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

                                    FORM 10-Q

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

                  For the quarterly period ended June 30, 2000

                                       or

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

                 For the transition period from ______ to ______

                         Commission file number 0-27808

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


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

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

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


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


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

The number of shares outstanding of the Registrant's common stock as of August
4, 2000 was 23,572,890.

<PAGE>

                            COVOL TECHNOLOGIES, INC.

                                TABLE OF CONTENTS

                                                                       Page No.

PART I - FINANCIAL INFORMATION

  ITEM 1.  CONSOLIDATED FINANCIAL INFORMATION (Unaudited):
           Consolidated Balance Sheets - As of September 30, 1999
             and June 30, 2000............................................  3
           Consolidated Statements of Operations - For the three
             months ended June 30, 1999 and 2000 and the nine months
             ended June 30, 1999 and 2000.................................  5
           Consolidated Statement of Changes in Stockholders' Equity
             (Deficit) - For the nine months ended June 30, 2000..........  6
           Consolidated Statements of Cash Flows - For the nine
             months ended June 30, 1999 and 2000..........................  7
           Notes to Consolidated Financial Statements.....................  8

  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
             AND RESULTS OF OPERATIONS.................................... 14


PART II - OTHER INFORMATION

  ITEM 1.  LEGAL PROCEEDINGS.............................................. 22

  ITEM 2.  CHANGES IN SECURITIES.......................................... 22

  ITEM 3.  DEFAULTS UPON SENIOR SECURITIES................................ 22

  ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............ 23

  ITEM 5.  OTHER INFORMATION.............................................. 23

  ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K............................... 23


SIGNATURES................................................................ 24


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

                                       2
<PAGE>

ITEM 1.   CONSOLIDATED FINANCIAL INFORMATION (Unaudited)

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

                                                 CONSOLIDATED BALANCE SHEETS
                                                         (Unaudited)

                                                                                              September 30,          June 30,
(thousands of dollars)                                                                                 1999              2000
------------------------------------------------------------------------------------------------------------------------------
ASSETS

Current assets:
<S>                                                                                          <C>                <C>
     Cash and cash equivalents                                                                        $ 461           $11,326
     Receivables                                                                                      3,155             5,558
     Due from related party                                                                           2,722                --
     Inventories                                                                                        573                --
     Facilities and equipment held for sale                                                          20,139             1,680
     Prepaid expenses and other current assets                                                           19               212
                                                                                            ----------------------------------
            Total current assets                                                                     27,069            18,776
                                                                                            ----------------------------------

Property, plant and equipment, net of accumulated depreciation                                       14,182             2,872
                                                                                            ----------------------------------

Other assets:

     Restricted cash and investments                                                                    843               160
     Facility-dependent note and accrued interest receivable                                          7,879             6,538
     Facility transferred under note receivable arrangement                                           2,641                --
     Intangible assets, net of accumulated amortization                                               3,647             1,263
     Deferred income taxes                                                                               --             3,000
     Other assets                                                                                     1,834             1,294
                                                                                            ----------------------------------
            Total other assets                                                                       16,844            12,255
                                                                                            ----------------------------------

Total assets                                                                                        $58,095           $33,903
                                                                                            ==================================
</TABLE>
                                  (continued)

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

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

                                           CONSOLIDATED BALANCE SHEETS, continued
                                                        (Unaudited)

                                                                                              September 30,         June 30,
(thousands of dollars and shares)                                                                      1999             2000
------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
<S>                                                                                          <C>                <C>
     Accounts payable                                                                               $ 1,179            $ 255
     Due to related party                                                                             2,706               --
     Accrued interest payable, current                                                                1,452               83
     Accrued liabilities                                                                              2,905            5,884
     Notes payable, current                                                                          20,626            7,113
                                                                                            ----------------------------------
            Total current liabilities                                                                28,868           13,335
                                                                                            ----------------------------------

Long-term liabilities:
     Notes payable, non-current                                                                      17,887              251
     Accrued interest payable, non-current                                                              210               --
     Deferred revenues                                                                                7,501           10,451
     Deferred compensation                                                                              208              177
                                                                                            ----------------------------------
            Total long-term liabilities                                                              25,806           10,879
                                                                                            ----------------------------------
            Total liabilities                                                                        54,674           24,214
                                                                                            ----------------------------------

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

Commitments and contingencies (Note 8)

Redeemable convertible preferred stock, $0.001 par value, issued and outstanding 60 shares
     at September 30, 1999 and 0 shares at June 30, 2000                                              4,332               --
                                                                                            ----------------------------------

Stockholders' equity (deficit):
     Convertible preferred stock, $0.001 par value; authorized 10,000 shares,
       issued and outstanding 17 shares at September 30, 1999 and June 30, 2000
       (aggregate liquidation  preference of $3,636 at June 30, 2000)                                     1                1
     Common stock, $0.001 par value; authorized 50,000 shares, issued and
       outstanding 12,766 shares at September 30, 1999 and 23,525 shares,
       including 17 shares of treasury stock, at June 30, 2000                                           13               23
     Capital in excess of par value                                                                  78,457           83,847
     Accumulated deficit                                                                           (71,713)         (73,293)
     Other                                                                                          (7,786)            (889)
                                                                                            ----------------------------------
            Total stockholders' equity (deficit)                                                    (1,028)            9,689
                                                                                            ----------------------------------

Total liabilities and stockholders' equity (deficit)                                                $58,095          $33,903
                                                                                            ==================================
</TABLE>

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

                                       4
<PAGE>
<TABLE>
<CAPTION>
                                         COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES

                                           CONSOLIDATED STATEMENTS OF OPERATIONS
                                                        (Unaudited)


                                                                   Three Months Ended June 30,        Nine Months Ended June 30,
(thousands of dollars, except per-share data)                             1999            2000            1999              2000
---------------------------------------------------------------------------------------------------------------------------------
Revenues:
<S>                                                               <C>           <C>              <C>              <C>
     License fees                                                        $ 853         $ 3,591          $2,140           $12,424
     Binder sales                                                          409           2,709           1,365             5,945
     Gains on sale of facilities                                            --           8,527              --            13,868
     Gains on non-recurring transactions                                    --              --              --             1,079
     Other                                                                 315             173             597               633
                                                              -------------------------------------------------------------------
          Total revenues                                                 1,577          15,000           4,102            33,949
                                                              -------------------------------------------------------------------

Operating costs and expenses:
     Cost of binder                                                        291           1,860             941             4,088
     Cost of operations                                                  3,027             777           9,226             3,066
     Loss on sale of facilities                                             --              --              --               598
     Asset write-offs and other non-recurring charges                       --           1,559             556            13,421
     Selling, general and administrative                                 1,338           1,405           3,500             3,403
     Compensation expense from stock options                               749             591           1,074               683
                                                              -------------------------------------------------------------------
        Total operating costs and expenses                               5,405           6,192          15,297            25,259
                                                              -------------------------------------------------------------------
Operating income (loss)                                                (3,828)           8,808        (11,195)             8,690
                                                              -------------------------------------------------------------------

Other income (expense):
     Interest income                                                       308             324           1,298             1,434
     Interest expense                                                  (1,981)           (951)         (4,394)           (4,716)
     Other, net                                                           (26)              78           (851)                62
                                                              -------------------------------------------------------------------
          Total other income (expense)                                 (1,699)           (549)         (3,947)           (3,220)
                                                              -------------------------------------------------------------------
Income (loss) before income taxes and extraordinary item               (5,527)           8,259        (15,142)             5,470

Income tax benefit                                                          --              --              --             3,000
                                                              -------------------------------------------------------------------

Income (loss) before extraordinary item                                (5,527)           8,259        (15,142)             8,470

Extraordinary loss on early extinguishment of debt                          --         (6,037)              --           (7,860)
                                                              -------------------------------------------------------------------
Net income (loss)                                                     $(5,527)         $ 2,222       $(15,142)             $ 610
                                                              ===================================================================

Basic and diluted income (loss) per common share                        $(.48)            $.09         $(1.28)              $.01
                                                              ===================================================================
</TABLE>
                     The accompanying notes are an integral
                  part of the consolidated financial statements

                                       5
<PAGE>
<TABLE>
<CAPTION>
                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES
       CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
                     For the Nine Months Ended June 30, 2000
                                   (Unaudited)

                                                                                               Notes and
                                                                                               interest
                                                                                              receivable-
                                                                                                related
                                                                                              parties, from
                                                                                               issuance of,  Deferred
                        Convertible Preferred                                                  or collater-  compen-
                               Stock          Common Stock         Capital in                    alized      sation
(thousands of          -----------------------------------------     excess      Accumulated   by, common  from stock   Common stock
dollars and shares)      Shares     Amount     Shares    Amount    of par value    deficit       stock       options     in treasury
-----------------------------------------------------------------------------------------------------------------------------------
<S>                     <C>       <C>      <C>        <C>        <C>         <C>            <C>          <C>            <C>
Balances at
 September 30, 1999         17        $1       12,766     $13        $78,457     $(71,713)      $(6,564)     $(1,222)       $ --

Preferred stock
 cash dividends                                                                      (297)

Reclassification of
 redeemable convertible
 preferred stock to
 convertible preferred
 stock                      38        --                               2,710

Common stock issued
 on conversion of
 redeemable convertible
 and convertible
 preferred stock and
 in payment of dividends    (2)       --        2,812       3          1,631          (11)

Redemption of convertible
 preferred stock           (36)       --                              (2,572)      (1,882)

Common stock issued
 for cash                                       4,008       4          5,250

Common stock issued on
 conversion of debt                             3,726       3          3,101

Common stock issued in
 connection with
 redemption of debt                               214      --            256

Common stock issued
 in connection with cash
 and cashless exercises
 of warrants                                      811       1            420

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

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

Cancellation of notes
 receivable - related
 parties and common stock
 collateralizing the notes                       (812)     (1)        (5,944)                     6,164

Write-down of notes
 receivable - related
 parties                                                                                             82

Amortization of deferred
 compensation from stock
 options                                                                                                         683

Purchase of treasury
 stock, at cost                                                                                                              (32)

Net income for the
 nine months ended
 June 30, 2000                                                                        610
                        -----------------------------------------------------------------------------------------------------------
Balances at
 June 30, 2000              17        $1       23,525     $23        $83,847     $(73,293)        $(318)       $(539)       $(32)
                        ===========================================================================================================
</TABLE>

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

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

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

                                                                                                      Nine Months Ended June 30,
     (thousands of dollars)                                                                                   1999          2000
---------------------------------------------------------------------------------------------------------------------------------
     Cash flows from operating activities:
<S>                                                                                                 <C>              <C>
     Net income (loss)                                                                                    $(15,142)        $ 610
     Adjustments to reconcile net income (loss) to net cash provided
      by (used in) operating activities:
        Depreciation and amortization                                                                        1,432           912
        Recognition of deferred revenue                                                                       (680)         (490)
        Deferred income taxes                                                                                   --        (3,000)
        Net gains on sale of facilities and equipment                                                          153       (13,355)
        Gains on non-recurring transactions                                                                     --        (1,079)
        Non-cash portion of asset write-offs and other non-recurring charges                                   556        11,680
        Amortization of deferred compensation from stock options                                             1,074           683
        Interest expense related to amortization of debt discount and debt issuance costs                    1,160         2,990
        Extraordinary loss on early extinguishment of debt                                                      --         7,860
        Write-down of notes receivable - related parties                                                       749            82
        Increase (decrease) from changes in operating assets and liabilities                                (3,690)        3,762
                                                                                                  -------------------------------
     Net cash provided by (used in) operating activities                                                   (14,388)       10,655
                                                                                                  -------------------------------

     Cash flows from investing activities:
        Proceeds from sale of facilities and equipment                                                         170        34,579
        Purchase of property, plant and equipment and facilities held for sale                                (685)         (551)
        Purchase of rights to technology and other assets                                                     (127)          (75)
        Increase in investments in and loans to non-affiliated companies                                        --          (450)
        Decrease in restricted cash and other assets                                                            50           589
        Proceeds from facility transferred under note receivable arrangement                                   392            --
                                                                                                  -------------------------------
     Net cash provided by (used in) investing activities                                                      (200)       34,092
                                                                                                  -------------------------------

     Cash flows from financing activities:
        Proceeds from issuance of notes payable and warrants, net                                           10,453         6,980
        Payments on notes payable, including redemption premiums                                            (4,802)      (41,754)
        Proceeds from issuance of common stock and warrants, net                                             3,775         5,254
        Proceeds from issuance of preferred stock and warrants, net                                          6,367            --
        Preferred stock redemption                                                                              --        (4,454)
        Preferred stock dividends                                                                               --          (297)
        Proceeds from exercise of warrants                                                                      --           421
        Purchase of common stock for the treasury                                                               --           (32)
                                                                                                  -------------------------------
     Net cash provided by (used in) financing activities                                                    15,793       (33,882)
                                                                                                  -------------------------------

     Net increase in cash and cash equivalents                                                               1,205        10,865

     Cash and cash equivalents, beginning of period                                                            727           461
                                                                                                  -------------------------------

     Cash and cash equivalents, end of period                                                              $ 1,932       $11,326
                                                                                                  ===============================

     Supplemental schedule of non-cash investing and financing activities:
       Cancellation of notes receivable - related parties and the common
         stock collateralizing the notes                                                                     $  --        $6,164
       Reclassification of redeemable convertible preferred stock to
         convertible preferred stock                                                                            --         2,710
       Common stock issued on conversion of redeemable convertible and
         convertible preferred stock and in payment of dividends                                             2,444         1,634
       Common stock issued on conversion of convertible debt and debt                                           --         3,104
       Common stock issued to purchase minority interests in subsidiaries                                      519            --
       Common stock issued for rights to technology                                                            375            --
       Notes payable issued for equipment and rights to technology                                             850            --
       Property, plant and equipment acquired through reduction of
         accounts receivable                                                                                   413            --
</TABLE>

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

                                       7
<PAGE>

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


1.   Nature of Operations and Basis of Presentation

     Covol Technologies,  Inc. and its Subsidiaries'  ("Covol") primary business
     is to commercialize its proprietary  binder  technologies which are used to
     recycle waste  by-products  from the coal,  steel and other industries into
     marketable fuel and resources.  Through June 1998, Covol's focus was on the
     construction of facilities and the licensing of its binder  technologies to
     entities that constructed facilities that convert coal fines into synthetic
     fuel briquettes.  Currently,  Covol's licensees are operating 28 facilities
     in ten states at various levels of production.  There are 24 synthetic fuel
     plants  that  utilize  Covol's  patented  technology  and  four  additional
     facilities that use an alternative technology that Covol acquired in fiscal
     1999.  During 1999 and 2000,  Covol  actively  pursued the sale of its four
     owned  facilities and the licensing of its technology to the buyers,  which
     sales and licensing were completed in August 1999,  December 1999,  January
     2000 and April 2000,  respectively (see Note 5). Covol has no current plans
     to construct additional synthetic fuel facilities. During the quarter ended
     June  30,  2000,  Covol  began  evaluating,   pursuing  and  making  equity
     investments in and loans to unrelated entities.  Currently these activities
     are not material but are expected to expand in the future.

     The  accompanying  unaudited  consolidated  financial  statements have been
     prepared in accordance with the rules and regulations of the Securities and
     Exchange  Commission for quarterly  reports on Form 10-Q. In the opinion of
     management,  all adjustments  considered  necessary for a fair presentation
     have been included. All adjustments, except the extraordinary loss on early
     extinguishment  of debt (see Note 2) and the items described in Notes 5 and
     6, consist of normal recurring  adjustments.  The results of operations for
     the three- and nine-month  periods ended June 30, 2000 are not  necessarily
     indicative  of the  results  to be  expected  for the  full  year.  Certain
     information  and  footnote   disclosures  normally  included  in  financial
     statements  prepared  in  accordance  with  generally  accepted  accounting
     principles  have been  condensed  or omitted.  It is  suggested  that these
     financial statements be read in conjunction with the consolidated financial
     statements and notes thereto included in Covol's Annual Report on Form 10-K
     for the year ended September 30, 1999 and in Covol's  Quarterly  Reports on
     Form 10-Q for the  quarters  ended  December  31, 1999 and March 31,  2000.
     Certain  prior period  amounts have been  reclassified  to conform with the
     current period's  presentation.  The reclassifications had no effect on net
     loss or total assets.

2.   Financing and Equity Transactions

     During and subsequent to the quarter ended June 30, 2000,  Covol  completed
     several transactions, including the following.

     Convertible  Debt -- In  April  and May  2000,  Covol  redeemed  all of the
     $20,000,000  face  value   convertible  debt.  Early  prepayment  costs  of
     approximately  $6,037,000  were  recognized as an  extraordinary  item as a
     result  of the  redemption  consideration  paid  plus the  acceleration  of
     amortization  of the  unamortized  debt discount and debt issuance costs in
     excess of the debt carrying value.  Also,  Covol redeemed,  concurrent with
     the debt  redemption,  all of the preferred  stock held by this entity (see
     Preferred Stock on the following page).

     Note Payable to a Corporation  -- In April 2000, the holder of the 14% note
     payable  described  in  Note  3  converted  $2,000,000  of  principal  into
     approximately  1,186,000  shares  of  common  stock  and  warrants  for the
     purchase of approximately  296,000 shares of common stock. The due date for
     the remaining  $1,000,000 of principal was extended to April 2001,  but was
     repaid in July 2000. The warrants are  exercisable  through April 2005 at a
     price of $2.10 per share.

     Note  Payable to a Bank -- During the quarter  ended June 30,  2000,  Covol
     entered  into a note  payable  arrangement  with a bank,  under which Covol
     borrowed   $4,000,000.   The  note  is  repayable  in  quarterly  principal
     installments  of $1,000,000,  plus interest at prime plus 2% (11.5% at June
     30,  2000).  The first  payment  was made on August 1, 2000 and  additional
     payments are required in November  2000,  February  2001 and May 2001.  The
     note is secured by licensee fees payable to Covol from the  production  and
     sale of  synthetic  fuel  from  four  synthetic  fuel  facilities  and by a
     $6,500,000  note  receivable  due to  Covol.  The loan  agreement  contains
     certain operating covenants and restrictions common for such loans.

                                       8
<PAGE>

     Preferred  Stock -- In April  2000,  1,910  shares of series D  convertible
     preferred stock were converted into approximately  150,000 shares of common
     stock.  In April and May 2000,  Covol redeemed all of the remaining  35,631
     shares of the series D preferred stock. The total amount paid to redeem the
     preferred  stock  was  approximately  $4,454,000,  including  a  redemption
     premium  of   approximately   $1,882,000  which  was  charged  directly  to
     stockholders' equity.

     Common Stock -- In April 2000, Covol issued approximately 379,000 shares of
     common stock and warrants for the purchase of approximately  133,000 shares
     of common stock to certain  officers and directors for net cash proceeds of
     approximately  $588,000. The warrants are exercisable through March 2005 at
     a price of $1.56 per share.

     Treasury  Stock -- During the  quarter  ended June 30,  2000,  Covol  began
     acquiring  shares of its common stock in connection  with a stock  purchase
     plan announced in May 2000. The program  authorizes Covol to purchase stock
     in the open market or through  negotiated  transactions.  Through  June 30,
     2000,  Covol  purchased   approximately  17,000  shares  for  approximately
     $32,000.  Subsequent  to June  30,  2000  through  August  4,  2000,  Covol
     purchased   approximately   258,000  additional  shares  for  approximately
     $835,000.

     Warrants  -- During the  quarter  ended  June 30,  2000,  warrants  for the
     purchase of approximately 165,000 shares of common stock were exercised for
     cash proceeds of approximately  $218,000. As of June 30, 2000, warrants for
     the  purchase  of  approximately  1,022,000  shares  of common  stock  were
     outstanding, with exercise prices ranging from $1.32 to $3.84 per share.

3.   Notes Payable

     Notes payable consist of the following:
<TABLE>
<CAPTION>
                                                                                                 September 30,        June 30,
  (thousands of dollars)                                                                                  1999            2000
  -----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                <C>              <C>
  Note payable to a corporation, bearing interest at 6%, collateralized by a coal wash plant
  in Utah, principal and interest due October 2000.                                                    $ 4,313          $1,838

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

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

  Note payable to a limited liability company, bearing interest at 10%, repaid in April 2000
  (see Note 5).                                                                                          9,191              --

  Convertible secured note payable to an investment company, issued at a discount, bearing a
  stated interest rate of 2.5% on the $20,000 face amount, redeemed in May 2000 (see Note 2).           10,265              --

  Convertible secured note payable to a Covol shareholder, issued at a discount,
  bearing a stated interest rate of 8%. This note, which increased in amount in
  October 1999, along with another convertible note payable to an unrelated entity issued
  in December 1999, were redeemed by Covol in January 2000.                                                622              --

  Note payable to a corporation, bearing interest at 14%. $1,000 of principal
  was paid in January 2000. The remaining $3,000 of principal was originally due
  April 2000, but in April 2000, $2,000 was converted into shares of common
  stock and warrants for the purchase of common stock and $1,000 was extended to
  April 2001, as described in Note 2. The $1,000 balance outstanding as of June 30, 2000
  was repaid in July 2000.  A member of Covol's Board of Directors is affiliated with
  this corporation.                                                                                      4,000           1,000

  Note payable to a bank, bearing interest at prime plus 2% (11.5% at June 30,
  2000), principal and interest payable in four quarterly installments beginning
  August 2000 through May 2001, collateralized by licensee fees payable to Covol
  from the production and sale of synthetic fuel from four synthetic fuel facilities
  and by a $6,500 note receivable due to Covol (see Note 2).                                                --           4,000

  Other                                                                                                    722             526
                                                                                                 ------------------------------
                                                                                                        38,513           7,364
       Less: current portion                                                                           (20,626)         (7,113)
                                                                                                 ------------------------------
       Total non-current                                                                               $17,887            $251
                                                                                                 ==============================
</TABLE>
                                       9
<PAGE>

The weighted average stated interest rate on notes payable was 7.9% at September
30,  1999 and 10.4% at June 30,  2000;  however,  when debt  discounts  and debt
issuance costs are considered,  the effective  interest rate on notes payable at
September 30, 1999 was approximately 15%.

4.   Basic and Diluted Earnings per Share
<TABLE>
<CAPTION>
                                                               Three Months Ended June 30,      Nine Months Ended June 30,
  (thousands of dollars and shares, except per-share data)            1999            2000            1999            2000
  -------------------------------------------------------------------------------------------------------------------------
  Numerator:
<S>                                                          <C>              <C>           <C>               <C>
       Income (loss) before extraordinary item                     $(5,527)         $8,259        $(15,142)         $8,470
       Extraordinary item                                               --          (6,037)             --          (7,860)
                                                             --------------------------------------------------------------
       Net income (loss)                                            (5,527)          2,222         (15,142)            610
       Preferred stock dividends (undeclared)                         (170)            (66)           (307)           (331)
       Imputed preferred stock dividends                              (313)             --            (353)            (58)
                                                             --------------------------------------------------------------
  Numerator for basic earnings per share -- net income
    (loss)attributable to common stockholders                       (6,010)          2,156         (15,802)            221
  Effect of dilutive securities - preferred stock dividends             --              19              --              92
                                                             --------------------------------------------------------------
  Numerator for diluted earnings per share -- net income
    (loss) attributable to common stockholders after
    assumed conversions                                            $(6,010)         $2,175        $(15,802)           $313
                                                             ==============================================================

  Denominator:
  Denominator for basic earnings per share --
    weighted-average shares outstanding                             12,512          22,988          12,320          18,208
  Effect of dilutive securities:
    Shares issuable upon exercise of options and
      warrants                                                          --             226              --             188
    Shares issuable upon conversion of preferred stock                  --           1,052              --           3,020
                                                             --------------------------------------------------------------
  Total dilutive potential shares                                       --           1,278              --           3,208
                                                             --------------------------------------------------------------
  Denominator for diluted earnings per share --
    weighted-average shares outstanding after assumed
    exercises and conversions                                       12,512          24,266          12,320          21,416
                                                             ==============================================================

  Basic earnings per share:
  Income (loss) before extraordinary item                           $(.48)            $.35         $(1.28)            $.44
  Extraordinary item                                                    --           (.26)              --           (.43)
                                                             --------------------------------------------------------------
  Net income (loss) per common share                                $(.48)            $.09         $(1.28)            $.01
                                                             ==============================================================
  Diluted earnings per share:
  Income (loss) before extraordinary item                           $(.48)            $.34         $(1.28)            $.38
  Extraordinary item                                                    --           (.25)              --           (.37)
                                                             --------------------------------------------------------------
  Net income (loss) per common share                                $(.48)            $.09         $(1.28)            $.01
                                                             ==============================================================
</TABLE>

     During the quarter and nine months ended June 30, 2000, Covol's potentially
     dilutive  securities  consisted of options and warrants for the purchase of
     common stock,  convertible debt and convertible  preferred stock.  Only the
     options,  warrants and the series D  convertible  preferred  stock,  all of
     which was redeemed in April and May 2000 (see Note 2), were  dilutive.  For
     the fiscal 2000 periods,  all other  potentially  dilutive  securities were
     anti-dilutive  and  were  not  considered  in the  calculation  of  diluted
     earnings  per  share.  For both  1999  periods,  all  potentially  dilutive
     securities were anti-dilutive and were not considered in the calculation.

5.   Sale of Facilities

     Covol's  business  plan called for the  construction  and sale of synthetic
     fuel  manufacturing  facilities and the licensing of Covol's  technology to
     facility purchasers to generate ongoing royalties.  In December 1999, Covol
     sold one of the three remaining  synthetic fuel  facilities it owned.  This
     facility  was  located  in  Price,  Utah.  Covol  reported  a gain  on this
     transaction of approximately $5,341,000.

                                       10
<PAGE>

     In January  2000,  Covol sold a synthetic  fuel  facility  located in North
     Fork, West Virginia and an option to acquire a licensee facility located in
     Nevada,  to a major U.S.  utility.  Covol reported a combined loss on these
     transactions of approximately  $598,000.  Both facilities were subsequently
     relocated  and  in  June  2000  additional  net  cash  proceeds,   totaling
     approximately  $6,500,000,  were received by Covol when the two  facilities
     reached commercial operation at the new locations. Accordingly,  $6,500,000
     was recognized as revenue in the quarter ended June 30, 2000.

     In April 2000,  Covol sold its remaining  owned  synthetic  fuel  facility,
     located in Tallmansville,  West Virginia. Net cash proceeds to Covol, after
     payment of related debt and other obligations were approximately  $300,000.
     Covol  reported a gain on this  transaction  of  approximately  $1,227,000.
     Covol intends to sell the proprietary  binder material used at the facility
     and will also receive an ongoing  royalty based upon production and sale of
     synthetic fuel from this facility.

     In June 2000, upon obtaining firm synthetic fuel "off-take"  agreements and
     by meeting a specified operating performance  milestone,  Covol received an
     additional cash payment related to the August 1999 sale of a synthetic fuel
     facility.  The cash proceeds from this payment, net of obligations to third
     parties,  approximated  $3,777,000.  Of  the  net  amount  received,  Covol
     recognized  $800,000 as revenue and deferred the recognition of $2,977,000,
     which  amount  will be  recognized  as  revenue  on a  straight-line  basis
     beginning July 2000 through December 2007. In addition, in July 2000, Covol
     met a second  performance  milestone  which will  result in the  receipt of
     another  payment to Covol.  This  amount is  expected  to be  approximately
     $3,600,000,  net of obligations due to a third party, and is expected to be
     recognized as revenue in the September 2000 quarter.

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

     In the June 2000 quarter, Covol recorded non-recurring asset write-offs and
     employee  severance  charges  totaling  approximately  $1,559,000.  In  the
     December 1999 quarter, Covol recorded an impairment charge of approximately
     $10,300,000  related to assets  located  in Price,  Utah.  This  impairment
     charge consisted of an approximate  $8,100,000  writedown to net realizable
     value of certain plant and  equipment  which remains on the site and is now
     idle, plus an approximate $2,200,000 writeoff of an intangible asset. Covol
     also  recorded  other asset  write-offs  and  non-recurring  charges in the
     December 1999 and March 2000  quarters.  For the nine months ended June 30,
     2000,  all  of the  asset  write-offs  and  non-recurring  charges  totaled
     approximately  $13,421,000,   of  which  $11,680,000  represented  non-cash
     charges.

     In  addition,  in the  June  2000  quarter,  Covol  recorded  approximately
     $552,000 of non-cash,  non-recurring  incremental  amortization of deferred
     compensation  from  stock  options,   resulting  from  the  termination  of
     employees whose stock options became fully vested upon termination.

7.   Income Taxes

     In the quarter ended December 31, 1999, Covol recognized  $3,000,000 of its
     deferred  tax asset.  Covol  believes  it is more likely than not that this
     portion of the total  deferred  tax asset will be  realized  as a result of
     improved  operations,  combined  with  income  to be  recognized  from  the
     amortization  of deferred  revenues in  subsequent  periods.  Covol has not
     recognized  any income tax expense for the nine months  ended June 30, 2000
     due to available net operating loss carryforwards.

8.   Commitments and Contingencies

     Commitments and contingencies as of June 30, 2000 not disclosed  elsewhere,
     are as follows.

     In the June 2000 quarter,  Covol's Board of Directors approved two employee
     benefit plans, the Covol Technologies,  Inc. 401(k) Profit Sharing Plan and
     the 2000 Employee Stock Purchase Plan.  Under the terms of the 401(k) Plan,
     employees may elect to make tax-deferred contributions to the Plan of up to
     15% of their  compensation,  subject to  statutory  limitations.  Covol may
     elect to match employee contributions up to a specified maximum rate, which
     matching contributions, if made, vest over a four-year period. Covol is not
     required to have net income in order to make a matching contribution.

                                       11
<PAGE>

     The 2000 Employee Stock Purchase Plan provides  eligible  employees with an
     opportunity to increase their proprietary  interest in the success of Covol
     by  purchasing  stock  in  Covol  on  favorable  terms  and to pay for such
     purchases through payroll  deductions.  A total of 500,000 shares of common
     stock are reserved for issuance under the Plan.  Under the Plan,  employees
     purchase  shares  of stock  directly  from  Covol,  which  shares  are made
     available  either  from  Covol's  authorized  but  unissued  shares or from
     treasury shares,  including shares repurchased on the open market.  Covol's
     current intent is to use shares being  purchased on the open market to meet
     these requirements.  The Plan is intended to comply with Section 423 of the
     Internal  Revenue Code,  but is not subject to the  requirements  of ERISA.
     Employees  purchase stock through  payroll  deductions of from 1% to 10% of
     cash compensation,  subject to certain limitations.  The stock is purchased
     in a series of calendar-month offerings. The cost per share to the employee
     is 85% of the  lesser  of the fair  market  value at the  beginning  of the
     offering  period  or the  end of the  offering  period.  Substantially  all
     employees of Covol are eligible to  participate  in the 401(k) Plan and the
     Stock  Purchase  Plan after  meeting  certain age and length of  employment
     requirements.

     In March 1997, Covol  transferred the Utah Synfuel #1 facility to Coaltech.
     In connection with this transaction, Covol licensed Coaltech to use Covol's
     proprietary binder technologies for a non-refundable advance license fee of
     $1,400,000,   which  is  being  recognized  as  income  through  2007,  the
     contractual term of the license agreement, and a recurring license fee that
     was payable  quarterly and that was based upon  synthetic fuel produced and
     sold at the Coaltech  facility.  Covol  contracted with Coaltech to operate
     the facility for which Covol received a quarterly fee, which was also based
     upon  synthetic  fuel  produced  and sold.  In  accordance  with  generally
     accepted accounting  principles and after discussions with the staff of the
     Securities  and  Exchange  Commission,  the  transfer  of the  facility  to
     Coaltech was not reflected as a sale for accounting purposes.  The original
     cost of the  facility  less  cash  payments  received  from  Coaltech,  was
     reflected in the  consolidated  balance  sheet as of September  30, 1999 as
     facility  transferred  under note  receivable  arrangement.  This asset was
     realized in February  2000 in  connection  with the reduction of the amount
     due under a note payable to one of the limited partners of Coaltech.

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

     In  anticipation  of a  relocation  of the Utah  facility by  Coaltech,  on
     October 29, 1999 Covol received  notification  from the limited partners of
     Coaltech  that they were  effecting  a  retirement  of Covol as the general
     partner of the  partnership and were  terminating  Covol as operator of the
     Utah facility.  The limited partners also asserted that as a consequence of
     the  retirement  of Covol as  general  partner,  Covol  was  deemed to have
     forfeited its 1% interest in the  partnership.  The  notification  demanded
     that Covol indemnify the limited partners for all of their losses, damages,
     payments, costs and expenses. Covol disputed the limited partners' demands.

     On December 1, 1999, the parties entered into  negotiations and as a result
     an interim  standstill  agreement was reached pursuant to which the limited
     partners and Covol  agreed not to pursue  formal  proceedings  against each
     other pending the outcome of the settlement negotiations. In February 2000,
     Covol,  Coaltech  and one of the limited  partners  of  Coaltech  reached a
     settlement  regarding both the note payable due to the limited partner from
     Covol and the note  receivable  due to Covol from  Coaltech.  In June 2000,
     Covol entered into a settlement agreement and release with Coaltech and the
     two limited  partners of Coaltech.  The terms of this settlement  agreement
     provide for termination of all of the agreements between Covol and Coaltech
     described  above.  In addition,  Covol  received a settlement  payment from
     Coaltech  which was  materially  consistent  with the net  amount  due from
     Coaltech  and the  limited  partners.  Accordingly,  no  gain  or loss  was
     recognized in the financial  statements as a result of the  settlement.  In
     connection  with this  settlement  agreement,  Coaltech  entered into a new
     license  and  binder  supply  agreement  to  purchase   proprietary  binder
     materials  from Covol and to use Covol's  technology  in the  production of
     synthetic fuel when operations of the facility are resumed. The new license
     agreement could potentially result in a significant  reduction in royalties
     to be received by Covol.

     In June 1996,  Covol  formed  Alabama  Synfuel  #1,  Ltd.  to  construct  a
     synthetic  fuel  facility.  In  connection  with the  construction  of this
     facility,  Covol entered into a supply  agreement for coal fines to be used
     at the  facility.  Covol  assigned

                                       12
<PAGE>

     this  agreement to the  purchaser of the facility and  accordingly,  has no
     ongoing  obligation.  Covol  has been paid for the coal  fines  sold to the
     facility  purchaser,  but has a dispute with the provider of the coal fines
     for a portion of the coal  fines  Covol paid for.  The  resolution  of this
     dispute is not expected to have a material impact on Covol.

     In September 1996, Covol entered into an agreement with Coalco  Corporation
     whereby  Coalco was to advise Covol with respect to the  financing and sale
     of certain synthetic fuel manufacturing facilities. A dispute arose between
     Covol and Coalco  about  services  rendered or to be rendered by Coalco and
     the amount and timing for  payment  for such  services.  A  settlement  was
     reached in November 1999 whereby Covol agreed to pay Coalco $1,500,000 plus
     a  royalty  based on the  synthetic  fuel  sold  from  five  licensee-owned
     facilities.  All of the  $1,500,000  has been paid to Coalco as of June 30,
     2000. Pelletco, an affiliate of Coalco, is a licensee of Covol.

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

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

     During the six months ended March 31, 2000,  Covol  recorded  approximately
     $6,800,000  of license fee revenues  from a single  licensee that owns four
     synthetic fuel facilities that use Covol's  proprietary  binder technology.
     These  revenues  related  to sales of  synthetic  fuel at these  facilities
     primarily between June 1999 and March 2000 which were late reported by this
     licensee in early  calendar 2000.  Covol and this licensee  agreed to amend
     the license fee arrangements for prior and future periods, which amendments
     were finalized in May 2000. No adjustment to amounts previously recorded in
     the  consolidated  financial  statements was necessary as a result of these
     amendments.  In  addition,  in May 2000  the  future  interest  rate on the
     $6,500,000 note receivable from this licensee was reduced from 12% to 6%.

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

9.   Events subsequent to June 30, 2000

     In addition to events  subsequent  to June 30,  2000  disclosed  elsewhere,
     Covol  has  made  several  strategic   investments  and  loans  aggregating
     $2,715,000  from July through  August 4, 2000.  Combined  with  $450,000 of
     investments  and loans made in June 2000,  Covol currently has made a total
     of $3,165,000 of strategic investments and loans.


<PAGE>

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

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

Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999

Revenues.  Total  revenues  for the three  months  ended June 30, 2000  ("2000")
increased by  $13,423,000 to $15,000,000 as compared to $1,577,000 for the three
months ended June 30, 1999 ("1999").  During 2000, Covol recognized license fees
totaling  $3,591,000 while $853,000 of license fees were recognized during 1999.
The  license  fees  in  2000  consisted  of the  straight-line  amortization  of
one-time, non-refundable initial license fees of $230,000, reduced by a one-time
adjustment of $201,000, and recurring earned license fees or royalty payments of
$3,562,000.  License fees in 1999 consisted of the straight-line amortization of
one-time,  non-refundable initial license fees of $227,000 and recurring license
fees or royalty  payments of $626,000.  Initial license fees are not expected to
increase in future periods and are recognized on a straight-line  basis over the
period covered by Covol's license  agreements with licensees.  Recurring  earned
license  fees or  royalty  payments,  which over the long term are  expected  to
increase in future periods, are due quarterly based upon synthetic fuel produced
and sold as  reported  to Covol by its  licensees.  The  increase in 2000 earned
license fees was due  primarily to a  significant  increase from a licensee that
owns and operates four synthetic fuel facilities.

Covol provides  proprietary  binder material to its licensees  either at a fixed
price or at Covol's cost plus a contracted  markup.  Covol  purchases the binder
materials under a long-term contract with a large chemical company. Binder sales
during 2000 were  $2,709,000  with a  corresponding  direct cost of  $1,860,000.
Binder  sales  during 1999 were  $409,000  with a  corresponding  direct cost of
$291,000.  The  increase in binder  sales in 2000 over 1999 was due to increased
synthetic fuel production by Covol's licensees.

Gains on Sale of Facilities.  In 2000,  Covol sold a synthetic fuel facility and
recognized a gain of $1,227,000.  Also,  $6,500,000 of contingent sales proceeds
related to the January  2000 sale of a facility and sale of an option to acquire
a facility were  received and  recognized as revenue.  Finally,  Covol  received
approximately  $3,777,000 of contingent  sales proceeds related to the sale of a
facility in August 1999,  of which  $800,000 was  recognized  as revenue and the
balance deferred (see Note 5 to the Consolidated Financial Statements).

Operating Costs and Expenses.  Total  operating costs and expenses  increased by
$787,000  to  $6,192,000  during  2000  from  $5,405,000  during  1999.  Cost of
operations  decreased  $2,250,000 from $3,027,000 during 1999 to $777,000 during
2000.  During 2000,  Covol incurred  significantly  lower operating  expenses in
connection with the continued  refinement and  implementation of the briquetting
process  associated with the 24 facilities placed in service during 1998, and in
particular the operating  costs  associated  with the four  facilities  owned by
Covol which have now been sold.  Consistent  with its business  plan to sell the
facilities and earn royalties  from facility  owners,  Covol sold its four owned
facilities  in  August  1999,  December  1999,  January  2000  and  April  2000,
respectively  (see Note 5 to the Consolidated  Financial  Statements).  In 1999,
cost of  operations  primarily  related to labor and  operating  expenses at the
owned  synthetic  fuel  facilities  and the wash plant  located in Utah,  losses
related  to the  writedown  of  inventory  purchased  from  Coaltech,  and costs
incurred in providing  assistance  to Covol's  licensees  in  resolving  ramp-up
issues  at their  synthetic  fuel  facilities.  Covol  expects  future  costs of
operations to remain significantly below 1999 levels.

Asset  write-offs  and other  non-recurring  charges.  In 2000,  Covol  recorded
non-recurring   asset  write-offs  and  employee   severance   charges  totaling
approximately $1,559,000. There were no such charges in 1999.

Selling,  general  and  administrative  expenses  increased  $67,000  or  5%  to
$1,405,000  during 2000 from  $1,338,000  for 1999.  The increase in expenses in
2000 is due to an increase in payroll and other compensation-related costs which
more than offset decreases in most other cost categories.

Compensation  expense from stock options decreased $158,000 to $591,000 for 2000
from $749,000 for 1999. This expense relates to options granted in prior periods
that vest over several years and the compensation value that is being recognized
as an expense over the vesting  period.  During both periods,  Covol  terminated
employees to whom compensatory  stock options were granted in prior years. These
stock options vested upon termination, resulting in the accelerated write off of
the  unamortized  deferred  compensation  related  to these  individuals.  These
accelerated  write-offs totaled approximately $600,000 in 1999 and approximately
$550,000 in 2000.  As a result of  employee  terminations,  future  amortization
expense will be reduced.

                                       14
<PAGE>

Other Income and  Expense.  During 2000,  Covol  reported net other  expenses of
$549,000 compared to $1,699,000 for 1999. This decrease of $1,150,000 relates to
positive   variances  of  $1,030,000  in  interest   expense,   $49,000  in  the
mark-to-market  adjustment  of  the  carrying  value  of a  related  party  note
receivable  collateralized by Covol common stock, and $71,000 in interest income
and other income.

Interest  expense  decreased  in  2000  due  to the  higher  average  levels  of
outstanding  borrowings and higher  effective cost of debt which existed in 1999
as compared to 2000, most notably as a result of the convertible  debt issued at
a  discount  during  March  1999,  which  was  completely  paid off in May 2000.
Interest  expense of $718,000 in 2000  resulted  from the  amortization  of debt
discount and debt issuance costs. Interest expense of $834,000 in 1999 consisted
of amortization of debt discount and debt issuance  costs.  Interest  expense is
expected to  significantly  decrease in the future as a result of  repayment  of
debt related to the sale of  company-owned  facilities in late 1999 and 2000 and
the complete redemption of outstanding convertible debt in 2000.

During  1996,  Covol  sold  certain  construction   companies  and  received  as
consideration  a $5,000,000  note  receivable  ("Note").  The Note is "marked to
market" each quarter based upon the market value of Covol's common stock held as
collateral and is reflected in the consolidated  balance sheet at the underlying
value of this collateral, $318,000 at June 30, 2000. This adjustment resulted in
a write-up of $49,000 during 2000, compared to no change during 1999.

Extraordinary  Item. In May and June 2000, Covol redeemed all of the convertible
debt issued in March 1999. The loss recognized as a result of the cash paid plus
the  acceleration  of  amortization  of the  unamortized  debt discount and debt
issuance costs totaled  approximately  $6,037,000.  This loss is reflected as an
extraordinary item in the Consolidated Statements of Operations.

Net Income.  For 2000,  net income of $2,222,000  represents an  improvement  of
$7,749,000  from the net loss of  $5,527,000  in 1999.  This is primarily due to
increased  revenues,  especially gains on the sale of facilities.  Covol did not
recognize any income tax expense in 2000,  due to available  net operating  loss
carryforwards, nor in 1999 due to the net loss incurred.

Nine Months Ended June 30, 2000 Compared to Nine Months Ended June 30, 1999

Revenues.  Total  revenues  for the nine  months  ended June 30,  2000  ("2000")
increased by  $29,847,000  to $33,949,000 as compared to $4,102,000 for the nine
months ended June 30, 1999 ("1999").  During 2000, Covol recognized license fees
totaling  $12,424,000  while  $2,140,000 of license fees were recognized  during
1999. The license fees in 2000 consisted of the  straight-line  amortization  of
one-time non-refundable initial license fees of $691,000,  reduced by a one-time
adjustment of $201,000, and recurring earned license fees or royalty payments of
$11,934,000. License fees in 1999 consisted of the straight-line amortization of
one-time  non-refundable  initial license fees of $680,000 and recurring license
fees or royalty payments of $1,460,000. The increase in 2000 earned license fees
was due  primarily  to  significant  increases  from a  licensee  that  owns and
operates  four  synthetic  fuel  facilities  (see  Note  8 to  the  Consolidated
Financial  Statements).   Binder  sales  during  2000  were  $5,945,000  with  a
corresponding  direct  cost  of  $4,088,000.   Binder  sales  during  1999  were
$1,365,000 with a corresponding direct cost of $941,000.  The increase in binder
sales in 2000  over  1999 was due to  increased  synthetic  fuel  production  by
Covol's licensees.

Gains on sale of  facilities.  In December  1999,  Covol sold a  synthetic  fuel
facility located in Price, Utah and reported a gain of approximately $5,341,000.
In April 2000,  Covol sold a synthetic fuel facility  located in  Tallmansville,
West  Virginia  and  recognized  a  gain  of  $1,227,000.  Also,  $6,500,000  of
contingent  sales  proceeds  related to the January  2000 sale of a facility and
sale of an option to acquire a facility were received and recognized as revenue.
Finally,  Covol received  approximately  $3,777,000 of contingent sales proceeds
related  to the  sale of a  facility  in  August  1999,  of which  $800,000  was
recognized as revenue and the balance  deferred (see Note 5 to the  Consolidated
Financial Statements). There were no sales of synthetic fuel facilities in 1999.

Gains on Non-recurring Transactions. In 2000, Covol recorded non-recurring gains
of approximately $1,079,000 related to the satisfaction of a contingent contract
liability  for  $755,000 and a $324,000  gain  recognized  on a note  receivable
transaction.

Operating Costs and Expenses.  Total  operating costs and expenses  increased by
$9,962,000 to $25,259,000  during 2000 from $15,297,000  during 1999,  primarily
due to  non-recurring  charges  of  approximately  $13,421,000  in 2000 and only
$556,000 in 1999. Cost of operations decreased $6,160,000 from $9,226,000 during
1999 to $3,066,000 during 2000. During 2000, Covol incurred  significantly lower
operating   expenses  in   connection   with  the   continued   refinement   and
implementation  of the  briquetting  process  associated  with the 24 facilities
placed in service during 1998, and in particular the operating costs

                                       15
<PAGE>

associated with the four facilities  owned by Covol which have now been sold. In
1999, cost of operations  primarily  related to labor and operating  expenses at
the owned synthetic fuel  facilities and the wash plant located in Utah,  losses
related  to the  writedown  of  inventory  purchased  from  Coaltech,  and costs
incurred in providing  assistance  to Covol's  licensees  in  resolving  ramp-up
issues  at their  synthetic  fuel  facilities.  Covol  expects  future  costs of
operations to remain significantly below 1999 levels.

Loss on Sale of  Facilities.  In  addition to the sales of  facilities  on which
gains were  recognized,  Covol sold a synthetic  fuel  facility and an option to
acquire a licensee  facility in January 2000.  Covol reported a combined loss on
these  transactions of  approximately  $598,000 (see Note 5 to the  Consolidated
Financial Statements).

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

Covol recorded additional  non-recurring asset write-offs and employee severance
charges in 2000 which,  when added to the  charges  described  in the  preceding
paragraph,  totaled  approximately  $13,421,000.  Of this amount,  approximately
$11,680,000  represented non-cash charges. In 1999, Covol recorded non-recurring
charges of approximately $556,000.

Selling,  general  and  administrative  expenses  decreased  $97,000  or  3%  to
$3,403,000  during 2000 from  $3,500,000  for 1999.  The decrease in expenses in
2000 is due to decreases  in nearly all cost  categories,  largely  offset by an
increase in payroll and other compensation-related costs.

Compensation  expense from stock options decreased $391,000 to $683,000 for 2000
from $1,074,000 for 1999.  During both periods,  Covol  terminated  employees to
whom compensatory stock options were granted in prior years. These stock options
vested  upon  termination,  resulting  in  the  accelerated  write  off  of  the
unamortized   deferred   compensation   related  to  these  individuals.   These
accelerated  write-offs totaled approximately $600,000 in 1999 and approximately
$550,000 in 2000.  As a result of  employee  terminations,  future  amortization
expense will be reduced.

Other Income and  Expense.  During 2000,  Covol  reported net other  expenses of
$3,220,000  compared to 3,947,000 for 1999.  This  decrease of $727,000  relates
primarily to positive variances of $667,000 in the mark-to-market  adjustment of
the carrying value of a related party note  receivable  collateralized  by Covol
common stock,  and $382,000 in interest  income and other,  offset by a $322,000
increase in interest expense.

Interest  expense  increased  in  2000  due  to the  higher  average  levels  of
outstanding  borrowings and higher  effective cost of debt which existed in 2000
as compared to 1999, most notably as a result of the convertible  debt issued at
a discount  during March 1999.  Interest  expense of $2,990,000 in 2000 resulted
from the  amortization  of debt  discount and debt  issuance  costs,  while only
$1,160,000  of  interest  expense  in 1999  consisted  of  amortization  of debt
discount and debt issuance costs.  Interest expense is expected to significantly
decrease in the future as a result of  repayment  of debt related to the sale of
company-owned  facilities  in late 1999 and 2000 and the complete  redemption of
outstanding convertible debt in May 2000.

Income  Taxes.  In  the  quarter  ended  December  31,  1999,  Covol  recognized
$3,000,000 of its deferred tax asset.  Covol believes it is more likely than not
that this  portion of the total  deferred tax asset will be realized as a result
of  improved  operations,  combined  with  income  to  be  recognized  from  the
amortization of deferred revenues in subsequent periods. Covol did not recognize
any income tax benefit in fiscal 1999 due to the net loss incurred.

Extraordinary  Item. In January 2000, Covol redeemed all of the convertible debt
issued from September 1999 through  December 1999. The redemption  consideration
given   included   approximately   $1,000,000   in   redemption   premiums  plus
approximately 214,000 shares of common stock. The loss recognized as a result of
the redemption  consideration  paid plus the acceleration of amortization of the
unamortized  debt  discount  and  debt  issuance  costs  totaled   approximately
$1,823,000.  In May and June 2000,  Covol redeemed all of the  convertible  debt
issued  in  March  1999.  The loss  recognized  as a  result  of the  redemption
consideration paid plus the acceleration of amortization of the unamortized debt
discount and debt issuance costs totaled approximately $6,037,000.  The combined
losses on all redemptions,  totaling approximately $7,860,000,  are reflected as
an extraordinary item in the Consolidated Statements of Operations.

                                       16
<PAGE>

Net  Income.  For 2000,  net income of $610,000  represents  an  improvement  of
$15,752,000  from the net loss of $15,142,000 in 1999.  This is primarily due to
increased  revenues,  including  gains on the sale of facilities,  and decreased
cost of operations,  partially  offset by increased  asset  write-offs and other
non-recurring charges and an extraordinary loss.

Liquidity and Capital Resources

During 1998,  Covol and its licensees  completed the  construction  of and began
operations at 24 synthetic fuel facilities. Covol owned four facilities which it
held  for  sale  and  sold  during  1999  and  2000.  Proceeds  from the sale of
facilities have been used primarily to retire debt that was incurred principally
in connection with the  construction  and operation of the facilities,  and to a
lesser extent, for working capital needs.

Net cash provided by operating  activities during the nine months ended June 30,
2000 ("2000") was  $10,655,000  compared to  $14,388,000 of cash used during the
nine months ended June 30, 1999 ("1999").  Most of this change in cash flow from
operations is attributable to the 2000 net income of $610,000 as compared to the
1999 net loss of  $15,142,000,  augmented by the non-cash  nature of many of the
material  expenses  included in results of  operations  for 2000.  During  2000,
proceeds  from  the  sale of  facilities  were  approximately  $34,500,000,  net
proceeds  from the issuance of notes payable and related  common stock  warrants
totaled approximately  $6,980,000,  and net proceeds from the issuance of common
stock and  related  common  stock  warrants  totaled  approximately  $5,254,000.
Approximately   $41,754,000  of  notes  payable  were  repaid  during  2000  and
approximately $4,454,000 of cash was used for preferred stock redemptions.

With  the  exception  of the  sale of  facilities  in  2000,  Covol's  investing
activities in both 2000 and 1999 were not significant. Covol believes that funds
required for investing  activities,  other than strategic investments and bridge
loans,  will continue to be relatively  low during the remainder of fiscal 2000.
Covol has no current plans to construct  additional synthetic fuel facilities or
to incur significant costs to acquire  property,  plant and equipment,  but does
have plans to increase  its  strategic  investments  and lending  activities  as
opportunities arise (see Note 9 to the Consolidated Financial Statements).

Covol's working capital improved from a working capital deficit of approximately
$1,799,000  at  September  30, 1999 to a positive  working  capital  position of
approximately  $5,441,000  as of June 30,  2000.  Several  factors  caused  this
change,  most  notably  an  increase  in cash  from the sale of  facilities  and
increased royalty revenues.  The most significant changes in working capital, in
addition  to  the  increase  in  cash,  were  the  reduction  of   approximately
$18,459,000  in  facilities  and  equipment  held for sale and the  reduction of
approximately  $13,513,000  in  current  notes  payable.  Both of these  changes
primarily resulted from the sales of synthetic fuel facilities in 2000.

Covol  expects its  operations  to produce  positive cash flows in the near-term
future. In addition to expected positive cash flows from operations,  Covol will
receive  additional funds,  totaling  approximately  $3,600,000,  when the final
contingent  payment from the sale of a synthetic fuel facility in August 1999 is
received.  This  payment is expected  to be received  prior to the end of fiscal
2000.  In  addition to cash  provided by  operating  activities  and  contingent
proceeds from the sale of a facility,  Covol has initiated negotiations with two
financial institutions in order to secure a line of credit. Covol believes these
negotiations will ultimately be successful.

As of June 30, 2000, Covol's notes payable total  approximately  $7,364,000,  of
which approximately $7,113,000 is due within the 12 months ending June 30, 2001.
Since June 30, 2000,  approximately $2,000,000 of notes payable has been repaid,
reducing the  remaining  balance of notes payable to  approximately  $5,000,000.
Covol  believes it will have  sufficient  cash reserves to meet its  obligations
both  during the  remainder  of fiscal  2000 and during the fiscal  year  ending
September 30, 2001.

Other Items

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

Risk Factors

We Have a History of Losses; No Assurance of Profit

We have incurred total losses of  approximately  $74,000,000  from February 1987
through  December 31, 1999. Until the quarter ended March 31, 2000, all quarters
have had net losses. We may not be profitable in the future. We are dependent on

                                       17
<PAGE>

collection of license fees and other payments from licensees for revenue.  It is
not  certain  whether  earned  royalties  from  licensees  will  continue  to be
sufficient to meet  operating  requirements.  Potential  future  operating  cost
reductions  are  limited  due to our  need to work  with  licensees  in order to
sustain and increase earned royalties.

Ongoing Financial Viability Depends on Operations Success for License Revenues

Our  existence  depends on the  ability  of our  licensees  to produce  and sell
synthetic  fuel which will  generate  license fees to us. There are  twenty-four
synthetic  fuel plants that  utilize our patented  technology  and from which we
intend to earn license fees. There are four additional  facilities which utilize
a  technology  that we acquired  during  fiscal 1999.  Substantially  all of the
ongoing  royalties we have earned to date have been generated by six facilities.
Improved  operations at each of these plants depends on the ability of the plant
owner to produce a marketable  quality of synthetic fuel, and the ability of the
plant owner to market the synthetic fuel.  Licensees must  successfully  address
all operational  issues,  including but not limited to, feedstock  availability,
cost, moisture content, Btu content, correct binder formulation,  operability of
equipment, product durability,  resistance to water absorption and overall costs
of operations, which in many cases to date have resulted in unit costs in excess
of resale prices. In some cases,  licensees may be forced to relocate plants and
enter into new strategic  contracts to address  marketing and operating  issues.
Licensee plant  relocations  will delay generation of license fees for Covol. It
is not certain how much time our licensees will require for the full  resolution
of all of these marketing and operational issues.

Debt Terms and Covenants Restrict Our Activities

On May 31, 2000 we entered into a loan agreement that contains  restrictions  on
business activities and covenants for future activities.  We also agreed to meet
specific monthly and quarterly  earnings targets  beginning in June 2000 and for
subsequent months and quarters until debt is repaid.  These terms and conditions
also  restrict or prohibit  specific  activities  without  debtholder  approval,
including for example, materially changing the business of Covol, incurring more
than a specified  amount of  additional  indebtedness,  entering  into a merger,
reorganization,  recapitalization,  or similar transaction,  and making loans or
investments  greater than a specified amount without the debtholder's  approval.
Non-compliance  could result in all  indebtedness  becoming  immediately due and
payable.

We or our  Licensees  May Not  Qualify  for Tax  Credits  Granted by Congress to
Encourage Production of Alternative Fuels

Section 29 of the Internal Revenue Code provides a tax credit for the production
and sale of qualified  synthetic  fuel. We received a private letter ruling from
the IRS in which the IRS agrees synthetic fuel manufactured using our technology
qualifies  for the  Section 29 tax  credits.  The IRS has issued at least  seven
other private letter rulings to licensees of our  technology.  These rulings may
be  modified  or  revoked  by the IRS if the IRS  adopts  regulations  that  are
different from these rulings. Also, a private letter ruling may not apply if the
actual practice  differs from the  information  given to the IRS for the ruling.
Ultimately,  it is within the power of Congress to repeal Section 29. Therefore,
tax credits may not be available in the future, which would materially adversely
impact  us.  See our Form 10-K for fiscal  year  1999,  "ITEM 1.  BUSINESS - Tax
Credits" for an explanation of qualifications for Section 29 tax credits.

Based upon the language of Section 29 of the tax code and private letter rulings
issued by the IRS to us and our  licensees,  we and our  licensees  believe  the
synthetic fuel facilities  built and completed by June 30, 1998 are eligible for
Section 29 tax credits.  However,  the ability to claim tax credits is dependent
upon a number of conditions including, but not limited to, the following:

     o    The facilities were constructed pursuant to a binding contract entered
          into on or before December 31, 1996;
     o    All steps  were  taken for the  facility  to be  considered  placed in
          service;
     o    Manufacturing procedures are applied to produce a significant chemical
          change and hence a "qualified fuel";
     o    The synthetic fuel is sold to an unrelated party; and
     o    The  owner  of  the  facility  is in a tax  paying  position  and  can
          therefore use the tax credits.

The  IRS  may  challenge  us or our  licensees  on any  one of  these  or  other
conditions.  Also,  we or our  licensees  may not be in a financial  position to
claim the tax credits if we or they are not profitable. In addition, the Section
29 credit is  subject  to phase out after the  unregulated  oil price  reaches a
certain  level,  adjusted  annually  for  inflation.  The most recent  published
information is for 1999 and based on that information, the credit would begin to
be phased out if the  unregulated oil price reached a price of $47.03 per barrel
and would be completely  phased out if the price reached $59.04 per barrel.  The
1999

                                       18
<PAGE>

unregulated  oil  price  as  published  by the IRS is  $15.56  per  barrel.  The
inability of a licensee to claim tax credits could potentially reduce our income
from the licensee.

Our accounting and valuation  procedures assume qualification for Section 29 tax
credits so that  synthetic fuel  production  will continue to be the highest and
best use of our equipment and facilities. If they lose their qualification under
Section 29, the equipment and facilities  could be overvalued in any alternative
highest and best use.

Synthetic Fuel Facilities May Not Be  Commercially  Viable After the Tax Credits
Expire

The synthetic fuel  facilities  that qualify for tax credits under Section 29 of
the code  receive  economic  benefits  from the tax  credits in  addition to the
benefits, if any, from operations. It is possible that synthetic fuel facilities
that are not eligible for tax credits cannot be built and operated profitably.

Section 29 expires  December  31, 2007 after which tax credits will not apply to
the synthetic fuel facilities.  In order to remain  competitive and commercially
viable  after  2007,  licensees  must  manage  their  costs  of  production  and
feedstock,  and they  must also  develop  the  market  for  synthetic  fuel with
adequate prices to cover the costs.

Other Applications of Our Technology May Not Be Commercially Viable

We have developed and patented technologies related to the briquetting of wastes
and by products from the coal, coke, and steel  industries.  We have also tested
in the laboratory the briquetting of other materials.  However,  to date we have
only  commercialized  our  coal-based  synthetic  fuel  application.  The  other
applications   have  not  been   commercialized  or  proven  out  in  full-scale
operations.  We may not be able to employ these other  applications  profitably.
See our Form 10-K for fiscal year 1999,  "ITEM 1. BUSINESS -  Background"  for a
discussion of non-synthetic fuel applications of our technology.

New Technologies and Other New Business Plans May Not Be Commercially Viable

In  addition  to our efforts to develop our  technology  in  non-synthetic  fuel
applications,   Covol  is  investigating   and  selectively   investing  in  the
commercialization of the technologies of others. Covol is also investigating and
selectively  investing  in  business   opportunities   unrelated  to  technology
commercialization. All of Covol's future business plans outside of the synthetic
fuel  industry are at an early stage of  development,  will require  significant
time, management resources, including recruitment and retention of managers, and
capital investment,  and may not prove to be profitable.  Covol's implementation
of new business  plans will likely require the approval of Covol's May 2000 debt
holder because of covenants restricting Covol's activities.

Market Acceptance of Synthetic Fuel Production is Uncertain

We are  uncertain of the market  acceptance of products  manufactured  using our
technology.  Synthetic  fuel is a  relatively  new  product  and  competes  with
standard  coal  products.  Industrial  coal  users  must be  satisfied  that the
synthetic fuel is a suitable  substitute  for standard coal products.  Moisture,
hardness,  special  handling  requirements  and  other  characteristics  of  the
synthetic fuel product may affect its marketability,  including sales price. Our
licensees may be unable to meet the product  quality  requirements  of all their
customers.  Many  industrial  coal  users  are also  limited  in the  amount  of
synthetic  fuel product they can purchase from our  licensees  because they have
committed a substantial  portion of their coal  requirements  through  long-term
contracts.  Reliance on spot markets have generally produced lower resale prices
compared to long-term coal supply contracts in the utility  industry.  For these
and other  possible  reasons,  customers  may not  purchase the  synthetic  fuel
products made with our technology.  To date our licensees have secured contracts
for the sale of only a portion of their production. The suitability of synthetic
fuel as a coal  substitute  and  particularly  the  quality  characteristics  of
synthetic fuel, the overall  downward trend in coal prices,  and the traditional
long-term supply contract  practices of fuel buying in the utility industry have
made the  identification  of purchasers of synthetic fuel  difficult.  We do not
know if  licensees  will be  able to  secure  the  market  contracts  for  their
synthetic fuel product at full production levels.

Supply of Sufficient Raw Material for Synthetic Fuel Facilities is not Assured

Our licensees have not secured all the raw material needed to operate all of the
facilities for the full term of the tax credit. Some of the owners of facilities
are constructing  coal washing  facilities to provide  feedstock and some of the
facilities  may  have to be  moved  to  sites  with  enough  raw  materials  for
operation. See our From 10-K for fiscal year 1999, "ITEM 1. BUSINESS - Supply of
Raw Materials" for a discussion of the principal sources of raw materials.

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<PAGE>

We Must Comply With Government Environmental Regulations

The synthetic fuel facilities  which use our technology must satisfy  government
environmental regulations. We or the facility owners may be subject to fines for
any  violation  of  regulations  due to design  flaws,  construction  flaws,  or
operation  errors.  A violation may prevent a facility from operating  until the
violation is cured.  We or our licensees may be liable to  environmental  damage
from facilities not operated with  environmental  guidelines.  See our Form 10-K
for  fiscal  year  1999,  "ITEM 1.  BUSINESS -  Governmental  Regulation"  for a
discussion of the principal areas of federal and state  regulation  which we are
subject to.

We have Significant Competitors

We experience competition from:

     o    Other alternative fuel technology companies and their licensees,
     o    Companies that specialize in the recycling of waste products generated
          by coal and other resource production, and
     o    Traditional coal, fuel, and natural resource suppliers.

Competition  may come in the form of the licensing of competing  technologies or
in the marketing of similar  products.  We currently have limited  experience in
manufacturing  and marketing.  Many of our competitors  have greater  financial,
management  and  other  resources  than we have.  We may not be able to  compete
successfully.  See our Form 10-K for  fiscal  year  1999,  "ITEM 1.  BUSINESS  -
Competition"  for a discussion of the competitors in the synthetic fuel industry
that we are aware of.

Limitation on Protection of Key Intellectual Property

We rely on  patent,  trade  secret,  copyright  and  trademark  law,  as well as
confidentiality   agreements  and  other   security   measures  to  protect  our
intellectual  property.  These  rights or future  rights or  properties  may not
protect our interests in present and future intellectual  property.  Competitors
may  successfully  contest  the  validity  or  scope of our  patents  or may use
concepts and processes which enable them to circumvent our  technology.  See our
Form 10-K for fiscal year 1999, "ITEM 1. BUSINESS - Proprietary  Protection" for
a list of our  trade  names,  patents  and  other  intellectual  property  and a
discussion of its value to us.

Technological Developments by Third Parties Could Increase Our Competition

Alternative  fuel sources and the recycling of waste products are the subject of
extensive  research  and  development  by  our  competitors.  If  a  competitive
technology were developed which greatly  increased the demand for waste products
or reduced  the costs of  alternative  fuels or other  resources,  the  economic
viability of our technology would be adversely affected.

Furthermore,  we may not be able to develop or refine our  technology to keep up
with  future  synthetic  fuel   requirements  or  to  commercialize   the  other
applications  of our technology as discussed in our business  strategy.  See our
Form  10-K  for  fiscal  year  1999,  "ITEM 1.  BUSINESS  -  "Background"  for a
discussions of our efforts to continue to develop and refine our technology.

Operations Liability May Exceed Insurance Coverage

We are subject to potential operation  liability,  such as injuries to employees
or  third  parties,  which  are  inherent  in the  manufacturing  of  industrial
products.  While we have obtained casualty and property  insurance in the amount
of  $10,000,000,  with the  intent  of  covering  these  risks,  there can be no
assurance that our operations will not expose us to operation liabilities beyond
our insurance coverage.

No Dividends Are Contemplated in the Foreseeable Future

We have  never paid and do not intend to pay  dividends  on common  stock in the
foreseeable future. In addition,  dividends on common stock cannot be paid until
cumulative  dividends on our  outstanding  preferred  stock are fully paid.  Our
ability to pay

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<PAGE>

dividends  without approval of the debt holder is also restricted and prohibited
by covenant as long as the debt  issued in our May 2000 loan  agreement  remains
outstanding.

Common Stock Price May Continue to be Volatile

Our common stock is currently traded on The Nasdaq Stock Market.  The market for
our common stock has been volatile.  Factors such as announcements of production
or marketing of synthetic fuel from the synthetic fuel facilities, technological
innovations or new products or competitors announcements,  government regulatory
action,  litigation,  patent or  proprietary  rights  developments,  changes  in
analyst  coverage  or ratings,  and market  conditions  in general  could have a
significant  impact on the future  market for our common  stock.  You may not be
able to sell our common stock at or above your purchase price.

Preferred  Dividends  Accumulate  Until  Paid  and  Must  Be Paid  Prior  to Any
Dividends to Holders of Common Stock

We have issued preferred stock that has preferential  dividends which accumulate
if unpaid.  Dividends  on common  stock are  prohibited  until the  preferential
rights of the preferred stock are satisfied. If we are liquidated, the preferred
stockholders  are entitled to liquidation  proceeds  after  creditors but before
common stockholders.

Conversion of Convertible Securities May Dilute Stockholders

We have issued a significant  amount of securities  which are  convertible  into
common stock. As of August 4, 2000, we have  approximately  23,600,000 shares of
common stock  outstanding  and  approximately  5,100,000  additional  shares are
issuable upon conversion of convertible  preferred  stock,  and upon exercise of
warrants and options. To the extent warrants,  options and convertible preferred
stock are  converted  into  common  stock,  stockholder  interest  in us will be
diluted.

Dilution  of  Stockholders  Due to Sales  of  Common  Stock  and  Conversion  of
Convertible Securities May Affect Our Ability to Raise Additional Capital

Sales of common  stock and  convertible  preferred  stock  and the  exercise  of
options and  warrants  may have an adverse  effect on the  trading  price of and
market for our common  stock.  We may sell or issue common stock or  convertible
securities in the future at market prices or at prices below the current  market
price, which issuance would cause dilution to stockholders.  If the market value
of the common stock decreases significantly, the offering price per share in any
future private  placements or public  offerings may decrease causing dilution of
ownership to other stockholders.

Forward Looking Statements

Statements  regarding  Covol's  expectations  as to the  operation of facilities
utilizing the Covol binder technologies,  the marketing of products, the receipt
of licensing  fees, the ability to obtain a line of credit,  the development and
commercialization   of  non-synthetic  fuel  technologies  and  other  strategic
business  opportunities  and other  information  about Covol that are not purely
historical  by nature,  including  those  statements  regarding  Covol's  future
business  plans,  the  operation  of  facilities,   the  estimated  capacity  of
facilities,  the availability of coal fines, the  marketability of the synthetic
fuel and the financial  viability of the facilities,  constitute forward looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995.  Although  Covol  believes that its  expectations  are based on reasonable
assumptions  within the bounds of its knowledge of its business and  operations,
there can be no assurance  that actual results will not differ  materially  from
its  expectations.  In addition to matters affecting the synthetic fuel industry
or the economy  generally,  factors  which could cause actual  results to differ
from  expectations  stated in these forward looking  statements  include,  among
others, the following:

     (1)  The commercial success of the Covol binder technologies.
     (2)  Operating   issues  for  licensed   facilities   including   feedstock
          availability,  moisture content,  Btu content,  correct application of
          binder  formulation,  operability  of equipment,  product  durability,
          resistance to water absorption and overall costs of operations.
     (3)  Marketing   issues   relating   to  market   acceptance   of  products
          manufactured using Covol's  technology,  including control of moisture
          content,   hardness,   special   handling   requirements   and   other
          characteristics  of  the  synthetic  fuel  product  which  affect  its
          marketability and its sales price.
     (4)  Securing of necessary sites, including permits and raw materials,  for
          relocation and operation of facilities.
     (5)  Maintenance of placed-in-service  requirements under Section 29 of the
          tax code by synthetic fuel manufacturing facilities.

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<PAGE>

     (6)  Changes in governmental regulations or failure to comply with existing
          regulations  which may result in  operational  shutdowns  of  licensee
          facilities.
     (7)  The availability of tax credits under Section 29 of the tax code.
     (8)  The commercial  feasibility of the Covol  synthetic fuel  technologies
          upon the expiration of Section 29 tax credits.
     (9)  Ability  to meet  financial  commitments  under  existing  contractual
          arrangements.
     (10) Ability to meet non-financial  commitments under existing  contractual
          arrangements.
     (11) Ability to commercialize  the non-synthetic  fuel binder  technologies
          which have only been tested in the  laboratory  and not in  full-scale
          operations.
     (12) Ability to  commercialize  the  technology  of others and to implement
          non-technology  based  business  plans  which are at an early stage of
          investigation and investment and which will require  significant time,
          management, and capital investment.
     (13) Dependence  on  licensees  to  successfully   implement  Covol  binder
          technologies and making license and other payments to Covol.
     (14) The market  acceptance  of  products  manufactured  with Covol  binder
          technologies in the face of competition from traditional products.
     (15) Success in the face of competition by others producing  synthetic fuel
          and other recycled products.
     (16) Sufficiency of intellectual property protections.


                          PART II -- OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

K-Lee  Processing.  On March 20, 1997 Covol entered into an Amended and Restated
Supply Agreement for the purchase of coal fines from K-Lee Processing,  Inc. and
Concord Coal Recovery Limited Partnership (together "K-Lee"). Covol periodically
purchased  coal fines from K-Lee  throughout  1997.  K-Lee  invoiced Covol for a
total of 108,000  tons of fines that Covol paid for.  However,  K-Lee  failed to
deliver  11,059  tons  valued at  $320,716.  K-Lee  has  refused  to refund  the
overpayment for  non-delivered  fines. On July 14, 2000, Covol filed a complaint
against K-Lee Processing,  Inc. and Concord Coal Recovery Limited Partnership in
the United States  District Court for the Northern  District of Alabama  seeking
damages  in the  amount  of  $320,716  for  the  coal  fines  purchased  but not
delivered.  The  litigation  is at an early stage and  resolution  is uncertain,
although Covol intends to prosecute its claims vigorously.

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

ITEM 2.  CHANGES IN SECURITIES

Recent Sales of Unregistered Securities

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

Covol  believes  that the  following  issuances  of shares of common  stock,  or
securities  exercisable  for or  convertible  into shares of common stock,  were
exempt from the  registration  requirements  of the  Securities  Act of 1933, as
amended,  pursuant to the exemptions set forth in Sections 3(a)(9), 4(2) or 4(6)
thereof or  Regulation D promulgated  thereunder  and the  certificate  for each
security bears a restrictive legend. Each investor made representations to Covol
that it was  accredited  as that term is  defined in  Regulation  D and that the
security was acquired for investment purposes.

Reference is made to the  redemption of  convertible  debt; to the conversion of
debt into common stock and warrants  for the  purchase of common  stock;  to the
conversions  and  redemption  of series D preferred  stock;  to the  issuance of
common stock and warrants for cash; to the acquisition of treasury stock; and to
the issuance of common stock upon exercise of warrants, all as described in Note
2 to the consolidated financial statements.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

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<PAGE>

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

None.

ITEM 5.  OTHER INFORMATION

None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)      The following exhibits are included herein:

         10.69    Settlement  Agreement  and Mutual  Release dated as of May 25,
                  2000 by and among  Covol  and  Birmingham  Syn  Fuel,  L.L.C.,
                  PacifiCorp  Syn  Fuel,   L.L.C.,   and  PacifiCorp   Financial
                  Services,  Inc.*
         10.69.1  Amended and Restated Promissory Note dated as of May 25, 2000
                  in favor of Covol, executed by Birmingham Syn Fuel, L.L.C. as
                  debtor
         10.69.2  Amended and Restated  Security  Agreement  dated as of May 25,
                  2000 by and between Covol and Birmingham Syn Fuel, LLC
         10.69.3  License and Binder Purchase Agreement dated as of May 25, 2000
                  by and between Birmingham Syn Fuel, L.L.C. and Covol*
         10.69.4  License and Binder Purchase Agreement dated as of May 25, 2000
                  by and between  PacifiCorp Syn Fuel, L.L.C. and Covol (related
                  to the Brookwood facility)*
         10.69.5  License and Binder Purchase Agreement dated as of May 25, 2000
                  by and between  PacifiCorp Syn Fuel, L.L.C. and Covol (related
                  to the Pumpkin Center #1 facility)*
         10.69.6  License and Binder Purchase Agreement dated as of May 25, 2000
                  by and between  PacifiCorp Syn Fuel, L.L.C. and Covol (related
                  to the Pumpkin Center #2 facility)*
         10.70    Settlement  Agreement and Release dated as of June 26, 2000 by
                  and among Covol,  Utah  Synfuel #1 Ltd.,  Coaltech No. 1 L.P.,
                  AJG Financial Services, Inc., and Square D Company*
         10.70.1  License and Binder Supply  Agreement dated as of June 26, 2000
                  by and among  Coaltech  No. 1 L.P.,  Utah  Synfuel #1 Ltd. and
                  Covol*
         27.1     Financial Data Schedule

         *        This exhibit  contains  confidential  material  which has been
                  omitted  pursuant to a  Confidential  Treatment  Request.  The
                  omitted   information  has  been  filed  separately  with  the
                  Securities and Exchange Commission.

         (b)      The following  report on Form 8-K was filed during the quarter
                  ended June 30, 2000:

         o        Form 8-K filed on June 6,  2000,  for an event  dated  June 5,
                  2000 (Early retirement of debt)

         Covol also filed a Form 8-K on July 19, 2000, which was amended on Form
         8-K/A filed on July 28, 2000,  for an event dated July 19, 2000 (Change
         in certifying accountant).

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<PAGE>

                                   SIGNATURES

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

                                     COVOL TECHNOLOGIES, INC.

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

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

                                       24