==================================================================
                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 JUNE 30, 1999

                                       OR

       [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
            OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
            TRANSITION PERIOD FROM __________ TO ___________

                      Commission File Number 0-26516

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

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

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

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

         Indicate by check mark whether the registrant has filed (1) all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                Yes ____X_____               No _________



The number of shares outstanding of the registrant's common stock as of June 30,
1999 was 7,956,595 ($.001 par value).


<PAGE>


                              EUPHONIX, INC.

                                FORM 10-Q
                            TABLE OF CONTENTS

                                                                        Page
PART I.  FINANCIAL INFORMATION                                          ----

ITEM 1.  Condensed Consolidated Financial Statements (Unaudited):

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

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

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

         Notes to Condensed Consolidated Financial Statements
          as of and for the six months ended June 30, 1999..................6

ITEM 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations................................8


PART II. OTHER INFORMATION

ITEM 4.  Submission of Matters to a Vote of Security Holders...............14

ITEM 6.  Exhibits and Reports on Form 8-K..................................14

Signatures.................................................................15



<PAGE>                              2


PART I.      FINANCIAL INFORMATION

Item 1.      Condensed Consolidated Financial Statements

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

<S>                       <C>            <C>          <C>           <C>



                                Three Months Ended        Six Months Ended
                                     June 30,                 June 30,
                               1999         1998         1999          1998
                           -----------  -----------   -----------   -----------

Net revenues.............. $ 2,861,097  $ 3,441,106   $ 5,020,544   $ 7,721,273

Cost of sales.............   1,827,595    2,244,219     3,589,595     4,363,071
                           -----------  -----------   -----------   -----------
Gross profit..............   1,033,502    1,196,887     1,430,949     3,358,202
Operating expenses:
  Research & development..   1,142,793    1,263,138     2,368,057     2,144,896
  Sales & marketing.......   1,437,437    1,338,524     2,666,167     2,554,451
  General & administrative     121,342      612,446       660,887     1,292,383
                           -----------  -----------   -----------   ------------
 Total operating expenses.   2,701,572    3,214,108     5,695,111     5,991,730
                           -----------  -----------   -----------   ------------
Operating loss............  (1,668,070)  (2,017,221)   (4,264,162)   (2,633,528)
Other income / (expense)       (26,708)      22,203       (14,224)       41,979
                           -----------  -----------   -----------   ------------
Loss before income taxes..  (1,694,778)  (1,995,018)   (4,278,386)   (2,591,549)
Tax provision.............       ----         ----          ----          ----
                           -----------  -----------   -----------   ------------
Net loss.................. $(1,694,778) $(1,995,018)  $(4,278,386)  $(2,591,549)
                           ===========  ===========   ===========   ===========
Net loss per share:
  Basic and diluted....... $     (0.21) $     (0.30)  $     (0.55)  $     (0.42)
                           ===========  ===========   ===========   ===========
Number of shares used in
 computing per share amounts :
  Basic and diluted.......   7,956,508    6,630,555     7,772,786     6,173,745
                           ===========  ===========   ===========   ===========
</TABLE>





            See notes to condensed consolidated financial statements


<PAGE>                                3

<TABLE>
<CAPTION>

<S>                               <C>                      <C>

                                 Euphonix, Inc.
                      Condensed Consolidated Balance Sheets

                                         June 30,              December 31,
                                           1999                   1998
                                   --------------------    --------------------
                                       (unaudited)               (Note)

                          ASSETS

CURRENT ASSETS:
  Cash and cash equivalents.........  $    552,094            $  1,637,332
  Short-term investments............           ---                 601,146
  Accounts receivable, net..........     1,462,588               1,543,335
  Inventories.......................     6,273,482               5,558,637
  Prepaid expenses and other current
   assets...........................       395,586                 237,512
                                      -------------           -------------
Total current assets................     8,683,750               9,577,962
Property and equipment, net.........     1,650,560               1,360,186
Deposits and other assets...........       300,262                 292,716
                                      -------------           -------------
Total assets........................  $ 10,634,572            $ 11,230,864
                                      =============           =============

           LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable..................  $  1,841,438            $  1,636,357
  Accrued payroll and related liabili-
   ties.............................       515,383                 548,926
  Accrued warranty..................       439,240                 439,397
  Accrued commissions...............        63,178                 126,094
  Sales tax payable.................        52,235                 187,687
  Deferred revenues.................         ---                   185,344
  Other accrued liabilities.........       469,655                 401,118
  Customer deposits.................       580,517                  97,914
  Short term portion capital leases.        12,679                  29,691
                                      -------------           -------------
Total current liabilities...........     3,974,325               3,652,529
Long term portion capital leases....         2,282                   2,282
Convertible note....................     2,023,831                   ----
Deferred rent.......................           174                   1,055
Deferred income taxes...............       200,000                 200,000
SHAREHOLDERS' EQUITY:
 Preferred stock....................          ----                    ----
 Common stock.......................         7,957                   6,636
 Additional paid-incapital..........    16,975,313              15,672,808
 Accumulated other comprehensive income     63,497                  74,975
 Accumulated deficit................   (12,608,307)             (8,329,921)
 Deferred compensation..............        (4,500)                (49,500)
                                      -------------           -------------
Total shareholders'equity...........     4,433,960               7,374,998
                                      -------------           -------------
Total liabilities and shareholders'
 equity.............................  $ 10,634,572            $ 11,230,864
                                      =============           =============

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


<PAGE>                                 4

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



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


                                                           Six Months Ended
                                                               June 30,
                                                          1999           1998
                                                     -------------  ------------
Operating activities
Net loss.............................................$ (4,278,386)  $(2,591,549)
Adjustments to reconcile net income to net cash used
 in operating activities:
  Depreciation and amortization......................     293,369       240,405
  Deferred compensation amortization.................      45,000        45,000
  Changes in operating assets and liabilities:
   Prepaid expenses, other current assets and other
    assets...........................................    (177,098)       50,618
   Accounts receivable...............................      80,747        14,666
   Inventories.......................................    (714,845)     (414,110)
   Accounts payable, accrued liabilities, and deferred
    rent.............................................    (120,845)      484,154
   Customer deposits.................................     482,603       379,484
                                                     -------------  ------------
Total adjustments....................................    (111,069)      800,217
                                                     -------------  ------------
Net cash used in operating activities................  (4,389,455)   (1,791,332)
Investing activities
Proceeds from sales of short-term investment
maturities...........................................     601,146     1,669,947
Purchases of short-term investments..................        ---     (1,044,889)
Purchase of property and equipment...................    (583,743)     (637,125)
                                                     -------------  ------------
Net cash provided by (used for) investing activities.      17,403       (12,067)
Financing activities
Principal payments under capital lease obligations...     (17,012)      (27,271)
Proceeds from issuance of convertible note...........   2,000,000          ---
Proceeds from sale of common stock...................   1,303,826     1,950,167
                                                     -------------  ------------
Net cash provided by (used in) financing activities..   3,286,814     1,922,896
                                                     -------------  ------------
Net increase (decrease) in cash and cash equivalents.  (1,085,238)      119,497
Cash and cash equivalents at beginning of period.....   1,637,332     1,880,093
                                                     -------------  ------------
Cash and cash equivalents at end of period...........$    552,094   $ 1,999,590
                                                     =============  ============

</TABLE>

            See notes to condensed consolidated financial statements

<PAGE>                              5


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


1.       Basis of Presentation

         The accompanying  unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted  accounting  principles
for interim  financial  information  and with the  instructions to Form 10-Q and
article  10 of  Regulation  S-X.  Accordingly,  they do not  include  all of the
information and footnotes required by generally accepted  accounting  principles
for complete financial statements. In the opinion of management, all adjustments
(consisting only of normal  recurring  adjustments)  considered  necessary for a
fair presentation have been included. Operating results for the six-month period
ended June 30, 1999 are not  necessarily  indicative  of the results that may be
expected for the entire year ending December 31, 1999.

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

2.       Use of Estimates

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

3.       Inventories

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

                                                     June 30,     December 31,
                                                       1999          1998
                                                   ------------  ------------


            Raw materials......................... $  2,635,027  $  2,112,349

            Work-in-process.......................    1,457,746     1,390,931

            Finished goods........................    2,180,709     2,055,357
                                                   ------------  ------------
                                                   $  6,273,482  $  5,558,637
                                                   ============  ============

</TABLE>

4.       Total  comprehensive  loss for the three and six month periods ended
June 30, 1999 and 1998, respectively,  was  $1,671,649, $2,021,879, $4,289,864,
and $2,597,312.







<PAGE>                              6



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


5.       Impact of Recently Issued Accounting Pronouncements

         In June 1998, the Financial Accounting Standard Boards issued Statement
of  Financial   Accounting   Standards  No.  133,   "Accounting  for  Derivative
Instruments  and Hedging  Activities"  ("SFAS  133"),  which was  required to be
adopted in years  beginning after June 15, 1999. The adoption of SFAS 133 is not
expected to materially  impact the Company's  results of  operations,  financial
position or cash flows.

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

6.       Common Stock

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

7.       Long Term Debt

         In April 1999,  the  Company  executed a secured  promissory  note with
existing investors under
which the Company may draw up to $2 million  through July 31,  1999.  During the
quarter  ended June 30, 1999,  the Company  received the entire $2 million under
the agreement.  The note is  convertible  into as many shares of common stock as
the outstanding principle and accrued interest balance at the date of conversion
yield when  divided by the price per share of $1.03,  at the time of  conversion
into common stock.  The note is due in April 2001,  and bears interest at 7.75%.
The interest is payable  upon  maturity of the note and is convertible into com-
mon stock.  At June 30, 1999, accrued interest payable was $23,831, which is
included in the convertible notes line of the accompanying condensed consol-
idated balance sheet.

8.      Subsequent Event

        In July 1999,  the Company  executed a secured  promissory  note with a
group of investors led by an existing  investor under which the Company may draw
up to $2.1 million through October 31, 1999. The note is convertible into common
stock of the Company under certain circumstances and is secured by the assets of
the Company.


<PAGE>                             7


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

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

Results of Operations

         Net  Revenues.  Net  revenues  decreased  to $2.9 million in the second
quarter  of  1999  down  from  $3.4  million  in the  second  quarter  of  1998,
representing a decrease of 17% in 1999 from 1998. Net revenues decreased to $5.0
million in the first six months of 1999 down from $7.7  million in the first six
months of 1998,  representing a decrease of 35% in 1999 from 1998. The Company's
decrease  in net  revenues  in the  second  quarter  and six  months  of 1999 as
compared to the second  quarter and six months of 1998 resulted  primarily  from
reduced  sales in Asia  Pacific  and  South  America,  and to a  lesser  extent,
declining domestic sales. The Company shipped its first digital console for beta
testing in the second  quarter of 1999 and received over $1.8 million in orders,
with  substantial  deposits,  for  shipments in the third  quarter for this new,
unannounced digital console.

         Domestic sales of the Company's products for the second quarter of 1999
and 1998  were $2.3  million,  comprising  approximately  78.8% and 67.5% of the
Company's  net revenues for the second  quarter of 1999 and 1998,  respectively.
Domestic  sales of the  Company's  products  for the six months of 1999 and 1998
were $3.3 million and $4.7 million,  comprising approximately 66.3% and 61.5% of
the  Company's  net  revenues  for  the  first  six  months  of 1999  and  1998,
respectively.

        Gross Margin.  The Company's  gross margin  increased from 34.8% in the
second  quarter of 1998 to 36.1% in the  second  quarter  of 1999.  In  absolute
dollars,  the gross margin  decreased from $1.2 million in the second quarter of
1998 to $1.0  million in the second  quarter of 1999 as a result of lower sales.
For the first  half of 1999,  gross  margin  was $1.4  million,  or 28.5% of net
revenues,  compared with $3.4 million,  or 43.5% of net revenues,  for the first
half of 1998 as a result of lower  sales.  The decrease in margins for the first
six months in 1999 is associated with start-up costs related to the R-1 recorder
which began shipping in the first quarter of 1999, and the new digital console.

        Research and Development  Expenses.  Research and development  expenses
decreased to $1.1 million in the second quarter of 1999,  down from $1.3 million
in the second  quarter of 1998,  representing  a decrease of 9.5%. For the first
six months in 1999, research and development expenses of $2.4 million increased
10.4% from $2.1 million in 1998. Research and development  expenses  constituted
39.9%, 36.7%, 47.2%, and 27.8% of net revenues in the second quarter of 1999 and
1998 and the first six months of 1999 and 1998,  respectively.  The decreases in
absolute spending in the second quarter of 1999 from the same quarter a year ago
resulted from  completion  of the new R-1  Multitrack  Recorder  which was under
development  in 1998 and  began  shipment  in the  first  quarter  of 1999 and
the new digital console. The slippage of research and development spending from
the first quarter of 1998 into the second quarter of 1998 also contributed to
the decreases in absolute spending when comparing the second quarter of 1999
with the same quarter of 1998. The increases  in the first half of 1999 from the
first  half of 1998 were primarily due to increased employee costs and other
professional fees.



<PAGE>                             8



       Sales and Marketing Expenses. Sales and marketing expenses increased to
$1.4  million in the second  quarter  of 1999,  from $1.3  million in the second
quarter of 1998  representing  an increase of 7.4%.  For the first six months of
fiscal 1999,  sales and marketing  expenses of $2.7 million  increased 4.4% from
$2.6 million in 1998. Sales and marketing  expenses  constituted  50.2%,  38.9%,
53.1%,  and 33.1% of net revenues in the second quarter of 1999 and 1998 and the
first six  months of 1999 and 1998,  respectively.  The  increase  in the second
quarter and first six months of 1999 in absolute  dollars and as a % of sales as
compared with 1998 resulted  primarily  from increases in spending for the sales
office in Japan,  in advertising,  trade shows,  and product  demonstrations  to
support new product introductions.

      General  and  Administrative   Expenses.   General  and  administrative
expenses  decreased to $121,342 in the second  quarter of 1999 from  $612,446 in
the second quarter of 1998,  representing a decrease of 80.2%. For the first six
months of 1999, general and administrative  expenses of $660,887 decreased 48.9%
from $1.3  million in the first six months of 1998.  General and  administrative
expenses constituted 4.2%, 17.8%, 13.2%, and 16.7% of net revenues in the second
quarter  of fiscal  1999 and 1998 and the first  six  months of fiscal  1999 and
1998,  respectively.  The decrease in the second quarter and first six months of
1999 as  compared  with  1998  was  mostly  attributable  to a  decrease  in the
allowance  for  doubtful  accounts  reserve  primarily  due  to  collections  of
previously reserved account balances, a reduction in headcount, and the sublease
of a portion of the premises located at corporate headquarters.

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

Liquidity and Capital Resources

     The Company has funded its  operations to date  primarily  through cash
flows from operations,  the private sale of equity  securities,  and the initial
public  offering of Common Stock completed in September 1995. In March 1998, the
Company received proceeds of $1,950,000 from existing  investors in exchange for
the issuance of 1,040,000  shares of $0.001 par value common stock at $1.875 per
share, the closing price of the Company's common stock on the NASDAQ on the date
the common stock purchase  agreement was executed.  In January 1999, the Company
received  proceeds of  $1,303,676  from  existing  investors in exchange for the
issuance  of  1,320,446  shares of $0.001 par value  common  stock at $0.987 per
share.  In April  1999,  the  Company  executed a secured  promissory  note with
existing  investors  under  which the Company  was  authorized  to draw up to $2
million through July 31, 1999. The note is convertible  into common stock of the
Company under certain circumstances and is secured by the assets of the Company.
In July 1999, the Company executed a secured  promissory note led by an existing
investor under which the Company may draw up to $2.1 million through October 31,
1999.  The note is  convertible  into common stock of the Company  under certain
circumstances  and is  secured  by the  assets of the  Company.  For the  second
quarter ended June 30, 1999, cash, cash  equivalents and short-term  investments
decreased by $1.7 million to approximately  $552,100.  Also, during this period,
working capital decreased by $1.2 million to approximately $4.7 million.

         The Company's  operating  activities  used cash of  approximately  $4.4
million  and $1.8  million  for the six  months  ended  June 30,  1999 and 1998,
respectively. Cash used in operating activities for 1999 was comprised primarily


<PAGE>                             9


of net loss and an increase in inventories,  prepaid  expenses and other current
assets and other  assets,  a decrease  in  accounts  payable  and other  accrued
liabilities,  offset  partially by depreciation and  amortization,  and customer
deposits.  Cash used in operating activities for 1998 was comprised primarily of
net loss,  and an  increase in  inventory,  offset  partially  by an increase in
accounts  payable,  accrued  liabilities  and customer  deposits.  The Company's
investing  activities  provided cash of $17,403 and used cash of $12,067 for the
six months ended June 30, 1999 and 1998, respectively.

         The Company's  financing  activities provided $1.3 million in cash from
the sale of common stock and $2 million in the form of a secured promissory note
with existing investors during the first six months ended June 30, 1999. For the
first six months  ended June 30,  1998  proceeds  from the sale of common  stock
provided $1,950,167.

         As of June 30, 1999, the Company's  sources of liquidity  included cash
totaling approximately $552,100. Management believes that cash combined with the
additional $2.1 million of convertible  debt financing from existing  investors
and others received in the third  quarter  ended  September  30,  1999, as well
as the cost reduction activities already initiated, a possible reduction in
operating expenses during the second half of 1999, and increased sales due to
new products, will be sufficient to support its operations through at least Dec-
ember 1999. In addition, the Company may need to delay or significantly reduce
other operating expenditures, which  would have a material adverse effect on its
business, results of operations and business prospects.

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

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

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

      The Company's plan in resolving the Year 2000 issue involved the following
four phases: inventory,  assessment,  remediation,  and  testing/implementation.
Both information  technology ("IT") and  non-information  technology  technology
("Non-IT")  systems were addressed.  The Company has completed its assessment of
IT and Non-IT  systems that could have been  significantly  affected by the Year
2000. The completed assessment  indicated that all of the Company's  significant
IT systems would not be affected,  particularly the order entry, general ledger,
billing,  and inventory  systems.  The  assessment  also  indicated  that Non-IT
systems would not be affected.

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


<PAGE>                             10


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

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

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

         The Company currently has no contingency plans in place in the event it
does not complete all phases of the Year 2000  program.  The Company  intends to
develop a  contingency  plan to deal with Year 2000 issues  that may  materially
adversely  affect  its  business  processes.  The  Company  intends  to  have  a
contingency plan in place no later than September 30, 1999.

Factors Affecting Future Operating Results

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

      The Company has expended and will continue to expend  substantial funds to
launch its new  product  developments  in the second  half of fiscal  1999.  The
Company's ability to fund operations through December 31, 1999 is dependent upon
achievement of its operating plan. If the Company did not attain its operating
plan it would obtain additional financing or cut expenses. The Company believes
that additional debt or equity financing will be available from existing inves-
tors and others.  However,  there can be no  assurance as to the terms and con-
ditions of any such financing and no certainty that funds would be available
when needed.  The  inability  to obtain  additional  financing, if needed,
would be likely to have a material adverse effect on the Company. To the extent
that any future  financing  involves  the sale of the  Company's equity securi-
ties, the Company's then existing  shareholders could be substantially diluted.

     A limited  number of the  Company's  system sales  typically  account for a
substantial  percentage  of  the  Company's  quarterly  revenue  because  of the
relatively  high average  sales price of such systems.  Moreover,  the Company's
expense  levels  are  based  in  part on its  expectations  of  future  revenue.
Therefore, if revenue is below expectations, the Company's operating results are
likely  to be  adversely  affected.  In  addition,  the  timing  of  revenue  is


<PAGE>                             11


influenced  by a number of other  factors,  including  the timing of  individual
orders and shipments,  industry trade shows,  seasonal customer buying patterns,
changes in product  development  and sales and  marketing  expenditures,  custom
financing arrangements, production limitations and international sales activity.
Because the Company's operating expenses are based on anticipated revenue levels
and a high  percentage of the  Company's  expenses are  relatively  fixed in the
short  term,  variations  in the timing of  recognition  of revenue  could cause
significant  fluctuations  in operating  results from quarter to quarter and may
result in unanticipated quarterly earnings shortfalls or losses.

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

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

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

      In  addition,  as  different  electrical,  radiation  or  other  standards
applicable  to the Company's  products are adopted in  countries,  including the
United  States,  or groups of countries in which the Company sells its products,
the failure of the Company to modify its products, if necessary,  to comply with


<PAGE>                             12


such standards would likely have an adverse effect on the Company's business and
results of operations. See "Business--Sales and Distribution".

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

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

      The Company acquired  Spectral in February 1996. Sale of Spectral products
for 1998,  1997 and 1996 were  significantly  below  plan and below  1995  sales
levels.  Spectral's pre-tax operating loss for 1998 decreased from 1997 and 1996
due  primarily  to  transferring  the  general  and  administrative,  and  sales
functions  to Palo Alto.  In 1996,  Spectral  engineering,  marketing  and sales
activities were integrated into the respective Euphonix organizations.  In 1997,
the Company  further  integrated  Spectral  activities  by the transfer of their
manufacturing to Euphonix  headquarters in Palo Alto,  California.  In 1998, the
Company sold Spectral's technology to Telos, Inc.

      As a result  of these and  other  factors,  the  Company  has  experienced
significant  quarterly  fluctuations in operating  results and anticipates  that
these  fluctuations  will continue in future periods.  There can be no assurance
that  the  Company  will  be   successful  in   maintaining   or  improving  its
profitability  or avoiding  losses in any future period.  Further,  it is likely
that in some future period the Company's net revenues or operating  results will
be below the expectations of public market securities analysts and investors. In
such event,  the price of the Company's  Common Stock would likely be materially
adversely affected. See "Factors Affecting Future Operating Results."







<PAGE>                             13



PART II.  OTHER INFORMATION

Item 4:  Submission of Matters to a Vote of Security Holders:

         The Company's Annual Meeting of Shareholders was held on June 25, 1999.
The results of the voting were as follows:

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


         Proposal 1:       Election of the Board of Directors of the Company.

                  Nominee                   Votes For         Votes Withheld

                  Barry L. Margerum         5,984,485               94,569
                  Robert F. Kuhling, Jr.    5,991,607               87,447
                  Scott W. Silfvast         5,991,807               87,247
</TABLE>

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

         Proposal 2:     Approval of the Company's 1999 Stock Plan.

                                    Votes For:         5,718,689
                                    Votes Against:       183,617
                                    Votes Abstaining:     19,200
                                    Broker Non-Vote:   2,232,176


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

         Proposal 3:     Approval of Conversions of the Secured Promissory Note.

                                    Votes For:         3,724,086
                                    Votes Against:       111,992
                                    Votes Abstaining:     10,800
                                    Broker Non-Vote:   2,232,176
</TABLE>
<TABLE>
<CAPTION>
<S>                                          <C>

         Proposal 4: Ratification of Ernst & Young LLP as the Company's
                     independent auditors for the fiscal year ending
                     December 31, 1999.

                                    Votes For:         5,988,184
                                    Votes Against:        84,170
                                    Votes Abstaining:      6,700

</TABLE>

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

         (a) Exhibits.

                  Exhibit 27 - Financial Data Schedule (page 16)

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

         (b)      Reports on Form 8-K None.



<PAGE>                             14

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:    August 5, 1999                  By: /s/ BARRY  L. MARGERUM
         --------------                      ----------------------
                                             Barry L. Margerum, Chief Executive
                                             Officer, President


























<PAGE>                             15