Exhibit 99.1
Focus Enhancements Reports Third Quarter 2006 Results
Third Quarter 2006 Total Revenue Increased 69% over Third Quarter 2005
Continued Margin Improvement with Third Quarter Gross Margins of 50%
CAMPBELL, Calif.--(BUSINESS WIRE)--Nov. 9, 2006--Focus
Enhancements, Inc. (NASDAQ:FCSE) today announced financial results for
its third quarter and nine months ended September 30, 2006.
Third Quarter 2006 Financial Results
-- Total revenue of $11.6 million increased approximately 69
percent from $6.9 million in the third quarter of 2005.
-- Semiconductor Business revenue was $6.2 million, an increase
of over 550 percent from $946,000 in the third quarter of
2005.
-- Systems Business revenue was $5.4 million, a decrease of
approximately 8 percent compared to $5.9 million in the same
quarter of 2005.
-- Gross margin as a percent of sales was 50 percent, compared to
37 percent in the same quarter of 2005.
-- Cash and cash equivalents plus available credit facilities
increased to $5.8 million at September 30, 2006 from $4.4
million at June 30, 2006.
"Semiconductor chips drove third quarter revenue, as portable
media player (PMP) manufacturers ramped production for the holiday
season," stated Brett Moyer, president and CEO of Focus Enhancements.
"Also, component supply issues that impacted FireStore(TM) shipments
in the third quarter have been addressed, and we have resumed
shipments early in the fourth quarter. In addition, we are continuing
to develop and launch new solutions within our FireStore and
ProxSys(R) media acquisition and asset management products as well as
developing a new chip for the PMP market."
Moyer continued, "Focus Enhancements' Ultra Wideband (UWB)
initiative continues to exceed our expectations. Our existing original
equipment and original device manufacturer customer base provides us
with a solid sales platform and a strong competitive advantage. During
the last week of October, we conducted a TALARIA(TM) technology sales
tour and visited over 25 existing and potential customers in Japan,
Korea and Taiwan. The technology was very well received, and potential
customers stated they are eager to receive evaluation kits. Our team
is working to meet demand for evaluation kits."
Gary Williams, CFO of Focus Enhancements, stated, "Strong revenue
growth combined with cost containment improved our overall
performance. Gross margins rose to 50 percent, due to increased sales
including those of higher-margin semiconductor and high-definition
FireStore products. In addition, we controlled non-research and
development operating expenses, saving $700,000 compared to our plan.
As a result, we narrowed our net loss per share to $0.01, compared to
our earlier third quarter guidance of a net loss per share of $0.03 to
$0.04."
Nine Months Ended September 30, 2006 Financial Results
-- Revenue of $27.2 million increased 47 percent from $18.5
million in the first nine months of 2005.
-- Semiconductor Business revenue was $9.3 million, an increase
of over 300 percent from $2.3 million in the first nine months
of 2005.
-- Systems Business revenue was $17.9 million, a 10 percent
increase over $16.2 million in the first nine months of 2005.
During the third 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 third
quarter of 2005. The company recorded $171,000 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 first and second
quarters of 2006, in accordance with SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities," the company recorded
an expense of $5.4 million associated with the valuation of a
derivative component of its $10 million convertible note financing
completed in the first quarter of 2006. 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 third quarter of 2006 was $866,000, or $0.01 per
share. Non-GAAP net loss for the quarter was $695,000, or $0.01 per
share. This compares to a GAAP and non-GAAP third quarter 2005 net
loss of $3.4 million, or $0.05 per share. 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 unaudited condensed consolidated financial
statements attached hereto.
Net loss for the nine months ended September 30, 2006 was $12.9
million, or $0.19 per share. Non-GAAP net loss for the nine months was
$7.1 million, or $0.10 per share. This compares to GAAP and non-GAAP
net loss for the nine months ended September 30, 2005 of $12.1
million, or $0.20 per share, and $12.0 million, or $0.20 per share,
respectively. The 2005 results are based on 60.4 million weighted
average shares outstanding, and the 2006 results are based on 68.6
million weighted average shares outstanding.
2006 Outlook
Based upon currently available information, management expects
fourth quarter 2006 revenues to be approximately $10.3 million and
GAAP net loss per share to be approximately $0.04. The company is
reaffirming its full year 2006 revenue guidance announced on October
5, 2006 of approximately $37.5 million, which represents annual growth
of greater than 50 percent as compared to 2005 reported revenue of
$24.6 million. Management expects the Semiconductor Business to
contribute approximately 30 percent of total revenue for the full-year
2006 and the System Business to contribute the remaining 70 percent.
Based on currently available information, gross margin as a percent of
revenue is now expected to be in the range of 47 percent to 49 percent
in the fourth quarter. Due to implemented cost controls, the company
has reduced its second half of 2006 operating expense guidance by
approximately $500,000 and management currently expects fourth quarter
operating expenses to be approximately $7.3 million to $7.5 million.
Third Quarter and Recent Highlights
Semiconductor Business:
-- Completed sales tour of Asia demonstrating TALARIA UWB
technology to Japanese, Korean and Chinese consumer
electronics and USB manufacturers.
-- Showcased TALARIA UWB wireless technology at Analyst Days in
New York on October 10th and San Francisco on November 2nd.
Systems Business:
-- Introduced a new line-up of award winning FS-4 Portable Direct
To Edit(R) (DTE) Recorders. The new FS-4Pro HD models feature
higher capacities, with 60GB, 80GB, and 100GB versions
providing between 4.5 and 7.5 hours of DV/HDV recording.
-- Announced Version 3.0 software for FS-100 Portable DTE
recorder enabling users to more than double the record time
from 100 minutes to 200 minutes using record native 720/24p,
25p and 30p in the MXF P2 or QuickTime file formats commonly
used in Apple's Final Cut Pro.
-- Launched HD support for the ProxSys line of advanced media
asset management servers.
-- Released Version 2.0 software adding native QuickTime HDTV
support to the DTE FS-4Pro HD, FS-C and DR-HD100 recorders.
-- Demonstrated media asset management for Panasonic MXF File
Formats at the IBC Conference from September 8th - 12th.
Investor Conference Call
The company will host a shareholder conference call to discuss its
third quarter 2006 results on Thursday, November 9, 2006 at 1:30 p.m.
Pacific Time. Brett Moyer, president and chief executive officer, and
Gary Williams, chief financial officer, will deliver prepared remarks
and conduct a question and answer session. The call is being webcast
by Thomson/CCBN and can be accessed at Focus Enhancements' web site at
www.focusinfo.com. The webcast will be available through December 9,
2006. 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. PT (4:30 p.m. ET). A telephone replay will be available through
November 13th; dial 706-645-9291, and enter access code 9439015.
About Focus Enhancements, Inc.
Focus Enhancements, Inc. (NASDAQ CM:FCSE), headquartered in
Campbell, CA, is a leading designer of world-class solutions in
advanced, proprietary video and wireless video technologies. The
company's Semiconductor Group develops 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 and June 30, 2006 as
well as other periodic filings with the Securities and Exchange
Commission (SEC). These statements are based on information as of
November 9, 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 Nine Months Ended
--------------------- ---------------------
September September September September
30, 2006 30, 2005 30, 2006 30, 2005
---------- ---------- ---------- ----------
Net revenue $11,605 $6,880 $27,195 $18,468
Cost of revenue 5,819 4,360 14,957 11,804
---------- ---------- ---------- ----------
Gross margin 5,786 2,520 12,238 6,664
---------- ---------- ---------- ----------
Operating expenses:
Sales, marketing and
support 2,131 1,783 6,753 4,958
General and
administrative 1,025 925 3,005 2,920
Research and development 3,114 2,977 8,961 10,260
Amortization of
intangible assets 127 127 381 403
---------- ---------- ---------- ----------
6,397 5,812 19,100 18,541
---------- ---------- ---------- ----------
Loss from operations (611) (3,292) (6,862) (11,877)
Interest expense, net (337) (93) (828) (174)
Value of derivative
security - - (4,000) -
Change in value of
derivative security - - (1,361) -
Other income (expense),
net 82 (10) 150 (50)
---------- ---------- ---------- ----------
Loss before income tax
expense (benefit) (866) (3,395) (12,901) (12,101)
Income tax expense
(benefit) - (1) 9 10
---------- ---------- ---------- ----------
Net loss $(866) $(3,394) $(12,910) $(12,111)
---------- ---------- ---------- ----------
Net loss per share
Basic and diluted $(0.01) $(0.05) $(0.19) $(0.20)
Weighted average number of
shares used in per share
calculations:
Basic and diluted 69,233 62,268 68,611 60,414
Focus Enhancements, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
(Unaudited)
September 30, December 31,
2006 2005
------------- ------------
Assets
Current assets:
Cash and cash equivalents $1,133 $637
Accounts receivable, net of allowances of
$367 and $418, respectively 3,707 3,197
Inventories 4,551 3,743
Prepaid expenses and other current assets 1,183 759
------------- ------------
Total current assets 10,574 8,336
Long-term assets:
Property and equipment, net 1,023 1,212
Other assets 177 54
Intangible assets, net 349 866
Goodwill 13,191 13,191
------------- ------------
$25,314 $23,659
============= ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $3,730 $3,001
Accrued liabilities 4,031 3,292
Current portion of capital lease
obligations 24 107
Borrowings under line of credit 500 2,966
Current portion of notes payable to bank - 3
Term loan 700 2,500
------------- ------------
Total current liabilities 8,985 11,869
Long-term liabilities:
Convertible notes 10,425 -
Other liabilities - 100
Capital lease obligations, net of current
portion - 10
------------- ------------
Total liabilities 19,410 11,979
------------- ------------
Stockholders' equity:
Preferred stock, $0.01 par value;
authorized 3,000,000 shares; 3,161 shares
issued and outstanding at September 30,
2006 and December 31, 2005 (aggregate
liquidation preference $3,917) - -
Common stock, $0.01 par value; 100,000,000
shares authorized, 70,724,461 and
68,382,113 shares issued and outstanding
at September 30, 2006 and December 31,
2005, respectively 698 674
Treasury stock at cost, 497,055 shares at
September 30, 2006 and December 31, 2005 (750) (750)
Additional paid-in capital 108,322 101,297
Deferred stock-based compensation - (214)
Accumulated other comprehensive income (82) 47
Accumulated deficit (102,284) (89,374)
------------- ------------
Total stockholders' equity 5,904 11,680
------------- ------------
$25,314 $23,659
============= ============
Focus Enhancements, Inc.
Selected Business Segment Data
(In thousands)
(Unaudited)
Revenue: Three Months Ended Nine Months Ended
- -------------------------- --------------------- ---------------------
September September September September
30, 30, 30, 30,
2006 2005 2006 2005
---------- ---------- ---------- ----------
Systems Business $5,441 $5,934 $17,856 $16,176
Semiconductor Business 6,164 946 9,339 2,292
---------- ---------- ---------- ----------
Net Revenue $11,605 $6,880 $27,195 $18,468
========== ========== ========== ==========
Research and Development: Three Months Ended Nine Months Ended
- -------------------------- --------------------- ---------------------
September September September September
30, 30, 30, 30,
2006 2005 2006 2005
---------- ---------- ---------- ----------
Systems Business $902 $786 $2,236 $2,834
Semiconductor Business 2,212 2,191 6,725 7,426
---------- ---------- ---------- ----------
Total Research and
Development $3,114 $2,977 $8,961 $10,260
========== ========== ========== ==========
Reconciliation of Net Loss to Non-GAAP Net Loss
(In thousands)
(Unaudited)
Three Months Ended Nine Months Ended
--------------------- ---------------------
September September September September
30, 30, 30, 30,
2006 2005 2006 2005
---------- ---------- ---------- ----------
Net loss, as reported $(866) $(3,394) $(12,910) $(12,111)
Plus:
Stock-based compensation 171 17 494 105
Value of derivative
liability - - 4,000 -
Change in value of
derivative liability - - 1,361 -
---------- ---------- ---------- ----------
Non-GAAP net loss $(695) $(3,377) $(7,055) $(12,006)
========== ========== ========== ==========
Non-GAAP net loss per share $(0.01) $(0.05) $(0.10) $(0.20)
========== ========== ========== ==========
CONTACT: Lippert/Heilshorn & Assoc.
Kirsten Chapman or Mary Magnani, 415-433-3777
mmagnani@lhai.com