As filed with the Securities and Exchange Commission on September 29, 1997
Registration Statement No. 333-31425
===========================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM S-3/A
(Post-effective Amendment No. 2)
----------------------
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------------------
fonix corporation
(Exact name of registrant as specified in its charter)
----------------------
DELAWARE 22-2994719
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1225 Eagle Gate Tower
60 East South Temple Street
Salt Lake City, Utah 84111
(801) 328-0161
(Address, including zip code, and
telephone number, including area code,
of registrant's principal
executive offices)
----------------------
JEFFREY N. CLAYTON, ESQ.
VICE PRESIDENT/LEGAL
fonix corporation
1225 Eagle Gate Tower
60 East South Temple Street
Salt Lake City, Utah 84111
(801) 328-0161
(Name, address, including zip code, and
telephone number, including area code,
of agent for service)
COPY TO:
JEFFREY M. JONES, ESQ.
DURHAM, EVANS, JONES & PINEGAR, P.C.
50 SOUTH MAIN STREET, SUITE 850
SALT LAKE CITY, UTAH 84111
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<PAGE>
Approximate date of commencement of proposed sale to the public: from
time to time after the effective date of this Registration Statement as
determined by market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection
with dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. [ ]
_______.
If this Form is a post-effective amendment filed pursuant to Rule
462(c)under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ________.
If delivery of the Prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
========================================================================================================================
Proposed Proposed
Maximum Maximum
Amount Aggregate Aggregate Amount of
Title of Class of Securities To be Price Offering Registration
to be Registered Registered Per Share Price Fee
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, 1,030,928 shares(1) $6.4688 (2) $ 6,668,867 (2) $ 2,020.87
$.0001 par value per share
Common Stock, 250,000 shares(3) $8.28 (4) $ 2,070,000 (4) $ 627.27
$.0001 par value per share
=================== ============== ============
Totals 1,280,928 shares $ 8,738,867 $ 2,648.14
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents 200% of the shares issuable upon a hypothetical conversion
of $3,000,000 principal amount of Series B 5% Convertible Debentures
due June 18, 2007, assuming such a conversion occurred on July 11,
1997. Estimated solely for purposes of calculation of the fee. The
actual number of shares of common stock issuable upon conversion of
the foregoing may be more or less than such estimate based on a
variety of factors, including the date of conversion and the price
of the common stock on such date.
(2) The fee is estimated pursuant to Rule 457(c) and (g)(3) under the Act
on the basis of the average of the high and low sale prices reported
on the Nasdaq SmallCap Market on July 11, 1997.
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<PAGE>
(3) Represents shares issuable upon exercise of warrants to purchase
shares of the Company's Common Stock at the exercise price of $8.28
per share expiring June 18, 2002.
(4) Fee calculated pursuant to Rule 457(g)(1).
Pursuant to Rule 416, there are also registered hereby such
additional indeterminate number of shares of such Common Stock as may
become issuable as dividends or to prevent dilution resulting from stock
splits, stock dividends or similar transactions or as the result of
floating rate conversion mechanisms as are set forth in the terms of the
debentures and preferred stock referred to above.
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[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+ REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH +
+ THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE +
+ SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE +
+ REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT +
+ CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR +
+ SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH +
+ OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR +
+ QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. +
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS Subject to Completion Dated September 29, 1997
[LOGO]
[Technology Icon]
fonix corporation
1,280,928 shares
Common Stock, par value $.0001 per share
consisting of:
1,030,928 shares representing 200% of the shares issuable upon
conversion of $3,000,000 principal amount
of Series B 5% Convertible Subordinated Debentures Due 2007; and
250,000 shares underlying Common Stock Purchase Warrants
expiring June 18, 2002
This Prospectus relates to 1,280,928 shares of Common Stock, $.0001
par value, (the "Shares") of fonix corporation, a Delaware corporation
(the "Company", the "Registrant" or "fonix") consisting of: (i) 1,030,928
shares representing 200% of the shares issuable upon conversion of
$3,000,000 principal amount of Series B 5% Convertible Subordinated
Debentures Due June 18, 2007 (the "Series B Debentures"); and (ii) 250,000
shares issuable upon the exercise of presently issued and outstanding
Common Stock Purchase Warrants at the exercise price of $8.28 per share
expiring June 18, 2002 (the "Warrants"), all of which securities are owned
of record by the selling stockholder (the "Selling Stockholder") and are
convertible or exercisable as described in the "Selling Stockholder" and
"Plan of Distribution" sections of the Prospectus. The Series B
Debentures, the Warrants and, to the extent issued prior to the effective
date of the registration statement of which this Prospectus is part, the
Shares issued upon conversion of the Series B Debentures or exercise of the
Warrants were issued pursuant to an exemption from the registration
requirements of the Securities Act of 1933, as amended (the "Securities
Act"), provided by Section 4(2) thereof and the rules and regulations
promulgated thereunder. The Shares are being registered by the Company
pursuant to a Registration Rights Agreement between the Company and the
Selling Stockholder as a condition to the Selling Stockholder's acquisition
of the Series B Debentures and the Warrants. All shares to be registered
hereby are to be offered by the Selling Stockholder, and the Company will
receive no proceeds from the sale of such Shares. The Shares may be
offered by the Selling Stockholder, or by its pledgees, donees, transferees
or other successors in interest, from time to time on the Nasdaq SmallCap
Market, in ordinary brokerage transactions, in negotiated transactions, or
otherwise, at market prices prevailing at the time of sale, at prices
related to such market prices or at negotiated prices. See "Selling
Stockholder" and "Plan of Distribution." The Company has agreed to
indemnify the Selling Stockholder against certain liabilities, including
certain liabilities under the Securities Act, or to contribute to payments
which such Selling Stockholder may be required to make in respect thereof.
See "Plan of Distribution". The Company will bear certain expenses incurred
in effecting the registration of the Shares. Notwithstanding the inclusion in
this Prospectus of the Shares, the Selling Stockholder has no obligation to
sell any or all of the Shares.
The Company's Common Stock, par value $.0001 per share, is listed on
the National Association of Securities Dealers Automated Quotation System
("Nasdaq") and traded on the Nasdaq SmallCap Market. The last reported bid
price of the Common Stock on the Nasdaq SmallCap Market on July 11, 1997
was $6.0625 per share.
The Selling Stockholder and any broker-dealers or agents that
participate with the Selling Stockholder in the distribution of the Shares
may be deemed to be "underwriters" within the meaning of Section 2(11) of
the Securities Act, and
<PAGE>
any commissions received by them and any profit on the resale of the Shares
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act.
THE SHARES HAVE NOT BEEN REGISTERED FOR SALE BY THE SELLING STOCKHOLDER
UNDER THE SECURITIES LAWS OF ANY STATE AS OF THE DATE OF THIS PROSPECTUS.
BROKERS OR DEALERS EFFECTING TRANSACTIONS IN THE SHARES SHOULD CONFIRM THE
REGISTRATION THEREOF UNDER THE SECURITIES LAWS OF THE STATES IN WHICH SUCH
TRANSACTIONS OCCUR, OR THE EXISTENCE OF AN EXEMPTION FROM REGISTRATION.
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Price to Public Underwriting Discounts and Proceeds to Issuer or
Commissions (1) Other Persons
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Unit $6.0625 (2) 0 0 (3)
Total $7,765,626 (2) 0 0 (3)
- -----------------------------------------------------------------------------------------------------------
(1) None, to the Company's knowledge.
(2) Based on the closing bid price of the Company's common stock as
reported on the Nasdaq SmallCap Market on July 11, 1997.
Represents estimate of price to public, assuming sales of all
Shares at closing bid price as of July 11, 1997. The actual
price at which the securities covered by this Prospectus may be
offered to the public may vary and could be substantially
different. See "Selling Stockholder".
(3) The Company will receive none of the proceeds of sales of the
securities offered by this Prospectus. The Company can provide
no estimate of the proceeds the Selling Stockholder would
receive upon sales of the securities offered by this
Prospectus. See "Selling Stockholder" and "Plan of
Distribution".
The date of this Prospectus is September 29, 1997
2
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER
CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE SELLING STOCKHOLDER. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information filed by the Company with
the Commission pursuant to the informational requirements of the Exchange
Act may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the Commission's regional offices located at
Seven World Trade Center, Suite 1300, New York, New York 10048, and at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such materials also may be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates. In addition, the Company is required to
file electronic versions of these documents through the Commission's
Electronic Data Gathering, Analysis and Retrieval system ("EDGAR"). The
Commission maintains a World Wide Web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants filed electronically with the Commission. The Common
Stock of the Company is traded on the Nasdaq SmallCap Market. Reports and
other information concerning the Company may be inspected at the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington,
D.C. 20006.
The Company has filed with the Commission a Registration Statement on
Form S-3 (together with all amendments, supplements, exhibits and schedules
thereto, the "Registration Statement") under the Securities Act with
respect to the Shares of Common Stock offered hereby. This Prospectus does
not contain all of the information set forth in the Registration Statement,
as certain items are omitted in accordance with the rules and regulations
of the Commission. For further information pertaining to the Company and
the Shares, reference is made to the Registration Statement. Statements
contained in this Prospectus regarding the contents of any agreement or
other document are not necessarily complete, and in each instance reference
is made to the copy of such agreement or document filed as an exhibit to
the Registration Statement, each such statement being qualified in all
respects by such reference. The Registration Statement, including all
exhibits and schedules thereto, may be inspected without charge at the
office of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and copies of all or any part thereof may be obtained from the Commission
at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents and materials filed by the Company with the
Commission are incorporated herein by reference:
(i) The Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1996, filed with the Commission on April 15,
1997;
(ii) Amendment No. 1 to the Company's Annual Report on Form 10-KSB for the
Year ended December 31, 1996, filed with the Commission on September
8, 1997;
(iii) The Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997, filed with the Commission on May 15,
1997;
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<PAGE>
(iv) The Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1997, filed with the Commission on August 14, 1997;
(v) Amendment No. 1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, filed with the Commission on September 8,
1997;
(vi) Amendment No. 2 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, filed with the Commission on September 29,
1997;
(vii) The Company's Current Report on Form 8-K, dated March 13, 1997,
filed with the Commission on March 19, 1997;
(viii) The Company's Current Report on Form 8-K, dated March 24, 1997,
filed with the Commission on March 31, 1997;
(ix) The Company's Definitive Proxy Statement on Schedule 14A filed
with the Commission on May 15, 1997;
(x) Amendment No. 1 to the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1995, filed with the
Commission on April 15, 1997;
(xi) Amendment No. 1 to the Company's Quarterly Report on Form 10-
QSB for the quarter ended September 30, 1995, filed with the
Commission on April 15, 1997;
(xii) Amendment No. 1 to the Company's Quarterly Report on Form 10-
QSB for the quarter ended March 31, 1996, filed with the
Commission on April 15, 1997;
(xiii) Amendment No. 1 to the Company's Quarterly Report on Form 10-
QSB for the quarter ended June 30, 1996, filed with the
Commission on April 15, 1997;
(xiv) Amendments Nos. 1, 2 and 3 to the Company's Quarterly Report on
Form 10-QSB for the quarter ended September 30, 1996, filed
with the Commission on January 22, 1997, January 24, 1997 and
April 15, 1997, respectively; and
(xv)The description of the Company's Common Stock included in the
Company's Registration Statement on Form 8-A, as filed with the
Commission on April 1, 1994.
All documents filed by the Company with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the
date hereof and prior to the termination of the offering of the Shares
registered hereby shall be deemed to be incorporated by reference into this
Prospectus and to be a part hereof from the date of filing such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is
or is deemed to be incorporated by reference herein modifies or supersedes
such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of such person, a
copy of any or all of the foregoing documents incorporated by reference
into this Prospectus (without exhibits to such documents other than
exhibits specifically incorporated by reference into such documents). All
such requests shall be directed to: fonix corporation, 1225 Eagle Gate
Tower, 60 East South Temple Street, Salt Lake City, Utah 84111, Attention:
Jeffrey N. Clayton, Esq., Telephone: (801) 328-0161. The Company maintains
a World Wide Web site that contains certain of the documents incorporated
by reference herein. The address of the Company's web site is
http://www.fonix.com. Alternatively, certain of the documents incorporated
herein by reference are available at the Commission's World Wide Web site
at http://www.sec.gov.
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<PAGE>
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SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain statements in this Prospectus and in the documents
incorporated herein constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 2B of the Exchange
Act. For this purpose, any statements contained herein or incorporated
herein that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the foregoing, the words
"believes," "plans," "anticipates," "expects" and similar expressions are
intended to identify forward-looking statements. There are a number of
important factors that could cause the results of the Company to differ
materially from those indicated by such forward-looking statements. These
factors include those set forth in "Risk Factors" herein.
5
<PAGE>
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the
more detailed information appearing elsewhere in this Prospectus or
incorporated herein by reference and the financial statements which are
incorporated herein by reference.
THE COMPANY . . . . . . . . . fonix corporation (the "Company") is a
development stage company engaged in
research and development of certain
proprietary automatic computer voice
recognition technologies and related
technologies. The Company's present
marketing direction is to focus on
licensing its technologies to and
entering into co-development
relationships and strategic alliances
with third parties that are participants
in the horizontal computer industry
(including producers of application
software, operating systems, computers
and microprocessor chips) or are
research and development entities,
including academia, government, industry
and commercial speech product
developers. The Company intends for the
foreseeable future to generate revenues
from such licensing royalties and
strategic partnerships and alliances,
rather than from the direct manufacture
of products incorporating the Company's
proprietary technologies. The Company
to date has not generated revenues from
operations and has not entered into any
licensing agreements or strategic
alliances or partnerships. See "The
Company".
RISK FACTORS. . . . . . . . . Any investment in the Shares involves
substantial risk. See "Risk Factors".
SECURITIES OFFERED. . . . . . 1,280,928 shares of the Company's Common
Stock, par value $.0001 per share, that
are issuable by the Company to the
Selling Stockholder upon the conversion
of the Series B Debentures or the
exercise of the Warrants or are
presently outstanding.
OFFERING PRICE. . . . . . . . All or part of the Shares offered hereby
may be sold from time to time in
amounts and on terms to be determined by
the Selling Stockholder at the time of
sale. See "Plan of Distribution".
USE OF PROCEEDS . . . . . . . The Company will receive no part of the
proceeds from the sale of the Shares
registered pursuant to this Registration
Statement. The Company will, however,
receive certain proceeds as a result of
the exercise, if any, of the Warrants.
SELLING STOCKHOLDER . . . . . The Shares being offered hereby are
being offered for the account of the
Selling Stockholder specified under the
caption "Selling Stockholder".
ADDRESS AND TELEPHONE NUMBER
OF THE COMPANY. . . . . . . . 1225 Eagle Gate Tower, 60 East South
Temple Street, Salt Lake City, Utah
84111. Tel. (801) 328-0161
NASDAQ SMALLCAP MARKET
TRADING SYMBOL. . . . . . . . "FONX"
6
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK
AND SHOULD NOT BE MADE BY PERSONS WHO CANNOT AFFORD THE LOSS OF THEIR
ENTIRE INVESTMENT. IN CONNECTION WITH THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, THE COMPANY IS HEREBY
IDENTIFYING IMPORTANT FACTORS THAT COULD CAUSE THE COMPANY'S ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THOSE PROJECTED IN FORWARD-LOOKING STATEMENTS OF
THE COMPANY MADE BY OR ON BEHALF OF THE COMPANY. THE COMPANY ADVISES
READERS NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS IN
LIGHT OF THE RISKS AND UNCERTAINTIES TO WHICH THEY ARE SUBJECT. THE
FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY
AND ITS BUSINESS.
Substantial and Continuing Losses; Accumulated Deficit. Since
commencing its business of developing its automatic speech recognition
technologies ("ASRT") and certain other proprietary technologies, including
data compression and neural network design technologies (collectively the
ASRT and such other related technologies are referred to in this Prospectus
as the "Core Technologies"), the Company has had no revenues from
operations. During each of the preceding three fiscal years, the Company
has sustained ongoing losses associated with its research and development
costs. The Company incurred a net loss of $7,829,508 for the year ended
December 31, 1996 and a net loss of $2,863,463 for the three-month period
ended March 31, 1997. Accordingly, the auditor's report in the fiscal 1996
financial statements includes an explanatory paragraph relating to the
Company's ability to continue as a going concern. Losses of this magnitude
are expected to continue for the near term and until such time as the
Company is able to complete licensing or co-development arrangements with
third parties which produce revenues sufficient to offset losses associated
with the Company's ongoing operating expenses, and there can be no
assurance that the Company will achieve profitable operations or that
profitable operations will be sustained if achieved. At December 31,
1996, the Company's accumulated deficit was $19,841,807 and at March 31,
1997, the Company's accumulated deficit was $22,705,270. The Company
anticipates incurring substantial research and development expenses for the
foreseeable future, which will require substantial amounts of additional
cash on an ongoing basis. The Company must continue to secure additional
financing to complete its research and development activities, and to seek
and engage in negotiations with potential strategic alliance partners and
otherwise market its technology to industry segments that can incorporate
the Company's technologies into their products. The Company believes that
the cash generated to date from its financing activities and the Company's
ability to raise cash in future financing activities will be sufficient to
satisfy its working capital requirements through the next twelve-month
period. However, there can be no assurance that this assumption will prove
to be accurate or that events in the future will not require the Company to
obtain additional financing sooner than presently anticipated. To the
extent that the Company's future financing activities involve the issuance
of equity securities or securities convertible into equity securities,
additional dilution to the interests of the Company's stockholders will
result. Although the Company continues to investigate several
financing alternatives, including strategic partnerships, private, debt and
equity financing and other sources in relation to its ongoing and research
and development activities, there can be no assurance that the current
levels of funding or additional funding will be available when needed, or
if available will be on terms satisfactory to the Company. Failure to
obtain additional financing could have a material adverse effect on the
Company, including possibly requiring it to significantly curtail its
operations. See December 31, 1996 Form 10-KSB "Item 1. Description of
Business" and "Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations"; and March 31, 1997 Form 10-Q Part I
"Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Development Stage of Core Technologies. While the Company generally
is pleased with the progress made to date with respect to the research and
development of its Core Technologies, currently there are no products
incorporating the Core Technologies. As a development stage company, fonix
intends to enter into licensing and co-development arrangements or
strategic alliances with third parties, although no such relationships
presently exist. The Company presently anticipates that any products
incorporating the Company's Core Technologies would be manufactured and
marketed by such third party licensees and co-development and strategic
alliance partners. There can be no assurance that the Company will ever be
able to license its Core Technologies or enter into co-development or
strategic alliance agreements such that the Core Technologies or products
based thereon will be commercially viable.
7
<PAGE>
Implementation of Business Strategy. The Company's business strategy
is to achieve revenues through appropriate strategic alliances, co-
development arrangements and license agreements. To date, the Company has
not yet entered into any revenue-generating license, co-development or
strategic relationships. The Company's ability to implement its strategy
fully over the long term, and the ultimate success of this strategy, are
subject to a broad range of uncertainties and contingencies, many of which
are beyond the Company's control. The Company may not be able to achieve
the revenue growth it is seeking as a result of incompatibilities between
its Core Technologies and the needs of third-party developers and
manufacturers or an unwillingness of companies with existing voice
recognition products to integrate the Company's technologies. In
addition, there can be no assurance that the Company will be able to enter
into revenue-generating licensing or co-development arrangements or to
implement strategic relationships, or, if entered into, that such strategic
relationships will in fact further the implementation of the Company's
business strategy.
Unproven Market; Risks of New Technology. The market for speech
recognition technologies is relatively new. The Company's Core
Technologies are new and represent a significant departure from
technologies which have already found a degree of acceptance in the nascent
voice recognition marketplace. The financial performance of the Company
will depend, in part, on the future development, growth and ultimate size
of the market for voice recognition products generally, and products
incorporating the Company's Core Technologies specifically. Products, if
any, incorporating the Company's Core Technologies will compete with more
conventional means of information processing (e.g., data entry or access by
keyboard or touch-tone phone). The Company believes that there is a
substantial potential market for products incorporating speaker-
independent, natural language, continuous speech recognition technology
with vocabulary contextually sufficient to be useful for general purpose
consumer, commercial and industrial use, and capable of operating in real
time with acceptable levels of accuracy. Nevertheless, there can be no
assurance that any market for the Company's Core Technologies or for
products incorporating the Company's Core Technologies will develop, or
that the Company's technology will find general acceptance in the
marketplace, or that sales of products incorporating the Core Technologies
will be profitable. Accordingly, the Company is subject to all of the
risks inherent in developing and marketing new products based on new
technology, together with the risks associated with market acceptance of
such technology, technological obsolescence, inappropriate and/or illegal
intellectual property appropriation and inadequate funding to commence
and/or sustain operations. Even if the Core Technologies are licensed and
products incorporating such technologies are manufactured and marketed, the
occurrence of warranty or product liability, or retraction of market
acceptance due to product failure, excess product returns or failure of the
products to meet market expectations could prevent the Company from
achieving or sustaining profitable operations.
Reliance on Strategic Partners The Company's strategy for
commercialization of its Core Technologies depends, in part, upon the
formation of strategic alliances and licensing arrangements, although the
Company has not entered into any such arrangements to date. There can be
no assurance that the Company will be able to establish such strategic
alliance or licensing arrangements, that any such arrangements or licenses
will be on terms favorable to the Company, or that any such strategic
alliances or licensing arrangements ultimately will be successful. Even if
the Company were to enter into third party licensing agreements, the extent
of revenues to the Company resulting from such agreements would depend on
factors beyond the Company's control such as the timing and extent of such
licensee's manufacture of products incorporating the Company's Core
Technologies, the scope of the marketing effort related to such products,
the price of any product incorporating the Company's Core Technologies, and
competition from new or existing products. Moreover, disputes may arise
with respect to the ownership of rights to any technology developed with
strategic partners. These and other possible disagreements between
strategic partners and the Company could lead to delays in the
collaborative research, development or commercialization of certain product
candidates, or could require or result in litigation or arbitration, which
could be time consuming and expensive, and which could have a material
adverse effect on the Company's business, financial condition and results
of operations.
Competition and Technological Change. The computer hardware and
software industries into which the Core Technologies would be incorporated
are highly and intensely competitive. In particular, the speech
recognition field and the computer voice and communications industries in
which products employing the Company's Core Technologies would be
incorporated are characterized by rapid technological change. Competition
in the field of speech recognition is based largely on technological
superiority. The development of new technology or material improvements to
existing technologies by the Company's competitors may render the Company's
technology obsolete. Accordingly, the success of the Company will depend
upon its ability to continually enhance its Core Technologies to keep pace
with or ahead of technological developments and to address the changing
needs of the marketplace. Although the Company expects to continue to
devote significant resources to research and development activities, there
can be no assurance that these activities will allow the Company's Core
Technologies
8
<PAGE>
to successfully be incorporated into marketable products or to keep pace
with changing demands and needs of the marketplace. In addition, there can
be no assurance that the introduction of products or technological
developments by others will not have a material adverse effect on the
Company's operations. Although the Company believes that its Core
Technologies could beneficially be incorporated into most existing computer
speech recognition applications based on traditional Hidden Markov Models
("HMMs") technology, several companies already manufacture and market
computer speech recognition products against which products incorporating
the Core Technologies would compete. Some, if not all, of those companies
have greater experience in manufacturing and marketing speech recognition
products, and many have far greater financial and other resources than the
Company and/or its potential licensees and co-developers, as well as
broader name-recognition, more-established technology reputations, and
mature distribution channels for their products. One computer speech
company, Dragon Systems, Inc., has recently introduced a continuous speech
dictation product that could have the effect of desensitizing the market to
new dictation products and increasing the installed base of products
incorporating traditional voice recognition technologies. Additionally, as
the market for automatic speech recognition expands and matures, the
Company expects many more entrants into this already competitive arena.
There can be no assurance that the distinguishing characteristics of the
Core Technologies as completed and/or as may be enhanced in the future and
any products employing such technology will be sufficient to allow the
Company to successfully compete in the marketplace.
Need for Additional Financing. The development of the Company's Core
Technologies has required that fonix establish a substantial research and
scientific infrastructure consisting of teams of experts in, among others,
the fields of computer programming and design, electrical engineering and
linguistics, as well as the assembly of certain specialized equipment and
developmental and diagnostic software and hardware, some of which has been
designed and built exclusively by the Company. The Company has consumed
substantial amounts of cash to date in developing this infrastructure and
in developing and refining its Core Technologies. During the year ended
December 31, 1996, the Company incurred total research and development
expenses in the amount of $4,758,012. During the three-month period ended
March 31, 1997, the Company incurred total research and development
expenses of $1,610,058. The Company anticipates that its research and
development expenditures will continue at present rates or increased rates
for the foreseeable future. Even absent revenues from co-development or
licensing agreements, the Company believes that existing cash and cash from
anticipated financings will be sufficient to support the Company's
operations for at least the next 12 months. The Company's actual future
capital requirements, however, will depend on many factors, including
further development of its Core Technologies, the Company's ability to
enter into strategic alliance, co-development and licensing arrangements,
the progress of the development, manufacturing and marketing efforts of the
Company's strategic partners, if any, the level of the Company's activities
relating to commercialization rights it may retain in its strategic
alliance arrangements, competing technological and market developments, and
the costs involved in enforcing patent claims and other intellectual
property rights. In the event that substantial amounts of additional
financing are required, the Company does not believe it will be able to
obtain such financing from traditional commercial lenders. Rather, the
Company likely will have to conduct additional sales of its equity and/or
debt securities. There can be no assurance that such additional financing
will be available if and when, and in the amounts required, by the Company.
Moreover, even if such financing is available if and when required, there
can be no assurance that such financing will be obtained on terms that are
favorable to the Company, and substantial and immediate dilution to
existing stockholders likely would result from any sales of equity
securities or other securities convertible into equity securities. To the
extent that the Company raises additional funds through strategic alliance
and licensing arrangements, the Company may be required to relinquish
rights to certain of its technologies, or to grant licenses on terms that
are not favorable to the Company, either of which could have a material
adverse effect on the Company's business, financial condition and results
of operations. In the event that adequate funds are not available when and
as needed, the Company's business would be adversely affected.
Intellectual Property Protection. On June 17, 1997, the United
States Patent and Trademark Office issued U.S. Patent No. 5,640,490
entitled "A User Independent, Real-time Speech Recognition System and
Method." . The patent has a 20-year life running from the November 4, 1994
filing date, and has been assigned to the Company. However, there can be
no assurance that such patent will be incontestable to a user with prior
rights. The Company is unaware of any facts or circumstances suggesting
that the Core Technologies or the Company's anticipated use thereof
infringes or will infringe any third party intellectual property rights.
Regardless of the foregoing, there can be no assurance that the Core
Technologies will not infringe upon third party intellectual property
rights, nor can there be any assurance that a third party will not assert
that the Company has infringed its intellectual property rights, in which
case the Company could be involved in protracted and costly litigation
which could seriously impede the Company's development or otherwise
adversely affect its operations. Additionally, attempts may be made to
copy or reverse engineer aspects of the Core Technologies, or to obtain,
use or exploit information or methods
9
<PAGE>
which the Company deems proprietary. Policing the use of the Core
Technologies and perhaps infringing technology is difficult and expensive.
Litigation or other action may be necessary in the future to protect the
Company's proprietary rights and to determine the validity and scope of the
proprietary rights of others. Such litigation or proceedings could result
in substantial costs and diversions of resources and management's
attention, and could have a material adverse impact upon the Company's
business, operating results and financial condition. In addition to
patents, the Company relies on proprietary technology that it closely
guards as trade secrets. The Company has required nondisclosure and
confidentiality agreements to be executed by its employees, potential
licensees, and potential strategic alliance and co-development partners,
and the Company expects to continue this requirement. However, there can be
no assurance that such non-disclosure and confidentiality agreements will
be legally enforceable or sufficient to maintain the secrecy of the
Company's proprietary technology. Moreover, although the Company presently
is seeking patent protection for certain additional technologies, there can
be no assurance that such patents will issue or that the Company will be
able to sufficiently protect any technologies developed by it in the
future.
Controlling Interest of Related Parties. Thomas A. Murdock, a
director, executive officer and founding shareholder of the Company is the
trustee of a voting trust into which is deposited a majority of the
Company's issued and outstanding common stock, which effectively gives Mr.
Murdock control of the Company. The Company believes that it will be
controlled by Mr. Murdock, as the trustee of the voting trust and one of
its founding shareholders, for the foreseeable future.
Lack of Diversification of the Company's Business. The Company is
not engaged in and does not intend to engage in any business other than the
further development and marketing of its Core Technologies and related
technologies.
Dependence on Key Personnel. The Company is dependent on the
knowledge, skill and expertise of several key scientific employees and
consultants, including but not limited to C. Hal Hansen, Dale Lynn
Shepherd, R. Brian Moncur, and Tony R. Martinez, and its executive
officers, Messrs. Studdert, Murdock and Dudley. The loss of any of such
personnel could materially and adversely affect the Company's future
business efforts. Moreover, although the Company has taken reasonable
steps to protect its intellectual property rights, if one or more of the
Company's key scientific employees or consultants resigns from the Company
to join a competitor, the loss of such personnel and the employment of such
personnel by a competitor could have a material adverse effect on the
Company. In the event of loss of any of the Company's key employees or
consultants, there can be no assurance that the Company would be able to
prevent the unauthorized disclosure or use of its proprietary technology by
such former employees or consultants, although the Company's employees and
consultants have entered into confidentiality agreements with the Company.
The Company does not presently have any key man life insurance on any of
its employees.
Other Demands on Management. In addition to occupying positions as the
Company's Chief Executive Officer, President and Chief Operating Officer,
and Executive Vice President, respectively, Messrs. Stephen M. Studdert,
Thomas A. Murdock and Roger D. Dudley are executive officers and owners of
Studdert Companies Corp. ("SCC"), an international investment, finance and
management firm based in Salt Lake City, Utah. SCC engages in a variety of
commercial activities unrelated to the Company, including but not limited to
its present performance under a management services contract with K.L.S.
Enviro Resources, Inc.("KLSE"), a Nevada corporation with a class of
securities registered under the Exchange Act. Under that arrangement, SCC
provides consulting and management services to KLSE. Under the agreement
there is no specific amount of time required of the SCC principals in
connection with SCC's services to KLSE. Since SCC executed the management
services contract, there has been no material reduction in the amount of time
spent by Messrs. Studdert, Murdock and Dudley in the performance of their
duties as executive officers of the Company. The Company estimates that,
since January 1, 1997, Messrs. Studdert, Murdock and Dudley, on average, have
worked more than 40 hours per week in their respective capacities as executive
officers of fonix. The Company does not expect there to be in the foreseeable
future any material change in the amount of time spent by those persons in
their capacities as executive officers of the Company or in the Company's
overall operations as a result of the management services contract between SCC
and KLSE or as a result of any other activities of SCC. However, there can be
no assurance that the outside activities of Messrs. Studdert, Murdock or
Dudley, in connection with SCC, KLSE or otherwise, will not materially impede
their ability to perform as executive officers of the Company, in which case
the Company's operations and financial condition could be adversely affected.
Assets Consisting Primarily of Intangible Intellectual Property
Rights. The Company's assets consist primarily of intangible assets,
principally intellectual rights such as patents, trademarks and trade
secrets, the value of which will depend significantly upon the success of
the Company's development of the Core Technologies and its ability to enter
into licensing and co-development arrangements with third parties. In the
event of default on indebtedness or liquidation of the Company, there can
be no assurance that the value of these assets will be sufficient to
satisfy its obligations.
10
<PAGE>
Significant Outstanding Indebtedness. The Company has incurred
substantial indebtedness in relation to its assets and will be subject to
all of the risks associated with substantial leverage, including the risk
that available cash may not be adequate to make required payments to the
holders of the Company's debentures. The Company's ability to satisfy its
obligations under the debentures from cash flow will be dependent upon the
Company's future performance and will be subject to financial, business and
other factors affecting the operation of the Company, many of which may be
beyond the Company's control. In the event the Company does not have
sufficient cash resources to satisfy repayment obligations or other
obligations of the Company to the holders of the debentures, the Company
will be in default under the debentures, which would have a material
adverse effect on the Company and could result in a reduction of the price
of the Company's Common Stock. The debentures are unsecured and
subordinate in right of payment to all senior indebtedness of the Company.
The debentures do not restrict the Company's ability to incur additional
senior indebtedness and most other indebtedness. The terms of senior
indebtedness now existing or incurred in the future could affect the
Company's ability to make payments of principal and/or interest to the
holders of debentures.
Risks Associated With Pending Litigation. The Company has been named
as a defendant in a shareholder derivative action brought by a shareholder
of the Company against certain directors of the Company and a third party
affiliated with certain of the director-defendants. See Part I, Item 3,
Legal Proceedings of the Company's Annual Report on Form 10-KSB for the
Year Ended December 31, 1996. Although the parties have reached, in principal,
a settlement agreement, as is discussed in more detail below, the complaint
in that action alleges that certain of the individual employee director
defendants wrongfully caused the Company to engage in a series of loan
transactions with K.L.S. Enviro Resources, Inc., a Nevada corporation
("KLSE"), and thereafter appropriated to themselves certain corporate
opportunities resulting from such loan transactions. The Complaint further
alleges that the non-employee director defendants wrongfully acquiesced in
or ratified the conduct of the employee-directors, and that all of the
individual defendants breached their fiduciary duties to the Company. The
Complaint seeks to compel an accounting for any alleged profits earned by
the employee director defendants, equitable relief in the form of an order
requiring certain of the employee director defendants to forfeit certain
securities of KLSE they allegedly acquired in breach of their fiduciary
duties to the Company, monetary damages in an unspecified amount, and costs
and legal fees. After that action was filed but before process was served,
the Company commenced settlement negotiations with the plaintiff. Although
a settlement agreement in principal was reached by the parties, no
settlement agreement has been executed; process has been served and the
discovery process with respect to the settlement is ongoing. The terms of
the definitive settlement agreement between the parties will be subject to
approval by the court. Regardless of the outcome of the discovery relating
to the settlement or the commencement of litigation proceedings if the
settlement is not consummated, the Company believes that the claims
asserted against the Company in this action are entirely without merit, and
that the material facts and circumstances surrounding the relationship
between the Company and KLSE have been fully disclosed in accordance with
applicable laws and regulations. See Part II, Item 12, "Certain
Relationships and Related Party Transactions" of the Company's Annual
Report on Form 10-KSB for the Year Ended December 31, 1996. After
consideration of the nature of the claims and the facts relating to this
action, the Company believes that the resolution of this action will not
have a material effect on the Company's business, financial condition and
results of operations; however, the results of this action, including any
potential settlement, are uncertain and there can be no assurance to that
effect. At a minimum this action will result in some diversion of
management time and effort from the operations of the business.
Potential Adverse Effect of Anti-Takeover Provisions The Company is
subject to anti-takeover provisions of Section 203 of the Delaware General
Corporation Law, which prohibits the Company from engaging in a "business
combination" with an "interested shareholder" for a period of three years
after the date of the transaction in which the person first becomes an
"interested shareholder," unless the business combination is approved in a
prescribed manner. The application of Section 203 also could have the
effect of delaying or preventing changes of control or management of the
Company, which could adversely affect the market price of the Company's
Common Stock. These provisions, and other provisions of the Company's
Certificate of Incorporation, may have the effect of deterring hostile
takeovers or delaying or preventing changes in control or management of the
Company, including transactions in which shareholders might otherwise
receive a premium for their shares over then current market prices. In
addition, these provisions may limit the ability of shareholders to approve
transactions that they may deem to be in their best interests.
Possible Volatility of Stock Price. The Company believes that
factors such as announcements of developments related to the Company's
business, announcements by competitors, the issuance of patents and
financings, and other factors have caused the price of the Company's stock
and its trading volume to fluctuate, in some cases substantially, and could
continue to do so
11
<PAGE>
in the future. In addition, the stock market has experienced extreme price
and volume fluctuations that have particularly affected the market price for
many technology companies and that have often been unrelated to the operating
performance of these companies. These broad market fluctuations may adversely
affect the market price of the Company's common stock. The trading prices of
many technology companies' stocks are at or near their historical highs, and
reflect price/earnings ratios substantially above historical norms. In the
Company's case the absence of revenues from operations indicates that the
market price of the Company's common stock fluctuates as a result of highly
speculative factors. There can be no assurance that the trading price of the
Company's common stock will remain at or near its current level.
Absence of Dividends. The Company has never paid dividends and does
not intend to pay any dividends for the foreseeable future.
THE COMPANY
The following summary information about the Company should be read in
conjunction with the more detailed information contained in Part I, Item 1
of the Company's Annual Report on Form 10-KSB for the year ended December
31, 1996 and incorporated herein by reference.
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fonix (TM) corporation (the "Company" or "fonix") was incorporated under
the laws of the State of Delaware on September 12, 1985. Since June 4,
1994, when Phonic Technologies, Inc., a Utah corporation ("PTI"), merged
with and into a wholly-owned subsidiary of the Company, the Company has
been engaged in research and development of automatic computer speech
recognition technologies ("ASRT") and related technologies such as data
compression and neural network design (the ASRT and such related
technologies of the Company are referred to in this Prospectus collectively
as the "Core Technologies"). The Core Technologies, as developed to date,
employ a proprietary phonetic speech modeling engine and a linguistic and
contextual process based on a proprietary neural network system (artificial
intelligence). Leading speech recognition industry expert, John A,
Oberteuffer, Ph.D., recently appointed to the Company's Board of Directors,
has projected that the global market for speech recognition technologies
will be $3 billion by the year 2001.
Technology Overview
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 ten 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 and
recognition accuracy. 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, and Kurzweil. Recently, vocabulary-specific
continuous speech dictation systems also have been introduced by Phillips,
IBM, and Dragon Systems. 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 continue to use traditional approaches
generally based on Hidden Markov Models ("HMMs") technology. These
traditional approaches have not appreciably advanced since the late 1980's.
Applications based on such traditional speech recognition systems for
personal computers all require close-talking microphones in relatively low
noise environments and a formal, discrete 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 HMMs, use a general
template or pattern matching technique using a statistical modeling
approach. Massachusetts Institute of Technology researcher, Dr. Victor
Zue, has noted that speech-recognition systems based on such technology
12
<PAGE>
"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 that these devices are designed to serve,
their performance typically falls far short of human
performance."
HMMs' widely recognized weaknesses are many: (i) they do not meet the
needs for mass market implementation, (ii) they have limited input feature
types, (iii) they account for only limited context, (iv) they have limited
ability to generalize acoustic and language structure, (v) they require
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 HMMs, 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 ASRT 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 automatic speech recognition systems. They also
employ neural 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
technologies (artificial intelligence), that are designed to interpret human
speech contextually.
The Company 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 HMMs 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, in the near term, the Company believes that its ASRT will
initially offer unique speech processing techniques that will be both
complementary and significantly enhancing to currently available speech
recognition systems. The Company anticipates that it will initially
license its ASRT to third-parties and co-develop the ASRT with research and
development groups in government, industry, and academia. In the long
term, the Company anticipates that automatic speech recognition systems
employing the Company's unique new ASRT will dominate the market and set
the industry standard for all automatic speech recognition applications
because of its anticipated capacities to overcome the weaknesses of HMMs.
In addition, the Company expects that certain elements of its Core
Technologies will have industry-leading applications in such non-speech
recognition industries, market segments and disciplines as artificial
intelligence and data compression. Although these plans represent
management's belief and expectation 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 "Risk Factors".
USE OF PROCEEDS
All of the Shares are being sold by the Selling Stockholder or by its
pledgees, donees, transferees or other successors in interest, and the
Company will not receive any proceeds from the sale of such Shares. The
Company will, however, receive the proceeds of the payment of the exercise
price upon the exercise of the Warrants.
SELLING STOCKHOLDER
The Selling Stockholder is an investment entity that is not affiliated
in any way with the Company or any of its affiliates and neither the Selling
Stockholder nor any of its affiliates has any relationship of any type with
the Company and its affiliates other than the presently established
investment relationship between the Selling Stockholder and the Company
pursuant to
13
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which the Selling Stockholder may acquire Series B Debentures having an
aggregate principal amount of $10,000,000 and the Warrants.
The number of shares included in the Registration Statement of which
this Prospectus is a part and available for resale is based, in part, upon
an estimate of 200% of the number of shares of Common Stock issuable by the
Company upon the conversion by the Selling Stockholder of $3,000,000
principal amount of the Series B Debentures utilizing a hypothetical
conversion price of $5.82 per share. The necessity for and calculation of
such hypothetical conversion is as follows: The Registration Statement
covers, in addition to 250,000 shares of stock underlying the Warrants, the
shares of the Company's common stock issuable upon the conversion of the
principal amount of the Series B Debentures. The principal amount of the
Series B Debentures is convertible at the exclusive option of the holder
thereof, into shares of Common Stock. Interest accruing on the principal
balance of the Series B Debentures is payable exclusively in shares of
Common Stock. The Company has agreed that all shares of Common Stock
issuable upon conversion of the Series B Debentures or payment of the
interest accruing on the Series B Debentures shall be registered under the
Securities Act. The number of shares issuable upon a full or partial
conversion of the Series B Debentures is determined according to a formula
specified in the Series B Debentures. Under that formula, the conversion
price is based on the lesser of (i) a calculation based on the prevailing
average market price of the Common Stock during the 5-trading-day period
immediately prior to any conversion discounted by a specified percentage, or
(ii) a fixed conversion price of $6.81 per share. As of the time of the
filing of the Registration Statement, the number of shares of Common Stock
issuable upon full conversion of the Debentures could not be calculated with
certainty because full conversion had not occurred (and the 5-trading-day
period could not therefore be identified). Accordingly, the Company agreed
in the Registration Rights Agreement that it would register that number of
shares that would be issuable assuming a hypothetical conversion on or
around the date the Registration Statement was filed, multiplied by 200%.
In so doing, it was the intention of the Company to register that number of
shares that would insure that, notwithstanding changes in the market price
of the Common Stock, enough registered shares would be available to cover
future conversions of the Series B Debentures and the issuance in Common
Stock of any interest accrued thereon. The $5.82 per share hypothetical
conversion rate set forth above therefore assumed a hypothetical conversion
of the Debentures on July 11, 1997, a date selected by the Company and the
Selling Stockholder as a date in close time proximity to the filing of the
Registration Statement.
The number of shares included in the Registration Statement is subject
to adjustment pursuant to the terms of the Series B Debentures, and could
be materially more or less than such estimated amount depending on factors
which cannot be predicted by the Company at this time, including, among
others, the future market price of the Company's Common Stock. Moreover,
the Company's use of a hypothetical conversion price for the purpose of
calculating the number of shares to be included in the Registration
Statement is not intended, and should in no way be construed, to constitute
a prediction as to the future market price of the Company's Common Stock. To
the best of the Company's knowledge, except as stated in this Prospectus,
the Selling Stockholder has not held any office or maintained any material
relationship with the Company or any of its predecessors or affiliates over
the past three years. The Selling Stockholder reserves the right to reduce
the number of shares offered for sale or to otherwise decline to sell any or
all of the Shares registered hereunder.
The following table sets forth, as of July 11, 1997, information
concerning the beneficial ownership of shares of Common Stock by the Selling
Stockholder as of the date of this Prospectus and the number of such shares
included for sale in this Prospectus.
14
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Number of
Shares of
Common Stock
Beneficially Number of Percentage of Shares of
Owned Shares of of Common Stock Common
Name of Prior to Common Stock Beneficially Owned Stock Owned
Selling Stockholder Offering(1)(2) Offered Hereby After Offering After Offering
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Southbrook International 765,464 1,280,928 (2) (3) (3)
Investments, Ltd.
_________________________
</TABLE>
(1) The Selling Stockholder currently holds the Company's Series B
5% Convertible Debentures Due 2007 in the principal amount of
$3,000,000 and Common Stock Purchase Warrants entitling it to
purchase 250,000 shares of Common Stock at the per share price
of $8.28. The Series B Debentures are convertible into and the
Warrants are exercisable for the Shares which are the subject
of this Prospectus. The number of shares of Common Stock
issuable upon conversion of the Series B Debentures varies
according to the market price at and immediately preceding the
conversion date. The number of shares set forth above includes
an estimate of the number of shares assuming conversion of the
entire principal amount of the Series B Debentures at a
hypothetical conversion price of $5.82 per share, and is
provided solely for the purpose of determining the Selling
Stockholder's beneficial ownership of the Company's Common
Stock as of the date of this Prospectus. The actual conversion
price and the number of Shares issuable upon such conversion
could differ substantially. As of the date hereof, the Selling
Stockholder has converted $500,000 of the principal amount of the
Series B Debentures into 87,498 shares of Common Stock, which
conversion was accomplished on July 31, 1997 at the conversion price
of $5.7488, calculated pursuant to the terms of the Series B Warrants.
(2) Pursuant to the terms of the purchase agreement under which the
Selling Stockholder acquired the Series B Debentures and the
Warrant, the Series B Debentures are convertible and the
Warrants are exercisable by the Selling Stockholder only to the
extent that the number of shares of Common Stock thereby
issuable would not result in the Selling Stockholder
beneficially owning more than 4.999% of the then outstanding
shares of Common Stock.
(3) There is no assurance that the Selling Stockholder will sell
any or all of the Shares offered hereby.
PLAN OF DISTRIBUTION
Pursuant to the Registration Rights Agreement dated as of June 18,
1997, between the Company and the Selling Stockholder (the "Registration
Rights Agreement"), the Company agreed to file with the Commission a
registration statement covering the Shares by July 18, 1997, and to use its
best efforts to cause such registration statement to be declared effective
as promptly as possible after the filing thereof, but in any event prior to
September 16, 1997. The Registration Statement has been filed with the
Commission pursuant to the Registration Rights Agreement. The Selling
Stockholder may sell all or a portion of the Shares held by it from time to
time while the Registration Statement of which this Prospectus is a part
remains effective. The Company has agreed that it will use all reasonable
efforts to keep the Registration Statement effective for a period of three
years commencing on the effective date of the Registration Statement (or a
shorter period if all of the Shares have been sold or may be sold without
volume restrictions pursuant to Rule 144 under the Securities Act prior to
the expiration of the three-year period). The aggregate proceeds to the
Selling Stockholder from the sale of Shares offered by the Selling
Stockholder hereby will be the prices at which such securities are sold,
less any commissions. There is no assurance that the Selling Stockholder
will sell any or all of the Shares offered hereby.
The Selling Stockholder and its pledgees, donees, transferees and
successors-in-interest may from time to time, sell all or a portion of the
Shares on the NASDAQ SmallCap Market, in privately negotiated transactions
or otherwise, at fixed prices that may be changed, at market prices
prevailing at the time of sale, at prices related to such market prices or
at negotiated prices. The Shares may be sold by the Selling Stockholder by
one or more of the following methods, without limitation: (a)
15
<PAGE>
block trades in which the broker or dealer so engaged will attempt to sell
the Shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction, (b) purchases by a broker or dealer as
principal and resale by such broker or dealer for its account pursuant to
this Prospectus, (c) exchange distribution in accordance with the rules of
such exchange, (d) ordinary brokerage transactions and transactions in which
the broker solicits purchasers, (e) privately negotiated transactions, (f)
short sales, including short sales against the box, and (g) a combination
of any such methods of sale. In effecting sales, brokers and dealers
engaged by the Selling Stockholder may arrange for other brokers or dealers
to participate. Brokers or dealers may receive commissions or discounts
from the Selling Stockholder (or, if any such broker-dealer acts as agent
for the purchaser of such shares, from such purchaser) in amounts to be
negotiated which are not expected to exceed those customary in the types of
transactions involved. Broker-dealers may agree with the Selling
Stockholder to sell a specified number of such Shares at a stipulated price
per share, and, to the extent such broker-dealer is unable to do so acting
as agent for a Selling Stockholder to purchase as principal any unsold
Shares at the price required to fulfill the broker-dealer commitment to the
Selling Stockholder. Broker-dealers who acquire Shares as principal may
thereafter resell such Shares from time to time in transactions (which may
involve block transactions and sale to and through other broker-dealers,
including transactions of the nature described above) in the over-the-
counter market or otherwise at prices and on terms then prevailing at the
time of sale, at prices then related to the then-current market price or in
negotiated transactions and, in connection with such resales, may pay to or
receive from the purchasers of such Shares commissions as described above.
The Selling Stockholder may also sell the Shares in accordance with Rule
144 under the Securities Act, rather than pursuant to this Prospectus.
The Selling Stockholder and any broker-dealers or agents that
participate with the Selling Stockholder in sales of the Shares may be
deemed to be "underwriters" within the meaning of the Securities Act in
connection with such sales. In such event, any commissions received by
such broker-dealers or agents and any profit on the resale of the Shares
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act.
From time to time the Selling Stockholder may engage in short sales,
short sales against the box, puts and calls and other transactions in
securities of the Company or derivatives thereof, and may sell and deliver
the Shares in connection therewith. If the Selling Stockholder engages in
such transactions, the conversion price of the Series B Debentures may be
affected. From time to time the Selling Stockholder may pledge its shares
pursuant to the margin provisions of its customer agreements with its
brokers. Upon a default by the Selling Stockholder, the broker may offer
and sell the pledged shares of Common Stock from time to time.
The Company is required to pay all fees and expenses incident to the
offering and sale of the Shares, including fees and disbursements of up to
$10,000 of counsel to the Selling Stockholder. The Company has agreed to
indemnify the Selling Stockholder against certain losses, claims, damages
and liabilities, including liabilities under the Securities Act.
In order to comply with the securities laws of certain states, the
Shares will be sold in such jurisdictions only through registered or
licensed brokers or dealers. In addition, the sale and issuance of Shares
may be subject to the notice filing requirements of certain states.
The Selling Stockholder is not restricted as to the price or prices
at which it may sell the Shares. Sales of such Shares at less than market
prices may depress the market price of the Company's Common Stock.
Moreover, the Selling Stockholder is not restricted as to the number of
Shares which may be sold at any one time. The Selling Stockholder and its
pledgees, donees, transferees and successors in interest are acting
independently of the Company in making decisions with respect to the
timing, manner and size of each sale.
The Company has advised the Selling Stockholder that the
anti-manipulative rules under the Exchange Act, including Regulation M, may
apply to sales in the market of the Shares offered hereby and has furnished
the Selling Stockholder with a copy of such rules. The Company has also
advised the Selling Stockholder of the requirement for the delivery of this
Prospectus in connection with resales of the Shares offered hereby.
LEGAL MATTERS
The validity of the Shares offered hereby will be passed upon for the
Company by Durham, Evans, Jones & Pinegar, P.C., 50 South Main Street,
Suite 850, Salt Lake City, Utah 84144.
16
<PAGE>
EXPERTS
The financial statements of fonix corporation included in the
Company's Annual Report on Form 10-KSB for the year ended December 31,
1996, and incorporated by reference in this Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report
appearing in such annual report (which report expresses an unqualified
opinion and includes an explanatory paragraph referring to the Company's
ability to continue as a going concern because the Company is a development
stage enterprise), and have been incorporated by reference in reliance upon
the report of such firm given upon their authority as experts in accounting
and auditing.
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17
<PAGE>
TABLE OF CONTENTS
____________________
Available Information...............................................3
Incorporation of Certain Documents By Reference.....................3
Special Note Regarding Forward-Looking Information..................5
Prospectus Summary..................................................6
Risk Factors........................................................7
The Company........................................................12
Use of Proceeds....................................................13
The Selling Stockholder............................................14
Plan of Distribution...............................................15
Legal Matters......................................................16
Experts............................................................17
===========================================================================
fonix corporation
1,280,928 SHARES
COMMON STOCK
____________________
PROSPECTUS
___________________
September 29, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses to be incurred in
connection with the sale and distribution of the securities being
registered hereby, all of which will be borne by the Company. All amounts
shown are estimates except the Securities and Exchange Commission
registration fee.
Filing Fee - Securities and Exchange $ 2,648
Commission
Legal fees and expenses of the 35,000
Company
Accounting fees and expenses 10,000
Blue Sky fees and expenses --
Printing expenses --
Miscellaneous expenses 5,000
==========
Total Expenses $52,648
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Subsection (a) of Section 145 of the General Corporation Law of the
State of Delaware empowers a corporation to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by right of the corporation
to procure a judgment in its favor by reason of the fact that such person
acted in any of the capacities set forth above, against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with
the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification may be made in
respect to any claim issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent
that the Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the
Court of Chancery or such other court shall deem proper.
II-1
<PAGE>
Section 145 further provides that to the extent a director or officer
of a corporation has been successful on the merits or otherwise in the
defense of any such action, suit or proceeding referred to in subsections
(a) and (b) of Section 145 or in the defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith; that
the indemnification provided for by Section 145 shall not be deemed
exclusive of any other rights which the indemnified party may be entitled;
that indemnification provided by Section 145 shall, unless otherwise
provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of such person's heirs, executors and administrators; and empowers
the corporation to purchase and maintain insurance on behalf of a director
or officer of the corporation against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liabilities under Section 145.
Section 102(b)(7) of the General Corporation Law or the State of
Delaware provides that a certificate of incorporation may contain a
provision eliminating or limiting the personal liability of a director to
the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, provided that such provision shall not
eliminate or limit the liability of the director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under Section 174 of the Delaware
General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit.
Article Ninth of the registrant's Charter provides that, the
registrant shall, "to the fullest extent permitted by Section 145 of the
General Corporation Law of the State of Delaware, as the same may be
amended and supplemented, indemnify any and all persons whom it shall have
power to indemnify under said section from and against any and all of the
expenses, liabilities or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled
under any By-Law, agreement, vote of stockholders or disinterested
Directors or otherwise, both as to action in his official capacity and as
to action in another capacity while holding such office, and shall continue
as to a person who has ceased to be director, officer, employee or agent
and shall inure to the benefit of the heirs, executors and administrators
of such a person."
Article VII, Section 7 of the registrant's Bylaws further provides
that the registrant "shall indemnify its officers, directors, employees
and agents to the extent permitted by the General Corporation Law of
Delaware."
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
II-2
<PAGE>
ITEM 16. LIST OF EXHIBITS.
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Pritchett, Siler & Hardy, P.C.
24 Power of Attorney (See page II-5 of this Registration Statement).
- -------------------
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933, as amended (the
"Securities Act");
(ii) To reflect in the prospectus any facts or events
arising after the effective date of this Registration Statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in this Registration
Statement. Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which
was registered) and any derivation from the low or high and of
the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the Registration Statement; and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in this
Registration Statement or any material change to such
information in this Registration Statement; provided, however,
that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports
filed by the Company pursuant to Section 13 or Section 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), that are incorporated by reference in this Registration
Statement.
(2) That, for the purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at the
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
The Company hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Company's annual
report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in this Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein and the
offering of such securities at the time shall be deemed to be the initial
bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Corporation pursuant to the indemnification provisions
described herein, or otherwise, the Company has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Company will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused
this Post-effective Amendment No. 2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Salt Lake City, State of Utah, on this 29th day of September, 1997.
fonix corporation
By: /s/ Thomas A. Murdock*
---------------------------
Stephen M. Studdert
Chairman,
Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned officers and directors of fonix corporation hereby
severally constitute Stephen M. Studdert and Thomas A. Murdock, and each of
them singly, our true and lawful attorneys with full power to any of them,
and to each of them singly, to sign for us and in our names in the
capacities indicated below the Registration Statement on Form S-3 filed
herewith and any and all pre-effective and post-effective amendments to
said Registration Statement and generally to do all such things in our name
and behalf in our capacities as officers and directors to enable fonix
corporation to comply with the provisions of the Securities Act and all
requirements of the Securities and Exchange Commission, hereby ratifying
and confirming our signatures as they may be signed by our said attorneys,
or any of them, to said Registration Statement and any and all amendments
thereto.
II-5
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ------------ ---------------------- ------
<S> <C> <C>
/s/ Thomas A. Murdock* Chairman and Chief Executive Officer September 26, 1997
- -------------------------- (Principal Executive Officer)
Stephen M. Studdert
/s/ Thomas A. Murdock* Executive Vice President Finance September 26, 1997
- -------------------------- (Principal Financial Officer)
Roger D. Dudley
/s/ Thomas A. Murdock* Chief Financial Officer (Principal September 26, 1997
- -------------------------- Accounting Officer)
Douglas L. Rex
Director
- --------------------------
Alan C. Ashton, Ph.D.
/s/ Thomas A. Murdock* Director September 26, 1997
- --------------------------
Ambassador Joseph Verner Reed
/s/ Thomas A. Murdock* Director September 26, 1997
- --------------------------
John A. Oberteuffer, Ph.D.
/s/ Thomas A. Murdock* Director September 26, 1997
- --------------------------
Rick D. Nydegger
/s/ Thomas A. Murdock* Director September 26, 1997
- --------------------------
James B. Hayes
/s/ Thomas A. Murdock Director September 26, 1997
- --------------------------
Thomas A. Murdock
</TABLE>
*Thomas A. Murdock as Attorney-in-Fact pursuant to Power of Attorney
II-6
Exhibit 23.2
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in this Amendment No. 2 (File No.
333-31425) to the Registration Statement of fonix (TM) corporation on Form S-3
of our report dated March 28, 1997, appearing in and incorporated by reference
in the Annual Report on Form 10-KSB/A of fonix (TM) corporation for the year
ended December 31, 1996 and the reference to us under the heading "Experts" in
the Prospectus, which is part of this Registration Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
September 25, 1997
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Amendment No. 2 to
the Registration Statement of fonix corporation on Form S-3 of our report dated
March 4, 1996, except as to note 12, as to which the date is March 28, 1997,
filed as an exhibit to the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1996.
/s/ PRITCHETT, SILER & HARDY, P.C.
Pritchett, Siler & Hardy, P.C.
(formerly Peterson, Siler & Stevenson, P.C.)
Salt Lake City, Utah
September 24, 1997
