<PAGE>

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

                                    FORM 10-Q


[X]       Quarterly  report  pursuant  to Section 13 or 15(d) of the  Securities
          Exchange Act of 1934 for the quarterly period ended March 31, 2000

[ ]       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.)

                     60 East South Temple Street, Suite 1225
                            Salt Lake City, UT 84111
          (Address of principal executive offices, including zip code)

                                 (801) 328-0161
              (Registrant's telephone number, including area code)

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

         As of May 10, 2000,  164,219,614 shares of Class A voting common stock,
par value $.0001 per share, were issued and outstanding.





<PAGE>

                       Fonix Corporation and Subsidiaries
                          [A Development Stage Company]

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)

<TABLE>
<CAPTION>
ASSETS
                                                                                               March 31,       December 31,
                                                                                                 2000             1999
                                                                                            ---------------- ----------------
Current assets:
<S>                                                                                         <C>              <C>
      Cash and cash equivalents                                                             $       335,976  $       232,152
      Accounts receivable, net of allowance for doubtful accounts of $20,000
          in 2000 and 1999                                                                           14,234          184,901
      Prepaid expenses                                                                              195,777           51,747
      Interest and other receivables                                                                 16,714           10,539
      Inventory                                                                                       1,037            1,546
                                                                                            ---------------- ----------------

           Total current assets                                                                     563,738          480,885

Funds held in escrow                                                                              2,062,457        2,038,003

Property and equipment, net of accumulated depreciation of $2,117,635
     and $1,938,494, respectively                                                                   980,652        1,148,802

Intangible assets, net of accumulated amortization of $5,007,816 and
     $4,392,457, respectively                                                                    14,784,234       15,399,593

Other assets                                                                                        105,570          105,864
                                                                                            ---------------- ----------------

           Total assets                                                                     $    18,496,651  $    19,173,147
                                                                                            ================ ================

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
      Advances                                                                              $     1,250,000  $     1,000,000
      Notes payable - related parties                                                                77,625           77,625
      Accounts payable                                                                            1,017,768        1,359,040
      Accrued liabilities                                                                           486,085          857,033
      Accrued liabilities - related parties                                                       1,751,633        1,814,134
      Income taxes payable                                                                           22,394           50,000
      Deferred revenues                                                                             124,726          127,849
                                                                                            ---------------- ----------------

           Total current liabilities                                                              4,730,231        5,285,681

Series C convertible debentures                                                                       3,000        3,971,107
                                                                                            ---------------- ----------------

           Total liabilities                                                                      4,733,231        9,256,788
                                                                                            ---------------- ----------------

Common stock and related repricing rights subject to redemption; 1,801,802 shares and
      repricing rights outstanding in 1999                                                                -        1,830,000
                                                                                            ---------------- ----------------

Commitments and contingencies (Notes 6, 10 and 11)

Stockholders' equity:
      Preferred stock, $.0001 par value;  50,000,000 shares authorized:
           Series A, convertible; 166,667 shares outstanding
             (aggregate liquidation preference of $6,055,012)                                       500,000          500,000
           Series D, 4% cumulative convertible; 164,500 and 381,723 shares
                    outstanding, respectively
             (aggregate liquidation preference of $3,501,291)                                     3,955,318        9,095,910
      Common stock, $.0001 par value; 300,000,000 shares authorized:
           Class A voting, 163,992,151 and 123,535,325 shares outstanding, respectively              16,399           12,353
           Class B non-voting, no shares outstanding                                                      -                -
      Additional paid-in capital                                                                130,712,014      112,769,420
      Outstanding warrants                                                                        4,139,530        2,850,530
      Deferred consulting expense                                                                  (238,393)        (435,051)
      Deficit accumulated during the development stage                                         (125,321,448)    (116,706,803)
                                                                                            ---------------- ----------------

           Total stockholders' equity                                                            13,763,420        8,086,359
                                                                                            ---------------- ----------------

           Total liabilities and stockholders' equity                                       $    18,496,651  $    19,173,147
                                                                                            ================ ================
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       2

<PAGE>

                       Fonix Corporation and Subsidiaries
                          [A Development Stage Company]

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                                            October 1,
                                                                                                               1993
                                                                               Three Months Ended         (Inception) to
                                                                                    March 31,                March 31,
                                                                        ----------------------------------
                                                                             2000             1999             2000
                                                                        ---------------   --------------  ----------------

<S>                                                                     <C>               <C>             <C>
Revenues                                                                $       56,447    $      53,806   $     3,100,678
Cost of revenues                                                                 2,948            5,291            63,320
                                                                        ---------------   --------------  ----------------

     Gross margin                                                               53,499           48,515         3,037,358
                                                                        ---------------   --------------  ----------------

Expenses:
     Selling, general and administrative                                     3,338,606        2,745,066        43,901,672
     Product development and research                                        1,450,758        2,512,826        40,357,883
     Amortization of goodwill and purchased core technology                    607,137          657,609         4,908,300
     Purchased in-process research and development                             474,000                -         9,789,000
                                                                        ---------------   --------------  ----------------

         Total expenses                                                      5,870,501        5,915,501        98,956,855
                                                                        ---------------   --------------  ----------------

Loss from operations                                                        (5,817,002)      (5,866,986)      (95,919,497)
                                                                        ---------------   --------------  ----------------

Other income (expense):
     Interest income                                                            30,319           22,046         3,792,430
     Interest expense                                                          (32,447)      (2,226,394)       (8,992,146)
     Other                                                                           -                -          (157,345)
     Cancellation of common stock reset provision                                    -                -        (6,111,577)
                                                                        ---------------   --------------  ----------------

         Total other income (expense), net                                      (2,128)      (2,204,348)      (11,468,638)
                                                                        ---------------   --------------  ----------------

Loss from continuing operations before income tax benefit                   (5,819,130)      (8,071,334)     (107,388,135)

Income tax benefit                                                                   -                -         3,331,895
                                                                        ---------------   --------------  ----------------

Loss from continuing operations                                             (5,819,130)      (8,071,334)     (104,056,240)

Discontinued operations:
     Operating loss of discontinued operations                                       -       (1,223,527)      (12,229,033)
     Gain on disposal of discontinued operations                                     -                -         3,766,646
                                                                        ---------------   --------------  ----------------

Loss before extraordinary items                                             (5,819,130)      (9,294,861)     (112,518,627)

Extraordinary items:
     Loss on extinguishment of debt                                                  -                -          (881,864)
     Gain on forgiveness of debt                                                31,977                -           536,382
                                                                        ---------------   --------------  ----------------

Net loss                                                                $   (5,787,153)   $  (9,294,861)  $  (112,864,109)
                                                                        ===============   ==============  ================


Basic and diluted net loss per common share                             $        (0.06)   $       (0.16)
                                                                        ===============   ==============
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       3

<PAGE>


                       Fonix Corporation and Subsidiaries
                          [A Development Stage Company]

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                               October 1,
                                                                                                  1993
                                                                     Three Months Ended       (Inception) to
                                                                          March 31,             March 31,
                                                                ------------------------------
                                                                    2000           1999           2000
                                                                -------------- -------------- --------------
Cash flows from operating activities:
<S>                                                             <C>            <C>            <C>
     Net loss                                                   $  (5,787,153) $  (9,294,861) $ (112,864,109)
     Adjustments to reconcile net loss to net cash
       used in operating activities:
       Issuance of common stock for services and patent                     -              -      5,746,961
       Non-cash expense related to issuance of debentures,
         warrants, preferred and common stock                       1,440,658      1,995,760     13,930,921
       Non-cash compensation expense related to issuance
         of stock options                                             842,856         92,565      3,699,771
       Non-cash expense related to issuance of notes payable
          and accrued expense for services                                  -              -        857,000
       Non-cash exchange of notes receivable for services                   -              -        150,000
       Non-cash portion of purchased in-process research
          and development                                                   -              -     13,136,000
       Loss on disposal of property and equipment                           -              -        156,221
       Gain on sale of discontinued operations                              -              -     (3,766,646)
       Depreciation and amortization                                  794,500      1,579,701      9,826,486
       Income tax benefit                                                   -              -     (3,331,895)
       Extraordinary loss on extinguishment of debt                         -              -        881,864
       Extraordinary gain on forgiveness of debt                      (31,977)             -       (536,382)
       Changes in assets and liabilities, net of effects
               of acquisitions:
         Accounts receivable                                          170,667       (926,819)      (223,263)
         Employee advances                                                  -         (3,864)       (59,986)
         Interest and other receivables                                (6,175)       (16,851)       (13,921)
         Inventory                                                        509        (10,684)       (26,873)
         Prepaid expenses                                            (144,030)       (94,058)      (194,877)
         Cash held in escrow                                          (24,454)             -        (62,457)
         Other assets                                                     294            469       (118,607)
         Accounts payable                                            (309,295)       417,024      3,054,104
         Accrued liabilities                                          (35,069)       709,284      1,121,032
         Accrued liabilities - related party                          (62,501)       259,135      1,228,443
         Income taxes payable                                         (27,606)             -        (27,606)
         Deferred revenues                                             (3,123)       150,432        710,385
                                                                -------------- -------------- --------------

       Net cash used in operating activities                       (3,181,899)    (5,142,767)   (66,727,434)
                                                                -------------- -------------- --------------

Cash flows from investing activities, net of effects
          of acquisitions:
     Proceeds from sale of discontinued operations                          -              -     21,805,982
     Acquisition of subsidiaries, net of cash acquired                      -              -    (15,323,173)
     Proceeds from sale of property and equipment                           -              -         50,000
     Purchase of property and equipment                               (10,991)       (38,025)    (3,446,551)
     Investment in intangible assets                                        -              -       (164,460)
     Issuance of notes receivable                                           -              -     (3,228,600)
     Payments received on notes receivable                                  -        245,000      2,128,600
                                                                -------------- -------------- --------------

       Net cash provided by (used in) investing activities            (10,991)       206,975      1,821,798
                                                                -------------- -------------- --------------

Cash flows from financing activities:
     Bank overdraft                                                         -         29,848              -
     Advances                                                       1,250,000              -      2,250,000
     Payment of revolving note payable                                      -    (19,988,193)       (49,250)
     Payment of revolving note payable - related parties                    -     (1,506,309)    (7,813,537)
     Proceeds from other notes payable                                      -              -      9,865,427
     Payments on other notes payable                                        -              -     (9,567,806)
     Principal payments on capital lease obligation                         -        (14,448)      (153,390)
     Proceeds from issuance of convertible debentures, net                  -      6,446,240      9,439,240
     Proceeds from sale of warrants                                         -              -      1,511,168
     Proceeds from sale of common stock, net                                -              -     38,175,700
     Proceeds from exercise of stock options                          296,714              -        296,714
     Proceeds from sale of preferred stock, net                     1,750,000              -     19,457,346
     Proceeds from sale of common stock and related
          repricing rights subject to redemption, net                       -              -      1,830,000
                                                                -------------- -------------- --------------

       Net cash provided by (used in) financing activities          3,296,714    (15,032,862)    65,241,612
                                                                ----------------------------- --------------

Net (decrease) increase in cash and cash equivalents                  103,824    (19,968,654)       335,976

Cash and cash equivalents at beginning of period                      232,152     20,045,539              -
                                                                -------------- -------------- --------------

Cash and cash equivalents at end of period                      $     335,976  $      76,885  $     335,976
                                                                ============== ============== ==============
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       4

<PAGE>

                       Fonix Corporation and Subsidiaries
                          [A Development Stage Company]

           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                                    October 1,
                                                                                       1993
                                                                                   (Inception) to
                                                       Three Months Ended March 31, March 31,
                                                       ----------------------------
Supplemental disclosure of cash flow information:          2000          1999          2000
                                                       -------------- ------------ -------------

<S>                                                    <C>            <C>          <C>
       Cash paid during the period for interest        $           -  $   142,701  $  4,616,701
       Cash paid during the period for income taxes    $      27,606  $         -  $     27,606
</TABLE>

Supplemental Schedule of Non-cash Investing and Financing Activities:

       For the Three Months Ended March 31, 2000:

     Preferred  stock dividends of $77,493 were accrued on Series D and Series F
preferred stock.

     A total of 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.

     A total of 290,000 shares of Series F preferred stock and related dividends
of $2,773,711, including $2,750,000 related to the beneficial conversion feature
recorded upon issuance,  were converted into 7,764,948  shares of Class A common
stock.

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

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

     A total of $3,968,107 in principal of Series C convertible  debentures  and
related  interest of $290,879 were converted into  10,382,901  shares of Class A
common stock.

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

     The Company  issued  warrants to purchase  300,000 shares of Class A common
stock in  satisfaction  of an  obligation  of $45,000  incurred  for  consulting
services performed in 1999.

     For the Three Months Ended March 31, 1999:

     The Company  entered into a capital lease  obligation  for equipment in the
amount of $34,945.

     Advances  to  employees  totaling  $59,986  were  applied as  payments on a
related-party note payable.

     A total of 143,230 shares previously  pledged to a bank by certain officers
and  directors of the Company as  collateral  for Company  credit card debt were
sold by the  bank and the  proceeds  were  used to pay the debt and the  related
accrued interest in full totaling $244,824.

     Preferred  stock  dividends  of  $905,090  were  recorded  related  to  the
beneficial conversion features of convertible preferred stock.

     Preferred stock dividends of $222,471 were accrued on convertible preferred
stock.

     A total of  17,500  shares  of  Series D  convertible  preferred  stock and
related dividends of $5,833 were converted into 426,464 shares of Class A common
stock.

     A total of  45,072  shares  of  Series E  convertible  preferred  stock and
related  dividends of $12,019 were converted  into  1,086,531  shares of Class A
common stock.


     See accompanying notes to condensed consolidated financial statements.

                                       5

<PAGE>

                                Fonix Corporation
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
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  is not  without  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 1999 Annual Report
on Form 10-K.

Operating  results for the three months ended March 31, 2000 are not necessarily
indicative of the results that may be expected for the year ending  December 31,
2000.  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, 1999.

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

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 March 31, 2000 and 1999, there were outstanding  common stock  equivalents to
purchase  22,415,316 and 44,358,188 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.


                                       6

<PAGE>



The following table is a  reconciliation  of the net loss numerator of basic and
diluted net loss per common  share for the three months ended March 31, 2000 and
1999:

<TABLE>
<CAPTION>
                                                        2000                          1999
                                             ----------------------------  ----------------------------
                                                               Per Share                     Per Share
                                                                 Amount                       Amount
                                                  Amount                       Amount
<S>                                          <C>                <C>        <C>                <C>
Net loss                                     $    (5,819,130)              $   (9,294,861)
Preferred stock dividends                         (2,827,492)                  (1,127,561)
                                             ----------------              ---------------
Net loss from operations attributable
to common stockholders                            (8,646,622)                 (10,422,422)

Extraordinary items                                   31,977          -                 -
                                             ----------------   ---------  ---------------
Net loss attributable to
common shareholders                          $    (8,614,645)   $  (0.06)  $  (10,422,422)    $  (0.16)
                                             ================   =========  ===============    =========
Weighted average common
shares outstanding                               143,972,217                   64,476,886
                                             ================              ===============

</TABLE>

2.  DISCONTINUED OPERATIONS

On September 1, 1999,  the Company  completed the sale of the  operations  and a
significant  portion of the assets of its HealthCare  Solutions Group ("HSG") to
Lernout & Hauspie Speech Products N.V.  ("L&H"),  an unrelated third party. Upon
the closing of the sale,  the Company  discontinued  the  operations of HSG. The
results of  operations  of HSG have been  reported  separately  as  discontinued
operations in the  accompanying  March 31, 1999 and inception to date  condensed
consolidated statements of operations.

3.  INTANGIBLE ASSETS

Intangible   assets  consist  of  purchased  core  technology  and  goodwill  in
connection  with the acquisition of AcuVoice Inc.  ("AcuVoice")  and the Papyrus
companies  (collectively  "Papyrus") 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 $5,007,816 and $4,392,457 at March 31,
2000 and December 31, 1999, respectively.

The  carrying  values  of the  Company's  long-lived  assets  are  reviewed  for
impairment  whenever events or changes in  circumstances  indicate that they may
not be  recoverable.  In that event,  the Company would project cash flows to be
generated  from  the use of the  asset  and its  eventual  disposition  over the
remaining  life of the  asset.  If the  projections  indicated  that the cost in
excess of the net asset would not be recoverable,  the Company's  carrying value
of the asset  would be  reduced  by the  estimated  excess of the value over the
projected cash flows.  The Company assesses  impairment of long-lived  assets at
the  lowest  level  for  which  there  are  identifiable  cash  flows  that  are
independent  of other groups of assets.  As of March 31, 2000,  the Company does
not believe any of its long-lived  assets are impaired.  However,  the amount of
goodwill and other long-lived assets  considered  realizable could be reduced in
the near term based on changing  conditions  and the  Company's  ability to fund
further marketing and development of its products and technologies.

4.  RELATED-PARTY NOTES PAYABLE

The Company had unsecured demand notes payable to former Papyrus stockholders in
the aggregate  amount of $1,710,000,  which notes were issued in connection with
the  acquisition  of  Papyrus  in  1998.  The  notes  were  payable  in  various
installments  from February 28, 1999 through  September 30, 1999. In April 1999,
the Company  entered into  agreements  with five former Papyrus  shareholders to
reduce the aggregate  amounts  payable to them under these notes from $1,632,375
to $1,188,909.  Of this amount, $1,111,284 was paid in September 1999. A balance
of $77,625 remains  outstanding as of March 31, 2000. The note holders have made
no demand for payment.

5.  SERIES C CONVERTIBLE DEBENTURES

During the three months ended March 31, 2000,  holders of the Company's Series C
convertible  debentures converted $3,968,107 of principal together with interest
accrued  thereon into 10,382,901  shares of Class A common stock.  The remaining
$3,000 of  principal  was  converted  April 5, 2000 into 2,463 shares of Class A
common stock.

6.  PREFERRED STOCK

Series D Preferred Stock - During the three months ended March 31, 2000, 217,223
shares of Series D convertible  preferred  stock  together with related  accrued
dividends of $255,600 were  converted into  15,436,378  shares of Class A common
stock.  As of March 31, 2000,  164,500 shares of Series D preferred stock remain
outstanding.

Series F Convertible  Preferred Stock - Effective  February 1, 2000, the Company
entered into an agreement with five investors whereby it sold a total of 290,000
shares of its  Series F  convertible  preferred  stock for  $2,750,000  in cash.

                                       8
<PAGE>


Dividends  accrued on the stated  value ($20 per share) of Series F  convertible
preferred stock at a rate of six percent per year, were payable annually or upon
conversion,  in cash or common  stock,  at the option of the  Company,  and were
convertible  into  shares  of Class A common  stock at any time at the  holders'
option. The Series F convertible  preferred stock was convertible into shares of
Class A common  stock at a price of $0.75  per  share  during  the first 90 days
following the close of the  transaction,  and  thereafter at a price equal to 85
percent of the  average  of the three  lowest  closing  bid prices in the 20-day
trading  period prior to the  conversion of the Series F  convertible  preferred
stock.  Using the conversion  terms most beneficial to the holders,  the Company
recorded a preferred stock dividend of $2,750,000 for the beneficial  conversion
feature  related to these shares on the date the Series F convertible  preferred
stock was  issued.  Subsequent  to  February  1,  2000,  all  shares of Series F
convertible  preferred stock and related accrued dividends,  were converted into
7,764,948 shares of Class A common stock.

Series G Preferred Stock - The Company has entered into an agreement  whereby it
intends to sell to  investors up to 250,000  shares of its Series G  convertible
preferred stock for payment of up to $5,000,000 in cash. It is anticipated  that
the Series G  convertible  preferred  stock will be  convertible  into shares of
Class A common  stock at a price of $1.25  per  share  during  the first 90 days
following the closing of the transaction, and thereafter at a price equal to 85%
of the  average of the three  lowest  closing  bid prices in the 20-day  trading
period prior to the conversion of the Series G convertible  preferred stock. The
Company  anticipates that the investors will receive  registration  rights which
will require the Company to file a  registration  statement  covering the shares
underlying the Series G convertible  preferred  stock, and that the Company will
have the option of redeeming  any  outstanding  Series G  convertible  preferred
stock.  Although  the Company has  received  advances  in  connection  with this
financing  aggregating  approximately  $1,250,000 through March 31, 2000, and an
additional  $750,000  subsequent to that date, the securities purchase agreement
has not been  executed.  Accordingly,  the final  terms may  differ  from  those
described above.

7.  COMMON STOCK AND COMMON STOCK SUBJECT TO REDEMPTION

Class A Common  Stock  Issued - During the three  months  ended March 31,  2000,
33,584,227  shares  of Class A common  stock  were  issued  in  connection  with
conversions of debentures  and preferred  stock (see Notes 5 and 6). Also during
the same period,  502,228 shares of Class A common stock were issued as a result
of the exercise of stock options and stock appreciation rights.

Common Stock  Subject to  Redemption  - On February 14, 2000,  the holder of the
Repricing  Rights  converted its rights into 4,568,569  shares of Class A common
stock and subsequently sold all the shares.  Simultaneously,  the initial shares
of Class A common stock subject to the Repurchase Rights were sold.  Because the
Company has no further  obligation  under the Repricing Rights or the Repurchase
Rights as a result of these transactions,  $1,830,000 reflected as "common stock
and related  repricing  rights  subject to  redemption" at December 31, 1999 has
been reclassified to Stockholders' Equity as an increase to Class A common stock
and additional paid-in capital.

Common Stock Options - On January 31, 2000,  the board of directors  approved an
increase of 10,000,000  shares to be available under the Company's 1998 Employee
Incentive and Stock Option Plan. A  registration  statement on Form S-8 covering
these  additional  shares was filed with the Securities and Exchange  Commission
and declared effective on February 14, 2000. During the three months ended March
31, 2000, the Company  granted  2,529,400  options to purchase shares of Class A
common stock at exercise prices ranging from $0.28 to $0.88 per share.  The term
of all options granted during this three-month period is ten years from the date
of grant. Of the stock options  granted,  options to purchase  2,339,000  shares
vested  March 31,  2000,  and the balance  vest over the three  years  following
issuance. Of the total granted,  197,000 were issued to consultants for services
performed for the Company and were recorded as consulting  expense in the amount
of $53,190,  based upon the fair market value determined using the Black-Scholes
pricing model.  The remainder of the options were granted to employees and had a
weighted  average fair market  value of $0.30 per share using the  Black-Scholes
pricing  model.  Had  compensation  expense for these  options been  recorded in
accordance  with  the  method  prescribed  by  SFAS  No.  123,  "Accounting  for
Stock-Based Compensation",  the Company's net loss would have been $9,183,885 or
$0.06 per share for the three months ended March 31, 2000. As of March 31, 2000,
the Company had a total of 16,170,334  options to purchase Class A common shares
outstanding.

Warrants - On January 19, 2000, the Company issued  warrants for the purchase of
300,000  shares of Class A common stock for services  rendered by a professional
services firm. The warrants have a three year life, exercise prices ranging from
$0.28 to $1.25 per share and vest as follows:  100,000 in March 2000 and 200,000
in September  2000. The warrants were valued at $45,000 using the  Black-Scholes
pricing model and were issued in satisfaction of an obligation that was recorded
in December 1999.

                                       9
<PAGE>


In February  2000,  the Company  entered  into an  agreement  with an  executive
officer and director of the Company to purchase, all of his rights and interests
in certain  methods and apparatus for integrated  voice and pen input for use in
computer systems. In consideration for this technology,  the Company granted the
executive  officer  warrants to purchase 600,000 shares of the Company's Class A
common  stock  at an  exercise  price of  $1.00  per  share.  The  warrants  are
immediately  exercisable  and expire February 10, 2010. The warrants were valued
at $0.79  per share and were  recorded  as  purchased  in-process  research  and
development.  The Company granted the executive  officer the right to repurchase
the technology from the Company at fair market value if the Company subsequently
determines not to commercialize the pen/voice technologies or products.

8.  RELATED-PARTY  TRANSACTIONS

The Company rents office space from Studdert Companies Corporation ("SCC") under
a sublease  that is  guaranteed by two officers and directors of the Company who
are also officers,  owners and directors of SCC. The sublease  monthly  payments
are  $10,368.  The Company  believes  the terms of the  sublease are at least as
favorable as the terms that could have been obtained from an unaffiliated  third
party in a similar transaction.

9.  PRODUCT DEVELOPMENT AND RESEARCH

Synergetics  - Prior  to March  1997,  the  Company's  scientific  research  and
development  activities  were  conducted  solely by a third party,  Synergetics,
Inc.,  pursuant to product development and assignment  contracts  (collectively,
the  "Synergetics  Agreement").  Under that  arrangement,  Synergetics  provided
personnel and facilities to conduct research and product development activities.
The Company financed the Synergetics  research and development  activities on an
as-required  basis and the Company was obligated to pay to Synergetics a royalty
of  10  percent  (the   "Royalty")  of  net  revenues  from  sales  of  products
incorporating   Synergetics'   "VoiceBox"   technology  as  well  as  technology
derivative   thereof.   Synergetics   compensated   its  developers  and  others
contributing to the development effort, in part, by granting "Project Shares" to
share in a portion of the Royalty received by Synergetics. On April 6, 1998, the
Company and Synergetics  entered into a Royalty  Modification  Agreement whereby
the Company agreed to offer an aggregate of 4,800,000  non-transferable  Class A
common  stock  purchase  warrants  to the  holders  of  the  Project  Shares  in
consideration for which Synergetics  agreed to cancel any further  obligation on
the part of the Company to pay the Royalty.  The exercise  price of the warrants
was to be $10 per share and the  warrants  would  not be  exercisable  until the
first to occur of (1) the date that the per share closing bid price of the Class
A common  stock was equal to or greater than $37.50 per share for a period of 15
consecutive  trading days, or (2) September 30, 2000.  Effective March 31, 2000,
the  Company  and  Synergetics  entered  into a  Restated  Royalty  Modification
Agreement   whereby  the  Company  agreed  to  pay   Synergetics   $28,000  (the
"Cancellation  Amount")  to cancel  the  obligation  of the  Company  to pay the
Royalty or issue the 4,800,000  warrants.  The Company has paid the Cancellation
Amount  to  Synergetics  and the  Royalty  and  warrant  obligations  have  been
canceled. The Company has no further obligations to Synergetics.

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 president of IMC2 is also the president of  Synergetics.  The
professional  services  agreement  is for a term of 36 months and  requires  the
Company to make monthly  payments of $22,000.  Under the terms of the agreement,
the Company expended a total of $66,000 in each of the three-month periods ended
March 31, 2000 and 1999.

10.  COMMITMENTS AND CONTINGENCIES

Employment  Agreements - In January 1998, the Company entered into an employment
contract  with an employee  which expires in January  2001.  The minimum  annual
salary payments required by this contract totaled  $180,000.  In connection with
this agreement,  the employee was granted options to purchase  175,000 shares of
the  Company's  Class A common  stock at $3.34 per share.  These  options have a
ten-year life and are subject to a two-year vesting schedule,  pursuant to which
one-third of the total number of options granted vested on the date of grant and
one-third  vested each year thereafter.  In the event that,  during the contract
term, both a change of control occurs, and within six months after such change

                                       10

<PAGE>

in control occurs, the employee's services are terminated by the Company for any
reason other than cause, death or retirement,  the employee shall be entitled to
receive an amount in cash equal to all base salary then and  thereafter  payable
within 30 days of  termination.  In January 1999,  the Company  announced a cost
reduction  program for the Company's  1999  operating  year wherein the employee
agreed  that the  compensation  would be reduced 30 percent  effective  February
1999. This level of compensation has continued through March 31, 2000.

Executive Employment  Agreements - On November 1, 1996, the Company entered into
employment  contracts  with three  executive  officers (one of whom,  Stephen M.
Studdert,  is no longer an executive officer) which expire on December 31, 2001.
The annual base salary pursuant to the contracts with each executive officer for
the year ended December 31, 1999 is $425,000.  However,  in connection  with the
Company's cost reduction  program,  the two remaining  executive officers agreed
that their annual  compensation be reduced to $297,500 commencing February 1999.
At the same time, Mr. Studdert resigned as the Company's chief executive officer
and entered into a separation  agreement  pursuant to which Mr. Studdert will be
paid  $250,000 per year through  January 31, 2001 and $100,000 for the 12 months
ending January 31, 2002. His employment contract was canceled.  In January 2000,
the board of directors extended the two remaining  contracts at the reduced base
compensation   until   December  31,  2005.   Subsequent   adjustments  in  base
compensation, if any, will be approved by the board of directors.

In January 1998,  the Company  entered into an employment  contract with another
executive  officer  which  expires in January  2001.  The minimum  annual salary
payments required by this contracts  totaled  $225,000.  In connection with this
agreement, this executive officer was granted options to purchase 180,000 shares
of the Company's  Class A common stock at $3.34 per share.  These options have a
ten-year life and are subject to a two-year vesting schedule,  pursuant to which
one-third of the total number of options granted are vested on the date of grant
and one-third vests each year thereafter. In the event that, during the contract
term, both a change of control  occurs,  and within six months after such change
in control  occurs,  the  executive  officer's  services are  terminated  by the
Company for any reason  other than cause,  death or  retirement,  the  executive
officer  shall be entitled to receive an amount in cash equal to all base salary
then and thereafter payable within 30 days of termination.  In January 1999, the
Company announced a cost reduction program for the Company's 1999 operating year
wherein the executive  officer agreed that his compensation  would be reduced 30
percent  effective  February  1999.  This level of  compensation  has  continued
through March 31, 2000.


11. LITIGATION

Oregon Graduate  Institute - On July 28, 1999, Oregon Graduate Institute ("OGI")
filed a notice of default,  demand for mediation and demand for arbitration with
the American  Arbitration  Association.  In its demand,  OGI  asserted  that the
Company was in default under three separate  agreements  between the Company and
OGI in the total  amount  of  $175,000.  On  September  23,  1999,  the  Company
responded to OGI's demand and denied the  existence of a default under the three
agreements  identified by OGI.  Moreover,  the Company  asserted a  counterclaim
before the American  Arbitration  Association  against OGI in an amount not less
than  $250,000.  Neither  OGI nor the Company  have  undertaken  any  discovery.
However,  a hearing date has been set for August 8, 2000.  The Company  believes
the OGI arbitration claim is without merit, and management intends to vigorously
pursue its counterclaim against OGI.

The  Company is involved in other  lawsuits,  claims and actions  arising in the
ordinary course of business.  In the opinion of management,  after  consultation
with  legal  counsel,  the  ultimate  disposition  of  these  matters  will  not
materially affect the consolidated  financial  position or results of operations
of the Company.


                                       11

<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.  The Company's  actual results could differ  materially  from the
results  anticipated  by  the  Company  and  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, 1999.

Overview

Since  inception,  Fonix  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
electronic devices.  Through March 31, 2000, the Company has incurred cumulative
losses amounting to $104,056,240,  excluding cumulative losses from discontinued
operations of $8,462,387 and net  extraordinary  losses of $345,482.  Losses are
expected to continue  until the effects of marketing  and sales efforts begin to
take effect, if ever.

In  1999,  Fonix  management  began  to  transition  its  strategic  focus  from
technology  research,  development and acquisition  into sales and marketing and
product  delivery.  For the three  months  ended  March 31,  2000,  the  Company
expended $468,559 in sales and marketing  activities.  The Company has made this
transition while continuing to achieve technology  upgrades in order to maintain
distinct competitive technological advantages.

In its current marketing  efforts,  the Company seeks to form relationships with
third parties who can incorporate  human/computer interface ("HCI") technologies
into new or existing products.  Such relationships may be structured in any of a
variety  of  ways  including  traditional  technology  licenses,  co-development
relationships through joint ventures or otherwise,  and strategic alliances. The
third parties with whom Fonix presently has such relationships and with which it
may have similar  relationships in the future include  developers of application
software,   operating  systems,   computers,   microprocessor   chips,  consumer
electronics, automobiles, telephony and other technology products.

In February 1999, in connection  with this  transition in strategic  focus,  the
Company  undertook an aggressive  program of cost  reduction  emphasized in four
areas of operations:

1.   Salaries,  wages and related costs - Salaries greater than $50,000 per year
     were reduced 20 to 30 percent;

2.   Third-party  consultants - Reliance on third-party  consultants was reduced
     in the areas of research and development, marketing and public relations;

3.   Occupancy costs - Office space was reduced to accommodate current operating
     needs; and

4.   Asset  acquisition - Acquisition of new operating assets was  significantly
     restricted.

Implementation  of these measures has reduced the monthly  deficit in cash flows
from operating  activities from  approximately  $3 million in early 1999 to less
than $1 million in December 1999. For the three months ended March 31, 2000, the
average monthly  deficit in cash flows from operating  activities was $1,060,633
as compared to $1,714,256 for the same period in 1999.

On May 19,  1999,  Fonix  signed  an  agreement  to sell  the  operations  and a
significant  portion of the assets of its  HealthCare  Solutions  Group ("HSG"),
which  consisted  primarily  of  the  operations  of  Articulate  Systems,  Inc.
("Articulate"),  to Lernout & Hauspie Speech Products N.V. ("L&H"), an unrelated
third party.  The sale closed September 1, 1999. The proceeds from the sale were
used to reduce certain of the Company's liabilities and provided working capital
to allow Fonix to focus on marketing and developing technologies and products.

                                       12
<PAGE>

Results of Operations

The results of operations discussed below give effect to the sale of the HSG and
the  classification  of its net assets and operating  activities as discontinued
operations

Three months ended March 31,  2000,  compared  with three months ended March 31,
1999

During the three months ended March 31, 2000, the Company  recorded  revenues of
$56,447,  reflecting  a modest  increase  of $2,641  over the same period in the
previous  year.  Revenues  in 2000 and 1999  were  generated  through  sales and
licensing of the Company's products and technologies.

Selling,  general and administrative expenses were $3,338,606 and $2,745,066 for
the three months ended March 31, 2000 and 1999, respectively.  Included in these
expenses  for the three  months  ended March 31,  2000 are  compensation-related
charges  in the  amount  of  $816,667  resulting  from  the  exercise  of  stock
appreciation  rights and  revaluation  of options  previously  granted for which
terms were revised.  Absent these charges,  selling,  general and administrative
expenses decreased  $223,127.  This net decrease is a reflection of ongoing cost
reduction  efforts  that have  resulted in  decreases  in  compensation  related
expenses of $504,285,  legal and accounting  expenses of $285,242 and consulting
expenses of $93,022.  Decreases  in  occupancy,  travel and  investor  relations
expenses  amounted to $211,715.  These reductions are offset by non-cash charges
in the amount of $966,658 resulting from the issuance of warrants to consultants
and  advisors  assisting  in the  planning  and  development  of  the  Company's
strategic focus.

The Company  incurred  product  development and research  expenses of $1,450,758
during the three months ended March 31, 2000, a decrease of $1,062,068  from the
same  period in the  previous  year.  This  decrease  was due  primarily  to the
transition in strategic focus and the resulting cost reduction program initiated
in February 1999.  Decreases of $747,357 in  compensation  related  expenses and
$223,728 in consulting  expenses are reflections of successful  efforts in these
cost reduction measures.

The Company  incurred an expense of $474,000  resulting from the purchase of the
rights to certain  technology  from an  executive  officer  and  director of the
Company.  The executive  officer received warrants to purchase 600,000 shares of
Class A common stock at an exercise price of $1.00 per share.  The warrants were
valued at $0.79 per share using the Black-Scholes pricing method.

The Company incurred losses from operations of $5,817,002 and $5,866,986  during
the three months ended March 31, 2000 and 1999,  respectively.  While  operating
losses for the three months ended March 31, 2000 did not decrease  substantially
from those incurred in the three months ended March 31, 1999,  over $1.7 million
of the  expenses  incurred in the three  months  ended March 31, 2000 related to
non-cash  charges,  resulting in a  significant  reduction in the negative  cash
flows from operations.

Net other  expense  was $2,128 for the three  months  ended  March 31,  2000,  a
decrease of $2,202,220 from the three months ended March 31, 1999. This decrease
was due primarily to $1,942,000 in interest and finance charges  incurred in the
three  months  ended  March  31,  1999,  relative  to the  issuance  of Series C
convertible debentures in January and March, 1999. No such charges were incurred
in 2000.

Liquidity and Capital Resources

From its inception,  the Company's  principal source of capital has been private
and other exempt sales of its debt and equity securities.  The Company continues
to  raise  additional  funds  in like  manner  to  satisfy  its  cash  operating
requirements  for the  foreseeable  future.  Because the Company  presently  has
limited revenue from operations, it will rely primarily on financing through the
sale of its equity and debt  securities to satisfy future  capital  requirements
until such time as sufficient revenue is generated through third-party licensing
or co-development  arrangements to satisfy its ongoing  operating  requirements.
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 equity  securities  of the  Company may result in  substantial
dilution to the stockholders of the Company.

                                       13

<PAGE>


The Company had  negative  working  capital of  $4,166,493  as of March 31, 2000
compared to negative working capital of $4,804,796 at December 31, 1999. Current
assets  increased by $82,853 to $563,738  from  December 31, 1999,  to March 31,
2000.  Current  liabilities  decreased by $555,450 to $4,730,231 during the same
period.  The improvement in working capital from December 31, 1999, to March 31,
2000, was primarily attributable to reductions in operating costs and success in
raising  additional  operating  capital through the sale of Series F convertible
preferred  stock  and  cash  advances  on  the  anticipated  sale  of  Series  G
convertible  preferred  stock.  Total assets were  $18,496,651 at March 31, 2000
compared to $19,173,147 at December 31, 1999.

Preferred Stock

During  the three  months  ended  March  31,  2000,  217,223  shares of Series D
convertible  preferred stock together with related accrued dividends of $255,600
were converted into  15,436,378  shares of Class A common stock. As of March 31,
2000, 164,500 shares of Series D preferred stock remain outstanding.

Effective  February 1, 2000,  the Company  entered into an  agreement  with five
investors  whereby it sold a total of 290,000 shares of its Series F convertible
preferred  stock for $2,750,000 in cash.  Dividends  which accrued on the stated
value ($20 per share) of Series F convertible  preferred  stock at a rate of six
percent per year, were payable  annually or upon  conversion,  in cash or common
stock, at the option of the Company, and were convertible into shares of Class A
common  stock at any  time at the  holders'  option.  The  Series F  convertible
preferred stock was  convertible  into shares of Class A common stock at a price
of  $0.75  per  share  during  the  first  90 days  following  the  close of the
transaction, and thereafter at a price equal to 85 percent of the average of the
three  lowest  closing  bid prices in the  20-day  trading  period  prior to the
conversion of the Series F convertible  preferred  stock.  Using the  conversion
terms most  beneficial to the holders,  the Company  recorded a preferred  stock
dividend of $2,750,000 for the beneficial  conversion  feature  related to these
shares  on the date  the  Series  F  convertible  preferred  stock  was  issued.
Subsequent  to February 1, 2000,  all shares of Series F  convertible  preferred
stock and related  accrued  dividends,  were converted into 7,764,948  shares of
Class A common stock.

The  Company  has  entered  into an  agreement  whereby  it  intends  to sell to
investors up to 250,000 shares of its Series G convertible  preferred  stock for
payment  of up to  $5,000,000  in cash.  It is  anticipated  that  the  Series G
convertible  preferred  stock will be convertible  into shares of Class A common
stock at a price of $1.25  per share  during  the  first 90 days  following  the
closing  of the  transaction,  and  thereafter  at a price  equal  to 85% of the
average of the three  lowest  closing  bid prices in the 20-day  trading  period
prior to the conversion of the Series G convertible preferred stock. The Company
anticipates  that the  investors  will  receive  registration  rights which will
require  the  Company  to file a  registration  statement  covering  the  shares
underlying the Series G convertible  preferred  stock, and that the Company will
have the option of redeeming  any  outstanding  Series G  convertible  preferred
stock.  Although  the Company has  received  advances  in  connection  with this
financing  aggregating  approximately  $1,250,000 through March 31, 2000, and an
additional  $750,000  subsequent to that date, the securities purchase agreement
has not been  executed.  Accordingly,  the final  terms may  differ  from  those
described above.

Stock Options

During the three  months ended March 31, 2000,  the Company  granted  options to
purchase  2,529,400  shares of Class A common stock at exercise  prices  ranging
from $0.28 to $0.88 per share. The term of all options granted during this three
month period is ten years from the date of grant.  Of the stock options  issued,
options to purchase 2,339,000 shares vested March 31, 2000, and the balance vest
over the three years following issuance. As of March 31, 2000, the Company had a
total of 16,170,334 options to purchase Class A common shares outstanding.

Also during the three months ended March 31, 2000,  options to purchase  273,864
shares of Class A common  stock were  exercised  resulting  in cash  proceeds of
$296,714.  During the same period,  228,364  shares of Class A common stock were
issued as a result of the exercise of stock appreciation rights.

                                       14
<PAGE>


Warrants

On January 19,  2000,  the Company  issued  warrants for the purchase of 300,000
shares of Class A common stock for services rendered by a professional  services
firm. The warrants have a three year life, exercise prices ranging from $0.28 to
$1.25  per share and vest as  follows:  100,000  in March  2000 and  200,000  in
September  2000.  The warrants  were valued at $45,000  using the  Black-Scholes
pricing model and were issued in satisfaction of an obligation that was recorded
in December 1999.

In February  2000,  the Company  entered into an  agreement to purchase  from an
executive  officer and director of the Company,  all of his rights and interests
in certain  methods and apparatus for integrated  voice and pen input for use in
computer systems. In consideration for this technology,  the Company granted the
executive  officer  warrants to purchase 600,000 shares of the Company's Class A
common  stock  at an  exercise  price of  $1.00  per  share.  The  warrants  are
immediately  exercisable  and expire February 10, 2010. The warrants were valued
at $0.79  per share and were  recorded  as  purchased  in-process  research  and
development.  The Company granted the executive  officer the right to repurchase
the technology from the Company at fair market value if the Company subsequently
determines not to commercialize the pen/voice technologies or products.

Other

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

Outlook

Corporate Objectives and Technology Vision

The  Company  believes  that its core  technologies,  namely,  automated  speech
recognition,    text-to-speech   and   handwriting   recognition,   (the   "Core
Technologies")  will be the platform for the next generation of automated speech
technologies  and products.  Most speech  recognition  products offered by other
companies  are based on  technologies  that are largely in the public domain and
represent   nothing   particularly   "new"  or  creative.   The  Company's  Core
Technologies  are based on proprietary,  patented  technology.  The Company will
continue  to  seek  patent  protection  of the  Core  Technologies  as  well  as
technologies  and  inventions  derived  from the know  how,  assets  and  rights
acquired  from  past  acquisitions.   Management   believes  the  Company's  HCI
technologies  provide  a  competitive  advantage  vis-a-vis  other  technologies
available in the marketplace.

As the Company  proceeds to implement its strategy and to reach its  objectives,
it 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
described above is not without risk, and shareholders  and others  interested in
the Company and its common stock should  carefully  consider the risks set forth
under the heading  "Certain  Significant  Risk  Factors" in the  Company's  1999
Annual Report on Form 10-K, Item 1, Part I.


                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

Oregon Graduate  Institute - On July 28, 1999, Oregon Graduate Institute ("OGI")
filed a notice of default,  demand for mediation and demand for arbitration with
the American  Arbitration  Association.  In its demand,  OGI  asserted  that the
Company was in default under three separate  agreements  between the Company and
OGI in the total  amount  of  $175,000.  On  September  23,  1999,  the  Company
responded to OGI's demand and denied the  existence of a default under the three
agreements  identified by OGI.  Moreover,  the Company  asserted a  counterclaim
before the American  Arbitration  Association  against OGI in an amount not less
than  $250,000.  Neither  OGI nor the Company  have  undertaken  any  discovery.
However,  a hearing date has been set for August 8, 2000.  The Company  believes
the OGI arbitration claim is without merit, and management intends to vigorously
pursue its counterclaim against OGI.

                                       15

<PAGE>


The  Company is involved in other  lawsuits,  claims and actions  arising in the
ordinary course of business.  In the opinion of management,  after  consultation
with  legal  counsel,  the  ultimate  disposition  of  these  matters  will  not
materially affect the consolidated  financial  position or results of operations
of the Company.


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 March 31,
2000, 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:

On February 1, 2000,  the Company  issued  290,000  shares of Series F preferred
stock,  par value $20 per share, to five investors for  $2,750,000.  The Company
issued  such  shares  without  registration  under the 1933 Act in  reliance  on
section  4(2)  of the  1933  Act  and  the  rules  and  regulations  promulgated
thereunder.  The shares of Series F preferred  stock were  issued as  restricted
securities and the  certificates  representing the Series F preferred stock were
stamped with a  restrictive  legend to prevent any resale  without  registration
under  the 1933 Act or  pursuant  to an  exemption.  The  Class A common  shares
underlying the Series F preferred stock were  subsequently  registered on a Form
S-2 that was declared effective February 11, 2000.

Item 6.  Exhibits and Reports on Form 8-K

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

                                       16
<PAGE>


            (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  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


                                       17
<PAGE>


            (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

            (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

                                       18
<PAGE>

            (10)(xiii)   Purchase  Agreement with John Oberteuffer and the
                         Company dated April 9, 1998, which
                         is   incorporated  by  reference  from the  Company's
                         AnnualReport 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)(vii)    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   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 Corporaion 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))

                                       19

<PAGE>


            (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 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, incorporated
                         by reference from the Company's annual report on Form
                         10-K, filed with the Commission on April 14, 2000

            (27)         Financial Data Schedule


(B)  Reports  filed on Form 8-K during the  three-month  period  ended March 31,
2000:

On March 30, 2000,  the Company  filed a Current  Report on Form 8-K to announce
the appointment of William A. Maasberg, Jr. as chief operating officer and Roger
D. Dudley as chief financial officer, effective March 21, 2000.



                                       20

<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:          May 15, 2000             /s/ Roger D. Dudley
     --------------------------         ----------------------------------------
                                        Roger D. Dudley,
                                        Executive Vice President,
                                        Chief Financial Officer








                                       21