UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
AMENDMENT No. 1
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the transition period from ________________________________________________
Commission file number 0-27803
COVOL TECHNOLOGIES, INC.
(Exact name of registrant specified in its charter)
DELAWARE 87-0547337
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
3280 North Frontage Road, Lehi, Utah 84043
(Address of principal executive offices) (Zip Code)
(801) 768-4481
(Registrant's telephone number, including area code)
________________________________________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 14 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class of Stock Amount Outstanding
$.001 par value Common Stock 7,294,123 Shares of Common Stock
at June 30, 1996
COVOL TECHNOLOGIES, INC.
TABLE OF CONTENTS
Page No.
Part I - Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets............................1
Consolidated Statements of Operations..................2
Consolidated Statements of Cash Flows..................3
Notes to Financial Statements..........................5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................................9
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K......................13
COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
--------------------
As of As of
June 30, September 30,
1996 1995
------------------ ------------------
ASSETS
Current assets:
Cash and cash equivalents $ 438,699 $ 583,757
Receivables 34,381 22,005
Inventories 22,208 0
Notes receivable - related parties current 5,757 0
Prepaid expenses and other current assets 3,348 12,525
----------------- ------------------
Total current assets 504,393 618,287
----------------- ------------------
Property, plant and equipment, net of accumulated depreciation 3,762,827 1,330,300
----------------- ------------------
Other assets:
Restricted cash 0 500,000
Cash surrender value of life insurance 152,112 139,612
Deferred tax asset 0 23,000
Deposits and other assets 58,016 39,463
----------------- ------------------
Total other assets 210,128 702,075
----------------- ------------------
Net assets - discontinued operations 0 9,315
----------------- ------------------
Total assets $ 4,477,348 $ 2,659,977
================= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 2,164,999 $ 747,137
Accrued liabilities 164,816 286,451
Notes payable - current 23,225 26,084
Notes payable - related parties, current 2,384,044 39,035
----------------- ------------------
Total current liabilities 4,737,084 1,098,707
----------------- ------------------
Long-term liabilities:
Notes payable, non-current 154,964 176,601
Deferred compensation 209,882 201,901
----------------- ------------------
Total long-term liabilities 364,846 378,502
----------------- ------------------
Total liabilities 5,101,930 1,477,209
----------------- ------------------
Minority interest in consolidated subsidiaries 832,500 0
Commitments and contingencies (notes 6)
Stockholders' equity (deficit) :
Common stock: $0.001 par value; authorized: 25,000,000
shares issued and outstanding: 7,294,123 at June 30, 1996 and
5,260,042 at September 30, 1995 7,294 5,260
Common stock to be issued: 0 at June 30, 1996 and
119,334 shares at September 30, 1995 0 119
Capital in excess of par value 28,651,661 9,617,512
Capital in excess of par value - common stock to be issued 0 581,881
Accumulated deficit (19,730,764) (7,360,156)
Notes and interest receivable - related parties from issuance of
or collateralized by common stock (net of allowance) (7,617,404) (240,000)
Deferred compensation from stock options (2,767,869) (1,421,848)
----------------- ------------------
Total stockholders' equity (deficit) (1,457,082) 1,182,768
----------------- ------------------
Total liabilities and stockholders' equity (deficit) $ 4,477,348 $ 2,659,977
================= ==================
The accompanying notes are an integral
part of the consolidated financial statements
1
COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
----------------------------
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
------------- ------------- ------------ --------------
Revenues:
License fees $ 0 $ 100,000 $ 0 $ 100,000
Coal briquetting sales 33,431 2,760 37,172 12,558
------------- ------------- ------------ --------------
Total revenues 33,431 102,760 37,172 112,558
------------- ------------- ------------ --------------
Operating costs and expenses:
Cost of briquetting operations 258,197 0 688,523 0
-------
Research and development 420,050 185,139 945,301 491,497
Selling, general and administrative 1,368,951 387,310 3,040,541 888,488
Compensation expense on stock options 1,425,929 0 4,315,798 0
Compensation expense on issuance of
common stock 4,500 0 73,623 0
------------- ------------- ------------ --------------
Total operating costs and expenses 3,477,627 572,449 9,063,786 1,379,985
------------- ------------- ------------ --------------
Operating loss (3,444,196) (469,689) (9,026,614) (1,267,427)
------------- ------------- ------------ --------------
Other income (expense):
Interest income 88,594 0 199,950 0
Write-down of note receivable (2,250,000) 0 (2,449,575) 0
Interest expense (1,558) (30,672) (45,606) (88,356)
Other income (loss) (60) 0 (144,258) 0
------------- ------------- ----------- --------------
Total other income (expense) (2,163,024) (30,672) (2,439,489) (88,356)
------------- ------------- ----------- --------------
Loss from continuing operations before
income taxes (5,607,220) (500,361) (11,466,103) (1,355,783)
Income tax benefit (provision) 0 0 (23,000) 14,000
------------- ------------- ----------- --------------
Loss from continuing operations (5,607,220) (500,361) (11,489,103) (1,341,783)
------------- ------------- ----------- --------------
Discontinued operations:
Income (loss) from discontinued operations
(less applicable income tax benefit
(provision) of $0, $0, $(23,000)
and $14,000 respectively) 0 (114,318) (590,480) 28,533
Loss on disposal of discontinued operations
$562,000 in 1996 and 1995 respectively) 0 0 (291,025) 0
Income (loss) from discontinued operations 0 (114,318) (881,505) 28,533
Net loss $ (5,607,220) $ (614,679) $12,370,608) $ (1,313,250)
============= ============= ============ ==============
Net loss per common share:
Loss per share from continuing operations $ (0.77) $ (0.11) $ (1.72) $ (0.31)
Income (loss) per share from
discontinued operations 0.00 (0.03) (0.13) $ 0.01
------------- ------------ ----------- --------------
Net loss per common share $ (0.77) $ (0.14) $ (1.85) $ (0.30)
============= ============ =========== ==============
Weighted average shares outstanding 7,258,406 4,572,361 6,699,062 4,319,668
============= ============ =========== ==============
The accompanying notes are an integral
part of the consolidated financial statement
2
COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
-------------------------------------
Nine Months Nine Months
Ended Ended
June 30, June 30,
1996 1995
---------------- -----------------
Cash flows from operating activities:
Net loss $ (12,370,608) $ (1,313,250)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 137,003 58,899
Common stock issued for services 365,956 0
Deferred income taxes 23,000 488,000
Write-down of note receivable - related party, collateralized by
common stock 2,449,575 0
Amortization of deferred compensation on stock options 4,315,798 0
Loss on disposal of discontinued subsidiaries 291,025 0
Interest earned on notes receivable - related parties, collateralized
by common stock (177,189) 0
Increase (decrease) from changes in assets and liabilities of continuing
operations:
Receivables (12,376) (25,216)
Inventories (22,208) (14,534)
Prepaid expenses and other current assets 9,177 (3,054)
Deposits and other assets (18,553) 17,823
Accounts payable 1,417,862 193,445
Accrued liabilities (121,635) (112,138)
Deferred compensation 7,981 7,458
Discontinued operations noncash charges and working capital changes (202,259) 236,648
---------------- -----------------
Net cash provided by (used in) operating activities (3,907,451) (465,919)
---------------- -----------------
Cash flows from investing activities:
Cash paid for property, plant and equipment (2,569,530) (114,526)
Purchase of subsidiaries 0 (10,000)
Issuance of notes receivable - related parties (8,495) 0
Increase in cash surrender value of life insurance (12,500) (18,750)
Investing activities of discontinued operations 0 42,244
---------------- -----------------
Net cash provided by (used in) investing activities (2,590,525) (101,032)
---------------- -----------------
Cash flows from financing activities:
Proceeds from note receivable - related parties, collateralized by
common stock 859,160 0
Proceeds from notes receivable - related party 2,738 0
Payments on capital lease obligations 0 (27,345)
Payment on notes payable (24,494) (46,976)
Payment on notes payable - related parties (2,291,426) (1,178,098)
Proceeds from issuance of common stock 6,267,031 1,103,339
Proceeds from notes payable 0 525,000
Proceeds from issuance of limited partnership interests in subsidiaries 832,500 0
Financing activities of discontinued operations 0 782,165
---------------- -----------------
Net cash provided by (used in) financing activities 5,645,509 1,158,085
---------------- -----------------
Net increase (decrease) in cash (852,467) 591,134
Total cash and cash equivalents, beginning of period: 1,291,166 271,883
Cash and cash equivalents, end of period
Continuing operations 438,699 681,839
Discontinued operations 0 181,178
---------------- -----------------
Total cash and cash equivalents, end of period $ 438,699 $ 863,017
================ ==================
The accompanying notes are an integral
part of the consolidated financial statements
3
COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------------------------------
Supplemental schedule of noncash investing and financing activities:
Common stock issued for notes receivable $ 6,159,375
Common stock issued to repay advances $ 45,613
Common stock issued to repay notes payable $ 100,000
Obligations assumed in connection with sale of subsidiaries $ 4,636,435
Note receivable received for subsidiaries (net of imputed interest) $ 4,349,575
The accompanying notes are an integral
part of the consolidated financial statements
4
COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------
1. Management Opinion
In the opinion of management, the accompanying financial statements present
fairly the financial position of Covol Technologies, Inc. and Subsidiaries (the
Company) as of September 30, 1995 and June 30, 1996, the results of its
operations for the three months and nine months ended June 30, 1995 and June 30,
1996 and its cash flows for the nine months ended June 30, 1995 and June 30,
1996. The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these financial statements
be read in conjunction with the Company's Annual Report included in Form 10 for
the year ended September 30, 1995.
2. Loss Per Share Calculation
Weighted average shares include only common shares outstanding. The computation
of fully diluted net loss per common share was antidilutive in each period for
which a net loss was presented.
3. Inventories
Inventories are stated at the lower of average cost or market and consist of
coal fines available for sale and binder materials.
5
COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------
4. Stockholders' Deficit
The table below presents the activity in stockholders' deficit from April 1,
1996 to June 30, 1996.
Notes and interest
receivable-
Common Stock related parties
------------------- from issuance Deferred
Capital in of, or compensation
excess of Accumulated collateralized on stock
Shares Amount par value Deficit by common stock options
--------- ------- ------------ -------------- ------------------ -------------
Balance at April 1, 1996 7,215,158 $7,215 $27,509,120 ($14,123,544) ($10,473,128) ($3,672,178)
Common stock issued for cash, 77,215 77 616,423
including exercise of stock
options and warrants
Common stock issued for 1,750 2 4,498
services
Deferred compensation related 521,620 (521,620)
to the issuance of stock
options at below market
value to officers, directors,
employees and consultants
Amortization of deferred 1,425,929
compensation on stock options
Service issued in lieu of 587,766
payments on notes receivable -
related parties from issuance of
common stock
Cash received in payment on 6,553
notes receivable - related
parties from issuance of
common stock
Interest earned on notes (88,595)
receivable - related
parties from issuance of or
collateralized by
common stock
Write-down of note receivable 2,350,000
- related parties, collateralized
by common stock
Net loss for the quarter ended (5,607,220)
June 30, 1996
----------------------------------------------------------------------------------------
Balance at June 30, 1996 7,294,123 7,294 28,651,661 (19,730,764) (7,617,404) (2,767,869)
========================================================================================
6
COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------
5. Stock Options and Warrants
On June 3, 1996 the Company granted options to purchase 100,000 shares of common
stock for $1.50 per share to an officer of the Company as part of compensation
related to an employment agreement.
6. Agreements:
Geneva Plant
In May 1995, the Company entered into a collaborative agreement with Geneva
Steel Company ("Geneva") to build and operate a commercial briquetting plant in
Vineyard, Utah defined above as the Geneva Plant. That agreement was amended and
restated in May, 1996. Pursuant to the Amended and Restated Briquetting Services
Agreement and Lease Agreement with Geneva (collectively, the "Geneva
Agreements") Geneva has provided the Company with a building containing
approximately 9,000 square feet. The Company equipped the building to serve as a
coal, coke and revert material briquetting plant. The Company estimated that the
Geneva Plant's initial capacity was 15 tons of briquettes per hour or
approximately 100,000 tons per year. Geneva provided the Company with revert
materials and the Company was obligated to produce and deliver to Geneva
briquettes conforming to agreed-upon specifications and in agreed to quantities.
Geneva bears all transportation costs with respect to delivery of revert
materials to the Geneva Plant and the shipment of briquettes. Pursuant to the
Geneva Agreements, the Company began producing briquettes in May 1996.
Limited Partnerships
In June 1996, the Company formed Utah Synfuel #1, Ltd. ("Utah Synfuel #1") and
Alabama Synfuel #1, Ltd. (Alabama Synfuel #1"), each a Delaware limited
partnership (collectively the "Partnerships"). The respective Partnerships are
intended to (I) purchase a nonexclusive license from the Company for the
Briquetting Technology, (ii) purchase a coal briquetting facility from the
Company and (iii) sell such facility to a third party purchaser. Utah Synfuel #1
intends to purchase the coal briquetting Utah Plant and Alabama Synfuel #1
intends to purchase the coal briquetting Birmingham, Alabama plant (the "Alabama
Plant"). The Company will grant to each of the Partnerships a non-exclusive
license to use the Briquetting Technology with respect to coal for a fee of
$500,000 (totaling $1,000,000). The Company intends to retain at least a 60%
interest in Utah Synfuel #1 and up to an 83% interest in Alabama Synfuel #1. The
Company has privately placed the remaining partnership interests in the
Partnerships. Specifically, the Company received $3,277,500 ($3,080,000 as of
September 30, 1996) for the remaining partnership interests in Utah Synfuel #1
and $1,762,500 ($1,305,000 as of September 30, 1996) for the remaining
partnership interest in Alabama Synfuel #1. Notably, the Company is currently
analyzing whether the original disclosure provided to investors should be
supplemented. The Company may decide to revise the information in the original
private placement memorandums for those offerings, and may offer to such
investors the opportunity to rescind their purchases. If all such investors
rescind, the Company would be required to pay up to $5,040,000 ($4,385,000 at
September 30, 1996) plus applicable interest less the amount of income received
thereon. Management believes the amount rescinded by investors will be
immaterial.
7
COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------
Limited Partnerships (Continued)
The Company, as a general partner for the Partnerships, is currently negotiating
transactions with potential buyers of the Utah Plant and Alabama Plant, which is
yet to be constructed or acquired. The Company believes that the sale of the
Utah Plant and Alabama Plant would include (I) a $500,000 sublicensing fee
(which would be paid by the buyer to the Partnership in exchange for the license
of the Briquetting Technology), (ii) a royalty payment to the Partnership based
on per ton amount to be agreed on with the buyer, and (iii) a promissory note
delivered by the buyer in payment of the purchase price, which would be payable
to the Partnership from the cash flow of such plant. The Company and Alabama
Synfuel #1 have entered into a letter of intent with an unregulated subsidiary
of PacifiCorp, a large low-cost electric and telephone utility, to sell the
Alabama Plant to be constructed or acquired by Alabama Synfuel #1, on
substantially the terms listed above. The PacifiCorp transaction is subject to
various conditions and no definitive agreement has been entered into. The
Company and Utah Synfuel #1 have also entered into a letter of intent with
Arthur J. Gallagher & Co., an international insurance brokerage and risk
management services firm, to sell the Utah Plant, to be acquired by Utah Synfuel
#1. The sale is subject to various conditions and no definitive agreement has
been entered into. No assurances can be made that any of the plants being
constructed or acquired by the partnerships will be sold.
Under the organizational documents of the partnerships, the Company is entitled
to distributions from the Partnerships according to the company's percentage
interest in the net distributable cash flow of the Partnerships. The Company may
also enter into loading agreements and operating and maintenance agreements that
would provide for payments directly from the buyer of a plant. The binder
materials used to produce the briquettes will likely be sold to the buyer of a
plant by the Company based on the Company's cost plus an agreed upon percentage
profit.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Explanation of Amendment
The financial statements of the Company for the period ended June 30, 1996 have
been restated to be consistent with certain adjustments made in connection with
the audit of the fiscal year ended September 30, 1996 and to provide a proper
basis of comparison with future financial statements.
Results of Operations
Three months ended June 30, 1996 compared to three months ended June 30, 1995
Revenues
Total revenues decreased by $69,329 to $33,431 for the three months ended June
30, 1996 from the $102,760 reported in the comparable period in 1995. Coal
briquetting sales increased $30,671 from $2,760 to $33,431 and license fees
decreased from $100,000 to $0 for this three month period.
Margins, Costs and Expenses
The Company's operating loss increased in the 1996 period from $469,689 to
$3,444,196 from the comparable period in 1995 due in part to the recognition of
compensation expense on stock options of $1,425,929 and the recognition of
compensation expense on issuance of common stock of $4,500. Selling and, general
and administrative expense increased by $981,641 to $1,368,951 from $387,310
ended in the comparable period in 1995 . This increase is due to the Company's
increase in staff, the related costs associated with licensing and exploiting
the Briquetting Technology and the administration costs associated with the
Geneva briquetting plant. The Company incurred $258,197 for briquetting
operations that did not occur in the comparable 1995 period because the Geneva
plant was not yet operational. Research and development expenses increased
$234,911 from $185,139 to $420,050.
Net Loss
Net loss increased for the three months ended June 30, 1996 by $4,992,541 as
compared to the three months ended June 30, 1995. In addition to the differences
described above, during the three month period ended June 30,1996, the Company
recognized a write down on the note receivable from the sale of its subsidiaries
of $2,250,000. Discontinued operations was $0 for the three months ended June
30, 1996 compared to a loss of $114,318 for the same period in 1995.
9
Results of Operations
Nine months ended June 30, 1996 compared to nine months ended June 30, 1995
Revenues
Total revenues decreased $75,386 from $112,558 for the nine months ended June
30, 1995 to $37,172 for the comparable period ended June 30, 1996. Revenues from
the sale of Coal Briquettes increased $24,614 to $37,172 compared to $12,558
for the same period ended in 1995. License fees decrease from $100,000 in 1995
to $0 for the comparable period reported in 1996.
Margins, Costs and Expenses
The Company's operating costs increased by $7,683,801 to $9,063,786 for the nine
months ended June 30, 1996 compared to $1,379,985 for the comparable period in
1995. This is due in part to the recognition of compensation expense of
$4,315,798 on stock options and compensation expense on issuance of common stock
of $73,623. The Company incurred $688,523 for briquetting operations that did
not occur in the comparable 1995 period. The Company's research and development
expenditures increased $453,804 or approximately 92% for the nine month's ended
June 30, 1996 as a result of increased expenses relating to the coal and revert
Briquetting Technology, primarily during the first quarter. Selling, general and
administrative expenses increased by $2,152,053 or 242% during the period ended
June 30, 1996 from the comparable period ended June 30, 1995 due to the
Company's increase in staff, the related costs associated with licensing and
exploiting the Briquetting Technology and the administrative costs associated
with the Geneva briquetting plant.
Net Loss
Net loss increased from $1,313,250 in 1995 to $12,370,608 in 1996. The increased
loss is primarily due to the differences as explained above. Additionally, in
the 1996 period the Company recognized a write down on the note receivable from
the sale of its subsidiaries of $2,449,575. The construction companies
contributed a net profit of $28,533 in 1995 and a net loss, including losses
from disposal, of $881,505 in 1996.
Liquidity and Capital Resources
During the nine months ended June 30, 1996, the Company was increasing its
research and development expenditures, increasing its staff and their related
costs, as well as starting up its Geneva plant. As a result the Company's
operating activities used $3,907,451 of cash compared to cash used of $465,919
for the nine months ended June 30, 1995. Expenditures for new property, plant
and equipment increased in the 1996 period to $2,569,530 from $114,526 in the
1995 period. During the 1996 period the Company was making down payments on
equipment to be used in its coal briquetting plants as well as paying for the
onsite engineering costs associated with these plants. The Company was able to
fund this growth through the issuance of common stock.
10
In 1995, the Company made a strategic decision to focus its efforts exclusively
on commercializing the Briquetting Technology and to divest itself of its
construction and limestone subsidiaries ("Subsidiaries"). In September 1995, the
Board of Directors approved a plan to dispose of the Company's construction and
limestone businesses. Accordingly, on February 1, 1996, the Company entered into
a Stock Purchase Agreement (the Agreement) with former principals of IME, State,
CIC and Larson (Buyers) to sell all of the common shares of the subsidiaries to
the Buyers for a $5,000,000 face value 6% promissory note (the Note). Under the
terms of the Agreement, the Company agreed to pay off $3,500,000 of accounts
payable and lines of credit outstanding in the subsidiaries. One of the Buyers
is the son of a director of the Company at the time of the transaction. The Note
is collateralized by 100,000 shares of the Company's common stock owned by the
Buyers and held by the Company, 100,000 shares of the Company's common stock
committed by the Buyers to be provided to the Company, and personal guarantees
of the Buyers. Because the Note includes a favorable interest rate for the
Buyers, the Company has calculated the present value of the Note using a market
rate of 10.25% over the term of the Note. The effect of discounting the Note at
10.25% is to reduce the Note to $4,349,575 as of the date of the Agreement. The
discount on the Note was included in the estimated loss on disposal of
discontinued operations.
Because the Note is collateralized by the Company's common stock, the Note is
reflected in the consolidated financial statements as a reduction to
stockholders' equity (or an increase in the stockholders' deficit).
Additionally, the Note is adjusted to reflect subsequent increases or decreases
in the fair value of the Company's stock held as collateral. Because of a
decrease in the trading price of the Company's common stock subsequent to the
date of the Agreement, an allowance of approximately $2,449,575 is reflected in
the Company's consolidated financial statements as of June 30, 1996. Subsequent
changes in the value of the collateral will be reflected in the consolidated
statement of operations and as an increase or decrease to the Note.
The result of the construction and limestone operations have been classified as
discontinued operations for all periods presented in the Consolidated Statements
of Operations. The assets and liabilities of the discontinued operations have
been classified in the Consolidated Balance Sheets as "Net assets discontinued
operations." Discontinued operations have also been segregated for all periods
presented in the Consolidated Statements of Cash Flows.
The Company is in the process of restarting its Geneva plant to produce revert
briquettes for Geneva according to specifications supplied by Geneva. Cash flows
from operations, principally the gross profit from sales to Geneva under the
Geneva agreement, the licensing of Briquetting Technology to third parties and
cash payments under the Greystone agreement, are expected to fund working
capital needs for approximately eighteen months, excluding the capital required
to exploit the Briquetting Technology.
The Company is presently offering units of the Company's common stock to
accredited investors at a purchase price of $71.50 per unit in amounts of
$100,000 or greater. A unit consists of five shares of restricted common stock
and one A warrant with an exercise price of $25.00, one B warrant with an
exercise price of $30.00 and one C warrant with an exercise price of $35.00.
Such offering is only made by means of an offering memorandum and statements
related to such offering herein are neither offers to sell nor solicitations of
offers to buy. During the three month period ended March 31, 1996, the Company
raised $3,244,237 in this private placement of common stock and is also
11
exploring various sources of working capital to fund the exploitation of the
Briquetting Technology over the next 18 months, including additional private or
public offerings of equity or debt securities and the outright sale of the coal
agglomeration plants to third parties.
In May, 1995, the Company secured financing in the form of an $825,000 master
equipment lease funded by a commercial bank to equip its initial briquetting
plant at Geneva's facilities and simultaneously entered into a lease with Geneva
wherein the Company has the right to operate the facility. The Company has the
option to purchase the equipment from the bank at the end of the lease term.
The Company will be required to obtain significant financing to establish future
commercial briquetting plants, whether directly or through joint venture
partners or licenses.
On December 28, 1995, the Company entered into Design and Construction
Agreements ("Agreements") with an engineering firm to design and build
twenty-two coal fines agglomeration facilities ("Facilities"). As required by
the Agreements the Company has given notice to proceed on the first contract for
a Facility to be located in Utah. The Company has paid the engineering firm an
advance payment of $500,000 on the first Facility. The total cost of the first
Facility is contractually limited to $17,000,000. In the event that the
Agreement is terminated by the Company on the first Facility, a penalty of 6% of
the total cost of the Facility will be payable to the engineering firm. The
terms of the remaining twenty-one Agreements are similar to the first Agreement;
however, the Company did not provide notice to the engineering firm in
accordance with those Agreements. On February 5, 1996, the Company and the
engineering firm amended the remaining Agreements to allow for notice to be
provided to the engineering firm by May 31, 1996. Essentially, for each
Agreement which the Company provides the required notice, the Company will be
obligated for either the total cost of the Facility if built (not to exceed
$17,000,000), or 6% of the total cost if the Agreement is terminated by the
Company.
As of May 3, 1996, the Company does not have sufficient capital resources
available to implement the Agreements, including the 6% of the total cost of the
facility.
Forward Looking Statements
Statements regarding the Company's expectations as to its liquidity, capital
resources and certain other information presented in this Form 10-Q constitute
forward looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Although the company believes that its
expectations are based on reasonable assumptions within the bounds of its
knowledge of its business and operations, there can be no assurance that actual
results will not differ materially from its expectations.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Those exhibits previously field with the Securities and Exchange Commission as
required by Item 601 of Regulation S-K, are incorporated herein by reference in
accordance with the provisions of Rule 12b-32.
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
There have been no reports on Form 8-K filed during the quarter for which this
report is filed.
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SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 14, 1997
COVOL TECHNOLOGIES, INC.
By: /s/ Brent M. Cook
--------------------------------------
Brent M. Cook, Chief Executive Officer
and President
By: /s/ Stanley M. Kimball
-------------------------------------
Stanley M. Kimball,
Principal Financial Officer
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