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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 SEPTEMBER 30, 2002.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------




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. Employerincorporation or organization)

Identification No.)





2331 Zanker Road


SAN JOSE, CALIFORNIA 95131-1107


(Address of principal executive offices, including zip code)





(408) 232-0710


(Registrants telephone number, including area code)





Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has
been subject to such filing requirements for the past 90 days.    Yes  X    No





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As of September 30, 2002; 35,832,000 shares of the Registrants Common Stock were outstanding.





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SYMPHONIX DEVICES, INC.





TABLE OF CONTENTS





PART I.

FINANCIAL INFORMATIONItem 1.

Financial Statements (unaudited)Condensed Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001

1Condensed Consolidated Statements of Operations for the three months and nine months ended September 30, 2002 and 2001

2Condensed Consolidated Statements of Comprehensive Loss for the three months and nine months ended September 30, 2002 and 2001

3Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and 2001

4Notes to Condensed Consolidated Financial Statements

5Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations

7Item 3.

Quantitative and Qualitative Disclosures About Market Risk

18Item 4.

Disclosure Controls and Procedures

18PART II.

OTHER INFORMATIONItem 1.

Legal Proceedings

19Item 2.

Changes in Securities and Use of Proceeds

19Item 3.

Defaults Upon Senior Securities

19Item 4.

Submission of Matters to a Vote of Security Holders

19Item 5.

Other Information

19Item 6.

Exhibits and Reports on Form 8-K

19







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##### Table of Contents

PART I.    FINANCIAL INFORMATION





Item 1.    Financial Statements





SYMPHONIX DEVICES, INC.





CONDENSED CONSOLIDATED BALANCE SHEETS


(in thousands)





September 30, 2002


December 31, 2001(unaudited)ASSETSCurrent assets:Cash and cash equivalents

$
3,897


$
1,343Short-term investments






10,774Restricted cash


549



Accounts receivable, net


245



329Inventories


747



656Prepaid expenses and other current assets


434



566Total current assets


5,872



13,668Property and equipment, net


836



1,313Restricted cash


135



174Total assets

$
6,843


$
15,155LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
291


$
451Accrued compensation


730



976Other accrued liabilities


1,396



2,708Current portion of bank borrowings


500



500Total current liabilities


2,917



4,635Deferred revenue


453



732Bank borrowings, less current portion


125



500Total liabilities


3,495



5,867Stockholders equity:Common stock


36



36Notes receivable from stockholders


(400
)


(400
)Additional paid-in capital


92,110



92,107Accumulated other comprehensive income


66



260Accumulated deficit


(88,464
)


(82,715
)Total stockholders equity


3,348



9,288Total liabilities and stockholders equity

$
6,843


$
15,155





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 September 30,


Nine months ended September 30,2002


2001


2002


2001Revenue

$
404


$
535


$
1,397


$
1,546Costs and expenses:Cost of goods sold


420



1,342



1,289



3,665Research and development


526



1,406



1,904



4,927Selling, general and administrative


1,365



1,817



4,337



7,318Total costs and expenses


2,311



4,565



7,530



15,910Operating loss


(1,907
)


(4,030
)


(6,133
)


(14,364
)Interest income


42



271



429



747Interest expense


(11
)


(29
)


(45
)


(91
)Net loss

$
(1,876
)

$
(3,788
)

$
(5,749
)

$
(13,708
)Basic and diluted net loss per common share

$
(0.05
)

$
(0.11
)

$
(0.16
)

$
(0.54
)Shares used in computing basic and diluted net loss per common share


35,803



33,399



35,710



25,190





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 September
30,


Nine months ended September 30,2002


2001


2002


2001Net loss

$
(1,876
)

$
(3,788
)

$
(5,749
)

$
(13,708
)Change in unrealized gain on short-term investments


(6
)


99



(180
)


204Translation adjustments


4



(1
)


(14
)


7Comprehensive loss

$
(1,878
)

$
(3,690
)

$
(5,943
)

$
(13,497
)





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)





Nine months ended September 30,2002


2001Cash flows from operating activities:Net loss

$
(5,749
)

$
(13,708
)Adjustments to reconcile net loss to cash used in operating activities:Amortization of deferred compensation






34Depreciation and amortization


494



590Amortization of premium on short-term investments


50



125Gain on sale of short-term investments


(48
)


(7
)Changes in operating assets and liabilities:Accounts receivable


84



(119
)Inventories


(91
)


1,101Prepaid expenses and other current assets


132



93Accounts payable


(160
)


(569
)Accrued compensation


(246
)


(131
)Deferred revenue


(279
)


(281
)Other accrued liabilities


(1,312
)


(1,075
)Net cash used in operating activities


(7,125
)


(13,947
)Cash flows from investing activitiesPurchases of short-term investments






(27,380
)Sales and maturities of short-term and long-term investments


10,592



13,326Purchases of property and equipment


(17
)


(708
)Increase in restricted cash


(510
)


(222
)Change in other assets






19Net cash provided by (used in) investing activities


10,065



(14,965
)Cash flows from financing activitiesPayments on bank borrowings


(375
)


(375
)Proceeds from issuance of common stock


3



238Payments on stockholders notes receivable






21Net cash used in financing activities


(372
)


(116
)Net increase (decrease) in cash and cash equivalents


2,568



(29,028
)Effect of exchange rates on cash and cash equivalents


(14
)


7Cash and cash equivalents, beginning of period


1,343



29,535Cash and cash equivalents, end of period

$
3,897


$
514





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 September 30, 2002 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 and nine months ended September 30, 2002 are not necessarily indicative of the results that may be expected for
the fiscal year ending December 31, 2002, 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, 2001 and footnotes thereto, included in the Companys Annual Report on Form 10-K.





These financial statements contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. The
Company has sustained significant losses for the last several years. As discussed in Note 6, the Companys Board of Directors have approved a plan of complete dissolution and liquidation. The current value of the assets may not be realized upon
dissolution and liquidation.





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):




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SYMPHONIX DEVICES, INC.





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)







Three months ended September 30,


Nine months ended September 30,2002


2001


2002


2001NumeratorBasic and DilutedNet loss

$
(1,876
)

$
(3,788
)

$
(5,749
)

$
(13,708
)DenominatorBasic and DilutedWeighted average common shares outstanding


35,830



33,451



35,743



25,248Weighted average unvested common shares subject to repurchase


(27
)


(52
)


(33
)


(58
)Total


35,803



33,399



35,710



25,190Basic and diluted net loss per common share

$
(0.05
)

$
(0.11
)

$
(0.16
)

$
(0.54
)Antidilutive Securities:Options to purchase common stock


5,084



3,650



5,084



3,650Common stock subject to repurchase


23



48



23



48Warrants


7



7



7



75,114



3,705



5,114



3,705





3.     Inventories:





Inventories comprise (in thousands):





September 30, 2002

December 31, 2001Raw materials

$
390

$
227Work in progress


282


340Finished goods


75


89$
747

$
656





4.    Restricted Cash:





As of September 30, 2002, the Company held $625,000 in a certificate of deposit with a financial institution to comply with existing loan
covenants as outlined in an amended loan agreement. The amount required to be held in a certificate of deposit will be reduced as the Company makes payments on the outstanding loan balance. In addition, the Company has outstanding letters of credit
in the amount of $59,000 which are collateralized by certificates of deposit of this amount.





5.    Recent
Accounting Pronouncements





In August 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 143, (SFAS 143), Accounting for Asset Retirement Obligations, which is effective for fiscal years beginning after June 15, 2002. SFAS 143




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SYMPHONIX DEVICES, INC.





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)




addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company believes that the
adoption of SFAS 143 will not have a material impact on the consolidated financial position or results of operations of the Company.





In April of 2002, the FASB issued Statement of Financial Accounting Standards No. 145 (SFAS 145), Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections,which is effective for fiscal years beginning after May 15, 2002. Under SFAS 145, gains and losses from the extinguishment of debt should be classified as extraordinary items only if they meet the criteria of Accounting
Principles Board Opinion No. 30. SFAS also addresses financial accounting and reporting for capital leases that are modified in such a way as to give rise to a new agreement classified as an operating lease. The Company believes that the adoption of
SFAS 145 will not have a material impact on the consolidated financial position or results of the operations of the Company.





In June of 2002, the FASB issued Statement of Financial Accounting Standards No. 146 (SFAS 146), Accounting for Costs Associated with Exit or Disposal Activities,which is effective for exit or disposal
activities initiated after December 31, 2002. SFAS 146 nullifies Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs
Incurred in a Restructuring). Under SFAS 146, a liability is required to be recognized for a cost associated with an exit or disposal activity when the liability is incurred. SFAS 146 applies to costs associated with an exit activity that
does not involve an entity newly acquired in a business combination or with a retirement or disposal activity covered by FASB Statements No. 143 and 144. The Company believes that the adoption of SFAS 146 will not have a material impact on the
consolidated financial position or results of the operations of the Company.





6.    Subsequent Event





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 expects to terminate the
majority of its employees and retain 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 and may
consider various legal alternatives to liquidating the Company including bankruptcy. The current value of the assets may not be realized upon dissolution and liquidation.





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 the company believes, anticipates or plans
to as well as other statements which are not historical fact, are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual events or results may differ materially as a result of the risks
and uncertainties described herein and elsewhere including, in particular, those factors described under Factors That May Affect Future Results.





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. Late in 2000, we received




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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.





Symphonixs Board of Directors approved a plan of complete dissolution and
liquidation on November 13, 2002, 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 expect to terminate the majority of our
employees. We expect to retain only a limited number of personnel necessary to facilitate the liquidation process. In connection with the liquidation, we intend to liquidate our property, equipment, intellectual property and other assets. In
addition, we may consider various legal alternatives to liquidating the Company, including bankruptcy.





Results of Operations





Revenue.    Revenue was $0.4 million in the three months ended September 30, 2002
compared to $0.5 million in the three months ended September 30, 2001. Revenue was $1.4 million in the nine months ended September 30, 2002 compared to $1.5 million in the nine months ended September 30, 2001. Revenue in all periods was the result
of selling activities to our distributor in Europe and direct sales in the United States. Revenue in the nine months ended September 30, 2002 and 2001 included $290,000 and $285,000, respectively, representing the amortization of the difference
between the purchase price and fair value of the Companys common stock purchased by




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Siemens in connection with a Marketing and Distribution Agreement. The remaining deferred income will be amortized over the life of the agreement.





Cost of Goods Sold.    Cost of goods sold decreased to $0.4 million for the three months ended September 30,
2002 from $1.3 million for the three months ended September 30, 2001 and decreased to $1.3 million for the nine months ended September 30, 2002 from $3.7 million for the nine months ended September 30, 2001. Cost of goods sold represents the direct
cost of the products sold as well as manufacturing variances and accrued warranty. The decreases in cost of goods sold for both the three months and nine months ended September 30, 2002 are the result of reductions in warranty costs, lower
manufacturing overhead and reduced direct labor costs. Warranty costs have decreased significantly due to the fact that we have cycled through most of the installed base of our older version audio processor and have replaced it with our newer audio
processor that is substantially more reliable. Due to continued implementation of serviceability and reliability improvements we expect that our warranty costs will continue to decline in the future.





Research and Development Expenses.    Research and development expenses decreased to $0.5 million in the three
months ended September 30, 2002 compared to $1.4 million in the three months ended September 30, 2001. Research and development expenses decreased to $1.9 million for the nine months ended September 30, 2002 compared to $4.9 million for the nine
months ended September 30, 2001. Decreases in research and development spending are due to the completion of a number of key research and development milestones during 2001 and 2002 and reflects the reduced level of investment in the
totally-implantable Vibrant Soundbridge. These factors resulted in lower headcount, consulting and project costs during the three months and nine months ended September 30, 2002 compared to the same periods in 2001. Research and development expenses
consist primarily of personnel costs, professional services, materials, supplies and equipment in support of product development, clinical trials, regulatory submissions, and the preparation and filing of patent applications.





Selling, General and Administrative Expenses.    Selling, general and administrative expenses were
$1.4 million in the three months ended September 30, 2002 compared to $1.8 million in the three months ended September 30, 2001 and were $4.3 million for the nine months ended September 30, 2002 compared to $7.3 million for the nine months ended
September 30, 2001. Decreases in selling, general and administrative spending are primarily due to certain marketing activities in support of the Companys product introduction post FDA approval that occurred in 2001 and not in 2002. This
reduction is also due to expense reductions implemented by Symphonix in late 2001 and continued in 2002. Selling, general and administrative expenses consist primarily of personnel costs, promotional costs, legal and consulting costs.





Interest Income (Expense).    Interest income, net of expense, decreased to $31,000 in the three
months ended September 30, 2002 from $0.2 million in the three months ended September 30, 2001 and decreased to $0.4 million for the nine months ended September 30, 2002 from $0.7 million for the nine months ended September 30, 2001. The decrease in
net interest income for the three and nine months ended September 30, 2002 compared to the same periods ended September 30, 2001 was due to the decrease in the Companys cash and short-term investment balances as well as a decrease in interest
rates. Interest earned in the future will depend on prevailing interest rates.




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Income Taxes.    To date, the Company has not incurred any U.S. income tax obligations. At
December 31, 2001, the Company had net operating loss carryforwards of approximately $74.9 million for federal and $39.0 million for state income tax purposes, which will expire at various dates through 2021 and 2011, 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 the Companys outstanding common stock occur. Such events could limit the future of the Companys net operating
loss carryforwards.





Liquidity and Capital Resources





Since inception, the Company has 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 September 30, 2002, the Company had
$3.0 million in working capital, and its primary source of liquidity was $3.9 million in cash and cash equivalents. Additionally, the Company had $0.7 million of short-term and long-term restricted cash held in certificates of deposit as collateral
for a bank loan and letters of credit.





Symphonix used $7.1 million in cash for operations in the nine months
ended September 30, 2002 compared to $13.9 million in the nine months ended September 30, 2001 primarily in funding its operating losses. This reduction is due to expense reductions implemented by Symphonix in late 2001 and continued in 2002.





Capital expenditures, primarily related to the Companys research and development and manufacturing
activities, were $17,000 and $708,000 in the nine months ended September 30, 2002 and 2001, respectively. The reduction in capital expenditures is due to the completion of key milestones in research and development during 2001 and 2002. At September
30, 2002, the Company did not have any material commitments for capital expenditures.





The Company has a loan
agreement with a bank that provided for borrowings of up to $2.0 million and for the issuance of letters of credit up to $250,000. At September 30, 2002, the Company had borrowings outstanding of $625,000, outstanding letters of credit in the amount
of $59,000 and no amounts available for future borrowings under the loan agreement. Borrowings under the loan agreement are repayable over four years commencing in January 2000.





In connection with the proposed liquidation, we expect to liquidate our remaining assets, including property, equipment and intellectual property. We also expect to incur
and pay 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. While we cannot currently make a precise estimate of these expenses, we believe that most if not all of our current cash and cash equivalents, together with proceeds from future sales of the remaining
assets may be required to pay for the above expenditures.




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Recent Accounting Pronouncements





In August 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 143, (SFAS 143),
Accounting for Asset Retirement Obligations, which is effective for fiscal years beginning after June 15, 2002. SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. The Company believes that the adoption of SFAS 143 will not have a material impact on the consolidated financial position or results of operations of the Company.





In April of 2002, the FASB issued Statement of Financial Accounting Standards No. 145 (SFAS 145), Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections,which is effective for fiscal years beginning after May 15, 2002. Under SFAS 145, gains and losses from the extinguishment of debt should be
classified as extraordinary items only if they meet the criteria of Accounting Principles Board Opinion No. 30. SFAS also addresses financial accounting and reporting for capital leases that are modified in such a way as to give rise to a new
agreement classified as an operating lease. The Company believes that the adoption of SFAS 145 will not have a material impact on the consolidated financial position or results of the operations of the Company.





In June of 2002, the FASB issued Statement of Financial Accounting Standards No. 146 (SFAS 146), Accounting for Costs
Associated with Exit or Disposal Activities,which is effective for exit or disposal activities initiated after December 31, 2002. SFAS 146 nullifies Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). Under SFAS 146, a liability is required to be recognized for a cost associated with an exit or disposal activity when
the liability is incurred. SFAS 146 applies to costs associated with an exit activity that does not involve an entity newly acquired in a business combination or with a retirement or disposal activity covered by FASB Statements No. 143 and 144. The
Company believes that the adoption of SFAS 146 will not have a material impact on the consolidated financial position or results of the operations of the Company.





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 our Plan of Complete Liquidation and Dissolution. Uncertainties as to 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 aggregate net value, if any, ultimately distributable to you under the Plan may be lower or higher than the amount you would receive if you sold your shares of our common stock prior to the time we
file the Certificate of Dissolution with the Delaware Secretary of State. 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 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 stockholders.




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THE PROCEEDS FROM ANY SALES OF OUR NON-CASH ASSETS MAY BE LESS THAN ANTICIPATED.





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, public market perceptions, and limitations on transferability of certain non-cash assets. 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.




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





We have certain current and future obligations to creditors. These include, without limitation, a note payable to a bank, trade accounts
payable, as well as warranty claims. As part of the wind down process, we will attempt to settle our obligations with our creditors and are currently exploring all our options in this regard. We may not, however, succeed in doing so. If we cannot
reach an agreement with a creditor concerning an obligation, that creditor may choose to bring a lawsuit against us. Any litigation could delay or even prevent us from completing the Plan. Moreover, amounts required to settle our obligations will
reduce or eliminate the amount of remaining capital available for distribution to stockholders.




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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, income taxes, payroll and local taxes, legal and accounting 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.




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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.





If the Plan is ratified and approved by the stockholders, we will file a Certificate of Dissolution with the
State of Delaware dissolving the Company. 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.





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. 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.




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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. After this date,
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 this date, and, afterwards, any distributions made by us shall be made solely to the stockholders of record at the close of business on this 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, 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.




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





The success of the Plan depends in large part upon our ability to retain the services of certain of our
current officers. The retention of Kirk B. Davis, our Chief Executive Officer, and Terry J. Griffin, our Chief Financial Officer, and certain other qualified personnel is particularly difficult under our current circumstances. Failure to retain
these personnel could harm the implementation of the Plan. If we fail to retain these personnel, we will need to hire others to oversee our liquidation and dissolution, which could involve substantial additional compensation expenses, if such other
personnel are available at all.





OUR STOCKHOLDERS COULD VOTE AGAINST THE PLAN.





Our stockholders could vote against the Plan. If we do not obtain stockholder approval of liquidation and 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 will have been terminated, and customer relationships will have been
severely strained. 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.




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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 September
30, 2002. 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. The Companys fixed rate debt obligations are subject to interest rate risk but due to the minimal
amount of debt, the risk is insignificant. An increase in interest rates would not significantly affect the Companys net loss. 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 September 30, 2002, 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.





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
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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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 2.    Changes in Securities and Use of Proceeds.





None





Item 3.    Defaults upon Senior Securities.





None





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





None





Item 5.    Other Information.





None





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





(a)    Exhibits





Exhibit

Description99.1

CEO and CFO Certifications





(b)    Reports on Form 8-K.





None




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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:    November 14, 2002


SYMPHONIX DEVICES, INC.By:

/s/    KIRK B.
DAVISKirk B. Davis President and
Chief Executive Officer


By:

/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:





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




| | (b) |  | 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;
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | (c) |  | 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;
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | (d) |  | 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;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | (e) |  | 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
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | 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
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------




| | (f) |  | 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: November 14, 2002





By:

/S/    KIRK B.
DAVISName: Kirk B. Davis Title: President and Chief Executive Officer


I, Terence J. Griffin, certify that:





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




| | (b) |  | 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;
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | (c) |  | 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;
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | (d) |  | 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;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | (e) |  | 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):
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | d. |  | 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
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




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




| | (f) |  | 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: November 14, 2002





By:

/S/    TERENCE J.
GRIFFINName: Terence J. Griffin Title: Vice President Finance and Chief   Financial Officer