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 AVENUE,
CAMPBELL, CALIFORNIA 95008.


Whereas Lessee desires to renew its above  referenced  Lease,  Lessor and Lessee
agree to the following changes and additions for a new Lease term.

1.   PREMISES:
     Premises consist of 27,500 square feet of space.

2.   TERM:
     The term of the Lease  shall be for three (3) years,  commencing  August 1,
     2002, and ending July 31, 2005.

3.   RENT:
     Rent shall be based on a NNN Lease as per the following:
     First year - $1.00 per square foot per month.
     Second year - $1.00 per square foot per month.
     Third year - $1.05 per square foot per month.

4.   SECURITY DEPOSIT:
     Lessee  currently  has a Security  Deposit on  account  with  Lessor in the
     amount of  $37,125.00.  $8,250.00  of  Lessee's  Security  Deposit  will be
     applied to the August 2002 rent.  This will bring  Lessee's  total Security
     Deposit to $28,875.00

5.   RIGHT TO RENEW LEASE:
     Lessee  shall  have the right to renew  this  Lease for one 3 year  period.
     Lessee  shall give  Lessor  written  notice of its intent to renew not Less
     than 180 days prior to the  expiration  of the Lease.  Rent for the renewal
     shall be as follows:
          First year - $1.10 NNN per square foot per month.
          Second year - $1.15 NNN per square foot per month.
          Third year - $1.20 NNN per square foot per month.

6.   TENANT IMPROVEMENTS:
     Lessor, at Lessors expense, shall provide the following:
     a) Supply new air-conditioning ducting to MIS room.
     b) Touch up paint  as  agreed  upon  between  Lessor  and  Lessee.  Repaint
     breakroom cabinets and install new gray counter top. Repaint coffee counter
     cabinet and install new gray counter top.
     c) Repair bubbled carpet areas.
     d) Repair tile area at side building entrance.
     e) Replace any stained or damaged ceiling tile.


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Addendum to Lease dated July 6, 1994

7.   NNN EXPENSES:
     Lessee's NNN expenses shall not exceed an average of $0.07 per square foot,
     per month,  annually,  for the first and second  years of said  Lease,  and
     $0.08 per  square  foot,  per month,  annually,  for the third year of said
     Lease.  Upon Lessee's  renewal option,  (see Paragraph 5), the NNN expenses
     shall not exceed an average of $0.09 per square foot,  per month,  annually
     for the first year,  $0.10 per square  foot,  per month,  annually  for the
     second year, and $0.11 per square foot,  per month,  annually for the third
     year of the renewal

8.   SUBLEASE:
     Lessor agrees to assist  Lessee in subleasing  any excess space that Lessee
     no longer  requires.  Any rent proceeds  shall be divided  equally  between
     Lessor and  Lessee.  Any  Sublease  shall not effect the base  rental  rate
     agreed upon between Lessor and Lessee.

ALL other  terms and  conditions  shall be as stated in the Lease  dated July 6,
1994

H-K ASSOCIATES                                   FOCUS ENHANCEMENTS, INC.

BY    /s/ Neil Hamm                              BY    /s/ Gary Williams
      ---------------------------------                -------------------------

Title General Partner                            Title VP of Finance & CFO
      ---------------------------------                -------------------------

Date  June 2, 2002                               Date  May 14, 2002
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