<PAGE>

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

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                             ----------------------

                                   FORM 10-Q/A

(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, 2001

                                       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 NUMBER)

                 220 PORTAGE AVENUE, PALO ALTO, CALIFORNIA 94306
               (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (650) 855-0400

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such 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, 2001 was 12,551,470 ($0.001 par value).

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


<PAGE>


                                 EUPHONIX, INC.

                                   FORM 10-Q/A
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                  PAGE
                                                                                  ----
<S>                                                                               <C>
Explanatory Note Regarding This Amendment on Form 10-Q/A.........................  ii

PART I. FINANCIAL INFORMATION....................................................   1

Item 1. Condensed Consolidated Financial Statements..............................   1

        Condensed Consolidated Balance Sheets as of March 31, 2001 and
        December 31, 2000........................................................   1

        Condensed Consolidated Statements of Operations for the three months
        ended March 31, 2001 and 2000............................................   2

        Condensed Consolidated Statements of Cash Flows for the three months
        ended March 31, 2001 and 2000............................................   3

        Notes to Condensed Consolidated Financial Statements.....................   4

Item 2. Management's Discussion and Analysis of Financial Condition and Results
        of Operations............................................................  10

Item 3. Quantitative and Qualitative Disclosures about Market Risk...............  19

PART II. OTHER INFORMATION.......................................................  20

Item 2. Changes in Securities and Use of Proceeds................................  20

Item 6. Exhibits and Reports on Form 8-K.........................................  20

SIGNATURES.......................................................................  21
</TABLE>


                                       -i-
<PAGE>


EXPLANATORY NOTE REGARDING THIS AMENDMENT ON FORM 10-Q/A

        This quarterly report on Form 10-Q/A is being filed as a result of the
restatement of our consolidated financial statements for the year ended December
31, 2000 as further described in Note 5 of the Notes to Condensed Consolidated
Financial Statements (unaudited) in this Form 10-Q/A and in Note 16 of the Notes
to Condensed Consolidated Financial Statements of our Annual Report on Form
10-K/A for the year ended December 31, 2000. This report still speaks as of the
original filing date, and except as stated, no attempt has been made to update
this report to reflect events occurring subsequent to the date of the original
filing.


                                      -ii-

<PAGE>


                          PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                 EUPHONIX, INC.
         CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2001 AND
                                DECEMBER 31, 2000
                        (IN THOUSANDS EXCEPT SHARE DATA)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                  DECEMBER 31,
                                                               MARCH 31, 2001         2000
                                                               --------------     ------------
                                                                  RESTATED          RESTATED
<S>                                                            <C>                <C>

                         ASSETS

Current assets:
  Cash and cash equivalents ...............................     $      2,427      $        587
  Accounts receivable (net of allowance for doubtful
     accounts of $131 in 2001 and $141 in 2000) ...........              926             2,389
  Inventories .............................................            7,417             6,969
  Prepaid expenses and other current assets ...............              713               406
                                                                ------------      ------------
    Total current assets ..................................           11,483            10,351
Property and equipment, net ...............................            1,024             1,127
Deposits and other assets .................................              449               522
                                                                ------------      ------------
     Total assets .........................................     $     12,956      $     12,000
                                                                ============      ============

     LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
  Accounts payable ........................................     $      2,306      $      1,841
  Accrued liabilities .....................................            1,361             1,174
  Short term note payable .................................            1,662                --
  Deferred revenue, net ...................................              996               882
  Customer deposits .......................................              897               860
                                                                ------------      ------------
    Total current liabilities .............................            7,222             4,757
  Notes payable ...........................................            6,260             6,531
                                                                ------------      ------------
  Total Liabilities .......................................           13,482            11,288
                                                                ------------      ------------
Contingencies (Note 3)
Shareholders' equity (deficit):
Common stock, $0.001 par value: 20,000,000
   authorized shares, 12,548,000 and 12,190,099
   shares issued and outstanding in 2001 and 2000,
   respectively ...........................................               12                12
  Additional paid-in capital ..............................           24,553            24,191
  Unearned compensation ...................................              (39)              (53)
  Accumulated other comprehensive income ..................               37                42
  Accumulated deficit .....................................          (25,089)          (23,480)
                                                                ------------      ------------
  Total shareholders' (deficit) equity ....................             (526)              712
                                                                ------------      ------------
  Total liabilities and shareholders' (deficit) equity ....     $     12,956      $     12,000
                                                                ============      ============
</TABLE>

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


                                       1
<PAGE>


                                 EUPHONIX, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
               FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
                      (IN THOUSANDS EXCEPT PER SHARE DATA)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                        THREE MONTHS ENDED MARCH 31,
                                                                       ------------------------------
                                                                           2001              2000
                                                                       ------------      ------------
                                                                                           RESTATED
<S>                                                                    <C>               <C>
Net revenues .....................................................     $      4,634      $      1,513
Cost of revenues .................................................            2,899             1,594
                                                                       ------------      ------------
Gross margin (loss) ..............................................            1,735               (81)
                                                                       ------------      ------------

Operating expenses:
   Research and development ......................................              896               909
   Sales and marketing ...........................................            1,404             1,292
   General and administrative ....................................              690               359
                                                                       ------------      ------------
Total operating expenses .........................................            2,990             2,560
                                                                       ------------      ------------

Operating loss ...................................................           (1,255)           (2,641)
Other expense, net ...............................................             (314)           (1,398)
                                                                       ------------      ------------

Loss before equity in net loss of investee .......................           (1,569)           (4,039)
Equity in net loss of investee ...................................              (40)               --
                                                                       ------------      ------------
Net loss .........................................................     $     (1,609)     $     (4,039)
                                                                       ============      ============

Basic and diluted net loss per share .............................     $      (0.13)     $      (0.34)
                                                                       ============      ============

Shares used in computing  net loss per share, basic and diluted ..       12,254,771        11,718,564
                                                                       ============      ============
</TABLE>

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


                                       2
<PAGE>

                                 EUPHONIX, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
               FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                 THREE MONTHS ENDED MARCH 31,
                                                                ------------------------------
                                                                    2001              2000
                                                                ------------      ------------
                                                                                    RESTATED
<S>                                                             <C>               <C>
Cash flows from operating activities:
Net loss ..................................................     $     (1,609)     $     (4,039)
                                                                ------------      ------------
Adjustments to reconcile net loss to net cash
   provided by (used in) operating activities:
   Depreciation and amortization ..........................              165               176
   Loss on disposal of fixed assets .......................                4                30
   Allowance for doubtful accounts ........................              (10)                8
   Beneficial conversion on convertible note
   payable ................................................               --             1,279
   Interest accrued on notes payable ......................              142                53
   Amortization of deferred compensation ..................               16                57

Changes in assets and liabilities:
   Accounts receivable ....................................            1,473                (3)
   Inventory ..............................................             (448)               65
   Prepaid expenses and other assets (including current) ..               91              (195)
   Accounts payable .......................................              464               106
   Accrued liabilities ....................................              187               (68)
   Deferred revenue, net ..................................              114               841
   Customer deposits ......................................               37               (50)
                                                                ------------      ------------
Total adjustments .........................................            2,235             2,299
                                                                ------------      ------------

Net cash provided by (used in) operating activities .......              626            (1,740)
                                                                ------------      ------------

Cash flows from investing activities:

Purchase of property and equipment ........................              (36)              (33)
                                                                ------------      ------------
Net cash used in investing activities .....................              (36)              (33)
                                                                ------------      ------------

Cash flows from financing activities:

Proceeds from issuance of convertible notes ...............            1,250             1,500
Proceeds from sale of common stock ........................               --               300
Proceeds from exercise of stock options ...................               --                42
                                                                ------------      ------------
Net cash provided by financing ............................            1,250             1,842
                                                                ------------      ------------

Net increase  in cash and cash equivalents ................            1,840                69
Cash and cash equivalents at beginning of period ..........              587               838
                                                                ------------      ------------
Cash and cash equivalents at end of period ................     $      2,427      $        907
                                                                ============      ============
</TABLE>

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



                                       3
<PAGE>


                                 EUPHONIX, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 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 and television post production, broadcast,
sound reinforcement and multimedia applications.

PRINCIPLES OF CONSOLIDATION

        The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated on consolidation. Investments in which the
Company has between 20% and 50% ownership are accounted for using the equity
method.

USE OF ESTIMATES

        The preparation of the consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reported period.
Significant estimates made by management include allowance for doubtful
accounts, inventory obsolescence, depreciation, amortization, taxes,
contingencies and product warranty. Actual results could differ from those
estimates.

BASIS OF PRESENTATION

        The accompanying financial statements as of March 31, 2001 and for the
three months ended March 31, 2001 and 2000 have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC"). Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. The December 31, 2000 Condensed Consolidated Balance
Sheet does not include all disclosures required by generally accepted accounting
principles. However, the Company believes that the disclosures are adequate to
make the information presented not misleading. These Condensed Consolidated
Financial Statements should be read in conjunction with the Condensed
Consolidated Financial Statements and the notes thereto included in the
Company's amended Annual Report on Form 10-K/A for the fiscal year ended
December 31, 2000, filed with the SEC on November 27, 2001. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present a fair statement of financial position as of March 31,
2001, results of operations for the three months ended March 31, 2001 and 2000,
and cash flows for the three months ended March 31, 2001 and 2000 have been
made. The results of operations for the three months ended March 31, 2001 are
not necessarily indicative of the operating results for the full fiscal year or
any future periods.


                                       4
<PAGE>

                                 EUPHONIX, INC.

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)


        Unless the Company raises additional funds, the Company believes that
its available cash and cash equivalents and its current borrowing facility will
not be sufficient to meet its anticipated needs for working capital and capital
expenditures through the end of 2001. Moreover, the Company's outstanding
promissory notes will become due in early 2002. Although the notes may be
converted into shares of the Company's common stock, there is no assurance that
the investors will choose to convert their notes, and the Company may have to
repay these loans in 2002.

RECLASSIFICATIONS

        Certain amounts from the previous periods have been reclassified to
conform with the current period presentation.

REVENUE RECOGNITION

        PRODUCT REVENUE AND CHANGE IN ACCOUNTING PRINCIPLE

        Effective January 1, 2000, the Company changed its method of accounting
for revenue recognition to comply with Securities and Exchange Commission Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements ("SAB
101"). Previously, the Company has recognized revenue generally upon shipment to
customers including cases when installation was a condition of payment, provided
all other revenue recognition criteria were met. Under the new accounting method
adopted retroactive to January 1, 2000, the Company now defers all revenue until
installation is complete (in those cases where installation is a condition of
payment), provided all other revenue recognition criteria are met.

        The effect of the retroactive application of SAB 101 for the quarter
ended March 31, 2000 is as follows (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                         FIRST QUARTER ENDED
                                                                            MARCH 31, 2000
                                                                -----------------------------------------
                                                                    AS
                                                                PREVIOUSLY
                                                                 REPORTED       ADJUSTMENT     AS RESTATED
                                                                ----------      ----------     ----------
<S>                                                             <C>             <C>            <C>
Net revenues ..............................................     $    2,835         $(1,000)    $    1,835
                                                                ----------                     ----------
Gross margin ..............................................     $      760         $  (664)    $       96
                                                                ----------                     ----------
Net loss ..................................................     $   (3,198)        $  (664)    $   (3,862)
                                                                ----------                     ----------
Basic and diluted loss per share ..........................     $    (0.27)                    $    (0.33)
                                                                ==========                     ==========
Shares used in computing basic and diluted net loss per
   share ..................................................         11,719                         11,719
                                                                ==========                     ==========
</TABLE>

        REVENUE FOR CONTRACTS THAT INCLUDE SALES OF SOFTWARE AND
        SOFTWARE MODIFICATION

        The Company recognizes revenue for contracts which include future sales
of software and software modification using the residual method in accordance
with Statement of Position 97-2 (SOP 97-2), "Software Revenue Recognition," as
amended by SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition
with Respect to Certain Transactions." Under the residual method, revenue is
recognized in a multiple element arrangement in which Company-specific objective
evidence of fair value exists for all of the undelivered elements in the
arrangement, but does not exist for one or more of the delivered elements in the

                                       5
<PAGE>

                                 EUPHONIX, INC.

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

arrangement. Company-specific objective evidence of fair value of maintenance
and other services is based on the Company's customary pricing for such
maintenance and/or services when sold separately. At the outset of the
arrangement with the customer, the Company defers revenue for the fair value of
its undelivered software and recognizes revenue for the remainder of the
arrangement fee attributable to the elements initially delivered in the
arrangement when the basic criteria in SOP 97-2 have been met. If such evidence
of fair value for each element of the arrangement does not exist, all revenue
from the arrangement is deferred until such time that evidence of fair value
does exist or until all elements of the arrangement are delivered.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

        In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities." SFAS 133 establishes methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities, and is effective for
fiscal years beginning after June 15, 2000, as amended by SFAS No. 137. In June
2000, the Financial Accounting Standards Board issued SFAS No. 138, "Accounting
for Derivative Instruments and Hedging Activities -- An Amendment of FASB
Statement No. 133." SFAS No. 138 amends the accounting and reporting standards
for certain derivatives and hedging activities such as net settlement contracts,
foreign currency transactions and intercompany derivatives. The Company adopted
SFAS No. 133 January 1, 2001. The adoption of SFAS No. 133 did not have an
impact on the Company's financial position or results of operations.

NOTE 2 - BALANCE SHEET COMPONENTS (IN THOUSANDS):

        (a)    Inventories:

<TABLE>
<CAPTION>
                                             MARCH 31, 2001   DECEMBER 31, 2000
                                             --------------   -----------------
<S>                                          <C>              <C>
               Raw materials ............        $1,901            $2,474
               Work-in-process ..........         1,567             1,084
               Finished goods ...........         3,949             3,411
                                                 ------            ------
                                                 $7,417            $6,969
                                                 ======            ======
</TABLE>

        (b)    Accrued liabilities:

<TABLE>
<CAPTION>
                                                       MARCH 31, 2001   DECEMBER 31, 2000
                                                       --------------   -----------------
<S>                                                    <C>              <C>
               Accrued compensation and related ...     $        464     $        445
               Accrued warranty ...................              264              265
               Accrued commissions ................               92               91
               Sales tax payable ..................              133              149
               Other ..............................              408              224
                                                        ------------     ------------
                                                        $      1,361     $      1,174
                                                        ============     ============
</TABLE>



                                       6
<PAGE>

                                 EUPHONIX, INC.

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)


        (c) Convertible notes payable:

        In July 1999, the Company executed a promissory note with an existing
investor and other parties under which the Company was authorized to draw up to
$2,100,000 through October 31, 1999. The note accrues interest at 7.75% per
annum with principal and accrued interest due at July 30, 2001. The assets of
the Company are pledged as collateral. The note contains a conversion feature to
allow the holder to convert the note into common stock of the Company at a rate
of $0.75 per share. At the date of issuance of the note, the quoted market price
of the Company's common stock was $0.969 per share, resulting in a beneficial
conversion feature charge in the amount of $613,000. The beneficial conversion
feature charge was recorded as a credit to equity and a charge to interest
expense. In March 2001, the Company and the investors agreed to extend the due
date of the principal and accrued interest until March 31, 2002. On April 15,
2001, the Company and the investors agreed to convert the principal and accrued
interest into 3,168,267 shares of common stock of the Company. See "Note 4 --
Subsequent Events."

        In February 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, 2002.
The assets of the Company are pledged as collateral. The note contains a
conversion feature to allow the holder to convert the note into common stock of
the Company at a rate of $2.531 per share. 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 Company recorded a charge for a beneficial conversion feature in the
amount of $1,279,000 because the accounting conversion rate was lower than fair
market value of the Company's common stock at the commitment date. The
beneficial conversion feature charge was recorded as a credit to equity and a
charge to interest expense at the time the notes were issued in February 2000.

        In April 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. An
amendment to the April 2000 note extended the due date to July 31, 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
$3.625 per share. The Company expects that this note will be approved by the
shareholders, and upon approval the Company will measure and record a beneficial
conversion feature charge, if the accounting conversion rate is lower than the
fair market value of the Company's common stock on that date (the commitment
date). In March 2001, the Company and the investors agreed to extend the due
date of the principal and accrued interest until March 31, 2002.

        In September 2000, the Company executed a promissory note with an
existing investor under which the Company borrowed $400,000. The note accrues
interest at 8% per annum with principal and accrued interest due on July 31,
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 $2.3562 per share. In addition this note provides that

                                       7
<PAGE>

                                 EUPHONIX, INC.

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)


upon conversion, if such conversion occurs, the Company will issue warrants to
purchase 181,988 shares of common stock at a rate of $2.3562 per share. The
warrants, if issued, will be exercisable at any time and from time to time in
part or in full before September 7, 2005. The Company expects that this note
will be approved by the shareholders, and upon approval the Company will measure
and record a beneficial conversion feature charge, if the accounting conversion
rate is lower than the fair market value of the Company's common stock on that
date (the commitment date). In March 2001, the Company and the investors agreed
to extend the due date of the principal and accrued interest until March 31,
2002.

        In December 2000, the Company executed promissory notes with existing
investors under which the Company borrowed $1,800,000. The notes accrue interest
at 8% per annum with principal and accrued interest due on July 31, 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
$1.26 per share. In addition this note provides that upon conversion, if such
conversion occurs, the Company will issue warrants to purchase 1,502,963 shares
of common stock at a rate of $1.26 per share. The warrants, if issued, will be
exercisable at any time and from time to time in part or in full before December
29, 2005. The Company expects that this note will be approved by the
shareholders, and upon approval the Company will measure and record a beneficial
conversion feature charge, if the accounting conversion rate is lower than the
fair market value of the Company's common stock on that date. In March 2001, the
Company and the investors agreed to extend the due date of the principal and
accrued interest until March 31, 2002.

        In March 2001, the Company issued convertible promissory notes to
existing investors under which the Company may borrow up to $3,500,000 in 2001.
The notes accrue interest at 10% per annum with principal and accrued interest
due March 31, 2002. The notes contain a conversion feature which allows the
holder to convert the principal and accrued interest into common stock of the
Company at a rate of $0.75 per share at any time after the shareholders of the
Company approve the notes. The Company expects that this note will be approved
by the shareholders, and upon approval the Company will measure and record a
beneficial conversion feature charge, if the accounting conversion rate is lower
than the fair market value of the Company's common stock on that date.

        The Company also issued 350,000 shares of common stock to these
investors in return for their agreement to loan $3,500,000 to the Company. The
commitment fee was measured at the fair market value on the date of issuance of
the shares and is being amortized over the term of the loan commitment. As of
March 31, 2001, $750,000 was drawn down. In May 2001, an additional $804,000 was
drawn down. The remaining amount to draw down is $1,946,000 as of May 15, 2001.

NOTE 3 -- 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

                                       8
<PAGE>

                                 EUPHONIX, INC.

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

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.

NOTE 4 - SUBSEQUENT EVENTS

        On April 15, 2001, the investors in the July 1999 promissory note agreed
to convert the entire amount of the principal of $2.1 million and accrued
interest outstanding of $276,201 into 3,168,267 shares of our common stock at
the price of $0.75 per share.

NOTE 5 - RESTATEMENT OF FINANCIAL RESULTS FOR 2000

        The consolidated financial statements as of and for the year ended
December 31, 2000 have been restated to reverse previously recognized revenue
and related cost of revenues of $1,060,000 and $552,000, respectively. As a
result, the previously reported net loss for the year and accumulated deficit at
December 31, 2000 have each been increased by $508,000 and the loss per share
for the year has been increased from $(0.69) to $(0.73). The restatement is the
result of revenues of $322,000 and $738,000 from a contractual arrangement with
a single customer that had been previously recognized upon the shipment or
commissioning of the Company products at the customer's site in the quarters
ended March 31, 2000 and June 30, 2000, respectively. However, it has since been
determined that the Company had additional software delivery obligations that
had not been fulfilled during the year ended December 31, 2000; generally
accepted accounting principles preclude the recognition of any revenue from the
arrangement until such obligations are satisfied. Those obligations were
satisfied in the quarter ending December 31, 2001, and revenue of approximately
$1 million and cost of revenue of $552,000 will be recognized in that quarter.
Inasmuch as the entire amount of revenue due under the arrangement of $1,060,000
had been received at December 31, 2000, that amount and the related cost of
revenues of $552,000 is deferred in the restated consolidated balance sheet as
of that date.

        The effect of the restatement on previously reported revenue, net loss
and loss per share for the quarter ended March 31, 2000 is as follows:

<TABLE>
<CAPTION>
                                         Three months ended March 31, 2000
                                         ---------------------------------
                                          As reported*       As restated
                                           USD '000           USD '000
                                         -------------       -----------
<S>                                      <C>                 <C>
        Net revenues ............            1,835             1,513
        Net loss ................           (3,862)           (4,039)
        Net loss per share ......            (0.33)            (0.34)
</TABLE>

        * includes the effect of adopting SAB 101 retroactive to January 1,
        2000 as described in notes 1 and 15 to the Company's Form 10-K/A.


                                       9
<PAGE>


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

        This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These forward-looking statements
represent our expectations or beliefs concerning future events and include
statements, among others, concerning: whether our cash and cash equivalents will
be sufficient to meet our anticipated need for working capital and capital
expenditures through the end of 2001; and the impact of SFAS No. 133 on our
financial position. Our 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 "Risk Factors That May Affect Results of Operations and Financial
Condition."

RESULTS OF OPERATIONS

Restatement of financial results

        As we discuss in Note 5 of the interim consolidated financial statements
for the quarter ended March 31, 2001 in this Form 10-Q/A, the consolidated
financial statements as of and for the year ended December 31, 2000 have been
restated to reverse previously recognized revenue and related cost of revenues
of $1,060,000 and $552,000, respectively. As a result, the previously reported
net loss for the year and accumulated deficit at December 31, 2000 have each
been increased by $508,000 and the loss per share for the year has been
increased from $(0.69) to $(0.73). The restatement is the result of revenues of
$322,000 and $738,000 from a contractual arrangement with a single customer that
had been previously recognized upon the shipment or commissioning of our
products at the customer's site in the quarters ended March 31, 2000 and June
30, 2000, respectively. However, it has since been determined that we had
additional software delivery obligations that had not been fulfilled during
the year ended December 31, 2000; generally accepted accounting principles
preclude the recognition of any revenue from the arrangement until such
obligations are satisfied. Those obligations were satisfied in the quarter
ending December 31, 2001, and revenue of approximately $1 million and cost of
revenue of $552,000 will be recognized in that quarter. Inasmuch as the entire
amount of revenue due under the arrangement of $1,060,000 had been received at
December 31, 2000, that amount and the related cost of revenues of $552,000 is
deferred in the restated consolidated balance sheet as of that date.

        The effect of the restatement on previously reported revenue, net loss
and loss per share for the quarter ended March 31, 2000 is as follows:

<TABLE>
<CAPTION>
                                              Three months ended March 31, 2000
                                              ---------------------------------
                                               As reported*         As restated
                                                 USD '000             USD '000
                                              -------------         -----------
<S>                                           <C>                   <C>
        Net revenues................              1,835                1,513
        Net loss....................             (3,862)              (4,039)
        Net loss per share..........              (0.33)               (0.34)
</TABLE>

        * includes the effect of adopting SAB 101 retroactive to January 1,
        2000 as described in notes 1 and 15 to the Company's Form 10-K/A.


                                       10
<PAGE>

Net Revenues

        Net revenues were $4.6 million in the first quarter in 2001 up from $1.5
million in the first quarter of 2000, representing an increase of 206.3%. The
increase in our net revenues for the first quarter of 2001, as compared to the
first quarter of 2000, resulted primarily from increased unit sales of System 5
all digital mixing consoles in the first quarter of 2001 into the
film/post-production and broadcast segments of the market.

        International sales accounted for 47.2% of our first quarter 2001
revenues, compared to 45.2% in the first quarter of 2000. International sales
increased by approximately $1.5 million, or 220.0% in the first quarter of 2001,
as compared to 2000. The increase in international sales in 2001, as compared to
the similar period in 2000, reflected higher sales in Japan and Canada in the
first quarter of 2001.

Gross Margin (Loss)

        Gross margins increased to 37.4% in the first quarter of 2001 as
compared to -5.4% in the first quarter of 2000. The increase in gross margin in
the first quarter of 2001, as compared to the first quarter of 2000, was
primarily due to an increase in System 5 digital mixing console shipments, which
carry a higher gross margin than the CS3000 (which was mainly sold in Q1 2000).
The gross margin in the first quarter of 2000 was negative due to unabsorbed
fixed and partially variable manufacturing costs.

Research and Development Expenses

        Research and development expenses remained approximately the same in the
first quarter of 2001, as compared to the first quarter of 2000. As a percentage
of revenues, research and development expenses decreased to 19.3% in the first
quarter of 2001, down from 60.1% in the first quarter of 2000. The decrease was
attributable primarily to higher revenues in the first quarter of 2001 as
compared to 2000.

Sales and Marketing Expenses

        Sales and marketing expenses increased by approximately $112,000 in the
first quarter of 2001 as compared to the same period in 2000. This increase was
primarily due to increased expenditures on product marketing by increasing
advertising expenditures and adding personnel and consultants. The increases
were partially offset by the reduction in costs due to the realization of
savings relating to the joint venture with Audio Export. As a percentage of
revenues, marketing and selling expenses decreased to 30.3% in the first quarter
of 2001, as compared to 85.4% in the first quarter of 2000. The percentage
decrease in marketing and selling expenses was due primarily to higher revenues
in the first quarter of 2001, as compared to the same period in 2000.

General and Administrative Expenses

        General and administrative expenses increased by $0.3 million, or 92.2%,
in the first quarter of 2001, as compared to the same period in 2000. As a
percentage of revenues, general and administrative expenses decreased to 14.9%
in the first quarter of 2001, as compared to 23.7% in the first quarter of 2000.
The dollar increase in the first quarter of 2001 was primarily due to higher
salary and benefits, additional personnel and bad debt expense. As compared to
the first quarter of 2000, the percentage decrease is attributable to higher
revenues in the first quarter in 2001.

                                       11
<PAGE>

Other expense, net

        Other expense, net charges were $0.3 million in the first quarter of
2001, as compared to $1.4 million in the first quarter of 2000. This represented
a decrease of 77.5% in 2001 as compared to 2000. Other expense, net for 2000
included a charge of $1.3 million related to the beneficial conversion feature
associated with the convertible promissory note and associated warrants issued
on February 22, 2000.

Provision/(benefit) for Income Taxes

        No provision for federal and state income taxes was recorded for the
first quarter in 2001 and 2000 as we incurred net losses during the period.

LIQUIDITY AND CAPITAL RESOURCES

        We have funded our operations primarily through cash flows from
operations and the private sale of equity and debt securities. For the first
quarter ended March 31, 2001, cash and cash equivalents increased by $1.8
million to approximately $2.4 million. In addition, during this period working
capital decreased by $1.3 million to approximately $4.3 million.

        Our operating activities provided cash of approximately $0.6 million in
the first quarter of 2001, and used cash of $1.7 million in the same period in
2000. Cash provided by operating activities for 2001 was comprised primarily of
a decrease in accounts receivable offset by a net loss. Cash used in operating
activities for the first quarter of 2000 was comprised primarily of net loss
offset partially by a non cash charge related to the beneficial conversion
feature on convertible notes.

        Our investing activities used cash of $36,000 in the first quarter of
2001 and $33,000 in the same period in 2000 due to the purchase of property and
equipment.

        Our financing activities provided $1.3 million in the first quarter of
2001 and $1.8 million in the first quarter of 2000. We received proceeds from
the issuance of convertible notes in the first quarter of 2001 of $0.5 million
from the December 2000 note and $0.8 million from the March 2001 note, as
compared to $1.5 million in the first quarter of 2000. Proceeds from the sale of
common stock were $0.3 million in the first quarter of 2000.

        In March 2001, we issued convertible promissory notes to existing
investors under which we may borrow up to an aggregate of $3,500,000 during
2001. The notes accrue interest at 10% per annum with principal and accrued
interest due March 31, 2002. As of March 31, 2001, $750,000 was drawn down.
After that in May 2001, an additional $804,000 was drawn down. The remaining
amount to draw down is $1,946,000 as of May 15, 2001.

        As of November 27, 2001, we believe that our available cash and cash
equivalents will not be sufficient to meet our anticipated needs for working
capital and capital expenditures through the end of 2001. We believe that
failure to generate sufficient revenues, reduce certain discretionary spending
or raise additional financing could have a material adverse effect on our
ability to continue as a going concern and achieve our intended business
objectives. In order to meet our long-term liquidity needs, we may need to raise
additional funds, establish a credit facility or seek other financing
arrangements. We are actively engaged in securing a new borrowing facility,
although there is no assurance that we will be successful in doing so. Moreover,
the maturity dates of our outstanding promissory notes will become due in early
2002. Although the notes may be converted into shares of our common stock, there
is no assurance that the investors will choose to convert their notes, and we
may have to repay these loans in 2002.


                                       12
<PAGE>



Impact of Recently Issued Accounting Pronouncements

        In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities." SFAS 133 establishes methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities, and is effective for
fiscal years beginning after June 15, 2000, as amended by SFAS No. 137. In June
2000, the Financial Accounting Standards Board issued SFAS No. 138, "Accounting
for Derivative Instruments and Hedging Activities -- An Amendment of FASB
Statement No. 133." SFAS No. 138 amends the accounting and reporting standards
for certain derivatives and hedging activities such as net settlement contracts,
foreign currency transactions and intercompany derivatives. We adopted SFAS No.
133 on January 1, 2001. The adoption of SFAS No. 133 did not have an impact on
our financial position or results of operations.

RISK FACTORS THAT MAY AFFECT RESULTS OF OPERATIONS AND FINANCIAL CONDITION

        A number of uncertainties exist that could affect our future operating
results, including, without limitation, the following:

WE HAVE INCURRED SIGNIFICANT LOSSES FOR THE PAST FIVE YEARS, AND MAY NEED TO
RAISE ADDITIONAL FUNDING IN ORDER TO FUND OUR OPERATIONS

        We incurred net losses of approximately $1.6 million in the first
quarter of 2001, $8.8 million in 2000, $6.3 million in 1999, $5.2 million in
1998, $1.9 million in 1997, and $1.4 million in 1996, and we will continue to
expend substantial funds to increase the versatility and functionality of the
System 5 digital console in fiscal 2001. Although we received commitments from
existing investors to loan us $3.5 million during 2001, if our operating needs
change, we may need to raise additional capital in order to fund operations.
Although we believe that additional debt or equity financing will be available
from existing investors and others, 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. The inability to obtain additional financing would cause
a severe negative impact, and we may be unable to fund operations.

THE LOW PRICE OF OUR COMMON STOCK COULD RESULT IN OUR SHARES BEING SUSPENDED OR
DELISTED FROM THE NASDAQ

        The shares of our common stock are currently listed on the Nasdaq
SmallCap Market. Due to their decline in price, our stock could be suspended or
delisted from Nasdaq, which requires a minimum bid per share of $1.00, a market
capitalization of $35 million and net tangible assets of $2 million. If our
stock is delisted from Nasdaq, it would be much more difficult to purchase or
sell our stock or obtain accurate quotations as to our stock price.


                                       13
<PAGE>

OUR STOCK PRICE HAS RECENTLY TRADED FAR BELOW THE INITIAL OFFERING PRICE AND
COULD REMAIN AT THIS LOW PRICE, WHICH COULD AFFECT OUR ABILITY TO ACQUIRE OTHER
COMPANIES, LEAVE US VULNERABLE TO HOSTILE TAKE OVER ATTEMPTS AND RESULT IN
SECURITIES CLASS ACTION LITIGATION

        The market price of our common stock has traded at or significantly
below the initial offering price of $8.00 per share. If the price per share does
not increase, our investors may incur a substantial loss on their investment. In
addition, the sustained depression of the market price of our common stock
hamper our ability to conduct business, and in particular, could make it more
difficult to pursue acquisitions of potential complementary businesses, leave us
vulnerable to hostile takeovers and result in securities class action
litigation.

OUR STOCK PRICE MAY CONTINUE TO BE DEPRESSED DUE TO BROAD ECONOMIC, MARKET AND
INDUSTRY FACTORS BEYOND OUR CONTROL

        Until recently, the market demand, valuation and trading prices of high
technology companies was high. Recently, however, the share prices of
high-technology companies, such as ours, have significantly decreased, and these
stocks are now trading far below their historical highs. Our stock price may
continue to be depressed because the market may perceive us to be a
high-technology company. In addition, a variety of other factors beyond our
control, such as general economic conditions, could cause our stock price to
remain extremely low, regardless of our performance.

WE DERIVE ALL OF OUR REVENUES FROM SALES OF OUR DIGITALLY CONTROLLED AUDIO
MIXING CONSOLE AND RECORDING SYSTEMS, AND ANY FACTOR THAT ADVERSELY IMPACTS THIS
SYSTEM WILL SERIOUSLY HARM OUR BUSINESS

        Historically, we have derived virtually all of our revenues from sales
of our digitally controlled audio mixing console system, which is based upon our
hardware platform. We believe that sales of these systems, along with
enhancements thereof, and the R-1 recorder and new System 5 digital console will
continue to constitute a significant portion of our revenues. It is expected for
the foreseeable future that a greater proportion of our revenue will come from
the System 5 digital console. Accordingly, any factor adversely affecting our
base system, whether technical, competitive or otherwise, could significantly
harm our business and results of operations.

CHANGES IN GOVERNMENT REGULATION COULD LIMIT OUR INTERNET ACTIVITIES OR RESULT
IN ADDITIONAL COSTS OF DOING BUSINESS ON THE INTERNET

        Edeck enables audio files to be moved via the Internet. Our business
plans for, and the success of, Edeck is dependent upon the Internet, which is at
a relatively early stage of development. The enactment of any additional laws or
regulations may impede the growth of the Internet, and if this happens, our
operating expenses could increase and we may not be able to achieve
profitability. In addition, the movement of files via the Internet could subject
us to claims for defamation, negligence, copyright or trademark infringement,
personal injury, or other theories based on the nature, content, publication and
distribution of such materials.

                                       14
<PAGE>

WE DEPEND UPON A LIMITED NUMBER OF CUSTOMERS FOR A SUBSTANTIAL PERCENTAGE OF OUR
REVENUES. IF WE LOSE SIGNIFICANT CUSTOMERS, OR IF PURCHASES BY ONE OF OUR KEY
CUSTOMERS DECREASES, OUR NET SALES WILL DECLINE AND OUR BUSINESS WILL BE HARMED

        Due to high average sales prices, we depend upon a limited number of
customers for a substantial proportion of our revenues. If we lose one or more
of our significant customers, or if purchases by one of our key customers
decreases, our net sales will decline and our business will be harmed. 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. Moreover, our expense levels are based in part
on our expectations of future revenue. Because our operating expenses are based
on anticipated revenue levels and because a high percentage of our 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.

IF WE RAISE ADDITIONAL CAPITAL THROUGH THE ISSUANCE OF NEW SECURITIES, EXISTING
STOCKHOLDERS WILL INCUR ADDITIONAL DILUTION

        If we raise additional capital through the issuance of new securities,
our stockholders will be subject to additional dilution. In addition, any new
securities issued may have rights, preferences or privileges senior to those
securities held by our current stockholders.

WE RELY ON DISTRIBUTORS AND SALES REPRESENTATIVES FOR A SUBSTANTIAL PORTION OF
OUR INTERNATIONAL SALES

        In regions outside of the United States and Japan, we rely on
distributors and sales representatives to sell our products. Any disruptions to
these personnel may adversely affect our revenue and gross margins.

WE MUST KEEP PACE WITH RAPID TECHNOLOGICAL CHANGE AND THE INTENSE COMPETITION OF
THE HIGH TECH INDUSTRY IN ORDER TO SUCCEED

        The markets for our products are characterized by changing technologies
and new product introductions. Our success will depend in part upon our
continued ability to enhance our 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. We are 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.
There can be no assurance that products or technologies developed by others will
not render our products or technologies non-competitive or obsolete. If this
happens, our revenues will likely be lower and our business will suffer.

CURRENT AND POTENTIAL COMPETITORS COULD DECREASE OUR MARKET SHARE AND HARM OUR
BUSINESS

        The markets for our products are intensely competitive and characterized
by significant price competition. We believe that our ability to compete depends
on elements both within and outside our control, including the success and
timing of new product development and introduction by us and our competitors,

                                       15
<PAGE>

product performance and price, distribution, availability of lease or other
financing alternatives, resale of used systems and customer support. In
addition, although our products compete primarily with other mixing consoles in
the high-end price range of our targeted market segments, we also believe that,
as technology in the professional audio industry advances, prices for mixing
consoles and other audio equipment, including our products, will decrease. As a
result, our products may increasingly compete against lower-priced products, as
well as products in the high-end price range. Although we believe that our audio
mixing console has certain technological advantages over our competitors,
maintaining such advantages will require continued investment by us in research
and development, sales and marketing and customer service and support. There can
be no assurance that we will have sufficient resources to be able to maintain
such competitive advantages.

        There are numerous companies that compete in the professional audio
market. Many of our competitors are larger and have greater financial,
technical, manufacturing and marketing resources, broader product offerings,
more extensive distribution networks and larger installed bases than ours. We
believe that companies with large installed bases, in particular, may have a
competitive advantage since many potential customers in our targeted markets are
often reluctant to commit significant resources to replace their current
products and to retrain operators to use new products despite technological
advantages of such new alternative products. Some of our competitors also offer
customers leasing or refinancing packages in connection with the purchase of
their mixing consoles, which financing alternatives we do not generally offer.
Furthermore, we compete with resellers of used mixing consoles and equipment who
are able to sell high-end price range products at generally lower prices.

WE DEPEND ON SINGLE AND LIMITED SOURCES FOR KEY COMPONENTS, AND IF WE LOSE ONE
OR MORE OF THESE SOURCES, DELIVERY OF OUR PRODUCTS COULD BE DELAYED OR PREVENTED
AND OUR BUSINESS COULD SUFFER

        We and our manufacturing vendors are dependent upon single or limited
source suppliers, such as Analog Devices and Maxim Integrated Products, for
numerous components and parts used in our products. Currently, we use many sole
or limited source suppliers, some of which are critical to our continued
uninterrupted production because they supply key components, such as integrated
circuits, included in our base system. In particular, we rely on single vendors
to manufacture major subassemblies for our products, and other components are
critical to the integrated circuits included in our base system. There can be no
assurance that these suppliers will continue to be able and willing to meet our
requirements for any sole-sourced components. We generally purchase these single
or limited source components pursuant to purchase orders and have no guaranteed
supply arrangements with such suppliers. In addition, the availability of many
components to our subcontractors is dependent in part on our ability to provide
our subcontractors, and in turn the subcontractor's ability to provide their
suppliers, with accurate forecasts of their future requirements. Major delays or
terminations in supplies of such components could significantly adversely affect
our timely shipment of our products, which in turn would adversely affect our
business and results of operations. The process of qualifying suppliers or
designing out certain parts could be lengthy, and no assurance can be given that
any additional sources or product redesign would be available to us or
implemented on a timely basis. From time to time in the past, we have
experienced interruptions in the supply of certain key components from
suppliers, which delayed product shipments and there can be no assurance that we
will not experience significant shortages for these components in the future. We
do not maintain an extensive inventory of such components and any extended
interruption or reduction in the future supply or increases in prices of any key
components currently obtained from a single limited source supplier could have a
material adverse effect on our business and results of operations for any given
period. If we encounter shortages in component supply, we may be forced to
adjust our product designs and production schedules. The failure of one or more
of our

                                       16
<PAGE>

key suppliers or vendors to fulfill our orders in a timely manner could cause us
to not meet our contractual obligations, could damage our customer relationships
and could harm our business.

OUR SUPPLIERS' ABILITY TO PRODUCE COMPONENTS IS DEPENDENT ON OUR AND OUR
SUPPLIERS' ABILITY TO GENERATE ACCURATE FORECASTS, AND THE PROCESS OF QUALIFYING
NEW SUPPLIERS IS LENGTHY

        Our suppliers rely on subcontractors to provide them with components,
and their ability to timely procure such components is dependent in part on our
ability to provide our subcontractors, and in turn the subcontractor's ability
to provide their suppliers, with accurate forecasts of future requirements. The
process of qualifying suppliers or designing out certain parts could be lengthy,
and no assurance can be given that any additional sources or product redesign
would be available to us or implemented on a timely basis. If we are unable to
procure key components, shipments of our products would be delayed and revenues
would fall.

NEW LAWS COULD RESULT IN INCREASED EXPENDITURES, WHICH WOULD HARM OUR RESULTS OF
OPERATIONS

        If different electrical, radiation or other standards applicable to our
products are adopted in countries in which we sell our products, including the
United States, we may have to increase our expenditures in order to make our
products compliant with these laws. In addition, any failure to modify our
products, if necessary, to comply with such standards would potentially subject
us to fines and penalties, and would harm our business and results of
operations.

OUR INTELLECTUAL PROPERTY IS VERY IMPORTANT TO OUR BUSINESS, AND IF WE ARE
UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, OUR BUSINESS WILL SUFFER

        We generally rely on a combination of trade secret, copyright law and
trademark law, contracts and technical measures to establish and protect our
proprietary rights in our products and technologies. We believe, however, that
these measures provide only limited protection of our proprietary information,
and there is no assurance that they will be adequate to prevent
misappropriation. In addition, significant and protracted litigation may be
necessary to protect our 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 us in the future. Any such claims could seriously harm our
business and results of operations.

WE MUST CONTINUALLY ATTRACT AND RETAIN OUR MANAGEMENT AND TECHNICAL PERSONNEL OR
WE WILL BE UNABLE TO EXECUTE OUR BUSINESS STRATEGY

        Our future success depends in part on our ability to attract, retain and
motivate key management and technical employees. Competition for such personnel
is intense in the high tech industry, especially in the Silicon Valley
employment market, and we may be unable to successfully attract, integrate or
retain sufficiently qualified personnel. We have experienced, and we expect to
continue to experience, difficulty in hiring and retaining highly skilled and
qualified employees.

                                       17
<PAGE>

WE MUST EFFECTIVELY MANAGE AND SUPPORT OUR GROWTH IN ORDER FOR OUR BUSINESS
STRATEGY TO SUCCEED

        We will need to continue to increase revenues and grow in all areas of
operation in order to execute our business strategy. Managing and sustaining our
growth will place significant demands on management as well as on our
administrative, operational and financial systems and controls. If we are unable
to do this effectively, we would have to divert resources such as management
time away from the continued growth of our business and implementation of our
business strategy, and our business and results of operations will be adversely
affected.

WE RELY ON A CONTINUOUS POWER SUPPLY TO CONDUCT OUR OPERATIONS, AND CALIFORNIA'S
CURRENT ENERGY CRISIS COULD DISRUPT OUR OPERATIONS AND INCREASE OUR EXPENSES.

        California is in the midst of an energy crisis that could disrupt our
operations and increase our expenses. In the event of an acute power shortage,
that is, when power reserves for the state of California fall below certain
critical levels, California has on some occasions implemented, and may in the
future continue to implement, rolling blackouts throughout California. We
currently do not have backup generators or alternate sources of power in the
event of a blackout, and our current insurance does not provide coverage for any
damages we or our customers may suffer as a result of any interruption in our
power supply. If blackouts interrupt our power supply, we would be temporarily
unable to continue operations at our California facilities. Any such
interruption in our ability to continue operations at our facilities could
damage our reputation, harm our ability to retain existing customers and to
obtain new customers, and could result in lost revenue, any of which could
substantially harm our business and results of operations.

A DISASTER COULD SEVERELY DAMAGE OUR OPERATIONS

        A disaster could severely damage our ability to deliver our products to
our customers. Our products depend on our ability to maintain and protect our
facilities, which are primarily located in or near our principal headquarters in
Palo Alto, California. Palo Alto may exist on or near a known earthquake fault
zone. Although the facilities in which we host our computer systems are designed
to be fault tolerant, the systems are susceptible to damage from fire, floods,
earthquakes, power loss, telecommunications failures, and similar events.
Although we maintain general business insurance against fires, floods and some
general business interruptions, there can be no assurance that the amount of
coverage will be adequate in any particular case.

CHANGES IN EXCHANGE RATES COULD HURT OUR REVENUES

        Our wholly-owned sales and service subsidiary in Japan conducts its
business in the local currency. Changes in the value of the Yen relative to the
value of the U.S. dollar, therefore, could adversely affect future revenues and
operating results. We have not hedged transactions with external parties.


                                       18
<PAGE>


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

        Sales through our Japanese subsidiary are denominated in Japanese Yen.
The receivables denominated in Yen are subject to foreign exchange risk, and we
do not enter into hedging arrangements to mitigate the foreign currency risk
with respect to such arrangements. Although an adverse change in the foreign
exchange rate would have an effect on the price of our consoles sold in Japan
and could result in foreign currency transaction losses, we believe that such
losses would not be material.



                                       19
<PAGE>


                           PART II. OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

        (c) Recent Sales of Unregistered Securities.

        In March 2001, we issued convertible promissory notes to existing
investors under which we may borrow up to an aggregate of $3,500,000 in 2001.
The notes accrue interest at 10% per annum with principal and accrued interest
due March 31, 2002. The notes contain a conversion feature which allows the
holder to convert the principal plus interest into our common stock at a rate of
$0.75 per share at any time after our shareholders approve the notes. We also
issued 350,000 shares of common stock to these investors in return for their
agreement to loan us up to $3,500,000.

        The foregoing securities were issued pursuant to an exemption from
registration under Section 4(2) of the Securities Act. We made no public
solicitation in connection with the issuance of the above-mentioned securities,
nor were there any other offerees. None of the offerings were underwritten. We
relied on representations from the recipients of the securities that they
purchased the securities for investment for their own account and not with a
view to, or for resale in connection with, any distribution thereof. The
investors also indicated to us that they were aware of our business affairs and
financial condition and had sufficient information to reach an informed and
knowledgeable decision regarding their acquisition of the securities.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

        (a) Exhibits.

        The exhibits listed in the accompanying Index to Exhibits immediately
following the signature page are incorporated by reference as part of this Form
10-Q.

        (b) Reports on Form 8-K.

        We did not file any reports on Form 8-K during the quarter ending March
31, 2001.


                                       20
<PAGE>


                                   SIGNATURES

        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 27, 2001

                                 By: /s/ Jeffrey Chew
                                     -------------------------------------------
                                     Jeffrey Chew, Chief Executive Officer
                                     (Principal Executive and Financial Officer)


                                       21
<PAGE>


                                INDEX TO EXHIBITS

        The following Exhibits are numbered in accordance with the Exhibit Table
of Item 601 of Regulation S-K:

EXHIBIT NUMBER      DOCUMENT
--------------      --------

    3.1(1)          Amended and Restated Articles of Incorporation of the
                    Registrant.

    3.2(1)          Bylaws of the Registrant.

    10.1(2)         Secured Promissory Note dated March 15, 2001, by and between
                    the Registrant and Dieter Meier and Walter Bosch (the
                    "Note")

    10.2(2)         Stock Issuance Agreement dated March 15, 2001, by and
                    between the Registrant and Dieter Meier and Walter Bosch
                    (the "Stock Issuance Agreement")

    10.3(2)         Form of Registration Rights Agreement to be executed after
                    the Registrant's Annual Meeting and in connection with the
                    Note and the Stock Issuance Agreement

(1)  Incorporated by reference to the exhibit filed with the Registrant's
     Registration Statement on Form SB-2 (File No. 33-994898-LA), effective
     August 21, 1995.

(2)  Incorporated by reference to the exhibit filed with the Registrant's
     Quarterly Report on Form 10-Q filed on May 15, 2001.


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