<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 June 30, 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 June 30,
2001 was 15,710,366 ($0.001 par value).

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


<PAGE>


                                 EUPHONIX, INC.

                                   FORM 10-Q/A

                                TABLE OF CONTENTS
                                      PAGE

<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 June 30, 2001 and December 31, 2000.........1
         Condensed Consolidated Statement of Operations for the three and six months
           ended June 30, 2001 and 2000..........................................................2
         Condensed Consolidated Statement of Cash Flows for the six months ended
           June 30, 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..11

Item 3.  Quantitative and Qualitative Disclosures about Market Risk.............................21

PART II. OTHER INFORMATION......................................................................22

Item 4.  Submission of Matters to a Vote of Securityholders.....................................22

Item 5.  Other Information......................................................................23

Item 6.  Exhibits and Reports on Form 8-K.......................................................23

Signatures......................................................................................24
</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 4 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
                        (IN THOUSANDS EXCEPT SHARE DATA)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                   DECEMBER 31,
                                                                   JUNE 30, 2001       2000
                                                                      RESTATED       RESTATED
                                                                   -------------   ------------
                                     ASSETS
<S>                                                                <C>             <C>
Current assets:
   Cash and cash equivalents ....................................     $    547      $    587
   Accounts receivable (net of allowance for doubtful
   accounts of $131 in 2001 and $141 in 2000) ...................        1,289         2,389
   Inventories ..................................................        7,009         6,969
   Prepaid expenses and other current assets ....................          419           406
                                                                      --------      --------
      Total current assets ......................................        9,264        10,351
Property and equipment, net .....................................          861         1,127
Deposits and other assets .......................................          238           522
                                                                      --------      --------
         Total assets ...........................................     $ 10,363      $ 12,000
                                                                      ========      ========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
   Accounts payable .............................................     $  1,205      $  1,841
   Accrued liabilities ..........................................        1,246         1,174
   Short term note payable ......................................        6,945            --
   Deferred revenue, net ........................................          714           882
   Customer deposits ............................................          248           860
                                                                      --------      --------
      Total current liabilities .................................       10,358         4,757
   Notes payable ................................................           --         6,531
                                                                      --------      --------
   Total Liabilities ............................................       10,358        11,288
                                                                      --------      --------
Contingencies (Note 3)
Shareholders' equity:

Common stock, $0.001 par value: 20,000,000 authorized
   shares, 15,710,366 and 12,190,099 shares issued and
   outstanding in 2001 and 2000, respectively ...................           16            12
   Additional paid-in capital ...................................       27,054        24,191
   Unearned compensation ........................................          (91)          (53)
   Accumulated other comprehensive income .......................           38            42
   Accumulated deficit ..........................................      (27,012)      (23,480)
                                                                      --------      --------
   Total shareholders' equity ...................................            5           712
                                                                      --------      --------
      Total liabilities and shareholders' equity ................     $ 10,363      $ 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
                        (IN THOUSANDS EXCEPT SHARE DATA)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                       THREE MONTHS ENDED                   SIX MONTHS ENDED
                                                            JUNE 30,                            JUNE 30,
                                                 ------------------------------      ------------------------------
                                                                       2000                                2000
                                                      2001           RESTATED            2001            RESTATED
                                                 ------------      ------------      ------------      ------------
<S>                                              <C>               <C>               <C>               <C>
Net revenues ...............................     $      4,470      $      3,470      $      9,104      $      4,983
Cost of revenues ...........................            3,049             2,347             5,948             3,941
                                                 ------------      ------------      ------------      ------------
Gross margin ...............................            1,421             1,123             3,156             1,042
                                                 ------------      ------------      ------------      ------------

Operating expenses:
   Research and development ................              713               847             1,610             1,757
   Sales and marketing .....................            1,531             1,414             2,935             2,706
   General and administrative ..............              507               566             1,197               925
                                                 ------------      ------------      ------------      ------------
Total operating expenses ...................            2,751             2,827             5,742             5,388
                                                 ------------      ------------      ------------      ------------

Operating loss .............................           (1,330)           (1,704)           (2,586)           (4,346)
Other income/(expense), net ................             (287)              (61)             (600)           (1,458)
                                                 ------------      ------------      ------------      ------------
Loss before equity in net loss of investee .           (1,617)           (1,765)           (3,186)           (5,804)
Equity in net loss of investee .............             (305)              (34)             (346)              (34)
                                                 ------------      ------------      ------------      ------------
Net loss ...................................     $     (1,922)     $     (1,799)     $     (3,532)     $     (5,838)
                                                 ============      ============      ============      ============

Basic and diluted net loss per share .......     $      (0.13)     $      (0.15)     $      (0.26)     $      (0.49)
                                                 ============      ============      ============      ============
Shares used in computing net loss per share,
    basic and diluted ......................       15,197,495        12,021,111        13,726,133        11,869,837
                                                 ============      ============      ============      ============
</TABLE>

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


                                       -2-
<PAGE>


                                 EUPHONIX, INC.
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                  SIX MONTHS ENDED JUNE 30,
                                                               --------------------------------
                                                                                        2000
                                                                  2001                RESTATED
                                                               ----------            ----------
<S>                                                            <C>                   <C>
Cash flows from operating activities:
Net loss...........................................            $   (3,532)           $   (5,838)
                                                               ----------            ----------
Adjustments  to  reconcile  net  loss  to net  cash
   provided by (used in) operating activities:
   Impairment charge...............................                   213                    --
   Depreciation and amortization...................                   325                   317
   Loss on disposal of fixed assets................                   102                    30
   Allowance for doubtful accounts.................                   (11)                   29
   Beneficial conversion on convertible note
   payable.........................................                     7                 1,279
   Interest accrued on notes payable...............                   287                   146
   Amortization of deferred compensation...........                    84                    58

Changes in assets and liabilities:
   Accounts receivable.............................                 1,111                   821
   Inventory.......................................                   (40)                  634
   Prepaid expenses and other assets (including
   current)........................................                   359                  (271)
   Accounts payable................................                  (636)                 (918)
   Accrued liabilities.............................                    68                  (323)
   Deferred revenue, net...........................                  (169)                1,206
   Customer deposits...............................                  (611)                  284
                                                               ----------            ----------
Total adjustments..................................                 1,089                 3,272
                                                               ----------            ----------

Net cash used in operating activities..............                (2,443)               (2,566)
                                                               ----------            ----------

Cash flows from investing activities:

Proceeds from sale of property and equipment.......                    --                   152
Purchase of property and equipment.................                  (101)                  (68)
                                                               ----------            ----------
Net cash used in investing activities..............                   101)                   84
                                                               ----------            ----------

Cash flows from financing activities:

Proceeds from issuance of convertible notes........                 2,504                 2,300
Proceeds from sale of common stock.................                    --                   800
Proceeds from exercise of stock options............                    --                   102
                                                               ----------            ----------
Net cash provided from financing...................                 2,504                 3,202
                                                               ----------            ----------

Net(decrease) increase in cash and cash equivalents                   (40)                  720
Cash and cash equivalents at beginning of period...                   587                   838
                                                               ----------            ----------
Cash and cash equivalents at end of period.........            $      547            $    1,558
                                                               ==========            ==========
</TABLE>

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


                                       -3-
<PAGE>


              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 June 30, 2001 and for the
three and six months ended June 30, 2001 and 2000 are unaudited and have been
prepared by the Company 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 June 30, 2001,
results of operations for the three and six months ended June 30, 2001 and 2000,
and cash flows for the six months ended June 30, 2001 and 2000 have been made.
The results of operations for the three and six months ended June 30, 2001 are
not necessarily indicative of the operating results for the full fiscal year or
any future periods.

        Unless the Company raises additional funds, the Company believes that
its available cash and cash equivalents, as well as its current borrowing
facilities, will not be sufficient to meet its anticipated needs for


                                       -4-
<PAGE>


                                 EUPHONIX, INC.

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


working capital and capital expenditures through the end of 2001. Moreover, the
Company's outstanding promissory notes will become due in early 2002. Although
shareholders approved the notes for conversion into shares of 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.

        The financial statements have been presented on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded assets
or the amount and classification of liabilities or any adjustments that might be
necessary should the Company be unable to continue as a going concern.

RECLASSIFICATIONS

        Certain amounts from the previous periods have been reclassified to
conform to 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 had 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 June 30, 2000 is as follows (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                     SECOND QUARTER ENDED
                                                                         JUNE 30, 2000
                                                           ---------------------------------------
                                                               AS
                                                           PREVIOUSLY
                                                            REPORTED     ADJUSTMENT    AS RESTATED
                                                           ----------    ----------    -----------
<S>                                                         <C>           <C>           <C>
Net revenues ..........................................     $  4,241      $    (33)     $  4,208
                                                            --------                    --------
Gross margin ..........................................     $  1,488      $    (34)     $  1,454
                                                            --------                    --------
Net loss ..............................................     $ (1,434)     $    (34)     $ (1,468)
                                                            ========                    --------
Basic and diluted loss per share ......................     $  (0.12)                   $  (0.12)
                                                            ========                    ========
Shares used in computing basic and diluted net loss per
   share ..............................................       12,021                      12,021
                                                            ========                    ========
</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


                                      -5-
<PAGE>


                                 EUPHONIX, INC.

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


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
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 ("FASB") 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.

        In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 141 ("SFAS 141"), "Business Combinations." SFAS 141 requires the
purchase method of accounting for business combinations initiated after June 30,
2001 and eliminates the pooling-of-interests method. Management believes that
the adoption of SFAS 141 will not have a significant impact on the Company's
financial statements.

        In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets", which is
effective for fiscal years beginning after March 15, 2001. SFAS 142 requires,
among other things, the discontinuance of goodwill amortization. In addition,
the standard includes provisions upon adoption for the reclassification of
certain existing recognized intangibles as goodwill, reassessment of the useful
lives of existing recognized intangibles, reclassification of certain
intangibles out of previously reported goodwill and the testing for impairment
of existing goodwill and other intangibles. The Company will adopt SFAS 142
effective January 1, 2002. The adoption of SFAS 142 is not expected to have a
material impact on the Company's financial statements.

NOTE 2 -- BALANCE SHEET COMPONENTS (IN THOUSANDS)

        (a)    Inventories:

<TABLE>
<CAPTION>
                                                            JUNE 30, 2001       DECEMBER 31, 2000
                                                            -------------       -----------------
<S>                                                           <C>                   <C>
               Raw materials.........................         $  1,988              $  2,474
               Work-in-process.......................            1,244                 1,084
               Finished goods........................            3,777                 3,411
                                                              --------              --------
                                                              $  7,009              $  6,969
                                                              ========              ========
</TABLE>


                                      -6-
<PAGE>


                                 EUPHONIX, INC.

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


        (b)    Accrued liabilities:

<TABLE>
<CAPTION>
                                                            JUNE 30, 2001       DECEMBER 31, 2000
                                                            -------------       -----------------
<S>                                                           <C>                   <C>
               Accrued compensation and related......         $    396              $    445
               Accrued warranty......................              271                   265
               Accrued commissions...................               91                    91
               Sales tax payable.....................              116                   149
               Other.................................              372                   224
                                                              --------              --------
                                                              $  1,246              $  1,174
                                                              ========              ========
</TABLE>

        (c)    Other assets:

        In accordance with FAS 121, the Company evaluates the recoverability of
its long lived assets whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Due to continuing losses
during the second quarter and other market conditions, the Company reviewed the
expected future cashflows of Euphonix Europe to determine whether the related
goodwill was impaired. Based on this review, the Company determined that future
cashflows were not sufficient to recover the remaining goodwill and accordingly
recorded a charge of $213,000 during the second quarter of 2001.

        (d)    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 originally 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 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 $276,000 into 3,168,267 shares of common stock at the price of
$0.75 per share.

        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


                                      -7-
<PAGE>


                                 EUPHONIX, INC.

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


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 was subject to shareholder approval allowing the holder to
convert the note into common stock of the Company at a rate of $3.625 per share.
Approval was obtained at the Company's annual meeting of shareholders' on June
19, 2001. There was no beneficial conversion feature charge, because the
accounting conversion rate was higher than the fair market value of the
Company's common stock on the date of shareholder approval (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 was subject to shareholder approval allowing the
holder to convert the note into common stock of the Company at a rate of $2.3562
per share. Approval was obtained at the Company's annual meeting of
shareholders' on June 19, 2001. In addition this note provides that 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. There was no beneficial conversion
feature charge, because the accounting conversion rate was higher than the fair
market value of the Company's common stock on the date of shareholder approval
(the commencement 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 was subject to shareholder approval allowing the holder to
convert the note into common stock of the Company at a rate of $1.26 per share.
Approval was obtained at the Company's annual meeting of shareholders' on June
19, 2001. 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. There was no beneficial conversion feature charge, because the
accounting conversion rate was higher than the fair market value of the
Company's common stock on the date of shareholder approval (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 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 was subject


                                      -8-
<PAGE>
                                 EUPHONIX, INC.

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


to shareholder approval allowing the holder to convert the note into common
stock of the Company at a rate of $0.75 per share. Approval was obtained at the
Company's annual meeting of shareholders' on June 19, 2001. The Company is
recording a beneficial conversion feature on the $2,000,000 advanced as of June
19, 2001. The resulting beneficial conversion feature charge of $190,000 is
being recorded over the life of the note, because the accounting conversion rate
was lower than the fair market value of the Company's common stock on the date
of shareholder approval. The beneficial conversion feature charged in the second
quarter of 2001 was $7,000.

        The Company also issued 350,000 shares of common stock to these
investors in return for their agreement to loan the Company $3,500,000. The
commitment fee was measured at the fair market value of the common stock on the
date of the issuance of the shares and is being amortized over the term of the
loan commitment. As of June 30, 2001, $2,004,000 was drawn down. In July 2001,
an additional $800,000 was drawn down, leaving $696,000 available under the
facility as of August 14, 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.

NOTE 4 -- 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.


                                      -9-
<PAGE>


        The effect of the restatement on previously reported revenue, net loss
and loss per share for the three and six months ended June 30, 2000 is as
follows:

<TABLE>
<CAPTION>
                                              THREE MONTHS ENDED           SIX MONTHS ENDED
                                                 JUNE 30, 2000               JUNE 30, 2000
                                           --------------------------   -------------------------
                                           As reported*   As restated   As reported*  As restated
                                             USD '000       USD '000     USD '000       USD '000
                                           ------------   -----------   -----------   -----------
<S>                                        <C>            <C>           <C>           <C>
Net revenues                                  4,208          3,470         6,043          4,983
Net loss                                     (1,468)        (1,799)       (5,330)        (5,838)
Net loss per share                            (0.12)         (0.15)        (0.45)         (0.49)
</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>


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: our cash and cash equivalents as well as
our current borrowing facility will not be sufficient to meet our anticipated
need for working capital and capital expenditures through the end of 2001; we
will have to raise additional funds in order to meet our operating needs; and
the impact of SFAS No. 133 on our financial position or results of operations.
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 result

        As discussed in Note 4 to the interim consolidated financial statements
for the quarter ended June 30, 2000 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 three and six months ended June 30, 2000 is as
follows:

<TABLE>
<CAPTION>
                                              THREE MONTHS ENDED           SIX MONTHS ENDED
                                                 JUNE 30, 2000               JUNE 30, 2000
                                           --------------------------   -------------------------
                                           As reported*   As restated   As reported*  As restated
                                             USD '000       USD '000     USD '000       USD '000
                                           ------------   -----------   -----------   -----------
<S>                                        <C>            <C>           <C>           <C>
Net revenues                                  4,208          3,470         6,043          4,983
Net loss                                     (1,468)        (1,799)       (5,330)        (5,838)
Net loss per share                            (0.12)         (0.15)        (0.45)         (0.49)
</TABLE>

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



                                      -11-
<PAGE>
Net Revenues

        Net revenues were $4.5 million in the second quarter in 2001 up from
$3.5 million in the second quarter of 2000, representing an increase of 28.8%.
The increase resulted primarily from increased unit sales of System 5 all
digital mixing consoles into the film/post-production and broadcast segments of
the market.

        International sales accounted for 56.5% of our second quarter 2001
revenues, compared to 50.3% in the second quarter of 2000. International sales
increased by approximately $782,000, or 44.8% in the second quarter of 2001, as
compared to the similar period in 2000. The increase was due to higher sales in
Europe, South America and Canada.

        Net revenues were $9.1 million in the first half in 2001, up from $5.0
million in the first half of 2000, representing an increase of 82.7%. The
increase in our net revenues during this period resulted primarily from
increased unit sales of System 5 all digital mixing consoles in the first half
of 2001 into the film/post-production and broadcast segments of the market.

        International sales accounted for 51.8% of our first half 2001 revenues,
compared to 48.7% in the first half of 2000. International sales increased by
approximately $2.3 million, or 94.2% in the first half of 2001. The increase
reflected higher sales in the Pacific Rim, Europe, South America and Canada.

Gross Margin

        Gross margin decreased to 31.8% in the second quarter of 2001 as
compared to 32.4% in the second quarter of 2000. The decrease in gross margin
was primarily due to a write off of obsolete inventory in the second quarter of
2001. Gross margins increased to 34.7% in the first six months of 2001, as
compared to 20.9% in the first six months of 2000. The increase was primarily
due to greater unit sales of System 5 all digital mixing consoles which has a
higher gross margin.

Research and Development Expenses

        Research and development expenses decreased 15.8% in the second quarter
of 2001, as compared to the second quarter of 2000. The decrease was primarily
due to the termination of certain development programs (in particular, E-Deck)
in the second quarter in 2001. As a percentage of revenues, research and
development expenses decreased to 16.0% in the second quarter of 2001, down from
24.4% in the second quarter of 2000. The decrease was attributable primarily to
higher revenues in the second quarter of 2001 as compared to 2000, as well as a
decrease in E-Deck costs.

        Research and development expenses decreased 8.4% in the first half of
2001, as compared to the first half of 2000. The decrease was primarily due to
the reduction in headcount at Spectral Inc., our wholly owned subsidiary, and
the cost savings from the termination of the E-Deck program. As a percentage of
revenues, research and development expenses decreased to 17.7% in the first half
of 2001, down from 35.3% in the first half of 2000. The decrease was
attributable primarily to higher revenues and lower costs in the first half of
2001 as compared to 2000.

Sales and Marketing Expenses

        Sales and marketing expenses increased by approximately $117,000 in the
second quarter of 2001 as compared to the same period in 2000. This increase was
primarily due to increased expenditures on travel and tradeshows in the Pacific
Rim and Japan. As a percentage of revenues, sales and marketing expenses
decreased to 34.3% in the second quarter of 2001, as compared to 40.7% in the
second quarter of 2000. The


                                      -12-
<PAGE>


percentage decrease in marketing and selling expenses was due primarily to
higher revenues in the second quarter of 2001, as compared to the same period in
2000.

        Sales and marketing expenses increased by $229,000 in the first half of
2001 as compared to the first half of 2000. This increase was primarily due to
increased expenditures on activities related to international sales and sales
fees and commission. 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
32.2% in the first half of 2001, as compared to 54.3% in the first half of 2000.
The decrease was due primarily to higher revenues in the first half of 2001 as
compared to 2000.

General and Administrative Expenses

        General and administrative expenses decreased 10.5%, in the second
quarter of 2001, as compared to the same period in 2000. As a percentage of
revenues, general and administrative expenses decreased to 11.3% in the second
quarter of 2001, as compared to 16.3% in the second quarter of 2000. The
decrease resulted primarily from a decrease in legal and professional fees in
the second quarter of 2001 compared to the second quarter of 2000 and an
increase in revenue in the second quarter of 2001.

        General and administrative expenses increased 29.5%, in the first half
of 2001, as compared to the same period in 2000. As a percentage of revenues,
general and administrative expenses decreased to 13.2% in the first half of
2001, as compared to 18.6% in the first half of 2000. The dollar increase in the
first half of 2001 was primarily due to higher salary and benefits, additional
personnel and bad debt expense, while the percentage decrease is attributable to
higher revenues in the first half in 2001.

Other expense, net

        Other expense, net charges were $0.3 million in the second quarter of
2001, as compared to $0.06 million in the second quarter of 2000. This
represented an increase of 370.5% in the second quarter of 2001 as compared to
the similar period in 2000. The increase is due primarily to interest charges on
the notes payable and amortization of the commitment fee on the March 2001 notes
payable. Other expense, net for the first half of 2001, as compared to the first
half of 2000, decreased by 60.0%, which was primarily attributable to the charge
of $1.3 million related to the beneficial conversion feature associated with a
convertible promissory note an associated warrants issued on February 22, 2000.

Equity in Net Loss of Investee

        The equity in net loss of investee for the three months ended June 30,
2001 is $305,000, as compared to $34,000 for the same period in 2000. The
increase is primarily the result of the $213,000 write off of goodwill relating
to Euphonix Europe, which we recorded during the three months ended June 30,
2001.

        The equity in net loss of investee for the six months ended June 30,
2001 is $346,000, as compared to $34,000 for the same period in 2000. The
increase is primarily the result of the $213,000 write off of goodwill relating
to Euphonix Europe, which we recorded during the three months ended June 30,
2001.

Provision/(Benefit) for Income Taxes

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


                                      -13-
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

        We have funded our operations primarily through the private sale of
equity and debt securities. For the first half ended June 30, 2001, cash and
cash equivalents decreased by $40,000 to approximately $547,000. In addition,
during this period working capital decreased by $6.7 million to approximately
$(1.1) million.

        Our operating activities used cash of approximately $2.4 million in the
first half of 2001 and $2.6 million in the first half of 2000. Cash used in
operating activities for 2001 was comprised primarily of a net loss, a decrease
in accounts payable and customer deposits offset partially by a decrease in
accounts receivable. Cash used in operating activities for the first half of
2000 was comprised primarily of a net loss and a decrease in accounts payable
and an increase in deferred revenue.

        Our investing activities used cash of $101,000 in the first half of 2001
due to the purchase of property and equipment, and provided cash of $84,000 in
the same period in 2000 due to the $152,000 sale offset by the $68,000 purchase
of property and equipment.

        Our financing activities provided $2.5 million in the first half of 2001
and $3.2 million in the first half of 2000. We received proceeds from the
issuance of convertible notes in the first half of 2001 of $2.5 million, which
included $0.5 million from the December 2000 note and $2.0 million from the
March 2001 note, as compared to $2.3 million in proceeds from the issuance of
convertible notes and $800,000 from the sale of common stock in the first half
of 2000.

        In March 2001, we issued convertible promissory notes to existing
investors under which we 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. As of June 30, 2001, $2,004,000 was drawn down. In July 2001, an
additional $800,000 was drawn down, leaving $696,000 available under the
facility.

        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.


                                      -14-
<PAGE>


Impact of Recently Issued Accounting Pronouncements

        In June 1998, the Financial Accounting Standards Board ("FASB") 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 January 1, 2001. The adoption
of SFAS No. 133 did not have an impact on our financial position or results of
operations.

        In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 141 ("SFAS 141"), "Business Combinations." SFAS 141 requires the
purchase method of accounting for business combinations initiated after June 30,
2001 and eliminates the pooling-of-interests method. We believe that the
adoption of SFAS 141 will not have a significant impact on our financial
statements.

        In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets", which is
effective for fiscal years beginning after March 15, 2001. SFAS 142 requires,
among other things, the discontinuance of goodwill amortization. In addition,
the standard includes provisions upon adoption for the reclassification of
certain existing recognized intangibles as goodwill, reassessment of the useful
lives of existing recognized intangibles, reclassification of certain
intangibles out of previously reported goodwill and the testing for impairment
of existing goodwill and other intangibles. We will adopt SFAS 142 effective
January 1, 2002. The adoption o SFAS 142 is not expected to have a material
impact on our financial statements.

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:

IF WE DO NOT HAVE SUFFICIENT CAPITAL TO FUND OUR OPERATIONS, WE MAY BE FORCED TO
IMPLEMENT SIGNIFICANT REDUCTIONS IN THE MANNER IN WHICH WE CONDUCT BUSINESS,
INCLUDING WORKFORCE REDUCTIONS, AND FOREGO ATTRACTIVE BUSINESS OPPORTUNITIES

        We believe that our cash and cash equivalents and our current borrowing
facility, together with cash flow from operations and investor financing that we
expect to obtain, will not provide sufficient capital to fund our operations
through December 31, 2001 if our assumptions about our revenues and expenses are
generally accurate. Our actual funding requirements may differ materially as a
result of many factors, including the development of new products and
technologies and the continued growth of the company. In addition, we do not
expect to be profitable by the end of the year, so we will likely need to raise
additional funds in the future through public or private financings or other
similar arrangements. The capital markets have become increasingly constrained
since the beginning of this year, which has adversely affected the ability of
many companies to raise capital. Additional financing may not be available on
acceptable terms, if at all, and the inability to obtain that financing could
adversely affect the continued operation of our business. Without the proceeds
from future financings, we would likely continue to implement material changes
to our business plan to conserve cash


                                      -15-
<PAGE>


resources, including staff reductions and other spending reductions. If
additional funds are raised through the issuance of equity securities or
securities convertible into equity, dilution to existing stockholders may result
and, if our stock price remains depressed, could be significant. If insufficient
funds are available, we may not be able to continue to operate our business in
an effective manner or to compete effectively.

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

        We incurred net losses of approximately $3.5 million in the first half
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, we now believe that we will need
to raise additional capital in order to fund operations in 2001. 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.

OUR COMMON STOCK MAY BE DELISTED FROM NASDAQ

        The shares of our common stock are currently listed on the Nasdaq
SmallCap Market. Currently, however, we are not in compliance with Nasdaq's net
tangible assets requirement because our net tangible assets are less than $2
million. In addition, we are not in compliance with Nasdaq's minimum bid
requirement because the minimum bid per share of our common stock has been at or
below $1.00 for over 30 consecutive business days. Consequently, Nasdaq informed
us of its intention to delist the stock. This delisting, however, has been
stayed pending the outcome of an oral hearing on August 17, 2001. If this appeal
is denied, our stock will be delisted from Nasdaq. 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.

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
hampers 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


                                      -16-
<PAGE>


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, the System 5 digital console, CS3000 console and R-1
recorder 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.

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


                                      -17-
<PAGE>


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,
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


                                      -18-
<PAGE>


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 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 PRODUCT 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


                                      -19-
<PAGE>


sufficiently qualified personnel. We have experienced, and we expect to continue
to experience, difficulty in hiring and retaining highly skilled and qualified
employees.

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 WOULD 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.


                                      -20-
<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. 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 could
be material.


                                      -21-
<PAGE>


                           PART II. OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

        At our Annual Stockholders' Meeting held on June 19, 2001, the following
proposals were adopted by the margins indicated.

PROPOSAL 1: ELECTION OF DIRECTORS

<TABLE>
<CAPTION>
       NOMINEE                                               FOR                WITHHELD
       -------                                            ---------             --------
<S>                                                       <C>                   <C>
       Robert F. Kuhling, Jr......................        9,768,473              24,431
       James Dobbie...............................        9,767,073              25,831
       Walter Bosch...............................        9,768,373              24,531
</TABLE>

        The following directors, who were not up for election at the Annual
Meeting, continued to serve as directors after the Annual Meeting: Dieter Meier,
Richard Feldman and Steven Vining. Subsequent to the Annual Meeting, Messrs.
Feldman and Kuhling resigned from the Board of Directors, and Martin Kloiber was
appointed to the Board of Directors.

PROPOSAL 2: APPROVAL OF THE CONVERTIBILITY FEATURE OF THE SECURED PROMISSORY
NOTE ISSUED IN APRIL 2000.

<TABLE>
<CAPTION>
                 FOR                   AGAINST              ABSTAIN          BROKER NON-VOTE
              ---------                -------              -------          ---------------
              <S>                      <C>                  <C>              <C>
              7,681,097                20,989               9,286            2,081,532
</TABLE>

PROPOSAL 3: APPROVAL OF THE CONVERTIBILITY FEATURE OF SECURED PROMISSORY NOTE
ISSUED IN SEPTEMBER 2000.

<TABLE>
<CAPTION>
                 FOR                   AGAINST              ABSTAIN          BROKER NON-VOTE
              ---------                -------              -------          ---------------
              <S>                      <C>                  <C>              <C>
              7,681,387                20,999               8,986            2,081,532
</TABLE>

PROPOSAL 4: APPROVAL OF THE CONVERTIBILITY FEATURE OF SECURED PROMISSORY NOTE
ISSUED IN DECEMBER 2000.

<TABLE>
<CAPTION>
                 FOR                   AGAINST              ABSTAIN          BROKER NON-VOTE
              ---------                -------              -------          ---------------
              <S>                      <C>                  <C>              <C>
              7,680,437                22,549               8,386              2,081,532
</TABLE>

PROPOSAL 5: APPROVAL OF THE CONVERTIBILITY FEATURE OF SECURED PROMISSORY NOTE
ISSUED IN MARCH 2001.

<TABLE>
<CAPTION>
                 FOR                  AGAINST               ABSTAIN          BROKER NON-VOTE
              ---------               -------               -------          ---------------
              <S>                     <C>                   <C>              <C>
              7,680,287               22,699                8,386              2,081,532
</TABLE>

PROPOSAL 6: APPROVAL OF THE INCREASE IN THE AUTHORIZED NUMBER OF SHARES OF
COMMON STOCK FROM 20,000,000 TO 35,000,000

<TABLE>
<CAPTION>
                 FOR                  AGAINST               ABSTAIN          BROKER NON-VOTE
              ---------               -------               -------          ---------------
              <S>                     <C>                   <C>              <C>
              9,718,936               30,887                 43,081                 0
</TABLE>


                                      -22-
<PAGE>


PROPOSAL 7:  RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS

<TABLE>
<CAPTION>
                FOR                   AGAINST               ABSTAIN          BROKER NON-VOTE
              ---------               -------               -------          ---------------
              <S>                     <C>                   <C>              <C>
              9,755,198               28,745                 8,961                   0
</TABLE>

ITEM 5.  OTHER INFORMATION

In July 2001, directors Richard Feldman and Robert Kuhling resigned from the
Audit Committee and the Board of Directors. In July 2001, Martin Kloiber was
appointed to the Board of Directors and to the Audit Committee, and James Dobbie
was appointed to the Audit Committee.

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 June
30, 2001.


                                      -23-
<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)


                                      -24-
<PAGE>


INDEX TO EXHIBITS

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

<TABLE>
<CAPTION>
EXHIBIT
NUMBER      DESCRIPTION OF DOCUMENT
-------     -----------------------
<S>         <C>
3.1(1)      Amended and Restated Articles of Incorporation of the Registrant.

3.2(1)      Bylaws of the Registrant.
</TABLE>

(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.


                                      -25-