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


                                   FORM 10-Q/A



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

                  For the quarterly period ended March 31, 1999

                                       or

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

                 For the transition period from ______ to ______

                         Commission file number 0-27803

                            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 May 14,
1999 was 12,471,985.

<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, 1998
            and March 31, 1999.............................................  3
          Consolidated Statements of Operations - For the three
            months ended March 31, 1998 and 1999 and the six months
            ended March 31, 1998 and 1999..................................  5
          Consolidated Statement of Changes in Stockholders' Equity -
            For the six months ended March 31, 1999........................  6
          Consolidated Statements of Cash Flows - For the six months
            ended March 31, 1998 and 1999..................................  7
          Notes to Consolidated Financial Statements.......................  8

  ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
          AND RESULTS OF OPERATIONS........................................ 20

PART II - OTHER INFORMATION

  ITEM 1. LEGAL PROCEEDINGS................................................ 27

  ITEM 2. CHANGES IN SECURITIES............................................ 28

  ITEM 3. DEFAULTS UPON SENIOR SECURITIES.................................. 28

  ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............. 28

  ITEM 5. OTHER INFORMATION................................................ 29

  ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................. 29

SIGNATURES................................................................. 30

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 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,      March 31,
(thousands of dollars)                                                                           1998              1999
------------------------------------------------------------------------------------------- ---------------- -----------------

ASSETS

Current assets:
<S>                                                                                        <C>              <C>
     Cash and cash equivalents                                                                        $ 727            $6,879
     Receivables                                                                                      2,879             2,707
     Due from related party                                                                           1,012             1,706
     Inventories                                                                                      1,645             2,039
     Advances on inventories, current                                                                 2,522               473
     Facilities held for sale                                                                        28,405            28,389
     Prepaid expenses and other current assets                                                          682               664
                                                                                            ---------------  ----------------
            Total current assets                                                                     37,872            42,857
                                                                                            ---------------  ----------------

Property, plant and equipment, net of accumulated depreciation                                       14,986            14,083
                                                                                            ---------------  ----------------

Other assets:
     Restricted investments                                                                             748               698
     Advances on inventories, non-current                                                                --             2,825
     Facility-dependent notes and accrued interest receivable, non-current                            7,646             7,859
     Facility transferred under note receivable arrangement                                           3,166             2,904
     Intangible assets, net of accumulated amortization                                               3,118             3,976
     Deposits and other assets                                                                          525             1,678
                                                                                            ---------------  ----------------
            Total other assets                                                                       15,203            19,940
                                                                                            ---------------  ----------------

Total assets                                                                                        $68,061           $76,880
                                                                                            ===============  ================

</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,      March 31,
(thousands of dollars and shares)                                                                 1998            1999
-------------------------------------------------------------------------------------------- --------------- ----------------

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
<S>                                                                                         <C>              <C>
     Accounts payable                                                                                $3,036           $2,616
     Due to related party                                                                             1,609            2,029
     Accrued liabilities                                                                              2,858            2,544
     Notes payable, current                                                                          22,049           16,689
                                                                                            ---------------  ---------------
            Total current liabilities                                                                29,552           23,878
                                                                                            ---------------  ---------------

Long-term liabilities:
     Notes payable, non-current                                                                      13,930           25,612
     Accrued interest payable, non-current                                                              566              206
     Notes and accrued interest payable - related parties, non-current                                  147               69
     Deferred revenues from advance license fees                                                      8,377            7,924
     Deferred compensation                                                                              236              202
                                                                                            ---------------  ---------------
            Total long-term liabilities                                                              23,256           34,013
                                                                                            ---------------  ---------------
            Total liabilities                                                                        52,808           57,891
                                                                                            ---------------  ---------------

Minority interest in consolidated subsidiaries                                                          507              109
                                                                                            ---------------  ---------------

Commitments and contingencies (Note 8)

Redeemable convertible  preferred stock, $.001 par value, issued and outstanding
  0 shares at September 30, 1998 and 60 shares at March 31, 1999  (aggregate
  liquidation preference of $6,016 at March 31, 1999) (Note 6)                                           --            4,354
                                                                                            ---------------  ---------------

Stockholders' equity:
     Convertible  preferred stock,  $0.001 par value;  authorized 10,000 shares,
       issued and  outstanding  316 shares at September 30, 1998 and 31 shares at
       March 31, 1999 (aggregate liquidation preference of $4,514 at March 31, 1999)                      1                1
     Common stock, $0.001 par value; authorized 25,000 shares, issued and outstanding
       11,272 shares at September 30, 1998 and 12,472 shares at March 31, 1999                           11               12
     Capital in excess of par value                                                                  69,284           77,763
     Accumulated deficit                                                                            (43,002)         (52,776)
     Notes and interest receivable - related parties, from issuance of, or collateralized
       by, common stock, net of allowance                                                            (7,773)          (7,024)
     Deferred compensation from stock options                                                        (3,775)          (3,450)
                                                                                            ---------------  ---------------
            Total stockholders' equity                                                               14,746           14,526
                                                                                            ---------------  ---------------

Total liabilities and stockholders' equity                                                          $68,061          $76,880
                                                                                            ===============  ===============

</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 (Note 1)
                                                          (Unaudited)

                                                                 Three Months Ended March 31,      Six Months Ended March 31,
(thousands of dollars, except per-share amounts)                    1998             1999             1998             1999
-------------------------------------------------------------- ---------------- ---------------- ---------------- ---------------

Revenues:
<S>                                                            <C>               <C>              <C>           <C>
     License fees                                                        $ 146             $546             $202          $1,247
     Binder sales                                                           --              423               --             956
     Binder and coal fine sales - related party                          1,989               42            1,996             183
     Other                                                                  36              132               70             139
                                                               ---------------  ---------------  ---------------  --------------
          Total revenues                                                 2,171            1,143            2,268           2,525
                                                               ---------------  ---------------  ---------------  --------------

Operating costs and expenses:
     Cost of coal briquetting operations                                   643            2,353            1,093           5,821
     Cost of binder                                                         --              274               --             650
     Cost of binder and coal fines - related party                       1,964               10            1,972              35
     Asset impairment charge                                                --              556               --             556
     Selling, general and administrative                                 1,150            1,233            1,891           2,162
     Research and development                                               72              190              228             343
     Compensation expense from stock options, stock
       warrants and issuance of common stock                               239              163              446             325
                                                               ---------------  ---------------  ---------------  --------------
        Total operating costs and expenses                               4,068            4,779            5,630           9,892
                                                               ---------------  ---------------  ---------------  --------------

Operating loss                                                          (1,897)          (3,636)          (3,362)         (7,367)
                                                               ---------------  ---------------  ---------------  --------------

Other income (expense):
     Interest income                                                       101              234              140             990
     Interest expense                                                   (1,180)          (1,377)          (2,292)         (2,413)
     Minority interest in net losses of consolidated
       subsidiaries                                                         52               --              138              --
     Write-up (write-down) of notes receivable - related
       parties,  collateralized by common stock                            270             (178)             563            (749)
     Other                                                                  93             (100)             107             (76)
                                                               ---------------  ---------------  ---------------  --------------
          Total other income (expense)                                    (664)          (1,421)          (1,344)         (2,248)
                                                               ---------------  ---------------  ---------------  --------------

Net loss                                                               $(2,561)         $(5,057)         $(4,706)        $(9,615)
                                                               ===============  ===============  ===============  ==============

Basic and diluted loss per common share                                  $(.28)           $(.41)           $(.51)          $(.80)
                                                               ===============  ===============  ===============  ==============

</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
                                         For the Six Months Ended March 31, 1999
                                                       (Unaudited)




                                                                                                    Notes and interest
                                                                                                       receivable -
                          Convertible Preferred                                                      related parties,
                                   Stock           Common Stock                                     from issuance of,    Deferred
                        ------------------------ ------------------                                 or collateralized  compensation
(thousands of dollars                                               Capital in excess   Accumulated    by, common       from stock
and shares)               Shares       Amount     Shares    Amount    of par value       deficit         stock            options
----------------------  -----------   ---------- --------  --------  ----------------- ------------- ----------------  ------------
<S>                         <C>       <C>      <C>         <C>        <C>             <C>              <C>            <C>
Balances at
 September 30, 1998            316         $1     11,272      $11        $69,284         $(43,002)        $(7,773)       $(3,775)

Common stock issued
 to purchase minority
 interests in subsidiaries                            70       --            519

Common stock issued
 for cash, including
 exercise of stock options                           776        1          3,774

Value of common stock
 warrants issued under
 terms of existing debt
 agreement                                            --       --            247

Common stock issued
 for rights to technology                             60       --            375

Common stock issued on
 conversion of preferred stock
 and in payment of accrued but
 undeclared dividends         (286)        --        308       --            159             (159)

Return of previously issued
 common stock by a director                          (14)      --             --

Value of common stock
 options issued in connection
 with debt financing                                  --       --            175

Preferred stock issued
 for cash, net of offering
 costs                           1         --                                899

Value of common stock
 warrants issued in connection
 with redeemable convertible
 preferred stock and
 convertible debt                                                          2,331

Write-down of notes
 receivable - related parties                                                                                 749

Amortization of deferred
 compensation from stock
 options                                                                                                                     325

Net loss for the six months
 ended March 31, 1999                                                                      (9,615)
                        -----------   ---------- --------  --------  ----------------- ------------- ----------------  ------------
Balances at
 March 31, 1999                 31         $1     12,472      $12        $77,763         $(52,776)        $(7,024)       $(3,450)
                        ===========   ========== ========  ========  ================= ============= ================  ============

</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)
                                                                                                    Six Months Ended March 31,
     (thousands of dollars)                                                                             1998            1999
------------------------------------------------------------------------------------------------- ----------------- -------------
   Cash flows from operating activities:
<S>                                                                                               <C>                <C>
   Net loss                                                                                                $(4,706)      $(9,615)
   Adjustments to reconcile net loss to net cash from operating activities:
        Depreciation and amortization                                                                          150           845
        Write-down (write-up) of notes receivable - related parties                                           (563)          749
        Interest expense related to amortization of debt discount and debt issuance costs                    2,266           326
        Amortization of deferred compensation from stock options                                               446           325
        Minority interest in net losses of consolidated subsidiaries                                          (138)           --
        Loss (gain) on disposition of equipment                                                                (78)           103
        Asset impairment charge                                                                                 --            556
        Increase (decrease) from changes in assets and liabilities, net of effects from
          investing and financing activities                                                                 2,466         (3,141)
                                                                                                  ----------------  -------------
   Net cash used in operating activities                                                                      (157)        (9,852)
                                                                                                  ----------------  -------------

   Cash flows from investing activities:
        Purchase of property, plant and equipment and facilities held for sale                            (21,916)           (323)
        Proceeds from sale of equipment                                                                         --            170
        Purchase of rights to technology                                                                        --           (128)
        Issuance of notes receivable                                                                       (1,257)             --
        Proceeds from facility transferred under note receivable arrangement                                   284            261
        Advances on binder facility                                                                            791             --
        Decrease in restricted investment                                                                       --             50
                                                                                                  ----------------- -------------
   Net cash provided by (used in) investing activities                                                    (22,098)             30
                                                                                                  ----------------- -------------

   Cash flows from financing activities:
        Proceeds from issuance of notes payable and warrants                                                16,338         10,498
        Payments on notes payable                                                                               --         (4,602)
        Payments on notes payable - related parties                                                           (342)           (90)
        Proceeds from issuance of preferred stock and warrants, net                                             90          6,394
        Proceeds from issuance of common stock, net                                                          1,072          3,774
        Proceeds from receivable - stock subscriptions                                                         577             --
        Proceeds from notes receivable - related parties, collateralized by common stock                       302             --
        Other                                                                                                   (3)            --
                                                                                                  ----------------  -------------
   Net cash provided by financing activities                                                                18,034         15,974
                                                                                                  ----------------  -------------

   Net increase (decrease) in cash and cash equivalents                                                     (4,221)         6,152

   Total cash and cash equivalents, beginning of period                                                      4,780            727
                                                                                                  ----------------- -------------

   Total cash and cash equivalents, end of period                                                            $ 559        $ 6,879
                                                                                                  ================  =============

   Supplemental schedule of non-cash investing and financing activities:
        Common stock issued for purchase of minority interests in subsidiaries                               $  --          $ 519
        Common stock issued on conversion of preferred stock and undeclared dividends                           --          2,159
        Common stock issued for rights to technology                                                            --            375
        Notes payable issued for rights to technology                                                           --            427
        Notes payable issued for equipment                                                                   1,153            213
        Common stock issued on conversion of notes payable and related accrued interest                      7,000             --
        Common stock issued for notes receivable - related parties                                              45             --
        Facility-dependent note receivable issued for sale of synthetic fuel facility                        6,500             --
        Preferred stock dividends not accrued or paid                                                          155            126

</TABLE>

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



                                       7
<PAGE>

                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES

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

1.   Nature of Operations and Basis of Presentation

     Covol Technologies,  Inc. and Subsidiaries ("Covol") primary business is to
     commercialize  its  binder  technologies  which are used to  recycle  waste
     by-products  from the coal, steel and other industries into marketable fuel
     and resources. Through June 30, 1998, Covol's focus was on the construction
     of  facilities  and the licensing of its binder  technologies  to companies
     that  constructed  facilities  that convert coal fines into  synthetic fuel
     briquettes.  At March 31, 1999,  Covol and its licensees  were operating 28
     facilities in ten states at various  levels of  production,  including four
     facilities  which are using a technology that Covol acquired during the six
     months ended March 31, 1999. The four  Covol-owned  facilities are expected
     to be sold in 1999.  Covol has no  current  plans to  construct  additional
     synthetic fuel facilities.


     Covol  anticipates  that  recurring  license  fees or  royalties  from  the
     production  and sale of  synthetic  fuel will  continue to increase  during
     1999. As production levels increase, sales of the binder materials by Covol
     to its licensees are expected to increase  proportionately.  Funds received
     by Covol from these  activities  are not expected to be sufficient to cover
     Covol's operating costs and expenses until late 1999. Any extended delay in
     the sale of facilities  held for sale may require Covol to seek  additional
     debt or equity financing.


     To provide funding for Covol's  operations and debt repayment  requirements
     until late 1999,  Covol  expects to utilize  existing  working  capital and
     excess proceeds from the sale of facilities.  During  November 1998,  Covol
     issued  common  stock and common  stock  warrants for total net proceeds of
     approximately  $3,729,000.  During January 1999,  Covol issued  convertible
     preferred  stock  and  warrants  for total net  proceeds  of  approximately
     $900,000.  During  March  1999,  Covol  issued  convertible  secured  debt,
     convertible  redeemable preferred stock and common stock warrants for total
     net proceeds of approximately  $14,800,000.  Covol believes current working
     capital, excess proceeds from the sale of facilities,  payments for license
     fees and  binder  sales,  and funds  raised in  additional  financings,  if
     necessary,  will  be  sufficient  to  fund  Covol's  operations  until  its
     operating  activities  begin  producing  positive cash flow. The ability of
     Covol to repay its debt as it matures is dependent  primarily  upon Covol's
     ability to sell the facilities  which are held for sale. Covol believes the
     sale of facilities or  extensions  of existing  debt  repayment  terms will
     enable it to meet these debt requirements.


     The  accompanying  unaudited  consolidated  financial  statements have been
     prepared in accordance with the rules and regulations of the Securities and
     Exchange  Commission.  In  the  opinion  of  management,   all  adjustments
     considered  necessary  for a fair  presentation  have  been  included.  All
     adjustments,  except as described in the  following  paragraph,  consist of
     normal  recurring  adjustments.  The results of operations  for the periods
     presented are not necessarily  indicative of the results to be expected for
     the full  year.  Certain  information  and  footnote  disclosures  normally
     included in financial  statements  prepared in  accordance  with  generally
     accepted  accounting  principles  have been  condensed  or  omitted.  It is
     suggested that these financial  statements be read in conjunction  with the
     consolidated  financial  statements  and notes thereto  included in Covol's
     Annual  Report on Form 10-K for the year ended  September  30,  1998 and in
     Covol's  Quarterly  Report on Form 10-Q for the quarter ended  December 31,
     1998.

     In May 1995,  Covol entered into an agreement  with Geneva Steel Company to
     build and operate a commercial  briquetting  facility.  The facility  never
     reached commercial operating levels, but was held for other uses, including
     potential relocation to another site for use in the production of synthetic
     fuel or in other  applications.  In early  1999,  Geneva  filed a voluntary
     petition for relief under Chapter 11 of the United States  Bankruptcy  Code
     due to a lack of sufficient liquidity. Primarily as a result of this event,
     Covol moved a substantial portion of the equipment  comprising the facility
     from the  Geneva  site to  another  location  where  it is being  used in a
     different  application of Covol's technology.  Certain assets at the Geneva
     site, primarily consisting of leasehold  improvements on the property where
     the facility was located, were abandoned. The


                                       8
<PAGE>

                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES

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


     carrying  value of  these  assets,  totaling  approximately  $556,000,  was
     written off during the quarter ended March 31, 1999.


     The  preparation  of financial  statements  in  conformity  with  generally
     accepted  accounting  principles  requires management to make estimates and
     assumptions that affect the reported amounts of assets and liabilities, the
     disclosure  of  contingent  assets  and  liabilities  at  the  date  of the
     financial  statements,  and the  reported  amounts of revenues and expenses
     during the  reporting  periods.  Actual  results  could  differ  from those
     estimates and any differences could be material.


     Restatements and Reclassifications

     After  discussion with the staff of the Securities and Exchange  Commission
     ("SEC") in  September  1999,  the  Company has  restated  its 1999 and 1998
     financial statements for the following items:

     o    To recognize cash received for non-refundable  advance license fees on
          a  straight-line  basis  over  the  contractual  term  of the  license
          agreements,  which is through 2007. Previously, the Company recognized
          non-refundable  advance  license fees when received which was normally
          when certain synthetic fuel facility construction  milestones were met
          or when the facilities  were certified  operational for their intended
          use.  This change in  accounting  policy does not affect the timing of
          cash  flows,   and  all   amounts   which  have  been   received   are
          non-refundable.   Also,  the  Company   believes   prior   disclosures
          concerning  the amount and nature of these one-time fees were complete
          and  accurate  and  accordingly,  no  changes  are being made to those
          disclosures.  The total amount of revenue  ultimately  recognized over
          the period covered by the Company's license  agreements with licensees
          will not change, only the period in which the revenue is recognized.

     o    To de-recognize  the sale of the Utah facility in 1997 and account for
          this  transaction  in  a  manner  similar  to  SEC  guidance  for  the
          divestiture  of  a  business   operation,   as  outlined  under  Staff
          Accounting  Bulletin (SAB) Topic 5:E. The note  receivable  related to
          this transaction has been classified as a facility  transferred  under
          note receivable  arrangement.  All note payments,  including interest,
          reduce the carrying amount of the recorded asset.

     o    To  reverse  depreciation  expense  recorded  on assets not in use and
          reflect an asset impairment in an earlier period (March 31, 1999) than
          originally reported.

     The  combined  effect of all of the above items is to increase the net loss
     for the six months  ended March 31,  1999,  by $196,000 and to increase the
     net loss for the six months ended March 31, 1998 by $4,521,000, as shown in
     the following table.
<TABLE>
<CAPTION>


       (thousands of dollars)                                      1998                                 1999
     ---------------------------------------------------------------------------------------------------------------------
                                                          As                 As                As                 As
                                                       Reported           Restated          Reported           Restated
                                                      -------------------------------      -------------------------------
<S>                                                     <C>                <C>               <C>                <C>
      Total revenues                                       $6,652             $2,268            $2,072             $2,525
      Operating costs and expenses                          5,656              5,630             9,390              9,892
                                                      -------------------------------      -------------------------------
           Operating income (loss)                            996             (3,362)           (7,318)            (7,367)
      Other income (expense)                               (1,181)            (1,344)           (2,101)            (2,248)
                                                      -------------------------------      -------------------------------
           Net loss                                         ($185)           ($4,706)          ($9,419)           ($9,615)
                                                      ===============================      ===============================
      Basic and diluted loss per common share              ($0.03)            ($0.51)           ($0.78)            ($0.80)
                                                      ===============================      ===============================
</TABLE>

     In addition to the above  restatements,  certain  prior year  amounts  were
     reclassified  to  conform  with  the  current  year's   presentation.   The
     reclassifications had no effect on net loss or total assets.


                                       9
<PAGE>

                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES

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

2.   Advances on Inventories

     During 1997,  Covol  entered  into an agreement to purchase  coal fines and
     through March 31, 1999 has made payments totaling approximately $3,520,000,
     of  which  $222,000  has  been  transferred  to cost  of  coal  briquetting
     operations.   The  net  amount  paid  has  been  recorded  as  advances  on
     inventories.  Covol expects to either utilize or sell these coal fines,  at
     which time the related costs will be expensed.

     Under  the  agreement,  Covol is  obligated  to pay a total  of  $5,500,000
     between  February  1997 and May 2000 for the  removal of 2 million  tons of
     coal fines (a price of $2.75 per ton) from the property. Quarterly payments
     of approximately  $396,000 are required under the agreement.  The agreement
     also provides for removal of an  additional  500,000 tons at $2.75 per ton.
     No  payment  is  required  for  removal  of any coal fines in excess of 2.5
     million tons.

3.   Change in Carrying Value of Note Receivable

     During the three and six months ended March 31, 1999,  Covol  increased the
     allowance on the $5,000,000  face value note  receivable from a stockholder
     by  approximately  $178,000  and  $749,000,  respectively,  resulting in an
     adjusted  carrying value of $860,000 as of March 31, 1999. During the three
     and six months  ended March 31,  1998,  Covol  decreased  the  allowance by
     approximately  $270,000  and  $563,000,  respectively.  The  changes in the
     allowance  were based  solely on  changes  in the  market  value of Covol's
     common  stock and common  stock  options  held as  collateral  for the note
     receivable.  The note is  personally  guaranteed  by the  buyer of  certain
     construction  companies sold by Covol to him in 1996, and is collateralized
     by  150,000  shares of  Covol's  common  stock  held by Covol,  and also by
     options expiring in January 2006 to acquire 25,000 shares of Covol's common
     stock at $1.50 per share.  The allowance is subject to future  fluctuations
     in the value of Covol's  common stock.  During the three months ended March
     31 1999, Covol received  interest  payments totaling $225,000 from the Note
     holder.

4.   Notes Payable
<TABLE>
<CAPTION>

     Notes payable consist of the following:

                                                                                                September 30,       March 31,
   (thousands of dollars)                                                                            1998             1999
  -------------------------------------------------------------------------------------------- ----------------- ---------------
<S>                                                                                               <C>                <C>
     Note payable to a corporation, bearing interest at 15%, collateralized by a
     synthetic  fuel facility in  Pennsylvania,  held for sale,  with all unpaid
     principal  and  interest  due at the earlier of the sale of the facility or
     August 1999.                                                                                        $5,800          $5,800

     Note payable to a corporation bearing interest at prime (7.75% at March 31,
     1999)  plus  2%,  collateralized  by plant  and  equipment,  principal  and
     interest due December 1999.                                                                          2,900           2,900

     Note  payable  to  the  same  corporation  referred  to  in  the  preceding
     paragraph, bearing interest at 6%, principal and interest due January 2000,
     collateralized by a coal wash plant in Utah.                                                         4,263           4,288
</TABLE>

                                       10
<PAGE>

                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES

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

4.   Notes Payable, continued
<TABLE>
<CAPTION>
                                                                                                September 30,       March 31,
   (thousands of dollars)                                                                            1998             1999
  -------------------------------------------------------------------------------------------- ----------------- ---------------
<S>                                                                                               <C>                <C>
     Notes  payable  to  the  same  corporation  referred  to in  the  preceding
     paragraphs,  bearing  interest at 6%. 50% of accrued  interest due February
     2000 with  remaining  accrued  interest and  principal  due February  2001.
     Collateralized  by a synthetic  fuel  facility in West  Virginia,  held for
     sale.                                                                                               $6,680          $6,500

     Note payable to a limited  liability  company  issued in  conjunction  with
     funds  advanced for the  construction  of a synthetic fuel facility in West
     Virginia,   held  for  sale.  As  of  September  30,  1998,  the  loan  was
     collateralized by the facility,  bore no interest and was originally due at
     the earlier of the sale of the facility or January 1999. In December  1998,
     this  entity  modified  the  terms of the note and  agreed to loan to Covol
     additional amounts up to $1,500.  This entity had an option to purchase the
     facility,  which expired  unexercised in January 1999.  Covol agreed to pay
     interest  on all  outstanding  amounts  at a rate of 10%,  payable  monthly
     through June 1999.  Beginning July 1999 through May 2000,  monthly payments
     of $350 will be  required,  with all unpaid  principal  and interest due in
     June  2000.  Alternatively,  if Covol  sells the  facility  before the loan
     repayment date,  Covol must repay the loan from sale proceeds.  Also, Covol
     granted  additional  collateral to the  corporation  in the form of certain
     license fees  receivable  by Covol from other  synthetic  fuel  facilities.                          8,242           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.  The note is due March 2004 if not earlier  redeemed  or  converted
     into common stock.  Interest is payable  semiannually on January 1 and July
     1,  beginning  July 1, 1999.  The note is  collateralized  by license  fees
     payable to Covol from the  production  and sale of synthetic fuel from four
     synthetic fuel facilities  located in Virginia and West Virginia.  See Note
     6.                                                                                                      --           8,921

     Note payable to a corporation originally due June 1999, collateralized by a
     promissory note receivable and by certain future license fees receivable by
     Covol.  Warrants to purchase 100,000 shares of common stock were granted in
     October  1998 based on the  outstanding  principal  balance.  The  warrants
     originally  had an  exercise  price of $7.44 per share,  expired in October
     2000 and were  valued at  approximately  $247.  The terms of this note were
     amended in May 1999 to provide  that $1,000 of principal is due in December
     1999 and $3,000 of principal is due in April 2000. Accordingly,  $3,000 has
     been classified as long-term in the balance sheet. Interest is payable at a
     rate of 22%  through the  original  due date of June 12,  1999.  Thereafter
     interest  is  payable  monthly  at a rate of 14%.  The  terms  of  existing
     warrants for the purchase of 185,713 shares of common stock were amended to
     extend the exercise  periods for one year and to lower the exercise  prices
     to market  value of Covol's  common  stock.  A member of  Covol's  Board of
     Directors is affiliated with this corporation.                                                       4,000           4,000
</TABLE>

                                       11
<PAGE>


                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES

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

4.   Notes Payable, continued
<TABLE>
<CAPTION>
                                                                                                September 30,        March 31,
   (thousands of dollars)                                                                            1998              1999
  -------------------------------------------------------------------------------------------- ----------------- ---------------
<S>                                                                                               <C>                <C>
     Note  payable  to  the  same  corporation  referred  to  in  the  preceding
     paragraph,  bearing  interest at 14%.  Principal and accrued  interest were
     paid in March 1999.                                                                                $ 4,000            $ --

     Other                                                                                                   94             701
                                                                                               ----------------- ---------------
                                                                                                         35,979          42,301
       Less: current portion                                                                             22,049          16,689
                                                                                               ================= ===============
       Total non-current                                                                                $13,930         $25,612
                                                                                               ================= ===============
</TABLE>

     Substantially all of Covol's  property,  plant and equipment and facilities
     held for sale are collateral for the notes  payable.  The weighted  average
     interest  rate on notes payable was 8.5% at September 30, 1998 and 16.8% at
     March 31, 1999.

     Interest Costs

     During the six months ended March 31, 1999,  Covol  incurred total interest
     cost of  approximately  $2,413,000  (including  approximately  $326,000  of
     amortization  of debt discount and debt issuance  costs,  none of which was
     capitalized.  During the six months  ended March 31, 1998,  Covol  incurred
     total interest cost of approximately  $2,983,000  (including  approximately
     $2,266,000  of  non-cash   interest  expense  resulting  from  issuance  of
     convertible  debt and  warrants  at a  discount),  of  which  approximately
     $691,000 was capitalized.

5.   Basic and Diluted Loss per Share

<TABLE>
<CAPTION>

                                                                  Three Months Ended               Six Months Ended
                                                                      March 31,                        March 31,
  (thousands of dollars and shares, except per-share data)       1998            1999            1998             1999
  ---------------------------------------------------------- -------------- --------------- ---------------- ---------------
  Numerator:
<S>                                                            <C>             <C>              <C>             <C>
      Net loss                                                     $(2,561)        $(5,057)         $(4,706)        $(9,615)
      Preferred stock dividends (undeclared)                           (85)            (77)             (85)           (137)
      Imputed preferred stock dividends                                 --             (40)              --             (40)
                                                             ============== =============== ================ ===============
      Net loss attributable to common
        stockholders                                               $(2,646)        $(5,174)         $(4,791)        $(9,792)
                                                             ============== =============== ================ ===============

  Denominator - weighted-average shares
    outstanding                                                      9,574          12,472            9,382          12,224
                                                             ============== =============== ================ ===============

  Basic and diluted loss per common share                            $(.28)          $(.41)           $(.51)          $(.80)
                                                             ============== =============== ================ ===============

</TABLE>

6.  Financing Transaction

     On  March  17,  1999,   Covol  completed  a  financing   transaction   (the
     "Financing")  with OZ Master  Fund,  Ltd.,  an  affiliate  of the  Och-Ziff
     Capital  Management  Group.  The  Financing  consisted  of the  issuance of
     $20,000,000  face  value  of  convertible  secured  debt,  issued  at a 50%
     discount,   and  the  issuance  of  $6,000,000  of  cumulative  convertible
     preferred stock, for total gross proceeds of $16,000,000.  Costs related to
     the Financing totaled  approximately  $1,200,000,  and consisted of private
     placement fees of $800,000,  legal expenses of  approximately  $350,000 and
     other  expenses of  approximately  $50,000.  Warrants  for the  purchase of
     common stock were also issued as part of the Financing.  Covol received net
     cash proceeds of approximately $14,800,000, which are being

                                       12
<PAGE>

                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES

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

6.   Financing Transaction, continued

     used to retire maturing  short-term  debt and related  accrued  interest of
     approximately  $4,900,000,  for  working  capital  uses and  other  general
     corporate  purposes.  So long as any  debt or  preferred  stock  issued  in
     connection with this Financing is outstanding,  the holders have the right,
     as a group, to elect one director to Covol's Board of Directors.

     Convertible Secured Note Payable

     The  convertible  secured debt has a five-year term and bears interest at a
     stated rate of 2.5% per annum on the $20,000,000 face amount, with interest
     payable semiannually on January 1 and July 1, beginning July 1, 1999. After
     consideration  of the 50% discount and the value assigned to warrants,  the
     imputed interest rate is approximately 38%. The debt is redeemable by Covol
     at any time prior to  September  17,  2001 for an amount  equal to the face
     amount of the debt. The debt is redeemable by Covol from September 18, 2001
     and prior to March  17,  2002 for an amount  equal to  109.85%  of the face
     amount of the debt. The debt is  convertible  into common stock of Covol at
     the option of the  noteholder at a discount to the market price at the time
     of conversion as described below. The debt is not convertible by the holder
     until  after  March 17,  2002  except  upon the  occurrence  of an event of
     default.  If  converted,  the  number of shares  into which the debt can be
     converted  would be  calculated  based on a price per share of common stock
     equal to 33% of the then market  price at the time of  conversion,  but not
     less than $6.67 per share nor more than $10.00 per share.  Covol's  present
     intent is to redeem the debt prior to March 17, 2002,  assuming  sufficient
     cash from operations or future equity or debt financing is available.

     A deferred asset was recorded for the portion of financing  costs allocated
     to the debt. This asset is being amortized over 30 months,  the most likely
     period  of time  over  which the debt is  expected  to remain  outstanding.
     Amortization is computed using the  straight-line  method.  Paid-in capital
     was credited for the relative value of the warrants directly related to the
     issuance of debt and the warrants  allocated  to the  issuance of debt,  as
     compared to the total  combined  fair values of the  warrants  and debt.  A
     liability was recorded for  $20,000,000,  the face value of the debt.  Debt
     discount  was  recorded  so as to  yield a level  interest  rate on the net
     amount of debt  outstanding  between  the issue date and 30 months from the
     issue date.  Each period,  interest  expense is recorded  consisting of the
     total of 1) interest expense based on the stated interest rate and the face
     value of the debt; 2) amortization of debt discount; and 3) amortization of
     debt issue costs.

     Covol will be in default of the provisions of the debt agreement if certain
     events  occur.  These  events  include,  in  addition  to  events  commonly
     considered  defaults,   incurring  one  or  more  judgments  in  excess  of
     $5,000,000,  which  judgments  are  not  discharged,  stayed  or  otherwise
     satisfied within 30 days of the judgments,  and the failure to meet certain
     earnings  targets.  The  earnings  targets  apply  initially to the quarter
     ending  December  31,  1999,  and  then to  subsequent  quarterly  periods.
     Consolidated  earnings  of  $5,000,000  or  more  before  interest,  taxes,
     depreciation, and amortization, and certain other adjustments as defined in
     the applicable agreement,  are required for the quarter ending December 31,
     1999. In subsequent quarters, earnings targets increase incrementally up to
     $6,500,000  for  the  quarter  ending  December  31,  2001  and  subsequent
     quarters.  There are  provisions for the carryover of earnings which exceed
     the  targets  to  subsequent  quarters,  if  necessary,  subject to certain
     limitations.  The debt is  collateralized  by license fees payable to Covol
     from the  production  and sale of synthetic  fuel from four  synthetic fuel
     facilities  located  in  Virginia  and West  Virginia.  The  owner of these
     facilities   has  entered  into   licensing   agreements   to  use  Covol's
     technologies  in return for a royalty based on the  production  and sale of
     synthetic fuel, subject to prescribed adjustments.

     In  the  event  of  default,  the  interest  rate  on  the  debt  increases
     immediately  by 1% and  increases  automatically  by 1% at the  end of each
     succeeding  90-day period,  to the extent permitted by law, until the event
     is cured.

                                       13
<PAGE>

                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES

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

6.   Financing Transaction, continued

     Depending on the nature of the event of default, in most instances,  either
     1) all unpaid principal and interest become immediately due and payable; or
     2) the note and accrued interest become immediately convertible into common
     stock and the  conversion  price is  subject  to  adjustment,  based on the
     market price of Covol's common stock and other factors,  as provided for in
     the loan agreement.

     Redeemable Cumulative Convertible Preferred Stock

     The preferred  stock consists of 60,000 shares of a new series of preferred
     stock, Series D Cumulative  Convertible Preferred Stock, with a liquidation
     value of $100 per share.  This series of  preferred  stock is senior,  with
     respect to dividend rights,  payments upon liquidation,  or redemption,  to
     all other capital  stock of Covol,  including the other series of preferred
     stock which are outstanding or which may be issued in the future. Dividends
     accrue  at a rate of 7% per  annum  whether  or not  declared  or paid.  At
     Covol's  option,  dividends can be paid in  additional  shares of preferred
     stock in lieu of cash.  Dividends are payable  quarterly  beginning July 1,
     1999.  Holders of the preferred  stock have voting rights as to all matters
     voted on by the  holders of common  stock and are  entitled to one vote for
     each share of common stock issuable upon conversion of the preferred stock.
     In addition,  holders of the  preferred  stock and debt vote as a group for
     one director.

     The preferred  stock is redeemable at Covol's option through March 17, 2002
     at 125% of its liquidation value,  subject to adjustment for changes in the
     value of Covol's  common stock.  The  preferred  stock is redeemable at the
     option of the  preferred  stockholder  only upon  occurrence of a change in
     control.   The  preferred  stock  is  convertible  at  the  option  of  the
     stockholders  beginning  June  15,  1999,  up to a  maximum  of  20% of the
     outstanding shares of preferred stock. Each month thereafter, the amount of
     preferred  stock that can be converted  increases by 20% until  October 13,
     1999, at which time all of the preferred stock can be converted into common
     stock.  On March 17, 2002, all outstanding  preferred  stock  automatically
     converts to common  stock.  The number of shares of common stock into which
     the preferred  stock is convertible is determined by multiplying the number
     of  preferred  shares by $100 and dividing by the lesser of $5.25 or 90% of
     the market value of Covol's common stock on the date of conversion.

     The portion of financing costs allocated to the preferred stock were netted
     against  proceeds.  Paid-in  capital was credited for the relative value of
     the warrants  directly  related to the issuance of preferred  stock and the
     warrants  allocated to the issuance of preferred  stock, as compared to the
     total combined fair values of the warrants and preferred stock. Because the
     preferred  stock can be redeemed by the preferred  stock holders (only upon
     the occurrence of a change in control),  it has been classified outside the
     equity  section in the balance sheet.  Because the conversion  price of the
     preferred stock was less than the fair market value of Covol's common stock
     on the date of issuance,  an imputed  dividend will affect the earnings per
     share  calculation  as it is  amortized  over the period from issue date to
     date of first conversion.

                                       14
<PAGE>

                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES

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

6.   Financing Transaction, continued

     Warrants

     Warrants for the purchase of a total of  approximately  1,300,000 shares of
     common stock were issued in connection  with the  Financing.  The number of
     shares  issuable  upon  exercise  of the  warrants  is  subject  to certain
     antidilution provisions including but not limited to the issuance of common
     stock at prices below the market price of Covol's common stock. Warrants to
     purchase 400,000 shares of common stock are initially exercisable at prices
     of $5.00 per share for  200,000  shares and  $10.00  per share for  200,000
     shares,  for the period of time  beginning on March 17, 2002 through  March
     17, 2004,  subject to adjustment  upon the  occurrence  of certain  events.
     Warrants  to  purchase   883,626  shares  of  common  stock  are  initially
     exercisable  at prices ranging from $5.25 to $6.56 per share for the period
     of time beginning on September 13, 1999 through March 17, 2002,  subject to
     adjustment upon the occurrence of certain events.

     The  warrants  issued in this  transaction  were  valued  at  approximately
     $3,000,000 using the  Black-Scholes  option valuation model.  Some warrants
     were issued in connection  with the  convertible  debt, some were issued in
     connection  with the  convertible  preferred  stock and some were issued in
     connection  with  both the debt and  equity  securities.  The  value of the
     warrants issued in connection with both the debt and equity  securities was
     allocated  between debt and preferred stock on a pro-rata  basis,  based on
     the debt and equity portions of the total financing.

     Registration Rights

     The  restricted  common stock  issuable  pursuant to the  conversion of the
     convertible secured debt and related interest, convertible preferred stock,
     preferred stock dividends,  and exercise of  approximately  971,000 warrant
     shares have been provided  demand and piggyback  registration  rights.  The
     remaining warrants have been provided piggyback registration rights.

     Other Significant Obligations or Restrictions

     Terms  of the  agreements  entered  into by Covol  in  connection  with the
     Financing  provide  for limits and  restrictions  common to such  financing
     arrangements,  as  well  as  certain  additional  specific  limitations  or
     restrictions.

7.   Equity Transactions

     Technology Acquisition

     Effective in November  1998,  Covol  acquired a coal-based  synthetic  fuel
     technology,  and related  licensing and patent rights for $128,000 in cash,
     60,000  shares  of  restricted  common  stock  valued  at  $375,000  and  a
     commitment to make installment  payments ranging from $5,000 to $12,500 per
     month  for 60  months  with  interest  imputed  at  15%.  This  acquisition
     transferred to Covol patent  ownership and licensor  rights and obligations
     to  existing  license  agreements  with  a  company  that  sublicensed  the
     technology to a developer of four synthetic fuel facilities. The total cost
     of approximately  $930,000 is being amortized on a straight-line basis over
     approximately nine years.

                                       15
<PAGE>

                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES

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

7.   Equity Transactions, continued

     Sale of Series C Convertible Preferred Stock

     During  January  1999,  Covol  completed  a  financing  transaction  with a
     previous  stockholder  that  consisted of the sale of 1,000 shares of a new
     series of non-voting preferred stock, designated as Series C 7% Convertible
     Preferred Stock.  Covol received $900,000 in net proceeds from the issuance
     of this preferred stock, which has the following rights and privileges:

     o    Dividends on the preferred  stock are cumulative and accrue whether or
          not they have been  declared  or whether  Covol has any  profits.  The
          dividend  rate is 7% per year of the  liquidation  value of $1,000 per
          share.
     o    The preferred  stock is convertible  into common shares in incremental
          stages  beginning  April 1999 through July 1999,  at which time all of
          the outstanding shares may be converted to common stock. The number of
          common  shares  to  be  received  upon  conversion  is  determined  by
          multiplying the number of preferred shares by $1,000 and dividing that
          number by the conversion price (currently $5.50 per share,  subject to
          adjustment). Upon conversion, all accrued and unpaid dividends will be
          paid or converted into shares of common stock.
     o    Covol  may  at its  option  redeem  the  outstanding  preferred  stock
          beginning  July  1999  for a  redemption  price  equal  to 125% of the
          liquidation value plus any accrued and unpaid dividends thereon.

     Warrants for the  purchase of 72,727  shares of common stock were issued in
     conjunction with this preferred stock.  These warrants are exercisable from
     April  1999  through  July 2001 at an  exercise  price of $6.88 per  share,
     subject to  adjustment.  The exercise  deadline for certain other  warrants
     with an  exercise  price of $7.00 per share held by this  stockholder  were
     extended  to June 2000 and  certain  additional  warrants  with an exercise
     price of $30.00 per share were relinquished and have been cancelled.  Covol
     granted  registration rights for the restricted common shares issuable upon
     conversion  of the  preferred  stock or upon  exercise of the common  stock
     warrants.

     The new and  extended  warrants  were  valued  at  approximately  $500,000.
     Issuance  costs were  netted  against  proceeds  and  paid-in  capital  was
     credited for the relative  value of the warrants,  as compared to the total
     combined fair values of the warrants and preferred stock.

     Stock Options

     During the six months ended March 31, 1999,  Covol granted  options for the
     purchase  of a total of 382,000  shares of common  stock.  Options  for the
     purchase of 150,000  shares of common stock were granted to three  officers
     and  options  for the  purchase  of  172,000  shares  were  granted to four
     independent  directors.  Covol also  granted  options  for the  purchase of
     60,000 shares of common stock to four individuals for services  rendered in
     connection  with the financing of a synthetic  fuel facility  pursuant to a
     consulting  arrangement  originally  entered  into in 1997 and  revised  in
     August 1998. These options were assigned a value of approximately  $175,000
     which  is  being  amortized  over the  life of the  related  financing.  In
     December 1998, three officers  exercised options for the purchase of 30,000
     shares of common stock, for which Covol received proceeds of $45,000.

                                       16
<PAGE>

                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES

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

8.   Commitments and Contingencies

     Commitments and contingencies as of March 31, 1999 not disclosed elsewhere,
     are as follows:

     Letters of Credit

     During fiscal 1998, Covol entered into letter of credit arrangements with a
     bank that  provide  for the  issuance  of letters of credit  totaling up to
     $938,000.  As of March 31, 1999, there were $698,000 of outstanding letters
     of credit.  Certificates of deposit totaling  $698,000 that are included in
     restricted  investments  in the  accompanying  balance sheet  collateralize
     these arrangements.

     Legal or Contractual Matters

     Included in accrued liabilities at September 30, 1998 and March 31, 1999 is
     $755,000  related to  construction  contracts  that  contain a "failure  to
     proceed" liability clause.

     In  December  1996,  Covol  entered  into  indemnification   agreements  in
     connection  with   construction   contracts  for  certain   synthetic  fuel
     facilities entered into between the construction contractor and independent
     third parties.  These contracts  called for liquidated  damages of $750,000
     per contract if  construction  of the facilities were not completed by June
     1, 1998. Covol indemnified the contractor for these potential  liabilities.
     The  maximum   contingent   liability   Covol  may  have  had  under  these
     indemnification  agreements would have been $2,250,000.  The contractor and
     the contracting  party initiated  claims in arbitration  against each other
     but have settled their claims,  including a release of claims against Covol
     for liquidated damages.


     In March 1997, Covol  transferred the Utah Synfuel #1 facility to Coaltech.
     In connection with this  transaction,  Utah Synfuel #1 licensed Coaltech to
     use Covol's binder technologies for a non-refundable advance license fee of
     $1,400,000,  which is being  recognized as income over the contractual term
     of the  license  agreement  of 2007,  and a  recurring  license fee that is
     payable  quarterly and that is based upon  synthetic fuel produced and sold
     at the Utah facility by Coaltech. Covol contracted with Coaltech to operate
     the facility for which Covol  receives a quarterly fee, which is also based
     upon  synthetic  fuel produced and sold.  The limited  partners of Coaltech
     have an option  wherein they can require Covol to repurchase  this facility
     under certain conditions. This put option can be exercised if 1) all of the
     limited partners are unable to utilize the federal income tax credits under
     Section  29 of the  tax  code,  2) the  economic  benefits  accruing  to or
     experienced by all of the Coaltech  limited  partners differ  significantly
     from what was initially projected, or 3) there is a permanent force majeure
     or material  damage or destruction of the Utah facility.  If the put option
     is  exercised  prior to March 2000,  the option  price will be equal to the
     fair market value of the limited partnership  interests of the optionees on
     a going concern basis,  but in no event will the option price exceed 50% of
     the capital  contributions paid to Covol by Coaltech.  If the put option is
     exercised  after March 2000,  the option  price will be $10. In  accordance
     with generally  accepted  accounting  principles and after discussions with
     the staff of the Securities and Exchange  Commission,  this transaction has
     not been reflected as a sale for accounting purposes.  The original cost of
     the facility less cash payments received from Coaltech, is reflected in the
     consolidated  balance sheet as a facility transferred under note receivable
     arrangement.

     Additionally,  Covol  entered  into a supply and  purchase  agreement  with
     Coaltech  wherein  Covol  agreed to  provide  to  Coaltech  coal  fines for
     processing  into  synthetic  fuel at a price equal to Covol's  cost.  Covol
     agreed to purchase from Coaltech the synthetic fuel produced, at Coaltech's
     cost plus one dollar per ton.  As a result of this  commitment  to purchase
     Coaltech's  production,   Covol  has  experienced  losses  related  to  the
     write-down of the synthetic  fuel purchased to the lower of cost or market.
     This write-down to date has  approximated  85% of the amount Covol has paid
     for the synthetic fuel. Based upon expected manufacturing costs and current
     coal prices,


                                       17
<PAGE>

                   COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES

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


     Covol  expects  to incur a loss under this  supply and  purchase  agreement
     which will reduce the earned license fees received.  Covol believes that in
     total the earned  license  fees will exceed the losses  incurred  under the
     supply and  purchase  agreement.  Also,  Covol  believes  Coaltech  can not
     require  Covol to purchase  product  for which Covol does not have  outside
     third party sales, and further, Covol believes it has the right to stop all
     production at the Utah facility in order to limit or eliminate such losses.


     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,  under which Covol was obligated to purchase a minimum of
     20,000 tons of coal fines per month through  December 2001.  Covol assigned
     this  agreement to the  purchaser of the facility and  accordingly,  has no
     ongoing  obligation.  Covol  has  been  paid  for  most of the  coal  fines
     purchased  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 May 1995,  Covol entered into an agreement  with Geneva Steel Company to
     build and  operate a  commercial  briquetting  plant.  The  facility  never
     reached  commercial  operating levels and the equipment has been moved from
     the Geneva site.  Covol intends to use this equipment for the production of
     synthetic fuel, for testing  purposes,  or other potential  applications of
     Covol's technology.

     In December 1996, Covol entered into license  agreements with affiliates of
     Pace  Carbon  Fuels,  L.L.C.  (collectively  "Pace") for the use of Covol's
     binder  technologies  at  four  synthetic  fuel  manufacturing   facilities
     developed by Pace.  In 1998 Pace  requested a reduction in the license fees
     payable to Covol under the license agreements.  Upon condition of immediate
     payment by Pace of advance  license  fees,  Covol  agreed to a reduction in
     future earned license fees.  This reduction was  accomplished by a ten-year
     loan agreement whereby Covol would loan to Pace up to $750,000 each quarter
     beginning in November 1998. This loan will be repaid to Covol at the end of
     the ten  years  only  if the  Pace  projects  have  accumulated  sufficient
     prescribed  earnings.  Revenues from earned license fees will be recognized
     by Covol only to the extent that amounts exceed the loan  commitment.  Pace
     has requested  three quarterly  loans totaling  $2,250,000.  Covol believes
     that its current loan  obligation to Pace is limited to the earned  license
     fees  receivable  by Covol for the quarters  ended  September  30, 1998 and
     through  March 31, 1999,  which amounts are estimated at $854,000 in total.
     Pace  and  Covol  are  renegotiating   their  license   agreements,   which
     negotiations  could result in a reduction and/or deferral of the receipt of
     future  license  royalty  payments.  Covol  expects  revised  agreements to
     replace the ten-year loan arrangements.

     In  January  1996,  a manager  of Covol  entered  property  owned by Nevada
     Electric Investment  Company, a subsidiary of Nevada Power Corporation,  in
     connection  with an  offer  by Covol to  purchase  the  property,  and with
     certain  other  employees of Covol,  removed some  asbestos  over a two-day
     period.  In May 1996,  Covol  received a notice of violation  and order for
     compliance  from the State of Utah,  Division of Air Quality  alleging that
     asbestos was improperly handled,  removed,  and disposed of. Covol complied
     with the order and in September  1996  entered into a settlement  agreement
     with the State of Utah and paid a fine in the  amount of  $11,000.  In late
     1997, the U.S. Environmental Protection Agency began its own investigation,
     referring the matter to the U.S.  Attorney's  office which proceeded with a
     grand jury  inquiry.  Covol was served in September  1998 with a grand jury
     subpoena for records,  with which Covol has  complied.  Covol does not know
     the results of the grand jury inquiry or whether the inquiry is  completed.
     Covol does not  believe  that the  resolution  of this  matter  will have a
     material adverse effect on Covol.

     As of  September  30,  1998 and  December  31,  1998,  Covol  had  recorded
     liabilities  to  The  Industrial  Company  ("TIC")  totaling  approximately
     $735,000.  In  November  1998,  Covol was served with two liens from TIC in
     amounts totaling  approximately  $1,150,000 for  construction  payments TIC
     claimed  were due for  certain  synfuel  facilities.  Covol  increased  the
     recorded  liability to TIC to $945,000 as of March 31,  1999,  which amount
     was paid in April 1999 for the settlement and release of both liens.

                                       18
<PAGE>

                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES

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

     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. To date, Covol has paid
     Coalco  approximately  $347,000  pursuant to the  agreement.  A dispute has
     arisen between Covol and Coalco about  services  rendered or to be rendered
     by Coalco and the amount and timing for  payment for such  services.  There
     have been  ongoing  discussions  between  Covol and Coalco in an attempt to
     resolve their differences. The potential liability to Covol, if any, is not
     known. While Covol's  management  believes the dispute will be resolved and
     will not have a significant  financial  impact, it can give no assurance as
     to the ultimate  effect on Covol.  Pelletco,  an affiliate of Coalco,  is a
     licensee of Covol.

                                       19
<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.  Covol has restated its 1999 and 1998 financial statements as described
in Note 1 to the  financial  statements,  Nature  of  Operations  and  Basis  of
Presentation, Restatements and Reclassifications.


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


Revenues.  Total  revenues for the three  months  ended March 31, 1999  ("1999")
decreased by $1,028,000  to  $1,143,000 as compared to $2,171,000  for the three
months ended March 31, 1998 ("1998"). During 1999, Covol recognized license fees
totaling  $546,000 while license fees of $146,000 were  recognized  during 1998.
The license fees in 1999 consisted of recurring license fees or royalty payments
of  $320,000  and the  straight-line  amortization  of  one-time  non-refundable
advance  license  fees of  $226,000,  while the license  fees in 1998  consisted
solely of  amortization  of one-time  non-refundable  advance  license fees from
several licensees.  Recurring license fees or royalty payments are due quarterly
based  upon  synthetic  fuel  produced  and  sold as  reported  to  Covol by its
licensees.  Advance license fees are normally  received when construction of the
related synthetic fuel facility begins, when construction is completed,  or when
certain  construction  milestones or other specified  conditions are met but are
recognized on a  straight-line  basis over the period covered by Covol's license
agreements with licensees.  Covol expects to receive  additional advance license
fees during 1999 upon the sale of synthetic fuel  facilities  currently owned by
Covol  and upon the  achievement  of  certain  production  levels  at two  other
synthetic  fuel  facilities.  Recurring  license  fees or royalty  payments  are
expected  to  increase  at a  moderate  level in the near  term  with  increases
expected in late 1999.


Covol provides  binder  material to its licensees  either at a fixed price or at
Covol's cost plus a contracted  markup.  Covol purchases binder material under a
long-term  contract  with a  large  chemical  company.  Total  binder  sales  to
non-related parties during 1999 were $423,000,  with a corresponding direct cost
to Covol of $274,000,  excluding related labor and overhead.  In 1998, Covol had
no binder sales to non-related parties. Covol had sales of binder and coal fines
to related parties during 1999 totaling  $42,000  compared to $1,989,000  during
1998.  These  revenues  resulted  primarily  from coal fines that were sold to a
related party under a non-recurring  contractual  obligation at Covol's cost, as
provided for under the binder and license agreement with this entity.

Covol expects an increase  during 1999 of production and sales of synthetic fuel
by its licensees as they improve production  capability and establish  marketing
agreements for the synthetic fuel produced.  This will result in a corresponding
increase  in  earned  license  fees or  royalty  payments  and  sales of  binder
products.  However,  Covol  cannot  assure  increases in license  fees,  royalty
payments,  and binder sales because Covol's licensees must  successfully  obtain
adequate feedstock or coal fines, process fines into synthetic fuel, and develop
markets for synthetic fuel. Covol believes that its licensees have made progress
in these  areas  during  the  quarter  ended  March 31,  1999,  but  significant
improvement is still needed and continued  progress and eventual  success cannot
be assured.


Synthetic  fuel is a relatively  new product and  competes  with  standard  coal
products.  Industrial  coal users must be satisfied that the synthetic fuel is a
suitable  substitute for standard coal  products.  Moisture  content,  hardness,
special handling  requirements and other  characteristics  of the synthetic fuel
product may affect its  marketability,  including  sales price.  Many industrial
coal users are also  limited in the amount of  synthetic  fuel  product they can
purchase because they have committed to purchase a substantial  portion of their
coal requirements through long-term contracts.  Reliance on spot markets and the
overall downward trend in coal prices have generally produced lower sales prices
compared to long-term coal supply  contracts in the utility  industry.  To date,
Covol owned facilities and licensees have secured contracts for the sale of only
a portion of their  production.  The  suitability  of  synthetic  fuel as a coal
substitute,  particularly the quality characteristics of synthetic fuel, and the
traditional  long-term  supply contract  practices of fuel buying in the utility
industry have made the identification of purchasers of synthetic fuel difficult.
Because  synthetic fuel is a coal substitute,  the market and price are as broad
and varied as the coal market  itself.  The US coal  market  exceeds one billion
tons annually, and the prices range from approximately $12 to $35 per ton in the
areas  where  facilities  using the Covol  technology  are  located.  Prices are
dependent  on many  factors,  including  Btu  content,  ash and sulfur  content,
moisture,  location,  etc. Covol believes


                                       20
<PAGE>


that once initial  market  resistance is overcome  long-term  contracts  will be
secured for the synthetic fuel, and that Covol and its licensees will be able to
market all synthetic fuel produced at prices similar to coal.

Our accounting and valuation procedures assume all of the Covol owned facilities
qualify  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 the
facilities  lost  their  qualification  under  Section  29,  the  equipment  and
facilities'  carrying  value would likely be higher than the fair value based on
the alternative highest and best use, which could result in an impairment charge
at that time.

Operating Costs and Expenses. Operating costs and expenses increased by $155,000
to $4,223,000  during 1999 from $4,068,000 during 1998. Cost of coal briquetting
operations  increased  $1,710,000 from $643,000 during 1998 to $2,353,000 during
1999, and cost of binder and coal fines - related parties  decreased  $1,954,000
from $1,964,000  during 1998 to $10,000 during 1999. During 1999, Covol incurred
significantly  higher  operating  expenses  in  connection  with  the  continued
refinement and  commercialization  of the briquetting process in connection with
the 24 facilities  placed in service  during 1998,  and in  particular  the four
facilities  owned by Covol which are  currently  held for sale.  These  expenses
primarily  related to labor and operating  expenses at the four Covol  synthetic
fuel  facilities  and the wash  plant  located  in Utah,  losses  related to the
write-down of Coaltech inventory,  and costs incurred in providing assistance to
Covol's   licensees  in  resolving   ramp-up  issues  at  their  synthetic  fuel
facilities.  Covol expects to continue  incurring  operating  losses during 1999
until the four  facilities  held for sale are sold,  even  though it  expects to
realize a gain from these sales.

Covol operates one of the synthetic fuel facilities for Coaltech,  a partnership
for which Covol is the general partner. Under this operating agreement, Covol is
contractually  obligated to purchase the synthetic  fuel produced by Coaltech at
cost plus $1 per ton.  Production of synthetic  fuel from this  facility  during
1999 and 1998 was not significant and  accordingly,  the cost per ton is well in
excess of the current market value. These costs and the corresponding write-down
of  this  inventory  to its  market  value  are  included  in the  cost  of coal
briquetting  operations.  The write-down was approximately  $650,000 during 1999
and  $250,000  during  1998.  The  excess  cost per ton should  decrease  in the
remainder of 1999 as production volumes at the Coaltech facility increase. Covol
believes that it can limit or stop the amount of production at the Utah facility
at any time to  production  amounts  that  Covol is able to sell to  independent
third parties.

Covol has  operated  the Utah  facility  at a loss  because  of the need to gain
operating  experience (it was the first  synthetic fuel facility Covol built and
operated),  test alternative production methods, maintain operational status for
Section 29 qualification,  maintain the relationship with AJ Gallagher, an owner
of the Utah  facility who is a major  licensee  and partner of Covol,  and other
related business reasons.

Asset  Impairment  Charge.  In May 1995,  Covol  entered into an agreement  with
Geneva Steel Company to build and operate a commercial briquetting facility. The
facility never reached commercial operating levels, but was held for other uses,
including  potential  relocation  to another site for use in the  production  of
synthetic  fuel or in other  applications.  In  February  1999,  Geneva  filed a
voluntary  petition for relief under Chapter 11 of the United States  Bankruptcy
Code due to a lack of sufficient liquidity. Primarily as a result of this event,
Covol moved a substantial portion of the equipment  comprising the facility from
the  Geneva  site to  another  location  where it is being  used in a  different
application of Covol's technology.  Certain assets at the Geneva site, primarily
consisting  of leasehold  improvements  on the  property  where the facility was
located,  were  abandoned.   The  carrying  value  of  these  assets,   totaling
approximately $556,000, was written off during 1999.


Selling,  general  and  administrative  expenses  increased  $83,000  or  7%  to
$1,233,000  during 1999 from  $1,150,000 for 1998.  Except for  amortization  of
intangible  assets in 1999 and  commissions in 1998,  the largest  components of
selling,  general and  administrative  expenses for 1999 and 1998 were  payroll,
professional   services,   and  travel   expenses.   Payroll   costs   increased
approximately   $115,000   from  1998  to  1999  due  to  increased   headcount.
Amortization of intangible assets increased approximately $96,000 related to the
late 1998 exchange of common stock of Covol for limited  partnership  interests.
Commission expense decreased  $250,000 due to a nonrecurring  commission in 1998
related to a licensee relationship. Changes in the other categories from year to
year were not material.

                                       21
<PAGE>

Research and development costs increased  $118,000 to $190,000 from 1998 to 1999
primarily because Covol has focused  additional  resources on further refinement
of its binder  technologies  relative to the  synthetic  fuel  industry and to a
lesser extent as a result of the  application  of its binder  technologies  into
other areas.

Compensation expense from stock options,  stock warrants, and issuance of common
stock  decreased  $76,000 to  $163,000  for 1999 from  $239,000  for 1998.  This
expense relates to options granted in prior periods that vest over several years
and the  compensation  value that is being  recognized  as an  expense  over the
vesting  period.  This  amount is expected  to remain  relatively  level for the
remainder of 1999.


Other  Income  and  Expense.  During  1999,  Covol  had net  other  expenses  of
$1,421,000  compared to $664,000  for 1998.  This  increase of $757,000  relates
primarily  to a  change  between  periods  of  $448,000  in  the  mark-to-market
adjustment  of  the  carrying  value  of  the  related  party  note   receivable
collateralized by common stock, an increase in interest expense of $197,000; and
a loss on disposition of equipment in 1999 of $103,000.


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 and is
reflected in the balance sheet at the underlying  value of the collateral.  This
adjustment  resulted in a  write-down  of $178,000  during  1999,  compared to a
write-up of $270,000  during 1998 for a net change of $448,000.  As of March 31,
1999, the Note had a carrying value of $860,000.

Interest expense in 1998 of $1,180,000 consisted primarily of expense based upon
the issuance of convertible debt and warrants at a discount. Interest expense of
$1,377,000  in 1999  consisted  of  interest  accrued on notes  payable  used to
finance the  construction  of synthetic  fuel  facilities  held for sale and for
operating  needs and includes only $121,000 of  amortization  of debt  discount.
Interest expense is expected to increase by  approximately  $900,000 per quarter
as a result of the debt issued in March 1999,  which  increase will be offset by
reduced  interest  as a result  of any  future  repayments  of debt  related  to
facilities held for sale.


Net  loss.  For  1999,  the net  loss of  $5,057,000  represented  a  change  of
$2,496,000 from the net loss of $2,561,000  reported for 1998. This is primarily
due to the increase in cost of briquetting  operations.  Covol did not recognize
any income tax benefit in 1999 or 1998 since the realization of its deferred tax
asset of approximately  $14,000,000,  consisting primarily of net operating loss
carryforwards, is dependent on generation of future taxable income.


Six Months Ended March 31, 1999 Compared to Six Months Ended March 31, 1998


Revenues.  Total  revenues  for the six months  ended  March 31,  1999  ("1999")
increased by $257,000 to $2,525,000 as compared to $2,268,000 for the six months
ended March 31, 1998  ("1998").  During  1999,  Covol  recognized  license  fees
totaling  $1,247,000 while license fees of $202,000 were recognized during 1998.
The license fees in 1999 consisted of recurring license fees or royalty payments
of  $794,000  and the  straight-line  amortization  of  one-time  non-refundable
advance  license  fees of  $453,000,  while the license  fees in 1998  consisted
solely of  amortization  of one-time  non-refundable  advance  license fees from
several licensees.


Total binder sales to  non-related  parties  during 1999 were  $956,000,  with a
corresponding  direct cost to Covol of  $650,000.  In 1998,  Covol had no binder
sales to  non-related  parties.  Covol  had sales of  binder  and coal  fines to
related  parties  during 1999 totaling  $183,000  compared to $1,996,000  during
1998.  These  revenues  resulted  primarily  from coal fines that were sold to a
related party under a  non-recurring  contractual  obligation at Covol's cost as
provided for under the binder and license agreement with this entity.


Operating  Costs  and  Expenses.  Operating  costs  and  expenses  increased  by
$3,706,000 to $9,336,000  during 1999 from $5,630,000  during 1998. Cost of coal
briquetting  operations  increased  $4,728,000  from  $1,093,000  during 1998 to
$5,821,000  during  1999,  and cost of binder and coal  fines - related  parties
decreased  $1,937,000 from $1,972,000 during 1998 to $35,000 during 1999. During
1999, Covol incurred  significantly higher operating expenses in connection with
the continued  refinement and  commercialization  of the briquetting  process in
connection  with  the 24  facilities  placed  in  service  during  1998,  and in
particular the operating costs of the four  facilities  owned by Covol which are
currently held for sale. These expenses primarily related to labor and operating
expenses at the four Covol  synthetic fuel facilities and the wash plant located
in Utah,  losses  related to


                                       22
<PAGE>

the writedown of Coaltech inventory,  and costs incurred in providing assistance
to  Covol's  licensees  in  resolving  ramp-up  issues at their  synthetic  fuel
facilities.

Covol is  contractually  obligated to purchase the  synthetic  fuel  produced by
Coaltech  at cost  plus $1 per ton.  Production  of  synthetic  fuel  from  this
facility during 1999 and 1998 was not significant and accordingly,  the cost per
ton is  well  in  excess  of the  current  market  value.  These  costs  and the
corresponding  write-down of this  inventory to its market value are included in
the  cost of coal  briquetting  operations.  The  write-down  was  approximately
$1,800,000  during 1999 and $500,000 during 1998. The excess cost per ton should
decrease as 1999 production volumes at the Coaltech facility increase.


Asset  Impairment  Charge.  In May 1995,  Covol  entered into an agreement  with
Geneva Steel Company to build and operate a commercial briquetting facility. The
facility never reached commercial operating levels, but was held for other uses,
including  potential  relocation  to another site for use in the  production  of
synthetic  fuel or in other  applications.  In  February  1999,  Geneva  filed a
voluntary  petition for relief under Chapter 11 of the United States  Bankruptcy
Code due to a lack of sufficient liquidity. Primarily as a result of this event,
Covol moved a substantial portion of the equipment  comprising the facility from
the  Geneva  site to  another  location  where it is being  used in a  different
application of Covol's technology.  Certain assets at the Geneva site, primarily
consisting  of leasehold  improvements  on the  property  where the facility was
located,  were  abandoned.   The  carrying  value  of  these  assets,   totaling
approximately $556,000, was written off during 1999.


Selling,  general  and  administrative  expenses  increased  $271,000  or 14% to
$2,162,000  during 1999 from  $1,891,000 for 1998.  Except for  amortization  of
intangible assets during 1999 and commissions in 1998, the largest components of
selling,  general and  administrative  expenses for 1999 and 1998 were  payroll,
professional  services,  and travel  expenses.  Payroll  costs and  professional
services  each  increased  approximately  $150,000  from  1998  to  1999  due to
increased  headcount  and higher  legal  costs,  respectively.  Amortization  of
intangible assets increased  approximately $192,000 related to the 1998 exchange
of common stock of Covol for limited partnership  interests.  Commission expense
decreased  approximately $305,000 due primarily to a nonrecurring  commission in
1998 related to a licensee  relationship.  Changes in the other  categories from
year to year were not material.

Research and development costs increased  $115,000 to $343,000 from 1998 to 1999
primarily because Covol has focused  additional  resources on further refinement
of its binder  technologies  relative to the  synthetic  fuel  industry and to a
lesser extent as a result of the  application  of its binder  technologies  into
other areas.

Compensation expense from stock options,  stock warrants, and issuance of common
stock  decreased  $121,000 to $325,000  for 1999 from  $446,000  for 1998.  This
expense relates to options granted in prior periods that vest over several years
and the  compensation  value that is being  recognized  as an  expense  over the
vesting  period.  This  amount is expected  to remain  relatively  level for the
remainder of 1999.


Other  Income  and  Expense.  During  1999,  Covol  had net  other  expenses  of
$2,248,000  compared to $1,344,000 for 1998.  This increase of $904,000  relates
primarily  to a change  between  periods  of  $1,312,000  in the  mark-to-market
adjustment  of  the  carrying  value  of  the  related  party  note   receivable
collateralized  by common  stock,  partially  offset by an  increase in interest
income of $850,000.  Also contributing to the net increase in other expenses was
an increase in interest expense of $121,000,  a decrease in minority interest in
losses of consolidated  subsidiaries  of $138,000,  and a loss on disposition of
equipment in 1999 of $103,000.


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 and is
reflected in the balance sheet at the underlying  value of the collateral.  This
adjustment  resulted in a  write-down  of $749,000  during  1999,  compared to a
write-up of  $563,000  during  1998 for a net change of  $1,312,000.  A $515,000
payment  on the  Note  was due in  January  1999,  of  which  $225,000  has been
received.  The balance of the January  payment is expected to be received in the
quarter ending June 30, 1999.  Included in interest  income for 1999 is $515,000
related to this Note.

Interest expense in 1998 of $2,292,000 consisted primarily of expense based upon
the issuance of convertible debt and warrants at a discount. Interest expense of
$2,413,000  in 1999  consisted  of  interest  accrued on notes  payable

                                       23
<PAGE>

used to finance the  construction of synthetic fuel facilities held for sale and
for operating needs and includes only $203,000 of amortization of debt discount.
Interest expense is expected to increase by  approximately  $900,000 per quarter
as a result of the debt issued in March 1999,  which  increase will be offset by
reduced  interest  as a result  of any  future  repayments  of debt  related  to
facilities held for sale.

During September 1998, Covol offered the limited partners of Utah Synfuel #1 and
Alabama  Synfuel  #1  common  stock of  Covol  in  exchange  for  their  limited
partnership  interests.  These  exchanges,  most of which were  accounted for in
September  1998,  were  substantially  completed by November 1998, at which time
Utah Synfuel #1 became a wholly-owned subsidiary of Covol and Alabama Synfuel #1
became a 98%-owned subsidiary of Covol. As a result of these exchanges, minority
interest in the losses of consolidated subsidiaries decreased from approximately
$138,000  in 1998 to  approximately  $0 in 1999.  Covol  believes  the  combined
operations  of  these  partnerships  will  result  in  operating  losses  in the
near-term  future,  which  losses  will be  included  in  Covol's  statement  of
operations.


Net  loss.  For 1999,  the net loss  increased  $4,909,000  from  $4,706,000  to
$9,615,000. The increase is primarily due to the increase in cost of briquetting
operations. Covol did not recognize any income tax benefit in 1999 or 1998 since
the realization of its deferred tax asset, consisting primarily of net operating
loss carryforwards, depends on generation of future taxable income.


Liquidity and Capital Resources

Liquidity.  During the fiscal year 1998,  Covol and its licensees  completed the
construction  of and began  operations at 24 synthetic  fuel  facilities.  Covol
currently owns four facilities  which it constructed and which are being offered
for sale.  Covol  anticipates  sale of these  facilities  during the year ending
September  30,  1999.  The  majority  of the funds  received  from sale of these
facilities  will be  used to  retire  debt  that  was  incurred  principally  in
connection  with  the   construction  and  operation  of  these  facilities  and
activities  relative to the completion of the other  synthetic fuel  facilities.
Operating  expenses   associated  with  the  owned  facilities   currently  cost
approximately $600,000 per month.


Net cash used in  operating  activities  for the six months ended March 31, 1999
("1999") was  $9,852,000.  During the six months ended March 31, 1998  ("1998"),
net cash of $157,000  was used in  operations.  Much of this change in cash flow
from  operations is  attributable to the increase in net loss from $4,706,000 in
1998 to  $9,615,000 in 1999.  Covol was able to fund its  operating  activities,
including the continued refinement and  commercialization of its patented binder
technologies,  through the  incurrence  of debt and the issuance of  convertible
preferred stock,  common stock and common stock warrants.  During 1999, proceeds
from the issuance of notes payable totaled approximately  $10,498,000,  proceeds
from the issuance of preferred  stock totaled  $6,394,000  and proceeds from the
issuance of common stock totaled $3,774,000.


Capital  Resources.   During  1999,   Covol's  investing   activities  were  not
significant. Investing activities in 1998 consisted primarily of the purchase of
property, plant and equipment and the four facilities held for resale, with most
of the funds for these  activities  coming from the  issuance  of notes  payable
($16,338,000)  and from working capital.  Covol believes that funds required for
investing  activities  will  continue to be  significantly  lower during 1999 as
compared to 1998 because the  construction of facilities that produce  synthetic
fuel that  qualifies for federal  income tax credits under Section 29 of the IRC
were  completed  during  fiscal 1998.  In order to receive tax credits under IRC
Section 29, the  synthetic  fuel sold must be produced at  facilities  placed in
service by June 30, 1998.

Covol's  long term  existence  depends on the  ability of Covol's  licensees  to
produce and sell synthetic fuel which will generate license fees to Covol. There
are 24 synthetic fuel plants that utilize Covol's  patented  technology and from
which Covol  intends to earn license  fees.  These  facilities  do not presently
operate at levels  needed to generate  significant  revenues to Covol.  Improved
operations  at each of these plants  depend on the ability of the plant owner to
produce  synthetic fuel that meets market  specifications in order for the plant
owner to market the synthetic fuel. Covol is assisting the plant owners in their
efforts to overcome production and marketing problems.

                                       24
<PAGE>

Covol  anticipates that earned license fees or royalties from the production and
sale of synthetic  fuel will  continue to increase  during 1999.  As  production
levels  increase,  sales of the binder  materials by Covol to its  licensees are
expected  to  increase  proportionately.  Funds  received  by Covol  from  these
activities  are not expected to be sufficient to cover Covol's  operating  costs
and expenses until late 1999. Any extended delay in the sale of facilities  held
for sale may require Covol to seek additional debt or equity financing.


In order for operating  activities to produce  significant  positive cash flows,
Covol and its licensees must  successfully  address certain operating issues and
marketing  difficulties which have negatively  affected cash flows and increased
capital requirements.  Operating issues which must be addressed include, but are
not limited to, feedstock  availability,  cost,  moisture content,  Btu content,
correct  application of binder  formulation,  operability of equipment,  product
durability,  resistance to water  absorption  and overall  costs of  operations,
which in many cases to date have  resulted in unit costs in excess of  synthetic
fuel sale  prices.  Marketing  difficulties  which must be  addressed  relate to
market acceptance of products manufactured using our technology. Industrial coal
users must be satisfied  that the synthetic  fuel is a suitable  substitute  for
standard  coal  products.   Moisture   content,   hardness,   special   handling
requirements and other  characteristics of the synthetic fuel product may affect
its  marketability  and its sales  price.  Many  industrial  coal users are also
limited in the amount of synthetic  fuel  product they can purchase  from us and
our licensees  because they have committed to purchase a substantial  portion of
their coal requirements  through long-term  contracts.  Reliance on spot markets
and the overall downward trend in coal prices have generally produced lower sale
prices compared to long-term coal supply contracts in the utility  industry.  To
date, our owned facilities and licensees have secured  contracts for the sale of
only a portion of their production.  The suitability of synthetic fuel as a coal
substitute,  particularly the quality characteristics of synthetic fuel, and the
traditional  long-term  supply contract  practices of fuel buying in the utility
industry have made the identification of purchasers of synthetic fuel difficult.
Covol  believes  that once initial  market  resistance  is  overcome,  long term
contracts  will be  secured  for the  synthetic  fuel,  and that  Covol  and its
licensees  will be able to market all synthetic  fuel produced at prices similar
to coal.


To provide funding for Covol's operations and debt repayment  requirements until
late 1999, Covol expects to utilize existing working capital and excess proceeds
from the sale of facilities. During November 1998, Covol issued common stock and
common stock warrants for total net proceeds of approximately $3,729,000. During
January 1999,  Covol issued  convertible  preferred stock and warrants for total
net  proceeds  of  approximately  $900,000.  During  March  1999,  Covol  issued
convertible  secured debt,  convertible  redeemable  preferred  stock and common
stock  warrants  for total net  proceeds  of  approximately  $14,800,000.  Covol
believes current working  capital,  excess proceeds from the sale of facilities,
payments  for license  fees and binder  sales,  and funds  raised in  additional
financings,  if necessary,  will be sufficient to fund Covol's  operations until
its operating  activities  begin  producing  positive cash flow.  The ability of
Covol to pay its debt as it matures is dependent  primarily upon Covol's ability
to sell the  facilities  which are held for  sale.  Covol  believes  the sale of
facilities or extensions of existing debt repayment terms will enable it to meet
these debt requirements.


Covol has  agreed to  certain  covenants  contained  in the  recently  completed
financing  documents.  One  covenant  requires  Covol to meet  certain  earnings
targets for the quarter ending  December 31, 1999 and for  subsequent  quarters.
Consolidated  earnings before  interest,  taxes,  depreciation  and amortization
(EBITDA)  and certain  other  adjustments,  of  $5,000,000  is required  for the
quarter  ending  December 31, 1999.  The EBITDA  target  increases in subsequent
quarters. Covol's current operations are at levels below this requirement. It is
not known  whether  or not Covol  will be able to  comply  with this  provision;
however,  there are currently no known  operational  trends or events that would
currently make non-compliance probable. Non-compliance with this provision would
result  in an  increase  in  the  debt  coupon  rate  by  one  percentage  point
immediately  and each 90 days  thereafter  until cured.  Also,  the debt becomes
immediately  convertible.  Upon the  second  event of  non-compliance  with this
provision,  Covol is required to deposit approximately $3,000,000 into an escrow
account.  Failure to make  payments into the escrow  account  results in royalty
payments  from the related  collateral  being made directly to the debt holders.
Operation of the synthetic fuel  facilities at or near capacity should result in
EBITDA at levels in excess of this  requirement.  There are other provisions and
covenants  in these  loan  documents  that will  restrict  or  prohibit  certain
activities.


                                       25
<PAGE>

Covol  May Be  Adversely  Affected  By  Year  2000  Non-Compliance  of  Computer
Applications

The Year 2000 issue is the result of computer  programs  being written to define
the  applicable  year using two digits rather than four digits.  Thus,  programs
that are date  sensitive may recognize a date using "00" as the year 1900 rather
than 2000.  This could result in a systems  failure or  miscalculations  causing
disruptions  of operations  including a temporary  inability to engage in normal
business  activities.  This systems issue creates risk for Covol from  unforseen
problems in its own computer  systems and  electronic  equipment  and from third
parties with which Covol conducts  business.  Such failures of Covol's and third
parties'  computer  systems could  potentially have a material adverse impact on
Covol's  business and results of operations.  While the risks  discussed in this
section have a possible  material  impact,  management  believes the actions and
contingency  plans that are being developed and implemented  will  significantly
reduce the probability and potential impact of these identified risks.

The information  systems and electronic  equipment  utilized in Covol's business
include a computer network system utilized for  intra-company  communication and
Internet  access  and an  accounting  software  package  utilized  for  billing,
procurement,  payroll  and  accounting.  Non-information  technology  electronic
equipment   includes   programmable   logic   controllers,    micro-controllers,
specialized  software  packages  for  operations  activities  and  miscellaneous
systems for lab equipment.

As a  part  of the  information  technology  systems  mentioned  above,  Covol's
computer network system was upgraded in 1998 with year 2000 compliant equipment.
The provider of the accounting software has indicated that this software package
is not currently  compliant but can be upgraded at nominal cost.  This work will
be  undertaken  during the third  quarter of fiscal 1999 and tested prior to the
close of the fiscal year.

All of the synthetic fuel facilities constructed by Covol and its licensees were
completed and placed in service  between  December 1996 and June 30, 1998,  with
the majority being  completed  during 1998. As such,  the  electronic  equipment
utilized in the facilities is of recent vintage (within 18 months of the June 30
date) and is year 2000 compliant.  Suppliers of the major  electronic  equipment
for Covol's four owned  synthetic fuel facilities have notified Covol that their
equipment is compliant.  This includes critical  programmable logic controllers,
micro-controllers and software operating packages.

Licensees utilize proprietary technology provided by Covol including flow sheets
and equipment  recommended  by Covol in the  construction  of their  facilities.
These licensees have represented to Covol that equipment within these facilities
is  compliant  or that  operations  will  not be  impacted  in the  event  of an
equipment  failure due to the Year 2000  issue.  Malfunctions  occurring  in the
synthetic fuel operations  could  potentially have an adverse material effect to
Covol by reducing the sale of binder formulation  materials to the facilities by
Covol and the  collection  by Covol of royalties on the  production of synthetic
fuel.

Covol's   relationships  with  its  third-party   suppliers  and  transportation
providers is critical to the operation of the synthetic fuel  facilities.  Covol
is also dependent upon its customers who purchase and consume the synthetic fuel
produced.  Covol's  suppliers  have  represented  to Covol that  their  computer
systems and equipment are year 2000 compliant.

The most reasonably likely worst case scenarios would be the extended  inability
of major  suppliers  to  deliver  binder  formulation  materials  and other bulk
materials  required for the operation of the synthetic  fuel  facilities and the
failure of  customers to be able to receive  synthetic  fuel  production  due to
unforseen shutdown due to non-compliant equipment.

As a contingency plan for the reasonably likely worst case events, Covol intends
to stock up on bulk  materials in the last half of the fourth quarter of 1999 so
that  operations  can  continue  for  several  days  into the new  year  without
interruption.  Covol has designed its facilities to accommodate bulk deliveries.
Electrical power suppliers have notified Covol that power  interruptions are not
anticipated but that additional  crews will be on hand to respond to problems as
they may occur at the change to the new year.  Covol and its  licensees are also
prepared to bypass  automated  controls and operate facility systems manually if
the  automated  control  systems  fail.  As supply  contracts  are  written  for
operating  materials,  Covol is striving to negotiate  terms such that year 2000
issues are not an excuse for non-performance.

                                       26
<PAGE>

Costs attributable to Year 2000 issues are expected to be minimal. The only cost
anticipated to date is for the upgrade to Covol's  accounting  software package.
This cost is estimated to be less than $5,000.  Costs  associated with increased
levels of bulk materials  simply  redistributes  normal operating costs but does
not affect the ultimate financial performance of Covol.

Covol plans to continue to monitor the Year 2000 issue  throughout the remainder
of 1999.  Should this  monitoring  reveal  other  developments,  whether they be
internal  or third  party,  or  identify  additional  electronic  equipment  and
software  that  may be at  risk,  Covol  will  assess  the  situation  and  take
appropriate action.  There can be no assurance that Covol will discover all Year
2000 issues in the course of the remainder of 1999 or that Covol will be able to
remedy any or all discoveries in a timely or cost effective manner such that the
Year 2000 issues will not have a material  adverse  impact on Covol's  business,
financial condition and results of operations.

Forward Looking Statements

Statements in this Item 2 regarding  Covol's  expectations that relate to future
plans,  financial results or performance and other information  presented herein
that are not purely historical in nature, constitute  forward-looking statements
within the  meaning of the  Private  Securities  Litigation  Reform Act of 1995.
Although  Covol  believes  that  its   expectations   are  based  on  reasonable
assumptions  within the bounds of its knowledge of its business and  operations,
there can be no assurance  that actual results will not differ  materially  from
its expectations.  In addition to matters affecting Covol's industry or the coal
industry or the economy  generally,  factors which could cause actual results to
differ  from  expectations  set forth in the  above-identified  forward  looking
statements include but are not limited to: Covol's ability to sell company-owned
synthetic fuel facilities,  the ability of Covol to conserve its capital through
cost reductions  until operating  revenues  exceed  expenses,  favorable IRS tax
treatment,  the ability of Covol to complete  specific  research and development
projects,  commercial  viability of  technologies,  the  availability of natural
resources and suitable raw  materials,  ability of Covol's  licensees to achieve
expected  production  levels  at the  synthetic  fuel  and  engineered  resource
facilities,  ability to market synthetic fuel and engineered resources produced,
market  penetration  by  competing  technologies,  the  ability of Covol to meet
performance criteria required in financing agreements,  and the ability of Covol
to continue to find suitable partners and licensees.

See "ITEM 1.  BUSINESS--Forward  Looking Statements" in Covol's Annual Report on
Form 10-K for the year ended  September 30, 1998 for a description of additional
factors which could cause actual results to differ from expectations.

Other Items

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


                          PART II -- OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

Asbestos  Investigation.  In January 1996, a manager of Covol  entered  property
owned by Nevada  Electric  Investment  Company,  a  subsidiary  of Nevada  Power
Corporation,  in connection with an offer by Covol to purchase the property, and
with certain  other  employees of Covol,  removed some  asbestos  over a two-day
period.  In May  1996,  Covol  received  a notice  of  violation  and  order for
compliance  from the  State of  Utah,  Division  of Air  Quality  alleging  that
asbestos was improperly handled,  removed,  and disposed of. Covol complied with
the order and in September  1996 entered  into a settlement  agreement  with the
State of Utah and paid a fine in the amount of $11,000.  In late 1997,  the U.S.
Environmental  Protection  Agency  began its own  investigation,  referring  the
matter to the U.S.  Attorney's office which proceeded with a grand jury inquiry.
Covol was served in September 1998 with a grand jury subpoena for records,  with
which  Covol has  complied.  Covol  does not know

                                       27
<PAGE>

the results of the grand jury inquiry or whether the inquiry is completed. Covol
does not believe that the resolution of this matter will have a material adverse
effect on Covol.

Indemnification  to  Centerline.  In  December  1996,  Covol  entered  into  six
indemnification  agreements  with  Centerline  whereby Covol agreed to indemnify
Centerline  should it be required to pay liquidated  damages to PacifiCorp under
various design and  construction  agreements for six synthetic fuel  facilities.
Under the original terms of the various design and construction  agreements,  if
the  facilities  were not  completed by June 1, 1998 then $750,000 in liquidated
damages  for  each  facility  would  be  due  and  payable  by  Centerline.  The
indemnification  agreement only applied if PacifiCorp  actually decided to build
the facilities with Centerline as the design/builder.  PacifiCorp elected to not
build three of the projects,  and therefore the indemnity agreement with respect
to those  facilities  no longer  applies.  Accordingly,  the  maximum  amount of
contingent   liability  to  Covol  under  the  indemnification   agreements  was
$2,250,000  ($750,000 per design and  construction  agreement).  Centerline  and
PacifiCorp  initiated claims in arbitration  against each other but have settled
their  claims,  including  a release  of  claims  against  Covol for  liquidated
damages.

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.

The  issuance of  qualified  options is  required  to be based on market  value.
Accordingly,  the  exercise  price is set based on the  market  price of Covol's
common stock, even though the options convert into restricted stock.

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

In January  1999,  Covol  issued to four  accredited  investors,  pursuant  to a
consulting  compensation  agreement  dated August  1998,  options to purchase an
aggregate of 60,000 shares of Covol common stock, at an exercise price of $12.75
per share. The exercise price will be reduced to $8.58 per share if a consulting
fee is not paid to the  accredited  investors  as set  forth  in the  consulting
compensation  agreement.  The options are nontransferable and include piggy-back
registration  rights,  which  may  be  exercised  two  times.  The  options  are
exercisable until August 2003, after which any unexercised options will expire.

Reference is made to the sale of series C convertible preferred stock and common
stock warrants described in Note 7 to the consolidated  financial statements and
to the sale of series D redeemable  cumulative  convertible  preferred stock and
common  stock  warrants  described  in  Note  6 to  the  consolidated  financial
statements.

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES

None.

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

An annual  meeting of  stockholders  of Covol was held on March 17, 1999 for the
following purposes:

     1.   To elect  three  class II  directors  of Covol to serve until the 2002
          annual  meeting of  stockholders,  or until their  successors are duly
          elected and qualified;

     2.   To ratify a grant by the Board of options to purchase  250,000  shares
          of common  stock to Brent M. Cook at $12.97 per share to vest pro rata
          over 60 months beginning on May 1, 1998;

     3.   To ratify the  selection  by the Board of  PricewaterhouseCoopers  LLP
          as  independent auditors of Covol for the fiscal year ending September
          30, 1999.

                                       28
<PAGE>

A total of 8,648,365  shares were voted.  The results of voting on these matters
were as  follows:

     1.   Mr. Raymond J. Weller as a class II director: for - 8,179,645;
          withheld authority - 468,720.
          Mr. DeLance W. Squire as a class II director:  for - 8,098,345;
          withheld authority - 550,020.
          Mr. Kirk A. Benson as a class II director: for - 8,472,274; withheld
          authority 176,091.
     2.   To approve the 250,000 share option grant to Mr. Cook: for -
          7,855,106, against - 434,199; abstain -- 359,060.
     3.   To ratify the selection of PricewaterhouseCoopers LLP as auditors  for
          fiscal 1999: for - 8,334,938; against - 5,915, abstain - 307,512.

ITEM 5.  OTHER INFORMATION

         None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K


         (a)   The following exhibits are included herein:

         27.1  Restated Financial Data Schedule

         (b)   A report on Form 8-K was filed on March 24, 1999.


                                       29
<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:  October 6, 1999               By: /s/ Kirk A. Benson
                                        ----------------------------------------
                                         Kirk A. Benson, Chief Executive Officer
                                         and Principal Executive Officer



Date:  October 6, 1999               By: /s/ Steven G. Stewart
                                        ----------------------------------------
                                         Steven G. Stewart, Chief Financial
                                         Officer and Principal Financial Officer



                                       30