UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
February 16, 2000
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Date of Report (Date of earliest event reported)
COVOL TECHNOLOGIES, INC.
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(Exact name of Registrant as specified in its charter)
Delaware 0-27808 87-0547337
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(State or other jurisdiction of (Commission File Number) (IRS Employer
incorporation) Identification No.)
3280 N. Frontage Road
Lehi, UT 84043
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(Address of principal executive offices) (Zip Code)
(801) 768-4481
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name or former address, if changed since last report.)
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Certain statements in this Report constitute forward looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. As such,
actual results may vary materially from current expectations. For a discussion
of certain of the factors that could cause actual results to differ from
expectations, please see the information set forth under the caption entitled
"Forward Looking Statements" in PART I, ITEM 2 of Covol's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1999. 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.
Item 5. Other Events - Letter to Stockholders dated February 16, 2000
Covol sent to its stockholders the following letter dated February 16, 2000. The
letter was first mailed to stockholders on or about February 18, 2000.
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Dear Fellow Shareholders:
In advance of Covol's February shareholder meeting we wanted to take the
opportunity to summarize the activities and material changes that have occurred
at Covol over the last year and particularly the last few months. A great deal
of progress has been made in a number of areas.
Facility Sales
In 1998, the Company built four synthetic fuel facilities financed with short
term debt. The debt increased Covol's financial risk and required cash to pay
the interest expense. Operating the facilities required additional funds and
corresponding borrowings. Three facilities have now been sold, eliminating the
debt and the negative cash flows associated with them. We are currently
negotiating the sale of the fourth facility. In addition, we acquired an option
to purchase a facility and we sold the option to a major electric utility
company, resulting in substantial gain to the Company.
Licensee Performance
We are working with our licensees to
[GRAPH] improve their production and sales of
synthetic fuel. Many of the
operational issues with the
Mar-99 is 143,000 facilities have been addressed and we
Jun-99 is 296,000 are making real progress. This
Sep-99 is 471,000 progress is reflected by the
Dec-99 is 560,000 increased sales of synthetic fuel
which is illustrated in the
Estimated Tons of Synthetic Fuel Sold accompanying graph.
Further evidence of the improved
performance of Covol's licensees is
reflected in the increased purchase [GRAPH]
of wet pounds of chemical binder for
the most recent four quarters. Jan-Mar '99 is 746,000
Apr-Jun '99 is 693,000
There are still licensee issues that Jul-Sep '99 is 1,728,000
the Company must address in the Oct-Dec '99 is 2,458,000
coming months. Clearly, the trend is
positive, but we must remain diligent
in order to realize the value Estimated Wet Binder Pounds
inherent in Covol's synthetic fuel
technology.
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Operating Costs
During the past year Covol has
reduced its operating costs. We have
eliminated activities that do not
[GRAPH] generate revenue, reduced corporate
head count, implemented budgeting and
purchase order systems, and
established management accountability
12/31/98 was $4,737,000 for expenditures. Comparing the
quarter ended December 31, 1998 with
12/31/99 was $2,547,000 the quarter ended December 31, 1999,
the Company has reduced its operating
costs by approximately $1,700,000 per
Quarterly Expenditures-Operating Costs quarter. The sale of Company owned
facilities during late 1999 and early
2000 will further reduce operating
costs.
Debt Structure
Including $9.2 million of debt
associated with the Mountaineer
facility, Covol will have retired
approximately $34.5 million in debt
over the last twelve months. The debt
retirement has substantially lowered
the Company's financial risk. There
are three primary remaining material [GRAPH]
non-operating debt obligations:
First, an obligation of approximately
$12 million maturing in September 6/31/1999 is $43,100,000
2001; second, an obligation of $3
million due on April 30, 2000 and 3/31/2000 is $17,000,000
third, an obligation of $1.96 million
due on October 31, 2000. The Company
has established a sinking fund to Debt Levels
accumulate cash to retire a
substantial portion or all of the $12
million obligation. We believe that
the April and October 2000
obligations can be paid from cash
flow from operations.
Dilution
The dilution of shareholder interests that occurred in 1999 was very painful to
every shareholder. Because of the negative cash flows, high debt, and tenuous
operating performance, additional capital provided to Covol was very expensive.
The financing transactions were dilutive, but they preserved the Company.
In response to the dilution, we have adopted a three step program:
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1. As we have been able to implement our turn around plan, we have been
able to redeem a portion of the dilutive convertible debentures. This
transaction reduced the shares that may have been freely traded by 4.4
million;
2. We have adopted a stock redemption/buy back program to further reduce
the dilution, setting specific goals regarding the number of shares
that we would like to eliminate from the float. The implementation of
this plan is dependent upon receiving approval from Covol's major
lender and having adequate and available cash; and
3. The Company is considering proposing to the holders of Covol's options
and warrants a reduction in the number of shares into which their
options/warrants will convert in exchange for a market value strike
price. While this will make it more likely that formerly high priced
options and warrants will be exercised, this action could potentially
reduce the public float by an additional several million shares.
The Future
We are aggressively pursuing the final two goals mentioned in our 1999 annual
report. First, we are experiencing an increase in our synthetic fuel and binder
sales. Our effort is to continue to provide support to our licensees and be a
positive factor in the synthetic fuel industry. We have a long way to go to
maximize our royalty revenue; it is a constant focus for management.
Second, we are actively seeking additional business opportunities to use Covol's
existing technology or for the acquisition of new technologies. While these
initiatives are in the early stages, we believe there are opportunities for
growth and expansion of Covol's business activities.
We are developing economic value added ("EVA") as a measurement to determine the
effectiveness of management, provide incentive compensation, evaluate investment
alternatives, and to align the interests of management and shareholders. Some
believe that EVA has the strongest correlation of any measurement tool between
stock performance and company performance. Of all financial measures, it may
best explain the creation of shareholder value. Ultimately, increasing
shareholder value is management's goal.
In many ways, Covol is at a turning point in its development. We are pleased at
the progress that has been made over the last year and look forward to working
with you in the future. We solicit your continued support and encourage you to
vote in favor of the proposals in the current proxy. They are critical to the
continued success that we are now beginning to realize. If you attend the
Shareholders' meeting, we look forward to discussing with you in person Covol's
issues and its future.
Kirk A. Benson
Chairman,
Chief Executive Officer
Statements contained in the shareholder letter that relates to future plans,
possible transactions, or projected valuations are forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, including any
statement with respect to anticipated products to be produced using Covol's
technology and Covol's strategy. Such statements are subject to risks and
uncertainties that could cause actual results to differ materially. Although
Covol believes that its expectations are based on reasonable assumptions, there
are a number of business factors which singularly or combined may affect the
Company's future operating results. 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: the
ability to successfully negotiate terms and consummate proposed transactions,
ability to sell Company-owned synthetic fuel facilities on favorable terms,
including the ability to negotiate settlements of contract terminations caused
by facility relocations, ability to obtain necessary capital or financing,
ability to comply with covenants in financing agreements, including financial
performance criteria, ability to conserve capital through cost reductions until
operating revenues exceed expenses, ability of licensees to market synthetic
fuel produced, generating royalties for Covol, ability of licensees to achieve
expected production levels at the synthetic fuel facilities, favorable IRS tax
treatment, availability of natural
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resources and suitable raw materials, ability to locate appropriate sites for
facilities, ability of Covol to complete specific research and development
projects, and the commercial viability of Covol's technologies.
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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 hereunto duly authorized.
COVOL TECHNOLOGIES, INC.
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Registrant
Date: February 22, 2000 /s/ Kirk A. Benson
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Kirk A. Benson
Chief Executive Officer and
Principal Executive Officer
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