<PAGE>
__________________________________________________________________
__________________________________________________________________
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
QUARTERLY PERIOD ENDED 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).
<PAGE>
EUPHONIX, INC.
FORM 10-Q
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION ----
ITEM 1. Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Statements of Operations for the
three and six months ended June 30, 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>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Euphonix, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
----------- ------------ ------------- -----------
<S> <C>
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
=========== ============ ============= ===========
</TABLE>
See notes to condensed consolidated financial statements
<3>
<PAGE>
Euphonix, Inc.
Condensed Consolidated Balance Sheets
<TABLE> June 30, December 31,
<CAPTION> 1998 1997
-------------- ----------------
<S> <C> (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
============== ===============
</TABLE>
Note: The balance sheet at December 31, 1997 has been derived from the
audited financial statements at that date. See notes to condensed
consolidated financial statements.
<4>
<PAGE>
Euphonix, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1998 1997
-------------- --------------
<S> <C>
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
=============== ===============
</TABLE>
See notes to condensed consolidated financial statements
<5>
<PAGE>
EUPHONIX, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and article
10 of Regulation S-X. Accordingly, they do not include all of the 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>
<PAGE>
EUPHONIX, INC.
Notes to Condensed Consolidated Financial Statements - Continued
The following table sets forth the computation of basic and diluted earnings
per share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------------
<S> <C> 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)
======== ======== ======== ========
</TABLE>
4. Inventories
Inventories are stated at the lower cost (first-in, first-out) or market (net
realizable value). Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- --------------
<S> <C>
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
============ =============
</TABLE>
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>
<PAGE>
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>
<PAGE>
Item 2. Management's Discussion & Analysis of Financial Condition & Results of
Operations.
This Quarterly Report on Form 10-Q contains forward-looking statements that
involve risks and uncertainties. The Company's actual results may differ 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>
<PAGE>
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>
<PAGE>
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>
<PAGE>
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>
<PAGE>
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.
<TABLE>
<CAPTION>
<S> Nominee Votes For Votes Withheld
------- --------- --------------
<C>
Milton M.T. Chang 5,711,375 27,590
James Dobbie 5,711,175 27,790
B. Yeshwant Kamath 5,711,275 27,690
</TABLE>
Proposal 2: Ratification of Ernst & Young LLP as the Company's
independent auditor for the fiscal year ending
December 31, 1998.
<TABLE>
<CAPTION> <C>
<S> Votes For: 5,718,689
Votes Against 2,700
Votes Abstaining: 17,576
</TABLE>
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>
<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 under-
signed thereunto duly authorized.
Euphonix, Inc.
Date: August 13, 1998 By: /s/ BARRY MARGERUM
------------------------ ------------------
Barry L. Margerum, Chief Executive
Officer, President
<14>
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<CAPTION>
EXHIBIT INDEX
Exhibit
Number Exhibit Title
------ -------------
27. Financial Data Schedule
EXHIBIT 27 Financial Data Schedule
<CAPTION>
<S> <C>
FISCAL-YEAR-END DEC-31-1998
PERIOD-END JUN-30-1998
PERIOD-TYPE 6-MOS
CASH 1,999,590
SECURITIES 1,085,165
RECEIVABLES 1,896,429
ALLOWANCES 0
INVENTORY 5,723,928
CURRENT-ASSETS 11,263,328
PP&E 3,296,656
DEPRECIATION 1,466,232
TOTAL-ASSETS 13,442,299
CURRENT-LIABILITIES 3,393,457
BONDS 0
PREFERRED-MANDATORY 0
COMMON 6,631
OTHER-SE 9,878,497
TOTAL-LIABILITY-AND-EQUITY 13,442,299
SALES 7,721,273
TOTAL-REVENUES 7,721,273
CGS 4,363,071
TOTAL-COSTS 5,991,730
OTHER-EXPENSES (41,979)
INCOME-PRETAX (2,591,549)
INCOME-TAX 0
INCOME-CONTINUING (2,591,549)
DISCONTINUED 0
EXTRAORDINARY 0
CHANGES 0
NET-INCOME (2,591,549)
EPS-BASIC (0.42)
EPS-DILUTED (0.42)
FISCAL-YEAR-END DEC-31-1997
PERIOD-END JUN-30-1997
PERIOD-TYPE 6-MOS
<15>
<PAGE>
EXHIBIT 27 Financial Data Schedule - Cont.
EPS-BASIC (0.15)
EPS-DILUTED (0.15)
FISCAL-YEAR-END DEC-31-1997
PERIOD-END MAR-31-1997
PERIOD-TYPE 3-MOS
EPS-BASIC (0.02)
EPS-DILUTED (0.02)
</TABLE>
