Registration No. 333-100353
FILED PURSUANT TO RULE 424(b)(3)
PROSPECTUS
FOCUS ENHANCEMENTS, INC.
270,000 Shares of Common Stock
This prospectus relates to the registration for resale of up to 270,000
shares of common stock, $.01 par value per share ("common stock"), of Focus
Enhancements, Inc., a Delaware corporation.
Our filing of the registration statement, of which this prospectus is a
part, is intended to satisfy our obligations to the selling shareholders
identified in this prospectus to register for resale shares issued to them. The
selling shareholders obtained warrants to purchase shares of our common stock in
three distinct and separate transactions for services they provided to us.
Pursuant to this prospectus, the selling shareholders may sell some or
all of the shares they hold through ordinary brokerage transactions, directly to
market makers of our shares, or through any of the other means described in the
"Plan of Distribution" section of this prospectus, beginning on page 10 of this
prospectus. Other than funds received upon the exercise of warrants, the selling
shareholders, and not us, will receive all of the proceeds from any sales of the
shares, less any brokerage or other expenses of the sale incurred by them.
We will pay all registration expenses including, without limitation,
all Securities and Exchange Commission and blue sky registration and filing
fees, printing expenses, transfer agents' and registrars' fees, and the fees and
disbursements of our outside counsel in connection with this offering, but the
selling shareholders will pay all selling expenses including, without
limitation, any underwriters' or brokers' fees or discounts relating to the
shares registered hereby, or the fees or expenses of separate counsel to the
Selling shareholders.
Each selling shareholder may be deemed to be an "Underwriter" as such
term is defined in the Securities Act of 1933, and any commissions paid or
discounts or concessions allowed to any such person and any profits received on
resale of the securities offered hereby may be deemed to be underwriting
compensation under the Securities Act.
Our common stock is listed on the Nasdaq SmallCap Market with the
ticker symbol: "FCSE." On October 24, 2002, the closing price of one share of
our common stock on the Nasdaq SmallCap Market was $1.07. Our principal
executive offices are located at 1370 Dell Avenue, Campbell, California 95008,
and our telephone number is (408) 866-8300.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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Investing in our common stock involves a high degree of risk. Please
carefully consider the "Risk Factors" beginning on page 3 of this prospectus.
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The date of this prospectus is October 30, 2002.
FORWARD LOOKING STATEMENTS
From time to time, information provided by Focus Enhancements Inc.
("Focus') or statements made by its employees may contain "forward looking"
information within the meaning of the Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities and Exchange Act of 1934, as
amended (the "Exchange Act"), and as such, may involve risks and uncertainties.
Forward-looking statements, which are based on certain assumptions and describe
future plans, strategies, and expectations, are generally identifiable by the
use of words or phrases such as "believe", "plan", "expect", "intend",
"anticipate", "estimate", "project", "forecast", "may increase", "may
fluctuate", "may improve" and similar expressions or future or conditional verbs
such as "will", "should", "would", and "could". These forward-looking statements
relate to, among other things, expectations of the business environment in which
we operate, opportunities and expectations regarding technologies, anticipated
performance or contributions from new and existing employees, projections of
future performance, possible changes in laws and regulations, potential risks
and benefits arising from the implementation of our strategic and tactical
plans, perceived opportunities in the market, potential actions of significant
stockholders and investment banking firms, and statements regarding our mission
and vision. Our actual results, performance, and achievements may differ
materially from the results, performance, and achievements expressed or implied
in such forward-looking statements due to a wide range of factors. Factors that
may cause such differences include, without limitation, the availability of
capital to fund our future cash needs, reliance on major customers, history of
operating losses, limited availability of capital under credit arrangements with
lenders, market acceptance of our products, technological obsolescence,
competition, component supply problems and protection of proprietary
information, as well as the accuracy of our internal estimates of revenue and
operating expense levels. Each forward looking statement should be read in
conjunction with the "Risk Factors" included in this prospectus and the
consolidated financial statements and notes thereto, together with the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in our periodic reports filed with the SEC. We do not
undertake, and specifically disclaim any obligation, to update any
forward-looking statements to reflect occurrences or unanticipated events or
circumstances after the date of such statements.
RISK FACTORS
You should carefully consider the following risks relating to our
business and our common stock, together with the other information described
elsewhere in this prospectus. If any of the following risks actually occur, our
business, results of operations and financial condition could be materially
affected, the trading price of our common stock could decline, and you might
lose all or part of your investment.
Risks Related to Our Business
We have a long history of operating losses.
As of June 30, 2002, we had an accumulated deficit of $58,532,000. We
incurred net losses of $3,166, 000, $6,658,000 and $12,029,000 for the six
months ended June 30, 2002 and the years ended December 31, 2001 and 2000,
respectively. There can be no assurance that we will become profitable.
Additionally, our auditors have included an explanatory paragraph in their
report on our financial statements for the year ended December 31, 2001 with
respect to uncertainties about our ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of that uncertainty.
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We may need to raise additional capital which will result in further dilution of
existing and future stockholders.
Historically, we have met our short-and long-term extra cash needs
through debt and the sale of common stock in private placements because cash
flow from operations has been insufficient to fund our operations. Set forth
below is information regarding net proceeds received recently:
Private Offerings Of Issuance of Exercise of Stock
Common Stock Debt Options and Warrants
------------ ---- --------------------
First six months 2002 $2,435,000 -- $186,000
Fiscal 2001 -- $2,650,000 $199,000
Fiscal 2000 $1,284,000 $2,363,000 $1,121,000
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 our ability to market our
products successfully. If we require additional equity or debt financing in the
future, there can be no assurance that sufficient funds will be raised.
Moreover, any equity financing or convertible debt would result in dilution to
our then-existing stockholders and could have a negative effect on the market
price of our common stock. Furthermore, any additional debt financing may result
in higher interest expense.
In the event we are unable to raise additional capital, we may not be
able to fund our operations which could result in the inability to execute our
current business plan.
We have a significant amount of convertible securities that will dilute existing
shareholders upon conversion.
At June 30, 2002, we had 35,606,907 and 1,904 shares of common and
preferred shares issued and outstanding, respectively, and 1,470,219 warrants
and 6,252,357 options that are exercisable into shares of common stock. The
1,904 shares of preferred stock are convertible into 1,904,000 shares of our
common stock. We also may issue additional shares in acquisitions and may grant
942,983 additional stock options to our employees, officers, directors and
consultants under our current stock option plans.
In addition, at June 30, 2002, the Company was obligated under certain
circumstances, to issue up to 1,352 shares of preferred stock upon the
conversion of $1,774,000 debt and accrued interest.
We are dependent upon a significant stockholder to meet our interim financing
needs.
We have relied upon the ability of Carl Berg, a director and
significant owner of our common stock for interim financing needs. As of June
30, 2002, we had an aggregate of approximately $4.1 million in debt outstanding
to Mr. Berg. There can be no assurances that Mr. Berg will continue to provide
such interim financing should we need additional funds.
We rely on certain vendors for a significant portion of our manufacturing.
Over 50% of the components for our products are manufactured on a
turnkey basis by four vendors, Furthertech Company, Ltd., Sicon International,
Samsung Semiconductor Inc., and Asemtec Corporation. In addition, certain of
products are assembled by a single vendor in Mexico. If these vendors experience
production or shipping problems for any reason, we in turn could experience
delays in the production and shipping of our products, which would have an
adverse effect on our results of operations.
We are dependent on our suppliers.
We purchase all of our parts from outside suppliers and from time to
time experience delays in obtaining some components or peripheral devices.
Additionally, we are dependent on sole source suppliers for certain
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components. There can be no assurance that labor problems, supply shortages or
product discontinuations 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 rely on sales to a few major customers for a large part of our revenues.
One customer accounted for 13% of total revenue for the quarter ended
June 30, 2002. In addition, two customers accounted for 53% of our total
accounts receivable at June 30, 2002. We do not have long-term contracts
requiring any customer to purchase any minimum amount of products. There can be
no assurance that we will continue to receive orders of the same magnitude as in
the past from existing customers or we will be able to market our current or
proposed products to new customers. Loss of any major customer would have a
material adverse effect on our business as a whole. Furthermore, many of our
products are dependent upon the overall success of our customer's product, over
which we often have no control.
Our 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.
We may not be able to protect our proprietary information.
We have a total of eight patents issued, of which five relate to our
PC-to-TV video-graphics products. We treat our technical data as confidential
and rely on internal non-disclosure safeguards, including confidentiality
agreements with employees, and on laws protecting trade secrets, to protect our
proprietary information. There can be no assurance that these measures will
adequately protect the confidentiality of our proprietary information or prove
valuable in light of future technological developments.
Delays in product development could adversely affect our market position or
customer relationships.
We have experienced delays in product development in the past and may
experience similar delays in the future. Given the short product life cycles in
the markets for our products, any delay or unanticipated difficulty associated
with new product introductions or product enhancements could cause us to lose
customers and damage our competitive position. Prior delays have resulted from
numerous factors, such as:
o changing product specifications; difficulties in hiring and
retaining necessary personnel;
o difficulties in reallocating engineering resources and other
resource limitations;
o difficulties with independent contractors;
o changing market or competitive product requirements;
unanticipated engineering complexity;
o undetected errors or failures in software and hardware; and
o delays in the acceptance or shipment of products by customers.
If we are unable to respond to rapid technological change in a timely manner,
then we may lose customers to our competitors.
To remain competitive, we must continue to enhance and improve the
responsiveness, functionality and features of our products. Our industry is
characterized by rapid technological change, changes in user and customer
requirements and preferences and frequent new product and service introductions.
If competitors introduce products and services embodying new technologies, or if
new industry standards and practices emerge, then our existing
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proprietary technology and systems may become obsolete. Our future success will
depend on our ability to do the following:
o both license and internally develop leading technologies
useful in our business;
o enhance our existing technologies;
o develop new services and technology that address the
increasingly sophisticated and varied needs of our prospective
customers; and
o respond to technological advances and emerging industry
standards and practices on a cost-effective and timely basis.
To develop our proprietary technology entails significant technical and
business risks. We may use new technologies ineffectively, or we may fail to
adapt our proprietary technology and transaction processing systems to customer
requirements or emerging industry standards. If we face material delays in
introducing new services, products and enhancements, then our customers may
forego the use of our services and use those of our competitors.
We typically operate without a significant amount of backlog.
We typically operate with a small amount of backlog. Accordingly, we
generally do 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 current customer demand would therefore have and has
had in the past an almost immediate adverse impact on our operating results.
In the past, our common stock has not met the minimum levels to remain listed on
the Nasdaq SmallCap Market. If we were to be delisted, it could make trading in
our stock more difficult.
Our common stock is traded on the Nasdaq SmallCap Market. There are
various quantitative listing requirements for a company to remain listed on the
Nasdaq SmallCap Market.
o We must maintain stockholders' equity of $2,500,000. At June
30, 2002, we had total stockholders' equity of $5.8 million.
To the extent we continue losing money and do not raise
additional capital, our stockholders' equity will be reduced.
o We are required to maintain a minimum bid price of $1.00 per
share for our common stock. The closing price of our common
stock on June 30, 2002 was $1.38. On October 24, 2002, the
closing price of our common stock was $1.07.
If we fail these Nasdaq SmallCap requirements in the future, our common
stock could be delisted, eliminating the only established trading market for
shares of our common stock. Any sales of our common stock at a discount to
market may reduce the trading price of our common stock to a level below the
Nasdaq minimum bid price requirement.
In the event we are delisted from Nasdaq, we would be forced to list
our shares on the OTC Electronic Bulletin Board or some other quotation medium,
such as pink sheets, depending on our ability to meet the specific listing
requirements of those quotation systems. As a result an investor might find it
more difficult to dispose of, or to obtain accurate price quotations for, our
shares. Delisting might also reduce the visibility, liquidity, and price of our
common stock.
Our common stock price is volatile.
The market price for our common stock is volatile and has fluctuated
significantly to date. For example, between July 1, 2001 and June 30, 2002, the
per share price of our stock has fluctuated between $0.82 and $2.18 per share,
closing at $1.38 at June 30, 2002. The trading price of our common stock is
likely to continue to be highly
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volatile and subject to wide fluctuations in response to factors including, but
not limited to, the following:
o actual or anticipated variations in our quarterly operating
results;
o announcements of technological innovations, new sales formats
or new products or services by us or our competitors;
o changes in financial estimates by securities analysts;
o changes in the economic performance and/or market valuations
of other multi-media, video scan companies;
o announcements by us of significant acquisitions, strategic
partnerships, joint ventures or capital commitments;
o additions or departures of key personnel; and
o sales of common stock or issuance of other dilutive
securities.
In addition, the securities markets have experienced extreme price and
volume fluctuations, and the market prices of the securities of technology
companies have been especially volatile. These broad market and industry factors
may adversely affect the market price of our common stock, regardless of our
actual operating performance. In the past, following periods of volatility in
the market price of stock, many companies have been the object of securities
class action litigation, including us. If we are sued again in a securities
class action, then it could result in additional substantial costs and a
diversion of management's attention and resources.
Risks Related to Our Industry
International sales are subject to significant risk.
Our 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 reduce demand for our products and therefore
have a material adverse effect on our revenue or operating results.
Our businesses are very competitive.
The computer peripheral markets are extremely competitive and are
characterized by significant price erosion over the life of a product. We
currently compete 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 we are not currently aware of any announcements by our
competitors that would have a material impact on its operations, there can be no
assurance that we 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. We anticipate increased
competition in the video post-production equipment market from both existing
manufacturers and new market entrants. Increased competition could result in
price reductions, reduced margins and loss of market share, any of which could
materially and adversely affect our business, financial condition and results of
operations. There can be no assurance that we will be able to compete
successfully against current and future competitors in this market.
Often our competitors have greater financial, technical, marketing,
sales and customer support resources, greater name recognition and larger
installed customer bases than we possess. In addition, some of our competitors
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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 energy crisis in the State of California could adversely effect our
operations.
The western United States (and California in particular) has
experienced repeated episodes of diminished electrical power supply and
fluctuating energy costs. This has resulted in uncertainty regarding the
settlement of the various financial components of the crisis. These financial
components include a potential adverse impact on the State of California's
general fund, the determination of which energy customers will bear what cost
burdens, and the resolution of the financial status of the two largest utilities
in the State.
We remain concerned about the potential impact of California's energy
crisis upon our operations and the financial condition of our customers and
suppliers in California. Furthermore, our California offices at this time do not
have backup generators, and hence we would need to curtail our operations in the
event of an electricity brown-out or black-out.
We are exposed to general economic conditions that have resulted in
significantly reduced sales levels. If such adverse economic conditions were to
continue or worsen, our business, financial condition and operating results
could be adversely impacted.
If the adverse economic conditions in the United States and throughout
the world economy continue or worsen, we may experience a material adverse
impact on our business, operating results, and financial condition. We continue
to take actions and charges to reduce our cost of sales and operating expenses
in order to address these adverse conditions. A prolonged continuation or
worsening of sales trends may require additional actions and charges to reduce
cost of sales and operating expenses in subsequent quarters. We may be unable to
reduce cost of sales and operating expenses at a rate and to a level consistent
with such a future adverse sales environment. If we must undertake further
expense reductions, we may incur significant incremental special charges
associated with such expense reductions that are disproportionate to sales,
thereby adversely affecting our business, financial condition and operating
results. Continuing weakness in the economy could decrease demand for our
products, increase delinquencies in payments and otherwise have an adverse
impact on our business.
Recent corporate bankruptcies, accounting irregularities, and alleged insider
wrong doings have negatively affected general confidence in the stock markets
and the economy, further depressing the stock market and causing the U.S.
Congress to enact sweeping legislation.
In an effort to address these growing investor concerns, the U.S.
Congress passed, and on July 30, 2002, President Bush signed into law, the
Sarbanes-Oxley Act of 2002. This sweeping legislation primarily impacts
investors, the public accounting profession, public companies, including
corporate duties and responsibilities, and securities analysts. Some highlights
include establishment of a new independent oversight board for public accounting
firms, enhanced disclosure requirements for public companies and their insiders,
required certification by CEO's and CFO's of SEC financial filings, prohibitions
on certain loans to offices and directors, efforts to curb potential securities
analysts' conflicts of interest, forfeiture of profits by certain insiders in
the event financial statements are restated, enhanced board audit committee
requirements, whistleblower protections, and enhanced civil and criminal
penalties for violations of securities laws. It is difficult to predict the
impact of such legislation, however it will increase the costs of securities law
compliance for publicly traded companies such as Focus.
FOCUS ENHANCEMENTS, INC.
Founded in 1991, FOCUS Enhancements, Inc. is a leading designer of
world-class solutions in advanced, proprietary video technology. Headquartered
in Campbell, CA, we design, develop, and market video solutions in two distinct
markets: advanced, proprietary video conversion ICs (Integrated Circuits) and
affordable, high quality, digital-video conversion and video production
equipment. Semiconductor (Integrated Circuit) products include designs for PCs,
Game Cards, Internet TV, set-top boxes, Internet appliances, and interactive TV
applications, and they are sold directly to Original Equipment Manufacturers
(OEMs). Our complete line of video presentation and video production devices are
sold globally through resellers and distributors to the broadcast, education,
cable,
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business, industrial, presentation, Internet, gaming, home video production and
Home Theater markets.
Our main address is 1370 Dell Avenue, Campbell, California 95008 and
our telephone number is (408) 866-8300. Our Web site is located at
http://www.Focusinfo.com. Information contained in our Web site is not part of
this prospectus.
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data for each of the years ended
December 31, 2001, 2000 and 1999 have been derived from our audited consolidated
financial statements. The selected consolidated financial data for the three
months ended March 31, 2002 and 2001 and for the six months ended June 30, 2002
and 2001 have been derived from our unaudited consolidated financial statements
and reflect all adjustments (consisting of normal recurring accruals) which, in
the opinion of our management, are considered necessary for a fair presentation
of the results for the periods covered. This data should be read in conjunction
with the consolidated financial statements and related notes incorporated by
reference in this prospectus. See "Where You Can Find More Information."
Years ended December 31,
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2001 2000 1999
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(in thousands, except per share amounts)
Statement of operations data:
Net revenue $ 23,308 $ 15,233 $ 17,183
Net loss $ (6,658) $(12,029) $ (1,480)
Loss per common share - basic and diluted $ (0.21) $ (0.48) $ (0.08)
Balance sheet data:
Total assets $ 18,097 $ 9,781 $ 15,015
Long-term obligations $ 4,057 $ 2,528 $ 428
Three months Six months
ended March 31, ended June 30,
---------------------- ----------------------
2002 2001 2002 2001
-------- -------- -------- --------
(in thousands, except per share amounts)
Income statement data:
Net revenue $ 4,758 $ 5,009 $ 9,270 $ 11,498
Net loss $ (1,654) $ (2,724) $ (3,166) $ (3,767)
Loss per common share - basic and diluted $ (0.05) $ (0.09) $ (0.09) $ (0.12)
Balance sheet data:
Total assets $ 15,365 $ 20,337 $ 14,075 $ 20,435
Long-term obligations $ 3,902 $ 4,486 $ 3,891 $ 3,638
The following table provides pro forma results for the years ended
December 31, 2001, 2000 and 1999 and for the three months ended March 31, 2001
and six months ended June 30, 2001, as if the non-amortization
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provisions of Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets," which we adopted on January 1, 2002, had been applied.
Years ended December 31,
--------------------------------------
In thousands, except per share amounts 2001 2000 1999
------- -------- -------
Reported net loss $(6,658) $(12,029) $(1,480)
Adjustments:
Goodwill amortization $ 1,893 $ 287 $ 171
Adjusted net loss $(4,765) $(11,742) $(1,309)
Reported loss per common share - basic and diluted $ (0.21) $ (0.48) $ (0.08)
Adjustments:
Goodwill amortization $ 0.06 $ 0.01 $ 0.01
Adjusted loss per common share - basic and diluted $ (0.15) $ (0.47) $ (0.07)
Three months Six months
ended March 31, ended June 30,
In thousands, except per share amounts 2001 2001
-------------- -------------
Reported net loss $ (2,724) $ (3,767)
Adjustments:
Goodwill amortization $ 467 $ 396
Adjusted net loss $ (2,257) $ (3,371)
Reported loss per common share - basic and diluted $ (0.09) $ (0.12)
Adjustments:
Goodwill amortization $ 0.02 $ 0.01
Adjusted loss per common share - basic and diluted $ (0.07) $ (0.11)
USE OF PROCEEDS
The warrants entitle some of the selling shareholders to purchase up to
an aggregate of 270,000 shares of our common stock. The conversion price of the
warrants is between $1.35 and $1.50 per share. We will receive the proceeds of
any exercise of the warrants, which it will use for general corporate purposes.
If all warrants are exercised, we will receive gross proceeds of $397,500. There
can be no assurances that any of the warrants will be exercised.
However, all net proceeds from the sale of the Focus shares being
offered under this prospectus will go to the selling shareholders. Accordingly,
we will not receive any proceeds from sales of these shares. We are paying the
expenses of registration of the shares being offered under this prospectus.
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DILUTION
If all of the shares being offered pursuant to this prospectus are sold
after the exercise of warrants, our shareholders will be diluted by less than
one percent.
SELLING SHAREHOLDERS
The following table sets forth: (i) the number of shares of Focus
common stock beneficially owned by each selling shareholder as of September 23,
2002 and (ii) the number of shares of Focus common stock to be offered hereby by
each selling shareholder. The information set forth below is based on
information provided by each selling shareholder.
Common Stock Beneficially Owned Number of
Prior to Offering Shares
Name of Selling Shareholder (1) Number Percent (2) Offered
------------------------------- ------ ----------- --------
FutureWorks, Inc. -- -- 20,000(3)
Lippert/Heilshorn & Associates, Inc. -- -- 50,000(4)
Crestline Consultancy Ltd. -- -- 200,000(5)
-------
270,000
=======
* Less than one percent.
(1) Such persons have sole voting and investment power with respect to all
shares of common stock shown as being beneficially owned by them,
subject to community property laws, where applicable, and the
information contained in the footnotes to this table.
(2) Based on 36,125,769 total shares outstanding as of September 23, 2002.
(3) Shares to be sold upon exercise of warrants at $1.50 per share.
(4) Shares to be sold upon exercise of warrants at $1.35 per share.
(5) Shares to be sold upon the exercise of warrants at $1.50 per share.
FutureWorks, Inc. FutureWorks is engaged in the business of marketing
and public relations for technology companies. FutureWorks designs and delivers
marketing and PR campaigns for Focus Enhancements. FutureWorks, a sole
proprietorship, is headquartered at 2375 Zanker Road, Suite 200, San Jose,
California 95131. Investment decisions for FutureWorks are made by the company's
principal, Brian Solis. The shares were issued in connection with marketing
services.
Lippert/Heilshorn & Associates, Inc. Lippert/Heilshorn is a New York
based financial communications firm representing nearly 100 emerging growth
companies. The agency is located at 800 Third Avenue, New York, NY. The agency
is currently retained by the Company for professional services. The shares were
issued in connection with investor relation services.
Crestline Consultancy Ltd. Crestline is a general consulting business
located at 108-110 Finchley Road, 5th Floor, London, England. The shares were
issued in connection with European investor relation services.
We are registering the Offered Shares for resale in accordance with
certain registration rights granted the selling shareholders. We will pay all
registration expenses including, without limitation, all the SEC and blue sky
registration and filing fees, printing expenses, transfer agents' and
registrars' fees, and the fees and disbursements of our outside counsel in
connection with this offering, but the selling shareholders will pay all selling
expenses including, without limitation, any underwriters' or brokers' fees or
discounts relating to the shares registered hereby, or the fees or expenses of
separate counsel to the selling shareholders.
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Other than disclosed in this prospectus, no selling shareholder has had
any position, office or other material relationship with us during the past
three years.
One or more of the selling shareholders identified above may choose to
donate or transfer as gifts some or all of the shares that may otherwise be sold
directly by the selling shareholder or the selling shareholder may choose to
transfer some or all of these shares for no value to one or more affiliated
persons. If any of the shares are so transferred by any of the selling
shareholders listed above, then the persons who receive the shares would
constitute additional selling shareholders under this prospectus.
PLAN OF DISTRIBUTION
The selling shareholders may offer their shares at various times in one
or more of the following transactions:
o on the NASDAQ SmallCap Market
o on any United States securities exchange where our common stock may be
listed in the future
o in the over the counter market
o in privately negotiated transactions directly with purchasers
o in a combination of any of the above transactions
The selling shareholders may sell their shares at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, at negotiated prices or at fixed prices. The selling shareholders may
use broker-dealers to sell their shares. If this happens, broker-dealers will
either receive discounts or commissions from the selling shareholders, or they
will receive commissions from purchasers of shares for whom they acted as
agents.
The selling shareholders may also pledge shares to broker-dealers or
other financial institutions, and, upon a default relative to any selling
shareholder who has so pledged any such shares, the broker-dealer or other
financial institution holding the pledged shares may effect sales of the pledged
shares pursuant to this prospectus (as supplemented or amended to reflect such
transaction). In addition, any shares that qualify for sale pursuant to Rule 144
may be sold under Rule 144 rather than pursuant to this prospectus.
In effecting sales, brokers, dealers or agents engaged by any selling
shareholder may arrange for other brokers or dealers to participate. Brokers,
dealers or agents may receive commissions, discounts or concessions from the
selling shareholder in amounts to be negotiated prior to the sale. Any such
selling shareholder and such brokers or dealers and any other participating
brokers or dealers may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933 in connection with such sales, and any such commissions,
discounts or concessions may be deemed to be underwriting discounts or
commissions under the Securities Act of 1933. One or more of the selling
shareholders may indemnify broker-dealers that participate in transactions
involving the sale of the shares against certain liabilities, including
liabilities arising under the Securities Act of 1933.
In order to comply with the securities laws of certain states, if
applicable, the shares must be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
We have advised the selling shareholders that the anti-manipulation
rules of Regulation M under the Exchange Act of 1934 may apply to sales of
common stock in the market and to the activities of the selling shareholders and
their affiliates. In addition, we will make copies of this prospectus available
to the selling shareholders and have informed each of them of the need for
delivery of copies of this prospectus to purchasers at or prior to the time of
any sale of the shares offered hereby.
11
At the time a particular offer of shares is made, if required, a
prospectus supplement will be distributed that will set forth the number of
shares being offered and the terms of the offering including the name of any
underwriter, dealer or agent, the purchase price paid by any underwriter, and
discount, commission and other item constituting compensation, any discount,
commission or concession allowed or re-allowed or paid to any dealer, and the
proposed selling price to the public.
We will not receive any of the proceeds from the selling shareholders'
sale of our common stock. This registration statement will remain effective
until the earlier of (a) the date when all of the shares registered by this
registration statement have been distributed to the public or (b) the date when
the selling shareholders may sell all of the shares registered by this
registration statement in any three month period pursuant to Rule 144 of the
Securities Act (or such successor rule as may be adopted by the SEC).
DESCRIPTION OF CAPITAL STOCK
General
We are authorized to issue up to 50,000,000 shares of common stock,
$.01 par value per share, and 3,000,000 shares of preferred stock, $.01 par
value per share. As of September 23, 2002, 36,125,769 shares of common stock and
1,904 shares of convertible preferred stock were issued and outstanding. All of
the outstanding capital stock is, and will be, fully paid and non-assessable.
Common Stock
Holders of common stock are entitled to one vote per share. All actions
submitted to a vote of stockholders are voted on by holders of common stock
voting together as a single class. Holders of common stock are not entitled to
cumulative voting in the election of directors.
Holders of common stock are entitled to receive dividends in cash or in
property on an equal basis, if and when dividends are declared on the common
stock by our board of directors, subject to any preference in favor of
outstanding shares of preferred stock, if there are any.
In the event of liquidation of our company, all holders of common stock
will participate on an equal basis with each other in our net assets available
for distribution after payment of our liabilities and payment of any liquidation
preferences in favor of outstanding shares of preferred stock.
Holders of common stock are not entitled to preemptive rights and the
common stock is not subject to redemption.
The rights of holders of common stock are subject to the rights of
holders of any preferred stock that we designate or have designated. The rights
of preferred stockholders may adversely affect the rights of the common
stockholders.
Preferred Stock
Our board of directors has the ability to issue up to 3,000,000 shares
of preferred stock in one or more series, without stockholder approval. The
board of directors may designate for the series:
o the number of shares and name of the series,
o the voting powers of the series, including the right to elect
directors, if any,
o the dividend rights and preferences, if any,
o redemption terms, if any,
12
o liquidation preferences and the amounts payable on liquidation
or dissolution, and
o the terms upon which such series may be converted into any
other series or class of our stock, including the common stock
and any other terms that are not prohibited by law.
It is impossible for us to state the actual effect it will have on
common stock holders if the board of directors designates a new series of
preferred stock. The effects of such a designation will not be determinable
until the rights accompanying the series have been designated. The issuance of
preferred stock could adversely affect the voting power, liquidation rights or
other rights held by owners of common stock or other series of preferred stock.
The board of directors' authority to issue preferred stock without stockholder
approval could make it more difficult for a third party to acquire control of
our company, and could discourage any such attempt. We have no present plans to
issue any additional shares of preferred stock.
Series B Preferred Stock
On April 24, 2001, the board of directors of Focus adopted a
Certificate of Designation whereby a total of 2,000 shares of Series B Preferred
Stock, $0.01 par value per share, are reserved for issuance in connection with
the convertible note issued by us to Carl Berg. Each share has a liquidation
preferred in the amount of $1,190.48 plus all accrued or declared but unpaid
dividends. Cash dividends on the stock are non-cumulative and are paid at the
option of the board of directors. If paid, the rate shall be seven percent per
annum. The board does not presently intend to pay dividends on the stock. At the
option of the holder, each share is convertible into 1,000 shares of our common
stock.
On May 1, 2001, Carl Berg converted approximately $2.3 million of debt
and accrued interest currently owed by Focus to Mr. Berg into approximately
1,904 shares of convertible preferred stock based on the estimated fair value of
the preferred stock as of May 1, 2001, the date on which the related
subscription agreement was executed.
Options and Warrants
As of September 23, 2002, 6,756,026 options for shares were outstanding
under our approved stock option plans and 215,702 shares were available for
future grants under our stock option plans. We have also issued or are required
to issue warrants totaling 1,134,569 common stock shares. Of that number of
warrants, 270,000 are covered by this prospectus and are described elsewhere
herein.
Holders of options and warrants do not have any of the rights or
privileges of our stockholders, including voting rights, prior to exercise of
the options and warrants. We have reserved sufficient shares of authorized
common stock to cover the issuance of common stock subject to the options and
warrants.
LEGAL MATTERS
Manatt, Phelps & Phillips L.L.P., Los Angeles, California, will pass
upon the validity of our securities and certain other legal matters in
connection with our offering of our securities, unless we indicate otherwise in
a prospectus supplement.
EXPERTS
The financial statements and the related financial statement schedules
as of December 31, 2001 and for the year then ended incorporated by reference in
this prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report (which report expresses an unqualified
opinion and includes an explanatory paragraph regarding the uncertainty of the
Company's ability to continue as a going concern), which is incorporated by
reference herein , and have been so incorporated in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
The financial statements for the year ended December 31, 2000 and
incorporated in this prospectus by reference from our Annual Report on Form
10-KSB have been audited by Wolf & Company, P.C., independent certified public
accountants.
13
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document we file at
the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Copies of these materials can be obtained at
prescribed rates from the Public Reference Section of the SEC at its principal
office at 450 Fifth Street, N.W., Washington, D.C. 20549. Our SEC filings are
also available to the public from the SEC's Website at "http://www.sec.gov."
This prospectus provides you with a general description of the common
stock being registered. This prospectus is part of a registration statement that
we have filed with the SEC. To see more detail, you should read the exhibits and
schedules filed with our registration statement. You may obtain copies of the
registration statement and the exhibits and schedules to the registration
statement as described above.
Statements contained herein as to the contents of any contract or any
other document referred to are not necessarily complete, and where such contract
or other document is an exhibit to a document we have filed with the SEC, each
such statement is qualified in all respects by the provisions of such exhibit,
to which reference is now made.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
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 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:
Our SEC Filings (File No. 1-11860) Period Covered or Date of Filing
---------------------------------- --------------------------------
Annual Report on Form 10-KSB. Year ended December 31, 2001 filed on April 1, 2002.
Quarterly Report on Form 10-QSB. Quarterly Periods ended March 31, 2002 and June 30,
2002 filed on May 15, 2002 and August 14, 2002,
respectively.
Current Reports on Form 8-K. Filed on August 27, 2002 and August 23, 2002.
All subsequent documents filed by us under Sections 13(a), After the date of this prospectus.
13(c), 14 or 15(d) of the Exchange Act of 1934, until such
date as this registration statement is no longer
effective, pursuant to the terms hereof.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
Focus Enhancements, Inc.
1370 Dell Avenue
Campbell, California 95008
Attention: Investor Relations
Phone: (408) 866-8300
This prospectus is part of a registration statement we filed with the
SEC. You should rely only on the information or representations provided in this
prospectus. We have authorized no one to provide you with different
14
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.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
The Delaware General Corporation Law and our certificate of
incorporation and bylaws provide for indemnification of our directors and
officers for liabilities and expenses that they may incur in such capacities.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of Focus
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable.
You should rely only on the information incorporated by reference or
contained in this prospectus or any supplement. We have not authorized anyone
else to provide you with different or additional information. You should not
assume that the information in this prospectus or any supplement is accurate as
of any date other than the date on the front of this prospectus or any
supplement that may have a later date. The selling shareholders are not making
an offer of the common stock in any state where the offer is not permitted.
15
TABLE OF CONTENTS FOCUS ENHANCEMENTS, INC.
Page
Forward Looking Statements 2
Risk Factors 2
Focus Enhancements, Inc. 7 270,000 Shares of
Selected Consolidated Financial Data 8 Common Stock
Use of Proceeds 9
Dilution 10
Selling Shareholders 10
Plan of Distribution 11
Description of Capital Stock 12
Legal Matters 13
Experts 13
Where You Can Find More Information 14
Incorporation of Certain Information
by Reference 14 ____________________
Disclosure of Commission Position on
Indemnification for Securities Act PROSPECTUS
Liabilities 15 ____________________
October 30, 2002