==================================================================
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q
(Mark One)
             [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                  THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
                   QUARTERLY PERIOD ENDED MARCH 31, 2000

                                       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 0-26516

                                 EUPHONIX, INC.
             (Exact name of registrant as specified in its charter)

         California                                      77-0189481
(State or other jurisdiction of                       (I.R.S. Employer
incorporation or organization)                        Identification No.)

                     220 Portage Avenue, Palo Alto, CA 94306
                   (Address of principal executives, zip code)

                                 (650) 855-0400
              (Registrant's telephone number, including area code)

         Indicate by check mark whether the registrant has filed (1) 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  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                Yes       X                      No
                    ___________                     ___________


The number of shares  outstanding of the  registrant's  common stock as of March
31, 2000 was 11,875,000 ($.001 par value).


<PAGE>

                                 EUPHONIX, INC.

                                    FORM 10-Q
                                TABLE OF CONTENTS


                                                                          Page
PART I.  FINANCIAL INFORMATION

ITEM 1.  Consolidated Financial Statements:

         Consolidated Balance Sheets as of
          March 31, 2000 and December 31, 1999...............................3

         Consolidated Statements of Operations for the
          three months ended March 31, 2000 and 1999.........................4

         Consolidated Statements of Cash Flows
          for the three months ended March 31, 2000 and 1999.................5

         Notes to Consolidated Financial Statements .........................6

ITEM 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations.................................9


PART II.          OTHER INFORMATION

ITEM 6.  Exhibits and Reports on Form 8-K...................................16

Signature...................................................................17




                                       2
<PAGE>




PART I.           FINANCIAL INFORMATION

Item 1.           CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S>                                                    <C>         <C>

                                 EUPHONIX, INC.
                           CONSOLIDATED BALANCE SHEETS
                        (in thousands, except share data)
                                   (unaudited)

                                                        March 31,   December 31,
                                                          2000         1999
                                                          ----         ----

                            ASSETS
CURRENT ASSETS:
 Cash and cash equivalents............................$     907      $     838
 Accounts receivable, (net of allowance for doubtful
  accounts of $120 in 2000 and $112 in 1999)..........    2,349          2,354
 Inventories..........................................    7,156          6,964
 Prepaid expenses and other current assets............      325            174
                                                     -------------  ------------
Total current assets..................................   10,737         10,330

Property and equipment, net...........................    1,452          1,881
Deposits and other assets.............................      491             89
                                                     -------------  ------------
 Total assets.........................................$  12,680      $  12,300

                                                     =============  ============

             LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
 Accounts payable......................................$  2,113       $  2,007
 Accrued liabilities...................................   1,022          1,090
 Customer deposits.....................................     190            240
                                                      -------------  -----------
Total current liabilities..............................   3,325          3,337

Convertible notes payable..............................   3,719          2,166
                                                      --------------  ----------
 Total liabilities.....................................   7,044          5,503
                                                      --------------  ----------

Commitments and contingencies (Note 3)

SHAREHOLDERS' EQUITY:
Preferred stock, $0.001 par value: 2,000,000 authorized
 shares, none issued and outstanding....................   ----           ----
Common stock, $0.001 par value: 20,000,000 authorized
 shares, 11,875,000 and 11,591,000 shares issued and
 outstanding in 2000 and 1999, respectively.............     12             12
Additional paid-in capital.............................. 23,441         21,402
Accumulated other comprehensive income..................     40             42
Accumulated deficit.....................................(17,857)       (14,659)
                                                      -------------  -----------
Total shareholders'equity...............................  5,636          6,797
                                                      -------------  -----------
Total liabilities and shareholders'equity..............$ 12,680      $  12,300
                                                      =============  ===========

</TABLE>


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





                                       3
<PAGE>

                                 EUPHONIX, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in thousands, except per share amounts)
                                  (unaudited)


<TABLE>
<CAPTION>
<S>                                               <C>              <C>

                                                  Three Months Ended March 31,
                                                    2000                1999
                                                    ----                ----


     Net revenues............................. $   2,835            $   2,159
     Cost of revenues.........................     2,075                1,762
                                               -------------      --------------
     Gross margin.............................       760                  397
                                               -------------      --------------

     Operating expenses:
      Research and development................       909                1,225
      Sales and marketing.....................     1,292                1,229
      General and administrative..............       359                  539
                                               --------------     --------------
     Total operating expenses.................     2,560                2,993
                                               --------------     --------------

     Operating loss...........................    (1,800)              (2,596)

     Interest and other income................      ----                   13
     Interest expense and other charges.......    (1,398)                  (1)
                                               ---------------    --------------

     Net loss................................. $  (3,198)           $  (2,584)
                                               ===============    ==============


     Basic and diluted net loss per share..... $   (0.27)           $   (0.34)
                                               ===============    ==============

     Shares used in computing
      basic and diluted net loss per share....     11,719               7,589
                                               ===============    ==============
</TABLE>


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





                                       4
<PAGE>

                                 EUPHONIX, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (unaudited)
<TABLE>
<CAPTION>
<S>                                                 <C>               <C>
                                                        Three Months Ended
                                                              March 31,
                                                        2000            1999
                                                        ----            ----

Cash flows from operating activities:
Net loss.............................................$ (3,198)    $    (2,584)
                                                     -----------  --------------
Adjustments to reconcile net loss to net cash used in
operating activities:
  Depreciation and amortization......................     176             140
  Write-off of property and equipment................      30             ---
  Allowance for doubtful accounts....................       8             142
  Beneficial conversion feature on convertible notes
   payable...........................................   1,279             ---
  Deferred compensation amortization.................      57              23
  Transfer of demonstration equipment to inventory...     256             ---
  Changes in assets and liabilities:
   Accounts receivable...............................      (3)             13
   Inventory.........................................    (192)           (967)
   Prepaid expenses and other assets.................    (194)           (128)
   Accounts payable..................................     106           1,506
   Accrued liabilities...............................     (15)           (265)
   Customer deposits.................................     (50)             65
                                                     ------------  -------------
Total adjustments....................................   1,458             529
                                                     ------------  -------------

Net cash used in operating activities................  (1,740)         (2,055)
                                                     ------------  -------------

Cash flows from investing activities:
Proceeds from sales of available-for-sale securities.     ---             589
Purchase of property and equipment...................     (33)           (367)
                                                     ------------  -------------
Net cash (used in) / provided by investing activities.    (33)            222
                                                     ------------  -------------

Cash flows from financing activities:
Proceeds from issuance of convertible notes..........   1,500             ---
Proceeds from sale of common stock...................     300           1,304
Proceeds from exercise of stock options..............      42             ---
                                                    -------------  -------------
Net cash provided by financing.......................   1,842           1,304
                                                    -------------  -------------

Net  increase (decrease) in cash and cash equivalents      69            (529)
Cash and cash equivalents at beginning of period.....     838           1,637
                                                    -------------  -------------
Cash and cash equivalents at end of period...........$    907      $    1,108
                                                    =============  =============
</TABLE>


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



                                       5
<PAGE>

                                 EUPHONIX, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)


1.       The Company and Summary of Significant Accounting Policies

         The Company

         Euphonix,  Inc. (the "Company") was incorporated on July 6, 1988 in the
state of California.  Euphonix  develops,  manufactures  and supports  networked
digital audio systems for music,  film & TV post  production,  broadcast,  sound
reinforcement and multimedia applications.

         Basis of Presentation

         The accompanying  unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q. Accordingly,  they do
not include all of the information and footnotes  required by generally accepted
accounting  principles  for  complete  financial  statements.  In the opinion of
management,  all adjustments  (consisting only of normal recurring  adjustments)
considered  necessary  for a fair  presentation  have been  included.  Operating
results for the  three-month  period  ended  March 31, 2000 are not  necessarily
indicative  of the  results  that may be  expected  for the entire  year  ending
December 31, 2000.

         For further information,  refer to the audited financial statements and
footnotes  thereto  included in the Company's annual report on Form 10-K for the
year ended December 31, 1999.

         Recently Issued Accounting Pronouncements

         In June 1998, the Financial Accounting Standards Board issued Statement
of  Financial   Accounting   Standards  No.  133,   "Accounting  for  Derivative
Instruments  and  Hedging  Activities"  ("SFAS  133"),  which is  required to be
adopted in years  beginning after June 15, 2000. The adoption of SFAS 133 is not
expected to materially  impact the Company's  results of  operations,  financial
position or cash flows.


         In  December  1999,  the SEC staff  issued  Staff  Accounting  Bulletin
("SAB") No. 101,  "Revenue  Recognition." The SEC staff addresses several issues
in SAB No.  101,  including  the timing for  recognizing  revenue  derived  from
selling arrangements that involve contractual customer acceptance provisions and
installation  of the product  occurs after  shipment and transfer of title.  The
Company's  existing revenue  recognition  policy is to recognize  revenue at the
time the customer takes title to the product, generally at the time of shipment,
because the Company has routinely met its installation  obligations and obtained
customer acceptance. Applying the requirements of SAB No. 101 to the present
selling arrangements used by the Company for the sale of equipment may require
a  change  in the  Company's accounting policy for revenue recognition and the
deferral of the recognition of revenue from such equipment sales until installa-
tion is complete and accepted by the customer. The effect of such a change,


                                       6
<PAGE>

                                 EUPHONIX, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -(Continued)
                                   (unaudited)

if any, must be  recognized as a cumulative  effect of a change in accounting no
later than the  Company's  second  quarter of its fiscal year ending on December
31, 2000.
<TABLE>
<CAPTION>
<S>                                          <C>               <C>

2.       Balance Sheet Components (in thousands):
         (a) Inventories:
                                               March 31,           December 31,
                                                 2000                  1999
                                                 ----                  ----


           Raw materials....................  $  2,698              $  2,878
           Work-in-process..................     1,902                 1,494
           Finished goods...................     2,556                 2,592
                                           ---------------      ---------------
                                              $ 7,156               $  6,964
                                           ===============      ===============
</TABLE>
<TABLE>
<CAPTION>
<S>                                              <C>             <C>

(b)      Accrued liabilities:
                                                   March 31,        December 31,
                                                     2000                1999
                                                     ----                ----
       Accrued compensation and related..........$    422            $    429
       Accrued warranty..........................     164                 244
       Accrued commissions.......................      82                  83
       Sales tax payable.........................      98                  91
       Other.....................................     256                 243
                                                --------------   --------------
                                                  $ 1,022             $ 1,090
                                                ==============   ==============
</TABLE>

(c)      Convertible notes payable:

      On February 22, 2000, the Company executed  promissory notes with existing
      investors under which the Company  borrowed  $1,500,000.  The notes accrue
      interest  at 10% per annum with  principal  and  accrued  interest  due at
      February  22, 2001.  The assets of the company are pledged as  collateral.
      The notes contain a conversion  feature,  which is subject to  shareholder
      approval, and if approved,  will allow the holder to convert the note into
      common  stock of the Company at a rate of $2 17/32 per share.  Shareholder
      approval had not been obtained as of March 31, 2000. In addition this note
      provides that upon conversion, if such conversion occurs, the Company will
      issue  warrants to  purchase  1,185,185  shares of common  stock at prices
      ranging from $3 to $5. The warrants, if issued, will be exercisable at any
      time and from  time to time in part or in full on or  before  February  1,
      2003. At the date of issuance of the note,  the quoted market price of the
      Company's  common  stock was $2.531 per share,  resulting  in a beneficial
      conversion  feature  in the  amount of  $1,279,000.  Although  shareholder
      approval  had not been  obtained as of March 31,  2000,  such  approval is
      considered  perfunctory  as the holders of the notes  comprise  54% of the
      outstanding voting stock of the Company at February 22, 2000. As a result,
      the beneficial  conversion was recorded as a credit to equity and a charge
      to interest expense at the time the notes were issued.

                                       7
<PAGE>

                                 EUPHONIX, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -(Continued)
                                 (unaudited)

3.       Commitments and Contingencies

        From time to time, the Company may have certain  contingent  liabilities
that  arise in the  ordinary  course of its  business  activities.  The  Company
accrues contingent liabilities when it is probable that future expenditures will
be made and such  expenditures  can be reasonably  estimated.  In the opinion of
management,  there are no pending  claims of which the  outcome is  expected  to
result in a material  adverse  effect in the  financial  position  or results of
operations of the Company.

4.       Joint Venture

         On  February  18,  2000,  the  Company  entered  into a  joint  venture
arrangement with Audio Exports George Neumann & Company Gmbh ("Audio  Exports").
The joint venture was formed by the  contribution by the Company of property and
equipment  with a net book value of  $297,000  to its wholly  owned  subsidiary,
Euphonix Europe.  Concurrently,  Audio Exports  contributed  $680,000 in cash in
exchange  for  common  stock  of  Euphonix  Europe,   representing  70%  of  the
outstanding  common stock of Euphonix  Europe after the  transaction.  The joint
venture  arrangement  included a Shareholder  Agreement  between the Company and
Audio  Exports and a  distribution  agreement  between the Company and  Euphonix
Europe.  In  addition,  on February  18, 2000,  the  President of Audio  Exports
purchased  240,000  shares of the  Company's  common  stock from the Company for
$300,000 in cash. The sale of the 240,000 shares was at a $360,000 discount from
the quoted market price of the Company's common stock on that date. The total of
the discount and the net book value of the property and equipment contributed of
$657,000  was  recorded  as  "Investment  in  Euphonix  Europe".  The  Company's
investment  and  ownership  interest in Euphonix  Europe  represents  30% of the
outstanding  shares of  Euphonix  Europe,  and will be  accounted  for using the
equity method  commencing April 1, 2000, the effective date of the joint venture
arrangement.

5.      Subsequent Events

      On April 14, 2000,  the Company  executed  promissory  notes with existing
investors under which the Company borrowed  $800,000.  The notes accrue interest
at 10% per annum with principal and accrued interest due at January 1, 2001. The
assets of the Company are pledged as collateral.  The notes contain a conversion
feature, which is subject to shareholder approval,  and if approved,  will allow
the holders to convert  the notes into common  stock of the Company at a rate of
$3 5/8 per share.

                                       8
<PAGE>

                                 EUPHONIX, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -(Continued)
                                  (unaudited)


Item 2.  Management's Discussion and Analysis of Financial Condition & Results
         of Operations.

         This Quarterly Report on Form 10-Q contains forward-looking  statements
that involve risks and  uncertainties.  The Company's  actual results may differ
significantly  from the results  discussed  in the  forward-looking  statements.
Factors  that might  cause such a  difference  include,  but are not limited to,
those discussed in the section  entitled  "Factors  Affecting  Future  Operating
Results."

Results of Operations

Net Revenues

          Net revenues increased to $2.8 million in the first quarter of 2000 up
from $2.2  million in the first  quarter of 1999,  representing  an  increase of
31.3% in 2000 from 1999.  The  increase in the  Company's  net  revenues for the
first quarter of 2000 as compared to 1999,  resulted  primarily from the sale of
System 5 digital  consoles.

         Domestic sales of the Company's  products for the first quarter of 2000
and  1999  were  $1.8  million  and  $1.1  million,   respectively,   comprising
approximately  65.3%  and  49.8% of the  Company's  net  revenues  for the first
quarter of 2000 and 1999, respectively.  Export sales were $1.0 million and $1.1
million comprising  approximately  34.7% and 50.2% of the Company's revenues for
the first quarter of 2000 and 1999,  respectively.  Export sales as a percent of
net revenues decreased in the first three months of 2000 due to reduced sales in
Europe, as compared to the first three months of 1999.

Gross Margin

        The Company's gross margin increased to 26.8% in the first quarter of
2000 up from 18.4% in the first  quarter of 1999.  The increase in the first
three months of 2000 from the first three months of 1999 was primarily due to a
change in the sales mix.

                                       9
<PAGE>

Research and Development Expenses

         Research and  development  expenses  decreased to $909,000 in the first
quarter  of  2000,  down  from  $1.2  million  in the  first  quarter  of  1999,
representing a decrease of 25.8% in the first quarter of 2000 as compared to the
first quarter of 1999. Research and development  expenses as a percentage of net
revenues decreased to 32.1% in the first quarter of 2000, down from 56.7% in the
first quarter of 1999. The decrease in research and development  expenses in the
first  quarter of 2000 from the first  quarter of 1999 was  primarily due to the
reduction of project  expenses for the new R-1  Multitrack  Recorder and the new
System 5 digital  console,  and a reduction  in personnel in the last quarter of
1999.

Sales and Marketing Expenses

           Sales and marketing  expenses  increased to $1.3 million in the first
quarter of 2000 up from $1.2 million in the first quarter of 1999,  representing
a 5.1% increase in the first quarter of 2000 as compared to the first quarter of
1999. Sales and marketing  expenses decreased as a percentage of net revenues to
45.6% in the first  quarter of 2000 down from 56.9% in the first quarter of 1999
due to the increase in sales.

General and Administrative Expenses

           General  and  administrative  expenses  decreased  to $359,000 in the
first quarter of 2000 from $539,000 in the first quarter of 1999, representing a
decrease  of 33.4%.  The  decrease  in general  and  administrative  expenses is
primarily  due to a decrease in bad debt  expense of $128,000  and a decrease of
financial services expenses of $52,000. General and administrative expenses as a
percent of net  revenues  decreased  to 12.7% in the first  quarter of 2000 down
from 25.0% in the first quarter of 1999, primarily due to increased sales.

Interest expense and other charges

         Interest  expense and other  charges  increased  to $1.4 million in the
first  quarter  of 2000 from  $1,000 in the first  quarter  of 1999,  due to the
beneficial  conversion  feature of $1.3 million  associated  with the promissory
notes issued February 22, 2000. Additional  interest  expense of $119,000 was
attributable  to the  convertible notes payable.

Provision  for Income Taxes

         For the first quarter of 2000 and 1999, the Company did not recognize
the tax benefit of its operating  losses.  Management  believes that  sufficient
uncertainty  exists  with regard to the  realizability  of these tax assets such
that a full valuation allowance is necessary.  These factors include the lack of
a significant  history of consistent  profits and the lack of carryback capacity
to realize these assets. Based on this absence of objective evidence, management
is  unable to  assert  that it is more  likely  than not that the  Company  will
generate  sufficient  taxable  income to realize the  Company's net deferred tax
assets.



                                       10
<PAGE>


Liquidity and Capital Resources

         The Company has funded its  operations to date  primarily  through cash
flows from operations,  the private sale of equity  securities,  and the initial
public offering of Common Stock completed in September 1995.

         On  February  18,  2000,  the  Company  entered  into a  joint  venture
arrangement with Audio Exports George Neumann & Company Gmbh ("Audio  Exports").
The joint venture was formed by the  contribution by the Company of property and
equipment  with a net book value of  $297,000  to its wholly  owned  subsidiary,
Euphonix Europe.  Concurrently,  Audio Exports  contributed  $680,000 in cash in
exchange  for  common  stock  of  Euphonix  Europe,   representing  70%  of  the
outstanding  common stock of Euphonix  Europe after the  transaction.  The joint
venture  arrangement  included a Shareholder  Agreement  between the Company and
Audio  Exports and a  distribution  agreement  between the Company and  Euphonix
Europe.  In  addition,  on February  18, 2000,  the  President of Audio  Exports
purchased  240,000  shares of the  Company's  common  stock from the Company for
$300,000 in cash. The sale of the 240,000 shares was at a $360,000 discount from
the quoted market price of the Company's common stock on that date. The total of
the discount and the net book value of the property and equipment contributed of
$657,000  was  recorded  as  "Investment  in  Euphonix  Europe".  The  Company's
investment  and  ownership  interest in Euphonix  Europe  represents  30% of the
outstanding  shares of  Euphonix  Europe,  and will be  accounted  for using the
equity method  commencing April 1, 2000, the effective date of the joint venture
arrangement.

        On February 22, 2000,  the Company  executed  promissory  notes with
existing investors under which the Company borrowed $1,500,000. The notes accrue
interest at 10% per annum with  principal  and accrued  interest due at February
22, 2001. The assets of the company are pledged as collateral. The notes contain
a conversion feature, which is subject to shareholder approval, and if approved,
will allow the holder to convert the note into common  stock of the Company at a
rate of $2 17/32 per share.  Shareholder  approval  had not been  obtained as of
March 31, 2000. In addition this note  provides  that upon  conversion,  if such
conversion  occurs, the Company will issue warrants to purchase 1,185,185 shares
of common stock at prices ranging from $3 to $5. The warrants,  if issued,  will
be exercisable at any time and from time to time in part or in full on or before
February 1, 2003.  At the date of issuance of the note,  the quoted market price
of the  Company's  common stock was $2.531 per share,  resulting in a beneficial
conversion feature in the amount of $1,279,000.  Although  shareholder  approval
had not  been  obtained  as of March  31,  2000,  such  approval  is  considered
perfunctory as the holders of the notes comprise 54% of the  outstanding  voting
stock  of the  Company  at  February  22,  2000.  As a  result,  the  beneficial
conversion  was recorded as a credit to equity and a charge to interest  expense
at the time the notes were issued.

         On April  14,  2000,  the  Company  executed  promissory  notes  with
existing investors under which the Company borrowed  $800,000.  The notes accrue
interest at 10% per annum with principal and accrued  interest due at January 1,
2001. The assets of the Company are pledged as  collateral.  The notes contain a
conversion feature,  which is subject to shareholder approval,  and if approved,
will allow the holder to convert the note into common  stock of the Company at a
rate of $3 5/8 per share.

                                       11
<PAGE>

         For the first quarter ended March 31, 2000, cash and cash equivalents
increased by $69,000 to approximately  $907,000.  Also, during this period,
working capital increased by $419,000 to approximately $7.4 million.

         The Company's  operating  activities  used cash of  approximately  $1.8
million  and $2.0  million for the three  months  ended March 31, 2000 and 1999,
respectively. Cash used in operating activities for 2000 was comprised primarily
of net loss and an  increase  in  inventories  and  prepaid  expenses  and other
assets, offset partially by the non-cash charge for the beneficial conversion on
convertible  notes  payable and an increase  in accounts  payable.  Cash used in
operating  activities  for  1999  was  comprised  primarily  of net  loss and an
increase in  inventories,  prepaid  expenses  and other assets and a decrease in
accrued  liabilities,  offset  partially  by an increase  in  accounts  payable,
depreciation, and customer deposits and a decrease in accounts receivable.

         The Company's  investing  activities  used cash of $33,000 and provided
net cash of  $222,000  for the  three  months  ended  March  31,  2000 and 1999,
respectively.  In the  first  quarter  of 2000,  $33,000  was  used to  purchase
property and  equipment.  In the first quarter of 1999 the Company used $367,000
to  purchase  property  and  equipment,  and the  Company  received  $589,000 in
proceeds from the sales of short term investments.

         The Company's  financing  activities  provided cash of $1.8 million and
$1.3 million in the first  quarter of 2000 and 1999,  respectively.  The Company
received  $300,000 in proceeds  from the sale of common stock to a new investor,
$1.5 million  proceeds from the issuance of  convertible  notes and $42,000 from
the exercise of employee stock options during the first three months ended March
31, 2000. For the first three months ended March 31, 1999 proceeds from the sale
of common stock provided $1.3 million.

         Management intends to rely upon internally  generated cashflows however
should  there be a decline in  revenues  the  Company  would  either have to cut
expenses or go to outside  sources of financing.  There can be no assurance that
outside sources of financing would be available to the Company.

Factors Affecting Future Operating Results

      Historically,  the Company has derived  virtually all of its revenues from
sales of its digitally  controlled audio mixing console system,  which system is
based  upon its  hardware  platform.  The  Company  believes  that sales of this
system,  along with enhancements  thereof, and the R-1 recorder and new System 5
digital  console  will  continue  to  constitute  a  significant  portion of the
Company's  revenues.  It is  expected  that for the  foreseeable  future  that a
greater portion of the Company's revenue will come from the new System 5 digital
console.  Accordingly, any factor adversely affecting the Company's base system,
whether  technical,  competitive  or  otherwise,  could have a material  adverse
effect on the Company's business and results of operations.

      The Company has expended and will continue to expend  substantial funds to
introduce  its new System 5 digital  console  around the  world.  The  Company's
ability to fund operations  through March 31, 2001 is dependent upon achievement
of its operating plan. If the Company did not attain its operating plan it would
obtain  additional  financing  or  cut  expenses.   The  Company  believes  that
additional  debt or equity  financing will be available from existing  investors
and others. However, there can be no assurance as to the terms and conditions of
any such  financing and no certainty  that funds would be available when needed.

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<PAGE>

     The inability to obtain additional financing, if needed, would be likely to
have a material adverse effect on the Company.  To the extent that any  future
financing  involves the sale of the Company's equity  securities,  the Company's
then existing shareholders could be substantially diluted.

      A limited  number of the Company's  system sales  typically  account for a
substantial  percentage  of  the  Company's  quarterly  revenue  because  of the
relatively  high average  sales price of such systems.  Moreover,  the Company's
expense  levels  are  based  in  part on its  expectations  of  future  revenue.
Therefore, if revenue is below expectations, the Company's operating results are
likely  to be  adversely  affected.  In  addition,  the  timing  of  revenue  is
influenced  by a number of other  factors,  including  the timing of  individual
orders and shipments,  industry trade shows,  seasonal customer buying patterns,
changes in product  development  and sales and  marketing  expenditures,  custom
financing arrangements, production limitations and international sales activity.
Because the Company's operating expenses are based on anticipated revenue levels
and a high  percentage of the  Company's  expenses are  relatively  fixed in the
short  term,  variations  in the timing of  recognition  of revenue  could cause
significant  fluctuations  in operating  results from quarter to quarter and may
result in unanticipated quarterly earnings shortfalls or losses.

      The  markets  for the  Company's  system  are  characterized  by  changing
technologies  and new product  introductions.  The Company's future success will
depend in part upon its  continued  ability  to  enhance  its base  system  with
features  including new software and hardware  add-ons and to develop or acquire
and  introduce  new  products  and  features  which meet new market  demands and
changing  customer  requirements  on a timely  basis.  The Company is  currently
designing  and  developing  new  products,  primarily in the areas of recording,
editing  and mixing  functions  of sound  production  as well as  digital  audio
processing and networking systems.  In addition,  there can be no assurance that
products  or  technologies  developed  by others  will not render the  Company's
products or technologies non-competitive or obsolete.

      Historically,  the Company's  primary market success has been in the music
segment of the professional  audio market. In order for the Company to grow, the
Company  believes that it must continue to gain market share in the music market
segment,  as well as in its other  targeted  markets.  There can be no assurance
that the Company will be able to compete  favorably in all market segments.  The
Company's inability to compete favorably could have a material adverse effect on
its business and results of operations.  The markets for the Company's  products
are intensely  competitive and characterized by significant  price  competition.
The Company believes that its ability to compete depends on elements both within
and  outside  its  control,  including  the  success  and timing of new  product
development  and  introduction  by the  Company  and  its  competitors,  product
performance  and price,  distribution,  availability of lease or other financing
alternatives, resale of used systems and customer support.

      Currently, the Company uses many sole or limited source suppliers, certain
of which are critical to the integrated  circuits included in the Company's base
system. Major delays or terminations in supplies of such components could have a
significant  adverse  effect on the Company's  timely  shipment of its products,
which in turn would  adversely  affect the  Company's  business  and  results of
operations.  The Company  also  relies on single  vendors to  manufacture  major
subassemblies for its products.  Any extended  interruption in the future supply
or increase in the cost of  subassemblies  manufactured  by its primary or other

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<PAGE>

third  party  vendors  could have a  material  adverse  effect on the  Company's
business and results of operations.

      In  addition,  as  different  electrical,  radiation  or  other  standards
applicable  to the Company's  products are adopted in  countries,  including the
United  States,  or groups of countries in which the Company sells its products,
the failure of the Company to modify its products, if necessary,  to comply with
such standards would likely have an adverse effect on the Company's business and
results of operations.

      The Company  generally relies on a combination of trade secret,  copyright
law and trademark law, contracts and technical measures to establish and protect
its proprietary  rights in its products and technologies.  However,  the Company
believes that such measures  provide only limited  protection of its proprietary
information,  and there is no assurance  that such  measures will be adequate to
prevent misappropriation. In addition, significant and protracted litigation may
be necessary to protect the Company's intellectual property rights, to determine
the scope of the  proprietary  rights of others or to defend  against  claims of
infringement.  There  can  be no  assurance  that  third-party  claims  alleging
infringement  will not be asserted  against the Company in the future.  Any such
claims  could have a  material  adverse  effect on the  Company's  business  and
results of operations.

       The Company's success depends, in part, on its ability to retain key
management and in addition, the Company's ability to manage any growth will
require it to continue to improve and expand its  management,  operational  and
financial systems and controls. If the Company's  management is unable to manage
growth  effectively, its business and results of operations will be adversely
affected.

      In December 1999, the SEC staff issued Staff  Accounting  Bulletin ("SAB")
No. 101,  "Revenue  Recognition."  The SEC staff addresses several issues in SAB
No. 101,  including  the timing for  recognizing  revenue  derived  from selling
arrangements  that  involve  contractual  customer  acceptance   provisions  and
installation  of the product  occurs after  shipment and transfer of title.  The
Company's  existing revenue  recognition  policy is to recognize  revenue at the
time the customer takes title to the product, generally at the time of shipment,
because the Company has routinely met its installation  obligations and obtained
customer  acceptance.  Applying the  requirements  of SAB No. 101 to the present
selling arrangements used by the Company for the sale of equipment may require a
change in the  Company's  accounting  policy  for  revenue  recognition  and the
deferral  of  the  recognition  of  revenue  from  such  equipment  sales  until
installation  is complete  and  accepted by the  customer.  The effect of such a
change,  if any,  must be  recognized  as a  cumulative  effect  of a change  in
accounting no later than the Company's  second quarter of its fiscal year ending
on December  31, 2000.  At the current time it is not possible to determine  the
effect this change will have on the results of operations of the Company.

      As a result  of these and  other  factors,  the  Company  has  experienced
significant  quarterly  fluctuations in operating  results and anticipates  that
these  fluctuations  will continue in future periods.  There can be no assurance
that  the  Company  will  be   successful  in   maintaining   or  improving  its
profitability  or avoiding  losses in any future period.  Further,  it is likely
that in some future period the Company's net revenues or operating  results will

                                       14
<PAGE>

be below the expectations of public market securities analysts and investors. In
such event,  the price of the Company's Common Stock would likely be materially
adversely affected.





































                                       15
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PART II.  OTHER INFORMATION



Item 6:  Exhibits and Reports on Form 8-K/A

         (a) Exhibits.

               Exhibit 27 - Financial Data Schedule (page 18)

               The  exhibit  listed  on the  accompanying  index  immediately
               following the signature page is filed as part of this report.

         (b) Reports on Form 8-K None.


























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SIGNATURE


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



Euphonix, Inc.





Date:    May 10, 2000                    By: /s/ BARRY  L. MARGERUM
         ------------------                  ----------------------
                                             Barry L. Margerum, Chief Executive
                                             Officer, President














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