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                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 SEPTEMBER 30, 1999

                                       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
September 30, 1999 was 7,956,595 ($.001 par value).


<PAGE>


                                 EUPHONIX, INC.

                                    FORM 10-Q
                                TABLE OF CONTENTS

                                                                            Page
PART I.  FINANCIAL INFORMATION                                              ----

ITEM 1.  Condensed Consolidated Financial Statements (Unaudited):

          Condensed Consolidated Statements of Operations for the
           three and nine months ended September 30, 1999 and 1998............3

          Condensed Consolidated Balance Sheets as of
           September 30, 1999 and December 31, 1998...........................4

          Condensed Consolidated Statements of Cash Flows
           for the nine months ended September 30, 1999 and 1998..............5

          Notes to Condensed 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...................................15

Signature....................................................................16



<PAGE>                                  2


PART I.    FINANCIAL INFORMATION

Item 1.    Condensed Consolidated Financial Statements

                                 Euphonix, Inc.
                 Condensed Consolidated Statements of Operations
                                   (unaudited)
<TABLE>
<CAPTION>
               <S>        <C>            <C>        <C>           <C>



                              Three Months Ended          Nine Months Ended
                                 September 30,              September 30,
                              1999         1998          1999          1998
                       -------------- ------------- -------------  -------------
Nets revenues..........$   3,763,914  $  4,500,091  $  8,784,458   $ 12,221,364
Cost of sales..........    2,182,412     2,364,545     5,772,007     6,727,616
                       -------------- ------------- -------------  -------------
Gross profit...........    1,581,502     2,135,546     3,012,451     5,493,748

Operating expenses:
  Research & development   1,084,368     1,300,635     3,452,425     3,445,531
  Sales & marketing.....   1,421,909     1,318,774     4,088,076     3,873,225
  General & administrative   290,191       527,540       951,078     1,819,923
                       -------------- ------------- -------------  -------------
Total operating expenses   2,796,468     3,146,949     8,491,579     9,138,679
                       -------------- ------------- -------------  -------------
Operating loss..........  (1,214,966)   (1,011,403)   (5,479,128)   (3,644,931)
Other income / (expense)     (63,728)        3,538       (77,952)       45,517
                       -------------- ------------- -------------  -------------
Loss before income taxes  (1,278,694)   (1,007,865)   (5,557,080)   (3,599,414)

Tax provision ..........        ----          ----          ----          ----
                       -------------- ------------- -------------- -------------
Net loss...............$  (1,278,694) $ (1,007,865) $ (5,557,080)  $(3,599,414)
                       ============== ============= ============== =============
Net loss per share:
  Basic and diluted....$       (0.16) $      (0.15) $      (0.71)  $     (0.57)
                       ============== ============= ============== =============
Number of shares used in
computing per share amounts:
  Basic and diluted....    7,956,595     6,633,057     7,834,055     6,326,849
                       ============== ============= ============== =============
</TABLE>





            See notes to condensed consolidated financial statements


<PAGE>                                  3


                                 Euphonix, Inc.
                      Condensed Consolidated Balance Sheets

  <TABLE>
<CAPTION>
<S>
                                                       <C>            <C>
                                                  September 30,    December 31,
                                                      1999            1998
                                                 -------------- ---------------
                                                   (unaudited)       (Note)
                          ASSETS
CURRENT ASSETS:

Cash and cash equivalents.........................$    153,952     $ 1,637,332
 Short-term investments...........................       ----          601,146
 Accounts receivable, net.........................   1,723,041       1,543,335
 Inventories......................................   6,505,627       5,558,637
 Prepaid expenses and other current assets........     352,755         237,512
                                                 -------------- ---------------
Total current assets..............................   8,735,375       9,577,962
Property and equipment,
Property and equipment, net.......................   1,706,194       1,360,186

Deposits and other assets.........................     300,860         292,716
                                                 -------------- ---------------
Total assets .....................................$ 10,742,429    $ 11,230,864
                                                 ============== ===============

           LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable................................$  1,231,279    $  1,636,357
  Accrued payroll and related liabilities.........     525,035         548,926
  Accrued warranty................................     519,591         439,397
  Accrued commissions.............................      81,123         126,094
  Sales tax payable...............................       9,131         187,687
  Deferred revenues...............................       ----          185,344
  Other accrued liabilities.......................     493,799         401,118
  Customer deposits...............................     328,517          97,914
  Short term portion capital leases...............       4,713          29,691
                                                 --------------  --------------
Total current liabilities.........................   3,193,188       3,652,529

Long term portion capital leases..................       2,282           2,282
Convertible notes(includes accrued interest of
  $87,701)........................................   4,187,701           ----
Deferred rent.....................................       ----            1,055
Deferred income taxes.............................     200,000         200,000
SHAREHOLDERS' EQUITY:
 Preferred stock..................................       ----             ----
 Common stock.....................................       7,957           6,636
 Additional paid-in capital.......................  16,975,313      15,672,808
 Accumulated other comprehensive income...........      62,989          74,975
 Accumulated deficit.............................. (13,887,001)     (8,329,921)
 Deferred compensation............................       ----          (49,500)
                                                 --------------  --------------
Total shareholders' equity........................   3,159,258       7,374,998
                                                 --------------  --------------
Total liabilities and shareholders' equity.......$  10,742,429   $  11,230,864
                                                 ==============  ==============
</TABLE>

 Note: The balance sheet at December 31, 1998 has been derived from the audited
       financial statements at that date.
            See notes to condensed consolidated financial statements.



<PAGE>                                  4


                                 Euphonix, Inc.
                 Condensed Consolidated Statements of Cash Flows
                                   (unaudited)

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

                                                           Nine Months Ended
                                                              September 30,
                                                           1999         1998
                                                     ------------- -------------
Operating activities
Net loss........................................     $ (5,557,080) $ (3,599,414)
Adjustments to reconcile net loss to net cash
used in operating activities:
  Depreciation and amortization.................          478,532       348,209
  Deferred compensation amortization............           49,500        67,500
  Changes in operating assets and liabilities:
   Prepaid expenses, other current assets and
    other assets................................         (135,374)     (101,427)
   Accounts receivable..........................         (179,706)      612,864
   Inventories .................................         (946,990)     (274,838)
   Income tax receivable........................            ----        244,000

   Accounts payable, accrued liabilities, and
    deferred rent...............................         (578,319)      264,999
   Customer deposits............................          230,603       (46,579)
                                                     -------------- ------------
Total adjustments ..............................       (1,081,754)    1,114,728
                                                     -------------- ------------
Net cash used in operating activities...........       (6,638,834)   (2,484,686)
Investing activities
Proceeds from sales of short-term investments...          601,146     1,120,725
Purchases of property and equipment.............         (824,540)     (464,707)
                                                     -------------- ------------
Net cash provided by (used for) investing activities     (223,394)      656,018
Financing activities
Principal payments under capital lease obligations        (24,978)      (38,085)
Proceeds from issuance of convertible notes.....        4,100,000        ----
Proceeds from sale of common stock..............        1,303,826     1,950,911
                                                     -------------- ------------
Net cash provided by financing activities.......        5,378,848     1,912,826
                                                     -------------- ------------
Net increase (decrease) in cash and cash equivalents   (1,483,380)       84,158
Cash and cash equivalents at beginning of period.       1,637,332     1,880,093
                                                     -------------- ------------
Cash and cash equivalents at end of period.......    $    153,952   $ 1,964,251
                                                     ============== ============

</TABLE>


            See notes to condensed consolidated financial statements

<PAGE>                                  5



                                 EUPHONIX, INC.
               Notes to Condensed Consolidated Financial Statements
                                 (Unaudited)


1.       Basis of Presentation

         The accompanying  unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted  accounting  principles
for interim  financial  information  and with the  instructions to Form 10-Q and
article  10 of  Regulation  S-X.  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  nine-month
period ended  September 30, 1999 are not  necessarily  indicative of the results
that may be expected for the entire year ending December 31, 1999.

        For further information,  refer to the audited financial statements and
footnotes  thereto  included in the Registrant  Company's  annual report on Form
10-K for the year ended December 31, 1998.


2.      Use of Estimates

        The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and assump-
tions  that affect the amounts  reported in the  financial  statements  and
accompanying  notes.  Actual results could differ from those estimates.


3.      Inventories

Inventories are stated at the lower cost (first-in, first-out) or market (net
realizable value). Inventories consist of the following:
<TABLE>
<CAPTION>
<S>                                          <C>                 <C>
                                               September 30,       December 31,
                                                   1999                1998
                                             ----------------   ----------------

               Raw materials...................$  2,581,705      $  2,112,349
               Work-in-process.................   1,997,339         1,390,931
               Finished goods..................   1,926,583         2,055,357
                                             ----------------   ----------------
                                               $  6,505,627      $  5,558,637
                                             ================   ================
</TABLE>


4.     Comprehensive Loss

       Total comprehensive loss for the three and nine month periods ended Sep-
tember 30, 1999 and 1998, respectively, was $1,279,202, $1,004,919, $5,569,066,
and $3,602,230.




                                      6
<PAGE>



                                 EUPHONIX, INC.
           Notes to Condensed Consolidated Financial Statements - Continued


5.       Impact of Recently Issued Accounting Pronouncements

         In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of  Financial   Accounting   Standards  No.  133, "Accounting  for
Derivative Instruments  and Hedging  Activities"  ("SFAS  133"),  which was
required to be adopted in years  beginning after June 15, 1999. Subsequently,
the FASB issued Statement of Financial Accounting Standards No. 137, "Accounting
for Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133" ("SFAS 137"), which effectively delays the adop-
tion of SFAS 133 until fiscal 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.

         The American Institute of Certified Public Accountants issued Statement
of Position 98-1,  "Accounting For the Costs of Computer  Software  Developed or
Obtained for Internal  Use" ("SOP  98-1"),  on March 4, 1998.  SOP 98-1 provides
guidelines for accounting for costs of computer software  developed for internal
use. SOP 98-1 is effective for financial  statements for fiscal years  beginning
after  December 15, 1998. The adoption of SOP 98-1 did not impact the Company's
results of operations, financial position or cash flow.

6.       Common Stock

         In January 1999, the Company received proceeds of $1,303,676 from new
and existing investors in exchange  for the  issuance of  1,320,446 shares of
$0.001 par value common stock at $0.987 per share, 90% of the average closing
bid price per share on the NASDAQ, for the ten days immediately  preceding
January 26, 1999. The authorized capital  stock of the Company as of the date of
this  agreement is 20,000,000 shares of common  stock and  2,000,000  shares of
preferred  stock, par value $0.001. As of September 30, 1999, there were
7,956,595 shares of common stock issued  and  outstanding,  and there were no
issued  and  outstanding  shares of preferred stock.

7.       Long Term Debt

         In April 1999,  the  Company  executed a secured  promissory  note with
existing investors under which the Company may draw up to $2 million through
July 31,  1999.  During the quarter  ended June 30, 1999,  the Company  received
the entire $2 million under the agreement.  The note is  convertible  into as
many shares of common stock as the outstanding principle and accrued interest
balance at the date of conversion yield when  divided by the price per share of
$1.03,  at the time of conversion into common stock. The note is due in April
2001, and bears interest at 7.75%. The interest is payable upon maturity of the
note and is convertible into common stock. At September 30, 1999,  accrued
interest  payable was $62,406,  which is included  in  the  convertible   notes
line of the accompanying condensed consolidated  balance  sheet.

          In July  1999, the  Company  executed  a secured promissory  note with
existing investors under which the Company may draw up to $2.1 million  through
October 31, 1999. During the quarter ended September 30, 1999, the Company
received the entire $2.1 million under the agreement. The note is convertible
into as many shares of common stock as the outstanding principle and accrued
interest balance at the date of conversion yield when divided by the price  per
share of $0.75, at the time of conversion  into  commom  stock. At September 30,
1999, accrued interest payable was $25,295, which is included in the convertible
notes line of the accompanying  condensed  consolidated  balance sheet.





                                       7
<PAGE>


                                 EUPHONIX, INC.
        Notes to Condensed Consolidated Financial Statements - Continued


8.       Subsequent Events

         In  October  1999,  the  Company   converted  the  April  1999  secured
promissory note of $2.0 million principal and $66,990 accrued interest into
1,981,014 shares of common stock of the Company at $1.03 per share.

         In November 1999, existing and new investors purchased $1.75 million
of 1,581,706 shares of common stock of the Company at $1.1064 per share.















































<PAGE>                                  8


Item 2.  Management's Discussion & 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 were $3.8 million for the third quarter of
1999, which was 16.4% below 1998 revenues of $4.5 million.  Net revenues for the
first nine months of 1999 were $8.8 million,  which  represents a 28.1% decrease
from net  revenues  of $12.2  million  for the first  nine  months of 1998.  The
Company's  decrease  in net  revenues  for the third  quarter and nine months of
1999, as compared to 1998 resulted primarily from reduced sales in Asia Pacific
due to continued  sluggishness  in the PacRim market.  The Company made a formal
announcement at the Audio Engineeering Society (AES)Tradeshow of its new System
5 digital  audio  mixing  console  in the third quarter of 1999 and as a result,
expects an increasing percentage of revenues to be derived from System 5 in the
future.

         Domestic sales of the Company's  products for the third quarter of 1999
and  1998  were  $2.7  million  and  $1.6  million,   respectively,   comprising
approximately 72.2% and 35.5% of the Company's net revenues. Domestic sales were
$6.0 million and $6.3 million  comprising  approximately  68.8% and 51.9% of the
Company's net revenues for the first nine months of 1999 and 1998, respectively.
Export sales were $1.0 million and $2.9 million comprising  approximately  27.8%
and 64.5% of the  Company's  revenues  for the third  quarter  of 1999 and 1998,
respectively.  Export  sales  were  $2.7  million  and $5.9  million  comprising
approximately  31.2%  and 48.1% of the  Company's  revenues  for the first  nine
months of 1999 and 1998, respectively. Export sales as a percent of net revenues
and in absolute dollars  decreased in the third quarter and first nine months of
1999 due to fewer sales in the Pacific Rim due to the continued sluggishness in
the PacRim  market,  as compared  to the third  quarter and first nine months of
1998.

Gross  Margin.  The  Company's  gross margin  decreased  from 47.5% in the third
quarter  of 1998 to 42.0% in the third  quarter  of 1999.  The  Company's  gross
margin was $1.6 million in the third quarter of 1999 as compared to $2.1 million
in the third  quarter  of 1998.  The  decrease  is due to  unfavorable  overhead
absorption  because of lower sales volumes,  and start-up costs  associated with
the introduction of System 5 consoles, which began shipping in volume during the
third quarter of 1999. For the first nine months of 1999,  gross margin was $3.0
million,  or 34.3% of net  revenues,  compared with $5.5 million , or 45% of net
revenues,  for the first nine  months of 1998.  The  decrease  in the first nine
months of 1999 from the first nine months of 1998 is  associated  with  start-up
costs related to the R-1 recorder  which began  shipping in the first quarter of
1999,  and the new System 5 digital  console which began  shipping in the second
quarter of 1999. It is also due to  unfavorable  overhead  absorption  caused by
lower than anticipated sales volumes.

         Research and Development  Expenses.  Research and development  expenses
decreased to $1.1 million in the third  quarter of 1999,  down from $1.3 million
in the third quarter of 1998,  representing a decrease of 16.6% in 1999. For the
first nine months of 1999,  research  and  development  expenses of $3.5 million
increased  0.2% from $3.4  million in 1998.  Research and  development  expenses
constituted 28.8%,  28.9%, 39.3%, and 28.2% of net revenues in the third quarter
of 1999 and 1998 and the first nine months of 1999 and 1998,  respectively.  The
decrease  in  absolute  spending  in the  third  quarter  of 1999 from the same
quarter a year ago resulted from winding down of the new R-1 Multitrack Recorder



                                       9
<PAGE>


and new System 5 digital console,  both of which were under  development in 1998
and began  shipment in the first and second  quarter of 1999  respectively.  The
increase  in the first nine months of 1999 from the first nine months of 1998 is
associated with consulting,  test, demo equipment,  and expense supplies related
with the final release of the R-1 recorder and new System 5 digital console.

          Sales and Marketing  Expenses.  Sales and marketing  expenses
increased to $1.4 million in the third quarter of 1999, from $1.3 million in the
third  quarter of 1998,  representing  an increase  of 7.8%.  For the first nine
months of 1999, sales and marketing expenses of $4.1 million increased 5.5% from
$3.9 million in 1998. Sales and marketing  expenses  constituted  37.8%,  29.3%,
46.5%,  and 31.7% of net revenues in the third  quarter of 1999 and 1998 and the
first nine  months of 1999 and 1998,  respectively.  The  increase  in the third
quarter and first nine months of 1999 as compared with 1998  resulted  primarily
from  increases  in  spending  for  advertising,   tradeshows,   travel,   other
professional   fees,   and  product   demonstrations   to  support  new  product
introductions.

         General  and  Administrative   Expenses.   General  and  administrative
expenses decreased to $290,000 in the third quarter of 1999 from $528,000 in the
third quarter of 1998, representing a decrease of 45%. For the first nine months
of 1999,  general and  administrative  expenses of $1.0 million  decreased 47.7%
from $1.8 million in the first nine months of 1998.  General and  administrative
expenses  constituted 7.7%, 11.7%, 10.8%, and 14.9% of net revenues in the third
quarter  of  1999  and  1998  and the  first  nine  months  of  1999  and  1998,
respectively. The decrease in the third quarter and first nine months of 1999 as
compared  with 1998 was mostly  attributable  to a decrease in the allowance for
doubtful  accounts reserve  primarily due to collections of previously  reserved
account  balances.  The  remainder  of the  decreases  are due to a reduction in
headcount,  the  sublease  of a portion of the  premises  located  at  corporate
headquarters, and a reduction in insurance and other professional fees.

         Provision / (benefit) for Income  Taxes.  For the third quarter of 1999
and 1998, the Company did not recognize the tax benefit of its operating losses.
Management  believes the resulting  deferred tax assets are not  realizable on a
more likely than not basis. The Company's effective tax rate was 0% in the third
quarter and nine month  periods ended  September 30, 1999 and 1998,  and differs
from the federal statutory rate primarily due to the limitations controlling the
timing for  realization of net operating  losses and tax credits  established by
the Statement of Financial  Accounting Standards No. 109, "Accounting for Income
Taxes".


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. In March 1998, the
Company received proceeds of $1,950,000 from existing  investors in exchange for
the issuance of 1,040,000  shares of $0.001 par value common stock at $1.875 per
share, the closing price of the Company's common stock on the NASDAQ on the date
the common stock purchase  agreement was executed.  In January 1999, the Company
received proceeds of $1,303,676 from new and existing  investors in exchange for
the issuance of 1,320,446  shares of $0.001 par value common stock at $0.987 per
share.  In April  1999,  the  Company  executed a secured  promissory  note with
existing  investors  under  which the Company  was  authorized  to draw up to $2
million through July 31, 1999. In October 1999, the Company  converted the April
1999,  secured  promissory  note of $2.0 million  principal and $66,990  accrued
interest into $1,981,014 shares of stock of the Company at $1.03 per share.
In July 1999, the Company executed a secured  promissory note led by an existing
investor  under  which the  Company was  authorized  to draw up to $2.1  million
through  October 31,  1999.  The note is  convertible  into common  stock of the
Company under certain circumstances and is secured by the assets of the Company.
In November 1999, the Company received proceeds of $1.75 million for 1,581,706
shares of common stock of the Company.  For the nine months ended  September 30,
1999,  cash,  cash  equivalents  and  short-term  investments  decreased by $2.1
million to approximately  $154,000.  Also,  during this period,  working capital
decreased by $383,000 to approximately $5.5 million.




                                       10
<PAGE>
          As of September 30, 1999, the Company's sources of liquidity included
cash totaling approximately $153,952. Management believes that cash on hand
combined with approximately $1.75 million of additional financing from existing
investors and others received in the fourth quarter ended December 31, 1999, and
a forecasted increase in sales due to the introduction of new products in 1999
will be sufficient to support its operations through the foreseeable  future. If
anticipated  sales  levels are not  achieved,  the  Company may need to delay or
significantly reduce other operating  expenditures,  which could have a material
adverse effect on its business, results of operations and business prospects.

         The Company's  operating  activities  used cash of  approximately  $6.6
million and $2.5 million for the nine months ended  September 30, 1999 and 1998,
respectively. Cash used in operating activities for 1999 was comprised primarily
of net loss, an increase in accounts receivable, an increase in inventories,  an
increase in prepaid  expenses,  other  current  assets and other  assets,  and a
decrease in accounts payable and other accrued liabilities,  offset partially by
an increase in customer deposits,  deferred  compensation,  and depreciation and
amortization. Cash used in operating activities for 1998 was comprised primarily
of net loss, an increase in inventories,  an increase in prepaid expenses, other
current  assets  and other  assets,  a decrease  in  customer  deposits,  offset
partially by an increase in accounts payable and other accrued liabilities,  and
a decrease in accounts receivable.

         The Company's investing activities used $223,000 of cash in the first
nine months of 1999 and provided $656,000 in the same period in 1998.  In 1998
the Company received $1.1 million in proceeds from the sales of short term
investments as compared to $601,146 in proceeds received in 1999.  In 1999 the
Company purchased $824,540 of property and equipment as compared to $464,707
in 1998.

         The Company's financing activities provided $5.4 million in the first
nine months of 1999 and $1.9 million in the first nine months of 1998.  Proceeds
from the sale of common stock provided $1.3 million in 1999 and $1.95 million
in 1998.  Proceeds from the issuance of convertible promissory notes provided
$4.1 million in the first nine months of 1999.



General  Description  of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on  Information  Technology (IT) and Non-IT Systems

      The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable  year. Any of the Company's
computer  programs or  hardware  that have  date-sensitive  software or embedded
chips may  recognize  a date  using "00" as the year 1900  rather  than the year
2000.

      Based on recent  assessments,  the Company determined that it would not be
required to upgrade, modify, and/or replace portions of its software and certain
hardware so that those systems will properly  utilize dates beyond  December 31,
1999.  The  Company  presently  believes  that the Year 2000  issue is  resolved
without modifications or replacements of existing software and certain hardware.

      The Company's plan in resolving the Year 2000 issue involved the following
four phases: inventory,  assessment,  remediation,  and  testing/implementation.
Both information  technology ("IT") and  non-information  technology  ("Non-IT")
systems were  addressed.  The Company has  completed  its  assessment  of IT and
Non-IT systems that could have been significantly affected by the Year 2000. The



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<PAGE>


completed assessment indicated that all of the Company's  significant IT systems
would not be affected,  particularly the order entry,  general ledger,  billing,
and inventory  systems.  The assessment also indicated that Non-IT systems would
not be affected.

         Based on a review of its product lines, the Company has determined that
most of the  products  it has  sold  and will  continue  to sell do not  require
remediation  to be Year 2000  compliant.  Based on the results of product review
and testing  completed,  the Company  believes its programming  software for its
audio  consoles,  R-1  Multi-track  Recorders,  and new System 5  digital con-
sole  to be compliant  as  defined  by  the  British  Standards  Institute  DISC
PC-2000-1 definition.  Accordingly,  the  Company  does not  believe  that  the
Year  2000 presents a material exposure as it relates to the Company's products.

         The  Company  has  queried  all  of  its   significant   suppliers  and
subcontractors systems with the Company  ("suppliers").  To date, the Company is
not aware of any supplier  with a Year 2000 issue that would  materially  impact
the Company's results of operations,  liquidity, or capital resources.  However,
the Company has no means of ensuring that its suppliers will be Year 2000 ready.
The inability of suppliers to complete their Year 2000  resolution  process in a
timely fashion could materially and adversely  impact the Company.  However many
significant  suppliers  have been second  sourced  and the Company is  currently
taking steps to assess  whether these  suppliers  are currently  taking steps to
address any Year 2000 issues they may have.

         To date, the Company has incurred costs of less than $5,000 on the Year
2000 project, and estimates that there will be no material future costs.

         As noted above,  the Company has completed all necessary  phases of the
Year 2000  program.  The Company  believes  that it is more likely to experience
Year 2000  problems  with the  systems  of key  suppliers  rather  than with the
Company's internal systems or products. The Company's Year 2000 program includes
efforts to assess the Year 2000 compliance of its key suppliers.

        The Company currently has a contingency plan in place to deal with Year
2000 issues that may materially adversely affect its business processes.

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 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
launch its new product  developments  in the fourth  quarter of fiscal 1999. The
Company's ability to fund operations through December 31, 1999 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



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<PAGE>


when needed. 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. See "Business".

      Historically,  the  Company's  primary  market  success  was 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  market  segments.  There can be no
assurance  that the  Company  will be able to  compete  favorably  in any 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.  See
"Business--Competition".

      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



<PAGE>                             13



subassemblies for its products.  Any extended  interruption in the future supply
or increase in the cost of  subassemblies  manufactured  by its primary or other
third  party  vendors  could have a  material  adverse  effect on the  Company's
business and results of operations. See "Business--Manufacturing and Suppliers".

      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. See "Business--Sales and Distribution".

      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. See "Business--Proprietary Rights".

       The  Company's  success  depends,  in part,  on its ability to retain key
management  and technical  employees  and its  continued  ability to attract and
retain highly skilled  personnel.  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.

      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
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. See "Factors Affecting Future Operating Results."



<PAGE>                             14


PART II.  OTHER INFORMATION



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

         (a) Exhibits.

                  Exhibit 27 - Financial Data Schedule (page 16)

                  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.






























<PAGE>                              15


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:    November 11, 1999               By: /s/ BARRY MARGERUM
         ------------------                  ------------------
                                             Barry L. Margerum, Chief Executive
                                             Officer, President

































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