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

                                  FORM 10-Q


[X]        Quarterly report pursuant to Section 13 or 15(d) of the Securities
           Exchange Act of 1934 for the quarterly period ended March 31, 1999

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

                        Commission file number 0-23862

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

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

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

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

Indicate  by check  mark  whether  the  registrant:  (1) has filed  all  reports
required to be filed by Section 13 or Section 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 19,  1999,  70,660,944  shares of common  stock,  par value $.0001 per
share, were issued and outstanding.

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           This  Amendment No. 1 to the Quarterly Report  on Form  10-Q of Fonix
Corporation is submitted to amend the following  Items,  which  originally  were
submitted as part of the Annual  Report filed with the  Securities  and Exchange
Commission as of May 19, 1999:

Part II
       Item 2.   Management's Discussion and Analysis of Financial Condition and
                 Results of Operations.........................................3

Pursuant to SEC Rule 12b-15, the foregoing Item, as amended hereby, is set forth
below in its entirety.



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

THIS  QUARTERLY  REPORT  ON  FORM  10-Q  CONTAINS,  IN  ADDITION  TO  HISTORICAL
INFORMATION,  FORWARD-LOOKING  STATEMENTS  THAT  INVOLVE  SUBSTANTIAL  RISKS AND
UNCERTAINTIES.  THE COMPANY'S  ACTUAL RESULTS COULD DIFFER  MATERIALLY  FROM THE
RESULTS  ANTICIPATED  BY  THE  COMPANY  AND  DISCUSSED  IN  THE  FORWARD-LOOKING
STATEMENTS.  FACTORS  THAT COULD CAUSE OR  CONTRIBUTE  TO SUCH  DIFFERENCES  ARE
DISCUSSED  IN THE  COMPANY'S  ANNUAL  REPORT  ON FORM  10-K FOR THE  YEAR  ENDED
DECEMBER 31, 1998.

Overview

Fonix is a  development-stage  company  engaged in marketing and  development of
proprietary  automated speech recognition  ("ASR"),  text-to-speech  ("TTS") and
handwriting recognition technologies and products which may be licensed in whole
or in part to third parties.  The Company aims to make commercially  available a
comprehensive package of products and technologies that allow humans to interact
with computer and other electronic  products in a more efficient,  intuitive and
natural  way rather  than  through  traditional  methods  such as the  keyboard.
Specifically,  Fonix has developed  proprietary automated speech recognition and
related  technologies such as  text-to-speech  (speech  synthesis),  handwriting
recognition and speech compression.  These  technologies,  as developed to date,
use speech  recognition  techniques that include the use of a proprietary neural
network method.  Neural networks are  computer-based  methods which simulate the
way the human brain processes  information.  Fonix licenses its  technologies to
and has entered into  co-development  relationships and strategic alliances with
third parties including  producers of application  software,  operating systems,
computers and microprocessor chips.

Automated Speech Recognition

Presently available traditional voice recognition technologies have been used in
a variety of products for industrial, telecommunications,  business and personal
applications.  Speech recognition algorithms in software have been developed and
refined over the past several years.  However,  the increase in processing speed
and  memory  capacity  of  personal  computers  has  accounted  for  much of the
improvement in traditional speech recognition  systems during that period.  This
improvement includes vocabulary size, recognition accuracy and continuous speech
recognition ability. Currently available speech recognition systems for personal
computers include speech command systems for navigating the Windows(R) interface
and inexpensive, discrete word dictation systems offered by Dragon Systems, IBM,
Lernout  &  Hauspie  and  others.  Recently,  general  and  specific  vocabulary
continuous speech dictation  systems also have been introduced by Philips,  IBM,
Dragon Systems and others. In addition,  telephony applications with menu choice
systems and small vocabulary  dialogue systems have been demonstrated by Nuance,
Nortel and others.

Despite the nominal advances in performance of such presently available systems,
there are  significant  limitations  inherent in all of these  systems,  each of
which continues to use traditional  approaches  generally based on Hidden Markov
Models  ("HMM")  technology.  These  traditional  approaches  have not  advanced
appreciably since the late 1980s.  Applications based on such traditional speech
recognition systems for personal computers all require close-talking microphones
in relatively  low noise  environments  and a formal  speaking  style to achieve
acceptable  accuracy.  In so-called  continuous  dictation systems,  significant
adaptation to user speech,  speaking style,  and content area also are required.
These traditional  systems are generally  restricted to speech recognition for a
single  individual  dictating  in  a  quiet  environment;   presently  available
telephony-based systems are even more limited in general functionality.

The present industry standard  methodology,  the HMM, uses a general template or
pattern matching technique based on statistical  language models.  Massachusetts
Institute   of   Technology   researcher   Dr.   Victor   Zue  has  noted   that
speech-recognition systems based on such technology

           "utilize  little or no  specific-speech  knowledge,  but rely instead
           primarily on general-purpose  pattern-recognition  algorithms.  While
           such  techniques are adequate for a small class of well-  constrained
           speech  recognition   problems,   their   extendibility  to  multiple
           speakers,  large  vocabularies,  and/or  continuous  speech is highly
           questionable. In fact, even for the applications

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           that these devices are designed to serve, their performance typically
           falls far short of human performance."

HMM's widely recognized  weaknesses are many: (i) it does not meet the needs for
many mass market implementations, (ii) it has limited input feature types, (iii)
it accounts for only limited context,  (iv) it has limited ability to generalize
acoustic and language structure, (v) it requires training data from the end-user
for acceptable  performance,  (vi) models become  extremely large and complex as
vocabulary  grows,  and (vii)  there is a lack of hardware  parallel  processing
capability.

In contrast to HMM, Fonix  researchers  have developed what the Company believes
to be a  fundamentally  new approach to the analysis of human speech  sounds and
the  contextual   recognition  of  speech.   The  core  Fonix  automated  speech
recognition   technologies  (the  "ASRT"  or  "Core  Technologies")  attempt  to
approximate  the techniques  employed by the human auditory  system and language
understanding  centers in the human brain.  The ASRT use  information  in speech
sounds  perceptible to humans but not  discernible by current  automated  speech
recognition  systems.  They also  employ  neural  net  technologies  (artificial
intelligence  techniques) for identifying  speech  components and word sequences
contextually,  similar to the way in which  scientists  believe  information  is
processed by the human brain. As presently developed,  the ASRT are comprised of
several components including a phonetic sound representation recognition engine,
audio signal  processing,  a feature  extraction  process,  a phoneme estimation
process, and a linguistic process consisting of two components,  one of which is
expert-  or  rule-based  and one of which is based  on  proprietary  neural  net
technologies, that are designed to interpret human speech contextually.

Fonix believes the reliable recognition of natural, spontaneous speech spoken by
one or more  individuals  in a  variety  of  common  environments  by means of a
conveniently  placed  microphone,  all  based on its  ASRT,  will  significantly
improve the performance, utility and convenience of applications currently based
on traditional HMM technology such as computer interface navigation, data input,
text  generation,   telephony  transactions,   continuous  dictation  and  other
applications.  Additionally,  the  Company  believes  that  its ASRT  will  make
possible major new speech recognition  applications such as the transcription of
business  meetings  and  conversations,   real-time   speech-to-speech  language
translation,  natural  dialogues  with  computers  for  information  access  and
consumer electronic devices controlled by natural language.

Thus,  the  Company  believes  that its ASRT  offers  unique  speech  processing
techniques that will complement and significantly  enhance  currently  available
speech  recognition  systems.  Through its  Interactive  Technologies  Solutions
Group,  Fonix intends to continue to license its ASRT, to continue to co-develop
the ASRT with  research  and  development  groups in industry  and  academia and
ultimately to market a suite of Fonix-branded  technologies and products. In the
long term, the Company  anticipates  that automated speech  recognition  systems
employing  the  Company's  unique ASRT will set the  industry  standard  for all
automated speech recognition  applications because of its anticipated capacities
to overcome the weaknesses of HMM. In addition, the Company expects that certain
elements of its Core  Technologies  will have  industry-leading  applications in
non-speech  recognition  industries,  market  segments and  disciplines  such as
artificial  intelligence  and data  compression.  Although these plans represent
management's beliefs and expectations based on its current  understanding of the
market and its experience in the industry, there can be no assurance that actual
results will meet these expectations. See "Certain Significant Risk Factors." In
the last two fiscal years,  the Company has expended  $13,620,748 and $7,066,294
on research and development  activities.  Since its inception (October 1, 1993),
the Company has spent  $34,529,320 on research and  development of the ASRT. The
Company expects that a substantial  part of its capital  resources will continue
to be devoted to  research  and  development  of the ASRT and other  proprietary
technologies for the foreseeable future.

HealthCare Solutions Group Products

The three PowerScribe  products now being sold by the HealthCare Solutions Group
are  PowerScribeRAD,  PowerScribeRAD  Software  Development  Kit ("SDK")TM,  and
PowerScribeEM.  PowerScribe  products use state-of-  the-art  continuous  speech
recognition engines licensed from Dragon Systems,  Inc., which enables a user to
dictate  naturally  and  continuously  without  having to pause  between  words.
PowerScribe   incorporates  customized  medical  language  models  gleaned  from
millions of words  sampled  from  medical  specialty  departments  across  North
America.


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PowerScribe  products have been  designed as  mission-critical  applications  to
operate as an open and scalable continuous speech reporting and charting system.
PowerScribe  products utilize core  technologies from Microsoft's Back Office(R)
applications  development  suite  and  rely  on  Windows  NT(R),  Open  Database
Connectivity (ODBC) and SQL Server(R) as the foundation operational elements.

           PowerScribeRAD for Radiology Reporting

PowerScribeRAD  enables the full automation of the radiology  reporting  process
and   replaces   existing   digital   dictation   and   transcription   systems.
PowerScribeRAD  permits the dictation of radiology  reports  directly into text,
with edit, approve, and sign functions  accomplished within a matter of minutes;
thereby significantly  reducing  transcription costs and report turnaround time.
Once reports are  dictated,  they may be  automatically  stored in the Radiology
Information  System  ("RIS"),   the  Hospital   Information  System  ("HIS")  or
PowerScribeRAD's own report repository.

           PowerScribeEM for Emergency Medicine Reporting

PowerScribeEM  is a  completely  integrated  emergency  medicine  dictation  and
transcription system which allows emergency department  professionals to dictate
their reports  directly into text in the first total  solution for capturing and
documenting  emergency  medicine clinical  encounters.  PowerScribeEM  minimizes
training and the need for healthcare  professionals to modify their work styles.
PowerScribe includes post-processing of the text for organization into a typical
structured  emergency  medicine  report.  PowerScribeEM  seamlessly  handles the
overall workflow of an emergency department.  Once reports are dictated, reports
are  either  automatically  stored  in the HIS or in  PowerScribe's  own  report
repository for further analysis at a later date.

           PowerScribe Radiology SDK for User Development Applications

The PowerScribe  Radiology SDK allows users to integrate the full  functionality
of the  PowerScribeRAD  system into the user's own radiology  applications.  For
radiology  environments such as a RIS or Picture Archival  Communication  System
("PACS") the  PowerScribe  SDK allows  users to develop a completely  integrated
dictation and  transcription  system utilizing  continuous  speech  recognition.
Using this SDK, the PowerScribeRAD client functionality can be embedded into the
user's application while also customizing the user interface and report workflow
to meet specific  application  needs. The  PowerScribeRAD  SDK supports multiple
development  environments  including  Microsoft(R)  Visual  Basic,  C++  and the
Microsoft(R)  Internet  Explorer  environment.  The  SDK  includes  an  Active-X
composite control along with sample code and developer documentation.

           Interactive Solutions Group Products

The Interactive  Technologies  Solutions Group offers products and  technologies
which include  automated  speech  recognition,  text-to-speech,  and handwriting
recognition  for a variety of hardware and  software  platforms.  The  marketing
direction  for  the  Interactive   Technologies   Solutions  Group  is  to  form
relationships  with third parties who can incorporate  Fonix  technologies  into
their own products or product  development  efforts.  Such  relationships may be
structured  in  any  of a  variety  of  ways  including  traditional  technology
licenses,  co-development relationships through joint ventures or otherwise, and
strategic  alliances.  The third  parties  with whom  Fonix  presently  has such
relationships  and with which it may have  similar  relationships  in the future
include participants in the application software,  operating systems,  computer,
microprocessor  chips, consumer  electronics,  automobile,  telephony and health
care technology market sectors.  Interactive Technologies Group products include
AcuVoice  AV 1700,  AV 2001  text-to-speech  systems,  and  Allegro  handwriting
recognition.

           Embedded Technologies

Fonix  has  developed  an  application  development  tool,  the  Fonix  Advanced
Application  Speech  Toolkit  (FAAST(TM))  which allows  developers to simulate,
prototype and create code for embedded  applications using Fonix' human computer
interaction   technologies.   This  system   currently   supports  Fonix  speech
recognition   for   command  and  control   applications   and  Fonix   AcuVoice
text-to-speech  engines for both very high quality  limited  vocabulary and high
quality unlimited vocabulary  applications.  The system is designed to support a
number  of  popular   microprocessors   and   operating   systems  for  embedded
applications. Currently, FAAST supports the Siemens

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TriCore micro-controller. The beta version of the FAAST system will be available
for  developers in June 1999. An alpha version of the system is currently  being
used  internally  at  Fonix to  support  the  development  of  embedded  systems
applications for several companies  including consumer  electronic,  automotive,
and cell phone devices.

           Core Speech Recognition Technologies

Since 1994 Fonix has pursued the  development  of a "3rd  Generation"  automated
speech recognition technology to overcome the limitations of currently available
commercial  speech   recognition   systems.   This  development  has  yielded  a
proprietary  ASR system  utilizing a unique  front-end  analysis of the acoustic
speech signal,  a neural net based phoneme  identifier,  and a completely  novel
neural net architecture for back-end language modeling.  The latter component is
the MULTCONS or multi-level constraint  satisfaction network. These developments
have been the  subject of two issued  patents.  In  addition,  the  Company  has
acquired a related patent covering portions of this technology. Portions of this
technology are currently being employed in Fonix embedded systems applications.

           Text-to-Speech (Speech Synthesis)

In 1986  AcuVoice  began to develop  and market a new  approach  to  synthesized
speech,  a system using actual  recordings of "units" of human speech (i.e., the
sound  pulsation).  Since the unit of speech  consists  of more than one phoneme
(sound),  AcuVoice's  approach  has been called a "large  segment  concatenative
speech  synthesis"  approach.  Other companies such as DEC and AT&T began in the
early 1960s and continue  until the present to use a system  called  "parametric
speech  synthesis."  Parametric  systems  are  plagued  with  problems of speech
quality, because their unit is not an actual recording, but a computer's version
of what a human voice sounds like.  Poor speech  quality also occurs because the
parametric unit consists,  for the most part, of a single  phoneme,  such as the
"t" in the word "time."

Although as early as 1994 AcuVoice released versatile  prototypes of its system,
it was not until early 1996 that the AcuVoice  Speech  Synthesizer was ready for
sale  into  the  telecommunications,   multi-media,  educational  and  assistive
technology markets.  AcuVoice won awards as "best text-to-speech" product at the
Computer  Technology  Expo '97 and '98 and the best of show  award at AVIOS '97.
Presently AcuVoice products are sold to end-users, systems integrators and OEMs.

Fonix  text-to-speech  products  include  those  developed by AcuVoice and those
developed  by Fonix.  All are sold under the AcuVoice  brand name.  The products
include the AcuVoice AV 1700 TTS system for end-user  desktop and laptop  system
use. The AcuVoice AV 2001 SDK is a software  development  kit for  developers of
telephony  applications.  Run-time software licenses for the AV 2001 are offered
for applications developed with the SDK.
The SDK supports major computer telephony platforms.

           Handwriting Recognition

Prior to the  Papyrus  Acquisition  in October  1998,  PAI  developed  and began
selling  handwriting  recognition  software  including  the Allegro  handwriting
recognition software.  The Allegro handwriting  recognition software is a single
letter  recognition  system like the popular  Graffiti  handwriting  recognition
software for the PalmPilot PDA.  However,  Allegro's  alphabet is all natural in
appearance  as lower  case  letters.  Because  the  letters  are  written in the
standard  way in almost all  instances,  the  Allegro  system is easy to use and
requires practically no learning.  Allegro is sold by Purple Software in England
for the Psion Series 5 hand-held  PC. This  software  has also been  licensed to
Philips for its popular smart cell phone. Allegro is also the subject of a sales
agreement  with Lucent  Technologies  for use in its Inferno  operating  system.
Papyrus  has also  developed  cursive  handwriting  recognition  software  which
recognizes  naturally-written  whole  words.  This  cursive  technology  is only
available  as a licensed  product to OEM  customers.  Both the  Allegro  and the
cursive  handwriting  recognition  software are user  independent and require no
training on the software.

In March 1998,  the Company  expanded  its suite of  human-computer  interaction
technologies  by acquiring the  award-winning  voice  synthesis  technologies of
AcuVoice,  Inc.  ("AcuVoice").  The business operations  previously conducted by
AcuVoice are now part of the Company's Interactive Technologies Solutions Group.
During the three  months  ended  March 31,  1999,  the  Company  received in the
aggregate, $53,806 in revenue from licensing or sale of

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the AcuVoice  technologies and products compared to pro-forma revenue of $46,735
for the comparable three month period of 1998.

In September 1998, the Company acquired Articulate Systems, Inc. ("Articulate"),
a developer of leading voice  recognition  and systems  software for specialized
applications  in the health care industry.  The business  operations  previously
conducted by Articulate are now conducted by the Company's  HealthCare Solutions
Group based in Woburn,  Massachusetts.  During the three  months ended March 31,
1999, the Company received in the aggregate, $1,056,526 in revenue from sales of
the PowerScribe  Radiology  product  marketed by the HealthCare  Solutions Group
compared to pro-forma  revenue of $142,782 for the comparable three month period
of 1998.

In October 1998, the Company  acquired the Papyrus  Companies.  Papyrus develops
and markets printing and cursive handwriting  recognition software for PDAs, pen
tablets and mobile phones.  The Company operates the business  formerly operated
by  Papyrus as part of its  Interactive  Technologies  Solutions  Group from its
facilities  in Woburn,  Massachusetts.  During the three  months ended March 31,
1999,  the Company  received no revenue  from  licensing  or sale of the Papyrus
technologies  compared to pro-forma revenue of $140,462 for the comparable three
month period of 1998.

The Company markets its previously developed ASR technologies, together with TTS
technologies  and products  acquired from AcuVoice and  handwriting  recognition
technologies  and  products   acquired  from  Papyrus  through  its  Interactive
Technologies   Solutions  Group.  The  present   marketing   direction  for  the
Interactive  Technologies  Solutions Group is to form  relationships  with third
parties  which  can  incorporate  the  Company's   technologies  and  the  other
technologies  available to the  Interactive  Technologies  Solutions  Group into
their own products or product  development  efforts.  Such  relationships may be
structured  in  any  of a  variety  of  ways  including  traditional  technology
licenses,  co-development relationships through joint ventures or otherwise, and
strategic alliances.  The third parties with whom the Company presently has such
relationships  and with which it may have  similar  relationships  in the future
include participants in the application software,  operating systems,  computer,
microprocessor  chips, consumer  electronics,  automobile,  telephony and health
care technology industries.

The Company  markets  voice  recognition  and systems  software for  specialized
applications in the health care industry through its HealthCare Solutions Group.
The  HealthCare   Solutions  Group  presently  markets  large  vocabulary  voice
recognition  software for the rapid  capture,  transcription  and  management of
clinical  information dictated by radiologists and emergency medical physicians.
The  products  now  being  sold by the  HealthCare  Solutions  Group,  including
PowerScribe  Radiology and  PowerScribeEM,  are marketed to major  hospitals and
medical centers nationwide.

In addition to the transactions  involving  AcuVoice,  Articulate and Papyrus in
1998,  the Company was also in  negotiations  to acquire  several  other  speech
technology-related  companies.  The  Company  terminated  all  such  acquisition
discussions in late 1998.

Resignation of Chairman of the Board

Effective April 30, 1999,  Stephen M. Studdert resigned as Chairman of the Board
of Directors of the Company and Thomas A. Murdock,  the Chief Executive  Officer
of the Company, was elected Chairman.  Mr. Studdert continues as a member of the
Board of Directors.

Year 2000 Issue

Many computer  systems and software  products are coded to accept only two digit
entries in the date code field.  These date code fields will need to accept four
digit entries to distinguish  21st century dates from 20th century  dates.  As a
result,  many companies'  software and computer systems will need to be upgraded
or  replaced  in order to comply  with such  Year  2000  requirements.  Fonix is
subject to the risk that problems  encountered with Year 2000 issues,  either in
its internal  systems,  technologies and products,  or in external systems could
adversely affect its operations and financial condition.


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In  the  ordinary  course  of  its  business,  Fonix  tests  and  evaluates  its
technologies  and  software  and  hardware  products.  Fonix  believes  that its
technologies  and products  generally are Year 2000 compliant,  meaning that the
use or  occurrence  of dates on or after  January  1, 2000  will not  materially
affect the  performance  of such  technologies  or products with respect to four
digit date dependent  data or the ability of such products to correctly  create,
store, process, and output information related to such data. However,  Fonix may
learn that certain of its  technologies or products do not contain all necessary
software  routines and codes  necessary for the accurate  calculation,  display,
storage,  and  manipulation  of data  involving  dates.  In addition,  Fonix has
warranted or expects to warrant that the use or  occurrence of dates on or after
January 1, 2000 will not adversely affect the performance of its technologies or
products  with  respect  to four  digit date  dependent  data or the  ability to
create,  store, process, and output information related to such data. If the end
users of any of Fonix's  technologies or products experience Year 2000 problems,
those persons could assert claims for damages.

Fonix  uses  third-party  equipment  and  software  that  may not be  Year  2000
compliant.  Fonix is presently  conducting a review of key products  provided by
outside vendors to determine if their products are Year 2000 compliant. Although
that process is not yet completed,  Fonix  presently  believes that all software
provided  by  third  parties  that is  critical  to its  business  is Year  2000
compliant. Fonix expects to complete its review of all internal systems for Year
2000 compliance by June 30, 1999. If this third-party equipment or software does
not  operate  properly  with  regard  to the Year  2000  issue,  Fonix may incur
unexpected expenses to remedy any problems.  Such costs may materially adversely
affect  Fonix's  business,   operating  results,  and  financial  condition.  In
addition,  if Fonix's key systems, or a significant number of its systems,  fail
as a result  of Year 2000  problems  Fonix  could  incur  substantial  costs and
disruption of its business.  Fonix may also  experience  delays in  implementing
Year 2000  compliant  software  products.  Any of these  problems may materially
adversely affect Fonix's business, operating results or financial condition.

In addition, the purchasing patterns of Fonix's licensees,  potential licensees,
customers  and  potential  customers  may be affected by Year 2000 issues.  Many
companies are expending  significant resources to correct their current software
systems for Year 2000 compliance. These expenditures may result in reduced funds
available to license Fonix  technologies  or to purchase  other Fonix  products.
This may adversely affect Fonix's  business,  operating  results,  and financial
condition.

Results of Operations

Three  months  ended March 31, 1999  compared  with three months ended March 31,
1998

During the three months ended March 31, 1999, the Company  recorded  revenues of
$1,110,332, a decrease of $185,453 over the same period in the previous year. In
the  1998  comparable   period  the  Company  received  its  first  revenues  of
$1,295,785, of which, $1,291,712 was paid by Siemens as a non-refundable license
fee. The 1999  revenues are primarily  from sales and licensing  fees related to
the PowerScribe dictation product and TTS technologies and products.

The Company  incurred  product  development and research  expenses of $2,971,279
during the three months ended March 31, 1999,  an increase of $270,076  over the
same  period in the  previous  year.  This  increase  was due  primarily  to the
addition of product  development and research personnel,  equipment,  facilities
and the operations of the  Interactive  Technologies  and  HealthCare  Solutions
Groups.  The Company  anticipates  similar or increased product  development and
research  costs as it  continues  to develop  and market  the  applications  and
products  offered  by its  HealthCare  Solutions  and  Interactive  Technologies
Solutions  Groups.  During the three months  ended March 31,  1999,  the Company
expended a total of approximately $280,000 in connection with the development of
the AcuVoice  and  Articulate  purchased  in-process  research  and  development
projects.  No amounts were expended in connection with these projects during the
three months ended March 31, 1998.

Selling,  general and  administrative  expenses were $3,675,561 and $1,380,080 ,
respectively,  for the three  months  ended March 31,  1999 and 1998.  Salaries,
wages and related costs were  $2,093,626 and $716,550 for the three months ended
March 31 1999 and 1998, respectively,  an increase of $1,377,076.  This increase
is attributable to increases in personnel costs resulting from the  acquisitions
of AcuVoice,  Articulate and Papyrus.  Legal and accounting  expenses  increased
$238,692,  marketing  expenses  increased  $336,668 and  consulting  and outside
services increased by $94,094.

                                        8

<PAGE>



Amortization  of goodwill and purchased core  technologies  were  $1,287,581 and
$98,783 ,  respectively,  for the three  months  ended  March 31,  1999 and 1998
representing an increase of $1,188,798.  This increase is primarily attributable
to the  amortization  of  intangible  assets  acquired  in  connection  with the
acquisitions of AcuVoice, Articulate and Papyrus.


The Company incurred losses from operations of $7,049,528 and $12,199,281 during
the three  months ended March 31, 1999 and 1998,  respectively.  The decrease in
losses from operations is due primarily to the $9,315,000  charge for in-process
research  and  development  costs  during the three months ended March 31, 1998,
offset  in  part  by  increases  in  general  and  administrative  expenses  and
amortization  expense.  The Company  anticipates  that its investment in ongoing
scientific  product  development  and  research  will  continue  at  present  or
increased   levels  for  at  least  the  remainder  of  fiscal  1999,   assuming
availability of working capital.


Net other expense was  $2,245,333  for the three months ended March 31, 1999, an
increase of $2,204,886 over the three months ended March 31, 1998. This increase
was due primarily to increased  interest  expense of $1,955,455 due to financing
costs associated with the issuance of the Series C 5% Convertible Debentures.


In-Process Research and Development

At the dates of acquisition  of AcuVoice and  Articulate,  management  estimated
that each of the  acquired  in- process  research  and  development  projects of
AcuVoice  and  Articulate  were  approximately  75 percent  complete and that an
additional  $1.0 million would be required to develop each of these  projects to
commercial viability. Additionally,  management anticipated release dates of the
fourth quarter of 1999 for the AcuVoice projects,  and the first quarter of 2000
for the  Articulate  projects.  As of March 31, 1999, the Company has expended a
total of approximately $190,000 and $500,000 in connection with the AcuVoice and
Articulate acquired in-process research and development projects,  respectively,
and  management  estimates that a total of  approximately  $810,000 and $500,000
will be required to complete the AcuVoice and Articulate projects, respectively.
Management  estimates that the AcuVoice and  Articulate  projects are 80 percent
and 87  percent  complete,  respectively,  as of March  31,  1999,  and that the
release dates are the same as anticipated at the date of acquisition.


Liquidity and Capital Resources

The  Company  must  raise  additional  funds  to be able  to  satisfy  its  cash
requirements  during  the  next  twelve  months.  The  scientific  research  and
development,  corporate  operations  and  marketing  expenses  will  continue to
require additional  capital.  In addition,  the Company's recent acquisitions of
AcuVoice,  Articulate,  and Papyrus place further  requirements on the Company's
limited cash resources.  Because the Company  presently has only limited revenue
from operations,  the Company intends to continue to rely primarily on financing
through  the sale of its  equity  and  debt  securities  or  sales  of  existing
technologies  or businesses to satisfy  future capital  requirements  until such
time as the  Company is able to enter into  additional  acceptable  third  party
licensing or  co-development  arrangements  such that it will be able to finance
ongoing  operations out of license,  royalty and sales revenue.  There can be no
assurance  that  the  Company  will be  able  to  enter  into  such  agreements.
Furthermore,  the issuance of equity securities or other securities which are or
may become  convertible into equity securities of the Company in connection with
such financing (or in connection with acquisitions)  would result in dilution to
the stockholders of the Company which could be substantial.

The  Company  had  negative  working  capital of  $13,903,731  at March 31, 1999
compared to negative  working  capital of  $14,678,975 at December 31, 1998. The
current ratio was 0.10 at March 31, 1999, compared to 0.59 at December 31, 1998.
Current assets  decreased by $19,221,364 to $1,493,842 from December 31, 1998 to
March 31, 1999.  Current  liabilities  decreased by  $19,996,608  to $15,397,573
during the same period.  The increase in working  capital from December 31, 1998
to March 31, 1999,  was primarily  attributable  to the payment of notes payable
and other accrued  liabilities  from the proceeds of the Series C 5% Convertible
Debentures.   Total  assets  were  $41,261,363  at  March  31,1999  compared  to
$61,989,927 at December 31, 1998.

During the three months ended March 31, 1999, the Company  granted 753,000 stock
options to various  employees  and 9,500  stock  options to two  consultants  at
exercise prices ranging from $1.28 to $1.78 per share. The term of all

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<PAGE>



options  granted during this three month period is ten years from date of grant.
As of March 31, 1999, the Company had a total of 16,419,282 options outstanding.

From its inception,  the Company's  principal source of capital has been private
and other exempt sales of the Company's debt and equity  securities.  On January
29, 1999,  the Company  entered into a Securities  Purchase  Agreement with four
investors  pursuant  to  which  the  Company  sold its  Series C 5%  Convertible
Debentures (the  "Debentures") in the aggregate  principal amount of $4,000,000.
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  equal to the  lesser  of $1.25 or 80% of the  average  of the
closing  bid  price of the  Company's  common  stock for the five  trading  days
immediately  preceding  the  conversion  date.  The Company also issued  400,000
warrants in connection with this financing.  The warrants entitle the holders to
purchase up to 400,000  shares of the Company  common stock at an exercise price
of $1.25 per  share.  On March 3, 1999,  the  Company  executed  a  Supplemental
Agreement pursuant to which the Company agreed to sell an additional  $2,500,000
principal  amount of the  Debentures  on the same  terms and  conditions  as the
January 29, 1999  agreement,  except no additional  warrants were issued.  Gross
proceeds to the Company from these two transactions were $6,500,000.

The obligations of the Company for repayment of the  Debentures,  as well as its
obligation to register the common stock  underlying the potential  conversion of
the  Debentures and the exercise of the warrants  issued in these  transactions,
were personally  guaranteed by Thomas A. Murdock,  Roger D. Dudley (each of whom
are  executive  officers and  directors of the Company) and Stephen M.  Studdert
(director of the Company) (collectively,  "Guarantors"). The personal guarantees
of these Guarantors were secured by a pledge of 6,000,000 shares of Fonix common
stock  beneficially  owned by them and held in the name of  Thomas  A.  Murdock,
Trustee.  In connection with the Supplemental  Agreement,  the Company agreed to
pledge as  collateral  for  repayment  of the  Debentures,  a lien on the patent
covering  certain  ASR  technologies.  At the  present  time the Company has not
executed a security  agreement in favor of the investors  describing the patent.
In  connection  with the  guaranty and the pledge of Fonix common stock given by
Guarantors,  the Company agreed to indemnify and hold them harmless in the event
of a default that results in any payment or other  liability or damage  incurred
by any of them. In consideration for the guaranty and pledge by Guarantors,  the
Company  also agreed to grant each of them  common  stock  purchase  warrants to
purchase 666,666 shares of common stock at a price of $1.59 per share.  However,
the Guarantors have declined the grant of these  warrants.  On or about April 6,
1999,  the holders of the Debentures  notified the Company and  Guarantors  that
Guarantors  were in default under the terms of the pledge,  and that the holders
intended to exercise their rights to sell some or all of the pledged shares.  At
the present time, the Company has no knowledge of sales of Guarantors' shares by
the holders of the debentures.  However,  if the holders proceed to sell some or
all of  Guarantors'  shares,  the Company may be obligated  under its  indemnity
agreement  in  favor  of  Guarantors  to  issue  shares  to  the  Guarantors  in
replacement  of all shares sold by the holders and to reimburse  Guarantors  for
any  income  tax  liability  incurred  as a  result  of the  holders'  sales  of
Guarantors' shares.

During  the  three  months  ended  March  31,  1999,  17,500  shares of Series D
Convertible  Preferred Stock and 45,072 shares of Series E Convertible Preferred
Stock and related  dividends  were  converted  into 426,464 shares and 1,086,531
shares, respectively, of the Company's common stock.

At December 31, 1998,  the Company had a revolving note payable to a bank in the
amount of $19,988,193.  This note was due January 8, 1999, bore an interest rate
of 6.00 percent,  and was secured by a  certificate  of deposit in the amount of
$20,000,000.  The Company paid this  revolving note in full,  including  accrued
interest,  on January 8, 1999 with proceeds from the certificate of deposit that
secured the note and $22,667 in cash.

At March 31, 1999, the Company had an unsecured revolving note payable to a bank
in the amount of $50,000.  Amounts  loaned under the revolving  note payable are
limited to $50,000.  The weighted average  outstanding  balance during the three
months ended March 31, 1999 was $50,000.  The weighted average interest rate was
9.75 percent during this period.  This note is payable on demand,  matures April
1, 2007, bears interest at a bank's prime rate plus 2.0 percent (9.75 percent at
March 31, 1999) and requires interest to be paid monthly.

At March 31,  1999,  the Company had a note payable to a lender in the amount of
$560,000 which bears interest at 18 percent per annum, which interest is payable
monthly.  The note payable was  originally due January 2, 1999 and is secured by
certain  accounts  receivable of the Company's  HealthCare  Solutions Group. The
Company  has  extended  the due date  through  May 28, 1999 by paying the lender
accrued interest plus a fee of $5,600. The

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<PAGE>



Company anticipates that it will request additional  extensions of the due date.
The note is  personally  guaranteed by two officers and a member of the Board of
Directors of the Company.

At March 31, 1999, the Company had unsecured demand notes payable outstanding to
former Articulate  stockholders in the aggregate amount of $4,658,980 related to
the  acquisition  of Articulate in 1998.  These notes were payable on demand any
time after  November 30, 1998. In December  1998,  the holder of a $407,971 note
demanded payment.  In connection with this demand, the Company paid the holder a
partial  payment of $50,000 in 1998 and the holder  agreed to extend the date on
which demand  could be made to March 15, 1999 and increase the interest  rate to
11 percent  per year.  No  additional  demand has been given for payment of this
note. In 1998, the Company also  negotiated  extensions of $986,481 of the notes
to May 30, 1999 and adjusted the  interest  rate to 10 percent per year.  During
the three months  ended March 31, 1999 and  subsequent  to March 31,  1999,  the
Company  made  partial  payments  of  $50,000and  $175,000,  respectively,  on a
$2,535,235  note and agreed to pay the balance in connection  with a sale of one
of its operating segments.

At March 31, 1999, the Company had unsecured demand notes payable outstanding to
former  Articulate  employees in the aggregate amount of $452,900 and an accrued
liability  of  $404,100  to the same  employees.  Both  amounts  are  related to
incentive  compensation  granted the employees for continued employment with the
Company  after the  acquisition  of  Articulate  in 1998.  The demand notes bear
interest at an annual rate of 8.5 percent  and were  payable  upon demand  after
November 1, 1998. None of the holders of these notes has demanded  payment.  The
Company  has agreed to pay  interest  on these notes at 9 percent per year after
November 1, 1998.  No demand for  payment has been made for the  $404,100 by the
former Articulate employees.

At March 31, 1999,  the Company had  unsecured  demand  notes  payable to former
Papyrus  stockholders  in the aggregate  amount of $1,710,000,  which notes were
issued in connection  with the  acquisition  of Papyrus in 1998.  The notes were
payable in various  installments  from  February 28, 1999 through  September 30,
1999.  In April  1999,  the Company  entered  into  agreements  with five former
Papyrus shareholders to reduce the aggregate amounts payable to them under these
notes from  $1,632,375 to  $1,188,909,  which amounts will be paid in connection
with a sale of one of the Company's operating segments.  The aggregate remaining
balance of $77,625 of the notes payable to former  shareholders  of Papyrus will
also be paid at the closing of the contemplated sale of the operating segment.

At March 31, 1999,  the Company had an unsecured  revolving  note payable in the
amount of $184,839 in principal and $5,929 in accrued interest to SMD, a company
owned by two  individuals  who are  executive  officers  and  directors  and one
individual who is a director of the Company and who each  beneficially  own more
than 10 percent of the Company's  common  stock.  The weighted  average  balance
outstanding  during the three  months  ended  March 31, 1999 was  $53,398.  This
revolving  note is payable on demand and bears  interest at an annual rate of 12
percent.  The maximum  amount  outstanding  under this revolving note during the
period  ended  March  31,  1999 was  $184,839.  In 1999,  advances  to the three
individuals  in the amount of $59,986 were applied as a partial  payment of this
note.

In December 1998, two individuals  who are executive  officers and directors and
one  individual  who is a  director  of the  Company  ("Guarantors")  guaranteed
certain obligations of the Company. As security for some of the guarantees,  the
Guarantors also pledged shares of Fonix common stock beneficially owned by them.
In March 1999,  143,230 of the shares previously  pledged by the Guarantors to a
bank were sold by the bank and the proceeds were used to pay Company credit card
balances  and the related  accrued  interest in full  totaling  $244,824.  These
amounts  are  now  included  in the  unsecured  revolving  note  payable  to SMD
described above.

At March 31, 1999,  the Company had an unsecured,  non-interest  bearing  demand
note payable in the amount of $100,000 to Synergetics,  Inc. ("Synergetics"),  a
research and development entity. This note is payable on demand.

At March 31, 1999,  the Company had an  unsecured  note payable to an officer of
the Company in the amount of $20,000,  which bears interest at an annual rate of
10 percent  and was due  December  31,  1998.  The holder of this note agreed to
extend the due date to June 30, 1999.

At March 31, 1999,  the Company had an  unsecured  note payable to an officer of
the Company in the amount of $43,691  which bears  interest at an annual rate of
10 percent and is due on or before July 31, 1999.  Subsequent to March 31, 1999,
this same officer  advanced an  additional  $25,000 to the Company under similar
terms.

                                        11

<PAGE>



On  April  22,  1999,  the  Company  entered  into  a  loan  agreement  with  an
unaffiliated  entity  pursuant  to which the  Company  received  proceeds in the
aggregate principal amount of $1,000,000. This note is payable in full including
accrued  interest  on July 28,  1999 and bears  interest  at the  prime  rate as
published in The Wall Street  Journal  under the heading  "Money Rates" plus 2.0
percent (9.75 percent at April 22, 1999).  The loan is secured by all the assets
of Fonix/ASI  Corporation,  a wholly owned subsidiary of the Company,  including
its  intellectual  property  rights  represented  by  patents,   copyrights  and
trademarks. On May 14, 1999, an additional $100,000 was advanced under the terms
of this note. . The Company  anticipates  that it will need to raise  additional
funds to satisfy  its cash  requirements  during the next  twelve  months.  Even
taking  into  account  expected  revenues  from  the  HealthCare  Solutions  and
Interactive  Technologies  Solutions  Groups,  the Company's  ongoing  operating
expenses will remain  higher than revenues from  operations at least through the
first  three  quarters  of  1999.  Accordingly,  the  Company  expects  to incur
significant  losses  until  such  time as it is able to enter  into  substantial
licensing and co-development  agreements and receive  substantial  revenues from
such arrangements or from the operations of its recently acquired  subsidiaries,
of  which  there  can be no  assurance.  Scientific  research  and  development,
corporate  operations and marketing expenses will continue to require additional
capital.  The  Company  therefore  intends  to  continue  to rely  primarily  on
financing  through  sales of its equity and debt  securities  to satisfy  future
capital  requirements  until  such  time as the  Company  is able to enter  into
additional  third-party  licensing or  co-development  arrangements such that it
will be able to finance  ongoing  operations  out of license,  royalty and sales
revenues.  There can be no  assurance  that the Company will be able to sell its
equity  and debt  securities  such that  sufficient  operating  capital  will be
available when and in the amounts  needed.  Furthermore,  the issuance of equity
securities or other securities which are or may become convertible to the equity
securities  of the Company in connection  with such  financing (or in connection
with  acquisitions)  will result in dilution to the  stockholders of the Company
which could be substantial.

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

Outlook

Corporate Objectives, Technology Vision and Acquisition Strategy

The Company has positioned itself as a developer of "next generation" speech and
human-computer   interface  technologies  that  will  provide  multiple  product
solutions for business, consumer and service applications.  The fonix management
team has assembled leading talents in the ASR, TTS, handwriting  recognition and
other  arenas  related  to  these  technologies.  The  Board  of  Directors  and
management  have  developed a business  strategy that  identifies  the Company's
strengths  and   objectives,   outlines  a  vision  of  the  next  major  market
opportunities  in  the  computer,   telephony  and  electronics  industries  and
articulates  a  corporate  and  technology   strategy  that  includes  strategic
alliances,  collaborative  development  agreements,  strategic acquisitions and,
ultimately, marketing a suite of Fonix- branded products.

The Company  believes  that its Core  Technologies  will be the platform for the
next  generation  of  automated  speech  technology  and  products.  Most speech
recognition  products offered by other companies are based on technologies  such
as HMM, that are largely in the public domain and represent nothing particularly
"new" or  creative.  The  Fonix  Core  Technologies  are  based on  proprietary,
patented technology.  The Company will continue to seek patent protection of the
Core  Technologies  as well as  technologies  and  inventions  derived  from the
knowhow,  technologies  and products  obtained with the acquisition of AcuVoice,
Articulate and Papyrus. Management believes this strategy will set the Company's
advanced human computer interaction products apart from the competition.

The Company is determined  to become a  multi-market,  multi-product  enterprise
offering advanced speech and human-computer interface technologies for business,
consumer  and  service   applications.   Advanced  human-   computer   interface
technologies and multi-modal systems include:

           o         speech recognition and synthesis
           o         speaker identification and verification
           o         handwriting recognition
           o         pen and touch screen input
           o         natural language understanding

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<PAGE>



Anticipated  products  incorporating  such advanced  multi-modal  human computer
interface technology include the following:

           o         PCs and PDAs
           o         cellular phones
           o         automotive and home environment speech controls
           o         automated information and transaction kiosks
           o         telephone systems with natural dialogue and gesture
                     controls
           o         medical transcription and reporting systems,    including
                     PowerScribeRAD  and  PowerScribeEM
           o         smart  consumer  appliances and electronics
           o         speech and pen-based  computers  utilizing  handwriting
                     and cursive  recognition
           o         interactive  education and  entertainment systems
           o         redesigned appliances o toys and games

This  next  generation   technology   presents  important  product  and  service
opportunities  for  companies  like  Fonix in a variety  of  industry  segments,
including:

           o         semiconductors
           o         health care
           o         telecommunications
           o         computers
           o         software
           o         consumer electronics
           o         entertainment
           o         automotive

Fonix is a technology company.  Since its inception,  the Company has focused on
the development of its Core Technologies and related complementary technologies,
including those  technologies  obtained in connection  with the  acquisitions of
AcuVoice,  Articulate  and Papyrus.  The Company will pursue the  development of
advanced speech and computer-interface  technologies that will enhance or may be
enhanced  by its own Core  Technologies.  Fonix  will  pursue  this  development
through   strategic   alliances,   such  as  the   Siemens   agreement   in  the
telecommunications  industry,  and through  collaborative  research arrangements
such  as its  agreements  with  Oregon  Graduate  Institute  and  Brigham  Young
University.

As the Company  proceeds to implement its strategy and to reach its  objectives,
it anticipates  that it will continue to realize several benefits for itself and
for its shareholders.  In addition,  the Company expects further  development of
complementary   technologies,   added  product  and   applications   development
expertise,  access to market channels and additional opportunities for strategic
alliances in other industry segments.

The strategy  described above is not without risk, and  shareholders  and others
interested  in the Company and its common  stock should  carefully  consider the
risks  contained  the  Company's  Annual  Report on Form 10-K for the year ended
December 31, 1998.



                                        13

<PAGE>


                                    SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of  1934,  the  registrant  has  duly  caused  this  Amendment  No. 1 to the
Quarterly  Report on Form 10-Q for the period ended March 31, 1999, to be signed
on its  behalf by the  undersigned,  thereunto duly authorized, on this 11th day
of August, 1999.

                                                     Fonix Corporation



Date: August 11, 1999                                /s/ Roger D. Dudley
     ----------------------------                    ---------------------------
                                                     Roger D. Dudley
                                                     Executive Vice President