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

                                   FORM 10-QSB

[X]  QUARTERLY  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT
     OF 1934

                For the quarterly period ended June 30, 2002, or

[ ]  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.
                 (Name of Small Business Issuer in its Charter)

           Delaware                                               04-3144936
(State or Other Jurisdiction of                                (I.R.S. Employer
Incorporation or Organization)                               Identification No.)

                                  1370 Dell Ave
                               Campbell, CA 95008
                    (Address of Principal Executive Offices)

                                 (408) 866-8300
                (Issuer's Telephone Number, Including Area Code)

             Securities registered pursuant to Section 12(b) of Act:

                               Title of Each Class
                          Common Stock, $.01 par value

                      Name of Exchange on which Registered
                                     NASDAQ

        Securities registered pursuant to Section 12(g) of the Act: None

     Check whether the Issuer (1) has filed all reports  required to be filed by
Section 13 or 15(d) of the Securities  Exchange Act of 1934 during the preceding
12 months (or for such other 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 No[X]

     As of August 9, 2002,  there  were  35,710,991  shares of the  Registrant's
Common Stock Outstanding.

<PAGE>




                            Focus Enhancements, Inc.
                      Condensed Consolidated Balance Sheets
                      (in thousands, except per share data)
                                   (unaudited)
<TABLE>
<CAPTION>
                                                                                  June 30,   December 31,
                                                                                ---------------------------
                                                                                  2002               2001
                                                                                --------           --------
<S>                                                                             <C>                <C>
                                   ASSETS
Current assets:
  Cash and cash equivalents                                                     $    592           $    449
  Restricted collateral deposit                                                     --                2,363
  Accounts receivable, net of allowances of $481 and $666 at
    June 30, 2002 and December 31, 2001, respectively                              3,068              3,314
  Inventories, net of reserves of $777 and $819 at June 30, 2002
    and December 31, 2001, respectively                                            3,185              4,009
  Prepaid expenses and other current assets                                           96                230
                                                                                --------           --------
    Total current assets                                                           6,941             10,365

Property and equipment, net                                                          320                411
Capitalized software development costs                                               210                379
Other assets                                                                         101                107
Intangibles, net                                                                   1,312              2,181
Goodwill                                                                           5,191              4,654
                                                                                --------           --------
    Total assets                                                                $ 14,075           $ 18,097
                                                                                ========           ========

                    LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Obligations under capital leases, current portion                             $     42           $     42
  Accounts payable                                                                 2,348              4,295
  Accrued liabilities                                                              1,969              1,917
  Accrued legal judgment                                                            --                2,073
                                                                                --------           --------
    Total current liabilities                                                      4,359              8,327

Convertible notes payable to stockholder                                           3,867              4,012
Obligations under capital leases, non-current                                         24                 45
                                                                                --------           --------

    Total liabilities                                                              8,250             12,384
                                                                                --------           --------

Commitments and contingencies

Stockholders' equity
  Preferred stock, $.01 par value; authorized 3,000,000 shares;
      1,904 shares issued at June 30, 2002 and December 31, 2001
      (aggregate liquidation preference $2,267)                                     --                 --
  Common stock, $.01 par value; 50,000,000 shares authorized, 36,056,907
    and 33,423,403 shares issued at June 30, 2002 and December
    2001, respectively                                                               360                334
  Additional paid-in capital                                                      64,807             61,616
  Accumulated deficit                                                            (58,532)           (55,366)
  Deferred compensation and price protection                                        (110)              (171)
  Treasury stock at cost, 450,000 shares                                            (700)              (700)
                                                                                --------           --------
  Total stockholders' equity                                                       5,825              5,713
                                                                                --------           --------
    Total liabilities and stockholders' equity                                  $ 14,075           $ 18,097
                                                                                ========           ========

</TABLE>
The  accompanying  notes  are an  integral  part of the  condensed  consolidated
financial statements.

                                        2

<PAGE>



                            Focus Enhancements, Inc.
                 Condensed Consolidated Statements Of Operations
                    (in thousands, except per share amounts)
                                   (unaudited)


                                                     Three Months ended June 30,
                                                     --------------------------
                                                       2002              2001
                                                     --------          --------
Net product revenues                                 $  4,453          $  6,160
Contract revenues                                          59               329
                                                     --------          --------
  Total net revenues                                    4,512             6,489

Cost of revenues:
  Products                                              2,867             3,431
  Contract                                                 39               263
                                                     --------          --------
  Total cost of revenues                                2,906             3,694
                                                     --------          --------

  Gross profit                                          1,606             2,795
                                                     --------          --------

Operating expenses:
  Sales, marketing and support                          1,330             1,646
  General and administrative                              542               473
  Research and development                              1,043               903
  Amortization expense                                    217               700
                                                     --------          --------

    Total operating expenses                            3,132             3,722
                                                     --------          --------

    Loss from operations                               (1,526)             (927)

  Interest expense, net                                   (34)             (100)
  Other income (expense), net                              48               (16)
                                                     --------          --------

    Net loss                                         $ (1,512)         $ (1,043)
                                                     ========          ========

Loss per common share:
  Basic                                              $  (0.04)         $  (0.03)
                                                     ========          ========
  Diluted                                            $  (0.04)         $  (0.03)
                                                     ========          ========

Weighted average common shares outstanding:
  Basic                                                35,500            31,285
                                                     ========          ========
  Diluted                                              35,500            31,285
                                                     ========          ========

The  accompanying  notes  are an  integral  part of the  condensed  consolidated
financial statements.

                                       3

<PAGE>



                            Focus Enhancements, Inc.
                 Condensed Consolidated Statements Of Operations
                    (in thousands, except per share amounts)
                                   (unaudited)


                                                     Six Months ended June 30,
                                                   ----------------------------
                                                     2002                2001
                                                   --------            --------
Net product revenues                               $  8,511            $ 11,169
Contract revenues                                       759                 329
                                                   --------            --------
  Total net revenues                                  9,270              11,498

Cost of revenues:
  Products                                            5,440               6,650
  Contract                                              499                 263
                                                   --------            --------
  Total cost of revenues                              5,939               6,913
                                                   --------            --------

  Gross profit                                        3,331               4,585
                                                   --------            --------

Operating expenses:
  Sales, marketing and support                        2,716               3,106
  General and administrative                          1,215               1,216
  Research and development                            1,965               1,898
  Amortization expense                                  508               1,276
  Restructuring expense                                --                    33
  Write-off of in-process technology                   --                   505
                                                   --------            --------

    Total operating expenses                          6,404               8,034
                                                   --------            --------

    Loss from operations                             (3,073)             (3,449)

  Interest expense, net                                (117)               (223)
  Other income (expense), net                            24                 (95)
                                                   --------            --------

    Net loss                                       $ (3,166)           $ (3,767)
                                                   ========            ========

Loss per common share:
  Basic                                            $  (0.09)           $  (0.12)
                                                   ========            ========
  Diluted                                          $  (0.09)           $  (0.12)
                                                   ========            ========

Weighted average common shares outstanding:
  Basic                                              35,254              30,734
                                                   ========            ========
  Diluted                                            35,254              30,734
                                                   ========            ========

The  accompanying  notes  are an  integral  part of the  condensed  consolidated
financial statements.

                                       4

<PAGE>



                            Focus Enhancements, Inc.
                 Condensed Consolidated Statements of Cash Flows
                                 (in thousands)
                                   (unaudited)
<TABLE>
<CAPTION>
                                                                                      Six Months Ended June 30,
                                                                                      -------------------------
                                                                                        2002             2001
                                                                                       -------         -------
<S>                                                                                    <C>             <C>
Cash flows from operating activities:
Net loss                                                                               $(3,166)        $(3,767)
Adjustments to reconcile net loss to net cash used in operating activities:
  Depreciation and amortization                                                            661           1,503
  Deferred compensation expense                                                             61             135
  Gain on debt settlement                                                                 (311)             --
  Warrant issue expense                                                                    573              --
  In process research and development                                                       --             505
  Changes in operating assets and liabilities, net of the effects of acquisitions:
   Decrease(increase) in accounts receivable                                               246          (1,473)
   Decrease(increase) in inventories                                                       824             (40)
   Decrease in prepaid expenses and other assets                                           134              68
   Increase (decrease) in accounts payable                                              (1,303)            168
   Increase (decrease) in accrued liabilities                                             (258)            166
   Payment of legal judgement                                                           (2,073)             --
                                                                                       -------         -------

  Net cash used in operating activities                                                 (4,612)         (2,735)
                                                                                       -------         -------

Cash flows from investing activities:
  Decrease in restricted certificates of deposit                                            --             967
  Decrease in restricted collateral deposit                                              2,363              --
  Additions to property and equipment                                                      (63)           (119)
  Net cash from acquisition of Videonics                                                    --             360
                                                                                       -------         -------

Net cash provided by investing activities                                                2,300           1,208
                                                                                       -------         -------

Cash flows from financing activities:
  Payments on notes payable and long-term debt                                              --            (250)
  Proceeds from convertible notes payable to shareholder                                    --           2,200
  Repayment of convertible notes payable to shareholder                                   (145)             --
  Payments under capital lease obligations                                                 (21)            (71)
  Net proceeds from private offerings of common stock                                    2,435              --
  Net proceeds from exercise of common stock options                                       186              34
  Payments for the registration of common stock                                             --             (96)
                                                                                       -------         -------

Net cash provided by financing activities                                                2,455           1,817
                                                                                       -------         -------

Net increase in cash and cash equivalents                                                  143             290
Cash and cash equivalents at beginning of  period                                          449             352
                                                                                       -------         -------

Cash and cash equivalents at end of period                                             $   592         $   642
                                                                                       =======         =======
</TABLE>

The  accompanying  notes  are an  integral  part of the  condensed  consolidated
financial statements.

                                       5

<PAGE>


                            Focus Enhancements, Inc.
              Notes To Unaudited Consolidated Financial Statements



1.  Basis of Presentation - Interim Financial Information

     The condensed consolidated financial statements of Focus Enhancements, Inc.
("the  Company")  as of June 30,  2002 and for the three  and six month  periods
ended June 30,  2002 and 2001 are  unaudited  and should be read in  conjunction
with the consolidated  financial statements and notes thereto for the year ended
December 31, 2001 included in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 2001.

     In  the  opinion  of  management,   the  condensed  consolidated  financial
statements  include  all  adjustments   (consisting  only  of  normal  recurring
adjustments)  necessary  for a  fair  presentation  of its  financial  position,
operating  results and cashflows for interim periods  presented.  The results of
operations  and  cashflows  for the six month period ended June 30, 2002 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,  as of the  January  16,  2001  acquisition  date (see  "Note 3"),
Videonics Inc.  ("Videonics").  All intercompany  accounts and transactions have
been eliminated upon consolidation.

2.  Management's Plans

     The accompanying  consolidated financial statements have been prepared on a
going  concern  basis,  which  contemplates  the  realization  of assets and the
satisfaction of liabilities in the normal course of business. For the six months
ended June 30, 2002 and year ended December 31, 2001, the Company incurred a net
loss of $3,166,000  and  $6,658,000,  and net cash used in operating  activities
totaled $4,612,000 and $3,452,000, respectively. These factors indicate that the
Company may potentially be unable to continue as a going concern.  Additionally,
our auditors included an explanatory  paragraph in their report on our financial
statements for the year ended December 31, 2001 included in the Company's Annual
Report on Form  10-KSB  with  respect  to  uncertainties  about our  ability  to
continue as a going concern.

     The  consolidated  financial  statements  do not  include  any  adjustments
relating to the  recoverability  and classification of recorded asset amounts or
the amounts and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern. The Company's  continuation as
a going concern is dependent upon its ability to generate  sufficient cash flows
to meet its obligations on a timely basis, to obtain additional financing as may
be required,  and ultimately to return to profitability and significant positive
cash flows.

     The Company has  historically met cash needs from the proceeds of debt, the
sale of common stock in private  placements,  and the exercise of stock  options
and  warrants.  Management  is assessing  its product to identify how to enhance
existing product lines or create new  distribution  channels.  In addition,  the
Company  released two new products in the first six months of 2002,  and expects
to release at least one more new product by year-end.

     During  2001,  management  took  steps to  reduce  costs,  including  a 13%
reduction in personnel,  the closure of its Wilmington,  MA facility on April 1,
2001, the transfer of operations,  customer support and finance to the Campbell,
CA, headquarters  facility,  and the relocation of the remaining sales personnel
into a 2,800 square foot  facility.  To further  reduce its  expenses,  in April
2002, Company reduced its personnel by an additional 9%.

     Even  with  the   anticipated   reduction   in  expenses   related  to  the
restructuring  and an expected  increase in sales, the Company  anticipates that
during  2002 it will  need to raise  additional  funds to  support  its  working
capital needs and meet existing debt obligations.  In connection with that need,
on January 11,  2002,  the Company  raised net  proceeds of  approximately  $2.4
million  in a private  placement  transaction  with  independent  third  parties
through  the  issuance  of  2,434,490  shares  of the  Company's  common  stock.
Additional  financings  may be required in 2002 as the  Company  implements  its
business plans.

     There can be no assurance that management's  plans will be successful or if
successful, that they will result in the Company continuing as a going concern.

                                       6

<PAGE>

                            Focus Enhancements, Inc.
              Notes To Unaudited Consolidated Financial Statements


3. Acquisition of Videonics Inc.

     On January  16,  2001,  Focus  acquired  all of the  outstanding  shares of
Videonics  in  a  transaction   accounted  for  using  the  purchase  method  of
accounting.  Focus  issued 0.87  shares of its common  stock for each issued and
outstanding  share of Videonics  common stock on the closing date.  Based on the
exchange ratio, a total of  approximately  5,135,000  shares were issued.  Focus
incurred  approximately  $637,000 in acquisition  expenses,  including financial
advisory and legal fees and other direct  transaction costs, which were included
as a component of the purchase price.


4. Recent Accounting Pronouncements

     In June 2001, the Financial  Accounting  Standards Board (FASB) issued SFAS
No.142, Goodwill and Other Intangible Assets. SFAS No. 142 addresses the initial
recognition and measurement of intangible  assets acquired outside of a business
combination  and  the  accounting  for  goodwill  and  other  intangible  assets
subsequent to their  acquisition.  SFAS No. 142 provides that intangible  assets
with finite useful lives be amortized and that  goodwill and  intangible  assets
with indefinite lives will not be amortized,  but will rather be tested at least
annually for impairment.  In addition,  the standard includes provisions for the
reclassification  of  certain  existing  recognized   intangibles  as  goodwill,
reassessment   of  the  useful   lives  of  existing   recognized   intangibles,
reclassification  of certain intangibles out of previously reported goodwill and
the identification of reporting units for purposes of assessing potential future
impairments  of goodwill.  The Company  adopted SFAS No. 142 for its fiscal year
beginning  January 1, 2002 and,  as such,  ceased the  amortization  of goodwill
resulting  from business  combinations  completed  prior to the adoption of SFAS
141,  with a net  carrying  value  of  $4,654,000  at the date of  adoption.  In
accordance  with SFAS 142 the  Company was  required to complete a  transitional
goodwill impairment test six months from the date of adoption.  Accordingly,  as
of the date of the test,  goodwill  did not  appear to be  impaired  and as such
there  was  no  impact  on the  Company's  financial  position  and  results  of
operations.  In connection with the adoption of SFAS No. 142, the Company ceased
amortization of the assembled  workforce  intangible  asset  associated with the
acquisition of Videonics,  and  reclassified to goodwill the net carrying amount
of the intangible asset, in the amount of $536,000. On a pro forma basis had the
amortization of goodwill and the assembled workforce  intangible asset ceased on
January 1, 2001, the Company's amortization expense for the three and six months
ended  June  30,  2001  would  have   decreased  by  $396,000,   and   $863,000,
respectively,  and the  Company  would have  reported a net loss of  $647,000 or
$0.02 per share and net loss of $2,904,000 or $0.09 per share, respectively.

     In  August  2001,  the  FASB  issued  SFAS  No.  144,  "Accounting  for the
Impairment or Disposal of Long-Lived  Assets." SFAS No. 144 supercedes  SFAS No.
121  "Accounting  for the  Impairment  of Long-Lived  Assets and for  Long-Lived
Assets to Be  Disposed  Of. " SFAS No.  144  applies  to all  long-lived  assets
(including discontinued  operations) and consequently amends APB Opinion No. 30,
"Reporting  the Results of  Operations,  Reporting  the Effects of Disposal of a
Segment of a Business,  and  Extraordinary,  Unusual and Infrequently  Occurring
Events  and  Transactions."  SFAS No.  144  develops  one  accounting  model for
long-lived assets that are to be disposed of by sale. SFAS No. 144 requires that
long-lived assets that are to be disposed of by sale be measured at the lower of
book value or fair value less cost to sell.  Additionally,  SFAS No. 144 expands
the scope of discontinued operations to include all components of an entity with
operations  that (1) can be  distinguished  from the rest of the  entity and (2)
will be  eliminated  from the  ongoing  operations  of the  entity in a disposal
transaction.  SFAS  No.  144 is  effective  for the  Company  for all  financial
statements  issued in 2002. The adoption of SFAS No. 144 did not have a material
impact on the Company's financial statements.

     In June 2002,  the FASB issued SFAS 146,  Accounting  for Costs  Associated
with Exit or Disposal  Activities,  which addresses accounting for restructuring
and similar costs. SFAS 146 supersedes previous accounting guidance, principally
Emerging Issues Task Force Issue No. 94-3. The Company will adopt the provisions
of SFAS 146 for restructuring activities initiated after December 31, 2002. SFAS
146 requires that the liability  for costs  associated  with an exit or disposal
activity be  recognized  when the  liability  is  incurred.  Under Issue 94-3, a
liability  for an  exit  cost  was  recognized  at  the  date  of the  Company's
commitment to an exit plan. SFAS 146 also  establishes that the liability should
initially  be measured  and  recorded at fair value.  Accordingly,  SFAS 146 may
affect  the  timing of  recognizing  future  restructuring  costs as well as the
amounts recognized.

                                       7

<PAGE>

                            Focus Enhancements, Inc.
              Notes To Unaudited Consolidated Financial Statements


5. Inventories

   Inventories at June 30, 2002 and December 31, 2001, consist of the following:

                                                     2002            2001
                                                 -----------      ----------
    Raw materials                                 $1,453,000      $1,678,000
    Work in process                                  406,000         825,000
    Finished goods                                 1,326,000       1,506,000
                                                 -----------      ----------
    Totals                                        $3,185,000      $4,009,000
                                                 ===========      ==========

6. Commitments

    Convertible Promissory Notes

     On October 26, 2000,  Carl Berg, a Focus director and  shareholder,  loaned
Focus  $2,362,494 to  collateralize  a $2,362,494 bond posted in connection with
the CRA litigation (see "CRA Systems,  Inc."). The promissory note has a term of
three  years and bears  interest  at a rate of prime  plus 1% (4.75% at June 30,
2002).  Interest earned on the restricted  collateral  deposit is payable to Mr.
Berg.  The interest  payable by the Company to Mr. Berg is reduced by the amount
of interest earned on the restricted collateral deposit. The principal amount of
the note will be due at the end of its term on October 26, 2003,  with  interest
to be paid quarterly. Under certain circumstances,  including at the election of
Mr. Berg and Focus,  the promissory  note and any accrued and unpaid interest is
convertible  into shares of Focus common  stock at a  conversion  price of $1.25
which  represented the average closing bid and ask price of the Company's common
stock on the day preceding the agreement.  The  promissory  note is secured by a
security  agreement in favor of Mr. Berg granting him a first priority  security
interest, over substantially all of the assets of Focus. On May 7, 2001, $46,000
of  outstanding  interest  due  under the note was  converted  into 38 shares of
Series B Preferred  Stock. See "Note 7.  Stockholders  Equity - Preferred Stock"
for more information. In February 2002, in connection with the settlement of the
CRA Systems Inc. case,  the bond was liquidated and excess  proceeds of $145,000
were used to pay down a portion of this note.  As of June 30,  2002 the  Company
had  unpaid   principal  and  accrued  interest  due  under  the  note  totaling
approximately $2,326,000.

     On  February  28,  2001,  Carl Berg  agreed to loan Focus  $2.0  million to
support the Company's  working capital needs. The promissory note has a due date
of October 26, 2003 and bears interest at a rate of prime plus 1%. The principal
amount of the note will be due at the end of its term,  with interest to be paid
quarterly. On April 24, 2001, the note was amended to provide that under certain
circumstances,  including at the election of Mr. Berg and Focus,  the promissory
note and any accrued and unpaid  interest  is  convertible  into shares of Focus
preferred  stock at a  conversion  price of $1,190 per share  which  represented
1,000 (each  share of  preferred  is  convertible  into 1,000  shares of common)
multiplied by 125% of the trailing 30-day average of the Company's  common stock
ending April 23, 2001. The promissory note is secured by a security agreement in
favor of Mr.  Berg  granting  him a security  interest  in first  priority  over
substantially  all of the assets of Focus.  On May 7, 2001,  the Company and Mr.
Berg agreed to the conversion of $1,000,000 of the outstanding principal balance
and $16,000 of accrued interest into 854 shares of Series B Preferred Stock. See
"Note 7. Stockholders Equity - Preferred Stock" for more information. As of June
30, 2002 the  Company had  principal  and  accrued  interest  due under the note
totaling approximately $1,081,000.

     On June 29, 2001, the Company issued a convertible  promissory  note to Mr.
Berg in the amount up to  $650,000  to support  the  Company's  working  capital
needs. The promissory note had an original due date of January 3, 2003 which has
been extended to January 3, 2004 and bears  interest at a rate of prime plus 1%.
The  principal  amount  of the  note  will be due at the end of its  term,  with
interest to be paid  quarterly.  The note  provides  that at the election of Mr.
Berg and Focus,  the  promissory  note and any  accrued  and unpaid  interest is
convertible  into shares of Focus series C Preferred Stock at a conversion price
of $1,560  per  share  which  represented  1,000  (each  share of  preferred  is
convertible  into 1,000  shares of common)  multiplied  by 125% of the  trailing
30-day  average  of the  Company's  common  stock  ending  June  28,  2001.  The
promissory note is secured by a security agreement in favor of Mr. Berg granting
him a security  interest in first priority over  substantially all of the assets
of Focus. As of June 30, 2002 the Company had principal and accrued interest due
under the note totaling approximately $693,000.

                                       8
<PAGE>

                            Focus Enhancements, Inc.
              Notes To Unaudited Consolidated Financial Statements


     On January 16, 2001 in connection with the Videonics merger,  Focus assumed
an  unsecured  note payable to Carl Berg in the amount of  $1,035,000.  The note
earned  interest at 8% per year and was due on January 16, 2002. On May 7, 2001,
the  entire  outstanding  principal  balance  of  $1,035,000  and  approximately
$169,000  of accrued  interest  were  converted  into  1,012  shares of Series B
Preferred Stock.


     Restricted Collateral Deposit

     In connection with the CRA Systems,  Inc. ("CRA") judgment discussed below,
the Company posted a bond in the amount of $2,362,494 to suspend any enforcement
of the judgment  pending  appeal.  Carl Berg, a director and  stockholder of the
Company obtained the bond on Focus' behalf in exchange for a secured convertible
note  in  the  same  amount  as  described  in  "Convertible  Notes  Payable  to
Stockholder"  above.  The  bond  was  irrevocable  and was  collateralized  by a
certificate  of deposit in the amount of  $2,363,000.  In  February,  2002,  the
Company utilized the bond to pay CRA Systems Inc., $2,216,000 in accordance with
the judgment, consisting of the accrued legal judgment of $2,073,000 and accrued
interest  related  thereto  of  $143,000.  See "CRA  Systems  Inc." for  further
discussion.


     Class Action Suit

     Focus  and  one of  its  directors  have  been  named  as  defendants  in a
securities class action pending in United States District Court for the District
of Massachusetts.  The complaint  includes a class of stockholders who purchased
Focus  shares  during the period from July 17, 1997 to February  19,  1999.  The
complaint,  which was  initially  filed in November of 1999 and has been amended
several  times,  alleges  violations  of the federal  securities  laws and seeks
unspecified  monetary damages.  The defendants moved to dismiss the action.  The
Federal  District  Court granted  certain  portions of the motion to dismiss and
denied other portions,  allowing the case to go forward into pretrial  discovery
as to certain matters.

     On or about December 7, 2001 the parties  reached an agreement in principle
to  settle  this case and on or about May 23,  2002 the case was  settled  and a
final judgement was entered by the United States District Court.  The settlement
was funded entirely by proceeds from defendants' insurance carrier.

     CRA Systems, Inc.

     In 1996 Focus  entered  into a  distribution  agreement  with CRA , a Texas
corporation,  the terms and nature of which were  subsequently  disputed  by the
parties.  Focus contended that a particular  transaction in dispute with CRA was
simply a sale of inventory for which it was never paid. CRA contended otherwise.
CRA brought suit against Focus in 1998, for breach of contract and other claims,
contending  that Focus  grossly  exaggerated  the demand for the product and the
margin of profit that was available to CRA. CRA sought to recover  out-of-pocket
losses exceeding  $100,000 and lost profits of $400,000 to $1,000,000.  The case
was removed to the US District  Court for the Western  District of Texas. A jury
trial held in May 2000 in that court  resulted  in a verdict in favor of CRA for
$848,000 in actual  damages and $1,000,000 in punitive  damages.  On October 10,
2000, the court rendered a judgment in favor of CRA for actual damages, punitive
damages, attorney's fees, costs, and interest. In connection with this judgment,
Focus recorded an expense of $2,147,722 in the period ended  September 30, 2000.
The court  overruled a motion for new trial,  and Focus appealed the judgment to
the U.S.  Court of Appeals for the Fifth Circuit in New Orleans,  Louisiana.  On
October  27,  2000,  Focus  submitted a bond in the  approximate  amount of $2.3
million (being the approximate amount of the judgment plus 10% to cover interest
and costs of CRA) and the U.S.  District Court granted a stay of any enforcement
of the judgment  pending  appeal.  The Court of Appeals  held oral  arguments on
December 3, 2001. On January 3, 2002, the Court of Appeals affirmed the judgment
awarded to CRA virtually in its entirety.  As described above, Focus had already
recorded a charge to  operations  to  establish a legal  reserve for such amount
during the third quarter of 2000.  Such accrued  legal  judgement was reduced to
$2,073,000 at December 31, 2001 based on the final amount  affirmed by the Court
of Appeals.  In February,  2002, the Company utilized the bond to pay $2,216,000
in  accordance  with the judgment,  consisting of the accrued legal  judgment of
$2,073,000  and  accrued  interest  related  thereto of  $143,000.  Excess  bond
proceeds of $145,000  were used to pay down a  Convertible  Note  Payable to Mr.
Berg. See "Convertible  Promissory Notes" for further  discussion.  This case is
now closed.

                                       9
<PAGE>

                            Focus Enhancements, Inc.
              Notes To Unaudited Consolidated Financial Statements


    General

     From time to time,  the Company is party to certain  other claims and legal
proceedings  that arise in the ordinary course of business which, in the opinion
of  management,  will  not  have a  material  adverse  effect  on the  Company's
financial position or results of operations.

7. Stockholders' Equity

Preferred Stock

     On April 24, 2001, the board of directors of Focus adopted a Certificate of
Designation  whereby a total of 2,000 shares of Series B Preferred Stock,  $0.01
par value per share,  are reserved for  issuance.  Each share has a  liquidation
preference  in the amount of  $1,190.48  plus all accrued or declared but unpaid
dividends.  Cash dividends on the stock are  non-cumulative  and are paid at the
option of the board of directors.  If paid,  the rate shall be seven percent per
annum. The board does not presently intend to pay dividends on the stock. At the
option of the  holder,  each share is  convertible  into 1,000  shares of common
stock of Focus.

     On May 7, 2001, Carl Berg converted  approximately $2.3 million of debt and
accrued interest currently owed by Focus to Mr. Berg into 1,904 shares of Series
B convertible preferred stock based on the estimated fair value of the preferred
stock as of the date on which the related subscription agreement was executed.

     The Company is  obligated,  under certain  circumstances,  including at the
election  of Mr.  Berg  and  Focus,  to  convert  the  outstanding  balances  of
convertible  notes payable to Mr. Berg, and any unpaid interest,  into shares of
Focus  preferred  stock.  As of March 31,  2002,  approximately  1,341 shares of
preferred stock were subject to issuance to Mr. Berg pursuant to the convertible
notes payable  agreements.  See "Note 6.  Commitments  - Convertible  Promissory
Notes."

Common Stock

     On July 28,  2000,  the  Company  entered  into an  equity  line of  credit
agreement with Euston Investments  Holdings Limited  ("Euston"),  for the future
issuance and purchase of up to 4,000,000 shares of the Company's common stock at
a 10% discount.  In lieu of providing Euston with a minimum  aggregate  drawdown
commitment,  the Company issued to Euston a stock  purchase  warrant to purchase
250,000  shares of common  stock with an exercise  price of $1.625.  The warrant
expires  June 12, 2005.  The Company had sought to register  such shares under a
Registration Statement on Form SB-2. However,  before the registration statement
was declared effective, on January 11, 2002, Focus and Euston mutually agreed to
terminate the agreement.  As  consideration  for terminating the agreement,  the
exercise price of Euston's  warrants to purchase  250,000 shares of Focus common
stock was reduced from $1.625 to $0.75 per share.  The Company recorded a charge
to Other Expenses of approximately  $334,000 in the quarter ended March 31, 2002
based on the fair value of the repriced warrants. The fair value of the warrants
was calculated using the  Black-Scholes  option pricing model with the following
assumptions:  contractual  term of 17  months,  volatility  of 140%,  risk  free
interest rate of 2.9% and no dividends during the term of the warrant.

     On January 11, 2002, the Company  completed the sale of 2,434,490 shares of
its common  stock in a private  placement  to four  independent  third  parties,
receiving proceeds of approximately  $2,435,000,  which is net of offering costs
of $315,000. Additionally, the Company incurred $182,000 of costs during 2001 in
connection with this offering  (including  costs  associated with the subsequent
registration of the shares),  resulting in total offering costs of $497,000. The
shares were sold at a 20% discount to the 20-day  average  closing bid prices of
the  Company's  common stock as of December  27, 2001,  the date an agreement in
principle was reached by the parties.  In connection with the private placement,
the Company issued warrants to the four investors to purchase a total of 367,140
shares of common stock at an exercise price of $1.36 per share.  See also, "Note
8. Related Party Transactions."

     On March 1, 2002, the Company issued warrants to purchase 270,000 shares of
common stock as compensation to three unrelated parties for consulting  services
in the areas of investment  advisory,  investor  relations  and public  relation
services.  The warrants are exercisable for a period of two to three years at an
exercise prices ranging from $1.35 to

                                       10

<PAGE>

                            Focus Enhancements, Inc.
              Notes To Unaudited Consolidated Financial Statements


$1.50 per share. The Company recorded charges of approximately  $238,000 for the
quarter  ended  March 31,  2002  based on the fair value of the  warrants.  Such
amounts were recorded as General and administrative  expenses and the fair value
of the warrants was calculated using the Black-Scholes option pricing model with
the following assumptions:  contractual term of 2 to 3 years, volatility of 136%
to 140%,  risk free  interest  rate of 2.9% to 3.6% and no dividends  during the
term of the warrant.

     As of June 30, 2002, the Company was obligated under certain circumstances,
to issue the following  additional shares of common stock pursuant to derivative
securities, instruments or agreements:

                                                                  June 30, 2002
                                                                  -------------
    Warrants to purchase common stock                                 1,470,219
    Options to purchase common stock                                  6,252,357
    Notes payable convertible into common stock                       1,860,800
    Preferred Stock convertible into common stock                     1,904,000
                                                                      ---------
         Total shares of common stock obligated, under
          certain circumstances, to issue                            11,487,376
                                                                     ==========

In addition, the Company is obligated under certain  circumstances,  to issue up
to 1,352 shares of preferred  stock upon the  conversion of $1,774,000  debt and
accrued interest. See "Note 6. Commitments - Convertible Notes."

8.   Related Party Transactions

     During the quarter ended March 31, 2002, in connection  with its efforts to
find investors in the private placement  completed on January 11, 2002, vFinance
Investments  Inc.  received  $275,000 in cash and a warrant to purchase  123,690
shares of common stock of Focus at $1.36 per share.  Timothy  Mahoney,  who is a
Focus director, is a principal of vFinance.

9.       Significant Customers

     One customer  accounted for 13% of total revenue for the quarter ended June
30, 2002. In addition, two customers,  each with accounts receivable balances in
excess of 10% of our accounts  receivable  accounted  for 53% of total  accounts
receivable at June 30, 2002. One customer accounted for 12% of total revenue for
the quarter ended June 30, 2001. In addition, four customers, each with accounts
receivable  balances in excess of 10% of our accounts  receivable  accounted for
61% of total accounts receivable at June 30, 2001.

                                       11

<PAGE>

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 for the year ended December 31, 2001.

Certain Factors That May Affect Future Results

     From time to time,  information  provided by the Company or statements made
by its employees may contain "forward looking" information within the meaning of
the Section 27A of the  Securities  Act of 1933, as amended,  and Section 21E of
the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and as
such, may involve risks and uncertainties. Forward-looking statements, which are
based  on  certain  assumptions  and  describe  future  plans,  strategies,  and
expectations,  are generally identifiable by the use of words or phrases such as
"believe",  "plan", "expect",  "intend",  "anticipate",  "estimate",  "project",
"forecast",   "may  increase",  "may  fluctuate",   "may  improve"  and  similar
expressions or future or conditional  verbs such as "will",  "should",  "would",
and "could".  These  forward-looking  statements  relate to, among other things,
expectations of the business environment in which Focus operates,  opportunities
and   expectations   regarding   technologies,    anticipated   performance   or
contributions   from  new  and  existing   employees,   projections   of  future
performance,  possible  changes  in laws and  regulations,  potential  risks and
benefits arising from the implementation of the Company's strategic and tactical
plans, perceived  opportunities in the market,  potential actions of significant
stockholders  and  investment  banking  firms,  and  statements   regarding  the
Company's  mission and vision.  The Company's actual results,  performance,  and
achievements  may  differ   materially  from  the  results,   performance,   and
achievements  expressed or implied in such  forward-looking  statements due to a
wide range of factors.  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.  Each
forward looking  statement  should be read in conjunction  with the consolidated
financial  statements and notes thereto,  of this Quarterly  Report and with the
information  contained in Item 2, including,  but not limited to, "Risk Factors"
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 for the year ended December 31, 2001,  including,  but not
limited to, the section therein entitled "Certain Factors That May Affect Future
Results"  and  "Risk  Factors."  Focus  does  not  undertake,  and  specifically
disclaims any obligation,  to update any  forward-looking  statements to reflect
occurrences  or  unanticipated  events or  circumstances  after the date of such
statements.

Acquisition of Videonics

     On  January  16,  2001,  Focus  Enhancements,  Inc.,  acquired  all  of the
outstanding shares of Videonics,  Inc., ("Videonics") in a transaction accounted
for using the purchase  method of accounting.  Focus issued 0.87 shares of Focus
common stock for each issued and outstanding  share of Videonics common stock on
the  closing  date.  Based  on the  exchange  ratio,  a total  of  approximately
5,135,000  shares  were  issued.  Focus  incurred   approximately   $637,000  in
acquisition  expenses,  including  financial  advisory  and legal fees and other
direct  transaction  costs,  which were  included as a component of the purchase
price.

     In accordance with the Company's  restructuring  plan, it has significantly
reduced its post merger  staffing in the areas of operations,  customer  support
and finance as these areas have been consolidated  into the company's  Campbell,
California facility. In March 2001, the Company negotiated an early release from
its lease of a 22,000 square foot facility located in Wilmington,  Massachusetts
and has since moved its remaining  Massachusetts'  sales  personnel into a 2,800
square foot facility located in Chelmsford, Massachusetts.

                                       12

<PAGE>

Results of Operations

Net Revenues

     Net revenues for the  three-months  ended June 30, 2002 were  $4,512,000 as
compared  with  $6,489,000  for the  three-month  period  ended June 30,  2001 a
decrease of $1,977,000,  or 30%. Net revenues for the six-months  ended June 30,
2002 were $9,270,000 as compared with $11,498,000 for the six-month period ended
June 30, 2001, a decrease of $2,228,000 or 19%.

     For the three  months  ended June 30, 2002,  net sales to  Professional  AV
customers  were  approximately  $3,059,000  compared to $3,736,000  for the same
period in 2001, a decrease of $677,000 or 18%. For the six months ended June 30,
2002,  net sales to  Professional  AV customers  were  approximately  $5,229,000
compared to $7,067,000  for the same period in 2001, a decrease of $1,838,000 or
26%.  The  decrease  between  comparison  periods is the result of a decrease in
business to business sales as a result of the slowdown in the economy.

     For the three months ended June 30, 2002, net sales to OEM customers, which
includes contract revenues,  were approximately $560,000 as compared to $928,000
for  the  same period in 2001,  a decrease  of $368,000 or 40% (net sales to OEM
customers  for the  three  months  ended  June 30,  2001 have  been  reduced  by
$143,000,  from previously  reported amounts,  as certain products are now being
reported  within  consumer  sales.) For the six months ended June 30, 2002,  net
sales to OEM customers were  approximately  $1,792,000 as compared to $1,369,000
the same period in 2001, an increase of $423,000 or 31%. (net sales reported for
the six  months  ended  June 30,  2001  have  been  reduced  by  $143,000,  from
previously  reported amounts,  as certain products are now being reported within
consumer  sales.)  The  decrease  for the three  months  ended June 30,  2002 is
primarily  attributable  to a decrease  in contract  revenues of $270,000  and a
decline in scan converter sales as a result of the slowdown in the economy.  The
increase for the six months ended June 30, 2002 is primarily  attributable to an
increase in contract revenues of $430,000.

     For the three months ended June 30, 2002,  net consumer  sales to Resellers
consisting  of  Distributors,  Retailers,  VAR's  and  Education  segments  were
approximately  $893,000 as compared to $1,825,000 for the same period in 2001, a
decrease of $932,000 or 51%. For the six months  ended June 30, 2002,  net sales
to Resellers  were  approximately  $2,249,000 as compared to $3,062,000  for the
same period in 2001, a decrease of $813,000 or 27%.  Overall  sales to resellers
has been trending lower as a result of a reduction of nationwide computer sales,
decreased educational spending and the Company's  discontinuance of sales of its
products at certain retail accounts.

     As of June 30, 2002, the Company had a sales order backlog of approximately
$335,000.

Cost of Goods Sold

     Cost  of  goods  sold  were  $2,906,000,  or  64%  of net  sales,  for  the
three-months  ended June 30, 2002,  as compared with  $3,694,000,  or 57% of net
sales, for the three-months  ended June 30, 2001, a decrease of $788,000 or 21%.
The Company's  gross profit margin for the second quarters of 2002 and 2001 were
36% and 43%,  respectively.  Cost of goods sold were  $5,939,000,  or 64% of net
sales, for the six-months  ended June 30, 2002, as compared with $6,913,000,  or
60% of net sales, for the six months ended June 30, 2001, a decrease of $974,000
or 14%. The Company's  gross profit margin for the six month periods of 2002 and
2001 were 36% and 40%,  respectively.  The  majority  of the  decrease  in gross
profit as a percentage of revenue for the three and six month comparison periods
is primarily  due to a higher  percentage of fixed costs in relation to revenues
as a result of decreased revenue.

Sales, Marketing and Support Expenses

     Sales,  marketing  and  support  expenses  were  $1,330,000,  or 29% of net
revenues, for the three-months ended June 30, 2002, as compared with $1,646,000,
or 25% of net revenues,  for the three-months ended June 30, 2001, a decrease of
$316,000 or 19%. Sales,  marketing and support expenses were $2,716,000,  or 29%
of net  revenues,  for the  six-months  ended June 30,  2002,  as compared  with
$3,106,000,  or 27% of net revenues,  for the six-months  ended June 30, 2001, a
decrease of  $390,000  or 13%.  The  decrease  in sales,  marketing  and support
expenses in absolute  dollars is  primarily  the result of lower  staffing,  and
reduced marketing and advertising expenses.


                                       13
<PAGE>

General and Administrative Expenses

     General and  administrative  expenses for the  three-months  ended June 30,
2002 were  $542,000 or 12% of net  revenues,  as compared with $473,000 or 7% of
net revenues for the three-months ended June 30, 2001, an increase of $69,000 or
15%. General and administrative  expenses for the six-months ended June 30, 2002
were  $1,215,000 or 13% of net revenues,  as compared with  $1,216,000 or 11% of
net revenues for the six-months  ended June 30, 2001, a decrease of $1,000.  The
increase in general and administrative  expense for the three month period ended
June 30, 2002 is  primarily  attributable  to an increase in investor  relations
expense and an increase in bad debt expense.  On a six month  comparison  basis,
payroll  expenses,  consulting  and legal  fees  decreased,  but were  offset by
charges of  approximately  $238,000  associated with the issuance of warrants in
connection with consulting services and increased investor relations expenses of
approximately $114,000.

Research and Development Expenses

     Research and development  expenses for the three-months ended June 30, 2002
were approximately  $1,043,000 or 23% of net revenues, as compared with $903,000
or 14% of net revenues for the three-months  ended June 30, 2001, an increase of
$140,000 or 16%. Research and development expenses for the six-months ended June
30, 2002 were approximately  $1,965,000 or 21% of net revenues, as compared with
$1,898,000  or 17% of net revenues for the  six-months  ended June 30, 2001,  an
increase of $67,000 or 4%. The  increase in research  and  development  expenses
between three and six month  comparison  periods is due primarily to a reduction
in  engineering  work  performed  under  contract and as such less  research and
development  personnel  expenses  were  allocated  to costs of sales than in the
prior year.

Amortization

     Amortization  expenses for the three-month  period ended June 30, 2002 were
$217,000  or 5% of  net  revenues,  as  compared  with  $700,000  or  11% of net
revenues,  for the  three-months  ended June 30, 2001, a decrease of $483,000 or
69%.  Amortization  expenses for the  six-month  period ended June 30, 2002 were
$508,000  or 5% of net  revenues,  as  compared  with  $1,276,000  or 11% of net
revenues, for the six-months ended June 30, 2001, a decrease of $768,000 or 60%.
The decrease in terms of absolute dollars and as a percentage of net revenues is
primarily  due to the  Company's  adoption of FAS 142 on January 1, 2002,  under
which goodwill is no longer amortized. On a pro forma basis had the amortization
of goodwill and the assembled  workforce  intangible  asset ceased on January 1,
2001, the Company's amortization expense for the three and six months ended June
30, 2001 would have decreased by $396,000, and $863,000,  respectively,  and the
Company  would have  reported a net loss of  $647,000 or $0.02 per share and net
loss of  $2,904,000  or $0.09 per share,  respectively.  As of June 30, 2002, no
impairment  of goodwill  had been  recognized.  There can be no  assurance  that
future goodwill  impairment  tests will not result in a charge to earnings.  See
also "Note 4. Recent Accounting Pronouncements."

Restructuring Expenses

     For the  six-month  period  ended  June  30,  2001,  the  Company  recorded
restructuring   expenses   totaling  $33,000  related  to  the  closure  of  its
Wilmington, MA, facility.

Write-off of In-Process Technology

     In connection  with the  acquisition of Videonics,  the Company  recorded a
charge for purchased in-process  technology of $505,000 during the first quarter
of 2001.

Interest Expense, Net

     Net  interest  expense for the  three-month  period ended June 30, 2002 was
$34,000, or 1% of net revenues,  as compared to $100,000, or 2% of net revenues,
for the  three-months  ended June 30, 2001, a decrease of $66,000.  Net interest
expense for the six-month period ended June 30, 2002 was $117,000,  or 1% of net
revenues,  as compared to $223,000,  or 2% of net revenues,  for the  six-months
ended June 30, 2001, a decrease of $106,000. The decrease in interest expense is
primarily  attributable  to a decrease of debt  obligations  and lower  interest
rates.

                                       14
<PAGE>

Other Income/(Expense), Net

     Net  other  income  for the  three-month  period  ended  June 30,  2002 was
$48,000, or 1% of net revenues,  as compared to net other expense of $16,000, or
1% of net  revenues,  for the  three-months  ended  June 30,  2001,  a change of
$64,000.  Net other  income for the  six-month  period  ended June 30,  2002 was
$24,000, or 1% of net revenues,  as compared to net other expense of $95,000, or
1% of net  revenues,  for the  six-months  ended  June 30,  2001,  a  change  of
$119,000.

     Other  income  for the  three  months  ending  June 30,  2002 is  primarily
comprised of the settlement of debts for less than original  amounts owed. Other
expense  for the six months  ended June 30,  2002 is  primarily  comprised  of a
charge of $334,000  related to the  repricing  of warrants  associated  with the
termination  of an equity line of credit  offset by gains on the  settlement  of
debts for less than  original  amounts of $360,000.  Other expense for the three
and six months ended June 30, 2001 is  primarily  related to charges of $215,000
and $305,000,  respectively,  associated  with the untimely  registering of AMRO
International's  1,400,000  shares that were issued in connection with a private
placement in which the Company received gross proceeds of $1,500,000. Offsetting
these  charges  for the three and six months  ended June 30,  2001 were gains of
approximately $200,000 and $305,000, respectively,  related to the settlement of
debts for less than original amounts accrued

Liquidity and Capital Resources

     The  accompanying  condensed  consolidated  financial  statements have been
prepared on a going concern basis,  which contemplates the realization of assets
and the  satisfaction  of liabilities in the normal course of business.  For the
six months ended June 30, 2002 and the year ended December 31, 2001, the Company
incurred net losses of $3,166,000  and $6,658,000 ,  respectively,  and net cash
used in operating activities of $4,612,000, and $3,452,000,  respectively. These
factors  indicate  that the Company may  potentially  be unable to continue as a
going concern.

     The  consolidated  financial  statements  do not  include  any  adjustments
relating to the  recoverability  and classification of recorded asset amounts or
the amounts and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern. The Company's  continuation as
a going concern is dependent upon its ability to generate  sufficient cash flows
to meet its obligations on a timely basis, to obtain additional financing as may
be required,  and ultimately to return to profitability and significant positive
cash flows.

     Since inception,  the Company has financed its operations primarily through
the public and  private  sale of common  stock,  proceeds  from the  exercise of
options and warrants,  short-term  borrowing from private lenders, and favorable
credit arrangements with vendors and suppliers.

     Net cash used in operating  activities for the six-month periods ended June
30, 2002 and 2001 was $4,612,000 and $2,735,000,  respectively. In the first six
months of 2002, net cash used in operating  activities  consisted primarily of a
net loss of $3,166,000  adjusted for  depreciation and amortization of $661,000,
warrant issue expense of $573,000 and gain on debt settlement totaling $311,000,
a decrease in accounts  payable of $1,303,000  and payment of legal  judgment of
$2,073,000, partially offset by an decrease in inventories totaling $824,000. In
the first six months of 2001,  net cash used in operating  activities  consisted
primarily of a net loss of $3,767,000 adjusted for depreciation and amortization
of $1,503,000, the write-off of in-process technology related to the acquisition
of Videonics totaling $505,000, deferred compensation expense of $135,000 and an
increase in accounts  receivable of $1473,000  million,  partially  offset by an
increase in accounts payable of $168,000 and accrued expenses totaling $166,000.

     Two customers,  each with accounts  receivable balances in excess of 10% of
our accounts  receivable,  accounted for 53% of our total accounts receivable at
June 30, 2002.

     We expect that our operating  cash flows may fluctuate in future periods as
a result of  fluctuations  in our  operating  results,  shipment  linearity  and
accounts  receivable  collections,  inventory  management,  and  the  timing  of
payments among others.

     Net cash provided by investing activities for the six-months ended June 30,
2002 and 2001 was $2,300,000  and  $1,208,000,  respectively.  For the first six
months of 2002, cash provided in investing  activities was principally  from the
decrease in restricted collateral deposit of $2,363,000,  offset by the purchase
of property and equipment of $63,000.

                                       15
<PAGE>

In the first six months of 2001, cash was provided by the decrease in restricted
certificates  of  deposit of  approximately  $967,000  and net cash of  $360,000
provided  through the  acquisition  of Videonics on January 16, 2001,  partially
offset by the purchase of property and equipment of $119,000. The acquisition of
Videonics  was  accounted  for as a purchase  and made  through the  issuance of
approximately 5,135,000 shares of the Company's common stock.

     Net cash provided by financing activities for the three-month periods ended
June 30, 2002 and 2001 was $2,455,000 and $1,817,000, respectively. In the first
six months of 2002, the Company received $2,435,000 in net proceeds from private
offerings of common stock and $186,000 from the exercise of common stock options
which  were  partially  offset by  repayment  of  convertible  notes  payable to
shareholder  of  $145,000.  In the first  six  months  2001,  cash  provided  by
financing activities occurred primarily from the issuance of a note payable to a
stockholder  and director of the Company of  $2,200,000  offset by repayments of
$250,000 to a bank.

     As of June 30,  2002,  the Company had working  capital of  $2,582,000,  as
compared to $2,038,000 at December 31, 2001, an increase of $544,000.

     The Company has incurred losses and negative cash flows from operations for
the six months ended June 30, 2002 and each of the two years in the period ended
December 31, 2001 and as such has been  dependent  upon raising  money for short
and long-term  cash needs  through debt,  proceeds from the exercise of options,
and the sale of common  stock in private  placements.  For the six months  ended
June 30, 2002, the Company received  approximately $186,000 from the exercise of
common stock options and $2,435,000 in proceeds from private offerings of common
stock,  which is net of financing costs of $315,000.  Additionally,  the Company
incurred  $182,000  of  costs  during  2001 in  connection  with  this  offering
(including  costs  associated  with the subsequent  registration of the shares),
resulting in total offering costs of $497,000.

     On February 28, 2001, and June 29, 2001, the Company and Carl Berg, a Focus
director  and  stockholder,  entered into Secured  Convertible  Promissory  Note
agreements  under which Mr.  Berg loaned the Company a total of $2.7  million to
support  the  Company's  working  capital  needs.  On May 7, 2001,  the  Company
converted $2.3 million of outstanding  debt under two separate  promissory notes
and accrued  interest owed by Focus to Mr. Berg to Convertible  Preferred Stock.
See "Note 7 - Convertible Notes" for more information.

     At June 30, 2002, the Company owed Mr. Berg  approximately  $4.1 million in
principal and accrued interest on various notes.

     Management  has taken steps to reduce  costs,  including the closure of its
Wilmington,  MA facility on April 1, 2001. All operations,  customer support and
finance were moved into the Campbell,  CA,  facility.  In  connection  with this
restructuring,  the Company reduced overall  personnel by 13%. In April of 2002,
the Company further reduced its personnel by 9%.

     Management  is  assessing  its  product  lines to  identify  how to enhance
existing or create new distribution  channels. In addition, the Company released
two new  products  in the first six  months of 2002,  and  expects to release at
least one more new product by year-end.

     Ultimate future capital requirements will depend on many factors, including
cash flow from  operations,  continued  progress  in  research  and  development
programs,  competing  technological and market developments,  and our ability to
market our products successfully.  Additional financings may be required in 2002
as the Company  implements  its business  plan. As of June 30, 2002, the Company
had no commitments from any other sources to provide  additional  equity or debt
financing.  As such,  there can be no assurance  that  sufficient  funds will be
raised.  Moreover,  any  equity  financing  would  result  in  dilution  to  our
then-existing  stockholders  and any  additional  debt  financing  may result in
higher interest expense.

     There is no assurance  that  management's  plans will be  successful  or if
successful, that they will result in the Company continuing as a going concern.

                                       16

<PAGE>

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.

Risk Factors

     You should carefully  consider the following risks relating to our business
and our common stock, together with the other information described elsewhere in
this  prospectus.  If any of the following risks actually  occur,  our business,
results of operations and financial condition could be materially affected,  the
trading price of our common stock could decline,  and you might lose all or part
of your investment.

Risks Related to Our Business

We have a long history of operating losses.

     As of June 30,  2002,  we had an  accumulated  deficit of  $58,532,000.  We
incurred  net losses of $3,166,  000,  $6,658,000  and  $12,029,000  for the six
months  ended June 30,  2002 and the years  ended  December  31,  2001 and 2000,
respectively.  There  can  be no  assurance  that  we  will  become  profitable.
Additionally,  our  auditors  have  included an  explanatory  paragraph in their
report on our  financial  statements  for the year ended  December 31, 2001 with
respect to uncertainties  about our ability to continue as a going concern.  The
financial  statements do not include any adjustments  that might result from the
outcome of that uncertainty.

We may need to raise additional capital which will result in further dilution of
existing and future stockholders.

     Historically,  we have met our short-and long-term extra cash needs through
debt and the sale of common stock in private  placements  because cash flow from
operations  has been  insufficient  to fund our  operations.  Set forth below is
information regarding net proceeds received recently:

                        Private Offerings Of   Issuance of   Exercise of Stock
                            Common Stock           Debt     Options and Warrants
                            ------------           ----     --------------------

First six months 2002        $2,435,000                --            $186,000
Fiscal 2001                          --        $2,650,000            $199,000
Fiscal 2000                  $1,284,000        $2,363,000          $1,121,000


     Future  capital  requirements  will depend on many factors,  including cash
flow from operations,  continued progress in research and development  programs,
competing  technological and market developments,  and our ability to market our
products successfully.  If we require additional equity or debt financing in the
future,  there  can be no  assurance  that  sufficient  funds  will  be  raised.
Moreover,  any equity  financing or convertible debt would result in dilution to
our  then-existing  stockholders  and could have a negative effect on the market
price of our common stock. Furthermore, any additional debt financing may result
in higher interest expense.

     In the event we are unable to raise additional  capital, we may not be able
to fund our  operations  which  could  result in the  inability  to execute  our
current business plan.

We have a significant amount of derivative  securities that will dilute existing
shareholders upon conversion.

     At June 30,  2002,  we had  35,606,907  and  1,904  shares  of  common  and
preferred shares issued and outstanding,  respectively,  and 1,470,219  warrants
and 6,252,357  options that are  exercisable  into shares of common  stock.  The
1,904 shares of preferred  stock are  convertible  into 1,904,000  shares of our
common stock. We also may issue additional  shares in acquisitions and may grant
942,983  additional  stock  options to our  employees,  officers,  directors and
consultants under our current stock option plans.

                                       17
<PAGE>

     In addition, the Company is obligated under certain circumstances, to issue
up to 1,353 shares of preferred stock upon the conversion of $1,774,000 debt and
accrued interest. See "Note 6. Commitments - Convertible Notes."

We are dependent upon a significant  stockholder  to meet our interim  financing
needs.

     We have relied upon the ability of Carl Berg,  a director  and  significant
owner of our common stock for interim  financing  needs. As of June 30, 2002, we
had an aggregate of approximately  $4.1 million in debt outstanding to Mr. Berg.
There can be no  assurances  that Mr. Berg will continue to provide such interim
financing should we need additional funds.

We rely on certain vendors for a significant portion of our manufacturing.

     Over 50% of the components for our products are  manufactured  on a turnkey
basis by four vendors,  Furthertech Company, Ltd., Sicon International,  Samsung
Semiconductor Inc., and Asemtec  Corporation.  In addition,  certain of products
are  assembled  by a  single  vendor  in  Mexico.  If these  vendors  experience
production  or shipping  problems  for any reason,  we in turn could  experience
delays in the  production  and  shipping  of our  products,  which would have an
adverse effect on our results of operations.

We are dependent on our suppliers.

     We purchase all of our parts from outside  suppliers  and from time to time
experience   delays  in  obtaining  some   components  or  peripheral   devices.
Additionally,  we are dependent on sole source suppliers for certain components.
We attempt to reduce the risk of supply interruption by evaluating and obtaining
alternative  sources for various  components  or  peripheral  devices  when such
sources are available.  However, there can be no assurance that supply shortages
will not occur in the future which could  significantly  increase  the cost,  or
delay  shipment,  of our  products,  which in turn  could  adversely  affect our
results of operations.

We rely on sales to a few major customers for a large part of our revenues.

     One customer  accounted for 13% of total revenue for the quarter ended June
30, 2002.  In addition,  two customers  accounted for 53% of our total  accounts
receivable at June 30, 2002. We do not have  long-term  contracts  requiring any
customer to purchase any minimum  amount of products.  There can be no assurance
that we will  continue to receive  orders of the same  magnitude  as in the past
from  existing  customers  or we will be able to market our  current or proposed
products  to new  customers.  Loss of any major  customer  would have a material
adverse effect on our business as a whole. Furthermore, many of our products are
dependent  upon the overall  success of our  customer's  product,  over which we
often have no control.

Our products may become obsolete very quickly.

     The computer peripheral markets are characterized by extensive research and
development  and rapid  technological  change  resulting  in short  product life
cycles.  Development  by  others  of  new or  improved  products,  processes  or
technologies  may  make our  products  or  proposed  products  obsolete  or less
competitive.  We must devote  substantial  efforts and  financial  resources  to
enhance  our  existing  products  and to develop new  products.  There can be no
assurance that we will succeed with these efforts.

                                       18
<PAGE>

We may not be able to protect our proprietary information.

     We have a total of  eight  patents  issued,  of which  five  relate  to our
PC-to-TV  video-graphics  products.  We treat our technical data as confidential
and  rely  on  internal  non-disclosure  safeguards,  including  confidentiality
agreements with employees,  and on laws protecting trade secrets, to protect our
proprietary  information.  There can be no assurance  that these  measures  will
adequately protect the  confidentiality of our proprietary  information or prove
valuable in light of future technological developments.

Delays in product  development  could  adversely  affect our market  position or
customer relationships.

     We have  experienced  delays  in  product  development  in the past and may
experience similar delays in the future.  Given the short product life cycles in
the markets for our products,  any delay or unanticipated  difficulty associated
with new product  introductions or product  enhancements  could cause us to lose
customers and damage our competitive  position.  Prior delays have resulted from
numerous factors, such as:

     o    changing product specifications;  difficulties in hiring and retaining
          necessary personnel;
     o    difficulties in reallocating  engineering resources and other resource
          limitations;
     o    difficulties with independent contractors;
     o    changing  market or competitive  product  requirements;  unanticipated
          engineering complexity;
     o    undetected errors or failures in software and hardware;
     o    delays in the acceptance or shipment of products by customers; and
     o    economic, labor or political problems in Mexico.

     If we are  unable  to  respond  to rapid  technological  change in a timely
manner, then we may lose customers to our competitors.

     To  remain  competitive,  we must  continue  to  enhance  and  improve  the
responsiveness,  functionality  and  features of our  products.  Our industry is
characterized  by rapid  technological  change,  changes  in user  and  customer
requirements and preferences and frequent new product and service introductions.
If competitors introduce products and services embodying new technologies, or if
new industry  standards  and  practices  emerge,  then our existing  proprietary
technology  and systems may become  obsolete.  Our future success will depend on
our ability to do the following:

     o    both license and internally develop leading technologies useful in our
          business;
     o    enhance our existing technologies;
     o    develop new services  and  technology  that  address the  increasingly
          sophisticated and varied needs of our prospective customers; and
     o    respond to technological  advances and emerging industry standards and
          practices on a cost-effective and timely basis.

     To develop our proprietary  technology  entails  significant  technical and
business risks.  We may use new  technologies  ineffectively,  or we may fail to
adapt our proprietary  technology and transaction processing systems to customer
requirements  or emerging  industry  standards.  If we face  material  delays in
introducing  new  services,  products and  enhancements,  then our customers may
forego the use of our services and use those of our competitors.

We typically operate without a significant amount of backlog.

     We  typically  operate  with a small  amount of  backlog.  Accordingly,  we
generally do not have a material backlog of unfilled orders, and revenues in any
quarter  are  substantially  dependent  on orders  booked in that  quarter.  Any
significant  weakening in current  customer  demand would therefore have and has
had in the past an almost immediate adverse impact on our operating results.

Our quarterly financial results are subject to significant fluctuations.

     We have  been  unable  in the past to  accurately  forecast  our  operating
expenses or revenues. Our revenues currently depend heavily on volatile customer
purchasing patterns. If actual revenues are less than projected revenues, we may
be unable to reduce expenses  proportionately,  and our operating results,  cash
flows and liquidity would likely be adversely affected.

                                       19

<PAGE>

In the past, our common stock has not met the minimum levels to remain listed on
the Nasdaq SmallCap Market. If we were to be delisted,  it could make trading in
our stock more difficult.

     Our common stock is traded on the Nasdaq SmallCap Market. There are various
quantitative  listing  requirements for a company to remain listed on the Nasdaq
SmallCap Market.

     o    We must maintain stockholders' equity of $2,500,000. At June 30, 2002,
          we had total  stockholders'  equity of $5.8 million.  To the extent we
          continue  losing  money  and  do not  raise  additional  capital,  our
          stockholders' equity will be reduced.
     o    We are required to maintain a minimum bid price of $1.00 per share for
          our common  stock.  The closing  price of our common stock on June 30,
          2002 was $1.38.  On August 9, 2002,  the  closing  price of our common
          stock was $1.32.

     If we fail these Nasdaq  SmallCap  requirements  in the future,  our common
stock could be delisted,  eliminating  the only  established  trading market for
shares of our  common  stock.  Any sales of our common  stock at a  discount  to
market may reduce the  trading  price of our common  stock to a level  below the
Nasdaq minimum bid price requirement.

     In the event we are delisted  from  Nasdaq,  we would be forced to list our
shares on the OTC Electronic Bulletin Board or some other quotation medium, such
as  pink  sheets,  depending  on  our  ability  to  meet  the  specific  listing
requirements of those quotation  systems.  As a result an investor might find it
more difficult to dispose of, or to obtain  accurate price  quotations  for, our
shares. Delisting might also reduce the visibility,  liquidity, and price of our
common stock.

Our common stock price is volatile.

     The  market  price for our  common  stock is  volatile  and has  fluctuated
significantly to date. For example,  between July 1, 2001 and June 30, 2002, the
per share price of our stock has  fluctuated  between $0.82 and $2.18 per share,
closing at $1.38 at June 30,  2002.  The  trading  price of our common  stock is
likely to continue to be highly  volatile  and subject to wide  fluctuations  in
response to factors including, but not limited to, the following:

     o    actual or anticipated variations in our quarterly operating results;
     o    announcements of technological  innovations,  new sales formats or new
          products or services by us or our competitors;
     o    changes in financial estimates by securities analysts;
     o    changes in the economic  performance and/or market valuations of other
          multi-media, video scan companies;
     o    announcements   by   us   of   significant   acquisitions,   strategic
          partnerships,  joint ventures or capital  commitments;
     o    additions or departures of key personnel; and
     o    sales of common stock or issuance of other dilutive securities.

     In addition,  the  securities  markets have  experienced  extreme price and
volume  fluctuations,  and the market  prices of the  securities  of  technology
companies have been especially volatile. These broad market and industry factors
may  adversely  affect the market price of our common  stock,  regardless of our
actual operating  performance.  In the past,  following periods of volatility in
the market price of stock,  many  companies  have been the object of  securities
class  action  litigation,  including  us. If we are sued again in a  securities
class  action,  then it could  result  in  additional  substantial  costs  and a
diversion of management's attention and resources.

Risks Related to Our Industry

International sales are subject to significant risk.

     Our revenues from outside the United  States are subject to inherent  risks
related thereto, including currency rate fluctuations,  the general economic and
political  conditions  in each  country.  There  can be no  assurance  that  the
economic crisis and currency issues currently being experienced in certain parts
of the world will not have a material adverse effect on our revenue or operating
results in the future.

                                       20
<PAGE>

Our businesses are very competitive.

     The  computer   peripheral  markets  are  extremely   competitive  and  are
characterized  by  significant  price  erosion  over the life of a  product.  We
currently  compete with other developers of video  conversion  products and with
video-graphic  integrated  circuit  developers.  Many  of our  competitors  have
greater market recognition and greater financial, technical, marketing and human
resources.  Although  we are not  currently  aware of any  announcements  by its
competitors that would have a material impact on its operations, there can be no
assurance  that  we  will  be able  to  compete  successfully  against  existing
companies or new entrants to the marketplace.

     The  video  production  equipment  market  is  highly  competitive  and  is
characterized  by  rapid  technological  change,  new  product  development  and
obsolescence, evolving industry standards and significant price erosion over the
life of a product.  Competition is fragmented with several hundred manufacturers
supplying  a  variety  of  products  to this  market.  We  anticipate  increased
competition  in the video  post-production  equipment  market from both existing
manufacturers  and new market entrants.  Increased  competition  could result in
price  reductions,  reduced margins and loss of market share, any of which could
materially and adversely affect our business, financial condition and results of
operations.  There  can  be no  assurance  that  we  will  be  able  to  compete
successfully against current and future competitors in this market.

     Often our competitors have greater financial,  technical,  marketing, sales
and customer  support  resources,  greater name recognition and larger installed
customer bases than we possess. In addition,  some of our competitors also offer
a wide variety of video equipment,  including professional video tape recorders,
video cameras and other related equipment.  In some cases, these competitors may
have a competitive  advantage based upon their ability to bundle their equipment
in certain large system sales.

The  energy  crisis  in the  State of  California  could  adversely  effect  our
operations.

     The western United States (and  California in particular)  has  experienced
repeated episodes of diminished  electrical power supply and fluctuating  energy
costs. This has resulted in uncertainty  regarding the settlement of the various
financial  components  of the  crisis.  These  financial  components  include  a
potential  adverse  impact  on the  State  of  California's  general  fund,  the
determination  of which energy  customers  will bear what cost burdens,  and the
resolution of the financial status of the two largest utilities in the State.

     We remain  concerned  about the  potential  impact of  California's  energy
crisis upon our  operations  and the  financial  condition of our  customers and
suppliers  in  California.  We are not a  particularly  large  user  of  energy.
However, our California offices at this time do not have backup generators,  and
hence we would need to curtail  our  operations  in the event of an  electricity
brown-out or black-out.

We  are  exposed  to  general   economic   conditions   that  have  resulted  in
significantly  reduced sales levels. If such adverse economic conditions were to
continue or worsen,  our business,  financial  condition  and operating  results
could be adversely impacted.

If the adverse economic conditions in the United States and throughout the world
economy  continue or worsen,  we may experience a material adverse impact on our
business,  operating  results,  and  financial  condition.  We took  actions and
charges in fiscal year 2002 to reduce our cost of sales and  operating  expenses
in order to address  these  adverse  conditions.  A  prolonged  continuation  or
worsening of sales trends may require  additional  actions and charges to reduce
cost of sales and operating expenses in subsequent quarters. We may be unable to
reduce cost of sales and operating  expenses at a rate and to a level consistent
with such a future  adverse  sales  environment.  If we must  undertake  further
expense  reductions,  we  may  incur  significant  incremental  special  charges
associated  with such expense  reductions  that are  disproportionate  to sales,
thereby  adversely  affecting  our business,  financial  condition and operating
results.  Continuing  weakness  in the  economy  could  decrease  demand for our
products,  increase  delinquencies  in payments  and  otherwise  have an adverse
impact on our business.

                                       21
<PAGE>

Recent corporate bankruptcies,  accounting  irregularities,  and alleged insider
wrong doings have negatively  affected  general  confidence in the stock markets
and the  economy,  further  depressing  the stock  market and  causing  the U.S.
Congress to enact sweeping legislation.

In an effort to address  these  growing  investor  concerns,  the U.S.  Congress
passed, and on July 30, 2002, President Bush signed into law, the Sarbanes-Oxley
Act of 2002. This sweeping legislation  primarily impacts investors,  the public
accounting  profession,   public  companies,   including  corporate  duties  and
responsibilities, and securities analysts. Some highlights include establishment
of a new  independent  oversight  board for public  accounting  firms,  enhanced
disclosure  requirements  for  public  companies  and their  insiders,  required
certification  by CEO's  and CFO's of SEC  financial  filings,  prohibitions  on
certain loans to offices and  directors,  efforts to curb  potential  securities
analysts'  conflicts of interest,  forfeiture of profits by certain  insiders in
the event  financial  statements are restated,  enhanced  board audit  committee
requirements,   whistleblower  protections,  and  enhanced  civil  and  criminal
penalties  for  violations  of  securities  laws. It is difficult to predict the
impact of such  legislation,  however it could  increase the costs of securities
law compliance for publicly traded companies such as Focus.

                                       22
<PAGE>

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Class Action Suits

     Focus and one of our  directors  were named as  defendants  in a securities
class  action  pending  in United  States  District  Court for the  District  of
Massachusetts.  The  complaint  includes a class of  stockholders  who purchased
Focus  shares  during the July 17, 1997 to February  19, 1999 period  (C.A.  No.
99-12344-DPW).  The complaint  was  initially  filed in November of 1999 and has
been amended several times. The complaint  purports to allege  violations of the
federal securities laws and seeks unspecified monetary damages. Defendants moved
to dismiss the action.  The Federal  District Court granted certain  portions of
our motion to dismiss and denied other portions, allowing the case to go forward
into pretrial discovery as to certain matters.

     On or about December 7, 2001 the parties  reached an agreement in principle
to  settle  this case and on or about May 23,  2002 the case was  settled  and a
final judgement was entered by the United States District Court.  The settlement
was funded entirely by proceeds from defendants'  insurance carrier. The case is
now closed.

CRA Systems, Inc.

     In 1996 we  entered  into an  agreement  with CRA  Systems,  Inc.,  a Texas
corporation,  the terms and nature of which were  subsequently  disputed  by the
parties.  We contended that the  transaction  was simply a sale of inventory for
which we were never paid.  CRA  contended  otherwise.  CRA brought  suit against
Focus and on September 21, 1998,  filed in the 170th Judicial  District Court of
McLennon  County,  Texas (Case No.  98-3151-4)  for breach of contract and other
claims,  contending  that we grossly  exaggerated the demand for the product and
the margin of profit that was  available  to CRA  regarding  this  project.  CRA
sought to recover  out-of-pocket  losses exceeding  $100,000 and lost profits of
$400,000 to  $1,000,000.  The case was removed to the US District  Court for the
Western District of Texas, Waco, Texas (Civil No. W-99-CA-031).  A jury trial in
May 2000 in that court resulted in a verdict in favor of CRA for $848,000 actual
damages and $1,000,000 punitive damages. On October 10, 2000, the court rendered
a judgment  in favor of CRA for actual  damages,  punitive  damages,  attorney's
fees,  costs,  and interest.  In connection  with this judgment,  we recorded an
expense  of  $2,147,722  in the  period  ended  September  30,  2000.  The court
overruled  the motion for new trial that we filed,  and we appealed the judgment
to the U.S. Court of Appeals for the Fifth Circuit in New Orleans, Louisiana. On
October 27, 2000, we submitted a bond in the approximate  amount of $2.3 million
(being the  approximate  amount of the judgment  plus 10% to cover  interest and
costs of CRA) and the U.S.  District Court granted a stay of any  enforcement of
the judgment pending appeal. The Court of Appeals held oral argument on December
3, 2001. On January 3, 2002, the Court of Appeals  affirmed the judgment awarded
to CRA virtually in its entirety. We had already recorded a charge to operations
to establish a legal  reserve for such amount  during the third quarter of 2000.
Therefore, in February 2002, the Company utilized the bond to pay CRA $2,215,600
in accordance with the judgement.  Excess bond proceeds of $145,000 were used to
pay down a Convertible  Note Payable to Mr. Berg. See "See Note 6. Commitments -
Convertible Promissory Notes" for further discussion. This case is now closed.

General

     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,  do not have a material  adverse effect on the Company's
financial position or results of operation.

                                       23
<PAGE>

Item 2. Changes in Securities

     (a) (None)

     (b) (None)

     (c) (None)

Item 3. Defaults Upon Senior Securities

         (None)

Item 4. Submission of Matters to a Vote of Security Holders

         (None)

Item 5. Other Information

         (None)

Item 6. Exhibits and Reports on Form 8-K

     (a) Exhibits

          Exhibit  10.39 - Third  Addendum to Lease  Dated July 6, 1994,  By And
          Between H-K Associates (Lessor) and Focus Enhancements,  Inc. (Lessee)
          For Premises At 1370 Dell Ave, Campbell, California.

          Exhibit 99.1 - CEO 906 Certification

          Exhibit 99.2 - CFO 906 Certification

     (b) Reports on Form 8-K

         (None)

                                       24

<PAGE>

                                   SIGNATURES


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized.



   August 13, 2002                               Focus Enhancements, Inc.
---------------------------                     --------------------------
           Date                                         Registrant



                                              By:/s/  Gary L. Williams
                                                 ------------------------
                                                      Gary L. Williams
                                                 Vice President of Finance,
                                                  Chief Financial Officer
                                            (Principal Financial and Accounting
                                               Officer and Authorized Signer)