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

                                    FORM 10-Q
(Mark One)

[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 1997
                                       OR

[ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        AND EXCHANGE ACT OF 1934

     For the transition period from ___________________to ________________

                         Commission file number 0-27803

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

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


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


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




(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 14 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 [ ] 

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

         Indicate  the  number of  shares  outstanding  of each of the  issuer's
classes of common stock, as of the latest practicable date.

   Class of Stock                                      Amount  Outstanding

$.001 par value Common Stock                 7,944,870 Shares of Common Stock
                                                         at May 8, 1997


<PAGE>



                            COVOL TECHNOLOGIES, INC.

                                TABLE OF CONTENTS

                                                                     Page No.

Part I - Financial Information

   Item 1.      Consolidated Financial Statements (Unaudited)


                Consolidated Balance Sheets........................1
                Consolidated Statements of Operations..............2
                Consolidated Statements of Cash Flows..............3
                Notes to Financial Statements......................4


   Item 2.      Management's Discussion and Analysis of
                Financial Condition and Results of
                Operations.........................................9



Part II - Other Information

   Item 1.      Legal proceedings................................14
   Item 2.      Changes in securities............................14
   Item 3.      Defaults upon senior securities..................15
   Item 4.      Submission of matters to a vote..................15
                 of security holders
   Item 5.      Other information................................15
   Item 6.      Exhibits and reports on Form 8-K.................16



This  report  contains  forward  looking  statements  within the  meaning of the
Private  Securities  Litigation  Reform Act. The cautionary  language  regarding
forward  looking  statements set forth in Item 2 of Part I of this report should
be  carefully  reviewed  in  connection  with the review of any  portion of this
report.



<PAGE>
                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)
                         ------------------------------
<TABLE>
<CAPTION>
                                                                               As of                      As of
                                                                             March 31,               September 30,
                                                                                1997                      1996
                                                                         -----------------         ------------------
         ASSETS

Current assets:
<S>                                                                      <C>                       <C>               
   Cash and cash equivalents                                             $          44,253         $          490,106
   Receivables                                                                      32,084                     77,744
   Inventories                                                                     363,594                    162,757
   Advances on inventory                                                           750,000                          0
   Notes receivable - current                                                      362,995                          0
   Notes receivable - related parties, current                                       1,732                      3,733
   Prepaid expenses and other current assets                                        82,535                     44,733
                                                                         -----------------         ------------------
Total current assets                                                             1,637,193                    779,073
                                                                         -----------------         ------------------
Property, plant and equipment, net of accumulated depreciation                   8,031,556                  7,125,245
                                                                         -----------------         ------------------ 
Other assets:
   Cash surrender value of life insurance                                          152,112                    152,112
   Notes receivable - non-current                                                3,161,733                          0
   Notes receivable - related parties, non-current                                 672,125                    700,000
   Deposits and other assets                                                       107,010                     15,642
                                                                         -----------------         ------------------
Total other assets                                                               4,092,980                    867,754
                                                                         -----------------         ------------------  
Total assets                                                             $      13,761,729         $        8,772,072
                                                                         =================         ==================
         LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
   Accounts payable                                                      $       1,005,750         $        2,183,278
   Payable for coal briquetting equipment                                        1,402,040                          0
   Accrued liabilities                                                             518,617                    333,936
   Notes payable - current                                                         573,545                    958,086
   Notes payable - related parties, current                                        895,470                    786,000
                                                                         -----------------         ------------------
Total current liabilities                                                        4,395,422                  4,261,300
                                                                         -----------------         ------------------
Long-term liabilities:
   Notes payable and convertible debentures - non-current                        4,847,133                    150,980
   Deferred compensation                                                           218,179                    212,612
                                                                         -----------------         ------------------
Total long-term liabilities                                                      5,065,312                    363,592
                                                                         -----------------         ------------------
Total liabilities                                                                9,460,734                  4,624,892
                                                                         -----------------         ------------------  
Minority interest in consolidated subsidiaries                                   4,589,470                  4,380,544
                                                                         -----------------         ------------------
Commitments and contingencies (notes 3 and 7)

Stockholders' deficit:
   Common stock:  $0.001 par value; authorized:  25,000,000
      shares issued and outstanding:  7,944,870 at March 31, 1997
       and 7,610,373 at September 30, 1996                                           7,945                      7,610
   Common stock to be issued: 0 shares at March 31, 1997
      and 103,750 at September 30, 1996                                                  0                        104
   Capital in excess of par value                                               35,397,078                 32,780,515
   Capital in excess of par value - common stock to be issued                            0                    934,896
   Accumulated deficit                                                        (22,636,787)               (21,196,476)
   Notes and interest receivable - related parties from issuance of
      or collateralized by common stock (net of allowance) (note 4)            (7,587,966)                (7,580,071)
   Deferred compensation from stock options                                    (5,468,745)                (5,179,942)
                                                                         ----------------          -----------------
Total stockholders' deficit                                                      (288,475)                  (233,364)
                                                                         ----------------          -----------------
Total liabilities and stockholders' deficit                              $     13,761,729          $       8,772,072
                                                                         ================          =================
</TABLE>

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

                                        1

<PAGE>


                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
                               -------------------
<TABLE>
<CAPTION>
                                                 Three months         Three months           Six months               Six months
                                                     Ended               Ended                 Ended                    Ended
                                                   March 31,            March 31,             March 31,                March 31,
                                                     1997                1996                   1997                     1996

Revenues:
<S>                                             <C>                <C>                    <C>                     <C>             
   License fee                                  $     1,400,000    $             0        $      1,400,000        $              0
   Synthetic fuel sales                                  20,194                  0                 124,341                   3,741
   Returns on synthetic fuel sales                      (82,500)                 0                 (82,500)                      0
   Binder sales                                           4,017                  0                   4,017                       0
                                                ---------------    ---------------        ----------------        ---------------- 
Total revenues                                        1,341,711                  0               1,445,858                   3,741

Operating costs and expenses:
   Cost of briquetting operations                       385,112            430,326                 749,692                 430,326
   Research and development                              65,396             90,357                 170,463                 525,251
   Selling, general and administrative                  422,523            675,618               1,229,837               1,671,590
   Compensation expense on stock options                235,739          2,576,910                 548,698               2,889,869
   Compensation expense on issuance of
      common stock                                       40,500             45,873                  40,500                  69,123
   Minority interest in income of
      consolidated subsidiaries                         169,078                  0                 150,926                       0
                                                ---------------    ---------------        ----------------        ----------------
Total operating costs and expenses                    1,318,348          3,819,084               2,890,116               5,586,159
                                                ---------------    ---------------        ----------------        ----------------

         Operating income (loss)                         23,363         (3,819,084)             (1,444,258)             (5,582,418)
                                                ---------------    ---------------        ----------------        ----------------
Other income (expense):
   Write-down of note receivable (note 4)              (775,000)          (199,575)                (50,000)               (199,575)
   Interest income                                      131,781             92,861                 259,587                 111,356
   Interest expense                                    (140,021)           (29,776)               (205,897)                (44,048)
   Other income (expense)                                 3,064           (144,794)                  4,453                (144,198)
   Loss on sale of assets                                (4,196)                 0                  (4,196)                      0
                                                ---------------    ---------------        ----------------        ----------------
Total other income (expense)                           (784,372)          (281,284)                  3,947                (276,465)
                                                ---------------    ---------------        ----------------        ----------------
Loss from continuing operations before
  income taxes                                         (761,009)        (4,100,368)             (1,440,311)             (5,858,883)
Income tax provision                                          0            (23,000)                      0                 (23,000)
                                                ---------------    ---------------        ----------------        ----------------
Loss from continuing operations                        (761,009)        (4,123,368)             (1,440,311)             (5,881,883)
                                                ---------------    ---------------        ----------------        ----------------
Discontinued operations:
   Loss from discontinued operations                          0           (440,588)                      0                (590,480)
   Loss on disposal of discontinued operations                0           (291,025)                      0                (291,025)
                                                ---------------    ---------------        ----------------        ----------------
Income (loss) from discontinued operations                    0           (731,613)                      0                (881,505)
                                                ---------------    ---------------        ----------------        ----------------
Net loss                                        $      (761,009)   $    (4,854,981)       $     (1,440,311)       $     (6,763,388)
                                                ===============    ===============        ================        ================
Net loss per common share:
   Loss per share from continuing operations    $         (0.10)   $         (0.58)       $          (0.19)       $          (0.90)
   Loss per share from discontinued operations             0.00              (0.10)                   0.00                   (0.13)
                                                ---------------    ---------------        ----------------        ----------------
Net loss per share (note 2)                     $         (0.10)   $         (0.69)       $          (0.19)       $          (1.03)
                                                ===============    ===============        ================        ================ 
Weighted average shares outstanding                   7,854,178          7,084,704               7,785,579               6,546,244
                                                ===============    ===============        ================        ================

</TABLE>


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

                                        2

<PAGE>
                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                        ---------------------------------
<TABLE>
<CAPTION>

                                                                                   Six Months Ended         Six Months Ended
                                                                                          Ended                   Ended
                                                                                         March 31,               March 31,
                                                                                            1997                    1996

Cash flows from operating activities:
<S>                                                                              <C>                      <C>                
   Net loss                                                                      $        (1,440,311)     $       (6,763,388)
      Adjustments to reconcile net loss to net cash used in
       operating activities:
         Depreciation and amortization                                                       104,345                  86,421
         Common stock issued for services                                                     40,500                 361,456
         Write-down of note receivable                                                        50,000                 199,575
         Amortization of deferred compensation on stock options                              548,698               2,889,869
         Loss on disposal of discontinued subsidiaries                                             0                 291,025
         Interest earned on notes receivable - related parties, 
           collateralized by common stock                                                   (160,895)                (88,594)
         Loss on sale of equipment                                                             4,196                       0
         Deferred income taxes                                                                     0                  23,000
         Gain applicable to minority interests in subsidiaries                               150,926                       0
   Increase (decrease)  from changes in assets and  liabilities
    of  continuing operations:
      Receivables                                                                             45,660                  20,562
      Inventories                                                                           (200,837)                (22,208)
      Advances on inventory                                                                 (750,000)                      0
      Prepaid expenses and other current assets                                              (37,802)                  5,402
      Deposits and other assets                                                              (91,368)                (42,553)
      Accounts payable                                                                    (1,177,528)                218,872
      Payable for coal briquetting equipment                                               1,402,040                       0
      Accrued liabilities                                                                    184,681                (171,557)
      Deferred compensation                                                                    5,567                   5,287
   Discontinued operations non-cash charges and working capital changes                            0                (202,259)
                                                                                 -------------------      ------------------   
Net cash used in operating activities                                                     (1,322,128)             (3,189,090)
                                                                                 -------------------      ------------------ 
Cash flows from investing activities:
   Cash paid for property, plant and equipment                                            (4,514,852)             (1,736,669)
   Issuance of notes receivable                                                              (49,456)                      0
   Issuance of notes receivable - related parties                                                  0                  (8,495)
   Proceeds from notes receivable                                                             24,728                       0
   Proceeds from notes receivable - related parties                                           29,876                       0
   Increase in cash surrender value of life insurance                                              0                  (6,250)
                                                                                 -------------------      ------------------
Net cash used in investing activities                                                     (4,509,704)             (1,751,414)
                                                                                 -------------------      ------------------
Cash flows from financing activities:
   Proceeds from cash overdraft                                                                    0                  14,464
   Proceeds from issuance of limited partnership interests in subsidiaries                   350,000                       0
   Payments on distribution to limited partnership interests in subsidiaries                (292,000)                      0
   Proceeds from notes payable                                                             4,710,721                       0
   Proceeds from notes payable - related party                                               109,470                       0
   Payment on notes payable                                                                 (260,713)                (11,159)
   Payment on notes payable - related parties                                                      0              (2,169,339)
   Proceeds from note receivable - related parties collateralized by common stock            103,000                 164,841
   Proceeds from issuance of common stock (net)                                              665,501               5,650,531
                                                                                 -------------------      ------------------     
Net cash provided by financing activities                                                  5,385,979               3,649,338
                                                                                 -------------------      ------------------
Net decrease in cash                                                                        (445,853)             (1,291,166)
                                                                                 -------------------      ------------------
Total cash and cash equivalents, beginning of period                                         490,106               1,291,166
                                                                                 -------------------      ------------------    
Total cash and cash equivalents, end of period                                   $            44,253      $                0
                                                                                 ===================      ==================

Supplemental schedule of noncash investing and financing activities:
   Common stock issued for notes receivable                                      $                 0      $        6,159,375
   Common stock issued on payment of notes payable                                           138,396                       0
   Obligations assumed in connection with sale of subsidiaries                                     0               4,636,435
   Note receivable for subsidiaries (net of imputed interest)                                      0               4,349,575
   Notes receivable issued for sale of briquetting facility                                3,500,000                       0
</TABLE>

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

                                       3
<PAGE>



1.       Management Opinion:

In the opinion of management,  the  accompanying  financial  statements  present
fairly the financial position of Covol Technologies,  Inc. and Subsidiaries (the
Company)  as of  September  30,  1996 and March 31,  1997,  the  results  of its
operations  for the three  months and six months  ended March 31, 1996 and March
31,  1997 and its cash flows for the six months  ended  March 31, 1996 and March
31,  1997.  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 Company's  Annual Report  included in Form 10-K
for the year ended September 30, 1996.

2.       Loss Per Share Calculation

Primary average shares include only common shares  outstanding.  The computation
of fully diluted net loss per common share was  antidilutive  in each period for
which a net loss was presented.

3.       Inventories and Advances on Inventories

Inventories  and advances on inventories are stated at the lower of average cost
or market, and consist of coal fines, synthetic fuel and binder materials.

During the quarter the Company entered into contractual  arrangements to acquire
coal fines and to conduct recovery and preparation activities. Total obligations
to acquire the fines are  approximately  $5,500,000  of which  $750,000 has been
paid with the balance due over time.  The Company has  accounted for the initial
amount paid as an advance  payment for  inventory.  The Company  will reflect in
inventory the cost for such fines as they are processed into synthetic fuel.

4.       Change in Estimate of Fair Value of Note Receivable

During  the three  months  ended  March 31,  1997,  the  Company  increased  the
allowance for impairment on the $5,000,000  face value note  receivable from two
stockholders  by $775,000 to an adjusted loan value of $1,600,000.  The increase
in the  allowance  was based upon a $3.875 per share  decrease in the  Company's
common stock that collateralizes the note receivable. The estimate is subject to
future  fluctuations due to market changes.  (See Part II, Item 5 for discussion
of note receivable.)

5.       Convertible Debentures

AJG Financial Services, Inc.

In December  1996, the Company  entered into a Debenture  Agreement and Security
Agreement  with  AJG  Financial  Services,  Inc.,  an  affiliate  of  Arthur  J.
Gallagher,  whereby the Company  borrowed  $1,100,000,  and may,  under  certain
circumstances,  draw down an additional  amount of up to $2,900,000 (for a total
borrowed amount of $4,000,000). In consideration for the loan of $1,100,000, the
Company issued a Convertible Subordinated Debenture accruing interest


                                       4

<PAGE>


                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                                   (Continued)
                             -----------------------

5.       Convertible Debentures, continued

at 6% per  annum  and  maturing  three  years  from  its date of  issuance  (the
"Subordinated  Debenture").  The  interest  and  principal  of the  Subordinated
Debenture is payable on maturity.  The Company does not have the right to prepay
any portion of the principal of the Subordinated  Debenture,  and the Company is
required  to prepay  the  Subordinated  Debenture  if a change in control of the
Company occurs. All or a portion of the unpaid principal due on the Subordinated
Debenture is convertible into Company common stock.  Subsequent to the March 31,
1997 quarter AJG Financial Services, Inc. executed an option to convert the loan
of $1,100,000 to an equity position.

During the quarter ended March 31, 1997, the Company borrowed  $2,792,172 of the
$2,900,000  available under the Debenture Agreement with AJG Financial Services,
Inc. as described above. In consideration for the amount drawn down, the Company
issued  Senior  Debentures  in such amount  accruing  interest at prime plus two
percent  (2%) and  maturing  three years from the date of issuance  (the "Senior
Debentures").  The Senior Debentures are collateralized by all real and personal
property  purchased by the Company  with the proceeds of the Senior  Debentures.
The proceeds of the  Subordinated  Debentures  and the Senior  Debentures may be
used to satisfy contractual  obligations of the Company, for working capital and
to purchase  equipment to be used to construct  synthetic fuel  facilities to be
managed and/or sold by the Company or affiliates of the Company.

PacifiCorp Financial Services, Inc.

As a part of its Alabama  transaction  with  PacifiCorp,  the Company executed a
Convertible Loan and Security Agreement with PacifiCorp Financial Services, Inc.
("PFS") dated March 20, 1997.  The agreement  provides for the Company to borrow
up to $5,000,000 primarily for: completing  construction of the Alabama project,
acquiring  coal fines and for other purposes  related to the project.  To secure
the loan, the Company and Alabama Synfuel #1, Ltd. gave PFS a security  interest
in all personal and real property assets connected with the Alabama project. The
loan accrues interest at prime plus two (2%) with interest and principal payable
on March 20,  1998.  The  agreement  provides PFS with the option to convert the
unpaid  principal and interest and any  remaining  loan  commitment  amount into
shares of the Company's  common  stock,  convertible  at $7.00 per share.  As of
March 31, 1997 the Company had not drawn down any funds on the $5,000,000 credit
line. As of May 15, 1997,  the Company had drawn  $1,014,723  of the  $5,000,000
credit line.

                                       5

<PAGE>


                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                                   (Continued)
                             -----------------------

6.       Stockholders' Deficit
The table below presents the activity in  stockholders'  deficit from January 1,
1997 through March 31, 1997.

<TABLE>
<CAPTION>
                                                                                                           Notes and       
                                                                                                            interest  
                                                                                                           receivable-
                                                                                                            related  
                                                                                                          parties from   Deferred
                                     Common Stock                 Common Stock to be issued               issuance of,    compen-
                                                     Capital in                  Capital in               or collater-    sation
                                                      excess of                   excess of  Accumulated   alized by     on stock
                                   Shares    Amount   par value    Shares  Amount par value     Defict    common stock    options
                                  ---------  ------- -----------  -------  ------ --------- ------------  ------------  ----------  
<S>                              <C>        <C>     <C>           <C>      <C>   <C>       <C>           <C>          <C>         
Balance at January 1, 1997        7,734,123  $7,734  $33,952,892   85,000   $85   $632,415  ($21,875,778) ($8,283,480) ($5,129,484)

Common stock issued for cash         60,000      60      584,940  (60,000)  (60)  (584,940)
received in a prior period

Cash received in payment on notes                                                                               1,500
 receivable - related parties from
 issuance of common stock

Common stock issued for cash,       125,000     125      105,376  (25,000)  (25)   (47,475)
 including exercise of stock
 options (net)

Deferred compensation related                            575,000                                                          (575,000)
 to the issuance of stock options
 at below market value to officers, 
 directors, employees and consultants

Amortization of deferred                                                                                                   235,739
 compensation on stock options

Interest earned on notes receivable -                                                                        (80,986)
 related parties from issuance of or
 collateralized by common stock

Write-down of notes receivable -                                                                             775,000
 related party

Common stock issued for services      4,834       5      40,495

Common stock issued to repay note    20,913      21     138,375
 payable

Net loss for the quarter ended                                                                  (761,009)
 March 31, 1997
                                 ----------  ------ -----------     ----- -----    -------  ------------ -----------   -----------
Balance at March 31, 1997         7,944,870  $7,945 $35,397,078         0    $0         $0  ($22,636,787)($7,587,966)  ($5,468,745)
                                 ==========  ====== ===========     ===== =====    =======  ============ ===========   =========== 
</TABLE>

                                        6

<PAGE>


                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                                   (Continued)
                           --------------------------

7.       Contingencies

In  connection  with  construction  agreements  entered  into by the  Company in
December 1996, in order to assure the agreements would be considered  binding on
the Company,  the Company agreed to penalty  clauses in the aggregate  amount of
$3,012,000  if the  Company  fails  to build  the  facilities.  There  can be no
assurance  that the  facilities  will be built.  In  connection  with  licensing
agreements  entered into by the Company,  in December 1996, the Company  entered
into  indemnity  agreements  with a contractor  which may result in a contingent
liability of up to $4,500,000 on or after June 2, 1998.

The Company entered into a letter of intent with Innovative Technologies in July
of 1995 to  apply  Covol's  briquetting  technology  to  certain  metallic  ores
supplied by Innovative.  The Company conducted numerous tests of the ore through
the fall of 1995,  and  concluded  from the  results  that the  venture  was not
economically viable.  Accordingly,  final agreement to process the ore was never
reached.  On March 4, 1997,  Innovative  Holding  Company,  Inc.,  a  California
corporation,  and ORO Limited, a California limited  partnership,  filed a civil
complaint  against  the Company  alleging  breach of the letter of intent in the
amount of $500,000 plus damages. The Company intends to defend the suit.

On January 30, 1997, S.C.  Marketing,  Inc., a California  corporation,  filed a
civil complaint against the Company alleging breach of contract in the amount of
$137,440 plus damages. The Company entered into a settlement agreement with S.C.
Marketing,  Inc.  whereby it issued  20,913  shares of Company  common  stock in
settlement of the complaint (valued at $138,396 and previously accrued as a note
payable).

On February 1, 1996, the Company  entered into a Stock  Purchase  Agreement with
former principals of IME, State, CIC and Larson to sell all of the common shares
of the  subsidiaries  to the Buyers for a  $5,000,000  face value 6%  promissory
note.  The Buyers have raised  various  contentions  regarding  the Note and the
Agreement.  The Note is collateralized by 100,000 shares of the Company's common
stock  owned  by the  Buyers  and held by the  Company,  100,000  shares  of the
Company's  common  stock  committed by the Buyers to be provided to the Company,
and  personal  guarantees  of  the  Buyers.  The  Buyers  claim  that  Covol  is
responsible to pay additional amounts beyond the $3,500,000  provided for in the
agreement.  Furthermore,  the Buyers claim that the Company  represented to them
payment terms that are different from the original  promissory note. The Company
accrued as of September 30, 1996 approximately  $650,000 of additional  expenses
related to the discontinued  operations for the wind-down period which were paid
or accrued by the subsidiaries.  The Company is investigating the claims made by
the  Buyers and the  Company  anticipates  that an  amicable  settlement  can be
reached.  However,  there can be no assurance that a settlement  will be reached
with the Buyers.

In connection with the engagement of RAS Securities Corp. as placement agent and
as settlement of a dispute regarding the Letter  Agreement,  the Company entered
into a Settlement Agreement,  dated as of January 27, 1997, with RAS and certain
principals  of RAS  whereby  the Company  agreed to issue  approximately  26,300
shares of Company  common  stock to the  Individuals  in  settlement  of certain
alleged rights under a Letter Agreement, dated as of April 5, 1996, by and among
RAS and the Company. Under the disputed Letter Agreement,  RAS exercised certain
warrants to purchase  65,000 shares of Company common stock.  In accordance with
the RAS  Settlement  Agreement,  the parties are  mutually  released  from their
respective rights and obligations, if any, under the Letter Agreement.

                                       7

<PAGE>


                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                                   (Continued)
                           --------------------------

8.       Other Matters

In March 1997,  the Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards  No. 128,  Earnings Per Share.  This  statement
establishes  standards for computing and  presenting  earnings per share ("EPS")
and makes them  comparable to  international  EPS  standards.  This statement is
effective for financial  statements  for both interim and annual  periods ending
after December 15, 1997.  The Company is currently  evaluating the impact of the
recently issued  statement and will adopt the  requirements  for the year ending
September 30, 1998.
 .
The Company has reviewed other 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 the Company.  Based on that  review,  the
Company  believes  that none of these  pronouncements  will  have a  significant
effect on current or future earnings or operations.

9.       Sale of Utah Briquetting Project.

On March 10, 1997, the coal briquetting  facility located near Price,  Utah (the
"Utah  Project") was sold to Coaltech.  The sold property  consisted of tangible
personal  property used in the  manufacture of synthetic coal fuel. The sale was
effective March 7, 1997. The ownership of Coaltech reflects Covol  Technologies,
Inc. as general partner (holding a 1% interest),  AJG Financial  Services,  Inc.
and Square D Company. AJG Financial Services,  Inc. is a wholly-owned subsidiary
of Arthur J.  Gallagher & Co.,  and Square D Company is a  subsidiary  of Groupe
Schneider. The Sale was funded by a promissory note of $3,500,000 with quarterly
payments of $130,000 through December 31, 2007.

In  connection  with the sale to Coaltech No. 1 L.P.,  Coaltech  paid an initial
license  fee of  $1,400,000  to the  Company,  for use of the  coal  briquetting
technology. The license fee has been recognized upon receipt.

                                        8

<PAGE>


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

Results of Operations

Three months ended March 31, 1997 compared to three months ended March 31, 1996

Revenues

In the three months  ended March 31,  1997,  total  revenues  were  increased by
$1,341,711  compared to no revenues reported in the comparable period in 1996. A
one-time  license fee revenue of  $1,400,000  was the primary  source of revenue
during the period.  The license  fee revenue was earned in  connection  with the
March 10, 1997 sale of the coal briquetting  facility  located near Price,  Utah
(the "Utah  Project").  The Company  anticipates  that it will  continue to earn
license  fees from the Utah  Project and from the sale and  operation of similar
plants.

Margins, Costs and Expenses

The Company's  operating loss changed to income of $23,363 for the quarter ended
March 31, 1997  compared  to a loss of  $3,819,084  reported  in the  comparable
period in 1996.  The  reduction in operating  loss was due  principally:  to the
increase  in  revenues  of  $1,341,711  as  discussed   above;  a  reduction  in
compensation  expense on stock options of $2,341,171 to $235,739;  a decrease in
research  and  development  expenses  of $24,961 due to the  Company's  focus on
commercialization  of its technology through the construction and startup of its
first full scale  briquetting  facility;  a decrease  in  selling,  general  and
administrative  expenses of $253,095 related  principally to reductions in costs
for outside  professional  services and travel  expenses;  a decrease in cost of
briquetting  operations  of $45,214 to $385,112.  Compensation  expense on stock
options for the three months ended March 31, 1996 of  $2,576,910 is based on the
restated  financial  statements  for that  period  filed in the  Company's  Form
10-Q/A, Amendment No. 1 for the period ended March 31, 1996.

The cost for  briquetting  operations  was  substantially  more than the revenue
generated for the sales of briquettes  because the amount includes costs for the
continuing  refinement and development of the  briquetting  process and product.
For a more detailed  discussion of the  Company's  operations  see the Company's
Form 10-K for fiscal year ended September 30, 1996 and Form 10-Q for the quarter
ended December 31, 1996.

Net Loss

For the quarter ended March 31, 1997,  the Company has a net loss of $761,009 as
compared  to a net loss of  $4,854,981  for the  comparable  period in 1996.  In
addition to the items described  above,  the decrease in net loss is also due to
the difference in loss from discontinued operations.  For the three months ended
March 31, 1996 the loss from discontinued operations was $731,613.  There was no
additional loss for discontinued operations recorded for the quarter ended March
31,  1997.  The  decrease  in  operating  expenses  was offset by an increase in
write-down  of the  note  receivable  related  to  the  sale  of  the  Company's
previously  owned  subsidiaries  (discontinued  operations)  in  the  amount  of
$575,425 to $775,000.

                                        9
<PAGE>

Results of operations

Six months ended March 31, 1997 compared to six months ended March 31, 1996

Revenues

In the six months ended March 31,  1997,  total  revenues  were  $1,445,858;  an
increase of $1,442,117 from $3,741 reported in the comparable  period in 1996. A
one-time  license fee of  $1,400,000  was the primary  reason for the  increased
revenue.  In  addition,  the Company  had  revenue of $124,341  from the sale of
briquettes  in the six months ended March 31, 1997 and had returns of $82,500 of
briquette  sales during the same  period.  The sale of  briquettes  is primarily
attributable  to production  from the Utah Project.  The license fee revenue was
earned in connection with the sale of the Utah Project.  The Company anticipates
that it will  continue to earn  license  fees from the Utah Project and from the
sale and operation of similar plants.

Margins, Costs and Expenses

The Company's  operating  loss  decreased to $1,444,258 for the six months ended
March 31, 1997 from $5,582,418  loss reported in the comparable  period in 1996.
The change in operating loss was due principally to: the increase in revenues of
$1,442,117;  a reduction in compensation  expense on stock options of $2,341,171
to $548,698; increase in cost of briquetting operations of $319,366 to $749,692;
a decrease in research and development expenses of $354,788 due to the Company's
focus on  commercialization  of its  technology  through  the  construction  and
startup of its first full scale  briquetting  facility;  a decrease  in selling,
general  and  administrative   expenses  of  $441,753  related   principally  to
reductions in costs for outside professional  services and travel expenses;  and
an increase in the minority  interest in income of consolidated  subsidiaries of
$150,926  from $0 for the  comparable  period in 1996.  Compensation  expense on
stock  options for the six months ended March 31, 1996 of $2,889,869 is based on
the restated  financial  statements  for that period filed in the Company's Form
10-Q/A, Amendment No. 1 for the period ended March 31, 1996.

Cost of  briquetting  operations  for the six months  ended  March 31,  1997 was
$749,692,  an increase of $319,366 from the comparable  period in 1996. The cost
for briquetting operations was substantially more than the revenue generated for
the sales of briquettes  because the amount  includes  costs for the  continuing
refinement and  development of the briquetting  process and product.  For a more
detailed discussion of the Company's operations, see the Company's Form 10-K for
fiscal  year  ended  September  30,  1996 and Form  10-Q for the  quarter  ended
December 31, 1996.

Net Loss

For the  six  months  ended  March  31,  1997,  the  Company  had a net  loss of
$1,440,311 as compared to a net loss of $6,763,388 for the comparable  period in
1996. In addition to the items described above, the decrease in net loss is also
due to other income of $3,947 for the six months  ended March 31, 1997  compared
to other  expenses of $276,465  incurred in the same period for 1996 and no loss
from  discontinued  operations  for the period ended March 31, 1997. For the six
month period ended March 31, 1996 the Company incurred a loss from  discontinued
operations of $881,505.

Liquidity and Capital Resources

The Company  continues  to make  progress  toward the  commercialization  of its
technology and movement towards becoming an operating company with less emphasis
on  development.  Cash used by the  Company in  operating  activities  decreased
$1,866,962  during the six months ending March 31, 1997 ($1,322,128  compared to
$3,189,090  for the same  period  in 1996)  principally  due to an  increase  of
revenues and a decrease in research and development  expense,  selling,  general
and administrative expense and compensation expense on stock options.

The Company  increased  its  investment in property,  plant and  equipment  from
$1,736,669  for the six months  ended March 31, 1996 to  $4,514,852  for the six
months  ended  March 31, 1997 due  principally  to the  development  of the Utah
Project.  The Company was able to fund these  capital  expenditures  principally
through the issuance of common stock,  funding through limited  partners of Utah
Synfuel #1, Ltd. ("Utah  Synfuel"),  of which the Company is the general partner
and 60% equity owner, and the issuance of notes payable.

                                       10

<PAGE>

In  connection  with  construction  agreements  entered  into by the  Company in
December 1996, in order to assure the agreements would be considered  binding on
the Company,  the Company agreed to penalty  clauses in the aggregate  amount of
$3,012,000  if they failed to build the  facilities.  There can be no  assurance
that the  facilities  will be built.  In connection  with  licensing  agreements
entered  into by the  Company,  in  December  1996,  the  Company  entered  into
indemnity  agreements  with  a  contractor  which  may  result  in a  contingent
liability  of up to  $4,500,000  on or after June 2, 1998.  For a more  detailed
description of the construction and licensing agreements, see the Company's Form
10-K for fiscal year ended September 30, 1996.

During the quarter, the Company entered into contractual arrangements to acquire
coal  fines  and to  conduct  recovery  and  preparation  activities.  The total
obligation  to  acquire  the coal  fines is  approximately  $5,500,000  of which
$750,000  has been  paid with the  balance  due over 3 years.  $395,833  of such
obligation is due in fiscal year 1997.

On January  27,  1997,  the  Company  engaged RAS  Securities  Corp.,  to act as
placement  agent on a "best  efforts"  private  offering of a minimum  aggregate
principal   amount  of  $1,000,000   ($3,000,000   maximum)  of  8%  Convertible
Subordinated  Debentures of the Company to accredited  investors.  This offering
was  terminated  by the Company on March 27, 1997  without the  placement of any
debentures.

In connection with the engagement of RAS Securities  Corp.  ("RAS") as placement
agent and as settlement of a dispute  regarding  the Letter  Agreement  (defined
below), the Company entered into a Settlement Agreement, dated as of January 27,
1997 (the "RAS Settlement  Agreement"),  with RAS and certain  principals of RAS
(the  "Individuals")  whereby the Company agreed to issue  approximately  26,300
shares of Company  common  stock to the  Individuals  in  settlement  of certain
alleged rights under a Letter Agreement,  dated as of April 5, 1996 (the "Letter
Agreement"),  by and  among  RAS and the  Company.  Under  the  disputed  Letter
Agreement,  RAS exercised  certain warrants to purchase 65,000 shares of Company
common stock. In accordance with the RAS Settlement  Agreement,  the parties are
mutually  released from their respective  rights and obligations,  if any, under
the Letter Agreement.

The  Company  anticipates  that  cash  flow  from (i) the sale of  certain  coal
facilities,  (ii) fees for the operation of facilities  owned by third  parties,
(iii)  licensing  and royalty  fees from new plants  utilizing  the  briquetting
technology,  (iv)  the sale of  chemical  binder  to new  plants  utilizing  the
briquetting technology,  (v) sale of synthetic fuel product, (vi) fees from port
operations and loading,  (vii) cash distributions from its partnership interests
and (viii)  collections on notes receivable will be used to fund working capital
and other operating needs. Most of the cash flow from the above sources will not
occur until late 1997 and in subsequent years.

At March 31, 1997, the Company had a working capital deficit of $2,638,316.  The
Company is currently in discussions  with various sources for equity  financing.
The Company believes that the resources described above and the potential equity
financing  will be adequate  for the Company to meet its  obligations  in fiscal
year 1997  notwithstanding  its  working  capital  deficit  at March  31,  1997.
However,  there is no  assurance  that the  Company  will be able to obtain  the
necessary equity financing.

Loan from PacifiCorp

On March 20,  1997,  the Company  entered into a  Convertible  Loan and Security
Agreement (the "Loan Agreement") with PacifiCorp  Financial  Services,  Inc., an
Oregon  corporation  ("PacifiCorp").  Under the Loan  Agreement  the Company may
borrow  up to  $5,000,000  as  evidenced  by a draw  down  promissory  note (the
"Promissory  Note") payable to  PacifiCorp.  As of May 15, 1997, the Company has
drawn $1,014,723 under the Loan Agreement. Principal and accrued interest on the
Promissory  Note is due and payable on March 20, 1998 (the "Due  Date"),  unless
the Promissory Note is converted into Company common stock.  Interest due on the
Promissory  Note is calculated  based on a 360 day year and the actual number of
days lapsed,  and will be  compounded  monthly.  The interest rate is a rate per
annum  equal to the lesser of (i) the highest  rate  allowed by law, or (ii) the
sum of the rate of interest publicly  announced by Morgan Guaranty Trust Company
of New York in New York City from time to time plus two percent  (2%) per annum.
The proceeds of the loan (the "Loan") may be used by the Company to (i) complete
construction  of the coal  briquetting  facility  to be located  in  Birmingham,
Alabama (the "Alabama Project"), (ii) finance the purchase of coal fines for the
Alabama  Project,  (iii)  fund the net  working  capital  needs  of the  Alabama
Project,  (iv) finance the development and construction of a wash plant for coal
fines and (v) other uses related to the Alabama  Project  approved by PacifiCorp


                                       11

<PAGE>

in its sole discretion. The Company's obligation to repay the Loan is secured by
a security  interest and lien on certain property relating to the Alabama Plant.
In  addition,  PacifiCorp  has the  right to  convert  all or a  portion  of the
principal  and unpaid  interest  on the Loan at any time into  shares of Company
common  stock at a  conversion  price of $7.00 per  share,  subject  to  certain
adjustments as provided in the Loan Agreement.  On May 5, 1997, PacifiCorp filed
a  Schedule  13D with the  Securities  and  Exchange  Commission  reporting  its
beneficial ownership of 714,286 shares of Company common stock should PacifiCorp
convert  the full  amount  of the  Loan.  Pursuant  to the  Registration  Rights
Agreement,  dated as of March 20,  1997,  between the  Company  and  PacifiCorp,
PacifiCorp  has been  granted  certain  "demand" and  "piggy-back"  registration
rights with respect to shares of Company  common stock that could be acquired by
PacifiCorp pursuant to the Loan Agreement.

Pending Sale of Alabama Project

Pursuant to the Alabama Project Purchase  Agreement,  dated as of March 20, 1997
(the "Purchase Agreement"), by and between the Company, Alabama Synfuel #1 Ltd.,
a Delaware  limited  partnership  ("Alabama  Synfuel") and  Birmingham Syn Fuel,
L.L.C., an Oregon limited liability company ("Birmingham Syn Fuel"), the Company
and Alabama  Synfuel have agreed to sell,  and Birmingham Syn Fuel has agreed to
buy, the Alabama  Project,  subject to the terms and  conditions of the Purchase
Agreement.  The purchase  price for the Alabama  Project would be $3,400,000 and
would be payable in the form of a nonrecourse promissory note secured by certain
property of the Alabama Project. There are numerous conditions to the closing of
the sale of the Alabama Project,  including,  but not limited to, the receipt of
an Internal Revenue Service Letter Ruling (the "Letter Ruling").

In connection with the Loan from PacifiCorp described above and the pending sale
of the Alabama Project, Birmingham Syn Fuel I, Inc., and Birmingham Syn Fuel II,
Inc.  (collectively,  the "PFS  Parties"),  PacifiCorp,  Alabama Synfuel and the
Company entered into the  Conditional  Option  Agreement,  dated as of March 20,
1997  (the  "Conditional  Option  Agreement").   Under  the  Conditional  Option
Agreement, the Company granted to the PFS Parties and to PacifiCorp a put option
to require the Company to simultaneously  purchase all of the rights,  title and
interest of the PFS Parties in  Birmingham  Syn Fuel and all of the  interest of
PacifiCorp in the Loan and in the other Transactional Documents (as that term is
defined in the Purchase  Agreement)  excluding  shares obtained in conversion of
the Loan if (i) the Alabama Project is not completed  consistent with Birmingham
Syn Fuel's approved plans and  specifications  and placed in service (within the
meaning of Section 29 of the  Internal  Revenue  Code of 1996) by June 30, 1997,
(ii) a Letter  Ruling (as defined  above) is not received by June 30, 1997 which
is  satisfactory  to  Birmingham  Syn Fuel or (iii) if,  at any time,  there has
occurred and is continuing an "Event of Default" under the Loan Agreement  (each
being referred to herein as a "Put Event").  In no event,  however,  shall a Put
Event occur after receipt of a  satisfactory  Letter  Ruling by  Birmingham  Syn
Fuel.

Sale of Utah Project

On March 10, 1997,  the Utah  Project was sold to Coaltech  No.1 L.P., a limited
partnership consisting of Covol Technologies, Inc. as a general partner (holding
a 1% interest),  AJG Financial Services,  Inc. and Square D Company effective as
of March 7, 1997. AJG Financial Services,  Inc. is a wholly-owned  subsidiary of
Arthur J.  Gallagher  & Co.,  and  Square D Company  is a  subsidiary  of Groupe
Schneider.  See the Company's  Current  Report on Form 8-K, filed March 24, 1997
for additional information regarding the sale of the Utah Project.

Debentures

In December  1996, the Company  entered into a Debenture  Agreement and Security
Agreement with AJG Financial  Services,  Inc. to borrow $4,000,000.  In December
1996,  $1,100,000 in  convertible  subordinated  debentures  (the  "Subordinated
Debentures")  were issued and funded,  with an  additional  $2,900,000 in credit
available for future draw downs pursuant to Senior Debentures  (non-convertible)
to be issued by the Company. On January 2, 1997, the Company drew down $588,683,
on February 4, 1997 the Company drew down an additional $1,313,514,  on February
21, 1997 the Company drew down an additional $750,000,  and on February 28, 1997
the Company drew down an  additional  139,975 of the available  $2,900,000.  The
balance of the $2,900,000 loan will be used for  construction and development of
coal  agglomeration   facilities.  In  May  1997,  the  $1,100,000  Subordinated
Debentures  and accrued  interest were  converted  into 140,642 shares of common
stock based on a conversion price of $8.00 per share.


                                       12
<PAGE>

Forward Looking Statements

Statements  regarding the Company's  expectations  as to its liquidity,  capital
resources and certain other  information  presented in this Form 10-Q constitute
forward  looking  statements  within  the  meaning  of  the  Private  Securities
Litigation  Reform  Act  of  1995.   Although  the  Company  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 the economy and the Company's industry generally,  factors which could
cause actual results to differ from  expectations  include,  but are not limited
to, the following:

         (i)      The   commercial   success   of   the   Company's  briquetting
                    technology.
         (ii)     Procurement  of  necessary equipment  to place facilities into
                    operation.
         (iii)    Securing of  necessary sites and  raw materials for facilities
                    to be constructed and operated.
         (iv)     Timely construction and completion of facilities.
         (v)      Ability  to  obtain   needed   additional   capital  on  terms
                    acceptable   to   the   Company  in  order  to  finance  the
                    development  of  the  briquetting  technology  and   working
                    capital needs.
         (vi)     Changes in  governmental  regulation or failure to comply with
                    existing regulation could result in operational shutdowns of
                    its facilities.
         (vii)    The  ongoing  availability  of  tax  credits  under Section 29
                    of the Internal Revenue Code. 
         (viii)   Ability   to   meet  financial   commitments  under   existing
                    contractual arrangements.

With respect to tax credits  under  Section 29 of the  Internal  Revenue Code of
1996, as amended  ("Section  29"), on February 6, 1997, the Treasury  Department
released the General  Explanations of the  Administration's  Revenue  Proposals,
which  summarizes the tax-related  provisions  from the President's  Fiscal Year
1998 Budget submission to Congress (the "Proposed Federal Budget").  The initial
version of the Proposed  Federal Budget  proposes an amendment to a provision of
Section 29.  Currently,  Section 29 requires that facilities  producing  certain
qualified  fuels  (including  solid  synthetic fuel produced from coal) that are
constructed  pursuant to a binding  contract  in place by  December  31, 1996 be
placed in service by June 30, 1998.  (The "placed in service  date" and "binding
contract date" have been previously extended on several occasions, most recently
by the Small Business Jobs Protection Act of 1996.) The Proposed  Federal Budget
proposed  that the  placed-in-service  date be  changed  to June 30,  1997  (the
"Amendment").  If adopted, the Amendment would have a material adverse effect on
the financial condition of the Company.

On May 2, 1997,  the  Administration  announced  a new fiscal  year 1998  Budget
Agreement with Congress.  The new Budget Agreement  reduces by more than 30% the
amount  of  revenue  provisions  and does not  mention  Section  29 or any other
specific  revenue  provisions,   but  leaves  the  fiscal  year  detail  to  the
tax-writing committees of Congress.

The Company, together with other interested parties, will continue to oppose the
proposed  Amendment.  The Company believes that the Amendment will not likely be
included in the final Federal  Budget.  However,  no assurance can be given that
the  Amendment  will not be included  in the final  Federal  Budget  proposed by
Congress and the Administration.


                                       13
<PAGE>

PART II. OTHER INFORMATION

ITEM 1.           LEGAL PROCEEDINGS

The  Company  entered  into a letter  of  intent  with  Innovative  Technologies
("Innovative") in July of 1995 to apply the Company's briquetting  technology to
certain  metallic ores supplied by Innovative.  The Company  conducted  numerous
tests of the ore through the fall of 1995,  and concluded  from the results that
the venture was not economically viable. Accordingly, final agreement to process
the ore was never reached. On March 4, 1997, Innovative Holding Company, Inc., a
California corporation, and ORO Limited, a California limited partnership, filed
a civil complaint against the Company alleging breach of the letter of intent in
the amount of $500,000  plus  damages.  The  complaint was filed in the Superior
Court of California,  County of Orange (Case No. 776083). The Company intends to
defend the suit.

On January 30, 1997, S.C.  Marketing,  Inc., a California  corporation,  filed a
civil complaint against the Company alleging breach of contract in the amount of
$137,440  plus  damages  (valued at $138,396  and  previously  accrued as a note
payable). The complaint was filed in the Superior Court of California, County of
Orange  (Case No.  774760).  On March  26,  1997,  the  Company  entered  into a
settlement  agreement with S.C. Marketing,  Inc. whereby it issued 20,913 shares
of Company common stock in settlement of the complaint.

ITEM 2.           CHANGES IN SECURITIES.

Recent Sales of Unregistered Securities

The following sets forth securities issued by the Company 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  nor were any
commissions or similar fees paid in connection therewith.

The Company  believes  that the  following  issuance of shares of common  stock,
notes and  debentures  and other  securities  were exempt from the  registration
requirements  of the  Securities  Act  of  1933,  as  amended,  pursuant  to the
exemption set forth in Section 4(2) thereof.

On January 1, 1997, the Company granted 50,000 stock options, valued as deferred
compensation of $575,000,  to an executive of the Company,  at an exercise price
of $1.50/share. The options vest over a two-year period starting January 1, 1997
and ending December 31, 1998.

On January 2, 1997,  25,000 shares of common stock,  previously  shown as common
stock to be issued, were issued for $47,500,  which consisted of 3,000 shares of
common  stock  issued to an  employee  of the  Company in exercise of options at
$1.50,  10,000  shares  of common  stock  issued to an  accredited  investor  in
exercise  of  options at $1.50 and 12,000  shares of common  stock  issued to an
existing shareholder in exercise of warrants at $1.50.

As  described  in Part I, Item 2 above,  on January 2, 1997,  February  4, 1997,
February  21,  1997,  and on  February  28,  1997,  the  Company  issued  senior
debentures  in  the  aggregate  principal  amount  of  $2,792,172.   The  senior
debentures  accrue  interest at prime plus two percent (2%) and  maturing  three
years from the date of issuance (the "Senior Debentures"). The Senior Debentures
are  collateralized by all real and personal  property  purchased by the Company
with the proceeds of the Senior  Debentures.  The  proceeds of the  Subordinated
Debenture  and  the  Senior  Debentures  may  be  used  to  satisfy  contractual
obligations of the Company,  for working capital and to purchase equipment to be
used to construct coal  briquetting  facilities to be managed and/or sold by the
Company or affiliates of the Company.

On January 13,  1997,  the Company  issued  100,000  shares of common stock to a
former  executive of the Company in exercise of options at $1.50 per share.  The
consideration  was paid part in cash and part in offset of amounts  owing to the
individual by the Company.


                                       14
<PAGE>

As described in Part I, Item 2 above,  on January 27, 1997 the Company agreed to
issue 26,300 shares to certain principals of RAS Securities Corp.

On February  21,  1997 and March 6, 1977,  the  Company  issued  1,905 and 2,929
shares of common stock respectively,  to a consultant in exchange for consulting
services in the total amount of $40,500.

On March 14,  1997,  the  Company  issued  60,000  shares of common  stock to an
accredited  investor in a private  placement in connection  with the purchase of
property for the Alabama Project. The Company was given a credit of $585,000 for
the purchase of the property in exchange for the 60,000 shares.

As described in Part I, Item 2 above, on March 20, 1997 the Company executed and
delivered  a  promissory  note  in  the  aggregate  principal  amount  of  up to
$5,000,000 to PacifiCorp in  consideration  for a loan of up to $5,000,000.  The
loan is convertible  into common stock of the Company based on a $7.00 per share
conversion price.

As described in Part I, Item 2 above, on March 20, 1997 the Company executed and
delivered  the  Conditional  Option  Agreement to PacifiCorp  and  affiliates of
PacifiCorp  relating to the repurchase of their interest in Birmingham Syn Fuel,
L.L.C. and the loan made by PacifiCorp.

As  described  in Part II, Item 1 above,  on March 26,  1997 the Company  issued
20,913 shares of Company common stock,  valued at $138,396,  in settlement  with
S.C. Marketing, Inc.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

                  None

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

                  None

ITEM 5.  OTHER INFORMATION

In 1995, the Company made a strategic decision to focus its efforts  exclusively
on  commercializing  the  Briquetting  Technology  and to  divest  itself of its
construction and limestone subsidiaries  ("Subsidiaries").  On February 1, 1996,
the Company entered into a Stock Purchase  Agreement (the Agreement) with former
principals  of IME,  State,  CIC and Larson  (Buyers)  to sell all of the common
shares  of the  subsidiaries  to the  Buyers  for a  $5,000,000  face  value  6%
promissory  note (the Note).  See Item 1 of the Company's  Annual Report on Form
10-K for the year ended  September  30,  1996 for a detailed  discussion  of the
terms of the sale.

The Buyers have raised various contentions regarding the Note and the Agreement.
The Buyers claim that Covol is responsible to pay additional  amounts beyond the
$3,500,000 provided for in the agreement. Furthermore, the Buyers claim that the
Company  represented  to them payment terms that are different from the original
promissory  note.  The Company  accrued as of September  30, 1996  approximately
$650,000 of additional  expenses related to the discontinued  operations for the
wind-down period which were paid or accrued by the subsidiaries.  The Company is
investigating  the claims  made by the Buyers and  anticipates  that an amicable
settlement can be reached.  However, there can be no assurance that a settlement
will be reached with the Buyers.

The results of the construction and limestone operations have been classified as
discontinued operations for all periods presented in the Consolidated Statements
of Operations.  The assets and liabilities of the  discontinued  operations have
been classified in the Consolidated Balance Sheets as "Net assets - discontinued
operations."  Discontinued  operations have also been segregated for all periods
presented in the Consolidated Statements of Cash Flows.


                                       15
<PAGE>

PART II. OTHER INFORMATION


ITEM 6.           EXHIBITS AND REPORTS ON FORM 8-K

         (a)      Exhibits

                  Those  exhibits  previously  filed  with  the  Securities  and
                  Exchange Commission as required by Item 601 of Regulation S-K,
                  are  incorporated  herein by reference in accordance  with the
                  provisions of Rule 12b- 32.

                  10.38    Convertible Loan  and Security Agreement, dated as of
                           March 20, 1997,  by  and  between  the  Company   and
                           PacifiCorp Financial Services, Inc. ("PacifiCorp")

                  10.39     Alabama  Project  Purchase  Agreement,  dated  as of
                            March 20, 1997,  by and among the  Company,  Alabama
                            Synfuel #1, Ltd ("Alabama  Synfuel") and  Birmingham
                            Syn Fuel, L.L.C. ("Birmingham Syn Fuel")

                  10.40     Conditional  Option Agreement, dated as of March 20,
                            1997,  by  and  among  Birmingham  Syn Fuel I, Inc.,
                            Birmingham  Syn Fuel II, Inc.,  PacifiCorp,  Alabama
                            Synfuel and the Company

                  10.41     Registration Rights Agreement, dated as of March 20,
                            1997, by and between the Company and PacifiCorp.

                  27.1      Financial Data Schedule


         (b)      Reports on Form 8-K

                  On March 24, 1997,  the Company filed a Current Report on Form
                  8-K with the Securities and Exchange Commission disclosing its
                  sale of the Utah  Project to Coaltech  No. 1 L.P.,  a Delaware
                  limited partnership. The information was disclosed pursuant to
                  Item 2 of Form 8-K. Also disclosed in that report  pursuant to
                  Item 5 of the Form 8-K was the  appointment of Max E. Sorensen
                  as a Vice President of the Company.



                                       16

<PAGE>




                                   SIGNATURE


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

Date: May 19, 1997


                           COVOL TECHNOLOGIES, INC.

                           By: /s/ Brent M. Cook
                           --------------------------------------
                           Brent M. Cook, Chairman of the Board,
                           Chief Executive Officer and Principal
                            Executive Officer


                           By: /s/ Stanley M. Kimball
                           -----------------------------------------------   
                           Stanley M. Kimball, Principal Financial Officer


                                       17