<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 2000
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to .
------- --------
Commission file number 0-23862
Fonix Corporation
(Exact name of registrant as specified in its charter)
Delaware 22-2994719
(State of Incorporation) (I.R.S. Employer Identification No.)
60 East South Temple Street, Suite 1225
Salt Lake City, UT 84111
(Address of principal executive offices, including zip code)
(801) 328-0161
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X or No
As of May 10, 2000, 164,219,614 shares of Class A voting common stock,
par value $.0001 per share, were issued and outstanding.
<PAGE>
Fonix Corporation and Subsidiaries
[A Development Stage Company]
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
2000 1999
---------------- ----------------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 335,976 $ 232,152
Accounts receivable, net of allowance for doubtful accounts of $20,000
in 2000 and 1999 14,234 184,901
Prepaid expenses 195,777 51,747
Interest and other receivables 16,714 10,539
Inventory 1,037 1,546
---------------- ----------------
Total current assets 563,738 480,885
Funds held in escrow 2,062,457 2,038,003
Property and equipment, net of accumulated depreciation of $2,117,635
and $1,938,494, respectively 980,652 1,148,802
Intangible assets, net of accumulated amortization of $5,007,816 and
$4,392,457, respectively 14,784,234 15,399,593
Other assets 105,570 105,864
---------------- ----------------
Total assets $ 18,496,651 $ 19,173,147
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Advances $ 1,250,000 $ 1,000,000
Notes payable - related parties 77,625 77,625
Accounts payable 1,017,768 1,359,040
Accrued liabilities 486,085 857,033
Accrued liabilities - related parties 1,751,633 1,814,134
Income taxes payable 22,394 50,000
Deferred revenues 124,726 127,849
---------------- ----------------
Total current liabilities 4,730,231 5,285,681
Series C convertible debentures 3,000 3,971,107
---------------- ----------------
Total liabilities 4,733,231 9,256,788
---------------- ----------------
Common stock and related repricing rights subject to redemption; 1,801,802 shares and
repricing rights outstanding in 1999 - 1,830,000
---------------- ----------------
Commitments and contingencies (Notes 6, 10 and 11)
Stockholders' equity:
Preferred stock, $.0001 par value; 50,000,000 shares authorized:
Series A, convertible; 166,667 shares outstanding
(aggregate liquidation preference of $6,055,012) 500,000 500,000
Series D, 4% cumulative convertible; 164,500 and 381,723 shares
outstanding, respectively
(aggregate liquidation preference of $3,501,291) 3,955,318 9,095,910
Common stock, $.0001 par value; 300,000,000 shares authorized:
Class A voting, 163,992,151 and 123,535,325 shares outstanding, respectively 16,399 12,353
Class B non-voting, no shares outstanding - -
Additional paid-in capital 130,712,014 112,769,420
Outstanding warrants 4,139,530 2,850,530
Deferred consulting expense (238,393) (435,051)
Deficit accumulated during the development stage (125,321,448) (116,706,803)
---------------- ----------------
Total stockholders' equity 13,763,420 8,086,359
---------------- ----------------
Total liabilities and stockholders' equity $ 18,496,651 $ 19,173,147
================ ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
Fonix Corporation and Subsidiaries
[A Development Stage Company]
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
October 1,
1993
Three Months Ended (Inception) to
March 31, March 31,
----------------------------------
2000 1999 2000
--------------- -------------- ----------------
<S> <C> <C> <C>
Revenues $ 56,447 $ 53,806 $ 3,100,678
Cost of revenues 2,948 5,291 63,320
--------------- -------------- ----------------
Gross margin 53,499 48,515 3,037,358
--------------- -------------- ----------------
Expenses:
Selling, general and administrative 3,338,606 2,745,066 43,901,672
Product development and research 1,450,758 2,512,826 40,357,883
Amortization of goodwill and purchased core technology 607,137 657,609 4,908,300
Purchased in-process research and development 474,000 - 9,789,000
--------------- -------------- ----------------
Total expenses 5,870,501 5,915,501 98,956,855
--------------- -------------- ----------------
Loss from operations (5,817,002) (5,866,986) (95,919,497)
--------------- -------------- ----------------
Other income (expense):
Interest income 30,319 22,046 3,792,430
Interest expense (32,447) (2,226,394) (8,992,146)
Other - - (157,345)
Cancellation of common stock reset provision - - (6,111,577)
--------------- -------------- ----------------
Total other income (expense), net (2,128) (2,204,348) (11,468,638)
--------------- -------------- ----------------
Loss from continuing operations before income tax benefit (5,819,130) (8,071,334) (107,388,135)
Income tax benefit - - 3,331,895
--------------- -------------- ----------------
Loss from continuing operations (5,819,130) (8,071,334) (104,056,240)
Discontinued operations:
Operating loss of discontinued operations - (1,223,527) (12,229,033)
Gain on disposal of discontinued operations - - 3,766,646
--------------- -------------- ----------------
Loss before extraordinary items (5,819,130) (9,294,861) (112,518,627)
Extraordinary items:
Loss on extinguishment of debt - - (881,864)
Gain on forgiveness of debt 31,977 - 536,382
--------------- -------------- ----------------
Net loss $ (5,787,153) $ (9,294,861) $ (112,864,109)
=============== ============== ================
Basic and diluted net loss per common share $ (0.06) $ (0.16)
=============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
Fonix Corporation and Subsidiaries
[A Development Stage Company]
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
October 1,
1993
Three Months Ended (Inception) to
March 31, March 31,
------------------------------
2000 1999 2000
-------------- -------------- --------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss $ (5,787,153) $ (9,294,861) $ (112,864,109)
Adjustments to reconcile net loss to net cash
used in operating activities:
Issuance of common stock for services and patent - - 5,746,961
Non-cash expense related to issuance of debentures,
warrants, preferred and common stock 1,440,658 1,995,760 13,930,921
Non-cash compensation expense related to issuance
of stock options 842,856 92,565 3,699,771
Non-cash expense related to issuance of notes payable
and accrued expense for services - - 857,000
Non-cash exchange of notes receivable for services - - 150,000
Non-cash portion of purchased in-process research
and development - - 13,136,000
Loss on disposal of property and equipment - - 156,221
Gain on sale of discontinued operations - - (3,766,646)
Depreciation and amortization 794,500 1,579,701 9,826,486
Income tax benefit - - (3,331,895)
Extraordinary loss on extinguishment of debt - - 881,864
Extraordinary gain on forgiveness of debt (31,977) - (536,382)
Changes in assets and liabilities, net of effects
of acquisitions:
Accounts receivable 170,667 (926,819) (223,263)
Employee advances - (3,864) (59,986)
Interest and other receivables (6,175) (16,851) (13,921)
Inventory 509 (10,684) (26,873)
Prepaid expenses (144,030) (94,058) (194,877)
Cash held in escrow (24,454) - (62,457)
Other assets 294 469 (118,607)
Accounts payable (309,295) 417,024 3,054,104
Accrued liabilities (35,069) 709,284 1,121,032
Accrued liabilities - related party (62,501) 259,135 1,228,443
Income taxes payable (27,606) - (27,606)
Deferred revenues (3,123) 150,432 710,385
-------------- -------------- --------------
Net cash used in operating activities (3,181,899) (5,142,767) (66,727,434)
-------------- -------------- --------------
Cash flows from investing activities, net of effects
of acquisitions:
Proceeds from sale of discontinued operations - - 21,805,982
Acquisition of subsidiaries, net of cash acquired - - (15,323,173)
Proceeds from sale of property and equipment - - 50,000
Purchase of property and equipment (10,991) (38,025) (3,446,551)
Investment in intangible assets - - (164,460)
Issuance of notes receivable - - (3,228,600)
Payments received on notes receivable - 245,000 2,128,600
-------------- -------------- --------------
Net cash provided by (used in) investing activities (10,991) 206,975 1,821,798
-------------- -------------- --------------
Cash flows from financing activities:
Bank overdraft - 29,848 -
Advances 1,250,000 - 2,250,000
Payment of revolving note payable - (19,988,193) (49,250)
Payment of revolving note payable - related parties - (1,506,309) (7,813,537)
Proceeds from other notes payable - - 9,865,427
Payments on other notes payable - - (9,567,806)
Principal payments on capital lease obligation - (14,448) (153,390)
Proceeds from issuance of convertible debentures, net - 6,446,240 9,439,240
Proceeds from sale of warrants - - 1,511,168
Proceeds from sale of common stock, net - - 38,175,700
Proceeds from exercise of stock options 296,714 - 296,714
Proceeds from sale of preferred stock, net 1,750,000 - 19,457,346
Proceeds from sale of common stock and related
repricing rights subject to redemption, net - - 1,830,000
-------------- -------------- --------------
Net cash provided by (used in) financing activities 3,296,714 (15,032,862) 65,241,612
----------------------------- --------------
Net (decrease) increase in cash and cash equivalents 103,824 (19,968,654) 335,976
Cash and cash equivalents at beginning of period 232,152 20,045,539 -
-------------- -------------- --------------
Cash and cash equivalents at end of period $ 335,976 $ 76,885 $ 335,976
============== ============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
Fonix Corporation and Subsidiaries
[A Development Stage Company]
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
<TABLE>
<CAPTION>
October 1,
1993
(Inception) to
Three Months Ended March 31, March 31,
----------------------------
Supplemental disclosure of cash flow information: 2000 1999 2000
-------------- ------------ -------------
<S> <C> <C> <C>
Cash paid during the period for interest $ - $ 142,701 $ 4,616,701
Cash paid during the period for income taxes $ 27,606 $ - $ 27,606
</TABLE>
Supplemental Schedule of Non-cash Investing and Financing Activities:
For the Three Months Ended March 31, 2000:
Preferred stock dividends of $77,493 were accrued on Series D and Series F
preferred stock.
A total of 217,223 shares of Series D preferred stock and related dividends
of $255,600 were converted into 15,436,378 shares of Class A common stock.
A total of 290,000 shares of Series F preferred stock and related dividends
of $2,773,711, including $2,750,000 related to the beneficial conversion feature
recorded upon issuance, were converted into 7,764,948 shares of Class A common
stock.
The Company issued warrants for 600,000 shares of Class A common stock,
valued at $474,000, to an executive officer and director of the Company as
consideration for the rights to certain pen and voice input technology.
The Company issued 228,364 shares of Class A common stock to two former
directors of the Company upon the exercise of 400,000 options.
A total of $3,968,107 in principal of Series C convertible debentures and
related interest of $290,879 were converted into 10,382,901 shares of Class A
common stock.
The Company issued 4,568,569 shares of Class A common stock upon the
exercise of repricing rights associated with the common stock subject to
redemption.
The Company issued warrants to purchase 300,000 shares of Class A common
stock in satisfaction of an obligation of $45,000 incurred for consulting
services performed in 1999.
For the Three Months Ended March 31, 1999:
The Company entered into a capital lease obligation for equipment in the
amount of $34,945.
Advances to employees totaling $59,986 were applied as payments on a
related-party note payable.
A total of 143,230 shares previously pledged to a bank by certain officers
and directors of the Company as collateral for Company credit card debt were
sold by the bank and the proceeds were used to pay the debt and the related
accrued interest in full totaling $244,824.
Preferred stock dividends of $905,090 were recorded related to the
beneficial conversion features of convertible preferred stock.
Preferred stock dividends of $222,471 were accrued on convertible preferred
stock.
A total of 17,500 shares of Series D convertible preferred stock and
related dividends of $5,833 were converted into 426,464 shares of Class A common
stock.
A total of 45,072 shares of Series E convertible preferred stock and
related dividends of $12,019 were converted into 1,086,531 shares of Class A
common stock.
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
Fonix Corporation
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The accompanying unaudited condensed consolidated
financial statements of Fonix Corporation and subsidiaries (collectively, the
"Company" or "Fonix") have been prepared by the Company pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the following disclosures are adequate to make the
information presented not misleading.
These condensed consolidated financial statements reflect all adjustments
(consisting only of normal recurring adjustments) that, in the opinion of
management, are necessary to present fairly the financial position and results
of operations of the Company for the periods presented. The Company's business
strategy is not without risk, and readers of these condensed consolidated
financial statements should carefully consider the risks set forth under the
heading "Certain Significant Risk Factors" in the Company's 1999 Annual Report
on Form 10-K.
Operating results for the three months ended March 31, 2000 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2000. The Company suggests that these condensed consolidated financial
statements be read in conjunction with the consolidated financial statements and
the notes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1999.
Reclassifications - Certain reclassifications have been made in the prior period
condensed consolidated financial statements to conform with the current period
presentation.
Net Loss Per Common Share - Basic and diluted net loss per common share are
calculated by dividing net loss attributable to common stockholders by the
weighted average number of shares of common stock outstanding during the period.
At March 31, 2000 and 1999, there were outstanding common stock equivalents to
purchase 22,415,316 and 44,358,188 shares of common stock, respectively, that
were not included in the computation of diluted net loss per common share as
their effect would have been anti-dilutive, thereby decreasing the net loss per
common share.
6
<PAGE>
The following table is a reconciliation of the net loss numerator of basic and
diluted net loss per common share for the three months ended March 31, 2000 and
1999:
<TABLE>
<CAPTION>
2000 1999
---------------------------- ----------------------------
Per Share Per Share
Amount Amount
Amount Amount
<S> <C> <C> <C> <C>
Net loss $ (5,819,130) $ (9,294,861)
Preferred stock dividends (2,827,492) (1,127,561)
---------------- ---------------
Net loss from operations attributable
to common stockholders (8,646,622) (10,422,422)
Extraordinary items 31,977 - -
---------------- --------- ---------------
Net loss attributable to
common shareholders $ (8,614,645) $ (0.06) $ (10,422,422) $ (0.16)
================ ========= =============== =========
Weighted average common
shares outstanding 143,972,217 64,476,886
================ ===============
</TABLE>
2. DISCONTINUED OPERATIONS
On September 1, 1999, the Company completed the sale of the operations and a
significant portion of the assets of its HealthCare Solutions Group ("HSG") to
Lernout & Hauspie Speech Products N.V. ("L&H"), an unrelated third party. Upon
the closing of the sale, the Company discontinued the operations of HSG. The
results of operations of HSG have been reported separately as discontinued
operations in the accompanying March 31, 1999 and inception to date condensed
consolidated statements of operations.
3. INTANGIBLE ASSETS
Intangible assets consist of purchased core technology and goodwill in
connection with the acquisition of AcuVoice Inc. ("AcuVoice") and the Papyrus
companies (collectively "Papyrus") and direct costs incurred by the Company in
applying for patents covering its technologies. Amortization is computed on a
straight-line basis over the estimated useful lives ranging from five to eight
years. Total accumulated amortization was $5,007,816 and $4,392,457 at March 31,
2000 and December 31, 1999, respectively.
The carrying values of the Company's long-lived assets are reviewed for
impairment whenever events or changes in circumstances indicate that they may
not be recoverable. In that event, the Company would project cash flows to be
generated from the use of the asset and its eventual disposition over the
remaining life of the asset. If the projections indicated that the cost in
excess of the net asset would not be recoverable, the Company's carrying value
of the asset would be reduced by the estimated excess of the value over the
projected cash flows. The Company assesses impairment of long-lived assets at
the lowest level for which there are identifiable cash flows that are
independent of other groups of assets. As of March 31, 2000, the Company does
not believe any of its long-lived assets are impaired. However, the amount of
goodwill and other long-lived assets considered realizable could be reduced in
the near term based on changing conditions and the Company's ability to fund
further marketing and development of its products and technologies.
4. RELATED-PARTY NOTES PAYABLE
The Company had unsecured demand notes payable to former Papyrus stockholders in
the aggregate amount of $1,710,000, which notes were issued in connection with
the acquisition of Papyrus in 1998. The notes were payable in various
installments from February 28, 1999 through September 30, 1999. In April 1999,
the Company entered into agreements with five former Papyrus shareholders to
reduce the aggregate amounts payable to them under these notes from $1,632,375
to $1,188,909. Of this amount, $1,111,284 was paid in September 1999. A balance
of $77,625 remains outstanding as of March 31, 2000. The note holders have made
no demand for payment.
5. SERIES C CONVERTIBLE DEBENTURES
During the three months ended March 31, 2000, holders of the Company's Series C
convertible debentures converted $3,968,107 of principal together with interest
accrued thereon into 10,382,901 shares of Class A common stock. The remaining
$3,000 of principal was converted April 5, 2000 into 2,463 shares of Class A
common stock.
6. PREFERRED STOCK
Series D Preferred Stock - During the three months ended March 31, 2000, 217,223
shares of Series D convertible preferred stock together with related accrued
dividends of $255,600 were converted into 15,436,378 shares of Class A common
stock. As of March 31, 2000, 164,500 shares of Series D preferred stock remain
outstanding.
Series F Convertible Preferred Stock - Effective February 1, 2000, the Company
entered into an agreement with five investors whereby it sold a total of 290,000
shares of its Series F convertible preferred stock for $2,750,000 in cash.
8
<PAGE>
Dividends accrued on the stated value ($20 per share) of Series F convertible
preferred stock at a rate of six percent per year, were payable annually or upon
conversion, in cash or common stock, at the option of the Company, and were
convertible into shares of Class A common stock at any time at the holders'
option. The Series F convertible preferred stock was convertible into shares of
Class A common stock at a price of $0.75 per share during the first 90 days
following the close of the transaction, and thereafter at a price equal to 85
percent of the average of the three lowest closing bid prices in the 20-day
trading period prior to the conversion of the Series F convertible preferred
stock. Using the conversion terms most beneficial to the holders, the Company
recorded a preferred stock dividend of $2,750,000 for the beneficial conversion
feature related to these shares on the date the Series F convertible preferred
stock was issued. Subsequent to February 1, 2000, all shares of Series F
convertible preferred stock and related accrued dividends, were converted into
7,764,948 shares of Class A common stock.
Series G Preferred Stock - The Company has entered into an agreement whereby it
intends to sell to investors up to 250,000 shares of its Series G convertible
preferred stock for payment of up to $5,000,000 in cash. It is anticipated that
the Series G convertible preferred stock will be convertible into shares of
Class A common stock at a price of $1.25 per share during the first 90 days
following the closing of the transaction, and thereafter at a price equal to 85%
of the average of the three lowest closing bid prices in the 20-day trading
period prior to the conversion of the Series G convertible preferred stock. The
Company anticipates that the investors will receive registration rights which
will require the Company to file a registration statement covering the shares
underlying the Series G convertible preferred stock, and that the Company will
have the option of redeeming any outstanding Series G convertible preferred
stock. Although the Company has received advances in connection with this
financing aggregating approximately $1,250,000 through March 31, 2000, and an
additional $750,000 subsequent to that date, the securities purchase agreement
has not been executed. Accordingly, the final terms may differ from those
described above.
7. COMMON STOCK AND COMMON STOCK SUBJECT TO REDEMPTION
Class A Common Stock Issued - During the three months ended March 31, 2000,
33,584,227 shares of Class A common stock were issued in connection with
conversions of debentures and preferred stock (see Notes 5 and 6). Also during
the same period, 502,228 shares of Class A common stock were issued as a result
of the exercise of stock options and stock appreciation rights.
Common Stock Subject to Redemption - On February 14, 2000, the holder of the
Repricing Rights converted its rights into 4,568,569 shares of Class A common
stock and subsequently sold all the shares. Simultaneously, the initial shares
of Class A common stock subject to the Repurchase Rights were sold. Because the
Company has no further obligation under the Repricing Rights or the Repurchase
Rights as a result of these transactions, $1,830,000 reflected as "common stock
and related repricing rights subject to redemption" at December 31, 1999 has
been reclassified to Stockholders' Equity as an increase to Class A common stock
and additional paid-in capital.
Common Stock Options - On January 31, 2000, the board of directors approved an
increase of 10,000,000 shares to be available under the Company's 1998 Employee
Incentive and Stock Option Plan. A registration statement on Form S-8 covering
these additional shares was filed with the Securities and Exchange Commission
and declared effective on February 14, 2000. During the three months ended March
31, 2000, the Company granted 2,529,400 options to purchase shares of Class A
common stock at exercise prices ranging from $0.28 to $0.88 per share. The term
of all options granted during this three-month period is ten years from the date
of grant. Of the stock options granted, options to purchase 2,339,000 shares
vested March 31, 2000, and the balance vest over the three years following
issuance. Of the total granted, 197,000 were issued to consultants for services
performed for the Company and were recorded as consulting expense in the amount
of $53,190, based upon the fair market value determined using the Black-Scholes
pricing model. The remainder of the options were granted to employees and had a
weighted average fair market value of $0.30 per share using the Black-Scholes
pricing model. Had compensation expense for these options been recorded in
accordance with the method prescribed by SFAS No. 123, "Accounting for
Stock-Based Compensation", the Company's net loss would have been $9,183,885 or
$0.06 per share for the three months ended March 31, 2000. As of March 31, 2000,
the Company had a total of 16,170,334 options to purchase Class A common shares
outstanding.
Warrants - On January 19, 2000, the Company issued warrants for the purchase of
300,000 shares of Class A common stock for services rendered by a professional
services firm. The warrants have a three year life, exercise prices ranging from
$0.28 to $1.25 per share and vest as follows: 100,000 in March 2000 and 200,000
in September 2000. The warrants were valued at $45,000 using the Black-Scholes
pricing model and were issued in satisfaction of an obligation that was recorded
in December 1999.
9
<PAGE>
In February 2000, the Company entered into an agreement with an executive
officer and director of the Company to purchase, all of his rights and interests
in certain methods and apparatus for integrated voice and pen input for use in
computer systems. In consideration for this technology, the Company granted the
executive officer warrants to purchase 600,000 shares of the Company's Class A
common stock at an exercise price of $1.00 per share. The warrants are
immediately exercisable and expire February 10, 2010. The warrants were valued
at $0.79 per share and were recorded as purchased in-process research and
development. The Company granted the executive officer the right to repurchase
the technology from the Company at fair market value if the Company subsequently
determines not to commercialize the pen/voice technologies or products.
8. RELATED-PARTY TRANSACTIONS
The Company rents office space from Studdert Companies Corporation ("SCC") under
a sublease that is guaranteed by two officers and directors of the Company who
are also officers, owners and directors of SCC. The sublease monthly payments
are $10,368. The Company believes the terms of the sublease are at least as
favorable as the terms that could have been obtained from an unaffiliated third
party in a similar transaction.
9. PRODUCT DEVELOPMENT AND RESEARCH
Synergetics - Prior to March 1997, the Company's scientific research and
development activities were conducted solely by a third party, Synergetics,
Inc., pursuant to product development and assignment contracts (collectively,
the "Synergetics Agreement"). Under that arrangement, Synergetics provided
personnel and facilities to conduct research and product development activities.
The Company financed the Synergetics research and development activities on an
as-required basis and the Company was obligated to pay to Synergetics a royalty
of 10 percent (the "Royalty") of net revenues from sales of products
incorporating Synergetics' "VoiceBox" technology as well as technology
derivative thereof. Synergetics compensated its developers and others
contributing to the development effort, in part, by granting "Project Shares" to
share in a portion of the Royalty received by Synergetics. On April 6, 1998, the
Company and Synergetics entered into a Royalty Modification Agreement whereby
the Company agreed to offer an aggregate of 4,800,000 non-transferable Class A
common stock purchase warrants to the holders of the Project Shares in
consideration for which Synergetics agreed to cancel any further obligation on
the part of the Company to pay the Royalty. The exercise price of the warrants
was to be $10 per share and the warrants would not be exercisable until the
first to occur of (1) the date that the per share closing bid price of the Class
A common stock was equal to or greater than $37.50 per share for a period of 15
consecutive trading days, or (2) September 30, 2000. Effective March 31, 2000,
the Company and Synergetics entered into a Restated Royalty Modification
Agreement whereby the Company agreed to pay Synergetics $28,000 (the
"Cancellation Amount") to cancel the obligation of the Company to pay the
Royalty or issue the 4,800,000 warrants. The Company has paid the Cancellation
Amount to Synergetics and the Royalty and warrant obligations have been
canceled. The Company has no further obligations to Synergetics.
IMC2 - In March 1998, the Company entered into a professional services agreement
with IMC2 Corporation ("IMC2") a research and development entity, to assist in
the continuing development of specific automated speech recognition
technologies. The president of IMC2 is also the president of Synergetics. The
professional services agreement is for a term of 36 months and requires the
Company to make monthly payments of $22,000. Under the terms of the agreement,
the Company expended a total of $66,000 in each of the three-month periods ended
March 31, 2000 and 1999.
10. COMMITMENTS AND CONTINGENCIES
Employment Agreements - In January 1998, the Company entered into an employment
contract with an employee which expires in January 2001. The minimum annual
salary payments required by this contract totaled $180,000. In connection with
this agreement, the employee was granted options to purchase 175,000 shares of
the Company's Class A common stock at $3.34 per share. These options have a
ten-year life and are subject to a two-year vesting schedule, pursuant to which
one-third of the total number of options granted vested on the date of grant and
one-third vested each year thereafter. In the event that, during the contract
term, both a change of control occurs, and within six months after such change
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in control occurs, the employee's services are terminated by the Company for any
reason other than cause, death or retirement, the employee shall be entitled to
receive an amount in cash equal to all base salary then and thereafter payable
within 30 days of termination. In January 1999, the Company announced a cost
reduction program for the Company's 1999 operating year wherein the employee
agreed that the compensation would be reduced 30 percent effective February
1999. This level of compensation has continued through March 31, 2000.
Executive Employment Agreements - On November 1, 1996, the Company entered into
employment contracts with three executive officers (one of whom, Stephen M.
Studdert, is no longer an executive officer) which expire on December 31, 2001.
The annual base salary pursuant to the contracts with each executive officer for
the year ended December 31, 1999 is $425,000. However, in connection with the
Company's cost reduction program, the two remaining executive officers agreed
that their annual compensation be reduced to $297,500 commencing February 1999.
At the same time, Mr. Studdert resigned as the Company's chief executive officer
and entered into a separation agreement pursuant to which Mr. Studdert will be
paid $250,000 per year through January 31, 2001 and $100,000 for the 12 months
ending January 31, 2002. His employment contract was canceled. In January 2000,
the board of directors extended the two remaining contracts at the reduced base
compensation until December 31, 2005. Subsequent adjustments in base
compensation, if any, will be approved by the board of directors.
In January 1998, the Company entered into an employment contract with another
executive officer which expires in January 2001. The minimum annual salary
payments required by this contracts totaled $225,000. In connection with this
agreement, this executive officer was granted options to purchase 180,000 shares
of the Company's Class A common stock at $3.34 per share. These options have a
ten-year life and are subject to a two-year vesting schedule, pursuant to which
one-third of the total number of options granted are vested on the date of grant
and one-third vests each year thereafter. In the event that, during the contract
term, both a change of control occurs, and within six months after such change
in control occurs, the executive officer's services are terminated by the
Company for any reason other than cause, death or retirement, the executive
officer shall be entitled to receive an amount in cash equal to all base salary
then and thereafter payable within 30 days of termination. In January 1999, the
Company announced a cost reduction program for the Company's 1999 operating year
wherein the executive officer agreed that his compensation would be reduced 30
percent effective February 1999. This level of compensation has continued
through March 31, 2000.
11. LITIGATION
Oregon Graduate Institute - On July 28, 1999, Oregon Graduate Institute ("OGI")
filed a notice of default, demand for mediation and demand for arbitration with
the American Arbitration Association. In its demand, OGI asserted that the
Company was in default under three separate agreements between the Company and
OGI in the total amount of $175,000. On September 23, 1999, the Company
responded to OGI's demand and denied the existence of a default under the three
agreements identified by OGI. Moreover, the Company asserted a counterclaim
before the American Arbitration Association against OGI in an amount not less
than $250,000. Neither OGI nor the Company have undertaken any discovery.
However, a hearing date has been set for August 8, 2000. The Company believes
the OGI arbitration claim is without merit, and management intends to vigorously
pursue its counterclaim against OGI.
The Company is involved in other lawsuits, claims and actions arising in the
ordinary course of business. In the opinion of management, after consultation
with legal counsel, the ultimate disposition of these matters will not
materially affect the consolidated financial position or results of operations
of the Company.
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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, 1999.
Overview
Since inception, Fonix has devoted substantially all of its resources to
research, development and acquisition of software technologies that enable
intuitive human interaction with computers, consumer electronics, and other
electronic devices. Through March 31, 2000, the Company has incurred cumulative
losses amounting to $104,056,240, excluding cumulative losses from discontinued
operations of $8,462,387 and net extraordinary losses of $345,482. Losses are
expected to continue until the effects of marketing and sales efforts begin to
take effect, if ever.
In 1999, Fonix management began to transition its strategic focus from
technology research, development and acquisition into sales and marketing and
product delivery. For the three months ended March 31, 2000, the Company
expended $468,559 in sales and marketing activities. The Company has made this
transition while continuing to achieve technology upgrades in order to maintain
distinct competitive technological advantages.
In its current marketing efforts, the Company seeks to form relationships with
third parties who can incorporate human/computer interface ("HCI") technologies
into new or existing products. Such relationships may be structured in any of a
variety of ways including traditional technology licenses, co-development
relationships through joint ventures or otherwise, and strategic alliances. The
third parties with whom Fonix presently has such relationships and with which it
may have similar relationships in the future include developers of application
software, operating systems, computers, microprocessor chips, consumer
electronics, automobiles, telephony and other technology products.
In February 1999, in connection with this transition in strategic focus, the
Company undertook an aggressive program of cost reduction emphasized in four
areas of operations:
1. Salaries, wages and related costs - Salaries greater than $50,000 per year
were reduced 20 to 30 percent;
2. Third-party consultants - Reliance on third-party consultants was reduced
in the areas of research and development, marketing and public relations;
3. Occupancy costs - Office space was reduced to accommodate current operating
needs; and
4. Asset acquisition - Acquisition of new operating assets was significantly
restricted.
Implementation of these measures has reduced the monthly deficit in cash flows
from operating activities from approximately $3 million in early 1999 to less
than $1 million in December 1999. For the three months ended March 31, 2000, the
average monthly deficit in cash flows from operating activities was $1,060,633
as compared to $1,714,256 for the same period in 1999.
On May 19, 1999, Fonix signed an agreement to sell the operations and a
significant portion of the assets of its HealthCare Solutions Group ("HSG"),
which consisted primarily of the operations of Articulate Systems, Inc.
("Articulate"), to Lernout & Hauspie Speech Products N.V. ("L&H"), an unrelated
third party. The sale closed September 1, 1999. The proceeds from the sale were
used to reduce certain of the Company's liabilities and provided working capital
to allow Fonix to focus on marketing and developing technologies and products.
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Results of Operations
The results of operations discussed below give effect to the sale of the HSG and
the classification of its net assets and operating activities as discontinued
operations
Three months ended March 31, 2000, compared with three months ended March 31,
1999
During the three months ended March 31, 2000, the Company recorded revenues of
$56,447, reflecting a modest increase of $2,641 over the same period in the
previous year. Revenues in 2000 and 1999 were generated through sales and
licensing of the Company's products and technologies.
Selling, general and administrative expenses were $3,338,606 and $2,745,066 for
the three months ended March 31, 2000 and 1999, respectively. Included in these
expenses for the three months ended March 31, 2000 are compensation-related
charges in the amount of $816,667 resulting from the exercise of stock
appreciation rights and revaluation of options previously granted for which
terms were revised. Absent these charges, selling, general and administrative
expenses decreased $223,127. This net decrease is a reflection of ongoing cost
reduction efforts that have resulted in decreases in compensation related
expenses of $504,285, legal and accounting expenses of $285,242 and consulting
expenses of $93,022. Decreases in occupancy, travel and investor relations
expenses amounted to $211,715. These reductions are offset by non-cash charges
in the amount of $966,658 resulting from the issuance of warrants to consultants
and advisors assisting in the planning and development of the Company's
strategic focus.
The Company incurred product development and research expenses of $1,450,758
during the three months ended March 31, 2000, a decrease of $1,062,068 from the
same period in the previous year. This decrease was due primarily to the
transition in strategic focus and the resulting cost reduction program initiated
in February 1999. Decreases of $747,357 in compensation related expenses and
$223,728 in consulting expenses are reflections of successful efforts in these
cost reduction measures.
The Company incurred an expense of $474,000 resulting from the purchase of the
rights to certain technology from an executive officer and director of the
Company. The executive officer received warrants to purchase 600,000 shares of
Class A common stock at an exercise price of $1.00 per share. The warrants were
valued at $0.79 per share using the Black-Scholes pricing method.
The Company incurred losses from operations of $5,817,002 and $5,866,986 during
the three months ended March 31, 2000 and 1999, respectively. While operating
losses for the three months ended March 31, 2000 did not decrease substantially
from those incurred in the three months ended March 31, 1999, over $1.7 million
of the expenses incurred in the three months ended March 31, 2000 related to
non-cash charges, resulting in a significant reduction in the negative cash
flows from operations.
Net other expense was $2,128 for the three months ended March 31, 2000, a
decrease of $2,202,220 from the three months ended March 31, 1999. This decrease
was due primarily to $1,942,000 in interest and finance charges incurred in the
three months ended March 31, 1999, relative to the issuance of Series C
convertible debentures in January and March, 1999. No such charges were incurred
in 2000.
Liquidity and Capital Resources
From its inception, the Company's principal source of capital has been private
and other exempt sales of its debt and equity securities. The Company continues
to raise additional funds in like manner to satisfy its cash operating
requirements for the foreseeable future. Because the Company presently has
limited revenue from operations, it will rely primarily on financing through the
sale of its equity and debt securities to satisfy future capital requirements
until such time as sufficient revenue is generated through third-party licensing
or co-development arrangements to satisfy its ongoing operating requirements.
There can be no assurance that the Company will be able to secure this funding
or that the terms of such financing will be favorable to the Company.
Furthermore, the issuance of equity or debt securities which are or may become
convertible into equity securities of the Company may result in substantial
dilution to the stockholders of the Company.
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The Company had negative working capital of $4,166,493 as of March 31, 2000
compared to negative working capital of $4,804,796 at December 31, 1999. Current
assets increased by $82,853 to $563,738 from December 31, 1999, to March 31,
2000. Current liabilities decreased by $555,450 to $4,730,231 during the same
period. The improvement in working capital from December 31, 1999, to March 31,
2000, was primarily attributable to reductions in operating costs and success in
raising additional operating capital through the sale of Series F convertible
preferred stock and cash advances on the anticipated sale of Series G
convertible preferred stock. Total assets were $18,496,651 at March 31, 2000
compared to $19,173,147 at December 31, 1999.
Preferred Stock
During the three months ended March 31, 2000, 217,223 shares of Series D
convertible preferred stock together with related accrued dividends of $255,600
were converted into 15,436,378 shares of Class A common stock. As of March 31,
2000, 164,500 shares of Series D preferred stock remain outstanding.
Effective February 1, 2000, the Company entered into an agreement with five
investors whereby it sold a total of 290,000 shares of its Series F convertible
preferred stock for $2,750,000 in cash. Dividends which accrued on the stated
value ($20 per share) of Series F convertible preferred stock at a rate of six
percent per year, were payable annually or upon conversion, in cash or common
stock, at the option of the Company, and were convertible into shares of Class A
common stock at any time at the holders' option. The Series F convertible
preferred stock was convertible into shares of Class A common stock at a price
of $0.75 per share during the first 90 days following the close of the
transaction, and thereafter at a price equal to 85 percent of the average of the
three lowest closing bid prices in the 20-day trading period prior to the
conversion of the Series F convertible preferred stock. Using the conversion
terms most beneficial to the holders, the Company recorded a preferred stock
dividend of $2,750,000 for the beneficial conversion feature related to these
shares on the date the Series F convertible preferred stock was issued.
Subsequent to February 1, 2000, all shares of Series F convertible preferred
stock and related accrued dividends, were converted into 7,764,948 shares of
Class A common stock.
The Company has entered into an agreement whereby it intends to sell to
investors up to 250,000 shares of its Series G convertible preferred stock for
payment of up to $5,000,000 in cash. It is anticipated that the Series G
convertible preferred stock will be convertible into shares of Class A common
stock at a price of $1.25 per share during the first 90 days following the
closing of the transaction, and thereafter at a price equal to 85% of the
average of the three lowest closing bid prices in the 20-day trading period
prior to the conversion of the Series G convertible preferred stock. The Company
anticipates that the investors will receive registration rights which will
require the Company to file a registration statement covering the shares
underlying the Series G convertible preferred stock, and that the Company will
have the option of redeeming any outstanding Series G convertible preferred
stock. Although the Company has received advances in connection with this
financing aggregating approximately $1,250,000 through March 31, 2000, and an
additional $750,000 subsequent to that date, the securities purchase agreement
has not been executed. Accordingly, the final terms may differ from those
described above.
Stock Options
During the three months ended March 31, 2000, the Company granted options to
purchase 2,529,400 shares of Class A common stock at exercise prices ranging
from $0.28 to $0.88 per share. The term of all options granted during this three
month period is ten years from the date of grant. Of the stock options issued,
options to purchase 2,339,000 shares vested March 31, 2000, and the balance vest
over the three years following issuance. As of March 31, 2000, the Company had a
total of 16,170,334 options to purchase Class A common shares outstanding.
Also during the three months ended March 31, 2000, options to purchase 273,864
shares of Class A common stock were exercised resulting in cash proceeds of
$296,714. During the same period, 228,364 shares of Class A common stock were
issued as a result of the exercise of stock appreciation rights.
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Warrants
On January 19, 2000, the Company issued warrants for the purchase of 300,000
shares of Class A common stock for services rendered by a professional services
firm. The warrants have a three year life, exercise prices ranging from $0.28 to
$1.25 per share and vest as follows: 100,000 in March 2000 and 200,000 in
September 2000. The warrants were valued at $45,000 using the Black-Scholes
pricing model and were issued in satisfaction of an obligation that was recorded
in December 1999.
In February 2000, the Company entered into an agreement to purchase from an
executive officer and director of the Company, all of his rights and interests
in certain methods and apparatus for integrated voice and pen input for use in
computer systems. In consideration for this technology, the Company granted the
executive officer warrants to purchase 600,000 shares of the Company's Class A
common stock at an exercise price of $1.00 per share. The warrants are
immediately exercisable and expire February 10, 2010. The warrants were valued
at $0.79 per share and were recorded as purchased in-process research and
development. The Company granted the executive officer the right to repurchase
the technology from the Company at fair market value if the Company subsequently
determines not to commercialize the pen/voice technologies or products.
Other
The Company presently has no plans to purchase new research and development or
office facilities.
Outlook
Corporate Objectives and Technology Vision
The Company believes that its core technologies, namely, automated speech
recognition, text-to-speech and handwriting recognition, (the "Core
Technologies") will be the platform for the next generation of automated speech
technologies and products. Most speech recognition products offered by other
companies are based on technologies that are largely in the public domain and
represent nothing particularly "new" or creative. The Company's Core
Technologies are based on proprietary, patented technology. The Company will
continue to seek patent protection of the Core Technologies as well as
technologies and inventions derived from the know how, assets and rights
acquired from past acquisitions. Management believes the Company's HCI
technologies provide a competitive advantage vis-a-vis other technologies
available in the marketplace.
As the Company proceeds to implement its strategy and to reach its objectives,
it anticipates further development of complementary technologies, added product
and applications development expertise, access to market channels and additional
opportunities for strategic alliances in other industry segments. The strategy
described above is not without risk, and shareholders and others interested in
the Company and its common stock should carefully consider the risks set forth
under the heading "Certain Significant Risk Factors" in the Company's 1999
Annual Report on Form 10-K, Item 1, Part I.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Oregon Graduate Institute - On July 28, 1999, Oregon Graduate Institute ("OGI")
filed a notice of default, demand for mediation and demand for arbitration with
the American Arbitration Association. In its demand, OGI asserted that the
Company was in default under three separate agreements between the Company and
OGI in the total amount of $175,000. On September 23, 1999, the Company
responded to OGI's demand and denied the existence of a default under the three
agreements identified by OGI. Moreover, the Company asserted a counterclaim
before the American Arbitration Association against OGI in an amount not less
than $250,000. Neither OGI nor the Company have undertaken any discovery.
However, a hearing date has been set for August 8, 2000. The Company believes
the OGI arbitration claim is without merit, and management intends to vigorously
pursue its counterclaim against OGI.
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The Company is involved in other lawsuits, claims and actions arising in the
ordinary course of business. In the opinion of management, after consultation
with legal counsel, the ultimate disposition of these matters will not
materially affect the consolidated financial position or results of operations
of the Company.
Item 2. Changes in Securities
c. Unregistered sales of equity securities during the quarter (other than in
reliance on Regulation S).
Recent Sales of Unregistered Securities. During the three months ended March 31,
2000, the Company issued equity securities that were not registered under the
Securities Act of 1933, as amended (the "1933 Act"), other than unregistered
sales in reliance on Regulation S under the Act, as follows:
On February 1, 2000, the Company issued 290,000 shares of Series F preferred
stock, par value $20 per share, to five investors for $2,750,000. The Company
issued such shares without registration under the 1933 Act in reliance on
section 4(2) of the 1933 Act and the rules and regulations promulgated
thereunder. The shares of Series F preferred stock were issued as restricted
securities and the certificates representing the Series F preferred stock were
stamped with a restrictive legend to prevent any resale without registration
under the 1933 Act or pursuant to an exemption. The Class A common shares
underlying the Series F preferred stock were subsequently registered on a Form
S-2 that was declared effective February 11, 2000.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits: The following Exhibits are filed with this Form 10-Q pursuant to
Item 601(a) of Regulation S-K:
Exhibit No. Description of Exhibit
(2)(i) Agreement and Plan of Reorganization among the
Company, Fonix Acquisition Corporation and AcuVoice
dated as of January 13, 1998, incorporated by reference
from the Company's Current Report on Form 8-K, filed
March 20, 1998
(2)(ii) Agreement and Plan of Merger among Fonix, Articulate
Acquisition Corporation, and Articulate, dated as of
July 31, 1998, incorporated by reference from the
Company's Current Report on Form 8-K, filed September
17, 1998
(2)(iii) Agreement and Plan of Merger among Fonix, Papyrus
Acquisition Corporation, and Papyrus Associates, Inc.,
dated as of September 10, 1998, incorporated by
reference from the Company's Current Report on Form
8-K, filed November 13, 1998
(3)(i) Articles of Incorporation of the Company which are
incorporated by reference from the Company's
Registration Statement on Form S-18 dated as of
September 12, 1989
(3)(ii) Certificate of Amendment of Certificate of
Incorporation dated as of March 21, 1994, which is
incorporated by reference from the Company's Annual
Report for the Fiscal Year Ended December 31, 1994 on
Form 10-KSB
(3)(iii) Certificate of Amendment of Certificate of
Incorporation dated as of May 13, 1994, which is
incorporated by reference from the Company's Annual
Report for the Fiscal Year Ended December 31, 1994 on
Form 10-KSB
(3)(iv) Certificate of Amendment of Certificate of
Incorporation dated as of September 24, 1997, which is
incorporated by reference from the Company's Quarterly
Report on Form 10-Q for the period ended September 30,
1997
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(3)(v) The Company's Bylaws, as amended, which are
incorporated by reference from the Company's Annual
Report for the Fiscal Year Ended December 31, 1994 on
Form 10-KSB
(4)(i) Description of the Company's common stock and other
securities and specimen certificates representing such
securities which are incorporated by reference from the
Company's Registration Statement on Form S-18 dated as
of September 12, 1989, as amended
(4)(ii) Certificate of Designation of Rights and Preferences
of Series A Preferred Stock, filed with the Secretary
of State of Delaware on September 24, 1997, which is
incorporated by reference from the Company's Quarterly
Report on Form 10-Q for the period ended September 30,
1997
(4)(iii) Certificate of Designation of Rights and
Preferences of Series B Convertible Preferred Stock,
filed with the Secretary of State of Delaware on
October 27, 1997, which is incorporated by reference
from the Company's Quarterly Report on Form 10-Q for
the period ended September 30, 1997
(4)(iv) Certificate of Designation of Rights and Preferences
of 5% Series C Convertible Preferred Stock, filed with
the Secretary of State of Delaware on October 24, 1997,
which is incorporated by reference from the Company's
Quarterly Report on Form 10-Q for the period ended
September 30, 1997
(4)(v) Certificate of Designation of Rights and Preferences
of Series D 4% Convertible Preferred Stock, filed with
the secretary of State of Delaware on August 27, 1998,
which is incorporated by reference from the Company's
Quarterly Report on Form 10-Q for the period ended
September 30, 1998
(4)(vi) Certificate of Designation of Rights and Preferences
of Series E 4% Convertible Preferred Stock, filed with
the secretary of State of Delaware on October 15, 1998,
which is incorporated by reference from the Company's
Quarterly Report on Form 10-Q for the period ended
September 30, 1998
(9)(i) Voting Trust Agreement dated as of December 10, 1993
by and among Phonic Technologies, Inc., Stephen M.
Studdert, Thomas A. Murdock and Roger D. Dudley, which
is incorporated by reference from the Company's Current
Report on Form 8-K dated as of June 17, 1994
(9)(ii) Amendment of Voting Trust Agreement by and among the
Company, Stephen M. Studdert, Thomas A. Murdock, Roger
D. Dudley, Beesmark Investments, L.C., Studdert
Companies Corporation, and Thomas A. Murdock as
Trustee, dated as of October 23, 1995, incorporated by
reference from the Company's Current Report on Form 8-K
dated as of October 23, 1995
(9)(iii) Second Amendment of Voting Trust Agreement by and
among the Company, Stephen M. Studdert, Thomas A.
Murdock, Roger D. Dudley, Beesmark Investments, L.C.,
Studdert Companies Corporation, and Thomas A. Murdock
as Trustee, dated as of July 2, 1996, incorporated by
reference from the Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1996
(9)(iv) Third Amendment of Voting Trust Agreement by and
among the Company, Stephen M. Studdert, Thomas A.
Murdock, Roger D. Dudley, Beesmark Investments, L.C.,
Studdert Companies Corporation, and Thomas A. Murdock
as Trustee, dated as of September 20, 1996,
incorporated by reference from the Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1996
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(9)(v) Fourth Amendment of Voting Trust Agreement by and
among the Company, Stephen M. Studdert, Thomas A.
Murdock, Roger D. Dudley, Beesmark Investments, L.C.,
Studdert Companies Corporation, and Thomas A. Murdock
as Trustee, dated as of September 20, 1996,
incorporated by reference from the Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1996
(10)(i) Product Development and Assignment Agreement dated
as of October 16, 1993 between Phonic Technologies,
Inc. and Synergetics, Inc., which is incorporated by
reference from the Company's Current Report on Form 8-K
dated as of June 17, 1994
(10)(ii) Re-Stated Product Development and Assignment
Agreement dated as of March 30, 1995, between Fonix
Corporation and Synergetics, Inc., which is
incorporated by reference from the Company's Annual
Report for the Fiscal Year Ended December 31, 1994 on
Form 10-KSB
(10)(iii) Memorandum of Understanding dated as of March 13,
1997, by and among the Company, Synergetics, Inc. and
C. Hal Hansen, which is incorporated by reference from
the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1996
(10)(iv) Employment Agreement by and between the Company and
Stephen M. Studdert, which is incorporated by reference
from the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1996
(10)(v) Employment Agreement by and between the Company and
Thomas A. Murdock, which is incorporated by reference
from the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1996
(10)(vi) Employment Agreement by and between the Company and
Roger D. Dudley, which is incorporated by reference
from the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1996
(10)(vii) Restated Master Agreement for Joint Collaboration
between the Company and Siemens, dated November 14,
1997, as revised, which is incorporated by reference
from the Company's Annual Report on Form 10-K for the
year ended December 31, 1997
(10)(viii) Restated First Statement of Work and License
Agreement between the Company and Siemens, dated
February 11, 1998, as revised, which is incorporated by
reference from the Company's Annual Report on Form 10-K
for the year ended December 31, 1997
(10)(ix) Master Technology Collaboration Agreement between
the Company and OGI, dated October 14, 1997, which is
incorporated by reference from the Company's Annual
Report on Form 10-K for the year ended December 31,
1997
(10)(x) Common stock Purchase Agreement among the Company
and JNC Opportunity Fund Ltd. and Diversified
Strategies Fund, LP, dated as of March 9, 1998, which
is incorporated by reference from the Company's Annual
Report on Form 10-K for the year ended December 31,
1997
(10)(xi) Common stock Purchase Agreement between the Company
and Thomson Kernaghan & Co., dated as of March 9, 1998,
which is incorporated by reference from the Company's
Annual Report on Form 10-K for the year ended December
31, 1997
(10)(xii) Royalty Modification Agreement among the Company
and Synergetics, dated as of April 6, 1998, which is
incorporated by reference from the Company's Annual
Report on Form 10-K for the year ended December 31,
1997
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(10)(xiii) Purchase Agreement with John Oberteuffer and the
Company dated April 9, 1998, which
is incorporated by reference from the Company's
AnnualReport on Form 10-K for the year ended December
31, 1997
(10)(xiv) Employment Agreement by and between the Company
and John A. Oberteuffer, which is incorporated by
reference from the Company's Annual Report on Form 10-K
for the year ended December 31, 1997
(10)(xv) First Amendment to Master Agreement for Joint
Collaboration between the Company and Siemens, dated
February 13, 1998, which is incorporated by reference
from the Company's Annual Report on Form 10-K for the
year ended December 31, 1997
(10)(xvi) Second Amendment to Master Agreement for Joint
Collaboration between the Company and Siemens, dated
March 13, 1998, which is incorporated by reference from
the Company's Annual Report on Form 10-K for the year
ended December 31, 1997
(10)(vii) Series D Convertible Preferred Stock Purchase
Agreement Among Fonix corporation, JNC Opportunity
Fund, Ltd., Diversified Strategies Fund, L.P., Dominion
Capital Fund, Ltd., Sovereign Partners, LP, Canadian
Advantage Limited Partnership and Thomson Kernaghan &
Co. (as agent) dated as of August 31, 1998,
incorporated by reference from the Company's Quarterly
Report on Form 10-Q for the period ended September 30,
1998
(10)(xviii) Series E Convertible Preferred Stock Exchange
and Purchase Agreement among Fonix corporation,
Sovereign Partners, LP and Dominion Capital Fund, Ltd.,
dated as of September 30, 1998, incorporated by
reference from the Company's Quarterly Report on Form
10-Q for the period ended September 30, 1998
(10)(xix) Securities Purchase Agreement among Fonix
Corporation and JNC Strategic Fund, dated December 21,
1998 for 1,801,802 shares of common stock and Repricing
Rights, incorporated by reference from Amendment No. 1
to Registration Statement on Form S-3 (File No.
333-67573)
(10)(xx) Securities Purchase Agreement among Fonix
Corporation and the investors identified therein dated
January 29, 1999, as supplemented on March 3, 1999,
concerning sales of $6,500,000 principal amount of
Series C 5% Convertible Debentures, incorporated by
reference from Amendment No. 1 to Registration
Statement on Form S-3 (File No. 333- 67573)
(10)(xxi) Asset Purchase Agreement - Acquisition of Certain
Assets of Fonix Corporaion and Fonix/ASI Corporation
by Lernout & Hauspie Speech Products N.V., dated as
of May 19, 1999,which is incorporated by reference
from the Company's Current Report on Form 8-K, filed
with the Commission on September 16, 1999 (therein
designated as Exhibit 10(a))
(10)(xxii) Escrow Agreement, dated as of September 1, 1999,which
is incorporated by reference from the Company's
Current Report on Form 8-K, filed with the Commission
on September 16, 1999 (therein designated as Exhibit
10(b))
(10)(xxiii) Technology Option Agreement, dated as of May 19,
1999,which is incorporated by reference from the
Company's Current Report on Form 8-K, filed with the
Commission on September 16, 1999 (therein designated
as Exhibit 10(c))
(10)(xxiv) Assignment and Assumption Agreement, dated as of
September 1, 1999,which is incorporated by reference
from the Company's Current Report on Form 8-K, filed
with the Commission on September 16, 1999 (therein
designated as Exhibit 10(d))
19
<PAGE>
(10)(xxv) License Agreement by and between Fonix/ASI
Corporation and Lernout & Hauspie Speech Products
N.V., dated as of May 19, 1999,which is incorporated
by reference from the Company's Current Report on
Form 8-K, filed with the Commission on September 16,
1999 (therein designated as Exhibit 10(e))
(10)(xxvi) Loan Agreement, dated as of April 22, 1999,which is
incorporated by reference from the Company's Current
Report on Form 8-K, filed with the Commission on
September 16, 1999 (therein designated as Exhibit
10(f))
(10)(xxvii) Amendment to Loan Agreement, dated as of May 12,
1999,which is incorporated by reference from the
Company's Current Report on Form 8-K, filed with the
Commission on September 16, 1999 (therein designated
as Exhibit 10(g))
(10)(xxviii) Second Amendment to Loan Agreement, dated as of May
19, 1999,which is incorporated by reference from the
Company's Current Report on Form 8-K, filed with the
Commission on September 16, 1999 (therein designated
as Exhibit 10(h))
(10)(xxix) Loan Agreement, dated as of May 19, 1999,which is
incorporated by reference from the Company's Current
Report on Form 8-K, filed with the Commission on
September 16, 1999 (therein designated as Exhibit
10(i))
(10)(xxx) First Amendment to Loan Agreement, dated as of August
12, 1999,which is incorporated by reference from the
Company's Current Report on Form 8-K, filed with the
Commission on September 16, 1999 (therein designated
as Exhibit 10(j))
(10)(xxxi) Agreement, dated as of July 31, 1999,which is
incorporated by reference from the Company's Current
Report on Form 8-K, filed with the Commission on
September 16, 1999 (therein designated as Exhibit
10(k))
(10)(xxxii) Series F. Convertible Preferred Stock Purchase
Agreement, Among Fonix Corporation, Sovereign
Partners, LP, Dominion Capital Fund, LTD., Dominion
Investment Fund, LLC, Canadian Advantage, L.P., and
Queen LLC, dated as of February 1, 2000, incorporated
by reference from the Company's annual report on Form
10-K, filed with the Commission on April 14, 2000
(27) Financial Data Schedule
(B) Reports filed on Form 8-K during the three-month period ended March 31,
2000:
On March 30, 2000, the Company filed a Current Report on Form 8-K to announce
the appointment of William A. Maasberg, Jr. as chief operating officer and Roger
D. Dudley as chief financial officer, effective March 21, 2000.
20
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Fonix Corporation
Date: May 15, 2000 /s/ Roger D. Dudley
-------------------------- ----------------------------------------
Roger D. Dudley,
Executive Vice President,
Chief Financial Officer
21
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