__________________________________________________________________ __________________________________________________________________ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO ___________ Commission File Number 0-26516 EUPHONIX, INC. (Exact name of registrant as specified in its charter) 	California				 			77-0189481 ---------- ---------- (State or other jurisdiction of				 (I.R.S. Employer incorporation or organization)			 Identification No.) 220 Portage Avenue, Palo Alto, CA 94306 --------------------------------------- (Address of principal executives, zip code) (650) 855-0400 (Registrant's telephone number, including area code) 	 Indicate by check mark whether the registrant has filed (1) all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the 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, 1998 was 6,630,723 ($.001 par value). EUPHONIX, INC. FORM 10-Q TABLE OF CONTENTS 								 	 Page PART I.	FINANCIAL INFORMATION ---- ITEM 1.	Condensed Consolidated Financial Statements (Unaudited): Condensed Consolidated Statements of Operations for the three and six months ended June 30, 1998 and 1997..........3 Condensed Consolidated Balance Sheets as of June 30, 1998 and December 31, 1997........................4 Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 1998 and 1997............5 Notes to Condensed Consolidated Financial Statements as of and for the six months ended June 30, 1998...........6 ITEM 2.	Management's Discussion and Analysis of Financial 	 Condition and Results of Operations.........................9 PART II.	OTHER INFORMATION ITEM 6.	Exhibits and Reports on Form 8-K...........................13 Signatures.........................................................14 <2> PART I.	FINANCIAL INFORMATION Item 1.	Condensed Consolidated Financial Statements Euphonix, Inc. Condensed Consolidated Statements of Operations (unaudited) 			 Three Months Ended Six Months Ended June 30, June 30, 1998 1997 1998 1997 ----------- ------------ ------------- ----------- Nets revenues............ $ 3,441,106 $ 4,486,020 $ 7,721,273 $ 9,443,937 Cost of sales............ 2,244,219 2,382,183 4,363,071 4,909,899 ----------- ------------ ------------ ----------- Gross profit............. 1,196,887 2,103,837 3,358,202 4,534,038 Operating expenses: Research & development.. 1,263,138 885,819 2,144,896 1,815,679 Sales & marketing....... 1,338,524 1,280,799 2,554,451 2,505,667 General & administrative 612,446 675,231 1,292,383 1,220,116 ----------- ------------ ------------- ----------- Total operating expense.. 3,214,108 2,841,849 5,991,730 5,541,462 ----------- ------------ ------------- ----------- Operating loss........... (2,017,221) (738,012) (2,633,528) (1,007,424) Interest income & other, net 22,203 85,662 41,979 161,114 ----------- ------------ ------------- ----------- Loss before income taxes. (1,995,018) (652,350) (2,591,549) (846,310) Tax provision ........... ---- 59,713 ---- ---- ----------- ------------ ------------- ----------- Net loss................. $ (1,995,018) $ (712,063) $ (2,591,549) $ (846,310) =========== ============ ============= =========== Net loss per share: Basic.................. $ (0.30) $ (0.13) $ (0.42) $ (0.15) =========== ============ ============= =========== Diluted................ $ (0.30) $ (0.13) $ (0.42) $ (0.15) =========== ============ ============= =========== Number of shares used in computing per share amounts : Basic.................. 6,630,555 5,569,469 6,173,745 5,568,389 =========== ============ ============= =========== Diluted................ 6,630,555 5,569,469 6,173,745 5,568,389 =========== ============ ============= =========== See notes to condensed consolidated financial statements <3> Euphonix, Inc. Condensed Consolidated Balance Sheets 	 						 June 30, December 31, 				 1998 1997 -------------- ---------------- (unaudited) (Note) ASSETS CURRENT ASSETS: Cash and cash equivalents............... $ 1,999,590 $ 1,880,093 Short-term investments.................. 1,085,165 1,710,223 Accounts receivable, net................ 1,896,429 1,911,095 Inventories............................. 5,723,928 5,309,818 Income tax receivable................... 300,000 544,000 Prepaid expenses and other current assets 258,216 306,308 --------------- ---------------- Total current assets..................... 11,263,328 11,661,537 Property and equipment, net.............. 1,830,424 1,425,709 Deposits and other assets................ 348,547 120,829 --------------- ---------------- Total assets............................. $ 13,442,299 $ 13,208,075 =============== ================ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable........................ $ 1,414,826 $ 924,721 Accrued payroll and related liabilities, including deferred salary.............. 508,559 387,337 Accrued warranty........................ 394,554 347,850 Accrued commissions..................... 109,350 155,708 Other accrued liabilities............... 324,524 461,614 Customer deposits....................... 617,350 237,866 Short term portion capital leases....... 24,294 51,565 -------------- --------------- Total current liabilities................ 3,393,457 2,566,661 Long term portion capital leases......... 31,973 31,973 Deferred revenue......................... 10,630 ---- Deferred rent............................ 2,111 3,170 Deferred income taxes.................... 119,000 119,000 SHAREHOLDERS' EQUITY: Preferred stock......................... ---- ---- Common stock............................ 6,631 5,590 Additional paid-in capital.............. 15,671,981 13,722,855 Accumulated deficit..................... (5,698,984) (3,101,674) Deferred compensation................... (94,500) (139,500) -------------- --------------- Total shareholders' equity............... 9,885,128 10,487,271 -------------- --------------- Total liabilities and shareholders' equity $ 13,442,299 $ 13,208,075 ============== =============== Note: The balance sheet at December 31, 1997 has been derived from the audited financial statements at that date. See notes to condensed consolidated financial statements. 					 <4> Euphonix, Inc. Condensed Consolidated Statements of Cash Flows (unaudited) 						 						 	 Six Months Ended 							 June 30, 							 1998 1997 -------------- -------------- Operating activities Net loss................................... $ (2,591,549) $ (846,310) Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization............. 240,405 190,776 Deferred compensation amortization........ 45,000 45,000 Changes in operating assets and liabilities: Prepaid expenses, other current assets and other assets............................ 50,618 85,402 Accounts receivable...................... 14,666 (220,410) Inventories.............................. (414,110) (1,189,674) Accounts payable, accrued liabilities, and deferred rent........................... 484,154 940,579 Customer deposits........................ 379,484 (31,468) -------------- -------------- Total adjustments.......................... 800,217 (179,795) -------------- -------------- Net cash used in operating activities...... (1,791,332) (1,026,105) Investing activities Proceeds from sales of short-term investment maturities................................ 1,669,947 1,845,466 Purchases of short-term investments........ (1,044,889) (1,254,475) Purchase of property and equipment......... (637,125) (249,917) -------------- -------------- Net cash provided by (used for) investing activities................................ (12,067) 341,074 Financing activities Principal payments under capital lease obligations............................... (27,271) (22,095) Proceeds from sale of common stock......... 1,950,167 850 --------------- -------------- Net cash provided by (used in) financing activities................................ 1,922,896 (21,245) --------------- -------------- Net increase (decrease) in cash and cash equivalents............................... 119,497 (706,276) Cash and cash equivalents at beginning of period.................................... 1,880,093 1,428,095 --------------- -------------- Cash and cash equivalents at end of period. $ 1,999,590 $ 721,819 =============== =============== See notes to condensed consolidated financial statements <5> EUPHONIX, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) 1. 	Basis of Presentation 	 The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presenta- tion have been included. Operating results for the six-month period ended June 30, 1998 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 1998. 	 For further information, refer to the audited financial statements and foot- notes thereto included in the Registrant Company's annual report on Form 10-K for the year ended December 31, 1997. 2.	Use of Estimates 	 The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assump- tions that affect the amounts reported in the financial statements and accom- panying notes. Actual results could differ from those estimates. 3.	Net loss per share 	 The Company has adopted SFAS 128 to compute earnings per share and has restated all prior periods. The new requirements include a calculation of basic earnings per share, from which the dilutive effect of stock options, warrants, and convertible debt are excluded; and a calculation of diluted earnings per share, which includes the dilutive effect of these securities. For the three and six month periods ended June 30, 1998 and 1997, the dilutive effect of stock options were excluded from the calculation of common shares used in the denominator for diluted loss per share because the stock options are anti- dilutive. The Company adopted the provisions of SFAS 128 beginning with the financial statements for the year ended December 31, 1997, and all share and per share data for prior periods have been adjusted retroactively to comply with the new statement. <6> EUPHONIX, INC. Notes to Condensed Consolidated Financial Statements - Continued The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts): 									 	 Three Months Ended Six Months Ended June 30, June 30, ---------------------------------------- 1998 1997 1998 1997 ---- ---- ---- ---- Numerator: Numerator for basic and diluted loss per share......................... $(1,995) $ (712) $(2,592) $ (846) Denominator: Denominator for basic loss per share weighted-average shares outstanding 6,631 5,569 6,174 5,568 Effect of dilutive securities: Employee stock options............ ---- ---- ---- ---- ---------- --------- ----------- ---------- Dilutive potential common shares.. ---- ---- ---- ---- Denominator for diluted loss per share adjusted weighted-average shares and assumed conversions 6,631 5,569 6,174 5,568 ======== ======== ======== ======== Basic loss per share............... $ (0.30) $ (0.13) $ (0.42) $ (0.15) ======== ======== ======== ======== Diluted loss per share............. $ (0.30) $ (0.13) $ (0.42) $ (0.15) ======== ======== ======== ======== 4.	Inventories Inventories are stated at the lower cost (first-in, first-out) or market (net realizable value). Inventories consist of the following: June 30,	 December 31, 					 	 1998 1997 ----------- -------------- Raw materials................ $ 1,758,723 $ 1,213,574 Work-in-process.............. 1,477,616 1,281,064 Finished goods............... 2,487,589 2,815,180 ------------ ------------- $ 5,723,928 $ 5,309,818 ============ ============= 5. 	Income Taxes 	 The Company's provision for income taxes for the six months ended June 30, 1998 is based on the Company's estimate of the annual effective tax rate for 1998. The Company's effective tax rate for the six months ended June 30, 1998 was 0%. The Company's effective tax benefit was 31% in 1997, primarily due to the recognition of certain deferred tax assets based on available carry-back potential. <7> EUPHONIX, INC. Notes to Condensed Consolidated Financial Statements - Continued 6. Comprehensive Income As of January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 established new rules for the reporting and display of comprehensive income and its components; however, the adoption of SFAS 130 had no material impact on the Company's net income or shareholders' equity. SFAS 130 requires unrealized gains or losses on the Company's available-for-sale securities and foreign cur- rency translation adjustments, which prior to adoption were reported separately in shareholders' equity, to be included in other comprehensive income. No amounts have been reported for other comprehensive income due to the immaterial- ity of the amounts. 7. Common Stock In March 1998, the Company received proceeds of $1,950,000 from existing investors in exchange for the issuance of 1,040,000 shares of $0.001 par value common stock at $1.875 per share, the closing price of the Company's common stock on the NASDAQ on the date the common stock purchase agreement was exe- cuted. The authorized capital stock of the Company at June 30, 1998 is 20,000,000 shares of common stock and 2,000,000 shares of preferred stock, par value $0.001. As of June 30, 1998, there were 6,630,723 shares of common stock issued and outstanding, and there were no issued and outstanding shares of preferred stock. <8> Item 2. 	Management's Discussion & Analysis of Financial Condition & Results of Operations. 	 This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. The Company's actual results may differ signi- ficantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those dis- cussed in the section entitled "Factors Affecting Future Operating Results." Results of Operations 	 Net Revenues. Net revenues decreased to $3.4 million in the second quarter of 1998 down from $4.5 million in the second quarter of 1997, representing a decrease of 23.3% in 1998 from 1997. Net revenues decreased to $7.7 million in the first six months of 1998 down from $9.4 million in the first six months of 1997, representing a decrease of 18.2% in 1998 from 1997. The Company's decrease in net revenues in the second quarter and six months of 1998 as compared to the second quarter and six months of 1997 resulted primarily from reduced sales in the United States and in Europe, and to a number of sales transactions which slipped into the third quarter of 1998. 	 Sales of the Company's products in the United States for the second quarter of 1998 and 1997 were $2.3 million and $3.3 million, respectively, comprising approximately 67.5% and 72.6% of the Company's net revenues for the second quar- ter of 1998 and 1997, respectively. Domestic sales were $4.8 million and $5.8 million comprising approximately 61.5% and 61.3% of the Company's net revenues for the first six months of 1998 and 1997, respectively. Export sales were $1.1 million and $1.2 million comprising approximately 32.5% and 27.4% of the Com- pany's revenues for the second quarter of 1998 and 1997, respectively. Export sales were $2.9 million and $3.6 million comprising approximately 38.5% and 38.7% of the Company's revenues for the first six months of 1998 and 1997, res- pectively. Gross Margin. The Company's gross margin decreased to $1.2 million or 34.8% of net revenues in the second quarter of 1998 down from $2.1 million or 46.9% of net revenues in the second quarter of 1997, representing a 43.1% decrease in the second quarter of 1998, as compared to the second quarter of 1997. For the first six months of fiscal 1998, gross margin was $3.4 million, or 43.5% of net revenues, compared with $4.5 million , or 48% of net revenues, for the first six months of fiscal 1997. The decrease in the second quarter and six months of 1998 from the second quarter and six months of 1997 was primarily attributable to manufacturing overhead investments associated with the new R-1 recorder, other product development activities, and a $173,000 charge for excess and obsolete inventories. 	 Research and Development Expenses. Research and development expenses increased to $1.3 million in the second quarter of 1998, up from $886,000 in the second quarter of 1997, representing an increase of 42.6% in 1998. For the first six months in 1998, research and development expenses of $2.1 million increased 18.1% from $1.8 million in 1997. Research and development expenses constituted 36.7%, 19.7%, 27.8%, and 19.2% of net revenues in the second quar- ter of 1998 and 1997 and the first six months of 1998 and 1997, respectively. The increases resulted from new product development costs primarily prototype builds related to the new R-1 Multitrack Recorder and other new digital products in development. Approximately $300,000 of prototype development costs were were capitalized in the second quarter of 1998. 	 	 Sales and Marketing Expenses. Sales and marketing expenses were $1.3 mil- lion in the second quarter of 1998 and 1997. For the first six months of fiscal 1998, sales and marketing expenses of $2.6 million increased 1.9% from $2.5 mil- lion in 1997. Sales and marketing expenses constituted 38.9%, 28.6%, 33.1%, and <9> 26.5% of net revenues in the second quarter of 1998 and 1997 and the first six months of 1998 and 1997, respectively. The increase in the first six months of 1998 as compared with 1997 resulted primarily from increases in Japan in advertising, trade shows, and product demonstrations. 	 General and Administrative Expenses. General and administrative expenses decreased to $612,000 in the second quarter of 1998 from $675,000 in the second quarter of 1997, representing a decrease of 9.3%, due primarily to a decrease in insurance costs. For the first six months of fiscal 1998, general and adminis- trative expenses of $1.3 million increased 5.9% from $1.2 million in the first six months of 1997. General and administrative expenses constituted 17.8%, 15.1%, 16.7%, and 12.9% of net revenues in the second quarter of fiscal 1998 and 1997 and the first six months of fiscal 1998 and 1997, respectively. The increase in the first six months of 1998 as compared with 1997 was mostly attributable to an increase in the allowance for doubtful accounts reserve to cover inherent risk of carrying higher receivable balances and selling to new customers. 	 Provision for Income Taxes. The Company's effective tax rate is 0% in 1998 and a 31.0% benefit in 1997. The effective tax rate for the second quarter and 1997 differs from the federal statutory rate primarily due to the limitations controlling the timing for realization of net operating losses and tax credits established by the Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". Liquidity and Capital Resources 	 The Company has funded its operations to date primarily through cash flows from operations, the private sale of equity securities, and the initial public offering of Common Stock completed in September 1995. During the six months ended June 30, 1998 the Company sold common stock to existing investors and received proceeds of $1,950,000. For the six months ended June 30, 1998, cash, cash equivalents and short-term investments decreased by $506,000 to approxi- mately $3.1 million, mainly due to operating cash requirements and lower than anticipated sales in general. Also, during this period, working capital decreased by $1.2 million to approximately $7.9 million. 	 The Company's operating activities used cash of approximately $1.8 million and $1.0 million for the six months ended June 30, 1998 and 1997, respectively. Cash used in operating activities for 1998 was comprised primarily of net loss, and an increase in inventory, offset partially by an increase in accounts pay- able, accrued liabilities and customer deposits. Cash used in operating activi- ties for 1997 was comprised primarily of net loss, an increase in inventory and accounts receivable, offset partially by an increase in accounts payable and accrued liabilities. 	 	 As of June 30, 1998, the Company's sources of liquidity included cash, cash equivalents and short-term investments totaling approximately $3.1 million. The Company believes that its existing sources of liquidity will be sufficient to finance operations in the foreseeable future. However, if the Company experiences unanticipated cash requirements during the interim period, the Company could require additional funds much sooner. The source, availability and terms of such funding have not been determined. There is no assurance any funding will occur, or if it occurs, will be on terms favorable to the Company. Failure to obtain adequate financing in a timely manner would have a material adverse effect on the Company's business, financial condition and results of operation. Impact of Recently Issued Accounting Pronouncements As of January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 <10> establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of SFAS 130 had no material impact on the Company's net income or shareholders' equity. SFAS 130 requires unrealized gains or losses on the Company's available-for-sale securities and foreign cur- rency translation adjustments, which prior to adoption were reported separately in shareholders' equity, to be included in other comprehensive income. No amounts have been reported for other comprehensive income due to the immaterial- ity of the amounts. Factors Affecting Future Operating Results 		 The Company has derived virtually all of its revenues from sales of its digitally controlled audio mixing console system, which system is based upon its proprietary hardware platform. The Company believes that sales of this sys- tem, along with enhancements thereof, will constitute virtually all of the Company's revenues for the foreseeable future. Accordingly, any factor adversely affecting the Company's base system, whether technical, competitive or other- wise, could have a material adverse effect on the Company's business and results of operations. However the Company anticipates that starting in the first quar- ter of 1999, a significant portion of its revenues will come from its new R-1 multitrack recorder which was announced in the second quarter of 1998. 		 A limited number of the Company's system sales typically account for a sub- stantial percentage of the Company's quarterly revenue because of the relatively high average sales price of such systems. Moreover, the Company's expense levels are based in part on its expectations of future revenue. Therefore, if revenue is below expectations, the Company's operating results are likely to be adverse- ly affected. In addition, the timing of revenue is influenced by a number of other factors, including the timing of individual orders and shipments, industry trade shows, seasonal customer buying patterns, changes in product development and sales and marketing expenditures, custom financing arrangements, production limitations and international sales activity. Because the Company's operating expenses are based on anticipated revenue levels and a high percentage of the Company's expenses are relatively fixed in the short term, variations in the timing of recognition of revenue could cause significant fluctuations in opera- ting results from quarter to quarter and may result in unanticipated quarterly earnings shortfalls or losses. 		 The markets for the Company's system are characterized by changing technolo- gies and new product introductions. The Company's future success will depend in part upon its continued ability to enhance its base system with features, including new software and hardware add-ons, and to develop or acquire and introduce new products and features which meet new market demands and changing customer requirements on a timely basis. The Company is currently designing and developing new products, primarily in the areas of recording, editing and mixing functions of sound production as well as digital audio processing and networking systems. In addition, there can be no assurance that products or technologies developed by others will not render the Company's products or technologies non- competitive or obsolete. 		 To date, the Company's primary market success has been in the music segment of the professional audio market. In order for the Company to grow, the Company believes that it must continue to gain market share in the music market segment, as well as in its other targeted market segments. There can be no assurance that the Company will be able to compete favorably in any market segments. The Com- pany's inability to compete favorably could have a material adverse effect on its business and results of operations. The markets for the Company's products are intensely competitive and characterized by significant price competition.The Company believes that its ability to compete depends on elements both within and outside its control, including the success and timing of new product development (including development on a timely basis of a hybrid digital product, of which <11> there can be no assurance) and introduction by the Company and its competitors, product performance and price, distribution, availability of lease or other financing alternatives, resale of used systems and customer support. 		 Currently, the Company uses many sole or limited source suppliers, certain of which are critical to the integrated circuits included in the Company's base system. Major delays or terminations in supplies of such components could have a significant adverse effect on the Company's timely shipment of its products, which in turn would adversely affect the Company's business and results of oper- ations. The Company also relies on single vendors to manufacture major subassem- blies for its products. Any extended interruption in the future supply or increase in the cost of subassemblies manufactured by its primary or other third party vendors could have a material adverse effect on the Company's business and results of operations. 		 In addition, as different electrical, radiation or other standards applic- able to the Company's products are adopted in countries, including the United States, or groups of countries in which the Company sells its products, the failure of the Company to modify its products, if necessary, to comply with such standards would likely have an adverse effect on the Company's business and results of operations. 		 The Company generally relies on a combination of trade secret, copyright law and trademark law, contracts and technical measures to establish and protect its proprietary rights in its products and technologies. However, the Company believes that such measures provide only limited protection of its proprietary information, and there is no assurance that such measures will be adequate to prevent misappropriation. In addition, significant and protracted litigation may be necessary to protect the Company's intellectual property rights, to determine the scope of the proprietary rights of others or to defend against claims of infringement. There can be no assurance that third-party claims alleging infringement will not be asserted against the Company in the future. Any such claims could have a material adverse effect on the Company's business and results of operations. 		 The Company's success depends, in part, on its ability to retain key manage- ment and technical employees and its continued ability to attract and retain highly skilled personnel. In addition, the Company's ability to manage any growth will require it to continue to improve and expand its management, opera- tional and financial systems and controls. If the Company's management is unable to manage growth effectively, its business and results of operations will be adversely affected. 		 As a result of these and other factors, the Company has experienced signifi- cant quarterly fluctuations in operating results and anticipates that these fluctuations will continue in future periods. There can be no assurance that the Company will be successful in maintaining or improving its profitability or avoiding losses in any future period. Further, it is likely that in some future period the Company's net revenues or operating results will be below the expec- tations of public market securities analysts and investors. In such event, the price of the Company's Common Stock would likely be materially adversely affec- ted. <12> PART II. OTHER INFORMATION Item 1: Legal Proceedings: Not applicable ----------------- Item 2: Changes In Securities:	 Not applicable --------------------- Item 3: Defaults Upon Senior Securities: Not applicable ------------------------------- Item 4:	Submission of Matters to a Vote of Security Holders: --------------------------------------------------- 		 The Company's Annual Meeting of Shareholders was held on June 26, 1998. The results of the voting were as follows: Proposal 1:	Election of the Board of Directors of the Company. 	 Nominee 		 Votes For		 Votes Withheld ------- --------- -------------- 	 Milton M.T. Chang		 5,711,375		 27,590 	 James Dobbie			 5,711,175		 27,790 	 B. Yeshwant Kamath		 5,711,275		 27,690 Proposal 2:	Ratification of Ernst & Young LLP as the Company's independent auditor		for the fiscal year ending December 31, 1998. 				 Votes For: 5,718,689 				 Votes Against	 2,700 				 Votes Abstaining: 17,576 Item 5: Other Information: Not applicable ----------------- Item 6: Exhibits and Reports on Form 8-K/A ---------------------------------- 	 (a) Exhibits 				 		 Exhibit 27 - Financial Data Schedule (page 15) 		 		 The exhibits listed on the accompanying index immediately following the	signature page are filed as part of this report. 	(b) Reports on Form 8-K 		None 	 <13> 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 under- signed thereunto duly authorized. Euphonix, Inc. Date:	 August 13, 1998				 By: /s/ BARRY MARGERUM ------------------------ ------------------		 Barry L. Margerum, Chief Executive 		 Officer, President 		 <14>