SOURCE: Focus Enhancements

May 07, 2007 06:00 ET

Focus Enhancements Reports First Quarter 2007 Results

Provides UWB Revenue Guidance for 2007

Announces Wireless Seminar Presentation at AeA Micro Cap Conference

CAMPBELL, CA -- (MARKET WIRE) -- May 7, 2007 -- Focus Enhancements, Inc. (NASDAQ: FCSE) today announced financial results for its first quarter ended March 31, 2007.

"For the first quarter, we recorded revenue of $7.1 million, in-line with our expectations," stated Brett Moyer, president and CEO of Focus Enhancements. "We achieved many operational milestones thus far in 2007, with a focus on serving the growing mobile media market. Driving toward revenue from our Ultra Wideband (UWB) technology, we announced the availability of a Systems-in-Package (SiP) module and completed the tape-out of our second generation UWB digital chip designed especially for wireless USB applications such as dongles, hubs and hard drives. Additionally, we completed the tape-out of a new TV-out chip optimized for mobile media devices and developed a new line of high definition (HD) workflow optimization products."

Revenue for the first quarter was $7.1 million, equal to the $7.1 million reported for the same quarter of 2006. Semiconductor Business first quarter revenue was $1.2 million, compared to $1.4 million in the first quarter of 2006. Systems Business first quarter revenue was $5.9 million, compared to $5.7 million in the first quarter 2006. Gross margins were 45 percent, compared to 37 percent in the first quarter of 2006 reflecting a shift to sales of higher margin products introduced in 2006. Research and development (R&D) expenses increased to $3.9 million from $3.0 million in the same quarter of last year. The increase is attributable to expenses associated with the development of three new chips in the first half of 2007. Operating expenses, including the aforementioned higher R&D, were $7.3 million, compared with $6.1 million in the prior year period. Net loss for the quarter was $4.4 million, or $0.06 per share. This compares to a net loss of $7.2 million, or $0.11 per share, in the same quarter of 2006, which included a $3.6 million net charge associated with the valuation of a derivative liability.

Moyer continued, "Our UWB initiative continues to exceed our expectations as we progress on a clearly defined roadmap to revenue. We have commenced shipment of engineering samples to customers who have finished their technology evaluation of our UWB solution. Our chips are now being designed into these customers' products. In July, we expect to begin pilot production run quantity shipments, followed by full production shipments in the September time frame. As such, we currently expect UWB revenue of $3 million to $4 million in the second half of 2007."

Gary Williams, CFO of Focus Enhancements, stated, "Results this quarter reflect our continued investment in long-term growth. We strengthened our balance sheet by raising $6.3 million in January. We ended the quarter with cash and cash equivalents plus available credit facilities of $8.2 million, which supports our current 2007 operating plan."

Hosts Wireless Seminar at AeA Micro Cap Financial Conference

The company will be presenting today, May 7, 2007, at the AeA Micro Cap Financial Conference at the Monterey Plaza Hotel in Monterey, California. The presentation will be followed by six 30-minute breakout sessions from 1:15 p.m. PT through 5:30 p.m. PT, in room 2321. The breakout presentation will be webcast live at 2:00 p.m. PT and archived for 90 days at the company's web site, www.focusinfo.com.

During the 4:15 p.m. PT and 5:00 p.m. PT breakout sessions, the company will host a seminar on the wireless technologies, including review of UWB, 802.11n, WHDMI, WUSB, and 60GHz technologies and how they fit in today's wireless landscape.

2007 Outlook

The company currently anticipates full year 2007 revenue between $42 million and $44 million, with Semiconductor Business revenue contribution increasing to approximately 30 percent of total 2007 revenue. Based on these expectations, 2007 gross margin as a percentage of revenue is anticipated to be in the range of 45 percent to 46 percent. Operating expenses for the year are expected to be approximately $30 million.

For the second quarter of 2007, the company currently anticipates revenue in the range of $8.5 million to $9.5 million. On these expectations, second quarter gross margin as a percentage of revenue is anticipated to be in the range of 44 percent to 46 percent. As a result of a timing delay in development charges associated with our three new chips, approximately $800,000 of R&D expenses originally planned for the first quarter of 2007 will shift to the second quarter. As such, second quarter 2007 operating expenses are expected to be approximately $8.9 million. R&D expenses are expected to peak in the second quarter at approximately $5.0 million. Loss per share for the second quarter of 2007 is expected to be in the range of $0.06 to $0.07. Total operating expenses for the third and fourth quarters are expected to decline to approximately $7.1 million to $7.3 million per quarter.

Recent Highlights

Semiconductor Business:

--  Featured in the Q5, a new high-end mobile media device from Cowon
    Systems, Inc., a leading worldwide provider of portable media solutions in
    Korea.
    
--  Completed the tape-out of its second generation UWB digital chip
    designed especially for wireless USB applications in the consumer
    electronics and personal computer markets in April.
    
--  Announced the availability of its industry leading UWB technology in a
    compact and economical SiP form factor in March. Based on the WiMedia
    international standards and Certified Wireless USB specification from the
    USB Implementers Forum, the Focus module (TT-1013) combines the company's
    analog front-end radio frequency transceiver chip with its digital baseband
    processor/media access controller (MAC) chip.
    
--  Completed a tape-out of its newest TV-out chip with a feature set
    optimized for small, portable devices like media players, smartphones and
    navigation systems in early March.
    
Systems Business:
--  Introduced a new line of HD workflow optimization products for its
    customers at the National Association of Broadcasters (NAB) Convention
    in Las Vegas in April.  Products included:

    -- ProxSys PX-1 Production Media Server: Turnkey, out-of-the-box-ready
       Media Asset Management solution for acquisition, storage, and
       retrieval of digital media content for video production
       professionals.

    -- MMC-1/2/3/4 Media Codecs: Broadcast quality PCI cards including
       hardware MPEG/DV codecs and a range of I/O options.

    -- HX-1 and HX-2 Portable HD Video Switchers: Four channel (HX-1) and
       eight channel (HX-2) SD/HD video switcher with powerful live
       switching and effects for broadcasters and video professionals.

    -- MCSDI-1 Portable HD/SD-SDI Media Converter: Analog and HDMI input
       to HD/SD-SDI converter with two channel embedded audio.
Investor Conference Call

The company will host a shareholder conference call to discuss its first quarter 2007 results on Monday, May 7, 2007 at 6:00 a.m. PT. 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 August 7, 2007. 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 6:00 a.m. PT (9:00 a.m. ET). A telephone replay will be available through May 9th; dial 706-645-9291, and enter access code 6354542.

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 Systems 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 SEC filings, or by visiting the Focus Enhancements home page at http://www.focusinfo.com

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 2007, demand for Focus Enhancements' products, which impacts revenue, gross margin percentage and cash from operations, management's plans to complete its semiconductor chip designs, move its technology to silicon, and the performance of its technology, including UWB in silicon. 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 UWB technology, the ability of the company to migrate its UWB technology to silicon in a timely manner, the performance and acceptance of its UWB technology when successfully moved to silicon, and the risk factors specified in the company's Form 10-K for the year ended December 31, 2006, as well as other filings with the SEC. These statements are based on information as of May 7, 2007 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
                                                  ------------------------
                                                   March 31,    March 31,
                                                      2007         2006
                                                  -----------  -----------

Net revenue                                       $     7,087  $     7,133
Cost of revenue                                         3,921        4,468
                                                  -----------  -----------
   Gross margin                                         3,166        2,665
                                                  -----------  -----------

Operating expenses:
   Sales, marketing and support                         2,125        2,074
   General and administrative                           1,097          915
   Research and development                             3,938        2,981
   Amortization of intangible assets                      105          127
                                                  -----------  -----------
                                                        7,265        6,097
                                                  -----------  -----------
      Loss from operations                             (4,099)      (3,432)
   Interest expense, net                                 (290)        (199)
   Value of derivative liability                            -       (4,000)
   Change in value of derivative liability                  -          400
   Other income                                             3           70
                                                  -----------  -----------
      Loss before income taxes                         (4,386)      (7,161)
   Income tax expense                                       4            9
                                                  -----------  -----------
      Net loss                                    $    (4,390) $    (7,170)
                                                  ===========  ===========

Net loss per share - basic and diluted            $     (0.06) $     (0.11)
                                                  ===========  ===========

Weighted average common and common equivalent
 shares - basic and diluted                            74,199       68,155
                                                  ===========  ===========



                        Focus Enhancements, Inc.
                  Condensed Consolidated Balance Sheets
           (In thousands, except share and per share amounts)
                               (Unaudited)



                                                   March 31,   December 31,
                                                      2007         2006
                                                  -----------  -----------
                        Assets

Current assets:
   Cash and cash equivalents                      $     2,215  $     5,969
   Accounts receivable, net of allowances of $256
    and $304, respectively                              4,050        4,188
   Inventories                                          4,091        4,072
   Prepaid expenses and other current assets            1,452        1,207
                                                  -----------  -----------
      Total current assets                             11,808       15,436

   Property and equipment, net                          1,173          980
   Other assets                                           183          187
   Intangible assets, net                                  57          186
   Goodwill                                            13,191       13,191
                                                  -----------  -----------
                                                  $    26,412  $    29,980
                                                  ===========  ===========

       Liabilities and Stockholders' Equity

Current liabilities:
   Accounts payable                               $     2,787  $     3,424
   Accrued liabilities                                  4,347        3,702
   Current portion of capital lease obligations           113           10
   Borrowings under line of credit                          -        3,390
   Term loan                                                -        2,500
                                                  -----------  -----------
      Total current liabilities                         7,247       13,026

   Convertible notes                                   10,946       10,946
   Capital lease obligations, net of current
    portion                                                93            -
                                                  -----------  -----------
      Total liabilities                                18,286       23,972
                                                  -----------  -----------



Stockholders' equity:
   Preferred stock, $0.01 par value; authorized
    3,000,000 shares; 3,161 shares issued and
    outstanding at March 31, 2007 and December
    31, 2006,  respectively (aggregate
    liquidation preference $3,917)                          -            -
   Common stock, $0.01 par value; 150,000,000
    shares authorized, 78,807,596 and 73,210,870
    shares issued and outstanding at March 31,
    2007 and December 31, 2006, respectively              778          722
 Treasury stock at cost, 516,667 and 497,055
  shares at March 31, 2007 and December 31, 2006,
  respectively                                           (775)        (750)
   Additional paid-in capital                         117,659      111,203
   Accumulated other comprehensive income                 151          130
   Accumulated deficit                               (109,687)    (105,297)
                                                  -----------  -----------

      Total stockholders' equity                        8,126        6,008

                                                  -----------  -----------
                                                  $    26,412  $    29,980
                                                  ===========  ===========



                        Focus Enhancements, Inc.
                     Selected Business Segment Data
                             (In thousands)
                               (Unaudited)



Revenue:                                             Three Months Ended
                                                  -------------------------
                                                    March 31,    March 31,
                                                      2007         2006
                                                  ------------ ------------
Systems Business                                  $      5,853 $      5,752
Semiconductor Business                                   1,234        1,381
                                                  ------------ ------------
   Net Revenue                                    $      7,087 $      7,133
                                                  ============ ============


Research and Development:                            Three Months Ended
                                                  -------------------------
                                                    March 31,    March 31,
                                                      2007         2006
                                                  ------------ ------------
Systems Business                                  $      1,100 $        656
Semiconductor Business                                   2,838        2,325
                                                  ------------ ------------
   Total Research and Development                 $      3,938 $      2,981
                                                  ============ ============

Contact Information

  • Focus Enhancements Investors:
    Kirsten Chapman/Mary Magnani
    Lippert/Heilshorn & Assoc.
    (415) 433-3777
    Email Contact