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

                                    FORM 10-Q


[X]         Quarterly report pursuant to Section 13 or 15(d) of the Securities
            Exchange Act of 1934 for the quarterly period ended September 30,
            2001.

[ ]         Transition Report pursuant to Section 13 or 15(d) of the Securities
            Exchange Act of 1934 for the transition  period from ______________
            to ___________________.

                         Commission file number 0-23862

                                Fonix Corporation
             (Exact name of registrant as specified in its charter)

                               Delaware 22-2994719
          (State of Incorporation) (I.R.S. Employer Identification No.)


                        185 West Election Road, Suite 200
                                Draper, UT 84020
          (Address of principal executive offices, including zip code)


                                 (801) 553-6600
                                 --------------
              (Registrant's telephone number, including area code)


                     60 East South Temple Street, Suite 1225
                           Salt Lake City, Utah 84111
                           --------------------------
                                (Former address)



            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   or No
    ------     -------

            As of November 13, 2001, 315,957,821 shares of Class A voting common
stock, par value $0.0001 per share, were outstanding.






<PAGE>



                                FONIX CORPORATION
                                    FORM 10-Q



<TABLE>
<CAPTION>
                                TABLE OF CONTENTS

                         PART I - FINANCIAL INFORMATION

<S>                                                                                               <C>
                                                                                                  Page

Item 1.     Financial Statements

            Condensed Consolidated Balance Sheets (Unaudited) - As of September 30, 2001
            and December 31, 2000                                                                   2

            Condensed Consolidated Statements of Operations (Unaudited) for the Three
            and Nine Months Ended September 30, 2001 and 2000                                       3

            Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine
            Months Ended September 30, 2001 and 2000                                                4

            Notes to Condensed Consolidated Financial Statements (Unaudited)                        6

Item 2.     Management's Discussion and Analysis of Financial Condition and Results of Operations  13


                           PART II - OTHER INFORMATION

Item 1.     Legal Proceedings                                                                      18

Item 2.     Changes in Securities                                                                  18

Item 3.     Quantitative and Qualitative Disclosures About Market Risk                             18

Item 4.     Submission of Matters to a Vote of Security Holders                                    19

Item 6.     Exhibits and Reports on Form 8-K                                                       19
</TABLE>

                                       1


<PAGE>
                                Fonix Corporation
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)

<TABLE>
<CAPTION>
ASSETS
                                                                                                    September 30,     December 31,
                                                                                                        2001             2000
                                                                                                   ---------------  ---------------
Current assets:
<S>                                                                                                <C>              <C>
      Cash and cash equivalents                                                                    $      880,701   $    1,413,627
      Funds held in escrow                                                                                      -        2,151,006
      Accounts receivable, net of allowance for doubtful accounts of $0 and $20,000, respectively         187,877          131,872
      Prepaid expenses and other current assets                                                           152,483           55,705
      Convertible notes receivable                                                                        150,000                -
      Inventory                                                                                            66,745                -
                                                                                                   ---------------  ---------------

           Total current assets                                                                         1,437,806        3,752,210

Note receivable from affiliate, net of unamortized discount of $82,208                                    317,792                -

Property and equipment, net of accumulated depreciation of $1,724,456 and $1,445,288, respectively        987,799          718,711

Investment in affiliate                                                                                 2,229,590                -

Intangible assets, net of accumulated amortization of $8,691,276 and $6,850,286, respectively          11,100,774       12,941,764

Other assets                                                                                              123,332          104,688
                                                                                                   ---------------  ----------------

           Total assets                                                                            $    16,197,093  $   17,517,373
                                                                                                   ===============  ===============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
      Note payable to affiliate, net of unamortized discount of $69,716                            $    1,838,980   $            -
      Notes payable - related parties                                                                      77,625           77,625
      Accounts payable                                                                                  1,162,321          655,352
      Accrued liabilities                                                                               1,333,695          553,448
      Accrued liabilities - related parties                                                             1,476,633        1,564,133
      Deferred revenues                                                                                 1,074,171          677,071
      Capital lease obligation - current portion                                                           31,239           44,225
                                                                                                   ---------------  ---------------

           Total current liabilities                                                                    6,994,664        3,571,854

Capital lease obligation, less current portion                                                                  -           19,767
                                                                                                   ---------------  ---------------

           Total liabilities                                                                            6,994,664        3,591,621
                                                                                                   ---------------  ---------------

Commitments and contingencies (Notes 1, 4, 5 and 12)

Stockholders' equity:
      Preferred stock, $0.0001 par value; 50,000,000 shares authorized - Series
           A, convertible; 166,667 shares outstanding
                (aggregate liquidation preference of $6,055,012 at September 30, 2001)                    500,000          500,000
           Series D, 4% cumulative convertible; 164,500 shares outstanding in 2000                              -        4,288,178
           Series F, 6% cumulative convertible; 6,073 shares outstanding in 2000                                -          112,438
      Common stock, $0.0001 par value; 300,000,000 shares authorized -
           Class A voting,  273,375,530 and 191,296,988 shares outstanding, respectively                   27,338           19,130
           Class B non-voting, no shares outstanding                                                            -                -
      Additional paid-in capital                                                                      165,489,690      148,904,860
      Outstanding warrants to purchase Class A common stock                                             2,982,400        3,141,430
      Deferred consulting expense                                                                         (23,333)               -
      Cumulative translation adjustment                                                                      (376)               -
      Accumulated deficit                                                                            (159,773,290)    (143,040,284)
                                                                                                   ---------------  ---------------

           Total stockholders' equity                                                                   9,202,429       13,925,752
                                                                                                   ---------------  ---------------

           Total liabilities and stockholders' equity                                              $   16,197,093   $   17,517,373
                                                                                                   ===============  ===============
</TABLE>

                                       2


<PAGE>
                                Fonix Corporation
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)



<TABLE>
<CAPTION>
                                                            Three Months Ended                  Nine Months Ended
                                                               September 30,                      September 30,
                                                       ------------------------------     ------------------------------
                                                           2001            2000                2001           2000
                                                       -------------- ---------------     --------------- --------------

<S>                                                    <C>            <C>                 <C>             <C>
Revenues                                               $     265,646  $      172,222      $      505,927  $     372,494
Cost of revenues                                              86,130           6,856             105,651         13,455
                                                       -------------- ---------------     --------------- --------------

     Gross margin                                            179,516         165,366             400,276        359,039
                                                       -------------- ---------------     --------------- --------------

Expenses:
     Selling, general and administrative                   3,068,307       3,050,235           8,522,008      8,844,156
     Product development and research                      2,196,362       1,406,949           6,335,639      4,336,069
     Amortization of intangible assets                       607,136         607,136           1,821,409      1,821,409
     Purchased in-process research and development                 -               -                   -        474,000
                                                       -------------- ---------------     --------------- --------------

         Total expenses                                    5,871,805       5,064,320          16,679,056     15,475,634
                                                       -------------- ---------------     --------------- --------------

Loss from operations                                      (5,692,289)     (4,898,954)        (16,278,780)   (15,116,595)
                                                       -------------- ---------------     --------------- --------------

Other income (expense):
     Interest income                                           8,065          35,134              65,589         98,371
     Interest expense                                        (60,228)     (3,617,249)           (129,216)    (4,097,989)
     Other                                                         -          29,631                   -         67,486
                                                       -------------- ---------------     --------------- --------------

         Total other expense, net                            (52,163)     (3,552,484)            (63,627)    (3,932,132)
                                                       -------------- ---------------     --------------- --------------

Loss before equity in net loss of affiliate and
     extraordinary item                                   (5,744,452)     (8,451,438)        (16,342,407)   (19,048,727)

Equity in net loss of affiliate                             (186,891)              -            (381,318)             -
                                                       -------------- ---------------     --------------- --------------

Loss before extraordinary item                            (5,931,343)     (8,451,438)        (16,723,725)   (19,048,727)

Extraordinary gain - forgiveness of debt                           -               -                   -         78,864
                                                       -------------- ---------------     --------------- --------------

Net loss                                                  (5,931,343)     (8,451,438)        (16,723,725)   (18,969,863)

Other comprehensive income (loss) - foreign
     currency translation                                      1,672               -                (376)             -
                                                       -------------- ---------------     --------------- --------------

Comprehensive loss                                     $  (5,929,671) $   (8,451,438)     $  (16,724,101) $ (18,969,863)
                                                       ============== ===============     =============== ==============



Basic and diluted net loss per common share            $       (0.02) $        (0.05)     $        (0.08) $       (0.14)
                                                       ============== ===============     =============== ==============
</TABLE>

                                       3

<PAGE>


                               Fonix Corporation
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)

                Increase (Decrease) in Cash and Cash Equivalents


<TABLE>
<CAPTION>
                                                                           Nine Months Ended
                                                                             September 30,
                                                                    ---------------------------------
                                                                        2001               2000
                                                                    --------------     --------------
Cash flows from operating activities:
<S>                                                                 <C>                <C>
      Net loss                                                      $ (16,723,725)     $ (18,969,863)
      Adjustments to reconcile net loss to net cash
        used in operating activities:
         Issuance of common stock for services                                  -          1,328,100
         Non-cash expense related to issuance of debentures,
           warrants, preferred and common stock                            62,500          5,286,411
         Non-cash compensation expense related to issuance
           of stock options                                                10,027            842,856
         Accretion of discount on note receivable from affiliate          (14,883)                 -
         Accretion of discount on note payable to affiliate               119,977                  -
         Loss on disposal of property and equipment                           453                  -
         Depreciation and amortization                                  2,145,750          2,339,005
         Equity in net loss of affiliate                                  381,318                  -
         Extraordinary gain on forgiveness of debt                              -            (78,864)
         Changes in assets and liabilities:
           Accounts receivable                                            (56,005)           130,275
           Interest and other receivables                                       -             (5,135)
           Inventory                                                      (66,745)             1,546
           Prepaid expenses and other assets                              (96,778)          (131,945)
           Cash held in escrow                                          2,151,006            (82,075)
           Other assets                                                   (18,644)               883
           Accounts payable                                               506,969           (457,504)
           Accrued liabilities                                            763,342            181,609
           Accrued liabilities - related party                            (87,500)          (187,501)
           Income taxes payable                                                 -            (27,606)
           Deferred revenues                                              397,100            549,071
           Cumulative foreign currency translation adjustment                (376)                 -
                                                                    --------------     --------------

         Net cash used in operating activities                        (10,526,214)        (9,280,737)
                                                                    --------------     --------------

Cash flows from investing activities:
      Purchase of property and equipment                                 (574,701)          (141,160)
      Proceeds from sale of property and equipment                            400                  -
      Issuance of note receivable to affiliate                           (302,909)                 -
      Investment in affiliate                                            (200,000)                 -
      Convertible notes receivable                                       (150,000)                 -
                                                                    --------------     --------------

         Net cash used in investing activities                         (1,227,210)          (141,160)
                                                                    --------------     --------------

Cash flows from financing activities:
      Proceeds from sale of Class A common stock, net                  11,918,450                  -
      Proceeds from convertible promissory note and advances                    -          7,500,000
      Payments on note payable to affiliate                              (675,000)                 -
      Principal payments on capital lease obligation                      (32,753)           (28,312)
      Proceeds from exercise of stock options                               9,801            327,793
      Proceeds from exercise of warrants                                        -            278,000
      Proceeds from sale of preferred stock, net                                -          1,750,000
                                                                    --------------     --------------

         Net cash provided by financing activities                     11,220,498          9,827,481
                                                                    --------------     --------------

Net (decrease) increase in cash and cash equivalents                     (532,926)           405,584

Cash and cash equivalents at beginning of period                        1,413,627            232,152
                                                                    --------------     --------------

Cash and cash equivalents at end of period                          $     880,701      $     637,736
                                                                    ==============     ==============
</TABLE>


                                       4

<PAGE>

                                Fonix Corporation
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                   (Continued)

<TABLE>
<CAPTION>
                                                                                        Nine Months Ended
                                                                                          September 30,
                                                                               ------------------------------------
Supplemental Disclosure of Cash Flow Information:                                    2001               2000
                                                                               ------------------ -----------------

<S>                                                                            <C>                <C>
       Cash paid during the period for interest                                $         123,700  $         41,164
       Cash paid during the period for income taxes                                            -            27,606
</TABLE>

Supplemental Schedule of Non-cash Investing and Financing Activities:

       For the Nine Months Ended September 30, 2001:

         Preferred stock dividends of $9,281 were accrued on Series D and Series
F preferred stock.

         164,500 shares of Series D preferred stock and related dividends of
            $320,949 were converted into 13,978,440 shares of Class A common
            stock.

         6,073 shares of Series F preferred stock and related dividends of
            $6,853 were converted into 519,067 shares of Class A common stock.

         Warrants for the purchase of 250,000 shares of Class A common stock
            valued at $62,500 were issued in payment for a perpetual,
            nonexclusive technology license.

         A  non-interest bearing promissory note was issued in the amount of
            $2,600,000 to purchase 1,780,818 shares of Series A preferred stock
            of Audium Corporation.

       For the Nine Months Ended September 30, 2000:

         Preferred stock dividends of $674,302 were accrued on Series D and
Series F preferred stock.

         217,223 shares of Series D preferred stock and related dividends of
            $255,600 were converted into 15,436,378 shares of Class A common
            stock.

         309,281 shares of Series F preferred stock and related dividends of
            $2,783,375, including $2,750,000 related to the beneficial
            conversion feature recorded upon issuance, were converted into
            8,307,782 shares of Class A common stock.

         Principal of $5,538,085 from the convertible promissory note and
           $87,582 of interest were converted into 7,709,138 shares of Class A
           common stock.

         Warrants for the purchase of 600,000 shares of Class A common stock,
            valued at $474,000, were issued to an executive officer and director
            of the Company as consideration for the rights to certain pen and
            voice input technology.

         228,364 shares of Class A common stock were issued to two former
            directors of the Company upon the exercise of 400,000 options as
            stock appreciation rights.

         Principal of $3,971,107 of Series C convertible debentures and related
            interest of $290,957 were converted into 10,385,364 shares of Class
            A common stock.

         4,568,569 shares of Class A common stock were issued upon the exercise
            of repricing rights associated with common stock subject to
            redemption.

         1,250,000 shares of Class A common stock were issued to an unrelated
party for consulting fees valued at $1,328,100.

         Preferred dividends of $514,800 were accrued relating to the
liquidation damage provision of the Series D preferred stock.

         612,069 shares of Class A common stock, valued at $688,578, were issued
            as payment of $394,800 for liquidation damages and a fee of $213,778
            for the revision of certain terms of the preferred stock agreement.

         Interest expense of $3,546,083 was recorded related to the beneficial
conversion feature on the equity line of credit.

         Equipment was acquired under the terms of a capital lease obligation in
the amount of $92,174.

         $1,000,000 in advances were converted into 50,000 shares of Series F
preferred stock.


                                       5

<PAGE>



1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation - The accompanying unaudited condensed consolidated
financial statements of Fonix Corporation and subsidiaries (collectively, the
"Company" or "Fonix") have been prepared by the Company pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the following disclosures are adequate to make the
information presented not misleading.

These condensed consolidated financial statements reflect all adjustments
(consisting only of normal recurring adjustments) that, in the opinion of
management, are necessary to present fairly the financial position and results
of operations of the Company for the periods presented. The Company's business
strategy has significant risk, and readers of these condensed consolidated
financial statements should carefully consider the risks set forth under the
heading "Certain Significant Risk Factors" in the Company's 2000 Annual Report
on Form 10-K.

Operating results for the three and nine months ended September 30, 2001 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2001. The Company suggests that these condensed consolidated
financial statements be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 2000, and its Quarterly Reports on Form
10-Q for the periods ended March 31, 2001 and June 30, 2001.

Net Loss Per Common Share - Basic and diluted net loss per common share are
calculated by dividing net loss attributable to common stockholders by the
weighted average number of shares of common stock outstanding during the period.
At September 30, 2001 and 2000, there were outstanding common stock equivalents
to purchase 22,750,815 and 30,530,110 shares of common stock, respectively, that
were not included in the computation of diluted net loss per common share as
their effect would have been anti-dilutive, thereby decreasing the net loss per
common share.

The following table is a reconciliation of the net loss numerator of basic and
diluted net loss per common share for the three and nine months ended September
30, 2001 and 2000:

<TABLE>
<CAPTION>
                                                                                    Three Months Ended September 30,
                                                                                    --------------------------------
                                                                                   2001                          2000
                                                                        ---------------------------      ------------------------
                                                                                           Per Share                    Per Share
                                                                             Amount         Amount       Amount          Amount
<S>                                                                     <C>                 <C>          <C>              <C>
Net loss                                                                $ (5,931,343)                    $ (8,451,438)
Preferred stock dividends                                                         --                          (76,236)
                                                                        -------------                    -------------
Net loss attributable to common stockholders                            $ (5,931,343)       $(0.02)      $ (8,527,674)    $(0.05)
                                                                        =============       =======      =============    =======
Weighted average common shares
outstanding                                                              239,108,716                      165,210,595
                                                                        =============                    =============
</TABLE>









                                        6

<PAGE>




<TABLE>
<CAPTION>
                                                                                    Nine Months Ended September 30,

                                                                                   2001                          2000
                                                                        ---------------------------      ------------------------
                                                                                           Per Share                    Per Share
                                                                             Amount         Amount       Amount          Amount
<S>                                                                     <C>                              <C>
Net loss before extraordinary item                                      $(16,723,725)                    $(19,048,727)
Preferred stock dividends                                                     (9,281)                      (3,424,302)
                                                                        -------------                    -------------
Net loss attributable to common stockholders
before extraordinary item                                                (16,733,006)       $(0.08)       (22,473,029)    $(0.14)
Extraordinary item, net of income taxes                                           --            --             78,864         --
                                                                        -------------       -------      -------------    -------
Net loss attributable to common stockholders                            $(16,733,006)       $(0.08)      $(22,394,165)    $(0.14)
                                                                        =============       =======      =============    =======
Weighted average common shares
outstanding                                                              218,225,768                      157,181,840
                                                                        =============                    =============
</TABLE>


Imputed Interest Expense and Income- Interest is imputed on long-term debt
obligations and notes receivable where management has determined that the
contractual interest rates are below the market rate for instruments with
similar risk characteristics (see Note 3).

Inventory - Inventory, consisting primarily of retail products, is stated at the
lower of cost (first-in, first-out method) or market value.

Foreign Currency Translation - The functional currency of the Company's Korean
subsidiary is the South Korean won. Consequently, assets and liabilities of the
Korean operations are translated into United States dollars using current
exchange rates at the end of the period. All revenue is invoiced in South Korean
won and revenues and expenses are translated into United States dollars using
weighted-average exchange rates for the period.

Comprehensive Loss - Accumulated and other comprehensive income and loss
presented in the accompanying condensed consolidated financial statements
consist of cumulative foreign currency translation adjustments. The Company had
no items of comprehensive loss prior to April 1, 2001.

Recently Enacted Accounting Standards - In July 2001, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 141 eliminates the "pooling-of-interests" method of
accounting for acquisitions and requires separate accounting for certain
intangibles acquired in such transactions. The application of this standard is
not expected to have an impact on the Company's financial position and results
of operations.

SFAS No. 142 changes the accounting for goodwill and intangible assets with
indefinite lives from an amortization method to an impairment-only approach.
Accordingly, effective January 1, 2002, amortization of goodwill and intangible
assets with indefinite lives will discontinue. Other intangible assets will
continue to be amortized over their useful lives. The Company amortized $257,386
and $772,159 of goodwill for the three and nine months ended September 30, 2001,
respectively.

Effective January 1, 2002, the Company will apply the requirements of SFAS No.
142, and management will perform an impairment test of goodwill and intangible
assets with indefinite lives. The effect of the application of those
requirements on the Company's financial position and results of operations has
not been determined. Any transitional impairment loss will be recognized as a
change in accounting principles.

In August 2001, the FASB issued SFAS No. 143 , "Accounting for Asset  Retirement
Obligations." This statement establishes financial accounting and reporting
standards for obligations  associated with the retirement of tangible long-lived
assets and the associated asset retirement  costs. SFAS No. 143 is effective for
financial  statements issued for fiscal years beginning after June 15, 2002. The
adoption of this  statement  is not  expected  to have a material  effect on the
Company's financial position or results of operations.


                                       7

<PAGE>

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement establishes financial accounting
and reporting standards for the impairment or disposal of long-lived assets.
SFAS No. 144 is effective for financial statements issued for fiscal years
beginning after December 15, 2001. The application of these requirements is not
expected to have a material effect on the Company's financial position and
results of operations.

Reclassifications - Certain reclassifications have been made in the prior-period
condensed consolidated financial statements to conform with the current-period
presentation.

2. FUNDS IN ESCROW

On March 29, 2001, $2,000,000 plus interest of $176,092 accrued since September
1, 1999, was released from an escrow established in connection with the sale of
the Company's HealthCare Solutions Group to Lernout & Hauspie Speech Products
N.V.

3. CONVERTIBLE NOTES RECEIVABLE

Through September 30, 2001, the Company loaned $150,000 under the terms of two
separate convertible promissory notes to an unrelated entity (the "Borrower")
with whom the Company intends to engage in development activities. The notes are
unsecured, bear interest at an annual rate of 7.5 percent and mature 120 days
from the issuance date of each note. The notes are convertible at the option of
the Company into common shares of the Borrower. Subsequent to September 30,
2001, the Company loaned $230,000 under the terms of three separate convertible
promissory notes of similar terms to the Borrower.

4. INVESTMENT IN AFFILIATE

In February 2001, the Company entered into a collaboration agreement with Audium
Corporation ("Audium") to provide an integrated platform for generating Voice
XML solutions for Internet and telephony systems. Audium is a mobile application
service provider that builds and operates mobile applications that allow access
to Internet information and complete online transactions using any telephone.
The collaboration will include integration of Fonix Accelerated Application
Solutions Technology ("FAAST") with Audium's mobile applications development
capability.

Note receivable from affiliate - In February 2001, in connection with the
collaboration agreement, Fonix advanced $200,000 to Audium as a bridge loan. The
loan bore interest at a rate of 12 percent per year, was due on or before
February 28, 2003, and was convertible into shares of Audium Series A
Convertible Preferred Stock ("Audium Preferred Stock"). Effective April 11,
2001, the bridge loan, together with accrued interest of $2,400 and an
additional advance of $197,600 that was disbursed to Audium on May 1, 2001, were
aggregated into a new note. The new note, with a principal amount of $400,000
(the "Audium Note"), bears interest at five percent per annum and has a term of
four years. The Audium Note is convertible into shares of Audium Preferred Stock
at a price of $1.46 per share in the event of (i) Audium raising an additional
$2,000,000 prior to October 6, 2002, (ii) Audium's merger or consolidation,
(iii) a qualified public offering of Audium common stock, (iv) an event of
default under a note payable from Fonix (see Fonix Note below), or (v) Audium's
aggregate gross revenues for the months of January through June 2003 exceeding
$1,000,000. The Audium Note is secured by Audium's intellectual property.
Further, at closing, Audium granted Fonix a fully paid, worldwide, non-exclusive
license to Audium's software to make, manufacture, and use the software and any
derivative works if Audium declares bankruptcy or ceases to do business.

Management determined that a 12 percent annual interest rate better reflects the
risk characteristics of the Audium Note. Accordingly, interest was imputed at 12
percent  and the Audium  Note was  recorded  at its  original  present  value of
$302,909.  For the three months and nine months ended  September  30, 2001,  the
Company recorded interest income of $9,518 and 17,585,  respectively,  including
contractual and imputed interest.

Note payable to affiliate - On April 11, 2001, the Company closed a stock
purchase agreement with Audium, wherein Fonix agreed to purchase up to


                                       8

<PAGE>

$2,800,000 of Audium Preferred Stock at a price of $1.46 per share. At closing,
Fonix paid $200,000 in cash, and gave Audium a note (the "Fonix Note") for the
remaining $2,600,000, payable in 13 monthly installments of $200,000 beginning
on June 1, 2001. The Fonix Note bears no interest unless an event of default
occurs, in which case the Fonix Note will bear interest at 12 percent per year.

Management determined that a 12 percent annual interest rate reflects the risk
characteristics of the Fonix Note. Accordingly, interest has been imputed at 12
percent and the Company recorded an original present value of $2,410,908 for the
note payable. For the three and nine months ended September 30, 2001, the
Company recorded interest expense of $57,348 and $119,977, respectively, related
to this note.

At closing, Audium issued 14 share certificates, each for 136,986 shares of
Audium Preferred Stock to Fonix, and delivered one certificate in exchange for
the initial payment of $200,000. The remaining certificates are held by Audium
as collateral for the Fonix Note under the terms of a security agreement. For
each monthly payment of $200,000 or multiple payments which aggregate $200,000,
Audium will release to Fonix one certificate for 136,986 shares of Audium
Preferred Stock.

Through September 30, 2001, three payments of $200,000 were made on the Fonix
Note and Audium released three certificates for 136,986 shares of Audium
Preferred Stock. Effective October 1, 2001, the terms of the Fonix note were
modified to reduce the monthly payments to the following amounts: $75,000 for
September 2001, $100,000 for October 2001, $125,000 for November 2001, $150,000
for December 2001 and January 2002. Thereafter, monthly payments of $200,000 are
scheduled through August 2002. No other terms of the original Fonix Note were
affected by the modification. The modified payments for September, October and
November were paid when due.

Investment in affiliate - Each share of Audium Preferred Stock is convertible
into one share of Audium's common stock. Holders of Audium Preferred Stock are
entitled to eight percent cumulative dividends, a liquidation preference in
excess of the original purchase price plus any declared but unpaid dividends,
anti-dilution rights, and voting rights equal to the corresponding number of
common shares. The stock purchase agreement between Audium and Fonix also
entitles Fonix to elect one member of Audium's board of directors. The Company
also entered into a registration rights agreement with Audium which allows
Fonix, after waiting 180 days after the closing of a qualified public offering
by Audium, to request that Audium register the resale of the shares of common
stock underlying the Audium Preferred Stock held by Fonix. Audium agreed to pay
the expenses related to preparing and filing the registration statement.
However, Fonix will be responsible for any brokers' commissions or other
sales-related fees for any shares of common stock Fonix sells.

Beginning April 11, 2001, Fonix accounts for its investment in Audium using the
equity method of accounting. Accordingly, the Company recognized a loss of
$381,318 in its interim 2001 condensed consolidated statements of operations
related to Audium's net loss for the period from April 11, 2001, through
September 30, 2001, and the difference between the purchase price of the Audium
Preferred Stock and the Company's portion of Audium's net stockholders' deficit
amortized on a straight-line basis over a period of eight years.

5. INTANGIBLE ASSETS

Intangible assets consist of purchased core technology and goodwill arising from
the acquisition of the Papyrus companies (collectively "Papyrus") and AcuVoice,
Inc., and direct costs incurred by the Company in applying for patents covering
its technologies. Amortization is computed on a straight-line basis over the
estimated useful lives ranging from five to eight years. Total accumulated
amortization was $8,691,276 and $6,850,286 at September 30, 2001 and December
31, 2000, respectively.

The  carrying  values  of  the  Company's  long-lived  assets  is  reviewed  for
impairment  whenever events or changes in  circumstances  indicate that they may
not be  recoverable.  If such an  event  occurred,  the  Company  would  project
undiscounted  cash  flows  to be  generated  from the use of the  asset  and its
eventual  disposition  over the  remaining  life of the  asset.  If  projections
indicate  that  the  carrying  value  of  the  long-lived  asset  would  not  be
recoverable,  the carrying value would be reduced by the estimated excess of the
carrying  value over the projected  discounted  cash flows.  As of September 30,
2001, management of the Company did not consider any of the Company's long-lived
assets to be impaired.  However,  should the Company's marketing and sales plans
not  materialize in the near term, the  realization of the Company's  intangible
assets could be severely and negatively  impacted.  The  accompanying  condensed


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<PAGE>

consolidated  financial  statements  have been  prepared  based on  management's
estimates of realizability, which estimates may change due to factors beyond the
control of the Company.

6.  RELATED-PARTY NOTES PAYABLE

The Company had unsecured demand notes payable to former Papyrus stockholders in
the aggregate amount of $77,625 outstanding as of September 30, 2001. During
2000, certain holders of these notes made demand for payment. The Company is
attempting to negotiate a reduced payoff of these notes.

7.  PREFERRED STOCK

Series D Preferred Stock -During the nine months ended September 30, 2001, the
remaining 164,500 shares of Series D Preferred Stock and related dividends were
converted into 13,978,440 shares of Class A common stock.

Series F Preferred Stock - During the nine months ended September 30, 2001, the
remaining 6,073 shares of Series F Preferred Stock and related dividends were
converted into 519,067 shares of Class A common stock.

8. EQUITY LINES OF CREDIT

Equity Line of Credit - On August 8, 2000, the Company entered into a Private
Equity Line Agreement ("Equity Line") with a private investor ("Equity Line
Investor"), which gives the Company the right to draw up to $12,500,000 for
operations and other purposes, through a mechanism of draws and puts of stock.
The Company is entitled to draw funds and to "put" to the Equity Line Investor
shares of Class A common stock in lieu of repayment of the draw. The number of
shares issued is determined by dividing the dollar amount of the draw by 90
percent of the average of the two lowest closing bid prices of Class A common
stock over the seven trading-day period following the date the Company tenders
the put notice. The Equity Line Investor funds the amounts requested by the
Company within two trading days after the seven trading-day period.

During the year ended December 31, 2000, draws under the Equity Line amounted to
$3,973,508 and were converted to 12,492,680 shares of Class A common stock.
During the nine months ended September 30, 2001, draws under the Equity Line
amounted to $4,010,000 and were converted into 9,932,780 shares of Class A
common stock. As of October 31, 2001, $4,516,492 remains available to be drawn
on the Equity Line.

Second Equity Line of Credit - On April 6, 2001, the Company entered into a
second equity line agreement (the "Second Equity Line") with the Equity Line
Investor. Under the Second Equity Line, the Company has the right to draw up to
$20,000,000 under terms substantially identical to the initial Equity Line.

From the inception of the Second Equity Line through September 30, 2001, draws
under the Second Equity Line amounted to $8,375,000 and were converted to
57,613,255 shares of Class A common stock. Subsequent to September 30, 2001,
additional draws amounting to $3,550,000 were converted into 42,582,291 shares
of Class A common stock. As of October 31, 2001, $8,075,000 remains available to
be drawn on the Second Equity Line.

9.  COMMON STOCK AND STOCK OPTIONS

Authorized Common Shares - On July 18, 2001, the shareholders of the Company
approved an amendment to the Company's Certificate of Incorporation to increase
the authorized capital stock of the Company from 300,000,000 to 500,000,000
shares of common stock.

Class A Common Stock - During the nine months ended September 30, 2001,
82,043,542 shares of Class A common stock were issued in connection with
conversions of preferred stock (see Note 7) and draws on the equity lines (see
Note 8). Also during the nine months ended September 30, 2001, 35,000 shares of
Class A common stock were issued through exercise of stock options at an
exercise price of $0.28 per share. No shares were issued as a result of exercise
of stock appreciation rights or warrants during the same period.

Stock Options - During the nine months ended September 30, 2001, the Company
granted options to purchase 3,110,450 shares of Class A common stock at exercise
prices ranging from $0.12 to $0.73 per share. Of the options granted during this


                                       10

<PAGE>

nine-month period, 225,000 vest immediately, and the balance of 2,885,450 vest
over the three years following issuance. If not exercised, all options expire
within ten years from the date of grant. As of September 30, 2001, the Company
had options outstanding to purchase 19,509,148 shares of Class A common stock.

The Company's option plans provide for stock appreciation rights that allow the
grantee to receive shares of the Company's Class A common stock equivalent in
value to the difference between the designated exercise price and the fair
market value of the Company's stock at the date of exercise. As of September 30,
2001, there are options to purchase 503,339 shares of Class A common stock
outstanding which provide for stock appreciation rights. Of these options,
126,669 have an exercise price of $6.50 per share and 376,671 have an exercise
price of $1.00 per share.

10.  TECHNOLOGY LICENSE

In July 1997, the Company entered into an arrangement with Advocast, Inc.
("Advocast"), an Internet research and development entity, whereby Advocast
assisted the Company in development of technologies to create and locate
searchable databases on the Internet through the use of interactive video and
voice technologies. Under the terms of the arrangement, the Company paid
$816,750 in 1998 and $705,005 in 1997 for Advocast research and development
efforts.

On November 25, 1998, Advocast issued 60,200 shares of Advocast Series A 6%
convertible preferred stock ("Advocast Preferred Stock") to the Company and the
chief executive officer of the Company became a director of Advocast.. The
Advocast Preferred Stock, if converted to Advocast common stock, represented
less than 20 percent of the total outstanding shares of Advocast voting common
stock. Advocast is a development stage company with minimal operations and no
market for its stock. As a result, there was substantial uncertainty as to the
value of the Advocast Preferred Stock and the Company did not record a value for
the Advocast shares in its consolidated financial statements.

On February 26, 2001, Fonix agreed to provide to Advocast an additional $100,000
of financing under the terms of a six percent convertible debenture. Fonix
advanced $57,498 under the debenture. The debenture was due February 26, 2002
and was secured by the intellectual property and other assets of Advocast. The
debenture was convertible into shares of Advocast common stock at a rate of
$8.62 per share at the option of Fonix. Furthermore, Fonix had the right to
convert its Advocast Preferred Stock into additional principal under the
debenture at a rate of $25 per share of Advocast Preferred Stock. If converted,
the resulting balance due under the debenture was subject to the same terms of
conversion into Advocast common stock or became due and payable six months
following the original due date of the convertible debenture. Advocast and Fonix
also entered into an agreement whereby Advocast provided consulting services to
Fonix for development of Internet applications of the Company's technologies.
The term of the agreement was three months and could be renewed at the Company's
option for an additional three months. Fonix paid $30,000 to Advocast pursuant
to the consulting agreement.

On June 18, 2001, Fonix canceled the debenture, terminated the consulting
agreement, agreed that Advocast could redeem the Advocast Preferred Stock owned
by Fonix and issued warrants to Advocast for the purchase of 250,000 shares of
Fonix Class A common stock at an exercise price of $0.33 per share in return for
a perpetual, fully paid- up, nonexclusive license to certain technology
developed by Advocast for Internet speech applications. The warrants were valued
at $62,500 using the Black-Scholes option valuation model and were recorded as
product development costs at the date of the transaction. Fonix has no further
obligation to provide funding, management consultation and development services
or technology to Advocast.

11.  PRODUCT DEVELOPMENT AND RESEARCH

IMC2 - In March 1998, the Company entered into a professional services agreement
with IMC2 Corporation ("IMC2"), a research and development entity, to assist in
the continuing development of specific automated speech recognition
technologies. The professional services agreement was for a term of 36 months
and required the Company to make monthly payments of $22,000. The original term
of the agreement expired in February 2001, but has been extended on a
month-to-month basis. Under the terms of the agreement, including additional
payments made for work performed beyond the scope of the original agreement, the
Company  expended a total of $305,000  for the nine months ended  September  30,
2001 and $198,000 for the nine months ended September 30, 2000.


                                       11


<PAGE>

12. LITIGATION

On August 28, 1998, John R. Clarke and Perpetual Growth Fund, a company
affiliated with Clarke, commenced an action against Fonix in the Federal
District Court for the Southern District of New York. Clarke and Perpetual
Growth asserted claims for breach of contract relating to certain financing
received by the Company during 1998 and thereafter. Fonix filed a motion to
dismiss based upon the court's lack of personal jurisdiction over Fonix. The
court granted Fonix's motion to dismiss. Clarke and Perpetual Growth thereafter
appealed the decision of the New York court to the United States Court of
Appeals for the Second Circuit. The Court of Appeals affirmed the decision of
the trial court. In the interim, Fonix filed a suit against Clarke and Perpetual
Growth in the Federal District Court for the Central District of Utah seeking a
declaratory judgment that it did not owe any money to Clarke and Perpetual
Growth. The case was tried in the Utah federal district court in March 2001,
after which the court ruled in favor of Fonix and determined that Clarke and
Perpetual Growth had no claims for "trailing fees" with regard to the financings
which were the subject of the suit. Clarke and Perpetual Growth have appealed
the decision of the Utah federal district court to the United States Court of
Appeals for the Tenth Circuit. The Company believes that the claims of Clarke
and Perpetual Growth are without merit and will continue to vigorously oppose
those claims.

13. KOREAN OPERATIONS

In April 2001, Fonix began doing business in South Korea through a wholly owned
subsidiary known as Fonix Korea, Sales Group, Ltd. ("Fonix Korea"). Fonix Korea
sells and markets Fonix products and solutions in the embedded and server-based
markets to Korean manufacturers of microprocessor chips and consumer
electronics, and through value-added resellers for retail distribution. The
operations of Fonix Korea since inception are included in the accompanying
condensed consolidated financial statements.





                                       12

<PAGE>



ITEM 2.         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                RESULTS OF OPERATIONS

This quarterly report on Form 10-Q contains, in addition to historical
information, forward-looking statements that involve substantial risks and
uncertainties. Actual results could differ materially from the results the
Company anticipates and which are discussed in the forward-looking statements.
Factors that could cause or contribute to such differences are discussed in the
Company's Annual Report on Form 10-K for the year ended December 31, 2000.

Overview

Since inception, the Company has devoted substantially all of its resources to
research, development and acquisition of software technologies that enable
intuitive human interaction with computers, consumer electronics and other
intelligent devices. Throughout 2001, the Company has continued a transition of
its strategic focus from technology research, development and acquisition into
marketing, sales and product delivery. The Company focuses marketing and sales
efforts in consumer applications, mobile and wireless devices, and computer
telephony and server solutions.

As markets for speech-enabled technologies expand, the demand for rapid
development of quality solutions and applications increases. The Company has
responded to these increasing demands through the release and development of the
Fonix Accelerated Application Solutions Technologies ("FAAST"), a proprietary
development middle-ware interface tool. FAAST provides developers with a speech
application interface that facilitates rapid development of speech applications
that can be integrated quickly and efficiently into products. FAAST has been
released in versions for both server-based and embedded markets. The Company
believes that the FAAST development interface is recognized by the Company's
customers as a key ingredient to the successful launch of speech solutions.

Fonix now focuses marketing and sales of its technologies -- automated speech
recognition ("ASR"), text-to-speech ("TTS") and handwriting recognition ("HWR")
-- and solutions through:

     o      Consumer Applications, which includes products such as iSpeak,
            TimeTalk, TimeTalk Alert and Pocket Navigator for personal computers
            and personal digital assistants. Consumer applications are sold
            through retail distribution channels. iSpeak became available in
            retail outlets such as CompUSA and Tiger Direct in October 2001.

     o      Mobile and Wireless, which includes embedded applications and
            solutions for personal digital assistants, consumer electronics,
            cordless, cellular and smart phones and automotive telematics.
            Currently, embedded solutions have been delivered in OEM
            arrangements with KME Panasonic and Microsoft.

     o      Computer Telephony and Server, which includes speech-enabled
            applications for customer response management ("CRM") applications,
            Internet voice portals and network system command and control
            applications. Solutions have been delivered to Siebel, Nortel, and
            Edify.

In addition, Fonix provides speech solutions and co-marketing relationships
through a partner program -- "Powered by Fonix" -- designed to assist the
Company's channel partners, developers and OEM's to adopt and integrate Fonix
speech solutions. Powered by Fonix offers distinct advantages, including:
technical consulting packages, incident support packages, developer forums,
reseller sales leads, marketing material and a monthly newsletter that
highlights the latest technology advancements from Fonix. Fonix retail products
are also available on the Fonix website: www.fonix.com.

Results of Operations

Three months ended September 30, 2001, compared with three months ended
September 30, 2000

During the three months ended September 30, 2001, the Company recorded revenues
of $265,646, reflecting an increase of $93,424 from the same period in the
previous year. Revenues in 2001 and 2000 were generated through sales and


                                       13

<PAGE>

licensing of Fonix  products and  technologies  and  engineering  fees.  Cost of
revenues  increased  from $6,856 to $86,130 for the same periods due to the cost
of performing engineering services for fees in 2001.

Selling, general and administrative expenses were $3,068,307 and $3,050,235 for
the three months ended September 30, 2001 and 2000, respectively. Included in
2000 expenses for the three-month period was a non-cash charge of $1,015,600
related to consulting performed in connection with financing transactions.
Excluding this non- cash expense, selling, general and administrative expenses
increased by $1,033,672. This increase is primarily the result of increased
compensation-related expenses amounting to $526,892 to strengthen the Company's
sales and marketing efforts with senior personnel in the United States and a new
sales group in Korea, $145,878 in travel- related expenses and $86,019 in
promotion and advertising expenses in the United States and Korea. Additional
increases of $162,764 in legal and other professional fees were incurred in
connection with corporate expansion activities, securities registration filings
and litigation and increases of $73,973 in occupancy costs resulting from
expanded domestic and foreign operating activities.

Product development and research expenses were $2,196,362 and $1,406,949 for the
three months ended September 30, 2001 and 2000, respectively. The increase of
$789,413 resulted primarily from an increase of $667,254 in compensation-related
expenses for product application and development activities and $140,890 in
consulting and outside service expenses incurred in development of product
applications and solutions using the Company's speech-enabled technologies.

Net other expenses were $52,163 and $3,552,484 for the three months ended
September 30, 2001 and 2000, respectively. The decrease results primarily from
interest expense incurred in connection with capital financing activities in
2000 that was not incurred in 2001.

The Company recognized a loss from the operations of an affiliate of $186,891
for the three months ended September 30, 2001, resulting from its investment in
Audium Corporation which is accounted for using the equity method.

Nine months ended September 30, 2001, compared with nine months ended September
30, 2000

During the nine months ended September 30, 2001, the Company recorded revenues
of $505,927, reflecting an increase of $133,433 over the same period in the
previous year. Revenues in 2001 and 2000 were generated through sales and
licensing of Fonix products and technologies and engineering fees. Cost of
revenues increased from $13,455 to $105,651 for the same periods due to the cost
of performing engineering services for fees in 2001.

Selling, general and administrative expenses were $8,522,008 and $8,844,156 for
the nine months ended September 30, 2001 and 2000, respectively. Included in
2000 expenses for the nine-month period were certain non-cash charges related to
financing and consulting transactions that amounted to $3,405,201, including
compensation- related expenses of $816,667 arising from the exercise of stock
appreciation rights and revaluation of options previously granted, consulting
expenses of $2,294,756 related to the issuance of warrants to consultants and
advisors and $293,778 in other operating expenses incurred in activities related
to equity financing transactions. Excluding these charges, selling, general and
administrative expenses increased by $3,083,053 for the nine-month period in
2001 when compared to the corresponding period in 2000. This increase resulted
primarily from increases of $1,806,746 in compensation-related expenses to
strengthen the Company's sales and marketing efforts with senior personnel in
the United States and a new sales group in Korea, $482,078 in travel-related
expense and $115,589 in promotion and advertising expenses in the United States
and Korea. Further increases of $393,334 were incurred in legal and other
professional fees in connection with corporate expansion activities, securities
registration filings and litigation, $139,303 in occupancy costs related to
expand operations, $112,038 for consulting activities related to corporate
development and $68,807 in other operating expenses.

Product development and research expenses were $6,335,639 and $4,336,069 for the
nine months ended September 30, 2001 and 2000, respectively. The increase of
$1,999,570 resulted primarily from an increase of $1,715,536 in
compensation-related expenses for product application and development activities
and $256,114 in consulting and outside service expenses incurred in development
of product applications and solutions using the Company's speech-enabled
technologies.


                                       14

<PAGE>



Net other expenses were $63,627 and $3,932,132 for the nine months ended
September 30, 2001 and 2000, respectively. The decrease results primarily from
interest expense incurred in connection with capital financing activities in
2000 that were not incurred in 2001.

The Company recognized a loss in the operations of an affiliate of $381,318 for
the nine months ended September 30, 2001, resulting from its investment in
Audium Corporation which is accounted for using the equity method.

Liquidity and Capital Resources

From inception, the Company's principal source of capital has been private and
other exempt sales of its debt and equity securities. The Company intends to
continue to raise additional funds in like manner to satisfy cash operating
requirements for the foreseeable future because of insufficient revenue from
operations. There can be no assurance that the Company will be able to secure
this funding or that the terms of such financing will be favorable to the
Company. Furthermore, the issuance of equity or debt securities which are or may
become convertible into the Company's equity securities may result in
substantial dilution to its stockholders.

The Company had negative working capital of $5,556,858 at September 30, 2001,
compared to positive working capital of $180,356 at December 31, 2000. Current
assets decreased by $2,314,404 to $1,437,806 from December 31, 2000, to
September 30, 2001. Current liabilities increased by $3,422,810 to $6,994,664
during the same period. The decrease in working capital from December 31, 2000
to September 30, 2001, was primarily attributable to two significant events:
issuance of a note payable in connection with the purchase of Audium Preferred
Stock (see Note 4 to the Condensed Consolidated Financial Statements) and
release of funds held in escrow (see Note 2 to the Condensed Consolidated
Financial Statements). The funds released from escrow were subsequently used in
operations during the nine months ended September 30, 2001. The timing of
payments on operating obligations and receipts of funding under the Company's
equity line of credit also contributed to the decline in working capital. Total
assets were $16,197,093 at September 30, 2001 compared to $17,517,373 at
December 31, 2000.

Convertible Notes Receivable

Through September 30, 2001, the Company loaned $150,000 under the terms of two
separate convertible promissory notes to an unrelated entity (the "Borrower")
with whom the Company intends to engage in development activities. The notes are
unsecured, bear interest at an annual rate of 7.5 percent and mature 120 days
from the issuance date of each note. The notes are convertible at the option of
the Company into common shares of the Borrower. Subsequent to September 30,
2001, the Company loaned $230,000 under the terms of three separate convertible
promissory notes of similar terms to the Borrower.

Note Receivable from Affiliate

 In connection with a collaboration agreement with Audium Corporation
("Audium"), in February 2001, Fonix advanced $200,000 to Audium as a bridge
loan. The loan bore interest at a rate of 12 percent per year, was due on or
before February 28, 2003, and was convertible into shares of Audium Series A
Convertible Preferred Stock ("Audium Preferred Stock"). Effective April 11,
2001, the bridge loan, together with accrued interest of $2,400 and an
additional advance of $197,600 that was disbursed to Audium on May 1, 2001, were
aggregated into a new note. The new note, with a principal amount of $400,000
(the "Audium Note"), bears interest at five percent per annum and has a term of
four years. The Audium Note is convertible into shares of Audium Preferred Stock
at a price of $1.46 per share in the event of (i) Audium raising an additional
$2,000,000 prior to October 6, 2002, (ii) Audium's merger or consolidation,
(iii) a qualified public offering of Audium common stock, (iv) an event of
default under a note payable from Fonix (see Fonix Note below), or (v) Audium's
aggregate gross revenues for the months of January through June 2003 exceeding
$1,000,000. The Audium Note is secured by Audium's intellectual property.
Further, at the closing, Audium granted Fonix a fully paid, worldwide,
non-exclusive license to Audium's software to make, manufacture, and use the
software and any derivative works if Audium declares bankruptcy or ceases to do
business.

Management determined that a 12 percent annual interest rate better reflects the
risk characteristics of the Audium Note. Accordingly, interest was imputed at 12
percent and the Audium Note was recorded at its original present value of
$302,909. For the three and nine months ended September 30, 2001, the Company


                                       15

<PAGE>

recorded  interest  income  of  $9,518  and  17,585,   respectively,   including
contractual and imputed interest.

Note Payable to Affiliate

On April 11, 2001, the Company closed a stock purchase agreement with Audium,
wherein Fonix agreed to purchase up to $2,800,000 of Audium Preferred Stock at a
price of $1.46 per share. At closing, Fonix paid $200,000 in cash, and gave
Audium a note (the "Fonix Note") for the remaining $2,600,000, payable in 13
monthly installments of $200,000 beginning on June 1, 2001. The Fonix Note bears
no interest unless an event of default occurs, in which case the Fonix Note will
bear interest at 12 percent per year. No events of default have occurred to
date.

Management determined that a 12 percent annual interest rate reflects the risk
characteristics of the Fonix Note. Accordingly, interest has been imputed at 12
percent and the Company recorded a present value of $2,426,748 for the note
payable. For the three and nine months ended September 30, 2001, the Company
recorded interest expense of $57,348 and $119,977, respectively, related to this
note.

At closing, Audium issued 14 share certificates, each for 136,986 shares of
Audium Preferred Stock to Fonix, and delivered one certificate in exchange for
the initial payment of $200,000. The remaining certificates are held by Audium
as collateral for the Fonix Note under the terms of a security agreement. For
each monthly payment of $200,000 or multiple payments that aggregate $200,000,
Audium will release to Fonix one certificate for 136,986 shares of Audium
Preferred Stock.

Through September 30, 2001, three payments of $200,000 were made on the Fonix
Note and Audium released three certificates for 136,986 shares of Audium
Preferred Stock. Effective October 1, 2001, the terms of the Fonix note were
modified to reduce the monthly payments to the following amounts: $75,000 for
September 2001, $100,000 for October 2001, $125,000 for November 2001, $150,000
for December 2001 and January 2002. Thereafter, monthly payments of $200,000 are
scheduled through August 2002. No other terms of the original Fonix Note were
affected by the modification. The modified payments for September, October and
November were made when due.

Investment in Affiliate

Each share of Audium Preferred Stock is convertible into one share of Audium's
common stock. Holders of Audium Preferred Stock are entitled to eight percent
cumulative dividends, a liquidation preference in excess of the original
purchase price plus any declared but unpaid dividends, anti-dilution rights, and
voting rights equal to the corresponding number of common shares. The stock
purchase agreement between Audium and Fonix also entitles Fonix to elect one
member of Audium's board of directors. The Company also entered into a
registration rights agreement with Audium which allows Fonix, after waiting 180
days after the closing of a qualified public offering by Audium, to request that
Audium register the resale of the shares of common stock underlying the Audium
Preferred Stock held by Fonix. Audium agreed to pay the expenses related to
preparing and filing the registration statement. However, Fonix will be
responsible for any brokers' commissions or other sales-related fees for any
shares of common stock Fonix sells.

Beginning April 11, 2001, Fonix accounts for its investment in Audium using the
equity method of accounting. Accordingly, the Company recognized a loss of
$381,318 in its interim 2001 condensed consolidated statements of operations
related to Audium's net loss for the period from April 11, 2001 through
September 30, 2001 and the difference between the purchase price of the Audium
Preferred Stock and the Company's portion of Audium's net stockholders' deficit
amortized on a straight-line basis over a period of eight years.

Preferred Stock

During the nine months ended September 30, 2001, 164,500 shares of Series D
convertible preferred stock and related accrued dividends were converted into
13,978,440 shares of Class A common stock. As of September 30, 2001, there are
no shares of Series D preferred stock outstanding.

During the nine  months  ended  September  30,  2001,  6,073  shares of Series F
convertible  preferred stock and related  accrued  dividends were converted into
519,067 shares of Class A common stock.  As of September 30, 2001,  there are no
shares of Series F preferred stock outstanding.


                                       16


<PAGE>

Equity Lines of Credit

On August 8, 2000, the Company entered into a Private Equity Line Agreement
("Equity Line") with a private investor ("Equity Line Investor"), which gives
the Company the right to draw up to $12,500,000 for operations and other
purposes, through a mechanism of draws and puts of stock. The Company is
entitled to draw funds and to "put" to the Equity Line Investor shares of Class
A common stock in lieu of repayment of the draw. The number of shares issued is
determined by dividing the dollar amount of the draw by 90 percent of the
average of the two lowest closing bid prices of Class A common stock over the
seven trading-day period following the date the Company tenders the put notice.
The Equity Line Investor funds the amounts requested by the Company within two
trading days after the seven trading-day period.

During the nine months ended September 30, 2001, draws against the equity line
of credit in the amount of $4,010,000 were converted into 9,932,780 shares of
Class A common stock. As of October 31, 2001, $4,516,492 remains available to be
drawn on the Equity Line.

On April 6, 2001, the Company entered into a second equity line agreement (the
"Second Equity Line") with the same investor as the initial equity line ("Equity
Line Investor"). Under the Second Equity Line, the Company has the right to draw
against an equity line of credit up to $20,000,000 under terms that are
substantially identical to the terms of the initial Equity Line.

From the inception of the Second Equity Line through September 30, 2001, draws
taken under the Second Equity Line amounted to $8,375,000 and were converted to
57,613,255 shares of Class A common stock. Subsequent to September 30, 2001,
additional draws amounting to $3,550,000 were converted into 42,582,291 shares
of Class A common stock. As of October 31, 2001, $8,075,000 remains available to
be drawn on the Second Equity Line.

Stock Options

During the nine months ended September 30, 2001, the Company granted options to
purchase 3,110,450 shares of Class A common stock at exercise prices ranging
from $0.12 to $0.73 per share. Of the options granted during this nine-month
period, 225,000 vest immediately, and the balance of 2,885,450 vest over the
three years following issuance. If not exercised, all options expire within ten
years from the date of grant. As of September 30, 2001, the Company had options
outstanding to purchase 19,509,148 shares of Class A common stock.

The Company's option plans provide for stock appreciation rights that allow the
grantee to receive shares of the Company's Class A common stock equivalent in
value to the difference between the designated exercise price and the fair
market value of the Company's stock at the date of exercise. As of September 30,
2001, there are options to purchase 503,339 shares of Class A common stock
outstanding which provide for stock appreciation rights. Of these options,
126,669 have an exercise price of $6.50 per share and 376,671 have an exercise
price of $1.00 per share.

Other

In April 2001, the Company began doing business in Korea, through a wholly owned
subsidiary known as Fonix Korea, Sales Group, Ltd. ("Fonix Korea"). Fonix Korea
sells and markets Fonix products and solutions in the embedded and server-based
markets to Korean manufacturers of microprocessor chips and consumer
electronics, and through value-added resellers.

The Company presently has no plans to purchase new research and development or
office facilities.

                                     Outlook

The Company's objective is for its speech-enabled technologies to be the
solution or application of choice in consumer applications, wireless and mobile
applications and computer telephony and server solutions. Fonix core
technologies, solutions and products are based on proprietary patented
technology. Management believes the Company's speech-enabled technologies,


                                       17

<PAGE>

solutions  and  products  provide  mass-market  appeal,  ease of use,  increased
productivity  and  a  competitive   advantage  compared  to  other  technologies
available in the marketplace.  To accomplish its objectives, the Company intends
to proceed as follows:

            Substantially Increase Marketing and Sales Activities. The Company
            will focus on sales channels, OEM and developer relationships and
            strategic partner relationships. To address global opportunities,
            the Company will continue to develop or acquire additional speech
            products and technologies for foreign languages and dialects. The
            Company will also promote the "Powered by Fonix" Partner Program to
            build sales and marketing opportunities with software developers,
            resellers and corporate partners.

            Expand Strategic Relationships. The Company has a number of
            strategic collaboration and marketing arrangements with developers
            and VARs. The Company intends to expand such relationships and add
            additional similar relationships, specifically in the mobile
            communications, PDA, IVR and Internet portal markets. Because FAAST
            is increasingly recognized as a dynamic development environment, the
            Company expects FAAST to be the product around which many of these
            relationships are structured.

            Continue to Develop and Enhance the Core Technologies. The Company
            plans to continue to invest significant resources in the development
            and acquisition of speech-enabled technologies, developer tools and
            development frameworks to maintain its competitive advantages.

As the Company proceeds to implement its strategy and to reach its objectives,
the Company anticipates further development of complementary technologies, added
product and applications development expertise, access to market channels and
additional opportunities for strategic alliances in other industry segments. The
strategy the Company has adopted has significant risk and stockholders and
others interested in Fonix and the Company's Class A common stock should
carefully consider the risks set forth under the heading "Certain Significant
Risk Factors" in the Company's 2000 Annual Report on Form 10-K, Item 1, Part I.


                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

On August 28, 1998, John R. Clarke and Perpetual Growth Fund, a company
affiliated with Clarke, commenced an action against Fonix in the Federal
District Court for the Southern District of New York. Clarke and Perpetual
Growth asserted claims for breach of contract relating to certain financing
received by the Company during 1998 and thereafter. Fonix filed a motion to
dismiss based upon the court's lack of personal jurisdiction over Fonix. The
court granted Fonix's motion to dismiss. Clarke and Perpetual Growth thereafter
appealed the decision of the New York court to the United States Court of
Appeals for the Second Circuit. The Court of Appeals affirmed the decision of
the trial court. In the interim, Fonix filed a suit against Clarke and Perpetual
Growth in the Federal District Court for the Central District of Utah seeking a
declaratory judgment that it did not owe any money to Clarke and Perpetual
Growth. The case was tried in the Utah federal district court in March 2001,
after which the court ruled in favor of Fonix and determined that Clarke and
Perpetual Growth had no claims for "trailing fees" with regard to the financings
which were the subject of the suit. Clarke and Perpetual Growth have appealed
the decision of the Utah federal district court to the United States Court of
Appeals for the Tenth Circuit. The Company believes that the claims of Clarke
and Perpetual Growth are without merit and will continue to vigorously oppose
those claims.

Item 2.  Changes in Securities

c.          Unregistered sales of equity securities during the quarter (other
            than in reliance on Regulation S).

Recent Sales of Unregistered Securities. During the three months ended September
30, 2001, the Company issued equity securities that were not registered under
the Securities Act of 1933, as amended (the "1933 Act"), other than unregistered
sales in reliance on Regulation S under the Act, as follows:

            Between July 1, 2001 and September 30, 2001, in connection with the
            Second Equity Line Agreement, the Company received $5,450,000 in


                                       18

<PAGE>

            funds drawn under the Equity Line Agreement and issued 47,909,955
            shares of Class A common stock to the Equity Line  Investor.  The
            shares were  issued  without  registration  under the 1933 Act in
            reliance  on  Section  4(2) of the  1933  Act and the  rules  and
            regulations  promulgated  thereunder.  The  resales of the shares
            were  subsequently  registered under a registration  statement on
            Form S-2 which was declared effective August 16, 2001.

            Subsequent to September 30, 2001, in connection with the Second
            Equity Line Agreement, the Company received $3,550,000 in funds
            drawn under the Equity Line Agreement and issued 42,582,291 shares
            of Class A common stock to the Equity Line Investor. The shares were
            issued without registration under the 1933 Act in reliance on
            Section 4(2) of the 1933 Act and the rules and regulations
            promulgated thereunder. The resales of the shares were subsequently
            registered under registration statements on Form S-2 which were
            declared effective August 16, 2001 and October 5, 2001.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

To date, all of the Company's revenues have been denominated in United States
dollars and received primarily from customers in the United States. The
Company's exposure to foreign currency exchange rate changes has been
insignificant. The Company expects, however, that future product license and
services revenue may also be derived from international markets and may be
denominated in the currency of the applicable market. As a result, operating
results may become subject to significant fluctuations based upon changes in the
exchange rate of certain currencies in relation to the U.S. dollar. Furthermore,
to the extent that the Company engages in international sales denominated in
U.S. dollars, an increase in the value of the U.S. dollar relative to foreign
currencies could make the Company's products less competitive in international
markets. Although the Company will continue to monitor its exposure to currency
fluctuations, it cannot assure that exchange rate fluctuations will not
adversely affect financial results in the future.

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

On July 18, 2001, the Company held its Annual Meeting of Shareholders in Salt
Lake City, Utah. The record date for the meeting was June 14, 2001, on which
date there were 219,569,513 shares of the Company's Class A common stock
outstanding.

The first matter voted upon at the meeting was the election of directors. The
following directors were elected:


                                  SHARES                       SHARES
DIRECTOR                      VOTED IN FAVOR               VOTED AGAINST
--------                      --------------               -------------
Thomas A. Murdock              166,729,551                   2,643,424
Roger D. Dudley                166,683,380                   2,689,595
John A. Oberteuffer, Ph.D      167,239,336                   2,133,639
William A. Maasberg, Jr.       167,229,061                   2,143,914
Mark S. Tanner                 166,899,913                   2,473,062

The second matter voted upon at the meeting was the approval of Arthur Andersen
LLP as independent auditors for the Company. The results of the voting were
168,253,560 shares in favor, 835,205 shares against, and 284,210 shares withheld
or abstaining.

The third matter voted upon at the meeting was the approval of a proposed
amendment to the Company's Certificate of Incorporation to increase the
authorized capital stock of the Company to include 500,000,000 shares of Class A
Common Stock. The results of the voting were 162,266,907 shares in favor,
6,663,363 shares against, and 442,705 shares withheld or abstaining.

Item 6.  Exhibits and Reports on Form 8-K


                                       19

<PAGE>

a.          Exhibits: The following Exhibits are filed with this Form 10-Q
            pursuant to Item 601(a) of Regulation S-K:

            Exhibit No.             Description of Exhibit

            (2)(i)                  Agreement and Plan of Reorganization among
                                    the Company, Fonix Acquisition Corporation
                                    and AcuVoice dated as of January 13, 1998,
                                    incorporated by reference from the Company's
                                    Current Report on Form 8-K, filed March 20,
                                    1998

            (2)(ii)                 Agreement and Plan of Merger among Fonix,
                                    Articulate Acquisition Corporation, and
                                    Articulate, dated as of July 31, 1998,
                                    incorporated by reference from the Company's
                                    Current Report on Form 8-K, filed September
                                    17, 1998

            (2)(iii)                Agreement and Plan of Merger among Fonix,
                                    Papyrus Acquisition Corporation, and
                                    Papyrus Associates, Inc., dated as of
                                    September 10, 1998, incorporated by
                                    reference from the Company's Current Report
                                    on Form 8-K, filed November 13, 1998

            (3)(i)                  Articles of Incorporation of the Company
                                    which are incorporated by reference from the
                                    Company's Registration Statement on Form
                                    S-18 dated as of September 12, 1989

            (3)(ii)                 Certificate of Amendment of Certificate of
                                    Incorporation dated as of March 21, 1994,
                                    which is incorporated by reference from the
                                    Company's Annual Report for the Fiscal Year
                                    Ended December 31, 1994 on Form 10-KSB

            (3)(iii)                Certificate of Amendment of Certificate of
                                    Incorporation dated as of May 13, 1994,
                                    which is  incorporated by reference from the
                                    Company's Annual Report for the Fiscal
                                    Year Ended December 31, 1994  on Form 10-KSB

            (3)(iv)                 Certificate of Amendment of Certificate of
                                    Incorporation dated as of September 24,
                                    1997, which is incorporated by reference
                                    from the Company's Quarterly Report on Form
                                    10-Q for the period ended September 30, 1997

            (3)(v)                  The Company's Bylaws, as amended, which are
                                    incorporated by reference from the Company's
                                    Annual Report for the Fiscal Year Ended
                                    December 31, 1994 on Form 10-KSB

            (4)(i)                  Description of the Company's common stock
                                    and other securities and specimen
                                    certificates representing such securities
                                    which are incorporated by reference from the
                                    Company's Registration Statement on Form
                                    S-18 dated as of September 12, 1989, as
                                    amended

            (4)(ii)                 Certificate of Designation of Rights and
                                    Preferences of Series A Preferred Stock,
                                    filed with the Secretary of State of
                                    Delaware on September 24, 1997, which is
                                    incorporated by reference from the Company's
                                    Quarterly Report on Form 10-Q for the period
                                    ended September 30, 1997

            (4)(iii)                Certificate of Designation of Rights and
                                    Preferences of Series B Convertible
                                    Preferred Stock, filed with the Secretary of
                                    State of Delaware on October 27, 1997, which
                                    is incorporated by reference from the
                                    Company's Quarterly Report on Form 10-Q for
                                    the period ended September 30, 1997

            (4)(iv)                 Certificate of Designation of Rights and
                                    Preferences of 5% Series C Convertible
                                    Preferred Stock, filed with the Secretary of
                                    State of Delaware on October 24, 1997, which
                                    is incorporated by reference from the
                                    Company's Quarterly Report on Form 10-Q for
                                    the period ended September 30, 1997

            (4)(v)                  Certificate of Designation of Rights and
                                    Preferences of Series D 4% Convertible


                                       20

<PAGE>

                                    Preferred Stock, filed with the secretary of
                                    State of Delaware on August 27, 1998, which
                                    is incorporated by reference from the
                                    Company's Quarterly Report on Form 10-Q for
                                    the period ended September 30, 1998

            (4)(vi)                 Certificate of Designation of Rights and
                                    Preferences of Series E 4% Convertible
                                    Preferred Stock, filed with the secretary of
                                    State of Delaware on October 15, 1998, which
                                    is incorporated by reference from the
                                    Company's Quarterly Report on Form 10-Q for
                                    the period ended September 30, 1998

            (9)(i)                  Voting Trust Agreement dated as of December
                                    10, 1993 by and among Phonic Technologies,
                                    Inc., Stephen M. Studdert, Thomas A. Murdock
                                    and Roger D. Dudley, which is incorporated
                                    by reference from the Company's Current
                                    Report on Form 8-K dated as of June 17, 1994

            (9)(ii)                 Amendment of Voting Trust Agreement by and
                                    among the Company, Stephen M. Studdert,
                                    Thomas A. Murdock, Roger D. Dudley, Beesmark
                                    Investments, L.C., Studdert Companies
                                    Corporation, and Thomas A. Murdock as
                                    Trustee, dated as of October 23, 1995,
                                    incorporated by reference from the Company's
                                    Current Report on Form 8-K dated  as of
                                    October 23, 1995

            (9)(iii)                Second Amendment of Voting Trust Agreement
                                    by and among the Company, Stephen M.
                                    Studdert, Thomas A. Murdock, Roger D.
                                    Dudley, Beesmark Investments, L.C.,
                                    Studdert Companies Corporation, and Thomas
                                    A. Murdock as Trustee, dated as of July 2,
                                    1996, incorporated by reference from the
                                    Annual Report on Form 10-KSB for the fiscal
                                    year ended December 31, 1996

            (9)(iv)                 Third Amendment of Voting Trust Agreement by
                                    and among the Company, Stephen M. Studdert,
                                    Thomas A. Murdock, Roger D. Dudley, Beesmark
                                    Investments, L.C., Studdert Companies
                                    Corporation, and Thomas A. Murdock as
                                    Trustee, dated as of September 20, 1996,
                                    incorporated by reference from the Annual
                                    Report on Form 10-KSB for the fiscal year
                                    ended December 31, 1996

            (9)(v)                  Fourth Amendment of Voting Trust Agreement
                                    by and among the Company, Stephen M.
                                    Studdert, Thomas A. Murdock, Roger D.
                                    Dudley, Beesmark Investments, L.C., Studdert
                                    Companies Corporation, and Thomas A. Murdock
                                    as Trustee, dated as of September 20, 1996,
                                    incorporated by reference from the Annual
                                    Report on Form 10-KSB for the fiscal year
                                    ended December 31, 1996

            (10)(i)                 Product Development and Assignment Agreement
                                    dated as of October 16, 1993 between
                                    Phonic Technologies, Inc. and Synergetics,
                                    Inc., which is incorporated by reference
                                    from the Company's Current Report on Form
                                    8-K dated as of June 17, 1994

            (10)(ii)                Re-Stated Product Development and Assignment
                                    Agreement dated as of March 30, 1995,
                                    between Fonix Corporation and Synergetics,
                                    Inc., which is incorporated by reference
                                    from the Company's Annual Report for the
                                    Fiscal Year Ended December 31, 1994 on Form
                                    10-KSB

            (10)(iii)               Memorandum of Understanding dated as of
                                    March 13, 1997, by and among the Company,
                                    Synergetics, Inc. and C. Hal Hansen, which
                                    is incorporated by reference from the
                                    Company's Annual Report on Form 10-KSB for
                                    the fiscal year ended December 31, 1996

            (10)(iv)                Employment Agreement by and between the
                                    Company and Stephen M. Studdert, which
                                    is incorporated by reference from the
                                    Company's Annual Report on Form 10-KSB for
                                    the fiscal year ended December 31, 1996


                                       21

<PAGE>


            (10)(v)                 Employment Agreement by and between the
                                    Company and Thomas A. Murdock, which
                                    is incorporated by reference from the
                                    Company's Annual Report on Form 10-KSB for
                                    the fiscal year ended December 31, 1996

            (10)(vi)                Employment Agreement by and between the
                                    Company and Roger D. Dudley, which is
                                    incorporated by reference from the Company's
                                    Annual Report on Form 10-KSB for the
                                    fiscal year ended December 31, 1996

            (10)(vii)               Restated Master Agreement for Joint
                                    Collaboration between the Company and
                                    Siemens, dated November 14, 1997, as
                                    revised, which is incorporated by reference
                                    from the Company's Annual Report on Form
                                    10-K for the year ended December 31, 1997

            (10)(viii)              Restated First Statement of Work and License
                                    Agreement between the Company and Siemens,
                                    dated February 11, 1998, as revised, which
                                    is incorporated by reference from the
                                    Company's Annual Report on Form 10-K for the
                                    year ended December 31, 1997

            (10)(ix)                Master Technology Collaboration Agreement
                                    between the Company and OGI, dated
                                    October 14, 1997, which is incorporated by
                                    reference from the Company's Annual Report
                                    on Form 10-K for the year ended December 31,
                                    1997

            (10)(x)                 Common stock Purchase Agreement among the
                                    Company and JNC Opportunity Fund Ltd. and
                                    Diversified Strategies Fund, LP, dated as of
                                    March 9, 1998, which is incorporated by
                                    reference from the Company's Annual Report
                                    on Form 10-K for the year ended December 31,
                                    1997

            (10)(xi)                Common stock Purchase Agreement between the
                                    Company and Thomson Kernaghan & Co., dated
                                    as of March 9, 1998, which is incorporated
                                    by reference from the Company's Annual
                                    Report on Form 10-K for the year ended
                                    December 31, 1997

            (10)(xii)               Royalty Modification Agreement among the
                                    Company and Synergetics, dated as of April
                                    6, 1998, which is incorporated by reference
                                    from the Company's Annual Report on Form
                                    10-K for the year ended December 31, 1997

            (10)(xiii)              Purchase Agreement with John Oberteuffer and
                                    the Company dated April 9, 1998, which
                                    is incorporated by reference from the
                                    Company's Annual Report on Form 10-K for the
                                    year ended December 31, 1997

            (10)(xiv)               Employment Agreement by and between the
                                    Company and John A. Oberteuffer, which is
                                    incorporated by reference from the Company's
                                    Annual Report on Form 10-K for the year
                                    ended December 31, 1997

            (10)(xv)                First Amendment to Master Agreement for
                                    Joint Collaboration between the Company and
                                    Siemens, dated February 13, 1998, which is
                                    incorporated by reference from the Company's
                                    Annual Report on Form 10-K for the year
                                    ended December 31, 1997

            (10)(xvi)               Second Amendment to Master Agreement for
                                    Joint Collaboration between the Company
                                    and Siemens, dated March 13, 1998, which is
                                    incorporated by reference from the
                                    Company's Annual Report on Form 10-K for the
                                    year ended December 31, 1997

            (10)(xvii)              Series D Convertible Preferred Stock
                                    Purchase Agreement Among Fonix corporation,
                                    JNC Opportunity Fund, Ltd., Diversified
                                    Strategies Fund, L.P., Dominion Capital
                                    Fund, Ltd., Sovereign Partners, LP, Canadian
                                    Advantage Limited Partnership and  Thomson
                                    Kernaghan & Co. (as agent) dated as of
                                    August 31, 1998, incorporated by reference
                                    from the Company's Quarterly Report on Form
                                    10-Q for the period ended September 30, 1998

            (10)(xviii)             Series E Convertible Preferred Stock
                                    Exchange and Purchase Agreement among Fonix



                                       22

<PAGE>


                                    corporation, Sovereign Partners, LP and
                                    Dominion Capital Fund, Ltd., dated as of
                                    September 30, 1998, incorporated by
                                    reference from the Company's Quarterly
                                    Report on Form 10-Q for the period ended
                                    September 30, 1998

            (10)(xix)               Securities Purchase Agreement among Fonix
                                    Corporation and JNC Strategic Fund, dated
                                    December 21, 1998 for 1,801,802 shares of
                                    common stock and Repricing Rights,
                                    incorporated by reference from Amendment No.
                                    1 to Registration Statement on Form S-3
                                    (File No. 333-67573)

            (10)(xx)                Securities Purchase Agreement among Fonix
                                    Corporation and the investors identified
                                    therein dated January 29, 1999, as
                                    supplemented on March 3, 1999, concerning
                                    sales of $6,500,000 principal amount of
                                    Series C 5% Convertible Debentures,
                                    incorporated by reference from Amendment No.
                                    1 to Registration Statement on Form S-3
                                    (File No. 333-67573)

            (10)(xxi)               Asset Purchase Agreement - Acquisition of
                                    Certain Assets of Fonix Corporation and
                                    Fonix/ASI Corporation by Lernout & Hauspie
                                    Speech Products N.V., dated as of May 19,
                                    1999, which is incorporated by reference
                                    from the Company's Current Report on Form
                                    8-K, filed with the Commission on September
                                    16, 1999 (therein designated as Exhibit
                                    10(a))

            (10)(xxii)              Escrow Agreement, dated as of September 1,
                                    1999, which is incorporated by reference
                                    from the Company's Current Report on Form
                                    8-K, filed with the Commission on
                                    September 16, 1999 (therein designated as
                                    Exhibit 10(b))

            (10)(xxiii)             Technology Option Agreement, dated as of May
                                    19, 1999, which is incorporated by reference
                                    from the Company's Current Report on Form
                                    8-K, filed with the Commission on September
                                    16, 1999 (therein designated as Exhibit
                                    10(c))

            (10)(xxiv)              Assignment and Assumption Agreement, dated
                                    as of September 1, 1999, which is
                                    incorporated by reference from the Company's
                                    Current Report on Form 8-K, filed with
                                    the Commission on September 16, 1999
                                    (therein designated as Exhibit 10(d))

            (10)(xxv)               License Agreement by and between Fonix/ASI
                                    Corporation and Lernout & Hauspie Speech
                                    Products N.V., dated as of May 19, 1999,
                                    which is incorporated by reference from the
                                    Company's Current Report on Form 8-K, filed
                                    with the Commission on September 16, 1999
                                    (therein designated as Exhibit 10(e))

            (10)(xxvi)              Loan Agreement, dated as of April 22, 1999,
                                    which is incorporated by reference from the
                                    Company's Current Report on Form 8-K, filed
                                    with the Commission on September 16,
                                    1999 (therein designated as Exhibit 10(f))

            (10)(xxvii)             Amendment to Loan Agreement, dated as of May
                                    12, 1999, which is incorporated by reference
                                    from the Company's Current Report on Form
                                    8-K, filed with the Commission on September
                                    16, 1999 (therein designated as Exhibit
                                    10(g))

            (10)(xxviii)            Second Amendment to Loan Agreement, dated as
                                    of May 19, 1999, which is incorporated by
                                    reference from the Company's Current Report
                                    on Form 8-K, filed with the Commission on
                                    September 16, 1999 (therein designated as
                                    Exhibit 10(h))

            (10)(xxix)              Loan Agreement, dated as of May 19, 1999,
                                    which is incorporated by reference from the
                                    Company's Current Report on Form 8-K, filed
                                    with the Commission on September 16, 1999
                                    (therein designated as Exhibit 10(i))

            (10)(xxx)               First Amendment to Loan Agreement, dated as
                                    of August 12, 1999, which is incorporated by
                                    reference from the Company's Current Report
                                    on Form 8-K, filed with


                                       23

<PAGE>


                                    the Commission on September 16, 1999
                                    (therein designated as Exhibit 10(j))

            (10)(xxxi)              Agreement, dated as of July 31, 1999, which
                                    is incorporated by reference from the
                                    Company's Current Report on Form 8-K, filed
                                    with the Commission on September 16,
                                    1999 (therein designated as Exhibit 10(k))

            (10)(xxxii)             Series F Convertible Preferred Stock
                                    Purchase Agreement, Among Fonix Corporation,
                                    Sovereign Partners, LP, Dominion Capital
                                    Fund, LTD., Dominion Investment Fund,
                                    LLC, Canadian Advantage, L.P., and Queen
                                    LLC, dated as of February 1, 2000

            (10) (xxxiii)           Amended and Restated Series F Convertible
                                    Preferred Stock Purchase Agreement among
                                    Fonix Corporation and the investors
                                    identified therein dated May 22, 2000, which
                                    is incorporated by reference from the
                                    Company's Rule 424(b) Registration Statement
                                    on Form S-2, filed with the Commission on
                                    June 16, 2000 (therein designated as Exhibit
                                    99.3)

            (10) (xxxiv)            Equity Line Agreement between Fonix
                                    Corporation and Queen LLC, dated August 8,
                                    2000, which is incorporated by reference
                                    from the Company's Registration Statement on
                                    Form S-2, filed with the Commission on
                                    August 10, 2000 (therein designated as
                                    Exhibit 99.4)

            (10)(xxxv)              Audium Stock Purchase Agreement between
                                    Fonix Corporation and Audium Corporation,
                                    dated as of April 5, 2001, filed with the
                                    Commission on April 17, 2001

            (10)(xxxvi)             Certificate of Designation of Audium Series
                                    A Preferred Stock, filed with the Commission
                                    on April 17, 2001.

            (10)(xxxvii)            Form of Promissory Note from Fonix
                                    Corporation to Audium Corporation for
                                    $2,600,000, dated as of April 5, 2001, filed
                                    with the Commission on April 17, 2001.

            (10)(xxxviii)           Security Agreement between Fonix Corporation
                                    as the Debtor and Audium Corporation
                                    as the Secured Party, dated as of April 5,
                                    2001, filed with the Commission on April 17,
                                    2001.

            (10)(xxxix)             Registration Rights Agreement between Fonix
                                    Corporation and Audium Corporation, dated as
                                    of April 5, 2001, filed with the Commission
                                    on April 17, 2001.

            (10)(xl)                Security Agreement between Audium
                                    Corporation as the Debtor and Fonix
                                    Corporation as the Secured Party, dated as
                                    of April 5, 2001, filed with the Commission
                                    on April 17, 2001.

            (10)(xli)               Form of Promissory Note from Audium
                                    Corporation to Fonix Corporation for
                                    $400,000, filed with the Commission on April
                                    17, 2001.

            (10)(xlii)              License Agreement between Fonix Corporation
                                    and Audium Corporation, dated as o  April 5,
                                    2001, filed with the Commission on April 17,
                                    2001.

            (10)(xliii)             Second Private Equity Line Agreement between
                                    Fonix Corporation and Queen LLC, dated April
                                    6, 2001, filed with the Commission on April
                                    17, 2001.

            (10)(xliv)              Registration Rights Agreement between Fonix
                                    Corporation and Queen LLC, dated April
                                    6, 2001, filed with the Commission on April
                                    17, 2001.



                                       24

<PAGE>


(B)         Reports filed on Form 8-K during the three-month period ended
            September 30, 2001: NONE



                                       25

<PAGE>


                                   SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                     Fonix Corporation



Date:      November 13, 2001               /s/ Roger D. Dudley
     ----------------------------    ------------------------------------
                                     Roger D. Dudley, Executive Vice President,
                                     Chief Financial Officer


                                       26