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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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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 JUNE 30, 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



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SYMPHONIX DEVICES, INC.

(Exact name of registrant as specified in its charter)



|DELAWARE                                                       |  | 77-0376250                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer 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 June 30, 2003; 35,887,000 shares of the Registrants Common Stock
were outstanding.



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##### Table of Contents

SYMPHONIX DEVICES, INC.



TABLE OF CONTENTS



|         |  |                                                                                                                                                                                    
|-------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|PART I.  |  | FINANCIAL INFORMATION                                                                                                                                                              
|         |  |                                                                                                                                                                                    
|Item 1.  |  | Financial Statements (unaudited)                                                                                                                                                   
|         |  |                                                                                                                                                                                    
|         |  | Consolidated Statement of Net Assets in Liquidation at June 30, 2003                                                                                                               
|         |  |                                                                                                                                                                                    
|         |  | Consolidated Balance Sheet at December 31, 2002                                                                                                                                    
|         |  |                                                                                                                                                                                    
|         |  | Consolidated Statement of Changes in Net Assets in Liquidation for the period from June 19, 2003 to June 30, 2003                                                                  
|         |  |                                                                                                                                                                                    
|         |  | Consolidated Statements of Operations for the periods from April 1, 2003 to June 18, 2003 and January 1, 2003 to June 18, 2003 and for the three and six months ended June 30, 2002
|         |  |                                                                                                                                                                                    
|         |  | Consolidated Statements of Cash Flows for the period from January 1, 2003 to June 18, 2003 and for the six months ended June 30, 2002                                              
|         |  |                                                                                                                                                                                    
|         |  | Notes to Consolidated Financial Statements                                                                                                                                         
|         |  |                                                                                                                                                                                    
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                                                              
|         |  |                                                                                                                                                                                    
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                                                                                                                         
|         |  |                                                                                                                                                                                    
|Item 4.  |  | Controls and Procedures                                                                                                                                                            
|         |  |                                                                                                                                                                                    
|PART II. |  | OTHER INFORMATION                                                                                                                                                                  
|         |  |                                                                                                                                                                                    
|Item 1.  |  | Legal Proceedings                                                                                                                                                                  
|         |  |                                                                                                                                                                                    
|Item 2.  |  | Changes in Securities and Use of Proceeds                                                                                                                                          
|         |  |                                                                                                                                                                                    
|Item 3.  |  | Defaults Upon Senior Securities                                                                                                                                                    
|         |  |                                                                                                                                                                                    
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                                                                                                
|         |  |                                                                                                                                                                                    
|Item 5.  |  | Other Information                                                                                                                                                                  
|         |  |                                                                                                                                                                                    
|Item 6.  |  | Exhibits and Reports on Form 8-K                                                                                                                                                   



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##### Table of Contents

PART I. FINANCIAL INFORMATION



Item 1. Financial Statements



SYMPHONIX DEVICES, INC.



CONSOLIDATED STATEMENT OF NET ASSETS IN LIQUIDATION

(in thousands)

(unaudited)



|                                                     |  | June 30, 2003
|---------------------------------------------------- |  | -------------
|Cash and cash equivalents                            |  | $            
|Accounts receivable, net                             |  |              
|                                                     |  |              
|Total assets                                         |  | $            
|                                                     |  |              
|                                                     | 
|Accounts payable                                     |  | $            
|Accrued compensation                                 |  |              
|Other accrued liabilities                            |  |              
|                                                     |  |              
|Total liabilities                                    |  |              
|                                                     |  |              
|                                                     | 
|Net assets in liquidation                            |  | $            
|                                                     |  |              
|                                                     | 
|Net assets per common share                          |  | $            
|                                                     |  |              
|                                                     | 
|Shares used in computing net assets per common share |  |              
|                                                     |  |              



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



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SYMPHONIX DEVICES, INC.



CONSOLIDATED BALANCE SHEET

(in thousands)

|
|

|                                           |  | December 31, 2002 |        
|------------------------------------------ |  | ----------------- | -------
|Current assets:                            |  |                   |        
|Cash and cash equivalents                  |  | $                 | 1,966  
|Restricted cash                            |  |                   | 10     
|Accounts receivable, net                   |  |                   | 175    
|Inventories                                |  |                   | 676    
|Prepaid expenses and other current assets  |  |                   | 222    
|                                           |  |                   |        
|Total current assets                       |  |                   | 3,049  
|                                           | 
|Property and equipment, net                |  |                   | 603    
|                                           |  |                   |        
|Total assets                               |  | $                 | 3,652  
|                                           |  |                   |        
|                                           | 
|Current liabilities:                       |  |                   |        
|Accounts payable                           |  | $                 | 218    
|Accrued compensation                       |  |                   | 291    
|Other accrued liabilities                  |  |                   | 971    
|                                           |  |                   |        
|Total current liabilities                  |  |                   | 1,480  
|                                           | 
|Deferred revenue                           |  |                   | 357    
|                                           |  |                   |        
|Total liabilities                          |  |                   | 1,837  
|                                           |  |                   |        
|                                           | 
|Stockholders equity:                      |  |                   |        
|Common stock                               |  |                   | 36     
|Notes receivable from stockholders         |  |                   | (320   
|Additional paid-in capital                 |  |                   | 92,053 
|Accumulated other comprehensive income     |  |                   | 65     
|                                           |  |                   |        
|Accumulated deficit                        |  |                   | (90,019
|                                           |  |                   |        
|Total stockholders equity                 |  |                   | 1,815  
|                                           |  |                   |        
|                                           | 
|Total liabilities and stockholders equity |  | $                 | 3,652  
|                                           |  |                   |        



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



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SYMPHONIX DEVICES, INC.



CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION

(in thousands)

(unaudited)



|                                             |  | For the period from June 19, 2003 to June 30, 2003 |       
|-------------------------------------------- |  | -------------------------------------------------- | ------
|Net assets in liquidation at June 19, 2003   |  | $                                                  | 87    
|Deferred revenue                             |  |                                                    | 584   
|Cost of goods sold                           |  |                                                    | (25   
|Selling, general and administrative expenses |  |                                                    | (1,030
|Gain on assets held for sale                 |  |                                                    | 1,314 
|                                             |  |                                                    |       
|                                             | 
|Net assets in liquidation at June 30, 2003   |  | $                                                  | 930   
|                                             |  |                                                    |       



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



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SYMPHONIX DEVICES, INC.



CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)



|                                                                     |  | For the periodfromApril 1, 2003toJune 18, 2003 |        |   | Three monthsendedJune 30, 2002 |   |        | For the periodfromJanuary 1, 2003toJune 18, 2003 |  |   | Six monthsendedJune 30, 2002 |  
|-------------------------------------------------------------------- |  | ---------------------------------------------- | ------ | - | ------------------------------ | - | ------ | ------------------------------------------------ |  | - | ---------------------------- | -
|Revenue                                                              |  | $                                              | 63     |   |                                | $ | 513    |                                                  |  | $ | 182                          |  
|                                                                     |  |                                                |        |   |                                |   |        |                                                  |  |   |                              |  
|                                                                     |  |                                                |        |  
|Costs and expenses:                                                  |  |                                                |        |   |                                |   |        |                                                  |  |   |                              |  
|Cost of goods sold                                                   |  |                                                | 0      |   |                                |   | 233    |                                                  |  |   | 99                           |  
|Research and development                                             |  |                                                | 0      |   |                                |   | 502    |                                                  |  |   | 81                           |  
|Selling, general and administrative                                  |  |                                                | 1,007  |   |                                |   | 1,649  |                                                  |  |   | 1,794                        |  
|                                                                     |  |                                                |        |   |                                |   |        |                                                  |  |   |                              |  
|Total costs and expenses                                             |  |                                                | 1,007  |   |                                |   | 2,384  |                                                  |  |   | 1,974                        |  
|                                                                     |  |                                                |        |   |                                |   |        |                                                  |  |   |                              |  
|Operating Loss                                                       |  |                                                | (944   | ) |                                |   | (1,871 | )                                                |  |   | (1,792                       | )
|                                                                     |  |                                                |        |  
|Interest and other income                                            |  |                                                | 5      |   |                                |   | 121    |                                                  |  |   | 28                           |  
|Interest expense                                                     |  |                                                |       |   |                                |   | (12    | )                                                |  |   |                             |  
|                                                                     |  |                                                |        |   |                                |   |        |                                                  |  |   |                              |  
|                                                                     |  |                                                |        |  
|Net loss                                                             |  | $                                              | (939   | ) |                                | $ | (1,762 | )                                                |  | $ | (1,764                       | )
|                                                                     |  |                                                |        |   |                                |   |        |                                                  |  |   |                              |  
|Basic and diluted net loss per share                                 |  | $                                              | (0.03  | ) |                                | $ | (0.05  | )                                                |  | $ | (0.05                        | )
|                                                                     |  |                                                |        |   |                                |   |        |                                                  |  |   |                              |  
|                                                                     |  |                                                |        |  
|Shares used in computing basic and diluted net loss per common share |  |                                                | 35,878 |   |                                |   | 35,730 |                                                  |  |   | 35,875                       |  
|                                                                     |  |                                                |        |   |                                |   |        |                                                  |  |   |                              |  



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



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SYMPHONIX DEVICES, INC.



CONSOLIDATED STATEMENT OF CASH FLOWS

(in thousands)

(unaudited)



|                                                                        |  | For the periodfromJanuary 1, 2003toJune 18, 2003 |        |   | Six monthsendedJune 30, 2002 |  
|----------------------------------------------------------------------- |  | ------------------------------------------------ | ------ | - | ---------------------------- | -
|Cash flows from operating activities:                                   |  |                                                  |        |   |                              |  
|Net loss                                                                |  | $                                                | (1,764 | ) |                              | $
|Adjustments to reconcile net loss to cash used in operating activities: |  |                                                  |        |   |                              |  
|Depreciation and amortization                                           |  |                                                  | 152    |   |                              |  
|Amortization of premium on short-term investments                       |  |                                                  |       |   |                              |  
|Gain on sale of short-term investments                                  |  |                                                  |       |   |                              |  
|Notes receivable from stockholders                                      |  |                                                  | 72     |   |                              |  
|Changes in operating assets and liabilities:                            |  |                                                  |        |   |                              |  
|Accounts receivable                                                     |  |                                                  | 130    |   |                              |  
|Inventories                                                             |  |                                                  | 21     |   |                              |  
|Prepaid expenses and other current assets                               |  |                                                  | 222    |   |                              |  
|Accounts payable                                                        |  |                                                  | (147   | ) |                              |  
|Accrued compensation                                                    |  |                                                  | (256   | ) |                              |  
|Deferred revenue                                                        |  |                                                  | (150   | ) |                              |  
|Other accrued liabilities                                               |  |                                                  | (123   | ) |                              |  
|                                                                        |  |                                                  |        |   |                              |  
|Net cash used in operating activities                                   |  |                                                  | (1,843 | ) |                              |  
|                                                                        |  |                                                  |        |   |                              |  
|                                                                        |  |                                                 
|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 from issuance of common stock, net                             |  |                                                  |       |   |                              |  
|                                                                        |  |                                                  |        |   |                              |  
|Net cash used in financing activities                                   |  |                                                  |       |   |                              |  
|                                                                        |  |                                                  |        |   |                              |  
|                                                                        |  |                                                 
|Net increase (decrease) in cash and cash equivalents                    |  |                                                  | (1,833 | ) |                              |  
|                                                                        |  |                                                 
|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                                |  | $                                                | 96     |   |                              | $
|                                                                        |  |                                                  |        |   |                              |  



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



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SYMPHONIX DEVICES, INC.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



1. Basis of Presentation:



The accompanying unaudited consolidated financial statements as of June 30, 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 liquidation basis of accounting and, in the opinion of management, reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation.



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.



On June 19, 2003, the Companys shareholders approved (1) a plan of complete liquidation and dissolution of the Company
and (2) the sale of the majority of the assets of the Company to Med-El. The Company is proceeding to wind up its affairs and dissolve. Accordingly, all activities of the Company as of June 19, 2003 are presented under the liquidation basis of
accounting. Under the liquidation basis of accounting, assets are stated at their estimated net realizable values and liabilities are stated at their anticipated settlement amount, if the amount can be reasonably estimated.



On June 24, 2003, five of the six members of the Companys Board of
Directors resigned.



On June 26, 2003, the Company sold
substantially all of its remaining assets to Med-El for an amount not to exceed $2.5 million of which the Company has received $2.0 million as of June 30, 2003. There is a contingent payment of $.5 million due from Med-El upon Med-El producing its
first Vibrant Soundbridge product.



On June 26, 2003, the
Companys Marketing and Distribution Agreement with Siemens was terminated with no consideration due either party.



On July 11, 2003, the Company entered into an agreement with Wilmington Trust to manage the ongoing affairs of the Company. In conjunction with the
agreement with Wilmington Trust, the remaining member of the Board of Directors, Mr. Davis, resigned his position on the Board.



The Company ceased trading of its common stock on July 2, 2003.



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SYMPHONIX DEVICES, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



While the Company has net assets available for distribution at June 30, 2003 after accruing for wind
up costs, the amount ultimately collected on a contingent receivable from Med-El and the amount of unknown or contingent liabilities cannot be quantified and could decrease or eliminate funds available for distribution to the Companys
shareholders. At this time, the Company estimates the distribution to shareholders to be in the range of 3.5 to 4.5 cents per share. The timing of any distributions is unknown at this time.



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):



|                                                              |  | For the periodfromApril 1, 2003toJune 18, 2003 |        |   | Three monthsendedJune 30, 2002 |   |        | For the periodfromJanuary 1, 2003toJune 18, 2003 |  |   | Six monthsendedJune 30, 2002 |  
|------------------------------------------------------------- |  | ---------------------------------------------- | ------ | - | ------------------------------ | - | ------ | ------------------------------------------------ |  | - | ---------------------------- | -
|Numerator  Basic and Diluted                                 |  |                                                |        |   |                                |   |        |                                                  |  |   |                              |  
|Net loss                                                      |  | $                                              | (939   | ) |                                | $ | (1,762 | )                                                |  | $ | (1,764                       | )
|                                                              |  |                                                |        |   |                                |   |        |                                                  |  |   |                              |  
|                                                              |  |                                                |        |  
|Denominator  Basic and Diluted                               |  |                                                |        |   |                                |   |        |                                                  |  |   |                              |  
|Weighted average common shares outstanding                    |  |                                                | 35,887 |   |                                |   | 35,763 |                                                  |  |   | 35,887                       |  
|Weighted average unvested common shares subject to repurchase |  |                                                | (9     | ) |                                |   | (33    | )                                                |  |   | (12                          | )
|                                                              |  |                                                |        |   |                                |   |        |                                                  |  |   |                              |  
|Total                                                         |  |                                                | 35,878 |   |                                |   | 35,730 |                                                  |  |   | 35,875                       |  
|                                                              |  |                                                |        |   |                                |   |        |                                                  |  |   |                              |  
|                                                              |  |                                                |        |  
|Basic and diluted net loss per common share                   |  | $                                              | (0.03  | ) |                                | $ | (0.05  | )                                                |  | $ | (0.05                        | )
|                                                              |  |                                                |        |   |                                |   |        |                                                  |  |   |                              |  
|                                                              |  |                                                |        |  
|Antidilutive Securities:                                      |  |                                                |        |   |                                |   |        |                                                  |  |   |                              |  
|Options to purchase common stock                              |  |                                                | 2,066  |   |                                |   | 5,454  |                                                  |  |   | 2,066                        |  
|Common stock subject to repurchase                            |  |                                                | 5      |   |                                |   | 29     |                                                  |  |   | 5                            |  
|Warrants                                                      |  |                                                | 7      |   |                                |   | 7      |                                                  |  |   | 7                            |  
|                                                              |  |                                                |        |   |                                |   |        |                                                  |  |   |                              |  
|                                                              |  |                                                | 2,078  |   |                                |   | 5,490  |                                                  |  |   | 2,078                        |  
|                                                              |  |                                                |        |   |                                |   |        |                                                  |  |   |                              |  



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SYMPHONIX DEVICES, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



3. Accounting for Stock-Based Compensation:



The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees and related interpretations and complies with the disclosure provisions of Statement of Financial
Accounting Standards No. 123 (SFAS 123), Accounting for Stock-Based Compensation.



Under APB 25, compensation expense is based on the difference, if any, on the date of the grant, between the fair value of the Companys stock and
the exercise price. SFAS 123 defines a fair value based method of accounting for an employee stock option or similar equity investment.



The Company accounts for equity instruments issued to non-employees in accordance with the provisions of SFAS 123 and Emerging Issues Task Force Issue No.
96-18 (EITF 96-18), Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services and Financial Accounting Standards Board Interpretation No. 28
(FIN 28), Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans.



During the year ended December 31, 2002, the Company adopted Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based
Compensation, Transition and Disclosure. The Company accounts for stock-based employee compensation using the intrinsic value method under APB 25 and related interpretations and complies with the disclosure provisions of SFAS 123. 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 to stock-based employee compensation:



|                                                                                         |  | For the periodApril 1, 2003toJune 18, 2003       |        |   | Three monthsendedJune 30, 2002 |   |        | For the periodJanuary 1, 2003to June 18,2003 |  |    | Six monthsendedJune 30, 2002 |  
|---------------------------------------------------------------------------------------- |  | ------------------------------------------------ | ------ | - | ------------------------------ | - | ------ | -------------------------------------------- |  | -- | ---------------------------- | -
|                                                                                         |  | (Dollars in thousands, except per share amounts) |       
|Net loss, as reported                                                                    |  | $                                                | (939   | ) |                                | $ | (1,762 | )                                            |  | $  | (1,764                       | )
|Add: Stock-based employee compensation expense included in reported net earnings         |  |                                                  |       |   |                                |   |       |                                              |  |    |                             |  
|Deduct: Total stock-based employee compensation determined under fair value based method |  |                                                  | (173   | ) |                                |   | (321   | )                                            |  |    | (349                         | )
|                                                                                         |  |                                                  |        |   |                                |   |        |                                              |  |    |                              |  
|Pro forma net loss                                                                       |  | $                                                | (1,112 | ) |                                | $ | (2,083 | )                                            |  | ($ | 2,113                        | )
|                                                                                         |  |                                                  |        |   |                                |   |        |                                              |  |    |                              |  
|                                                                                         |  |                                                  |        |  
|Basic and diluted net loss per common share:                                             |  |                                                  |        |   |                                |   |        |                                              |  |    |                              |  
|                                                                                         |  |                                                  |        |  
|As reported                                                                              |  | $                                                | (0.03  | ) |                                | $ | (0.05  | )                                            |  | ($ | 0.05                         | )
|                                                                                         |  |                                                  |        |   |                                |   |        |                                              |  |    |                              |  
|                                                                                         |  |                                                  |        |  
|Pro forma                                                                                |  | $                                                | (0.03  | ) |                                | $ | (0.06  | )                                            |  | ($ | 0.06                         | )
|                                                                                         |  |                                                  |        |   |                                |   |        |                                              |  |    |                              |  



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SYMPHONIX DEVICES, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



4. Inventories:



As part of the transaction with Med-El in which Med-El purchased substantially all of the Companys assets including
inventory, the Company had no inventories as of June 30, 2003.



Inventories comprise (in thousands):



|                 |  | June 30, 2003 |   | December 31, 2002
|---------------- |  | ------------- | - | -----------------
|Raw materials    |  | $             |  |                  
|Work in progress |  |               |  |                  
|Finished goods   |  |               |  |                  
|                 |  |               |   |                  
|                 |  | $             |  |                  
|                 |  |               |   |                  



5.
Product Warranty:



As part of the transaction with Med-El in
which Med-El purchased substantially all of the Companys assets and certain of its liabilities, including all its warranty obligations, the Company had no warranty obligation as of June 30, 2003.



|(Dollars in thousands)                  |  |   |    
|--------------------------------------- |  | - | ---
|Warranty accrual, December 31, 2002     |  | $ | 85 
|Charged to costs and expenses           |  |   |   
|Actual warranty expenditures            |  |   | (1 
|Warranty obligation purchased by Med-El |  |   | (84
|                                        |  |   |    
|Warranty accrual, June 30, 2003         |  | $ |   
|                                        |  |   |    



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 June 19, 2003, the Symphonixs shareholders approved (1) a plan of
complete liquidation and dissolution of the Company and (2) the sale of substantially all of the remaining assets of Symphonix to Med-El. Symphonix is continuing to wind up its affairs.



On June 24, 2003, five of the six members of our Board of Directors resigned.



On June 26, 2003, we sold substantially all of our remaining assets to Med-El
for an amount not to exceed $2.5 million. We received $2.0 million upon the closing of the transaction. There is a contingent payment of $.5 million due to us from Med-El if and when Med-El produces its first Vibrant Soundbridge product.



On June 26, 2003, our Marketing and Distribution Agreement
with Siemens was terminated with no consideration due either party.



On July 11, 2003, we entered into an agreement with Wilmington Trust to manage our liquidation. In conjunction with the agreement with Wilmington Trust, the remaining member of the Board of Directors, Mr. Davis, resigned his position on the
Board.



Trading of our common stock ceased on July 2, 2003.



With the sale of our non-cash assets to Med-El, we believe we
have substantially realized the value of our non-cash assets and will have no further asset sales. We believe we will incur costs to complete our dissolution including costs for professional fees, consulting fees, trustee fees and costs associated
with any distributions made to stockholders.



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While Symphonix has net assets available for distributions at June 30, 2003 after accruing for wind up
costs, the amount ultimately collected on a contingent receivable from Med-El as well as an outstanding shareholder note and the amount of unknown or contingent liabilities cannot be quantified and could decrease or eliminate any remaining assets
available for distribution to Symphonixs shareholders. At this time, Symphonix estimates the distribution to shareholders to be in the range of 3.5 to 4.5 cents per share. The timing of any distributions is unknown at this time.



As of June 30, 2003, Symphonix had three employees. On July 11, 2003,
Symphonix entered into an agreement with Wilmington Trust to manage our liquidation.



Results of Operations



Revenue. Revenue
for the period from April 1, 2003 to June 18, 2003 was $63,000. Revenue for the period from January 1, 2003 to June 18, 2003 was $182,000. Revenue for the three months ended June 30, 2002 was $513,000 and revenue for the six months ended June 30,
2002 was $993,000. Revenue for the periods from April 1, 2003 to June 18, 2003 and January 1, 2003 to June 18, 2003 was comprised primarily of the amortization of deferred revenue from the Marketing and Distribution Agreement with Siemens. Revenue
for the three and six month periods ended June 30, 2002 were the result of selling activities to our distributor in Europe, direct sales in the United States and the amortization of deferred revenue from the Marketing and Distribution Agreement with
Siemens.



Cost of Goods Sold. Cost of goods sold for the
period from April 1, 2003 to June 18, 2003 was zero and for the period from January 1, 2003 to June 18, 2003 was $99,000. For the three and six month periods ended June 30, 2002, cost of goods sold was $233,000 and $869,000, respectively. Cost of
goods sold represents the direct cost of the products sold as well as manufacturing variances and accrued warranty. Cost of goods sold of zero for the period from April 1, 2003 to June 18, 2003 and $99,000 for the period from January 1, 2003 to June
18, 2003 resulted from minimal selling activity in the periods pursuant to our intended dissolution and liquidation.



Research and Development Expenses. Research and development expenses for the period from April 1, 2003 to June 18, 2003 were zero and for the
period from January 1, 2003 to June 18, 2003 were $81,000. From January 1, 2003 to June 18, 2003, with the exception of some headcount related expenses early in the year, we ceased all spending on research and development in connection with our
intended dissolution and liquidation. For the three and six month periods ended June 30, 2002, research and development expenses were $502,000 and $1,378,000 respectively. Research and development expenses for the first half of 2002 consisted of
headcount and project related expenses.



Selling, General
and Administrative Expenses. Selling, general and administrative expenses for the period from April 1, 2003 to June 18, 2003 were $1.0 million and for the period from January 1, 2003 to June 18, 2003 were $1.8 million. From January 1, 2003 to
June 18, 2003, selling, general and administrative expenses consisted primarily of costs associated with our intended dissolution and liquidation and sale of assets to Med-El. The costs included personnel, severance, directors and officers
insurance, facilities, legal, accounting and other professional fees and costs associated with the proxy solicitation for the June 19, 2003 Special Meeting of the Shareholders. For the three and six month periods ended June 30, 2002, selling,
general and administrative expenses were $1.6 million and $3.0 million, respectively. For the first half of 2002, selling, general and administrative expenses consisted primarily of costs for headcount and marketing activities in support of
Symphonixs selling efforts as well as ongoing administrative expenses.



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Interest Income (Expense). Interest income, net of expense, for the period from April 1, 2003 to
June 18, 2003 was $5,000 and for the period from January 1, 2003 to June 18, 2003 was $28,000. For the three and six month periods ended June 30, 2002, interest income, net of expense was $109,000 and $353,000, respectively.



Income Taxes. To date, Symphonix has not incurred any U.S. income tax
obligations. At December 31, 2002, the Symphonix had net operating loss carryforwards of approximately $84.5 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. Since Symphonix is liquidating, we believe there is unlikely to be any
future value for its 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 June 30, 2003, Symphonix had $0.9 million of net assets in liquidation, and its primary source of liquidity was $2.1 million in cash and cash
equivalents.



Symphonix used $1.8 million in cash for
discontinued operations in the period from January 1, 2003 to June 18, 2003. For the six months ended June 30, 2002, Symphonix used $5.2 million in cash primarily in funding its operating losses from discontinued operations.



Capital expenditures were zero for the period from January 1, 2003 to June
18, 2003 and were $17,000 for the six months ended June 30, 2002. Symphonix sold short term and long-term investments of $6.5 million in the first half of 2002 primarily to fund its operating losses. In the first half of 2002, Symphonix had a cash
use of $760,000 to fund its restricted cash.



Net Assets in
Liquidation. On June 19, 2003, our shareholders approved (1) a plan of complete dissolution and liquidation and (2) the sale of substantially all of our remaining assets to Med-El. For the period June 19, 2003 to June 30, 2003, we sold
$686,000 worth of assets net of liabilities for $2.0 million for a net gain on sale of assets of $1.3 million. Also during this period, we recognized $584,000 of deferred revenue upon the cancellation of our Marketing and Distribution Agreement with
Siemens. We had cash use of $25,000 for cost of goods sold and $1.0 million for operating expenses during the same period. Operating expenses include costs for personnel, professional fees, trustee fees, D & O liability insurance and severance
payments. Our net assets in liquidation increased from $87,000 to $930,000 during the period.



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In connection with our liquidation, we expect to incur liquidation expenses and settlement of existing
and potential obligations. Liquidation expenses may include, among others, employee severance and related costs, legal, accounting, trustee and other professional 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. While we have estimated a distribution to stockholders to be in the range of 3.5 to 4.5 cents per share, 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 the collection of the contingent receivable from Med-El and the ultimate amount of our liabilities make it impracticable to predict the aggregate net value, if any,
ultimately distributable to our stockholders. Although we have sold substantially all of our remaining assets to Med-El for at least $2.0 million, we cannot be certain of the final amount of our liabilities.



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 (trustee fees, severance payments, legal, accounting and consulting fees) will continue to be incurred as we wind down our operations. These expenses will reduce the amount of assets available for ultimate
distribution to stockholders. If available cash and amounts received on a contingent receivable are not adequate to provide for our known and unknown 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.



The trustee managing
our liquidation 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 collecting a contingent receivable and claim settlements with known and unknown creditors. 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.



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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.



Pursuant to the Delaware General Corporation Law, we will continue to exist
for three years 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.



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 HAVE CLOSED
AND IT IS NOT POSSIBLE FOR STOCKHOLDERS TO PUBLICLY TRADE OUR STOCK.



We have de-registered our common stock thus, our common stock cannot be traded on any market or exchange. The proportionate interests of all of our stockholders is fixed on the basis of their respective stock holdings
at the close of business on July 15, 2003, and any distributions made by us shall be made solely to the stockholders of record at the close of business July 15, 2003, 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.



Item 3. Quantitative and Qualitative Disclosures About Market Risk



Symphonix 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. Symphonix had no holdings of derivative financial or commodity
instruments at June 30, 2003. Symphonix is exposed to financial market risks, including changes in interest rates and foreign currency exchange rates. The fair value Symphonix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 Symphonixs investment portfolio. Much of Symphonixs revenue and all of its capital spending was transacted in U.S.
dollars. However, Symphonix did enter into



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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 cash flows. However, these transactions in other currencies were not material relative to transactions in U.S. dollars. At
June 30, 2003, Symphonix 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
cash flows.



Item 4. Controls and Procedures



| | a) |  | Evaluation of Disclosure Controls and Procedures. Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of
our disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10Q. 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 over Financial Reporting. There have been no significant changes in our internal controls over financial reporting that occurred during the period
covered by this quarterly report on Form 10Q that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



PART II. OTHER INFORMATION



Item 1. Legal Proceedings.



None



Item 2. Changes in Securities and Use of Proceeds.



On June 19, 2003, the Companys shareholders approved (1) a plan of complete liquidation and dissolution of the Company and (2) the sale of the majority of the assets of the Company to Med-El. On July 11, 2003,
the Company entered into an agreement with Wilmington Trust to manage the liquidation of the Company. The Company ceased trading of its common stock on July 15, 2003. Shares of the Companys common stock held at the close of business on July 2,
2003 represent an interest in the proceeds to be distributed pursuant to the plan of complete liquidation and dissolution of the Company.



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Item 3. Defaults Upon Senior Securities.



None



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



At the special meeting of shareholders held on June 19, 2003, Symphonixs shareholders voted to approve each of the following proposals:



| | (1) |  | to ratify and approve the complete plan of dissolution and liquidation of Symphonix Devices, Inc.
| | --- |  | -------------------------------------------------------------------------------------------------



|Votes Cast in Favor |  | Votes Cast Against or Withheld |  | Abstention or Non-Votes
|------------------- |  | ------------------------------ |  | -----------------------
|18,243,027          |  | 590,922                        |  | 89,725                 



| | (2) |  | to ratify and approve the proposed sale of substantially all of the remaining assets of Symphonix to Med-El GmbH
| | --- |  | ----------------------------------------------------------------------------------------------------------------



|Votes Cast in Favor |  | Votes Cast Against or Withheld |  | Abstention or Non-Votes
|------------------- |  | ------------------------------ |  | -----------------------
|18,369,907          |  | 462,222                        |  | 91,545                 



Item 5. Other Information.



None



Item 6. Exhibits and Reports on Form 8-K



| | (a) |  | Exhibits
| | --- |  | --------



|Exhibit |  | Description                                                                                                                                           
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|        | 
|2.1(1)  |  | Asset Purchase Agreement                                                                                                                              
|        | 
|10.1    |  | Termination Agreement                                                                                                                                 
|        | 
|31.     |  | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                    
|        | 
|32.     |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to 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 May 31, 2003 and June 25, 2003 respectively and
incorporated by reference.
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) |  | Reports on Form 8-K
| | --- |  | -------------------



On May 31, 2003, Symphonix filed a current report on Form 8-K announcing that it had amended its Asset Purchase Agreement with Med-El GmbH and Vibrant
Med-El. The amendment extended to July 31, 2003 the date on which the parties must close the transaction before either party may terminate the Asset Purchase Agreement.



On June 25, 2003 Symphonix filed a current report on Form 8-K announcing that it had closed the sale of substantially all
its remaining assets to a wholly-owned subsidiary of Med-El GmbH. Pursuant to the terms of an amended asset purchase agreement among the parties, Symphonix received $2.0 million in exchange for certain of its assets including inventory, property and
equipment and intellectual property and the assumption of all patient-related liabilities, including the warranty of all Vibrant Soundbridges currently in use. Symphonix will receive an additional $0.5 million if and when Med-El is able to
manufacture the Vibrant Soundbridge in accordance with specifications.



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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: August 14, 2003 | 
|                      | 
|                      | 
|                      | 
|                      | 
|                      | 
|                      | 
|                      | 
|                      | 



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EXHIBIT INDEX



|        | 
|------- | 
|Exhibit | 
|        | 
|2.1     | 
|        | 
|10.1    | 
|        | 
|31      | 
|        | 
|32      | 
|        | 
|        |