FCSE Focus Enhancements (MM)

Focus Enhancements, Inc. (NASDAQ:FCSE) a worldwide leader in Ultra Wideband (UWB) wireless technology, video conversion and digital media products announced fourth quarter and year ended December 31, 2007 financial results. Brett Moyer, president and CEO of Focus Enhancements, stated, �While we achieved a number of operational goals in 2007, financially the year was difficult. Our 2007 revenue stream was impacted by a number of factors including a slower than expected adoption rate of our media asset management (MAM) and digital signage product offerings. While we saw an increase in MAM revenue in the fourth quarter, competitive pressures in both the professional camcorder and the portable media player (PMP) markets have caused our customers to revise their forecasts and lower their purchases over the last few months. As such, we have taken proactive measures to improve our operating position. In February, we reduced our sales, marketing and general administrative costs, restructured our debt, and raised $9.3 million of new financing to support our UWB chip development and our general operations. �While 2008 is beginning slowly, we believe operational advances over the last six months, upcoming product launches and recent customer discussions will result in improvements in the second half of this year. In 2007, we introduced our first generation UWB technology, improved the firmware that runs the chip, and partnered with Amcor and Macally to distribute wireless USB peripherals when commercially available. Our second generation UWB chip, an all CMOS single chip solution is well under way and promises a significant cost improvement. Additionally, the WiMedia� Alliance certified our physical layer chipset (PHY), we were granted a patent on intellectual property for achieving better performance from UWB radios, and we filed three provisional patents on our UWB technology. In video convergence, our FS�471 ultra-mobile TV-out chip solutions have been well received and incorporated into multiple smartphone, PMP, and automotive reference designs. �In April, at the National Association of Broadcasters Conference, we expect to launch our next generation Portable Direct To Edit� (DTE) recorder, additional ProxSys��digital media asset management products, and new software for HD media ingest and delivery. We remain encouraged by increased interest in ProxSys from a large Japanese broadcast manufacturer and in our FS�471 ultra-mobile TV-out chip for smartphone solutions. We believe our 2008 opportunities are promising and will lead to increased revenue in the second half 2008,� Moyer concluded. Fourth Quarter 2007 Financial Results Revenue for the fourth quarter was $6.8 million, compared to $10.3 million reported for the same quarter of 2006. The decrease is primarily attributable to fourth quarter 2006 chip shipments for Microsoft�s Zune, which did not recur in 2007, and lower DTE recorder sales. Operating expenses were $7.7 million, compared with $7.2 million in the prior year period. While the increase reflected higher research and development (R&D) expenses, R&D expenses were lower than previously projected by $1.4 million as the company reduced fourth quarter obligations and moved expenditures into the first and second quarters of 2008. Net loss for the fourth quarter was $5.3 million, or $0.06 per share, versus a net loss of $3.0 million, or $0.04 per share, in the same quarter of 2006. Full-Year 2007 Financial Results Revenue for the year ended December 31, 2007 was $30.0 million, compared to $37.5 million reported for 2006, again reflecting third and fourth quarter 2006 chip shipments for Microsoft�s Zune, which did not recur in 2007. Net loss for the year ended December 31, 2007 was $17.4 million, or $0.22 per share, versus a net loss of $15.9 million, or $0.23 per share, for 2006. Gary Williams, CFO of Focus Enhancements, stated, �At December 31, 2007, cash and cash equivalents were $1.9 million. In February, we restructured $11.5 million of debt and raised $9.3 million of additional working capital. Two weeks ago, we secured a $6.5 million credit facility with Heritage Bank of Commerce. While we anticipate UWB R&D expenses to increase over the prior year, we believe we have sufficient working capital to continue the development of our second generation UWB technology and launch new media asset management and acquisition products.� Recent Highlights Semiconductor Business: -- Partnered with Macally to deliver wireless USB for disk storage, which was demonstrated at Macworld in San Francisco in January. -- At the 2008 International Consumer Electronics Show in Las Vegas in January: -- Demonstrated WiMedia UWB Standards and Certified Wireless USB technology compliant UWB technology and operated in the higher frequency bands necessary for acceptance in Europe; -- Demonstrated TV-out video chips for set-top boxes (STBs) and PMPs; and -- Displayed reference designs used in PMPs and advanced IP-STBs, developed in partnership with leading platform providers such as FreeScale, Marvell and RMI as well as an array of commercially available PMPs using the company's TV-out encoders, displaying video to a TV. -- Granted patent for "Method and Apparatus for Frequency Division Multiplexing" containing key intellectual property for achieving better performance from UWB radios. -- Selected to power LG Electronics LE3100D series of embedded digital video recorders with the FS--454 TV-out encoder chip. � Systems Business: -- Won Storage Visions "Production/Post Production Class Storage" Award for the ProSys PX-1 Production Media Server. -- Made generally available version 3.0 of the DR-HD100 DTE recorder. Investor Conference Call The company will host a shareholder conference call to discuss the fourth quarter 2007 results on March 17, 2008 at 1:30 p.m. Pacific Time, after which management will host a question and answer session. The call is being webcast and can be accessed at Focus Enhancements� web site at www.focusinfo.com. The webcast will be available through April 17, 2008. For those without Internet access, the telephone dial-in number is 888-816-3972 for domestic and 706-634-0182 for international participants. Participants should 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 March 19; dial (800) 642-1687, and enter access code 37790769. 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 wireless IC chip set based on WiMedia UWB standard and design as well as markets portable ICs to the video convergence, portable media, navigation systems and smartphone markets. 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. 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 2008, demand for Focus Enhancements� products, which impacts revenue, gross margin percentage and cash from operations, management�s plans to complete its semiconductor chip designs, move its technology to silicon, and the performance of its technology, including UWB in silicon. 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 UWB technology, the ability of the company to migrate its UWB technology to silicon in a timely manner, the performance and acceptance of its UWB technology when successfully moved to silicon, and the risk factors specified in the company's Form 10-K for the year ended December 31, 2006, 10-Q for the periods ended March 31, 2007, June 30, 2007 and September 30, 2007, as well as other filings with the SEC. These statements are based on information as of March 17, 2008and 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 � Year Ended � December31, 2007 � December31, 2006 December31, 2007 � December31, 2006 � � Net revenue $ 6,760 $ 10,283 $ 29,971 $ 37,478 Cost of revenue � 4,018 � � 5,301 � � 16,665 � � 20,259 � Gross margin � 2,742 � � 4,982 � � 13,306 � � 17,219 � � Operating expenses: Sales, marketing and support 2,168 2,177 8,925 8,930 General and administrative 1,138 1,143 4,360 4,148 Research and development 4,437 3,759 15,851 12,720 Amortization of intangible assets � - � � 127 � � 156 � � 508 � � 7,743 � � 7,206 � � 29,292 � � 26,306 � Loss from operations (5,001 ) (2,224 ) (15,986 ) (9,087 ) Interest expense, net (364 ) (595 ) (1,349 ) (1,423 ) Value of derivative security - - - (4,000 ) Change in value of derivative security - - - (1,361 ) Other income (expense), net � (2 ) � (144 ) � (4 ) � 6 � Loss before income tax expense (benefit) (5,367 ) (2,963 ) (17,339 ) (15,865 ) Income tax expense (benefit) � (19 ) � 49 � � 22 � � 58 � Net loss $ (5,348 ) $ (3,012 ) $ (17,361 ) $ (15,923 ) � � Net loss per share Basic and diluted $ (0.06 ) $ (0.04 ) $ (0.22 ) $ (0.23 ) � Weighted average number of shares used inper share calculations: Basic and diluted 83,544 70,452 78,268 69,071 Focus Enhancements, Inc. Condensed Consolidated Balance Sheets (In thousands, except share and per share amounts) (Unaudited) � � December 31, � December 31, 2007 2006 Assets � � Current assets: Cash and cash equivalents $ 1,931 $ 5,969 Accounts receivable, net of allowances of $253 in 2007 and $304 in 2006 4,318 4,188 Inventories 3,957 4,072 Prepaid expenses and other current assets � 1,130 � � 1,207 � Total current assets 11,336 15,436 � � Property and equipment, net 1,240 980 Other assets 153 187 Intangible assets, net - 186 Goodwill � 13,191 � � 13,191 � $ 25,920 � $ 29,980 � � Liabilities and Stockholders' Equity � Current liabilities: Accounts payable $ 3,554 $ 3,424 Borrowings under line of credit 3,600 3,390 Current portion of capital lease obligations 122 10 Term loan 2,500 2,500 Accrued liabilities � 3,594 � � 3,702 � Total current liabilities 13,370 13,026 � � Convertible notes � 11,493 � � 10,946 � Total liabilities � 24,863 � � 23,972 � � Stockholders' equity: Preferred stock, $0.01 par value; authorized 3,000,000 shares; 3,161 shares issued and outstanding at December 31, 2007 and 2006, respectively (aggregate liquidation preference $3,917) - - Common stock, $0.01 par value; 150,000,000 shares authorized, 85,248,194 and 73,210,870 shares issued and outstanding at December 31, 2007 and 2006, respectively 841 722 Treasury stock at cost, 516,667 and 497,055 shares at December 31, 2007 and 2006, respectively (775 ) (750 ) Additional paid-in capital 123,392 111,203 Accumulated other comprehensive income 257 130 Accumulated deficit � (122,658 ) � � (105,297 ) � Total stockholders' equity 1,057 6,008 � � $ 25,920 � $ 29,980 � Focus Enhancements, Inc. Selected Business Segment Data (In thousands) (Unaudited) � Revenue: � Three Months Ended � Year Ended � December 31,2007 � December 31,2006 December 31,2007 � December 31,2006 � Systems Business $ 5,307 $ 7,186 $ 24,685 $ 25,042 Semiconductor Business � 1,453 � 3,097 � 5,286 � 12,436 Net Revenue $ 6,760 $ 10,283 $ 29,971 $ 37,478 � � Research and Development: Three Months Ended Year Ended � December 31,2007 December 31,2006 December 31,2007 December 31,2006 � Systems Business $ 1,227 $ 923 $ 4,473 $ 3,159 Semiconductor Business � 3,210 � 2,836 � 11,378 � 9,561 Total Research and Development $ 4,437 $ 3,759 $ 15,851 $ 12,720