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 June 30, 1997
                                       OR

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

For the transition period from _______________________________________________


                         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               8,558,123 Shares of Common Stock
                                                    at August 12, 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.......................................15
         Item 2.   Changes in securities...................................15
         Item 3.   Defaults upon senior securities.........................16
         Item 4.   Submission of matters to a vote
                   of security holders.....................................16
         Item 5.   Other information.......................................17
         Item 6.   Exhibits and reports on Form 8-K........................18



         Statements  in  this  Form  10-Q,   including   those   concerning  the
         Registrant's  expectations  regarding its business,  and certain of the
         information  presented  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
         such  expectations.  For a discussion  of the factors which could cause
         actual  results to differ  from  expectations,  please see the  caption
         entitled "Forward Looking Statements" in ITEM 2 hereof. There can be no
         assurance  that the  Registrant's  results  of  operations  will not be
         adversely affected by such factors.

<PAGE>
<TABLE>
<CAPTION>
                               COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES
                                 CONSOLIDATED STATEMENTS OF OPERATIONS
                                               (Unaudited)
                                          -------------------


                                                                               As of                      As of
                                                                             June 30,                September 30,
         ASSETS                                                                 1997                      1996
                                                                         -----------------         ------------------
Current assets:
<S>                                                                      <C>                       <C>
   Cash and cash equivalents                                             $         401,867         $          490,106
   Receivables                                                                     310,487                     77,744
   Receivable - related parties                                                     79,540                          0
   Inventories                                                                   1,739,204                    162,757
   Advances on inventory                                                           750,000                          0
   Notes receivable - current                                                      279,942                          0
   Notes receivable - related parties, current                                           0                      3,733
   Prepaid expenses and other current assets                                       109,100                     44,733
                                                                         -----------------         ------------------
Total current assets                                                             3,670,140                    779,073
                                                                         -----------------         ------------------
Property, plant and equipment, net of accumulated depreciation                  10,024,967                  7,125,245
                                                                         -----------------         ------------------
Other assets:
   Cash surrender value of life insurance                                          152,112                    152,112
   Notes receivable - non-current                                                3,140,053                          0
   Notes receivable - related parties, non-current                                 672,125                    700,000
   Deposits and other assets                                                       113,608                     15,642
                                                                         -----------------         ------------------
Total other assets                                                               4,077,898                    867,754
                                                                         -----------------         ------------------
Total assets                                                             $      17,773,005         $        8,772,072
                                                                         =================         ==================
         LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
   Accounts payable                                                      $       1,174,477         $        2,183,278
   Payable for coal briquetting equipment                                        2,255,850                          0
   Accrued liabilities                                                             134,839                    333,936
   Notes payable, current                                                          529,224                    958,086
   Convertible debentures, current                                               1,696,222                          0
   Notes payable - related parties, current                                        821,790                    786,000
                                                                         -----------------         ------------------
Total current liabilities                                                        6,612,402                  4,261,300
                                                                         -----------------         ------------------
Long-term liabilities:
   Accrued interest payable, non-current                                           178,681                          0
   Notes payable, non-current                                                    2,900,011                    150,980
   Convertible debentures, non-current                                           1,000,000                          0
   Deferred compensation                                                           369,462                    212,612
                                                                         -----------------         ------------------
Total long-term liabilities                                                      4,448,154                    363,592
                                                                         -----------------         ------------------
Total liabilities                                                               11,060,556                  4,624,892
                                                                         -----------------         ------------------
Minority interest in consolidated subsidiaries                                   4,589,514                  4,380,544
                                                                         -----------------         ------------------
Commitments and contingencies (note 7)
Stockholders' equity (deficit):
   Preferred stock:  $0.001 par value; authorized: 10,000,000
    shares issued and outstanding: $0 at June 30, 1997 and $0
    at Sept. 30, 1996                                                                    0                          0
   Common stock:  $0.001 par value; authorized:  25,000,000
     shares issued and outstanding: 8,469,838 at June 30, 1997
     and 7,610,373 at September 30, 1996                                             8,470                      7,610
   Common stock to be issued: 40,000 shares at June 30, 1997
     and 103,750 at September 30, 1996                                                  40                        104
   Capital in excess of par value                                               38,926,763                 32,780,515
   Capital in excess of par value - common stock to be issued                      239,960                    934,896
   Accumulated deficit                                                         (24,107,802)               (21,196,476)
   Notes and interest receivable - related parties from issuance of
     or collateralized by common stock (net of allowance)                       (7,566,415)                (7,580,071)
   Deferred compensation from stock options                                     (5,378,081)                (5,179,942)
                                                                         -----------------         ------------------
Total stockholders' equity (deficit)                                             2,122,935                   (233,364)
                                                                         -----------------         ------------------
Total liabilities and stockholders' equity (deficit)                     $      17,773,005         $        8,772,072
                                                                         =================         ==================
</TABLE>

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

                                       1
<PAGE>
<TABLE>
<CAPTION>
                            COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES
                              CONSOLIDATED STATEMENTS OF OPERATIONS
                                          (Unaudited)
                                    -----------------------

                                                 Three Months          Three Months           Nine Months         Nine Months
                                                     Ended                 Ended                 Ended               Ended
                                                   June 30,               June 30,              June 30,            June 30,
                                                     1997                   1996                  1997                1996
                                                ------------         -------------        --------------        -------------
Revenues:
<S>                                             <C>                     <C>                  <C>                     <C>
   License fee                                  $          0         $           0        $    1,400,000        $           0
   Synthetic fuel sales                                    0                33,431               124,341               37,172

   Returns on synthetic fuel sales                         0                     0               (82,500)                   0
   Binder sales                                      130,112                     0               134,129                    0
                                                ------------         -------------        --------------        -------------
Total revenues                                       130,112                33,431             1,575,970               37,172
                                                ------------         -------------        --------------        -------------
Operating costs and expenses:
   Cost of briquetting operations                    390,224               258,197             1,139,916              688,523
                                                                           -------
   Research and development                           92,856               420,050               263,319              945,301
   Selling, general and administrative               672,780             1,368,951             1,902,617            3,040,541
   Compensation expense on stock options             384,414             1,425,929               933,112            4,315,798
   Expense on issuance of common stock               342,805                 4,500               383,305               73,623
   Minority interest in income of
      consolidated subsidiaries                       27,366                     0               178,292                    0
                                                ------------         -------------        --------------        -------------
Total operating costs and expenses                 1,910,445             3,477,627             4,800,561            9,063,786
                                                ------------         -------------        --------------        -------------
         Operating income (loss)                  (1,780,333)           (3,444,196)           (3,224,591)          (9,026,614)
                                                ------------         -------------        --------------        -------------
Other income (expense):
   Write-down of note receivable (note 4)           (100,000)           (2,250,000)             (150,000)          (2,449,575)
   Interest income                                   189,559                88,594               449,146              199,950
   Interest expense                                  (95,501)               (1,558)             (301,398)             (45,606)
   Other income (expense)                             15,438                   (60)               19,891             (144,258)
   Gain on sale of assets                            299,822                     0               295,626                    0
                                                ------------         -------------        --------------        -------------
Total other income (expense)                         309,318            (2,163,024)              313,265           (2,439,489)
                                                ------------         -------------        --------------        -------------
Loss from continuing operations before
  income taxes                                    (1,471,015)           (5,607,220)           (2,911,326)         (11,466,103)
Income tax provision                                       0                     0                     0              (23,000)
                                                ------------         -------------        --------------        -------------
Loss from continuing operations                   (1,471,015)           (5,607,220)           (2,911,326)         (11,489,103)
                                                ------------         -------------        --------------        -------------
Discontinued operations:
   Loss from discontinued operations                       0                     0                     0             (590,480)
   Loss on disposal of discontinued operations             0                     0                     0             (291,025)
                                                ------------         -------------        --------------        -------------
Income (loss) from discontinued operations                 0                     0                     0             (881,505)
                                                ------------         -------------        --------------        -------------
Net loss                                        $ (1,471,015)        $  (5,607,220)       $   (2,911,326)       $ (12,370,608)
                                                ============         =============        ==============        =============
Net loss per common share:

   Loss per share from continuing operations    $      (0.18)        $       (0.77)       $        (0.37        $       (1.72)
   Loss per share from discontinued operations          0.00                  0.00                  0.00                (0.13)
                                                ------------         -------------        --------------        -------------
Net loss per share (note 2)                     $      (0.18)        $       (0.77)       $        (0.37)       $       (1.85)
                                                ============         =============        ==============        =============
Weighted average shares outstanding                8,192,603             7,258,406             7,921,253            6,699,062
                                                ============         =============        ==============        =============
</TABLE>

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

                                       2
<PAGE>
<TABLE>
<CAPTION>
                                     COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES
                                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                    (Unaudited)
                                         ---------------------------------


                                                                                      Nine Months Ended        Nine Months Ended
                                                                                           June 30,                 June 30,
                                                                                             1997                     1996
                                                                                      ------------------     --------------------
Cash flows from operating activities:
<S>                                                                                   <C>                    <C>
   Net loss                                                                           $   (2,911,326)        $   (12,370,608)
      Adjustments   to  reconcile  net  loss  to  net  cash  used  in  operating
activities:
         Depreciation and amortization                                                       176,253                 137,003
         Common stock issued for settlement and services                                     383,305                 365,956
         Write-down of note receivable                                                       150,000               2,449,575
         Amortization of deferred compensation on stock options                              933,112               4,315,798
         Loss on disposal of discontinued subsidiaries                                             0                 291,025
         Interest earned on notes receivable - related parties, collateralized
          by common stock                                                                   (242,344)               (177,189)
         Loss on sale of assets                                                                4,196                       0
         Deferred income taxes                                                                     0                  23,000
         Gain applicable to minority interests in subsidiaries                               150,970                       0
   Increase  (decrease)  from changes in assets and  liabilities  of  continuing
     operations:
      Receivables                                                                           (232,743)                (12,376)
      Receivables - related parties                                                          (79,540)                      0
      Inventories                                                                         (1,576,447)                (22,208)
      Advances on inventory                                                                 (750,000)                      0
      Prepaid expenses and other current assets                                              (64,367)                  9,177
      Deposits and other assets                                                              (97,966)                (18,553)
      Accounts payable                                                                    (1,008,801)              1,417,862
      Payable for coal briquetting equipment                                               2,255,850                       0
      Accrued liabilities                                                                   (199,097)               (121,635)
      Accrued interest payable, non-current                                                  178,681
      Deferred compensation                                                                  156,850                   7,981
      Discontinued operations non-cash charges and working capital changes                         0                (202,259)
                                                                                       -------------         ---------------
Net cash used in operating activities                                                     (2,773,414)             (3,907,451)
                                                                                       -------------         ---------------
Cash flows from investing activities:
   Cash paid for property, plant and equipment                                            (6,580,171)             (2,569,530)
   Issuance of notes receivable                                                              (49,456)                 (8,495)
   Proceeds from notes receivable                                                            129,464                       0
   Proceeds from notes receivable - related parties                                           31,608                   2,738
   Increase in cash surrender value of life insurance                                              0                 (12,500)
                                                                                       -------------         ---------------
Net cash used in investing activities                                                     (6,468,555)             (2,587,787)
                                                                                       -------------         ---------------
Cash flows from financing activities:
   Proceeds from issuance of limited partnership interests in subsidiaries                   350,000                 832,500
   Payments on distribution to limited partnership interests in subsidiaries                (292,000)                      0
   Proceeds from notes payable                                                             6,597,493                       0
   Proceeds from notes payable - related party                                               109,470                       0
   Payment on notes payable                                                                 (317,573)                (24,494)
   Payment on notes payable - related parties                                                (73,683)             (2,291,426)
   Proceeds from note receivable - related parties collateralized by common stock            106,000                 859,160
   Proceeds from issuance of common stock (net)                                            2,674,023               6,267,031
                                                                                       -------------         ---------------
Net cash provided by financing activities                                                  9,153,730               5,642,771
                                                                                       -------------         ---------------

Net decrease in cash                                                                         (88,239)               (852,467)

Total cash and cash equivalents, beginning of period                                         490,106               1,291,166
                                                                                       -------------         ---------------
Total cash and cash equivalents, end of period                                         $     401,867         $       438,699
                                                                                       =============         ================

Supplemental schedule of noncash investing and financing activities:
    Common stock issued for notes receivable                                           $           0         $     6,159,375
    Common stock issued in conversion of convertible debentures                            1,263,530                       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>
                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)
                      -----------------------------------

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 June 30,  1997,  the  results of its
operations for the three months and nine months ended June 30, 1996 and June 30,
1997 and its cash flows for the nine  months  ended  June 30,  1996 and June 30,
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

Weighted 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, binder materials, and coal
fines.

4.       Change in Estimate of Fair Value of Note Receivable

During the three months ended June 30, 1997, the Company increased the allowance
for  impairment  on  the  $5,000,000   face  value  note   receivable  from  two
stockholders  by $100,000 to an adjusted loan value of $1,500,000.  The increase
in the  allowance  was based upon a $0.50 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 could,  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 at 6% per
annum and  maturing  three  years from its date of issuance  (the  "Subordinated
Debenture").  All or a portion of the unpaid  principal due on the  Subordinated
Debenture  is  convertible  into  Company  common  stock.  On May 5,  1997,  AJG
Financial  Services,  Inc. executed its option to convert the loan of $1,100,000
to an equity position.

                                       4
<PAGE>

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

5.       Convertible Debentures (continued)

During the quarter  ended June 30,  1997,  the  Company  borrowed  $107,827  and
borrowed  $2,792,172  in the  previous  quarter  ended  March  31,  1997  of the
$2,900,000  loan  available  under the  Debenture  Agreement  with AJG Financial
Services,  Inc. as described above. In consideration for the amounts drawn down,
the Company issued Senior  Debentures in such amounts 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 percent (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 June
30, 1997 the Company has drawn $1,696,222 on the $5,000,000 credit line.

                                       5
<PAGE>
<TABLE>

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

6.       Stockholders' Equity

The table below presents the activity in stockholders' equity from April 1, 1997
through June 30, 1997.
<CAPTION>
                                                                                                     Notes and interest
                                           Common Stock             Common Stock to be issued        receivable-related
                                  ______________________________  ____________________________         parties from       Deferred
                                               Capital in                   Capital in                issuance of, or   compensation
                                               excess of                    excess of  Accumulated    collateralized      on stock
                              Shares  Amount  par valued    Shares   Amount par value    Deficit     by, common stock      options
                            --------- ------ -----------   -------   ------ ---------- ------------  -----------------  ------------
<S>                         <C>       <C>    <C>           <C>     <C>     <C>       <C>                 <C>              <C>
Balance at April 1, 1997    7,944,870 $7,945 $35,397,078        0       $0        $0  ($22,636,787)    ($7,587,966)     ($5,468,745)

Common stock issued for       343,996    344   1,768,178   40,000       40   239,960
 cash including exercise
 of stock options (net)

Common stock issued in        140,642    141   1,124,992
 conversion of convertible
 debenture

Common stock issued in         40,330     40     342,765
 settlement

Cash received in payment                                                                                     3,000
 on notes receivable-related
 parties from issuance of
 common stock

Deferred compensation                            293,750                                                                   (293,750)
 related to the issuance
 of stock options at below
 market value to officers,
 directors, employees and
 consultants

Amortization of deferred                                                                                                    384,414
 compensation on stock
 options

Interest earned on notes                                                                                   (81,449)
 receivable - related
 parties from issuance of
 or collateralized by
 common stock

Write-down of notes                                                                                        100,000
 receivable - related party

Net loss for the quarter                                                                (1,471,015)
 ended June 30, 1997
                            --------- ------ -----------  -------   ------  --------  ------------      ----------      ------------
Balance at June 30, 1997    8,469,838 $8,470 $38,926,763   40,000      $40  $239,960  ($24,107,802)    ($7,566,415)     ($5,378,081)
                            ========= ====== ===========  =======   ======  ========  ============      ==========
</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.  Innovative filed suit in March 1997,  alleging that Covol breached its
letter of intent with Innovative.  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  believes
the case is without merit and will vigorously defend the suit.

On February 1, 1996, the Company  entered into a Stock  Purchase  Agreement (the
"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  "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)
                    ----------------------------------------

Contingencies, continued

On June 5, 1997 Brandt  Filtration  Group,  Inc.  filed a complaint  against the
Company in the State Court for Gwinnett County,  State of Georgia. The plaintiff
also  named  Pacific  Power & Light  Company  ("Pacific")  as a  defendant.  The
plaintiff prayed for $160,340 plus other unspecified damages and legal expenses.
The  complaint  alleges  that the Company  breached a contract  to purchase  air
filtration  equipment  for the Alabama  project from Brandt and further  alleges
that the Company acted as agent for Pacific.  Pacific  removed the action to the
United States District Court for the Northern  District of Georgia.  The Company
and Pacific have  answered the  complaint,  denying any agency  liability on the
part of Pacific. Pacific has filed a motion seeking to have the action dismissed
against  it. The  Company  disputes  the amounts  claimed by the  plaintiff  and
intends to defend the action if a suitable settlement cannot be reached.

On  June 26, 1997 Kirby  Cochran,  former  President  of the Company  during the
period from September of 1995 through May of 1996, filed a complaint against the
Company in the Fourth  Judicial  District  for Utah County,  State of Utah.  The
plaintiff  also named  unspecified  John Does 1-5 as  defendants.  The complaint
alleges  that Mr.  Cochran is entitled to a  declaratory  judgment  awarding him
options to  purchase  600,000  shares of the  Company's  stock  plus  damages of
$50,000 as repayment of a purported  loan. The complaint  further alleges claims
of conversion,  fraud,  and breach of contract  related to the stock options and
loan.  Finally,  the  complaint  alleges a claim for punitive  damages and other
unspecified  special or general  damages.  The  Company  has filed a petition to
remove the action to the United States  District Court for the District of Utah.
The  Company  has  answered  the  complaint,  denying  liability  and intends to
vigorously defend the action. Further, the Company intends to file counterclaims
against Mr. Cochran.

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.

                                       8
<PAGE>
                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES
                     ---------------------------------------

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

Results of Operations

Three months ended June 30, 1997 compared to three months ended June 30, 1996

Revenues

For the quarter ended June 30, 1997, total revenues were increased by $96,681 to
$130,112 compared to $33,431 in the comparable period in 1996. Binder sales were
$130,112 for the quarter ended June 30, 1997 compared to no binder sales for the
same period ended June 30,  1996.  Synthetic  fuel sales  decrease to $0 for the
quarter  ended  June 30,  1997 from  $33,431  for the same  period in 1996.  The
increase in binder sales is  attributable  to an increase in  production  at the
Utah  plant,  while the  decrease  in  synthetic  fuel  sales is a result of the
stockpiling of synthetic fuel product  pending the refining and marketing of the
synthetic fuel product.

Margins, Costs and Expenses

The Company's  operating  loss  decreased by  $1,663,863  to $1,780,333  for the
quarter  ended June 30,  1997 from a loss of  $3,444,196  reported  for the same
period June 30, 1996 due  principally to: a decrease of research and development
expense of $327,194 from $420,050 for the quarter ended June 30, 1996 to $92,856
for the same period  ended June 30,  1997;  a decrease  of selling,  general and
administrative  from  $1,368,951 for the quarter ended June 30, 1996 to $672,780
for the  quarter  ended June 30, 1997 ; a decrease  of  compensation  expense on
stock  options from  $1,425,929  for the quarter ended June 30, 1996 to $384,414
for the  quarter  ended June 30,  1997.  Expense  on  issuance  of common  stock
increased to $342,805 for the quarter ended June 30, 1997 compared to $4,500 for
the same period ended June 30, 1996.  Cost of briquetting  operations  increased
$132,027 to $390,224 for the quarter  ended June 30, 1997 from  $258,197 for the
quarter  ended  June 30,  1996.  Minority  interest  in income  of  consolidated
subsidiaries  increased to $27,366 for the quarter  ended June 30, 1997 compared
to $0 for the same quarter  ended June 30, 1996.  Compensation  expense on stock
options  for the  quarter  ended  June 30,  1996 of  $1,425,929  is based on the
related financial  statement for that period filed in the Company's Form 10-Q/A,
Amendment No. 1 for the period ended June 30, 1996.

Net Loss

For the quarter  ended June 30, 1997,  the Company had a decrease in net loss of
$4,136,205  to  $1,471,015  as  compared  to a net  loss of  $5,607,220  for the
comparable period in 1996. Other income increased  $2,472,342 to $309,318 income
for the quarter ended June 30, 1997  compared to a $2,163,024  loss for the same
quarter ended June 30, 1996 principally due to: a decrease of write-down of note
receivable  to $100,000 for the quarter ended June 30, 1997 from a write-down of
$2,250,000 for the same quarter ended June 30, 1996;  interest income  increased
by $100,965 to $189,559  for the period ended June 30, 1997 from $88,594 for the
same  period  ended June 30,  1996;  and,  gain on sale of assets  increased  to
$299,822 for the quarter  ended June 30, 1997 from $0 for the same quarter ended
June 30, 1996.  Interest expense increased to $95,501 for the quarter ended June
30, 1997 from $1,558 for the same quarter ended June 30, 1996.

                                       9
<PAGE>
                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES
                     ---------------------------------------

Results of Operations

Nine months ended June  30, 1997 compared to nine months ended June 30, 1996

Revenues

For the nine months  ended June 30,  1997,  total  revenues  were  increased  by
$1,538,798 to $1,575,970 compared to $37,172 in the comparable period in 1996. A
one-time  license fee of  $1,400,000  was the primary  reason for the  increased
revenue.  Binder  sales were  $134,129  for the nine months  ended June 30, 1997
compared to no binder sales for the same period  ended June 30, 1996.  Synthetic
fuel sales increased to $124,341 with a return on synthetic fuels of $82,500 for
the period ended June 30, 1997 from a total of $37,172 for synthetic fuels sales
for the same period ended June 30,  1996.  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 $3,224,591 for the nine months ended
June 30, 1997 from a loss of  $9,026,614  reported  for the same period June 30,
1996 due  principally  to: a decrease of  research  and  development  expense of
$681,982  from  $945,301 for the nine months ended June 30, 1996 to $263,319 for
the same  period  ended  June 30,  1997;  a decrease  of  selling,  general  and
administrative  from $3,040,541 to $1,902,617 for the nine months ended June 30,
1997; a decrease of  compensation  expense on stock options from  $4,315,798 for
the nine months  ended June 30, 1996 to $933,112  for the nine months ended June
30, 1997. Expense on issuance of common stock increased to $383,305 for the nine
months  ended June 30, 1997  compared to $73,623 for the same period  ended June
30, 1996. Cost of briquetting operations increased by $451,393 from $688,523 for
the nine months ended June 30, 1996 to $1,139,916 for the nine months ended June
30, 1997. Minority interest in income of consolidated  subsidiaries increased to
$178,292  for the nine months  ended June 30,  1997  compared to $0 for the same
nine months ended June 30, 1996.  Compensation  expense on stock options for the
nine months ended June 30, 1996 of $4,315,798 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 June 30, 1996.

Net Loss

For the  nine  months  ended  June  30,  1997,  the  Company  has a net  loss of
$2,911,326 as compared to a net loss of $12,370,608 for the comparable period in
1996. Other income increased to $313,265 for the nine months ended June 30, 1997
from a loss of  $2,439,489  for  the  same  nine  months  ended  June  30,  1996
principally  due to: a decrease of write-down of note receivable to $150,000 for
the nine months ended June 30, 1997 from a write-down of $2,449,575 for the same
nine months ended June 30, 1996;  interest income increased $249,196 to $449,146
for the nine months ended June 30, 1997 from  $199,950 for the same period ended
June 30,  1996;  and,  gain on sale of assets increased to $295,626 for the nine
months ended June 30, 1997 from $0 for the same nine months ended June 30, 1996.
Interest  expense  increased to $301,398 for the nine months ended June 30, 1997
from $45,606 for the nine months ended June 30, 1996.

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
$1,134,037  during the nine months ending June 30, 1997 ($2,773,414  compared to
$3,907,451  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.

                                       10
<PAGE>
                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES
                     ---------------------------------------

The Company  increased  its  investment in property,  plant and  equipment  from
$2,569,530  for the nine months ended June 30, 1996 to  $6,580,171  for the nine
months  ended  June 30,  1997 due  principally  to the  development  of the Utah
Project and the  Alabama  Project.  The  Company was able to fund these  capital
expenditures  principally through the issuance of notes payable and the issuance
of common stock.

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 ended March 31, 1997,  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  40,330
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.

At June 30, 1997, the Company had a working capital  deficit of $2,942,262.  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 June 30, 1997. However,
there is no  assurance  that the  Company  will be able to obtain the  necessary
equity financing.

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 June 30, 1997, the Company has
drawn $1,696,222 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.

                                       11
<PAGE>
                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES
                     ---------------------------------------

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
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.

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  Private  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.

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. During the quarter ended March 31, 1997 the Company
drew down  $2,792,173  and on April 14, 1997 the Company drew down the remaining
$107,827 of the available $2,900,000.  On May 5, 1997 the $1,100,000 convertible
subordinated  debentures and accrued interest were converted into 140,642 shares
of common stock based on a conversion price of $8.00 per share.

In July,  1996,  the  Company  borrowed  $700,000  from Key  Bank.  The loan was
personally guaranteed by seven officers, directors and employees of the Company.
The current  outstanding  balance on the loan,  including  interest  and fees is
$523,940.  The Company and Key Bank have previously  negotiated rollovers of the
loan.  The current  rollover  matured May 30,  1997.  Key Bank has  notified the
Company  that it is in default on the loan.  The Company is  arranging  with Key
Bank to pay off the loan.

                                       12
<PAGE>
                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES
                     ---------------------------------------

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.

                                       13
<PAGE>
                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES
                     ---------------------------------------

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  summarized 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  proposed 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.

On August 5, 1997, President Clinton signed the Taxpayer Relief Act of 1997 (the
"Act"). In addition to the broad implications of the Act which aims to eliminate
the deficit by 2002 and provide the first  general tax cut in 16 years,  the Act
did not  include  any  modification  to Section  29.  Hence,  the June 30,  1998
deadline for placing in service  synthetic fuel plants  constructed  pursuant to
binding contracts in place before January 1, 1997 remains intact.

                                       14
<PAGE>
                   COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES
                     ---------------------------------------

PART II. OTHER INFORMATION

ITEM 1.           LEGAL PROCEEDINGS

On June 5, 1997 Brandt  Filtration  Group,  Inc.  filed a complaint  against the
Company in the State Court for Gwinnett County,  State of Georgia. The plaintiff
also  named  Pacific  Power & Light  Company  ("Pacific")  as a  defendant.  The
plaintiff seeks $160,340 plus other unspecified damages and legal expenses.  The
complaint  alleges  that  the  Company  breached  a  contract  to  purchase  air
filtration  equipment  for the Alabama  project from Brandt and further  alleges
that the Company acted as agent for Pacific.  Pacific  removed the action to the
United States District Court for the Northern  District of Georgia.  The Company
and Pacific have  answered the  complaint,  denying any agency  liability on the
part of Pacific. Pacific has filed a motion seeking to have the action dismissed
against  it. The  Company  disputes  the amounts  claimed by the  plaintiff  and
intends to defend the action if a suitable settlement cannot be reached.

On June 26, 1997 Kirby  Cochran,  former  President  of the  Company  during the
period from September of 1995 through May of 1996, filed a complaint against the
Company in the Fourth  Judicial  District  for Utah County,  State of Utah.  The
plaintiff  also named  unspecified  John Does 1-5 as  defendants.  The complaint
alleges  that Mr.  Cochran is entitled to a  declaratory  judgment  awarding him
options to  purchase  600,000  shares of the  Company's  stock  plus  damages of
$50,000 as repayment of a purported  loan. The complaint  further alleges claims
of conversion,  fraud,  and breach of contract  related to the stock options and
loan.  Finally,  the  complaint  alleges a claim for punitive  damages and other
unspecified  special or general  damages.  The  Company  has filed a petition to
remove the action to the United States  District Court for the District of Utah.
The  Company  has  answered  the  complaint,  denying  liability  and intends to
vigorously defend the action. Further, the Company intends to file counterclaims
against Mr. Cochran.

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 (the "33 Act"). 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  issuances of shares of common stock,
notes and  debentures  and other  securities  were exempt from the  registration
requirements of the 33 Act pursuant to the exemption set forth under  Regulation
S of the 33 Act or Section 4(2) thereof.

On April 1, 1997, the Company  granted 50,000 stock options to Max Sorensen,  an
executive of the Company, which was recorded as deferred compensation and valued
at $312,500. The exercise price is $1.50 per share for 50,000 options.

On April 1,  1997,  the  Company  granted  2,500  stock  options  to Vern May, a
director of the company as director  compensation.  The exercise  price is $1.50
per share.

On April 15, 1997, the Company  granted stock options to acquire 180,000 shares,
at an exercise price of $8.25 per share, to 9 employees of the Company.

On May 1, 1997,  the Company  granted  2,500  stock  options to Joe  Johnson,  a
director of the Company, as director  compensation.  The exercise price is $1.50
per share.

On May 6, 1997,  the Company  issued  49,996 shares of common stock in a private
placement to three accredited investors for $299,976.

                                       15
<PAGE>
                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES
                     ---------------------------------------

As described in Part I, Item 2 above,  on May 5, 1997 the Company issued 140,642
shares of common stock to AJG Financial  Services,  Inc., an accredited investor
converting the subordinated debenture and accrued interest at a price of $8.00.

On May 19,  1997,  the  Company  issued  50,000  shares of  common  stock to two
accredited investors for $90,000 in exercising of options at $1.80 per share.

On June 6, 1997, the Company  issued 40,330 shares to certain  principals of RAS
Securities  Corp.  each  accredited  investors  valued  at  $8.50  per  share in
settlement totaling $342,765.

Regulation  S  Offering.  On May 26,  1997 and July 7, 1997,  and in reliance on
Regulation S of the  Securities  Act of 1933, as amended  ("Regulation  S"), the
Company received funds and accepted  subscriptions for the sale of 224,000 units
and 60,000 units,  respectively (the "Units"), from accredited non-U.S.  persons
(the "Non-U.S. Persons"). Each Unit consisted of (i) one share of Company common
stock,  $0.001 par value per share (the "Common  Stock"),  and (ii) a warrant to
acquire  one share of  Company  Common  Stock at a price of $7.25 per share (the
"Warrants"),  for a total  purchase  price  per  Unit of  $6.00,  or a total  of
$1,704,000.  The  Warrants  are  exercisable  at any time  prior  to the  second
anniversary of their issuance. The Shares of Company Common Stock issuable under
the  Warrants  and the  Finder  Warrants  (as  defined  below)  have  piggy-back
registration rights and conditional demand registration  rights. The conditional
demand  registration  rights are triggered if within twelve (12) months from the
date  of  subscription,  the  Securities  and  Exchange  Commission  imposes  an
additional  holding period  requirement on securities issued under Regulation S,
other than the holding period  restrictions  currently in effect.  Doyle Capital
Resources,  an Australian entity located at Level 32, Chifley Tower, Two Chifley
Square,  Sydney NSW 2000 Australia ("Doyle Capital Resources"),  and Aymkone Pty
Ltd, an Australian entity located at Level 4, 70 Castlereagh Street,  Sydney NSW
2000  Australia  ("Aymkone"),  acted  as  finders  in the  sale to the  Non-U.S.
Persons.  As  compensation  for acting as finders on both  subscriptions,  Doyle
Capital  Resources  received a cash fee of five  percent of the proceeds of such
offerings  and Aymkone  received  warrants  (the "Finder  Warrants") to purchase
71,000 shares of Company Common Stock at a price of $7.25 per share.  The Finder
Warrants are  exercisable  at any time prior to the second  anniversary of their
issuance.  Based upon  representations  made to the  Company,  Aymkone is also a
non-U.S. person and the Finder Warrants were issued in reliance on Regulation S.

ITEM 3.  DEFAULTS OF SENIOR SECURITIES.

In July,  1996,  the  Company  borrowed  $700,000  from Key  Bank.  The loan was
personally guaranteed by seven officers, directors and employees of the Company.
The current  outstanding  balance on the loan,  including  interest  and fees is
$523,940.  The Company and Key Bank have previously  negotiated rollovers of the
loan.  The current  rollover  matured May 30,  1997.  Key Bank has  notified the
Company  that it is in default of the loan.  The Company is  arranging  with Key
Bank to pay off the loan.

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

On June 25, 1997, the Company held its annual stockholders  meeting in Salt Lake
City,  Utah (the  "Annual  Meeting").  At the Annual  Meeting  the  stockholders
approved of : (i) the election of Raymond J. Weller,  Brent M. Cook,  Stanley M.
Kimball, DeLance M. Squire, Vern T. May and Joe K. Johnson as directors; (ii) an
amendment to the Company's Certificate of Incorporation to create a new class of
preferred stock,  $.001 par value,  with an authorized number of shares equal to
10,000,000;  (iii) an  amendment  to the  Company's  Bylaws to  provide  for (a)
classified  board of directors,  (b) the minimum and maximum number of directors
on the Board,  (c) the removal of directors with the vote or written  consent of
stockholders representing not less than two-thirds of the issued and outstanding
stock  entitled to vote and (d)  increases to the size of the board of directors
with the vote or written consent of the stockholders  representing not less than
two-thirds of the issued and  outstanding  stock  entitled to vote; and (iv) the
ratification of Coopers & Lybrand LLP as independent auditors of the Company for
fiscal year ending September 30, 1997.

                                       16
<PAGE>
                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES
                     ---------------------------------------

The following list summarizes the number of votes cast for, against or withheld,
as well as the number of abstentions  and broker  non-votes,  as to each matter,
including a separate tabulation for each nominee to the board of directors.

                                                                   Abstentions
ITEM (I) - Election of Directors     Votes For  Votes Withheld  Broker Non-Votes
                                     ---------  --------------  ----------------

Raymond J. Weller                    5,947,402      265,770         18,927
Brent M. Cook                        6,016,399      192,795         22,905
Stanley M. Kimball                   5,936,177      201,295         94,627
DeLance M. Squire                    6,011,732      202,970         17,397
Vern T. May                          6,012,736      200,436         18,927
Joe K. Johnson                       6,035,663      196,436              0

ITEM (II) - Amendment to
Certificate of Incorporation         4,182,952      442,787        116,735

ITEM (III) - Amendment to Bylaws
(a) Classification of Board          4,430,325      231,311         72,048
(b) Number of Directors              5,962,561      132,566         86,383
(c) Removal of Directors             4,216,466      431,398         93,389
(d) Increase size of Board           4,536,750      117,430         71,089

ITEM (IV) - Ratification of          6,079,847       16,160         52,877
Independent Auditors


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.

Effective July 17, 1997, Joe K. Johnson  resigned from the Board of Directors to
pursue other business interests and to allow the Company  flexibility to appoint
another director in connection with future financing transactions.

                                       17
<PAGE>

                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES
                     ---------------------------------------

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.

                  3.1.2    Certificate of Amendment of the Certificate of
                            Incorporation dated June 25, 1997.

                  3.2.1    Certificate of Amendment of the Bylaws dated
                            May 20, 1997.

                  3.2.2    Certificate of Amendment of the Bylaws dated
                            June 25, 1997.

                  27.1     Financial Data Schedule.

         (b)      The Company  filed two  Current  Reports on Form 8-K dated May
                  26,  1997  and July 7,  1997,  respectively.  The  information
                  provided  therein  disclosed the sale of Company  common stock
                  and warrants pursuant to Regulation S of the Securities Act of
                  1933, as amended.

                                       18
<PAGE>

                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES
                     ---------------------------------------


                                   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: August 14, 1997


                           COVOL TECHNOLOGIES, INC.

                           By: /s/ Brent M. Cook
                              -------------------------------------------------
                           Brent M. Cook, Chief Executive Officer and President


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

                                       19