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

                                FORM 10-QSB

[X]  Quarterly report under Section 13 or 15(d) of the Securities Exchange
     Act of 1934 for the quarterly period ended September 30, 1996.

[ ]  Transition Report under 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 small business issuer in its charter)

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

                   60 East South Temple Street, Suite 1225
                         Salt Lake City, UT 84111
          (Address of principal executive offices and zip code)
                               
                              (801) 328-0161
                        (Issuer's telephone number)

Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or Section 15(d) of the Exchange Act during the past 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 November 13, 1996, 41,566,563 shares of the issuer's Common Stock, par
value $.0001 per share, were issued and outstanding.

Transitional Small Business Disclosure Format (Check one):  
Yes [ ] or No [X]

<PAGE>

                         PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements.

     The financial statements required by item 310(b) of Regulation S-B
     follow immediately.

<PAGE>
                               fonix corporation                
                         [A Development Stage Company]            
			
                    CONDENSED CONSOLIDATED BALANCE SHEET             
                                 [Unaudited]              

                                   ASSETS           

                                                              September 30,
                                                                  1996
                                                             ---------------
Current assets:			
        Cash and cash equivalents                             $  24,871,235 
        Notes Receivable                                          1,270,000
        Interest receivable                                         142,634 
        Prepaid Expenses                                             98,789
                                                             ---------------
                Total Current Assets                             26,382,658 
			
Property & Equipment, net of accumulated               
        depreciation of $30,943                                     534,439 
			
Intangible assets, net of accumulated          
        amortization of $2,410                                       31,241
                                                             ---------------
                                                             $   26,948,338
                                                             ===============
			
                    LIABILITIES AND STOCKHOLDERS' EQUITY             

Current liabilities:			
        Notes payable                                        $   15,843,553 
        Accounts payable                                            643,481 
        Accrued expenses                                            100,888 
        Convertible debenture                                       500,000
                                                             ---------------
                Total Current Liabilities                        17,087,922
                                                             ---------------

Stockholders' equity:			
        Preferred stock                                                 -
        Common stock                                                  4,157 
        Additional paid-in capital                               23,288,064 
        Accumulated deficit                                     (13,431,805)
                                                             ---------------
                Total stockholders' equity                        9,860,416 
                                                             ---------------
                                                             $   26,948,338 
                                                             ===============

    See accompanying notes to condensed consolidated financial statements

<PAGE>
                            fonix corporation
                      [A Development Stage Company]
                                                    
           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                               [Unaudited]
<TABLE>
<CAPTION>
                                                                                                                 October 1,
                                                Three months ended                  Nine months ended               1993
                                                    September 30,                       September 30,          (inception) to
                                           --------------------------------   -------------------------------   September 30,
                                                1996              1995            1996              1995             1996
                                           --------------    --------------   --------------   --------------   --------------
<S>                                        <C>               <C>              <C>              <C>              <C>
Revenues                                   $         -       $         -      $         -      $         -      $         -   
											
Expenses:
   General and administrative                    595,717           498,141        1,446,369        1,004,456        4,932,627 
   Research and development                    1,226,559           691,055        3,134,097        1,856,529        9,247,084 
                                           --------------    --------------   --------------   --------------   --------------
       Total expense                           1,822,276         1,189,196        4,580,466        2,860,985       14,179,711 
                                           --------------    --------------   --------------   --------------   --------------
Loss from operations                          (1,822,276)       (1,189,196)      (4,580,466)      (2,860,985)     (14,179,711)
                                           --------------    --------------   --------------   --------------   --------------
Other income (Expenses):											
   Interest income                               370,637            49,991          858,946          120,763        1,071,144 
   Interest (expense)                           (243,270)          (78,556)        (487,760)        (191,286)        (860,660)
                                           --------------    --------------   --------------   --------------   --------------
       Total Other Income (Expenses)             127,367           (28,565)         371,186          (70,523)         210,484 
                                           --------------    --------------   --------------   --------------   --------------
Loss before income taxes and											
  extraordinary item                          (1,694,909)       (1,217,761)      (4,209,280)      (2,931,508)     (13,969,227)
											
Current tax expense                                  -                 -                -                -                -   
											
Deferred tax expense                                 -                 -                -                -                -   
                                           --------------    --------------   -------------    --------------   --------------
Loss before extraordinary item                (1,694,909)       (1,217,761)     (4,209,280)       (2,931,508)     (13,969,227)
											
Extraordinary income:											
   Forgiveness of debt, net of taxes                 -                 -               -                 -            537,422 
                                           --------------    --------------   -------------    --------------   --------------
Net Loss                                   $  (1,694,909)    $  (1,217,761)   $ (4,209,280)    $  (2,931,508)   $ (13,431,805)
                                           ==============    ==============   =============    ==============   ==============
Loss per common share:											
   Loss before extraordinary items         $       (0.04)    $       (0.06)   $      (0.12)    $       (0.15)   $       (0.65)
   Extraordinary item                                -                 -               -                 -               0.02 
                                           --------------    --------------   -------------    --------------   --------------
Loss per common share                      $       (0.04)    $       (0.06)   $      (0.12)    $       (0.15)   $       (0.62)
                                           ==============    ==============   =============    ==============   ==============
Weighted average shares                       38,842,204        21,580,689      35,434,318        19,638,187       21,528,092 
                                           ==============    ==============   =============    ==============   ==============
</TABLE>

     See accompanying notes to condensed consolidated financial statements

<PAGE>
                              fonix corporation
                        [A Development Stage Company]
								
              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
								
             Increase (Decrease) in Cash and Cash Equivalents
                                  [Unaudited]
<TABLE>
<CAPTION>
                                                                                               October 1,
                                                            Nine months ended                    1993
                                                               September 30,                (inception) to
                                                      ---------------------------------      September 30,
                                                          1996                1995               1996
                                                      --------------     --------------     --------------
<S>                                                   <C>                <C>                <C>          
Cash flows from operating activities:								
    Net loss                                          $  (4,209,280)     $  (2,931,507)     $ (13,431,805)
    Adjustments to reconcile net loss                                                
      to net cash used in operations:                                                
         Common stock issued for services                       -              160,000            422,750 
         Write-off of assets received in acquisition            -                  -                1,281
         Depreciation and amortization                       32,135                708             33,353 
         Non cash forgiveness of debt income                    -                  -             (537,422)
         Changes in assets and liabilities:                                       
            (Increase) in interest receivable              (116,409)            (8,509)          (142,633)
            (Increase) in prepaid expense                   (98,789)               -              (98,789)
            Increase (decrease) in accounts payable         117,427          1,363,274          2,278,750 
            Increase  (decrease) in accrued expenses         69,892             59,103            192,806 
                                                      --------------     --------------     --------------   
         Net cash used in operating activities           (4,205,024)        (1,356,931)       (11,281,709)
                                                      --------------     --------------     -------------- 
Cash flows from investing activities:								
    Purchase of equipment                                  (516,640)               -             (565,383)
    Investment in intangible assets                          (9,598)           (24,053)           (33,651)
    Investment in notes receivable                       (5,400,000)               -           (5,436,894)
    Payment of notes receivable                           4,166,894                -            4,166,894 
                                                      --------------     --------------     --------------
         Net cash used in investing activities           (1,759,344)           (24,053)        (1,869,034)
                                                      --------------     --------------     --------------
Cash flows from financing activities:								
    Proceeds from notes payable                          10,226,031          2,131,416         18,195,220 
    Payment of notes payable                               (514,268)        (1,779,806)
    Proceeds from debenture                                     -                  -              500,000
    Proceeds from issuance of                                                
      common stock                                       12,759,962          1,186,751         21,106,564 
                                                      --------------     --------------     --------------
         Net cash provided by financing activities       22,985,993          2,803,899         38,021,978 
                                                      --------------     --------------     --------------
Net increase in cash and cash equivalents                17,021,625          1,422,915         24,871,235 
								
Cash and cash equivalents at beginning of period          7,849,610          2,145,889                -   
                                                      --------------     --------------     --------------
Cash and cash equivalents at end of period            $  24,871,235      $   3,568,804      $  24,871,235 
                                                      ==============     ==============     ==============
</TABLE>
                                  [Continued]
<PAGE>

                              fonix corporation
                        [A Development Stage Company]
								
              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
								
             Increase (Decrease) in Cash and Cash Equivalents
                                  [Unaudited]
<TABLE>
<CAPTION>
                                                                                               October 1,
                                                            Nine months ended                    1993
                                                               September 30,                (inception) to
                                                      ---------------------------------      September 30,
                                                          1996                1995               1996
                                                      --------------     --------------     --------------
<S>                                                   <C>                <C>                <C>          

Supplemental disclosure of cash flow information:										
   Cash paid during the year for:                                                           
										
          Interest paid                                $    417,868      $     132,183       $    668,032 
										
          Income taxes paid                            $        -        $         -         $        -

</TABLE>

Supplemental Schedule of Non-cash Investing and Financing Activities: 

        For the nine months ended September 30, 1996:

        The Company issued 220,000 shares of common stock for finders fees
        valued at $597,520.
                           
        The Company issued 200,000 shares of common stock for finders fees
        valued at $304,000.
                            
        For the Year ended December 31, 1995:
        The Company was forgiven of related party notes payable of $286,493
        and $135,368 with accrued interest of $65,715 and $19,298,
        respectively.  The Company was also forgiven of various accounts
        payable in the amount of $30,548.
										
        The Company issued 231,630 shares of common stock to cancel $187,621
        in accounts payable.
						
        The Company issued 3,700,000 warrants to purchase common stock, to a
        related company controlled by the majority shareholders of the
        Company, in payment of accrued management fees of $122,100 included
        in accounts payable.
						
        The Company issued 3,700,000 shares of common stock upon the
        conversion of warrants for non-cash cancellation of $1,295,000 in
        accounts payable.
						
        The Company issued 285,000 shares of common stock for services
        rendered valued at $167,750.

         See accompanying notes to consolidated financial statements

<PAGE>
                              fonix (TM) corporation
                          [A Development Stage Company]

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Basis of Presentation - The accompanying financial statements have been
     prepared by the Company without audit in accordance with generally
     accepted accounting principles for interim information and with the
     instructions to Form 10-QSB.  Accordingly, they do not include all of
     the information and footnotes required by generally accepted accounting
     principles for complete financial statements.   In the opinion of
     management, all adjustments (which included only normal recurring
     adjustments) necessary to present fairly the financial position,
     results of operations and cash flows for all periods presented, have
     been made.

     Certain information and footnote disclosures normally included in
     financial statements prepared in accordance with generally accepted
     accounting principles have been condensed or omitted in the
     accompanying interim financial statements.  It is suggested that these
     condensed consolidated financial statements be read in conjunction with
     the financial statements and notes thereto included in the Company's
     December 31, 1995 audited financial statements.  The results of
     operations for the three months and nine months ended September 30,
     1996 and 1995 are not necessarily indicative of the operating results
     for the full year.

     Research and Development - All monies that go to the unaffiliated
     research and development entity that are considered research and
     development costs and are charged to research and development expense
     as incurred.  None of these costs are capitalized since the Company
     does not have a product that meets applicable capitalization
     requirements.  

NOTE 2 - NOTES RECEIVABLE / PAYABLE

     During 1996 the Company made various secured loans to an entity not
     affiliated with the Company in the aggregate amount of $2,400,000. 
     Parties affiliated with the Company purchased notes representing
     $2,130,000 of the total loan amount for the entire face amount of such
     debt plus accrued interest as of the date the loans were sold, leaving
     a note receivable balance of $270,000 at September 30, 1996.  The notes
     receivable bear interest at 12% per annum, are secured by assets of the
     borrower and are due on demand.  Accrued interest on the note
     receivable amounted to $1,890 at September 30, 1996.  Subsequent to
     September 30, 1996, an additional loan was made for $200,000,
     increasing the note receivable balance to $470,000.
     
     At September 30, 1996 the Company had an unsecured note receivable from
     an entity not affiliated with the Company in the amount of $1,000,000
     which bears interest at 12% per annum and is due and payable thirty
     days after written notice from the Company.  At September 30, 1996
     accrued interest on the note receivable amounted to $10,055. 

     At September 30, 1996 the Company had a revolving note payable in the
     amount of $15,843,553 to a bank at an interest rate of 5.75%.  This
     note payable is due November 7, 1996, and is secured by a certificate
     of deposit in the amount of $20,000,000.  On November 7, 1996, similar
     terms were negotiated to extend the note.

NOTE 3 - CONVERTIBLE DEBENTURES

     In connection with a funding agreement entered into during October
     1995, the Company issued a Series A Subordinated Convertible Debenture
     in consideration for funds received in the amount of $500,000 on
     October 23, 1995.  The debenture is due October 23, 1997, has an annual
     interest rate of 5% and may be converted to Series A Preferred Stock or
     into common stock at the conversion price of $3.00 per share [See Note
     4]. 

NOTE 4 - CAPITAL STOCK

     Preferred Stock - Pursuant to a funding agreement entered into during
     October 1995, the Company agreed to amend its certificate of
     incorporation to authorize the issuance of Series A Preferred Stock. 
     As of September 30, 1996 the Company's board of directors and
     shareholders had not yet authorized the issuance of preferred stock or
     determined the dividend rate, liquidation preferences, participation
     rights, or redemption requirements of the Series A Preferred Stock into
     which the $500,000 debenture is convertible.  The Company has agreed
     that it will use its best efforts to cause its shareholders to
     authorize the issuance of the preferred stock no later than the first
     special or annual shareholder's meeting held after December 31, 1996
     [See Note 3].

     Funding Agreement - In October 1995, the Company entered into a funding
     arrangement with a private investment entity.  Under terms of the
     agreement, the private investment entity agreed to fund the Company
     with $6,050,000 ("Funding Commitment") over an 11-month period in
     exchange for the Company's issuance of a total of 11,562,500 shares of
     the Company's common stock, and a $500,000 Series A Subordinated
     Convertible Debenture (the "Debenture") which is convertible into
     166,167 shares of Series A Preferred Stock (described above) or into
     the same number of shares of common stock.  The preferred stock,
     assuming it is authorized and issued, may be converted to common stock
     at the discretion of the investor on a one for one basis. The first
     $1,540,000 of the Funding Commitment was paid to the Company on October
     23, 1995 as consideration for the issuance of the Debenture and the
     issuance of 2,166,667 shares of common stock [See Note 3].  As of
     September 30, 1996 the balance of the Funding Commitment, $4,510,000,
     was paid in full for which the Company issued 9,395,833 additional
     shares of common stock.  Thus, the Company has received a total of
     $6,050,000 for which the Company has issued the Debenture and a total
     of 11,562,500 shares of  common stock.

     Common Stock Transactions - During the nine months ended September 30,
     1996, the Company issued a total of 12,161,242 shares of common stock
     for net cash proceeds of $12,759,962 at prices ranging from $.48 to
     $3.38 per share.  Included in these issuances were 420,000 shares
     issued as a finders fee, valued at $901,520 and 8,218,750 shares issued
     as part of a funding arrangement [See Note 4, 2nd paragraph].

     Stock Options and Warrants - On July 30, 1996, an agreement was entered
     into whereby certain employees were granted an aggregate of 35,000
     stock options as signing incentives.  Of these 35,000 stock options,
     25,000 have an exercise price of $2.97 and 10,000 have an exercise
     price of $9.31.  These options are exercisable at any time beginning
     six months after the date of grant and expire July 30, 2006.  None of
     these options have been exercised.

     On April 30, 1996 the directors approved a directors' stock option
     plan, under which the aggregate number of shares available for issuance
     is 5,400,000.  The plan is administered by a committee consisting of
     two or more directors of the Company.  The plan provides that each
     director shall receive options to purchase 200,000 shares of common
     stock for services rendered as a director during each entire calendar
     year or portion of a calendar year in excess of six months.  The
     exercise price of such options is 100% of the closing market price of
     the stock on the date the options are granted.  The option term is ten
     years from the date of grant.  On April 30, 1996, 4,400,000 options
     were granted to the Company's current directors under the plan.  Of
     that amount, options to acquire 2,000,000 shares were granted to
     certain incumbent directors for prior years' service, which options
     vested on the date of grant and are exercisable at any time after six
     months from the date of grant.  The remaining options to purchase
     2,400,000 shares granted on April 30, 1996 shall vest at the rate of
     200,000 shares per calendar year or portion of a calendar year in
     excess of 6 months during which the option holder serves as a director,
     starting with calendar 1996.  The vesting date  for such options shall
     be January 1 following the year during which the service was rendered
     commencing on January 1, 1997.  The exercise price of the options
     granted on the plan adoption date is $4.06 per share of common stock,
     which is equal to the closing market price of the Company's common
     stock on April 30, 1996.  None of these options have been exercised. 

     On April 30, 1996 the directors approved an employee stock option plan
     under which the aggregate number of shares available for issuance  is
     900,000 shares.  The plan is administered by a committee consisting of
     two or more disinterested directors of the Company.  Employee plan
     options  may be granted to officers, key employees and to other 
     key individuals at the discretion of the plan committee.  The term of
     the plan is 10 years.  No options will be granted under this plan after
     April 30, 2006.  On July 30, 1996, certain key employees were granted
     an aggregate of 180,700 stock options under the Company's employee
     stock option plan.  The exercise price for 129,100 of these stock
     options was $3.66  per share and the exercise prices for the remaining
     51,600 stock options that were granted range from $5.06 to $9.88 per
     share.  These options are subject to a three year vesting schedule,
     pursuant to which one-third of the total number of options granted may
     be exercised commencing one year from the grant date, and an additional
     one-third may be exercised each year thereafter until three years from
     the grant date, at which time all options will be fully vested.  These
     options expire July 30, 2006.  None of these options have been
     exercised. 

     On April 10, 1996, the Company granted 100,000 warrants to an
     individual to purchase 100,000 shares of the Company's common stock. 
     These warrants were granted in lieu of cash for services rendered the
     Company in connection with the Funding Commitment.  The 100,000
     outstanding warrants have an exercise price of $3.24 per share and
     expire April 10, 1999.  None of these warrants have been exercised.

     On April 3, 1995 three unrelated  individuals acquired 120,000 warrants
     for restricted common stock  in connection with a stock purchase
     agreement.  The warrants were purchased at $.0033 per share with an
     exercise price of $2.00 per share.  The warrants are exercisable
     anytime prior to April 3, 1998.    

     In April 1995, all of the disinterested directors of the Company
     approved the issuance of warrants to purchase 3,700,000 shares of
     common stock to an entity controlled by the majority shareholders of
     the Company with the right to convert accrued management fees due from
     the Company to that entity for the purchase of 3,700,000 warrants and
     the exercise price of the warrants.  The warrants were offered in April
     1995, purchased on  July 31, 1995 for a  purchase price of $.033 per
     warrant and were then exercised on August 11, 1995 at $.35 per share. 
     The related entity controlled by the majority shareholders of  the
     Company canceled invoices for $1,417,100 in management fees due from
     the Company as consideration for the warrants and the exercise price of
     the warrants.  The exercise price was less than the market price of the
     Company's common stock because, among other reasons, the shares issued
     upon exercise of the warrants are restricted shares pursuant to Rule
     144 and to assist the Company in relieving debt and preserving limited
     cash reserves by converting payables to restricted common stock.

     In November 1994, the Company granted the right to purchase warrants
     for the purchase of an aggregate of 155,000 shares of restricted common
     stock to certain individuals, including warrants for 30,000 shares to
     three outside directors.  In October 1995, certain of these individuals
     were granted the right to purchase warrants to purchase an additional
     185,000 shares of restricted common stock.  In order to preserve the
     Company's limited cash , warrants were granted in lieu of cash for
     services rendered to the Company.  The  warrants can be purchased for
     $.033 per share of common stock and can be exercised at $.50 per share
     of common stock.  On October 30, 1995, one of these individuals
     exercised 50,000 of these warrants for a price of $.50 per share.  None
     of the other warrants have been purchased.  The warrants, as well as
     the right to purchase the warrants, expire April 24, 1998 and October
     23, 1998, respectively.

     In October 1994, the Company granted 150,000 warrants to purchase
     restricted common stock.  Due to the limited cash funds of the Company,
     these warrants were granted in lieu of cash for previous and future
     services.  The 150,000 outstanding warrants have an exercise price of
     $2.00 per share and expire in December 1997.

     As part of a September 30, 1994 restated stock purchase agreement, the
     Company granted a shareholder the right to purchase 500,000 warrants
     for the purchase of  common stock under Regulation S, each warrant
     entitling the holder thereof to purchase one share of common stock. 
     The total purchase price for the 500,000 warrants is $50,000, $.10 per
     warrant.  In December 1995 the 500,000 warrants were purchased for
     $50,000.  At the time of the purchase of such warrants, the warrant
     holder's rights thereunder were assigned to two foreign entities which
     purchased the 500,000 shares of common stock underlying the warrants,
     166,667 and 333,333, respectively.  $500,000 was received as
     consideration for the exercise of all 500,000  warrants at an exercise
     price of $1.00 per share of common stock.  

NOTE 5 - RELATED PARTY TRANSACTIONS

     The Company recorded the following expenses for services rendered and
     recorded the following balances which were payable to a company owned
     by the majority shareholders for the three months ended, and nine
     months ended, September 30, 1996:

                                 Three months ended       Nine months ended
                                September 30, 1996       September 30,1996
                                ---------------------    ------------------
     Expenses:
       Management fees expense    $         -              $   200,000  
       Base rent expense                 13,428                 30,380

     Payables:
         Accounts payable         $     380,421            $   380,421 
  
     
     The Company has rented office space from a company owned by the
     majority shareholders under a month-to-month lease for $2,000 per
     month.  In May 1996 the month-to-month base lease increased to
     Approximately $4,476 per month. 

     Prior to September 30, 1996, management of the Company reviewed the
     status of various loans made to third parties, including loans to an
     entity not affiliated with the Company which loans then totaled
     $2,400,000.  The loans accrue interest at the rate of 12% per annum and
     are due on demand.  As a result of that review management determined
     that the borrower was unlikely to repay the balance then due, together
     with interest accruing thereon, without significant delays and,
     possibly, commencement of foreclosure proceedings.  Management also
     considered conversion of the unpaid balance of principal and interest
     into common stock of the borrower at conversion prices ranging between
     $.30 and $.40 per share.  In this regard, management engaged an
     independent consultant to determine whether such conversion would allow
     the Company an opportunity to obtain repayment of the indebtedness more
     quickly than if the balance due and owing under the various loans was
     demanded by the Company.  The independent consultant concluded that it
     was highly unlikely that the Company could convert all or a significant
     part of the debt due and owing from the borrower into common stock of
     the borrower and thereafter dispose of the common stock in a fashion
     which would allow the Company to recover an amount equal to or greater
     that the balance due and owing under the loans.  Based upon that
     assessment, an entity owned by three officers, directors and
     significant shareholders of the Company proposed to purchase
     approximately $2,130,000 of loans from the Company to the borrower. 
     The Company received payment of principal and interest from the entity
     owned by the three officers, directors and significant shareholders of
     the Company without discount or deduction.  After that purchase, at
     September 30, 1996, the borrower continued to owe the Company $270,000
     in principal.

NOTE 6 - RESEARCH AND DEVELOPMENT

     On or about October 16, 1993, the Company entered into a Product
     Development and Assignment Agreement (the "Development Agreement") with
     an unrelated  research and development entity ("R&D Entity"), whereby
     the R&D Entity is developing certain technology related to the
     Company's natural language speech recognition technology (the "Speech
     Technology").  The Development Agreement was amended and restated by
     the parties on March 31, 1995.  The president of the Company is one of
     seven members of the board of directors of the R&D Entity, and the
     executive officers and directors of the Company collectively own less
     than five percent of the common stock and rights to participate in the
     profits of  the R&D Entity.  An entity owned by three officers,
     directors and significant shareholders of the Company has provided
     management services for the R&D Entity, including management of
     accounts payable.  Under the terms of  the Development Agreement, the
     Company owns the intellectual property rights, all technology and
     technology rights that are developed by the R&D Entity with respect to
     the Speech Technology.  The Company agreed to provide all funding
     necessary for the R&D Entity to develop a commercially viable
     technology.  There is no minimum requirement or limit with respect to
     the amount of the funding to be provided by the Company.  However,
     under the terms of the Development Agreement the Company is obligated
     to use its best efforts in raising the necessary funding for the
     development, manufacturing and marketing of the Speech Technology.  The
     Company has not yet completed the research and development of the
     Speech Technology, and consequently, has not recorded any revenues from
     sales or licenses.  Under the terms of the Development Agreement, the
     Company paid $1,226,559 to the R&D Entity for research and development
     for the three months ended September 30, 1996 and $3,134,097 for the
     nine months ended September 30, 1996.  If and when the Company
     completes the development of the Speech Technology and develops a
     commercially viable technology based thereon, and assuming  sales of
     such a technology commence, the Company will be obligated to pay the
     unaffiliated R&D Entity a royalty fee amounting to ten percent (10%) of
     the gross sales price of each revenue dollar produced from the license
     or sale of the Speech Technology. 

NOTE 7 - COMMITMENTS AND CONTINGENCIES

     On July 17, 1996, the Company entered into a lease agreement for a
     25,600 square foot facility.  The lease provides for a term of eight
     years and an option to extend for an additional five years.  The
     Company will consolidate development, marketing and other activities at
     the new facility.  Occupancy of the facility is expected before
     November 15, 1996.  The base rent is $2,725,376 over the next eight
     years, and is based on 25,600 rentable square feet.  The first year's
     base rent is $304,640 which is $25,387 monthly.  The base rent
     increases 3.5% annually for years two through five and 2% annually for
     years six through eight and for the five year option period. The
     Company has the right to terminate the lease after five years if the
     lessor cannot accommodate the Company's expansion needs, if any.

NOTE 8 - INCOME TAXES

     The Company's income taxes are recorded in accordance with Statement of
     Financial Accounting Standards No. 109, Accounting for Income Taxes
     [FASB 109].  FASB 109 requires the Company to provide a net deferred
     tax asset or liability equal to the expected future tax benefit or
     expense of temporary reporting differences between book and tax
     accounting and any available operating loss or tax credit
     carryforwards.  At September 30, 1996 the total of all deferred tax
     assets is approximately $4,672,000 and the total of the deferred tax
     liabilities is approximately $1,000.  The amount of and ultimate
     realization of the benefits from the deferred tax assets for income tax
     purposes is dependent, in part, upon the tax laws in effect, the
     Company's future earnings, and other future events, the effects of
     which cannot be determined.  Because of the uncertainty surrounding the
     realization of the loss carryforward the Company has established a
     valuation allowance of approximately $4,671,000 as of September 30,
     1996.  The net change in the valuation allowance is $576,000 for the
     three months ended September 30, 1996 and $1,431,155 for the nine
     months ended September 30, 1996.

     The Company has available at September 30, 1996, an unused operating
     loss carryforward of  approximately $12,900,000, which may be applied
     against future taxable income and which expires in various years
     beginning in 2000 through 2010. 

NOTE 9 - GOING CONCERN

     The accompanying consolidated financial statements of fonix  corporation
     have been prepared on a going-concern basis, which contemplates
     profitable operations and the satisfaction of liabilities in the normal
     course of business.  There are uncertainties that raise substantial
     doubt about the ability of the Company to continue as a going concern. 
     As shown in the consolidated statements of operations, the Company has
     not yet achieved operations and continues to report operating losses
     including  losses of $1,694,909 for the three months ended September
     30, 1996 and $4,209,280 for the nine months ended September 30, 1996. 
     As of September 30, 1996, the Company has working capital of $9,294,736
     which may not be adequate to finish the development of the Speech
     Technology.  These items raise substantial doubt about the ability of
     the Company to continue as a going concern. 

     Although it continues to develop the Speech Technology,  the Company
     has not had any sales nor licenses of its technology, and there can be
     no assurance that the Company will develop a viable product or have any
     sales or licenses of its Speech Technology.  Management plans to
     continue financing the development of the Company's Speech Technology 
     through additional loans and/or sales of the Company's equity
     securities.

     The Company's continuation as a going concern is dependent upon its
     ability to satisfactorily meet its debt obligations, continue
     development of its Speech Technology, secure adequate new financing and
     generate sufficient cash flows from operations.  The financial
     statements do not include any adjustments that might result from the
     outcome of these uncertainties.

<PAGE>

Item 2.   Management's Plan of Operation

     The Company is a development stage business involved in the research
and development and production of natural language speech recognition
technologies, using specific-speech knowledge, proprietary modeling, and a
linguistic process including a neural network system (artificial
Intelligence) to recognize natural language speech.  Because the Company
still is in the development stage of its business, the Company has not yet
distributed any product based on its Speech Technology.  Therefore, the
Company has had no revenue from its operations.

     In October 1993 the Company entered into the Development Agreement with
the R&D Entity, and on March 31, 1995, the Development Agreement was amended
and restated by the parties.  The terms of the Development Agreement specify 
that the research and development  of the Company's Speech Technology would
be conducted by the R&D Entity but financed by the Company.  The president of
the Company is one of seven members of the board of directors of the R&D
Entity, and the executive officers and directors of the Company own shares of
the common stock and rights to participate in the profits of the R&D Entity,
however, such share ownership and profit participation rights constitutes
less than 5% of the total number of the R&D Entity's common stock issued and
outstanding and project participation rights.  An entity owned by three
officers, directors and significant shareholders of the Company has provided
certain management services, including accounts payable management, for the
R&D Entity.  Under the Development Agreement, the Company is responsible for
providing all of the funding for the development of the Speech Technology and
any products resulting therefrom.  There is no minimum requirement or limit
with respect to the amount of funding the Company must provide under the
Development Agreement.  However, the Company is obligated to use its best
efforts in raising all of the necessary funding for the development,
manufacturing and marketing of the Speech Technology.  The amounts paid to
the R&D Entity pursuant to the Development Agreement are determined as the
R&D Entity submits weekly, pre-authorized work orders and budgets, which are
then reviewed and approved by the Company.  Since no product incorporating
the Speech Technology has yet been completed, all funds paid to the R&D
Entity by the Company are not capitalized, rather, they are accounted for as
research and development expense.

     The Company incurred research and development expenses of $1,226,559
and $691,055 for the three months ended September 30, 1996 and September 30,
1995, respectively.  General and administrative expenses were $595,717 and
$498,141, respectively, for the three months ended September 30, 1996 and
September 30, 1995.  Due to these significant research and development and
general and administrative expenses, the Company has incurred losses of
$1,694,909 and $1,217,761 for the three months ended September 30, 1996 and
September 30, 1995, respectively.  At September 30, 1996, the Company had an
accumulated deficit of ($13,431,805) and stockholders' equity of $9,860,416. 
The Company anticipates similar losses in the future as it continues the
development of the Speech Technology and expects such losses to continue
until such time as a commercially viable technology is completed and
significant revenues are realized.  However, there can be no assurance that
the Company will complete a commercially viable Speech Technology, or that
sufficient revenues will be generated from sales or licenses of such
technology to allow the Company to operate profitably.


     The Company has completed and tested in a laboratory environment
various components of the Speech Technology.  The Company plans to continue
to develop and test in the laboratory its integrated components, both
software and hardware.  When, and if, the Company has completed and
successfully tested the core elements of its Speech Technology, management
expects to present the technology to personal computer hardware OEM's,
independent software vendors  and value-added developers and resellers. 
Significant amounts of capital will be necessary to complete the development
and testing of the Company's Speech Technology prior to marketing or the
presentation of the technology to personal computer hardware OEM's,
independent software vendors and value-added developer and resellers. 
Accordingly, the Company expects to incur significant losses at least through
calendar 1997.

     From its inception, the Company's principal source of operating capital
has been private and other exempt sales of the Company's equity securities
and borrowing from related parties.  At September 30, 1995, the Company had
outstanding debt to related parties in the amount of $656,874.  Pursuant to
an investment agreement between the Company and a private investment entity
dated October 23, 1995 (the "Private Investment Agreement"), $506,874 of the
$656,874 of then outstanding debt to related parties was forgiven by the
related parties.  This transaction occurred at the request of the private
investment entity to, among other things, alleviate the Company's debt
obligations and to make the arrangement more attractive for the private
investment entity.  Except as disclosed in Note 5 to the financial statements
accompanying this report, at September 30, 1996, there was no outstanding
debt owed to related parties.  Private and other exempt sales of the
Company's securities resulted in net cash proceeds of $2,000,000 for the
three months ended September 30, 1996.

     The Company has a relationship with a local bank pursuant to which the
Company has entered into an agreement allowing it to borrow against its own
funds on deposit with the bank.  At September 30, 1995, the Company had funds
on deposit of $3,568,800 and owed the bank a total of $3,568,637.  As of
September 30, 1996, the Company had funds on deposit of $20,000,000, and the
Company owed $15,843,553 to the bank, which obligation matures on February 3,
1997.  The relationship with the bank is re-negotiated every three months. 
The Company and the bank have negotiated an interest rate that yielded a net
difference between the rates of interest paid and received by the Company of
1%.  Therefore, the net cost to the Company for this arrangement was 1% for
the period ended September 30, 1996.  Interest is payable monthly and the
principal amount is payable in full at maturity. 

     In October 1995, the Company entered into a funding arrangement with a
private investment entity.  Under terms of the agreement, the private
investment entity agreed to fund the Company with $6,050,000 ("Funding
Commitment") over an 11-month period in exchange for the Company's issuance
of a total of 11,562,500 shares of the Company's common stock, and a $500,000
Series A Subordinated Convertible Debenture (the "Debenture") which is
convertible into 166,167 shares of Series A Preferred Stock or into the same
number of shares of common stock.  The preferred stock, assuming it is
authorized and issued, may be converted to common stock at the discretion of
the investor on a one for one basis. The first $1,540,000 of the Funding
Commitment was paid to the Company on October 23, 1995 as consideration for
the issuance of the Debenture and the issuance of 2,166,667 shares of common
stock.  As of September 30, 1996 the balance of the Funding Commitment,
$4,510,000, has been paid in full for which the Company issued 9,395,833
additional shares of common stock.  The Company has received a total of
$6,050,000 for which the Company has issued the Debenture and a total of
11,562,500 shares of  common stock.  The Company has no further obligation to
issue common stock under the Funding Commitment (except as such may be issued
upon conversion of the Debenture or the preferred stock).

     Presently, as a result of the agreement described above and additional
domestic and offshore sales of its equity and debt securities, the Company
anticipates that it will be able to satisfy its cash requirements during the
next 12 months.  Nevertheless, the research and development associated with
the completion of the Company's Speech Technology and marketing of any
product incorporating such technology will continue to require large amounts
of capital.  Since the Company has no revenue from operations, the Company
intends to continue to rely primarily on financing through the sale of its
equity and debt securities to satisfy future capital requirements.  If and
when the Company successfully completes the development of its Speech
Technology, the Company will seek to enter into either OEM or licensing
agreements pursuant to which royalty or other payments by third parties could
provide a significant amount of the financing necessary to manufacture and
market such a product.  Such funds might alleviate the need for financing
through additional sales of the Company's debt or equity securities.  Absent
such OEM or licensing agreements, however, the Company anticipates it will
need a significant amount of additional capital investment to finance the
manufacturing, distribution and marketing of a product incorporating its
Speech Technology.  There can be no assurance that the Company will receive
the necessary financing to develop and market its Speech Technology from
either OEM or licensing contracts or by the offer and sale of the Company's
debt or equity securities.

     The Company plans to hire additional engineers as required and as
funding is available.  In addition, if and when the Company completes the
testing of the Speech Technology, the Company believes that approximately
thirty more employees will be initially required for sales and marketing and
customer support services.

     On July 17, 1996, the Company entered into a lease agreement for a
25,600 square foot facility.  The lease provides for a term of eight years
and an option to extend for an additional five years.  The Company will
consolidate development, marketing and other activities at the new facility. 
Occupancy of the facility is expected before November 15, 1996.  The base
rent is $2,725,376 over the next eight years, and is based on 25,600 rentable
square feet.  The first year's base rent is $304,640 which is $25,387
monthly.  The base rent increases 3.5% annually for years two through five
and 2% annually for years six through eight and for the five year option
period. The Company anticipates that this building will be adequate office
space for the Company's needs over the next year.  In addition, new testing
equipment is required and will be purchased as needed and as sufficient
capital is raised for its acquisition.

     When used in this Quarterly Report on Form 10-QSB, the words
"believes", "anticipates", "expects" and similar expressions are intended to
identify forward-looking statements.  From time to time, the Company may
publish forward looking statements relating to such matters as anticipated
financial performance, business prospects, technological developments, new
products, research and development activities and similar matters.  The
private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward looking statements.  In order to comply with the terms of that safe
harbor,  the Company notes that a variety of factors could cause the
Company's actual results and experiences to differ materially from the
anticipated results or other expectations expressed in the Company's forward
looking statements.  The risks and uncertainties that may affect the
operations, performance, development and results of the Company's business
include, but are not limited to, the continuing need for operating funds
which will necessitate the Company incurring debt or issuing shares in
amounts that may result in substantial dilution to existing stockholders, the
technological obsolescence of planned products and/or technology now being
developed by the Company, the significant accumulated losses of the Company,
the reaction to or acceptance of the Company's technology in the marketplace,
competition from larger and better-funded competitors, and the availability
of trained personnel.  Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date hereof. 
The Company undertakes no obligation to publicly release the results of any
revisions to these forward looking statements that may be made to reflect
events or circumstances after the date of this Report or to reflect the
occurrence of unanticipated events.

                   Part II--Other Information

Item 4.   Submission of Matters to Vote of Security Holders

     On July 22, 1996, the Company conducted its 1996 annual meeting of
shareholders.  At the annual meeting, all former members of the Company's
Board of Directors were elected for another term of service.  Those directors
include Stephen M. Studdert, Alan C. Ashton, Ph.D., Joseph Verner Reed, James
B. Hayes, Thomas A. Murdock and Roger D. Dudley.   At the annual meeting, the
Company's shareholders also were asked to and did approve the Company's 1996
Long-term Stock Investment & Incentive  Plan (the "Employee Plan") and the
1996 Director's Stock Option Plan (the "Directors' Plan").  The shareholders
also ratified the selection of Pritchett, Siler & Hardy, P.C., as the
Company's independent public accountants.  The following table summarizes the
voting at the annual meeting.

                                                                            
                                                                  Broker
Issue/Board Nominee        For       Against (1)    Abstention    Non-Votes
-------------------     ----------  ------------  ------------- -----------
Approve Employee         22,895,389       41,892        23,815      0
Plan and Directors'
Plan

Ratify selection of      22,954,566           500        6,296      0
accountants

Stephen M. Studdert      22,960,472

Alan C. Ashton, Ph.D.    22,960,472

Joseph Verner Reed       22,960,372

James B. Hayes           22,960,372

Thomas A. Murdock        22,960,472

Roger D. Dudley          22,960,472

     (1)  Information provided to the Company by the Company's independent
          proxy service agency does not distinguish between abstentions and
          negative votes with respect to votes cast for the election of
          directors.  There were 22,961,362 shares of voting common stock
          represented or in proxy at the annual meeting.

<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:     November 13, 1996              /s/ Thomas A. Murdock
     -----------------------           -------------------------
                                       Thomas A. Murdock, President         
                 
                                                                           
      



Date:     November 13, 1996              /s/ Roger D. Dudley   
      -----------------------          -------------------------- 
                                       Roger D. Dudley, Executive Vice      
                                       President