<PAGE>

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001.

                                       OR

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______TO _______.

                          COMMISSION FILE NO. 000-23767

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


                   DELAWARE                          77-0376250
         (State or other jurisdiction           of (I.R.S. Employer
        incorporation or organization)          Identification No.)


                                2331 Zanker Road
                         SAN JOSE, CALIFORNIA 95131-1107
          (Address of principal executive offices, including zip code)

                                 (408) 232-0710
              (Registrant's telephone number, including area code)


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 filesuch reports) and (2) has been subject to such filing
                 requirements for the past 90 days. Yes X No ___

     As of September 30, 2001; 35,481,000 shares of the Registrant's Common
Stock were outstanding.

<PAGE>


                             SYMPHONIX DEVICES, INC.

                                TABLE OF CONTENTS

<TABLE>
<S>                                                                                         <C>
PART I.    FINANCIAL INFORMATION

Item 1.    Financial Statements (unaudited)

           Condensed Consolidated Balance Sheets as of September 30, 2001 and
           December 31, 2000 ............................................................     1

           Condensed Consolidated Statements of Operations for the three months
           and nine months ended September 30, 2001 and 2000 ............................     2

           Condensed Consolidated Statements of Comprehensive Loss for the three
           months and nine months ended September 30, 2001 and 2000 .....................     3

           Condensed Consolidated Statements of Cash Flows for the nine months
           ended September 30, 2001 and 2000 ............................................     4

           Notes to Condensed Consolidated Financial Statements .........................     5

Item 2.    Management's Discussion and Analysis of Financial Condition and
           Results of Operations ........................................................     7

Item 3.    Quantitative and Qualitative Disclosures About Market Risk ...................    20

PART II.   OTHER INFORMATION

Item 1.    Legal Proceedings ............................................................    20

Item 2.    Changes in Securities and Use of Proceeds ....................................    20

Item 3.    Defaults Upon Senior Securities ..............................................    20

Item 4.    Submission of Matters to a Vote of Security Holders ..........................    20

Item 5.    Other Information ............................................................    20

Item 6.    Exhibits and Reports on Form 8-K .............................................    21
</TABLE>



                                       -i-

<PAGE>


PART I.  FINANCIAL INFORMATION

Item 1.    Financial Statements

                             SYMPHONIX DEVICES, INC.

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (in thousands)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                    September 30,     December 31,
                                                                        2001             2000
                                                                        ----             ----
<S>                                                                 <C>              <C>
                                      ASSETS
Current assets:
     Cash and cash equivalents                                        $    514         $ 29,535
     Short-term investments                                             14,140                -
     Accounts receivable, net                                              475              356
     Inventories                                                           933            2,034
     Prepaid expenses and other current assets                             541              634
                                                                      --------         --------
          Total current assets                                          16,603           32,559
Property and equipment, net                                              1,437            1,396
Restricted cash                                                            222                -
Other assets                                                                56               75
                                                                      --------         --------

          Total assets                                                $ 18,318         $ 34,030
                                                                      ========         ========

                     LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Accounts payable                                                 $    265         $    834
     Accrued compensation                                                1,173            1,304
     Other accrued liabilities                                           2,620            3,772
     Current portion of bank borrowings                                    500              500
                                                                      --------         --------
          Total current liabilities                                      4,558            6,410
Deferred revenue                                                           820            1,101
Bank borrowings, less current portion                                      625            1,000
                                                                      --------         --------
         Total liabilities                                               6,003            8,511
                                                                      --------         --------

Stockholders' equity:
     Common stock                                                           35               21
     Notes receivable from stockholders                                   (400)            (421)
     Deferred compensation                                                   -              (34)
     Additional paid-in capital                                         92,109           91,885
     Accumulated other comprehensive income                                265               54
     Accumulated deficit                                               (79,694)         (65,986)
                                                                      --------         --------
          Total stockholders' equity                                    12,315           25,519
                                                                      --------         --------

          Total liabilities and stockholders' equity                  $ 18,318         $ 34,030
                                                                      ========         ========
</TABLE>

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


                                       -1-

<PAGE>


                             SYMPHONIX DEVICES, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                       Three months ended     Nine months ended
                                                       ------------------     -----------------
                                                         September 30,          September 30,
                                                         -------------          -------------
                                                       2001        2000       2001        2000
                                                       ----        ----       ----        ----
<S>                                                  <C>         <C>         <C>         <C>

Revenue                                              $    535    $    293    $  1,546    $    706
                                                     --------    --------    --------    --------

Costs and expenses:
     Cost of goods sold                                 1,342         573       3,665       2,331
     Research and development                           1,406       1,611       4,927       5,361
     Selling, general and administrative                1,817       2,217       7,318       5,685
                                                     --------    --------    --------    --------
          Total costs and expenses                      4,565       4,401      15,910      13,377
                                                     --------    --------    --------    --------
          Operating loss                               (4,030)     (4,108)    (14,364)    (12,671)

Interest income                                           271          75         747         329
Interest expense                                          (29)        (47)        (91)       (146)
                                                     --------    --------    --------    --------

Net loss                                             $ (3,788)   ($ 4,080)   $(13,708)   $(12,488)
                                                     ========    ========    ========    ========

Basic and diluted net loss per common share          $  (0.11)   $  (0.30)   $  (0.54)   $  (0.93)
                                                     ========    ========    ========    ========

Shares used in computing basic and diluted
net loss per common share                              33,399      13,475      25,190      13,413
                                                     ========    ========    ========    ========
</TABLE>


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


                                       -2-

<PAGE>


                             SYMPHONIX DEVICES, INC.

             CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
                                 (in thousands)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                         Three months ended        Nine months ended
                                                         ------------------        -----------------
                                                            September 30,           September 30,
                                                            -------------           -------------
                                                           2001        2000        2001        2000
                                                         --------    --------    --------    --------
<S>                                                      <C>         <C>         <C>         <C>
Net loss                                                 $ (3,788)   $ (4,080)   $(13,708)   $(12,488)

Change in unrealized gain on short-term investments            99           9         204          49

Translation adjustments                                        (1)         32           7          19
                                                         --------    --------    --------    --------
Comprehensive loss                                       $ (3,690)   $ (4,039)   $(13,497)   $(12,420)
                                                         ========    ========    ========    ========
</TABLE>


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


                                       -3-

<PAGE>


                             SYMPHONIX DEVICES, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                  Nine months ended September 30,
                                                                                  -------------------------------
                                                                                        2001            2000
                                                                                        ----            ----
<S>                                                                                 <C>             <C>
Cash flows from operating activities:
     Net loss                                                                       $(13,708)       $(12,488)
     Adjustments to reconcile net loss to net cash used in
          operating activities:
          Amortization of deferred compensation                                           34             229
          Stock based compensation                                                         -              16
          Depreciation and amortization                                                  590             592
          Amortization of premium on short-term investments                              125               -
          Gain on sale of short-term investments                                          (7)              -
          Changes in operating assets and liabilities:
                Accounts receivable                                                     (119)           (199)
                Inventories                                                            1,101            (989)
                Prepaid expenses and other current assets                                 93             383
                Accounts payable                                                        (569)            (37)
                Accrued compensation                                                    (131)            227
                Deferred revenue                                                        (281)           (230)
                Other accrued liabilities                                             (1,075)            731
                                                                                    --------        --------
                      Net cash used in operating activities                          (13,947)        (11,765)
                                                                                    --------        --------


Cash flows from investing activities
     Purchases of short-term investments                                             (27,380)         (3,656)
     Sales and maturities of short-term investments                                   13,326          10,550
     Purchases of property and equipment                                                (708)           (291)
     Increase in restricted cash                                                        (222)              -
     Change in other assets                                                               19               5
                                                                                    --------        --------
                      Net cash provided by (used in) investing activities            (14,965)          6,608
                                                                                    --------        --------

Cash flows from financing activities
     Payments on capital lease obligations                                                 -             (74)
     Payments on bank borrowings                                                        (375)           (375)
     Proceeds from issuance of common stock                                              238           5,146
     Payments on stockholders notes receivable                                            21             712
     Issuance of notes receivable to stockholder                                           -            (160)
                                                                                    --------        --------
                      Net cash provided by (used in) financing activities               (116)          5,249
                                                                                    --------        --------
Net increase (decrease) in cash and cash equivalents                                 (29,028)             92
Effect of exchange rates on cash and cash equivalents                                      7              19
Cash and cash equivalents, beginning of period                                        29,535           7,998
                                                                                    --------        --------
Cash and cash equivalents, end of period                                            $    514        $  8,109
                                                                                    ========        ========



Supplemental disclosure of non-cash financing activities
     Reversal of unrealized deferred compensation                                   $      -        $    245
                                                                                    ========        ========
     Cancellation of note receivable to stockholder for unvested restricted stock   $      -        $    107
                                                                                    ========        ========
</TABLE>



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


                                       -4-

<PAGE>

                             SYMPHONIX DEVICES, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

1. Basis of Presentation:

The accompanying unaudited condensed consolidated financial statements as of
September 30, 2001 of Symphonix Devices, Inc. (the "Company") have been prepared
in accordance with generally accepted accounting principles for interim
financial information and pursuant to 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. The unaudited interim financial statements have been
prepared on the same basis as the annual financial statements and, in the
opinion of management, reflect all adjustments, consisting of normal recurring
adjustments, considered necessary for a fair presentation. Operating results for
the interim periods presented are not necessarily indicative of the results that
may be expected for the fiscal year or any future interim period.

These financial statements and notes should be read in conjunction with the
Company's audited financial statements for the year ended December 31, 2000 and
footnotes thereto, included in the Company's Annual Report on Form 10-K.

These financial statements contemplate the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company has
sustained significant losses for the last several years. The Company will
require additional funding and may sell additional shares of its common stock or
preferred stock through private placement or further public offerings. There can
be no assurance that the Company will be able to obtain additional debt or
equity financing, if and when needed, on terms acceptable to the Company. Any
additional equity or debt financing may involve substantial dilution to the
Company's stockholders, restrictive covenants or high interest costs. The
failure to raise needed funds on sufficiently favorable terms could have a
material adverse effect on the Company's business, operating results and
financial condition. The Company's long-term liquidity also depends upon its
ability to increase revenues from the sale of its products and achieve
profitability. The failure to achieve these goals could have a material adverse
effect on the operating results and financial condition of the Company.

2. Computation of Basic and Diluted Net Loss per Common Share:

Basic earnings per share ("EPS") is computed by dividing net loss by the
weighted average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur from common shares issuable
through stock options, warrants and other convertible securities, if dilutive.
The following table is a reconciliation of the numerator (net loss) and the
denominator (number of shares) used in the basic and diluted EPS calculations
and sets forth potential shares of common stock that are not included in the
diluted net loss per share calculation as their effect is


                                       -5-

<PAGE>

antidilutive (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                         Three months ended     Nine months ended
                                                         -------------------    -----------------
                                                           September 30,          September 30,
                                                           -------------          -------------
                                                          2001        2000        2001        2000
                                                          ----        ----        ----        ----
<S>                                                   <C>         <C>         <C>         <C>
Numerator - Basic and Diluted
     Net loss                                         $ (3,788)   $ (4,080)   $(13,708)   $(12,488)
                                                      ========    ========    ========    ========


Denominator - Basic and Diluted
     Weighted average common shares outstanding         33,451      13,552      25,248      13,496


    Weighted average unvested common shares subject
    to repurchase                                          (52)        (77)        (58)        (83)
                                                      --------    --------    --------    --------
    Total                                               33,399      13,475      25,190      13,413
                                                      ========    ========    ========    ========


Basic and diluted net loss per common share           $  (0.11)   $  (0.30)   $  (0.54)   $  (0.93)
                                                      ========    ========    ========    ========

Antidilutive Securities:

Options to purchase common stock                         3,650       2,066       3,650       2,066
Common stock subject to repurchase                          48          73          48          73
Warrants                                                     7           7           7           7
                                                      --------    --------    --------    --------
                                                         3,705       2,146       3,705       2,146
                                                      ========    ========    ========    ========
</TABLE>


3. Inventories:

     Inventories comprise (in thousands):

                                September 30, 2001           December 31, 2000
                                ------------------           -----------------


Raw materials                     $         207                 $        253
Work in progress                            611                        1,097
Finished goods                              115                          684
                                  -------------                 ------------
                                  $         933                 $      2,034
                                  =============                 ============

4. Restructuring Charge:

   In November 2000, the Company approved plans to restructure its operations
   in order to accelerate the Marketing and Distribution Agreement signed with
   Siemens in December 1999. In the fourth quarter of 2000, the Company
   recorded a charge of $509,000 in connection with the restructuring. The
   following table sets forth certain details associated with the net
   reorganization charges as of September 30, 2001 (in thousands of dollars):

<TABLE>
<CAPTION>
                                   Accrual at                                        Accrual at
                                  December 31,          Cash                        September 30,
                                      2000            Payments        Adjustments       2001
                               ------------------------------------------------------------------
<S>                            <C>                 <C>                <C>             <C>
     Severance & benefits           $  262          $  (165)          $  (97)          $   0
     Facility charges                  111              (45)             (66)              0
     Other                             136             (136)               -               0
                                   -------         --------           ------          ------
                                    $  509          $  (346)         $  (163)          $   0
                                   =======         ========          =======          ======
</TABLE>



                                       -6-

<PAGE>

    Severance and benefits represent the reduction of 10 sales and marketing
    employees in Europe. Facility charges include early termination costs
    associated with the closing of the international sales office and write-off
    of certain assets. In the three month periods ended March 31, 2001 and
    September 30, 2001, the Company reversed $82,000 and $81,000, respectively,
    of excess reorganization charges related to severance and facilities charges
    which are included in selling, general and administrative expenses in the
    statement of operations.

5.  Private Placement Purchase Price Adjustment:

    On July 2, 2001, certain stockholders who entered into the Common Stock
    Purchase Agreement (the "Agreement") dated September 18, 2000 exercised
    their right to a one-time adjustment to the original purchase price of the
    common stock in accordance with the Agreement. The one-time purchase price
    adjustment resulted in the issuance of an additional 14,336,000 shares of
    common stock to the investors at no additional cost.

6.  Recent Accounting Pronouncements:

    In July 2001, the Financial Accounting and Standards Board ("FASB") issued
    Statements of Financial Accounting Standards No. 141 ("SFAS 141"), "Business
    Combinations," and No. 142 ("SFAS 142"), "Goodwill and Other Intangible
    Assets." SFAS 141 requires that all business combinations initiated after
    June 30, 2001 be accounted for under a single method - the purchase method.
    Use of the pooling-of-interests method is no longer permitted. SFAS 142
    requires that goodwill no longer be amortized to earnings, but instead be
    reviewed for impairment upon initial adoption of the Statement and on an
    annual basis going forward. The amortization of goodwill will cease upon
    adoption of SFAS 142. The provisions of SFAS 142 will be effective for
    fiscal years beginning after December 15, 2001. The Company believes that
    SFAS 142 will not have a material effect on the financial position or
    results of operations of the Company.

    In October 2001, the FASB issued Statement of Financial Accounting Standards
    No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of
    Long-Lived Assets," which is effective for fiscal years beginning after
    December 15, 2001 and interim periods within those fiscal periods. SFAS 144
    supersedes FASB Statement No. 121 and APB Opinion No. 30, however, it
    retains the requirement of Opinion No. 30 to report discontinued operations
    separately from continuing operations and extends that reporting to a
    component of an entity that either has been disposed of (by sale, by
    abandonment, or in a distribution to owners) or is classified as held for
    sale. SFAS 144 addresses financial accounting and reporting for the
    impairment of certain long-lived assets and for long-lived assets to be
    disposed of. The Company believes that SFAS 144 will not have a material
    impact on the financial position or results of operations of the Company.

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

         The following discussion should be read in conjunction with the
condensed consolidated financial statements and footnotes thereto, and with the
Company's audited financial statements for the year ended December 31, 2000 and
the footnotes thereto.


                                       -7-

<PAGE>

Overview

    Statements in this Management's Discussion and Analysis of Financial
Condition and Results of Operations which express that the company "believes",
"anticipates" or "plans to" as well as other statements which are not historical
fact, are forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Actual events or results may differ
materially as a result of the risks and uncertainties described herein and
elsewhere including, in particular, those factors described under "Factors That
May Affect Future Results."

    Symphonix Devices, Inc. develops, manufactures and markets the Vibrant
Soundbridge, a proprietary line of hearing devices for the management of hearing
impairment, a medical disorder that affects approximately 28 million people in
the United States alone. The device consists of two components. One component is
implanted in the middle ear and the other component is an external device worn
behind the ear. Accordingly, we refer to this type of Vibrant Soundbridge as
semi-implantable. Our Soundbridge products employ a middle ear implant
technology designed to vibrate the small bones in the middle ear, enhancing the
natural hearing process. Our Soundbridge products are currently being marketed
in Europe in conjunction with our European distribution partner, Siemens
Audiologische Technik GmbH, and have been approved by the U.S. Food and Drug
Administration for use in the United States. A fully implantable line of Vibrant
Soundbridge devices consisting of only one component that is implanted is
currently in development. We believe that our Soundbridge technology overcomes
the inherent limitations of traditional hearing devices and represents a novel
approach in the management of hearing loss.

    In September 1996, we initiated clinical trials of the first-generation
Vibrant Soundbridge in both the United States and Europe. In March 1998, we
received permission in the European Union to market and sell the Vibrant
Soundbridge, and we received FDA approval in August 2000 to market our product
in the U.S Subsequent to FDA approval, the product was successfully launched to
the U.S. otology community. Otologists are ear surgeons within the ear, nose and
throat, or ENT, group of doctors. Through a technology alliance with Siemens, we
have developed our fourth generation Vibrant Soundbridge, based on 8-channel,
digital signal processing.

    The Company has established a United States sales and marketing organization
which, as of September 30, 2001, is comprised of seventeen sales, marketing and
clinical support personnel. Going forward, although the Company expects to
continue to increase the number of otologists it works with, the Company also
plans to initiate marketing efforts focused on audiologists--the health
professionals who assess hearing problems and recommend hearing devices--and
directly to those suffering hearing loss.

    The Company received the authorization to affix the CE Mark to the first
generation Vibrant Soundbridge and the second generation Vibrant P Soundbridge
in March 1998. The CE Mark allows the Company to market and sell its product in
Europe. Authorization to affix the CE Mark to the Vibrant HF Soundbridge and the
Vibrant D Soundbridge was received in July 1998 and in May 1999, respectively.
The Company began selling activities for the Vibrant P Soundbridge and for the
Vibrant D Soundbridge in the European Union in March 1998 and in June 1999,
respectively. In August 2000, the Company received FDA approval for its
premarket approval application, or PMA, for the Vibrant P and Vibrant D
Soundbridges. In October 2000, Symphonix received its device


                                       -8-

<PAGE>

license for the Vibrant Soundbridge from Health Canada. The device license
allows the Company to market and sell its product in Canada.

     In December 1999, the Company established a distribution partnership with
Siemens Audiologische Technik GmbH covering most of the markets in Europe. As of
January 1, 2001, Siemens was granted full distributorship of the European
market. The Company believes this partnership will significantly enhance its
presence in Europe, especially within the audiology community.

     The Company's initial selling efforts in Europe have been targeted
primarily at those ENT surgeons specializing in otology. The Company intends to
continue to market its products to these specialists; however, with the Siemens
agreement, it also plans to focus on referring physicians, audiologists, the
general population of ENT physicians and potential patients in an attempt to
increase the patient flow to the otology centers. There can be no assurance that
the Company will be successful in its efforts to increase the number of patients
who become candidates for the Company's Soundbridge or in obtaining
reimbursement for its products.

     Symphonix has a limited operating history. Through September 30, 2001 the
Company had not generated significant revenue from product sales. The Company
expects to incur substantial losses through at least 2002. To date, the
Company's principal sources of funding have been net proceeds from its initial
public offering completed in February 1998, private equity financings, an
equipment lease financing and bank borrowings.

Results of Operations

     Revenue. Revenue was $0.5 million in the three months ended September 30,
2001 compared to $0.3 million in the three months ended September 30, 2000.
Revenue was $1.5 million in the nine months ended September 30, 2001 compared to
$0.7 million in the nine months ended September 30, 2000. Revenue in these
periods was the result of selling activities to distributors and direct sales in
Europe and direct sales in the United States. The increase in revenue is
primarily due to increased investments in sales and marketing activities and due
to the Company receiving FDA approval to commercially market its products in the
United States. Revenue in the nine months ended September 30, 2001 and 2000
included $283,000 and $272,000, respectively, representing the amortization of
the difference between the purchase price and fair value of the Company's common
stock purchased by Siemens in connection with a Marketing and Distribution
Agreement. The remaining deferred income will be amortized over the life of the
agreement.

     Cost of Goods Sold. Cost of goods sold increased to $1.3 million for the
three months ended September 30, 2001 from $0.6 million for the three months
ended September 30, 2000 and increased to $3.7 million for the nine months ended
September 30, 2001 from $2.3 million for the nine months ended September 30,
2000. The increases in cost of goods sold are primarily due to increased product
sales. Cost of goods sold represents the direct cost of the products sold as
well as manufacturing variances and provisions for warranty.

     Research and Development Expenses. Research and development expenses were
$1.4 million in the three months ended September 30, 2001 compared to $1.6
million in the three months



                                       -9-

<PAGE>

ended September 30, 2000. Research and development expenses were $4.9 million
for the nine months ended September 30, 2001 compared to $5.4 million for the
nine months ended September 30, 2000. Spending for the nine months ended
September 30, 2001 decreased by $0.5 million compared to the same period ended
September 30, 2000 due to lower clinical trial activity for the Company's
Vibrant Soundbridge. Research and development expenses consist primarily of
personnel costs, professional services, materials, supplies and equipment in
support of product development, clinical trials, regulatory submissions, and the
preparation and filing of patent applications. The Company expects to continue
to invest in research and development in the remainder of 2001 primarily in the
development of the totally implantable version of the Soundbridge.

     Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $1.8 million in the three months ended September
30, 2001 compared to $2.2 million in the three months ended September 30, 2000
and were $7.3 million for the nine months ended September 30, 2001 compared to
$5.7 million for the nine months ended September 30, 2000. The $0.4 million
decrease for the three months ended September 30, 2001 compared to the three
months ended September 30, 2000 was due to the shift in European distribution
and marketing activities beginning in 2001 to Siemens. The $1.6 million increase
for the nine months ended September 30, 2001 compared to the same period ended
September 30, 2000 was primarily due to the presence of a sales force in the
U.S. in 2001 and not in 2000. Selling, general and administrative expenses
consist primarily of personnel costs, promotional costs, legal and consulting
costs. The Company expects to continue investing in these areas in developing a
U.S. sales and marketing organization and associated programs for the remainder
of 2001.

     Deferred compensation of $2.3 million was recorded in 1997, representing
the difference between the exercise prices of certain options granted and the
deemed fair value of the Company's common stock on the options' grant dates.
Deferred compensation expense, net of terminated employees, attributed to such
options was $34,000 during the nine months ended September 30, 2001 compared to
$229,000 during the nine months ended September 30, 2000.

     Interest Income (Expense). Interest income, net of expense, increased to
$0.2 million in the three months ended September 30, 2001 from $0.03 million in
the three months ended September 30, 2000 and increased to $0.7 million for the
nine months ended September 30, 2001 compared to $0.2 million in the nine months
ended September 30, 2000. The increase in net interest income was due to the
increase in the Company's cash and short-term investment balances resulting from
the Company's private equity financings in September and November 2000 of $30.9
million. Interest earned in the future will depend on the Company's funding
cycles and prevailing interest rates.

     Income Taxes. To date, the Company has not incurred any U.S. income tax
obligations. At December 31, 2000, the Company had net operating loss
carryforwards of approximately $58.0 million for federal and $28.4 million for
state income tax purposes, which will expire at various dates through 2020 and
2010, respectively, if not utilized. The principal differences between losses
for financial and tax reporting purposes are the result of the capitalization of
research and development and start-up expenses for tax purposes. Federal and
state tax laws contain provisions that may limit the net operating loss
carryforwards that can be used in any given year, if certain


                                      -10-

<PAGE>

changes in the beneficial ownership of the Company's outstanding common stock
occur. Such events could limit the future of the Company's net operating loss
carryforwards.

Liquidity and Capital Resources

     Since inception, the Company has funded its operations and its capital
investments from proceeds from its initial public offering completed in February
1998 totaling $28.4 million, from the private sale of equity securities totaling
approximately $62.5 million, from equipment lease financing totaling $1.3
million and from bank borrowings totaling $2.0 million. At September 30, 2001,
the Company had $12.0 million in working capital, and its primary source of
liquidity was $14.7 million in cash and cash equivalents and short-term
investments. Additionally, the Company had $222,000 of restricted cash held in
certificates of deposit as collateral for letters of credit.

     Symphonix used $13.9 million in cash for operations in the nine months
ended September 30, 2001, compared to $11.8 million in the nine months ended
September 30, 2000 primarily in funding its operating losses.

     Capital expenditures, primarily related to the Company's research and
development and manufacturing activities, were $708,000 and $291,000 in the nine
months ended September 30, 2001 and 2000, respectively. At September 30, 2001,
the Company did not have any commitments for capital expenditures.

     The Company has a loan agreement with a bank that provides for borrowings
of up to $2.0 million and for the issuance of letters of credit up to $250,000.
At September 30, 2001, the Company had borrowings of $1.1 million and an
outstanding letter of credit in the amount of $97,000 under the loan agreement.
Borrowings under the loan agreement are repayable over four years commencing in
January 2000.

     The Company intends to expend substantial funds in the future for research
and development, preclinical and clinical testing, capital expenditures and the
manufacturing, marketing and sale of its products. The timing and amount of
spending of such capital resources cannot be accurately predicted and will
depend on several factors, including the progress of its research and
development efforts and preclinical and clinical activities, the time and costs
of obtaining regulatory approvals, the progress and cost of commercialization of
products currently under development, market acceptance and demand for the
Company's products and other factors not within the Company's control. While the
Company believes that its existing capital will be sufficient to fund its
operations and its capital investments through September 2002, the Company may
require additional financing beyond that time. Such additional financing may not
be available on a timely basis on terms acceptable to the Company, or at all.
Or, if available, such financing may be dilutive to stockholders. If adequate
funds are not available, the Company could be required to delay development or
commercialization of certain of its products, license to third parties the
rights to commercialize certain products or technologies that the Company would
otherwise seek to commercialize for itself, or reduce the marketing, customer
support or other resources devoted to certain of its products, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations.


                                      -11-

<PAGE>

Recent Accounting Pronouncements

     In July 2001, the Financial Accounting and Standards Board ("FASB") issued
Statements of Financial Accounting Standards No. 141 ("SFAS 141"), "Business
Combinations," and No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets."
SFAS 141 requires that all business combinations initiated after June 30, 2001
be accounted for under a single method - the purchase method. Use of the
pooling-of-interests method is no longer permitted. SFAS 142 requires that
goodwill no longer be amortized to earnings, but instead be reviewed for
impairment upon initial adoption of the Statement and on an annual basis going
forward. The amortization of goodwill will cease upon adoption of SFAS 142. The
provisions of SFAS 142 will be effective for fiscal years beginning after
December 15, 2001. The Company believes that SFAS 142 will not have a material
effect on the financial position or results of operations of the Company.

     In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of
Long-Lived Assets," which is effective for fiscal years beginning after December
15, 2001 and interim periods within those fiscal periods. SFAS 144 supersedes
FASB Statement No. 121 and APB Opinion No. 30, however, it retains the
requirement of Opinion No. 30 to report discontinued operations separately from
continuing operations and extends that reporting to a component of an entity
that either has been disposed of (by sale, by abandonment, or in a distribution
to owners) or is classified as held for sale. SFAS 144 addresses financial
accounting and reporting for the impairment of certain long-lived assets and for
long-lived assets to be disposed of. The Company believes that SFAS 144 will not
have a material impact on the financial position or results of operations of the
Company.

Factors That May Affect Future Results

We have a history of losses and negative cash flows, and we may never be
profitable.

     We have incurred losses every year since we began operations in 1994. At
September 30, 2001, we had an accumulated deficit of $79.7 million. This deficit
resulted primarily from expenses we incurred from dedicating substantially all
of our resources to research and development, clinical trials, establishment of
European and United States sales and marketing organizations and the initiation
of sales and marketing activities in Europe and the United States. Even though
Vibrant P and Vibrant D Soundbridges became available for sale in the European
Union in 1998 and in the United States and Canada in 2000, we have not generated
significant revenues from product sales to date. We may never realize
significant product revenues.

     Even if we do achieve significant product revenues, we may never be
profitable. We expect our operating losses to continue at least through the year
2001 as we continue to, among other things:

 .  attempt to establish sales and marketing capabilities;

 .  expand research and development activities;


                                      -12-

<PAGE>

 .  conduct clinical trials in support of regulatory approvals; and

 .  establish commercial-scale manufacturing capabilities.

If our Soundbridge products do not achieve market acceptance, our business may
fail.

     We have sold the semi-implantable Vibrant Soundbridge in Europe since 1998
and in the United States since late 2000. This product has not yet achieved
market acceptance and may never achieve market acceptance. Market acceptance of
our current and future Soundbridge products will depend upon their acceptance by
the medical community and patients as safe, effective, and cost-effective
compared to other devices. Our Soundbridge products may not be preferable
alternatives to existing or future products, some of which, such as the acoustic
hearing aid, do not require surgery. Patient acceptance of our Soundbridge
products will depend in part upon physician, audiologist and surgeon
recommendations as well as other factors, including the effectiveness, safety,
reliability and invasiveness of the procedure as compared to established
approaches. Prior to undergoing surgery for the implantation of our Soundbridge,
a patient may speak with a number of medical professionals, including the
patient's primary care physician, an audiologist, an ear, nose and throat
specialist, as well as surgeons who specialize in ear surgery. The failure by
any of these medical professionals to favorably recommend our products and the
surgery required to implant the Soundbridge could limit the number of potential
patients who are introduced to an ear surgeon as candidates for our Soundbridge
products. If our Soundbridge products do not achieve market acceptance, our
business may fail.

Symphonix may be delisted on the Nasdaq National Market.

     The minimum per share bid price required under marketplace Rule 4450(a)(5)
to maintain a listing on the Nasdaq National Market is $1.00. Our common stock
has traded below $1.00 since August 2, 2001. Accordingly, our common stock may
be delisted from the Nasdaq National Market. A delisting could impair our
ability to raise additional working capital. If we are able to raise additional
capital, the terms may not be favorable and your investment may be diluted.
Furthermore, because prices for delisted stock are often not publicly available,
a delisting would impair the liquidity of our common stock and make it difficult
for you to sell your shares, and you may lose some or all of your investment.

If we fail to successfully develop and commercialize our next generation of
Vibrant Soundbridge products, we may not achieve profitability.

     Although we have offered the semi-implantable Vibrant Soundbridge for sale
in Europe since 1998 and in the United States since late 2000, we have not
realized significant revenues to date from the sale of this product. Our success
depends on our ability to successfully commercialize an improved
semi-implantable Soundbridge as well as a totally implantable Soundbridge. Our
Vibrant HF and totally-implantable Soundbridge, currently under development,
will require additional development, clinical trials and regulatory approval
prior to commercialization. Successful completion of clinical trials for the
Vibrant HF and totally-implantable Soundbridge products may never occur.
Completion of clinical trials may be delayed by many factors, including research
and development difficulties, slower than anticipated patient enrollment or
adverse events occurring during clinical trials. Any delays in our clinical
trials or any failure to obtain regulatory approval for these next generation
Soundbridge products would impair our ability to achieve profitability. We may
not be able to secure additional funding to support our substantial future
capital requirements.


                                      -13-

<PAGE>

     We will expend substantial funds in the future for research and
development, preclinical and clinical testing, capital expenditures and the
manufacturing, marketing and sale of our products. The timing and amount of
spending of such capital resources cannot be accurately predicted and will
depend upon several factors not within our control, including:

 .  market acceptance and demand for our products in the United States and
   internationally;

 .  the progress of our research and development efforts and preclinical and
   clinical activities;

 .  competing technological and market developments;

 .  the time and costs involved in obtaining regulatory approvals;

 .  the time and costs involved in filing, prosecuting and enforcing patent
   claims; and

 .  the progress and cost of commercialization of products currently under
   development.

     We believe that the net proceeds of approximately $31.0 million from the
private placements of securities to Siemens Audiologische Technik GmbH and other
investors completed in 2000, together with our previously existing capital
resources and projected interest income, will be sufficient to fund our
operations and capital investments through September 2002. However, we may
require additional financing after that time. Such additional financing, if
required, may not be available on a timely basis on terms acceptable to us, or
at all. If adequate funds are not available, we could be required to delay
development or commercialization of some of our products, to license to third
parties the rights to commercialize some products or technologies that we would
otherwise seek to commercialize for ourselves, or to reduce the marketing,
customer support or other resources devoted to some of our products, any of
which could have a material adverse effect on our business, financial condition
and results of operations.

If we do not receive and maintain regulatory approvals for new products, we will
not be able to manufacture or market new products.

     Approval from the FDA is necessary to manufacture and market medical
devices in the United States. Other countries have similar requirements.

     The process that medical devices must undergo to receive necessary approval
is extensive, time-consuming and costly, and there is no guarantee that
regulatory authorities will approve any of our product candidates. FDA approval
can be delayed, limited or not granted for many reasons, including:

 .  a product candidate may not be safe or effective;

 .  even if we believe data from preclinical testing and clinical trials should
   justify approval, FDA officials may disagree;


                                      -14-

<PAGE>

 .  the FDA might not approve our manufacturing processes or facilities or the
   processes or facilities of our contract manufacturers or raw material
   suppliers;

 .  the FDA may change its approval policies or adopt new regulations; and

 .  the FDA may approve a product candidate for indications that are narrow,
   which may limit our sales and marketing activities.

     The process of obtaining approvals in foreign countries is subject to delay
and failure for the same reasons.

We face intense competition in our current and potential markets and if we
cannot demonstrate the superiority of our products, we may fail to achieve
profitability.

     The medical device industry and the acoustic hearing aid market are subject
to intense competition in the United States and abroad. We believe our products
will compete primarily with hearing aids. Principal manufacturers of acoustic
hearing aids include Siemens Hearing Instruments, Inc., Starkey Laboratories,
Inc., Dahlberg, Inc., GN ReSound, Inc., Oticon, Inc., Widex Hearing Aid Co.,
Inc., Sonic Innovations, Inc. and Phonak, Inc. Our products may not be as
reliable or effective as established hearing aid products. If our products are
not perceived as high quality, reliable and effective alternatives to
conventional hearing aids, we may not successfully compete with established
hearing aid products. Our competitors may also develop technologies and products
in the future that are more reliable and effective and less expensive than those
being developed by us or that do not require surgery.

     Several university research groups and development-stage companies have
active research or development programs related to direct drive devices for
sensorineural hearing loss. Otologics, LLC has developed a semi-implantable
direct drive device for sensorineural hearing loss called the middle ear
transducer. This device has begun the FDA regulatory process and initiated
multicenter clinical trials. Otologics has recently obtained the CE Mark in
Europe that allows the company to market and sell its product in Europe. The
Company believes St. Croix Medical, Inc. has begun clinical trials in Europe and
has recently received an IDE approval to begin clinical studies on its fully
implantable pizo electric device for sensorineural hearing loss. Soundtec, Inc.
has completed clinical trials in the United States on a hybrid implantable/ear
canal based hearing aid and has recently obtained FDA approval to market their
product in the U.S. In addition, some large medical device companies, some of
which are currently marketing implantable medical devices, may develop programs
in hearing management. Many of these companies have substantially greater
financial, technical, manufacturing, marketing and other resources than we have.
If we fail to compete effectively with any or all of these companies and
products, we will not achieve profitability.

Our lack of sales, marketing and distribution experience could delay and
increase the costs of introducing our Soundbridge products into those markets
where we have received regulatory approvals.

     In the United States, a direct sales force is concentrating our product
marketing efforts on approximately 400 specialists in ear surgery and a targeted
group of professional audiologists. In



                                      -15-

<PAGE>

Europe, our sales and marketing effort is conducted through a distribution
partnership with Siemens. In other international markets, including Japan, we
intend to establish either a network of distributors or a strategic partner.

     We may fail to build a direct sales force or marketing organization that is
cost effective or successful in one or more countries. In addition, we have
entered into distribution agreements with only a limited number of international
distributors. There can be no assurance that we will be able to enter into
similar agreements with other qualified distributors on a timely basis on terms
acceptable to us, or at all, or that such distributors will develop adequate
resources to selling our products. If we fail to establish an adequate direct
sales force domestically and in select international markets, and to enter into
successful distribution relationships, we will have difficulty selling our
products and our business may fail.

Since third-party reimbursement is not currently available for procedures using
our Soundbridge products, our products may not achieve market acceptance.

     In the United States and abroad, patients generally rely on third-party
payors, principally Medicare, Medicaid, private health insurance plans, health
maintenance organizations and other sources of reimbursement, to pay health care
expenses, including reimbursement of all or part of the cost of the procedure in
which our medical device is being used. These third-party payors are
increasingly attempting to limit both the coverage and the level of
reimbursement of procedures involving new devices. Currently, no third-party
payors will pay for procedures using our products, and patients must bear the
total cost of the procedures themselves. If third-party payors do not establish
adequate levels of reimbursement for procedures using our products, we may not
achieve market acceptance.

We have limited manufacturing experience, and may be unable to expand our
manufacturing capabilities sufficiently, which could limit our ability to
develop and deliver sufficient quantities of products in a timely manner.

     We currently manufacture our products in small quantities for laboratory
testing, for clinical trials and for limited commercial sales. The manufacture
of our Soundbridge products is a complex operation involving a number of
separate processes, components and assemblies. We have no experience
manufacturing our products in the volumes or with the yields that will be
necessary for us to achieve significant commercial sales, and there can be no
assurance that we can establish high volume manufacturing capacity or, if
established, that we will be able to manufacture our products in high volumes
with commercially acceptable yields. We will need to expend significant capital
resources and develop manufacturing expertise to establish commercial-scale
manufacturing capabilities. Our inability to successfully manufacture or
commercialize our Soundbridge products in a timely manner may harm our
competitive position and market success.

If Siemens does not perform its duties under our agreements, our ability to
commercialize our products may be impaired.

     We depend on Siemens Audiologische Technik GmbH to market and distribute
our product in Europe. During the seven months ended July 2001, the products
sold under our marketing and


                                      -16-

<PAGE>

distribution collaboration with Siemens in Europe accounted for approximately
$500,000, or 49.5%, of our total product revenues over the same period. The
marketing and distribution agreement which governs this arrangement remains
effective until December 1, 2004, and is subject to automatic renewal for
successive one-year periods thereafter unless terminated by either Symphonix or
Siemens with at least 12 months' prior written notice. The marketing and
distribution agreement may be terminated sooner if Symphonix or Siemens fails to
cure a material breach within 30 days' of notice of the breach, upon insolvency
or bankruptcy of Symphonix or Siemens, or if Symphonix is acquired.

     We also depend on Siemens to provide integrated circuits and software for
use in our Soundbridge products. The supply agreement which governs this
arrangement remains effective until September 30, 2004, and is subject to
automatic renewal for successive one-year periods thereafter unless terminated
by either Symphonix or Siemens with at least three months' prior written notice.
The supply agreement may also be terminated sooner if Symphonix or Siemens fails
to cure a material breach within 30 days' of notice of the breach.

     In addition to marketing and distributing our products in Europe, Siemens
also manufactures and distributes its own acoustic hearing aids. Since the
hearing aids manufactured and distributed by Siemens are competitive products to
our Soundbridge products, Seimens could have an incentive to breach or terminate
our agreements. Termination or breach by Seimens of either its marketing and
distribution agreement or supply agreement with us could delay or stop the
commercialization of our products.

We rely on several sole source or limited source suppliers, and our production
will be seriously harmed if these suppliers are not able to meet our demand and
alternative sources are not available.

     A number of components and sub-assemblies, such as silicone, signal
processing electronics implant packaging, as well as sterilization services are
provided by single source suppliers. Furthermore, the key analog and digital
signal processing microcircuits of the Vibrant P, Vibrant D and Vibrant HF
Soundbridges are provided by sole source suppliers. None of our suppliers are
contractually obligated to continue to supply us nor are we contractually
obligated to buy from a particular supplier. For some of these components and
sub-assemblies, there are relatively few alternative sources of supply, and we
cannot quickly establish additional or replacement suppliers for such components
and sub-assemblies. In addition, additional approvals will be required from the
FDA before we can significantly modify our manufacturing processes or change the
supplier of a critical component. Because of the long lead time for some
components and subassemblies that are currently available from a single source,
a supplier's inability or failure to supply such components or subassemblies in
a timely manner or our decision to change suppliers could have a material
adverse effect on our business, financial condition and results of operation.

If we are unable to protect our intellectual property, our competitors could
develop and market products with similar features that may reduce demand for our
products.

     Our success depends in part on our ability to protect our issued and
pending patents, trade secrets and other intellectual property. The strength of
this protection is uncertain. Our competitors could challenge, invalidate or
circumvent our issued patents as well as any future patents. Even if



                                      -17-

<PAGE>

upheld, our issued patents may not exclude competitors or otherwise provide
competitive advantages to us.

     In addition, a competitor may obtain patents that will interfere with our
ability to make, use or sell our products either in the United States or in
international markets. There may be pending applications, which if issued, might
provide proprietary rights to third parties relating to products or processes
used or proposed to be used by us. We may be required to obtain licenses to
patents or proprietary rights of others. Further, the laws of some foreign
countries do not protect our intellectual property rights to the same extent as
do the laws of the United States. Litigation or regulatory proceedings, which
could result in substantial cost and uncertainty to us, may also be necessary to
enforce our patent or other intellectual property rights or to determine the
scope and validity of other parties' proprietary rights. We may not have the
financial resources to defend our patents from infringement or claims of
invalidity.

     We also rely upon trade secrets and other unpatented proprietary
technology. Our competitors may independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to or disclose
our proprietary technology. Our policy is to require each of our employees,
consultants, investigators and advisors to execute a confidentiality agreement
upon commencement of an employment or consulting relationship with us. However,
these agreements may not provide meaningful protection for our proprietary
information in the event of unauthorized use or disclosure of such information.

     Title 35, Section 287 of the United States Code limits the enforcement of
patents relating to the performance of surgical or medical procedures on a body.
This law precludes medical practitioners and health care entities, which
practice these procedures, from being sued for patent infringement. Therefore,
depending upon how these limitations are interpreted by the courts, they could
have a material adverse effect on our ability to enforce any of our proprietary
methods or procedures deemed to be surgical or medical procedures on a body. In
some countries other than the United States, patent coverage relating to the
performance of surgical or medical procedures is not available. Therefore,
patent coverage in such countries will be limited to the Floating Mass
Transducer, the patented core direct drive technology upon which all of our
Soundbridge products are based, or to narrower aspects of the Floating Mass
Transducer.

     The medical device industry in general has been characterized by
substantial litigation. Litigation regarding patent and other intellectual
property rights, whether with or without merit, could be time-consuming and
expensive to respond to and could distract our technical and management
personnel. We may become involved in litigation to defend against claims of
infringement, to enforce patents issued to us or to protect our trade secrets.
If any relevant claims of third-party patents are held as infringed and not
invalid in any litigation or administrative proceeding, we could be prevented
from practicing the subject matter claimed in such patents, or would be required
to obtain licenses from the patent owners of each such patent, or to redesign
our products or processes to avoid infringement. In addition, in the event of
any possible infringement, there can be no assurance that we would be successful
in any attempt to redesign our products or processes to avoid such infringement
or in obtaining licenses on terms acceptable to us, if at all. Accordingly, an
adverse determination in a judicial or administrative proceeding or failure by
us to redesign our products or processes or to obtain necessary licenses could
prevent us from


                                      -18-

<PAGE>

manufacturing and selling our products, which would have a material adverse
effect on our business, financial condition and results of operations. Although
we have not been involved in any litigation to date, in the future, costly and
time-consuming litigation brought by us may be necessary to enforce patents
issued to us, to protect our trade secrets or know-how, or to determine the
enforceability, scope and validity of the proprietary rights of others.

If we cannot retain or hire key personnel, our business will suffer.

     Our future success depends, in significant part, upon the continued service
of key scientific, technical, sales and marketing, and management personnel.
Competition for such personnel is intense. There can be no assurance that we can
retain our key scientific, technical, sales and marketing and managerial
personnel or that we can attract, assimilate or retain other highly qualified
scientific, technical, sales and marketing, and managerial personnel in the
future. The loss of key personnel, especially if without advance notice, or the
inability to hire or retain qualified personnel could impair our ability to
commercialize our Vibrant Soundbridge products and develop future products.

Complications may result from the use of our Soundbridge products, and insurance
may be insufficient or unavailable to cover potentially significant product
liability expenses if we are sued.

     Our business involves the inherent risk of product liability claims. We
maintain limited product liability insurance at coverage levels which we believe
to be commercially reasonable and adequate given our current operations.
However, this insurance may not be available in the future on commercially
reasonable terms, or at all. Even if it is available, it may not be adequate to
cover liabilities that may arise. If we are sued for an injury caused by our
products, the resulting liability could result in significant expense, which
could harm our business and financial condition.

Our international sales and operations expose us to foreign currency and
political risks.

     We desire to continue to expand our operations outside of the United States
and to enter additional international markets, which will require significant
management attention and financial resources and subject us further to the risks
of operating internationally. These risks include:

 .  unexpected changes in regulatory requirements;

 .  delays resulting from difficulty in obtaining export licenses for certain
   technology;

 .  tariffs and other barriers and restrictions;

 .  the burdens of complying with a variety of foreign laws and regulations; and

 .  difficulty in staffing and managing international operations.

     We are also subject to general political and economic risks in connection
with our international operations, such as political instability, changes in
diplomatic and trade relationships and general economic fluctuations in specific
countries or markets.


                                      -19-

<PAGE>

     We cannot predict whether quotas, duties, taxes, or other charges or
restrictions will be imposed by the United States, the European Union, Japan, or
other countries upon the import or export of our products in the future, or what
effect any such actions would have on our business, financial condition or
results of operations. There can be no assurance that regulatory, geopolitical
and other factors will not adversely affect our business in the future or
require us to modify our current business practices.

     In addition, because most of our international sales are denominated in
foreign currencies, gains and losses on the conversion to U.S. dollars of
accounts receivable arising from international operations may contribute to
fluctuations in our operating results. Further, fluctuations in currency
exchange rates may negatively impact our ability to compete in terms of price
against products denominated in local currencies. To date, we have not found it
appropriate to hedge the risks associated with fluctuations in exchange rates.
However, even if we undertake such transactions in the future, they may fail.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

     There has been no material change in the Company's exposure to market risk
since December 31, 2000.

PART II.   OTHER INFORMATION

Item 1. Legal Proceedings.

     None

Item 2. Changes in Securities and Use of Proceeds.

     On July 2, 2001, certain stockholders who entered into the Common Stock
     Purchase Agreement (the "Agreement") dated September 18, 2000 exercised
     their right to a one-time adjustment to the original purchase price of the
     common stock in accordance with the Agreement. The one-time purchase price
     adjustment resulted in the issuance of an additional 14,336,000 shares of
     common stock to the investors at no additional cost.

Item 3. Defaults upon Senior Securities.

     None

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

     None

Item 5. Other Information.

     None

                                      -20-

<PAGE>

Item 6. Exhibits and Reports on Form 8-K

        (a) Exhibits

     None

        (b) Reports on Form 8-K

     On July 2, 2001, Symphonix Devices, Inc. filed a report on Form 8-K
announcing that stockholders who entered into the Common Stock Purchase
Agreement dated September 18, 2000 with Symphonix exercised their right to a
one-time adjustment to the purchase price under the agreement. The effect of the
price adjustment was to increase the number of shares of common stock issued to
the investors under the agreement from 6.4 million to 20.7 million, at no
additional cost to the investors. As a result, the shares of common stock
outstanding increased from approximately 21.0 million shares to approximately
35.4 million shares, and the investors own approximately 58% of the outstanding
shares of Symphonix common stock.

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this 10-Q report to be signed on its behalf by the
undersigned thereunto duly authorized.

Date:  November 13, 2001            SYMPHONIX DEVICES, INC.

                                    /s/ Kirk B. Davis
                                    --------------------------------------------
                                    Kirk B. Davis
                                    Chairman of the Board, President and Chief
                                    Executive Officer

                                    /s/ Terence J. Griffin
                                    --------------------------------------------
                                    Terence J. Griffin

                                    Vice President Finance and Chief Financial
                                    Officer (Principal Financial and Accounting
                                    Officer


                                      -21-