Document:

Exhibit 10.85

                              EMPLOYMENT AGREEMENT
                                  ("Agreement")

FOCUS Enhancements,  Inc., a Delaware  Corporation  (hereinafter  referred to as
"Employer") and Michael  D'Addio  (hereinafter  referred to as  "Employee"),  in
consideration of the mutual promises made herein, agree as follows:

                                    ARTICLE 1
                               TERM OF EMPLOYMENT

                                Specified Period

Section 1.1

                  Employer hereby employs Employee,  and Employee hereby accepts
employment  with Employer for the period  beginning on the effective date of the
merger   between   Videonics,   Inc.,  a  California   corporation,   and  Focus
Enhancements,  Inc. (through Employer's wholly owned subsidiary), the "effective
date," and terminating on December 31, 2003 ("Initial Term").

                                 Succeeding Term

Section 1.2

                  After December 31, 2003,  this employment  relationship  shall
become an  employment  at will  terminable  by either  party for any reason (the
"Succeeding Term").

                            "Employment Term" Defined

Section 1.3

                  As used  herein,  the phrase  "employment  term" refers to the
entire period of employment of Employee by Employer  hereunder,  whether for the
periods provided above, or whether terminated earlier as hereinafter provided or
extended automatically or by mutual agreement between Employer and Employee.

                                    ARTICLE 2
                       DUTIES AND OBLIGATIONS OF EMPLOYEE

                                 General Duties
Section 2.1

                  Employee shall serve as Employer's President & Chief Executive
Officer. In such capacity,  Employee shall do and perform all services,  acts or
things in  accordance  with the policies set by  Employer's  Board of Directors.
Employee shall perform such services  primarily in Campbell,  California,  which
location  shall serve as the  location of  Employer's  new  principal  executive
offices  location,  except that the parties  understand that temporary travel on
Employer's business to other sites shall be required.  The parties may designate
another  location  for  Employee to primarily  perform his  services;  provided,
however,  that Employee's  permanent place of employment  shall not be more than
twenty-five miles from Campbell, California absent Employee's written consent.

                         Devotion to Employer's Business
Section 2.2

                  (a) Employee  shall devote  substantially  all his  productive
time,  ability and attention to the business of Employer during the term of this
Agreement.

                  (b) Employee shall not engage in any other business  duties or
pursuits  whatsoever,  or  directly  or

<PAGE>

indirectly render any services of a business,  commercial or professional nature
to any other person or  organization,  whether for  compensation  or  otherwise,
without  the prior  written  consent  of the Board of  Directors  except for (1)
boards of directors of private companies on which Employee  currently serves and
(2) other boards of directors  to which  Employee  shall not devote more than 16
hours  of  service  per  month  (measured  on an  annual  basis).  However,  the
expenditure  of  reasonable  amounts  of  time  for  education,   charitable  or
professional  activities shall not be deemed a breach of this Agreement if those
activities do not  materially  interfere  with the services  required under this
Agreement.

                  (c) In addition to Employee's  providing occasional service as
a member of the Board(s) of Directors as provided  above,  this Agreement  shall
not be interpreted to prohibit Employee from making passive personal investments
or conducting  private  business  affairs if those  activities do not materially
interfere with the services required under this Agreement.

       Confidential Information; Tangible Property; Competitive Activities

Section 2.3

                  (a) Employee  shall hold in confidence and not use or disclose
to any person or entity without the express written  authorization  of Employer,
either  during  the  term  of  employment  or any  time  thereafter,  secret  or
confidential  information  of Employer.  Information  and materials  received in
confidence from third parties by Employee with respect to the performance of his
duties for  Employer is  included  within the  meaning of this  section.  If any
confidential  information  described below is sought by legal process,  Employee
will promptly notify Employer and will cooperate with Employer in preserving its
confidentiality in connection with any legal proceeding.

                  The parties hereto hereby  stipulate that, to the extent it is
not known  publicly,  the following  information is important,  material and has
independent  economic value (actual or potential) from not being generally known
to  others  who  could  obtain   economic  value  from  its  disclosure  or  use
("Confidential  Information"),  and that any breach of any terms of this Section
2.3 is a material breach of this Agreement:

                  (i)      The names, buying habits and practices of Employer's
                           customers or prospective customers;
                  (ii)     Employer's marketing methods and related data;
                  (iii)    The names of Employer's vendors and suppliers;
                  (iv)     Cost of materials / services;
                  (v)      The prices Employer obtains or has obtained or for
                           which it sells or has sold its products or services;
                  (vi)     Production costs;
                  (vii)    Compensation paid to employees or other terms of
                           employment;
                  (viii)   Employer's past and projected sales volumes;
                  (ix)     Proposed new products / services;
                  (x)      Enhancements of existing products / services; and
                  (xi)     Any additional information deemed by Employer to be
                           confidential by marking or stamping "Confidential" or
                           similar  words on the cover of such  information,  by
                           advising  Employee  orally or in writing that certain
                           information is confidential.

                  All software  code,  methodologies,  models,  samples,  tools,
machinery, equipment, notes, books, correspondence,  drawings and other written,
graphical or electromagnetic records relating to any of the products of Employer
or relating to any of the  Confidential  Information  of Employer which Employee
shall prepare, use, construct,  observe,  possess, or control shall be and shall
remain the sole  property  of Employer  and shall be  returned by Employee  upon
termination of employment.

                  (b) During  the term of this  Agreement,  Employee  shall not,
directly or indirectly,  either as an employee,  consultant,  agent,  principal,
partner,  stockholder  (except in a publicly held company),  corporate  officer,
director,  or in any other  individual  or  representative  capacity,  engage or
participate in any business that is in competition in any manner whatsoever with
the then business of Employer.

                  (c) During his  employment  hereunder,  Employee  agrees  that
Employee  will  not  undertake  planning  for or  organization  of any  business
activity competitive with Employer's business, or combine or conspire with other

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<PAGE>

employees  or  representatives  of  Employer's   business  for  the  purpose  of
organizing any competitive business activity.

                  (d)  During  his  employment  hereunder  and for two (2) years
thereafter,  Employee  agrees  that he will not  directly or  indirectly,  or by
action  in  concert  with  others,  induce  or  influence  (or seek to induce or
influence)  any person who is then engaged (as an employee,  agent,  independent
contractor,  or otherwise) by Employer to terminate his employment or engagement
for the purpose of employing  such person in any enterprise in which Employee is
a member of Management or has a material interest.

                  (e)  Covenants  of this  Section  2.3  shall be  construed  as
separate  covenants  covering  their  subject  matter  in each  of the  separate
counties  and  states in the  United  States  in which  Employer  transacts  its
business.  To the extent that any covenant shall be judicially  unenforceable in
any one or more of said counties or states, said covenants shall not be affected
with respect to each other county and state;  each covenant with respect to each
other county and state being construed as severable and independent.

                  (f) Employee  represents and warrants that Employee is free to
enter into this  Agreement and to perform each of its terms and  covenants,  and
that doing so will not violate the terms or  conditions  of any other  agreement
between Employee and any third party.

                          Inventions and Original Works
Section 2.4

                  (a) Employee  agrees that he will  promptly  make full written
disclosure  to  Employer,  will hold in trust for the sole right and  benefit of
Employer, and hereby assigns to Employer all of his right, title and interest in
and to any and all inventions (and patent rights with respect thereto), original
works of authorship  relating to the business of FOCUS  Enhancements  (including
all  copyrights  with  respect  thereto),  developments,  improvements  or trade
secrets  which  Employee may solely or jointly  conceive or develop or reduce to
practice,  or cause to be conceived or developed or reduced to practice,  during
the course of performing his duties under this Agreement.

                  (b)  Employee   acknowledges   that  all  original   works  of
authorship  relating to the business of FOCUS Enhancements which are made by him
(solely  or jointly  with  others)  within  the scope of his  duties  under this
Agreement and which are  protectable  by copyrights are "works made for hire" as
that term is defined in the United States  Copyright  Act (17 U.S.C.A.,  Section
101),  and that  Employee  is an employee  as defined  under that Act.  Employee
further  agrees from time to time to execute  written  transfers  to Employer of
ownership or specific original works or authorship (and all copyrights  therein)
made by  Employee  (solely or  jointly  with  others)  which  may,  despite  the
preceding sentence,  be deemed by a court of law not to be "works made for hire"
in such form as is acceptable to Employer in its reasonable discretion.

                             Maintenance of Records
Section 2.5

                           Employee  agrees to keep and  maintain  adequate  and
current written records of all inventions,  original works of authorship,  trade
secrets developed or made by him (solely or jointly with others) during the term
of this Agreement. The records will be in the form of notes, sketches,  drawings
and other  formats  that may be  specified  by  Employer.  The  records  will be
available to and remain the sole property of Employer at all times.

               Obtaining Letters Patent and Copyright Registration
Section 2.6

                  Employee  agrees to assist Employer to obtain United States or
foreign letters patent, and copyright registrations (as well as any transfers of
ownership thereof) covering inventions and original works of authorship assigned
hereunder to Employer.  Such obligation shall continue beyond the termination of
this Agreement, but after such termination Employer shall compensate Employee at
a reasonable  rate for time actually spent by Employee at Employer's  request on
such assistance.

                  If  Employer  is unable for any reason  whatsoever,  including
Employee's mental or physical incapacity to secure Employee's signature to apply
for or to pursue  any  application  for any United  States or  foreign  letters,
patent  or  copyright  registrations  (or any  document  transferring  ownership
thereof)  covering  inventions  or  original  works or  authorship  assigned  to
Employer  under this  Agreement,  Employee  hereby  irrevocably  designates  and
appoints  Employer and its duly  authorized  officers  and agents as  Employee's
agent and attorney-in-fact to act for and in his behalf and stead to

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<PAGE>

execute  and  file any  such  applications  and  documents  and to do all  other
lawfully  permitted  acts to further  the  prosecution  and  issuance of letters
patent or copyright registrations or transfers thereof with the same legal force
and effect as if executed  by  Employee.  This  appointment  is coupled  with an
interest in and to the  inventions  and works of  authorship  and shall  survive
Employee's  death or  disability.  Employee  hereby  waives  and  quitclaims  to
Employer any and all claims of any nature  whatsoever  which Employee now or may
hereafter have for  infringement of any patents or copyrights  resulting from or
relating to any such application for letters,  patent or copyright registrations
assigned hereunder to Employer.

                                    Article 3
                             OBLIGATIONS OF EMPLOYER

                               General Description
Section 3.1

                  Employer  shall  provide   Employee  with  the   compensation,
incentives and benefits specified in Section 4 of this Agreement.

                                Office and Staff
Section 3.2

                  Employer shall provide Employee with a private office,  office
and technical equipment,  supplies and other facilities,  equipment and services
suitable to Employee's position and adequate for the performance of his duties.

                                    Article 4
                            COMPENSATION OF EMPLOYEE

                                  Annual Salary
Section 4.1

                  As compensation for his services hereunder,  Employee shall be
paid a base salary at the rate of $190,000 per year starting the effective date.
Salary shall be paid in equal  installments  not less  frequently  than once per
month.

                               Bonus Compensation
Section 4.2

                  In addition  to his regular  base  salary,  Employee  shall be
entitled  to  participate  in an  incentive  bonus  plan to  earn an  additional
$110,000  per year.  The bonus shall be earned and paid in four equal  quarterly
(every 3 months)  installments of $27,500.  The Board of Directors  Compensation
Committee will determine the targets and objectives of the incentive bonus plan,
which  shall be attached  hereto.  If the bonus plan is not agreed in writing by
the effective date, it shall be agreed within thirty (30) days thereafter.

                                 Tax Withholding
Section 4.3

                  Employer  shall have the right to deduct or withhold  from the
compensation  due to Employee  hereunder  any and all sums  required for federal
income and social  security taxes and all state or local taxes now applicable or
that may be enacted and become  applicable in the future,  for which withholding
is required by law.

                             Incentive Stock Options
Section 4.4

                  Employee  shall be granted  Incentive  Stock  Options  (to the
extent  permitted  under the  Employer's  2000 Stock  Option  Plan) to  purchase
500,000  shares of Employer's  Common Stock under  Employer's  2000 Stock Option
Plan,  said grant to be made at the effective  date by the  Employer's  Board of
Directors.  Said Options  shall be  exercisable  at the fair market value on the
effective   date,   shall   vest  in   equal   installments   at  the   rate  of
one-thirty-sixth(1/36)  per month  thereafter  over three (3)  years,  and shall
expire five (5) years from the date of grant.

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<PAGE>

                                    Article 5
                                EMPLOYEE BENEFITS

                                 Annual Vacation
Section 5.1
                           Employee  shall be entitled  to 20  business  days of
paid vacation during each year of this Agreement.
Employee may be absent from his  employment  for vacation only at such times the
Employee  notifies at a minimum of 10 (ten) days in advance the Employer's Board
of Directors  Compensation  Committee of the planned  vacation.  Unused vacation
will carry  over from one year to the next but the  maximum  amount of  vacation
which can be accrued (unused) at any one time shall not exceed 20 business days.
Unused vacation will not be paid in the form of cash, except upon termination of
employment.

                                    Benefits
Section 5.2
                  Employee  shall  be  eligible  to  participate  in any and all
benefit plans provided by Employer, on the same basis as same are made available
to other employees,  including  health,  disability and life insurance  coverage
should Employee elect to participate in any such plans.

                                Business Expenses
Section 5.3
                  Employer shall reimburse Employee for all appropriate expenses
for travel and  entertainment  by Employee  for  legitimate  business  purposes,
provided that they are approved in writing by the Chief Financial Officer of the
Employer and provided that Employee  furnishes to Employer  adequate records and
documentary  evidence  for the  substantiation  of  each  such  expenditure,  as
required by the Internal Revenue Code of 1986, as amended.

                                    Article 6

TERMINATION OF EMPLOYMENT

                                   Termination
Section 6.1
                  For  the  Initial  Term,  Employer  shall  not  terminate  the
Employee's  employment  except for "Cause" as  described  in Section 6.3 of this
Agreement. Employee's employment hereunder may be terminated by Employee for any
reason,  without further  obligation or liability,  except as expressly provided
herein.

                  Resignation, Retirement, Death or Disability
Section 6.2
                  Employee's  employment  hereunder  shall be  terminated at any
time  by  Employee's  resignation,  or by  Employee's  retirement  at  or  after
attainment of age sixty (60) at Employee's option ("Retirement"),  death, or his
inability to perform his duties under this Agreement on a full-time  basis for a
continuous  period of ninety  (90) days or more  because of a physical or mental
illness  ("Disability").  Employer  shall not be  liable  for  payment  of bonus
compensation  during any period of Disability,  though salary and benefits shall
continue to be paid during such period.

                              Termination for Cause
Section 6.3
                  "Cause" shall mean personal  dishonesty,  conflict of interest
or breach of  fiduciary  duty  involving  material  personal  or family  profit,
willfully engaging in conduct with the purpose and effect of materially injuring
Employer,  the willful and  continued  failure by the Employee to  substantially
perform  his duties  hereunder  in a  reasonably  competent  manner  expected of
similarly  situated  executives  for  comparable  public  companies  in the high
technology  electronics  industry,  Employee's  failure  to carry out the lawful
direction of the Board of  Directors.  For purposes of this Section 6.3, no act,
or failure to act, on the Employee's part shall be considered  "willful"  unless
done,  or omitted to be done,  by him not in good faith and  without  reasonable
belief that his action or  omission  was in the best  interest of the  Employer.
Notwithstanding  the  foregoing,  the Employee shall not be terminated for Cause
without (i) reasonable  notice to the Employee setting forth the reasons for the
Employer's  intention to terminate for Cause and a reasonable  period of time to
cure such "Cause" if same is capable of being cured within such period;  (ii) if
not capable of being so cured within a reasonable period, an opportunity for the
Employee,  together with his counsel, to be heard before the Board of Directors;
and (iii) if clause (i) shall be inapplicable, then, after the opportunity to be
heard as set forth in  clause  (ii),  delivery  to the  Employee  of a Notice of
Termination  as defined in Section 6.6 hereof from the Board finding that in the
good faith opinion

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<PAGE>

of the majority of the Board of  Directors,  the Employee has engaged in conduct
set forth above, and specifying the particulars thereof in detail.

Termination Without Cause
Section 6.4
                  (a) For the  Initial  Term,  the  Employer  shall be unable to
terminate the Employee  without Cause;  thereafter,  the  Employee's  employment
hereunder  may be terminated  without Cause upon ten (10) business  days' notice
for any reason.

                  (b)  Employee may  terminate  this  Agreement  with or without
Cause for any reason at any time upon thirty (30) days prior  notice.  Upon such
termination by Employee, Employee shall receive all salary, benefits and options
vested through such termination date.

                                   Expiration
Section 6.5

                  Employee's   employment   hereunder  may  be  terminated  upon
expiration of the Employment Term as provided in Section(s) 1.1 and 1.2.

                             Notice for Termination
Section 6.6
                  Any  termination  of the  Employee's  employment  (other  than
termination  by reason of death),  shall be  communicated  by written  Notice of
Termination  to the other party.  For purposes of this  Agreement,  a "Notice of
Termination"  shall mean a notice which shall  include the specific  termination
provision  in this  Agreement  relied  upon,  and shall set forth in  reasonable
detail the facts and circumstances claimed to provide a basis for termination.

                               Date of Termination
Section 6.7
                  The "Date of Termination" shall be:

                  (a) if the  Employee's  employment is terminated by his death,
the date of his death;

                  (b) if the  Employee's  employment  is terminated by reason of
Employee's  Disability,  thirty (30) days after Notice of  Termination  is given
(provided  that the Employee  shall not have returned to the  performance of his
duties on a full-time basis during such thirty (30) day period);

                  (c) if the  Employee's  employment  is  terminated  for Cause,
subject to Section 6.3 above,  the date of the Notice of Termination is given or
after if so specified in such Notice of Termination;

                  (d) if the Employee's employment is terminated by either party
for any other reason than those set forth in clauses (a)-(c) above,  the date on
which the Notice of Termination specifies.

                                    Article 7
                      PAYMENTS TO EMPLOYEE UPON TERMINATION

                         Death, Disability or Retirement
Section 7.1

                  Upon Employee's Retirement,  Death or Disability, all benefits
generally  available  to  Employer's  employees  as of the date of such an event
shall be  payable  to  Employee  or  Employee's  estate  without  reduction,  in
accordance with the terms of any plan,  contract,  understanding  or arrangement
forming  the basis for such  payment.  Employee  shall be entitled to such other
payments  as might  arise  from  any  other  plan,  contract,  understanding  or
arrangement between Employee and Employer at the time of any such event.

                      Termination for Cause or Resignation
Section 7.2

                  If  Employer   terminates   Employee  for  Cause  or  Employee
voluntarily  resigns  for reasons  other than  constructive  discharge,  neither
Employer nor any affiliate  shall have any further  obligation to Employee under
this  Agreement or otherwise,  except to the extent  provided in any other plan,
contract, understanding or arrangement, or as may be expressly required by law.

                                       6
<PAGE>

                            Termination Without Cause
Section 7.3
                  Subject to other  provisions in this Article 7 to the contrary
and during the  Initial  Term only,  upon  Employee's  termination  by  Employer
without Cause (which, for these purposes, shall include Employee's "constructive
discharge"):
                  (a)  Employer  shall  pay  to  Employee,  or in the  event  of
Employee's  subsequent  death, to Employee's  surviving  spouse,  or if none, to
Employee's  estate,  as severance pay or liquidated  damages,  or both,  (1) all
accrued  and  unpaid  wages  including  vacation  earned  as  of  such  date  of
Termination  and (2) during each calendar month for a period  extending over the
number of months  during  which this  Agreement  would have  remained in effect,
without renewal, but for such Termination, or for six calendar months, whichever
is a  longer  period,  a sum  equal to the  Employee's  monthly  Salary  and all
benefits  (excluding  vacation pay which shall cease to accrue on the  effective
date of such Termination) which would have been during such period payable under
this Agreement pursuant to Section 4.1 immediately prior to such Termination.

                  (b) Any unvested  stock options  issued to Employee which have
not lapsed and which are not otherwise exercisable shall vest,  accelerate,  and
become immediately exercisable by Employee.

                                    Article 8
                               GENERAL PROVISIONS

                                     Notices
Section 8.1
                  Any notices to be given hereunder by either party to the other
shall be in writing  and may be  transmitted  by  personal  delivery or by mail,
registered or certified,  postage prepaid with return receipt requested.  Mailed
notices shall be addressed to the parties at:

                  "Employee"
                                            Michael D'Addio
                                            17670 Blanchard Drive
                                            Monte Sereno, California 95030

                  "Employer"
                                            FOCUS Enhancement, Inc.
                                            600 Research Drive
                                            Wilmington, MA
                                            Attention:  Thomas L. Massie

         Chairman of the Board

Each party may change that address or addressee by written  notice in accordance
with this section.  All notices delivered shall be deemed communicated as of the
date of actual receipt.

                                   Arbitration
Section 8.2
                  (a) Any controversy  between  Employer and Employee  involving
the construction or application of any of the terms, provisions or conditions of
this  Agreement or the breach  thereof  shall be settled by binding  arbitration
before a single arbitrator selected by the American Arbitration Association,  in
accordance  with its then  current  commercial  rules.  Judgment  upon the award
rendered by the arbitrator(s)  may be entered in any court having  jurisdiction.
Arbitration  shall comply with and be governed by the provisions of the American
Arbitration Association, Commercial Division. No discovery shall be permitted in
such  arbitration  other than an exchange of documents,  and the parties  hereby
agree to limit the number of hearing days in  arbitration  to two (2) days.  The
arbitrator shall issue a written decision listing findings of fact,  reasons for
the decision,  and conclusions of law in any arbitration.  The arbitration award
shall be specifically enforceable.

                  (b) The cost of arbitration  (including the prevailing party's
reasonable  attorneys'  fees)  shall  be borne  by the  non-prevailing  party as
determined by the arbitrator or in such proportions as the arbitrator decides.

                  (c) Such  arbitration  and any  litigation  shall  take  place
solely in Santa Clara County, California.

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<PAGE>

                            Attorneys' Fees and Costs
Section 8.3

                  If any action at law or in equity is  necessary  to enforce or
interpret the terms of this Agreement, the prevailing party shall be entitled to
obtain from the  non-prevailing  party,  reasonable  attorneys'  fees, costs and
necessary  disbursements in addition to any other relief to which that party may
be entitled.  This  provision  shall be construed as  applicable  to this entire
Agreement.

                                Entire Agreement
Section 8.4
                  This Agreement supersedes,  merges and voids any and all other
agreements,  either oral or in writing,  between the parties hereto with respect
to its subject matter and no other covenants and agreements  between the parties
exist with respect thereto.  Each party to this Agreement  acknowledges  that no
representations,  inducements, promises or agreements, orally or otherwise, have
been made by any party,  or anyone acting on behalf of any party,  which are not
embodied herein, and that no other agreement, statement or promise not contained
in this Agreement shall be valid or binding on either party.

                                  Modifications
Section 8.5
                  Any  modification  of this Agreement will be effective only if
it is in  writing  and  signed  by  the  Employee  and  properly  authorized  by
Employer's Board of Directors and signed by a  representative  thereof (who may,
but need not be, Chairman).

                                Effect of Waiver
Section 8.6

                  The  failure  of either  party to insist on strict  compliance
with any of the terms,  covenants or conditions  of this  Agreement by the other
party  shall not be deemed a waiver of that term,  covenant  or  condition,  nor
shall  any  waiver  or  relinquishment  of any right or power at any one time or
times be deemed a waiver or relinquishment of that right or power for all or any
other times. No waiver shall be effective  unless in a writing and signed by the
person charged with making such waiver

                               Partial Invalidity
Section 8.7

                  If any  provision  in this  Agreement  is  held by a court  of
competent  jurisdiction  to be invalid,  void or  unenforceable,  the  remaining
provisions shall  nevertheless  continue in full force without being impaired or
invalidated in any way.

IN WITNESS WHEREOF, the parties have executed this Agreement on January 16, 2001
at Wilmington, MA.

"Employer"                                        "Employee"

FOCUS Enhancements, Inc.

By:  /s/ Thomas L. Massie                         /s/ Michael D'Addio
     --------------------                         -------------------
     Thomas L. Massie                             Michael D'Addio
     Chairman of the Board

                                       8Exhibit 10.86

                            Focus Enhancements, Inc.
                               600 Research Drive
                              Wilmington, MA 01887
                                 (978) 988-5888

                                February 6, 2001

Euston Investments Holdings Limited
C/o Mischon deReya Solicitors
21 Southhampton Row
London WC1B 5HS England
Attn.:  Kevin Gold

            Re: Amendment to Private Equity Line of Credit Agreement

Gentlemen:

         Reference  is  made to  that  certain  Private  Equity  Line of  Credit
Agreement (the "Purchase  Agreement"),  dated as of July 28, 2000, between Focus
Enhancements,  Inc. (the "Company") and Euston Investments Holdings Limited (the
"Purchaser").  In order to register  for resale the Common Stock to be purchased
pursuant to the Purchase Agreement, certain provisions of the Purchase Agreement
must be deleted or revised.

         In  consideration  of the mutual  covenants  and  agreements  contained
herein,  and  for  other  good  and  valuable  consideration,  the  receipt  and
sufficiency  of which are  hereby  acknowledged,  the  parties  hereby  agree to
restate the following section of the Purchase Agreement as follows:

              Section 1.6  "Commitment  Amount"  shall mean the up to  4,000,000
         shares of Common  Stock which the Investor has agreed to provide to the
         Company in order to purchase  the Put Shares  pursuant to the terms and
         conditions of this Agreement.

              Section 1.7 "Commitment  Period" shall mean the period  commencing
         on the Effective  Date and expiring on the earliest to occur of (x) the
         date on which the Investor  shall have  purchased  4,000,000 Put Shares
         pursuant to this  Agreement,  (y) the date this Agreement is terminated
         pursuant to Section 2.4, or (z) the date  occurring  two years from the
         date of commencement of the Commitment Period.

              Section 1.16  "Material  Adverse  Effect" shall mean any effect on
         the  business,  operations,  properties  or financial  condition of the
         Company   that  is  material   and  adverse  to  the  Company  and  its
         subsidiaries  and affiliates,  taken as a whole,  and/or any condition,
         circumstance,  or situation that would prohibit or otherwise  interfere
         with the  ability of the  Company to enter into and  perform any of its
         obligations under this Agreement,  the Registration Rights Agreement or
         the Escrow  Agreement in any material respect except those disclosed in
         the SEC Documents prior to the date hereof.

              Section 1.21  "Principal  Market"  shall mean the NASDAQ  National
         Market, the NASDAQ Small-Cap Market, the American Stock Exchange or the
         New York Stock Exchange, whichever is at the time the principal trading
         exchange or market for the Common Stock.

              Section 1.33 "Trading  Cushion"  shall mean the  mandatory  thirty
         (30) Trading Days between Put Dates.

              Section  2.2(a)  "Put  Notice" At any time  during the  Commitment
         Period,  the Company may deliver a Put Notice to the Investor,  subject
         to the conditions set forth in Section 7.2; provided, however, that the
         Investment  Amount  for each Put as  designated  by the  Company in the
         applicable Put Notice shall be neither less than $100,000 nor more than
         the Maximum Put Amount.

              Section   2.4(a)   Termination  of  Investment   Obligation.   The
         obligation  of the  Investor to purchase  shares of Common  Stock shall
         terminate  permanently  (including  with respect to a Closing Date that
         has not yet  occurred) in the event that (i) there shall occur any stop
         order or suspension of the effectiveness of the Registration  Statement
         for an  aggregate  of thirty (30)  Trading  Days during the  Commitment
         Period,   for  any  reason  other  than  deferrals  or  suspensions  in
         accordance

<PAGE>

         with  the  Registration  Rights  Agreement  as a  result  of  corporate
         developments  subsequent to the Effective  Date that would require such
         Registration  Statement to be amended to reflect such event in order to
         maintain  its  compliance  with  the  disclosure  requirements  of  the
         Securities  Act or (ii) the  Company  shall at any time  fail to comply
         with the requirements of Section 6.2, 6.3 or 6.5.

         Except  as  specifically  amended  by the  terms  of this  letter,  the
Purchase  Agreement and its exhibits  shall remain  unmodified and in full force
and effect,  and shall not be in any way changed,  modified or superseded by the
terms set forth herein. All terms used but not defined in this letter shall have
the meanings set forth in the Purchase Agreement.

         This  Agreement may be executed in any number of  counterparts,  all of
which taken  together  shall  constitute  one and the same  instrument and shall
become effective when  counterparts have been signed by each party and delivered
to the other parties hereto,  it being understood that all parties need not sign
the same counterpart. Execution may be made by delivery by facsimile.

                                       2

<PAGE>

         If the foregoing  correctly sets forth our understanding and agreement,
please so indicate by signing where indicated below.

                                      FOCUS ENHANCEMENTS, INC.

                                      By: /s/ Gary Williams
                                         ------------------
                                          Name: Gary Williams
                                          Title: V.P. of Finance and CFO

ACCEPTED AND AGREED TO:

EUSTON INVESTMENTS HOLDINGS LIMITED

By: /s/ David K. Sims
    --------------------------------
      Name: David K. Sims
      Title: Authorized Signatory

                                       3

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