Registration No. 333-_______121206
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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FOCUS ENHANCEMENTS, INC.
(Exact name of registrant as specified in its charter)
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Delaware 04-3144936
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(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
1370 Dell Avenue
Campbell, California 95008
(408) 866-8300
(Address, including zip code, and telephone number,
including area code, of principal executive offices)
Gary L. Williams
Vice President of Finance and Chief Financial Officer
FOCUS Enhancements, Inc.
1370 Dell Avenue
Campbell, California 95008
(408) 866-8300
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
Jerrold F. Petruzzelli, Esq. and Gregory A. Gehlmann, Esq.
Manatt Phelps & Phillips, LLP
700 12th Street, NW, Suite 1100
Washington, DC 20005
(202) 585-6540
facsimile: (202) 585-6600
Approximate date of commencement of proposed sale to the public: From time to
time or at one time after the effective date of the Registration Statement as
determined by market conditions.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Maximum Amount of
Amount to Offering Price Aggregate Offering Registration
Title of Each Class of Securities to be Registered Be Registered Per Share Price Fee
- ------------------------------------------------------ ------------------- ------------------- ---------------------- --------------
Common Stock, par value $0.01 per share 6,666,667(1) $ 1.11 $7,400,000 $870.98(3)
- ------------------------------------------------------ ------------------- ------------------- ---------------------- --------------
Common Stock, par value $0.01 per share, including
underlying warrants 1,954,668(4) $ 1.11 $2,169,681 $255.37(3)
- ------------------------------------------------------ ------------------- ------------------- ---------------------- --------------
Common Stock, par value $0.01 per share, including
underlying warrants 77,186(5) $ 1.11 $ 85,676 $ 10.08(3)
- ------------------------------------------------------ ------------------- ------------------- ---------------------- --------------
Common Stock, par value $0.01 per share 50,000(6) $ 1.11 $ 55,500 $ 6.53(3)
- ------------------------------------------------------ ------------------- ------------------- ---------------------- --------------
Common Stock, par value $0.01 per share 2,173,193(7) $ 1.06(2) $2,303,585(2) $271.14(2)
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<FN>
(1) Issued to accredited investors in private placement.
(2) The registration fee is calculated pursuant to Rule 457(c) of the
Securities Act of 1933 by taking the average of the bid and asked
prices of the registrant's Common Stock, $0.01 par value per share, on
January 24, 2005 as reported on the NASDAQ SmallCap Market.
(3) Previously calculated and paid with initial filing.
(4) The shares being registered consist of 1,954,668 shares issuable upon
exercise of common stock purchase warrants outstanding as of the date
hereof issued in connection with a private placement to accredited
investors and placement agents, and such indeterminate number of
additional shares of common stock issuable for no additional
consideration pursuant to the anti-dilution provisions of such warrants
and by reason of any stock dividend, stock split, recapitalization or
other similar transaction effected without the receipt of
consideration, which results in an increase in the number of
outstanding shares of our common stock.
(5) The shares being registered consist of 77,186 shares of common stock
issuable upon exercise of common stock purchase warrants outstanding as
of the date hereof issued in connection with a line of credit secured
by accounts receivable, and such indeterminate number of additional
shares of common stock issuable for no additional consideration
pursuant to the anti-dilution provisions of such warrants and by reason
of any stock dividend, stock split, recapitalization or other similar
transaction effected without the receipt of consideration, which
results in an increase in the number of outstanding shares of our
common stock.
(6) The shares being registered consist of 50,000 shares of common stock
issued upon the exercise of common stock purchase warrants outstanding
as of the date hereof issued to a third party in connection with
investor relation services provided to the registrant, and such
indeterminate number of additional shares of common stock issuable for
no additional consideration pursuant to the anti-dilution provisions of
such warrants and by reason of any stock dividend, stock split,
recapitalization or other similar transaction effected without the
receipt of consideration, which results in an increase in the number of
outstanding shares of our common stock.
(7) These shares being registered consist of 2,173,193 shares of common
stock issued upon the conversion of debt of registrant.
</FN>
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
The information in this prospectus is not complete and may be changed. The
selling shareholders may not sell their securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
Subject to Completion, Dated January 26, 2005
PROSPECTUS
FOCUS ENHANCEMENTS, INC.
10,921,714 SHARES OF COMMON STOCK
This prospectus covers up to 10,921,714 shares of our common stock,
$0.01 par value per share, which may be offered for resale by the selling
stockholders named in this prospectus and the persons to whom such selling
stockholders may transfer their shares. No securities are being offered or sold
by us pursuant to this prospectus. The selling stockholders acquired the common
stock and warrants to purchase common stock directly from us in private
placements that were exempt from the registration requirements of federal and
state securities laws. See page 9 under the heading "Selling Shareholders." 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.
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 13 of this
prospectus. Except for 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 ("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.
Each selling shareholder and any broker executing selling orders on
behalf of the selling shareholders, 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 January 20, 2005, the closing price of our common stock
on the NASDAQ SmallCap Market was $1.10 per share. 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 1 of this prospectus.
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The date of this prospectus is _______, 2005.
We have not authorized any person to give any information or make any
statement that differs from what is in this prospectus. If any person does make
a statement that differs from what is in this prospectus, you should not rely on
it. This prospectus is not an offer to sell, nor is it a solicitation of an
offer to buy, these securities in any state in which the offer or sale is not
permitted. The information in this prospectus is complete and accurate as of its
date, but the information may change after that date. You should not assume that
the information in this prospectus is accurate as of any date after its date.
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 September 30, 2004, we had an accumulated deficit of $69.7
million. We incurred net losses of $6.7 million, $1.7 million and $6.0 million
for the nine months ended September 30, 2004 and the years ended December 31,
2003 and 2002, respectively. There can be no assurance that we will ever become
profitable. Additionally, our auditors have included an explanatory paragraph in
their report on our financial statements for the year ended December 31, 2003
with respect to substantial doubt 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.
We will need to raise additional capital through equity securities placements,
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.
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. 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
will result in higher interest expense.
We completed the acquisitions of COMO and Visual Circuits in the first
and second quarters of 2004, respectively. These acquisitions were effected
through the issuance of common stock, and the businesses associated with these
acquisitions are not currently profitable. In April and November 2004 we raised
net aggregate proceeds of approximately $10.6 million through the sale of
approximately 10.6 million shares of our common stock to third party investors
in two separate private placement transactions. In addition, in November 2004 we
secured an accounts receivable based line of credit of up to $4.0 million. The
line of credit is secured by a personal guarantee from Carl Berg, a director of
Focus. In connection with this line of credit, the bank will obtain a priority
security interest in our accounts receivable. Mr. Berg, will maintain his
security interest in all the company's assets, subject to the bank's lien on
accounts receivable. However, we anticipate needing additional financing, which
may be met through additional sales of securities or debt.
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. At December
31, 2003, we had an aggregate of approximately $4.4 million in debt and accrued
interest outstanding to Mr. Berg. On March 19, 2004, Mr. Berg converted this
debt and accrued interest to common and preferred stock. Additionally, Mr. Berg
has provided a personal guarantee to Samsung Semiconductor Inc., our contracted
ASIC manufacturer, to secure our working capital requirements for ASIC purchase
order fulfillment and also provided a personal guarantee to Greater Bay Bank in
connection with our recent $4 million accounts receivable based line of credit.
Mr. Berg maintains a security interest in all the company's assets, subject to
the bank's lien on our accounts receivable. There can be no assurances that Mr.
Berg will continue to provide such interim financing or personal guarantees,
should we need additional funds or increased credit facilities with our vendors.
We have a significant amount of convertible securities that will dilute existing
stockholders upon conversion.
At January 20, 2005, we had 3,161 shares of preferred shares issued and
outstanding, and 3.3 million warrants and 7.4 million options, which are all
exercisable into shares of common stock. The 3,161 shares of preferred stock are
convertible into approximately 3.2 million shares of our voting common stock.
Furthermore, 1.5 million additional shares of common stock were available for
grant to our employees, officers, directors and consultants under our current
stock option and incentive plans. We also may issue additional shares in
acquisitions. Any additional grant of options under existing or future plans or
issuance of shares in connection with an acquisition will further dilute
existing stockholders.
1
Any acquisitions of companies or technologies by us, including our recently
completed acquisitions of COMO and Visual Circuits, may result in distraction of
our management and disruptions to our business.
We may acquire or make investments in complementary businesses,
technologies, services or products if appropriate opportunities arise, as was
the case in February 2004 when we acquired the stock of COMO and in May 2004
when we acquired substantially all the assets of Visual Circuits. From
time-to-time, we may engage in discussions and negotiations with companies
regarding the possibility of acquiring or investing in their businesses,
products, services or technologies. We may not be able to identify suitable
acquisition or investment candidates in the future, or if we do identify
suitable candidates, we may not be able to make such acquisitions or investments
on commercially acceptable terms or at all. If we acquire or invest in another
company, we could have difficulty assimilating that company's personnel,
operations, technology or products and service offerings. In addition, the key
personnel of the acquired company may decide not to work for us. These
difficulties could disrupt our ongoing business, distract our management and
employees, increase our expenses and adversely affect the results of operations.
Furthermore, we may incur indebtedness or issue equity securities to pay for any
future acquisitions and/or pay for the legal, accounting or finders fees,
typically associated with an acquisition. The issuance of equity securities
could be dilutive to our existing stockholders. In addition, the accounting
treatment for any acquisition transaction may result in significant goodwill,
which, if impaired, will negatively affect our consolidated results of
operations. The accounting treatment for any potential acquisition may also
result in a charge for in-process research and development expense, as was the
case with the acquisition of Visual Circuits, which will negatively affect our
consolidated results of operations.
We rely on certain vendors for a significant portion of our manufacturing.
Approximately 57% of the components for our products are manufactured
on a turnkey basis by three vendors: Furthertech Company Ltd., BTW Inc. and
Samsung Semiconductor Inc. In addition, a single vendor in Mexico assembles
certain of our products. 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 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.
In the six months ended December 31, 2004, our revenue from mixer
products was adversely affected by the discontinuation of certain third party
components and our inability to redesign our product in a timely manner.
We depend on a few customers for a high percentage of our revenues and the loss
or failure to pay of any one of these customers could result in a substantial
decline in our revenues and profits.
For the nine months ended September 30, 2004, our largest five
customers in aggregate provided 37% of our total revenues and as of September
30, 2004 comprised 40% of our accounts receivable balance. We presently have no
reason to believe that these customers lack the financial resources to pay. 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 will be
able to market our current or proposed products to new customers. However, the
loss of any major customer, the failure of any such identified customer to pay
us, or to discontinue issuance of additional purchase orders, would have a
material adverse effect on our revenues, results of operation, and business as a
whole absent the timely replacement of the associated revenues and profit
margins associated with such business. Furthermore, many of our products are
dependent upon the overall success of our customers' products, over which we
often have no control.
To that point, in January 2004, Microsoft ceased placing significant
orders for our FS454 product. Shipments of the FS454, which were primarily to
this significant customer, represented 7% and 35% of our total revenues for the
2
nine months ended September 30, 2004 and 2003, respectively. The loss of
Microsoft orders for the FS454 has had a material adverse effect on our
revenues, operating profit and liquidity, especially when compared to the third
and fourth quarter of 2003 and the first quarter of 2004, as we began our
initial shipments to Microsoft in the third quarter of 2003 and continued sales
through the first quarter of 2004. However, as the product was manufactured by
one of our contract manufacturers, we were able to meet Microsoft's requirements
without an increase in our staffing and operations.
Our quarterly financial results are subject to significant fluctuations.
We have been unable in the past to accurately forecast our operating
expenses or revenues. Revenues currently depend heavily on volatile customer
purchasing patterns. If actual revenues are less than projected revenues, we may
be unable to reduce expenses proportionately, and our operating results, cash
flows and liquidity would likely be adversely affected.
Our markets are subject to rapid technological change, and to compete
effectively, we must continually introduce new products, requiring significant
influx of additional capital.
The computer peripheral and video 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, including our
investment in Ultra Wideband technology. To fund such ongoing research and
development, we will require a significant influx of additional capital. There
can be no assurance that we will succeed with these efforts.
We may not be able to protect our proprietary information.
As of September 30, 2004, we held six patents and one pending
application, which combined five previous provisional patent applications, in
the United States. Certain of these patents have also been filed and issued in
countries outside the United States. 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.
We believe our products and other proprietary rights do not infringe
upon the proprietary rights or products of third parties. There can be no
assurance, however, that third parties will not assert infringement claims
against us or that such assertions will not result in costly litigation or
require us to license intellectual proprietary rights from third parties. In
addition, there can be no assurance that any such licenses would be available on
terms acceptable to us, if at all.
Delays in product development could adversely affect our market position,
customer relationships and operating results.
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 adversely affect
our operating results, cause us to lose customers and damage our competitive
position. Prior delays have resulted from numerous factors, such as:
o changing product specifications;
o the discontinuation of certain third party components;
o 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;
o unanticipated engineering complexity; o undetected errors or
failures in software and hardware; and
o delays in the acceptance or shipment of products by customers.
3
The development of new, technologically advanced products is a complex
and uncertain process requiring high levels of innovation and highly skilled
engineering and development personnel, as well as the accurate anticipation of
technological and market trends. In order to compete, we must be able to deliver
products to customers that are highly reliable, operate with the customer's
existing equipment, lower the customer's costs of acquisition, installation and
maintenance, and provide an overall cost-effective solution. We may not be able
to identify, develop, manufacture, market or support new or enhanced products
successfully, if at all, or on a timely basis. Further, our new products may not
gain market acceptance or we may not be able to respond effectively to product
announcements by competitors, technological changes or emerging industry
standards. Our failure to respond effectively to technological changes would
significantly harm our business. Finally, there can be no assurances we will be
successful in these efforts.
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 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.
o 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.
During much of the first half of 2003, our common stock did not meet the minimum
bid price requirement to remain listed on the Nasdaq SmallCap Market. If we were
to be delisted, it could make trading in our stock more difficult.
Our voting 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.
We are required to maintain a minimum bid price of $1.00 per share for
our common stock. Between January 31, 2003 and May 2, 2003, Focus voting common
stock closed below $1.00 on all trading days. On March 18, 2003, we were
notified by the Nasdaq that our common stock did not meet the minimum bid price
requirement to remain listed on the Nasdaq SmallCap Market. However, on May 21,
2003, we received notification from Nasdaq that we had regained compliance and
the matter was closed.
We must maintain stockholders' equity of $2.5 million. At September 30,
2004, we had total stockholders' equity of $19.9 million. To the extent we incur
net losses and do not raise additional capital, our stockholders' equity will be
reduced.
4
If we fail to meet these Nasdaq SmallCap requirements, our common stock
could be delisted, eliminating the only established trading market for our
shares. Any sales of our voting 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 the Nasdaq SmallCap Market, 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, such shares. Delisting might also reduce the visibility,
liquidity, and price of our voting common stock.
Our common stock price is volatile.
The market price for our voting common stock is volatile and has
fluctuated significantly to date. For example, between January 1, 2003 and
December 31, 2004, the per share price has fluctuated between $0.50 and $4.20
per share, closing at $1.10 on January 20, 2005. The trading price of our voting
common stock is likely to continue to be highly volatile and subject to wide
fluctuations in response to factors including 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 cyclical nature of consumer products using our technology;
o changes in financial estimates by us or 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;
o additions or losses of significant customers; and
o sales of common stock or issuance of other dilutive securities.
In addition, the securities markets have experienced extreme price and
volume fluctuations in recent times, 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 common stock,
regardless of 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 in a securities
class action, then it could result in additional substantial costs and a
diversion of management's attention and resources.
We are subject to various environmental laws and regulations that could impose
substantial costs upon us and may adversely affect our business.
The European Parliament has enacted the Restriction on Use of Hazardous
Substances Directive, or RoHS Directive, which restricts the use of certain
hazardous substances in electrical and electronic equipment. We may need to
redesign products containing hazardous substances regulated under the RoHS
Directive to reduce or eliminate those regulated hazardous substances in our
products. As an example, certain of our products include lead, which is included
in the list of restricted substances.
We are in the process of evaluating the impact of this directive on our
business and have not yet estimated the potential costs of compliance.
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.
5
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 our 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
also offer a wide variety of video equipment, including professional video tape
recorders, video cameras and other related equipment. In some cases, these
competitors may have a competitive advantage based upon their ability to bundle
their equipment in certain large system sales.
We are 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 continue or worsen, we may continue to 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, causing the U.S. Congress to enact sweeping legislation, which
will increase the costs of compliance.
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 and internal control 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. Such
legislation and subsequent regulations will increase the costs of securities law
compliance for publicly traded companies such as us.
We are exposed to potential risks from legislation requiring companies to
evaluate financial controls under Section 404 of the Sarbanes-Oxley Act of 2002.
Section 404 of the Sarbanes-Oxley Act of 2002 requires that we evaluate
and report on our system of internal controls beginning with our Annual Report
on Form 10-K for the year ending December 31, 2005. We have prepared an internal
plan of action for compliance with the requirements of Section 404, which
6
includes a timeline and scheduled activities. Compliance with the requirements
of Section 404 is expected to be expensive and time-consuming. If we fail to
complete this evaluation in a timely manner, or if our independent registered
public accounting firm cannot timely attest to our evaluation, we could be
subject to regulatory scrutiny and a loss of public confidence in our internal
controls. In addition, any failure to implement required new or improved
controls, or difficulties encountered in their implementation, could harm our
operating results or cause us to fail to meet our reporting obligations.
Continued terrorism threats and war in the Middle East have had a negative
impact on the U.S. economy.
The adverse consequences of war and the effects of terrorism have had a
negative affect on the U.S. economy. Further conflicts in the Middle East could
negatively impact our ability to raise additional funds if needed and our
revenues will be adversely affected if consumers and businesses continue to cut
back spending.
7
NOTE ON 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, proposed
acquisitions, 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, failure to integrate new
acquisitions, the actual amount of charges and transaction expenses associated
with the acquisitions, the ability to recognize expected synergies upon
acquisition and the related benefits envisioned by us, 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, together with the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
and notes thereto, 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.
FOCUS ENHANCEMENTS, INC.
Founded in 1991, FOCUS Enhancements, Inc. is a designer of solutions
in advanced, proprietary video technology. Headquartered in Campbell,
California, 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, 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.
THE TRANSACTIONS
Investor Relations Services
On June 1, 2004, we issued warrants to purchase up to 50,000 shares of
common stock to Wall Street Communications Group, Boulder, Colorado for investor
relations services. The warrants have a strike price between $1.35 to $1.80 per
share.
Private Placement
On November 17, 2004, we completed the sale of 6,666,667 shares of our
common stock in a private placement to 17 independent third party investors,
receiving proceeds of approximately $5.6 million, net of offering costs of
approximately $400,000. The shares were sold at an approximate 20% discount to
the five-day average closing price of our common stock from November 5-11, 2004.
Additionally, we issued to the investors and two placement agents warrants to
purchase an aggregate of 1,954,668 shares of common stock at an exercise price
of $1.25 per share.
8
Line of Credit
On November 15, 2004, we secured a $4 million line of credit from a
bank. Pursuant to the line of credit, we will be able to borrow up to 90% of our
accounts receivable balance subject to certain covenants. In connection with
this line of credit, the bank will obtain a priority security interest in our
accounts receivable. Carl Berg, a director of Focus, will maintain his security
interest in all the company's assets, subject to the bank's lien on accounts
receivable. In connection with the line of credit, we issued to the bank
warrants to purchase 77,186 shares of our common stock at an exercise price of
approximately $1.17 per share.
Conversion of Debt
On March 19, 2004, Carl Berg, a director and significant owner of our
stock, converted approximately $3.9 million in debt and accrued interest
outstanding into 840 shares of Series B preferred stock, 417 shares of Series C
preferred stock, and 2,173,193 shares of common stock. The issuance of stock was
not registered as it involved a private sale to Mr. Berg persuant to the terms
of previously issued debt. This prospectus includes 2,173,193 shares of common
stock held by Mr. Berg.
Common Stock
The common stock shares initially issued in the above transactions were
exempt from the registration requirements of the Securities Act of 1933, as
amended.
The terms of the common stock are described in this prospectus under
the heading "Description of Capital Stock." Copies of the purchase agreement,
the registration rights agreement and the form of warrant, have been filed as
exhibits to the registration statement (of which this prospectus is a part),
which are incorporated by reference in this prospectus.
USE OF PROCEEDS
Except for the exercise of warrants, we will not receive any of the
proceeds from the sale of shares by the selling stockholders. In the event all
2,081,852 warrants were exercised, we would receive gross proceeds of $2.6
million. We are paying the expenses of registration of the shares being offered
under this prospectus.
DILUTION
As of January 20, 2005, 8,839,860 shares of the 10,921,714 shares being
offered pursuant to this prospectus were issued in private placements and are
already outstanding. In addition, we may issue 2,081,854 shares upon the
exercise of warrants. The issuance of these additional shares will dilute our
current shareholders by approximately 3.5%.
SELLING SHAREHOLDERS
The following table sets forth: (i) the number of shares of Focus
common stock beneficially owned by each selling shareholder as of January 20,
2005 and (ii) the number of shares of Focus common stock to be offered hereby by
each selling shareholder. 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. The information set forth below is based on
information provided by each selling shareholder.
Unless otherwise indicated in the footnotes below, we believe that the
persons and entities named in the table have sole voting and investment power
with respect to all shares beneficially owned. The information regarding shares
beneficially owned after the offering assumes the sale of all shares offered by
each of the selling stockholders. The percentage ownership data is based on
59,915,536 shares of our common stock issued and outstanding as of January 20,
2005 and assumes 2,081,854 warrants to purchase common stock issued to the
selling shareholders are exercised as of such date.
9
0
The shares of common stock covered by this prospectus may be sold by
the selling stockholders, by those persons or entities to whom they transfer,
donate, devise, pledge or distribute their shares or by other successors in
interest. We are registering the shares of our common stock for resale by the
selling stockholders defined below.
Security Ownership (1)
Shares Beneficially Owned
Number of Shares After Offering (24)
Beneficially Owned Shares to be Sold -------------------
Name Prior to Offering in the Offering Number %
---- ----------------- --------------- ------ ---
Wall Street Communications 50,000 50,000 (2) 0 *
Greater Bay Bancorp 77,186 77,186 (3) 0 *
Crestline Consultancy 21,600 21,600 (4) 0 *
033 Growth International Fund, LTD. 1,190,502 576,275 (5) 614,227 1.1
033 Growth Partners I, LP 2,428,690 1,172,650 (6) 1,256,040 2.2
033 Growth Partners II, LP 753,258 364,725 (7) 388,533 *
Bristol Investment Fund, Ltd 1,013,601 972,222 (8) 41,379 *
Cranshire Capital, L.P. 931,662 791,666 (9) 139,996 *
Crescent International Ltd. 627,000 375,000 (10) 252,000 *
GSSF Master Fund, LP 347,223 347,223 (11) 0 *
Gryphon Master Fund, LP 347,223 347,223 (12) 0 *
Omicron Master Trust 610,727 555,555 (13) 55,172 *
Oyster Pond Partner, LP 566,902 261,350 (14) 305,552 *
Rodman & Renshaw, LLC 442,227 266,400 (15) 175,827 *
Solomon Strategic Holdings, Inc. 218,679 208,334 (16) 10,345 *
Spectra Capital Management, LLC 235,920 208,334 (17) 27,586 *
Stonestreet, LP 347,221 347,221 (18) 0 *
TCMP3 Partners 305,364 277,778 (19) 27,586 *
The Tail Wind Fund Limited 1,305,483 694,445 (20) 611,038 *
Whalehaven Capital Fund Limited 208,334 208,334 (21) 0 *
Cundill International Company Ltd. 1,125,000 625,000 (22) 500,000 *
Carl E. Berg 5,334,193 (23) 2,173,193 3,161,000
----------
10,921,714
----------
<FN>
- -------------------------
* Represents beneficial ownership of less than one percent
(1) This table has been prepared based solely upon information furnished to
us as of the date indicated by the selling stockholders listed above.
The selling stockholders identified above may have sold, transferred or
otherwise disposed shares of our common stock. Based on information as
of January 20, 2005.
(2) Wall Street Communications. Shares of common stock issuable upon the
exercise of warrants within 60 days of January 20, 2005. Mr. Michael
Sclafani as President, has voting and investment control over the
securities. See also "The Transaction - Investor Relations Services."
(3) Greater Bay Bancorp. Shares of common stock issuable upon exercise of
warrants within 60 days of January 20, 2005. See also "The Transactions
- Line of Credit."
(4) Crestline Consultancy. Consists of 21,600 shares of common stock
issuable upon the exercise of warrants exercisable within 60 days of
January 20, 2005. Crestline Consultancy was the placement agent
for the private placement for foreign investors only and received the
securities included for registration as compensation for the placement
services only. Catherine Buyck, as Director has voting and dispositive
control over the securities. See also "The Transactions - Private
Placement."
10
(5) 003 Growth International Fund, LTD. Includes 115,255 shares of common
stock issuable upon exercise of warrants exercisable within 60 days of
January 20, 2005. 033 Growth Management LLC, as investment advisor, has
voting and dispoitive power over the shares. The persons exercising
these powers on behalf of the advisor are, respectively, Lawrence C.
Longo, Jr., the advisor's Chief Operating Officer, and Michael T. Vigo,
one of the managing members of the advisor. See also "The Transactions
- Private Placement."
(6) 033 Growth Partners I, LP. Includes 234,530 shares of common stock
issuable upon exercise of warrants exercisable within 60 days of
January 20, 2005. 033 Growth Management LLC, as investment advisor, has
voting and dispoitive power over the shares. The persons exercising
these powers on behalf of the advisor are, respectively, Lawrence C.
Longo, Jr., the advisor's Chief Operating Officer, and Michael T. Vigo,
one of the managing members of the advisor. See also "The Transactions
- Private Placement."
(7) 033 Growth Partners II, LP. Includes 72,945 shares of common stock
issuable upon exercise of warrants exercisable within 60 days of
January 20, 2005. 033 Growth Management LLC, as investment advisor, has
voting and dispoitive power over the shares. The persons exercising
these powers on behalf of the advisor are, respectively, Lawrence C.
Longo, Jr., the advisor's Chief Operating Officer, and Michael T. Vigo,
one of the managing members of the advisor. See also "The Transactions
- Private Placement."
(8) Bristol Investment Fund, Ltd. Includes 194,444 shares of common stock
issuable upon exercise of warrants exercisable within 60 days of
January 20, 2005. Bristol Capital Advisors, LLC is the investment
advisor to Bristol Investment Fund, Ltd. Mr. Paul Kessler is the
managing member of Bristol Capital Advisors, LLC and as such has voting
and investment control over these securities. Mr. Kessler disclaims
beneficial ownership of these securities. See also "The Transactions -
Private Placement."
(9) Cranshire Capital, L.P. Includes 158,333 shares of common stock
issuable upon exercise of warrants exercisable within 60 days of
January 20, 2005. Mitchell P. Kopin, President of Downsview Capital,
Inc., the general partner of Cranshire Capital L.P., has voting control
and investment power over securities held by Cranshire Capital, L.P.
Mr. Kopin and Downsview Capital disclaim beneficial ownership of the
securities held by Cranshire Capital, L.P. See also "The Transactions -
Private Placement."
(10) Crescent International Ltd. Includes 75,000 shares of common stock
issuable upon exercise of warrants exercisable within 60 days of
January 20, 2005. Mel Craw and Maxi Brezzi, in their capacity as
managers of GreenLight (Switzerland) SA, the investment advisor to
Crescent International Ltd., have voting control and investment
discretion over the shares owned by Crescent International Ltd. Messrs.
Craw and Brezzi disclaim beneficial ownership of such shares. See also
"The Transactions - Private Placement."
(11) GSSF Master Fund, LP. Includes 69,445 shares of common stock issuable
upon exercise of warrants exercisable within 60 days of January 20,
2005. E.B. Lyon IV, as Authorized Agent, has voting and investment
discretion over the shares owned by GSSF Master Fund, LP. See also "The
Transactions - Private Placement."
(12) Gryphon Master Fund, LP. Includes 69,445 shares of common stock
issuable upon exercise of warrants exercisable within 60 days of
January 20, 2005. E.B. Lyon IV, as Authorized Agent, has voting and
investment discretion over the shares owned by Gryphon Master Fund,
L.P. See also "The Transactions - Private Placement."
(13) Omicron Master Trust. Includes 111,111 shares of common stock issuable
upon exercise of warrants exercisable within 60 days of January 20,
2005. Omicron Capital, L.P., a Delaware limited partnership ("Omicron
Capital"), serves as investment manager to Omicron Master Trust, a
trust formed under the laws of Bermuda (`"Omicron"), Omicron Capital,
Inc., a Delaware corporation ("OCI"), serves as general partner of
Omicron Capital, and Winchester Global Trust Company Limited
11
("Winchester") serves as the trustee of Omicron. By reason of such
relationships, Omicron, Capital and OCI may be deemed to share
dispositive power over the shares of common stock owned by Omicron, and
Winchester may be deemed to share voting and dispositive power over the
shares of common stock owned by Omicron. Omicron Capital, OCI and
Winchester disclaim beneficial ownership of such shares of common
stock. Omicron Capital has delegated authority from the board of
directors of Winchester regarding the portfolio management decisions
with respect to the shares of common stock owned by Omicron and, as of
January 20, 2005, Olivier R. Morali and Mr. Bruce T. Bernstein,
officers of OCI, have delegated authority from the board of directors
of OCI regarding the portfolio management decisions of Omicron Capital
with respect to the shares of common stock owned by Omicron. By reason
of such delegated authority, Messrs. Morali and Bernstein currently
have voting and dispositive power over the shares of common stock owned
by Omicron. Messrs. Morali and Bernstein disclaim beneficial ownership
of such shares of our common stock and neither of such persons has any
legal right to maintain such delegated authority. No other person has
sole or shared voting or dispositive power with respect to the shares
of common stock being offered by Omicron, as those terms are used for
purposes under Regulation 13D-G of the Securities Exchange Act of 1934,
as amended. Omicron and Winchester are not "affiliates" of one another,
as that term is used for purposes of the Securities Exchange Act of
1934; as amended, or of any other person named in this prospectus as a
selling stockholder. No person or "group" (as that term is used in
Section 13(d) of the Securities Exchange Act of 1934, as amended, or
the SEC, Regulation 13D-G) controls Omicron and Winchester. See also
"The Transactions - Private Placement."
(14) Oyster Pond Partner, LP. Includes 52,270 shares of common stock
issuable upon exercise of warrants exercisable within 60 days of
January 20, 2005. 033 Growth Management LLC, as investment advisor, has
voting and dispoitive power over the shares. The persons exercising
these powers on behalf of the advisor are, respectively, Lawrence C.
Longo, Jr., the advisor's Chief Operating Officer, and Michael T. Vigo,
one of the managing members of the advisor. See also "The Transactions
- Private Placement."
(15) Rodman & Renshaw, LLC. Consists of 266,400 shares of common stock
issuable upon exercise of warrants exercisable within 60 days of
January 20, 2005. Rodman & Renshaw was the placement agent for the
private placement and received the securities included for registration
as compensation for the placement services only. Messrs. John J. Borer
and Thomas G. Pinou have voting and investment power over the
securities. Messrs. Borer and Pinou disclaim any beneficial ownership
over the securities. Rodman and Resnshaw LLC, a registered
broker-dealer, served as placement agent in the private placement. See
also "The Transactions - Private Placement."
(16) Solomon Strategic Holdings, Inc. Includes 41,667 shares of common stock
issuable upon exercise of warrants exercisable within 60 days of
January 20, 2005. Directors Andrew MacKellar and Westlaw Limited
control Solomon Strategic Holdings and have voting and investment
control over the securities of such entity. See also "The Transactions
- Private Placement."
(17) Spectra Capital Management, LLC. Includes 41,667 shares of common stock
issuable upon exercise of warrants exercisable within 60 days of
January 20, 2005. Greg Porges, President of Spectra Financial Group and
a member of Spectra Capital Management, has voting and investment power
over the shares held by Spectra Capital Management. Spectra Capital
Management is an affiliate of Spectra Financial Group, LLC, which is a
member of the American Stock Exchange. Spectra Financial Group LLC was
not involved in the private placement. See also "The Transactions -
Private Placement."
(18) Streetstone, LP. Includes 69,444 shares of common stock issuable upon
the exercise of warrants exercisable within 60 days of January 20,
2005. Michael Finkelstein, as President, has voting and dispositive
power over the shares. See also "The Transactions - Private Placement."
(19) TCMP3 Partners. Includes 55,556 shares of common stock issuable upon
exercise of warrants exercisable within 60 days of January 20, 2005.
Messrs. Steven Slawson and Walter Schenker, as principals, have voting
and investment control over the securities. See also "The Transactions
- Private Placement."
(20) The Tail Wind Fund Limited. Includes 138,889 shares of common stock
issuable upon exercise of warrants exercisable within 60 days of
January 20, 2005. Tail Wind Advisory & Management Ltd., a UK
corporation authorized and regulated by the Financial Services
Authority of Great Britain ("TWAM"), is the investment manager for The
Tail Wind Fund Ltd., and David Crook is the CEO and controlling
shareholder of TWAM. Each of TWAM and David Crook disclaim any
beneficial ownership of, or pecuniary interest in, the shares being
registered hereunder and held by The Tail Wind Fund Ltd. See also "The
Transactions - Private Placement."
12
(21) Whalehaven Capital Fund Limited. Includes 41,667 shares of common stock
issuable upon exercise of warrants exercisable within 60 days of
January 20, 2005. Evan Schemenauer, Arthur Jones, and Jennifer Kelly,
as Directors of Whalehaven Capital, have voting and investment control
over the securities. See "The Transactions - Private Placement."
(22) Cundill International Company Ltd. Includes 125,000 shares of common
stock issuable upon exercise of warrants exercisable within 60 days of
January 20, 2005. Peter Cundill & Associates (Bermuda) Ltd., a Bermuda
based Portfolio Manager, has voting and investment control over the
securities. See also "The Transactions - Private Placement."
(23) Carl Berg. Includes 840 shares of Series B preferred stock and 417
shares of Series C preferred stock which are convertible into an
aggregate of 3,161,000 shares of common stock.
(24) Assumes all shares being offered by this prospectus are sold.
</FN>
13
PLAN OF DISTRIBUTION
We are registering the shares of stock being offered by this prospectus
for resale in accordance with certain registration rights granted the selling
shareholders, including their pledgees, donees, transferees or other
successors-in-interest, who may sell the shares from time to time, or who may
also decide not to sell any or all of the shares that may be sold under this
prospectus. 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.
The selling stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The selling stockholders may use any one or more of the
following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o settlement of short sales made after the time the registration
statement of which this prospectus forms a part was declared
effective;
o broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share;
o a combination of any such methods of sale;
o through the writing or settlement of options or other hedging
transactions, whether through an options exchange or otherwise; or
o any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act of 1933, as amended, if available, rather than under this
prospectus.
Broker-dealers engaged by the selling stockholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the selling stockholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. Each selling stockholder does not expect these commissions and
discounts relating to its sales of shares to exceed what is customary in the
types of transactions involved.
In connection with the sale of our common stock or interests therein,
the selling stockholders may enter into hedging transactions with broker-dealers
or other financial institutions, which may in turn engage in short sales of the
common stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The selling
stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).
The selling stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. Selling
shareholders Rodman & Renshaw LLC, and Spectra Capital Management, LLC are
either broker-dealers or affiliated with broker-dealers and are underwriters
within the meaning of the Securities Act in connection with resale of their
14
shares. Any commissions received by such broker-dealers, affiliates, or agents
and any profit on the resale of the shares purchased by them will be deemed to
be underwriting commissions or discounts under the Securities Act. The selling
stockholders, including Rodman & Renshaw and Spectra Capital Management, have
informed us that at the time they purchased our common stock they did not, and
currently do not have, any agreement or understanding, directly or indirectly,
with any person to distribute the common stock being sold pursuant to this
prospectus.
We are required to pay certain fees and expenses incurred by us
incident to the registration of the shares. We have agreed to indemnify the
selling stockholders against certain losses, claims, damages and liabilities,
including liabilities under the Securities Act.
Because selling stockholders may be deemed to be "underwriters" within
the meaning of the Securities Act, they will be subject to the prospectus
delivery requirements of the Securities Act. In addition, any securities covered
by this prospectus that qualify for sale pursuant to Rule 144 under the
Securities Act may be sold under Rule 144 rather than under this prospectus.
Each selling stockholder has advised us that they have not entered into any
agreements, understandings or arrangements with any underwriter or broker-dealer
regarding the sale of the resale shares. There is no underwriter or coordinating
broker acting in connection with the proposed sale of the resale shares by the
selling stockholders.
We agreed to keep this prospectus effective until the earlier of (i)
the date on which the shares may be resold by the selling stockholders without
registration and without regard to any volume limitations by reason of Rule
144(e) under the Securities Act or any other rule of similar effect or (ii) all
of the shares have been sold pursuant to the prospectus or Rule 144 under the
Securities Act or any other rule of similar effect. The resale shares will be
sold only through registered or licensed brokers or dealers if required under
applicable state securities laws. In addition, in certain states, the resale
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.
Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the resale shares may not simultaneously
engage in market making activities with respect to our common stock for a period
of two business days prior to the commencement of the distribution. In addition,
the selling stockholders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including Regulation M,
which may limit the timing of purchases and sales of shares of our common stock
by the selling stockholders or any other person. We will make copies of this
prospectus available to the selling stockholders and have informed them of the
need to deliver a copy of this prospectus to each purchaser at or prior to the
time of the sale.
Except for the exercise of warrants, we will not receive any of the
proceeds from the selling shareholders' sale of our common stock.
15
DESCRIPTION OF CAPITAL STOCK
General
We are authorized to issue up to 100,000,000 shares of common stock,
$0.01 par value per share, and 3,000,000 shares of preferred stock, $0.01 par
value per share. As of January 20, 2005, 59,915,536 shares of common stock,
2,744 shares of series B convertible preferred stock and 417 shares of series C
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,
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 were authorized for issuance. Each share has a
liquidation preference 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. At January 20, 2005, there were 2,744 shares of Series B
Preferred Stock outstanding.
16
Series C Preferred Stock
On November 12, 2001, the board of directors of Focus adopted a
Certificate of Designation whereby a total of 500 shares of Series C Preferred
Stock, $0.01 par value per share were authorized for issuance. Each share has a
liquidation preference in the amount of $1,560.00 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. At January 20, 2005, there were 417 shares of Series C
Preferred Stock outstanding.
Options and Warrants
As of January 20, 2005, 7,440,719 options for shares were outstanding
under our approved stock option plans and 1,350,662 shares were available for
future grants under our stock option plans. We have also issued warrants
totaling 3,276,768 common stock shares. 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. The number of shares of
common stock for which these options and warrants are exercisable and the
exercise price of these options and warrants are subject to proportional
adjustment for stock splits and similar changes affecting our common stock. 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.
EXPERTS
The financial statements of Focus as of December 31, 2003 and 2002 and
for each of the three years in the period ended December 31, 2003, incorporated
in this prospectus by reference from Focus' Annual Report on Form 10-K for the
year ended December 31, 2003 have been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in their report (which
report expresses an unqualified opinion and includes explanatory paragraphs
regarding the substantial doubt about Focus' ability to continue as a going
concern and the adoption of Statement of Financial Accounting Standards No. 142
"Goodwill and Other Intangible Assets" in 2002), 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 consolidated financial statements of Visual Circuits as of and for
the years ended September 30, 2003 and 2002 have been audited by McGladrey &
Pullen LLP, an independent registered public accounting firm, as stated in their
report (which report expresses an unqualified opinion and includes an
explanatory paragraph regarding Visual Circuit's ability to continue as a going
concern), which is incorporated by reference in this registration statement, in
reliance upon the report of such firm given their authority as experts in
accounting and auditing.
RECENT DEVELOPMENTS
On November 17, 2004, we completed a private placement selling
6,666,667 shares of our common stock to 17 third party investors, receiving
proceeds of approximately $5.6 million, net of offering costs of approximately
$400,000. The shares were issued at $0.90 per share, an approximate 20% discount
to the five-day average closing price of our common stock from November 5-11,
2004. In connection with the private placement, we issued to the investors and
to two placement agents warrants to purchase an aggregate of 1,954,668 shares of
common stock at an exercise price of $1.25 per share. No compensation expense
was recorded given that the warrants were issued in connection with the issuance
of common stock.
On November 15, 2004, we secured a $4 million line of credit from a
bank. Pursuant to the line of credit, we will be able to borrow up to 90% of our
accounts receivable balance subject to certain covenants. In connection with
this line of credit, the bank will obtain a priority security interest in our
accounts receivable. Carl Berg, a director of Focus, will maintain his security
interest in all the company's assets, subject to the bank's lien in accounts
receivable. In connection with the line of credit, we issued to the bank
warrants to purchase 77,186 shares of our common stock at an exercise price of
$1.16 per share. The fair value of the warrants will be estimated at the
issuance date and amortized to interest expense ratably over one year, the life
of the line of credit arrangement.
17
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION - ACQUISITION
OF VISUAL CIRCUITS CORPORATION
Overview
On May 28, 2004, Focus acquired substantially all the assets and assumed certain
liabilities of Visual Circuits pursuant to an Agreement and Plan of
Reorganization. Under the terms of the agreement Visual Circuits received
3,805,453 shares of voting common stock of Focus, including approximately
380,000 shares placed in escrow for the recovery by Focus of any losses
resulting from the breach of covenants by Visual Circuits. In connection with
this transaction, Focus paid vFinance Investments, Inc., (a related party) a
success fee of $168,000 and 80,000 shares of Focus' common stock. The purchase
price of approximately $8.9 million consisted of the fair value of the shares of
Focus common stock issued to Visual Circuits, excluding a portion of the escrow
shares associated with amounts owed by Visual Circuits to Focus, 80,000 shares
distributed to vFinance Investments, Inc., and acquisition costs of
approximately $440,000. The acquisition costs consisted of financial advisory,
legal and accounting fees and other direct transaction costs. For further
discussion of the risks associated with the potential acquisition, see "Risk
Factors."
The accompanying unaudited pro forma combined condensed consolidated statements
of operations present the results of operations of Focus for the year ended
December 31, 2003 and the nine-month period ended September 30, 2004, combined
with the statement of operations of Visual Circuits for the twelve-month period
ended December 31, 2003 and the period from January 1, 2004 through May 28,
2004. The unaudited pro forma combined condensed consolidated statements of
operations give effect to this acquisition as if it had occurred as of January
1, 2003. The pro forma combined financial statements are based on the respective
historical consolidated financial statements and the notes thereto of Focus and
Visual Circuits, which are included or incorporated herein by reference. The pro
forma adjustments are based on management's estimates and a valuation of the
intangible assets acquired.
The unaudited pro forma combined condensed consolidated statements of operations
are not necessarily indicative of the operating results that would have been
achieved had the transaction been in effect as of the dates indicated and should
not be construed as being a representation of future operating results of the
combined companies. There can be no assurance that Focus and Visual Circuits
will not incur additional charges related to the Reorganization or that
management will be successful in its effort to integrate the operations of the
two companies.
The unaudited pro forma combined condensed consolidated statements of operations
should be read in conjunction with the audited consolidated financial statements
and related notes of Focus and Visual Circuits, which are either included or
incorporated by reference herein.
18
Unaudited Pro Forma Condensed Consolidated
Statement of Operations
For the year ended December 31, 2003
(in thousands, except per share data)
(Unaudited)
Focus Visual Pro forma Pro forma
Actual Actual Adjustments Combined
-------- ------- ----------- --------
Net revenues $ 26,575 $ 4,346 $ -- $ 30,921
Cost of goods sold 17,428 2,266 -- 19,694
-------- ------- -------- --------
Gross profit 9,147 2,080 -- 11,227
Operating expenses:
Sales, marketing and support 4,313 928 -- 5,241
General and administrative 1,751 1,347 -- 3,098
Research and development 4,277 987 -- 5,264
Amortization 577 -- 354 (A) 931
Restructuring recovery (29) -- -- (29)
-------- ------- -------- --------
Total operating expenses 10,889 3,262 354 14,505
Loss from operations (1,742) (1,182) (354) (3,278)
Interest income (expense), net (193) 10 -- (183)
Other income, net 239 34 -- 273
-------- ------- -------- --------
Loss before income taxes (1,696) (1,138) (354) (3,188)
Income tax expense 2 1 -- 3
-------- ------- -------- --------
Net loss $ (1,698) $(1,139) $ (354) $ (3,191)
======== ======= ======== ========
Basic and diluted net loss per share $ (0.04) $ (0.07)
======== ======= ======== ========
Number of shares used in basic and
diluted computation 39,121 3,805 (B) 42,926
See accompanying notes to unaudited pro forma combined condensed
consolidated financial information.
19
Unaudited Pro Forma Condensed Consolidated
Statement of Operations
For the nine months ended September 30, 2004
(in thousands, except per share data)
(Unaudited)
Focus Visual
Actual Actual
January 1, January 1,
2004 to 2004 to
September 30, May 28, Pro forma Pro forma
2004 2004 Adjustment Combined
---- ---- ---------- --------
Net revenues $ 14,892 $ 1,782 $ -- $ 16,674
Cost of goods sold 9,493 963 -- 10,456
-------- ------- -------- --------
Gross profit 5,399 819 -- 6,218
Operating expenses:
Sales, marketing and support 3,583 407 -- 3,990
General and administrative 2,194 373 -- 2,567
Research and development 5,261 481 -- 5,742
Amortization of intangible assets 707 -- 147 (A) 854
In-process research and development 300 -- -- 300
-------- ------- -------- --------
Total operating expenses 12,045 1,261 147 13,453
Loss from operations (6,646) (442) (147) (7,235)
Interest income (expense), net (68) 3 -- (65)
Other income, net 10 39 -- 49
-------- ------- -------- --------
Loss before income taxes (6,704) (400) (147) (7,251)
Income tax expense 1 -- -- 1
-------- ------- -------- --------
Net loss $ (6,705) $ (400) $ (147) $ (7,252)
======== ======= ======== ========
Basic and diluted net loss per share $ (0.14) $ (0.14)
======== ========
Number of shares used in basic and
diluted computation 48,578 2,016 (C) 50,594
See accompanying notes to unaudited pro forma combined condensed
consolidated financial information.
20
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS OF FOCUS AND VISUAL
1. Basis of Pro Forma Presentation
On May 28, 2004, Focus acquired substantially all the assets and assumed certain
liabilities of Visual Circuits pursuant to an Agreement and Plan of
Reorganization. Under the terms of the agreement Visual Circuits received
3,805,453 shares of voting common stock of Focus, including approximately
380,000 shares placed in escrow for the recovery by Focus of any losses
resulting from the breach of covenants by Visual Circuits. In connection with
this transaction, Focus paid vFinance Investments, Inc., (a related party) a
success fee of $168,000 and 80,000 shares of Focus' common stock. The purchase
price of approximately $8.9 million consisted of the fair value of the shares of
Focus common stock issued to Visual Circuits, excluding a portion of the escrow
shares associated with amounts owed by Visual Circuits to Focus, 80,000 shares
distributed to vFinance Investments, Inc., and acquisition costs of
approximately $440,000. The acquisition costs consisted of financial advisory,
legal and accounting fees and other direct transaction costs.
The average market price per share of Focus voting common stock of $2.29 is
based on the average closing price for a range of trading days (January 23, 2004
through February 2, 2004) around the announcement date (January 28, 2004) of the
Reorganization Agreement.
The total purchase cost of the Visual Circuits' transaction is estimated as
follows (in thousands):
Value of common shares issued $ 8,487
Transaction costs and expenses 440
--------
Total purchase cost $ 8,927
========
The purchase price allocation, which is preliminary and therefore subject to
change based on Visual Circuits final analysis, is as follows (in thousands):
(In thousands) Purchase Price Annual Useful
Allocation Amortization Lives
---------- ------------ -----
Assets acquired $ 1,169 n/a n/a
Intangible asset: Existing technology 1,060 354 3 years
Goodwill 6,911 n/a n/a
Liabilities assumed (513) n/a n/a
In-process research and development 300 n/a n/a
------- -----
$ 8,927 $ 354
======= =====
The tangible net assets acquired represent the historical net assets of Visual
Circuits' business as of May 28, 2004. As required under purchase accounting,
the assets and liabilities of Visual Circuits have been adjusted to fair value.
Focus performed an allocation of the total purchase price of Visual Circuits to
its individual assets acquired and liabilities assumed. Of the total purchase
price, $300,000 has been allocated to in-process research and development
("IPRD") and was charged to expense in the period the transaction closed. Due to
its non-recurring nature, the IPRD attributed to the Visual Circuits transaction
has been excluded from the pro forma statements of operations.
In addition to the value assigned to the IPRD projects, Visual Circuits'
tangible assets and specific intangible assets were identified and valued. The
related amortization of the identifiable intangible assets is reflected as a pro
forma adjustment to the Unaudited Pro Forma Condensed Combined Statements of
Operations. The identifiable intangible asset includes core/developed
technology.
21
A portion of the purchase price has been allocated to developed technology and
IPRD. Developed technology and IPRD were identified and valued through
interviews, analysis of data provided by the Visual Circuits business concerning
development projects, their stage of development, the time and resources needed
to complete them, if applicable, their expected income generating ability and
associated risks. The income approach, which includes an analysis of the cash
flows, and risks associated with achieving such cash flows, was the primary
technique utilized in valuing the developed technology and IPRD.
Where development projects had reached technological feasibility, they were
classified as developed technology and the value assigned to developed
technology was capitalized. The developed technology is being amortized on a
straight-line basis over its estimated useful life of three years.
Where the development projects had not reached technological feasibility and had
no future alternative uses, they were classified as IPRD, which was expensed
upon the consummation of the Reorganization Agreement. The value was determined
by estimating the expected cash flows from the projects once commercially
viable, discounting the net cash flows back to their present value and then
applying a percentage of completion to the calculated value as defined below.
o Net cash flows. The net cash flows from the identified projects
are based on estimates of revenue, cost of sales, research and
development costs, selling, general and administrative costs and
income taxes from those projects. These estimates are based on the
assumptions mentioned below. The research and development costs
included in the model reflect costs to sustain projects, and
include costs to complete to bring in-process projects to
technological feasibility.
The estimated revenue is based on projections of Visual Circuits' business for
each in-process project. These projections are based on its estimates of market
size and growth, expected trends in technology and the nature and expected
timing of new product introductions by Visual Circuits' business and its
competitors.
Projected gross margins and operating expenses approximate the Visual Circuits'
business recent historical levels.
o Discount rate. The discount rate employed in valuing the
developed, core and in process technologies range from 20% to 40%
and are consistent with the implied transaction discount rate. A
higher discount rate was used in valuing the IPRD, due to inherent
uncertainties surrounding the successful development of the IPRD,
market acceptance of the technology, the useful life of such
technology and the uncertainty of technological advances, which
could potentially impact the estimates described above.
o Percentage of completion. The percentage of completion for each
project was determined using costs incurred to date on each
project as compared to the remaining research and development to
be completed to bring each project to technological feasibility.
The percentage of completion varied by individual project ranging
from 10% to 90%.
If the projects discussed above are not successfully developed, the sales and
profitability of the combined company may be adversely affected in future
periods.
Goodwill represents the excess of the purchase price over the fair value of the
underlying net identifiable assets.
2. Pro Forma Adjustments
The Focus Unaudited Pro Forma Combined Condensed Consolidated Statement of
Operations give effect to the allocation of the total purchase cost to the
assets and liabilities of Visual Circuits based on their respective fair values
and to amortization of the fair value over the respective useful lives. The pro
forma combined provision for income taxes does not represent the amounts that
would have resulted had Focus and Visual Circuits filed consolidated income tax
returns during the periods presented. The following pro forma adjustments have
been made to the unaudited pro forma combined condensed consolidated statement
of operations:
(A) To record the amortization of identifiable intangible assets
related to the acquisition of Visual Circuits over their
estimated useful life of three years as if the transaction
occurred January 1, 2003.
22
(B) To reflect the issuance of approximately 3.8 million shares of
Focus stock to Visual Circuits' shareholders. This amount is
based on the total consideration of approximately $8.7 million
divided by the average closing price of Focus' common stock of
$2.29 for a range of trading days (January 23, 2004 through
February 2, 2004) around the announcement date (January 28, 2004)
of the Reorganization Agreement. The number of shares issued to
Visual Circuits' shareholders is based on the Reorganization
Agreement. The fair value per share is based upon the trading
range above.
(C) To reflect the pro forma effect on the basic and diluted shares
outstanding of the approximate 3.8 million shares of Focus stock
issued to Visual Circuits' shareholders had the transaction
occurred January 1, 2003.
3. Pro Forma Net Loss Per Share
The pro forma basic and dilutive net loss per share are based on the weighted
average number of shares of pro forma Focus voting common stock outstanding
during each period plus the shares assumed to be issued in exchange for
substantially all the assets of Visual Circuits. Dilutive securities are not
included in the computation of pro forma dilutive net loss per share as their
effect would be anti-dilutive.
WHERE YOU CAN FIND MORE INFORMATION
We file annual and quarterly 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.
23
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
This prospectus "incorporates by reference" information that we have
filed with the SEC under the Exchange Act, which means that we are disclosing
important information to you by referring you to those documents. Any statement
contained in this prospectus or in any document incorporated or deemed to be
incorporated by reference into this prospectus will be deemed to be modified or
superseded for purposes of this prospectus to the extent that a statement
contained in this prospectus or any subsequently filed document that also is, or
is deemed to be, incorporated by reference into this prospectus modifies or
supersedes that statement. Any statement so modified or superseded will not be
deemed, except as so modified or superseded, to constitute a part of this
prospectus. We incorporate by reference the following documents we filed with
the SEC:
Our SEC Filings (File No. 1-11860) Date of Filing
---------------------------------- --------------
Annual Report on Form 10-K for the year ended
December 31, 2003; March 16, 2004
Current Report on Form 8-K (re: private placement and
conversation of debt); April 8, 2004
Quarterly Report on Form 10-Q for the three months ended
March 31, 2004; May 17, 2004
Current Report on Form 8-K (re: completion of acquisition of
substantially all of the assets of Visual Circuits
Corporation); June 2, 2004
Current Report on Form 8-K/A (re: historical financial
statements of Visual Circuits Corporation); July 20, 2004
Current Report on Form 8-K (re: results of annual meeting
and 2nd quarter results); August 12, 2004
Quarterly Report on Form 10-Q for the six months ended
June 30, 2004; August 16, 2004
Current Report on Form 8-K (re: agreement regarding Ultra
Wide Band technology); October 7, 2004
Quarterly report on Form 10-Q for the nine months ended
September 30, 2004; November 15, 2004
Current Report on Form 8-K (re: announcement of private
placement and bank line of credit); November 15, 2004
Current Report on Form 8-K (re: completion of private
placement); November 22, 2004
Current Report on Form 8-K (re: amendment to lease); and December 17, 2004
Current Report on Form 8-K (re: change in guidance and
amendment to lease). January 4, 2005
We are also incorporating by reference any future documents that we
file with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended. In no event, however, will any
information that we disclose under Item 2.02 or Item 7.01 of any Current Report
on Form 8-K that we may from time to time furnish to the SEC be incorporated by
reference into, or otherwise become a part of, this prospectus.
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
24
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 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.
25
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.
26
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following statement sets forth the estimated amounts of expenses to
be borne by the Company in connection with the offering described in this
Registration Statement:
REGISTRATION FEE UNDER SECURITIES ACT $ 380*
BLUE SKY FEES AND EXPENSES 0
LEGAL FEES AND EXPENSES 15,000*
ACCOUNTING FEES AND EXPENSES 7,500*
PRINTING AND MAILING COSTS 500*
MISCELLANEOUS FEES AND EXPENSES 120*
--------
TOTAL EXPENSES $ 23,500
========
- ------------------
* Estimated
Item 15. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law authorizes a court
to award, or permits a Delaware corporation to grant, indemnity to present or
former directors and officers, as well as certain other persons serving at the
request of the corporation in related capacities. This permitted indemnity is
sufficiently broad to permit indemnification for liabilities arising under the
Securities Act of 1933, including reimbursement for expenses incurred.
The indemnification authorized under Delaware law is not exclusive and
is in addition to any other rights granted to officers and directors under the
Certificate of Incorporation or Bylaws of the corporation or any agreement
between officers and directors and the corporation. The registrant's Bylaws
provide for the indemnification of directors, former directors and officers to
the maximum extent permitted by Delaware law. The registrant's Bylaws also
provide that it may purchase and maintain insurance on behalf of a director or
officer against liability asserted against the director or officer in such
capacity.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
Item 16. Exhibits.
The following documents have been previously filed as Exhibits and are
incorporated herein by reference except those exhibits indicated with an
asterisk which are filed herewith:
Exhibit No. Description
----------- -----------
2.1 Agreement and Plan of Merger dated as of August 30, 2000
among Focus, Videonics, and PC Video Conversion (1)
2.2 Agreement and Plan of Reorganization dated as of January 27,
2004 by and between Focus and Visual Circuits Corporation
(21)
3.1 Second Restated Certificate of Incorporation of Focus (2)
3.2 Certificate of Amendment to Second Restated Certificate of
Incorporation of Focus (3)
3.3 Certificate of Amendment to Second Restated Certificate of
Incorporation of Focus dated July 25, 1997 (4)
27
Exhibit No. Description
----------- -----------
3.4 Restated Bylaws of Focus (2)
3.5 Certificate of Designation - Series B Preferred Stock (5)
3.6 Certificate of Amendment to Second Restated Certificate of
Incorporation of Focus dated January 16, 2001 (19)
3.7 Certificate of Amendment to Second Amended and Restated
Certificate of Incorporation of Focus dated January 8, 2003
(19)
3.8 Certificate of Amendment to Second Amended and Restated
Certificate of Incorporation dated March 12, 2004 (22)
3.9 Certificate of Designation - Series C Preferred Stock (22)
4.1 Specimen certificate for Common Stock of Focus (2)
4.2 Specimen certificate for Redeemable Common Stock Purchase
Warrant (2)
4.3 Form of Warrant issued to various investors pursuant to
Amendment No. 1 to Stock Subscription Agreement dated April
1996 (6)
4.4 Form of Warrant issued to the placement agent in the March
1997 Offering (6)
4.5 Form of Warrant dated September 10, 1997 issued to designees
of the placement agent (7)
4.6 Form of Stock Purchase Warrant issued to AMRO International,
S.A. (included as Exhibit A to the Common Stock and Warrants
Purchase Agreement - see Exhibit 10.2) (8)
4.7 Stock Purchase Warrant issued to Union Atlantic, L.C. (9)
4.8 Form of Common Stock Purchase Warrant dated January 11, 2002
issued by Focus to five Investors (10)
4.9 Common Stock Purchase Warrant dated December 27, 2001 issued
by Focus to vFinance (10)
4.10 Warrant issued to vFinance dated November 25, 2002 (19)
4.11 Form of Warrant to Investors dated July 1, 2003 (20)
4.12 Form of Common Stock Purchase Warrant issued to Investors
and Placement Agent dated April 6-14, 2004 (23)
4.13 Form of Common Stock Purchase Warrant issued to Investors
and Private Placement Agents dated November 16-17, 2004
(25)
4.14 Warrant to purchase common stock issued to Greater Bay
Bancorp, dated November 15, 2004 (25)
4.15 Warrant to purchase common stock issued to Wall Street
Communications dated June 1, 2004. (25)
5.1 Opinion of Manatt, Phelps & Phillips, LLP*
10.1 1997 Director Stock Option Plan (11)
10.2 Common Stock and Warrants Purchase Agreement with AMRO
International, S.A. (8)
10.3 Common Stock and Warrant Purchase Agreement, as amended,
with BNC Bach International Ltd., Inc. (9)
10.4 Form of Registration Rights Agreement with BNC Bach
International Ltd., Inc. (included as Exhibit B to the
Common Stock and Warrant Purchase Agreement (9)
10.5 Agreement between Union Atlantic, L.C. and FOCUS
Enhancements, Inc. confirming Reorganization Agreement to
issue warrant in exchange for fee reduction (9)
10.6 Common Stock Warrant and Purchase Agreement with AMRO
International, S.A. dated June 9, 2000 (8)
10.7 Promissory Note, dated October 26, 2000, from Focus
Enhancements, Inc. to Carl Berg (12)
10.8 Security Agreement dated October 26, 2000, between Focus
Enhancements, Inc. and Carl Berg (12)
28
Exhibit No. Description
----------- -----------
10.9 2000 Non-Qualified Stock Option Plan (13)
10.10 Amendment No. 1 to Secured Promissory Note dated April 24,
2001 issue by Focus to Carl Berg (excludes exhibits B and C)
(5)
10.11 Registration Rights Agreement dated May 1, 2001 between
Focus and Carl Berg (5)
10.12 Promissory note issued to Carl Berg dated June 29, 2001 (14)
10.13 Termination Agreement between Focus and Euston dated January
11, 2002 (10)
10.14 Form of Common Stock and Warrant Purchase Agreement with
four investors dated January 11, 2002 (10)
10.15 Form of Registration Rights Agreement with four investors
dated January 11, 2002 (10)
10.16 1998 Non-Qualified Stock Option Plan (15)
10.17 Third Addendum to Lease Dated July 2, 1994, by and between
H-K Associates (Lessor) and Focus Enhancements, Inc.
(Lessee) for premises At 1370 Dell Ave, Campbell, California
(16)
10.18 Employment agreement between Focus Enhancements and Brett
Moyer (17)
10.19 Amended 2002 Non-Qualified Stock Option Plan (18)
10.20 Common Stock Purchase Agreement with two investors dated
November 25, 2002 (excludes annexes) (19)
10.21 Registration Rights Agreement with two investors dated
November 25, 2002 (19)
10.22 Common Stock and Warrant Purchase Agreement (excluding
exhibits) with two investors dated July 1, 2003 (20)
10.23 Registration Rights Agreement with two investors dated July
1, 2003 (20)
10.24 Form of Securities Purchase Agreement (excluding exhibits)
with investors dated April 5, 2004 (23)
10.25 Form of Registration Rights Agreement with investors dated
April 5, 2004 (23)
10.26 2004 Stock Incentive Plan (24)
10.27 Form of Securities Purchase Agreement (excluding exhibits)
with investors dated November 15, 2004 (25)
10.28 Form of Registration Rights Agreement with investors dated
November 15, 2004 (25)
10.29 Loan and Security Agreement with Venture Banking Group dated
November 15, 2004 (25)
14 Code of Ethics (22)
23.1 Consent of Deloitte & Touche LLP*
23.2 Consent of McGladrey & Pullen*
23.3 Consent of Manatt, Phelps & Phillips, LLP (see Exhibit 5.1)*
99.1 Power of Attorney (included in signature page).
- --------------------------
* Included.
1. Filed as an exhibit to Focus' Current Report on Form 8-K
dated September 8, 2000, and incorporated herein by
reference.
2. Filed as an exhibit to Focus' Registration Statement on Form
SB-2 (No. 33-60248-B) and incorporated herein by reference.
3. Filed as an exhibit to Focus' Form 10-QSB for the period
ended September 30, 1995, and incorporated herein by
reference.
4. Filed as an exhibit to Focus' Form 10-QSB dated August 14,
1997, and incorporated herein by reference.
5. Filed as an exhibit to Focus' Amended Registration Statement
on Form SB-2 (No. 333-55178) filed on August 9, 2001 as
amended, incorporated herein by reference.
29
6. Filed as an exhibit to Focus' Registration Statement on Form
S-3 (No. 333-26911) filed with the Commission on May 12,
1997, and incorporated herein by reference.
7. Filed as an exhibit to Focus' Form 8-K dated September 10,
1997, and incorporated herein by reference.
8. Filed as an exhibit to Focus' Registration Statements on
Form S-3 (No. 333-81177) filed with the Commission on June
21, 1999, and incorporated herein by reference.
9. Filed as an exhibit to Focus' Registration Statement on Form
S-3 (No. 333-94621) filed with the Commission on January 13,
2000, and incorporated herein by reference.
10. Filed as an exhibit to Focus' Amendment No. 3 to
Registration Statement on Form SB-2 (No. 333-55178) filed on
January 23, 2002, and incorporated herein by reference.
11. Filed as an exhibit to Focus' Registration Statement on Form
S-8 (No. 333-33243) filed with the Commission on August 8,
1997, and incorporated herein by reference.
12. Filed as an exhibit to Focus" Current Report on Form 8-K
dated October 31, 2000, as amended by Focus" Current Report
on Form 8-K/A dated November 2, 2000, and incorporated
herein by reference.
13. Filed as an exhibit to Focus' Form S-8 (No. 333-57762) filed
with the Commission on March 28, 2001, and incorporated
herein by reference.
14. Filed as an exhibit to Focus' Amendment No. 4 to
Registration Statement on Form SB-2 (No. 333-55178) filed on
February 11, 2002, and incorporated herein by reference.
15. Filed as an exhibit to Focus' Form S-8 (No. 333-89770) filed
with the Commission on June 4, 2002, and incorporated herein
by reference.
16. Filed as an exhibit to Focus' Form l0-QSB dated August 14,
2002, and incorporated herein by reference.
17. Filed as an exhibit to Focus' Form l0-QSB dated November 14,
2002, and incorporated herein by reference.
18. Filed as an Exhibit to Focus' Registration Statement on Form
S-8 (No. 333-115013) filed with the Commission on May 28,
2004, and incorporated herein by reference.
19. Filed as an exhibit to Focus' Form 10-KSB dated March 31,
2003, and incorporated herein by reference.
20. Filed as an exhibit to Focus' Registration Statement on Form
S-3 (No. 333-108134) filed with the SEC on August 21, 2003,
and subsequently amended, and incorporated herein by
reference.
21. Filed as an Annex to the proxy statement/prospectus included
in the Focus' Form S-4 (No. 333-112907) filed with the SEC
on February 17, 2004, and incorporated herein by reference.
22. Filed as an exhibit to Focus' Form 10-K filed with the SEC
on March 16, 2004, and incorporated herein by reference.
23. Filed as an exhibit to Focus' Form S-3 filed with the SEC on
May 28, 2004 (No. 333-116031), and incorporated herein by
reference.
24. Filed as Appendix A to Focus' Definitive Proxy Statement
filed with the Commission on July 9, 2004, and incorporated
herein by reference.
25. Filed as an exhibit to Focus' Form S-3 filed with the SEC on
December 13, 2004 (No. 333-121206).
Item 17. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by section 10(a) (3) of the
Securities Act;
30
(ii) to reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from the
low or high end of the estimated maximum offering range maybe
reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration
statement; and
(iii) to include any additional or changed material information on the
plan of distribution not previously disclosed in the
registration statement as any material change to such
information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-amendment by those paragraphs is
contained in periodic reports filed with or furnished to the SEC by the
registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
related to the securities offered therein, and the offering of such securities
at the time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the small business issuer of expenses incurred or paid by a director,
officer or controlling person of the small business issuer in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
small business issuer will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question to whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
31
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Campbell, State of California, on January 26, 2005.
FOCUS ENHANCEMENTS, INC.
By: /s/ Brett A. Moyer
-----------------------
Brett A. Moyer
President and Chief Executive Officer
(Principal Executive Officer)
Each person whose signature appears below hereby constitutes and
appoints Brett Moyer and Gary L. Williams, his true and lawful attorneys-in-fact
and agents with full power of substitution and resubstitution, for him and in
his name, place, and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) and additions to this
Registration Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, and hereby grants to such attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or his substitute or substitutes may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
32
Signature Title Date
- --------- ----- ----
/s/ Brett A. Moyer President, Chief Executive January 26, 2005
- -------------------------------------- Officer and Director
Brett A. Moyer
/s/ Gary L. Williams Vice President of Finance January 26, 2005
- -------------------------------------- & Chief Financial Officer
Gary L. Williams (Principal Accounting Officer)
/s/ N William Jasper, Jr.* Chairman of the Board January 26, 2005
- --------------------------------------
N William Jasper, Jr.
/s/ Carl E. Berg* Director January 26, 2005
- --------------------------------------
Carl E. Berg
Director January __, 2005
- --------------------------------------
William B. Coldrick
/s/ Michael L. D'AddioD'Addio* Director January 26, 2005
- --------------------------------------
Michael L. D'AddioD'Addio
Director January __, 2005
- --------------------------------------
Tommy Eng
Director January __, 2005
- --------------------------------------
Sam Runco
<FN>
- ----------------------------------
* Pursuant to power of attorney
</FN>
33
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
5.1 Opinion of Manatt, Phelps & Phillips, LLP
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of McGladrey & Pullen
23.3 Consent of Manatt, Phelps & Phillips, LLP (see Exhibit 5.1)
34