SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                              --------------------

                                    FORM 10-Q
(Mark One)

      [X]      QUARTERLY   REPORT  PURSUANT  TO  SECTION  13  OR  15(d)  OF  THE
               SECURITIES EXCHANGE ACT OF 1934

               For the quarterly period ended September 30, 1998

                                       or

      [ ]      TRANSITION  REPORT  PURSUANT  TO  SECTION  13  OR  15(d)  OF  THE
               SECURITIES EXCHANGE ACT OF 1934

               For the transition period from ____________ to ____________


                         Commission File Number 0-25036


                                 VIDEONICS, INC.
               (Exact name of Registrant as specified in its charter)


          California                                         77-0118151
        (State or other jurisdiction of                     (I.R.S. Employer
        incorporation or organization)                      Identification No.)


                    1370 Dell Ave, Campbell, California 95008
                    (Address of principal executive offices)

       Registrant's telephone number, including area code: (408) 866-8300



       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 [ ]

       As of October 30, 1998,  there were 5,854,149  shares of the Registrant's
Common Stock outstanding.

This quarterly report on form 10-Q,  including all exhibits,  contains 12 pages,
of which this is page 1. The exhibit index is located on page 11 of this report.








                                        1
<PAGE>

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

<TABLE>

                                                           VIDEONICS, INC.
                                                 CONDENSED STATEMENTS OF OPERATIONS
                                              (in thousands, except per share amounts)
                                                             (unaudited)

<CAPTION>

                                                      Three Months Ended                        Nine Months Ended
                                                         September 30,                           September 30,  
                                                       ------------------                       ----------------
                                                    1998                1997                1998               1997
                                                    ----                ----                ----               ----
<S>                                              <C>                 <C>                 <C>                <C>   
Net revenues                                     $ 5,025             $ 5,360             $15,651            $15,328

Cost of revenues                                   2,959               2,916               9,406              9,635
                                                 -------             -------             -------            -------
         Gross profit                              2,066               2,444               6,245              5,693
                                                 -------             -------             -------            -------

Operating expenses:
   Research and development                        1,173               1,615               3,744              5,205
   Selling and marketing                           1,685               2,097               5,106              5,808
   General and administrative                        336                 341               1,111              1,347
   Amortization of intangibles                         -                  98                   -                295
                                                 -------             -------             -------            -------
                                                   3,194               4,151               9,961             12,655
                                                 -------             -------             -------            -------
         Operating loss                           (1,128)             (1,707)             (3,716)            (6,962)
                                                 -------             -------             -------            -------

Other income (expense) net                            (9)                 69                   -                238
                                                 -------             -------             -------            -------
         Loss before income
            taxes                                 (1,137)             (1,638)             (3,716)            (6,724)

Benefit from income
   taxes                                               -                (470)                (32)            (1,923)
                                                 -------             -------             -------            -------

         Net loss                                $(1,137)            $(1,168)            $(3,684)           $(4,801)
                                                 =======             =======             =======            =======

Net loss per common share and per
 common share - assuming dilution                $ (0.19)            $ (0.20)            $ (0.63)           $ (0.84)
                                                 =======             =======             =======            =======

Shares used in computing net loss per
common share and per common share
- assuming dilution                                5,854               5,741               5,825              5,735
                                                 =======             =======             =======            =======
<FN>

                     The accompanying notes are an integral
                       part of these financial statements.
</FN>
</TABLE>

                                       2
<PAGE>



                                 VIDEONICS, INC.
                            CONDENSED BALANCE SHEETS
                                 (in thousands)


                                                    September 30,  December  31,
                           ASSETS                        1998          1997 
                                                        ------        ------
                                                     (unaudited)
Current assets:
   Cash and cash equivalents                          $  1,221      $    992
   Accounts receivable, net                              1,210         1,291
   Inventories                                           8,204         9,938
   Recoverable income taxes                                  2           550
   Prepaids and other current assets                       125           219
                                                      --------      --------
            Total current assets                        10,762        12,990

Property and equipment, net                              1,803         2,438
Other assets                                               266           266
                                                      --------      --------

               Total assets                           $ 12,831      $ 15,694
                                                      ========      ========

                        LIABILITIES

Current liabilities:
   Loan payable to shareholder                        $  1,000             -
   Accounts payable                                      1,431      $  1,442
   Accrued expenses                                      1,446         1,646
                                                      --------      --------
            Total current liabilities                    3,877         3,088
                                                      --------      --------

   SHAREHOLDERS' EQUITY

Common stock, no par value:
   Authorized:  30,000 shares
   Issued and outstanding: 5,854 shares at
      September 30, 1998 and 5,785 shares at
      December 31, 1997                                 20,645        20,613

Accumulated deficit                                    (11,691)       (8,007)
                                                      --------      --------
        Total shareholders' equity                       8,954        12,606
                                                      --------      --------

          Total liabilities and shareholders' equity  $ 12,831      $ 15,694
                                                      ========      ========


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

                                       3
<PAGE>
<TABLE>


                                 VIDEONICS, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (unaudited)
<CAPTION>


                                                                    Nine Months Ended
                                                                      September 30, 
                                                                    -----------------
<S>                                                                <C>        <C>    
                                                                      1998       1997
                                                                   -------    -------
Cash flows from operating activities:
          Net cash used in operating activities                       (464)    (4,167)
                                                                   -------    -------

Cash flows from investing activities:
   Purchase of property and equipment                                 (339)    (1,204)
   Proceeds from sales of marketable securities                          -      1,500
                                                                   -------    -------

          Net cash provided by (used in) investing activities         (339)       296
                                                                   -------    -------

Cash flows from financing activities: 
   Proceeds from issuance of loans payable to shareholder            1,019          -
   Repayments on loans payable to shareholder                          (19)         -
   Proceeds from issuance of common stock                               32         50
                                                                   -------    -------
          Net cash provided by financing activities                  1,032         50
                                                                   -------    -------

Increase (decrease) in cash and cash equivalents                       229     (3,821)

Cash and cash equivalents at beginning of year                         992      6,538
                                                                   -------    -------

Cash and cash equivalents at end of period                         $ 1,221    $ 2,717
                                                                   =======    =======
<FN>
                     The accompanying notes are an integral
                       part of these financial statements.
</FN>
</TABLE>

                                       4
<PAGE>



                                 VIDEONICS, INC.
                   NOTES TO THE CONDENSED FINANCIAL STATEMENTS


1.       The  condensed  financial  statements at September 30, 1998 and for the
         nine month  period  then ended are  unaudited  (except  for the balance
         sheet  information  as of December 31, 1997,  which is derived from the
         Company's  audited  financial  statements)  and reflect all adjustments
         (consisting  only of normal  recurring  adjustments)  which are, in the
         opinion  of  management,  necessary  for a  fair  presentation  of  the
         financial  position and operating results for the interim periods.  The
         condensed  financial  statements should be read in conjunction with the
         financial  statements  and notes  thereto,  together with  management's
         discussion   and  analysis  of  financial   condition  and  results  of
         operations,  contained in the Company's  Annual Report on Form 10-K for
         the year ended  December 31, 1997.  The results of operations  for this
         nine  month  period  ended  September  30,  1998  are  not  necessarily
         indicative of the results for the year ending December 31, 1998, or any
         future interim period.

2.       Inventories comprise (in thousands):

                                               September 30,        December 31,
                                                    1998               1997  
                                               -------------        ------------
                                                (unaudited)

            Raw materials                         $6,286              $7,649
            Work in process                          991                 437
            Finished goods                           927               1,852
                                                  ------              ------
                                                  $8,204              $9,938
                                                  ======              ======

3.       Loans Payable to Shareholder:

         During the quarter ended March 31, 1998,  the Company  issued a secured
         promissory  note due to a shareholder of the Company for repayment of a
         loan to the Company in the principal amount of $619,000.  The principal
         amount bore simple  interest at a rate of 8.5% per year.  Principal and
         accrued  interest were due upon demand.  On April 3, 1998,  the Company
         repaid $19,000 of principal and all accrued  interest through March 31,
         1998 and  replaced  this  note  with an  unsecured  loan  from the same
         shareholder.  The loan,  in the amount of $600,000,  bore interest at a
         rate of 8.5% per year and was  initially  due on July 3, 1998.  In July
         1998, the loan was renewed under the same terms,  and is due on October
         16,  1998.  On August 17,  1998,  the Company  borrowed  an  additional
         $400,000  from this  shareholder  under the same terms,  due October 16
         1998.  On October  16, 1998 the  Company  replaced  these notes with an
         unsecured loan from the same  shareholder.  This loan, in the amount of
         $1,000,000,  bears  interest at 8% per year,  and is due on October 16,
         1999. Accrued interest is payable on a quarterly basis.

4.       Recent Accounting Pronouncement:

         In June of  1998,  the  Financial  Accounting  Standards  Board  issued
         Statement No. 133,  "Accounting for Derivative  Instruments and Hedging
         Activities",  (SFAS 133) which  establishes  accounting  and  reporting
         standards for derivative  instruments,  and for hedging activities.  It
         requires that an entity  recognize all  derivatives as either assets or
         liabilities  in the  statement of financial  position and measure those
         instruments at fair value. Management has evaluated the effects of this
         standard and believes there will be no material impact on the Company's
         financial  position or results of  operations.  The Company  will adopt
         SFAS 133 as required for its first quarterly filing of the year 2000.


                                       5

<PAGE>


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

       The following  discussion in this section  "Management's  Discussion  and
Analysis of  Financial  Condition  and  Results of  Operations"  contains  trend
analysis and other forward looking  statements within the meaning of Section 27A
of the  Securities  Act of 1933, as amended,  and Section 21E of the  Securities
Exchange Act of 1934, as amended.  Actual results could differ  materially  from
those  expressed or forecasted in the forward looking  statements.  Factors that
might cause such a difference  include,  but are not limited to, the factors set
forth in this Form 10-Q,  in the  Company's  Annual  Report on Form 10-K for the
year ended  December 31, 1997 and in the  Company's  other public  filings.  The
following  discussion should be read in conjunction with the condensed financial
statements  and  notes  thereto  included  elsewhere  in this  form 10-Q and the
Company's 1997 Form 10-K.

Results of Operations

       Net  Revenues.  Net  revenues  decreased  approximately  6% in the  third
quarter of 1998  compared to the third  quarter of 1997 and  increased 2% in the
first  nine  months of 1998  compared  to the  first  nine  months of 1997.  The
decrease between quarterly  periods is primarily  attributable to lower sales of
older videographer  products offset partially by sales of its newer MXPro, which
began shipping in April 1998.

       Gross  Profit.  Gross  profit  decreased  approximately  15% in the third
quarter of 1998  compared to the third  quarter of 1997 and increased 10% in the
first  nine  months of 1998  compared  to the first nine  months of 1997.  Gross
profit,  as a percentage of net revenues,  were  approximately  41% in the third
quarter of 1998 compared to  approximately  46% in the third quarter of 1997 and
approximately 40% in the first nine months of 1998 compared to approximately 37%
in the first nine months of 1997. The percentage  decrease between the quarterly
periods is primarily  due to a change in product mix.  Gross margin  percentages
between  nine month  periods  would have been similar if not for cost of revenue
adjustments in the first quarter of 1997 totaling $733,000 to inventory reserves
for components  rendered  obsolete by product revisions and to warranty reserves
for new product hardware updates.

       Research and Development. Research and development expenses decreased 27%
and 28%,  respectively,  between the quarterly and nine month comparison periods
in fiscal years 1997 and 1998 and also decreased as a percentage of net revenues
from 30% to 23% between  quarterly  comparison  periods in fiscal years 1997 and
1998 and from 34% to 24% for the nine month comparison  periods for fiscal years
1997 and 1998.  The  decreased  expenses  were  primarily  due to a reduction of
personnel and the reduced use of consultants.

       Selling and  Marketing.  Selling and  marketing  expenses  decreased  20%
between the third  quarter of 1997 and the third quarter of 1998 and 12% between
the first nine months of 1997 and the first nine months of 1998.  The  decreases
are related  primarily to a reduction of personnel,  lower commissions and lower
advertising expenses.

       General and Administrative. General and administrative expenses decreased
1% between the 1997 and 1998  quarterly  comparison  periods and  decreased  18%
between the nine month  comparison  periods in fiscal  years 1997 and 1998.  The
decrease  between the nine month  comparison  periods is primarily  due to a bad
debt  expense  of  $263,000  in the  first  quarter  of  1997,  as well as lower
administrative costs in 1998.

       Interest  Income  (expense).  The  Company  had net  interest  expense of
$9,000,  in the third quarter of 1998 compared to net interest income of $69,000
in the third quarter of 1997. The shift from interest income to interest expense
is primarily due to interest expense calculated on shareholder loans offset only
partially by interest income on lower cash balances available for investment.

                                       6
<PAGE>


       Benefit  from  Income  Taxes.  No tax  benefit  was  recognized  on  this
quarter's loss.  During the first nine months of 1998, the Company  maintained a
100% valuation  allowance against its deferred tax assets due to the uncertainty
surrounding the realization of such assets.  If it is determined that it is more
likely  than not that the  deferred  tax assets are  realizable,  the  valuation
allowance  will be reduced.  During the first nine  months of 1997,  the Company
recorded a tax benefit  totaling $1.9  million.  This benefit was based on a 30%
tax rate which had been calculated based on anticipated net income for the year.


       Factors  That May  Affect  Future  Results  of  Operations:  The  Company
believes  that in the future its  results of  operations  could be  impacted  by
factors such as delays in development and shipment of the Company's new products
and major new versions of existing  products,  market acceptance of new products
and  upgrades,  growth  in the  marketplace  in which it  operates,  competitive
product offerings,  and adverse changes in general economic conditions in any of
the countries in which the Company does business. The Company's results in prior
years  have  been  affected  by these  factors,  particularly  with  respect  to
developing and introducing new products such as PowerScript,  MXPro,  Python and
Effetto Pronto in 1996, 1997 and 1998.

       Due  primarily to the factors  noted above,  the Company has  experienced
substantial  volatility in its  operations.  The Company's  future  earnings and
stock price may continue to be subject to significant  volatility,  particularly
on a quarterly  basis. Any shortfall in revenue or earnings from levels expected
by  securities  analysts  or  anticipated  by the  Company  based  upon  product
development and  introduction  schedules could have an immediate and significant
adverse  effect on the trading price of the Company's  common stock in any given
period. Additionally, the Company may not learn of such shortfalls until late in
the fiscal  quarter,  which could result in an even more  immediate  and adverse
effect on the trading price of the Company's common stock.  Finally, the Company
participates  in a highly dynamic  industry,  which often results in significant
volatility of the Company's common stock price. See the Company's 1997 Form 10-K
section entitled "Business - Research and Development".

Year 2000 Issues

       The Year 2000 problem is the result of computer  programs  being  written
using two digits rather than four to define the  applicable  year. The Company's
plan for the Year 2000 problem  entails the research and testing of its computer
systems.  The plan  calls for  compliance  verification  with  external  vendors
supplying the Company's  software.  To date, the Company has not encountered any
material Year 2000 issues  concerning  its  respective  computer  programs.  The
Company  plans to  complete  its Year 2000  research  and testing by the fall of
1999.  All costs  associated  with carrying out the Company's  plan for the Year
2000 problem are being expensed as incurred.  The costs associated with the Year
20000  problem,  as  presently  estimated,  are not  expected to have a material
adverse  effect on the Company's  business,  financial  condition and results of
operations.  Should the Company's  internal  systems or one or more  significant
vendors,  manufacturers or suppliers fail to achieve Year 2000  compliance,  the
Company's business and its results of operations could be adversely affected.

       The  foregoing  statements  are forward  looking.  The  Company's  actual
results could differ because of several  factors,  including  those set forth in
the  subsection  entitled  "Factors That May Affect Future Results and Financial
Condition".

Liquidity and Capital Resources

       From the  Company's  inception  until  its  initial  public  offering  in
December  1994,  which resulted in net proceeds to the Company of $15.8 million,
the Company financed its operations through private sales of equity, shareholder
loans, cash flow from operations,  and bank borrowings.  Beginning in January of
1998, the Company again financed its operations through a shareholder loan which
as of September  30, 1998 totaled  $1,000,000.  As of  September  30, 1998,  the
Company had $1.2 million of cash and cash equivalents.

                                       7
<PAGE>


       Net cash used by operations  was $464,000 for the first nine months ended
September  30, 1998  compared to net cash used in operations of $4.2 million for
the same period in 1997.  The use of cash from operating  activities  during the
first nine months of 1998 is  primarily  due to a net loss before  depreciation,
offset partially by a decrease in inventories and recoverable  income taxes. The
decrease  in cash  from  operating  activities  during  the  nine  months  ended
September  30, 1997 is  primarily  due to a net loss before the  provisions  for
doubtful  accounts,  excess  and  obsolete  inventories,  and  depreciation  and
amortization,  an increase in  inventories,  an increase in  recoverable  income
taxes, offset partially by a decrease in receivables. Net cash used by investing
activities for the first nine months ended September 30, 1998 was $339,000,  due
to property and equipment  expenditures,  primarily for computers,  software and
engineering equipment used in research and development and other activities. Net
cash provided by investing  activities  for the nine months ended  September 30,
1997 was $296,000,  primarily due to the sale of  marketable  securities  offset
partially by property  and  equipment  expenditures,  primarily  for  computers,
software and  engineering  equipment used in research and  development and other
activities.  Net cash  provided by  financing  activities  during the first nine
months of 1998 was $1.0 million,  primarily because of shareholder loans and the
receipt  of cash  from the  exercise  of the  stock  options  issued  under  the
Company's Stock Option Plans. Net cash provided by financing  activities  during
the first nine months of 1997 was  $50,000,  due entirely to the receipt of cash
from the exercise of stock options issued under the Company's Stock Option Plan.

       The Company believes that its cash balances,  together with its operating
cash flows and  shareholder  borrowings will be sufficient to meet the Company's
requirements  for working  capital and capital  expenditures  through the end of
1998.

                                       8
<PAGE>

PART II.  OTHER INFORMATION

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

<TABLE>

         At the Annual Meeting of Shareholders on August 19, 1998, the following
persons were elected to the Board of Directors:

<CAPTION>

                                                                                     Votes 
                                                Affirmative              -------------------------------
                                                   Votes                 Withheld              Abstained
                                                   -----                 --------              ---------
<S>                                              <C>                      <C>                    <C>
Michael L. D'Addio                               5,751,399                37,410                      0
Yeshwant Kamath                                  5,751,899                36,910                      0
Mark C. Hahn                                     5,751,499                37,310                      0
Carl E. Berg                                     5,752,699                36,110                      0
N. William Jasper, Jr.                           5,752,299                36,510                      0
                                        
There were 5,788,809 shares of Common Stock represented at the meeting.


The following proposals were approved at the Company's Annual Meeting:

                                                                                     Votes 
                                                Affirmative              -------------------------------
                                                   Votes                 Against              Abstained
                                                   -----                 -------              ----------
To ratify the appointment of
Coopers & Lybrand L.L.P.
as the independent accountants
of the Company for the fiscal
year ending December 31, 1998                    5,761,159                14,450                 13,200

</TABLE>

Item 6.    Exhibits and Reports on Form 8-K

(a)        Exhibits

           Exhibit No.           Description of Document
           -----------           -----------------------

           27                    Financial Data Schedule

(b) No reports on Form 8-K were filed  during the quarter  ended  September  30,
    1998.

                                       9
<PAGE>


                                   SIGNATURES


         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
         the  registrant  has duly caused this report to be signed on its behalf
         by the undersigned, thereunto duly authorized.



                                                         VIDEONICS, INC.
                                                         ---------------
                                                           Registrant

                                                        November 3, 1998
                                                        ----------------
                                                              Date


                                                    By:/s/  James A. McNeill
                                                         James A. McNeill
                                                    Vice President of Finance,
                                                    Chief Financial Officer and
                                                        Assistant Secretary
                                             (Principal Financial and Accounting
                                                 Officer and Authorized Signer)





                                       10


<PAGE>


                                INDEX OF EXHIBITS



Exhibits:


   27   Financial Data Schedule...............................................12






                                       11