Exhibit 99.1
FOCUS Enhancements Reports Second Quarter 2004 Results; Semiconductor Set-top
Box Business Revenue Accelerates and Digital Media Systems Business Grows
CAMPBELL, Calif.--(BUSINESS WIRE)--Aug. 12, 2004--FOCUS Enhancements, Inc.
(Nasdaq:FCSE), a worldwide leader in video production and conversion technology,
today announced financial results for its second quarter and six months ended
June 30, 2004.
Revenue for the second quarter was $5.0 million, an increase of 17 percent,
compared to $4.3 million reported for the same quarter of 2003. Net loss for the
quarter was $2.6 million, or $0.05 per share, versus a net loss of $770,000, or
$0.02 per share, in the same quarter of 2003. The net loss included $300,000 for
purchased in-process research and development charges associated with the
acquisition of substantially all the assets of Visual Circuits Corporation
(VCC), $140,000 of charges recorded to cost of revenue associated with a fair
value adjustment to VCC's inventory upon acquisition, and a $100,000 royalty
charge related to the achievement of certain sales volumes by the Semiconductor
Business.
Overall research and development (R&D) expenses increased $619,000 to $1.7
million for the quarter when compared to the second quarter a year ago, as a
result of new product development as well as the recent acquisitions of COMO
Computer & Motion GmbH and VCC. The Semiconductor Business increased its R&D
spending to $770,000 for the quarter compared to $515,000 for the second quarter
2003, primarily related to the further development of Ultra Wideband (UWB)
technology.
Revenue for the six months ended June 30, 2004 was $9.1 million, an
increase of 9 percent, compared to $8.4 million reported for the same period of
2003. Net loss for the 2004 period was $4.2 million, or $0.09 per share, versus
a net loss of $1.7 million, or $0.05 per share, for the comparable 2003 period.
"This quarter we executed our growth strategy in both of our business
groups: Semiconductors and Systems," said Brett Moyer, president and chief
executive officer of FOCUS Enhancements. "In our Semiconductor Business, we
closed the quarter with eight set-top box designs in production using our chips.
As of today, that number has increased to 13. As more designs enter production
and as production ramps, we believe semiconductor revenue will grow -- with our
second half semiconductor revenue expected to increase significantly over the
first six months of the year. In UWB, we furthered our discussions with
potential partners and anticipate securing a manufacturing partner by the end of
our third quarter. In our Systems Business, we expanded our digital media
workflow product line by acquiring VCC in May and unveiling this week the next
FireStore family product FS-4, the first Direct To Edit(TM) (DTE) video
production solution for hand-held digital video (DV) camcorders."
Moyer continued, "Also this week, we named widely recognized home theater
visionary, Sam Runco, to our board of directors. Sam has over 30 years of
experience and numerous industry contacts. We believe his experience will be
especially valuable as UWB begins to impact the wireless home entertainment
market."
Recent Highlights
Semiconductor Business:
-- During the quarter, Semiconductor Business revenue almost
tripled sequentially to approximately $750,000 from $260,000
in the first quarter 2004 exclusive of sales to Microsoft.
-- In July, introduced the FS453 video-processor daughter card
for the Freescale i.MX21 application development system to
provide a power-efficient TV-Out solution for power-sensitive
applications such as media appliances or hand-held devices.
-- In June, began sampling the ultra-compact FS455/FS456 chip
designed to deliver superior studio grade quality images to
small media-oriented devices such as personal digital
assistants and high-end cell phones.
Systems Business:
-- During the quarter and thereafter, increased digital media
workflow product line by acquiring VCC, launching new products
and demonstrating solutions at the National Broadcasters
Association conference.
-- FireStore FS-4 is the first DTE product designed to bring
tape-less video production in native non-linear edit (NLE)
file formats to hand-held DV camcorders from JVC,
Panasonic, Canon, Sony and others. The portable system is
designed to mount directly to hand-held camcorders and
features a 40GB (3 hour) or 80GB (6 hour) internal disk
drive.
-- MX-4 and MX-4 DV mixers offer enhanced features designed
for live event productions in the education, business,
multimedia and the broadcast markets.
-- FireStore FS-M enables time-shifting MPEG-2 files at
variable compression rates for video surveillance
applications.
-- FireStore format support was introduced for Pinnacle
Liquid, Media Exchange Format (MXF), QuickTime and AVI
Type 24p, and the HDV tape format.
-- ProxSys Media Server provides a network based storage and
media management system providing quick and easy access to
digital media content.
-- Gemini 2(TM) Universal Media Card offers the first
multi-channel, high-definition video-decoder PCI card and
the MANTIS MC(TM) enables the first multi-channel
high-definition media player. Both products address the
growing digital signage market.
-- In June, co-sponsored the Digital Signage Seminar in
Atlanta with JVC, which educated the audio/video dealers
on digital signage opportunities and leveraged the FOCUS
Enhancements/JVC relationship by powering JVC displays
with the Firefly MZ(TM) network media player.
-- In April, announced that OTRUM, a leading provider of
interactive TV solutions and movies to hotels in Europe,
the Middle East and Africa, had selected the Harmony MPEG
Decoder to deploy a variety of in-room and on-demand video
applications.
Gary Williams, chief financial officer of FOCUS Enhancements, stated, "In
April, we raised approximately $5.2 million to fund initial UWB engineering. We
significantly improved our working capital, closing the quarter with
approximately $6.0 million in cash and cash equivalents."
Moyer added, "We anticipate revenue for the third quarter will range
between $6 million and $7 million and reaffirm our annual 2004 revenue guidance
to range between $23 million and $26 million. As discussed, we are evaluating
our different partnership alternatives, which will impact the amount and timing
of our Semiconductor Business R&D expenses and, consequently, our earnings per
share. Therefore, we will provide EPS guidance after the UWB partner has been
announced."
Investor Conference Call
The company will host a conference call to discuss the second quarter 2004
results on Thursday, August 12, 2004 at 1:30 pm PT, after which management will
host a question and answer session. The conference call will be broadcast live
over the Internet at www.focusinfo.com, and the webcast will be available
through September 12, 2004. If you do not have Internet access, the telephone
dial-in number is 706-634-0182 for domestic and international participants.
Please dial in five to ten minutes prior to the beginning of the call at 1:30
p.m. PST (4:30 p.m., EST). A telephone replay will be available through August
16, 2004. Dial 706-645-9291, and enter access code 9013918.
About FOCUS Enhancements, Inc.
FOCUS Enhancements, Inc. (Nasdaq:FCSE) is a leading designer of world-class
solutions in advanced, proprietary video technology. Headquartered in Campbell,
CA, FOCUS Enhancements designs, develops, and markets video solutions in two
distinct markets: advanced proprietary video conversion integrated circuits
(ICs) and affordable, high quality, digital-video conversion and video
production equipment. Semiconductor IC products include designs for PCs, game
cards, internet, set-top boxes, Internet appliances, and interactive TV
applications, and they are sold directly to original equipment manufacturers
(OEMs). FOCUS Enhancements' 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. More information on
FOCUS Enhancements may be obtained from the company's SEC filings, or by
visiting the FOCUS Enhancements home page at http://www.FOCUSinfo.com.
Safe Harbor Statement
Statements about future results and other expectations constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements are based on current
expectations and the current economic environment. The company cautions that
these statements are not guarantees of future performance. Actual results may
differ materially from those expressed or implied in the forward-looking
statements. A number of factors in addition to those discussed herein could
cause actual results to differ materially from expectations. The ability of
Focus to integrate recent acquisitions into its business model will
significantly impact Focus' financial conditional and results of operations.
Demand for FOCUS Enhancements' products, which impacts revenue and the gross
margin percentage, is affected by business and economic conditions and changes
in customer order patterns. Any projections are inherently subject to
significant economic and competitive uncertainties and contingencies, many of
which are beyond the control of FOCUS Enhancements. Important assumptions and
other important factors, including risk factors, which could cause actual
results to differ materially from those in the forward-looking statements are
specified in the company's Form 10-K for the year ended December 31, 2003 and
other filings with the SEC. The company undertakes no obligation to update
forward-looking statements, whether as a result of new information, future
events, or otherwise.
Focus Enhancements, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per-share amounts)
(Unaudited)
Three Months Ended Six Months Ended
------------------ ------------------
June 30, June 30, June 30, June 30,
2004 2003 2004 2003
-------- -------- -------- --------
Net revenue $ 5,024 $4,301 $ 9,118 $ 8,391
Cost of revenue 3,223 2,440 5,985 4,843
-------- -------- -------- --------
Gross margin 1,801 1,861 3,133 3,548
Operating expenses:
Sales, marketing and support 1,273 1,089 2,327 2,087
General and administrative 908 436 1,465 813
Research and development 1,666 1,047 2,772 2,104
Amortization of intangible
assets 243 132 407 304
In-process research and
development 300 -- 300 --
Restructuring recovery -- (29) -- (29)
-------- -------- -------- --------
4,390 2,675 7,271 5,279
-------- -------- -------- --------
Loss from operations (2,589) (814) (4,138) (1,731)
Interest expense, net (14) (51) (60) (102)
Other net income 14 95 20 95
-------- -------- -------- --------
Loss before income tax
expense (2,589) (770) (4,178) (1,738)
Income tax expense 1 -- 1 2
-------- -------- -------- --------
Net loss $(2,590) $ (770) $(4,179) $(1,740)
-------- -------- -------- --------
Net loss per share
Basic and diluted $ (0.05) $(0.02) $ (0.09) $ (0.05)
Weighted average common and
common equivalent shares
Basic and diluted 50,027 37,184 46,466 37,146
Focus Enhancements, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except per-share amounts)
(Unaudited)
June 30, December 31,
2004 2003
---------- -------------
Assets
Current assets:
Cash and cash equivalents $ 6,000 $ 3,731
Accounts receivable, net of allowances of
$426 and $384 3,053 2,385
Inventories 3,056 3,493
Receivable from Visual Circuits Corporation
Liquidating Trust 400 --
Prepaid expenses and other current assets 386 368
---------- -------------
Total current assets 12,895 9,977
Long-term assets:
Property and equipment, net 468 146
Other assets 52 151
Intangible assets, net 2,180 635
Goodwill 12,695 5,191
---------- -------------
Total long-term assets 15,395 6,123
---------- -------------
$28,290 $16,100
========== =============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 2,566 $ 2,292
Accrued liabilities 2,199 1,989
Current portion of long-term debt 31 --
Borrowings under line-of-credit 306 --
Loan payable 251 --
---------- -------------
Total current liabilities 5,353 4,281
Long-term liabilities:
Convertible promissory notes payable to
shareholder -- 3,867
Long-term debt, net of current portion 191 --
---------- -------------
Total long-term liabilities 191 3,867
Stockholders' equity:
Preferred stock, $0.01 par value; authorized
3,000,000 shares; 3,161 and 1,904 shares
issued at June 30, 2004 and December 31,
2003, respectively (aggregate liquidation
preference $3,917) -- --
Common stock, $0.01 par value; 100,000,000
shares authorized, 53,691,698 and
42,800,240 shares issued at June 30, 2004
and December 31, 2003, respectively 537 428
Additional paid-in capital 91,199 71,295
Accumulated deficit (67,200) (63,021)
Cumulative foreign currency translation
adjustments 57 --
Notes receivable from related parties (1,097) --
Treasury stock at cost, 497,055 shares at
June 30, 2004 and December 31, 2003,
respectively (750) (750)
---------- -------------
Total stockholders' equity 22,746 7,952
---------- -------------
$28,290 $16,100
========== =============
CONTACT: Lippert/Heilshorn & Associates
Kirsten Chapman, 415-433-3777
Brendan Lahiff, 415-433-3777
Brendan@lhai-sf.com