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

                               FORM 10-QSB/A
                             (Amendment No. 3)

[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, Utah 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.





















                                       2
<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                          26,077,838 
     Accumulated deficit                                (16,221,579)
                                                      --------------  
          Total stockholders' equity                      9,860,416 
                                                      --------------
                                                      $  26,948,338
                                                      ==============

     See accompanying notes to condensed consolidated financial statements.

                                       3
<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         2,781,041         1,446,369         3,287,356         7,215,527 
   Research and development                   1,226,559           691,055         3,134,097         1,856,529         9,247,084
                                          --------------    --------------    --------------    --------------    --------------
      Total expense                           1,822,276         3,472,096         4,580,466         5,143,885        16,462,611 
                                          --------------    --------------    --------------    --------------    -------------- 
Loss from operations                         (1,822,276)       (3,472,096)       (4,580,466)       (5,143,885)      (16,462,611)
                                          --------------    --------------    --------------    --------------    -------------- 
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)       (3,500,661)       (4,209,280)       (5,214,408)      (16,252,127)
											
Current tax expense                                -                 -                 -                 -                 -   
											
Deferred tax expense                               -                 -                 -                 -                 - 
                                          --------------    --------------    --------------    --------------    -------------- 
Loss before extraordinary item               (1,694,909)       (3,500,661)       (4,209,280)       (5,214,408)      (16,252,127)
											
Extraordinary income:											
   Forgiveness of debt, net of taxes               -                 -                 -                 -               30,548 
                                          --------------    --------------    --------------    --------------    --------------
Net Loss                                  $  (1,694,909)    $  (3,500,661)    $  (4,209,280)    $  (5,214,408)    $ (16,221,579)
                                          ==============    ==============    ==============    ==============    ==============
Loss per common share:											
   Loss before extraordinary items        $       (0.04)    $       (0.16)    $       (0.12)    $       (0.27)    $       (0.75)
   Extraordinary item                              -                 -                 -                 -                 0.00 
                                          --------------    --------------    --------------    --------------    -------------- 
Loss per common share                     $       (0.04)    $       (0.16)    $       (0.12)    $       (0.27)    $       (0.75)
                                          ==============    ==============    ==============    ==============    ============== 
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.

                                       4
<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)    $  (5,214,407)    $ (16,221,579)
   Adjustments to reconcile net loss                                                
     to net cash used in operations:                                                
        Common stock issued for non-cash                                 -            2,442,900         2,705,650 
        Write-off of assets received in acquisition                      -                 -                1,281 
        Depreciation and amortization                                  32,135               708            33,353 
        Non cash forgiveness of debt income                              -                 -              (30,548)
        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]

                                       5
<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                                               $        -        $        -        $        -   

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.  These items have been accounted for as capital contributions
     to additional paid in capital in the amount of $506,874.  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.

</TABLE>

          See accompanying notes to consolidated financial statements.

                                       6
<PAGE>
                              fonix  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

     Between May 14, 1996 and August 13, 1996, the Company advanced a total
     of $1,900,000 in short-term debt financing to K.L.S. Enviro Resources,
     Inc., a Nevada corporation ("KLS"), in increments of $710,000, $450,000,
     $150,000 and $590,000.  KLS executed a promissory note for the first
     advance in June 1996, but on August 13, 1996, and pursuant to ongoing
     negotiations between the Company and KLS, KLS executed and delivered a
     replacement note for the first advance and notes for each of the
     subsequent advances totaling $1,900,000 (the "Notes").  The Notes were
     secured by all assets of KLS, except for certain real property owned by
     KLS.  In addition, the Notes were convertible at the option of the
     Company into restricted shares of KLS common stock.  Specifically, the
     Notes provided that the $710,000 increment is convertible at the rate of
     $0.30 per share and the balance of the financing ($1,190,000) is
     convertible at the rate of $0.40 per share.  Incident to the provision
     of the debt financing described in this paragraph, Thomas A. Murdock, an
     executive officer, director and significant shareholder of the Company,
     assumed a position on the KLS board of directors effective July 10,
     1996.  In addition, a group comprised of a current executive officer and
     director of KLS and a private entity controlled by Mr. Murdock and two
     other executive officers and directors of the Company, namely Mr.
     Studdert and Mr. Dudley, known as SMD L.L.C. ("SMD"), agreed to purchase
     3,561,000 shares of common stock and 100,000 shares of preferred stock
     convertible into 500,000 shares of common stock from the estate of a
     former executive officer and director of KLS.  The Company demanded
     payment of the foregoing sums prior to September 30, 1996 and was
     advised by the debtor that it was not in a position to pay all or
     substantially all of the amount then due.  The board of directors of the
     Company, after obtaining independent counsel and advice, determined it
     did not wish to convert the Notes to restricted common stock.  SMD
     agreed to loan KLS $1,673,700 for the purpose of making a payment in
     that amount to the Company.  On September 30, 1996, using funds borrowed
     from SMD, KLS paid the Company $1,673,700, leaving a balance due and
     owing at September 30, 1996, of $272,156.  The principal amount of such
     remaining balance, being $270,000, was subsequently sold by the Company
     to a shareholder of KLS(and non-affiliate of the Company) on December
     31, 1996, who thereafter converted it to restricted common stock of KLS
     at a rate of $.30 per share.  After the repayment of $1,673,700, the
     Company loaned $200,000 to KLS on the same terms of the previous
     advances leaving a total indebtedness of $470,000.  These loans were
     repaid in full by December 31, 1996.  See Note 5, below.

     The Company loaned $500,000 to an unrelated entity on August 26, 1996.
     The obligation bears interest at 12% per annum, is secured by assets of
     the borrower and is due on demand.
     
     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  46,000 stock
     options as signing incentives.  Of these 46,000 stock options, 25,000 have
     an exercise price of $2.97, 11,000 an exercise price of $3.66 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 130,000 stock options under the Company's employee stock
     option plan.  The exercise price for 119,000 of these stock options was
     $3.66  per share and the exercise prices for the remaining 11,000 stock
     options that were granted range from $5.06 to $8.50 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 KLS
     which then totaled $1,900,000.  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 KLS 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, SMD proposed to loan KLS funds to repay $1,673,700 of the
     amounts owing to the Company. The Company received payment of the same
     amount of principal and interest from KLS from the funds provided by
     SMD.

     Subsequent to the end of the period covered by this report, on December
     31, 1996, Mr. Studdert and Mr. Dudley joined the board of directors of
     KLS, and Mr. Studdert accepted the position of Chairman of that board
     and Mr. Dudley accepted the position of Chief Financial Officer of KLS. 
     In addition, the KLS board appointed Joseph Verner Reed and Rick D.
     Nydegger, directors of the Company, to fill newly created vacancies on
     the KLS board.  Since December 31, 1996, Mr. Reed chairs the
     compensation committee of the KLS board and Mr. Dudley chairs its audit
     committee.  Mr. Studdert, Mr. Murdock and Mr. Dudley serve as three of
     the four members of the KLS board's executive committee.

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 $6,000,000 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 $6,000,000 as of
     September 30, 1996.  The net change in the valuation allowance is
     approximately $600,000 for the three months ended September 30, 1996 and
     approximately $3,400,000 for the nine months ended September 30, 1996.

     The Company has available at September 30, 1996, an unused operating loss
     carryforward of  approximately $16,200,000, 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.

NOTE 10 - RESTATEMENT OF FINANCIAL STATEMENTS

     As discussed in Note 4, the company issued 3,700,000 shares of common
     stock to an affiliated corporation upon exercise of stock warrants.  The
     exercise price was paid for through the cancellation of debt which had
     previously been accrued for management fees by the corporation.  In
     retrospect, Management believes that the provisions of APB Opinion No. 25,
     which applies to stock issued to employees for services, should be
     extended to cover this transaction.  Accordingly, the Company has recorded
     an additional compensation expense of $2,282,900 and adjusted additional
     paid in capital on the financial statements for 1995.  The affiliated
     company also forgave debt and related interest in the amount of $506,874
     which has been accounted for as a contribution to additional paid in
     capital.  Management believes these adjustments are necessary to be
     consistent with current attitudes and policies in effect in subsequent
     years.  These adjustments have no effect on total stockholders' equity but
     do result in an increase to net loss in 1995.

<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 $2,781,041,
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
$3,500,661 for the three months ended September 30, 1996 and September 30, 1995,
respectively.  At September 30, 1996, the Company had an accumulated deficit of
$16,221,579 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.

<TABLE>
<CAPTION>                                                                           Broker
    Issue/Board Nominee            For         Against(1)      Abstention(1)       Non-Votes
---------------------------    -----------    ------------    --------------     -------------
<S>                            <C>            <C>             <C>                <C> 
Approve Employee Plan and      22,895,389          41,892            23,815               0
Director's 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

</TABLE>

(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 in person or by 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:    April 10, 1997                     /s/ Roger D. Dudley
      --------------------------          ----------------------------------  
                                          Roger D. Dudley
                                          Chief Financial Officer