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

                                    FORM 10-Q



[X]  Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934 for the quarterly period ended March 31, 2003

[ ]  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.)

                         180 W. 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)

     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 12, 2003,  19,652,488  shares of Class A voting common stock, par
value $0.0001 per share, were issued and outstanding.


<PAGE>


                                FONIX CORPORATION
                                    FORM 10-Q


                                TABLE OF CONTENTS

                         PART I - FINANCIAL INFORMATION

                                                                           Page

Item 1.  Financial Statements (Unaudited)

         Condensed Consolidated Balance Sheets - As of March 31, 2003
                and December 31, 2002                                        2

         Condensed Consolidated Statements of Operations and Comprehensive
                Loss for the Three Months Ended March 31, 2003 and 2002      3

         Condensed Consolidated Statements of Cash Flows for the
                Three Months Ended March 31, 2003 and 2002                   4

         Notes to Condensed Consolidated Financial Statements                6

Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                           17

Item 3. Quantitative and Qualitative Disclosures About Market Risk           28

Item 4.  Evaluation of Disclosure Controls and Procedures                    28


                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings                                                   28

Item 2.  Changes in Securities                                               28

Item 3.  Defaults Upon Senior Securities                                     28

Item 4.  Submission of Matters to a Vote of Security Holders                 28

Item 6.  Exhibits and Reports on Form 8-K                                    29


<PAGE>

                                Fonix Corporation
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                                  March 31,        December 31,
ASSETS                                                                                              2003              2002
                                                                                               ----------------  ----------------
Current assets:
<S>                                                                                            <C>               <C>
      Cash and cash equivalents                                                                $        20,292   $        23,739
      Accounts receivable                                                                               28,000            26,974
      Convertible note receivable                                                                            -           402,765
      Inventory                                                                                         50,495            51,937
      Prepaid expenses and other current assets                                                         78,819           185,429
                                                                                               ----------------  ----------------

           Total current assets                                                                        177,606           690,844

Property and equipment, net of accumulated depreciation of $1,756,904
        and $1,671,809, respectively                                                                   530,796           625,448

Investment in and note receivable from affiliate, net of unamortized discount of
        $16,715 and $58,548, respectively                                                            1,147,598         1,259,320

Intangible assets, net of accumulated amortization of $333,207 and $299,457, respectively            1,157,835         1,191,585

Goodwill, net of accumulated amortization of $2,295,598                                              2,631,304         2,631,304

Other assets                                                                                           121,302           124,979
                                                                                               ----------------  ----------------

           Total assets                                                                        $     5,766,441   $     6,523,480
                                                                                               ================  ================

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
      Series D Debentures, net of unamortized discount of $249,251 and $582,630, respectively  $       357,816   $       917,370
      Note payable to affiliate                                                                      1,000,000         1,000,000
      Note payable                                                                                     134,020           250,000
      Notes payable - related parties                                                                  493,175           493,175
      Current portion of notes payable other                                                           100,784            75,000
      Accrued payroll                                                                                6,247,938         5,265,809
      Accounts payable                                                                               3,311,754         3,083,425
      Accrued liabilities                                                                            1,594,047         1,737,267
      Accrued liabilities - related parties                                                          1,443,300         1,443,300
      Deferred revenues                                                                                849,250           854,248
                                                                                               ----------------  ----------------

           Total current liabilities                                                                15,532,084        15,119,594
                                                                                               ----------------  ----------------

Long-term portion of notes payable, net of current portion                                              87,984                 -
Long-term borrowings                                                                                     9,068             3,312
                                                                                               ----------------  ----------------

           Total long-term liabilities                                                                  97,052             3,312

           Total liabilities                                                                        15,629,136        15,122,906
                                                                                               ----------------  ----------------

Commitments and contingencies (Notes 1, 3, 5, 6, 7, 8 and 12)

Stockholders' deficit:
      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)                                       500,000           500,000
      Common stock, $0.0001 par value; 800,000,000 shares authorized;
           Class A voting, 17,177,218 and 12,306,333 shares outstanding, respectively                    1,718             1,230
           Class B non-voting, none outstanding                                                              -                 -
      Additional paid-in capital                                                                   186,528,173       183,514,560
      Outstanding warrants to purchase Class A common stock                                          1,334,000         1,360,000
      Cumulative foreign currency translation adjustment                                                50,049            31,704
      Accumulated deficit                                                                         (198,276,635)     (194,006,920)
                                                                                               ----------------  ----------------

           Total stockholders' deficit                                                              (9,862,695)       (8,599,426)
                                                                                               ----------------  ----------------

           Total liabilities and stockholders' deficit                                         $     5,766,441   $     6,523,480
                                                                                               ================  ================
</TABLE>


     See accompanying notes to condensed consolidated financial statements.

                                       2


<PAGE>

                                Fonix Corporation
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                             AND COMPREHENSIVE LOSS
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                                     Three Months Ended March 31,
                                                                                 --------------------------------------
                                                                                          2003                2002
                                                                                 -----------------------  -------------


<S>                                                                              <C>                      <C>
Revenues                                                                         $              589,670   $    298,785
Cost of revenues                                                                                 80,217         44,104
                                                                                 -----------------------  -------------

     Gross profit                                                                               509,453        254,681
                                                                                 -----------------------  -------------

Expenses:
     Selling, general and administrative                                                      2,250,698      3,229,403
     Product development and research                                                         1,675,113      2,126,151
                                                                                 -----------------------  -------------

        Total expenses                                                                        3,925,811      5,355,554
                                                                                 -----------------------  -------------

Loss from operations                                                                         (3,416,358)    (5,100,873)
                                                                                 -----------------------  -------------

Other income (expense):
     Interest income                                                                                  -         27,935
     Interest expense                                                                          (741,635)       (57,748)
                                                                                 -----------------------  -------------

        Total other income (expense), net                                                      (741,635)       (29,813)
                                                                                 -----------------------  -------------

Loss from operations before equity in net loss of affiliate                                  (4,157,993)    (5,130,686)

Equity in net loss of affiliate                                                                (111,722)      (113,954)
                                                                                 -----------------------  -------------

Net loss                                                                                     (4,269,715)    (5,244,640)

Other comprehensive income (loss) - foreign currency translation                                 18,345           (872)
                                                                                 -----------------------  -------------

Comprehensive loss                                                               $           (4,251,370)  $ (5,245,512)
                                                                                 =======================  =============


Basic and diluted net loss per common share                                      $                (0.30)  $      (0.54)
                                                                                 =======================  =============
</TABLE>


     See accompanying notes to condensed consolidated financial statements.

                                       3


<PAGE>


                                Fonix Corporation
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                                       Three Months Ended March 31,
                                                                                       ------------------------------
                                                                                            2003            2002
                                                                                       ---------------  -------------
Cash flows from operating activities:
<S>                                                                                    <C>              <C>
    Net loss                                                                           $   (4,269,715)  $ (5,244,640)
    Adjustments to reconcile net loss to net cash
      used in operating activities:
      Non-cash compensation expense related to issuance of stock options                            -          3,889
      Accretion of discount on note receivable from affiliate                                  41,826         (4,518)
      Accretion of discount on note payable to affiliate                                            -         34,193
      Accretion of discount on note payable                                                         -         21,135
      Accretion of discount on Series D Debentures                                            618,479              -
      Amortization of deferred loan costs                                                      38,331              -
      Loss on disposal of property and equipment                                                1,066              -
      Depreciation and amortization                                                           133,540        127,137
      Equity in net loss of affiliate                                                          69,896        113,954
      Foreign exchange (gain)/loss                                                             14,746           (738)
      Changes in assets and liabilities:
                                          Accounts receivable                                  (1,026)        20,840
                                          Inventory                                             1,442         (4,219)
                                          Prepaid expenses and other current assets            68,279        (91,919)
                                          Other assets                                          3,677             44
                                          Accounts payable                                    342,097       (331,119)
                                          Accrued payroll                                     982,129              -
                                          Accrued liabilities                                (123,733)       390,566
                                          Accrued liabilities - related party                       -         (8,333)
                                          Deferred revenues                                    (4,998)       163,675
                                                                                       ---------------  -------------

      Net cash used in operating activities                                                (2,083,964)    (4,810,053)
                                                                                       ---------------  -------------

Cash flows from investing activities:
    Repayment of notes receivable                                                             402,765              -
    Issuance of notes receivable                                                                    -       (655,000)
    Purchase of property and equipment                                                         (2,025)       (28,573)
    Proceeds from sale of Healthcare Solutions Group                                                -              -
                                                                                       ---------------  -------------

      Net cash provided by (used in) investing activities                                     400,740       (683,573)
                                                                                       ---------------  -------------

Cash flows from financing activities:
    Proceeds from sale of Class A common stock, net                                         2,440,001      6,113,029
    Receipt of common stock subscription receivable                                                 -        852,970
    Payments on note payable to affiliate                                                           -       (550,000)
    Proceeds from long-term debt                                                                5,756              -
    Payments on Series D Debentures                                                          (650,000)             -
    Payments on note payable                                                                 (115,980)      (460,000)
    Principal payments on capital lease obligation                                                  -        (15,747)
                                                                                       ---------------  -------------

      Net cash provided by financing activities                                             1,679,777      5,940,252
                                                                                       ---------------  -------------

Net (decrease) increase in cash and cash equivalents                                           (3,447)       446,626

Cash and cash equivalents at beginning of period                                               23,739        201,401
                                                                                       ---------------  -------------

Cash and cash equivalents at end of period                                             $       20,292   $    648,027
                                                                                       ===============  =============
</TABLE>



     See accompanying notes to condensed consolidated financial statements.

                                       4



<PAGE>

                                Fonix Corporation
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)




<TABLE>
<CAPTION>
                                                                                           Three Months Ended
                                                                                               March 31,
                                                                                        -------------------------
Supplemental disclosure of cash flow information:                                          2003         2002
                                                                                        -----------  ------------

<S>                                                                                     <C>          <C>
     Cash paid during the period for interest                                           $   19,350   $    55,725
</TABLE>

Supplemental Schedule of Non-cash Investing and Financing Activities:

     For the Three Months Ended March 31, 2003:

          Issued  627,087  shares  of Class A  common  stock  in  conversion  of
          $242,933  of Series D  Debentures  principal  and  $20,067  of related
          accrued interest

          Issued  237,584  shares of Class A common  stock valued at $285,100 as
          consideration for deferment of Series D Debentures; issuance of shares
          represented  an increase  to the  discount  to be  amortized  over the
          revised term of the Series D Debentures

          Converted $113,768 of accounts payable into a note payable


     For the Three Months Ended March 31, 2002:

          Issued  334,855  shares  of Class A common  stock  for  $1,064,970  in
          subscriptions receivable.




     See accompanying notes to condensed consolidated financial statements.

                                       5


<PAGE>


                                FONIX CORPORATION
              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 (the "SEC").  Certain
information and footnote  disclosures  normally included in financial statements
prepared in accordance  with  accounting  principles  generally  accepted in the
United States of America 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 2002 Annual Report
on Form 10-K.

Operating results for the three months ended March 31, 2003, are not necessarily
indicative of the results that may be expected for the year ending  December 31,
2003.  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 2002 Annual Report on Form 10-K.

Business  Conditions - The Company's  revenues  increased  from $298,785 for the
three months ended March 31, 2002,  to $589,670 for the three months ended March
31, 2003. However,  the Company has incurred significant losses since inception,
including a net loss of  $4,269,715  for the three  months ended March 31, 2003.
The Company incurred negative cash flows from operating activities of $2,083,964
during the three months ended March 31, 2003. As of March 31, 2003,  the Company
had  an  accumulated  deficit  of  $198,276,635,  negative  working  capital  of
$15,354,478,  accrued employee wages of $6,247,938, and accounts payable over 60
days past due of  $2,610,507.  Sales of products and revenue from licenses based
on the  Company's  technologies  have not been  sufficient  to  finance  ongoing
operations,  although the Company has limited capital available under its equity
lines of credit.  These  matters  raise  substantial  doubt about the  Company's
ability to continue as a going  concern.  The Company's  continued  existence is
dependent  upon  several  factors,   including  the  Company's  success  in  (1)
increasing  license,  royalty and  services  revenues,  (2)  raising  sufficient
additional  funding,  and  (3)  minimizing  operating  costs.  The  accompanying
condensed  consolidated  financial  statements  do not include  any  adjustments
relating to the  recoverability  and classification of asset carrying amounts or
the amount and  classification  of  liabilities  that  might  result  should the
Company be unable to continue as a going concern.

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.
As of March 31, 2003 and 2002, there were outstanding  common stock  equivalents
to purchase 658,031 and 807,564 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>

                                FONIX CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

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, 2003 and
2002:


<TABLE>
<CAPTION>
                                                                      2003                                 2002
                                                           ---------------------------------  ------------------------------------
                                                                              Per Share                            Per Share
                                                             Amount             Amount            Amount             Amount
<S>                                                         <C>                   <C>            <C>                   <C>
Net loss                                                    $  (4,269,715)                       $  (5,244,640)
Preferred stock dividends                                               -                                    -
Net loss attributable to common stockholders                $  (4,269,715)        $ (0.30)       $  (5,244,640)        $ (0.54)
Weighted average common shares outstanding                      14,457,162                            9,765,439
</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 Notes 3 and 5).

Comprehensive  Loss - Other  comprehensive  loss  presented in the  accompanying
condensed  consolidated  financial  statements  consists of  cumulative  foreign
currency translation adjustments.

Recently  Enacted  Accounting   Standards  -  In  January  2003,  the  Financial
Accounting  Standards  Board ("FASB") issued  Interpretation  No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities,  an Interpretation of ARB No. 51."
FIN 46 provides guidance on the  identification of entities for which control is
achieved  through  means other than through  voting rights  ("variable  interest
entities" or "VIEs") and how to  determine  when and which  business  enterprise
should  consolidate  the VIE (the  "primary  beneficiary").  This new  model for
consolidation  applies to an entity in which either (1) the equity  investors do
not have a controlling  financial interest, or (2) the equity investment at risk
is insufficient to finance that entity's activities without receiving additional
subordinated  financial support from other parties. In addition, FIN 46 requires
that both the primary  beneficiary and all other  enterprises with a significant
variable  interest  in a VIE make  additional  disclosures.  FIN 46  applies  to
variable  interest entities created after January 31, 2003, and to VIEs in which
an enterprise  obtains an interest after that date. It also applies in the first
fiscal year or interim period beginning after June 15, 2003, to VIEs in which an
enterprise  holds a variable  interest that it acquired before February 1, 2003.
The Company does not expect the  provisions of FIN 46 to have a material  effect
on future interim or annual financial statements.

Revenue  Recognition - The Company  recognizes  revenues in accordance  with the
provisions of Statement of Position No. 97-2, "Software Revenue Recognition" and
related  interpretations.  The Company  generates  revenues  from  licensing the
rights  to its  software  products  to end  users  and from  royalties.  It also
generates service revenues from the sale of consulting and development services.

Revenues of all types are recognized  when  contingencies  such as conditions of
acceptance of functionality, rights of return and price protection are confirmed
or can be reasonably  estimated,  as appropriate.  Revenues from development and
consulting  services  are  recognized  on a  completed-contract  basis  when the
services are  completed  and accepted by the  customer.  The  completed-contract
method is used because the  contracts  are either  short-term in duration or the
Company is unable to make  reasonably  dependable  estimates of the costs of the
contracts.  Revenue for hardware units  delivered is recognized when delivery is
verified and collection assured.

Revenue for  products  distributed  through  wholesale  and retail  channels and
resellers is recognized upon  verification  of final  sell-through to end users,
after consideration of rights of return and price protection.  Revenue for these
products is  recognized  when the right of return on such  products has expired,
typically when the end user purchases

                                        7
<PAGE>

                                FONIX CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

the product from the retail outlet.  Once the end user opens the package,  it is
not returnable  unless the medium is defective.  Price  protection is offered to
distributors  in the event we reduce  the price on any  specific  product.  Such
price  protection  is generally  offered for a specific time period in which the
distributor must make a claim. Resulting revenue recognized reflects the reduced
price.  Slotting  fees paid by the Company  for  favorable  placement  in retail
outlets are recorded as a reduction in gross revenues.

When  arrangements  to license  software  products  do not  require  significant
production,  modification,  or customization of software, revenues from licenses
and royalties are recognized when persuasive evidence of a licensing arrangement
exists, delivery of the software has occurred, the fee is fixed or determinable,
and  collectibility is probable.  Post-contract  obligations,  if any, generally
consist of one year of support  including such services as customer  calls,  bug
fixes,  and upgrades.  Related  revenue is recognized over the period covered by
the  agreement.  Revenues  from  maintenance  and  support  contracts  are  also
recognized over the term of the related contracts.

Revenues  applicable to  multiple-element  fee arrangements are bifurcated among
elements such as license agreements and support and upgrade  obligations,  using
vendor-specific  objective  evidence  of  fair  value.  Such  evidence  consists
primarily  of pricing of multiple  elements  as if sold as separate  products or
arrangements.  These  elements  vary  based  upon  factors  such as the  type of
license, volume of units licensed, and other related factors.

Deferred  revenue at March 31, 2003,  and  December  31, 2002,  consisted of the
following:


<TABLE>
<CAPTION>
                                                                                        March 31,             December 31,
Description                                   Criteria for Recognition                     2003                   2002
<S>                                 <C>                                           <C>                     <C>
Deferred unit royalties             Delivery of units to end users or
and licence fees                    expiration of contract                        $              807,368  $            797,737
Deferred customer                   Expiration of period covered by
support                             support agreement                                             41,882                59,111
Total deferred revenue                                                            $              849,250  $            854,248
</TABLE>

Cost of revenues from license,  royalties,  and maintenance consists of costs to
distribute  the  product  (including  the  cost  of the  media  on  which  it is
delivered),  installation and support  personnel  compensation,  amortization of
capitalized speech software costs, licensed technology, and other related costs.
Cost of service  revenues  consists of personnel  compensation and other related
costs.

Software  technology  development  and production  costs - All costs incurred to
establish the  technological  feasibility  of speech  software  technology to be
sold,  leased,  or  otherwise  marketed are charged to product  development  and
research expense. Technological feasibility is established when a product design
and a working model of the software product have been completed and confirmed by
testing.  Costs to produce  or  purchase  speech  software  technology  incurred
subsequent  to   establishing   technological   feasibility   are   capitalized.
Capitalization of speech software costs ceases when the product is available for
general  release  to  customers.  Costs to  perform  consulting  or  development
services applications are charged to cost of revenues in the period in which the
corresponding revenues are recognized.  Cost of maintenance and customer support
is charged to expense when related revenue is recognized or when these costs are
incurred, whichever occurs first.

Capitalized   speech   software    technology   costs   are   amortized   on   a
product-by-product  basis.  Amortization is recognized from the date the product
is  available  for general  release to customers as the greater of (a) the ratio
that current gross revenue for a product bears to total current and  anticipated
future gross revenues for that product, or (b) the straight-line method over the
remaining  estimated  economic life of the products.  Amortization is charged to
cost of revenues.

                                        8
<PAGE>

                                FONIX CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

The Company assesses unamortized  capitalized speech software costs for possible
write down on a quarterly  basis based on net  realizable  value of each related
product.  Net realizable value is determined based on the estimated future gross
revenues from a product  reduced by the estimated  future cost of completing and
disposing of the  product,  including  the cost of  performing  maintenance  and
customer  support.  The amount by which the unamortized  capitalized  costs of a
speech software product exceed the net realizable value of that asset is written
off.

Stock-based  Compensation  Plans - The  Company  accounts  for  its  stock-based
compensation  issued to non- employees using the fair value method in accordance
with Statement of Financial  Accounting  Standards  ("SFAS") No. 123 and related
interpretations.  Under SFAS No. 123, stock-based  compensation is determined as
either the fair  value of the  consideration  received  or the fair value of the
equity  instruments  issued,   whichever  is  more  reliably   measurable.   The
measurement  date for  these  issuances  is the  earlier  of the date at which a
commitment for  performance  by the recipient to earn the equity  instruments is
reached or the date at which the recipient's performance is complete.

At March 31, 2003, the Company has stock-based employee  compensation plans. The
Company  accounts  for the plans under the  recognition  method and  measurement
principles of Accounting  Principals  Board ("APB") Opinion No. 25,  "Accounting
for  Stock  Issued  to  Employees,"   and  the  related   Interpretations.   Had
compensation  expense for these options been  determined in accordance  with the
method prescribed by SFAS No. 123,  "Accounting for Stock- Based  Compensation",
the  Company's  net loss per common  share would have been  increased to the pro
forma amounts indicated below:


<TABLE>
<CAPTION>
                                                                       Three Months Ended


                                                              March 31, 2003        March 31, 2002
                                                           ---------------------  ------------------------
Net loss:
<S>                                                                <C>                    <C>
     As reported                                                   $ (4,269,715)          $(5,244,640)

Deduct:

    Total stock-based employee compensation
    expense determined under fair value based method
    for all awards                                                     (102,051)             (119,181)
     Pro forma                                                       (4,371,766)           (5,363,821)
Basic and diluted net loss per common share:
     As reported                                                     $    (0.30)           $    (0.54)
     Pro forma                                                            (0.30)                (0.55)
</TABLE>

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

2. CONVERTIBLE NOTES RECEIVABLE

On December 1, 2001, the Company, as the lender, established a revolving line of
credit and received a convertible promissory note from Unveil Technologies, Inc.
("Unveil"),  that  permitted  Unveil to draw up to $2,000,000 for operations and
other  purposes.  Unveil  is  a  developer  of  natural  language  understanding
solutions for customer resource management ("CRM")  applications.  Fonix desired
to obtain a license to Unveil's CRM  applications  when  completed  and made the
loan to Unveil to facilitate and expedite the development and  commercialization
of  Unveil's  speech-enabled  CRM  software.  Draws on the line of  credit  bear
interest  at an  annual  rate of  seven  percent,  which  interest  was  payable
quarterly beginning June 30, 2002.

During the year ended  December  31, 2002,  Unveil drew  $880,000 on the line of
credit,  bringing total draws on the line of credit to $1,450,000 as of December
31, 2002. Due to limited resources available to the Company, additional requests
for  funding  by  Unveil  under  the line of  credit  have not  been  met.  This
limitation  in funding has  resulted in a  deterioration  of Unveil's  financial
condition and has caused Unveil to slow its  development  process.  Accordingly,
due to Unveil's  financial  condition,  the Company estimated an impairment loss
during the third quarter of 2002 in the amount of $1,523,842,  consisting of the
outstanding  balance on the line of credit plus accrued  interest  thereon as of
that date. The Company advanced an additional $60,000 to Unveil in October 2002.
This advance was treated as a research and development expense.

During the first  quarter of 2003,  the Company  entered  into an  agreement  to
terminate the revolving  line of credit and satisfy the  convertible  promissory
note with Unveil.  In full settlement of the balance of $1,450,000 due under the
note, the

                                        9
<PAGE>

                                FONIX CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

Company received a payment of $410,000 and 1,863,636 shares of Unveil's Series A
Preferred  Stock  (the  "Unveil  Preferred  Stock").  Accordingly,  the  Company
adjusted the estimated  impairment,  recorded in the third quarter of 2002, such
that the carrying amount of the note receivable was equal to the amount received
in January  2003.  The Company did not  allocate  value to the Unveil  Preferred
Stock due to Unveil's overall financial condition.

3. 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 to complete online transactions using any telephone.
The  collaboration  includes  integration  of the  Company's  technologies  with
Audium's mobile applications development capability.

Note Receivable - In connection with the collaboration agreement with Audium, in
February and May 2001,  the Company  advanced an aggregate of $400,000 to Audium
as a bridge  loan  under a note (the  "Audium  Note").  The  Audium  Note  bears
interest  at a rate of  five  percent  per  year  and has a term of four  years.
Additionally,  the Audium Note is  convertible  into  shares of Audium  Series A
Preferred  Stock at a price  of $1.46  per  share in the  event of (i)  Audium's
raising an additional  $2,000,000 prior to October 6, 2002, (ii) Audium's merger
or  consolidation,  (iii) a qualified  public offering of Audium's 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 the Company 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.  The Company is currently discussing the possibility of converting the
remaining  balance due under the Audium Note for  additional  shares of Audium's
Common Stock.

Investment  in Affiliate - In April 2001,  the Company  closed a stock  purchase
agreement  with Audium,  wherein the Company agreed to purchase up to $2,800,000
of Audium Preferred Stock at a price of $1.46 per share. At closing, the Company
paid  $200,000 in cash and gave Audium a  non-interest  bearing note (the "Fonix
Note,"  discussed  below under "Note  Payable to  Affiliate")  for the remaining
$2,600,000.  Interest on the Fonix Note was imputed at 12 percent resulting in a
present  value  of  $2,370,348.  The  resulting  purchase  price  of the  Audium
Preferred Stock was $2,570,348.

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 into which it
is  convertible.  The stock purchase  agreement also entitles Fonix to elect one
member of  Audium's  board of  directors.  Audium  also  granted  Fonix  certain
registration rights after the closing of a public offering by Audium.

At closing,  Audium issued 14 Audium Preferred Stock certificates to Fonix, each
certificate  for 136,986  shares,  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 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.

The difference  between the total purchase price of the Audium  Preferred  Stock
and the Company's portion of Audium's net  stockholders'  deficit at the time of
the purchase was $2,700,727, which was allocated to capitalized

                                       10

<PAGE>

                                FONIX CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

software  technology.  The excess  purchase price  allocated to the  capitalized
software  technology  was  amortized on a  straight-line  basis over a period of
eight years through December 31, 2001. After the impairment in the investment in
Audium  discussed  below, the remaining excess purchase price was $1,008,002 and
is being amortized over the remaining portion of the eight-year period.

The  investment  in Audium  does not  provide  the  Company  with  rights to any
technology  developed  by Audium;  the Company  must obtain a license  should it
choose to do so.  Also,  the  Company  would not own an interest  sufficient  to
control  Audium  if the  Company  were to  convert  the  Audium  Note to  Audium
Preferred  Stock. As a result,  management has determined that it is appropriate
to account for the investment,  which represents 26.7 percent of Audium's voting
stock at March 31,  2003,  under the equity  method  and not as a  research  and
development arrangement.

Accordingly, for the three months ended March 31, 2003, the Company recognized a
loss of  $111,722,  consisting  of  $69,896 to reflect  the  Company's  share of
Audium's net loss for the three months ended March 31, 2003, and $41,826 for the
amortization  of the  difference  between  the  purchase  price  of  the  Audium
Preferred Stock and the Company's portion of Audium's net stockholders'  deficit
that is amortized on a straight-line basis over a period of eight years.

The fair value of this  investment  is  determined  based on Audium's  estimated
future net cash flows  considering the status of Audium's  product  development.
The  Company  evaluates  this  investment  for  impairment   annually  and  more
frequently if indications of decline in value exist.  An impairment loss that is
other than temporary is recognized  during the period it is determined to exist.
An impairment is determined to be  other-than-temporary  if estimated future net
cash flows are less than the carrying  value of the  investment.  If projections
indicate that the carrying value of the investment will not be recoverable,  the
carrying value is reduced by the estimated excess of the carrying value over the
estimated  discounted cash flows. There is a reasonable  possibility that in the
near future  estimated  future cash flows from the  investment  in Audium  could
change and that the  effect of the change  could be  material  to the  Company's
financial position or results of operation.

At December 31, 2001, the Company  assessed the  realizability of the investment
in Audium and the Company wrote down the investment by $823,275.  The write-down
was a result of a decrease in the estimated  cash flows  expected to be realized
from the  investment  due to overall  decline in the economy  and the  potential
impact on related  markets  for  Audium's  products.  As of March 31,  2003,  no
further write-down was deemed necessary based on the estimated future cash flows
of the investment.

Note Payable to Affiliate - The Fonix Note is payable in 13 monthly installments
of $200,000  beginning on June 1, 2001, and bears no interest unless an event of
default  occurs,  in which case it will bear  interest  at 12 percent  per year.
Through March 31, 2003, payments amounting to $1,800,000 had been made under the
Fonix  note.  At March 31,  2003,  the  Company  had an  outstanding  balance of
$1,000,000  due under the Fonix  note.  The  Company  and Audium  are  currently
discussing  the  possibility  that  Fonix  return  684,930  shares  of  Audium's
Preferred Stock in exchange for Audium's  release of Fonix under the Fonix note.
Audium  has not  declared  Fonix to be in  default  under the terms of the Fonix
Note.

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  $2,370,348  for the Fonix
Note.


4. GOODWILL AND INTANGIBLE ASSETS

Goodwill  resulted from the purchase of assets from Force  Computers,  Inc., and
from the acquisition of AcuVoice,  Inc. The carrying value of goodwill  remained
unchanged at $2,631,304  during the quarter  ended March 31, 2003.  During 2002,
the Company engaged Houlihan Valuation Advisors,  an independent valuation firm,
to assess the

                                       11

<PAGE>

                                FONIX CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

Company's  goodwill for  impairment.  The  resulting  appraisal  indicated  that
goodwill was not impaired.  However,  should the  Company's  marketing and sales
plans  not  materialize  in the near  term,  the  realization  of the  Company's
goodwill and other intangible assets could be severely and negatively impacted.

The components of intangible assets were as follows:


<TABLE>
<CAPTION>
                                                       March 31, 2003                                 December 31, 2002
                                         ----------------------------------------------  -------------------------------------------
                                           Gross                              Net            Gross                          Net
                                         Carrying         Accumulated       Carrying       Carrying       Accumulated     Carrying
                                          Amount         Amortization        Amount         Amount        Amortization     Amount
                                         ------------  ----------------- --------------  -------------  ----------------- ----------
<S>                                      <C>           <C>               <C>             <C>            <C>               <C>
Speech software technology                $   978,582         $ (130,497)      $848,085      $ 978,582       $  (104,397)  $ 874,185
Customer relationships                        306,000            (38,250)       267,750        306,000           (30,600)    275,400
Patents                                       164,460           (164,460)             -        164,460          (164,460)          -
    Total Amortizing Intangible Assets    $ 1,449,042         $ (333,207)     1,115,835     $1,449,042        $ (299,457)  1,149,585

Indefinite-lived Intangible Assets
    Trademarks                                                                   42,000                                       42,000

Total Intangible Assets                                                      $1,157,835                                   $1,191,585
</TABLE>

Speech  software  technology  amortization  expense was $26,100 during the three
months ended March 31, 2003,  and  $104,397  during the year ended  December 31,
2002,  and was charged to cost of revenues.  The cost of patents  include direct
costs  incurred by the Company in applying for patents  covering its  internally
developed speech software technologies. Patents were fully amortized at December
31, 2002 and  amortization  expense  related to patents was $18,938 for the year
ended December 31, 2002 and was charged to selling,  general and  administrative
expenses.  Amortization  expense  related to customer  relationships  was $7,650
during the three months ended March 31, 2003,  and $30,600 during the year ended
December  31,  2002,  and was  charged to selling,  general  and  administrative
expense.

5.  NOTE PAYABLE

On December 14, 2001, the Company entered into an Asset Purchase  Agreement with
Force Computers,  Inc. ("Force").  As part of the consideration for the purchase
price, Fonix issued a non-interest bearing promissory note on December 14, 2001,
in the amount of $1,280,000.  Installment  payments under the note were due over
the 12 month period following the date of purchase. Management determined that a
seven percent  annual  interest rate reflects the risk  characteristics  of this
promissory note. Accordingly, interest has been imputed at seven percent and the
Company  recorded  a discount  of  $40,245  for the note  payable.  The  Company
recorded  interest expense of $4,098 from the purchase date through December 31,
2001, $37,854 for the year ended December 31, 2002.

As collateral for the promissory  note,  175,000 shares of the Company's Class A
common stock were placed into escrow.  Under the terms of the escrow, the shares
will not be released  to Force  unless the  Company is  delinquent  or late with
respect  to any  payment  under  the  note.  Also,  under the terms of the Asset
Purchase  Agreement,  Fonix is required to deposit all receipts  from  customers
acquired in this  transaction  into a joint  depository  account.  Fonix has the
right to withdraw such funds;  however,  in the event of default on any payments
to Force under the terms of the promissory note, Force has the right to withdraw
funds from the depository account until the deficiency in payment is covered, at
which time,  Fonix may again have use of the funds.  Through  December 31, 2002,
payments  required  under the note  were  made,  except  the  final  payment  of
$250,000,  which  remained  outstanding  at December 31, 2002.  During the first
quarter of 2003,  additional payments amounting to $115,000 were made. Effective
March 13, 2003, Force exercised its right to withdraw all funds deposited in the
joint account,  as described above,  until Force receives the remaining  balance
due under the promissory note. During the first quarter of 2003, Force has drawn
$980 from the joint bank account  leaving an outstanding  balance of $134,020 at
March 31, 2003.

6.  NOTES PAYABLE OTHER


                                       12

<PAGE>

                                FONIX CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

During  the  second  and  third  quarters  of 2002,  the  Company  entered  into
promissory  notes  with an  unrelated  third  party in the  aggregate  amount of
$75,000.  These notes  accrue  interest at 18%  annually and are due and payable
with accrued  interest  during the second and third  quarters of 2003. The notes
have a  conversion  feature that allows the holder to convert all or any portion
of the principal amount and accrued interest into shares of the Company's Common
Stock. The conversion price is calculated as the arithmetic  average of the last
closing bid price on each trading day during the five  consecutive  trading days
immediately preceding the conversion.

During the first  quarter of 2003,  the Company  entered into a promissory  note
with an unrelated  third party in the  aggregate  amount of $113,768.  This note
accrues  interest at 10% annually and requires  monthly minimum  payments of the
greater of $3,000 or 2% of aggregate  proceeds from the  Company's  Third Equity
Line of Credit until the note has been fully paid. Under the loan agreement, the
Company  may not sell or  transfer  assets  outside  of the  ordinary  course of
business,  or enter a  transaction  resulting  in a change of  control,  without
written permission from the creditor.

7.  RELATED-PARTY NOTES PAYABLE

In connection  with the  acquisition  of certain  entities in 1998,  the Company
issued  unsecured  demand notes payable to former  stockholders  of the acquired
entities in the aggregate  amount of $1,710,000.  Of the notes payable,  $77,625
remained  unpaid as of March 31, 2003.  During 2000,  the holders of these notes
made demand for payment and the Company  commenced  negotiating with the holders
of these notes to reduce the  outstanding  balance.  No additional  demands have
been made and no payments  have been made by the Company to the holders of these
notes.

During 2002, two executive  officers of the Company (the  "Lenders") sold shares
of the  Company's  Class A common stock owned by them and advanced the resulting
proceeds  amounting  to $333,308  to the Company  under the terms of a revolving
line of credit and related  promissory  note. The funds were advanced for use in
Company  operations.  The advances bear interest at 10 percent per annum,  which
interest is payable on a semi-annual  basis.  The entire  principal,  along with
unpaid accrued interest and any other unpaid charges or related fees, is due and
payable  on  June  10,  2003.  After  December  11,  2002,  all or  part  of the
outstanding  balance and unpaid interest could be converted at the option of the
Lenders into shares of Class A common stock of the Company. The conversion price
is the average  closing bid price of the shares at the time of the advances.  To
the extent  the market  price of the  Company's  shares is below the  conversion
price at the time of conversion,  the Lenders are entitled to receive additional
shares equal to the gross dollar value  received  from the original  sale of the
shares.  A  beneficial  conversion  option of $14,917  was  recorded as interest
expense in  connection  with this  transaction.  The  Lenders  may also  receive
additional compensation as determined appropriate by the Board of Directors.

In October 2002,  the Lenders  pledged  30,866  shares of the Company's  Class A
common  stock to the  Equity  Line  Investor  in  connection  with an advance of
$182,676 to the  Company  under the Third  Equity Line (see Note 10 below).  The
Equity Line Investor subsequently sold the pledged shares and applied $82,242 of
the proceeds as a reduction of the advance.  The value of the pledged  shares of
$82,242 was treated as an additional advance from the Lenders.

The  aggregate  advances of $415,550 are secured by the  Company's  intellectual
property  rights.  As of March 31,  2003,  the Lenders had deferred the interest
payment due  December  10,  2002 and had not  converted  any of the  outstanding
balance or interest into common stock.

8.  SERIES D CONVERTIBLE DEBENTURES

On October 11, 2002, the Company issued  $1,500,000 of Series D 12%  Convertible
Debentures  (the  "Debentures")  and 194,444  shares of Class A common  stock to
Breckenridge  Fund,  LLC  ("Breckenridge"),  an  unaffiliated  third party,  for
$1,500,000 before offering costs of $118,282.  The outstanding  principal amount
of the  Debentures is  convertible  at any time at the option of the holder into
shares of the Company's common stock at a conversion price

                                       13

<PAGE>

                                FONIX CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

equal to the average of the two lowest closing bid prices of the Company's Class
A common stock for the twenty trading days immediately  preceding the conversion
date  multiplied by 90%. The Debenture and accrued  interest were originally due
April 9, 2003.

The Company  determined that  Breckenridge had received a beneficial  conversion
option on the date the Debentures  were issued.  The net proceeds of $1,381,718,
were  allocated  to the  Debentures  and to the Class A common  stock based upon
their  relative  fair  values  and  resulted  in  allocating   $524,445  to  the
Debentures,  $571,111 to the related beneficial  conversion option,  $372,552 to
the 194,444 shares of Class A common stock, less $86,390 of deferred loan costs.
The resulting  $975,555  discount on the  Debentures and the deferred loan costs
are being amortized over the term of the Debentures as interest expense. Related
interest  expense  recognized  during the three months ended March 31, 2003, and
the year ended December 31, 2002, was $618,479 and $427,720, respectively.

In  connection  with the  issuance of the  Debentures,  the Company  issued,  as
collateral to secure its performance  under the Debenture,  2,083,333  shares of
Class A common stock (the "Collateral Shares"), which were placed into an escrow
pursuant to an escrow  agreement.  Under the escrow  agreement,  the  Collateral
Shares  will not be released to  Breckenridge  unless the Company is  delinquent
with respect to payments under the Debenture.

The  Debentures  were  originally  due April 9, 2003.  However,  the Company and
Breckenridge  agreed  in  January  2003 to modify  the  terms of the  Debentures
requiring the following  principal  payments plus accrued interest:  $400,000 in
January 2003;  $350,000 in February  2003;  $250,000 in March 2003;  $250,000 in
April 2003;  and  $250,000  in May 2003.  Additionally,  the  Company  agreed to
release 237,583 of the Collateral  Shares to Breckenridge as consideration  (the
"Released  Shares")  to  Breckenridge  for  revising  the terms of the  purchase
agreement. The additional shares were accounted for as an additional discount of
$285,100.  The value of the shares on the date issued will be amortized over the
modified term as interest expense.

If  Breckenridge  declares  the Company  delinquent  under the  revised  payment
schedule,  Breckenridge  is entitled to receive a penalty of five percent of the
then-outstanding  principal amount of the Debentures,  payable in cash or shares
released from the Collateral Shares.

In connection  with the issuance of the  Debentures,  the Company entered into a
registration rights agreement in which the Company agreed to register the resale
of the  shares  underlying  the  Debentures,  the  Collateral  Shares,  and  the
Additional Shares. The Company filed a registration statement on Form S-2, which
became  effective  February  14,  2003.  The Company is  obligated  to file such
post-effective  amendments  as  necessary  to keep  the  registration  statement
effective as required by the registration rights agreement.

On March 26, 2003, the Company  received a conversion  notice from  Breckenridge
wherein Breckenridge  converted a principal amount of $242,933,  plus $20,067 of
accrued interest under the Debentures.  The Company  subsequently issued 627,087
shares of the Company's Class A common stock. The current outstanding  principal
balance due under the Debenture agreement at March 31, 2003 was $607,067.

9. PREFERRED STOCK

The Company's  certificate of incorporation allows for the issuance of preferred
stock in such series and having such terms and conditions as the Company's board
of directors may designate.

Series A  Convertible  Preferred  Stock - At March 31, 2003,  there were 166,667
shares of Series A  convertible  preferred  stock  outstanding.  Holders  of the
Series A  convertible  preferred  stock  have the same  voting  rights as common
stockholders,  have the right to elect one person to the board of directors  and
are entitled to receive a one time preferential  dividend of $2.905 per share of
Series A convertible preferred stock prior to the payment of any dividend on any
class or series of stock.  At the option of the holders,  each share of Series A
convertible  preferred  stock is  convertible  into one  share of Class A common
stock and in the event that the common stock price has

                                       14

<PAGE>

                                FONIX CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

equaled or exceeded $10 for a 15 day period,  the shares of Series A convertible
preferred  stock are  automatically  converted into Class A common stock. In the
event of liquidation,  the holders are entitled to a liquidating distribution of
$36.33 per share and a conversion of Series A convertible  preferred stock at an
amount  equal to .0375  shares  of  common  stock  for  each  share of  Series A
convertible preferred stock.

10.  EQUITY LINES OF CREDIT

Equity  Line of Credit - In August  2000,  the  Company  entered  into a Private
Equity Line Agreement  ("Equity Line") with a third party investor ("Equity Line
Investor")  which  gave the  Company  the  right to draw up to  $20,000,000  for
operations and other purposes.  The Initial  Investment Amount of $7,500,000 was
drawn as part of the 2000 Note described above. The balance  remaining under the
Equity Line was  available to the Company  through a mechanism of draws and puts
of stock. The Company was 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 was 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 funded the amounts requested by
the Company within two trading days after the seven trading-day period.

From its inception through December 31, 2000, draws taken under the Equity Line,
excluding  the  Initial  Investment  Amount,   amounting  to  $3,973,508,   less
commissions and related fees of $119,206,  were converted into 312,317 shares of
Class  A  common  stock.  During  2001,  draws  amounting  to  $5,510,000,  less
commissions and related fees of $165,300,  were converted into 658,829 shares of
Class A common stock.

For the year ended December 31, 2002, the Company  received  $3,633,817 in funds
drawn under the Equity Line, less  commissions and related fees of $84,825,  and
issued 1,017,323 shares of Class A common stock to the Equity Line investor.

Second Equity Line of Credit - In April 2001, the Company  entered into a second
private  equity line  agreement  (the "Second Equity Line") with the Equity Line
Investor.  Under the Second Equity Line, the Company had 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  December 31, 2001,  draws
under the Second Equity Line amounting to $13,425,000, less commissions and fees
of $497,750, were converted to 2,950,325 shares of Class A common stock.

For the year ended December 31, 2002, the Company  received  $5,728,846 in funds
drawn under the Second Equity Line, less  commissions and fees of $189,805,  and
issued 2,339,675 shares of Class A common stock to the Equity Line investor.

Third  Equity Line of Credit - In June 2002,  the Company  entered  into a third
equity line  agreement  (the "Third Equity Line") with the Equity Line Investor.
Under the Third Equity Line, the Company has the right to draw up to $20,000,000
under terms  substantially  identical to the initial  Equity  Line.  On June 27,
2002,  the Company  filed with the SEC a  registration  statement on Form S-2 to
register the resale of up to 5,000,000  shares of the  Company's  Class A common
stock by the Equity Line Investor,  which became  effective during January 2003.
During the third and fourth quarters of 2002, the Equity Line Investor  advanced
the Company  $182,676  against future draws on the Third Equity Line (see Note 7
above).  The balance owing on the advance is included in accrued  liabilities in
the accompanying  financial  statements at December 31, 2002. As of December 31,
2002, no shares had been issued under the Third Equity Line.

For the quarter ended March 31, 2003, the Company  received  $2,500,000 in funds
drawn under the Equity Line, less  commissions  and fees of $64,120,  and issued
4,006,212 shares of Class A common stock to the Equity Line investor.


                                       15

<PAGE>

                                FONIX CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


11.  COMMON STOCK, STOCK OPTIONS AND WARRANTS

Reverse Stock Split - On March 24, 2003, the Company's  shareholders  approved a
one-for-forty  reverse stock split of its  outstanding  Class A common stock and
common  stock  options  and  warrants.  The stock  split has been  retroactively
reflected in the accompanying  consolidated financial statements for all periods
presented.

Class A Common Stock - During the three  months ended March 31, 2003,  4,006,212
shares of Class A common  stock  were  issued in  connection  with  draws on the
equity  lines (see Note 10). No shares of Class A common  stock were issued as a
result of the exercise of stock options or warrants during the same period.

Stock  Options - During the three  months  ended  March 31,  2003,  the  Company
granted options to an employee to purchase 1,125 shares of Class A common stock.
The options have an exercise price of $1.60 per share, which was the quoted fair
market value of the stock on the dates of grant.  The options  granted vest over
the three years  following  issuance.  Options  expire within ten years from the
date of grant if not  exercised.  Using the  Black-Scholes  pricing  model,  the
weighted  average fair value of the employee  options was $1.60 per share. As of
March 31, 2003,  the Company had a total of 611,781  options to purchase Class A
common shares outstanding.

Warrants - As of March 31, 2003, the Company had warrants to purchase a total of
46,250 shares of Class A common stock outstanding that expire through 2010.

12.  LITIGATION, COMMITMENTS AND CONTINGENCIES

The  Company is  involved  in  various  claims  and  proceedings  arising in the
ordinary course of business.  Management believes, after consultation with legal
counsel,  that the ultimate  disposition  of these  matters will not  materially
impact the consolidated  financial position,  liquidity or results of operations
of the Company.

U.S.  Department of Labor  Settlement  Agreement - On March 5, 2003, the Company
entered into a settlement  agreement with the U.S.  Department of Labor relating
to back  wages owed to former  and  current  employees  during  2002.  Under the
agreement  the Company will pay an aggregate  of  $4,755,041  to each former and
current  employees in twenty-four  installment  payments.  The first installment
payment was due May 1, 2003. The remaining  payments are due on the first day of
each month, until paid in full, If any of the installment payments are more than
fifteen days late, the entire balance may become due and payable.

The Company did not have  sufficient cash to pay the first  installment  payment
due May 1, 2003.  The Company is presently  negotiating  with the  Department of
Labor to extend the commencement  date for installment  payments to August 2003.
The Company presently anticipates that it will have sufficient cash resources to
commence installment payments in August 2003. There can be no assurance that the
Department of Labor will agree to extend the  installment  payment  commencement
date.

Employees may elect to receive a portion of their wages in registered  shares of
the Company's Class A common stock.  However, the amount that represents minimum
wage and overtime,  if any, as defined in the Fair Labor  Standards Act of 1938,
may not be paid with the Company's Class A common stock.

13. SUBSEQUENT EVENTS

Fourth  Equity  Line of Credit - On May 12,  2003,  the Company  entered  into a
fourth private equity line agreement (the "Fourth Equity Line  Agreement")  with
the Equity Line Investor,  on terms substantially  similar to those of the Third
Equity Line.  Under the Fourth Equity Line Agreement,  the Company has the right
to draw up to  $20,000,000  against an equity line of credit (the "Fourth Equity
Line") from the Equity Line  Investor.  The Company is entitled under the Fourth
Equity  Line  Agreement  to draw  certain  funds and to put to the  Equity  Line
Investor  shares of the  Company's  Class A common stock in lieu of repayment of
the draw. The number of shares to be issued is determined by dividing the amount
of the draw by 90% of the  average of the two lowest  closing  bid prices of the
Company's Class A common stock over the twenty trading days after the put notice
is tendered.  The Equity Line Investor is required  under the Fourth Equity Line
Agreement to tender the funds  requested by us within two trading days after the
twenty-trading-day  period used to determine the market price. The Company plans
to file with the SEC a registration statement on Form S-2 to register the resale
of up to 50,000,000 shares of the Company's Class A

                                       16

<PAGE>

                                FONIX CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

common stock by the Equity Line Investor.

The  Company  anticipates  that  upon  the  effectiveness  of this  registration
statement,  it will  terminate  the Third Equity Line and cease further draws or
issuances  of  shares  in  connection  with  the  Third  Equity  Line.  Upon the
effectiveness  of this  registration  statement and following our termination of
the Third Equity Line,  the only active equity line of credit will be the Fourth
Equity Line.

Third Equity Line of Credit -  Subsequent  to March 31, 2003 and through May 12,
2003, the Company  received  $125,000 in funds drawn under the Third Equity Line
and issued 993,788 shares of Class A common stock to the Equity Line investor.

Series D Debentures - On May 9 2003,  the Company  received a conversion  notice
from Breckenridge wherein Breckenridge converted a principal amount of $160,146,
plus $9,854 of accrued interest under the Debentures.  The Company  subsequently
issued 1,481,482 shares of the Company's Class A common stock.



                                       17
<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, 2002.

To date,  we have earned only  limited  revenue  from  operations  and intend to
continue to rely primarily on financing  through the sale of our equity and debt
securities to satisfy future capital requirements.

Overview

Since inception, we have devoted substantially all of our resources to research,
development and acquisition of software technologies that enable intuitive human
interaction with computers, consumer electronics, and other intelligent devices.
Through March 31, 2003,  we have incurred  significant  cumulative  losses,  and
losses are expected to continue until the effects of recent  marketing and sales
efforts  begin to take effect,  if ever.  We continue to emphasize  delivery and
sales of our applications and solutions  ("Products") while achieving technology
upgrades to maintain our perceived  competitive  advantages.  Fonix Products are
based   on   the   Company's   speech-enabling   technologies,   which   include
text-to-speech  ("TTS") and neural  network-based  automated speech  recognition
("ASR"). ASR and TTS technologies are sometimes collectively referred to in this
report as "Core Technologies."

In our  current  marketing  efforts,  we seek to form  relationships  with third
parties who can incorporate our speech-  enabling  Products into new or existing
products.  Such  relationships  may be  structured  in any of a variety  of ways
including  traditional  technology  licenses,  collaboration  or joint marketing
agreements,  co-development  relationships  through joint ventures or otherwise,
and  strategic  alliances.  The third  parties with whom we presently  have such
relationships  and with which we may have  similar  relationships  in the future
include  developers  of  application  software,  operating  systems,  computers,
microprocessor chips, consumer electronics,  automobiles,  telephony,  and other
products. We are currently in negotiation with customers and potential customers
to enter into additional third- party licensing, collaboration, co-marketing and
distribution arrangements.

Our revenues  increased from $298,785 for the three months ended March 31, 2002,
to $589,670  for the three months  ended March 31,  2003.  However,  we incurred
negative cash flows from  operating  activities  of $2,083,964  during the three
months  ended March 31,  2003.  Sales and  licensing  of Products  have not been
sufficient to finance ongoing operations.  As of March 31, 2003, we had negative
working capital of $15,354,478 and an accumulated  deficit of  $198,276,635.  We
have drawn all capital  available  under our initial and second equity lines.  A
third equity line is in place and $17,500,000 remains available to us under that
equity line, and we are presently  negotiating the terms of a fourth equity line
of credit agreement.  Our continued existence is dependent upon several factors,
including our success in (1) increasing  license,  royalty,  Product sales,  and
services  revenues,  (2) raising  sufficient  additional equity and debt funding
through  the  use of the  fourth  equity  line  or  other  facilities,  and  (3)
minimizing and reducing operating costs. Until sufficient revenues are generated
from operating activities,  we expect to continue to fund our operations through
the sale of our equity securities, primarily the fourth equity line.

In 2002, we experienced  slower  development of markets for speech  applications
than had been anticipated due to several factors.  First, the limited  resources
with which we have been operating (due to the delay in accessing  funds from the
third equity line) have hampered our ability to aggressively  support  marketing
and sales as originally anticipated.  Additionally,  time and resources required
to develop certain Products have been greater than originally anticipated,  and,
with  limited  resources  available,  we have not  been  able to  expedite  such
development.  Further,  the ongoing U.S.  economic  slowdown has slowed customer
acceptance in target markets,  especially in the telecommunications sector where
previously   expected  recovery  has  yet  to  materialize,   and  has  in  fact
deteriorated  further.  The occurrence of these  conditions has caused us to (i)
reduce  our  emphasis  on  consumer  applications  because  of  the  significant
resources  required to develop retail  markets,  (ii) reduce our development and
marketing efforts in the computer telephony and server-based  markets, and (iii)
increase our emphasis and focus on mobile and wireless applications,  automotive
speech interface solutions, and assistive markets, where management believes we

                                       18
<PAGE>


enjoy the greatest technological and market advantage.

We assess  unamortized  capitalized  computer  software costs for possible write
down based on net realizable value of each related product. Net realizable value
is  determined  based on the  estimated  future  gross  revenues  from a product
reduced by the estimated future cost of completing and disposing of the product,
including the cost of performing maintenance and customer support.

In order to assess future gross  revenues,  we have  evaluated the life cycle of
our  Products  and the  periods  in which we will  receive  revenues  from them.
Widespread deployment of speech applications,  solutions, and interface products
is growing,  especially for the Products we develop and market. However, certain
speech Products,  specifically those which are useful in the  telecommunications
segment,  have been severely  impacted by declining  market  conditions over the
past 18 to 24 months. Nevertheless,  speech applications and interface solutions
useful in devices such as smart-phones, PDAs, cell phones, assistive devices for
the sight-impaired, and other mobile and wireless devices are beginning to enjoy
user  acceptance and market  demand.  Our experience has indicated that original
equipment  manufacturers  ("OEMs"),  value added  resellers  ("VARs"),  software
developers,  and other users typically  integrate a new application or interface
product  (such as speech)  initially  into only one or two  products.  Then,  as
market and user  acceptance of the technology  increases,  as  applications  are
proven reliable,  and as cost of production and delivery decreases on a per-unit
basis, the applications  typically are expanded into broader product lines. As a
result,  initial sales volumes in early OEM integration  periods are expected to
be low, but will grow at a  substantial  pace in  subsequent  periods as (i) OEM
customers expand product  offerings and (ii) the customers of OEMs commit to and
release speech applications in their products.  We expect growth to continue for
four to six years,  but expect the rate of growth to slow as the market  matures
toward the end of that period.

Significant Accounting Policies

The discussion and analysis of our financial condition and results of operations
are based upon our consolidated  financial statements,  which have been prepared
in  accordance  with  accounting  principles  generally  accepted  in the United
States.  The preparation of these financial  statements  requires  management to
make estimates and  assumptions  that affect the reported  amounts of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the financial  statements and the reported  amounts of sales and expenses during
the  reporting  period.   Significant   accounting   policies  and  areas  where
substantial judgements are made by management include:

Accounting  Estimates - The  preparation  of financial  statements in conformity
with  accounting  principles  generally  accepted in the United States  requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosures of contingent  assets and liabilities
at the date of the financial  statements,  and the reported  amounts of revenues
and expenses during the reporting period. Actual results could differ from those
estimates.

Valuation  of  Long-lived  Assets  -  The  carrying  values  of  our  long-lived
intangible  assets are reviewed for impairment on a quarterly basis or otherwise
whenever  events  or  changes  in  circumstances  indicate  that they may not be
recoverable.

We assess unamortized  capitalized  software costs for possible write down based
on net  realizable  value  of each  related  product.  Net  realizable  value is
determined  based on the estimated  future gross revenues from a product reduced
by the  estimated  future  cost of  completing  and  disposing  of the  product,
including the cost of performing maintenance and customer support. The amount by
which the  unamortized  capitalized  costs of a software  product exceed the net
realizable value of that asset is written off.

The speech  software  technology  was tested for impairment in December 2001 and
December  2002.  Due to the  down-turn  in the  software  industry  and the U.S.
economy,  operating  losses  and cash used in  operating  activities  during the
fourth  quarter of 2001 were  greater  than  anticipated.  Based on that  trend,
management  revised estimated net future cash flows from the speech  technology,
which  resulted in recognition  of an impairment  loss of $5,832,217  during the
fourth quarter of 2001. The impairment loss was charged to cost of revenues.  No
further  impairment  was deemed  necessary  at December 31, 2002 or at March 31,
2003.


                                       19
<PAGE>

During the fourth quarter of 2001,  management  determined  that its handwriting
recognition ("HWR") software technology was impaired. Without immediate customer
prospects or current  license  agreements,  management has chosen not to provide
further  funding  to  develop or market  the HWR  technology.  Accordingly,  the
unamortized balance of $2,056,295 was recorded in cost of revenues in 2001.

With respect to our other long-lived assets, we 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 will not be recovered,  the carrying  value of long-lived
assets is  reduced  by the  estimated  excess  of the  carrying  value  over the
projected discounted cash flows.

Management does not consider any of our other  long-lived  assets to be impaired
at December 31, 2002 or at March 31, 2003.  However,  should our  marketing  and
sales plans not  materialize in the near term, the realization of our intangible
assets could be severely and negatively impacted. The accompanying  consolidated
financial  statements  have been  prepared  based on  management's  estimates of
realizability,  which  estimates  may change due to factors  beyond our control.
(See "Recently Enacted Accounting Standards" below.)

Revenue Recognition - We recognize revenues in accordance with the provisions of
Statement of Position  No.  97-2,  "Software  Revenue  Recognition"  and related
interpretations.  We generate revenues from licensing the rights to its software
products to end users and from royalties. We also generate service revenues from
the sale of consulting and development services.

Revenues of all types are recognized when acceptance of functionality, rights of
return,  and price protection are confirmed or can be reasonably  estimated,  as
appropriate. Revenues from development and consulting services are recognized on
a  completed-contract  basis when the services are completed and accepted by the
customer. The completed-contract method is used because our contracts are either
short-term in duration or we are unable to make reasonably  dependable estimates
of the  costs  of  the  contracts.  Revenue  for  hardware  units  delivered  is
recognized when delivery is verified and collection assured.

Revenue for  products  distributed  through  wholesale  and retail  channels and
through resellers is recognized upon  verification of final  sell-through to end
users, after consideration of rights of return and price protection.  Typically,
the right of return on such products has expired when the end user purchases the
product from the retail outlet.  Once the end user opens the package,  it is not
returnable  unless  the  medium is  defective.  Price  protection  is offered to
distributors  in the event we reduce  the price on any  specific  product.  Such
price  protection  is generally  offered for a specific time period in which the
distributor must make a claim. Resulting revenue recognized reflects the reduced
price.  Slotting fees paid by us for favorable  placement in retail  outlets are
recorded as a reduction in gross revenues.

When  arrangements  to license  software  products  do not  require  significant
production,  modification,  or customization of software,  revenue from licenses
and royalties are recognized when persuasive evidence of a licensing arrangement
exists, delivery of the software has occurred, the fee is fixed or determinable,
and  collectibility is probable.  Post-contract  obligations,  if any, generally
consist of one year of support  including such services as customer  calls,  bug
fixes,  and upgrades.  Related  revenue is recognized over the period covered by
the  agreement.  Revenues  from  maintenance  and  support  contracts  are  also
recognized over the term of the related contracts.

Revenues  applicable to  multiple-element  fee arrangements are bifurcated among
elements such as license agreements and support and upgrade  obligations,  using
vendor-specific  objective  evidence  of  fair  value.  Such  evidence  consists
primarily  of pricing of multiple  elements  as if sold as separate  products or
arrangements.  These  elements  vary  based  upon  factors  such as the  type of
license, volume of units licensed, and other related factors.



                                       20
<PAGE>

Deferred  revenue as of March 31, 2003 and December  31, 2002,  consisted of the
following:


<TABLE>
<CAPTION>
                                                                                        March 31,             December 31,
Description                                   Criteria for Recognition                     2003                   2002
<S>                                 <C>                                           <C>                     <C>
Deferred unit royalties             Delivery of units to end users or
and licence fees                    expiration of contract                        $              807,368  $            797,737
Deferred customer                   Expiration of period covered by
support                             support agreement                                             41,882                59,111
Total deferred revenue                                                            $              849,250  $            854,248
</TABLE>


Cost of revenues - Cost of revenues from  license,  royalties,  and  maintenance
consists of costs to distribute the product  (including the cost of the media on
which  it  is  delivered),  installation  and  support  personnel  compensation,
amortization  and  impairment of capitalized  speech  software  costs,  licensed
technology,  and other  related  costs.  Cost of service  revenues  consists  of
personnel compensation and other related costs.

Software  technology  development  and production  costs - All costs incurred to
establish the  technological  feasibility  of speech  software  technology to be
sold,  leased,  or  otherwise  marketed are charged to product  development  and
research expense. Technological feasibility is established when a product design
and a working model of the software product have been completed and confirmed by
testing. Costs to produce or purchase software technology incurred subsequent to
establishing  technological  feasibility  are  capitalized.   Capitalization  of
software  costs  ceases when the  product is  available  for general  release to
customers.  Costs to perform consulting  services or development of applications
are  charged  to cost of  revenues  in the  period  in which  the  corresponding
revenues are recognized.  Cost of maintenance and customer support is charged to
expense when related  revenue is  recognized  or when these costs are  incurred,
whichever occurs first.

Capitalized  software  technology  costs are  amortized on a  product-by-product
basis.  Amortization  is  recognized  from the date the product is available for
general  release to customers as the greater of (a) the ratio that current gross
revenue  for a product  bears to total  current  and  anticipated  future  gross
revenues for that product or (b) the  straight-  line method over the  remaining
estimated  economic  life of the  products.  Amortization  is charged to cost of
revenues.

We assess  unamortized  capitalized  software costs for possible write down on a
quarterly  basis based on net  realizable  value of each  related  product.  Net
realizable value is determined based on the estimated future gross revenues from
a product  reduced by the estimated  future cost of completing  and disposing of
the product,  including the cost of performing maintenance and customer support.
The amount by which the  unamortized  capitalized  costs of a  software  product
exceed the net realizable value of that asset is written off.

Stock-based  Compensation  Plans - We account for our  stock-based  compensation
issued to employees  and directors  under  Accounting  Principles  Board ("APB")
Opinion No. 25,  "Accounting  for Stock Issued to Employees."  Under APB Opinion
No. 25,  compensation  related  to stock  options,  if any,  is  recorded  if an
option's  exercise price on the measurement  date is below the fair value of our
common  stock,  and amortized to expense over the vesting  period.  Compensation
expense for stock awards or  purchases,  if any, is  recognized  if the award or
purchase  price on the  measurement  date is below the fair  value of our common
stock,  and is  recognized  on the  date of  award  or  purchase.  Statement  of
Financial  Accounting  Standards  ("SFAS") No. 123,  "Accounting for Stock Based
Compensation,"  requires pro forma  information  regarding net loss and net loss
per common share as if we had accounted for our stock options  granted under the
fair value  method.  This pro forma  disclosure  is  presented  in Note 1 of the
consolidated financial statements.

We account for our stock-based  compensation  issued to non-employees  using the
fair value method in accordance  with SFAS No. 123 and related  interpretations.
Under SFAS No. 123,  stock-based  compensation  is determined as either the fair
value of the consideration  received or the fair value of the equity instruments
issued, whichever is

                                       21
<PAGE>

more  reliably  measurable.  The  measurement  date for these  issuances  is the
earlier of the date at which a commitment  for  performance  by the recipient to
earn the equity  instruments  is  reached  or the date at which the  recipient's
performance is complete.

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 Notes 5 and 7 to the condensed  consolidated
financial statements).

Recently  Enacted  Accounting   Standards  -  In  January  2003,  the  Financial
Accounting  Standards  Board ("FASB") issued  Interpretation  No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities,  an Interpretation of ARB No. 51."
FIN 46 provides guidance on the  identification of entities for which control is
achieved  through  means other than through  voting rights  ("variable  interest
entities" or "VIEs") and how to  determine  when and which  business  enterprise
should  consolidate  the VIE (the  "primary  beneficiary").  This new  model for
consolidation  applies to an entity in which either (1) the equity  investors do
not have a controlling  financial interest, or (2) the equity investment at risk
is insufficient to finance that entity's activities without receiving additional
subordinated  financial support from other parties. In addition, FIN 46 requires
that both the primary  beneficiary and all other  enterprises with a significant
variable interest in a VIE make additional  disclosures.  FIN 46 applies to VIEs
created  after January 31, 2003,  and to VIEs in which an enterprise  obtains an
interest  after that date. It applies in the first fiscal year or interim period
beginning  after  June 15,  2003,  to  variable  interest  entities  in which an
enterprise holds a VIEs that it acquired before February 1, 2003.

Results of Operations

Three months ended March 31,  2003,  compared  with three months ended March 31,
2002

During the three months ended March 31, 2003, we recorded  revenues of $589,670,
reflecting  an increase of $290,885  over the same period in the previous  year.
The majority of the increase is attributable  to $205,232 in revenues  generated
from licensing and $87,000 generated from  non-recurring  engineering  contracts
completed during the first quarter of 2003.

Cost of revenues  were $80,217 for the three  months  ended March 31,  2003,  an
increase of $36,113 over the same period in the previous year.  Amortization  of
capitalized  software costs and hardware sales represent the largest portions of
the increase during the first quarter of 2003.

Selling,  general and  administrative  expenses for the three months ended March
31,  2003,  were  $2,250,698,  a decrease of  $978,705.  The  decrease  includes
decreases  of  $295,380  compensation-related  expenses  due  to  reductions  in
personnel,  $121,935  in  legal  and  accounting  expenses,  $229,802  in  other
operating  expenses  primarily  related to insurance for directors and officers,
$149,102 in promotion and  advertising  expenses and $177,001 in travel  related
expenses.

Product development and research expenses were $1,675,113 and $2,126,151 for the
three  months  ended  March 31,  2003 and 2002,  respectively.  The  decrease of
$451,038  resulted  primarily  from decreased  compensation-related  expenses of
$347,779 and consulting and outside service-related expenses of $178,005 related
to product application and development activities.

Liquidity and Capital Resources

We must  raise  additional  funds to be able to  satisfy  our cash  requirements
during the next 12 months.  Research and development,  corporate  operations and
marketing  expenses  will  continue to require  additional  capital.  Because we
presently have only limited  revenue from  operations,  we intend to continue to
rely primarily on financing  through the sale of our equity and debt  securities
to satisfy future capital  requirements  until such time as we are able to enter
into   additional   third-party   licensing,   collaboration   or   co-marketing
arrangements  such  that it will be able  to  finance  ongoing  operations  from
license,  royalty and services revenues.  There can be no assurance that we will
be able to enter into such  agreements.  Furthermore,  the issuance of equity or
debt securities which are or may become  convertible into our equity  securities
in  connection  with  such  financing  could  result in  substantial  additional
dilution

                                       22

<PAGE>

to the our stockholders. At March 31, 2003, we had $17,500,000 available to draw
under the third  equity line of credit,  and we are  presently  negotiating  the
terms of a fourth equity line of credit agreement.

Net cash used in operating  activities of $2,083,964  for the three months ended
March 31, 2003,  resulted  principally  from the net loss incurred of $4,269,715
offset by increases in accrued payroll of $982,129, non-cash expenses pertaining
to  depreciation,  amortization  and accretion of $832,176,  accounts payable of
$342,097,  and equity in net loss of affiliate of $69,896.  Net cash provided by
investing  activities  of $400,740  for the three  months  ended March 31, 2003,
consisted primarily of collections under a convertible note payable of $402,765.
Net cash  used in  operating  activities  was  offset  by net cash  provided  by
financing  activities  of  $1,679,777  consisting  primarily  of the  receipt of
$2,440,001 in cash related to the sale of shares of Class A common stock offset,
in part, by $650,000 in payments on Series D Debentures.

We had negative  working  capital of $15,354,478 at March 31, 2003,  compared to
negative  working  capital of $14,428,750  at December 31, 2002.  Current assets
decreased by $513,238 to $177,606  from  December  31, 2002,  to March 31, 2003.
Current liabilities increased by $500,474 to $15,620,068 during the same period.
The change in working  capital from  December 31, 2002,  to March 31, 2003,  was
primarily  attributable to the collection of the convertible note receivable and
the increase in accrued payroll. Total assets were $5,766,441 at March 31, 2003,
compared to $6,523,480 at December 31, 2002.

Convertible Note Receivable and Line of Credit

On December 1, 2001,  we, as the lender,  established a revolving line of credit
and  received a  convertible  promissory  note from  Unveil  Technologies,  Inc.
("Unveil"),  that  permitted  Unveil to draw up to $2,000,000 for operations and
other  purposes.  Unveil  is  a  developer  of  natural  language  understanding
solutions for customer resource management ("CRM")  applications.  We desired to
obtain a license to Unveil's CRM  applications  when completed and made the loan
to Unveil to facilitate and expedite the  development and  commercialization  of
Unveil's speech- enabled CRM software. Draws on the line of credit bear interest
at an  annual  rate of seven  percent,  which  interest  was  payable  quarterly
beginning June 30, 2002.

During the year ended  December  31, 2002,  Unveil drew  $880,000 on the line of
credit,  bringing total draws on the line of credit to $1,450,000 as of December
31, 2002. Due to limited resources available to the Company, additional requests
for  funding  by  Unveil  under  the line of  credit  have not  been  met.  This
limitation  in funding has  resulted in a  deterioration  of Unveil's  financial
condition and has caused Unveil to slow its  development  process.  Accordingly,
due to Unveil's  financial  condition,  the Company estimated an impairment loss
during the third quarter of 2002 in the amount of $1,523,842,  consisting of the
outstanding  balance on the line of credit plus accrued  interest  thereon as of
that date. The Company advanced an additional $60,000 to Unveil in October 2002.
This advance was treated as a research and development expense.

During the first  quarter of 2003, we entered into an agreement to terminate the
revolving  line of credit  and  satisfy  the  convertible  promissory  note with
Unveil.  In full payment of the balance of  $1,450,000  due under the note,  the
Company received a payment of $410,000 and 1,863,636 shares of Unveil's Series A
Preferred Stock (the "Unveil  Preferred  Stock").  Accordingly,  we adjusted the
estimated  impairment,  recorded  in the third  quarter  of 2002,  such that the
carrying  amount of the note  receivable  was equal to the  amount  received  in
January 2003.  We did not allocate  value to the Unveil  Preferred  Stock due to
Unveil's overall financial condition.

Investment in Affiliate

In  February  2001,  we  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 to complete online transactions using any telephone.
The collaboration  includes integration of our technologies with Audium's mobile
applications development capability.

Note Receivable - In connection with the collaboration agreement with Audium, in
February  and May 2001,  we  advanced  an  aggregate  of $400,000 to Audium as a
bridge loan under a note (the "Audium Note").  The Audium Note bears interest at
a rate of 5 percent per year, has a term of four years and is  convertible  into
shares  of  Audium  Series A  Convertible  Preferred  Stock  ("Audium  Preferred
Stock"). 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's  raising an  additional
$2,000,000  prior to October 6, 2002,  (ii)  Audium's  merger or  consolidation,
(iii) a qualified  public  offering of Audium's  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  to  us 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.

                                       23
<PAGE>

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.  We  are  currently  discussing  the  possibility  of  converting  the
remaining  balance due under the Audium Note for  additional  shares of Audium's
Common Stock.

Investment  in Affiliate - In April 2001, we closed a stock  purchase  agreement
with Audium,  wherein we agreed to purchase up to $2,800,000 of Audium Preferred
Stock at a price of $1.46 per share.  At closing,  we paid  $200,000 in cash and
gave Audium a  non-interest  bearing note (the "Fonix  Note") for the  remaining
$2,600,000.  Interest on the Fonix Note was imputed at 12 percent resulting in a
present  value  of  $2,370,348.  The  resulting  purchase  price  of the  Audium
Preferred Stock was $2,570,348.

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 into which it
is  convertible.  The stock purchase  agreement also entitles Fonix to elect one
member of  Audium's  board of  directors.  Audium  also  granted  to us  certain
registration rights after the closing of a public offering by Audium.

At closing,  Audium issued 14 Audium  Preferred  Stock  certificates to us, each
certificate  for 136,986  shares,  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 payment of $200,000 or multiple  payments that aggregate  $200,000,  Audium
will release to us one certificate for 136,986 shares of Audium Preferred Stock.

The difference  between the total purchase price of the Audium  Preferred  Stock
and our  portion  of  Audium's  net  stockholders'  deficit  at the  time of the
purchase was $2,700,727, which was allocated to capitalized software technology.
The excess purchase price allocated to the capitalized  software  technology was
amortized  on a  straight-  line  basis  over a period  of eight  years  through
December 31, 2001.  After the impairment in the  investment in Audium  discussed
below, the remaining excess purchase price was $1,008,002 and is being amortized
over the remaining portion of the 8-year period.

The  investment  in Audium  does not  provide us with  rights to any  technology
developed by Audium;  we must obtain a license  should we choose to do so. Also,
we would not own an interest  sufficient to control Audium if we were to convert
the  Audium  Note  to  Audium  Preferred  Stock.  As a  result,  management  has
determined  that  it  is  appropriate  to  account  for  the  investment,  which
represents  26.7 percent of Audium's  voting stock at March 31, 2003,  under the
equity method and not as a research and development arrangement.

Accordingly, for the three months ended March 31, 2003, the Company recognized a
loss of  $111,722,  consisting  of $69,896 to reflect our share of Audium's  net
loss for the three months ended March 31, 2003, and $41,826 for the amortization
of the difference  between the purchase price of the Audium  Preferred Stock and
our  portion of  Audium's  net  stockholders'  deficit  that is  amortized  on a
straight-line basis over a period of eight years.

The fair value of this  investment  is  determined  based on Audium's  estimated
future net cash flows considering the status of Audium's product development. We
evaluate  this  investment  for  impairment  annually  and  more  frequently  if
indications  of decline in value exist.  An  impairment  loss that is other than
temporary  is  recognized  during  the  period it is  determined  to  exist.  An
impairment is determined to be other-than-temporary if estimated future net cash
flows  are  less  than the  carrying  value of the  investment.  If  projections
indicate that the carrying value of the investment will not be recoverable,  the
carrying value is reduced by the estimated excess of the carrying value over the
estimated  discounted cash flows. There is a reasonable  possibility that in the
near future  estimated  future cash flows from the  investment  in Audium  could
change and that the  effect of the change  could be  material  to our  financial
position or results of operation.

At December 31, 2001, we assessed the  realizability of the investment in Audium
and we wrote down the  investment by $823,275.  The write-down was a result of a
decrease in the estimated cash flows expected to be realized from the

                                       24
<PAGE>

investment  due to overall  decline in the economy and the  potential  impact on
related  markets  for  Audium's  products.  As of March  31,  2003,  no  further
write-down was deemed  necessary based on the estimated future cash flows of the
investment.

Note Payable to Affiliate - The Fonix Note is payable in 13 monthly installments
of $200,000  beginning on June 1, 2001, and bears no interest unless an event of
default  occurs,  in which case it will bear  interest  at 12 percent  per year.
Through March 31, 2003, payments amounting to $1,800,000 had been made under the
Fonix note. At March 31, 2003, we had an  outstanding  balance of $1,000,000 due
under the Fonix note. We are currently  discussing  with Audium the  possibility
that we return  684,930  shares of  Audium's  Preferred  Stock in  exchange  for
Audium's release of us under the Fonix note. Audium has not declared us to be in
default under the terms of the Fonix Note.

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 we recorded a present  value of  $2,370,348  for the Fonix Note.


Note Payable

On December 14, 2001,  we entered into an Asset  Purchase  Agreement  with Force
Computers,  Inc. ("Force"). As part of the consideration for the purchase price,
we issued a  non-interest  bearing  promissory  note on December 14, 2001 in the
amount of $1,280,000.  Installment  payments under the note were due over the 12
month period following the date of purchase.  Management determined that a seven
percent  annual  interest  rate  reflects  the  risk   characteristics  of  this
promissory note. Accordingly,  interest has been imputed at seven percent and we
recorded a discount  of  $40,245  for the note  payable.  We  recorded  interest
expense of $4,098 from the purchase date through December 31, 2001,  $37,854 for
the year ended December 31, 2002.

As collateral  for the  promissory  note,  175,000  shares of our Class A common
stock were placed into  escrow.  Under the terms of the escrow,  the shares will
not be released to Force  unless we are  delinquent  or late with respect to any
payment under the note. Also,  under the terms of the Asset Purchase  Agreement,
we are  required  to  deposit  all  receipts  from  customers  acquired  in this
transaction into a joint depository  account. We have the right to withdraw such
funds; however, in the event of default on any payments to Force under the terms
of the  promissory  note,  Force  has the  right  to  withdraw  funds  from  the
depository account until the deficiency in payment is covered, at which time, we
may again have use of the funds.  Through December 31, 2002,  payments  required
under the note have been made,  except  the final  payment  of  $250,000,  which
remained  outstanding  at December 31, 2002.  During the first  quarter of 2003,
additional  payments amounting to $115,000 were made.  Effective March 13, 2003,
Force  exercised its right to withdraw all funds deposited in the joint account,
as described  above,  until Force  receives the remaining  balance due under the
promissory note. During the first quarter of 2003, Force has drawn $980 from the
joint bank account leaving an outstanding balance of $134,020 at March 31, 2003.

Equity Lines of Credit

Equity Line of Credit - In August 2000,  as entered  into a Private  Equity Line
Agreement  ("Equity Line") with a third party investor  ("Equity Line Investor")
which  gave us the  right to draw up to  $20,000,000  for  operations  and other
purposes.  The Initial  Investment Amount of $7,500,000 was drawn as part of the
2000 Note  described  above.  The  balance  remaining  under the Equity Line was
available to us through a mechanism of draws and puts of stock. We were 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  funded the  amounts  requested  by the us within two
trading days after the seven trading-day period.

From its inception through December 31, 2000, draws taken under the Equity Line,
excluding  the  Initial  Investment  Amount,   amounting  to  $3,973,508,   less
commissions and related fees of $119,206,  were converted into 312,317 shares of
Class  A  common  stock.  During  2001,  draws  amounting  to  $5,510,000,  less
commissions and related fees of $165,300,  were converted into 658,829 shares of
Class A common stock.

                                       25
<PAGE>

For the year ended December 31, 2002, the Company  received  $3,633,817 in funds
drawn under the Equity Line, less  commissions and related fees of $84,825,  and
issued 1,017,323 shares of Class A common stock to the Equity Line investor.

Second Equity Line of Credit - In April 2001,  we entered into a second  private
equity line  agreement (the "Second Equity Line") with the Equity Line Investor.
Under the Second Equity Line, we had 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  December 31, 2001,  draws
under the Second Equity Line amounting to $13,425,000, less commissions and fees
of $497,750, were converted to 2,950,325 shares of Class A common stock.

For the year ended December 31, 2002, the Company  received  $5,728,846 in funds
drawn under the Second Equity Line, less  commissions and fees of $189,805,  and
issued 2,339,675 shares of Class A common stock to the Equity Line investor.

Third Equity Line of Credit - In June 2002,  we entered into a third equity line
agreement  (the "Third  Equity Line") with the Equity Line  Investor.  Under the
Third  Equity  Line,  we have the right to draw up to  $20,000,000  under  terms
substantially  identical to the initial  Equity Line. On June 27, 2002, we filed
with the SEC a  registration  statement on Form S-2 to register the resale of up
to  5,000,000  shares of our Class A common  stock by the Equity Line  Investor,
which became effective during January 2003. During the third and fourth quarters
of 2002, the Equity Line Investor  advanced to us $182,676  against future draws
on the Third Equity Line (see Note 10 to the  condensed  consolidated  financial
statements). The balance owing on the advance is included in accrued liabilities
in the  accompanying  financial  statements at December 31, 2002. As of December
31, 2002, no shares had been issued under the Third Equity Line.

For the quarter  ended March 31,  2003,  we received  $2,500,000  in funds drawn
under  the  Equity  Line,  less  commissions  and fees of  $64,120,  and  issued
4,006,212 shares of Class A common stock to the Equity Line investor.

Fourth Equity Line of Credit - On May 12, 2003, we entered into a fourth private
equity line agreement (the "Fourth Equity Line  Agreement") with the Equity Line
Investor,  on terms  substantially  similar to those of the Third  Equity  Line.
Under  the  Fourth  Equity  Line  Agreement,  we have  the  right  to draw up to
$20,000,000 against an equity line of credit (the "Fourth Equity Line") from the
Equity Line Investor.  We are entitled under the Fourth Equity Line Agreement to
draw certain funds and to put to the Equity Line Investor  shares of our Class A
common stock in lieu of repayment of the draw. The number of shares to be issued
is  determined  by dividing  the amount of the draw by 90% of the average of the
two  lowest  closing  bid  prices of our Class A common  stock  over the  twenty
trading  days after the put notice is  tendered.  The Equity  Line  Investor  is
required under the Fourth Equity Line Agreement to tender the funds requested by
us within two trading days after the twenty-trading-day period used to determine
the market price. We plan to file with the SEC a registration  statement on Form
S-2 to  register  the  resale of up to  50,000,000  shares of our Class A common
stock by the Equity Line Investor.

We anticipate that upon the  effectiveness of this  registration  statement,  it
will  terminate  the Third Equity Line and cease  further  draws or issuances of
shares in connection with the Third Equity Line. Upon the  effectiveness of this
registration  statement and following our  termination of the Third Equity Line,
the only active equity line of credit will be the Fourth Equity Line.

Stock Options and Warrants

Reverse  Stock  Split  -  On  March  24,  2003,  our  shareholders   approved  a
one-for-forty  reverse stock split to our  outstanding  Class A common stock and
common  stock  options  and  warrants.  The stock  split has been  retroactively
reflected in the accompanying  consolidated financial statements for all periods
presented.

Class A Common Stock - During the three  months ended March 31, 2003,  4,006,212
shares of Class A common  stock  were  issued in  connection  with  draws on the
equity lines (see Note 10 to the condensed consolidated financial

                                       26

<PAGE>

statements  ). No shares of Class A common  stock were issued as a result of the
exercise of stock options or warrants during the same period.

Stock Options - During the three months ended March 31, 2003, we granted options
to an employee to purchase  1,125  shares of Class A common  stock.  The options
have an  exercise  price of $1.60 per share,  which was the quoted  fair  market
value of the stock on the  dates of grant.  The  options  granted  vest over the
three years following issuance. Options expire within ten years from the date of
grant if not exercised.  Using the  Black-Scholes  pricing  model,  the weighted
average fair value of the employee  options was $1.60 per share. As of March 31,
2003,  we had a total of  611,781  options  to  purchase  Class A common  shares
outstanding..

Warrants - As of March 31,  2003,  we had warrants to purchase a total of 46,250
shares of Class A common stock outstanding that expire through 2010.

Other

We presently  have no plans to purchase new research and  development  or office
facilities.

                                     Outlook

Corporate Mission Statement and Objectives

"Empowering people with conversational speech solutions for systems and devices"
is our Mission Statement. Our objectives include:

          o    Delivering  real  speech  solutions  for human  interaction  with
               multiple devices based on our Core Technologies.

          o    Becoming   the   platform   for  current   and  next   generation
               speech-enabling applications and products.

          o    Developing   leading  market  position  through   differentiating
               solution strategy.

          o    Focusing on clearly quantified market solutions.

          o    Creating customer awareness and mind-share.

          o    Beating   competition   by   increased   value-added   solutions,
               portability and ease of use.

          o    Developing positive monthly cash flow from sales.

          o    Delivering predictable revenue and earnings.

          o    Providing return on shareholder equity.

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 Fonix speech Products and Core Technologies
are based on  proprietary  technology  that is protected by various  patents and
trade  secrets.  Management  believes  our  speech-enabled  Products  provide  a
superior competitive  advantage compared to other technologies  available in the
marketplace. In addition, we believe our market focus on speech-enabled Products
will be a substantial differentiator. To accomplish this objective, we intend to
proceed as follows:

     Substantially Increase Marketing and Sales Activities.  We intend to expand
     our sales through  partners,  OEMs, VARs,  direct sales, and existing sales
     channels,  both  domestically  and  internationally,  who will focus on the
     wireless  and  mobile  devices,   telephony  and  server  phone  solutions,
     assistive and language learning devices,  automotive integrated multi-media
     systems,  and end-to-end or distributive  speech systems. To address global
     opportunities,  we will  continue  to  develop  and  expand  its  sales and
     marketing teams in Asia, Europe, and the

                                       27
<PAGE>

    United States.

     Expand Strategic Relationships. We have a number of strategic collaboration
     and marketing  arrangements  with  developers and VARs. We intend to expand
     such relationships and add additional similar  relationships,  specifically
     in the  wireless  and  mobile  devices,  assistive  and  language  learning
     devices, automotive systems, and end-to-end solutions. Further, when we are
     able to identify "first mover" speech-enabling applications in which it can
     integrate  our Products  and Core  Technologies,  we intend to  investigate
     investment   opportunities   so  we  can  obtain   preferred   or  priority
     collaboration rights.

     Continue  to  Develop   Standard   Speech   Solutions  Based  on  the  Core
     Technologies.  We plan to continue to invest  resources in the  development
     and acquisition of standard speech  solutions and  enhancements to the Core
     Technologies  of   speech-enabling   technologies,   developer  tools,  and
     development frameworks to maintain our competitive advantages.

As we  proceed  to  implement  our  strategy  and to reach  our  objectives,  we
anticipate 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.  Our strategy
has significant  risks, and shareholders and others  interested in Fonix and our
Class A common  stock  should  carefully  consider the risks set forth under the
heading  "Certain  Significant Risk Factors" in the Company's 2002 Annual Report
on Form 10-K, Item 1, Part I.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

To date, all of our revenues have been  denominated in United States dollars and
received  primarily from customers in the United States. Our exposure to foreign
currency exchange rate changes has been insignificant.  We expect, 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 we  engage in
international sales denominated in U.S. dollars, an increase in the value of the
U.S.  dollar  relative  to  foreign  currencies  could  make our  products  less
competitive in international  markets.  Although we will continue to monitor our
exposure  to  currency  fluctuations,   we  cannot  assure  that  exchange  rate
fluctuations will not adversely affect financial results in the future.

Item 4.  Evaluation of Disclosure Controls and Procedures

(a)                  Evaluation of Disclosure Controls and Procedures.  The
Company's chief executive officer and chief financial officer,  after evaluating
the  effectiveness  of the Company's  "disclosure  controls and  procedures" (as
defined in the Securities  Exchange Act of 1934, Rules 13a-14(c) and 15-d-14(c))
as of a date (the  "Evaluation  Date")  within 90 days before the filing date of
this  quarterly  report,  have concluded  that, as of the  Evaluation  Date, the
Company's  disclosure  controls  and  procedures  were  adequate and designed to
ensure that material  information  relating to the Company and its  consolidated
subsidiaries would be made known to them by others within those entities.

(b)                  Changes in Internal Controls.  There were no significant
changes in the Company's internal controls,  or, to the Company's knowledge,  in
other factors that could  significantly  affect these controls subsequent to the
Evaluation Date.

                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

We are involved in various claims and proceedings arising in the ordinary course
of business.  Management believes,  after consultation with legal counsel,  that
the  ultimate  disposition  of these  matters  will not  materially  impact  our
consolidated financial position, liquidity, or results of operations.


                                       28
<PAGE>

Item 2.  Changes in Securities

None

Item 3. Defaults Upon Senior Securities

None

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

March 2003 Special Meeting of Shareholders

The share totals listed in this discussion are given in pre-reverse  stock split
numbers.

On March 24, 2003, we held a Special  Meeting of Shareholders in Salt Lake City,
Utah.  The record date for the meeting was February 7, 2003, on which date there
were 636,614,693  shares of the Company's Class A common stock issued,  of which
80,830,000  shares were held as collateral under escrow  agreements and were not
entitled to vote.

The first matter voted upon at the special meeting was the approval of the Board
of  Directors'  selection  of  Hansen,   Barnett  &  Maxwell  as  the  Company's
independent public accountants for the fiscal year ending December 31, 2002. The
results  of the  voting  were  453,747,161  shares  in favor,  7,400,444  shares
against, and 6,102,196 shares withheld or abstaining.

The second matter voted upon at the special meeting was to consider and act upon
a proposed  amendment to the Company's  certificate of incorporation to effect a
reverse  stock  split of the  Company's  Class A common  stock at a ratio of one
share for forty  shares.  The results of the voting were  415,418,995  shares in
favor, 49,607,889 shares against, and 2,222,917 shares withheld or abstaining.

The 1 share for 40 shares reverse stock split took effect April 4, 2003.

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


     99.1 Certification of President and Chief Financial Officer

     99.2 Certification  of President and Chief  Financial  Officer  Pursuant to
          Section 906 of the Sarbanes- Oxley Act of 2002.


b.   Reports  filed on Form 8-K during the  three-month  period  ended March 31,
     2003:

     8-K filed on March 24,  2003,  regarding  results  of  special  meeting  of
     shareholders held March 24, 2003.

     8-K filed April 4, 2003, regarding effectiveness and terms of reverse stock
     split.





                                       29
<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 13, 2003                 /s/ Roger D. Dudley
                                   Roger D. Dudley, Executive Vice President,
                                   Chief Financial Officer
                                   (Principal financial officer)



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