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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 MARCH 31, 2003.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------



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.)



1735
N. First St., Suite 311

SAN JOSE, CALIFORNIA 95112

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



Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ̈No  x



As of May 12, 2003, 35,886,442 shares of the Registrants Common Stock were outstanding.



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SYMPHONIX
DEVICES, INC.



TABLE OF CONTENTS



|PART I.  |  | FINANCIAL INFORMATION                                                                                      |  |   
|-------- |  | ---------------------------------------------------------------------------------------------------------- |  | --
|        
|Item 1.  |  | Financial Statements (unaudited)                                                                           |  |   
|        
|         |  | Condensed Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002                           |  | 1 
|        
|         |  | Condensed Consolidated Statements of Operations for the three months ended March 31, 2003 and 2002         |  | 2 
|        
|         |  | Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2003 and 2002 |  | 3 
|        
|         |  | Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2003 and 2002         |  | 4 
|        
|         |  | Notes to Condensed Consolidated Financial Statements                                                       |  | 5 
|        
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                      |  | 8 
|        
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                                                 |  | 15
|        
|Item 4.  |  | Disclosure Controls and Procedures                                                                         |  | 16
|        
|PART II. |  | OTHER INFORMATION                                                                                          |  |   
|        
|Item 1.  |  | Legal Proceedings                                                                                          |  | 16
|        
|Item 6.  |  | Exhibits and Reports on Form 8-K                                                                           |  | 16





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PART
I.    FINANCIAL INFORMATION



Item
1.    Financial Statements



SYMPHONIX DEVICES, INC.

|
|

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)



|
|

|                                           |  | March 31, 2003 |         |   | December 31, 2002 |  
|------------------------------------------ |  | -------------- | ------- | - | ----------------- | -
|                                           |  | (unaudited)    |         |   |                   |  
|ASSETS                                     |  |                |         |   |                   |  
|Current assets:                            |  |                |         |   |                   |  
|Cash and cash equivalents                  |  | $              | 1,102   |   |                   | $
|Restricted cash                            |  |                |        |   |                   |  
|Accounts receivable, net                   |  |                | 41      |   |                   |  
|Inventories                                |  |                | 661     |   |                   |  
|Prepaid expenses and other current assets  |  |                | 99      |   |                   |  
|                                           |  |                |         |   |                   |  
|Total current assets                       |  |                | 1,903   |   |                   |  
|Property and equipment, net                |  |                | 525     |   |                   |  
|                                           |  |                |         |   |                   |  
|Total assets                               |  | $              | 2,428   |   |                   | $
|                                           |  |                |         |   |                   |  
|LIABILITIES AND STOCKHOLDERS
EQUITY       |  |                |         |   |                   |  
|Current liabilities:                       |  |                |         |   |                   |  
|Accounts payable                           |  | $              | 169     |   |                   | $
|Accrued compensation                       |  |                | 58      |   |                   |  
|Other accrued liabilities                  |  |                | 984     |   |                   |  
|                                           |  |                |         |   |                   |  
|Total current liabilities                  |  |                | 1,211   |   |                   |  
|Deferred revenue                           |  |                | 264     |   |                   |  
|                                           |  |                |         |   |                   |  
|Total liabilities                          |  |                | 1,475   |   |                   |  
|                                           |  |                |         |   |                   |  
|Stockholders equity:                      |  |                |         |   |                   |  
|Common stock                               |  |                | 36      |   |                   |  
|Notes receivable from stockholders         |  |                | (320    | ) |                   |  
|Additional paid-in capital                 |  |                | 92,053  |   |                   |  
|Accumulated other comprehensive income     |  |                | 28      |   |                   |  
|Accumulated deficit                        |  |                | (90,844 | ) |                   |  
|                                           |  |                |         |   |                   |  
|Total stockholders equity                 |  |                | 953     |   |                   |  
|                                           |  |                |         |   |                   |  
|Total liabilities and stockholders equity |  | $              | 2,428   |   |                   | $
|                                           |  |                |         |   |                   |  



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

|
|

|
|





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SYMPHONIX
DEVICES, INC.

|
|

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)





|                                                                     |  | Three months ended March 31, |       
|-------------------------------------------------------------------- |  | ---------------------------- | ------
|                                                                     |  | 2003                         |       
|Revenue                                                              |  | $                            | 119   
|                                                                     |  |                              |       
|Costs and expenses:                                                  |  |                              |       
|Cost of goods sold                                                   |  |                              | 99    
|Research and development                                             |  |                              | 81    
|Selling, general and administrative                                  |  |                              | 787   
|                                                                     |  |                              |       
|Total costs and expenses                                             |  |                              | 967   
|                                                                     |  |                              |       
|Operating loss                                                       |  |                              | (848  
|Interest and other income                                            |  |                              | 23    
|Interest expense                                                     |  |                              |      
|                                                                     |  |                              |       
|Net loss                                                             |  | $                            | (825  
|                                                                     |  |                              |       
|Basic and diluted net loss per common share                          |  | $                            | (0.02 
|                                                                     |  |                              |       
|Shares used in computing basic and diluted net loss per common share |  |                              | 35,872
|                                                                     |  |                              |       



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

|
|





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SYMPHONIX
DEVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)



|
|

|
|

|                                                    |  | Three months ended March 31, |     
|--------------------------------------------------- |  | ---------------------------- | ----
|                                                    |  | 2003                         |     
|Net loss                                            |  | $                            | (825
|Change in unrealized gain on short-term investments |  |                              |    
|Translation adjustments                             |  |                              | (37 
|                                                    |  |                              |     
|Comprehensive loss                                  |  | $                            | (862
|                                                    |  |                              |     



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

|
|



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SYMPHONIX
DEVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



|                                                                        |  | Three months ended March 31, |      
|----------------------------------------------------------------------- |  | ---------------------------- | -----
|                                                                        |  | 2003                         |      
|Cash flows from operating activities:                                   |  |                              |      
|Net loss                                                                |  | $                            | (825 
|Adjustments to reconcile net loss to cash used in operating activities: |  |                              |      
|Depreciation and amortization                                           |  |                              | 78   
|Amortization of premium on short-term investments                       |  |                              |     
|Gain on sale of short-term investments                                  |  |                              |     
|Changes in operating assets and liabilities:                            |  |                              |      
|Accounts receivable                                                     |  |                              | 134  
|Inventories                                                             |  |                              | 15   
|Prepaid expenses and other current assets                               |  |                              | 123  
|Accounts payable                                                        |  |                              | (49  
|Accrued compensation                                                    |  |                              | (233 
|Deferred revenue                                                        |  |                              | (93  
|Other accrued liabilities                                               |  |                              | 13   
|                                                                        |  |                              |      
|Net cash used in operating activities                                   |  |                              | (837 
|                                                                        |  |                              |      
|Cash flows from investing activities                                    |  |                              |      
|Sales and maturities of short-term and long-term investments            |  |                              |     
|Purchases of property and equipment                                     |  |                              |     
|Change in restricted cash                                               |  |                              | 10   
|                                                                        |  |                              |      
|Net cash provided by investing activities                               |  |                              | 10   
|                                                                        |  |                              |      
|Cash flows from financing activities                                    |  |                              |      
|Payments on bank borrowings                                             |  |                              |     
|Proceeds (issuance costs) from issuance of common stock, net            |  |                              |     
|                                                                        |  |                              |      
|Net cash used in financing activities                                   |  |                              |     
|                                                                        |  |                              |      
|Net decrease in cash and cash equivalents                               |  |                              | (827 
|                                                                       
|Effect of exchange rates on cash and cash equivalents                   |  |                              | (37  
|Cash and cash equivalents, beginning of period                          |  |                              | 1,966
|                                                                        |  |                              |      
|Cash and cash equivalents, end of period                                |  | $                            | 1,102
|                                                                        |  |                              |      



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



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SYMPHONIX
DEVICES, INC.



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



1. Basis of Presentation:



The accompanying unaudited condensed consolidated financial
statements as of March 31, 2003 of Symphonix Devices, Inc. (the Company or Symphonix) have been prepared in accordance with accounting principles generally accepted in the United States of America 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 accounting principles generally accepted in the United States of America
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 three months ended March 31, 2003 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2003, 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, 2002 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. On November 13, 2002, the Companys Board of Directors approved a plan of complete dissolution and liquidation, subject to approval by the Companys stockholders
at a special meeting to be held at a future date set by the Companys Board of Directors. In connection with the proposed liquidation, the Company terminated the majority of its employees and retained only a limited number of personnel
necessary to facilitate the liquidation process. Additionally, the Company intends to liquidate all the property, equipment, intellectual property and other assets.



In the event that Symphonixs shareholders do not approve the plan of dissolution and liquidation,
Symphonix may seek protection under federal bankruptcy laws or Symphonix may seek to raise additional capital, hire new research and development staff and invest in its next generation of products. Symphonix would attempt to design its next
generation products such that the potential for reimbursement from Medicare would be improved. Symphonix believes that reimbursement is necessary for its products to be affordable and appealing to the broader hearing market and to have a viable
stand alone business. However, Symphonix may not be successful in its efforts to raise additional capital, hire new staff or design a product that would meet the criteria necessary to obtain reimbursement from Medicare. If the plan of dissolution
and liquidation is not approved, Symphonix will be required to fulfill its obligations under its Marketing and Distribution Agreement with Siemens or pay a $2 million termination fee. There are no current specific plans or commitments with regard to
efforts to raise additional capital.



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SYMPHONIX
DEVICES, INC.



NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



The accompanying condensed consolidated financial statements
have been prepared in conformity with accounting principles generally accepted in the United States of America which contemplate the continued existence of Symphonix. Symphonixs recurring losses from operations raise substantial doubt
regarding Symphonixs ability to continue as a going concern for a reasonable period of time. Symphonixs shareholders have not as of yet voted on the plan of dissolution and liquidation, which is required under Delaware law, and the
accompanying financial statements do not include any adjustments that might result from this uncertainty.



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 antidilutive (in
thousands, except per share data):



|                                                              |  | Three months ended March 31, |       
|------------------------------------------------------------- |  | ---------------------------- | ------
|                                                              |  | 2003                         |       
|Numerator  Basic and Diluted                                 |  |                              |       
|Net loss                                                      |  | $                            | (825  
|                                                              |  |                              |       
|Denominator  Basic and Diluted                               |  |                              |       
|Weighted average common shares outstanding                    |  |                              | 35,887
|Weighted average unvested common shares subject to repurchase |  |                              | (15   
|                                                              |  |                              |       
|Total                                                         |  |                              | 35,872
|                                                              |  |                              |       
|Basic and diluted net loss per common share                   |  | $                            | (0.02 
|                                                              |  |                              |       
|Antidilutive Securities:                                      |  |                              |       
|Options to purchase common stock                              |  |                              | 2,838 
|Common stock subject to repurchase                            |  |                              | 10    
|Warrants                                                      |  |                              | 7     
|                                                              |  |                              |       
|                                                              |  |                              | 2,855 
|                                                              |  |                              |       



3. Accounting for
Stock-Based Compensation:



The Company accounts
for stock-based employee compensation using the intrinsic value method under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and related interpretations and complies with the
disclosure provisions of Statement of Financial Accounting Standards (SFAS) No. 148, Accounting for Stock-Based Compensation, Transition and Disclosure  an Amendment of FASB Statement No. 123.



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SYMPHONIX
DEVICES, INC.



NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



The following table illustrates the effect on net loss and net
loss per common share if the Company had applied the fair value recognition provisions of SFAS 123, Accounting for Stock-Based Compensation, to stock-based employee compensation:



|(in thousands, except per share amounts)                                                                |  | Quarter Ended March 31, |       
|------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------
|                                                                                                        |  | 2003                    |       
|Net loss, as reported                                                                                   |  | $                       | (825  
|Deduct: Total stock-based employee compensation determined under fair value based method
for all awards |  |                         | (175  
|                                                                                                        |  |                         |       
|Pro forma net loss                                                                                      |  | $                       | (1,000
|                                                                                                        |  |                         |       
|Basic and diluted net loss per common share:                                                            |  |                         |       
|As reported                                                                                             |  | $                       | (0.02 
|                                                                                                        |  |                         |       
|Pro forma                                                                                               |  | $                       | (0.03 
|                                                                                                        |  |                         |       



The
above pro forma disclosures are not likely to be representative of the effects on net loss and basic and diluted net loss per share in future years, because options vest over several years and additional grants could be made each year.



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SYMPHONIX
DEVICES, INC.



NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



4. Inventories:



Inventories comprise (in thousands):



|                 |  | March 31, 2003 |     | December 31, 2002
|---------------- |  | -------------- | --- | -----------------
|Raw materials    |  | $              | 289 |                  
|Work in progress |  |                | 117 |                  
|Finished goods   |  |                | 255 |                  
|                 |  |                |     |                  
|                 |  | $              | 661 |                  
|                 |  |                |     |                  



5. Product Warranty:



The Company generally warrants its products for
a specific period of time against material defects. The Company provides for the estimated future costs of warranty obligations in costs of goods sold when the related revenue is recognized. The accrued warranty costs represents the best estimate at
the time of sale of the total costs that the Company expects to incur to repair or replace product parts, which fail while still under warranty. The amount of accrued estimated warranty costs are primarily based on historical experience as to
product failures as well as current information on repair costs. On a quarterly basis, the Company reviews the accrued balances and updates the historical warranty cost trends. The following table reflects the change in the Companys warranty
accrual for the quarter ended March 31, 2003:



|(in thousands)                        |  | Quarter Ended March 31, 2003 |   
|------------------------------------- |  | ---------------------------- | --
|Warranty accrual, beginning of period |  | $                            | 85
|Charged to costs and expenses         |  |                              |  
|Actual warranty expenditures          |  |                              | (1
|                                      |  |                              |   
|Warranty accrual, end of period       |  | $                            | 84
|                                      |  |                              |   



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



Statements in this Managements Discussion and Analysis of Financial Condition and Results of Operations which express that Symphonix
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.



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Overview



Symphonix has developed a family of proprietary implantable
Soundbridges for the management of mild to severe hearing impairment. Our family of Vibrant Soundbridges is based on our patented core Floating Mass Transducer, or FMT, technology. In March 1998, we received authorization to market and sell the
Vibrant Soundbridge in the European Union and in early 2000 began selling through our European distribution partner, Siemens Audiologische Technik GmbH. Late in 2000, we received approval from the Food and Drug Administration, or FDA, to
commercially market our products in the United States. Subsequent to FDA approval, our products were launched to the otology community and audiology community in the U.S. Symphonix was incorporated in California in 1994 and reincorporated in
Delaware in 1998. Our website is www.symphonix.com.



On November 13, 2002, our Board of Directors approved a plan of complete dissolution and liquidation, subject to approval by our stockholders at a special meeting to be held at a future date set by our Board of Directors. In
connection with the proposed liquidation, we have terminated the majority of our employees. We have retained only a limited number of personnel necessary to facilitate the liquidation process.



On March 20, 2003, the Company entered into an asset purchase
agreement with MED-EL GmbH whereby MED-EL has agreed to purchase our remaining inventory, property and equipment and intellectual property and assume our product warranty for up to $2.5 million. Of this amount, $500,000 will be held in escrow and
will be released to Symphonix only when Med-El is able to successfully manufacture the Vibrant Soundbridge. The closing of the asset purchase transaction is contingent upon the representations and warranties of Symphonix remaining true as of the
closing and certain other closing conditions. Symphonix is holding a special meeting of its stockholders on June 19, 2003 to seek approval for (1) the proposed plan of complete dissolution and liquidation and (2) the proposed sale of its assets to
Med-El.



On March 28, 2003 our common stock was
delisted from the NASDAQ Small Cap Market and commenced trading on the Over-the-Counter Bulletin Board.



As of March 31, 2003 Symphonix had three employees. In connection with our announced intention to dissolve, we have retained these key
employees for the purpose of continuing the dissolution process, including the proposed sale of assets and conducting the special meeting of the shareholders, and other key milestones such as filing our tax returns for the year ended December 31,
2002.



Results of Operations



Revenue.    Revenue was $119,000
in the three months ended March 31, 2003 compared to $480,000 in the three months ended March 31, 2002. Revenue for the period ended March 31, 2003



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was comprised primarily of the amortization of deferred revenue from the Marketing and Distribution
Agreement with Siemens. Revenue for the period ended March 31, 2002 was the result of selling activities to our distributor in Europe and direct sales in the United States. Revenue in the three months ended March 31, 2003 and 2002 included $94,000
and $94,000, 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 the Marketing and Distribution Agreement. If Symphonix
continues as a going concern, the remaining deferred revenue will be amortized over the life of the agreement. If the asset purchase transaction with MED-EL is consummated, the remaining deferred revenue will be recognized as revenue in the period
in which the transaction is consummated. This treatment is due to the fact that the Marketing and Distribution Agreement between the Company and Siemens would be terminated with no consideration due to either party, contingent upon the closing of
the transaction. Revenue decreased in the three months ended March 31, 2003 due to minimal selling activity in the three months ended March 31, 2003 pursuant to the proposed plan of dissolution and liquidation of the Company.



Cost of Goods Sold.    Cost of
goods sold decreased to $99,000 for the three months ended March 31, 2003 from $636,000 for the three months ended March 31, 2002. Cost of goods sold represents the direct cost of the products sold as well as manufacturing variances and accrued
warranty. Cost of goods sold decreased in the three months ended March 31, 2003 as a result of minimal selling activity in the three months ended March 31, 2003 pursuant to our proposed plan of dissolution and liquidation. For the three month period
ended March 31, 2003 we had a minimal amount of manufacturing activity to complete work-in-process audio processors to support future warranty requirements. The completed audio processors are reflected in the finished goods inventory balance at
March 31, 2003.



Research and Development
Expenses.    Research and development expenses decreased to $81,000 in the three months ended March 31, 2003 compared to $876,000 in the three months ended March 31, 2002. The decreases in research and development spending is
due to the proposed plan of dissolution and liquidation. This action resulted in the termination of all but two research and development employees and related projects during the three months ended March 31, 2003.



Selling, General and Administrative
Expenses.    Selling, general and administrative expenses were $787,000 in the three months ended March 31, 2003 compared to $1,323,000 in the three months ended March 31, 2002. Decreases in selling, general and
administrative spending are due to expense reductions implemented in conjunction with our proposed plan of dissolution and liquidation. Selling, general and administrative expenses consist primarily of personnel costs, legal, accounting and
consulting costs.



Interest Income
(Expense).    Interest income, net of expense, decreased to $23,000 in the three months ended March 31, 2003 from $244,000 in the three months ended March 31, 2002. The decrease in net interest income for the three months
ended March 31, 2003 was due to the decrease in our cash balances as well as a decrease in interest rates. Interest earned in the future will depend on our cash balance and prevailing interest rates.



Income Taxes.    To date, Symphonix
has not incurred any U.S. income tax obligations. At December 31, 2002, the Company had net operating loss carryforwards of approximately $84.5



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million for federal and $42.7 million for state income tax purposes, which will expire at various dates
through 2022 and 2013, 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, should certain changes in the beneficial ownership of our outstanding common stock occur. Such events could limit the
future of our net operating loss carryforwards.



Liquidity and Capital Resources



Since inception, Symphonix has primarily 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 an equipment lease financing totaling $1.3 million and from bank borrowings totaling $2.0 million. At March 31, 2003, the Company had $0.7 million in working capital, and its primary source of liquidity was
$1.1 million in cash and cash equivalents.



Symphonix used $0.8 million in cash for operations in the three months ended March 31, 2003 compared to $3.0 million in the three months ended March 31, 2002 primarily in funding its operating losses. This reduction is due to expense
reductions implemented by Symphonix in connection with our proposed plan of dissolution and liquidation.



Capital expenditures, primarily related to our research and development and manufacturing activities, were zero and $11,000 in the three
months ended March 31, 2003 and 2002, respectively. At March 31, 2003, Symphonix did not have any material commitments for capital expenditures.



In November 2002, Symphonix paid down its remaining loan obligation of $0.6 million pursuant to a loan agreement with a bank. Symphonix
has no amounts available for future borrowings under the loan agreement.



In connection with the proposed liquidation, we expect to liquidate our remaining assets, including property, equipment and intellectual property. We also expect to incur liquidation expenses, in addition to payments of
ongoing operating expenses and settlement of existing and potential obligations. Liquidation expenses may include, among others, employee severance and related costs, customer warranty obligations and legal and accounting fees.



Factors That May Affect Future Results



WE CANNOT ASSURE YOU OF THE AMOUNT, IF ANY, OF ANY DISTRIBUTION TO OUR
STOCKHOLDERS UNDER THE PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION.



Liquidation and dissolution may not create value to our stockholders or result in any remaining capital for distribution to our stockholders. We cannot assure you of the precise nature and amount of any distribution to our
stockholders pursuant to the plan of dissolution. Uncertainties as to



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the precise net value of our non-cash assets and the ultimate amount of our liabilities make it impracticable to predict the aggregate net
value, if any, ultimately distributable to our stockholders. The actual nature and amount of all distributions will depend in part upon our ability to convert our remaining non-cash assets into cash. We plan to sell substantially all of our
remaining assets to Med-El for at least $2.0 million, but even if the asset sale is completed we cannot be certain of the final amount of our liabilities. And if we do not complete the asset sale to Med-El we may not be successful in selling our
non-cash assets, in which case we may not generate meaningful cash, if any, to return to our shareholders.



OUR STOCKHOLDERS COULD VOTE AGAINST THE PLAN.



Our stockholders could vote against the plan of dissolution. If we do not obtain stockholder ratification and approval of the plan of
dissolution, we would have to continue our business operations from a difficult position, in light of our announced intent to liquidate and dissolve. Among other things, a substantial majority of our employees have been terminated, and customer
relationships will have been severely strained. On November 14, 2002, we terminated all of our employees with the exception of our Chief Executive Officer, our Chief Financial Officer, our Chief Technical Officer, our Vice President of Clinical
Affairs and our Controller. As of March 31, 2003, only our Chief Executive Officer, our Chief Financial Officer and our Controller remained. Prospective employees, customers and other third parties may refuse to form relationships or conduct
business with us if they have no confidence in our future.



THE PROCEEDS FROM ANY SALES OF OUR NON-CASH ASSETS MAY BE LESS THAN ANTICIPATED IF WE DO NOT COMPLETE OUR ASSET SALE TO MED-EL.



If our stockholders do not approve the sale of substantially all of our remaining assets to Med-El, but they do approve the plan of
liquidation, then, sales of our non-cash assets will be made on terms approved by our Board of Directors and may be conducted by competitive bidding, public sales or privately negotiated sales. The prices at which we will be able to sell our various
non-cash assets will depend largely on factors beyond our control, including, without limitation, the condition of financial markets, the availability of financing to prospective purchasers of the assets, regulatory approvals and public market
perceptions. In addition, we may not obtain as high a price for a particular asset as we might secure if we were not in liquidation. Furthermore, many of our non-cash assets, particularly our intellectual property, will decline in value over time,
and we may not be able to consummate the sale of these assets in time to generate meaningful value which could be returned to our stockholders.



WE MAY NOT BE ABLE TO SETTLE ALL OF OUR OBLIGATIONS TO CREDITORS.



We have current and future obligations to creditors. These include, without limitation, long-term contractual
obligations associated with business agreements with customers, including certain product warranties, and other third parties. As part of the wind down process, we will attempt to settle our obligations with our creditors. Med-El has agreed as part
of our asset sale to assume our liabilities under our product warranties and assume some of our contracts. In addition, Siemens has agreed to terminate our Marketing and Distribution Agreement if we complete our asset sale to Med-El pursuant to our
Asset Purchase Agreement with Med-El. We may not, however, succeed in doing so.



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If we cannot reach an agreement with a creditor concerning an obligation, including Siemens, that creditor
may choose to bring a lawsuit against us. Any litigation could delay or even prevent us from completing the plan of dissolution. Moreover, amounts required to settle our obligations to creditors will reduce the amount of remaining capital available
for distribution to stockholders.



WE WILL CONTINUE TO INCUR
CLAIMS, LIABILITIES AND EXPENSES WHICH WILL REDUCE THE AMOUNT AVAILABLE FOR DISTRIBUTION TO STOCKHOLDERS.



Claims, liabilities and expenses from operations (such as operating costs, salaries, directors and officers insurance, payroll
and local taxes, legal, accounting and consulting fees and miscellaneous office expenses) will continue to be incurred as we wind down. These expenses will reduce the amount of assets available for ultimate distribution to stockholders. If available
cash and amounts received on the sale of non-cash assets are not adequate to provide for our obligations, liabilities, expenses and claims, we may not be able to distribute meaningful cash, or any cash at all, to our stockholders.



DISTRIBUTION OF ASSETS, IF ANY, TO OUR STOCKHOLDERS COULD BE DELAYED.



Our Board of Directors has not established
a firm timetable for distributions to our stockholders, and we are currently unable to predict the precise timing of any distribution, if any, pursuant to our wind down. The timing of distribution, if any, will depend on and could be delayed by,
among other things, the timing of sales of our non-cash assets, claim settlements with creditors and the amounts paid out under warranty claims. Additionally, a creditor could seek an injunction against the making of distributions to our
stockholders on the ground that the amounts to be distributed were needed to provide for the payment of our liabilities and expenses. Additionally, we could seek protection from creditors under the federal bankruptcy code. Any action of this type
could delay or substantially diminish, or eliminate, the amount available for distribution to our stockholders.



IF WE FAIL TO CREATE AN ADEQUATE CONTINGENCY RESERVE FOR PAYMENT OF OUR EXPENSES AND LIABILITIES, OUR STOCKHOLDERS COULD BE HELD LIABLE FOR PAYMENT TO OUR CREDITORS OF EACH SUCH STOCKHOLDERS
PRO RATA SHARE OF AMOUNTS OWED TO THE CREDITORS IN EXCESS OF THE CONTINGENCY RESERVE, UP TO THE AMOUNT ACTUALLY DISTRIBUTED TO SUCH STOCKHOLDER.



If the plan of dissolution is ratified and approved by our stockholders, we will file a Certificate of Dissolution with the State of
Delaware dissolving Symphonix. Pursuant to the Delaware General Corporation Law, we will continue to exist for three years after the dissolution becomes effective or for such longer period as the Delaware Court of Chancery shall direct, for the
purpose of prosecuting and defending suits against us and enabling us gradually to close our business, to dispose of our property, to discharge our liabilities and to distribute to our stockholders any remaining assets. Under the Delaware General
Corporation Law, in the event we fail to create an adequate contingency reserve for payment of our expenses and liabilities during this three-year period, each stockholder could be held liable for payment to our creditors of such stockholders
pro rata share of amounts owed to creditors in excess of the contingency reserve, up to the amount actually distributed to such stockholder.



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However, the
liability of any stockholder would be limited to the amounts previously received by such stockholder from us (and from any liquidating trust or trusts) in the dissolution. Accordingly, in such event a stockholder could be required to return all
distributions previously made to such stockholder. In such event, a stockholder could receive nothing from us under the plan of dissolution. Moreover, in the event a stockholder has paid taxes on amounts previously received, a repayment of all or a
portion of such amount could result in a stockholder incurring a net tax cost if the stockholders repayment of an amount previously distributed does not cause a commensurate reduction in taxes payable. There can be no assurance that the
contingency reserve established by us will be adequate to cover any expenses and liabilities.



OUR STOCK TRANSFER BOOKS WILL CLOSE ON THE DATE WE FILE THE CERTIFICATE OF DISSOLUTION WITH THE DELAWARE SECRETARY OF STATE, AFTER WHICH IT WILL NOT BE POSSIBLE FOR STOCKHOLDERS TO PUBLICLY TRADE
OUR STOCK.



We intend to close our stock
transfer books and discontinue recording transfers of our common stock at the close of business on the date we file the Certificate of Dissolution with the Delaware Secretary of State, referred to as the final record date. Thereafter,
certificates representing our common stock shall not be assignable or transferable on our books except by will, intestate succession or operation of law. The proportionate interests of all of our stockholders shall be fixed on the basis of their
respective stock holdings at the close of business on the final record date, and, after the final record date, any distributions made by us shall be made solely to the stockholders of record at the close of business on the final record date, except
as may be necessary to reflect subsequent transfers recorded on our books as a result of any assignments by will, intestate succession or operation of law.



WE WILL CONTINUE TO INCUR THE EXPENSES OF COMPLYING WITH PUBLIC COMPANY REPORTING REQUIREMENTS.



We have an obligation to continue to comply with the
applicable reporting requirements of the Securities Exchange Act of 1934, as amended, referred to as the Exchange Act, even though compliance with such reporting requirements is economically burdensome. In order to curtail expenses, we
intend to, after filing our Certificate of Dissolution, seek relief from the Securities and Exchange Commission from the reporting requirements under the Exchange Act. We anticipate that, if such relief were granted, we would continue to file
current reports on Form 8-K to disclose material events relating to our liquidation and dissolution along with any other reports that the Securities and Exchange Commission might require. However, the Securities and Exchange Commission may not grant
any such relief.



IF WE FAIL TO RETAIN THE SERVICES OF CERTAIN
KEY PERSONNEL, THE PLAN MAY NOT SUCCEED.



The success of the plan of dissolution depends in large part upon our ability to retain the services of certain of our current officers. The retention of Kirk B. Davis and Terence J. Griffin is



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particularly difficult under our current circumstances. Failure to retain these personnel could harm the
implementation of the plan of dissolution.



If we
fail to retain these personnel, we will need to hire others to oversee our liquidation and dissolution, which could involve additional compensation expenses, if such other personnel are available at all. For this reason and others discussed below,
we are providing retention incentives to our remaining employees with the exception of Kirk B. Davis, our Chief Executive Officer, who has a severance agreement.



OUR COMMON STOCK HAS BEEN DELISTED FROM THE NASDAQ MARKET



Our common stock was delisted from the Nasdaq Market on March
28, 2003. The decision by the Nasdaq Listing Qualifications Panel to delist our common stock was based on our failure to meet the Nasdaqs minimum $1 bid price per share requirement. Our common stock is now traded on the Over-the-Counter
Bulletin Board. The OTCBB is a regulated quotation service that displays real-time quotes, last-sale prices and volume information in over-the-counter equity securities. As a result our common stock being listed on the OTCBB, your ability to resell
your shares of our common stock could be adversely affected.



Item 3. Quantitative and Qualitative Disclosures About Market Risk



The Company considered the provisions of Financial Reporting Release No. 48 Disclosure of Accounting Policies for Derivative Financial Instruments and Derivative Commodity Instruments, and
Disclosure of Quantitative and Qualitative Information about Market Risk Inherent in Derivative Financial Instruments, Other Financial Instruments and Derivative Commodity Instruments. The Company had no holdings of derivative financial or
commodity instruments at March 31, 2003. The Company is exposed to financial market risks, including changes in interest rates and foreign currency exchange rates. The fair value of the Companys investment portfolio or related income would not
be significantly impacted by either a 100 basis point increase or decrease in interest rates due mainly to the short-term nature of the Companys investment portfolio. Much of the Companys revenue and all of its capital spending is
transacted in U.S. dollars. However, the Company does enter into transactions in other currencies, primarily certain European currencies. Gains and losses on the conversion to U.S. dollars of accounts receivable and accounts payable resulting from
these transactions may contribute to fluctuations in our operating results and cash flows. However, these transactions in other currencies were not material relative to transactions in U.S. dollars. At March 31, 2003, the Company performed
sensitivity analyses to assess the potential effect of this risk and concluded that near-term changes in interest rates and foreign currency exchange rates should not materially adversely affect the Companys financial position, results of
operations or cash flows.



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Item 4. Disclosure Controls and Procedures



| | a) |  | Evaluation of Disclosure Controls and Procedures. Within the 90 days prior to the date of this quarterly report, we carried out an evaluation, under the supervision
and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 240.13a-14.
Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our current disclosure controls and procedures are effective in timely alerting them to material information relating to us and our subsidiaries
required to be included in our periodic SEC filings.
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | Changes in Internal Controls. There have been no significant changes in our internal controls or in other factors that could significantly affect internal controls
subsequent to the date we carried out this evaluation.
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



PART II. OTHER INFORMATION



Item 1. Legal Proceedings.



None



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



(a) Exhibits



|Exhibit |  | Description                                                                                                                                                          
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       
|2.1(1)  |  | Asset Purchase Agreement                                                                                                                                             
|       
|10.1(2) |  | Termination Agreement                                                                                                                                                
|       
|99.1    |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002.



|(1) |  | Filed as an Exhibit to the Registrants current report on Form 8-K filed with the Securities and Exchange Commission on March 21, 2003 and incorporated by
reference.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) |  | Filed as an Exhibit to the Registrants Amendment No. 1 to Form 10-K for the fiscal year ended December 31, 2002 and incorporated herein by reference.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



(b) Reports on Form 8-K.



On March 21, 2003 Symphonix filed a current
report on Form 8-K announcing that it had entered into a definitive agreement with MED-EL, GmbH, a leading company in the field of cochlear implants with headquarters in Innsbruck, Austria, under which MED-EL has agreed to purchase certain assets
and assume certain liabilities of Symphonix.



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



|Date: May 15, 2003 |  |  |  | SYMPHONIX DEVICES, INC.                                                                                                                 
|------------------ |  |  |  | ----------------------------------------------------------------------------------------------------------------------------------------
|                  
|                   |  |  |  | /s/ Kirk B. DavisKirk B. Davis President and Chief Executive
Officer                                                                    
|                  
|                   |  |  |  | /s/ Terence J. GriffinTerence J. Griffin Vice President Finance and
Chief Financial Officer (Principal Financial and Accounting Officer)





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CERTIFICATION
OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO

RULES 13a-14, 13a-15, 15d-14 and 15d-15,

AS ADOPTED
PURSUANT TO



SECTION 302 OF THE SARBANES-OXLEY ACT
OF 2002



I, Kirk B. Davis, certify that:



| | (1) |  | I have reviewed this quarterly report on Form 10-Q of Symphonix Devices, Inc.;
| | --- |  | ------------------------------------------------------------------------------



| | (2) |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within these entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report
(the Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c. |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation
Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent function):
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | report |  | financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | ------ |  | ------------------------------------------------------------------------------------------------------------------



| | b. |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| | (6) |  | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Date: May 15, 2003



By:

/s/ Kirk B. DavisName: Kirk B. Davis Title: President and Chief Executive Officer




I, Terence J.
Griffin, certify that:



| | (1) |  | I have reviewed this quarterly report on Form 10-Q of Symphonix Devices, Inc.;
| | --- |  | ------------------------------------------------------------------------------



| | (2) |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within these entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | b. |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report
(the Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c. |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation
Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent function):
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| | (6) |  | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Date: May 15, 2003



By:

/s/ Terence J. GriffinName: Terence J. Griffin Title: Vice President Finance and Chief Financial Officer




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Index to Exhibits



|Exhibit Number |  | Exhibit Title                                                                                                                                                        
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|              
|99.1           |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002.



21