3,292) (6,862) (11,877) Interest expense, net
(337) (93) (828) (174) Value of derivative security - - (4,000) -
Change in value of derivative security - - (1,361) - Other income
(expense), net 82 (10) 150 (50) ---------- ---------- ----------
---------- Loss before income tax expense (benefit) (866) (3,395)
(12,901) (12,101) Income tax expense (benefit) - (1) 9 10
---------- ---------- ---------- ---------- Net loss $(866)
$(3,394) $(12,910) $(12,111) ---------- ---------- ----------
---------- Net loss per share Basic and diluted $(0.01) $(0.05)
$(0.19) $(0.20) Weighted average number of shares used in per share
calculations: Basic and diluted 69,233 62,268 68,611 60,414 *T -0-
*T Focus Enhancements, Inc. Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts) (Unaudited)
September 30, December 31, 2006 2005 ------------- ------------
Assets Current assets: Cash and cash equivalents $1,133 $637
Accounts receivable, net of allowances of $367 and $418,
respectively 3,707 3,197 Inventories 4,551 3,743 Prepaid expenses
and other current assets 1,183 759 ------------- ------------ Total
current assets 10,574 8,336 Long-term assets: Property and
equipment, net 1,023 1,212 Other assets 177 54 Intangible assets,
net 349 866 Goodwill 13,191 13,191 ------------- ------------
$25,314 $23,659 ============= ============ Liabilities and
Stockholders' Equity Current liabilities: Accounts payable $3,730
$3,001 Accrued liabilities 4,031 3,292 Current portion of capital
lease obligations 24 107 Borrowings under line of credit 500 2,966
Current portion of notes payable to bank - 3 Term loan 700 2,500
------------- ------------ Total current liabilities 8,985 11,869
Long-term liabilities: Convertible notes 10,425 - Other liabilities
- 100 Capital lease obligations, net of current portion - 10
------------- ------------ Total liabilities 19,410 11,979
------------- ------------ Stockholders' equity: Preferred stock,
$0.01 par value; authorized 3,000,000 shares; 3,161 shares issued
and outstanding at September 30, 2006 and December 31, 2005
(aggregate liquidation preference $3,917) - - Common stock, $0.01
par value; 100,000,000 shares authorized, 70,724,461 and 68,382,113
shares issued and outstanding at September 30, 2006 and December
31, 2005, respectively 698 674 Treasury stock at cost, 497,055
shares at September 30, 2006 and December 31, 2005 (750) (750)
Additional paid-in capital 108,322 101,297 Deferred stock-based
compensation - (214) Accumulated other comprehensive income (82) 47
Accumulated deficit (102,284) (89,374) ------------- ------------
Total stockholders' equity 5,904 11,680 ------------- ------------
$25,314 $23,659 ============= ============ *T -0- *T Focus
Enhancements, Inc. Selected Business Segment Data (In thousands)
(Unaudited) Revenue: Three Months Ended Nine Months Ended
-------------------------- ---------------------
--------------------- September September September September 30,
30, 30, 30, 2006 2005 2006 2005 ---------- ---------- ----------
---------- Systems Business $5,441 $5,934 $17,856 $16,176
Semiconductor Business 6,164 946 9,339 2,292 ---------- ----------
---------- ---------- Net Revenue $11,605 $6,880 $27,195 $18,468
========== ========== ========== ========== Research and
Development: Three Months Ended Nine Months Ended
-------------------------- ---------------------
--------------------- September September September September 30,
30, 30, 30, 2006 2005 2006 2005 ---------- ---------- ----------
---------- Systems Business $902 $786 $2,236 $2,834 Semiconductor
Business 2,212 2,191 6,725 7,426 ---------- ---------- ----------
---------- Total Research and Development $3,114 $2,977 $8,961
$10,260 ========== ========== ========== ========== *T -0- *T
Reconciliation of Net Loss to Non-GAAP Net Loss (In thousands)
(Unaudited) Three Months Ended Nine Months Ended
--------------------- --------------------- September September
September September 30, 30, 30, 30, 2006 2005 2006 2005 ----------
---------- ---------- ---------- Net loss, as reported $(866)
$(3,394) $(12,910) $(12,111) Plus: Stock-based compensation 171 17
494 105 Value of derivative liability - - 4,000 - Change in value
of derivative liability - - 1,361 - ---------- ----------
---------- ---------- Non-GAAP net loss $(695) $(3,377) $(7,055)
$(12,006) ========== ========== ========== ========== Non-GAAP net
loss per share $(0.01) $(0.05) $(0.10) $(0.20) ==========
========== ========== ========== *T
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