<PAGE>
__________________________________________________________________
__________________________________________________________________
           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, 1998

                                  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 regis-
trant 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 Septem-
ber 30, 1998 was 6,634,957 ($.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, 1998 and 1997..........3

        Condensed Consolidated Balance Sheets as of 
         September 30, 1998 and December 31, 1997.........................4

        Condensed Consolidated Statements of Cash Flows
         for the nine months ended September 30, 1998 and 1997............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.................................14

Signature................................................................15









                                    2


<PAGE>

PART I.	FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements

                             Euphonix, Inc.
              Condensed Consolidated Statements of Operations
                              (unaudited)

<TABLE>
<CAPTION>
                               Three Months Ended         Nine Months Ended
                                  September 30,              September 30,
                              1998            1997        1998          1997
                          ------------  ------------- ------------- ------------
<S>                       <C>           <C>           <C>           <C>
Nets revenues.............$ 4,500,091   $  3,754,347  $ 12,221,364 $ 13,198,284
Cost of sales.............  2,364,545      1,754,771     6,727,616    6,664,670
                          ------------  ------------- ------------- ------------
Gross profit..............  2,135,546      1,999,576     5,493,748    6,533,614

Operating expenses:
 Research & development...  1,300,635      1,037,465     3,445,531    2,853,144
 Sales & marketing........  1,318,774      1,458,775     3,873,225    3,964,442
 General & administrative.    527,540        355,055     1,819,923    1,575,171
                          ------------  -------------- ------------ ------------
Total operating expenses..  3,146,949      2,851,295     9,138,679    8,392,757
                          ------------  -------------- ------------ ------------
Operating loss............ (1,011,403)      (851,719)   (3,644,931)  (1,859,143)
Other income (loss).......      3,538        (15,688)       45,517      145,426
                          ------------  -------------- ------------ ------------
Loss before income taxes.. (1,007,865)      (867,407)   (3,599,414)  (1,713,717)

Tax provision (benefit)...       ----       (110,060)         ----     (110,060)
                          ------------  -------------- ------------ ------------
Net loss..................$(1,007,865)  $   (757,347)  $(3,599,414) $(1,603,657)
                          ============  ============== ============ ============
Loss per share:
 Basic....................$     (0.15)  $      (0.14)  $     (0.57) $     (0.29)
                          ============  ============== ============ ============
 Diluted..................$     (0.15)  $      (0.14)  $     (0.57) $     (0.29)
                          ============  ============== ============ ============
Number of shares used in 
 computing per share 
  amounts:
  Basic...................  6,633,057      5,577,211     6,326,849    5,571,329
                          ============  ============== ============ ============
  Diluted.................  6,633,057      5,577,211     6,326,849    5,571,329
                          ============  ============== ============ ============
</TABLE>
             See notes to condensed consolidated financial statements


                                    3

<PAGE>
                             Euphonix, Inc.
                  Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
	    					                             September 30,	        December 31,
					                         	            1998 	             		 1997
                                     -----------------    -----------------
<S>                                 <C> (unaudited)      <C>   (Note)
            ASSETS
CURRENT ASSETS:
 Cash and cash equivalents.........  $   1,964,251        $   1,880,093
 Short-term investments............        589,498            1,710,223
 Accounts receivable, net..........      1,298,231            1,911,095
 Inventories.......................      5,584,656            5,309,818
 Income tax receivable.............        300,000              544,000
 Prepaid expenses and other current 
  assets...........................        180,411              306,308
                                     ----------------     ----------------
Total current assets...............      9,917,047           11,661,537
Property and equipment, net........      1,550,202            1,425,709
Deposits and other assets..........        340,158              120,829
                                     ----------------     ----------------
Total assets.......................  $  11,807,407        $  13,208,075
                                     ================     ================

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
 Accounts payable..................  $     963,946        $     924,721
 Accrued payroll and related 
  liabilities......................        582,484              387,337
 Accrued warranty..................        416,816              347,850
 Accrued commissions...............         62,930              155,708
 Other accrued liabilities.........        520,455              461,614
 Customer deposits.................        191,287              237,866
 Short term portion capital leases.         13,480               51,565
                                     ----------------     ----------------
Total current liabilities..........      2,751,398            2,566,661

Long term portion capital leases...         31,973               31,973
Deferred rent......................          1,584                3,170
Deferred income taxes..............        119,000              119,000
SHAREHOLDERS' EQUITY:
 Preferred stock...................           ----                 ----
 Common stock......................          6,636                5,590
 Additional paid-in capital........     15,672,720           13,722,855
 Accumulated deficit...............     (6,703,904)          (3,101,674) 
 Deferred compensation.............        (72,000)            (139,500)
                                     ----------------    ----------------
Total shareholders' equity.........      8,903,452           10,487,271
                                     ----------------    ----------------
Total liabilities and shareholders' 
 equity............................  $  11,807,407       $   13,208,075
                                    =================    ================
</TABLE>
Note:  The balance sheet at December 31, 1997 has been derived from the audited 
financial statements at that date.  See notes to condensed consolidated finan-
cial statements.




                                    4
<PAGE>
                              Euphonix, Inc.
               Condensed Consolidated Statements of Cash Flows
                               (unaudited)
<TABLE>
<CAPTION>
						
						                               	            Nine Months Ended
							                                              September 30,
							                                         1998             1997
                                           --------------   --------------
<S>                                        <C>              <C>
Operating activities
Net loss...................................$  (3,599,414)   $  (1,603,657)
Adjustments to reconcile net income to net 
cash used in operating activities:  
 Depreciation and amortization.............      348,209          293,495
 Deferred compensation amortization........       67,500           67,500
 Changes in operating assets and liabilities:
  Prepaid expenses, other current assets and 
   other assets............................     (101,427)        (130,385)
  Accounts receivable......................      612,864         (551,799) 
  Inventories..............................     (274,838)      (1,921,954)
  Income tax receivable....................      244,000           ----
  Accounts payable, accrued liabilities, 
   and deferred rent.......................      264,999          419,071
  Customer deposits........................      (46,579)         (94,761)
                                           ---------------   --------------
Total adjustments..........................    1,114,728       (1,918,833)
                                           ---------------   --------------
Net cash used in operating activities......   (2,484,686)      (3,522,490)
Investing activities
Proceeds from sales of short-term investment 
 maturities................................    1,120,725        4,082,530
Purchases of short-term investments........       ----         (1,044,889)
Purchase of property and equipment.........     (464,707)        (349,653)
                                           ---------------   --------------
Net cash provided by investing activities..      656,018        2,687,988
Financing activities
Principal payments under capital lease 
 obligations...............................      (38,085)         (33,721)
Proceeds from sale of common stock.........    1,950,911            3,353
Proceeds from short term bank borrowings...       ----            500,000
                                           ---------------   --------------
Net cash provided by financing activities..    1,912,826          469,632
                                           ---------------   --------------
Net increase (decrease) in cash and cash 
 equivalents...............................       84,158         (364,870)
Cash and cash equivalents at beginning of 
 period....................................    1,880,093        1,428,095
                                           ---------------   --------------
Cash and cash equivalents at end of period.$   1,964,251     $  1,063,225
                                           ===============   ==============
</TABLE>


          See notes to condensed consolidated financial statements



                                    5
<PAGE> 

                                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 infor-
mation and footnotes required by generally accepted accounting principles for 
complete financial statements.  In the opinion of management, all adjustments 
(consisting only of normal recurring accruals) considered necessary for a fair 
presentation have been included. Operating results for the nine-month period 
ended September 30, 1998 are not necessarily indicative of the results that may 
be expected for the entire year ending December 31, 1998.

     	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, 1997.

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 accom-
panying notes.  Actual results could differ from those estimates.

3.	   Net Loss per share

     	The Company has adopted SFAS 128 to compute earnings per share and has 
restated all prior periods.  The new requirements include a calculation of basic
earnings per share, from which the dilutive effect of stock options, warrants, 
and convertible debt are excluded; and a calculation of diluted earnings per 
share, which includes the dilutive effect of these securities.   For the three 
and nine month periods ended September 30, 1998 and 1997, the dilutive effect of
stock options were excluded from the calculation of common shares used in the 
denominator for diluted loss per share because the stock options are anti-dilu-
tive.  The Company adopted the provisions of SFAS 128 beginning with the finan-
cial statements for the year ended December 31, 1997, and all share and per 
share data for prior periods have been adjusted retroactively to comply with the
new statement.




	
                                    6
<PAGE>

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

The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
                                      Three Months Ended     Nine Months Ended
                                         September 30,         September 30,
                                  --------------------------------------------
<S>                               <C>  1998    <C> 1997   <C> 1998   <C> 1997
                                       ----        ----       ----       ----
Numerator:
Numerator for basic and diluted 
 loss per share..................    $(1,008)    $ (757)    $(3,599)  $(1,604)
Denominator:
Denominator for basic and diluted 
 loss per share weighted-average 
 shares outstanding..............      6,633      5,577       6,327     5,571
                                     ========    =======    ========  ========
Basic loss per share.............    $ (0.15)    $(0.14)    $ (0.57)  $ (0.29)
                                     ========    =======    ========  ========
Diluted loss per share...........    $ (0.15)    $(0.14)    $ (0.57)  $ (0.29)
                                     ========    =======    ========  ========
</TABLE>

4.	   Inventories

Inventories are stated at the lower cost (first-in, first-out) or market (net 
realizable value). Inventories consist of the following:
<TABLE>
<CAPTION>
						                            September 30,        December 31,
						                                1998                 1997
                                 ---------------      --------------
<S>                              <C>                  <C>

             Raw materials......  $  1,859,766         $  1,213,574
             Work-in-process....     1,726,123            1,281,064
             Finished goods.....     1,998,767            2,815,180
                                 ---------------       -------------
                                  $  5,584,656         $  5,309,818
                                 ===============       =============
</TABLE>

5.   	Income Taxes

	     The Company's provision for income taxes for the nine months ended Septem-
ber 30, 1998 is based on the Company's estimate of the annual effective tax rate
for 1998.  The Company's effective tax rate for the nine months ended September 
30, 1998 was 0%.  The Company's effective tax benefit was 10.3% in  1997, prim-
arily due to the recognition of certain deferred tax assets based on available 
carry-back potential.




                                    7
<PAGE>

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



6.    Comprehensive Loss

      As of January 1, 1998, the Company adopted Statement of Financial Account-
ing Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130").  SFAS 130 
established new rules for the reporting and display of comprehensive income and 
its components; however, the adoption of SFAS 130 had no material impact on the 
Company's net income or shareholders' equity.  SFAS 130 requires unrealized 
gains or losses on the Company's available-for-sale securities and foreign cur-
rency translation adjustments, which prior to adoption were reported separately 
in shareholders' equity, to be included in other comprehensive income. 

      Total comprehensive loss for the three and nine month periods ended Sep-
tember 30, 1998 were $1,002,038 and $3,602,230, respectively.  Total comprehen-
sive loss for the three and nine month periods ended September 30, 1997 were 
$697,215 and $1,524,793.


7.	   Common Stock

      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 exe-
cuted.  The authorized capital stock of the Company at September 30, 1998 is 
20,000,000 shares of common stock and 2,000,000 shares of preferred stock, par 
value $0.001.  As of September 30, 1998, there were 6,634,957 shares of common 
stock issued and outstanding, and there were no issued and outstanding shares of
preferred stock.







                                    8
<PAGE>

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. Fac-
tors 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 $4.5 million for the third quarter of 
1998, which was 19.9% above third quarter 1997 revenues of $3.8 million. Net 
revenues for the first nine months of 1998 were $12.2 million, which represents 
a 7.4% decrease from net revenues of $13.2 million for the first nine months of 
1997. The Company's increase in net revenues for the third quarter of 1998 as 
compared to 1997, resulted primarily from increased sales in Japan. The Com-
pany's decrease in net revenues for the first nine months of 1998, as compared 
to 1997 resulted primarily from reduced sales in the United States and in 
Europe, due to increased competition from companies offering all digital con-
soles.    

      	Domestic sales of the Company's products for the third quarter of 1998 
and 1997 were $1.6 million and $2.0 million, respectively, comprising approxi-
mately 35.5% and 53.5% of the Company's net revenues for the third quarter of 
1998 and 1997, respectively.  Domestic sales were $6.3 million and $7.8 million 
comprising approximately 51.9% and 59.1% of the Company's net revenues for the 
first nine months of 1998 and 1997, respectively. Export sales were $2.9 million
and $1.7 million comprising approximately 64.5% and 46.5% of the Company's 
revenues for the third quarter of 1998 and 1997, respectively.  Export sales 
were $5.9 million and $5.4 million comprising approximately 48.1% and 40.9% of 
the Company's revenues for the first nine months of 1998 and 1997, respectively.
Export sales as a percent of net revenues increased in the first nine months of 
1998 due to greater sales in Japan, as compared to the first nine months of 
1997.  

	      The Company anticipates that starting in the first quarter of 1999, a 
significant portion of its revenues will come from its new R-1 multitrack 
recorder which was announced in the second quarter of 1998.

      	Gross Margin.  The Company's gross margin decreased from 53.3% in the 
third quarter of 1997 to 47.5% in the third quarter of 1998.  The decrease is 
due to higher overhead expenses in 1998, caused by the decision not to capital-
ize any additional overhead into inventory such as was done in the third quarter
of 1997.  In absolute dollars, the gross margin increased from $2.0 million in 
the third quarter of 1997 to $2.1 million in the third quarter of 1998 as a 
result of higher sales.  For the first nine months of 1998, gross margin was 
$5.5 million, or 45% of net revenues, compared with $6.5 million , or 49.5% of 
net revenues, for the first nine months of 1997. The decrease in the first nine 
months of 1998 from the first nine months of 1997 was primarily due to higher 
production costs of selling off older/used inventory at lower margins.

	      Research and Development Expenses.  Research and development expenses 
increased to $1.3 million in the third quarter of 1998, up from $1 million in 
the third quarter of 1997, representing an increase of 25.4% in 1998.  For the 
first nine months of 1998, research and development expenses of $3.4 million 
increased 20.8% from $2.9 million in 1997.  Research and development expenses 

                                   9
<PAGE>
                                    
constituted 28.9%, 27.6%, 28.2%, and 21.6% of net revenues in the third quarter 
of 1998 and 1997 and the first nine months of 1998 and 1997, respectively.  The 
increases resulted primarily from new product development costs primarily re-
lated to next generation products, and additional personnel.  The Company ex-
pects to continue its high research and development costs next quarter as it 
develops its next generation products.

	      Sales and Marketing Expenses.  Sales and marketing expenses decreased to 
$1.3 million in the third quarter of 1998, from $1.5 million in the third quar-
ter of 1997, representing a decrease of 9.6%.  For the first nine months of 
1998, sales and marketing expenses of $3.9 million decreased 2.3% from $4.0 mil-
lion in 1997.  Sales and marketing expenses constituted 29.3%, 38.9%, 31.7%, and
30% of net revenues in the third quarter of 1998 and 1997 and the first nine 
months of 1998 and 1997, respectively. The decreases are due to lower sales 
commissions and salary expense, caused by attrition.

	      General and Administrative Expenses.  General and administrative expenses
increased to $528,000 in the third quarter of 1998 from $355,000 in the third 
quarter of 1997, representing an increase of 48.6%.  For the first nine months 
of 1998, general and administrative expenses of $1.8 million increased 15.5% 
from $1.6 million in the first nine months of 1997.  General and administrative 
expenses constituted 11.7%, 9.5%, 14.9%, and 11.9% of net revenues in the third 
quarter of 1998 and 1997 and the first nine months of 1998 and 1997, respective-
ly.  The increase from the third quarter and first nine months of 1997 to the 
third quarter and first nine months of 1998 was attributable to an increase in 
personnel.

	      Provision for Income Taxes.  The Company's effective tax rate is 0% in 
1998 and a 10.3% benefit in 1997.  The effective tax rate for the third quarter 
of 1998 and 1997 was 0% and 12.7%, respectively.  The effective tax rate for the
first nine months of 1998 and 1997 was 0% and 6.4%, respectively.  The effective
tax rates for the third quarter and first nine months of 1998 and 1997 differ 
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. During the nine 
months ended September 30, 1998 the Company sold common stock to existing inves-
tors and received proceeds of $1,950,000. For the nine months ended September 
30, 1998, cash, cash equivalents and short-term investments decreased by $1.0 
million to approximately $2.6 million, mainly due to operating cash require-
ments, and lower than anticipated sales in general. Also, during this period, 
working capital decreased by $1.9 million to approximately $7.2 million.

	      The Company's operating activities used cash of approximately $2.5 mil-
lion and $3.5 million for the nine months ended September 30, 1998 and 1997, 
respectively.  Cash used in operating activities for 1998 was comprised primar-
ily 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.  Cash used in operating activities for 1997 
was comprised primarily of net loss, an increase in inventories and accounts 
receivable, 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.


                                    10
<PAGE>
	      The Company's financing activities provided $2.0 million in cash from the
sale of common stock during the nine months ended September 30, 1998.  For the 
nine months ended September 30, 1997, proceeds from short-term borrowing pro-
vided cash of $500,000.
	
	      As of September 30, 1998, the Company's sources of liquidity included 
cash, cash equivalents and short-term investments totaled approximately $2.6 
million. The Company believes that its existing sources of liquidity will be 
sufficient to finance operations in the foreseeable future.  In the event that 
the Company requires additional liquidity, the Company will acquire additional 
funds through either debt or equity financing.  There can be no assurance that 
additional capital will become available on acceptable terms.


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.  This could result in a system failure or miscalculations causing 
disruptions of operations, including, among other things, a temporary inability 
to process transactions, send invoices, or engage in similar normal business 
activities.

	      Based on recent assessments, the Company does not believe that the Year 
2000 presents a material exposure as it relates to the Company's IT systems, non
-IT systems, third parties and to the Company's products.  The Company's IT sys-
tems, non-IT systems, and products all appear to be 100% Year 2000 compliant.  
In addition, the Company has gathered information about the Year 2000 compliance
status of its significant suppliers and subcontractors and continues to monitor 
their compliance.  To date, the Company is not aware of any external agent with 
a Year 2000 issue that would materially impact the Company's results of opera-
tions, liquidity, or capital resources. Costs incurred to date and anticipated 
costs are not material. However, the Company has no means of ensuring that ex-
ternal agents will be Year 2000 ready.  The inability of external agents to 
complete their Year 2000 resolution process in a timely fashion could materially
impact the Company.  The effect of non-compliance by external agents is not 
determinable. Costs incurred to date and anticipated costs are not material.  
There is no material exposure related to significant customers of which the 
Company is aware of.

	      In addition, disruptions in the economy generally resulting from Year 
2000 issues could also materially adversely affect the Company.  The type and 
amount of potential liability and lost revenue cannot be reasonably estimated at
this time.

	      The Company currently has no contingency plans in place for Year 2000 
issues because our IT and non-IT systems, third party interfaces and products 
all appear to be Year 2000 compliant.  The Company feels confident that no con-
tigency plan is necessary, but will continue to monitor the situation.

       This description of Year 2000 issues contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1993 and Section 21E
of the Securities Exchange Act of 1934, afforded "safe harbor" protection, and 
is provided to avail the reader of current information regarding Year 2000 
issues.


                                    11
<PAGE>

Factors Affecting Future Operating Results

	      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
proprietary hardware platform.  The Company believes that sales of this system, 
along with enhancements thereof, will constitute virtually all of the Company's 
revenues for the foreseeable future. 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 opera-
tions.  However the Company anticipates that starting in the first quarter of 
1999, a significant portion of its revenues will come from its new R-1 multi-
track recorder which was announced in the second quarter of 1998.

		     A limited number of the Company's system sales typically account for a 
substantial percentage of the Company's quarterly revenue because of the rela-
tively 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 quar-
terly earnings shortfalls or losses.

		     The markets for the Company's system are characterized by changing tech-
nologies and new product introductions.  The Company's future success will 
depend in part upon its continued ability to enhance its base system with fea-
tures, including new software and hardware add-ons, and to develop or acquire 
and introduce new products and features which meet new market demands and chang-
ing 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 tech-
nologies noncompetitive or obsolete. 

		     To date, the Company's primary market success has been in the music seg-
ment 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 seg-
ments. 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 (including development on a timely basis of a hybrid 
digital product, of which there can be no assurance) and introduction by the 
Company and its competitors, product performance and price, distribution, avail-
ability of lease or other financing alternatives, resale of used systems and 
customer support.

		     Currently, the Company uses many sole or limited source suppliers, cer-
tain 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 re-
sults of operations. 
                                    12
<PAGE>         

The Company also relies on single vendors to manufacture major subassemblies for
its products. Any extended interruption in the future supply or increase in the 
cost of subassemblies manufactured by its primary or other third party vendors 
could have a material adverse effect on the Company's business and results of 
operations. 

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

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

		     The Company's success depends, in part, on its ability to retain key 
management and technical employees and its continued ability to attract and re-
tain highly skilled personnel. In addition, the Company's ability to manage any 
growth will require it to continue to improve and expand its management, opera-
tional 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 sig-
nificant 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 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.






                                    13
<PAGE>

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.





















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<PAGE>
	
	     
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 under-
signed thereunto duly authorized.



Euphonix, Inc.






Date:	November 11, 1998				              By: /s/ BARRY MARGERUM
      -----------------                      -------------------
              				                          Barry L. Margerum, Chief Executive
		                                          Officer, President
		     























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