Exhibit 99.1
Focus Enhancements Reports Second Quarter 2006 Results;
Second Quarter 2006 Total Revenue Increased 38% over Second Quarter 2005;
Semiconductor Business Revenue Grew 110% over Second Quarter 2005
CAMPBELL, Calif.--(BUSINESS WIRE)--Aug. 10, 2006--Focus
Enhancements, Inc. (Nasdaq:FCSE) today announced financial results for
its second quarter and the six months ended June 30, 2006.
Second Quarter 2006 Financial Results
-- Total revenue of $8.5 million increased approximately 38
percent from $6.1 million in the second quarter of 2005.
-- Semiconductor Business revenue was $1.8 million, an increase
of approximately 110 percent from $855,000 in the second
quarter of 2005.
-- Systems Business revenue was $6.7 million, an increase of
approximately 26 percent over $5.3 million in the same quarter
of 2005.
-- Gross margin as a percent of sales was 45 percent, compared to
39 percent in the same year ago quarter.
"Our performance in portable media players (PMP) and FireStore
(FS) high-definition (HD) Direct to Edit(TM) (DTE) disk recorders has
been quite strong, driving year-to-date revenue over 35 percent
compared to the first six months of 2005," stated Brett Moyer,
president and CEO of Focus Enhancements. "Our PMP convergence chips
reference designs with Applied Micro Devices and Freescale led to chip
orders from Toshiba, Pioneer, DigitalCube, and most recently, NEC in
Japan and Reigncom in Korea. Additionally, in the second quarter, we
were able to ship the full complement of FS HD disk recorders to our
three original equipment manufacturing partners -- Panasonic, Canon
and JVC."
Six Month Period Ended June 30, 2006 Financial Results
-- Revenue of $15.6 million increased 35 percent from $11.6
million in the first half of 2005.
-- Semiconductor Business revenue was $3.2 million, an increase
of 128 percent from $1.3 million in the first half of 2005.
-- Systems Business revenue was $12.4 million, a 21 percent
increase over $10.2 million in the first half of 2005.
Moyer continued, "Our customers are expecting strong sales of
personal media players this holiday season. Consequently, our customer
orders backlog at June 30th, which is mostly comprised of PMP
convergence chip orders, was very robust at $8.8 million as we enter
the busy retail season. Looking forward, we are already working on
second and third generation PMP design starts with our partners for
anticipated shipments in 2007.
"We are also moving ahead in our efforts to commercialize our
Ultra Wideband (UWB) technology and began initial shipments of our UWB
technology last week. To support our UWB and convergence chip sales to
Asian customers, we have opened new offices in Japan and Korea."
During the second quarter of 2006, in accordance with accounting
principles generally accepted in the United States (GAAP), the company
recorded certain non-cash expenses that were not required in the
second quarter of 2005. The company recorded $150,000 of stock-based
compensation expenses, in accordance with Statement of Financial
Accounting Standards (SFAS) No. 123 (revised 2004), "Accounting for
Stock-Based Compensation." Additionally, during the second quarter,
the company recorded an expense of $1.8 million associated with the
valuation of a derivative component of its $10 million convertible
note financing completed in the first quarter of 2006 in accordance
with SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities." On June 28, 2006, the company amended certain agreements
associated with its $10 million convertible notes, eliminating the
derivative component. In accordance with such amendments, the company
was able to reclassify the total derivative liability associated with
its convertible notes from long-term liabilities to additional paid-in
capital.
Net loss for the second quarter of 2006 was $4.9 million, or $0.07
per share. Non-GAAP net loss for the quarter was $3.0 million, or
$0.04 per share. This compares to a GAAP and non-GAAP second quarter
2005 net loss of $4.0 million, or $0.07 per share, and $3.9 million,
or $0.06 per share, respectively. Non-GAAP net loss is defined as net
loss excluding non-cash stock-based compensation and derivative
accounting charges. Management believes the non-GAAP net loss better
reflects the underlying business performance of the company and is a
meaningful metric. A reconciliation of net loss to non-GAAP net loss
is contained in the financial statements attached hereto.
Gary Williams, CFO of Focus Enhancements, stated, "Increases in
sales of higher margin semiconductor and FireStore HD products drove
second quarter gross margin as a percent of sales to 45 percent, up
from 39 percent in second quarter of 2005. Combined with our expense
management, this led to our non-GAAP net loss for the second quarter
of $0.04 per share, compared to $0.06 per share in the second quarter
of 2005. At June 30, 2006, we had cash and cash equivalents of
$866,000 and access to $3.5 million through our accounts
receivable-based line of credit and term loan facility."
Net loss for the six months ended June 30, 2006 was $12 million,
or $0.18 per share. Non-GAAP net loss for the six months was $6.4
million, or $0.09 per share. This compares to GAAP and non-GAAP net
loss for the six months ended June 30, 2005 of $8.7 million, or $0.15
per share, and $8.6 million or $0.15 per share, respectively. The 2005
results are based on 59.5 million shares outstanding and the 2006
results are based on 68.5 million shares outstanding.
2006 Outlook
Based upon currently available information, the company expects
third and fourth quarter 2006 revenues to be approximately $10 million
each quarter with third and fourth quarter GAAP loss per share of
approximately $0.03 to $0.04. The company is reaffirming its full year
2006 revenue guidance announced on July 12th of approximately $36
million, which represents growth of greater than 45 percent as
compared to 2005 reported revenue of $24.6 million. Based on currently
available information, gross margin as a percent of revenue is now
expected to range in the mid-40s for the second half of 2006.
Currently, the company expects the Semiconductor Business to
contribute approximately 25 percent of total revenue for the full-year
2006 and the System Business to contribute the remaining 75 percent.
Second Quarter and Recent Highlights
Semiconductor Business:
-- Began shipping initial UWB evaluation systems, targeting the
development of both personal computer and consumer electronics
applications, as announced on August 1st.
-- Featured video convergence and UWB semiconductors and
reference designs at COMPUTEX from June 6th - June 11th.
-- Showcased Talaria(TM) UWB wireless technology and displayed
semiconductor products at WinHEC 2006 from May 22nd - 25th
with Microsoft and other industry leaders. The Talaria
wireless technology, endorsed by Microsoft, is fully
compatible with Wireless USB which will be supported in a
future release of Microsoft Windows platforms with high
quality video rendering and enhanced wireless functionality.
-- Expanded Asian operations to Japan and Korea.
Systems Business:
-- Started shipping Panasonic and Canon custom-designed DTE
recorder products, as an accessory to their HD camcorders.
-- Announced and demonstrated DART Digital Signage Enterprise
Management software at Digital Retail Expo from May 17-18th.
-- Demonstrated new digital signage solutions showcasing a
variety of applications featuring Mantis and Firefly media
players at InfoComm06 from June 7th - 9th.
-- Showcased video workflow solutions at NAB HD, such as the
FireStore DTE disk recorders, ProxSys(R) Media Servers for
Media Asset Management (MAM), and Mantis(TM) MG Enterprise
Media Gateway players for digital signage applications,
receiving the "STAR" Award (Superior Technology Award
Recipient) from the editors of TV Technology magazine for
Focus Enhancements' FireStore FS-100 portable DTE DVCPRO HD
disk recorder for Panasonic.
-- Announced and shipped ProxSys Media Server 5.0 with HD file
support. All product categories now feature HD file support.
Investor Conference Call
The company will host a shareholder conference call to discuss the
second quarter 2006 results on August 10, 2006 at 1:30 p.m. Pacific
Time, after which management will host a question and answer session.
The call is being webcast by Thomson/CCBN and can be accessed from the
Focus Enhancements web site at www.focusinfo.com. The webcast will be
available through September 10th, 2006. For those without Internet
access, the telephone dial-in number is 706-634-0182 for domestic and
international participants. Participants should dial in five to ten
minutes prior to the beginning of the call at 1:30 p.m. PT (4:30 p.m.
ET). A telephone replay will be available through August 14, 2006 by
dialing 706-645-9291, and entering access code 4071961.
About Focus Enhancements, Inc.
Focus Enhancements, Inc. (NASDAQ:FCSE), headquartered in Campbell,
CA, is a leading designer of world-class solutions in advanced,
proprietary video and wireless video technologies. The company's
Semiconductor Group develops integrated circuits (ICs) for
high-performance applications in the video convergence market,
including IPTV set-top boxes and portable media players. Focus
Enhancements is currently developing a wireless IC chip set based on
the WiMedia UWB standard and designed to be compatible with Wireless
USB and used in personal computer (PC), consumer electronics (CE), and
mobile electronics applications. The company's System Group develops
video products for the digital media markets, with customers in the
broadcast, video production, digital signage and digital asset
management markets. More information on Focus Enhancements may be
obtained from the company's Securities and Exchange Commission (SEC)
filings, or by visiting the Focus Enhancements home page at
http://www.focusinfo.com.
Use of Non-GAAP Financial Information
To supplement the company's condensed consolidated financial
statements presented in accordance with GAAP, Focus Enhancements uses
non-GAAP measures of certain components of financial performance,
including net loss and net loss per share data, which are adjusted
from results based on GAAP to exclude certain expenses. These non-GAAP
measures are provided to enhance investors' overall understanding of
the company's current financial performance and the company's
prospects for the future. Specifically, the company believes the
non-GAAP results provide useful information to both management and
investors by excluding certain expenses that may not be indicative of
its core operating results. These measures should be considered in
addition to results prepared in accordance with GAAP, but should not
be considered a substitute for, or superior to, GAAP results. These
non-GAAP measures included in this press release have been reconciled
to the GAAP results.
Safe Harbor Statement
Statements in this press release which are not historical
including statements regarding management's intentions, hopes,
expectations, representations, plans or predictions about the future
are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements include
statements regarding management's expectations of funding requirements
in 2006, demand for Focus Enhancements' products, which impacts
revenue, revenue expectations including the amount of revenue
contributed by its business units, gross margin percentage and cash
from operations and management's plans to complete its Ultra Wideband
(UWB) semiconductor chip designs. Because these forward-looking
statements involve risks and uncertainties, there are important
factors that could cause our actual results to differ materially from
those in the forward-looking statements. Factors that could cause
actual results to differ materially include customers' acceptance of
recently introduced products, changes in customer order patterns,
unforeseen increased costs and delays in research and development, the
company's ability to maintain adequate funding to develop and
implement its UWB technology, the performance and acceptance of its
UWB technology, and the risk factors specified in Item 1A of the
company's Form 10-K for the year ended December 31, 2005, and Form
10-Q for the three months ended March 31, 2006 as well as other
periodic filings with the Securities and Exchange Commission (SEC).
These statements are based on information as of August 10, 2006, and
the company assumes no obligation to update any forward-looking
statements, whether as a result of new information, future events, or
otherwise.
Focus Enhancements, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
-------------------- ------------------
June 30, June 30, June 30, June 30,
2006 2005 2006 2005
--------- -------- ---------- --------
Net revenue $ 8,457 $ 6,133 $ 15,590 $11,588
Cost of revenue 4,670 3,744 9,138 7,444
--------- -------- ---------- --------
Gross margin 3,787 2,389 6,452 4,144
--------- -------- ---------- --------
Operating expenses:
Sales, marketing and support 2,757 1,751 4,831 3,175
General and administrative 856 994 1,771 1,995
Research and development 2,866 3,341 5,847 7,283
Amortization of intangible
assets 127 127 254 276
--------- -------- ---------- --------
6,606 6,213 12,703 12,729
--------- -------- ---------- --------
Loss from operations (2,819) (3,824) (6,251) (8,585)
Interest expense, net (292) (68) (491) (81)
Value of derivative security -- -- (4,000) --
Change in value of
derivative security (1,761) -- (1,361) --
Other income (expense), net (2) (40) 68 (40)
--------- -------- ---------- --------
Loss before income tax
expense (4,874) (3,932) (12,035) (8,706)
Income tax expense -- 7 9 11
--------- -------- ---------- --------
Net loss $(4,874) $(3,939) $(12,044) $(8,717)
--------- -------- ---------- --------
Net loss per share
Basic and diluted $ (0.07) $ (0.07) $ (0.18) $ (0.15)
Weighted average number of
shares used in per share
calculations:
Basic and diluted 68,755 59,893 68,455 59,487
Focus Enhancements, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
(Unaudited)
June 30, December 31,
2006 2005
---------- ------------
Assets
Current assets:
Cash and cash equivalents $866 $637
Accounts receivable, net of allowances of
$376 and $418, respectively 4,805 3,197
Inventories 4,716 3,743
Prepaid expenses and other current assets 874 759
---------- ------------
Total current assets 11,261 8,336
Long-term assets:
Property and equipment, net 1,110 1,212
Other assets 152 54
Intangible assets, net 521 866
Goodwill 13,191 13,191
---------- ------------
$26,235 $23,659
========== ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $3,383 $3,001
Accrued liabilities 3,161 3,292
Current portion of capital lease obligations 45 107
Borrowings under line of credit 3,000 2,966
Current portion of notes payable to bank -- 3
Term loan -- 2,500
---------- ------------
Total current liabilities 9,589 11,869
Long-term liabilities:
Convertible notes 10,425 --
Other liabilities -- 100
Capital lease obligations, net of
current portion -- 10
---------- ------------
Total liabilities 20,014 11,979
---------- ------------
Stockholders' equity:
Preferred stock, $0.01 par value; authorized
3,000,000 shares; 3,161 shares issued and
outstanding at June 30, 2006 and
December 31, 2005, respectively (aggregate
liquidation preference $3,917) -- --
Common stock, $0.01 par value; 100,000,000
shares authorized, 70,290,685 and
68,382,113 shares issued and outstanding
at June 30, 2006 and December 31, 2005,
respectively 693 674
Treasury stock at cost, 497,055 shares at
June 30, 2006 and December 31, 2005,
respectively (750) (750)
Additional paid-in capital 107,756 101,297
Deferred stock-based compensation -- (214)
Accumulated other comprehensive income
(loss) (60) 47
Accumulated deficit (101,418) (89,374)
---------- ------------
Total stockholders' equity 6,221 11,680
---------- ------------
$26,235 $23,659
========== ============
Focus Enhancements, Inc.
Selected Business Segment Data
(In thousands)
(Unaudited)
Revenue: Three Months Ended Six Months Ended
- -------- ------------------- -------------------
June 30, June 30, June 30, June 30,
2006 2005 2006 2005
--------- --------- --------- ---------
Systems Business $6,663 $5,278 $12,415 $10,242
Semiconductor Business 1,794 855 3,175 1,346
--------- --------- --------- ---------
Net Revenue $8,457 $6,133 $15,590 $11,588
========= ========= ========= =========
Research and Development: Three Months Ended Six Months Ended
- ------------------------- -------------------- ------------------
June 30, June 30, June 30, June 30,
2006 2005 2006 2005
--------- --------- --------- ---------
Systems Business $ 678 $ 966 $ 1,334 $ 2,048
Semiconductor Business 2,188 2,375 4,513 5,235
--------- --------- --------- ---------
Total Research and
Development $2,866 $3,341 $ 5,847 $ 7,283
========= ========= ========= =========
Reconciliation of Net Loss to Non-GAAP Net Loss
(in Thousands)
(Unaudited)
Three Months Ended Six Months Ended
------------------ ------------------
June 30, June 30, June 30, June 30,
2006 2005 2006 2005
-------- --------- --------- --------
Net loss, as reported $(4,874) $(3,939) $(12,044) $(8,717)
Add back:
Stock-based compensation 150 59 323 89
Value of derivative security -- -- 4,000 --
Change in value of
derivative security 1,761 -- 1,361 --
-------- --------- --------- --------
Non-GAAP net loss $(2,963) $(3,880) $(6,360) $(8,628)
======== ========= ========= ========
-------- --------- --------- --------
Non-GAAP net loss per share $(0.04) $(0.06) $(0.09) $(0.15)
======== ========= ========= ========
Weighted average common and
common equivalent shares
- basic and diluted 68,755 59,893 68,455 59,487
CONTACT: Lippert/Heilshorn & Assoc.
Kirsten Chapman, 415-433-3777
kirsten@lhai-sf.com