FORM 10-QSB/A
                               (Admendment No.2}


                    U.S. SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549


             [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
                 OF THE SECURITIES EXCHANGE ACT OF 1934

                 For the quarterly period ended: June 30, 2000

             [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)
                 OF THE SECURITIES EXCHANGE ACT OF 1934

                 For the transition period from _______ to _______

                        Commission File Number 1-11860
                        ------------------------------

                           FOCUS Enhancements, Inc.
       (Exact name of small business issuer as specified in its charter)

         DELAWARE                                           04-3186320
(State or other jurisdiction of                           (IRS Employer
incorporation or organization)                          identification No.)

                                 1370 Dell Ave.
                               Campbell, CA 95008
                    (Address of principal executive offices)

                               (408) 866-8300
                          (Issuer's telephone number)

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15 (d) of the  Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. Yes X No_____

As of June 30, 2000, there were outstanding  26,307,871  SHARES OF COMMON STOCK,
$.01 PAR VALUE PER SHARE.
<PAGE>

                           FOCUS ENHANCEMENTS, INC.
                                  FORM 10-QSB/A

                               QUARTERLY REPORT
                                 June 30, 2000

                               TABLE OF CONTENTS

     In  connection  with its review of the impact of SAB 101, the Company found
that certain  transactions  that were  recorded as sales in the second and third
quarters  of 1999  should  not have been  recorded  as sales.  As a result,  the
company has restated the financial statements of the aforementioned  quarters to
correct the amount of accounts  receivable,  inventory,  revenue,  cost of goods
sold and net income previously reported in those quarters.

     In addition,  in its quarterly financial  statements for the year 1999, the
Company  is  providing  a  reserve  for  estimated  sales  returns  based on the
estimated sales value of the sales returns rather than a gross margin reserve.

                                                                            PAGE

FACING PAGE                                                                   1
TABLE OF CONTENTS                                                             2

PART I.  FINANCIAL INFORMATION

ITEM 1. Consolidated Financial Statements:

        Consolidated Balance Sheets at June 30, 2000
        and December 31, 1999                                                 3

        Consolidated Statements of Operations
        for the Three Months Ended June 30, 2000
        and 1999                                                              4

        Consolidated Statements of Operations                                 5
        for the Six Months Ended June 30, 2000
        and 1999

        Statement of Changes in Equity for the Six
        Months Ended June 30, 2000                                            6

        Consolidated Statements of Cash Flows
        for the Six Months Ended June 30, 2000
        and 1999                                                              7

    Notes to Consolidated Financial Statements                             8-11

ITEM 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations                              11-16

PART II. OTHER INFORMATION

 ITEM 1. Legal Proceedings                                                  17
 ITEM 2. Changes in Securities                                              17
 ITEM 3. Defaults Upon Senior Securities                                    17
 ITEM 4. Submission of Matters to a Vote of Security Holders                17
 ITEM 5. Other Information                                                  17
 ITEM 6. Exhibits and Reports on Form 8-K                                   17

SIGNATURES                                                                  18

                                       2
<PAGE>

                            FOCUS ENHANCEMENTS, INC.
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                June 30,     December 31,
                                                                  2000           1999
                                                              ------------   ------------
<S>                                                           <C>            <C>
                           ASSETS
Current Assets:
   Cash and cash equivalents                                  $  1,083,922   $  3,736,517
   Certificate of deposit                                        1,267,871        534,091
   Accounts receivable, net of
     allowances of $731,832 and
     $1,402,176 at June 30, 2000 and
     December 31, 1999, respectively                             2,909,487      2,913,005
   Inventories                                                   3,307,638      3,588,702
   Prepaid expenses and other current assets                       296,929        240,732
                                                              ------------   ------------
     Total current assets                                        8,865,847     11,013,047

   Property and equipment, net                                     835,803        968,594
   Capitalized software development costs                        2,814,098      2,122,450
   Other assets, net                                               241,648        287,116
   Goodwill, net                                                   530,744        624,277
                                                              ------------   ------------
     Total assets                                             $ 13,288,140   $ 15,015,484
                                                              ============   ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Notes payable                                              $          0   $  1,006,258
   Obligations under capital leases                                 68,694        129,451
   Current portion of long-term debt                               312,556        312,556
   Accounts payable                                              3,195,066      3,413,285
   Accrued liabilities                                             577,802        518,726
                                                              ------------   ------------
     Total current liabilities                                   4,154,118      5,380,276

   Obligations under capital leases                                201,984        202,002
     Long-term debt, net of current portion                         63,560        226,041
                                                              ------------   ------------
     Total liabilities                                           4,419,662      5,808,319
                                                              ------------   ------------

Stockholders' equity
   Preferred stock, $.01 par value; 3,000,000 shares
     authorized; none issued                                            --             --
   Common stock, $.01 par value;
     30,000,000 shares authorized,
     26,307,871 and 24,504,203 shares
     issued at June 30, 2000 and December 31,
     1999, respectively                                            263,079        245,042
   Additional paid-in capital                                   48,675,716     46,340,891
   Accumulated deficit                                         (39,370,187)   (36,678,638)
   Treasury stock at cost, 450,000 shares                         (700,130)      (700,130)
                                                              ------------   ------------
     Total stockholders' equity                                  8,868,478      9,207,165
                                                              ------------   ------------
     Total liabilities and stockholders' equity               $ 13,288,140   $ 15,015,484
                                                              ============   ============
</TABLE>


See accompanying notes to Unaudited Consolidated Financial Statements

                                       3
<PAGE>

                            FOCUS ENHANCEMENTS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>


                                                  Three Months Ended
                                                                June 30,
                                                                 1999
                                                June 30,    (As Restated,
                                                  2000          Note 2)
                                               -----------   -----------
<S>                                            <C>           <C>
Net revenues                                   $ 4,399,974   $ 3,684,497
Cost of goods sold                               3,334,953     1,776,596
                                               -----------   -----------

 Gross profit                                    1,065,021     1,907,901
                                               -----------   -----------

Operating expenses:

 Sales, marketing and support                      959,067       996,789
 General and administrative                        706,465       427,228
 Research and development                          285,359       270,325
 Depreciation and amortization expense             237,061       133,856
                                               -----------   -----------
  Total operating expenses                       2,187,952     1,828,198
                                               -----------   -----------

Income from operations                          (1,122,931)       79,703

Interest expense, net                              (34,312)     (145,496)
Other income, net                                   43,211        79,115
                                               -----------   -----------
Income before income taxes                      (1,114,032)       13,322

Income tax benefit                                   1,854            --
                                               -----------   -----------
Net income                                     $(1,112,178)  $    13,322
                                               ===========   ===========

Net income per common share
  Basic                                        $     (0.04)  $      0.00
                                               ===========   ===========
  Diluted                                      $     (0.04)  $      0.00
                                               ===========   ===========

Weighted average common shares outstanding

  Basic                                         24,785,659    18,011,725
                                               ===========   ===========
  Diluted                                       24,785,659    18,012,361
                                               ===========   ===========
</TABLE>


*See accompanying notes to Unaudited Consolidated Financial Statements

                                       4
<PAGE>

                            FOCUS ENHANCEMENTS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                   Six Months Ended
                                                                June 30,
                                                                 1999
                                                 June 30,   (As Restated,
                                                   2000         Note 2)
                                               -----------   -----------
<S>                                            <C>           <C>
Net revenues                                   $ 8,014,244   $ 8,751,576
Cost of goods sold                               5,664,585     4,713,730
                                               -----------   -----------

 Gross profit                                    2,349,659     4,037,846
                                               -----------   -----------

Operating expenses:

 Sales, marketing and support                    1,986,844     2,020,484
 General and administrative                      1,853,639       781,170
 Research and development                          545,187       762,806
 Depreciation and amortization expense             450,673       273,226
 Restructuring Expenses                            202,252            --
                                               -----------   -----------
   Total operating expenses                      5,038,595     3,837,686
                                               -----------   -----------

Income/(loss) from operations                   (2,688,936)      200,160

Interest expense, net                              (54,078)     (166,861)
Other income, net                                   53,611        83,013
                                               -----------   -----------
Income/(Loss) before income taxes               (2,689,403)      116,312

Income tax expense                                  (2,146)           --
                                               -----------   -----------
Net Loss                                       $(2,691,549)  $   116,312
                                               ===========   ===========
Net Loss per common share
   Basic                                       $     (0.11)  $      0.01
                                               ===========   ===========
   Diluted                                     $     (0.11)  $      0.01
                                               ===========   ===========
Weighted average common shares outstanding
   Basic                                        24,556,510    18,008,426
                                               ===========   ===========
   Diluted                                      24,556,510    18,009,062
                                               ===========   ===========

*See accompanying notes to Unaudited Financial Statements
  </TABLE>


                                       5
<PAGE>

                            FOCUS ENHANCEMENTS, INC.
                         STATEMENT OF CHANGES IN EQUITY
                     FOR THE SIX MONTHS ENDED JUNE 30, 2000
                                   (Unaudited)


<TABLE>
<CAPTION>
                                      Common Stock                                                        Total
                                 -----------------------   Additional       Accumulated    Treasury    Stockholders'
                                   Shares       Amount  Paid-in Capital      Deficit        Stock         Equity
                                 ----------------------- --------------- ---------------- ----------- --------------
<S>                              <C>            <C>        <C>            <C>             <C>            <C>
Balance at December 31, 1999     24,504,203     $245,042   $ 46,340,891   $ (36,678,638)  $  (700,130)  $ 9,207,165

Issuance of common stock            403,668        4,037      1,064,825                                   1,068,862
 upon exercise of stock
 options and warrants

Issuance of common stock          1,400,000       14,000      1,270,000                                   1,284,000
 from private offerings,
 net of issuance cost of
 $216,000

Common stock issued in
 settlement of accounts
 payable

Common stock warrants
 issued for services
 and debt

Net loss                                                                     (2,691,549)                 (2,691,549)

                                 ----------   ----------- --------------- ---------------- ----------- -------------
Balance at June 30, 2000         26,307,871   $  263,079  $  48,675,716   $ (39,370,187)   $ (700,130)  $ 8,868,478
                                 ==========   =========== =============== ================ =========== =============


</TABLE>

 See accompanying notes to Unaudited Financial Statements



                                       6
<PAGE>

                            FOCUS ENHANCEMENTS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)




<TABLE>
<CAPTION>
                                                                                                       Six Months Ended
                                                                                                                       June 30,
                                                                                                                         1999
                                                                                                  June 30,           (As Restated,
                                                                                                   2000                 Note 2)
                                                                                              --------------        --------------
<S>                                                                                             <C>                  <C>
Cash flows from operating activities:
    Net Income (Loss)                                                                           $(2,691,549)         $   116,312

    Adjustments to reconcile net income (loss) to net cash provided
    by (used in) operating activities:
        Depreciation and amortization                                                               450,673              273,226
        Deferred Income                                                                                   0              (84,212)
        Increase in accrued interest on notes receivable, common stock                                    0               (4,219)
        Changes in operating assets and liabilities, net of the effects of acquisition:
            (Increase) decrease in accounts receivable                                               (3,518)            (233,723)
            Decrease (increase) in inventories                                                     (281,064)           1,102,514
            Decrease (increase) in prepaid expenses and other assets                                 82,805              (60,483)
            (Decrease) increase in accounts payable                                                 123,960              148,447
            (Decrease) increase in accrued liabilities                                              (59,075)          (1,162,850)
                                                                                                -----------          -----------
        Net cash provided by (used in) operating activities                                      (2,377,768)              95,012
                                                                                                -----------          -----------

Cash flows from investing activities:
    Decrease (increase) in certificates of deposit                                                 (733,780)             163,067
    Purchase of property and equipment                                                             (570,137)          (1,292,234)
                                                                                                -----------          -----------
        Net cash used in investing activities                                                    (1,303,917)          (1,129,167)
                                                                                                -----------          -----------

Cash flows from financing activities:
    Payments on notes payable                                                                    (1,100,517)          (1,027,057)
    Payments under capital lease obligations                                                       (223,256)             (42,909)
    Payments on long-term debt                                                                           --             (138,080)
    Net proceeds from accounts receivable factoring                                                      --              611,847
    Net proceeds from private offerings of common stock                                           1,284,000              539,103
    Net proceeds from exercise of common stock options and warrants                               1,068,862                   --
                                                                                                -----------          -----------
        Net cash provided by (used in) financing activities                                       1,029,089              (57,096)
                                                                                                -----------          -----------

Net decrease in cash and cash equivalents                                                        (2,652,596)          (1,091,251)

Cash and cash equivalents at beginning of period                                                  3,736,517            1,128,380
                                                                                                -----------          -----------

Cash and cash equivalents at end of period                                                      $ 1,083,921          $    37,129
                                                                                                ===========          ===========

Supplemental Cash Flow Information:

        Interest paid                                                                           $    54,078          $   166,861
        Income taxes paid
                                                                                                       --                     --
</TABLE>

                                       7
<PAGE>

                            FOCUS ENHANCEMENTS, INC.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

     The consolidated  financial  statements of FOCUS  Enhancements,  Inc. ("the
Company") as of June 30, 2000 and for the three and six-month periods ended June
30,  2000 and 1999 are  unaudited  and  should be read in  conjunction  with the
consolidated  financial statements and notes thereto for the year ended December
31, 1999 included in the  Company's  Annual Report on Form 10-KSB/A for the year
ended December 31, 1999.

     In the opinion of management, the consolidated financial statements include
all adjustments  (consisting only of normal recurring adjustments) necessary for
a fair  presentation  of the  results of the  interim  periods.  The  results of
operations  for the three  and six month  periods  ended  June 30,  2000 are not
necessarily  indicative  of the  results  that may be  expected  for any  future
period.

     The consolidated  financial  statements include the accounts of the Company
and its wholly-owned  subsidiary PC Video  Conversion,  Inc. The companies other
subsidiaries, Lapis Technologies, Inc., T-View, Inc and Focus Enhancements, B.V.
(Netherlands corporation) became inactive or were merged into Focus in 1999. All
intercompany accounts and transactions have been eliminated upon consolidation.

2. RESTATEMENT

     In  connection  with its review of the impact of SAB 101, the Company found
that certain  transactions  that were  recorded as sales in the second and third
quarters  of 1999  should  not have been  recorded  as sales.  As a result,  the
company has restated the financial statements of the aforementioned  quarters to
correct the amount of accounts  receivable,  inventory,  revenue,  cost of goods
sold and net income previously reported in those quarters.

     In addition,  in its quarterly financial  statements for the year 1999, the
Company  is  providing  a  reserve  for  estimated  sales  returns  based on the
estimated sales value of the sales returns rather than a gross margin reserve.
<TABLE>
     The items in the financial  statements that are affected by the restatement
are as follows:
<CAPTION>
                                                        (In Thousands)

                                     Three Months Ended                  Six Months Ended
                              June 30, 1999    June 30, 1999      June 30, 1999     June 30, 1999
                                Previously           As             Previously           As
                                Reported(1)      Restated           Reported(1)       Restated

   INCOME STATEMENT
  ------------------------------------------------------------------------------------------------
<S>                               <C>              <C>                <C>              <C>
      Revenue                     $4,077           $3,684             $9,144           $8,752
      Cost of Goods Sold           2,128            1,777              5,065            4,714
      Net Income                      55               13                158              116



                              June 30, 1999    June 30, 1999
                                Previously           As
                                 Reported(1)      Restated

   BALANCE SHEET
  ---------------------------------------------------------
      Accounts Receivable         $3,296           $3,031
      Inventory                    4,622            4,846
      Current Assets               8,359            8,318

<FN>
(1) The Company restated its June 30, 1999 financial  statements in its June 30,
2000 10-QSB filed on August 21, 2000.
</FN>
</TABLE>

                                    8
<PAGE>

3.   NET INCOME PER SHARE

     In February  1997,  FASB issued SFAS No. 128,  "Earnings  per Share"  which
requires  earnings per share to be  calculated  on a basic and  dilutive  basis.
Basic earnings per share represents  income available to common stock divided by
the  weighted-average  number of common  shares  outstanding  during the period.
Diluted  earnings per share  reflects  additional  common shares that would have
been outstanding if dilutive potential common shares had been issued, as well as
any  adjustment  to  income  that  would  result  from the  assumed  conversion.
Potential  common  shares  that may be issued by the  Company  relate  solely to
outstanding  stock options and warrants,  and are determined  using the treasury
stock method. The assumed  conversion of outstanding  dilutive stock options and
warrants  would  increase  the  shares  outstanding  but  would not  require  an
adjustment  to income as a result of the  conversion.  For the six months  ended
June 30, 2000 and 1999, options and warrants  applicable to 2,890,742 shares and
4,447,671 shares,  respectively were anti-dilutive and excluded from the diluted
earnings per share computation.

4.   INCOME TAXES

     The Company has utilized its net operating loss carryforwards in estimating
its provision  for income taxes in the six-month  period ended June 30, 2000 and
1999.


5.   INVENTORIES

Inventories consist of the following:
                                        June 30,2000        December 31,1999
                                      ---------------       ----------------
Finished goods                           $2,770,280             $2,377,709
Work In Process                          $   42,557             $  171,637
Raw Materials                            $  494,801             $1,039,356
                                      ---------------       ----------------
                                         $3,307,638             $3,588,702
                                      ===============       ================

6.   CLOSURE OF THE MORGAN HILL FACILITY

     During Q2 00 the Company  successfully  completed the closure of its Morgan
Hill facility.  In conjunction  with the closing and movement of materials,  the
company wrote off an additional $40,000 worth of materials.

7.   NOTES PAYABLE / SECURITY ARRANGEMENTS

     Note Payable,  Vendor.  On April 20, 1999,  the Company  converted  certain
accounts payable due to a contract  manufacturer to a term note in the amount of
$1,700,000 with interest at a rate of 12% per annum. The balance of the Note was
$1,006,258  at December  31, 1999.  On December  31,  1999,  the Company and the
holder of the note  reached an agreement  as to the  settlement  of the note and
related accounts  payable.  On January 5, 2000 the Company repaid  $1,000,000 of
these  obligations and on January 28, 2000,  escrowed $669,000 to be paid to the
holder in three  equal  installments  on February 5, March 5, and April 5, 2000.
This term loan was paid in full as of June 30, 2000.

                                       9
<PAGE>

8.   LONG TERM DEBT

     On July 29, 1998, the Company issued a $1,000,000 note payable to a related
party in conjunction  with the acquisition of PC Video providing for the payment
of  principal  and  interest  at 3.5 % over a period of 36 months.  The  Company
computed a discount of $89,915 on this note based on its  incremental  borrowing
rate. Maturities of long-term debt at June 30, 2000 are as follows:

                  2000                         376,116
                                              --------
                  To be booked in July           4,811
                  Total                       $380,927
                                              ========


     On July 28, 2000,  the Company  entered into a  Separation  Agreement  with
Steve Wood. Mr. Wood was the Vice President of Pro AV  engineering,  former sole
shareholder of PC Video  Conversion,  Inc.,  and leader of the Company's  Morgan
Hill facility. On June 15, 2000, the Company closed the Morgan Hill facility. On
July 28, 1998, the Company  purchased from PC Video Conversion,  Inc.,  selected
assets and liabilities  and, in return,  issued a promissory note and entered an
employment  agreement with Mr. Wood. As part of the Separation  agreement  which
terminated Mr. Wood's employment agreement, Mr. Wood remained a consultant until
an upgrade to one of the Companies Pro AV products is completed.  In return, Mr.
Wood  received a right to convert the  promissory  note into common stock of the
Company.  Under terms of the deal,  the  election  must be made within five days
following the shareholder meeting at which time the outstanding balance would be
converted at a price of ninety-three  percent (93%) of the average closing price
of the Company  common stock on the five  trading  days prior to the  conversion
date, up to a maximum of 500,000 shares of common stock.


9.   COMMON STOCK TRANSACTIONS

     On January 18, 2000,  the Company  received gross proceeds of $990,000 from
the issuance of 330,000  shares of common stock  resulting  from the exercise of
common  stock  warrants  issued   pursuant  to  a  private   placement  with  an
unaffiliated investor on September 10, 1997.

     On February 22, 1999, the Company issued warrants to purchase 30,000 shares
of common stock as partial  compensation to an unaffiliated  investor  relations
firm. The warrants are exercisable  until February 22, 2002 at an exercise price
of $1.063 per share.  These warrants were exercised on February 23, 2000 (15,000
shares) and March 2, 2000 (15,000 shares).

     During the  quarter  ended June 30,  2000,  the  Company  issued at various
times,  11,667 shares of common stock  resulting from other exercises of options
and  warrants,  receiving  cash of  approximately  $12,700.  Additional  Paid-in
Capital of 1,282,584  ($1,270,000 for the private placement and $12,584 from the
exercise of stock  options and  warrants)  for the quarter is net of $216,000 of
related legal expenses.

     On June 9, 2000, the Company entered into a financing  agreement  resulting
in  $1,500,000  in gross  proceeds  from the sale of 1,400,000  shares of common
stock and the issuance of a warrant to purchase an additional  140,000 shares of
common stock in a private placement, to an unaffiliated accredited investor. The
warrant is  exercisable  until June 30,  2005 at a per-share  exercise  price of
$1.625. In addition, Union Atlantic received a warrant to purchase 45,000 shares
of common stock as compensation for brokering the private placement. The warrant
is exercisable until June 30, 2005 at a per-share  exercise price of $1.625. The
Company  intends to file a  registration  statement  under the Securities Act of
1933 for the shares issued in connection with this  transaction and for those to
be issued upon exercise of the warrants. The Company received proceeds from this
transaction on June 9, 2000. The fees and expenses associated with this offering
was $216,000 yielding net proceeds of $1,284,000.

     For the six-month period ended June 30, 2000, the Company issued at various
times,  403,668 shares of common stock resulting from other exercises of options
and warrants,  receiving cash of approximately  $1,068,862.  Additional  Paid-in
Capital of 2,334,825  ($1,270,000 for the private  placement and $1,064,825 from
the exercise of stock  options and  warrants) for this period is net of $245,440
of related legal expenses.

     On July 28,  2000,  the  Company  entered  into an  equity  line of  credit
agreement with Euston  Investments  Holdings  Limited,  a British Virgin Islands
Corporation  for the future issuance and purchase of shares of our common stock.
The equity line of credit  agreement  establishes  what is  sometimes  termed an
equity drawdown facility.

     In general, the investor, Euston Investments,  has committed to provide the
Company up to $5 million as the Company  requests it over a 24 month period,  in
return for common stock the Company issues to Euston Investments.  The number of
shares  issued to Euston  Investments  in return for that money is determined by
dividing the  contracted  price per share into the amount of money  requested by
the Company. The per share dollar amount Euston Investments is 10% less than the
average  closing  bid price of our common  stock  during a valuation  period.  A
"valuation  period" is defined as the period of fifteen  trading days  beginning
seven  trading  days  immediately  before the Trading Day on which a drawdown is
requested  and ending seven  trading days  immediately  after such date. We will
receive  the  amount of the  drawdown  less an  escrow  agent fee of $750 and 7%
placement  fee  payable  to the  placement  agent,  Union  Atlantic,  LC,  which
introduced Euston  Investments to the Company.  The aggregate total of all draws
cannot  exceed $5 million.  We are under no obligation to request a draw for any
period.  In  lieu of  providing  Euston  Investments  with a  minimum  aggregate
drawdown  commitment,  we have  issued to Euston  Investments  a stock  purchase
warrant to purchase 250,000 shares of our common stock with an exercise price of
$1.625. The warrant expires June 12, 2005.

     On May 1,  2000,  the Board of  Directors  approved  by  unanimous  written
consent,  an increase in the  authorized  shares of common  stock to  43,000,000
shares.

     On May 1,  2000,  the Board of  Directors  approved  by  unanimous  written
consent,  the establishment of the 2000 Non-Qualified Stock Option Plan, subject
to stockholder approval.  In addition,  the Board authorized 3,000,000 shares to
be reserved for the 2000 Plan.  On May 5, 2000,  the Company  granted  2,473,375
Stock Options under the 2000 Plan.


10.   SEPARATION AGREEMENTS AND CONSULTING AGREEMENTS

     On May 1, 2000, the Company entered into a Separation Agreement with Thomas
L.Massie,  President and CEO, whereby the Company and Mr. Massie agreed to sever
Mr.Massie's employment relationship effective April 30, 2000.

                                       10
<PAGE>

     On May 1, 2000, the Company  entered into a Separation  Agreement with Gary
M. Cebula, Vice President of Finance and Administration, whereby the Company and
Mr. Cebula agreed to sever Mr. Cebula's employment  relationship effective April
30, 2000.

     On May 1, 2000,  the  Company  entered  into a  Consulting  Agreement  with
William B.  Coldrick,  Vice  Chairman,  to provide  management  services  to the
Company for the period of May 1, 2000 to December 31, 2000.

     On May 1, 2000, the Company entered into a Consulting Agreement with Thomas
L.  Massie,  Chairman,  to provide  management  services  to the Company for the
period of May 1, 2000 to December 31, 2000.

     On May 1, 2000, the Company  entered into a Consulting  Agreement with Gary
Cebula to provide financial management services to the Company for the period of
May 1, 2000 to December 31, 2000.

     The Company estimates that the aggregate financial impact to the Company of
the above  agreements for the year ended December 31, 2000 will be approximately
$260,000  comprised of $176,000 in compensation  and $84,000 of debt forgiveness
for the year ended December 31, 2000.


11.  LITIGATION

     As noted in PART  II-OTHER  INFORMATION,  ITEM 1., LEGAL  PROCEEDINGS,  the
Company has disclosed certain legal proceedings. The class action suits included
therein  are in their  early  stages and it is not yet  possible  to estimate an
outcome.  In the CRA case, a verdict was returned in May 2000 requiring Focus to
pay a judgement of  approximately  $1.8m.  Since mediation is scheduled for late
August,  it is not  possible at this time to estimate the final amount that will
ultimately be paid. In the event that mediation is  unsuccessful,  Focus intends
to contest the verdict  through an appeal.  It is common practice that the Court
will withhold its judgement until completion of mediation.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

     The  following   information   should  be  read  in  conjunction  with  the
consolidated  financial  statements  and notes thereto in Part I, Item 1 of this
Quarterly  Report and with  Management's  Discussion  and  Analysis of Financial
Condition and Results of Operations  contained in the Company's Annual Report on
Form 10-KSB/A for the year ended December 31, 1999.

     The Company does not provide forecasts of the future financial  performance
of the Company.  However, from time to time, information provided by the Company
or statements made by its employees may contain  "forward  looking"  information
that involves risks and uncertainties.  In particular,  statements  contained in
this Form 10-QSB  which are not  historical  facts  constitute  forward  looking
statements  and are  made  under  the  safe  harbor  provisions  of the  Private
Securities Litigation Reform Act of 1995. Each forward-looking  statement should
be read in  conjunction  with the  consolidated  financial  statements and notes
thereto in Part I, Item 1, of this  Quarterly  Report  and with the  information
contained in Item 2, including,  but not limited to,  "Certain  Factors That May
Affect  Future  Results"  contained  herein,   together  with  the  Management's
Discussion  and  Analysis  of  Financial  Condition  and  Results of  Operations
contained in the  Company's  Annual  Report on Form  10-KSB/A for the year ended
December 31, 1999,  including,  but not limited to, the section therein entitled
"Certain Factors That May Affect Future Results."

     In its quarterly  financial  statements  for the year 2000,  the Company is
providing a reserve for estimated  sales  returns  based on the estimated  sales
value of the sales returns rather than only a gross margin  reserve.  The second
and third  quarters  of 1999 have been  restated  to reflect  this  change to be
consistent  with the financial  statement  presentation  in 2000.  The financial
statement accounts for Q2

                                       11
<PAGE>

and Q3 of 1999 that have been changed to reflect these  changes for  comparative
purposes are Revenue, Cost, Accounts Receivable and Inventory.

     In addition,  in  connection  with its review of the impact of SAB 101, the
Company  found that  certain  transactions  that were  recorded  as sales in the
second and third  quarters of 1999 should not have been recorded as sales.  As a
result, the Company has restated the financial  statements of the aforementioned
quarters  to  correct  the  amount of  revenue,  costs of sales  and net  income
previously reported in those quarters.

RESULTS OF OPERATIONS

              Three-Month Period Ended June 30, 2000 As Compared
                With The Three-Month Period Ended June 30, 1999

Net Revenues

     Net revenues for the three-month  period ended June 30, 2000 ("Q2 00") were
$4,399,974 as compared with $3,684,497 for the three-month period ended June 30,
1999 ("Q2 99"),  an  increase  of  $715,477  or 19%.  The  increase  in sales is
primarily  attributed  to  OEM/Licensing  and  Professional  Product  customers.
Specifically,  net revenues in Q2 00 to OEM/Licensing customers increased 81% to
$1,145,000  in  Q2  00  from  $631,000  in  Q2  99.  Net  Revenues  in  Q2 00 to
Professional Product customers increased 42% to $868,000 from $611,000 in Q2 99.
The  increases in net revenues  were offset by a decrease in the consumer  video
conversion product line of 2% to $2,386,000 in Q2 00 from $2,442,000 in Q2 99.

Sales Backlog

     As of June 30, 2000, the Company had a sales order backlog of approximately
$510,000.

Cost of Goods Sold

     Cost of goods sold were  $3,334,953 or 76% of net revenues,  for the three-
month period  ended June 30, 2000,  as compared  with  $1,776,596  or 48% of net
revenues,  for the  three-month  period  ended June 30,  1999,  an  increase  in
absolute dollars of $1,558,357 or 88%. The Company's gross profit margins for Q2
00 and Q2 99 were 24% and 52%, respectively.  The decrease in Q2 00 gross margin
is primarily  due to a book to physical  adjustment  at Focus' Far East contract
manufacturer,  based on a June 30, 2000 inventory, of approximately $285,000 and
the write-down of inventory to its net realizable  value,  including the InVideo
product line of  approximately  $318,000.  Additionally,  the Company is selling
slow moving  inventory  at cost,  which has  generated  $400,000 in cash but has
eroded margins on the remainder of the consumer product line.

Sales, Marketing and Support Expenses

     Sales, marketing and support expenses were $959,067 or 22% of net revenues,
for the three-month period ended June 30, 2000, as compared with $996,789 or 27%
of net revenues,  for the three-month  period ended June 30, 1999, a decrease of
$37,722.

General and Administrative Expenses

     General and  administrative  expenses for the three-month period ended June
30, 2000 were $706,465 or 16% of net revenues,  as compared with $427,228 or 12%
of net revenues for the  three-month  period ended June 30, 1999, an increase of
$279,237 or 65%. The increase in absolute  dollars is due primarily to increases
in payroll (approximately $68,000),  accounts receivable reserves (approximately
$73,000),   consulting  fees   (approximately   $66,000),   investor   relations
(approximately $28,000) and banking fees (approximately $24,000).

Research and Development Expenses

     Research and development expenses for the three-month period ended June 30,
2000 were $285,359, or 6% of net revenues, as compared to $270,325, or 7% of net
revenues,  for three-month period ended June 30, 1999, an increase of $15,034 or
6%.

Interest Expense, Net

                                       12
<PAGE>

     Net  interest  expense for the  three-month  period ended June 30, 2000 was
$34,312, or 1% of net revenues,  as compared to $145,496, or 4% of Net revenues,
for the three-month period ended June 30, 1999, a decrease of $111,184,  or 76%.
The  decrease  is  primarily   attributable  to  decreases  in  interest  paying
obligations for the quarter ended June 30, 2000 as compared to the quarter ended
June 30, 1999.

Other Income

     Other Income for the three-month  period ended June 30, 2000 was $43,211 as
compared to $79,115,  for the three-month period ended June 30, 1999, a decrease
of $35,904.

RESULTS OF OPERATIONS

              Six-Month Period Ended June 30, 2000 As Compared
                With The Six-Month Period Ended June 30, 1999

Net Revenues

     Net  revenues for the  six-month  period ended June 30, 2000 ("Q2 00") were
$8,014,244 as compared with  $8,751,576 for the six-month  period ended June 30,
1999 ("Q2 99"), a decrease of $737,332 or 9%. The decrease in sales is primarily
attributed to the discontinuation of sales to certain resellers of the Company's
consumer video  conversion  product line. Net sales to consumer video conversion
customers  through Q2 00 were  $4,793,000,  compared to $6,409,000  for the same
period in 1999.  These sales decreased 17% or $987,000.  The decrease was offset
by an increase in sales to the OEM/Licensing and Professional Product customers.
Specifically,  net  revenues  through  Q2  00  to  the  Company's  OEM/Licensing
customers  increased 28% to $1,676,000  from  $1,308,000  for the same period in
1999. Net Revenues through Q2 00 to Professional Product customers increased 49%
to $1,544,000 from $1,035,000 through Q2 99.

Cost of Goods Sold

     Cost of goods sold were  $5,664,585  or 71% of net  revenues,  for the six-
month period  ended June 30, 2000,  as compared  with  $4,713,730  or 54% of net
revenues,  for the six-month period ended June 30, 1999, an increase in absolute
dollars of $950,855 or 20%. The Company's gross profit margins through Q2 00 and
Q2 99 were 29% and 46%,  respectively.  The  decrease  in  gross  margin  is due
principally to a second  quarter book to physical  adjustment at Focus' Far East
contract  manufacturer,  based on a June 30, 2000  inventory,  of  appriximately
$285,000 and the write-down of inventroy to its net realizable value,  including
the InVideo product line of approximately  $318,000.  In addition,  gross margin
was lower due to  customer  mix and sales of  certain  slow  moving  product  at
carrying value.

Sales, Marketing and Support Expenses

     Sales,  marketing  and  support  expenses  were  $1,986,844  or  25% of net
revenues,  for the  six-month  period  ended June 30,  2000,  as  compared  with
$2,020,484 or 23% of net revenues, for the six-month period ended June 30, 1999,
a decrease of $33,640.

General and Administrative Expenses

     General and administrative expenses for the six-month period ended June 30,
2000 were $1,853,639 or 23% of net revenues,  as compared with $781,170 or 9% of
net  revenues  for the  six-month  period  ended June 30,  1999,  an increase of
$1,072,469  or 137%.  The  increase  in  absolute  dollars is due  primarily  to
increases  in   accounting   fees   (approximately   $302,000)  and  legal  fees
(approximately  $292,000) in conjunction  with the completion of the 1999 annual
audit and review of

                                       13
<PAGE>

accounting  practices  and the special  investigation  conducted by the Board of
Directors with respect to the financial  controls of the Company,  combined with
increases in payroll  (approximately  $122,000),  accounts  receivable  reserves
(approximately  $118,000),  consulting fees  (approximately  $97,000),  investor
relations (approximately $48,000) and banking fees (approximately $24,000).

Research and Development Expenses

     Research and development  expenses for the six-month  period ended June 30,
2000 were $545,187, or 7% of net revenues, as compared to $762,806, or 9% of net
revenues,  for  six-month  period ended June 30, 1999, a decrease of $217,619 or
29%.

Interest Expense, Net

     Net  interest  expense  for the  six-month  period  ended June 30, 2000 was
$54,078, or 1% of net revenues,  as compared to $166,861, or 2% of net revenues,
for the  six-month  period ended June 30, 1999, a decrease of $112,783,  or 68%.
The  decrease  is  primarily   attributable  to  decreases  in  interest  paying
obligations for the quarter ended June 30, 2000 as compared to the quarter ended
June 30, 1999.

Other Income

     Other  Income for the  six-month  period ended June 30, 2000 was $53,611 as
compared to $83,013, for the six-month period ended June 30, 1999, a decrease of
$29,402.

LIQUIDITY AND CAPITAL RESOURCES

     Net cash  provided for (used in)  operating  activities  for the  six-month
periods ended June 30, 2000 and 1999 was ($2,377,767) and $95,012, respectively.
In the  year  2000  period,  net cash  used in  operating  activities  consisted
primarily of increases  in  inventory  of $281,064,  prepaid  expenses and other
assets of  $82,805,and  accounts  receivable  of $3,518,  a decrease  in accrued
liabilities  of  $59,075  and a net loss of  $2,691,549.  This was  offset by an
increase  in accounts  payable of $123,960  and  depreciation  and  amortization
(non-cash charge) of $450,673. As of June 30, 2000 and 1999, accounts receivable
from a major distributor represented  approximately 26% and 35%, respectively of
total accounts receivable.  In Q2 00, the Company continued to record provisions
for  potential  future  uncollectable   accounts  and  maintained  reserves  for
potential product returns.

     In the six  months  ended  June  30,  1999,  net  cash  used in  operations
consisted  primarily  of an  increase  in accounts  receivable  of $233,723  and
prepaid expense of $60,483 and a decrease in accrued  liabilities of $1,162,850.
This was offset by a  decrease  in  inventory  of  $1,102,514,  an  increase  in
accounts payable of $148,447, depreciation and amortization (non-cash charge) of
$273,226, and net income of $116,312.

     Net cash used in investing  activities for the six-month periods ended June
30, 2000 and June 30,1999 was  ($1,303,917) and  ($1,129,167)  respectively.  In
2000 and 1999 period, cash used in investing  activities was principally for the
purchase of property and equipment and capitalized  software  development costs.
Additionally,  Standby  Letters of Credit are  currently  utilized to  establish
credit facilities for a manufacturer of the companies products.

                                       14
<PAGE>

     Net cash  provided  by (used in)  financing  activities  for the  six-month
periods ended June 30, 2000 and 1999 was $1,029,089 and ($57,096), respectively.
In the 2000 period,  the Company  received  $2,352,862  in net proceeds from the
exercise of common stock  options and warrants and from private  offerings.  The
Company's  financing  proceeds  were  offset by  payments  on notes  payable and
capital  lease  obligations.  In the same period in 1999,  the Company  received
$539,103 in net proceeds from private offerings of common stock, and $611,847 in
net proceeds from the factoring of accounts receivable.  The Company's financing
proceeds were offset by payments on notes payable, accounts receivable financing
and capital lease obligations.

     As of June 30,  2000,  the Company had working  capital of  $4,711,729,  as
compared to  $5,632,771  at December  31,  1999,  a decrease  of  $921,042.  The
Company's  cash  position  at June  30,  2000  was  $1,083,921,  a  decrease  of
$2,883,239 over cash and equivalents at December 31, 1999. As noted herein,  the
Company has disclosed a potential  judgement or settlement  with CRA  Associates
that will have an impact on the cash  balance of the Company.  Please  reference
the  following  disclosure  under PART II - OTHER  INFORMATION,  ITEM 1.,  LEGAL
PROCEEDINGS.

     Although the Company has been successful in the past in raising  sufficient
capital to fund its operations,  there can be no assurance that the Company will
achieve sustained profitability or obtain sufficient financing in the future.

EFFECTS OF INFLATION AND SEASONALITY

     The Company believes that inflation has not had a significant impact on the
Company's sales or operating results. The Company's business does not experience
substantial  variations  in revenues or operating  income during the year due to
seasonality.

ENVIRONMENTAL LIABILITY

     The Company has no known environmental violations or assessments.

RECENT ACCOUNTING PRONOUNCEMENTS

     The FASB  issued  a  proposed  interpretive  release,  Stock  Compensation-
Interpretation of APB Opinion 25  ("Interpretation").  The  Interpretation  will
provide  accounting  guidance  on  several  issues  that  are  not  specifically
addressed in Accounting  Principles Board ("APB") No. 25,  "Accounting for Stock
Issued to Employees. Of the many questions addressed in the Interpretation,  the
most  significant is the  clarification of the definition of the term "employee"
for the  purposes of applying  the opinion and the  accounting  for options that
have been repriced.

The  Interpretation  is  generally   effective   beginning  July  1,  2000.  The
Interpretation  applies  prospectively  at the date for  repricings  that occurs
after  December 15, 1998. It also applies  prospectively  on July 1, 2000 to new
awards  granted after  December 15, 1998 for purposes of applying the definition
of "employee".

In December  1999, the Securities  and Exchange  Commission  (the  "Commission")
published Staff Accounting  Bulleting  ("SAB") No. 101,  "Revenue  Recognition",
which provides guidance for applying generally accepted accounting principles to
revenue recognition in financial statements filed with the Commission, including
income statement  presentation and disclosure.  As originally issued SAB 101 was
to be applied no later than the first quarter of the fiscal year beginning after
December 15, 1999. However, the Commission has delayed the effective date of the
SAB for  companies  with fiscal years  beginning  between  December 16, 1999 and
March 15, 2000. For such entities, the mandatory  implementation date may now be
no later than the fourth quarter of the fiscal year beginning after December 15,
1999.

The company is in the process of reviewing and  continuing its evaluation of the
pronouncements detailed above to determine the potential impact on the financial
statements of the company.

                                       15
<PAGE>


CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

     The Company does not provide forecasts of the future financial  performance
of the Company.  However, from time to time, information provided by the Company
or statements made by its employees may contain  "forward  looking"  information
that involves risks and uncertainties.  In particular,  statements  contained in
this Form 10-KSB/A which are not historical  facts  (including,  but not limited
to, statements concerning international revenues,  anticipated operating expense
levels  and such  expense  levels  relative  to the  Company's  total  revenues)
constitute  forward-looking  statements  and are  made  under  the  safe  harbor
provisions  of  the  Private  Securities  Litigation  Reform  Act of  1995.  The
Company's  actual results of operations and financial  condition have varied and
may in the future vary  significantly  from those stated in any forward  looking
statements. Factors that may cause such differences include, without limitation,
the availability of capital to fund the Company's future cash needs, reliance on
major customers,  history of operating losses,  limited  availability of capital
under credit  arrangements  with  lenders,  market  acceptance  of the Company's
products, technological obsolescence, competition, component supply problems and
protection of proprietary information,  as well as the accuracy of the Company's
internal estimates of revenue and operating expense levels.

                                       16
<PAGE>

                           PART II - OTHER INFORMATION


ITEM 1.   LEGAL PROCEEDINGS

     The Company and certain of it's Officers and  Directors  have been named as
defendants in two alleged  class-actions pending in United States District Court
for the District of  Massachusetts,  on or about  November 9, 1999, on behalf of
Frank E. Ridel and other  currently-unnamed  person(s)  who are  alleged to have
purchased  shares of our common  stock from July 17, 1997 to February  19, 1999.
Consolidated  amended  complaints  have been filed in each alleged class action.
The first complaint  alleges a claim of shareholders  who purchased Focus shares
during the July 17,1997 to February, 1999 period. The second complaint alleges a
class of shareholders  who purchased  shares between November 15, 1999 and March
1, 2000. The first complaint was initially filed in November of 1999: The second
complaint  was  initially  filed in March of 2000.  Both  complaints  purport to
allege violations of the federal securities laws.

     The Company was named as a defendant  in a lawsuit  filed in U.S.  District
Court  for  the  District  of  Texas,  on or  about  November  1,  1999,  by CRA
Associates,  Inc. The  complaint  alleged that the company  breached a contract,
committed fraud, and engaged in misrepresentation and deceptive trade practices.
In May, a verdict was returned  against  Focus which require Focus to pay to CRA
approximately  $1.8m.  Subsequent  filed  motions are  seeking to increase  this
amount by adding pre- and post-judgement  interest,  as well as attorney's fees.
The Company has since filed post-judgement  motions and both parties have agreed
to mediation,  which will occur in late August.  It is our expectation  that the
court will refrain from rendering judgement on the verdict pending completion of
mediation.  In the event that mediation is unsuccessful and judgement is against
Focus, then the Company intends to contest the verdict through an appeal.

From time to time,  the  Company  is party to  certain  other  claims  and legal
proceedings  that arise in the  ordinary  course of  business  of which,  in the
opinion of management,  has a material adverse effect on the Company's financial
position or results of operation.

ITEM 2.   CHANGES IN SECURITIES

     On June 9, 2000, the Company entered into a financing  agreement  resulting
in  $1,500,000  in gross  proceeds  from the sale of 1,400,000  shares of common
stock and the issuance of a warrant to purchase an additional  140,000 shares of
common stock in a private placement, to an unaffiliated accredited investor. The
warrant is  exercisable  until June 30,  2005 at a per-share  exercise  price of
$1.625. In addition, Union Atlantic received a warrant to purchase 45,000 shares
of common stock as compensation for brokering the private placement. The warrant
is exercisable until June 30, 2005 at a per-share  exercise price of $1.625. The
Company  intends to file a  registration  statement  under the Securities Act of
1933 for the shares issued in connection with this  transaction and for those to
be issued upon exercise of the warrants. The Company received proceeds from this
transaction on June 9, 2000. The fees and expenses associated with this offering
was $216,000 yielding net proceeds of $1,284,000.

     No person acted as an  underwriter  with respect to this  transaction.  The
Company  relied on Section 4(2) of the  Securities  Act of 1933, as amended (the
"Securities  Act"), for the exemption from the registration  requirements of the
Securities Act, since no public offering was involved.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

     None

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE

     None

ITEM 5.   OTHER INFORMATION

     None




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
        --------------------------------

a.   The following exhibits are filed herewith:

   11.    Statement Re: Computation of Per Share Earnings

b. Reports on Form 8-K

     The Company on March 2, 2000 filed a Form 8-K related to the period ending
     December 31, 1999.

     The Company did not file any reports on Form 8-K during the quarters
     ended March 31 and June 30, 2000.
<PAGE>


                                   SIGNATURES
                                   ----------

In accordance with the  requirements of the Exchange Act, the Registrant  caused
this  report to be  signed on its  behalf  by the  undersigned,  thereunto  duly
authorized.

                            FOCUS ENHANCEMENTS, INC.


       January 9, 2002          By:   /s/  Michael D'Addio
                                  ---------------------------
                                  Michael D'Addio
                                  Chief Executive Officer
                                  & President


       January 9, 2002          By:   /s/  Gary Williams
                                  ---------------------------
                                  Gary Williams
                                  Vice President of Finance
                                  & CFO
                                  (Principal Accounting Officer)

                                       18