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


                                    FORM 10-Q


            [X] Quarterly Report Pursuant to Section 13 or 15(d) of
                      the Securities Exchange Act of 1934

                For the quarterly period ended December 31, 1999

                                       or

            [ ] Transition Report Pursuant to Section 13 or 15(d) of
                      the Securities Exchange Act of 1934

                 For the transition period from ______ to ______

                         Commission file number 0-27808


                            COVOL TECHNOLOGIES, INC.
                            ------------------------
             (Exact name of registrant as specified in its charter)


           Delaware                                    87-0547337
           --------                                    ----------
  (State or other jurisdiction of          (I.R.S. Employer Identification No.)
    incorporation or organization)

                        3280 North Frontage Road
                               Lehi, Utah                 84043
                               ----------                 -----
               (Address of principal executive offices) (Zip Code)

                                 (801) 768-4481
                               ------------------
              (Registrant's telephone number, including area code)

                                 Not applicable
                                 --------------
              (Former name, former address and former fiscal year,
                         if changed since last report)


         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

         The number of shares outstanding of the Registrant's common stock as of
February 4, 2000 was 17,808,915.

<PAGE>

                            COVOL TECHNOLOGIES, INC.

                                TABLE OF CONTENTS

                                                                       Page No.
PART I  FINANCIAL INFORMATION

  ITEM 1.  CONSOLIDATED FINANCIAL INFORMATION (Unaudited):
             Consolidated Balance Sheets  As of September 30, 1999
               and December 31, 1999........................................3
             Consolidated Statements of Operations For the three
               months ended December 31, 1998 and 1999..................... 5
             Consolidated Statement of Changes in Stockholders'
               Equity (Deficit) For the three months ended December
               31, 1999.................................................... 6
             Consolidated Statements of Cash Flows  For the three
               months ended December 31, 1998 and 1999..................... 7
             Notes to Consolidated Financial Statements.................... 8

  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
             AND RESULTS OF OPERATIONS.....................................15


PART II  OTHER INFORMATION

  ITEM 1.  LEGAL PROCEEDINGS...............................................19

  ITEM 2.  CHANGES IN SECURITIES...........................................19

  ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.................................19

  ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............20

  ITEM 5.  OTHER INFORMATION...............................................20

  ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K................................20


SIGNATURES.................................................................21


Certain statements in this Report constitute  forward-looking  statements within
the meaning of the Private  Securities  Litigation  Reform Act of 1995. As such,
actual results may vary materially from current  expectations.  For a discussion
of certain  of the  factors  that  could  cause  actual  results to differ  from
expectations,  please see the information  set forth under the caption  entitled
Forward Looking  Statements in PART I, ITEM 2 hereof.  There can be no assurance
that  Covol's results  of  operations  will not be  adversely  affected  by such
factors.  Covol  undertakes  no  obligation  to revise or  publicly  release the
results  of any  revision  to  these  forward-looking  statements.  Readers  are
cautioned not to place undue reliance on these forward looking statements, which
reflect management's opinion only as of the date hereof.

                                       2
<PAGE>

ITEM 1.   CONSOLIDATED FINANCIAL INFORMATION (Unaudited)
<TABLE>
<CAPTION>

                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)

                                                                                              September 30,      December 31,
(thousands of dollars)                                                                                1999             1999
------------------------------------------------------------------------------------------- ---------------- -----------------

ASSETS
Current assets:
<S>                                                                                                   <C>             <C>
     Cash and cash equivalents                                                                        $ 461           $ 7,457
     Receivables                                                                                      3,155             7,015
     Due from related party                                                                           2,722             2,951
     Inventories                                                                                        573               394
     Facilities and equipment held for sale                                                          20,139            17,915
     Prepaid expenses and other current assets                                                           19                45
     Deferred income taxes                                                                               --             3,000
                                                                                            ---------------- -----------------
            Total current assets                                                                     27,069            38,777
                                                                                            ---------------- -----------------

Property, plant and equipment, net of accumulated depreciation                                       14,182             3,785
                                                                                            ---------------- -----------------

Other assets:
     Restricted cash and investments                                                                    843               690
     Facility-dependent note and accrued interest receivable                                          7,879             8,119
     Facility transferred under note receivable arrangement                                           2,641             2,641
     Intangible assets, net of accumulated amortization                                               3,647             1,347
     Deposits and other assets                                                                        1,834             1,801
                                                                                            ---------------- -----------------
            Total other assets                                                                       16,844            14,598
                                                                                            ---------------- -----------------

Total assets                                                                                        $58,095           $57,160
                                                                                            ================ =================
</TABLE>

                                   (continued)


                     The accompanying notes are an integral
                  part of the consolidated financial statements

                                       3
<PAGE>
<TABLE>
<CAPTION>
                                         COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES

                                           CONSOLIDATED BALANCE SHEETS, continued
                                                        (Unaudited)

                                                                                              September 30,     December 31,
(thousands of dollars and shares)                                                                    1999             1999
-------------------------------------------------------------------------------------------- --------------- ----------------

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
<S>                                                                                                 <C>              <C>
     Accounts payable                                                                               $ 1,179          $ 1,034
     Due to related party                                                                             2,706            2,888
     Accrued interest payable, current                                                                1,452            1,257
     Accrued liabilities                                                                              2,905            3,252
     Notes payable, current                                                                          20,626           17,746
                                                                                             --------------- ----------------
            Total current liabilities                                                                28,868           26,177
                                                                                             --------------- ----------------

Long-term liabilities:
     Notes payable, non-current                                                                      17,887           19,979
     Accrued interest payable, non-current                                                              210              259
     Deferred revenues from advance license fees                                                      7,501            7,271
     Deferred compensation                                                                              208              211
                                                                                             --------------- ----------------
            Total long-term liabilities                                                              25,806           27,720
                                                                                             --------------- ----------------
            Total liabilities                                                                        54,674           53,897
                                                                                             --------------- ----------------

Minority interest in consolidated subsidiaries                                                          117               --
                                                                                             --------------- ----------------

Commitments and contingencies

Redeemable convertible preferred stock, $0.001 par value, issued and outstanding 60 shares
     at September 30, 1999 and 45 shares at December 31, 1999 (aggregate liquidation
     preference of $5,697 at December 31, 1999)                                                       4,332            3,234
                                                                                             --------------- ----------------

Stockholders' equity (deficit):
     Convertible preferred stock, $0.001 par value; authorized 10,000 shares, issued and
       outstanding 17 shares at September 30, 1999 and December 31, 1999
       (aggregate liquidation preference of $3,542 at December 31, 1999)                                  1                1
     Common stock, $0.001 par value; authorized 25,000 shares, issued and outstanding
        12,766 shares at September 30, 1999 and 17,177 shares at December 31, 1999                       13               17
     Capital in excess of par value                                                                  78,457           81,216
     Accumulated deficit                                                                           (71,713)         (73,757)
     Notes and interest receivable  related parties, from issuance of, or collateralized
       by, common stock, net of allowance                                                           (6,564)          (6,272)
     Deferred compensation from stock options                                                       (1,222)          (1,176)
                                                                                             --------------- ----------------
            Total stockholders' equity (deficit)                                                   (1,028)               29
                                                                                             --------------- ----------------

Total liabilities and stockholders' equity (deficit)                                               $58,095          $57,160
                                                                                             =============== ================
</TABLE>

                     The accompanying notes are an integral
                  part of the consolidated financial statements

                                       4
<PAGE>
<TABLE>
<CAPTION>

                                         COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES

                                           CONSOLIDATED STATEMENTS OF OPERATIONS
                                                        (Unaudited)

                                                                                                    Three Months Ended December 31,
(thousands of dollars, except per-share data)                                                             1998              1999
-------------------------------------------------------------- ---------------- --------------- --------------- -----------------

Revenues:
<S>                                                                                                      <C>              <C>
     License fees                                                                                        $ 701            $4,036
     Binder sales                                                                                          533             1,352
     Gain on sale of facility                                                                               --             5,341
     Other                                                                                                 148               320
                                                                                                --------------- -----------------
          Total revenues                                                                                 1,382            11,049
                                                                                                --------------- -----------------

Operating costs and expenses:
     Cost of coal briquetting operations                                                                 3,646             1,589
     Cost of binder                                                                                        376               860
     Asset write-offs and other non-recurring charges                                                       --            11,021
     Selling, general and administrative                                                                   929               912
     Compensation expense from stock options                                                               162                46
                                                                                                --------------- -----------------
        Total operating costs and expenses                                                               5,113            14,428
                                                                                                --------------- -----------------

Operating loss                                                                                         (3,731)           (3,379)
                                                                                                --------------- -----------------

Other income (expense):
     Interest income                                                                                       756               800
     Interest expense                                                                                   (1,036)           (2,055)
     Write-down of notes receivable  related
       parties, collateralized by common stock                                                            (571)             (292)
     Other, net                                                                                             24                --
                                                                                                --------------- -----------------
          Total other income (expense)                                                                    (827)           (1,547)
                                                                                                --------------- -----------------

Net loss before income taxes                                                                           (4,558)           (4,926)

Income tax benefit                                                                                          --           (3,000)
                                                                                                --------------- -----------------

Net loss                                                                                              $(4,558)          $(1,926)
                                                                                                =============== =================


Basic and diluted loss per common share                                                                 $(.39)            $(.16)
                                                                                                =============== =================
</TABLE>

                     The accompanying notes are an integral
                  part of the consolidated financial statements

                                       5
<PAGE>
<TABLE>
<CAPTION>
                                                                COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES

                                                         CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
                                                                For the Three Months Ended December 31, 1999
                                                                                (Unaudited)

                                                           Convertible Preferred
                                                                   Stock                    Common Stock          Capital in
                                                         -------------------------- ---------------------------  excess of par
(thousands of dollars and shares)                           Shares       Amount       Shares        Amount           value
-------------------------------------------------------- ------------- -----------  ------------ -------------- ----------------
<S>                                                       <C>          <C>           <C>          <C>            <C>
Balances at September 30, 1999                                     17           $1       12,766            $13          $78,457

Preferred stock cash dividends

Common stock issued on conversion of redeemable
  convertible preferred stock, preferred stock and in
  payment of dividends                                              -            -        1,793              2            1,107

Common stock issued on conversion of convertible debt                                     2,618              2            1,114

Value of common stock warrants issued in connection
  with convertible debt financing                                                             -              -              468

Value of extended common stock warrants and repriced
  stock options issued in connection with debt financing                                      -              -               70

Write-down of notes receivable  related parties

Amortization of deferred compensation from stock
  options

Net loss for the three months ended December 31, 1999
                                                         ------------- ------------ ------------ -------------- ----------------
Balances at December 31, 1999                                      17           $1       17,177            $17          $81,216
                                                         ============= ============ ============ ============== ================
<CAPTION>
                                                                                      Notes and
                                                                                       interest
                                                                                      receivable
                                                                                       -related
                                                                                    parties, from
                                                                                     issuance of,
                                                                                          or          Deferred
                                                                                    collateralized   compensation
                                                                      Accumulated     by, common     from stock
(thousands of dollars and shares)                                        deficit         stock          options
--------------------------------------------------------              ------------- --------------- --------------
<S>                                                                      <C>              <C>            <C>
Balances at September 30, 1999                                           $(71,713)        $(6,564)       $(1,222)

Preferred stock cash dividends                                               (107)

Common stock issued on conversion of redeemable
  convertible preferred stock, preferred stock and in
  payment of dividends                                                        (11)

Common stock issued on conversion of convertible debt

Value of common stock warrants issued in connection
  with convertible debt financing

Value of extended common stock warrants and repriced
    stock options issued in connection with debt financing

Write-down of notes receivable  related parties                                               292

Amortization of deferred compensation from stock                                                               46
  options

Net loss for the three months ended December 31, 1999                      (1,926)
                                                                      ------------- --------------- --------------
Balances at December 31, 1999                                            $(73,757)        $(6,272)       $(1,176)
                                                                      ============= =============== ==============
</TABLE>

                     The accompanying notes are an integral
                  part of the consolidated financial statements

                                        6
<PAGE>
<TABLE>
<CAPTION>
                                              COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES

                                                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                              (Unaudited)

                                                                                                    Three Months Ended December 31,
     (thousands of dollars)                                                                                   1998          1999
------------------------------------------------------------------------------------------------- ----------------- -------------
     Cash flows from operating activities:
<S>                                                                                                       <C>           <C>
     Net loss                                                                                             $ (4,558)      $(1,926)
     Adjustments to reconcile net loss to net cash used in operating activities:
        Depreciation and amortization                                                                          408           583
        Recognition of deferred revenue from advance license fees                                             (227)         (230)
        Deferred income taxes                                                                                   --        (3,000)
        Gain on sale of facility                                                                                --        (5,341)
        Asset write-offs and other non-recurring charges                                                        --        10,412
        Amortization of deferred compensation from stock options                                               162            46
        Interest expense related to amortization of debt discount and debt issuance costs                       82         1,150
        Write-down of notes receivable  related parties                                                        571           292
        Increase (decrease) from changes in operating assets and liabilities, net of effects
          from investing and financing activities                                                             (660)       (4,193)
                                                                                                  ----------------- -------------
   Net cash used in operating activities                                                                    (4,222)       (2,207)
                                                                                                  ----------------- -------------
   Cash flows from investing activities:
        Proceeds from sale of facility and equipment                                                            --         9,497
        Purchase of property, plant and equipment and facilities held for sale                               (410)          (69)
        Decrease (increase) in deposits collateralizing letters of credit and restricted cash                (143)           153
        Purchase of other assets                                                                                --          (75)
        Proceeds from facility transferred under note receivable arrangement                                   130            --
        Purchase of rights to technology                                                                     (100)            --
                                                                                                  ----------------- -------------
   Net cash provided by (used in) investing activities                                                       (523)         9,506
                                                                                                  ----------------- -------------

   Cash flows from financing activities:
        Proceeds from issuance of notes payable and warrants, net                                            1,049         2,758
        Payments on notes payable                                                                               --       (2,954)
        Preferred stock dividends                                                                               --         (107)
        Proceeds from issuance of common stock and warrants, net                                             3,774            --
        Payments on notes payable related parties                                                              (78)           --
        Other                                                                                                  (52)           --
                                                                                                  ----------------- -------------
   Net cash provided by (used in) financing activities                                                       4,693          (303)
                                                                                                  ----------------- -------------
   Net increase (decrease) in cash and cash equivalents                                                       (52)         6,996

   Total cash and cash equivalents, beginning of period                                                        727           461
                                                                                                  ----------------- -------------
   Total cash and cash equivalents, end of period                                                            $ 675       $ 7,457
                                                                                                  ================= =============


   Supplemental schedule of non-cash investing and financing activities:
        Common stock issued on conversion of preferred stock and in payment of dividends                    $2,159        $1,227
        Common stock issued on conversion of convertible debt                                                   --         1,116
        Common stock issued to purchase minority interests in subsidiaries                                     519            --
        Common stock issued for rights to technology                                                           375            --
</TABLE>

                     The accompanying notes are an integral
                  part of the consolidated financial statements

                                       7
<PAGE>

                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                             ---------------------

1.   Nature of Operations and Basis of Presentation

     Covol  Technologies,  Inc. and Subsidiaries' (Covol) primary business is to
     commercialize  its  binder  technologies  which are used to  recycle  waste
     by-products  from the coal, steel and other industries into marketable fuel
     and resources.  Through June 1998, Covol's focus was on the construction of
     facilities  and the licensing of its binder  technologies  to entities that
     constructed   facilities  that  convert  coal  fines  into  synthetic  fuel
     briquettes. At December 31, 1999, Covol and its licensees were operating 28
     facilities  in ten states at various  levels of  production.  During  1999,
     Covol has been actively pursuing the sale of its four owned facilities. One
     of the  facilities  was sold in August  1999,  another was sold in December
     1999 and a third was sold in January  2000 (see Note 5).  Covol  expects to
     sell the  remaining  facility in early 2000.  Covol has no current plans to
     construct additional synthetic fuel facilities.

     There are 24 synthetic fuel plants that currently  utilize Covol's patented
     technology  and from  which  Covol  intends to earn  license  fees and / or
     profits  from the sale of  binder.  There are four  facilities  that use an
     alternative  technology  that Covol  acquired in early fiscal 1999.  In the
     aggregate,  these  facilities do not presently  operate at levels needed to
     generate significant  revenues to Covol.  Improved operations at the plants
     depend on the ability of the plant  owners to produce  synthetic  fuel that
     meets  market  specifications  in order for the plant  owners to market the
     synthetic  fuel.  Covol is assisting  the plant owners in their  efforts to
     overcome  production  and  marketing   problems.   Covol  anticipates  that
     recurring  license  fees or  royalties  from  the  production  and  sale of
     synthetic  fuel will  continue  to  increase  during  2000 and  beyond.  As
     production  levels increase,  sales of the binder materials by Covol to its
     licensees are expected to increase proportionately. Funds received by Covol
     from  these  activities  are  expected  to be  sufficient  to cover Covol's
     operating costs and expenses at some point during 2000.

     In order for  operating  activities  to produce  significant  positive cash
     flow, Covol and its licensees must  successfully  address certain operating
     issues and marketing difficulties.  These difficulties have delayed Covol's
     expected  growth in license fees,  and have resulted in lower than expected
     cash flows and higher than expected capital requirements.  Operating issues
     which  must  be  addressed  include,  but  are not  limited  to,  feedstock
     availability,  moisture content, Btu content, correct application of binder
     formulation,  operability of equipment,  product durability,  resistance to
     water  absorption and overall costs of  operations,  which in many cases to
     date have  resulted in unit costs in excess of synthetic  fuel sale prices.
     Marketing  difficulties which must be addressed relate to market acceptance
     of products  manufactured using Covol's  technology.  Industrial coal users
     must be satisfied  that the  synthetic  fuel is a suitable  substitute  for
     standard  coal  products.  Moisture  content,  hardness,  special  handling
     requirements  and other  characteristics  of the synthetic fuel product may
     affect its  marketability  and its sales price.  Many industrial coal users
     are also limited in the amount of synthetic  fuel product they can purchase
     from Covol and its  licensees  because  they have  committed  to purchase a
     substantial  portion  of their coal  requirements  through  long-term  coal
     contracts  already  in place.  Reliance  on spot  markets  and the  overall
     downward trend in coal prices have generally produced lower sales prices as
     compared to long-term coal supply contracts common in the utility industry.
     Market  acceptance of the synthetic  fuel product  appears to have improved
     during 1999 even though  Covol's owned  facilities  and its licensees  have
     only  been  able to  secure  long-term  contracts  for the  sale of a small
     portion of their  production.  The  suitability of synthetic fuel as a coal
     substitute, particularly the quality characteristics of synthetic fuel, and
     the traditional  long-term supply contract  practices of fuel buying in the
     utility industry,  have made the identification of purchaser's of synthetic
     fuel difficult. Covol believes that initial market resistance for synthetic
     fuel has  decreased  and believes  long-term  contracts  can now be secured
     allowing  Covol and its licensees to market the synthetic fuel they produce
     at prices similar to coal.

     In addition to the  operating  results for the quarter  ended  December 31,
     1999,  Covol  incurred a net loss for the year ended  September 30, 1999 of
     $28,393,000  and used  $17,516,000 of cash in its operating  activities for
     the year. As discussed in Note 3, Covol has  $17,746,000  of long-term debt
     that  becomes  due  during  the 12 months  ending  December  31,  2000.  In
     addition,   Covol's   convertible  note  payable  with  a  face  amount  of
     $20,000,000  and related  redeemable  convertible  preferred  stock with an
     aggregate  liquidation  preference of approximately  $5,700,000 at December
     31, 1999 contain certain  provisions  including an increase in the interest
     rate,  immediate  convertibility,  required  escrow  payments  and possible
     immediate  payment  of  outstanding  amounts  in the event of a default  by
     Covol.  Such an event could  include a failure of Covol's  shareholders  to
     approve the  issuance of the  convertible  debt and  convertible  preferred
     stock by March  31,  2000 or  failure  of Covol  to  achieve  the  targeted
     earnings  levels.  Covol believes that the earnings  target was met for the
     quarter

                                       8
<PAGE>

                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                             ---------------------

     ended  December  31,  1999 and  expects  continued  compliance  during  the
     remaining  quarters of fiscal 2000. Covol and a third-party  solicitor have
     been actively  contacting  shareholders in an effort to obtain approval for
     this transaction.

     Covol funded its operations  during the quarter ended December 31, 1999 and
     during the past fiscal  year  primarily  through  the  issuance of debt and
     equity securities and the sale of synthetic fuel facilities. Covol believes
     that there are several alternatives available that will provide the working
     capital  necessary to meet  operational  requirements  and debt payments as
     they become due, including proceeds from the sale of its remaining facility
     held for  sale,  funds  receivable  upon  reaching  performance  milestones
     related to a synthetic  fuel  facility sold in August 1999 and the facility
     and option sold in January  2000 (see Note 5), funds from  operations,  and
     only if no other alternatives exist,  additional financing.  Covol believes
     that if  necessary,  it will be able to extend the  repayment  terms of its
     debt  and  that  future  proceeds  from  the  sale  of  facilities  will be
     sufficient to fund Covol's operations until its operating  activities begin
     producing positive cash flow.

     The  accompanying  unaudited  consolidated  financial  statements have been
     prepared in accordance with the rules and regulations of the Securities and
     Exchange  Commission for quarterly  reports on Form 10-Q. In the opinion of
     management,  all adjustments  considered  necessary for a fair presentation
     have been included. All adjustments, except as described in Note 6, consist
     of normal recurring adjustments.  The results of operations for the periods
     presented are not necessarily  indicative of the results to be expected for
     the full  year.  Certain  information  and  footnote  disclosures  normally
     included in financial  statements  prepared in  accordance  with  generally
     accepted  accounting  principles  have been  condensed  or  omitted.  It is
     suggested that these financial  statements be read in conjunction  with the
     consolidated  financial  statements  and notes thereto  included in Covol's
     Annual Report on Form 10-K for the year ended  September 30, 1999.  Certain
     prior  period  amounts have been  reclassified  to conform with the current
     period's  presentation.  The  reclassifications  had no effect on net loss,
     total assets or total liabilities.

2.   Financing Transactions

     During and  subsequent  to the  quarter  ended  December  31,  1999,  Covol
     completed several financing transactions, including the following.

     Convertible Debt

     During the quarter  ended  December  31,  1999,  Covol  issued  convertible
     secured debt and  warrants to purchase  approximately  1,172,000  shares of
     common  stock,  in two  unrelated  transactions,  for total net proceeds of
     approximately  $2,800,000.  The warrants have exercise  prices ranging from
     $.88 to $3.60 per share,  have expiration dates ranging from September 2002
     to December 2002 and were assigned a value of approximately  $562,000.  The
     debt was  convertible at market and, during this period,  convertible  debt
     with a face  amount of  approximately  $1,460,000  and a carrying  value of
     approximately  $1,116,000 was converted into approximately 2,618,000 shares
     of common stock. In January 2000, Covol redeemed the remaining  convertible
     debt issued during the quarter,  and currently none of the convertible debt
     issued remains outstanding.

     Preferred Stock

     During the quarter  ended  December 31, 1999,  the  remaining 200 shares of
     Series C preferred  stock,  along with related  accumulated  but undeclared
     dividends,  were  converted  into  approximately  189,000  shares of common
     stock.  Also,  during the  quarter,  15,202  shares of Series D  redeemable
     convertible  preferred  stock were converted into  approximately  1,604,000
     shares of  common  stock.  Subsequent  to  December  31,  1999 and  through
     February  4,  2000,  an  additional  2,962  shares of  Series D  redeemable
     convertible  preferred  stock were  converted  into  approximately  426,000
     shares of common stock.

     Warrants and Options

     In addition  to the  issuance of  warrants  described  above,  the terms of
     existing  warrants  for the  purchase of  approximately  183,000  shares of
     common stock at an exercise price of $7.50 per share were amended to extend
     the exercise  periods for

                                       9
<PAGE>

                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                             ---------------------

     approximately  seven  months.  Also the terms of  existing  options for the
     purchase of  approximately  60,000  shares of common  stock were amended to
     reduce the  exercise  price  from  $8.58 per share to $2.93 per share.  The
     extended  warrants  and  repriced  options  were  valued  at  approximately
     $70,000,  which value is being  amortized as interest  over the term of the
     related debt.

3.   Notes Payable
<TABLE>
<CAPTION>
     Notes payable consist of the following:
                                                                                                 September 30,   December 31,
  (thousands of dollars)                                                                             1999            1999
  ---------------------------------------------------------------------------------------------- -------------- ---------------
<S>                                                                                                 <C>           <C>
  Note payable to a corporation, bearing interest at 6%, collateralized by a coal wash plant
  in Utah, principal and interest originally due January 2000, amended to be due October 2000,         $ 4,313         $ 4,325
  as described below.

  Note payable to the same corporation referred to in the preceding paragraph, bearing
  interest at prime, repaid in December 1999.                                                            2,900              --

  Note payable to the same corporation referred to in the preceding two paragraphs, bearing
  interest at 6%, repaid in January 2000 (see Note 5).                                                   6,500           6,500

  Note payable to a limited liability company, bearing interest at 10%, payable monthly, with
  principal due June 2000.  Collateralized by a synthetic fuel facility in West Virginia, held
  for sale, and license fees payable to Covol from the production and sale of synthetic fuel             9,191           9,191
  from six synthetic fuel facilities.

  Convertible secured note payable to an investment company, issued at a discount, bearing a
  stated interest rate of 2.5% on the $20,000 face amount.  The note is due March 2004, but is
  expected to be converted into common stock by the note holder prior to maturity if not
  redeemed earlier by Covol.  Interest is payable semiannually on January 1 and July 1.  The
  note is collateralized by license fees payable to Covol from the production and sale of               10,265          11,089
  synthetic fuel from five synthetic fuel facilities.

  Convertible secured notes payable to a Covol shareholder and an unrelated entity, issued at
  a discount, bearing a stated interest rate of 8% on the $2,540 combined face amount
  outstanding at December 31, 1999.  The notes were redeemed by Covol in January 2000 (see                 622           1,950
  Note 2).

  Note payable to a corporation, bearing interest at 14% payable monthly.  $1,000 of principal
  was paid in January 2000 and $3,000 of principal is due April 2000.  Collateralized by a
  promissory note receivable and by future license fees payable to Covol from the production
  and sale of synthetic fuel from certain synthetic fuel facilities.  A member of Covol's                4,000           4,000
  Board of Directors is affiliated with this corporation.

  Other                                                                                                    722             670
                                                                                                 -------------- ---------------
                                                                                                        38,513          37,725
       Less: current portion                                                                           (20,626)        (17,746)
                                                                                                 -------------- ---------------
       Total non-current                                                                               $17,887         $19,979
                                                                                                 ============== ===============
</TABLE>

     In February 2000, Covol entered into an assignment and amendment  agreement
     with Coaltech and the lender of the $4,325,000 note payable described above
     (which is a limited partner of Coaltech). Under the terms of the agreement,
     Covol  assigned  its  interest  in a  note  receivable  due  from  Coaltech
     (classified as facility  transferred  under note receivable  arrangement in
     the consolidated  balance sheet) to the lender.  The principal and interest
     due  under  the  $4,325,000  note  payable  (which  totaled   approximately
     $4,880,000 at December 31, 1999) was reduced by the note receivable balance
     leaving a remaining balance of approximately $1,962,000, which amount, plus
     future  accrued  interest,  is now due  October  2000.  All note  payments,
     including interest,  under the note receivable  arrangement which have been
     paid to Covol from  Coaltech,  have  reduced  the  carrying  amount of that
     asset. Accordingly,  in the March 2000 quarter, Covol will recognize a gain
     of approximately  $300,000 representing the interest on the note receivable
     which has not been recognized to date.

     Substantially  all  facilities  and  equipment  held  for  sale and most of
     Covol's property,  plant and equipment and license fees from the production
     and  sale  of  synthetic  fuel  from  owned  and  licensed  synthetic  fuel
     facilities are collateral for notes

                                       10
<PAGE>

                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                             ---------------------

     payable.  The weighted  average  interest rate on notes payable was 7.9% at
     September 30, 1999 and 7.6% at December 31, 1999.

4.   Basic and Diluted Loss per Share
<TABLE>
<CAPTION>
                                                                                               Three Months Ended
                                                                                       -----------------------------------
                                                                                         December 31,      December 31,
  (thousands of dollars and shares, except per-share data)                                   1998              1999
  ------------------------------------------------------------- ---------------------- ------------------ ----------------
  Numerator:
<S>                                                                                             <C>              <C>
       Net loss                                                                                 $(4,558)         $(1,926)
       Preferred stock dividends (undeclared)                                                       (60)            (146)
       Imputed preferred stock dividends                                                             --              (58)
                                                                                       ------------------ ----------------
     Net loss attributable to common stockholders                                               $(4,618)         $(2,130)
                                                                                       ================== ================

  Denominator - weighted-average shares outstanding                                               11,976          13,610
                                                                                       ================== ================

  Basic and diluted loss per common share                                                        $(0.39)          $(0.16)
                                                                                       ================== ================
</TABLE>

5.  Sale of Facilities

     Effective as of December 31,  1999,  Covol sold one of the three  remaining
     synthetic  fuel  facilities  it owned.  This facility was located in Price,
     Utah.   Covol  reported  a  gain  on  this   transaction  of  approximately
     $5,341,000.  Covol will also sell  proprietary  binder material used at the
     facility and will receive an ongoing royalty based upon production and sale
     of  synthetic  fuel from this  facility.  Net cash  proceeds to Covol after
     payment  of   construction   debt  and  certain  other   obligations   were
     approximately $5,500,000.

     In January  2000,  Covol sold a synthetic  fuel  facility  located in North
     Fork, West Virginia and an option to acquire a licensee facility located in
     Nevada, to a major U.S. utility.  Combined net cash proceeds to Covol after
     payment  of  related  debt  and  other   obligations   were   approximately
     $1,500,000.  Covol will  report a combined  loss on these  transactions  of
     approximately  $600,000 in the March 2000 quarter.  Both facilities will be
     relocated  to  the  purchaser's   site  and  additional   funds,   totaling
     approximately  $8,500,000,  are due to Covol when the two facilities  reach
     commercial operation at the new location, at which time the $8,500,000 will
     be  recognized  as revenue.  Following  receipt of the  subsequent  payment
     related to the  relocation  and  commercial  operation of the West Virginia
     facility,  Covol has agreed to pay $2,000,000 to the current site owner and
     feedstock supplier to terminate those contractual relationships. Covol will
     provide binder used at both  facilities  and will receive future  royalties
     based upon production and sale of synthetic fuel at the facilities.

     Also in January 2000,  Covol  executed a letter of intent with a major U.S.
     utility company for the sale of the remaining synthetic fuel facility owned
     by Covol. Covol believes execution of definitive  agreements and funding of
     the sale should occur prior to March 31, 2000.  Funds from the sale of this
     facility are expected to be  sufficient  to repay the debt  incurred in the
     construction and operation of this facility,  which debt has an outstanding
     balance of $9,191,000 at December 31, 1999. The debt is due June 30, 2000.

6.   Asset Write-offs and Other Non-recurring Charges

     Coaltech  owns a  synthetic  fuel  facility  which is  located  on the same
     property  as the  facility  that was sold by Covol in December  1999.  As a
     result of the  anticipated  relocation  of the facility  owned by Coaltech,
     combined with the sale and  relocation  of Covol's  owned  facility and the
     Earthco Complaint,  all of which relate to the same property site in Price,
     Utah (see Notes 5 and 8), Covol  recorded in the  December  1999 quarter an
     impairment  charge of  approximately  $10,300,000.  This impairment  charge
     consisted of an approximate $8,100,000 writedown to net realizable value of
     certain plant and equipment which remains on the site and is now idle, plus
     an  approximate  $2,200,000  writeoff  of an  intangible  asset which is no
     longer  considered  recoverable  due to  the  relocation  of  the  Coaltech
     facility.

                                       11
<PAGE>

                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                             ---------------------

     Covol recorded  other asset  write-offs  and  non-recurring  charges in the
     quarter ended December 31, 1999 which,  when added to the charges described
     in the preceding  paragraph,  totaled  approximately  $11,021,000.  Of this
     amount, approximately $10,412,000 did not involve the use of cash.

7.   Income Taxes

     In the quarter  ended  December  31, 1999,  Covol  reduced its deferred tax
     asset valuation  allowance by $3,000,000.  Covol believes it is more likely
     than not that  this  portion  of its  total  deferred  tax  assets  will be
     realized as a result of income resulting from the sale in January 2000 of a
     synthetic fuel facility and an option to acquire a synthetic fuel facility.

8.   Commitments and Contingencies

     Commitments  and  contingencies  as of  December  31,  1999  not  disclosed
     elsewhere, are as follows.

     Included in accrued liabilities at September 30, 1999 and December 31, 1999
     is  $755,000  related to canceled  construction  contracts  that  contain a
     failure to proceed liability clause.

     In March 1997, Covol  transferred the Utah Synfuel #1 facility to Coaltech.
     In connection with this transaction, Covol licensed Coaltech to use Covol's
     binder technologies for a non-refundable advance license fee of $1,400,000,
     which is being  recognized as income through 2007, the contractual  term of
     the license  agreement of 2007, and a recurring license fee that is payable
     quarterly  and that is based upon  synthetic  fuel produced and sold at the
     Utah facility by Coaltech.  Covol  contracted  with Coaltech to operate the
     facility for which Covol received a quarterly fee, which is also based upon
     synthetic fuel produced and sold. The limited  partners of Coaltech have an
     option  wherein they can require  Covol to repurchase  this facility  under
     certain  conditions.  This put  option can be  exercised  if 1) none of the
     limited  partners are able to utilize the federal  income tax credits under
     Section  29 of the  tax  code,  2) the  economic  benefits  accruing  to or
     experienced by all of the Coaltech  limited  partners differ  significantly
     from what was initially projected, or 3) there is a permanent force majeure
     or material  damage or destruction of the Utah facility.  If the put option
     is  exercised  prior to March 2000,  the option  price will be equal to the
     fair market value of the limited partnership  interests of the optionees on
     a going concern basis,  but in no event will the option price exceed 50% of
     the capital  contributions paid to Covol by Coaltech.  If the put option is
     exercised  after March 2000,  the option  price will be $10. In  accordance
     with generally  accepted  accounting  principles and after discussions with
     the staff of the Securities and Exchange  Commission,  this transaction has
     not been reflected as a sale for accounting purposes.  The original cost of
     the facility less cash payments received from Coaltech, is reflected in the
     consolidated  balance sheet as a facility transferred under note receivable
     arrangement.

     Additionally,  Covol  entered  into a supply and  purchase  agreement  with
     Coaltech  wherein  Covol  agreed to  provide  to  Coaltech  coal  fines for
     processing  into  synthetic  fuel at a price equal to Covol's  cost.  Covol
     agreed to purchase from Coaltech the synthetic fuel produced, at Coaltech's
     cost plus one dollar per ton.  As a result of this  commitment  to purchase
     Coaltech's  production,   Covol  has  experienced  losses  related  to  the
     write-down of the synthetic  fuel purchased to the lower of cost or market.
     This write-down to date has  approximated  90% of the amount Covol has paid
     for the synthetic fuel.

     In  anticipation  of a  relocation  of the Utah  facility by  Coaltech,  on
     October 29, 1999 Covol received  notification  from the limited partners of
     Coaltech  that they were  effecting  a  retirement  of Covol as the general
     partner of the  partnership and were  terminating  Covol as operator of the
     Utah  facility.  The limited  partners also assert that as a consequence of
     the  retirement  of Covol as  general  partner,  Covol  is  deemed  to have
     forfeited its 1% interest in the Partnership. The notification demands that
     Covol  indemnify  the limited  partners for all of their  losses,  damages,
     payments,  costs and expenses. Covol disputes the limited partners demands.
     On December 1, 1999, the parties entered into  negotiations and as a result
     an interim  standstill  agreement was reached pursuant to which the limited
     partners  and Covol have agreed not to pursue  formal  proceedings  against
     each other pending the outcome of the current settlement  negotiations.  As
     more fully described in Note 3, in February 2000,  Covol,  Coaltech and one
     of the limited partners of Coaltech reached a settlement regarding both the
     note payable due to the limited  partner from Covol and the note receivable
     due to Covol from Coaltech. It is likely that the ultimate outcome of these
     negotiations  will  result  in  relocation  of the Utah  facility  to a new
     location and termination of contractual and operational  activities between
     Covol  and  the  limited  partners  with  settlement   payments  materially
     consistent  with  amounts   reflected  in  the  accompanying   consolidated
     financial  statements.  It is also expected that the limited  partners

                                       12
<PAGE>

                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                             ---------------------

     will  continue  to  purchase  binder  materials  from Covol and use Covol's
     technology  in the  production  of synthetic  fuel when  operations  of the
     facility are resumed.

     In June 1996,  Covol  formed  Alabama  Synfuel  #1,  Ltd.  to  construct  a
     synthetic  fuel  facility.  In  connection  with the  construction  of this
     facility,  Covol entered into a supply  agreement for coal fines to be used
     at the  facility.  Covol  assigned  this  agreement to the purchaser of the
     facility and accordingly,  has no ongoing  obligation.  Covol has been paid
     for the coal fines sold to the  facility  purchaser  but has a dispute with
     the  provider  of the coal fines for a portion of the coal fines Covol paid
     for.  The  resolution  of this  dispute is not  expected to have a material
     impact on Covol.

     In September 1996, Covol entered into an agreement with Coalco  Corporation
     whereby  Coalco was to advise Covol with respect to the  financing and sale
     of certain synthetic fuel manufacturing facilities. A dispute arose between
     Covol and Coalco  about  services  rendered or to be rendered by Coalco and
     the amount and timing for  payment  for such  services.  A  settlement  was
     reached in November 1999 whereby Covol agreed to pay Coalco $1,500,000 plus
     a  royalty  based on the  synthetic  fuel  sold  from  five  licensee-owned
     facilities.  Of the  $1,500,000  to be paid,  $469,000  was  accrued  as of
     September 30, 1999 and was paid in November  1999.  An additional  $279,000
     was paid in December 1999 and $622,000 was paid  subsequent to December 31,
     1999  through  February  4, 2000.  The  remaining  balance of  $130,000  is
     expected to be paid upon the receipt of cash  proceeds from the future sale
     of the  remaining  synthetic  fuel  facility  held for sale.  Pelletco,  an
     affiliate of Coalco, is a licensee of Covol.

     In March 1999,  Covol  entered into a financing  transaction  involving the
     issuance of convertible preferred stock and a convertible secured note (see
     Note 3). The  transaction  requires,  among other things,  (1)  stockholder
     approval of the  transaction,  (2)  registration of common stock into which
     the  securities  issued may be converted,  and (3)  achievement of earnings
     targets  beginning in the first quarter of Covol's fiscal year 2000.  Covol
     is preparing  for a  stockholder  meeting to seek approval of the financing
     transaction.  Covol filed the required  registration  statement on Form S-3
     covering  the  March  1999  financing  transaction  and  such  registration
     statement has been declared effective. Failure to comply with this or other
     terms and  conditions  of these  financing  agreements  could  result in an
     increase in the interest rate,  immediate  convertibility,  required escrow
     payments and possible immediate payment of outstanding amounts.

     Covol is negotiating for the sale of the one remaining owned synthetic fuel
     facility.  Current negotiations  contemplate the relocation of the facility
     by the purchaser. Covol may incur up to $3,000,000 in costs associated with
     relocation.  Any costs paid by Covol will reduce the net  proceeds  and the
     gain recognized on the sale of the facility.

     In  February  1997,  Covol  entered  into a  contract  on a parcel  of real
     property  located  near  Price,  Utah,  in  which  Covol  obtained  certain
     possessory and related interests, Covol's primary purpose being to obtain a
     source of coal  fines to serve as  feedstock  for a nearby  synthetic  fuel
     facility.  In August  1999,  Covol  sent a notice of  default  to  Earthco,
     alleging  that  Earthco had  breached a material  provision of the contract
     because  Earthco did not have title to the  property.  Covol has refused to
     tender its August 1999 and  November  1999  payments  because of  Earthco's
     breach.  In addition,  Covol  contends that the quantity  and/or quality of
     recoverable  coal  fines  was  substantially   less  than  what  Covol  had
     understood  when entering into the contract,  thereby  creating  grounds to
     reform  the terms of the  contract.  Earthco  subsequently  countered  with
     allegations  that Covol has breached its  obligations  under the  contract,
     including failure to make the August 1999 payment.

     In November 1999,  Covol was served with a Complaint in litigation  pending
     in the Seventh Judicial District Court of Carbon County, Utah titled Nevada
     Electric  Investment  Company v. Earthco,  et al. In the Complaint,  Nevada
     Electric  Investment Company (NEICO) alleges that it is the lawful owner of
     the property near Wellington, Utah described in Covol's lease from Earthco.
     NEICO  seeks  a  declaratory  judgement  that  Covol  is  not  entitled  to
     possession  of the property  due to the lack of  ownership by Earthco.  The
     Complaint also seeks further relief from Earthco.  Covol received Earthco's
     Answer,   Counterclaims   and  Cross-claim  in  December  1999.   Earthco's
     cross-claim   against  Covol  alleged  breach  of  contract  and  requested
     substantial damages in an amount to be proven at trial but alleged to be in
     excess of $5,000,000. Covol filed its Reply and Cross-claim against Earthco
     in  January  2000  denying   Earthco's   claims  and  asserting  claims  of
     misrepresentation,  breach of lease, unjust enrichment,  and related claims
     and for general and consequential damages in an

                                       13
<PAGE>

                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                             ---------------------

     amount to be proven at trial.  The disputes among Covol,  Earthco and NEICO
     are at an early stage and resolution is uncertain.  Covol intends to defend
     against claims and prosecute its own claims vigorously.

     During the quarter ended December 31, 1999,  Covol  recorded  approximately
     $3,000,000  of license fee revenues  from a single  licensee that owns four
     synthetic fuel facilities that use Covol's proprietary  binder  technology.
     These  revenues  represent  production and sales of synthetic fuel at these
     facilities  primarily between June and December 1999 and were only recently
     reported by this  licensee.  Covol and this  licensee  are  discussing  the
     ongoing  license fee  arrangements.  These  discussions  could  result in a
     reduction of future  license fees,  but Covol and the licensee have not yet
     agreed to any changes in the license fee agreements.

     In January 2000,  Covol received a letter from Nasdaq  informing Covol that
     it may not meet continued listing  requirements of the Nasdaq Stock Market.
     Covol has responded to Nasdaq indicating why it believes the listing should
     be  continued  and that it expects  to be in  compliance  with all  listing
     requirements  by March 31,  2000 or shortly  thereafter  and is  awaiting a
     response from Nasdaq.

     Covol is also involved in several legal proceedings that have arisen out of
     the normal course of business. Covol believes that many of these claims are
     without merit and in all cases  intends to vigorously  defend its position.
     Management does not believe that the outcome of these  activities will have
     a  significant  effect upon the  operations  or the  financial  position of
     Covol.

                                       14
<PAGE>

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

The following Management's Discussion and Analysis should be read in conjunction
with the  accompanying  unaudited  consolidated  financial  statements and notes
thereto.

Three Months Ended December 31, 1999 Compared to Three Months Ended December 31,
1998

Revenues.  Total  revenues for the three months ended December 31, 1999 ("1999")
increased by $9,667,000 to  $11,049,000  as compared to $1,382,000 for the three
months ended December 31, 1998 ("1998").  During 1999, Covol recognized  license
fees totaling  $4,036,000 while $701,000 of license fees were recognized  during
1998. The license fees in 1999 consisted of the  straight-line  amortization  of
one-time  non-refundable  initial license fees of $230,000 and recurring  earned
license fees or royalty  payments of $3,806,000.  License fees in 1998 consisted
of the  straight-line  amortization of one-time  non-refundable  initial license
fees of $226,000 and  recurring  license  fees or royalty  payments of $475,000.
Initial  license  fees are not  expected to  increase in future  periods and are
recognized on a  straight-line  basis over the period covered by Covol's license
agreements with licensees.  Recurring  earned license fees or royalty  payments,
which over the long term are  expected to increase  in future  periods,  are due
quarterly  based upon  synthetic  fuel produced and sold as reported to Covol by
its  licensees.  The  increase in 1999 earned  license fees was due in part to a
single licensee that only recently  reported a significant  increase in sales of
synthetic  fuel in the last half of calendar  1999.  Covol and this licensee are
discussing the ongoing license fee arrangements.  These discussions could result
in a reduction of future  license fees,  but Covol and the licensee have not yet
agreed to any changes in the license fee agreements.

Covol provides  binder  material to its licensees  either at a fixed price or at
Covol's cost plus a contracted  markup.  Covol  purchases  the binder  materials
under a long-term  contract with a large chemical  company.  Binder sales during
1999 were  $1,352,000  with a  corresponding  direct cost to Covol of  $860,000.
Binder sales during 1998 were $533,000 with a corresponding direct cost to Covol
of $376,000. The increase in binder sales in 1999 over 1998 was due to increased
synthetic fuel production by Covol's licensees.

Covol expects  continuing  increases during 2000 of production of synthetic fuel
by its  licensees  as  licensees  move  toward  full  production  levels  with a
corresponding  increase in earned license fees or royalty  payments and sales of
binder products. However, Covol cannot assure increases in license fees, royalty
payments and binder sales because Covol is dependent upon its licensees  ability
to  successfully  obtain  adequate  feedstock  coal  fines,  process  fines into
synthetic  fuel,  and develop  markets for synthetic fuel now and in the future.
Covol believes that its licensees have made significant  progress in these areas
during 1999 but continued success cannot be assured.

Synthetic  fuel is a relatively  new product and  competes  with  standard  coal
products.  Industrial  coal users must be satisfied that the synthetic fuel is a
suitable  substitute for standard coal  products.  Moisture  content,  hardness,
special handling  requirements and other  characteristics  of the synthetic fuel
product may affect its  marketability  and its sales price. Many industrial coal
users are also limited in the amount of synthetic fuel product they can purchase
because  they have  committed  to purchase a  substantial  portion of their coal
requirements through long-term coal contracts already in place. Reliance on spot
markets and the overall  downward trend in coal prices have  generally  produced
lower sales prices as compared to long-term coal supply  contracts common in the
utility  industry.  Market  acceptance of the synthetic fuel product  appears to
have improved during 1999 even though Covol's owned facilities and its licensees
have  only  been  able to  secure  long-term  contracts  for the sale of a small
portion  of  their  production.  The  suitability  of  synthetic  fuel as a coal
substitute,  particularly the quality characteristics of synthetic fuel, and the
traditional  long-term  supply contract  practices of fuel buying in the utility
industry,  have made the acceptance of synthetic  fuel by potential  purchaser's
difficult.  Covol has tried to solve this problem by identifying  buyers for its
owned  facilities  that  are  either  consumers  of coal or who have  access  to
long-term coal contracts. Synthetic fuel is a coal substitute and the market and
price are as broad and  varied as the coal  market  itself.  The US coal  market
exceeds one billion tons annually,  and the prices range from  approximately $12
to $35 per ton in the areas  where  facilities  using the Covol  technology  are
located.  Prices are dependent on many factors,  including Btu content,  ash and
sulfur  content,  moisture,  location,  etc.  Covol believes that initial market
resistance for synthetic fuel has decreased and believes long-term contracts can
now be secured  allowing  Covol and its licensees to market the  synthetic  fuel
they produce at prices similar to coal.  Section 29 of the Internal Revenue Code
provides a tax credit for the production and sale of qualified  synthetic  fuel.
Covol and Covol's  licensees have received  numerous private letter rulings from
the IRS in which the IRS agrees that synthetic fuel  manufactured  using Covol's
technology qualifies for the Section 29 tax credits.  Covol is aware of at least
eight private letter  rulings  issued by the IRS that cover Covol's  technology.
Based upon the language of Section 29 and private  letter  rulings issued by the
IRS to Covol and Covol's licensees, Covol believes the synthetic fuel facilities
were built and completed by June 30, 1998 and are therefore eligible for Section
29 tax credits.  See ITEM 1.  BUSINESS--Tax  Credits in Covol's Annual Report on
Form  10-K  for  the  year  ended  September  30,  1999  for an  explanation  of
qualifications for Section 29 tax credits.

                                       15
<PAGE>

The synthetic fuel  facilities  that qualify for tax credits under Section 29 of
the tax code receive  economic  benefits from the tax credits in addition to the
benefits  from  operations.  Section 29 expires on December 31, 2007 after which
tax credits will not be available to the synthetic fuel facilities.  In order to
remain  competitive and commercially  viable after 2007, Covol and its licensees
must manage their costs of production and  feedstock,  and must also develop the
market for synthetic  fuel with prices  comparable to coal.  Covol has developed
and patented  technologies  related to the briquetting of wastes and by-products
from the coal,  coke and steel  industries and has also tested in the laboratory
the  briquetting  of  other  materials.   To  date,  however,   Covol  has  only
commercialized the coal-based synthetic fuel application. The other applications
have not been commercialized or proven out in full-scale  operations.  The level
of success Covol has in  commercializing  these other applications will directly
impact Covol's future  success and its ability to expand  operations  beyond the
coal applications.

Gain on sale of  facility.  In  1999,  Covol  sold  one of the  three  remaining
synthetic fuel  facilities it owned.  This facility was located in Price,  Utah.
Covol reported a gain on this  transaction of  approximately  $5,341,000.  There
were no  sales of  synthetic  fuel  facilities  in 1998,  however  Covol  sold a
facility in August 1999 and sold a facility  and an option to acquire a facility
in January 2000 (see Note 5 to the consolidated financial statements).

Operating  Costs  and  Expenses.  Operating  costs  and  expenses  increased  by
$9,315,000 to $14,428,000  during 1999 from $5,113,000 during 1998. Cost of coal
briquetting  operations  decreased  $2,057,000  from  $3,646,000  during 1998 to
$1,589,000  during  1999.  During  1999,  Covol  incurred   significantly  lower
operating   expenses  in   connection   with  the   continued   refinement   and
implementation  of the  briquetting  process  associated  with the 24 facilities
placed in service  during 1998,  and in particular  the  operating  costs of the
facilities  owned by Covol  which have now been sold or are being held for sale.
The  expenses  primarily  related to labor and  operating  expenses at the Covol
synthetic fuel facilities and the wash plant located in Utah,  losses related to
the  writedown of  inventory  purchased  from  Coaltech,  and costs  incurred in
providing  assistance to Covol's  licensees in resolving ramp-up issues at their
synthetic fuel facilities. Covol expects the cost of coal briquetting operations
to continue to  decrease  in 2000 as  compared  to 1999  levels.  Covol sold one
facility in August 1999,  another in December  1999 and a third in January 2000.
The remaining facility is expected to be sold in early 2000.

Until October 1999,  Covol  operated one of the synthetic  fuel  facilities  for
Coaltech,  a  partnership  for which  Covol was the general  partner.  Under the
operating  agreement,  Covol was contractually  obligated to purchase all of the
synthetic  fuel produced at cost plus $1 per ton.  Production of synthetic  fuel
from this facility during 1999 and 1998 was not significant and accordingly, the
cost per ton was  significantly  in excess of the current  market  value.  These
costs and the corresponding write-down of this inventory to its market value are
included  in the  cost  of  coal  briquetting  operations.  The  write-down  was
approximately $55,000 during 1999 and $1,150,000 during 1998. Covol operated the
Coaltech  Utah  facility  at a  loss  because  of the  need  to  gain  operating
experience (it was the first  synthetic fuel facility Covol built and operated),
test alternative production methods,  maintain operational status for Section 29
qualification, maintain the relationship with AJ Gallagher, an owner of the Utah
facility  who is a major  licensee  and  partner  of Covol,  and  other  related
business reasons. In October, 1999, Covol received notification from the limited
partners  of Coaltech  that they were  effecting  a  retirement  of Covol as the
general  partner and were  terminating  Covol as operator of the Utah  facility.
Covol and Coaltech are in  negotiations  to resolve the  situation,  including a
likely  termination  of the supply and  purchase  agreement.  In February  2000,
Covol, Coaltech and one of the limited partners of Coaltech reached a settlement
regarding  both the note  payable due to the limited  partner from Covol and the
note  receivable  due to Covol from  Coaltech.  Final  settlement  payments  are
expected to be materially  consistent with amounts reflected in the accompanying
consolidated financial statements. It is also expected that the limited partners
will continue to purchase binder materials from Covol and use Covol's technology
in the  production  of synthetic  fuel when  operations of the Utah facility are
resumed (see Note 8 to the consolidated financial statements).

Asset write-offs and other non-recurring charges. Coaltech owns a synthetic fuel
facility  which is located on the same property as the facility that was sold by
Covol  in  December  1999.  As a result  of the  anticipated  relocation  of the
facility  owned by Coaltech,  combined  with the sale and  relocation of Covol's
owned  facility,  all of which relate to the same property  site in Price,  Utah
(see Notes 5 and 8), Covol  recorded in the December  1999 quarter an impairment
charge of  approximately  $10,300,000.  This impairment  charge  consisted of an
approximate  $8,100,000  writedown to net realizable  value of certain plant and
equipment  which  remains  on the  site  and is now  idle,  plus an  approximate
$2,200,000  writeoff  of an  intangible  asset  which  is no  longer  considered
recoverable due to the relocation of the Coaltech facility.

Covol recorded other asset write-offs and  non-recurring  charges in the quarter
ended  December  31, 1999  which,  when added to the  charges  described  in the
preceding  paragraph,   totaled  approximately  $11,021,000.   Of  this  amount,
approximately $10,412,000 did not involve the use of cash.

Selling, general and administrative expenses decreased $17,000 or 2% to $912,000
during 1999 from $929,000 for 1998. The largest  components of selling,  general
and  administrative  expenses for both 1999 and 1998 were payroll,  professional

                                       16
<PAGE>

services and travel expenses.  Payroll costs increased  approximately  $100,000,
while professional services and travel expenses decreased approximately $100,000
from  1998 to 1999.  Changes  in other  categories  from  year to year  were not
material.

Compensation  expense from stock options decreased  $116,000 to $46,000 for 1999
from $162,000 for 1998. This expense relates to options granted in prior periods
that vest over several years and the compensation value that is being recognized
as an expense over the vesting  period.  During the fiscal year ended  September
30, 1999, Covol terminated  several employees to whom compensatory stock options
were  granted in prior  years.  These  stock  options  were not  forfeited  upon
termination, resulting in the write off of the unamortized deferred compensation
related to these individuals. As a result of the write-off, amortization expense
has  decreased  and will  continue  below fiscal 1999 levels in the remainder of
fiscal year 2000.

Other  Income  and  Expense.  During  1999,  Covol  had net  other  expenses  of
$1,547,000  compared to $827,000  for 1998.  This  increase of $720,000  relates
primarily to a negative  variance in interest expense of $1,019,000 and positive
variances  between periods of $279,000 in the  mark-to-market  adjustment of the
carrying value of a related party note receivable collateralized by Covol common
stock and $44,000 in interest income.

Interest expense increased in 1999 due to the higher level of debt which existed
in 1999 as compared to 1998,  most notably as a result of the  convertible  debt
issued at a discount during March 1999.  Interest  expense of $1,150,000 in 1999
consisted of amortization  of debt discount and debt issuance costs,  while only
$82,000 of interest  expense in 1998 consisted of  amortization of debt discount
and debt issuance costs. Interest expense is expected to decrease as a result of
repayments  of debt related to the sale of  facilities in late 1999 and 2000 and
the  redemptions  of  convertible  debt  in  January  2000  (see  Note  2 to the
consolidated financial statements).

During  1996,  Covol  sold  certain  construction   companies  and  received  as
consideration a $5,000,000 note receivable  (Note). The Note is marked to market
each  quarter  based  upon the  market  value of  Covol's  common  stock held as
collateral and is reflected in the consolidated  balance sheet at the underlying
value of this  collateral,  $108,000  at  December  31,  1999.  This  adjustment
resulted in a write-down  of $292,000  during 1999,  compared to a write-down of
$571,000  during 1998, for a variance of $279,000.  Interest  income of $515,000
was recognized in both 1999 and 1998 on this Note.

Income Taxes. In the quarter ended December 31, 1999, Covol reduced its deferred
tax asset  valuation  allowance by $3,000,000.  Covol believes it is more likely
than not that this portion of its total  deferred tax assets will be realized as
a result of income  resulting  from the sale in January 2000 of a synthetic fuel
facility  and an option to  acquire a  synthetic  fuel  facility.  Covol did not
recognize any income tax benefit in 1998.

Net Loss. For 1999, the net loss of $1,926,000 represents a change of $2,632,000
from the net loss of  $4,558,000  in 1998.  This is  primarily  due to increased
revenues,  especially  license  fees  and the  gain on  sale  of  facility,  the
reduction in cost of coal briquetting operations,  recognition of the income tax
benefit, offset by the 1999 asset write-offs and other non-recurring charges and
the increase in interest expense.

Liquidity and Capital Resources

Liquidity.  During 1998,  Covol and its licensees  completed the construction of
and  began  operations  at  24  synthetic  fuel  facilities.  Covol  owned  four
facilities which it held for sale during calendar 1999. One facility was sold in
August 1999,  another was sold in December  1999 and a third was sold in January
2000.  Covol  currently  owns one facility  which is being  offered for sale and
anticipates  the sale of this facility in early 2000.  Proceeds from the sale of
facilities  have been  used to retire  debt  that was  incurred  principally  in
connection with the construction and operation of the facilities and for working
capital  needs.  Total  operating  expenses  associated  with  the  three  owned
facilities  operated  during the quarter  ended  December 31, 1999  approximated
$230,000 per month. These operating expenses fluctuate depending on the level of
activity at the owned facilities.

Net cash used in operating  activities  for the three months ended  December 31,
1999  ("1999") was  $2,207,000  compared to  $4,222,000  of cash used during the
three months ended December 31, 1998 ("1998").  Most of this change in cash flow
from  operations is  attributable to the 1999 net loss of $1,926,000 as compared
to  $4,558,000 in 1998.  Covol has been able to fund its  operating  activities,
including the continued refinement and  commercialization of its patented binder
technologies, through the issuance of debt and equity securities and the sale of
a facility.  During 1999,  proceeds from the sale of facility were approximately
$9,497,000  and net proceeds from the issuance of notes payable and common stock
warrants totaled  approximately  $2,758,000.  Approximately  $2,954,000 of notes
payable were repaid during 1999.

                                       17
<PAGE>

Capital Resources.  During 1999, with the exception of the sale of the facility,
Covol's investing activities were not significant.  Investing activities in 1998
consisted  primarily  of the  purchase  of  property,  plant and  equipment  and
facilities held for resale,  with most of the funds for these activities  coming
from the issuance of notes payable and equity  securities.  Covol  believes that
funds required for investing  activities will continue to be significantly lower
during  fiscal 2000 as compared to fiscal  1999.  Covol has no current  plans to
construct  additional synthetic fuel facilities or to incur significant costs to
acquire property, plant and equipment.

There are 24  synthetic  fuel plants that  currently  utilize  Covol's  patented
technology  and from which Covol  intends to earn  license fees and / or profits
from the sale of  binder.  There  are four  facilities  that use an  alternative
technology  that Covol  acquired in early fiscal 1999. In the  aggregate,  these
facilities  do not presently  operate at levels  needed to generate  significant
revenues to Covol.  Improved  operations  at the plants depend on the ability of
the plant owners to produce  synthetic fuel that meets market  specifications in
order for the plant owners to market the synthetic fuel.  Covol is assisting the
plant owners in their efforts to overcome  production  and  marketing  problems.
Covol  anticipates that recurring  license fees or royalties from the production
and sale of synthetic fuel will continue to increase during 2000 and beyond.  As
production  levels  increase,  sales  of the  binder  materials  by Covol to its
licensees are expected to increase proportionately. Funds received by Covol from
these activities are expected to be sufficient to cover Covol's  operating costs
and expenses at some point during 2000.

In order for  operating  activities to produce  significant  positive cash flow,
Covol and its licensees must  successfully  address certain operating issues and
marketing difficulties.  These difficulties have delayed Covol's expected growth
in license fees,  and have resulted in lower than expected cash flows and higher
than expected  capital  requirements.  Operating  issues which must be addressed
include, but are not limited to, feedstock  availability,  moisture content, Btu
content,  correct application of binder  formulation,  operability of equipment,
product  durability,  resistance  to  water  absorption  and  overall  costs  of
operations, which in many cases to date have resulted in unit costs in excess of
synthetic  fuel sale  prices.  Marketing  difficulties  which must be  addressed
relate to market acceptance of products  manufactured using Covol's  technology.
Industrial  coal users must be satisfied  that the synthetic  fuel is a suitable
substitute  for standard coal  products.  Moisture  content,  hardness,  special
handling  requirements and other  characteristics  of the synthetic fuel product
may affect its marketability and its sales price. Many industrial coal users are
also  limited in the amount of synthetic  fuel  product  they can purchase  from
Covol and its  licensees  because they have  committed to purchase a substantial
portion of their coal  requirements  through long-term coal contracts already in
place.  Reliance on spot markets and the overall  downward  trend in coal prices
have generally  produced lower sales prices as compared to long-term coal supply
contracts  common in the utility  industry.  Market  acceptance of the synthetic
fuel product  appears to have  improved  during 1999 even though  Covol's  owned
facilities and its licensees have only been able to secure  long-term  contracts
for the  sale  of a small  portion  of  their  production.  The  suitability  of
synthetic fuel as a coal substitute, particularly the quality characteristics of
synthetic fuel, and the traditional  long-term supply contract practices of fuel
buying in the utility industry,  have made the  identification of purchaser's of
synthetic fuel  difficult.  Covol  believes that initial  market  resistance for
synthetic fuel has decreased and believes long-term contracts can now be secured
allowing  Covol and its licensees to market the  synthetic  fuel they produce at
prices similar to coal.

In addition to the operating  results for the quarter  ended  December 31, 1999,
Covol  incurred a net loss for the year ended  September 30, 1999 of $28,393,000
and used  $17,516,000  of cash in its  operating  activities  for the  year.  As
discussed in Note 3, Covol has  $17,746,000  of long-term  debt that becomes due
during the 12 months ending December 31, 2000. In addition,  Covol's convertible
note  payable  with  a  face  amount  of  $20,000,000  and  related   redeemable
convertible  preferred  stock  with  an  aggregate  liquidation   preference  of
approximately  $5,700,000  at  December  31,  1999  contain  certain  provisions
including an increase in the interest rate, immediate  convertibility,  required
escrow  payments and possible  immediate  payment of outstanding  amounts in the
event of a default by Covol.  Such an event  could  include a failure of Covol's
shareholders  to approve the issuance of the  convertible  debt and  convertible
preferred  stock by March 31, 2000 or failure of Covol to achieve  the  targeted
earnings levels. Covol believes that the earnings target was met for the quarter
ended December 31, 1999 and expects  continued  compliance  during the remaining
quarters of fiscal 2000.  Covol and a third-party  solicitor  have been actively
contacting shareholders in an effort to obtain approval for this transaction.

Covol  funded its  operations  during the quarter  ended  December  31, 1999 and
during the past fiscal year  primarily  through the  issuance of debt and equity
securities and the sale of synthetic fuel facilities.  Covol believes that there
are  several  alternatives  available  that will  provide  the  working  capital
necessary to meet operational requirements and debt payments as they become due,
including  proceeds from the sale of its remaining facility held for sale, funds
receivable  upon reaching  performance  milestones  related to a synthetic  fuel
facility  sold in August 1999 and the  facility  and option sold in January 2000
(see Note 5), funds from operations,  and only if no other  alternatives  exist,
additional  financing.  Covol  believes  that if  necessary,  it will

                                       18
<PAGE>

be able to extend the repayment  terms of its debt and that future proceeds from
the sale of facilities will be sufficient to fund Covol's  operations  until its
operating activities begin producing positive cash flow.

Forward Looking Statements

Statements in this Report  regarding  Covol's  expectations as to the receipt of
licensing  and royalty fees,  the receipt of fees for sale of binder  materials,
reduction in operating expenses, ability to extend or refinance debt, compliance
with debt covenants,  and other information presented herein that are not purely
historical by nature,  constitute  forward looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. Although Covol believes
that its expectations are based on reasonable  assumptions  within the bounds of
its  knowledge of its business and  operations,  there can be no assurance  that
actual results will not differ materially from its expectations.  In addition to
matters  affecting  Covol's  industry  or  the  coal  industry  or  the  economy
generally,  factors which could cause actual results to differ from expectations
set forth in the  above-identified  forward looking statements include, in part,
the following:

o        the ability of Covol and its licensees to resolve the  operational  and
         marketing issues described above;
o        the ability of licensees to produce and sell  synthetic fuel at or near
         the rated capacity of the synthetic fuel facilities and willingness and
         ability of  licensees  to make  timely  payments  for binder  materials
         purchased and royalty amounts due;
o        the ability to obtain needed additional  capital on terms acceptable to
         Covol;
o        changes in  governmental  regulation or failure to comply with existing
         regulation which may result in operational shutdowns of its facilities;
o        the  availability  of tax credits  under Section 29 of the tax code and
         qualification of facilities currently in service; and
o        the ability to resolve contingencies.

See ITEM 1. BUSINESS Forward Looking Statements in Covol's Annual Report on Form
10-K for the year ended  September  30,  1999 for a  description  of  additional
factors which could cause actual results to differ from expectations.

Other Items

Covol  has  reviewed  all  recently  issued,  but  not yet  adopted,  accounting
standards  in order to  determine  their  effects,  if any,  on the  results  of
operations or financial position of Covol. Based on that review,  Covol believes
that none of these  pronouncements  will have any significant effects on current
or future financial position or results of operations.


                          PART II -- OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

See ITEM 3: LEGAL PROCEEDINGS in Covol's Annual Report on Form 10-K for the year
ended  September  30, 1999 for  descriptions  of current legal  proceedings.  No
material changes have occurred since that report was filed.

ITEM 2.     CHANGES IN SECURITIES

Recent Sales of Unregistered Securities

The following sets forth all  securities  issued by Covol within the past fiscal
quarter without  registering the securities under the Securities Act of 1933, as
amended. No underwriters were involved in any stock issuances.

Covol  believes  that the  following  issuances  of shares of common  stock,  or
securities  exercisable  for or  convertible  into shares of common stock,  were
exempt from the  registration  requirements  of the  Securities  Act of 1933, as
amended,  pursuant to the exemption set forth in Section 4(2) or 4(6) thereof or
Regulation D promulgated  thereunder and the certificate for each security bears
a restrictive  legend.  Each investor made  representations to Covol that it was
accredited  as that term is defined in  Regulation  D and that the  security was
acquired for investment purposes.

Reference is made to the  conversions of series C and series D preferred  stock;
to the issuance of convertible  debt and subsequent  conversions and redemptions
of  certain  convertible  debt;  and to the  amendments  to the terms of certain
options and warrants for the purchase of common stock,  all as described in Note
2 to the consolidated financial statements.

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES

None.

                                       19
<PAGE>


ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5.     OTHER INFORMATION

None.

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

(a)      The following exhibits are included herein:

         10.66    Assignment and Amendment Agreement with Covol, Utah Synfuel #1
                  Ltd., AJG Financial Services, Inc., and Coaltech No. 1 L.P.

         27.1     Financial Data Schedule

(b)      A report on Form 8-K was filed on November 10, 1999 for an event  dated
         November 1, 1999.  In  addition,  a Form 8-K was filed on January 24,
         2000 related to two events dated  December  31, 1999 and January 18,
         2000.  The events  reported in  both Forms 8-K were reported under Item
         5  Other Events.

                                       20
<PAGE>

                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                                      COVOL TECHNOLOGIES, INC.



Date:  February 10, 2000              By: /s/ Kirk A. Benson
                                         ---------------------------------------
                                         Kirk A. Benson, Chief Executive Officer
                                         and Principal Executive Officer



Date:  February 10, 2000              By: /s/ Steven G. Stewart
                                         ---------------------------------------
                                         Steven G. Stewart, Chief Financial
                                         Officer and Principal Financial Officer

                                       21